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The Alchemist (10/31/2007)
By Al Thomas

FRIDAY WAKEUP CALL

The bugle blew. The cymbals clashed. The voice of the Market was heard loud and clear throughout the world. Sell everything.

This was as clear a signal as has been given in a long time. Both fundamentals and technical analysis has shown its bearishness. Worst of all it has shown it in two major sectors - the stock market and the real estate market.

Many investors left the stock market in 2003 and found a home buying and selling real estate. Flipping homes became the "in" way of becoming rich.

Now that market has turned sour and left many with properties unable to be sold at any price because the mortgage market has dried up. There is plenty of money but the banks don't want to lend on anything that has to do with housing.

It used to be just a few months ago that the "experts" told us this was a small part of the market and would not affect the economy. Now the liquidity

crunch has crept into better quality loans including credit cards and auto loans. Money has stopped flowing and money is the bloodstream of business.

The Federal Reserve has tried to cooperate by lowering the Fed Funds rate, but banks said, "Who cares? We are not parting with out funds".

Will Rogers said,"I am not concerned with the return ON my money, I am concerned with the return OF my money".

Every real estate maven says the market will come back shortly. What does "shortly" mean? Two years, 5 years, 10 years? No one knows for sure, but one thing you can be sure of is the more the government tries to put off the inevitable losses the longer it is going to take.

If you must sell the time to do it is now even if it means a loss as that loss is going to become greater the longer it is put off. In those areas where the bubble popped seeing a regression to the mean home prices will fall 50% from here. Regression is the projection of the average price increase for the past 20 years. Prices are way above it now.

Real estate is fairly priced when rental income returns a profit to the owner after PITI (Principle, Interest, Taxes and Insurance). Today it is smarter to rent than to buy.

Not only are fundamental factors for stocks negative, but technical indicators are turning down. If consumer spending slows (as it seems to be) this is a major foundation for stock prices. Caterpillar gave bearish

comments on Friday. There is not one large home builder whose stock is going up. The construction industry is laying off thousands.

Investors who want to protect their stock profits should sell

immediately and buy Treasury Bills. The principle will be protected even though the return will be small. Remember Will Rogers.

The wakeup call has been clearly given. Now the smart investor

must act upon it.

Al Thomas' best selling book, "If It Doesn't Go Up, Don't Buy It!"

has helped thousands of people make money and keep their profits

with his simple 2-step method. Read the first chapter and receive his market letter at www.mutualfundmagic.com to discover why he's the man that Wall Street does not want you to know.

Copyright 2007 All rights reserved.

 

 

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