Almost every single economic indicator is declining markedly, he says. "And when we go into a recession with all the debt out there, this could be worse than your mother's or grandmother's recession.

"The consequences of being wrong could be really nasty," he says. "You have to entertain the possibility that things are different this time because we have not seen anything like this before."

Jerry Gray, chief investment officer at MAI in Cleveland, which manages about $1 billion for high-net-worth individuals, including some of the nation's best professional athletes, is worried. "We don't want to paint doomsday or panic scenario, but the next three to 12 months will be tough sledding."

While consumers for many years were able to borrow against their homes or pull gains from the stock market-or just feel wealthier because of the appreciation in those assets-that has ended. Consumers have run up their credit cards to the hilt, consumer debt as a percentage of disposable income is as high as it has even been, and banks and lenders are less likely to make loans, Gray says. "There is no place for consumers to go to continue their spending ways, and consumer spending is 70% of GDP," says Gray. "So our economy is likely to see flat to negative GDP growth for six months to a year."

With stocks down 12% from their all-time high and 7% for the year, Gray believes prices have yet to fully discount the recession. "Stocks could decline another 10% or 12% to fully reflect the damage," he says.

"The consensus forecast is that we will have a short, shallow slowdown, but we think it's going to be more painful than that." Gray says the Fed, by stating publicly that it will do whatever it takes to bail out troubled institutions, has likely avoided a deeply painful short-term panic and disaster scenario, but that the pronouncement itself reveals how dire the situation is. "And that won't fix the problem of the housing inventory being twice the level that it should be," he says. "That will take at least a couple of years to work out, so we're in for a longer period of slow times."

Gray says MAI's investment committee has lightened its stock exposure to the low end of allocations specified in client investment policy statements, and is specifically lighter on financial and consumer discretionary issues. "Eventually they will bring opportunity, but we think it's still too early," he says. Companies with large overseas exposure are attractive, he says, because growth will be stronger in Europe, Asia and South America than in the U.S.

Municipal bonds with a rating of A+ or better and backed by an insurer to gain a 'AAA' rating have been attractive, Gray says, because they yield 5% or 6% as a result of the credit crisis. Convertible bonds that sell at $80 but pay $100 if the issuing companies are bought are also out there, he says, and many of the issuers are likely to be acquired.  

Tim Kochis is one of just a handful of advisors active in the financial planner world who has created a multibillion dollar asset management firm. Kochis Fitz/Quintile manages $5 billion.

Kochis seems to have been prepared for the seemingly sudden change in sentiment gripping the U.S. stock market and economy. "If you perceive yourself as just being a citizen of the U.S., you could have a more pessimistic outlook than a citizen of the world," he says. "We don't see the U.S. as the only game. It's a worldwide game, and we have overseas allocations in client portfolios that are typically in the 40% territory." Kochis stresses that global diversification for his firm has been not a tactical but a strategic decision, taken many years ago. "We took a lot of heat in 1998 and 1999, when global markets did not keep pace with the U.S.," he says.