The economy appears to be going sideways. The past couple weeks have been painful for me. My model recommended owning gold. Unfortunately, the fear of deflation sparked a sell-off of the precious metal, and I lost almost 5% over the three weeks that I owned it. Real return bonds are offering an extremely low yield and the total inflation number for May (1.2%) came in much lower than April (2.0%). Some people had hoped that demand in China would support global economic expansion, but reports out of that country appear to be less optimistic.

The past week was a strange one in the markets. Both stocks and bonds fell, as though people are cashing in. That would be consistent with the fear of deflation. Volatility is lower, even while the market has been dropping. The outlook is not particularly rosy.

Market Outlook June 25, 2012

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