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The Crash that Was

Reader Comment #2 on Chinese Rooster Year Outlook, Part 2

by Ronald Vida
February 21, 2005


About the collapse of the dollar--it did:

Most bearish analysts (including me) have thought that a severe correction in the stock markets is long overdue. I predicted a crash in January, 2005. In January, investors pulled out $29 Billion--and stock prices barely budged. There should have been a crash. The crash would have set off a series of events as you describe in Rooster 2. The crash didn't happen. What in the world is going on?

Well, believe it or not, the crash DID happen. Stocks are worth about 40% less today than they were 2 years ago. You are probably asking, "How can that be? Stock prices are about the same as they were 2 years ago." I didn't say that stock prices had crashed. I said that stock values had crashed. Let me explain.

Over the past couple of years, Alan Greenspan and the Fed have been quietly devaluing the dollar. The vast majority of Americans haven't even noticed. Only if one travels to, or trades with a different economy do they see that their dollar is only worth 60% of what it was two years ago. People in different economies who invest in dollar-denominated securities have seen their securities shrink 40% in value.

American stock prices are denominated in dollars. Therefore, the true value of American securities is 40% less than it was 2 years ago. Stock prices have stayed about the same as they were 2 years ago, but each of the dollars that make up the stock price is worth about 40% less. This devaluation means that stock prices must rise about 40% in order to have the same value they had 2 years ago. The crash DID happen! Stock values dropped 40% because of the devaluation of the dollar, but stock prices stayed about the same.

Well, you ask, "Why didn't stock prices crash when investors pulled out $29 Billion in January?"

The Security and Exchange Commission (SEC) has put a temporary trading rule in effect called the "trade through rule." This rule says that every stock trade must take place at the highest price offered on any American exchange, not just the exchange where the sale originated. This rule has the following effects on stock transactions and monetary policy:

1) It damps the hell out of market volatility (especially downward volatility) and makes American stocks very attractive to foreign investors (because of the favorable exchange rate for foreign investors).

2) It tends to make stock values part of the national money supply because the SEC "trade through rule" means that the government is controlling what used to be free markets.

So, stocks are now part of the money supply, and with all that additional "new money" from stocks in the money supply, something had to give, and it did. The value of each dollar is less. The dollar has been devalued.

So which is better? Free markets and a stock market crash or, government interference, devaluation of the dollar, and no crash. You be the judge. Personally, I think that Greenspan, the Fed, and the SEC did a good thing.

About the lake triggering an earthquake--it could, but not because of downward pressure:

The density of water is much less than the density of rock. So a nearby mountain would exert more pressure than a lake. The downward pressure of water in a lake is very small compared to the downward pressure of water in the deepest part of the Pacific.

The way a lake COULD trigger a quake is by changing ground water patterns below the lake and lubricating shallow plate boundaries so that they could shift to relieve pressure.

About the earthquakes--they've begun and will continue:

During the solar maximum of 2000, the sun's magnetic field inverted, and is now opposing the magnetic field of the earth. The earth's magnetic field is the result of currents of loosely bound electrons in earth's molten iron core. The magnetic field is a force field (you can push one magnet around with a second magnet). The solar magnetic field is messing with the earth's magnetic field, and the currents in earth's molten core. This is bound to break loose any of earth's plates that are on the verge. Will we see the big one? The sun's magnetic field is no stronger in this cycle than it has been in other recent cycles.

About your fearful fantasies--blame that on the sun too:

When the sun's magnetic field opposes the earth's, the strength of earth's field is diminished. Along with the physical earth changes that result, animals and people are also affected. Dolphins and whales beach themselves, homing pigeons can't find their way home, bird migration patterns are affected, and people's inner compasses are slower to point north as people move around. This causes a feeling of uncertainty in humans, and increases their fearfullness.

The change in each person is tiny, but humans are very sensitive to changes in other humans. It is sort of a chain reaction. If you are uncertain, but everyone else is "normal" you will probably think you are having a bad hair day. But, if you are uncertain and fearful, and every other human you encounter is also uncertain and fearful, it snowballs in every person. It's times like these that set up people for global panics and wars.

About global warming--blame that on the sun also:

Since the last solar maximum in 2000, the percentage of ultraviolet light in the sun's output has been higher than in the recent past. Haven't you noticed how much brighter things appear in the sunlight recently? It's because of the sun's higher ultraviolet output. The output is now high enough to trigger the color changes in those "Transistion" sun glasses that turn from clear in shade to dark in sunlight. When the ultraviolet output drops back down, those sunglasses will stop changing from clear to dark.

In the spectrum of light frequencies coming from the sun, the ultraviolet frequencies contain the highest energy. When the sun's ultraviolet output surges, so does the total amount of energy reaching earth, and Voilá!, the earth's surface and oceans heat up (and we see all the changes that we blame on global warming). The earth is warming because it is receiving more energy from the sun. It's not necessary for you to stop driving your car.

My Advice:

Just realize that the sun is jerking us around right now, relax, and try to not let it interfere with your thinking. And, try to calm other humans that you encounter.

Ronald Vida

Turn off the TV and think!

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