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The Alchemist (02/10/2008)
By Al Thomas


It seems the bad news never stops. The market responds by going lower and lower.

This has crept into the souls and pocketbooks of investors who are confused. Three hundred points down in the morning and 300 points up in the afternoon. How can anyone be expected to take or even hold their positions?

I remember when I was a floor trader on the exchange those kinds of days we used to say, "There was blood in the pit". It hasn't changed. Now the stakes are bigger and whole companies can be put under in a day.

Everyone expects the government to come to their rescue. In the past each time we have had a potential market meltdown the Fed Chairman has turned up the speed of the printing presses.

It has worked like a shot of penicillin for a minor infection.

Unfortunately, this time seems to be different. The entire world is affected or should it be said infected. The patients (world) blood (money) Is slowing. The transfusions from all the world's central banks have not improved the flow of blood. Most economists do not realize there are trillions of dollars of derivatives that can become infected.

Banks with huge positions in bad paper (mortgages, auto loans, credit card debt and most of all those weird derivatives) are running hat in hand to try to raise cash so they won't go out of business. It is very possible to see a major American or foreign bank go belly up. Maybe more than one. There will be mergers of one drowning bank trying to save another.

The average American has no idea how serious this is. All he sees is the stock market going down with his 401K becoming smaller every day. Call in the cavalry. Get the government troops.

Each attempt at rescue has been disappointing. It looks good on the surface for a day or two, but once investors have had time to analyze the "fix" it turns to further disappointment.

The investor says to himself I won't do anything except sell when the market rallies so I can get out "even"; there are too many "evens" to allow the market to make a new high. When that happens the market will then fall of its own weight for lack of

buyers. It takes lots of buying to put a market up.

There are more "fixes" to come. Almost all will be politically based and will not solve the problem. The best that government can do is do nothing, but you know that won't happen.

Because the derivative problem cannot be solved politically it will just take longer to work out. World federal banks are using band aides to fix a broken leg. Our professional politicians only worry about votes. Promises that don't work will only make things worse. The smart investor will not be buying.

While the smell of disappointment is in the air the market can only have rallies before it starts down again.

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 2008 All rights reserved.



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