Saturday, August 6, 2011

Stocks plunge on Mercury-Neptune; US debt downgrade previews Mars alignment this week

The tumultuous events in the markets last week reminded me of Karl Marx's description of capitalism: "All that is solid melts into air." Financial stability evaporated last week in the aftermath of the US debt ceiling deal and the spreading debt contagion in the Eurozone. What was remarkable was the speed at which safe, reliable assumptions about future growth seemed to disappear as investors got a harsh reality check. In New York, the Dow lost more than 6% closing at 11,444 while the S&P finished the week at 1199. The damage was less severe in Indian markets as the BSE-Sensex lost 4% closing at 17,305 with the Nifty ended the week at 5211.

As expected, the Mercury-Neptune opposition did coincide with significant fallout from the US debt deal. To make matters worse, Mercury stationed and turned retrograde on Tuesday so this amped up the strength of this affliction and Mars joined the alignment on Thursday, the day the Dow tumbled 500 points. Score one for astrology. While I had been unsure if the US would make the Aug 2 deadline, I was fairly certain that the market would react badly, which it did. Some of those mitigating Jupiter aspects only offered passing relief to the rising fear as Monday's Sun-Jupiter aspect delivered gains in Asia as well as a positive open in New York. These gains were the result of the immediate sense of relief from the signing of the debt ceiling deal. But it was all Mercury-Neptune after that as disillusion and dismay ruled the roost. Now that the US is compelled to follow a more austere regime of government spending, who is left to stimulate a stagnating economy that seems to be on the verge of a double dip recession? Well, no one it seems and therein lies the root of the sell-off. With Obama's hands tied and Fed Chair Bernanke also seemingly "out of bullets" despite new rumours of a possible QE3, markets are beginning to realize that the past two years was based entirely on "free" borrowed money which has not created a solid foundation for a sustainable bull market.

While I was surprised by the intensity of the decline, I noted in last week's forecast that the planets for early August looked quite bad and that one couldn't "rule out any negative or disappointing scenarios" for the next two weeks. We have a truckload of disappointment and negativity now, especially since Standard and Poor's has downgraded US debt to AA+ for the first time in its history. This sets up the likelihood of more downside this week as investors try to adapt to the new glass half-empty reality.

If last week's Mercury-Neptune was the first shoe to drop, this week's potent Mars-Uranus-Pluto alignment will the second. More like a boot perhaps. This is a very nasty pattern that can manifest as situations of shock and violence that are extremely disruptive. The debt downgrade is likely the partial result of this pattern as Mars slowly moves into position in the celestial cockpit. I have noted in previous forecasts how we are entering an extended period of upset and reorganization from the Uranus-Pluto square aspect. This aspect between these slow moving planets began earlier this year and will last into 2012 and 2013. It is likely to reshape the economic and political landscape much as it did the last time around. The previous Uranus-Pluto square occurred in 1931-1932 at the height of the depression and the beginning of Nazi Germany and FDR's New Deal in the US. Fast-moving Mars is currently activating this pattern so we should expect more chaos and uncertainty this week. I would not rule out a crash here, although governments may intervened to mitigate the damage so they may be able to prevent worst case scenarios. The alignment is closest on Tuesday and Wednesday so the first half of the week is perhaps more dangerous than the second half. I would expect some rebound to occur by Thursday and especially Friday on the Sun-Venus-Uranus pattern.