There can be no doubt that the world's economy is struggling. After all, many European nations are probably in recession, the US is growing at a sluggish pace and China is facing a serious slowdown. Nonetheless, with today's depressed risk-free rate of return, risky assets are enjoying an epic rally.

In particular, Wall Street is leading the pack and currently, many US indices are either at or close to an all-time high. From my perspective, the S&P500 Index is in the final innings of its secular bear market and a close above the 2007-high will confirm the next secular bull market.

In my view, the recent pullback on Wall Street was a routine correction within the ongoing uptrend. We are now entering the seasonally strong time of the year and with elections coming up in the US, the path of least resistance for US stocks should remain up. Skeptics should take note of the fact that the Federal Reserve has already unleashed an open-ended QE and you can bet your bottom dollar that Mr. Bernanke will do everything to prop up asset prices. In this business, one should never fight the Federal Reserve.

In terms of sectors, I continue to like the biotechnology, consumer discretionary, consumer staples, precious metals and technology names and suspect that they will continue to outperform the broad market. Additionally, I am of the opinion that the financials and housing related companies should also benefit from the latest bout of 'stimulus'.

Turning to the commodities complex, it is noteworthy that the CCI Index is still trading above the 200-day moving average. Elsewhere, the price of NYMEX crude has declined below that critical level and this weakness suggests that the world's industrial production is struggling. I continue to believe that during this low growth environment, industrial commodities will continue to struggle.

Looking at precious metals, it seems as though both gold and silver are still caught in a trading range and a close above the recent highs will confirm the next up leg. If my assessment is correct, both gold and silver are in the early stages of what could turn out to be a multi month advance.

Furthermore, I firmly believe that silver will probably outperform gold by a wide margin.

In the world of currencies, it appears as though the dead cat bounce in the US dollar Index is now over and a close below the recent low will confirm the next down leg. Given the fact that the Federal Reserve is debasing its currency, a sustainable uptrend in the greenback is very doubtful.

Finally, over in the bond market, it is notable that peripheral European bond yields are coming down and capital is flowing out of the 'safe haven' assets. Elsewhere, high yield corporate bonds are also benefiting from the ongoing rally in risk and this trend is likely to continue for several months.

(HK Edition 09/29/2012 page2)