Stocks continued their 2012 surge Thursday, with the Dow breaching 12,900 and the S&P 500 hitting its highest level in nine months. The Nasdaq rose to a level not seen since the dot com bubble more than a decade ago. Commodities also continued their 2012 trend, with a mixed session highlighted by strength in energy and weakness in agricultural commodities.
The recent action -- broad strength in stocks, mixed performance in commodities -- belies the conventional wisdom that all "risk assets" are moving in tandem.
There is rotation happening within the commodity sector but, broadly speaking, it should be another banner year for hard assets, according to Frank Holmes, CEO and CIO of U.S. Global Investors.
In addition to continued demand from emerging markets and signs of life in the U.S. economy, Holmes notes global central banks have embarked on another easing cycle.
Indeed, Morgan Stanley's economics team declares "the great monetary easing (part 2), is in full swing," noting 16 major central banks have eased policy since the fourth quarter, including the U.S. Fed, Bank of Japan, European Central Bank, Bank of England and the central banks of Sweden, China and India.
"In response to a slowing global economy and further downside risks emanating from the possibility of an escalating Eurozone debt crisis, central banks all over the world...have been deploying their arsenal for a while now, and should continue to do so," Morgan's team writes. "The result is aggressive monetary easing on a global scale."
Based partially on this easy money, as well as fear of supply disruptions, more capital expenditures in the U.S. and normal seasonal patterns, Holmes is most bullish on oil and gas right now.
"The wind is at their back now," he says, suggesting the U.S. economy can handle moderately higher gas prices, which have already risen on average more-than 13 cents per gallon in the past month, according to AAA.
"I think we'll adapt and adjust" Holmes says, while conceding consumer spending cannot handle a sharp, sustained jump in gas prices.
As far as gold is concerned, Holmes is still to his long-term bullish view, suggesting the trend for gold remains higher based on both the "fear trade" and, what he calls the "love trade."