Saturday, July 30, 2011

Washington fiddles as markets burn; Mercury-Neptune confounds debt efforts

Transits for Wednesday August 3, 2011 9.30 a.m. New York

Markets did not take kindly to the protracted US debt ceiling negotiations as the risk of a default loomed larger with the approach of the August 2 deadline. Stocks in New York fell more than 4% with the Dow closing at 12,143 and the S&P500 finishing the week at 1292. It was a similar story in Mumbai as the RBI's surprise fifty-point rate hike on Tuesday only added to anxiety levels. The BSE-Sensex lost more than 2% closing at 18,197 with the Nifty ending the week at 5482. I thought the chances were high for early week decline on the entry of Mars into sidereal Gemini and that corresponded with Tuesday's significant losses. However, my expectation for a late week recovery was wide of the mark as markets remained on edge as the debt drama entered its final act. While I had expected some disappointment and confusion over these debt ceiling negotiations, I thought we would see them closer to the deadline. However, the problems inherent in the critical Mercury-Neptune opposition have manifested somewhat earlier here.

As I have noted previously, the poignant coincidence of Mercury turning retrograde while in close opposition to Neptune exactly on the August 2 deadline is already delivering its karmic payload in the form of all the confusion surrounding the debt talks. Not only is it unclear if a deal will get done in time, but no one is really certain how binding the deadline actually is. Some commentators have suggested that Obama could extend it a few days in order for both sides to hammer out the details. Others have suggested the government won't run out of money for another week or two. And even if a deal is struck, US debt may still suffer a credit downgrade anyway by one of the rating agencies. In the end, it's all about preserving a good credit rating so that the US can continue to borrow money at low interest rates. Anything that jeopardizes confidence in the ability of the US to repay its loans will result in higher rates which will hurt the economy. The stock market is also likely to take a negative view of higher interest rates.

Mercury's retrograde station this week -- due near midnight EDT on Tuesday -- heightens the negative effect of its aspect with Neptune. Since Neptune is no friend to clear logical thinking, we should expect more fallout from these negotiations as uncertainty and unproductive analysis is likely to persist for much of the week. Could the US actually default here? While I had not seriously considered the possibility, I have noted that this Mercury-Neptune aspect did boost the possibility of such an outcome. A more likely outcome is some kind of confused interregnum where somehow the key players buy extra time to work out a deal. This may or may not be before the August 2 deadline. The planets look pretty bad over the next couple of weeks so I would not rule out any negative or disappointing scenarios.

With Mercury turning retrograde late Tuesday/early Wednesday, we could easily see more downside in stocks. That said, there are a couple of Jupiter aspects that could give a temporary lift to sentiment. The Sun forms a square aspect with Jupiter on Monday and into Tuesday while Venus does likewise on Thursday and into Friday. The presence of this influence offers some possibility for gains, although it is unclear to what extent the gains will apply to stocks. Perhaps commodities like gold and oil will be more directly influenced by these bullish aspects.