Few people are more bullish about US equities than Richard Bernstein. The former Merrill Lynch Chief Equity Strategist is taking a fairly contrarian perspective on the global economy when he says that the bigger risks lie in emerging markets and not in the USA. In particular, Bernstein says that commodities are currently a sell due to their correlation with emerging market strength. In a recent note he wrote: (Via RBA):
“In an April commentary in the Financial Times (http://www.rballc.com/pdf/EMCentralBanksDoingFedDirtyWork.pdf), we argued that non-US central banks were effectively doing the Fed’s dirty work, and that non-US central banks’ tightening of their monetary policies would lead to lower commodity prices. We still feel that this is one of the dominant themes in markets today.
The Fed’s policies were not to blame for this year’s increase in commodity prices. The emerging markets have been the incremental demanders of commodities for many years, and their on-going credit bubbles (monetary growth in the BRIC nations is between 15% and 30%) fueled the surge in the demand for commodities. Commodity prices rose as a result during the first half of the year.
However, emerging market monetary policies have decidedly changed from promoting growth to constraining growth. As their monetary policies take hold, and we have no reason to believe that those policies won’t be effective, the probability should increase that commodity prices will fall.
In fact, this seems to already be happening. Chart 2 shows that all the major commodity indices were down between 4% and 8% during the second quarter.”