Sherlock Holmes might call it "The Strange Case of the Blind Investor at Market Top." There is, however faint, a hint that we've seen this bizarre psychological phenomenon before. Yet, as if doomed to repeat history, investors never quite learn from past experience.

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So imagine, if you will, the master detective in his parlor at 221B Baker Street, London, dictating a preliminary case analysis, beginning with a review of disturbing new evidence of out-of-control deficits across-the-pond in America.

My dear Dr. Watson:

White House sends record $2.77 trillion federal budget to Congress. Main Street yawns. Market edges up ... Another record trade deficit of $726 billion. Wall Street yawns, market up ... Then more evidence. Americans warned, supplemental war appropriations coming. Another half-trillion debt hidden 'off-the-books.' Markets inches up ... The parade continues: Trillions of Medicare, Social Security and other unsustainable entitlement debt piling on top of deficits. Investors lapse into denial, overwhelmed. Markets keep going up ... and up!

Fascinating my dear Watson, yet quite elementary. At market tops Wall Street gets greedy and greedier. Main Street dumb and dumber. Washington blind and blinder. Widespread denial.

Remember a brief six years ago? "The Mysterious Case of the Irrationally Exuberant Dot.com Investor" by an astute Yale economist. The market lost $8 trillion, still hasn't recovered it's peak, while investors sink into amnesia.

Now Stephen Leeb's new book, "The Coming Economic Collapse," offers new insights into this case. Leeb cuts to the chase, diagnosing this cycle that numbs investors' brains, optical nerves and decision-making capacity. How? Elementary, $200 oil. Hence the rhetorical challenge of his opening chapter: "The Bursting of the Tech Bubble: Did Our Most Recent Brush with Disaster Teach Us Anything?"

No, my dear Watson, nothing was learned. Indeed, nothing is ever learned. Perhaps you will recall the immortal words of the philosopher, George Santayana: "Those who do not remember the past are condemned to repeat it." Obviously investors are immunized to history's lessons, thanks to the relentless brainwashing from Wall Street's quarterly earnings obsession, and cable news frantic reporting of the markets all day.

Consequently, this psychological affliction is destined to unfold much as it did in 1929, in 1974, in 1987, in 2000 and now again in 2006. Investors must be left alone to weather another perfect storm. Indeed, they seem to enjoy self-flagellation in the post-op stage of a collapse as much as the euphoric foreplay of the bull run; a pattern sadly reminiscent of patrons returning again and again to opium dens, blind to their destructive addiction.

So you see my dear Watson, there really is nothing "strange" about this case. And in the final analysis, nothing to solve. Neither the victims (Main Street), nor the perpetrators (Wall Street), nor even the police (Washington) want this case solved. All are in a trance, much like deer in the headlights of an oncoming train, to mix metaphors a trifle. Even if we offered our services free at this juncture, no doubt we'd be summarily dismissed from the case, chastised as "doomsayers," by victims, perpetrators and police alike.

No, my dear Watson, we stand far outside the American psyche. Fortunately, another distinguished doctor is also observing from a distance, and offers his insights into the coming collapse. From his vantage in Hong Kong, that former British colony, the contrarian known internationally as "Dr. Doom" has identified the specifics of the coming market top Americans cannot envision.

Trigger finger

"Correction Time is Here!" is the headline flashing like a Las Vegas marquee atop Marc Faber's latest Market Comment. His evidence and reasoning are impeccable, my dear Watson: "If we combine [1] the over-bought condition of the stock market, [2] investors' sentiment high optimism, [3] equity mutual funds' low cash positions, and [4] also heavy foreign buying, we have all the ingredients for a stock market correction in the US getting underway very shortly."

Dr. Doom challenges detractors with "two questions that preoccupy investors. What might the catalyst for such a correction be, and when such a correction comes which assets will decline the most and which ones will show resilience?" With a cavalier gesture he dismisses the first: "It does not really matter what the catalyst will be."

Not matter? Yes, "when all asset markets are as extended as they are now it does not take much for a vicious sell-off to get underway." The world's on a hair-trigger. It will take very little to reach the tipping point and push markets and economies over the precipice.

We know that investor exuberance and blindness intensify in reverse proportion to hard evidence as the end nears. So, my dear Dr. Watson, you and I have no choice: As you physicians say, once again we must let this "fever run its course," hope for the best.

Meanwhile, investors searching for healing tonics might avail themselves of the good Dr. Doom's amazing prescriptions: "My bet would be that emerging markets as an asset class may be less vulnerable than the U.S. market should a sharp stock market correction unfold." Why? Emerging markets have monetary reserves today in contrast to deficits during the 1997 global crisis. So emerging markets should outperform domestic equities.

Finally, your colleague Dr. Doom also offers a few antidotes to minimize, in advance, the disastrous consequences of the "vicious sell-off" dead ahead: "Gold and other precious metals will continue to outperform financial assets. Wherever, you may think the Dow will rise or decline, my view is that eventually we shall be able to buy one Dow Jones Industrial Average with between just one and five ounces of gold."

In this doomsday scenario, a "vicious" drop in the Dow coupled with a "vicious" rise in gold, possibly pushing gold to an astounding $2,000 or more an ounce, by my rough calculations. So, my dear Watson, with that bit of insider information, perhaps we should hasten to the bank and purchase a few ounces of gold! On the other hand, we might review Dr. Farrell's index portfolios, assuming he has not been similarly trapped by this bizarre psychological amnesia.

Signed, your most appreciative colleague, S. Holmes.

Copyright (c) 2006 MarketWatch, Inc.