Saturday, March 10, 2012
Markets hold steady on Greek bond deal; Jupiter alignment this week
Greece finally secured a bond swap with its creditors last week as $100 Billion was removed from that beleaguered country's debt load. While the intricacies of this bond deal are beyond me, the essence of the thing is that most bond holders agreed to take a 75% loss on their investments in exchange for new Greek bonds. These new bonds have the backing of the EU and IMF so theoretically should hold their value. This was the largest bond swap in history and prevented Greece from going into default, and thereby averted any disruptive effects on the world's financial system. But there is a growing sense in some quarters that Greece has actually defaulted and that credit default swaps (CDS) will have to be paid. (CDS are insurance that bond owners buy in the event that the issuer goes bankrupt). Moody's is now on the record stating that Greece is in default now, and many hedge funds are similarly operating as if Greece is in default. This means that Greece will be unable to find buyers of any new bonds on the open market.
So is Greece in default and if so, what does it mean? As Magritte might have said, "Ceci n'est pas une default." Perhaps it is simply is a picture of one. But the market will likely have the final say whether or not Greece can borrow any more money to cover its debts. Right now, it may be too soon to say what the implications might be. The grey market is already pricing in a hefty premium for new Greek bonds, suggesting the market does not think the Greece problem is solved. In other words, this may just be another temporary band aid solution that kicks the can down the road a little while longer. And yet with the billions of central bank bailout dollars working on their behalf, the financial markets could be insulated from the immediate fallout of any default.
Stocks held firm last week in the wake of this news after some early shakiness. More encouraging US jobs numbers on Friday also boosted sentiment as the markets closed mostly flat on the week with the Dow still unable to break above its 2011 high at 12,922 and the S&P 500 at 1370. Indian stocks fared less well, however, as the indices lost about 1% with the Sensex closing at 17,503 and the Nifty at 5333. I thought we might have seen more in the way of gains ahead of the Jupiter-Pluto aspect. The midweek rebound in US and Europe as at least more evidence that the bulls are still in control of the market, despite being technically overbought for several weeks. Indian stocks have underperformed largely due to rising oil prices.
This week should be very interesting. Jupiter's aspect with Pluto culminates on Tuesday. Since this has been one of the main astrological supports for the market in recent weeks, there is an increased risk that the market could lose some of its composure once the aspect begins to separate. Indeed, the rare grand trine alignment between Mars, Jupiter and Pluto may well correlate fairly closely with a market top and reversal. This is perhaps even more likely given that Venus and the nodes, Rahu and Ketu are also configured in this broader alignment. To muddy the waters somewhat, Mercury turns retrograde on Monday. This may undermine some of the climactic optimism that should otherwise manifest in spades this week. Since there are a high number of planets involved in this pattern, the peak could last for a few days. The late week looks more negative, however as Mars aspects Rahu.