Probably one of the craziest suppositions now is to project a 100% gain for U.S. stocks over the next few years. After all, everyone, and I mean everyone is suffering big losses in the market this year and nobody truly believes equities will start a bull market any time soon.

Stocks can muster a convincing bear market rally following a crash. 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; 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.