Last week, Pimco managing director Bill Gross was saying the US had already entered a recession.

"You know, if I had to be bold, and I can do that, a la Dow 5,000, if I had to be bold, I'd say we began a recession in December."

The biggest problem facing the US, he says, is the future liabilities in terms of health care and social security with the boomers retiring.

And certainly the future is not looking that good with the latest figures showing home prices plummeting. Prices of existing US single-family homes fell at a record pace in October, suggesting the housing slump is far from over. With too much supply and not enough demand, it's going to get worse. There will be no quick turnaround in 2008.

"So to sum up, housing is still a wreck, the consumer is still under pressure from high food and gas prices, the Federal Reserve is hemmed in because of commodity inflation and corporate profits are decreasing. This is not a good picture going into the new year,'' says Hale Bonddad Stewart at The Huffington Post.

And there are more signs that the contagion is spreading. Belts are being tightened all round with sluggish retail figures stealing Christmas. "Factoring out spending on gasoline - which soared thanks to a 27 per cent average price increase since this time last year - retail sales increased a lackluster 2.4 per cent. Industry forecasts had predicted gains of 3.5 per cent to as high as 4.5 per cent,'' reports The Wall Street Journal. The performance of Target, the discount chain which has warned of reduced December sales, is a case in point.

So what does this mean for investors? Some advice from Morningstar to recession-proof your portfolio: buy, don't sell; invest money at regular intervals to help bolster your savings when the economy starts growing again; put away three- to six-months' worth of living expenses in an emergency fund; make sure your portfolio is diversified and include stocks that do well in recessions, like health care and consumer staples. People still have to buy food and medicine. Stay away from cyclical stocks like industrial materials, media, and consumer services.

So if you are looking for buying opportunities in this market, here are some common sense rules.

First, beware of gearing calculations that drop out provisions to reduce the figure. Provisions for stuff like employee redundancy and future payments are liabilities, no matter how much it's dressed up in the fancy calculation. Just plod through the balance sheet, line by line.

Secondly, don't be fooled by claims that something is an asset. If it doesn't earn profits this year or the next, it's no asset. Regardless of whether it's tangible or intangible. Just ask yourself two questions: "How much could this be sold for?" and "Who would buy it?". If you can't think of an answer, it's staring you in the face.

And finally, beware of companies that capitalize their expenses to declare a profit. It usually means they're broke.