My thesis for multiple years has been based on a global growth story. The U.S. has been a very weak economy for over a decade. If you extract the benefits of the housing ATM U.S. GDP has averaged just over 1% for the past decade. But stock prices doubled after the 2002 bear market ended on incredible growth from abroad. The growth was most apparent in commodities. Particularly oil. After a brief stop at the $20 level oil went ballistic for 6.5 years and got as high as $147. But oil has fallen over 70% as global growth has slowed dramatically.
It has long been my premise that China was the growth engine of the previous bull market and will likely be the growth engine of any future bull market. The Chinese equity market appears to be troughing and given its high correlation with commodity markets we should expect to see any more higher in Chinese stocks to be followed by a move higher in commodities. Some will view this as a sign that global economy is recovering and while that might be partially true it’s important that we recognize how fragmented the world has become. While the USA and Europe struggle through balance sheet recession we are likely to see better growth in emerging markets. I would expect commodity prices and oil prices to track these markets higher.