Saturday, April 14, 2012

Stocks fall on Spain concerns; Mars turns direct

Stocks were struck again by a bad case of Euro-itis last week as Spain's increasingly untenable fiscal situation pushed investors to the exits. Despite attempts to reassure markets by the European Central Bank, bond yields on Spanish debt rose sharply towards the tell-tale 6% level. With unemployment reaching 24% now, it is unclear how the government will be able to secure enough revenue to service its burgeoning debt. People without jobs don't pay taxes. And with the ECB promising another bailout, debt burdens are likely to rise further. Readers will be forgiven if they are growing a little tired of this endless cycle of recession, insolvency, and ECB/IMF bailout. Perhaps some battles are less about who wins than the drama of it all, much like the staged competition between the bullfighter and the bull. The bull threatens the matador, but everyone knows the contest ends badly for the bull. Central bankers can try to keep the game going for a while with fresh infusions of cash and low interest rates, but eventually the debt burden becomes too much and the result is either hyperinflation or a washout of all that bad debt through a deep recession. The bull will be gored, but we don't know exactly how or when.

US Stocks fell by 2% as the Dow closed below the 13,000 level at 12,849 while the S&P 500 finished at 1370. The Indian market was also bearish as the Sensex declined by more than 2% closing at 17,094 while the Nifty ended the week at 5207. The anxious mood came as no surprise, however, as I thought the approaching Mars-Neptune opposition would likely generate more losses. We saw a rally attempt on Wednesday and Thursday after Venus had separated from Ketu but Friday's decline coincided closely with the culmination of the Mars retrograde cycle.

The rising bond yields in the Eurozone are the canary in a coal mine. But who cares about boring old bond yields as long as central banks keep printing money and keep the economy rolling along? Well, the bond yields are one of the few indicators that tell us how the real market is reacting to these various interventions. The stock market can rise almost indefinitely even as economic fundamentals look shaky as long as the Fed is buying bonds or injecting cash into the system in some way. But the bond market is less easily impressed by the liquidity game that Bernanke and Draghi are playing. Eventually, the rubber hits the road. If a country assumes too much debt, then the risk grows that it won't be able to pay it back. That's when bond buyers demand higher premiums in the form of higher interest rates. Higher rates spell trouble for the indebted country since it means they have to come up with that much more money to cover their interest payments. In the current post-Jupiter alignment environment, market participants are more skeptical now and are openly questioning the wisdom of these endless buybacks and bailouts. Everybody knows they will create inflation eventually. That is why the price of oil is so high and why gold remains in a lengthy bull market. But will the central banks be able to stop printing money before hyperinflation hits? In essence, they may eventually be faced with an unappetizing choice between inflation and recession. With Jupiter mostly on the sidelines until May, the central bankers may face a fairly skeptical audience for their dramas in the short term.

Mars is still very much front and center this week so one would think that sentiment could be dragged down further. While Mars is now moving forward and away from its aspect with Neptune, it still very much involved in a difficult square aspect with Rahu, the North Lunar Node. It's not exact for another couple of weeks, but it's close enough to create some red flags and perhaps some red candles in the stock charts too. The week begins with an additional burden as the Sun opposes Saturn. This opposition is closer to exact when the Asian markets are open so that is one reason to expect perhaps more negative impact in that region. Wednesday features a fairly bullish looking triple conjunction of the Moon, Mercury and Uranus in Pisces. This should create some upward movement at some point in the midweek period, although it is unclear if it can erase any damage done by the previous Saturn aspect. The end of the week looks unsettled as Mars aspects Mercury on Friday. This is usually not a positive influence, especially since any aspect with Mars may activate its connecting aspects with nasty Neptune and Rahu.