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Ready for a Greater Depression?

It's normal for markets to disconnect from collective mood at major turning points, especially when turning in a negative direction. This is exactly what has been occurring for the past month or so. However, the extremity of the current disconnect is quite unusual, and implies a vulnerability to destabilization in the markets unlike anything we have ever seen. Imagine the crash potential as a loaded spring, waiting for the slightest nudge to set it off. Anything could do it: a terrorist attack, geopolitical tension or escalation, a natural disaster, or even simply that the market is "overbought." Compare the current crash potential (see chart) to the crash potential just before the sharp September/October 2008 sell-off.
Market Crash Potential - Oct 22, 2010

The likelihood of an extreme market sell-off, or crash event, before the end of the year continues. While it is conceivable that some artificial mechanism could continue to prop up the stock market, the most likely scenario, the path of least resistance, is for the pressure of this wide gap to be relieved.

Everyone has heard of the 1929 stock market crash. What most people don't realize is that the really big losses came after the initial recession and recovery-- the 1930's were the era of the Great Depression. While Main St. may have little remaining interest in the stock market directly, the growing spectre of a Greater Depression should at least give people pause. What will our culture of individuality and independence do in the face of 20% plus unemployment? Will we find the means to adapt to a period of chronic economic slowdown and decline? There is every indication that this is the direction we are heading. Ready or not...

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