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At least as of this writing, there appears to be a slight macroeconomic letdown facing the markets. While it would seem like the US is continuing to fight its way back toward growth, the pace of that return might be somewhat less than what was built into most commodity markets in early January. Even the global recovery effort seems to be a little disappointing, especially with China applying a number indirect tightening moves over the last three weeks. However, we think the tightening moves are eventually going to be a very positive development, as they should reduce the threat of runaway inflation that could bring forth overly aggressive policy action. While many well-known analysts have recently fretted over the prospect that the Chinese economy is simply a bubble poised to pop or that growth in China isn’t entrenched, we think it’s a telling sign that the Chinese authorities are confident enough in their forward progress to step up and purposely slow economic activity.

As for commodity prices, many of them also seem to have gotten slightly ahead of the curve with global growth expectations clearly running ahead of reality in the first 15 days of January. With the added influence of a bounce in the US Dollar off the January lows, even the currency market’s influence has turned a little negative. However, in the end there is no reason to think that the established uptrend pattern in commodities is destined to end, and from our perspective there doesn’t appear to be a sign that the investment interest for commodities is going to wane.

Certainly there is some disappointment on the pace of the improvement in US payrolls, but one has to look at most events of the last 45 days as generally indicative of a migration away from the truly historic financial threats facing the US. While some might discount the news of the $51 billion annual profit posted by the US Federal Reserve in 2009 as a drop in the bucket for US debt, it should also be noted that US Treasury supply has been taken down very easily in periodic auctions and that the most recent capital flows report showed that foreigners remained very keen to invest in the US. With US banks healing quickly off very advantageous yield curve windfalls, they could soon become flush with enough cash to begin to take on more loan risk. Therefore, we assume a short term corrective view on most physical commodity markets, but the length and the duration of the slide might not be as significant as the bears would hope. Clearly the grain markers are given an added measure of vulnerability by the surprise upward adjustment in US corn yields and the widespread expectation of massive soybean supply from South America, but it is also clear that demand is going to remain strong and that lofty ending stocks forecasts will eventually be seen as overly optimistic. Going into the end of January we give the bears a distinct edge, but in markets like sugar, orange juice, copper, and unleaded gasoline noted near-term liquidation should be viewed an opportunity to buy into an ongoing bull trend.