The Dow at 7,200? Superbear’s Scary Roar

“The bear is dead; long live the bull.” The words varied, but that was the prevalent message — or perhaps hope — throughout Wall Street following Wednesday’s 207-point surge in the Dow Industrials and yesterday’s spirited follow-up stock buying.In brief, the market’s renewed strength, spurred largely by a sudden retreat in the price of oil from the recent all-time high, has created the belief a major and sustained rally is under way.Such a view is hardly astonishing, as most Street pros rate the market deeply oversold after its wicked nine-month drop of 23%, or about 3,200 Dow points.The idea of a sustained rebound is ridiculed by Wall Street’s superbear, veteran Florida investment adviser Martin Weiss, who describes it as nonsensical. “Anyone who believes such dribble is living on cloud nine,” he says.Street bears are a dime a dozen, but none of them is more frightening than Mr. Weiss, whose current outlook — a horror story for investors — calls for another vicious drop in the Dow, to 7,200. That would be equivalent to another 4,446-point loss, or about a 37% decline from current levels.If you’re about to say that’s insane, don’t. As a crystal-ball gazer, Mr. Weiss’s prowess should not be taken lightly. I last caught up with him in February, when he told me: “American stocks are in a new bear market and anyone who believes otherwise is living on another planet.” Given the subsequent 23% decline, he was dead right.In addition, he has made a string of impressive calls in recent years, including such on-the-money forecasts as a housing market crash, a sharply slowing American economy, a big run-up in oil and gold, a collapse in bond insurers, and a surge in such foreign markets as China and Brazil.In the past six and a half weeks, jittery investors, reacting to the market’s nonstop erosion, went on a panic-like selling spree, unloading an estimated $21 billion worth of American equity mutual funds.Mr. Weiss applauds the selling, asserting that “the dire economic and financial conditions in America are now equivalent to those of 2002, or worse” (a reference to the year of the Internet debacle).Mr. Weiss, editor of the Safe Money Report, a monthly investment newsletter in Jupiter, Fla., has become even more alarmed since we last spoke, noting: “We’re losing jobs at the rate of 73,000 a month (438,000 so far this year). In addition, banks and lenders have closed the credit spigot to both companies and individuals, making it difficult to get a loan or a mortgage.” That, he says, is what recessions and falling stock prices are all about.Mr. Weiss insists America is “in a deepening recession that eventually will be declared retroactive to this point in time. Making matters worse,” he says, “the nearly $400 billion in losses we’ve seen in financial institutions worldwide is just the tip or only one quarter of the iceberg.” The International Monetary Fund, he notes, estimates total credit and mortgage losses could ultimately run $945 billion, while some other projections peg the figure as high as $1.5 trillion.Citing, too, the great oil shock of 2008 and its impact on corporate profits, Mr. Weiss raises the potential threat, as have others, of bankruptcy for Ford, General Motors, and most major world airlines.“Face it,” he says. “You can’t have airlines practically shutting down, automakers collapsing, housing prices tanking nonstop, banks losing hundreds of billions of dollars, consumer confidence imploding, and joblessness rising without a severe impact on the broad economy.”Mr. Weiss says it all adds up to “a chain reaction of failures, massive layoffs (with the unemployment rate shooting up to 7% to 8% from its current 5.5% rate), and a panic in the Dow.”How does he figure a 7,200 Dow? Mr. Weiss reasons that if the index were to simply match the decline that has already occurred in the all-important banking sector, it would sink to the 7,200 level. Noting that the KBW Bank Index, which tracks the country’s largest financial institutions, has plummeted more than 53% from its peak, he points out if the Dow were to do the same thing — which he feels is not an unreasonable assumption — it would put the index back near its mid-October 2002 low of 7,197.Given his grim outlook, the obvious question is, what should investors do? Should they sell all their stocks and go 100% into cash?Mr. Weiss’s advice: Investors should sell a third of their stock holdings and put the money into inverse exchange-traded funds. These ETFs are designed to rise in price as various stock indices, market sectors, and emerging markets fall in price. He says his favorite such ETFs trade under the symbols SRS, REW, DOG, RYJUX, and SCC.Survival now is the name of the game, Mr. Weiss says, “and it’s better to be hedged than to be dead.”dandordan@aol.com

The Dow at 7,200? Superbear’s Scary Roar

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