EU summit agrees on fiscal union; Saturn guides Merkel to austerity

If at first you don't succeed, try, try, try again. European leaders came together last week and forged yet another agreement to solve the continent's ongoing debt crisis. Rather than raising bailout money for insolvent countries as they did in October, this time the emphasis was on fiscal responsibility. The new fiscal pact will therefore regulate government spending levels by member states in an effort to reduce debt levels and thereby reduce borrowing costs. The German-led plan will attempt to improve the balance sheet through collective austerity at the expense of national sovereignty. The UK was the only EU country that did not sign on to the fiscal union, much to the ire of its European partners.

Germany's focus on austerity and fiscal responsibility carried the day and suggests that there will be not be a quick fix for the Eurozone. Interestingly, on the previous day the European Central Bank (ECB) had ruled out any inflationary QE-style bond buy back program. Both of these developments seem to be an appropriate reflection of growing strength of Saturn. As the planetary symbol of restraint and responsibility, Saturn will tend to emphasize caution and reduce the appeal of free spending (liquidity) and excessive borrowing in order to solve economic difficulties. True, we have seen some modest attempts to inject money into the system recently as the ECB reduced its overnight rates to 1% shortly after the Fed opened up its wallet to European banks earlier in the month. As we know, planets are constantly in motion and their influences are subject to ebb and flow. Expansive Jupiter and risk-taking Uranus have recently come into close aspect and this is one reason why we have seen some efforts to keep the financial system afloat through inflationary means. But these efforts will probably be fairly limited given Saturn's proximity for the next two months.

World markets reacted favourably to the latest EU plan as the Dow rose 1% closing at 12,184 while the S&P 500 finished at 1255. Indian stocks were more negative in part due to political opposition to a proposal to allow FDI in the retail sector. The BSE lost almost 4% closing at 16,213 while the Nifty ended the week at 4866.

The global financial situation continues to be quite shaky at the moment as opposing economic philosophies do battle. Keynesian-inspired inflationistas seek to borrow more money to revive confidence and stimulate spending and thereby boost government revenues. Most market participants seem to favour this approach since the increased liquidity (free money from the Fed, ECB, RBI ,etc) means greater economic activity and the reduction of risk. We can see how dependent the stock market has become on this approach from Thursday's sharp decline. Stocks sold off after the new ECB Chair Mario Draghi announced there would be no Eurobonds and no QE-style buy back program. In others, we was not going to follow in the footsteps of Ben Bernanke. If the stock market tends to prefer the free spending largesse of most central bankers, the bond market tends to gravitate towards the stricter accounting procedures of the free market school of Austrian economics. If a country spends and borrows beyond its means, buyers of its debt demand a higher yield on their bonds since the risk of default is greater. This is where Europe is now and one of the main reasons why it has chosen to focus on reducing debt.

At this point, it is unknown if the financial markets will accept the current focus on austerity and debt reduction. Austerity will tend to lower bond yields which is very important to recovery, but austerity usually also entails a painful period of economic slowdown that the stock market does not like. This is the main reason why stocks will tend to decline during times of debt reduction. The astrological dimension here suggests that Saturn's preference for austerity, caution and accountability is more likely to be the driver's seat (alongside Angela Merkel) for several more weeks at least. While Jupiter-Uranus may generate some stimulative proposals, they are unlikely to be significant as the market will tend to focus on the pitfalls of spending (excessive debt) rather than its upside of more economic activity.

This week will feature a potentially nasty Mars-Rahu aspect in the first half of the week that suggests more downside. Saturday's lunar eclipse may serve to amplify the proceedings so there is a wild card element at work here. At the same time, Jupiter and Uranus will form their exact 30 degree aspect this week, so that may provide some support for buyers along the way. It may also serve as an accelerator of events and consciousness in a more generic way. The sidereal sign ingress of both Venus and the Sun in the late week period also would seem to boost the possibility for gains then.

Stocks rally on cheap Fed loans to Europe; EU summit due Friday one day before eclipse

How do you solve a debt crisis? With more debt, of course! Europe's financial endgame was put on hold last week as a coordinated central bank intervention flooded its crippled banking sector with cheap US dollars. The Fed's injection of fresh liquidity was widely applauded as global stocks markets soared and bond yields fell back to earth. In New York, the Dow zoomed higher by 7% closing at 12,019 while the S&P 500 finished at 1244. While the size of the rally was unexpected, I did suggest that the first half of the week was somewhat harder to call and that upside surprises were more likely to occur then. Such sudden developments are not uncommon during eclipse periods such as we are in now. As expected, the late week was weaker on the Mars influence, although its negative effects were quite muted. Indian markets also moved sharply higher throughout the week as the Sensex rose 7% closing at 16,846 while the Nifty ended the week at 5050.

Now we are one step closer to some kind of resolution -- for good or ill -- to the European debt crisis. An EU summit is scheduled for this Friday where the latest bailout package will be unveiled for all to see. What will the markets think? In previous posts, I have noted the approach of the Jupiter-Saturn opposition aspect in December and January and how this is likely to create a mood of caution and skepticism towards any new Eurozone bailout plans. Last week's free spending intervention was suggested that we might have to wait a little longer for the the true spirit of Saturn to settle in. The complicating factor in the upcoming Jupiter-Saturn aspect is that these two planets will have company. As I have discussed in more detail in my newsletter, Uranus and Neptune will also figure prominently in a much larger four-planet alignment that will be in its tightest configuration in January. At the moment, risk-taking Uranus (6 Pisces) may well be resonating more closely with expansionary Jupiter (6 Aries). This is usually a bullish pairing that often coincides with rallies. Their unusually long conjunction in 2009 and 2010 was a key factor in a huge QE1 and QE2 recovery rally after the meltdown. So this latest example of inflationary Fed largesse is more likely the result of this Jupiter-Uranus aspect. It is worth noting that both planets are moving very slowly this month since Uranus stations this Saturday and Jupiter is due to station in late December. Slow planets are more powerful, and powerful bullish planets can translate into optimism and significantly higher prices for assets.

But Saturn is gradually edging its way into this equation as it moves closer. Just when we might see more fear and caution enter the markets is harder to say. It could be next week, or it could be next month. But what we can say is that the presence of Saturn in this larger alignment undermines the likelihood of a quick resolution to the Eurozone crisis. If Jupiter and Uranus like to solve debt problems through by issuing more debt and stoking inflation, Saturn prefers the tougher road of austerity and constraint. Germany's PM Angela Merkel appears to be holding fast onto this more Saturnian approach to the crisis as she has categorically refused the possibility of issuing Eurobonds which would weaken Germany's credit rating and fan the flames of inflation. As Saturn is likely to strengthen over the coming weeks, there is little reason to expect Merkel's view will change. The markets may want a full-blown money printing QE-type solution, but they are unlikely to get what they want with Saturn sitting on the doorstep. It will be recalled that the first brush with Greece's insolvency appeared in mid-2010. Markets fell sharply in May (the flash crash) as the vulnerability of the Eurozone became apparent. It was no coincidence that Saturn played a key role in that event as it formed a close alignment with Jupiter, Uranus and Neptune from May to August 2010. The same planets are involved this time around, although the angular arrangement is different. History may not exactly repeat itself, but it may well rhyme.

This week could see some weakness in the early going due to the Sun-Rahu conjunction on Tuesday and the approach of the Mars-Rahu aspect. Both of these are short term influences however, so it is unclear if they will be enough to crowd out the otherwise bullish influence of Jupiter and Uranus. Perhaps gains are more likely as we get closer to Friday. Uranus will be super strong on Saturday for its direct station as it concludes its four month retrograde cycle and returns to direct motion. Uranus stations can be turning points in the market that deserve close watching. What makes this particular station particularly interesting is that a lunar eclipse occurs on the same day. Since this will be just one day after the EU summit, there is a greater chance for major new developments. On paper, this eclipse + Uranus combination should not be positive for finding a durable solution for Europe. Eclipses are destabilizing influences which shake the status quo. More conservatively, it is possible this energy will simply reflect proposals for a new fiscal union in the Eurozone. This would chart a course that would fundamentally change the EU from a simple currency union between countries into something that resembles a "United States of Europe" that is more closely integrated. Whether or not it will be favourably received is harder to say. Saturn's fairly close proximity here makes me think the reaction won't be good, although it may not happen immediately.

Germany's bond auction undermines confidence; Eurozone faces tough choices

What if you held an auction and nobody came? Germany's failed bond auction sent markets lower across the board last week as the Eurozone debt crisis appeared to enter a new and more ominous stage. Now the loss of confidence in the Euro has made its way into the very heart of the EU as the debt contagion threatens to engulf the entire region. In New York, the Dow lost 4% closing at 11,231 while the S&P 500 finished at 1158. In Mumbai, the Sensex also lost around 4% closing near support at 15,695 while the Nifty ended the week at 4710. As expected, we did have some significant downside moves in the first half of the week around the deadline for the US Congressional Supercommittee on spending reduction. The declines coincided fairly closely with the Venus-Saturn aspect which normally constrains buying and reduces cooperation. The late week recovery was more spotty than expected, however, as Asia and Europe only saw small bounces while the US market tumbled in all four sessions of the holiday-shortened week. All in all, these declines seemed to be appropriate given the strong Saturn influence that has dominated the month of November.

World markets are growing more impatient with the EU as it attempts to solve its endless debt crisis. The trouble now is that a lasting solution requires Germany, the economic engine of the whole EU system, to accept some measure of pain. Most observers now believe that the only way to stabilize markets is for the ECB to either embark on a massive quantitative easing (QE) bond buyback scheme or become the lender of last resort and issue its own eurobonds which would effectively guarantee the bonds of all member countries. The problem is that such a move would inflict damage on Germany through higher inflation and rising debt service costs as its once-unassailable AAA+ rating would likely be downgraded. Germany is also reluctant to agree to backstop the bad debts of peripheral EU countries because this would reduce the incentive to commit to reforms and to cut spending. Too much carrot, not enough stick in other words.

So the dynamic between Germany, the other Eurozone members, and the financial markets now resembles a version of game theory where the interests of the self and the collective are nominally separate but intrinsically related. Germany wants Italy, Greece and Spain to cut spending. But with more investors now increasingly reluctant to buy any Eurozone debt, Germany now must accept that it may have to share the pain in the form of inflation and higher debt service costs due to rising bond yields. In seeking to protect German interests, Angela Merkel may attempt to fashion a compromise solution whereby the ECB undertakes a limited quantitative easing plan to resuscitate the forlorn EU bond market. Whether or not the bond market accepts such a lesser intervention remains to be seen, however. The choices available to policymakers appear to be narrowing as the market is demanding a bold move which reverses this loss of confidence. In crafting a solution to the impasse, Merkel and the ECB have to calculate where the most effective common interests of all EU members lie. Because the governing structure of the EU is interdependent, it may not be possible for Germany to protect its own narrow interests in the short term without suffering some negative consequence down the road. The difficult choice facing Germany now is that it can no longer escape the damage from the economic sins of its neighbours. A quick and painless exit from the Eurozone is not an option. While the EU member states may retain narrow self-interest, their collective interest may now take precedence.

From an astrological perspective, the current strength of Saturn is likely to make Germany and the ECB less amenable to some huge QE-style money printing scheme. Saturn is soon approaching its opposition aspect with Jupiter (closest aspect due in early January), so that would tend to suggest that inflating their way out of trouble would have less appeal or be less successful. Saturn demands responsibility and control over one's actions, so I think it is unlikely that Merkel would agree to any plan which creates moral hazard for the indebted nations of southern Europe. Merkel will likely continue to insist upon accountability for economic reforms in the periphery. While this may not preclude some important new measures by the ECB, I somehow doubt they will be a far-reaching as, say, the Fed's attempts at QE1 and QE2.

The planets this week seem tilted towards the negative as malefic Mars may rule the roost. Mars is now forming a difficult square aspect with the Sun, Rahu (NN) and Mercury over the next two weeks. This is a bad combination and the fact that these planets are clustering here makes it that much worse. The Mars-Sun aspect is closest at the end of the week so we could look for declines to be more likely and more pronounced at that time. The first half of the week lacks any close aspects so that opens up a range of possible outcomes. We are still in an unstable eclipse period (Nov 26-Dec 10), so that may reduce the chances for any lasting rebound. But eclipses are all about surprises and shocks so we cannot rule out the possibility of some pleasant surprises also. However, the Mars aspect stands out a like a bit of sore thumb this week so it seems that surprises will be on the downside.

Markets unimpressed with new Italian PM; solar eclipse due Friday

Well, it didn't take long before the markets cast their dissenting vote on the new governments in Greece and Italy. The initial sense of relief quickly gave way to rising skepticism that the pro-austerity technocratic duo of Papademos and Monti were going to magically solve Europe's crushing debt overhang. Politicians can offer soothing sound bites but economics is where the rubber meets the road. Bond yields on Italian debt once again pushed above the critical 7% level by midweek and stocks promptly sold off. The Dow lost 3% for the week closing at 11,796 while the S&P 500 finished at 1215. It was a similar story in Mumbai as the Sensex tumbled 4% closing at 16,371 with Nifty ending the week at 4905.

This negative outcome was largely in keeping with expectations although I thought we might see more downside in the early week. The malefic tandem of Saturn and Rahu (NN) were true to form as Monday was lower across the board. Saturn's entry into sidereal Libra suggested was likely going to correlate with a rise in caution. We saw the bounce from the Mars-Jupiter arrive a little early on Tuesday in the US and that set the stage for a surprisingly bearish Sun-Saturn aspect on Thursday.

It seems that Saturn is calling the shots for now. It's perhaps not surprising that stocks are been driven by the dictates of the bond market. Since bonds are debt and Saturn symbolizes debt and loss (i.e. money owed), Saturn's grand entrance into Libra last week placed the bond vigilantes front and center. As European bond yields rise into the danger zone, the market is telling policy makers that their current plans are insufficient and the risk of default remains. As it currently stands, the EU has a credibility problem. It can only resist the logic of the market for so long before it relents. The late October agreement sounded good but was short on specifics and probably short of cash as well since Italy's debt is beyond the scope of the current EFSF bailout package. The current focus on the dangers of debt is likely to continue as Saturn approaches its opposition aspect with Jupiter over the coming weeks. The aspect is closest in early January when the two planets are separated by 178 degrees. Such opposition aspects tend to highlight tension, slow progress, and frustration.

This week marks the beginning of the bi-annual eclipse period as a partial solar eclipse occurs on Friday. This eclipse does not look especially powerful or disruptive so it may not exert any immediate influence. The close aspect between the Sun-Moon and bullish Jupiter suggests that gains are more likely late in the week. This would be in keeping with the bullish tendency near the US Thanksgiving holiday. On Wednesday, however, the deadline for the Congressional Supercommittee to cut government spending (Saturn!) arrives so we could see some nervousness ahead of that date. The early week Venus-Saturn aspect looks negative and could translate into a reluctance to buy stocks. So I would not be surprised to see some early week downside and then for gains to accrue in the second half of the week. Large moves seem more unlikely this week, however.

Europe steps back from the brink; Saturn enters Libra this week

Europe backed away from the precipice last week as both Greece and Italy finally ceded to the austerity demands of their paymasters. Greece swapped Papandreou for Papademos, while Italy's Berlusconi agreed to resign as the Senate passed the EU's austerity package. Financial markets approved of these changes as US stocks staged an impressive rally after Wednesday's frightening sell-off. The Dow closed about 1% higher on the week closing at 12,153 while the S&P500 finished at 1263. Indian fared worse, however, as slumping industrial production and rising oil prices dragged down stocks. The Sensex fell by 2% closing at 17,192 and the Nifty ended the week at 5168.

Wednesday's near-death experience coincided with Neptune's direct station just as it was opposite Mars. I had expected some significant downside around this aspect as this was likely to highlight confusion and uncertainty. Up to that point, the Italian government under Berlusconi had not yet agreed to the austerity package as bond yields spiked beyond the crucial threshold of 7%. Somewhat unexpectedly, US market did manage to rise early in the week ahead of this Neptune station. The late week was more positive as we saw a rebound on both Thursday and Friday in the US. Indian markets missed much of the Wednesday sell-off and therefore played catch up on Friday.

Well if Neptune is all about confusion, then Saturn brings austerity. As the leaders of Greece and Italy took firm steps to address their debt burdens, we might suggest they were reflecting the Saturnian principles: long-term progress only comes through appropriate restraint and ultimate social harmony requires a measure of control and order. It is no surprise that these efforts should come just as Saturn is about to leave sidereal Virgo and enter Libra. As Saturn changes signs its energies may manifest more readily. This often translates into lower prices as caution and pessimism win out over spending and risk. On this occasion, however, we may also see the acceptance of austerity as generating a kind of Saturn-driven rally. Austerity was deemed necessary by market players, and Greece and Italy made their promise. Everybody is happy. Well, at least for now.

This week features a couple of potentially powerful aspects. First, Saturn enters sidereal Libra on Monday. This is generally a bearish influence although this energy need not always express itself through financial markets. Since Saturn only changes signs once every 2.5 years, we should pay attention to any fundamental changes in intermarket dynamics that may develop in the coming days weeks. Will bonds prices continue to be inversely related to stocks? Will gold maintain its value as a flight to safety play? Perhaps more immediately, we also get a triple conjunction of Mercury, Venus and Rahu on Monday. Mercury and Venus are mostly positive planets but their association with unpredictable Rahu (North Lunar Node) is cause for some concern. While Rahu can sometimes create unrealistic desires that fuel buying sprees (read: gains), it is more commonly connected with uncertainty and sudden events. While this would tend towards a negative outcome early in the week, more generally we can also say that this pattern will increase the size of the move in either direction. Mars then forms an apparently bullish aspect with Jupiter by Wednesday so this may produce more optimism. The Sun enters sidereal Scorpio on Thursday where it will form a minor aspect with Saturn. On the face of it, this combination looks bad, although I'm not sure it will push down stocks that much. Friday's Moon-Mars conjunction is more likely to boost sentiment given both are on the receiving end of Jupiter's aspect. With the eclipse period just around the corner (Solar: Nov 25; Lunar: Dec 10), we may still be in a preliminary phase here before the main feature begins.

Italian situation prompts sell-off

We finally saw some downside today as Italian bond yields pushed above the danger zone threshold of 7%. Beyond this level, Italy cannot service its debt and would run the risk of default.

The Mars-Neptune opposition finally weighed in on the day that Neptune was stationary in the sky and was therefore most powerful. Well, better late than never. I thought we would get this downside earlier in the week.

Chiron is due to also station and turn direct on Friday while exactly opposite Mars. That looks like another nasty combination. Moreover, Mars will enter the tropical sign of Virgo on Friday. The close aspect with Uranus will only serve to amplify its effects.

The trend looks down for the week although I would not be surprised to see Thursday finish higher in the US.

Stocks fall on EU soap opera; Mars-Neptune peaks this week

Investors were not amused by the latest Greek attempt to turn the ongoing EU debt drama into a sitcom ("Everybody Hates Papandreou") as stocks stumbled on most world markets. In New York, the Dow lost more than 2% closing at 11,983 while the S&P500 finished at 1253. Indian markets also followed the down trend as the Sensex slipped more than 1% closing at 17,562 with the Nifty ending the week at 5284. Overall, this outcome was in keeping with my expectations. With Jupiter moving into the background here, we did see less optimism and more of a focus on Saturnian austerity as markets contemplated the implications of a possible disorderly Greek default. As expected, the early week period saw the largest declines as Mars entered sidereal Leo. Some significant recovery began midweek as Mercury conjoined Venus and formed an alignment with risk-taking Uranus. Friday also largely fit with the forecast as most global markets were lower.

Whatever its economic merits, the EU bailout plan is now confronting the rather difficult political realities surrounding austerity. Greek PM Papandreou has won a confidence vote and will remain in power through some new coalition and has promised not to call a referendum on the EFSF. Meanwhile, Italy is now coming under more scrutiny as the bond market is now questioning its ability to adhere to the austerity measures requested by the plan. Italian government bonds saw a spike in yields last week despite reassurances from PM Berlusconi that all was well. Berlusconi may well on the verge of resigning. While economics may be neatly theoretical, politics is messy and more uncertain. All this austerity talk is very much a reflection of Saturn's rising influence at the moment as it prepares to enter the sign of Libra on November 14. Politicians are looking for ways to persuade their electorates to accept less. That is the way of Saturn -- it removes what is no longer needed no matter if you are ready to accept the loss or not. Standards of living are just beginning to fall throughout the developed world as the financial meltdown which started in 2007 continues to work its way through the system.

In addition, there is a significant amount of confusion in the air at the moment. Can the new Greek coalition government actually work and will the Greek people accept the new plan? Will Berlusconi survive the current crisis and what role does the IMF "monitoring" play in Italy? There are a lot of unknowns at the moment. It is therefore not surprising that Neptune should be more prominent. Neptune symbolizes confusion and vagueness, which can sometimes morph into outright deceit. Neptune is now concluding its retrograde cycle and is especially powerful right now as it is stationary in the fifth degree of sidereal Aquarius. It reverses direction and resumes forward motion on Wednesday November 9. We may see more Neptunian confusion this week since it will be opposed by malefic Mars. This is definitely a bad time to try to form any lasting arrangements.

Mars exactly opposes Neptune on Monday so we might expect more downside impact then. Nonetheless, the aspect is still within range for most of the week so the fallout may manifest at any time throughout the week. In addition, Saturn forms a minor aspect with Mercury and Venus on Tuesday so that suggests the first half of the week could be more negative. Gains are perhaps more likely on Thursday or Friday, although Mercury and Venus are moving towards their conjunction with unpredictable Rahu at that time.