This column was originally published on RealMoney on Jan. 9 at 10:05 a.m. EST. It's being republished as a bonus for TheStreet.com readers. For more information about subscribing to RealMoney, please click here .

Michael Jackson and the late Steve Irwin both might have appreciated the showmanship exhibited by various commodity markets last week. Dangle the innocent in front of danger and people take notice, albeit simplistically and not always correctly.

As I promised in a Columnist Conversation post last week, let's review the relationship between various commodity prices and selected financial markets, emerging markets in particular.

First, it's interesting to note that I addressed a similar concern in mid-October after a similar downturn in commodity markets. The concern then was that declining copper prices were signaling the demise of the global economy and, while we were at it, death and destruction in financial markets.

That column was penned using data through Oct. 13, 2006. Copper prices have declined 24.79% since that time, while the total return on the Morgan Stanley World index was 6.1345% in dollar terms.

Anyone who based their economic outlook or, worse, investment plan on copper prices reaped the just desserts of their own intellectual carelessness, and sloth to boot. While copper declined sharply, aluminum was barely down over the period and other key industrial metals such as lead, tin, nickel and zinc all rose in price. Once again, it is a market of commodities, not a commodities market.


Click here for larger image.
Source: Bloomberg, Howard Simons

Impact on Emerging Markets

Now let's turn our attention to the question of whether a downtrend in commodity prices will negatively affect the performance of emerging markets as measured by the Morgan Stanley Emerging Markets Free index. Over the past 20 years, this index has had two prolonged periods of outperformance against both the World index and the Europe, Australasia and Far East (EAFE) index, all expressed in dollar terms. The first ended in late 1994; the second is ongoing still.

At the end of the holding period, an American investor able to withstand the volatility inherent in the Morgan Stanley Emerging Markets Free index would have been well-rewarded in comparison to the alternatives.


Click here for larger image.
Source: Bloomberg, Howard Simons

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