Against all odds, the US stock markets had continued to rise even as the most recent series of crises in the Middle East flared up in conjunction with the downing of Malaysia Air flight 17 in the Ukraine conflict, which has become a flashpoint for deteriorating relations between Russia and the West.
Did investors just wake up to these crises and begin to fly to safety?
While it may be hard to believe, the events above were actually bullish for the market. In the altered universe that the use of debt as money has created, destruction and war beget GDP growth. What truly has investors spooked at the moment, albeit mildly (despite what the headlines imply) is the continued march of evidence that the proletariat is now stepping up and demanding wage increases at an alarming rate.
The wage price spiral, that scourge of corporate profit margins which has been accelerating since March of this year (according to our unscientific calculations here at The Mint), has finally caught the attention of Investors, who in turn are selling on the off chance that the Federal Reserve will take action by increasing interest rates
The likelihood that the Federal Reserve takes action to raise rates in a meaningful way is slim. Assuming they were to raise rates, any action at this point would take at least 39 months to matter, crucify fixed income in the short term, and trigger large scale bankruptcies the likes of which they have spent the past 5 years trying to mop up.
However, even if the Fed had the desire to raise rates they would be unable to do so. They have lost any meaningful control of the traditional rate mechanisms through an incomprehensible mix of monetary policy (think Quantitative Easing) and regulatory action (chiefly Dodd-Frank) some time ago. All they have left us rhetoric, which is increasingly falling on deaf ears.
Reality is far removed from Washington DC and Wall Street. There are very large piles of money that are on the fence between seeking safety and return, and that pile is growing faster by the minute. The bigger it grows, the greater the likelihood that it will be deployed at a lower risk adjusted return.
The wage price spiral is here, and it is about to wreak havoc on markets everywhere.