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Let me explain what happened 30 years ago. We credit Paul Volcker with crushing inflation, but he merely moved it. Inflation had been moving into commodities driving up oil and gold. By raising interest rates through the roof, Volcker moved the inflation into financial instruments, setting off the bull market in stocks that began in 1982. The spigot of liqudity was never turned off. Instead, Reagan increased the flow through the spigot to win the Cold War. The bull market has always been driven by liquidity.

That bull market ended in 2007 if measured in curent dollars. If measured against gold, the bull market ended in 2000.

The flow through the spigot has increased, but the flow -- temporarily dammed in the banks -- is moving out of financial instruments and back into commodities. This will set off hyperinflation for things that you absolutely need (oil and food), but deflation for things you can live without (real estate).

The net result will see a bear market bottom around 400. Housing will bottom when a typical piece of real estate has lost 95% of its 2007 value, much the way it did during the Great Depression.