Bear Market in Commodities Isn’t Bullish for Stocks

The Bloomberg reports that commodities have entered a bear market, (bold emphasis mine)

Commodities tumbled into a bear market as U.S. reports on manufacturing, jobless claims and home sales signaled a faltering economy after the Federal Reserve refrained from announcing another round of stimulus.

The Standard & Poor’s GSCI Spot Index of 24 raw materials fell 2.8 percent to settle at 559 at 3:56 p.m. New York time. The gauge has dropped 22 percent from this year’s highest close of 715.52 on Feb. 24, entering a bear market. Earlier, the measure touched 558.14, the lowest since November 2010. Metals and energy led today’s slump.

Manufacturing in the Philadelphia region contracted in June at the fastest pace in almost a year. Existing U.S. home sales fell more than forecast by analysts, and jobless claims topped estimates. Yesterday, the Fed, led by Chairman Ben S. Bernanke, reduced its 2012 forecast for economic growth, and policy makers decided against a third round of debt purchases.

“We got nothing significant from Bernanke, and data continues to paint a horrible picture,” said Steve Mathews, the chief investment officer of Flintlock Capital Asset Management LLC in New York, which manages $105 million of assets. “We have to wait until the next Bernanke event to know if the Fed will indeed do something to perk the economy.”

The GSCI index surged 92 percent from the end of December 2008 to June 2011 as the Fed kept borrowing costs at a record low and bought $2.3 trillion of debt in two rounds of so-called quantitative easing.

Let me put the the news into the proper perspective. Slackening economic developments in the US only aggravates the already existing weak conditions around the world.

As pointed out earlier, China’s markets continue to tumble on fresh accounts of sluggish manufacturing. This in spite of the recent tepid inflationist policies in ‘support’ of China’s economy (it’s really not the economy but the cronies).

Bear market in commodity prices (GTX) has more been consistent with actions of China’s Shanghai index (SSEC) than the US S&P 500 (SPX).

Add to the mix the Euro crisis, dwindling growth of emerging markets and most importantly, the seemingly irresolute or halfhearted central bankers, such as the US Federal Reserve’s miserly extension of Operation Twist, who may be tacitly wishing for a crash to justify their interventions, you’ve got a recipe for a reversal in expectations.

A reversal in expectations will mean bad news IS bad news.

Let me repeat what I have been warning about and what I said yesterday,

If GLOBAL political agents will continue to withhold steroids from the steroid-starved or stimulus-addicted financial markets, expectations will likely reverse soon.

And that reversal could be swift, deep and dramatically violent.

“We got nothing significant from Bernanke” are signs of growing demand for REAL actions and increasing frustrations with current set of political actions. The allure of promises appears to be fading.

This also implies of the possible inflection of market’s expectations on mere pledges and guarantees.

So seen from both the dimensions of consumption or from monetary inflation, a bear market in commodities cannot be bullish on (steroid dependent) global equities (including the Phisix).

Be very careful out there.