Saturday, April 21, 2012

Stocks rise on earnings; "Bad Goldilocks" could undermine markets

New US data indicate that the job recovery is still fragile and that growth remains disappointingly sluggish. As a result, some observers are suggesting we have entered into a "bad goldilocks" economic phase. Growth is too weak to compel investors to jump in with both feet but not quite weak enough to compel the Fed to resort to stimulate the economy with QE3. The result is a hazy situation where there is no quick fix and no more easy money to me made. Previous injections of cash from the the Fed resulted in huge rallies in the markets after 2009. Without fresh intervention from the Federal Reserve, stocks will be in an uphill battle and may also be more prone to deeper declines. And since the US is in an election year, Bernanke may be even more reluctant to intervene lest he be accused of political inference from increasingly skeptical Republicans. It all seems to point to a more difficult year for the markets in 2012.

Stocks rebounded last week as corporate earnings showed continued growth and European bond auctions were largely successful. US markets shrugged off a sub-par employment report as the Dow once again rose above the 13K level closing at 13,029 while the S&P 500 finished at 1378. Indian markets cheered a larger than expected RBI rate cut as the indices gained almost 2% with the Sensex closing at 17,373 and the Nifty finishing the week at 5290. This bullish outcome was somewhat unexpected, although I was not too surprised to see some of the midweek gains. The triple conjunction of Moon, Mercury and Uranus delivered optimism a little ahead of schedule on Tuesday. The late week tilted bearish as expected as Mercury was afflicted by Mars.

While markets have recovered strongly from their lows in 2011, there is a growing sense that all the gains have come as a result of central bank intervention rather than economic fundamentals. So much for the free market. It is not surprising then that trading volumes are shrinking and have fallen below their average level in 2011. With fewer participants, the stock market may be more vulnerable to sudden moves down the road. As more investors choose to sit on the sidelines and park their money in safer havens, the stock market may have a credibility problem. It seems as if the wounds inflicted from the financial meltdown of 2008 have not fully healed and there remains a significant amount of skittishness if not outright skepticism about the reliability of stocks as a sound long term investment. More people may voting with their feet here as they are starting to question the logic of creating more public debt in order to pump up the market and keep the plates spinning a while longer. Those who retain confidence in our policy makers simply assume that they are smart enough to find a way out of this debt morass and that all will be well in the end. The approaching Uranus-Pluto square aspect this summer would suggest otherwise. The symbolism of this combination suggests profound disruption and social reorganization. Since both Uranus and Pluto are very slow moving planets, its effect will likely be protracted over several years and will mark a period of historic change and uncertainty. While specific outcomes may be harder to nail down, this aspect does suggest that Bernanke and Co. will not find any easy solution to this ongoing financial crisis. We may well be witnessing the end of an old order.

This week highlights both positive and negative planetary patterns. Early in the week, there will be a fairly tense looking pattern around the Mars-Rahu aspect that includes the Sun. This configuration should be treated with some caution. At the same time, we can see that Venus is slowly moving into a nice aspect with Jupiter. Venus is moving unusually slowly in the sky right now ahead of its retrograde station in mid-May, so timing the effects of this aspect is somewhat more difficult. The positive energy from this combination may be somewhat more likely to manifest in the second half of the week.