Saturday, March 31, 2012

Stocks edge higher on Bernanke comments

Stocks edged higher last week as Fed Chair Ben Bernanke again assured investors that the printing presses would run as long as necessary to give the still shaky US economy a helping hand.
In New York, stocks ended the first quarter of 2012 with a 1% gain as the Dow closed at 13,212 and the S&P500 finished at 1408. Indian markets posted a more modest gain as the Sensex ended the week at 17,404 and the Nifty at 5295. While I was somewhat negative about last week, I did note that the short term Venus aspects looked more positive. After Monday's sell-off in India on the Mercury-Saturn aspect, US markets rallied strongly on Monday's Moon-Venus conjunction. The positive Venus vibe carried into Tuesday in Asian markets.

So far, stocks have held up surprisingly well in this post-Jupiter environment. I had expected more weakness on the leeward side of the major alignment in mid-March once Jupiter began to separate from its exact aspects with Mars and Pluto. This hasn't happened yet as US stocks are still very close to their highs. It may be that stocks have yet to catch up with commodities like gold and oil which have fallen from their recent highs. While Bernanke instills the belief that the market will continue to be propped up no matter what, there is a growing sense that much of the gains are false or unsustainable in some way. Many business media outlets are celebrating the best quarter for US stocks since 1998, but in the same breath they admit it's mostly due to the Fed's easy money policy. With market-driven interest rates and no bond buyback policy, the Dow would probably be closer to 10,000 rather than the 13,000 that it now enjoys. The backstopping by the Fed has taken risk out of the market and thereby has created potentially dangerous distortions. Maybe this Keynesian economic policy will work and the Fed's monetary manipulations will pay off in restored confidence and a self-sustaining recovery. Or maybe it is simply delaying the inevitable by kicking the can down the road and postponing the next recession for another year or two. I tend towards the latter pessimistic view, if only because the planets do not suggest that we will be free and clear in the next few years. Rather, this Bernanke-driven recovery will sputter on and will lead to more inflation and a protracted period of low employment growth. A second recession within the next two years looks likely.

This week may present another opportunity to see the after effects of the Jupiter alignment. In theory, optimism should be in shorter supply. This ought to make it easier for stocks to fall. As Mars backs into its opposition with Neptune next week, there is another reason to expect some kind of downside to manifest in the coming days. Tuesday stands out as a more compelling down day perhaps due to the Moon's conjunction with Mars. At the same time, the Sun forms a minor aspect with Jupiter so there is a possibility of some upside, especially on Wednesday in the US. The holiday-shortened week may force some investors to trim positions ahead of the long weekend. This is another reason perhaps to be more cautious here.