The world's economies are undergoing a massive de-leveraging and contraction process.  That process results in slower growth, or worse, recession.

To be fair, the market in its current form has been anticipating an economic slowdown, but that slowdown was expected to be shallow and short lived.  The bulls on the market have long ago assumed that this recession would end by the end of the year with smooth sailing thereafter.

That was before Wall Street collapsed leading to the $700 billion bailout from the government.  And as I have said before, the market is reacting to this seismic shift in the potential for the future as if it was a mere squall that will come and go with little impact.

To state that there will be little impact from the events of the last two weeks is almost laughable, and that's why I say that in this situation the typical snapback rally may not arrive for some time, if at all. (See also: "How to Play the Wall Street Bailout.")

It is not too late to sell.

In order to gauge the impact of this event on the economy, one need only turn to the experience of Japan in the 1990s.  They call it the lost decade for a reason.  Japan's economy was stagnant for 10 years in the aftermath of a real estate induced bank crisis.

Sweden on the other had experienced a deep recession for two years when in the early 1990s its banking system nearly collapsed.  Its solution was a much more aggressive version of what we are now seeing in the United States.

The deal agreed to over the weekend may or may not stem the tide in the credit markets.  There they are already behaving as if we have reached the abyss.   How else would you describe investors buying Treasury bonds in return for zero yield?

Washington Mutual (WM) was taken over by the government and sold to JPMorgan so as to avoid a crunch on the FDIC insurance fund.  The same happened with Wachovia (WB) on Monday when it was announced that it would merge with either Citigroup (C).

The dominoes are falling.

Go ahead and stay calm and patient as long as the wisdom of sage advice is now directing you to do so.  Keep believing that this mess will have little impact on the economy.

Or, liquidate your longs in order to preserve your capital from another 10-20% deterioration in value with little hope for recovery.  Such action would not be panic.

It would be Rational.

This article was written by Jamie Dlugosch, contributor to InvestorPlace.com. For more actionable insight like this, go to: www.InvestorPlace.com.