The realization that the recession will be over in the US soon, coupled with the euphoric sentiment the endless government guarantees have created, has led to the renewal of the high-risk mentality. (See EMS, 11 June 2009, The End of the US Recession.)

As a result, global markets are speeding away from lows established earlier in the month, and there’s no more talk of a breaks below serious support levels. Everyone is debating the resistance levels where the rally is supposed to stop–at least for now.

For the S&P 500, this level seems to be in the 1,000 to 1,050 area, which suggests the party has longer to go. Yet the more interesting “new” idea is that the current price action may develop into something stronger as the second half of the year gets seriously underway, i.e. after the summer.

I have no problem accepting both views. Confidence remains high among investors and non-investors around the world. The liquidity infusions have done their work (as expected), and the global economy will see a bounce this year.

We may experience some difficult months around the end of the third quarter and the beginning of the fourth, but overall things should be smoother than most people were expecting in the early spring.

Even the assaulted US consumer will participate in this bounce, if only for the rest of 2009. Next year should be a slightly different story, as US consumer spending should be mild compared to previous cycles.

My long-held view is that as the personal savings rate in the US will grow steadily (10 percent isn’t out of the question anymore); a decline in consumption is unavoidable, especially when employment prospects stay dim.

In other words, the US will have to start getting used to spending growing less than income, not the more typical and familiar American spending pattern, income growing slower than spending.

But these are long-term considerations. The case for a stronger 2009 remains intact. For Silk Road Investor readers this means Asia will be even stronger; the developed economies of the West will contribute a little more toward global GDP growth, especially through consumption.

Particularly for the smaller and more open Asian economies, a bounce in the big developed economies of the West will be a great benefit. Taiwan, South Korea and Singapore in particular should benefit the most; they’re the main cyclical economies in Asia and their exchange rates are weaker than during the strong 2005-07 period. Exporters in these countries will be in the sweet spot with an increase in export volume and “affordable” currency levels.

Although these markets have run this year, most investors have relatively little exposure to them. This should change rapidly as the global economy improves.

The Silk Road Investor Portfolio has been positioned for this turn of events and is seeing the benefits. The technology sector was and remains my favorite way to profit on this theme.

As I noted in the Feb. 25, 2009 Silk:

The collapse in global demand has been so severe that at the very least demand should stabilize. And semiconductor companies have been very quick to cut production this time around, which has allowed for a rapid fall in inventories. The cycle has been shortened.

Utilization rates are at extreme lows, while demand is starting to show some signs of life, which could surprise on the upside in the second half of the year. Expectations are so low right now that any positive sign will make a big difference. Of course, if demand drops further, then inventory will take more time to clear and so will the potential recovery.

From a valuation perspective, tech also looks more compelling than the other cyclical sectors in Asia; stocks have been hit much harder and for a longer time. As a result, investors have generally stayed away from the sector, leading to its underperformance since late last year.

This rationale remains valid. If you don’t have any technology exposure, get some.