Great Depression 2.0: Acceptance is Spreading

I've been afraid of GD 2.0 for more than a year. I wrote about it in multiple entries of my blog:

Moral Hazard, Fairness And Other Bullshit
Depression: Great Or Not So Great
Great Depression v2.0: Missing Piece Of The Puzzle
Great Depression v2.0: Reason For Optimism
GD 2.0: Jim, We Are There
Great Depression v2.0: Road Ahead

Most writers and bloggers didn't see that depression and deflation were coming. They were afraid of inflation and even hyperinflation. Many continue to do the same even now. Come on, people! Wake up!

We need to move through usual phases to acceptance, as mentioned in the last article in the list. Acceptance is what can help decision makers in businesses and governments start to focus. And I mean multiple governments, because we have huge international depression.

Acceptance is coming. Jim Cramer almost mentioned that hated term, Great Depression. Now he lost hope in US government and his only hope is China. Good luck with communists, Jim! But you are close to acceptance at last, so that's good. Acceptance coming in some articles now. Yesterday there were two on Seeking Alpha:

This Great Depression Is Just Getting Started and Deflation: The 800-Lb. Gorilla in the Room.

But probably the most important is Paul Krugman's blog entry:

The second Great Depression has arrived …

Yes, Krugman is writing about Ukraine and Latvia. From my sources, the situation in Russia isn't much better. Anyway, acceptance of the fact (and the fact that depression is international) is coming.

And I am happy! That's what we need. We need acceptance first or nothing will work without it. Then we can get a real bull market real soon!

I'm waiting for the NY Times article "Great Depression II is here". When we see it, then it's time to buy, buy, buy. Doesn't even matter what, buy any decent companies. If you're not sure, just buy index funds, index options or index ETFs, like Spyders (SPY) or Diamonds (DIA). And foreign stocks, funds and ETFs. I'm planning on buying when this happens, going "all in" and even buying on margin. That would be a real once-in-a lifetime opportunity. Like it was in the fall of 1932.

But, I should caution. We are not there yet. I hope we get there fast, maybe sometime this year. Before that, it's a trader's market. And we can get new bottoms, and these bottoms might be much lower than what we had on November 20.

Full disclosure: At the time of publication author did not have any positions in SPY or DIA. Positions can change any time.

Comments

[bosun.j:]

All truth passes through three stages. First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as being self-evident.

Jan 07 06:19 AM

[sr9web:]

Alex, you said:

"[A]nd foreign stocks, funds and ETFs. I'm planning on buying when this happens, going "all in" and even buying on margin..."

When traders on your level do this and then the market falls out below them even lower, THEN we will reach the bottom

Jan 07 07:19 AM

[investor88:]

I am afraid Alex has hit the nail on the head when he says we have to accept GD II. Once there is general acceptance we can look upwards and invest/trade accordingly.

Going into 2009, it may be a good idea to watch like a hawk when the markets hit new lows eg at or below Dow 7500. Such times of new lows or testing the lows may be launching pads for a good rebound or more.

Jan 07 07:40 AM

[Crude Oil T...:]

Welcome to the new American economy. If crude is low, no one will have a job to pay for it. If crude goes up it will cripple the economy.

The word for the decade [and more].....urbanization... How do we trade around that. That's why we focus on crude oil.




crudeoiltrader.blogspo...

Jan 07 08:24 AM

[damonmcalli...:]

I think that further connecting of the dots needs to occur. A context of the situation at hand can be better grasped with a brief look at history. Hoover and Roosevelt injected huge sums into the economy, participated in price fixing and wage fixing with no real success. Neither president ever saw unemployment below 13%. A cataclysmic event of global proportions (WWII) had to occur where the manufacturing base of every major nation was effectively destroyed before the US pulled through the Great Depression. In conjunction with the US being a net saver at the time and policies implemented which limited the Feds ability to debase really puts into context the lasting effects of the Feds mismanagement of the roaring '20's. Now the gloves are off. There is no limited to the amount of debasement that can happen, the manufacturing infrastructure is gone, and the US has not been a bet saver in over a decade.

This is a whole new ballgame. Batters up.

Jan 07 08:40 AM

[AndrewBaker:]

I've been thinking GD2 for several months now, and have had to soften my giving of these tidings to clients (I'm a chartered financial planner) because either it scares them or produces a disbelieve response. Postings on investment websites concerning the poor state of certain financial companies have produced responses questionning my sanity or suggesting I'm trying to move the price (?!). Now, slowly, more commentators are addocisting themselves with the idea that we are going to suffer economically a lot worse than has to date been admitted. Shame of it is that the financial workers (bankers et al) and the politicians are the ones in charge, and that worries me more than anything else. We got here due to too much cheap money, and the cure seems to be more of the same!!

Jan 07 09:29 AM

[sieraromero:]

GD 2 has not arrived yet, but it is coming! We have not even began to see any of the financial disasters that are about to befall us. We haven't even fully acknowledged the problems that are leading to them yet. Indeed, there is still talk from the leading financial talking heads in the media that all is well and we should not miss not getting into the market and miss the great upturn unfolding before our eyes. Greed is still alive and well and you before you can fix a problem, you must recognize you have a problem! Good Luck to you all!

Jan 07 09:46 AM

[peterthepai...:]

www.telegraph.co.uk/fi...

"Schwartz warns against facile comparisons between today's world and the Gold Standard era. "This is nothing like the Depression. I don't really believe the economy as a whole is going to fall apart. Northern Rock has been the only episode of a bank failure so far," she says.

Over 4,000 US banks - a fifth - collapsed in the 1930s. There was no deposit insurance. Real economic output fell by a third, prices by a quarter, and unemployment reached a third. Real income fell by 11 per cent, 9 per cent, 18 per cent, and 3 per cent in the years to 1933...."

i post this...not as a dis on your article...but as a recommended read...p

Jan 07 10:53 AM

[carey_jim:]

I agree with your psychological analysis but I still think there is a lot of evidence for future inflation.

In the late 1920s and early 1930s, most of the political and economic pundits of the time, such as Joseph Schumpeter, Lionel Robbins and Andrew Mellon, feared inflation much more than depression. They got the unexpected.

In history, the unexpected often happens.

No one predicted the French Revolution and the rapid disappearance of the Ancien Regime.

No one predicted World War I and the subsequent rapid fall of Europe as a world power.

Very few imagined the complete and rapid collapse of communism.

In 1900, very few predicted the rapid pace of technological change in the 20th century.

The list goes on.

Fairly often in human history, rapid change happens and everyone is surprised. At least we should not allow ourselves to be surprised by that!

Jan 07 12:22 PM

[Socialism c...:]

People sneered at Igor Panarin's theory, which has made the news lately. I think his train of thought is right on...my only quibbles with his scenario is that his map of regions is a bit off. I think the U.S. federal government is on its last legs...at least in its current form. It's not that the Constitution or the basic foundations of our system of government are flawed...it's that they haven't been adhered to -- and a "right-sizing" and "correction" of major proportions is about to take place.

Jan 07 05:06 PM

[realold:]

The conversation on how to approach stocks in a second great depression is amusing. As a kid whose parents, grandparents, great-grandparents were still around and talking about the GD and WW, I think that most people seem to have no clue. They survived the misery by plowing with a mule to grow food, picking cotton for a few cents, and casting tools from raw metals. Going into the GD, one side of the family owned a hotel and resturant, the other was an engineer. The last thing they (and you) would care about is picking the bottom in stocks. Better that you should work toward not seeing a GD2, or starting sharpening your agriculture and tool making skills. Move to a rural area. Learn to love eating horse feed. Stocks, forget about it.

Here is to those who would work to avoid the GD, not their fantasy of profiting from it.

Jan 07 05:20 PM

[WAKEUP:]

I accepted this direction early, approximately six months ago, and I'm gearing my actions based upon the certainty that it's all over, for the way we've been spending money. Virtually every product (except for possibly wildly extravagant things that I can't afford, anyway, and would not pay that much for, if I could afford it) is going to cost much, much less, going forward so far that I can't even see the end of it. Cash will be THE ANSWER. Keep your cash close, because it's going to go unbelievably further than most living human beings can remember. One example: Within two years, most new cars will be selling for half what they were priced at, in early 2008. Riciculous, you say. Yeah, that's what I was told, last year, when I said that I thought house prices would inevitably drop 50%, which is now headed this way, at runaway train-speed.

Jan 07 07:49 PM

[the ilster:]

I agree but we may see a whole new currency by then

Jan 07 09:24 PM

[briacal:]

I have been preparing myself for the worse;but I also like to cling to some of the good news that have been emerging lately

Jan 08 12:37 AM

[igggy:]

Hm, sorry but cars weren't appreciating at a 30% rate a few years ago like houses were. So I don't see car prices falling 50%.

Muni funds are the way to go right now. You get a decent yield, no taxes, likely price appreciation, and Obama's protection.

On Jan 07 07:49 PM WAKEUP wrote:

> Within two years, most new cars will be
> selling for half what they were priced at, in early 2008. Riciculous,
> you say. Yeah, that's what I was told, last year, when I said that
> I thought house prices would inevitably drop 50%, which is now headed
> this way, at runaway train-speed.

Jan 08 01:30 AM

[Kunst:]

Money creation, dollar devaluation, inflation. We will be poorer, but we'll have more dollars, not less, and prices will be higher, not lower.

Jan 08 01:49 AM

[Gedankonomist:]

"Acceptance is coming. Jim Cramer almost mentioned that hated term, Great Depression. Now he lost hope in US government and his only hope is China. Good luck with communists, Jim!"

Good luck with the communists in this country. Look at the 10 planks of the Communist Manifesto. See how many of them have been adopted here.

Yet if a prophet comes and tells you to turn from your evil communist ways, and root out the evil from your government, what do you do?

You kill him, of course. Look what you did to McCarthy, and what you still do to him. Lord have mercy on the USA. It truly deserves to be destroyed.

Jan 08 02:40 PM

[WAKEUP:]

On Jan. 8, 2009, at 01:30 am, dtv999 wrote, "Hm, sorry but cars weren't appreciating at a 30% rate a few years ago like houses were. So I don't see car prices falling 50%." I don't know why dtv999 thinks car prices won't fall 50%, despite the fact that "...cars weren't appreciating at a 30% rate a few years ago like houses were..." The reason that car prices will fall 50% is that car buyers are getting to be somewhat of a rarity, already, and in two years' time car prices will be down 50%, for the simple reason that dealers and anyone else trying to sell cars will HAVE TO DROP THE PRICES THAT MUCH, in order to sell any cars, at all. Anything, even a Mercedes, is only worth what someone is willing (AND ABLE) to pay for it.

Jan 08 05:44 PM