Saturday, May 26, 2012

Europe debates as Greece hangs by a thread

One of capitalism's harsher dictums is that "losers have to lose."   The market decides which firms will be successful and which will go under based on the criteria of profitability alone.   Over time, this leads to a more efficient allocation of productive resources and increased wealth for the population as a whole.  Well, that is the theory at least.  Things get a lot more complex when nation states are involved, however.  This is the stark choice facing European leaders these days as they try to come to terms with an ongoing economic crisis that shows no signs of easing.  Greece has been a perennial "loser" in this respect but the EU has sought various ways to deny or postpone its exit from the Eurozone.  Germany's Angela Merkel has been a stalwart defender of fiscal responsibility and austerity as the best recipe for recovery.  She would appear to subscribe to the losers must lose approach as Greek bond holders must be forced to take losses and the Greek people must lose a portion of their national income before stability returns.  France's newly-elected Francois Hollande is more growth-oriented and seeks to add more sovereign debt in the form of stimulus measures as a way out of the crisis.  Not surprisingly, the more left-leaning Hollande is perhaps less enamoured with the necessity of losers in capitalism.

While the gravity of the crisis has made Merkel more open to the possibility of new emergency measures to prop up the banking sector, she is still resisting the introduction of Eurobonds which would damage Germany's credit rating, force up its interest rates and produce more inflation.  Such deliberately inflationary policies are a central feature in the Keynesian approach, which insist that falling economic growth requires injections of borrowed government money to kick start spending and restore flagging consumer confidence.  In measured amounts, it's quite a sensible policy.  An uncontrolled deflationary spiral where prices are falling is a worst case scenario that most economists agree should be avoided at all costs.  But how much inflation is acceptable before it starts to assume a more destructive role in the economy? And doesn't inflation maintain inefficient and wasteful producers at a time when the economy can least afford to carry them?  For now, the debate rages on between the adherents of free market austerity and debt reduction on one hand and Keynesian school of stimulus and controlled inflation on the other. 

In astrological terms, the current crisis reflects the approach of a rare 90 degree square aspect between Uranus and Pluto.  Uranus is said to represent independence, freedom and novelty, while Pluto symbolizes power, manipulation and large organizations.  As I have noted previously, the combination of these two planets suggests a disruptive period of fundamental change and re-organization is likely to occur over the next few years.  These two slow moving planets only make major aspects once every 30 years or so, and the tense square aspect last occurred in the 1930s when the world was undergoing major upheavals on a number of fronts.  The inability of elites to come to a consensus or to find a solution reflects the intractability of this aspect.  While we can expect some resolution and progress to come out of this aspect by, say, 2015, the process is likely to generate a large amount of dislocation.   Some kind of rupture with the past is also more likely under this aspect, although it usually occurs because the old approaches no longer work in the present circumstance.  This slow moving aspect is likely in focus at the moment because of Saturn's predominance in the sky.  The ringed planet of austerity and caution is approaching its direct station on June 25.  Saturn's energy is more likely to increase around that time, so it seems unlikely that any workable solution to the European economic crisis will arrive anytime soon.  In fact, things may well get worse before they get better.  That is perhaps one of Saturn's credos, since it reflects the fundamental notion of progress and learning through pain and loss.   No pain, no gain.  In that sense, Saturn's preoccupation with loss makes it just as important to understanding the workings of capitalism as Jupiter's penchant for risk, optimism and investment for the future.  Jupiter and Saturn are two sides to the same coin, just as notions of profit and loss comprise the larger whole that is necessary for a productive economy.

Stocks rebounded last week as European leaders discussed new measures that would help stabilize the fragile banking sector in the face of a possible Greek exit.  The Dow climbed 1% closing at 12,454 while the S&P 500 finished the week at 1317.  Indian stocks staged a modest recovery as the RBI intervention to support the rupee improved sentiment after hitting a record low midweek.  The Sensex edged higher by 1% closing at 16,217 while the Nifty ended the week at 4920.   The bullish outcome was largely in keeping with expectations as the early week conjunction of Mercury and Jupiter provided a lift for most asset classes. 

This week is more of a mixed bag.  There is an absence of unequivocal aspects here that make forecasting a little more random than it normally is.  Monday's Mercury-Saturn aspect looks fairly difficult so that could weigh on Asian and European markets.  Tuesday's Moon-Venus pattern offers some hope for a rebound but that seems tenuous at best.  Wednesday and Thursday may face some headwinds on the Mercury-Mars aspect.  Friday's Mercury-Venus conjunction should be bullish, although the pairing may only be close enough to influence trading in Europe and the US.

 Transits for Wednesday 30 May 2012 9.30 a.m. New York