Hurry, Look for the Escape Hatch

"The winter of our discontent" was one of Shakespeare's more memorable lines in Richard III.

As far as Wall Street goes, a more appropriate designation for this season might well be our summer of discontent.

The reason: Non-stop economic and financial decay around the globe, including here, which continues to rapidly erode stock prices.

The numbers tell the abysmal story. After an 11.5% loss in May and June, the Dow tumbled another 457 points last week in five straight losing sessions. Wrapping up the week was Friday's drop of 46 points in response to the disclosure of June's disappointing unemployment report.

The key question? Is a significant outbreak of panic selling -- the kind that butchered the market in 2008 and early 2009 -- on the way?

Some Wall Streeters suggest a growing possibility, based on an onslaught of troublesome and potential economic-related stock market killers. Chief among them:

--The growing threat of a global economic slowdown.

--Mounting fears of a double-dip recession.

--Slowing Chinese growth, as demonstrated by four consecutive monthly declines in China's index of leading economic indicators

--Expectations of a worsening sovereign debt crisis.

--A tortoise pace of new job creations.

--Growing signs of a new setback in housing, as seen in May's decline in new and existing home sales and falling construction jobs.

Let's also toss in a recent warning from Nobel prize-winning economist Paul Krugman, who argues that we're in for another Great Depression.

Some of his peers think he's off the wall on that one, but interestingly a number of them are no longer ruling out a double-dip recession, following some weak economic signals, such as a decline in May factory orders, a sharp drop in consumer confidence, rising jobless claims and May's poor housing numbers.

Likewise, there's no sign on the horizon of any positive catalyst that could push stock prices higher or stave off a selling panic.

San Francisco money manager Gary Wollin, who runs a tad above $100 million of assets under the banner Gary Wollin & Co. and a long term bull, seems to sum up the current mood of the worrywarts. "For the average guy, this is a good time to don your helmet and hide under the desk," he says.

Of concern to Carter Worth, Oppenheimer & Co's well-regarded technical analyst, is that the shares of many of the country's biggest and best known blue chip names--such as Google, Apple, Johnson & Johnson, IBM, Coca-Cola, JP Morgan Chase, General Electric and Microsoft--are performing poorly and look like they're headed lower.

Based on his research work, Worth tells me, the selling blitz looks like it's far from over in the high quality names, meaning, he says, the rest of the market is also headed lower, perhaps another 6% to 7%, say over the next four to eight weeks.

Worth calculates that about a third of the S&P 500, representing nearly $3.6 trillion in market value, is acting poorly, including such additional names as Exxon Mobil, Chevron, Procter & Gamble, Wells Fargo, Intel, Oracle, Pfizer, Cisco Systems and Wal-Mart Stores, all of which he also views as vulnerable to further erosion.

Everyone, notes Worth, is trying to ferret out a winner, especially with many stocks at record low values, but there's nothing to be lost by postponing all new purchases until you do damage control by reducing exposure. "This is the time to avoid risk, not to take on more of it," he says.

Standard & Poor's, which has basically been cautiously bullish in its outlook this year, is also flashing some red lights. In a recent commentary, it cited a number of worrisome factors--among them a sluggish housing recovery, unwinding of the economic stimulus measures, continued consumer deleveraging, anemic European economic growth, signs of a slowdown in Asia and financial regulation. Accordingly, S&P is now holding out the possibility of greater market damage than it originally projected.

Last month, it lowered its 12-month target on the S&P 500 from 1270 to 1190. Now, it thinks, the index (currently around 1022) could possibly drop to 1883. Support for the major indices, it notes, is giving way, suggesting "this correction may morph into a bear market." S&P's immediate outlook is that the market is likely to remain weak into the fall months, with a painful bottom in September and October.

More immediate, Sam Stovall, S&P's chief investment strategist, alerts us to another danger, namely that the third quarter has been the weakest quarter of the year since 1945, averaging an annual decline in this period of 0.5%.

Wollin tells me that for the short term (at least 90 days), he would avoid any new purchases (except a dividend play like AT&T (yielding about 7%) since he sees the Dow possibly falling another 10%. "The market is too volatile, too headline driven and has no direction," he says. "It's scary out there and fear seems to be driving the market more than greed."

One of Wall street's biggest bears is veteran investment adviser Richard Russell, publisher of the Dow Theory Letters, a 52-year-old newsletter out of La Jolla, Ca., which about a month ago advised its subscribers to get out of all stocks and keep the money in cash and gold.

Reiterating that view, he contends we're in a "papa bear market." The market, he says, is in no man's land, with rallies limited and an occasional downside jolt.

Things will get worse, he believes, as the market continues to probe lower depths. In this bear market, he says, "the Dow (now around 9,686) could fall to 4,000 or 400. I honestly don't know, but trends tend to carry further than anyone could imagine."

The bottom line here, which you can calculate as well as I - Run for the hills now!

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