Stocks edge higher on Bernanke comments

Stocks edged higher last week as Fed Chair Ben Bernanke again assured investors that the printing presses would run as long as necessary to give the still shaky US economy a helping hand.
In New York, stocks ended the first quarter of 2012 with a 1% gain as the Dow closed at 13,212 and the S&P500 finished at 1408. Indian markets posted a more modest gain as the Sensex ended the week at 17,404 and the Nifty at 5295. While I was somewhat negative about last week, I did note that the short term Venus aspects looked more positive. After Monday's sell-off in India on the Mercury-Saturn aspect, US markets rallied strongly on Monday's Moon-Venus conjunction. The positive Venus vibe carried into Tuesday in Asian markets.

So far, stocks have held up surprisingly well in this post-Jupiter environment. I had expected more weakness on the leeward side of the major alignment in mid-March once Jupiter began to separate from its exact aspects with Mars and Pluto. This hasn't happened yet as US stocks are still very close to their highs. It may be that stocks have yet to catch up with commodities like gold and oil which have fallen from their recent highs. While Bernanke instills the belief that the market will continue to be propped up no matter what, there is a growing sense that much of the gains are false or unsustainable in some way. Many business media outlets are celebrating the best quarter for US stocks since 1998, but in the same breath they admit it's mostly due to the Fed's easy money policy. With market-driven interest rates and no bond buyback policy, the Dow would probably be closer to 10,000 rather than the 13,000 that it now enjoys. The backstopping by the Fed has taken risk out of the market and thereby has created potentially dangerous distortions. Maybe this Keynesian economic policy will work and the Fed's monetary manipulations will pay off in restored confidence and a self-sustaining recovery. Or maybe it is simply delaying the inevitable by kicking the can down the road and postponing the next recession for another year or two. I tend towards the latter pessimistic view, if only because the planets do not suggest that we will be free and clear in the next few years. Rather, this Bernanke-driven recovery will sputter on and will lead to more inflation and a protracted period of low employment growth. A second recession within the next two years looks likely.

This week may present another opportunity to see the after effects of the Jupiter alignment. In theory, optimism should be in shorter supply. This ought to make it easier for stocks to fall. As Mars backs into its opposition with Neptune next week, there is another reason to expect some kind of downside to manifest in the coming days. Tuesday stands out as a more compelling down day perhaps due to the Moon's conjunction with Mars. At the same time, the Sun forms a minor aspect with Jupiter so there is a possibility of some upside, especially on Wednesday in the US. The holiday-shortened week may force some investors to trim positions ahead of the long weekend. This is another reason perhaps to be more cautious here.

Stocks fall on China slowdown fears; Jupiter recedes

Whither Jupiter? As the Great Benefic recedes in the rear view mirror following the previous week's rare multi-planet alignment, global markets look to be on somewhat shakier ground. Stocks generally moved lower last week as worries over China's economic slowdown and elevated energy costs forced some investors to take a breather. In New York, the Dow lost more than 1% on the week closing at 13,080 while the S&P 500 finished at 1397. It was much the same story in Mumbai as the Sensex gave back 100 points closing at 17,361 and the Nifty at 5278. This negative outcome was very much in keeping with expectations as the post-Jupiter hangover has begun to be felt. I had expected optimism to wane as Jupiter separated from its planetary brethren last week and that is pretty much what happened. The news cycle was marked by ongoing inflation worries due to rising crude oil prices as well as some troubling data coming out of China showing low growth in that country's housing market. The global economy has become so dependent on Chinese growth that any hiccups there will surely be felt around the world. And a worst case "hard landing" in China could well spark another global recession.

In the current post-Jupiter alignment phase, we should be on the lookout for more negative economic news. Fed Chair Ben Bernanke certainly had his share this week. Not only did US manufacturing and housing data come in below expectations, but the inflation-adjusted treasury yields fell below zero for the second week in a row. The so-called TIPS (Treasury Inflation Protected Securities) drew a record low negative yield on the 10-year US government bond of -0.089 in the March 22 auction. This is important because it means that more investors are willing to pay a premium (i.e. to lose money) to protect themselves from inflation down the road. Clearly, inflation is in the forefront of many people's minds as the market is trying to come to terms with the fallout of the Fed's endless attempts at easing and stimulus which devalue the Dollar and force up the price of commodities such as oil. Faced with an impending depression, Bernanke arguably had no choice in 2009 but to embark of quantitative easing, but now the chickens are coming home to roost in the form of $100 a barrel oil. Inflation is the flipside of the Fed's stimulus efforts to boost economic activity. The trouble is Bernanke is quickly running out of room to maneuver. He needs to keep bond yields low in order to promote a recovery in housing and employment, but to do so he is creating inflation. The US economy will find it difficult to absorb $5 a gallon gasoline and keep growing as consumers end up spending more of their disposable income on necessities. Bernanke is very much between a rock and a hard place, and may soon be looking for clues for his next move in 20th-century French existential plays. While it is possible this situation can continue in the short term, it looks to be unsustainable over time. Eventually, Bernanke will have to remove central bank liquidity from the system to dampen inflation or, perish the thought, actually raise interest rates. This would be negative for assets like stocks.

This week we will get another taste of this less-than-optimistic post-Jupiter climate. Jupiter is in retreat from its close aspects so that may continue to siphon off positive energy. The short term aspects are more mixed and potentially offsetting, however. Mars is still in close aspect with Rahu for most of the week which has the potential to upend expectations and exaggerate anxiety. Monday features a difficult aspect between Mercury and Saturn. At the same time, however, the Moon will form a calming conjunction with Venus. This could take the sting out of Saturn somewhat, but it is unclear if it will be enough to nullify it completely. The midweek offers up some hope for gains as Venus enters sidereal Taurus. This should produce at least one positive day, perhaps on Wednesday. Mercury punctuates the strength of Venus on Thursday with a short lived aspect so that is another possible source of bullishness. The Sun is in a nasty t-square with the Moon and Pluto on Friday so that may produce a negative bias for the end of the week. So perhaps choppy at best.

Inflation worries resurface as stocks rise into Jupiter alignment

Inflation seems to be back on the radar. Despite a generally upbeat economic assessment by Fed Chair Ben Bernanke on Tuesday, he did note that inflation and rising fuel prices are becoming more of a concern. It's interesting that such an official recognition of the inflation problem should come in the same week that Jupiter formed a strong alignment with Mars and Pluto. Jupiter is all about optimism and expansion, which are the foundation for inflation. A little inflation is good and reflects faith in the future. But when inflation becomes excessive and threatens sustainable economic growth, the optimism quickly turns to pessimism. We may have had a glimpse of the transition from good inflation to bad inflation just as Jupiter's influence has apparently peaked with that rare grand trine aspect.

Of course as most people know, inflation has been a problem for several years now ever since the Fed reduced interest rates to zero and began its quantitative easing policy. In an effort to prevent a deflationary spiral and a deeper recession, Mr Bernanke and his enablers at the White House decided to avoid the short term pain and delay the inevitable de-leveraging of assets. The resulting pumping up of the monetary system created significant inflationary effects all around the world, most clearly seen in price of commodities like food, gold and oil. "Official" inflation (as opposed to the real kind) has remained low enough over the past three years since QE1 was launched that it could be regarded as fairly benign. Those days may be coming to an end as recent central bank money printing efforts have helped to push up oil and food prices to ever higher levels. Now even Bernanke cannot ignore the effects of his pump priming efforts as crude oil remains stubbornly above $100 with US gasoline prices now pushing towards the politically damaging $5 a gallon threshold.

The problem for the Fed is that they can't have it both ways. You can't have inflation and a sustainable recovery. Rising oil and food prices will push up treasury yields and this will cut off the recovery in its tracks as borrowing will slow. The recovery is largely artificially induced by the Fed's free money policy but this is now creating inflation. Interest rates on US treasuries have already started to rise in the past two weeks as the inflation risk is now being factored in by bond buyers. Bernanke cannot afford to have interest rates rise in this way since it will reduce spending and further weaken the already fragile housing market. Therefore, he is likely keeping a close eye on those bond yields. If interest rates on bonds rise enough they will become more attractive investments and put pressure on stocks as investors take money out of the stock market and stick it into bonds.

Markets generally rose in the first half of the week during the time of the closest Jupiter aspects. The Dow punched above the 13K level eclipsing its 2011 high and finished at 13,232. Indian stocks were more sensitive to the inflation bugaboo as prices crested on Wednesday and then fell after the absence of any RBI rate cut and Friday's underwhelming Union Budget. The Sensex actually slipped a bit closing at 17,466. Interestingly, Tuesday's strong gain coincided almost exactly with the Venus-Jupiter conjunction. This was in keeping with expectations as both planets are considered natural benefics that can generate optimism and confidence in the future.

This week could be an interesting test of the post-Jupiter alignment energy. Usually markets fall in the wake of such Jupiter alignments, so it would not be surprising if the market had a bearish bias here. The short term aspects are more mixed, however. There is a disruptive and bearish-looking Mars-Rahu (North Node) square aspect through much of the week that could create some problems. This is especially close in the beginning of the week. However, there is a potentially offsetting Sun-Mercury-Uranus conjunction this week also that may be able to keep some prices aloft. This is arguably going to be stronger in its effects after midweek. The Sun approaches its conjunction with Uranus on Friday so that may boost risk taking towards the end of the week.

Markets hold steady on Greek bond deal; Jupiter alignment this week

Greece finally secured a bond swap with its creditors last week as $100 Billion was removed from that beleaguered country's debt load. While the intricacies of this bond deal are beyond me, the essence of the thing is that most bond holders agreed to take a 75% loss on their investments in exchange for new Greek bonds. These new bonds have the backing of the EU and IMF so theoretically should hold their value. This was the largest bond swap in history and prevented Greece from going into default, and thereby averted any disruptive effects on the world's financial system. But there is a growing sense in some quarters that Greece has actually defaulted and that credit default swaps (CDS) will have to be paid. (CDS are insurance that bond owners buy in the event that the issuer goes bankrupt). Moody's is now on the record stating that Greece is in default now, and many hedge funds are similarly operating as if Greece is in default. This means that Greece will be unable to find buyers of any new bonds on the open market.

So is Greece in default and if so, what does it mean? As Magritte might have said, "Ceci n'est pas une default." Perhaps it is simply is a picture of one. But the market will likely have the final say whether or not Greece can borrow any more money to cover its debts. Right now, it may be too soon to say what the implications might be. The grey market is already pricing in a hefty premium for new Greek bonds, suggesting the market does not think the Greece problem is solved. In other words, this may just be another temporary band aid solution that kicks the can down the road a little while longer. And yet with the billions of central bank bailout dollars working on their behalf, the financial markets could be insulated from the immediate fallout of any default.

Stocks held firm last week in the wake of this news after some early shakiness. More encouraging US jobs numbers on Friday also boosted sentiment as the markets closed mostly flat on the week with the Dow still unable to break above its 2011 high at 12,922 and the S&P 500 at 1370. Indian stocks fared less well, however, as the indices lost about 1% with the Sensex closing at 17,503 and the Nifty at 5333. I thought we might have seen more in the way of gains ahead of the Jupiter-Pluto aspect. The midweek rebound in US and Europe as at least more evidence that the bulls are still in control of the market, despite being technically overbought for several weeks. Indian stocks have underperformed largely due to rising oil prices.

This week should be very interesting. Jupiter's aspect with Pluto culminates on Tuesday. Since this has been one of the main astrological supports for the market in recent weeks, there is an increased risk that the market could lose some of its composure once the aspect begins to separate. Indeed, the rare grand trine alignment between Mars, Jupiter and Pluto may well correlate fairly closely with a market top and reversal. This is perhaps even more likely given that Venus and the nodes, Rahu and Ketu are also configured in this broader alignment. To muddy the waters somewhat, Mercury turns retrograde on Monday. This may undermine some of the climactic optimism that should otherwise manifest in spades this week. Since there are a high number of planets involved in this pattern, the peak could last for a few days. The late week looks more negative, however as Mars aspects Rahu.

Gold plunges as Bernanke stands pat; recovery strengthen

All signs are pointing to a somewhat weak but encouraging economic recovery in the US. Fed Chair Ben Bernanke testified last week that the recovery is accelerating and unemployment is falling faster than expected. He also said that if current trends continue, further stimulus measures would not be necessary. This was bad news for gold bugs who were relying on the central bankers to print more money, thus debasing the US Dollar and enhancing the appeal of gold as a store of value. Gold plunged $80 after Wednesday's testimony and finished near $1715. US stocks fared better as investors continued to wager that the recovery could sustain itself without the Fed's ongoing intervention. The Dow was mostly flat for the week and still failed to move above the 13,000 level. India fared worse, however, as it remains more vulnerable to the inflationary effects of rising oil prices. The Sensex lost 2% closing at 17,636. This outcome was largely in keeping with expectations as I thought the market was unlikely to rise in the face of the Mars-Saturn aspect. I also thought that Indian stocks were susceptible to further declines.

Now that Bernanke has not promised further stimulus, the economy had has its training wheels removed as it tries to recover under its own power. Obviously, if things get bad again, the Fed would likely step in, but that is perhaps less likely since it would generate more inflation. With oil already above $100, a further price spike as a result of more quantitative easing would likely be detrimental to the economy. Bernanke can thank Jupiter for the relatively smooth sailing lately. The Jovian orb is the symbolic repository of all things optimistic and expansionary and its series of aspects from October to the present time is one very important reason why stocks have recovered from their 2011 lows during the depths of the Eurozone debt crisis. Some of this Jupiterian emphasis has produced some unhealthy excesses, however, such as the rising price of oil.

The question for us is: what happens when Jupiter weakens after its aspect with Pluto and Mars next week? This latest Jupiter aspect will be the last in the series of fairly intense aspects for a while. After this has culminated, astrological theory suggests that the positive energy will tend to dissipate and the market will become more likely to decline. Jupiter will form new bullish aspects later in the year, but this Pluto contact may act as a kind of bookend. After all, it was the previous Jupiter-Pluto aspect in October that closely correlated with the market bottom in the US and the subsequent rally to the end of October. Once the aspect culminated, the market corrected in November. Could this happen again?

This week the market will likely remain in the warm embrace of the Jupiter-Pluto aspect as it approaches culmination. The early week features a bullish-looking Mercury-Uranus conjunction. There are also some fairly positive Venus aspects through in for good measure. Perhaps the late week will see a better chance for some declines such as when the Moon conjoins Mars in Leo on Wednesday and Thursday. That is one possible interpretation anyway.