Peppered throughout the rest of the January 5, column were statements about falling crude oil and metal prices and the fact the CRB index of 19 commodities had fallen to its lowest level since February, '05. There were also forecasts from several Wall Street analysts that said, "the weakness seen with the leading commodity indices is certain to weigh on US stocks as well." The outlook for most markets looked bearish in early '07, as bond prices were on their highs while stocks and commodities seemed vulnerable to severe weakness.

Near the end of my New Year column, I stated, "At the very least, the fist half of '07, is going to be bearish for stocks and commodities and those unable to respect the bear psychology now gripping the markets will have their work cut out for them if they wish to make money. An inverted yield curve, the slow down in the US housing industry and the slump in the manufacturing sector of the economy will reward those selling rallies, not buying breaks." With the benefit of hindsight, it is clear that such a forecast was wrong because bond prices have dropped sharply since January while stocks and commodities have been historically strong by any measure.

When the January 5, column was written, Treasury bond prices were near 113 but this week fell under 106. The Dow Jones in early January, was 12700 but only five days ago hit a new all time high of 13700. And the CRB that was 385 in the opening days of the year came within a few hundred points of an all time high also five days ago. Since my New Year column was written, bond prices have dropped sharply while stocks and commodity values have improved so strongly that both are, for all intents and purposes, at their best levels in all history.

All this may be difficult to follow but here is my spin on the events of the past six months. Stocks, bonds and commodities today, are a near image of where they were in January. Bond prices are now on their lows and far off the best levels of the year. Stocks and commodities, though both took a hit the past few days, were at all time historic highs only a week ago. The bond market now appears very bearish while stocks and commodities continue to look positive and far above the levels of early January. All three markets did, however, slip badly when a rising tide of interest rates across the globe pressured values. The European Central Banks, the New Zealand banks and South African banks all hiked rates. China has been hiking rates for over a year. Expanding economic growth in Asia and Europe and insatiable demand for raw materials are forces pushing central bankers to a tighter monetary policies. And historically, higher rates is not bullish for stocks, bonds or commodities and consequently, the week ended on a sour note with more pain likely.

Near the end of my January 5, column I offered this forecast, "it is in the 2nd half of '07, when things should rapidly change direction as the Fed begins lowering rates to support the economy. Lower rates will help depress the US dollar and set the stage for many markets to rebound. In the 2nd half of the year the markets that should do quite well are bonds and the agricultural commodity markets. The markets that will still be at risk, however, will be US stocks and the metal markets."

If interest rates continue to rise in the US, stocks and the metal markets will be ravaged. The agricultural commodity markets will be more concerned with weather this growing season than with rates. But understand clearly. The reason central banks including the Federal Reserve hike rates is to slow economic growth and to fight inflation. Such a policy is bearish plain and simple. Keep that in mind.