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It rarely does, of course. Stock markets are the white noise generators of the financial world. But there’s a reason for this. In comparison to the other markets——foreign exchange, bonds, real estate, commodities——the world’s stock markets are tiny. As money moves from those larger markets into or out of such a relatively small market, the effect is always exaggerated, noisy as hell.

On a modest scale (yes, it could be much worse) we’ve been seeing this for the past couple of days. But there may well be a larger message here. The stock market has been out of sync with its bigger brethren for quite some time. Commodity prices have collapsed. Oil gets most of the attention, but all industrial commodities have been dropping like ingots. In the foreign exchange market, the US dollar has been up all year——against the poor Loonie, the Aussie dollar (both below .75) and everyone else; people are leaving the currencies of the emerging “growth” markets for the safety of Uncle Sam. The bond market, living up to its reputation, offers only gloom. Corporate bond spreads have widened sharply (100 basis points in the last six weeks alone); that is, investors aren’t so happy about the outlook for profits, and hence the ability of corporations to pay their debts, and have been demanding higher interests to compensate. And the US government bond market has been trading at interest rates that imply an inflation rate ten years out of 1.5%, a level that frightened Ben Bernanke into quantitative easing. But the stock market? It’s been sailing along quite happily, “in record territory.” This doesn’t compute. The other markets are expecting a level of growth——or recession——that can’t possibly justify such a high level for stock prices.

Two developments have caused the fall. Most immediately, China. China’s growth is slowing considerably, whatever official figures say: which is at least partly why the government, so abruptly, devalued the currency and dropped interest rates. In parallel with this, the Chinese stock market has collapsed and the efforts of the government to prop it up have failed. Both of these events have broken the myth that “the Chinese leadership” had everything “under control” and knew “what they were doing.” On the contrary. It seems, in respect the devaluation, that their hand was forced, and and even though they enjoy the powers of an authoritarian state, they can’t effect the market.

But behind all these moves lies the US Federal Reserve, and the possibility——which they’ve endlessly telegraphed——that they’ll raise interest rates in September. Of course, this rise would be from virtually nothing to scarcely anything: hardly material. But there’s only one reality in the stock market, money——everything else is perception——and the possibility of a rise in its price has been enough to concentrate the stock market’s mind. Falling commodity prices have caused the profits of oil companies and mining companies to collapse, but if there’s no demand for commodities, that implies a level of economic growth that will effect everyone. And if the emerging markets are sinking, and China is floundering, where could growth come from? Europe? Japan? There’s only the good ‘ol’ USA, which has been growing, however anemically. And this is where the bond market’s inflation outlook is so gloomy. Inflation can be defined as too much money chasing too few goods. Well, the bond market is telling us that despite all the money that’s been printed the goods out there are sufficient to mop it up for many, many years. So why build a new factory? And where are those endlessly rising corporate profits, beloved of the stock market, going to come from?

If this analysis is right, the stock market is only catching up——or sinking down——to a level that re-establishes a sensible relationship to other financial markets. This readjustment need not be catastrophic, or even dramatic; there’s no need for a crash. After all, the authorities are watching. Larry Summers——Obama’s number one choice, remember, to head the Federal Reserve——has said a rate rise would be a mistake, and is calling for more “quantitative easing”; a plea in which he’s been joined by Ray Dallio, one of the greatest of hedge fund managers. So the stock market could just sink slowly, or mark time, for years; and in reaction to not raising rates it could well go up. But regardless of what happens to the market, I think what it’s now telling us is becoming clear. For many years, western economies will “enjoy” very slow growth. And there are no policies that “the system”——governments, corporations, conventional thinking——can offer to change this. Finally, the western developed economies are still extraordinarily fragile; shocks, either economic (recession) or financial (market collapses, banking crises) could be devastating. Of course none of this is news to most of us. But if the stock market is finally catching on, it means that even the most ardent, optimistic supporters of the system are throwing in the towel and accepting that there’s no light at the end of the tunnel: we walk in darkness, whistling past the graveyard.