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By Tim Seymour

With regard to a topic that could be discussed at great length beyond this forum, I would at least like to scratch the surface of a concept I think many investors (including me) are having trouble with. I am having trouble dealing with the concept of investment allocation in a world where commodity prices seem to be signaling one thing, but measures of risk say another.

Is global growth collapsing or is the world healing slowly, with strong pockets of real growth in key parts of the global economy? Is the move to all-time highs in global equity markets just a reallocation into more efficient growth, away from oversupplied commodity markets? I have not adapted my investment views to a world where lower commodity prices do not equate to pending disaster or growth implosion. I often write about deflationary forces of the asset bubble popping and the Fed policy complications to recovery.

I believe we are living in a world where the pressure on prices for most things (except, of course, daily "stuff" we seem to consume) is going lower. But if you look at the Commodity Index, it is down 20% in the last 24 months. Most people have reacted as if this is telling us something grave about the world.

Meanwhile, in the last 12 months global equities are +11% and commodities are -7%. Yet people seem confused that this is even possible. At the end of the day, while we are not surfing the wave of the commodity super-cycle go-go days, there is still major demand for copper, ore, steel, and other core commodities.

What is different is that this phase of global growth is not as China-led nor is it as commodity-intensive -- these are positive structural shifts in the global economy. For many of us in emerging markets, this has all been a head-scratcher as stocks are massively underperforming despite conditions that emerging markets should generally love: low inflation, falling rates, and consumption growth, albeit slower than it was pre-crisis.

We all may need to adjust our thinking if we have not already done so to stay the course on fundamentals, and to not be expecting the next May/June disaster for emerging markets.

Source: It's Just Not As Easy As Saying, 'Risk On' Or 'Risk Off'