Martin T Sosnoff: If You Still Have A Head Hanging On Your Shoulder, then do the following:

-Sell Real Estate Stocks
-Sell Banks
-Sell Stock Brokerages
-Sell All Growth Stocks
-Pull Money Out Of Mutual Funds

For neither will Real Estate get sold at artificially inflated prices, nor will the Banks ever get their money back from Real Estate related mortgages. Worse, not a single guy or research analyst in Bombay will tell you that earnings this year will not be growing 20 per cent, but may dwindle down to low teens. In such a scenario, not a single mutual fund will get spared as the market itself caves down by mid-summers to levels not considered possible in February 2008.

Six weeks ago, former President Bill Clinton stood in my living room and told me he expected Hillary would wrap up the nomination by Super Tuesday. He added that Mitt Romney looked presidential to him. All this from one of the greatest politicians of the 20th century.

Even the Federal Reserve Board and U.S. Treasury run scared as the contagion in credit markets leeches out of bounds. First, subprime paper deconstructed; then all kinds of collateralized debt obligations, unplaced leveraged-buyout paper and high-yield bonds already outstanding. Even investment-grade corporate debentures now yield 5.7%, and auction bonds find no buyers.

The municipals market is skittish, too. Mortgage insurers belch black blood from their disastrous diversification, guaranteeing subprime mortgage credits. They need enormous infusions of capital to cover losses from this still-deteriorating paper.

The size and scope of our financial markets' upset goes beyond the $200 billion savings-and-loan disaster and the south-of-the-border lending fiasco of our reserve city banks decades ago. The U.S. Treasury made savers whole on their savings deposits and ended up guaranteeing much of the sovereign loans to Mexico and South America.

Citigroup (nyse: C - news - people ) touched down around $10 a share; it's presently trading at $25, down from $50. Let's hope its broad-based franchise in worldwide consumer banking stabilizes the flagship office's trading writeoffs.

The market prices Citigroup, Merrill Lynch (nyse: MER - news - people ) and other financial houses on what it believes is core earning power--this is shaky ground. American International Group (nyse: AIG - news - people ) was forced by its auditors to take a $5 billion writedown on junk paper, and the stock dropped 10% overnight.

Additional writedowns by Wall Street houses won't go unnoticed. Their equities will be marked down in proportion to the hits their net asset values have suffered.

I liked the old Wall Street better. There were no PhD mathematicians triggering massive programmed trades, and house traders had limited calls on capital. Société Générale's trader could not have sustained a $70 billion open position in the futures market undetected by the bank. CEOs didn't award themselves $30 million bonuses one year and then face dismissal the following year when their businesses blew up.

Wall Street houses weren't public until Donaldson, Lufkin and Jenrette broke the ice. Before then, if the business collapsed, partners lost all their capital and moved to garden apartments in New Jersey. The elongated recession of 1973 to 1974 was a killer for anyone undercapitalized--there was no one swooping in from Saudi Arabia or China to bail out the Street.

The Heartland doesn't care that Wall Street and a bunch of banks shot themselves in the foot--but it should care. It's harder to qualify for a mortgage, credit card debt is still expensive, and the yield on money market paper--even on two-year notes--is under 2%.

The Federal Reserve Board has already signaled lower money market rates are in the cards. As the economy falters, I can see Federal Funds at 2%. So the real yield on money market paper falls below zero. Not good for all the country's widows parking capital therein.

The underwriting capacity on Wall Street now is strictly prescribed. You can't sell leveraged buyout paper, so deal activity is on hold. Alternative investment players like Blackstone and Fortress stand sliced in half by the market. Only well-heeled corporate giants, like Microsoft (nasdaq: MSFT - news - people ) and Google (nasdaq: GOOG - news - people ), carry the wherewithal to make mega deals.

Wall Street, littered with the carcasses of wounded beasts, impacts the stock market. Deal excitement carried the market through much of the 1980s, before Black Monday. Today, there's no speculation in the air. The backlog of old deal paper that never get placed runs into the hundreds of billions. It may take all this years to clear it out of brokerage house inventory--at a discount up to 20%.

The Street's security analysts are behind their economists in accepting recession as the most likely scenario this year. Earnings estimates for the market are coming down slowly.

I'm on the low side with a $90-a-share projection for the S&P 500 Index. If the recession bites deeply, I could drop down to the low $80s. The multiplier for the market will hang tough in the mid teens, with interest rates so low, but the possibility of a market in the low 1,200s, alas, is real.

I'm talking about taking another 10% off family wealth, which already sustained a $6 trillion hit from financial assets and real estate. Statistics on home inventories disturb me. The home builders' run rate on construction looks to be around 600,000 new homes.

Normalized demand is 1.2 million, but there are approximately 2 million homes in inventory for sale. And it could take a couple of years to clear at lower price points. To rationalize home prices bottoming out this year--even in 2009--remains a stretch.

I'm not the only one who believes the bottoming of home prices is the leading indicator for the end of recession and the beginning of a new bull market. It will quicken consumer sentiment and cap the rising rate of mortgage delinquencies.

Wall Street firms then have their day in the sun. But I don't believe it's around the corner, and thus premature to discount as a probability for the second half of 2008. Too many money managers are in this camp.

The month of January was a very bad year for me. There weren't 10 big surprises, but three or four were enough. Growth stocks abruptly started to underperform value properties. This wasn't my call.

Oil prices surged the past few weeks while I expected a fall to the $80-a-barrel level, not the $99 price point we're seeing now. Super growth stocks like Apple (nasdaq: AAPL - news - people ) and Google caved in. There's just no other descriptive terminology.

Airlines and natural resource properties outperformed high-valuation growth. You wouldn't expect this in a weakening economy.

I bought Delta and Continental because I thought oil was heading south. When talk of mergers in the industry stirred the pot, I got lucky. Vale (RIO) remains my top natural resource play--iron ore earmarked for China's steel mills.

Many of the health care stocks I bought as recession hedges lay dead in the water--Merck (nyse: MRK - news - people ), HMOs like Wellpoint and Aetna (nyse: AET - news - people ), even Celgene (nasdaq: CELG - news - people ) and Gilead are stalled out.

Sooner or later the market humbles all its players. The proper frame of mind is that if your reasoning is sound, the market will come your way, sooner or later. If your working hypothesis is wrong, you'll pay for it, and then change. Rationalizing yourself into the poor house is not exactly a viable option.