Amid economic gloom, where can investors hide?

By Jennifer Ablan

NEW YORK (Reuters) - Fears of a U.S. recession amid a weakening labor market, further credit tightening by sick financial institutions, and consumers constrained by soaring gasoline prices and deteriorating home values leaves investors with few places to hide.

The Dow Jones Industrial Average .DJI plunged almost 400 points on Friday as crude oil prices surged an astounding $10.75 to $138.54 a barrel on a new forecast that oil could hit $150 by July 4, as America's unemployment rate in May showed the sharpest monthly increase in 22 years.

Against that very ugly backdrop for the consumer, Wall Street banks face gloomy prospects.

Next week Reuters hosts 16 leading analysts, economists and strategists at its annual Reuters Investment Outlook Summit in New York who will discuss how much longer the credit crisis is likely to go.

"We went through systemic financial risk concerns and I would argue we are headed toward more idiosyncratic risk concerns of where it is more company specific," Tobias Levkovich, Citigroup's chief U.S. equity strategist, said in an interview with Reuters.

The sudden collapse of Bear Stearns in March continues to reverberate through the financial markets, as many wonder if Lehman Brothers LEH.N could go the way of its former rival.

"It seems that a lot of people want to break Lehman, but in my opinion that will be hard to do," Greg Peters, global head of fixed-income research and economics at Morgan Stanley (MS.N: Quote, Profile, Research, Stock Buzz) in New York, said after Lehman shares snapped three days of painful declines on Wednesday.

Indeed, losses at Lehman as well as rating downgrades of the world's two largest bond insurers, MBIA Corp (MBI.N: Quote, Profile, Research, Stock Buzz) and Ambac Financial Group Inc (ABK.N: Quote, Profile, Research, Stock Buzz) have reminded investors that credit problems are not in the past.

The Summit's group of prominent speakers -- which includes Morgan Stanley's Peters, who one year ago warned the Summit of the collapse in exotic structured credit products -- will also address the depth of the U.S. slowdown and if the overstretched consumer could sink the U.S. into a severe recession.

Abby Joseph Cohen, president of Goldman Sachs' (GS.N: Quote, Profile, Research, Stock Buzz) Global Markets Institute; Martin Feldstein, head of the National Bureau of Economic Research; and Henry Kaufman, founder and chairman of financial consulting firm Henry Kaufman & Company, Inc.; are among some of the other guests during the four-day Summit event, beginning on Monday.

The Federal Reserve flooded the system with cash in the wake of Bear Stearns, but not everyone believes that its aggressive moves will be enough.

"The Fed itself has contributed largely to the current debacle by failing to properly gauge and contain credit expansion in recent decades, while simultaneously providing only tepid oversight of commercial banking," Kaufman said. "We should therefore not see it (the Fed) as the ready savior in the current crisis."

Even the Treasury Department's $152 billion economic stimulus package, targeting consumers with tax rebate checks designed to encourage spending, looks to be negated by ever-higher gasoline prices.

Tom Lee, chief U.S. equity strategist for JPMorgan Chase & Co. (JPM.N: Quote, Profile, Research, Stock Buzz), will tell the Summit why the gloomy consumer is good for discretionary stocks, while Alan Ruskin, head of international strategy at RBS Greenwich Capital, will provide his argument on how the battered dollar has more room to fall.

Richard Bove, veteran bank analyst at Landenburg Thalmann & Co. and another Summit guest, said that despite the financial sector problems, some opportunities remain for investments in bank stocks.  Continued...