Freedom Lawyers of America

Danger: Sink hole ahead
Individuals seen rejecting Wall Street, the Fed

By Thom Calandra, CBS.MarketWatch.com
Last Update: 11:16 AM ET Aug 30, 2002
SAN FRANCISCO (CBS.MW) --

Your next-door neighbor's deepening despair about the stock market (and for short-sellers and gold investors, it's jubilation these days) is a hot commodity among money professionals. Commercial banks, brokers and mutual funds, even high-brow analysts and economists, are more likely than ever to glance over their shoulder at the beer-belly crowd.

Call it second-guessing, or yet another feedback tool for market timers who have burned through all their mathematical models without turning a profit. Financial newsletters, especially those that focus on hard assets and safe-money strategies, are thriving.

The Main Street crowd, largely disgusted with the stock market and everything that corporate America represents, is near a turning point. As Elliott Wave theorist Robert Prechter Jr. points out in his new book, "Conquer the Crash," the leanings and opinions of ordinary folks set the directions for the stock market, not the other way around as most of us were taught in Economics 101.

Those leanings (Wall Street calls this investor and consumer sentiment) are bordering on lethal. "Not only is the market a ticking time bomb, but so is the global economy," says Jeff Morgan, whose main credentials are an e-mail account, a brain and the eyes to see what others can't. "I'm constantly amazed at how many people are in denial. And we sure don't need to dance with Iraq anytime soon. I don't want a self-fulfilling prophecy, but people had better get their finances in order real soon because the bottom is going to fall out just like a big sink hole."

As we enter the autumn season, America's love affair with stocks shows signs of ending -- after more than 20 years. The light bulbs are starting to burn bright as folks switch off their online brokerage accounts and switch on their common sense. Stock investors -- the ones who have lost half their savings these past 30 months -- are probing Bankrate.com and other services for the safest money-market and cash alternatives.

Plain-vanilla savings bonds, and gold, are in the running for best-performing investment classes. The Commodity Research Bureau's tally of hard assets -- agricultural, metal and so on -- is at its highest point since June 2001. Organizers says precious metals and contrarian investment conferences set for the autumn season -- in New York, Denver and New Orleans -- are already at overflow.

For the most part, the folks streaming to these fresh investment waves are you and me: our spouses, our fathers-in-law, our house painters, maybe the owner of that dry-cleaning shop down the block. Or your medical doctor, whose self-managed retirement funds and hopeless mutual funds are on death's door.

"As of today," individual investor Bruce Allen tells me, "I am again long the gold market. I don't know if I'll turn another quick 45 percent profit, but with all of the screwy stuff going on in the markets, I'll take my chances with gold."

Naturally, there are still stock-market believers, which is why the Dow Jones average of 30 stocks, led by 3M (MMM), is still selling for a number that begins with 8, as in 8,665 this final trading day before the Labor Day holiday.

"Any investor who sells what he has left and goes out and buys puts on the Dow (DIA) with his leftovers may very well be digging his own financial tomb," says Peter Garcia, a Main Street investor.

Yet increasingly, folks are second-guessing the U.S. Federal Reserve and other central banks whose loose-money policies have turned financial markets into roulette wheels.

"Another bubble is in the making, has been for a while," says Joseph Zipay about the burgeoning market for residential real estate. "The Fed will probably keep rates very low so that a different type of prosperity replaces the former one. It is then that cash will become very scarce. If the Fed is smart it will start to ease the air out slowly, starting now."

From what I see -- and I receive investor feedback from around the world -- more of us (but let's face it, not a whole lot more) are formulating strategies that steer clear of the Wall Street herd. I will leave it to another individual investor, Aaron Bachelder, to say it better than I can.

"Wall Street and the real estate gurus want us to believe that we can all grow cash on trees. I've been out of the market for 1 1/2 years -- never ever bought a tech stock and I'm an engineer. Got tons of cash. Accumulating gold. And waiting. Waiting for point where I can write down all a company's real assets, write down a company's book value, conservatively project earnings and expect a dividend rate of 5 percent. Waiting for property values to actually reflect people's true earnings, not their ability to borrow."

Spot gold on Friday was trading for $313 an ounce, just below a two-week high. "It will probably be late-September or early-October before we see gold mount a real challenge of the $315 resistance level, and then take on the $325 to $330 hurdle," says Brien Lundin, editor of the 31-year-old Gold Newsletter and organizer of the granddaddy of all counter-trend investment conferences, the New Orleans Investment Conference, held in November.