Saturday, May 8, 2010

Flash crash halts Wall Street rally

The party on Wall Street came to (flash) crashing halt last week as stocks sank 6% on fears that the European sovereign debt problem may not be solved by the Greece bailout. Out the nowhere on Thursday, the Dow plunged almost 1000 points by mid-afternoon below the 10,000 level, albeit recovering somewhat by the close to end the week at 10,380. Mumbai was also down by 5% on the week as the Sensex finished at 16,679 and the Nifty closing at 5018.

It was a strange and tumultuous week to be sure as investors were left wondering if they had returned to the financial storm they thought they had left behind in 2008. This outcome was pretty much in line with expectations given the raft of aspects involving malefic planets. Last week I had warned about the possible effects of the Sun-Mars square aspect, especially since it would feed into the larger, more powerful aspects of the Saturn-Uranus-Neptune alignment. And so I wrote: "This appears to be a tense combination of fiery energy that may coincide with sudden or instinctive reactions". The Sun-Mars aspect therefore acted as a trigger for the Saturn-Uranus opposition which was exact back on April 27th. All that conflicting energy between Saturnian control and restriction and Uranian freedom and rebellion created an situation without easy resolution. While the Saturn-Uranus-Neptune alignment has altered the financial terrain here, this does not mean that the downturn will unfold imminently. It may take several more months and the next (and final) Saturn-Uranus opposition aspect in July to move the situation to the next level of crisis.

Now it seems that no amount of Saturnian discipline and austerity can solve the situation in Greece or indeed in other Club Med economies such as Portugal and Spain. The debts levels may simply be too high relative to the amount of revenue those economies are capable of generating. Risky assets are taking the hit as investors seek to protect their capital from any possible downdraft in the future by moving them to safe havens like US Dollars, US Treasuries, and gold. As I have been suggesting since 2008, the financial crisis didn't end in 2009, it was merely put on hold through massive infusions of liquidity (i.e. money to you and me) from central banks such as the Federal Reserve. The reduction of interest rates to zero has made borrowing pain-free once again so the bubble has re-inflated all over again. Why would Ben Bernanke think you could fix the first bubble with another bubble? All it will do is delay the inevitable flushing of bad debt out of the system.

The stock rally of the past 13 months has been predicated on easy money. Now it is dawning on people that all that bad debt from the sub-prime housing crisis in 2008 didn't simply go away. It merely re-appeared like a shape-shifter as sovereign debt in the guise of numerous government bailouts to prevent bankruptcies. So now we are finally waking up the reality that these heavy government debt levels are not sustainable either and Greece is currently the weak link in the chain.

This week will see Mercury change direction as its retrograde cycle comes to an end on Wednesday. It will station at 8 Aries in fairly close quincunx (150 degree) aspect with Saturn (4 Virgo). This is not a good angle for these planets so more weakness seems possible ahead of this direction reversal. More positively, the Sun has moved away from the Mars influence and will form a supportive aspect with Venus towards week end so some recovery seems more likely. With Jupiter approaching Uranus over the next few weeks, we may see some of the extreme negativity mitigated somewhat. Looking down the road, there are two large alignments that warrant our attention. The first one May 18-20 will involve the Sun, Venus, Jupiter, Saturn, Uranus and Neptune and looks more benevolent than last week's combination. The second one arrives on June 2-4 and will feature Mars in aspect with Jupiter, Saturn, Uranus and Neptune. As we saw last week, Mars is often a harsh influence, so this alignment may prove more difficult.