But the lessons of the market from the Great Depression tell us that a 100% gain isn’t impossible. Stocks can muster a convincing bear market rally following a crash. And this last occurred in the 1930s as the Dow almost doubled between 1933 until 1937.

Investors forget that previous secular bear markets – even during the Great Depression – resulted in formidable short-term gains for bottom fishers. Stocks might still break their October 2002 lows before stabilizing or reversing.

At some point; however, the market will rebound, if only for 12-36 months. If you believe this economic recession will be severe – and I do- then it won’t be a straight line down for stocks.

I continue to focus on the 1930s for historical guidance today because it was a full-blown credit crisis accompanied by bank failures, massive deflation and a double-digit decline in GDP output.

In many ways, the situation now is far worse than back in the 1930s simply because the debt super-cycle is colossal. Governments, businesses and individuals hold more net debt than at any other time in history.

Deflation, which has arrived with a vengeance since July, makes debt servicing more expensive because assets they represent become harder to finance in a contracting economy. Those same assets, including real estate and stocks, for example, continue to decline in value further compounding the cost of borrowing or debt servicing.

From its peak in 1929 until 1932, the Dow Jones Industrials crashed a cumulative 86%. But starting in 1933 the Dow raced ahead with a 66.7% gain. From 1933 until 1937, the Dow doubled in value. By 1937, the global economy began deteriorating once more combined with political turmoil in Europe. The Dow plunged 33% in 1937 and began a five-year bear market until 1942.

But if an investor bought stocks in late 1932, he still would have been sitting on a profit by the end of 1937 – despite the big drop that year. It’s a different story if an investor bought equities in 1929; where he would have waited 25 years to break-even.

Guessing the market’s direction is largely a waste of time and I don’t scratch my head every day wondering where stocks are heading. Yet it’s instructive to see what happened in the early 1930s because we’re on the same path. And judging by the last deflation, we’re probably going to see new lows first for stocks followed by a major rally in the context of a secular bear market, similar to the 1933 to 1936 rally.

Source: Revisiting the Dow’s 1933-1936 Rally

Stores like Whole Foods (NASDAQ:WFMI) and Trader Joes are watching their customers head to low-cost competitors like Wal-Mart (NYSE:WMT) and Safeway (NYSE:SWY).

It is no surprise to see an ultra-cheap retailer like 99 Cents Only Stores (NYSE:NDN) climb its way to the sole spot on the list of companies reaching 52-week highs today. The global economic crisis has actually been the best thing to happen to the company’s share price in a long time.

The rationale behind the positive run is obvious. When the economy is in the gutter, consumers have less money to spend on the things they need. So they go to the cheapest retailer they can find.

A wino’s delight

When we need a toothbrush, why spend $4.99 on a fancy name-brand brush when you can get one for less than a buck?

Or how about cleaning supplies? Or stationary? 99 Cents Only even sells bottles of wine at its namesake prices.

Of course, 99 Cents Only is not the only ultra-cheap retailer doing well these days. Dollar Tree (NASDAQ:DLTR) and Family Dollar (NYSE:FDO) are both multi-billion dollar companies making their investors money over the past few months.

While these companies may appear as an oasis in a desert of losses, investors need to use caution. All three stocks have gotten a lot of attention lately and are becoming overpriced.

****** Oil at $70 a Barrel — Gold at $500 by Christmas? ******
With stocks as volatile as nitroglycerin, gold should be trading above $2,000 an ounce! But the dollar insurrection has shaken up the commodities markets. Some experts now put gold’s downside at $500… even $400.

What if they’re right?

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For example, after more than doubling its share price since July, 99 Cents Only has a price-to-forecasted-earnings ratio of over 30. If the next earnings report misses expectations by only a small margin, shareholders could be in for a sizeable drop.

Granted, sales have increased over the past three months and are likely to surge even higher during this quarter, but the competition is catching up. Traditional retailers, which are often slow to react to economic waves, are finally making moves to target consumers during a recession.

Eye-catching sales and incentives are drawing cash-conscious consumers back into retail stores. Beyond that, ultra-discounters do not offer all the products consumers require. They will still head to the more-expensive “big box” stores for their needs.

Consumers are changing their habits, leading savvy investors to follow. Track the trends and invest appropriately and you could be one of the traders celebrating a 52-week high today.

Source: Cheap date: 99 Cents Only Store (NYSE:NDN) hits 52-week high