Saturday, August 11, 2012

Bad is good: stocks rise on easing hopes

Financial markets engaged in a bit of economic schadenfreude last week as stocks rose against a backdrop of weaker than expected data coming out of China.  The weak industrial production and export numbers meant that a slowdown was more likely in China and around the world.  But in our current upside down world, slowing growth increases the likelihood of more money printing by the Fed and the ECB in the form of QE3.  In this way, bad numbers can actually be good for the market.  Since 2009, investors have come to rely on the interventions of central banks to inject liquidity into the system and thus free up the amount of capital available for loans and economic expansion.  While this bit of counterintuitive logic may seem a bit perverse in the long run (i.e. let's borrow even more money to solve our debt problem!), the short run is all most markets care about at the moment.  And the short run fear is that global growth may be stalling and a new recession could be just around the corner. Therefore, markets are responding favourably to any means to prop up asset values, no matter what the long term consequences may be. 

In New York, the Dow rose about 1% on the week closing at 13,207 while the S&P 500 finished at 1405.  Indian markets were also higher as the Sensex added 2% closing at 17,557 while the Nifty ended the week at 5320.  This bullish outcome was in keeping with expectations as the Mercury-Venus-Neptune alignment was exact midweek.  The Mercury-Venus pairing is usually bullish anyway and the Neptune influence only added to the stability of the up trend.

Stocks have been quite resilient in August thus far, despite the move of Saturn into sidereal Libra.  I had thought we might have seen more downside by now but so far, only Saturn's more responsible side has manifested.  Like all planets, Saturn has different symbolisms, some positive and some negative.  When Saturn is favourably disposed, it can support responsible behaviour and slow and methodical growth.  Perhaps that absence of any easing last week from the ECB and the Fed was a reflection of this upstanding side of Saturn.  But stocks have not been filled with the usual amount of Saturnian pessimism.  One possible explanation is that Saturn is actually considered "exalted" in the sign of Libra and hence it will tend to produce more positive outcomes.  I don't quite believe this exalted status of Saturn is enough to deny its inherently pessimistic nature indefinitely, but it is one possible reason why markets have remained afloat in the early stages of its transit of Libra. 

When Saturn comes under more pressure, we will see how strong its exalted state really is.  This week will be an important test in that respect as Mars conjoins Saturn on Wednesday the 15th.  Mars and Saturn are the two most malefic planets of the solar system so there combination here is definitely one to watch.  Mars could start off the proceedings as early as Tuesday as it enters Libra.  Such Mars ingresses often tend to be bearish.  I would also note, however, that Venus forms a potentially positive alignment starting on Wednesday and lasting until Friday. So there could be some moves higher around this Venus energy, especially if the market has fallen beforehand.  It should be quite an interesting week.