Last time I checked, the price of soybeans, cocoa or orange juice had absolutely no relationship to whether Microsoft (Nasdaq: MSFT), Disney (NYSE: DIS), or Google (Nasdaq: GOOG) declined in price.

But these days, we’ve got a serious blurring of the lines between global marketplaces. In addition, the prevalence and ease of electronic trading, coupled with well-capitalized hedge funds, means we’re seeing all kinds of different markets having an affect on one another.

Not so long ago, it used to be that money typically flowed from one asset class to another – for example, from stocks to commodities. But that isn’t happening now as most players have either bailed out of everything completely, or are selling assets to meet margin calls.

For commodity-watchers like me, I’ve looked on in surprise (as well as a little frustration) as commodities head the same way as stocks and pickings are slim. All the different commodities have suffered a hammering over the past few months, as the stock market’s mess spills over.

The selling wave has taken all the major commodities to new lows for the year, with most markets giving back all their gains for 2008 and more. Let’s see if we can pinpoint the next moves…

Oil’s Slippery Downward Slope… Have We Hit Support?

There’s no question that the oil has dominated the commodity headlines this year, topping out at $147 a barrel back in July.

But somewhat quietly amid the financial crisis, stock market slump, and bailout talk, oil has bounced down to around $60 a barrel. In turn, this has resulted in gasoline prices declining to the $2 a gallon level.

Although there might be more downside to come, it seems we may have hit a temporary support area here.

Natural Gas Could Be Nearing A Bottom… But We Need More Evidence

Oil’s partner in crime – natural gas – has also endured a vicious selloff. Having topped out in July, it’s given up just as much ground as crude oil, with the December 2008 futures contract dropping a solid 8100 points from top-to-bottom. That’s a whopping $81,000 change in equity.

Like crude oil, natural gas seems to have found a temporary support level as prices have consolidated a bit over the past two weeks and remained in the same area. In order to feel confident about a support level, prices have to tread water for a while without giving up more ground. We’re going to watch the price action for a while, but we could be getting near a bottom here.

Even The Safe Havens Are On Shaky Foundations

Ask most folks to name which markets are usually the beneficiaries of an unstable financial market… and you’ll likely get the resounding answer: “Gold and silver.”

Nine times out of ten, they’d be right. But not today. Even amid the economic turmoil, the safe haven hard asset metals can’t muster up any bullish action.

Sure, they got caught up in the bullish frenzy over the summer, just like the other markets. But when the music stopped, investors decided to bail out of the metals, too.

However, take a look at the charts and you can see that they’ve joined oil and natural gas in trying to establish some support. We can see evidence of this in the fact that neither metal has made a new low over the past two weeks. If the stock markets can find their footing here, then the metals may move up just the same.

As you can see, the December silver futures currently sit at $10.40 an ounce, while the December gold futures are trading around $753 an ounce – a far cry from their highs this year of $19.70 an ounce and $1,000 an ounce respectively.

If the market feels confident that the Federal Reserve’s bailout plan will work, investors could start dipping their toes into the long side of the market. If so, that could result in gold and silver moving higher. Until that happens, however, remain cautious, as it doesn’t take much for widespread selling to rear its ugly head again.

It seems that “support” is the word of the moment for the commodities sector. The rest of the markets (corn, wheat, soybeans, coffee, cocoa, sugar, orange juice, and cotton) are all trying to find a foothold and establish some support.

Having been torn apart in the nasty selloff over the past few months, though, it may take some time.

Source:The Commodities Buzzword Of The Moment: Support

The report by economist Albert Keidel of the Carnegie Endowment for International Peace said China’s rapid growth is driven by domestic demand more than exports, and will sustain high single-digit growth rates well into the 21st century.

“China’s economic performance clearly is no flash in the pan,” Keidel writes.

“Its growth this decade has averaged more than 10 percent a year and is still going strong in the first half of 2008. Because its success in recent decades has not been export-led but driven by domestic demand, its rapid growth can continue well into the 21st century, unfettered by world market limitation.”

China is still flying in the face the global economic slowdown. Retail sales there soared 21.6% year on year in May, despite a devastating earthquake and stock market slump. Exports for the same month surged 28.1%, even as demand in major western markets faltered.

“The export statistics are serving as evidence of an economic theory known as ‘decoupling,’”, writes Jason Simpkins in Money Morning, “in which emerging markets in Asia and Europe have developed enough market place muscle to no longer be dependent on the U.S. economy for growth”. He continues:

And ‘decoupled’ markets can survive – and even thrive – even if the United States were to spiral down into a recession.

The report ’suggests that those saying that exports are collapsing are wrong,’ Stephen Green, head of China research at Standard Chartered Bank PLC in Shanghai, said in a report.

Trade did grow with the more mature economies of the West. But China got its biggest boost from such emerging markets as India. Two-way trade with India increased by 70% in the first five months of 2008, the fastest rate of growth among China’s Top 10 trading partners.

China is also forging stronger ties with Latin America. In 2004, Chinese President Hu Jintao predicted that Sino-Latin American trade would reach $100 billion by 2010.

In reality, it reached $102.6 billion in 2007, surging 42% from the year before.

The fact that Chinese exports have more than weathered the global financial storm is a huge blow for critics who had earlier predicted this credit-related mess would cause China to stumble.

China’s economy grew by 10.6% in the first quarter of 2008, despite complications stemming from the U.S. credit crunch, the Chinese New Year and the worst ice storm the country had seen in decades.

‘We have a lot of evidence to support the decoupling view,’ Timothy Bond, Merrill Lynch & Co. Inc.’s (MER) chief Asia economist, said in a research note.

Indeed, the recent surge in exports is proof that China will continue to advance – with all but a complete collapse of the U.S. economy. The growth in sales overseas sales, regardless of what happens in the United States, but they also proved that Chinese trade isn’t dependent on the weakness of the yuan.

For years, the United States and other Western powers have claimed that China has kept its currency, the yuan, artificially low to boost exports. But the yuan gained more than 10% on the dollar in the year through May, and still exports surged.

In the past year in fact, even with the freefalling dollar, China’s trade surplus with the United States has grown from $12.6 billion to$14.3 billion, a gain of 13%. And the fact that exports are accelerating along with the value of the yuan will give China’s central bank some latitude in dealing with inflation.

‘Robust export growth could dispel domestic concerns that a stronger yuan is hurting exports too much,’ Gene Ma, head economist at China Economic Monitor, told BBC News.

The yuan has appreciated 5% against the dollar so far this year, making Chinese goods more expensive in foreign markets. At its current rate, the yuan will almost certainly improve on the mere 7% gain it posted against the dollar last year. And that will help China control inflation and shift from what its central bank called ‘heated’ growth to a more-sustainable economic expansion.

In fact, the effects of a stronger yuan already can be seen. Consumer inflation slowed to 7.7% in May from 8.5% the month prior, two government officials said Tuesday, citing statistics bureau data.

‘Inflation has peaked, at least temporarily,’ Ben Simpfendorfer, a currency strategist at Royal Bank of Scotland in Hong Kong, told Bloomberg. ‘Pork prices have stabilized to some extent. Vegetable prices certainly have.’

Food costs account for 34% of China’s consumer price index, and growth in agricultural prices slowed to 19.3% in May from 24.2% a month earlier, according to the Ministry of Agriculture.

Furthermore, the recent surge in oil prices probably won’t affect China’s consumer prices because of generous government subsidies. The government can afford to subsidize the price of fuel and is likely to continue to do so, Mark Williams, an economist at Capital Economics Ltd., said in a recent report.

‘Even if international oil prices remained at their current levels, the total net subsidy bill for the year would probably amount to less than half of one percent of GDP,’ Williams wrote in a June 5 report. ‘The costs of keeping prices down are still manageable given the strength of China’s state sector. Officials are wary of anything that could raise inflation expectations.’

And even though as producer prices climbed an astonishing 8.2% in May, inflation could still recede in the second half of the year – in part because figures will be compared with prices from last year when food prices soared uncontrollably.

‘The worst is behind us now,’ Paul Tang, an economist with the Bank of East Asia Ltd. (OTC ADR: BKEAY) in Hong Kong, told Bloomberg. ‘The question is more about at what pace the improvement is going to be realized in coming months.’

The best way to invest in China is ‘Chimerica stocks’ says Tom Dyson…

Chimerica stocks are Chinese companies. They do business in China, with Chinese management, Chinese employees, and Chinese currency. They make products for Chinese consumers.

Take China 3C for example. It’s the Chinese equivalent of Best Buy. China 3C sells consumer electronics from more than 600 stores in Eastern China. Or take Origin Agritech. It’s China’s equivalent of Monsanto. It produces genetically altered crop seeds like corn, cotton, canola, and rice. Both of these companies trade on stock exchanges in New York. China 3C’s stock symbol is CHCG. Origin’s stock symbol is SEED.

Chimerica stocks list in the U.S. because they can’t list in China or Hong Kong. “Going public” in China takes about three years. But in America, it only takes about six months. According to Barron’s, “Even now, for every company that goes public [in China] there are probably a hundred in the queue, and a lot of companies want money sooner rather than later.”

A shell company is a stock without a business. The business has no assets or operations, but it still has a name and a stock symbol. To list in America, Chinese companies find an American shell company and back themselves in. Lawyers call this a “reverse merger.”

Take United National Film Corporation. It stopped doing business in 2001 and became an empty shell. In 2007, United National Film Corporation “merged” with a company that makes turbines for Chinese power plants. Now this company’s name is Wuhan General Group and it trades under the symbol WUHN.

Chimerica stocks are the best way to invest directly in China. According to Barron’s, they sell for an average 10 times earnings. The price-to-earnings ratio of the Shanghai Composite – China’s main stock exchange – is 27. Chimerica stocks are cheap because Chinese investors cannot open brokerage accounts in the United States to buy these stocks. American investors don’t know about them. Analysts don’t cover them.

Another bonus: Because Chimerica stocks list on American stock exchanges, they must report their results in English, follow standard American accounting regulations, and comply with SEC rules.

There are about 100 Chimerica stocks. They range in market cap from a few million to a few billion. There’s no official record of Chimerica stocks, but I put together this list of the ones I know about.

I’m not ready to invest in China right now. The Chinese stock market is down 44% from its highs in October 2007 and is still in a downtrend. When the market turns around – which should happen later this year – I’ll pick my China investments from this list…

If you’d like to hear more about Chimerica – and other great ways to invest worldwide – consider coming on board to my International Strategist newsletter. One of my favorite ideas right now is “Commonwealth Shares.” Click here to learn more about them.

“This place is one big construction site,” Fitz-Gerald said. “You cannot turn around without finding scaffolding, piles of materials, construction equipment and the like [no matter where you look] here.”

With the U.S. economy suffering its worst downturn in years, and China’s stocks down more than 40% in the past six months, the bustle of construction-related activity in this Asian giant seems incongruous – if not downright contradictory.

Surprisingly, it’s neither. This divergence between China’s ailing stock market and its still-spunky economy is an early manifestation of “economic decoupling” – an emerging trend being fueled by the globalization of worldwide markets.

In fact, China’s ability to maintain its frenetic growth rate of nearly 11% per annum while the U.S. market could well be mired in a recession is yet another example of economic decoupling, says Fitz-Gerald, the investment director for Money Morning who is currently leading a group of investors on a tour of Mainland China.

“Economic decoupling will continue and is accelerating with each passing day,” Fitz-Gerald said in an e-mail interview from China.

But the main point to remember is that economic strength is a function of consumer power – which China has plenty of, with more still to come – whereas stock markets are a function of expectations.

And the amount of new investors in and outside of China blew expectations too high for companies to deliver, especially in the face of a U.S. slowdown.

“Economic strength and stock markets do not have to move simultaneously. In fact, history suggests they don’t. Cycles nearly always reflect underlying economic movement prior to financial markets separating,” Fitz-Gerald said.

A Tough Deal

Not everyone agrees with Fitz-Gerald’s assessment. The broadest of the three key U.S. stock indices – the Standard & Poor’s 500 Index – is down 8.38% in the past six months, although it was down nearly double that before a recent rebound. And the U.S. economy is near – if not actually in – a recession.

Until recently, the U.S. economy was such a key element of the global market that a downturn here made it a near-virtual-certainty that overseas economies would sour and spiral downward – hence the Wall Street adage: “When the U.S. economy sneezes, the rest of the world catches a cold.”

Perhaps no longer. Rich in both commodities and cash, China’s economy continues to advance. But here’s the part that makes decoupling tough to understand: Although the Chinese economy is still growing at a double-digit rate, its benchmark Shanghai Composite Index is down a painful 40.3% in the past six months.

And some of the country’s all-star companies have really taken it on the chin. The past six months, for instance:

• Aluminum Corp. of China Ltd. (ACH) is down 40.65%.
• iShares FTSE/Xinhua China 25 Index ETF (FXI) is down 22.34%.
• PetroChina Co. Ltd. (PTR) is down 40.44%.
• And China Life Insurance Co. Ltd. (LFC) is down 33.75%.

Skeptics of decoupling will argue that China’s index is tanking in lockstep with the U.S. economy. However, Fitz-Gerald, who lives in and around Asia, sees a different story both in the numbers and on the ground.

So what gives?

“Most of [the critics of decoupling] are Anglos sitting in the heart of New York City, never having visited and seen this first hand,” Fitz-Gerald said. “Economic progress here is unstoppable and market slide is temporary.” 

The real answer is that different forces are influencing Chinese stocks and the Chinese economy, meaning the two aren’t always as interlocked as people would like to think.

For a long time, most China stocks were off-limits to foreigners, and even domestic investors faced restrictions on where they could put their cash. As an increasing number of China-based companies went public and made their shares available to both domestic and foreign investors, cash poured into those firms, running their shares up much higher than the company’s underlying value really warranted.

“There is so much capital chasing them that it’s natural they’re going to move,” Fitz-Gerald said.

Granted, some investors who knew when to cash in and pull out made quick fortunes.

But many first-time investors (or first-time China investors) bought Chinese stocks blindly, lost a ton of money, and are now scratching their heads wondering why investment analysts keep talking about China’s vast investment potential.

The major culprits that dragged down China’s indices are stock market linkages between the United States and foreign markets – meaning that currency devaluations and slowing foreign economies (such as China’s major trading partner, the United States) pinched the profits of some Chinese companies – but nowhere near enough to cause a downturn there.

Plus, unlike past emerging-market downturns, there hasn’t been massive “capital flight,” with foreigners taking their money and heading for the safety of their banks at home. China has too much long-term profit potential for foreign investors to give up now.

Besides, even if they did, China has record foreign reserves of $1.68 trillion – more than enough to weather a rainy day in the economy there.

On top of sightseeing, shopping, food, and hospitality well beyond the standard tourist fare, Fitz-Gerald is leading a tour of one or more of China’s stock exchanges. [Fitz-Gerald is also the editor of the New China Trader, an investment newsletter dedicated solely to finding value and profits in China’s red-hot economy].

And although it’s difficult for investors to navigate through the volatile markets, the long-term payoff is worth the pain.

The bottom line is that China is on track for 10% to 12% growth this year – and that’s after China’s government has taken steps to slow the country’s economy down.

“Investors who abandon China now will live to regret their decision,” he said. “Even if the U.S. economy skids into a recession, China will continue to grow for decades to come. And that’s after nearly 30 years of double-digit growth that country has already logged into the history books.