Sunday, September 22, 2013

Bernanke (and Rahu) surprise markets: Is the QE party over?

(22 September 2013)  Ben Bernanke surprised markets last week as the Fed postponed its plans to taper QE bond purchases until economic conditions improved.   While US stocks moved to new all-time highs on Wednesday's announcement, many investors and analysts voiced their irritation and disapproval at this sudden about-face after the Fed had been hinting at tapering since May.  The Fed's credibility took a beating with this move as more market players spoke out against its actions and its communications.  The fact that most of the gains were lost by Friday is further evidence that the market may be growing wearing of all this Fed money printing as it does not appear to have much effect in the real economy.

We can see the potential damage of Wednesday's non-taper by referring to Bernanke's swearing-in chart when he first took over the reins of Fed Chair on February 1 2006 at 9 a.m.   I interpret this chart as representing conditions and events of Bernanke's tenure at the Fed.  Close aspects involving malefic planets like Saturn will likely coincide with times of economic stress when the Fed is forced to react to worsening conditions, both in the economy and in the financial markets.  Favorable aspects with planets like Jupiter and Venus may be seen as coinciding with desirable conditions and events such as improving economic data and rising stock markets.  The stated aim of quantitative easing is to lower interest rates in order to spur economic activity and to push the stock market higher to enhance "the wealth effect".  Lately, it's only effect may be that it is enriching the top layer of society.

There were two key patterns in play last week.  First, transiting Mars (19 Cancer) was exactly opposite the natal Sun (18 Capricorn), Mercury (22 Capricorn) and Neptune (23 Capricorn).   Mars is a planet associated with sudden events marked by frustration and annoyance especially when in hard aspect (90, 180) as is the case here.  This Mars influence therefore accounts for both the surprising nature of the Fed move as well as the mostly negative to it.

The other pattern to take note of is the triple conjunction I have been mentioning between Venus, Saturn and Rahu (NN) at 14 Libra.   This was exact on the day that Bernanke threw his curve ball into the markets.  While there are no full strength Vedic aspects here, there is a very close 135 degree aspect between Venus-Saturn-Rahu and the Moon (0 Pisces).  This is just one degree from exact and therefore may confer some strength.  Any affliction to the Moon is going to be noteworthy, and since there are three planets involved here it may be quite consequential down the road.  At the same time, it is important to note that the 135 aspect is a minor aspect and therefore packs less of a punch that other aspects. 

So how important is this Moon affliction?  Could it mean that the markets are finally fed up with the Fed and its endless loose money policy?  Certainly, there are more voices that are openly questioning the wisdom of QE now.  Some commentators talk about how the Fed may be trapped now by the market's reliance on money printing.  When the Fed indicated it was going to taper bond purchases in May, interest rates started to rise as the market anticipated the loss of an important buyer.  But the Fed doesn't want rates to rise as they will choke off the housing recovery and push the economy back into recession.  Rates can only stay relatively low if the Fed continually pumps money into the system and increases its own debt.  As many investors know, this is a recipe for inflation down the road.  What's worse is that yields on Treasury bonds are still higher than they were a year ago thus indicating that the Fed may no longer be able to dictate interest rates.  Bernanke is on the verge of losing control of the bond market.  This is a more perilous situation because it means that rates will rise no matter how many bonds the Fed buys. That means that the US debt will suddenly become more expensive to service and will force more government cuts and higher taxes.  Higher inflation is the other probable consequence in this scenario. 

While I thought that the triple conjunction could be bearish for stocks, I was ultimately uncertain of the outcome with this pattern given the strength of Venus in Libra.  As it turned out, stocks rose across the board.  As expected, Rahu made its presence felt as developments were quite surprising and even disruptive as Bernanke postponed the taper.  His Indian counterpart, RBI chief Raghuram Rajan also surprised markets albeit by tightening as he raised the repo rate on Friday.  The negative reaction was not enough to offset the post-Fed rally however.   Gold also rallied strongly after the Fed on renewed inflation fears.

This week will be interesting as we can monitor the effects of the separation of Venus from its conjunction.  Markets have generally risen as Venus approached its conjunction with Saturn and Rahu.  It may be another story once Venus separates.  To be sure, Venus will still be quite strong while it remains in Libra until 2 October so this could keep sentiment mostly positive.  But it is worth noting that market reversals do sometimes happen around tight clusters of planets as we had last week. 

Venus is subject to two aspect influences this week, one negative and one positive.  Mars aspects Venus for much of the week and thus we should expect some negativity to manifest at various points in the week.  The aspect is exact on Sunday the 29th.  However, Jupiter forms an exact aspect with Venus on Thursday so that is likely to translate into some favorable outcomes as well.   The bottom line here is that the planets do not provide any clear hints for direction this week.  But the gradual weakening of Venus is something that should be watched very carefully here, especially as we move into October.  With the prospect of a US government shutdown looming, stocks may face a tougher road.