(8-11-08) Commodity prices continue to fall back, while equities
(stocks) continue to rise. Why? There are several factors which should
be mentioned in order to understand how a brand new speculative bubble
in the stock market has been created. The recent rally in the equities
can be tied to the bogus rally in the dollar which has exerted
downward pressure on commodity prices. This is then being construed as
an immediate bullish factor for the equities, when in reality, it is
not bullish at all. In the immediate sense, we see that the energy and
commodity stock indexes have exerted downward pressure within the
larger equity indices.

It is being construed as bullish because typically lower commodity
prices mean lower costs and thus increased corporate profits. It
should be remembered, however, that it took several quarters of the
commodity rally to really begin to weigh on corporate earnings. The
effects of cheaper commodity prices will not be felt in higher
corporate earnings for at least another two quarters.