Big tumble on Friday. Big rally on Monday. Big tumble on Tuesday.

Yesterday, the Dow fell 280 points, following a 289-point gain the day before.

We have a feeling the smart money is selling into this rally. Why? Because it is a bear market, and the smart money knows it…

The Daily Reckoning was right all along. At least, that's the line we're taking this morning. We said the stock market topped out in 2000 - and that it would be followed by a massive, long-term bear market. But for the past eight years, this bear market has been delayed…and disguised. It was delayed by the biggest tide of monetary and fiscal liquidity since The Flood. In a matter of months, the U.S. federal budget went from a couple hundred in surplus to several hundred in deficit - a stimulus of more than $700 billion.

Meanwhile, the Greenspan Fed cut rates to 1%…and only reluctantly increased them. In fact, they're still lower than the inflation rate - 6 years later!

This boost of cash and credit held off a serious bear market decline. But it also brought about higher levels of consumer price inflation that disguised what was really going on. Though nominal prices remain more or less in line with where they were 8 to 10 years ago, inflation has knocked their real value down 25-30%.

Who noticed? And even now, people still believe they can get rich if they just hold "stocks for the long run." What they don't realize is that the run can last longer than they can. The previous major peak in stock prices occurred in 1966. Investors then waited until 1982 - 16 years - for the next bull market to begin…and until 2000 for it to reach its apogee. Based on this arithmetic, the next bull market peak may not come until 2034.

What are we worried about? We just celebrated our 60th birthday. (About which, more below…) In 2034, we'll be 86. We'll just wait.

But if smart investors are selling stocks, what do they do with the money? Our advice has been to buy gold. From the looks of it, the smart money is not following that part of our advice. Yesterday, the price of gold fell $26 to $781.

The smart money is looking for safety. But it seems to think that it is better off in US Treasuries than in gold. Yesterday, while gold and stocks both dropped, Treasury bonds went up. The yield on the 10-year T-note fell below 3.6% (yields go down as prices go up). This makes us think the smart money is not as smart as it thinks. Our guess is that the credit of the world's biggest debtor will prove less sure than they believe. The debts and financial obligations of the U.S. government continue to rise many times faster than the growth of the economy. Under the Bush administration, they've gone up faster than ever before in the history of the nation. We doubt that they will go up any more slowly if Obama is elected. Eventually, the United States will be recognized for what it is - a subprime borrower. And eventually, U.S. Treasury bonds will be looked upon as though they were Fannie Mae shares.

*** The U.S. government has just seized the mortgage lenders - Fannie and Freddie. How much that will add to the nation's debts, we don't know. No one knows. When the question was put to the man who should know - Hank Paulson - he replied: "We didn't sit there and figure this out with a calculator."

Apparently, taking control of Mac and Mae was matter of national financial security, something you couldn't put a price tag on. But the cost will be enormous. Sooner or later, someone is bound to get out a calculator.

As USA Today figured it, taxpayers are on the hook for trillions. You'd think you'd hear them squawking, with that kind of burden hoisted on their backs. But nobody really thinks he is going to pay for the housing bailout. Instead, the costs are expected to disappear - like the smell of cigarette smoke in a teenager's room. Too bad, but the smell of debt lingers long after the money has been spent. Eventually, his mother opens the door.

"How will this end?" says Chris Mayer. "I suspect we [the U.S.] are on a path similar to that of Argentina. One day, we'll have some major Argentine-style financial crisis. We'll have Argentine inflation and a similar loss of faith in the banking system and the currency. The government will chew away and destroy a lot of wealth in the process.

"Hopefully, I won't quote myself on that someday soon. In the meantime, though, I think one of the best things an investor can do is focus on buying useful and tangible assets that ought to hold their value against a depreciating paper currency. These assets include oil and gas, metals and minerals and land and water rights. The shares of the companies that own or find these assets ought to do well. Commodities will have their day in the sun once again."

*** Ouch. Lehman Bros. shares plunged to their lowest level in almost ten years yesterday, falling 45%. They reported a quarterly loss of $4 billion - their worst since going public, and second consecutive loss.

Clearly, the $7.8 billion in writedowns had a hand in pulling the investment bank down, but the execs are singing a different tune. They say that these numbers can be blamed on "attempts to shore up the company's books."

CNNMoney.com reports: "During the quarter, the company said it drastically slimmed down both its commercial and residential real estate holdings by [settling] billions of dollars worth of assets as part of a multi-prong restructuring plan."

Despite this 'multi-prong' plan, which includes moving the firm's commercial real estate assets into its own separate entity and reducing its residential real estate holdings by half, fears in the marketplace have not been quelled. The question on everyone's mind: Will the bank reach the fate as Bear Stearns?

"The situation is not a pretty one," say our friends at Strategic Investment. "The big banks keep on revealing even bigger losses. Remember the knockout punch delivered by the S&L crisis in the 1980s? This is bigger. More than 2,500 banks, thrifts, credit unions and mortgage companies wrote a combined $1.5 trillion in subprime loans during the peak of the boom.

"When George W. Bush's dad threw $150 billion at the S&Ls, it helped spark a three-year recession. What happens when Washington tries to defuse a multitrillion dollar time bomb?"

Bill Bonner is the President of Agora Publishing. For more on Bill Bonner, visit The Daily Reckoning.