Saturday, September 15, 2012

Bernanke launches QE3; but will it work?

After months of hints, testimony and warnings, Ben Bernanke finally pulled the trigger and announced QE3.  This latest attempt to kick start the US economy will buy $40 Billion of mortgage-backed securities every month in an effort to lower interest rates and help boost the moribund housing market.  Perhaps most importantly, Bernanke committed to this program indefinitely until there was significant employment  growth and the economy was back on its feet.  In this sense, QE3 is not a one-time thing.  It is QE Forever now as the Fed is showing signs of frustration (or perhaps desperation?) with the inability of the economy to get going.  Such quantitative easing measures are intended to lower interest rates to boost lending and help to move money into riskier assets like stocks.  According to theory, this should boost the housing market and increase economic activity and thereby boost employment.  It may also boost the stock market and thus enhance the overall 'wealth effect' of the population and stimulate more consumer spending. 

Well, that's the theory anyway.  In practice it may have not have much of an effect.  Interest rates are already near historic lows, so a few tenths of a percentage point difference is unlikely to further entice prospective home buyers. The latest estimates are that QE3 may only end up increasing GDP by half a percentage point over the next year.  That is unlikely to make a major difference to hiring.  And inflation is likely to become more of a problem both domestically and around the world now with this latest bit of money printing.  While narrowly defined (and carefully massaged) official "core inflation" may stay fairly low, food and fuel prices are likely to rise and will make the lives of lower income people more difficult.  And of course, quantitative easing increases America's debt load. Where does the $40 Billion come from after all? Well, the Fed prints it "out of thin air" as the saying goes, and it goes on its balance sheet as a liability. 

While Bernanke may have had little choice, one wonders where it will all end.  The US looks increasingly vulnerable to another recession as the Fed is quickly running out of financial instruments to prop up the economy.   From an astrological perspective, the US horoscope should not give Ben Bernanke much reason for optimism. At the outset, I should note that there is no consensus about the correct birth time for the USA.  It is one of the most contested horoscopes there is.  I tend to default towards the 6.30 p.m. chart pioneered by James Kelleher, although I am open-minded about it and do refer to the 5.10 pm and the 2.21 pm chart also.  Given the uncertainty about the exact time of the chart, it is usually a good idea to focus more on planet-to-planet influences, rather than house placement and other chart features that are more dependent on the precise time.

Looking at the the 6.30 pm chart, we can see that QE3 was launched just as both Saturn and Rahu were aspecting Mercury, the planet of commerce and communication.  It is hard to imagine a more inauspicious planetary set-up as both Saturn and Rahu are considered malefic influences.  Saturn often has a depressive effect on the planets it aspects, so its square aspect to Mercury may be a reflection of ongoing pessimism about the economy and the prospects for success from this latest QE3 program. Indeed, there has been more questions raised about the effectiveness of the Fed's actions this time around.  While most acknowledge it will likely boost stocks and commodity prices, there is also more skepticism about its ultimate effects to actually increase employment and improve the lives of ordinary people.  Saturn may also be undermining the economy and the stock market in the short run while this aspect is still quite close. 

The Rahu aspect to Mercury suggests distortion and exaggeration, a probable reflection of the impact of QE3 on the whole notion of free markets.  As Senatorial candidate Elizabeth Warren recently noted in a speech at the DNC, "the game is rigged" against the average person.  Wall Street gets first dibs and leaves only crumbs for everybody else.  QE3 similarly puts money in the hands of bankers who are all too happy to unload non-performing loans to the Fed, while there is very little trickle down benefit to Main Street.  Bernanke would likely get a more stimulative effect if he simply gave the $40 Billion every month directly to the American people rather than funnel it to the banks.  QE3 therefore can be seen as a distortion of the real economy through central bank intervention that punishes savers and those on fixed incomes in an effort to reduce an onerous debt burden through inflation.  If you owe someone $100 and inflation is running at 10% per year, next year you will only have to repay him the equivalent of $90.  Inflation is a good deal for borrowers, but not for creditors.  This is what Germany tried to do in the 1920s after it was saddled with huge war debts.  It led to an inflationary spiral and economic collapse and ultimately paved the way for fascism.  That's not to say that the US will follow the same path, but debt-ridden countries are usually seduced by the inflation solution.

But Saturn and  Rahu will soon move past their aspects with Mercury.  The real longer term problem for the US economy is the combined effect of the Uranus and Pluto transits to Venus and Jupiter in the US chart.  Both are more difficult square (90 degree) aspects and promise a significant amount of dislocation and disruption of the status quo.  While we can't be sure what house Venus and Jupiter are really in, we do know that both of these benefic planets are associated with wealth and economy, among other things.  Therefore transit afflictions to Venus and Jupiter will tend to coincide with major adjustments in the economy.  Uranus and Pluto both represent change, albeit in somewhat different ways.  Uranus is sudden and energetic while Pluto is more plodding and deliberate.  Both Uranus and Pluto move very slowly, so these aspects have two or three more years before they will fully manifest.  Another recession looks fairly likely with these aspects, and we can also expect some re-organization of the economy.  If recession takes hold in the next year as I think it might, then the Fed will likely step up its efforts and print even more money.

Not surprisingly, stock markets rallied strongly on Bernanke's announcement.  US markets rose 2% on the week as the Dow closed at 13,593 -- it's highest level since 2007.  Indian markets were also buoyed by the news as the Sensex surged 4% finishing the week at 18,464.  Commodities also jumped 3% as crude oil touched $100 and gold closed near $1775.  This positive outcome was pretty much what I expected as the Venus influence last week was quite prominent.  I wasn't sure about the reaction to the Fed decision, although I thought the favorable sentiment could spill over into the end of the week.  Enthusiasm only faded somewhat by midday on Friday in the US.   While I thought the Fed would likely announce something. I was somewhat surprised by the extent of the Fed's commitment to debt purchases indefinitely.  Perhaps Bernanke was seeking to avoid another single, large number as in past QEs ($750 Billion) in favor of something that sounded more politically manageable ($40 Billion).

This week looks less positive for markets.  I am watching two things.  First, there is a Pluto direct station on Tuesday that happens to coincide with an exact square aspect with Uranus.  On paper, this has disruptive potential although it may require a third planet as catalyst.   Wednesday and Thursday will see a nasty-looking alignment of the Sun, Rahu and Saturn that would seem to foster pessimism.  Interestingly, Mercury will move into mutual aspect with Uranus-Pluto on Thursday and Friday.  There is a lot of energy there.  Overall, I would think there is a good case for a decline this week.

Transits for Thursday 20 September 2012 9.30 am New York