Saturday, August 25, 2012

Bernake's Fed: born under bad stars

The stock market is looking pretty fragile these days.  While it is chasing recent highs, stocks seem increasingly reliant on central bank easing rather than fundamentals based on actual economic growth.  Much of this summer rally has occurred on the assumption that QE3 or its European equivalent are not far off.  Last week's Fed minutes and Ben Bernanke's letter to the House Oversight Committee reiterated his commitment to more easing in order to boost the slumping US economy.  Some of Bernanke's talk should be assumed to be mere jawboning which all central bankers engage in.  But if stocks rally into the next Fed meeting on 13 September, then that puts a lot of pressure on Bernanke to actually come through with a tangible announcement for more stimulus. If he does not, then the market would likely decline sharply.  Even if the Fed does announce some action, there is a possibility that the market could sell off anyway as in "buy the rumour, sell the news".  This is perhaps more likely if the program comes up short of expectations in terms of size and scope.

We can get a deeper glimpse into the inner workings of the Fed by looking at the horoscope of the Bernanke's tenure.  He was installed as Fed Chair at 2 p.m on 31 January 2006.  This natal chart should reflect some basic qualities of his time as Fed Chair.  We should also be able to see some trends and events by examining transits against the natal chart.  The natal chart itself says a lot about the Bernanke Fed.  The US has suffered its worst recession since the 1930s during his term.  In fact, Bernanke is very closely identified with the recession since economic activity began to decline just a year after he was appointed Fed Chair.  We can see this recession quite clearly through the nasty opposition of Saturn to the Sun, Mercury and Neptune.  Saturn is very much the planet of recession as it symbolizes restraint, pessimism and loss.  It is placed in the 2nd house of wealth.  Ouch!  Its aspect to the Sun suggests a loss of vitality and confidence.  Even more damaging is its aspect to Mercury.  Mercury is the planet of commerce and it is doubly important in this chart since it rules the ascendant, Gemini.  To top if off, Mercury is placed in a harmful dusthana house, the 8th.  So there is really quite a bit of negative Saturn energy that flows through the whole chart.  Obviously, Bernanke's legacy will be his reaction to the recession.

Interestingly, we can see hints of Bernanke's strategy of "quantitative easing" or QE.  Quantitative easing is a form of economic stimulus whereby central banks buy debt which enables other market participants (banks, institutions, private investors) to boost economic activity through other more direct wealth-producing areas.  By entering into the debt market, interest rates are kept low and thereby make credit cheaper for prospective borrowers, and hence this should increase economic growth. But in order to buy debt, the Fed has to spend money it does not actually have.  It therefore "invents" the money and moves the debt onto its own balance sheet to be repaid at a later date.  The Mars-Jupiter opposition in the Bernanke installation chart is a perfect reflection of this spend first and ask questions later approach.  Mars represents willful action while Jupiter symbolizes wealth and value.  When there are in more harmonious aspect with each other, it suggests a prudent spending of money toward a specific goal.  But in a more difficult opposition aspect, it often means out of control or wasteful spending.  And just to extend the analogy one step further, Jupiter is closely square Neptune, the planet of illusion and dreams.  It is perhaps no coincidence that Professor Bernanke has written several academic papers arguing the theoretical case of quantitative easing as a solution to economic slowdown.

The trouble is we don't actually know if this strategy can work since it's never been tried before.  A growing number of analysts believe that quantitative easing has limited returns and may no longer have a positive effect on the economy as the debt burden grows.  A common criticism is that QE produces inflation and debases currency, in this case, the US Dollar.  Inflation has indeed spiked in various countries (e.g. India) after the Fed began its QE program in 2009 as investment money sought out higher rates of return in other jurisdictions.   US core inflation remains largely under control although commodity prices have risen substantially.   Elevated gasoline and food prices at home and abroad are a direct consequence of the Fed's QE policies.  So perhaps that Jupiter-Neptune-Mars pattern in this chart does contain some of the keys to the Bernanke tenure at the Fed.  The themes are clear enough: the huge debt burden through spending (Mars-Jupiter), the fixation on an idea of recovery through inflation  (Jupiter-Neptune), and the reliance on a theoretical idea of quantitative easing that remains largely untested in the real world (Neptune). 

This chart is also useful for seeing the various twists and turns in financial markets and the wider economy.  We can see that the meltdown in 2008 occurred when Saturn transited through Leo.  Thus Saturn would have aspected the Moon (depression), while Rahu (distortion) conjoined Mercury (commerce).  Both are very damaging transits.   The recovery began in 2009 just as transiting Jupiter entered the 9th house and therefore conjoined the Moon (expansion, happiness) and aspected the Ascendant (growth).

All eyes are on the upcoming FOMC meeting on 13 September.  Perhaps not surprisingly, we can see that there are a number of close transit hits occurring at that time.  At the broadest level, this reflects the importance of the announcement.  The close Jupiter-Mercury aspect is a very positive influence and could be seen as a possible indication of more expansionary policies.  While I am still fairly skeptical about the near term prospects for QE3, this Jupiter aspect is one piece of evidence that some kind of easing will take place.  It may also reflect the general public approval of the Fed move.  But we can also see that Saturn is highlighted at this time.  Transiting Venus is exactly conjunct Saturn on this day, and forms a larger alignment with Uranus and Pluto.  All three planets are at 13 degrees of their respective signs. Venus-Saturn aspects tend to be more difficult and often provide an outlet for Saturn's more cautious energy.  Perhaps we have equal measures of expansionary Jupiter with cautious Saturn.  Again, one can interpret these planets in a number of ways, although this does suggest a kind of balance in the Fed action.  Perhaps the easing program will be quite small.  I would also note that Saturn and Rahu are close to the degree of the Ascendant in this chart in September.  This is a more negative influence and suggests that Bernanke may become fairly stressed while these two malefic planets are in aspect to the Ascendant.  I don't want to make too much of it, however, since the Ascendant is dependent on an exact "birth" time and I am uncertain about the accuracy of the 2 p.m. installation.

Looking ahead, we can see that the next major transit hits will occur in early 2013.  Saturn will station in exact square to Sun while Ketu (SN) conjoins Mars.  This is a double whammy that is likely to mirror some very difficult developments at the Fed.  This could represent another phase of the ongoing economic crisis that may force the Fed to react quickly.    It is also possible that this could correspond with the end of Bernanke's tenure.  Mitt Romney is on record saying he will fire Bernanke if he becomes president.  These transits occur in January and February, just at the time when the new president would assume office.  While I don't think Romney will win the presidency, it is an intriguing interpretation of these difficult transits. 

But back to today's markets.  US stocks ended their winning streak last week on worries of slowing growth in China and Europe.  The losses were quite mild, however, as the Dow slipped less than 1% closing at 13,157 while the S&P 500 finished at 1411.  Indian stocks fared better on hopes of further central bank easing.  The Sensex rose less than 1% closing at 17,783 while the Nifty ended the week at 5386.   The week unfolded more or less as expected as the early week Venus-Jupiter aspect coincided closely with gains on most world markets.  As expected, the late week period was more bearish on the Mars-Rahu aspect. 

The planets this week argue for more upside as the Sun forms an alignment with Uranus and Pluto on Wednesday and Thursday.  Ahead of this pattern, there is a greater chance of some declines perhaps, although they may be fairly muted.