THE BLOG

More Nightmares Lurk on Street of Dreams

03/19/2011 06:24 pm ET | Updated May 25, 2011

All signs suggest the battered stock market is in for a continued thrashing.

Savvy Boston Investment strategist Bill Rhodes, the skipper of Rhodes Analytics, captures the prevalent Wall Street mood following the stock market's recent dive to a 12-year low from its October 2007 high. In that period, the S&P 500 tumbled 52%. There's noting on the horizon to suggest the downtrend has been arrested, Mr. Rhodes observes.

That's also the view of one of the country's most highly regarded market timers, Mark Leibovit, who heads up VRTrader.com. an online investment advisory service headquartered in Sedona, Arizona.

He among others challenges widespread thinking that the President's $787 billion stimulus package and the Administration's efforts to revitalize the housing industry will trigger a significant economic rebound, in turn reinvigorating the stock market after its wicked $7 trillion loss in value last year and further declines in 2009.

They basically believe that Wall Street, the perennial street of dreams, is likely to produce many more nightmares for all the reasons everybody knows before the stock market can right itself. They point in particular to a sagging world-wide economy, the dire straits of the banking system and the ongoing housing slump.

Mr. Leibovit is one of several dogged market trackers who takes a dim view of the stimulus package: "It's a farce, a waste of money because you're not creating a permanent source of new revenues or new jobs." The government, he says, "is misguided on financial issues. It's a government gone crazy. You don't solve problems by adding much more debt on top of existing debt." (Latest figures show the average American household owes 20% of its annual income).

Everybody is excited about Barack Obama, Mr. Leibovit observes. Nonetheless, he takes a pot shot at the President for including among his advisers some of the very people who caused the financial problems. He figures Treasury Secretary Timothy Geithner is on borrowed time and will be gone in about a year.

Leibovit also opposes a bailout of the banks. "Let the bad guys go out," he says. "Throwing good money after bad is just the wrong thing to do." He recognizes, he tells me, that any serious contemplation in Washington of letting the bad banks go belly up would not produce a quick green light and invariably lead to a great deal of political fireworks.

Taking note of the positive market comments on the TV business networks -- he frequently tosses darts at CNBC in this context in his online commentaries -- Mr. Leibovit basically shares the view of Abraham Lincoln who once said, "Tis better to be thought a fool than to speak and remove all doubt."

Named by Timer Digest Magazine as the nation's number one market timer over the 3, 5 and 10 years for the period ending 2007 and also listed among the top 10 in 2008, Mr. Leibovit tracks about 20 market indicators -- among them market sentiment, volume trends, contrary opinion and interest rate movements -- in seeking to calculate the likely course of stock prices.

His latest reading tells him: "We're still in a bear market; the trend remains down and there's no sign of a bottom."

As he sees it, "a perfect storm is building to a crescendo -- higher interest rates, higher taxes, slumping stock prices and economic contraction, all at one time."

He likens today's economic environment to the panic of 1837, a recessionary year preceded by rampant real estate speculation, overlending by the banks and huge unemployment. All told, this recession ran about six years, running from 1837 to 1843. In the process, stock prices tumbled about 50%.

Mr. Leibovit figures the current economic and financial mess will run some five or six years, as well, before the storm is over. As a result, he says he would be almost 100% out of equities and use every rally to lighten stock positions. "We're in a vicious cycle and every investor should rush to protect their assets and realize cash is king," he says.

Over the next 12 months, he sees the major market indexes getting bashed, with the Dow skidding to about 6,500 and the S&P 500 falling to around 680. Taking a longer term outlook, he thinks "we're in for five or six years of hell," with the Dow tumbling to about 2,000.

So where should investors put their money? His favorites: Cash and gold, which recently topped $1,000 an ounce in the wake of growing financial concerns. He feels a further rise to $1,200 to $1,500 in the precious metal is a reasonable target before year end.

You can contact Dan Dorfman at dandordan@aol.com.