"One sector that looks particularly vulnerable to any pullback in credit is commercial property, which has boomed over the past year, helping offset the decline in residential investment and keep building workers in employment. Housing construction continues to plunge, while the rate of decline in house prices seems to be accelerating, with some experts forecasting falls of 20 per cent or more in real terms over a number of years."

This is a very valid point which briefly explains why I think it's too early to be jumping into high-dividend commercial real estate REITs. I think 2008 is going to be the year investors realize "nonresidential" doesn't mean safe.

"Ultimately, however, the fate of the U.S. economy lies with the consumer. 'The consumer so far is hanging in there but is not in great shape,' says Mr Feldstein."

I agree that the consumer isn't in great shape and I think that explains the powerful weakness displayed by most retailers in recent days. Money managers don't want exposure to retailers when the consumer will be cutting spending. Especially hard hit: those with high levels of debt-to-EBITDA.

I believe the concerns surrounding the stock market and economy as a whole are very valid. I wouldn't go as far as to say a recession is imminent; however, I think the chances of a slowdown in the economy affecting stock prices this year are very good. How should you play in this environment? If you're trading, don't try and call bottoms until strength is being displayed, and don't be afraid to bet against stocks that are already down significantly. If you're a longer-term investor, you need to focus on companies with strong balance sheets (ideally little debt) and a lack of exposure to real estate and mortgage markets. Toward the middle of this year, I think investors are going to receive a mouth-watering long-term buying opportunity in financials.

Be careful..."This economy is vulnerable."