The continued drop in commodity prices raised fears in the financial markets that global growth was slowing to a crawl. The result?  Bond prices rose while stock prices fell.

It is clear that there is overproduction relative to demand in most commodities. This is highlighted by energy. Prices continued to decline last week. Each commodity has its own dynamic but in virtually all cases production is increasing year over year at a rate surpassing demand growth. 

The key takeaway is demand and production are increasing. Major producers are finally cutting back production to levels equal to or beneath demand growth so that inventory levels stabilize or actually decline which is a prerequisite for pricing power moving forward. It will take time and patience. 

Unfortunately, there is a lot of speculation in the commodity markets and continued weakness in prices initially led to margin calls and now outright liquidation. Markets typically move too far each way. Fear of a further collapse in the commodity markets has spilled over into other financial markets, creating opportunities for investors who have been patient and maintained their liquidity.

I have stated that lack of or no growth was my biggest fear. But let's put all of this in perspective: the U.S. economy is improving led by the consumer; China reported 7.0 percent growth last quarter and its stock market has rebounded of late; Greece is settled, at least for now, lifting a big cloud over Europe which will lead to renewed growth; Japan is doing fine led by exports; India is continuing to accelerate and will grow over 7 percent this year however many third world countries are suffering. The world is growing over 3.0 percent this year which may be less than in the past. Global growth should improve in 2016, too.

Don't forget that the drop in oil prices recently from $60 dollars per barrel to around $48 per barrel will boost consumer disposable income around the world and lower inflationary expectations boosting bond prices from what they otherwise would be at this point in the economic cycle. Beside the consumer, the drop in energy and other commodity prices are good for corporate margins in the aggregate but of course not for the commodity producers themselves.  

By the way, we added to our energy shorts after it appeared that a deal would be reached with Iran, which we discussed in previous pieces. It was an easy call. Over 70 percent of companies reporting so far have exceeded their forecasts for the second quarter and maintained or raised numbers for the year. Not too bad.

Rather than reviewing events by region as we have done in the past, I'd like to review my core beliefs and see if there are any changes that may influence my investment policy:

1. Monetary policy remains easy virtually everywhere and the supply of funds is exceeding the demand for funds, which is favorable for financial assets. It is clear that the Fed is on hold until year-end or early 2016 at the earliest removing an immediate concern in the marketplace.

2. The dollar has remained the currency of choice, which may impede U.S. economic growth but also lowers inflationary expectations. Positive capital flows from abroad continue to reduce our interest rates from what otherwise they would be.

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