ROB BROWN SEES it coming like an approaching storm. The rest of us will see it in January.
And the results will be devastating, he warns.
What the 59-year old chief market strategist for Ferris, Baker Watts Inc. sees is a stock market plunge. He won't utter the "C" word, but he expects the market to suddenly drop by 10 percent, and then it could slowly decline by an agonizing 40 percent over the next nine to 18 months.
"I'm very, very worried about it," says Mr. Brown, who's been watching the market for nearly 30 years.
He's so worried that he's converted his personal investments into cash. Even his retirement plan has been stashed away in a money market fund -- a fact he ruefully mentions.
"This is the most conservative I've been in my entire life. I don't own any bonds or stock. I'm suffering with the small yield," Mr Brown says.
He wouldn't be so worried about the market except that millions of ordinary folks with little investing experience have jumped into stocks and mutual funds.
"I think a lot of people are caught up in this and are putting too much money in it," he says. "If we get a crash here, it would have a huge economic effect."
Many executives who run mutual funds and brokerage firms are also expecting the market to drop, but none has been as bearish as Mr. Brown.
Mr. Brown is conservative by nature. He paid cash for his 1986 Crown Victoria as well as for his home near Loyola College because he doesn't like paying interest on loans. But he reads the stock market with the eyes of a battle-tested veteran after surviving miserable markets in the 1970s and 1980s.
He says there have been three bull markets in the past 75 years, including the current one, which have chugged upward despite bad news and economic downturns. In the two prior bull markets, stocks increased sixfold, surged at the tail end of their climb and then crashed.
The first bull market ran from 1921 to 1929 and sent the Dow industrials skyward from 64 to 386 points. Then the market crashed, eventually taking the Dow down to 42 as the economy spun into depression.
"It took until 1954 for the Dow to come back to 386. That's a lifetime for a lot of people," Mr. Brown says.
The next bull market -- 1949 to 1966 -- grew another sixfold, before the Dow stopped at 995.
And then, during the energy crunch in 1974, the market fell some 45 percent.
Since 1982, the current bull market has risen from 776 to well above 5,000.
"Another sixfold move," Mr. Brown points out. "See the symmetry here? All of them were basically the result of industry revolution, dramatic productivity gains, booming earnings, which proved to be irresistible to the public. It lured them in right at the top. That is what I think is happening now."
"We are dealing with a lot of kids who have no gray hair. People say this time it's different. Those are the four most dangerous words. You hear that phrase almost always at the top of a big bull market."
Last Thursday the Dow reached its 69th record high this year to close at a head-spinning 5,216. Mr. Brown reckons this could be the market's last gasp before the plunge. As occurred before other crashes, he says, the market is ending a "runaway rally" with a last-minute surge before it falters and collapses.
"You see euphoric sentiment. Everybody feels that this is the gravy train. What happens is they all jump on at the tail-end," he says.
Mr. Brown says runaway rallies usually last about 25 to 30 trading days, and this one began Oct. 26 when the Dow was at 4,703 and ended when it hit 5,199 on Dec. 6. From here, Mr. Brown sees the Dow floating around above 5,000 and then dropping sharply in January.
He sees other warning signs:
* Auto, housing and retail sales -- three big engines that drive the economy -- are slowing down, portending lower earnings and more layoffs.
"These [stock] prices cannot be sustained without earnings," he says.
* Big money managers are dumping speculative stocks for blue chips such as Coca Cola, Merck & Co. and Procter & Gamble. Mr. Brown likes Wal-Mart Stores, American Brands and Weis Markets Inc., as well as Baltimore-based Town & Country Trust.
* Investors continue to pump money into the market even though dividend yields are a meager 2.3 percent based on the S&P 500.
"That is a sign of speculation. People feel they will get the capital gain," he says.
When the storm hits, Mr. Brown predicts, it will rake households on Main Street harder than the brokerage firms on Wall Street, making it one of the most severe declines in decades.
"The market is an unforgiving, uncaring animal," Mr. Brown says. "The market is a cruel, cruel place."
