Here's the letter.

"Are the Chinese stocks starting to rollover again and crash? And will this make Greenspan declare a world emergency and stop raising interest rates? And how did some hedge funds in the Caribbean step up to the plate and buy $23 billion in debt instruments in February and save the US dollar when central banks around the world started to diversify? Inquiring minds want to know. Please clarify this, Bill."

You can re-read my reply, which I published.

Then I received another letter from this individual, which showed me, here is a person who really sits back and ponders issues:

"Thanks for your response to my e-mail. I know that you are right concerning a correction coming because of higher interest rates. The question for me is where does it start, how deep and diverse is it, and will it have consequences that the average Joe in the US, China, and around the world feel. Will the correction start in the English speaking housing markets around the world, which are grossly overvalued, and take down their stock and the world stock markets and will the financial engineers be able to create a new bubble of wealth for average Joe so that final demand does not dramatically sink worldwide? Or is there a hedge fund in the Caribbean that is a proxy for the US government (Greenspan was against the disclosure and registration of any hedge funds) that is creating dollars out of thin air and buying long term US bonds so that there is a window of opportunity at the long end for homeowners homes at negative real AND negative nominal interest rates, thus ameliorating the damage and greasing the slide into stagflation? Remember this real estate bubble in the US is 100 times worse than that in the 1980's, and the savings and loan scandal has been replaced by that of Fannie and Freddie Mac, and their friends."

So I asked him/her for a bit of personal background, which I very seldom do, and was told the writer/reader is a retired doctor. More correspondence followed:

"Concerning whether or not Greenspan should be observed, Paul Volcker said after the crash in the emerging markets in 1997 that Greenspan mismanaged the world economy. Instead of swapping US debt instruments for emerging market debt, the only country he did it for was Mexico, which had a negative savings rate of 26% at the time. Countries like Malaysia, Thailand, Indonesia, and Korea had positive savings rates from 20 to 46%. Greenspan saved the New York banks that had just invested heavily in Mexico, and the crash in all other emerging markets allowed Greenspan to lower interest rates and provide the final leg to the bogus bull market of the 90's. This crash of course greatly benefited the bondholders of US debt including the entire personal portfolio of Alan Greenspan's "blind trust". It also caused the trade deficit to soar exponentially. So where do we go from here, I don't know. But I feel something has to pop. But probably not everything. Something will thrive from the disaster just like the mammals after the dinosaurs were annihilated or like Death Valley which is in a sea of flowers some of which haven't been seen in 100 years after the torrential rains hit California."

I don't know much about this individual, but what I do know is that there are a few million like him who have turned a bit jaded by the actions of political representatives, monetary authorities, sell-side "advisors" and financial media.

So, I'm going to try to give a serious answer tomorrow. Believe me, I don't have a word of it written today, or I would present it here, now.

These letters, though, brought back memories of Paul Volcker, the man (has there ever been a woman?) who served as Chairman of the Board of Governors of the U.S. Federal Reserve System from August 6 1979 until his resignation on August 11, 1987.

Volcker's job was to kill inflation, and gold prices, which he did, and he stayed until two months before Black Monday October 19, 1987, when the equity market crashed. So, yes, I remember Volcker.

I remember in the summer of 1982 working at Dominion Securities Investment Management (now RBC DS), having called the bottom of the long-term price cycle in Canadian equities in May in the Canadian Doctor publication for April that went out to over 50,000 doctors. I was feeling good that U.S. equities would start to move any time.

By mid-August I was hearing from my friends who worked the trading desk at some of Canada's biggest investment firms that Dr. This and Dr. That (Mssrs Gloom & Doom from Boston and NYC) had been tipped that the U.S. bear phase would end within days. So, I was watching my monitor closely as the Dow dropped down to well under 800 on very low volume.

Then, one day, a monster volume went through the tape. Huge block, followed huge block.

I went around to my colleagues and everybody was befuddled, me included, because none of us had seen volume like that. The next day, and the day after, the volume was gone, and we were really scratching our heads.

Then on a Monday morning, I remember the tape starting up. Bam, bam, bam. One mega block trade after the next. And I remember telling my colleagues that only the Fed had money like that. This was not a buying syndicate of fund managers because it would be stupid to trade like that. Fund managers don't stand on the desk and scream at the world; they buy as quietly as possible. They take strides to cover their actions, not advertise them.

There was no good reason for tripling the average daily volumes on the tape; yet the tape doesn't lie.

I think America needed that 1981-82 bear market to end, just like they needed the inflation cycle of the 1970's post-Vietnam years ended, as it did in late 1980. And the bear died within days of the hyper-inflated volume, with the Dow up over 15 percent in less than a month.

In retrospect, I think U.S. authorities, under Paul Volcker, took both of those actions (1980 and 1982). It surely was not the free capital market system at work.

Mr. Volcker went on to become North American Chairman of The Trilateral Commission, which for years has been the basis of conspiracy theories. About that, I have no position, and wish to make no remarks.

Do I think there is a conspiracy of sorts underway today? I am not into conspiracy theories, but I also wonder why President Bush just today has chosen hawkish deputy defence secretary Paul Wolfowitz to lead the World Bank, replacing James Wolfensohn who retires in June. There are a lot of people questioning Mr. Bush's choice.

And, by the way, didn't Volcker go to work for Wolfensohn, and the World Bank?

The World Bank and the International Monetary Fund were both created in 1944 as part of the post-war settlement that replaced the old ways of policing international finance. The initial role of the Bank, which is properly known as the International Bank for Reconstruction and Development, was to help in the reconstruction of Europe from the ashes of World War II.

Since then, however, the Bank has evolved to become the prime mover in international development with an annual budget of nine billion dollars supposedly intent on improving the lives of the world's poor. And, over the years, the Bank and the IMF have extended many more billions in loans to debt-burdened countries that, critics argue, now are part of the problem, not the solution.

Somehow, and I don't have the answer, I think Bush's intentions re Social Security, Paul Wolfowitz, the "Freedom and Democracy" programme we hear daily from Kudlow, and Greenspan's impending retirement are all tied into this.

Like my reader, I too suspect something big is going to happen in capital markets. I suspect it's tied to the forthcoming switch by the People's Bank of China to a new peg to a trade-weighted basket of 12 currencies and away from the USD.

I too am concerned about America's real estate bubble because that is what is financing America's stock market and consumer spending today.

But, I am more concerned with the commodity price bubble because that is the result of speculative hot money in offshore funds. As I see it, these "hot shot" fund managers have been financing their commodity purchases with debts tied to their bond holdings, mostly U.S. treasury debt, which they have been buying up with incredible leverage.

So, on the way up, with margin working for you, buying bonds is ridiculously cheap. Buying commodities is ridiculously cheap for the same reason.

But, these trades unwind quickly on the way down. Moreover, you have the prospect of other hedge fund managers playing the collapse of bonds, with increasing short positions. Spiking interest rates will take down bond prices faster than most people realize " and in this case, real estate and commodity prices.

Equity investors, like bond investors, within the big capital pools at least, are not foolish. They must be getting nervous that PE multiples will have to soon come down in order to alleviate their equity market risks.

Those risks have been rising for several weeks now, as I have been warning, for the reasons I have been giving in my blog (like it or not).

As I say, I too am getting nervous that something big is going to happen in capital markets. I am not so much nervous that market prices head off in one direction or another, however, as I am in needing to be on the right side of that trend.

Sitting here tonight, I don't know where that trend is going, but I suspect it is equities down, bonds down, USD down, and gold up.

Didn't I write that two or three weeks ago? Anyway, tomorrow, I'm going to discuss this matter further, as we are at an important crossroad in markets.

BCara@BillCara.com