The Dow was down for a fifth day in a row. Each step down was small...like a man edging his way towards the side of a cliff.

Where's the excitement? When cometh the crash?

Neither the Dow nor dollar are standing on solid footings, in our opinion. Either could take a big dive downward any day. Not that we're predicting anything; but both are riskier than they appear. And why take the risk? Where's the upside?

We recall a prediction from the late 1990s. "Dow 36,000" was a popular book title from the time. Well, it's six years later and the Dow has advanced all the way to 12,000. At this rate, figures Alan Abelson in Barron's, it will hit the 36,000 mark in 168 years.

We laughed at the 'Dow 36,000' forecast when it came out. But it was helpful to us - it signaled that it was time to exit the stock market. People don't make predictions like that at the beginning of a bubble. They make them at the end - just before a crash.

Today, the wild predictions are largely gone. In their place has come a sort of delusion of mediocrity, in which people take for granted what they once took for absurd. Now, we laugh at what people imagine as normal! Soaring housing prices...exploding household debt...the Dow is over 12,000...a trillion dollars in Chinese reserves...the current account deficit at $800 billion - they see no reason to worry about any of these things.

Of course, the housing price bubble seems to be losing air and everyone knows it. From San Diego, for example, comes news that defaults are running at twice the level of 2005. But this everyone takes with such equanimity. It is as if they had been told that the price of fois gras was going up; it hardly seems to matter to them. They're all sure the housing is coming in for a 'soft landing.' Even if a giant meteor were bearing down on planet earth, they'd expect it to make a soft landing. And who knows...but as we've said many times, our dear readers are advised to buckle up their seat belts, just in case.

Meanwhile, the price of gold shot up to $627 yesterday. We hope you got gold when the gettin' was good - when the price was below our target of $600. We don't know, but it wouldn't surprise us too much if we never saw $600 gold again in our lifetime. Newmont executives were in the news yesterday, too, predicting that the price would go "over $700 in the next 12 months."

It now takes about 20 ounces of gold to buy the Dow. In 1980, it only took one ounce.

And now the total value of U.S. financial assets is 33 times the value of the entire world's gold above ground. In 1980, U.S. financial assets were only a bit more than three times the value of the world's gold.

For the last quarter century, the value of U.S. dollar assets has gone up relative to gold. And each year, the mining industry adds only 2500 tonnes of gold to the world supply - or an increase of about 1.7% annually. U.S. dollar denominated assets - on the other hand - are exploding.

So, which is likely to go up in real value, dear reader - the incremental unit of paper dollar assets...or the incremental ounce of gold?

We'll stick with our trade of the decade a while longer. We'll even move our target-buying price up to 625 dollars. Buy gold below 625 dollars. Sell stocks and U.S. real estate on rallies.

*** "After a short pause in May and June, we have seen the return of aggressive risk-taking in financial markets this autumn," Bank of England Deputy Governor John Gieve said in an October 17th speech to hedge fund managers in London. "There must be a danger that risk models are giving too much weight to the low volatility of recent times."

Hedge funds are not doing well. They're up only 7.6% this year. When you consider that the typical hedge fund charges 2% just for managing the money, the results are not very exciting, especially when you consider you can get 5.3% risk-free. And if you'd just put your money in Morgan Stanley's world equity index tracker fund, if there is such a thing, you would be up 13% - with almost no fee.

What are the poor fund managers to do? Exactly what we warned about in these pages...and exactly what Mr. Grieve is now warning about: take on extra risk.

Seven percent returns are about what you should expect. There are so many hedge funds; their overall, net rate of return is bound to regress to the level of the general market - minus their high fees. But it doesn't make sense for investors to put their money in hedge funds if they only get the same thing they'd get from the market itself. So, the hedge fund manager has to increase his rate of return or he will lose his customers. What does he do? He uses more leverage and takes riskier bets. He knows that many of them will go bad...and his customers will lose money. But if he doesn't take the chance he'll lose his customers anyway!

Expect more spectacular losses in the hedge fund industry.

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