History may never repeat itself exactly, but you wouldn’t know that from the spate of recent articles comparing our current economic plight to the worst economic contraction since the Plague. I confess to a grim fascination with the subject, which has had me brushing up on my U.S. history. It’s fascinating reading, even if you don’t have to get very far to recognize that the comparisons are pretty off base. There’s no doubt the global economy is under tremendous stress with still-indiscernible consequences, but the Great Depression this is not.

This seems so obvious that I’m not going to dwell on the well-intended but seriously misguided economic policies that made the Great Depression so bad, and recent steps that should help ease the stresses that have developed this time. But for the sake of our parlor game, let’s cast all that aside. Let’s say we are in another Great Depression and that markets will be every bit as bad as they were then. What should investors do?

For stock investors, the headline for the Great Depression is usually that the S&P 500-stock index lost 86% of its value, falling from 31.86 on Sept. 16, 1929, to 4.40 on June 1, 1932. Obviously, it was a terrible time to be holding stocks.

The early years of the Great Depression were marked by deflation, or falling prices, a relatively rare occurrence during which bonds traditionally outperform other investment classes, since their interest payments buy an ever increasing number of goods and services. It’s the opposite of inflation, when the value of fixed-interest payments is eroded. U.S. Treasury bonds also offer almost risk-free returns. For the same reason, even cash does well in a deflation

This is from an article in the WSJ written by James B. Stewart…Basically this article was trying to help keep the people in the markets, especially in the T-bonds.