Perennial disappointments are part of everyday Wall Street life. But a particularly large one could be in the offing, Oppenheimer & Co.’s veteran chief investment strategist, Michael Metz, told me over the weekend.

Mr. Metz is predicting a blockbuster 1,600-point plunge in the Dow over the next two months, reflecting his view that a long-term recession is brewing.

Following Friday’s announcement of the August shortfall in job numbers — which sent the Dow skidding nearly 250 points — “there is now a 90% chance we could go into a recession, not for just a few months, but into a long-lasting recession,” Mr. Metz says.

The chief reason is his expectation that consumer spending will turn sour and be weak for at least the next two years. He views the August employment numbers — a loss of 4,000 jobs versus an expected gain of about 100,000 new jobs — as a real shocker that indicates, he believes, that the economy will continue to weaken.

Adding to the prospects of a recession, he says, is further deterioration in housing, plummeting consumer confidence, and an increasingly volatile market environment.

Not surprisingly, Mr. Metz sees hurricane weather ahead for stocks. “We’ve seen the high of the Dow range [14,000] and we’re now in the midst of a sharp decline down,” he says. His outlook: a possible drop in the Dow of as much as 1,600 points from Friday’s close of 13,133.38, to 11,500–12,000 over the next two months.

Major catalysts for this projected decline, he says, will be substantial withdrawals of funds from hedge funds, which he views as a big overhang for the market over the next several weeks, and a flurry of reductions in analysts’ earnings estimates, which he notes have been much too aggressive.

Helping to fuel Friday’s big loss was the market’s failure to stage a rally soon after Labor Day, when the Wall Street crowd was back on the job full time. The general expectation was that the Dow, hovering at the time in the high 12,000s, would soon streak to 15,000, posting a spirited post-Labor Day rebound in stock prices from the 9.4% thrashing the S&P 500 experienced between mid-July and mid-August.

The reason for the optimism was the decision by the chairman of the Federal Reserve, Ben Bernanke, to cut the discount rate and by President Bush to don his fireman’s hat and come to the rescue of battered investors and beleaguered homeowners by addressing the widespread liquidity and mortgage worries.

Looming as well in the background was another big market plus — the strong likelihood of an imminent cut in interest rates. Many pros felt it was a virtual certainty that the current Fed funds rate of 5.25% would be reduced by 25 basis points, or maybe even 50 basis points, at the September 18 meeting of the Federal Open Market Committee, a move designed to alleviate credit concerns further.

As a result, the general thinking around Labor Day was reasonably buoyant, with many pros surmising that once investors came to realize that the credit, housing, and subprime crises were no longer crises or at least were solidly contained, it would be up and away again for stock prices.

Sounds good, but the market never did follow this cheerful investment script. Instead, it weakened in the face of further deterioration in housing, plummeting consumer confidence, and a crummy August employment report.

Given his glum economic outlook, Mr. Metz tells me: “I would be very cautious and very selective in any new stock purchases; this is a good time to raise cash.”

The New York economy could be in for tough going, he says, given his belief that real estate and key financial areas, notably investment banking and insurance, have peaked. “I think commercial real estate is the next shoe to drop,” he says. He also expects the city’s tax revenues to come in lower than expected over the next year or so.

Is there anything he would recommend to clients? Mr. Metz is gung ho on gold, energy, and top American companies with big overseas operations that can capitalize on the falling dollar.

“Gold [which recently jumped to a 16-month high of more than $700 an ounce] is the real thing this time,” Mr. Metz says. Based on the skidding greenback, which he attributes to a growing overseas belief that the Fed has thrown in the towel in its battle against inflation, he tells me he expects gold to top $1,000 over the next six months. His top gold suggestions are an exchange-traded fund, StreetTracks Gold Trust, and Barrick Gold Corp., the world’s largest gold producer.

As for energy, he opts for exploration and production companies with big holdings in politically safe countries. His favorites are ConocoPhillips and Chevron. “I don’t know how high oil is going, but I don’t see it going lower, and oil stocks are not reflecting the current $76-a-barrel price tag,” he says.

His top picks with large overseas operations: IBM, Johnson & Johnson, and Procter & Gamble.

Meanwhile, Mr. Metz’s bottom line seems clear: Watch out. That missing rally could turn into a rut.

dandordan@aol.com