Great Depression v2.0: Road Ahead

More and more small facts are telling me we are there already. Deflation, including core CPI deflation, is confirmed for October. It should be expecially comforting for those inflation hawks who shouted that core CPI is a hoax and full CPI is the only real inflation indicator. One of those is Paul Volcker, former Fed chief, who successfully fought inflation in the end of 1970s and beginning of 1980s. He is a great man, but disaster in waiting if Obama appoints him Treasury secretary. He is a general who successfully fought last war, with inflation. We have deflation now.

Consumers are on strike. This is serious. Latest poll in Minnesota results: average consumer is going to spend 11% less on Christmas shopping than last year. Year, we are thrifty here, in the Midwest, but double digit figure is scary. And unemployment situation in Minnesota is better than average in the country.

Oil dropped below $50 today. I was bearish on oil since May, but never believed it can fall so low so fast. Hell, I didn't believe it can go below $50 at all.

Stock market dropped below all reasonable levels, but technical indicators tell me that it has a lot more to drop.

Bond market still in disarray. Although LIBOR is at reasonable level right now, bond issues are sold at huge premiums.

Treasuries are insanely expensive. They are at Great Depression (yes, that first one) level.

When is it going to end?

We need to go through usual 5 phases: denial, anger, bargaining, depression and acceptance, before things get better. Right now almost nobody is in acceptance phase (OK, I am. And Todd Harrison is pretty close). Most people, and, more importantly, most decision makers, are still in denial phase. Some are in anger phase, Congress for example. Some are bargaining: auto makers, Jim Cramer. Although Jim is moving to depression phase quickly. Just two more steps, Jim. Two small, easy steps.

We will start getting out of depression when acceptance becomes common. It will be very easy to spot: there will be articles in all major newspapers and magazines (those which survive): "We are in a Great Depression II!" It will be the greatest time to buy stocks. The question is: are we going to have any money to do that?