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.