U.S. Consumer Prices Jump by Largest Amount in Three Decades; Fannie Mae & Freddie Mac's Combined $5.2 Trillion Get a Government Bail Out; Global Investors Overweight in U.S. Stock; Indeces Weak Around the Globe

MWF (Friday) Briefing:

U.S. Consumer prices jumped in June by the largest amount in about thirty years, according to a report from the U.S. Bureau of Labor Statistics. Energy and food prices led in price hikes.

Energy prices surged 6.6% in June, according to the government report, while food costs went up 1%. Energy costs are growing at a seasonally adjusted annual rate of 53.6%, and food prices are rising at 8.5%.

Oil and food prices most likely will remain high and volatile as low inventories and capacity margins should persist according to the International Monetary Fund says in its latest World Economic Outlook.  Oil production should remain flat, due to to insufficient new capacity and production declines in existing fields. For food commodities rising biofuels production and continued net demand from emerging economies should continue to exert pressure on some prices.

• Global investors overweight U.S. stocks.  Naked Capitalism

• At the beginning of this week, Treasury Secretary Hank Paulson stood on his department’s steps unveiling an emergency plan to save Fannie Mae and Freddie Mac, two mortgage giants that owe or guarantee $5.2 trillion. Economist

• After peaking just below 50 in January, the P/E ratio (trailing 12-month) of China's Shanghai Composite index is now at 20.95. Since China has long been considered an emerging market with high growth potential, it has historically had a high P/E ratio (average 36). However, a P/E of 20 is not unfamiliar territory for the index.  Back in mid '05, the P/E got all the way down to 16.39 just before the historic rise in the index over the next few years. Bespoke

•  click graph to enlarge.  Recent price surges in food commodities reflect a confluence of factors. Demand growth has generally outstripped supply growth for many food commodities over the past 8–10 years, notably grains and edible oils. Upward pressure on prices has been strongly reinforced by a number of developments since 2006: 1) Unfavorable weather conditions; 2) Rising biofuel production; 3) The rise in oil prices and energy prices; 4)The growing use of export restrictions.