On the heels of a more than 330 point plunge in the Dow and a $3 drop in the price crude, which took the oil market below $50, today legendary Art Cashin warned King World News that the rout in stocks will turn into an outright panic if contagion spreads.

Eric King:  “Art, people are becoming increasingly concerned with the action in the stock market and also the crude oil market.  What should we expect from here?”

Art Cashin:  “Oil was almost in virtual freefall today when West Texas Intermediate (crude oil) went below $50.  That put extra selling pressure on stocks.  You will also notice that it put pressure on things like the high yield market, which has roughly a 15 percent exposure in the oil area.

The other concern is Europe and the rumor circulating that Greece might consider exiting the eurozone, and that Germany might consider letting them.  Now that may be people calling each others bluff, but the market was frightened enough to think that if Greece does it, then there is a strong likelihood that Italy, Spain, or Portugal might say, ‘Hey, we don’t want this austerity either.  We’re willing to get out (of the euro).’ 

So that spread the contagion throughout the zone and put the euro in real danger, which is one of the reasons it broke the 1.20 level so readily today.”

Eric King:  “So could we see the selling accelerate?”

Cashin:  “It could.  A lot will matter tomorrow morning with regards to what happens in Europe and also what happens in the currency markets.  The concern here is:  Does it develop into a kind of contagion?  That is why we saw aggressive selling today.

But the other thing that is going on here is it could well be that the people in Europe who couldn’t sell what they wanted to sell — couldn’t raise the kind of money they were hoping to — came over here and sold.  Because if you look at the DAX, the German market, if it was the Dow we would have been down 600 points today instead of 330.”

Eric King:  “When you talk about the contagion spreading, Art, how bad could that get?”

Cashin:  “Well, we all lived through (the collapse in) 2008.  Heaven forbid.  We’ve got to find out who is involved.  As Warren Buffett said, ‘It’s only when the tide goes out that you find out who has been swimming naked.’  So there is a lot of discovery still to come here.”

Eric King:  “So with the Dow coming off the 18,000 level, I’m assuming you feel the vulnerability to the downside is quite large if that contagion spreads?”

Cashin:  “There is vulnerability and I don’t want to turn it into an outright panic, but you can see there have been strong moves here at a time when the market seasonally should have been making bullish moves — the Santa Clause Rally and whatever.  So this is more than unpleasant and coming at a time when it shouldn’t.”

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Eric King