The developed world is still caught in a low growth environment. However, with interest rates at record lows and the risk-free rate of return at an even absurdly low level, stocks are being bid up by investors.

Wall Street climbed to a 4-month high on Thursday and it appears as though the summer consolidation is over. The rally in US stocks is due to the improvement in the nation's housing market and investors are anticipating further monetary easing.

Wall Street has been in a wide trading range for over 12 years and with today's horrific investor sentiment, I believe that the next secular bull market lies somewhere ahead. The S&P500 Index will probably find some resistance around its previous record time high, but once that level is taken out, a new secular bull market will commence.

Turning to commodities, it is notable that the sector has been rallying on the hopes of fresh stimulus. However, given the weakness in the global economy, I do not expect a sustainable advance in industrial commodities. It is interesting to note that the CCI Index seems to be rolling over and so far, it has failed to climb above the 200-day moving average. Elsewhere, copper is staying weak and if you are bullish about commodities, this should be reason for some concern.

Over in the precious metals patch, both gold and silver are still trading below the 200-day moving average and as long as this is the case, I will continue to avoid this space. I maintain the view that additional quantitative easing will be required to trigger the next rally and until that happens, precious metals will continue to disappoint.

In the currencies patch, the US Dollar is still trading above the 200-day moving average, although it has dropped below the 50-day moving average. In my view, the world's reserve currency will continue to benefit from Europe's debt problems and the uptrend will only end after the Fed has initiated QE3. Thus, for now, I recommend exposure to the US dollar.

Finally, over in the debt market, US Treasuries have softened somewhat and it is conceivable that they may weaken over the following weeks. If the stock market embarks on a multi month uptrend and the "risk on" trade resurfaces, then US Treasuries and German Bunds will be sold by investors. Furthermore, under such a scenario, peripheral European bonds and high-yield credit will probably appreciate along with other risky assets. For income seeking investors, we suggest exposure to US mortgage REITS as well as high yield medium duration corporate debt.

(HK Edition 08/18/2012 page2)