Are Investors Waking Up?

When will the second shoe drop? The 214-point nosedive in the Dow yesterday was again blamed on the impact of high oil prices, and signals what will happen whenever it finally sinks in that this problem is not going away and will wreak unfathomable havoc on the U.S. and global economy.

The domino effect of the "peak oil" crisis facing the globe is what sends market investors scurrying, even if up until now it has been only in fits and spurts. Yesterday, for example, a higher-than-expected rise in the core consumer price index (CPI) was interpreted, in Wall Street's usual lemming-like fashion, to mean that high oil prices are, indeed, reverberating throughout the economy. The core CPI does not include direct energy costs, and its rise was interpreted as indicating the effect of rising energy costs on the rest of the economy.

Investors have suddenly figured out that this will drive up prices everywhere, and will cause the Federal Reserve to have to raise interest rates faster than previously thought in order to tame its inflationary impact.

That, in turn, will mean access to capital will become harder for businesses to retain their expected rates of growth, and the conclusion to draw from that, of course, is that it may suddenly be time to pull out ahead of the resulting downward curve.