When will the bleeding stop?

That question is on every investor’s mind following wicked triple-digit declines in the Dow the last three trading sessions. During that period, the Dow, responding to the shooting war in the Middle East, tumbled nearly 400 points.

“There’s nothing good to see; I don’t think we’re near the end of it,” a former money management whiz, Michael Steinhardt, says about the escalating Middle East crisis. “President Bush has no leverage. It seems he can’t do anything about it or isn’t inclined to.”

Further, Mr. Steinhardt, an owner of The New York Sun who has significant business and political contacts in Israel, sees no truce between Hezbollah and Israel, at least not at the moment. Meanwhile, he sees no indication the stock market decline will be arrested. “I think it will go down more, but not so intensely,” he says.

At some point, investment adviser Michael Larson figures, cooler heads are likely to prevail in the Middle East, fighting will subside and a market rally will ensue. The problem, as he sees it, is that any diplomacy is likely to be only a short-term solution, with the longer-term trend in the Middle East being more instability. “There is no great peace dividend here,” he says.

Mr. Larson, the editorial director of Safe Money Report, a 31-year-old monthly newsletter out of Jupiter, Fla., says the escalating Middle East crisis is simply one of a number of troublesome problems that are bound to drive stock prices even lower. Among them:

* A slowing economy, as evident from falling retail sales in June, disappointing new job numbers, and slumping home sales.

* The disappointing earnings season so far, with a number of companies reporting lower than expected profits (among them 3M,Advanced Micro Devices, Alcoa, and Lucent Technologies).

* The growth of inflationary pressures. Over the past 12 months, core inflation is up 3.8% year-over-year. Mr. Larson sees higher numbers ahead. He further notes that wholesale prices for such commodities as oil, gas, wheat, and copper haven’t fully been passed through, which he says means that consumers will be hit by even higher prices. Other inflation catalysts are said to be strong wage growth and spirited economic growth overseas.

* A surging oil price, which topped $78 a barrel on Friday. Mr. Larson sees $88 a barrel, plus $4 a gallon at the gas pump, coming very soon.

* Rising interest rates. Given inflation concerns, Mr. Larson believes the Fed is not about to stop hiking short-term rates any time soon. He expects the fed funds rate, now at 5.25%, to rise to 5.5% at the August 8 meeting of the Fed’s Federal Open Market Committee, and to rise to 6% in early 2007.

Mr. Larson, who like Mr. Steinhardt thinks the current erosion in stock prices is far from over, does not see a full-blown bear market. But with the pain spreading and an expanding list of stock groups doing poorly, he sees a down market through October, with stock prices (as measured by the S&P 500) falling about 5% on the year.

So how do you play the market? Mr. Larson’s chief strategy: Be cautious, defensive, and hold a high amount of cash. As such, he sees nothing wrong with Treasury securities and moneymarket funds. Based on his outlook for higher oil and precious metal prices, he thinks two good bets are domestic oil and gas biggie Hess Corp. ($56.02) and Canadian gold miner Agnico Eagle Mines ($34.75). On the theory that everybody has to eat, he also likes two food companies, Campbell Soup ($36.34) and General Mills ($51.91).

Given the market’s recent drubbing, money manager Leonard Mohr figures a strong rebound is only a matter of time. But Mr. Mohr, a principal of Los Angeles-based MCR Associates, says he thinks the rebound could be a trap, as he believes the basic market trend is down. “With what’s going on in the Middle East, we’re now in no-man’s land,” he says. “Since there is no end in sight to the fighting, who knows what’s next? The answer is no one knows, and let’s not forget about the risks from another unknown situation, North Korea.”

Not everyone is preaching caution. In the Fox Cable Network’s weekly Saturday morning lineup of business shows, several commentators in effect suggested caution be damned by aggressively pushing stocks, with one bellowing that the market is raining bargains. Not all its commentators, though, share this buoyancy. One dissenter is global money manager Jim Rogers, who recently told me, “We’re probably in a bear market.”