Nouriel Roubini (economist at NYU) appears to be the man with his finger on the pulse of this crisis.  He has been way ahead of the curve on many issues:

• Predicting a very bad housing bubble collapse
• Predicting that subprime would not be contained and it would spread through the financial system
• Predicting Freddie and Fannie would get in serious trouble
• Predicting that total credit loses would reach $2 trillion

On most of these he has been so far ahead the curve he has been labeled Dr. Doom. 

His most recent predictions include (http://www.rgemonitor.com/blog/roubini/) :

The next stage will be a run on thousands of highly leveraged hedge funds. After a brief lock-up period, investors in such funds can redeem their investments on a quarterly basis; thus a bank-like run on hedge funds is highly possible. Hundreds of smaller, younger funds that have taken excessive risks with high leverage and are poorly managed may collapse. A massive shake-out of the bloated hedge fund industry is likely in the next two years.

And;

The real economic side of this financial crisis will be a severe US recession. Financial contagion, the strong euro, falling US imports, the bursting of European housing bubbles, high oil prices and a hawkish European Central Bank will lead to a recession in the eurozone, the UK and most advanced economies.

European financial institutions are at risk of sharp losses because of the toxic US securitised products sold to them; the massive increase in leverage following aggressive risk-taking and domestic securitisation; a severe liquidity crunch exacerbated by a dollar shortage and a credit crunch; the bursting of domestic housing bubbles; household and corporate defaults in the recession; losses hidden by regulatory forbearance; the exposure of Swedish, Austrian and Italian banks to the Baltic states, Iceland and southern Europe where housing and credit bubbles financed in foreign currency are leading to hard landings.

Thus the financial crisis of the century will also envelop European financial institutions.

It appears the run on hedge funds has started (Hedge funds suffer mass redemptions, Nick Clark):

Hedge funds could have an unprecedented level of cash pulled out by investors this quarter, according to insiders, just as they faced millions of pounds of losses from last week’s shock regulation of short selling. It has been a tough year for the industry with high-profile funds blowing up, clients increasing redemptions, as well as public fury over short selling and increased threats of regulation.

Is the severe recession far behind?  My bet is no, it is not far behind, as unemployment is rising, housing does not have a chance of coming back any time soon, and an entire sector of the world economy, the shadow finance system, is no done. 

I’m 70% cash right now and I wish I would have went 100% when I moved the money last fall.  I may pick and choose some stocks over the next few months, but I will not be getting into any mutual funds.