“It has been the benefit of global capital chasing billions of low paid workers that have worked to keep pressure on wages throughout the developed world. If Russia’s invasion and NATO‘s response leads to the to a suppression of global capital flows then interest rates, and especially EQUITY MARKETS, are in for some periods of great volatility. It has been the combination of “cheap” capital coupled with low-wage labor that has driven up equity values around the world. In 2013, Thomas Piketty captured this in his simplistic equation: R>G, meaning that return was greater than growth.
If Posen, Marks and Fink are correct the coming years will experience a dramatic repricing of P/E ratios as global capital loses it mojo. While there’s some glory in the use of sanctions, I advise holding off on popping the champagne corks. When will capital feel the pain of lower returns and higher interest rates? I have timetable but it is something to be concerned about. It certainly makes the FED‘s task of a neutral interest rate very difficult, especially as it also attempts to SHRINK its balance sheet in an effort to deleverage the financial system. Globalization has been great for equity capital, but I wonder if Daleep Singh has factored this into his sanctions formula. The world as seen from NOTES FROM UNDERGROUND rests on the premise that 2+2=5. Any answers for there certainly are a plethora of questions.”