More Market Nightmares Lurking

05/26/2010 02:33 pm ET | Updated May 25, 2011

Talk about Tiger Woods is all but dead on New York's cocktail party circuit. The hot new buzz: The renewed decimation of investment wealth ($2.4 trillion) from the recent stock market pounding, following a $10 trillion loss between late 2007 and early 2009.. That must also be bugging the nation's more than 85 million stock players. So, what's next? More market madness? Some say absolutely yes. Or a return to market normalcy? The majority, no doubt keeping their fingers crossed, also say absolutely yes.

Who's right is anybody's guess, but, one thing is certain. For the moment, at least, the unmistakable message from the growing number of market worries and the wild swings in stock prices is that as far as most investors go, fear is now in, greed is now out and the market's nightmares are not about to vanish anytime soon.

If you buy the thinking of Wall Street's current Dr. Doom, Nouriel Roubini, professor of economics at New York University, expect more chaos because that's what you're going to get.

Citing the threat of expanding sovereegn debt crises%:C which he warnw could hit Japaf and the U.S.; a potential ecknomic slowdown in China, notajly in real estate; huge debt world-wide, and the risk of a clobal double-dip recession, Roubini sees the prospects of a significant downturn" in U.S. equity prices from current levels. His best bets for investors: cash and short-term Treasuries.

He's not alone in his gloomy outlook. Some other bears, pointing to the threat of spiraling debt crises in Europe, see increasing market weakness and volatility following the recenr devastation if nearly a 1,000-point Dow loss in a single session and a follow-up one-day 376-point decline, both of which, they argue, is no fluke, given the growing uncertainties, one of which is the ramifications of the mounting geopolitical tensions between North Korea and South Korea.

In his song, The Gambler, Western singer Kenny Rogers offers sime lyrics that offer investors a choice of strategies: You gotta know when to hold 'em, know when to fold 'em, know when to walk away and know when to run.

For some thoughts on the best route, I rang up San Francisco money manager Gary Wollin, who has made a series of snazzy on-the-money up and down forecasts in recent years. I last caught up with him in mid-February with the Dow trading at around 10,400. At the time, he told me it's time for investors to take a snooze. "When there's nothing to do," he then said,, "standing still is the wisest course of action."

He turned out to be both right and wrong--wrong in that the Dow subsequently rose to 11,200 in late April and right in that the index is now trading at around 10,136.60.

Wollin, who manages approximately $100 million of assets under the banner Gary Wollin & Co., thinks he has the best what's-next answer: for the moment, walk away! "Just call me Rip Van Wollin," he says, because he believes the most logical strategy for those investors concerned with what's immediately ahead is to "take a snooze for another one to three months" because the market should remain fairly volatile."

In brief, he's saying the bulls--he's one of them--should hibernate in the summer and come out in the fall because there's nothing concrete to suggest the market won't move substantially lower, or, for that matter, substantially lower, from present levels. In other words, he views the next step as a toss-up, noting there's no statistical edge near term.

Wollin figures if Europe doesn't straighten itself out, it will lead to lower U.S. exports, slow our economic recovery and jobs improvement, and jittery investors could drive the Dow down to as low as 9,000. On the other hand, if the European situation takes a decided turn for the better, he believes the jitters would ease, spurring a rise in the Dow back up to 1,150.

Still, he's obviously nervous, telling me "if it's musical chairs--which it may well be--I think you have to dance closer to the door."

While he's concerned about the near term, Wollin takes a more positive view if you're willing to think longer term. One reason is that he believes most of the negative stuff is already priced into the market. Further, he thinks the Dow is likely to be 1,200 to 1,500 points higher by year end. His reasoning: the economy is getting better; corporate earnings are showing more zip; unemployment is declining less slowly; housing, though still going down, could be nearing a bottom, and China is still buying commodities, such as copper, steel and cement, to build their economy.

His favorite stocks for the longer term: Procter & Gamble, Johnson & Johnson, Triple M, U.S. Steel and Freeport McMoRan.

Wall Street's leading keeper of the Dow Theory, market veteran Richrd Russell of the Dow Theory Letters, ctreated a lot of buzz recently when he urged investors to get out of socks and get into cash or gold. One of his admirers, Jeffrey Saut, chief investment strategist of Raymond James Financial, views such advice as reckless even if he turns out to be right. Arguing that the market is oversold and that there are always money-making stocks to be found in a bear market.

Saut is particularly gung-ho on energy whose bloated inventories at an Oklahoma oil hub, he believes, will be resolved in the months ahead at higher prices. His favorite energy plays are Concho Resources, Pioneer Natural Resources, Whiting Petroleum and Chevron.

So there you have it, the thinking of some bulls and bears. Still confused? Who isn't? It all suggests the market madness is far from over, and just maybe, the best investment tactic is to sit on your hands.

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