Yesterday, the Dow surged to a new record high, after a record high just the day before.

And the price of gold tumbled...to $566.

What to make of it?

On the one hand, our stock of humility rises. On the other, our gold falls.

We have been in a confessional mood all week. We have owned up to missing the great resurgence of the economy and the stock market. We knew what Greenspan and Bush were up to. But we doubted they could get away with it. But they pulled it off. Now, six years after the Dow peaked...it is still near its all-time highs...and at least in nominal terms, hitting new highs every day.

Of course, readers who ignored our advice to sell stocks in 2000 are still in a losing position, for, even at today's level, the Dow is nearly 20% below its 2000 high in real, inflation-adjusted terms. On the other hand, readers who ignored our advice to sell stocks in 2002, 2003, 2004, 2005 and 2006 might be forgiven for feeling even huffier. Yes, they probably would have done better in gold...but that's faint consolation if they didn't buy it. What's more, now gold is going down...it's $150 dollars below its peak for this cycle.

With the Dow going up...and gold going down...some may have begun to wonder if we know what we are talking about. The question crosses our mind also, almost daily. And the unequivocal answer is, "no." Still, that is what gives us an edge over most market commentators. They don't know what they are talking about either...but they are not aware of it. The truth is, in the end, all any of us have are theories...ideas...notions.... we cling to like shipwrecked sailors hanging onto a broken mast. If we let go, we're sunk.

The theory we cling to is that eventually people get not what they expect, but what they deserve. Hard work, honesty, modesty, discipline and forbearance pay off. Always have, more or less. Always will, more or less. In other words, the fundamentals matter.

But let's look at them. What has changed? Have foreign competitors forgotten how to make things? No. Have foreign laborers thrown down their shovels and soldering irons? No. Has the trade deficit vanished? No. Has America's debt disappeared? No. Has the stock of U.S. debt obligations in foreign hands diminished? No. Will Ford and GM make cars at a profit next year? No. Will the workingman get a raise? No. Will Congress balance the budget and the Fed back its dollars with gold? No...and no. So what then has really improved?

Stocks are trading at very high multiples of earnings...but at a time when earnings are also at record levels. How much higher could they go? And if you did buy at this level...could the reward really be worth the risk? Ultimately, don't stocks depend on the economy?

Dear reader, we give you the short answer: Stocks are not a good investment. Not at these prices. That doesn't mean they won't go up any more. It just means that it is unwise for you to follow them. There's more downside to worry about than upside to hope for. Take this little boost as a gift from the gods; sell on rallies.

Having said this, we return to our confession. It is true; we did not expect the market to hold up as long as it has. Our error was one of over-estimating the good sense of our fellow man. He is a bigger blockhead than we ever thought. Given the lure of easy credit, ARMs, and "stated income" lending - he took the bait greedily. Now, he's on the line for more money than any man in history...with no greater income than he had before to pay it off.

Humility also does not prevent us from pointing out that, appearances to the contrary, we were essentially correct about the boom of 2002-2006. It was a fraud. People did not really become wealthier...they became poorer...ending it with more debt and no more in earnings than they began it. No gains, and already, some pain.

How much more pain remains to be seen, but even Ben Bernanke now admits that housing has begun a "substantial correction." In New York, for instance, the number of apartments for sale has reached a level not seen in 15 years. This year, prices dropped 2.2% from the 2nd quarter to the 3rd quarter. And at the high end, sales have collapsed 40% from a year ago.

Meanwhile, homeowners will soon begin to show signs of cracking. About 20% of all homeowners in the United States are going to face higher payments in the next two to three years as their complicated contracts start kicking in. In Washington, D.C., for example, interest-only loans account for 28% of mortgages, while subprime loans make up a similar amount. Roughly the same holds true also in Florida. In California, the interest-only loans are even higher, at a shocking 39%.

And on the sell side of things, the numbers are also ominous. Brokers and builders are beginning to hurt.

According to a CNN Money article, during the housing boom's zenith between 2002 to 2004, membership in the National Association of Realtors (NAR) rose 26 percent so that there are now over 1.2 million realtors on record in the country. But with sales predicted to fall 7.6 percent in 2006, the flood of agents is drying up.

How long can housing and stocks go in different directions, following different rules...as though they breathed different air and ate different bread? Not long, we suspect. If houses are already beginning to climb down from the clouds...stocks, cannot be far behind.

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