Wall Street smells the wage price spiral

8/1/2014 Portland, Oregon – Pop in your mints…

Yesterday, the US stock market finally experienced mild selloff.  Finally, we say, because it 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?

Don’t kid yourself, fellow taxpayer, the events above were actually bullish for the market.  In the altered universe that the use of debt as money for the past 43 years has created, destruction and war  = GDP growth + a population submitted by fear, afraid to ask for too much while others experience sacrifice.

When debt is money and destruction is growth, war is the ultimate boondoggle.

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.

Employment Cost IndexTake the Employment Cost Indicator above and add it to the  number of unemployed workers per job opening below and you come to one inescapable conclusion:  The Wage price spiral is upon us.

Unemployed workers per job opening US 2014The 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;

1)   Take notice and,

2)   Take action by increasing interest rates

To those who have been spooked by the selloff we offer a word of comfort:  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 decrease in returns = increased wages to the proletariat as the pendulum swings the other way in world’s socialist monetary system.

The wage price spiral is here, and it is about to make a hot mess of markets everywhere.  Ask for a substantial raise or find another job, especially if you are in an industry with ultra-tight demand for labor.  You are likely to be pleasantly surprised.

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Key Indicators for August 1, 2014

Copper Price per Lb: $3.22
Oil Price per Barrel:  $97.39

Corn Price per Bushel:  $3.55
10 Yr US Treasury Bond:  2.52%
Bitcoin price in US:  $598.00
FED Target Rate:  0.09%
Gold Price Per Ounce:  $1,293

MINT Perceived Target Rate*:  0.25%
Unemployment Rate:  6.2%
Inflation Rate (CPI):   0.3%Dow Jones Industrial Average:  16,498
M1 Monetary Base:  $2,825,900,000,000

M2 Monetary Base:  $11,348,900,000,000