"I Think Gold is Going Lower"

The following is from the May 25 letter. "Many analysts have confused the Fed's increasing its balance sheet from $900 billion to $2.2 trillion as signs that inflation is right around the corner. What these folks have failed to understand is that credit is still contracting, the velocity of money is not expanding, and an overhang of excess labor and production capacity caps any pricing power.

The real risk is not inflation, but deflation as debt is liquidated, causing money supply and credit to contract even further. Gold is over loved and misunderstood. I think it is going lower."  A weaker economy should be a negative for commodities in general. Short GLD, the gold ETF at 120.50, with a stop at $123.50.

BONDS

The yield on the 10-year Treasury bond could rise to 3.2% to 3.3%, as the stock market rallies a bit more. If I m right about the economy, Treasury yields will be lower by year end. High yield bonds have rallied in conjunction with the stock market. Many of the high yield bond funds appear to be forming the right shoulder of a top. If the economy weakens, high yield bond funds will be vulnerable. A decline below the most recent low will be a negative technical signal, and a sell signal.