Austerity blamed for EU slowdown; US stocks rise on earnings

As the recovery continues to limp along, there is more talk about austerity.  Tighten your belts.  Cut government spending.  Balance the budget. Raise taxes.  Pay down the debt. The Eurozone has become the poster child for austerity recently as its attempts to right its sinking fiscal ship has produced mass unemployment and falling living standards through much of its southern tier.  Spain's sky-high unemployment has been blamed on EU austerity measures by those on the left, as has the UK's stubbornly low growth since David Cameron's Conservatives took over in 2011.  Austerity has become politicized as uber-Keynesians such as Paul Krugman insist that austerity is counterproductive. He argues that austerity only damages the economy by worsening poverty and unemployment while keeping the benefits of the wealthy elite intact.  He has also recently suggested that Fed Chair Ben Bernanke was unnecessarily prolonging the current slowdown by not supplying more economic stimulus to kick start the moribund US economy. 

Austerity is often controversial because there is always a choice for policymakers.  They can choose to cut their spending and debt or they can borrow more money and risk inflation and their credit rating down the road.  For some countries this isn't much of a choice as borrowing may not be much of an option since high debt levels means ultimately unsustainably high premiums on debt.  While Spain and Greece may be at the precipice where they have less choice in the matter, countries like the UK and the US aren't quite so limited.  They could choose to borrow more money and commit to more stimulus without an immediate risk of rising interest rates and inflation.  But the key word there is "immediate".  Can borrowed money really solve such structural problems or is it merely delaying the inevitable day of reckoning?  Keynes and his followers suggest somewhat ironically that time is on our side: "in the long run, we are all dead."  Why worry about debt levels and inflation now as long as the status quo is maintained?  Debt is actually economically useful and necessary as long as it doesn't get out of hand.  Just where the tipping point lies is a matter of interpretation, however.

As the debate over austerity continues to rage, it is worth noting how the planets may be reflecting this absence of consensus.  It was all stimulus and growth in early 2012 when Jupiter was dominant.  Its series of aspects with Pluto, Uranus and Saturn coincided with a significant rally in the stock market that was fueled by the Fed's Operation Twist in September and the Dollar-Euro swap announced in December. Since March, Jupiter has been less prominent in the sky as it has separated from its aspects with these other planets.  Not surprisingly, the market has been unable to make significant new highs.  The negative consequences of austerity have now come into focus while growth continues to lag.  Without more Jupiter, the recovery can't seem to move into a higher gear.  At the same time, austerity itself has come under attack perhaps because Saturn is not in the spotlight either.  With neither Jupiter or Saturn taking the reins, we are stuck in the contested middle where there is no clear direction.  Saturn may be more likely to make a reappearance in May and June.   This will occur in time when the EU is likely adjusting to a new anti-austerity French President Hollande following the likely defeat of Nicolas Sarkozy on 6 May.  With a new face as the Elysee Palace, the EU and ECB may have a tougher time coorindating its various financial activities.  Saturn will enter sidereal Virgo in mid-May and then it ends its retrograde cycle at the end of June.  Both events are potentially significant and may well intensify caution and pessimism in financial markets.

Stocks moved mostly higher last week on the strength of positive earnings announcements by market leaders Apple and Amazon.  In New York, the Dow rose almost 2% closing at 13,228 while the S&P 500 finished at 1403.  Markets were more bearish in Mumbai, however, as the Sensex fell to 17,134 while the Nifty ended the week at 5190.  This outcome was largely in keeping with expectations as the early week Sun-Mars-Rahu alignment did produce some significant downside across most markets.  The rebound coincided quite closely with the Moon-Venus-Jupiter pattern that began on Tuesday and continued for much of the rest of the week.

This week may well see more Venusian upside as it maintains its close association with Jupiter and also becomes enmeshed with Mercury.  The positive Mercury influence is perhaps more likely to arrive in the second half of the week.  Mars remains in close aspect with Rahu, however, so there remains some potential for sudden declines, especially early in the week.  As the Sun approaches its conjunction with Jupiter on 13 May, we could see more central bank 'jawboning' about the joys of borrowed stimulus and the evils of austerity.  Jupiter is the CEO of optimism after all, and it likes to keep as many people happy as possible.

Stocks rise on earnings; "Bad Goldilocks" could undermine markets

New US data indicate that the job recovery is still fragile and that growth remains disappointingly sluggish. As a result, some observers are suggesting we have entered into a "bad goldilocks" economic phase. Growth is too weak to compel investors to jump in with both feet but not quite weak enough to compel the Fed to resort to stimulate the economy with QE3. The result is a hazy situation where there is no quick fix and no more easy money to me made. Previous injections of cash from the the Fed resulted in huge rallies in the markets after 2009. Without fresh intervention from the Federal Reserve, stocks will be in an uphill battle and may also be more prone to deeper declines. And since the US is in an election year, Bernanke may be even more reluctant to intervene lest he be accused of political inference from increasingly skeptical Republicans. It all seems to point to a more difficult year for the markets in 2012.

Stocks rebounded last week as corporate earnings showed continued growth and European bond auctions were largely successful. US markets shrugged off a sub-par employment report as the Dow once again rose above the 13K level closing at 13,029 while the S&P 500 finished at 1378. Indian markets cheered a larger than expected RBI rate cut as the indices gained almost 2% with the Sensex closing at 17,373 and the Nifty finishing the week at 5290. This bullish outcome was somewhat unexpected, although I was not too surprised to see some of the midweek gains. The triple conjunction of Moon, Mercury and Uranus delivered optimism a little ahead of schedule on Tuesday. The late week tilted bearish as expected as Mercury was afflicted by Mars.

While markets have recovered strongly from their lows in 2011, there is a growing sense that all the gains have come as a result of central bank intervention rather than economic fundamentals. So much for the free market. It is not surprising then that trading volumes are shrinking and have fallen below their average level in 2011. With fewer participants, the stock market may be more vulnerable to sudden moves down the road. As more investors choose to sit on the sidelines and park their money in safer havens, the stock market may have a credibility problem. It seems as if the wounds inflicted from the financial meltdown of 2008 have not fully healed and there remains a significant amount of skittishness if not outright skepticism about the reliability of stocks as a sound long term investment. More people may voting with their feet here as they are starting to question the logic of creating more public debt in order to pump up the market and keep the plates spinning a while longer. Those who retain confidence in our policy makers simply assume that they are smart enough to find a way out of this debt morass and that all will be well in the end. The approaching Uranus-Pluto square aspect this summer would suggest otherwise. The symbolism of this combination suggests profound disruption and social reorganization. Since both Uranus and Pluto are very slow moving planets, its effect will likely be protracted over several years and will mark a period of historic change and uncertainty. While specific outcomes may be harder to nail down, this aspect does suggest that Bernanke and Co. will not find any easy solution to this ongoing financial crisis. We may well be witnessing the end of an old order.

This week highlights both positive and negative planetary patterns. Early in the week, there will be a fairly tense looking pattern around the Mars-Rahu aspect that includes the Sun. This configuration should be treated with some caution. At the same time, we can see that Venus is slowly moving into a nice aspect with Jupiter. Venus is moving unusually slowly in the sky right now ahead of its retrograde station in mid-May, so timing the effects of this aspect is somewhat more difficult. The positive energy from this combination may be somewhat more likely to manifest in the second half of the week.

Stocks fall on Spain concerns; Mars turns direct

Stocks were struck again by a bad case of Euro-itis last week as Spain's increasingly untenable fiscal situation pushed investors to the exits. Despite attempts to reassure markets by the European Central Bank, bond yields on Spanish debt rose sharply towards the tell-tale 6% level. With unemployment reaching 24% now, it is unclear how the government will be able to secure enough revenue to service its burgeoning debt. People without jobs don't pay taxes. And with the ECB promising another bailout, debt burdens are likely to rise further. Readers will be forgiven if they are growing a little tired of this endless cycle of recession, insolvency, and ECB/IMF bailout. Perhaps some battles are less about who wins than the drama of it all, much like the staged competition between the bullfighter and the bull. The bull threatens the matador, but everyone knows the contest ends badly for the bull. Central bankers can try to keep the game going for a while with fresh infusions of cash and low interest rates, but eventually the debt burden becomes too much and the result is either hyperinflation or a washout of all that bad debt through a deep recession. The bull will be gored, but we don't know exactly how or when.

US Stocks fell by 2% as the Dow closed below the 13,000 level at 12,849 while the S&P 500 finished at 1370. The Indian market was also bearish as the Sensex declined by more than 2% closing at 17,094 while the Nifty ended the week at 5207. The anxious mood came as no surprise, however, as I thought the approaching Mars-Neptune opposition would likely generate more losses. We saw a rally attempt on Wednesday and Thursday after Venus had separated from Ketu but Friday's decline coincided closely with the culmination of the Mars retrograde cycle.

The rising bond yields in the Eurozone are the canary in a coal mine. But who cares about boring old bond yields as long as central banks keep printing money and keep the economy rolling along? Well, the bond yields are one of the few indicators that tell us how the real market is reacting to these various interventions. The stock market can rise almost indefinitely even as economic fundamentals look shaky as long as the Fed is buying bonds or injecting cash into the system in some way. But the bond market is less easily impressed by the liquidity game that Bernanke and Draghi are playing. Eventually, the rubber hits the road. If a country assumes too much debt, then the risk grows that it won't be able to pay it back. That's when bond buyers demand higher premiums in the form of higher interest rates. Higher rates spell trouble for the indebted country since it means they have to come up with that much more money to cover their interest payments. In the current post-Jupiter alignment environment, market participants are more skeptical now and are openly questioning the wisdom of these endless buybacks and bailouts. Everybody knows they will create inflation eventually. That is why the price of oil is so high and why gold remains in a lengthy bull market. But will the central banks be able to stop printing money before hyperinflation hits? In essence, they may eventually be faced with an unappetizing choice between inflation and recession. With Jupiter mostly on the sidelines until May, the central bankers may face a fairly skeptical audience for their dramas in the short term.

Mars is still very much front and center this week so one would think that sentiment could be dragged down further. While Mars is now moving forward and away from its aspect with Neptune, it still very much involved in a difficult square aspect with Rahu, the North Lunar Node. It's not exact for another couple of weeks, but it's close enough to create some red flags and perhaps some red candles in the stock charts too. The week begins with an additional burden as the Sun opposes Saturn. This opposition is closer to exact when the Asian markets are open so that is one reason to expect perhaps more negative impact in that region. Wednesday features a fairly bullish looking triple conjunction of the Moon, Mercury and Uranus in Pisces. This should create some upward movement at some point in the midweek period, although it is unclear if it can erase any damage done by the previous Saturn aspect. The end of the week looks unsettled as Mars aspects Mercury on Friday. This is usually not a positive influence, especially since any aspect with Mars may activate its connecting aspects with nasty Neptune and Rahu.

Stocks fall as Fed backs away from further stimulus

The fragility of the current stock market rally was revealed last week after the Fed minutes showed a reluctance by Bernanke & Co. to engage in any further quantitative easing. Most global markets prompted sold off on the news that the punch bowl of free Fed money may not around indefinitely and that investors might actually have to consider economic fundamentals for a change. US stocks fell more than 1% as the Dow closed at 13,060 while the S&P 500 finished at 1398. Indian stocks fared somewhat better edging higher in a shortened trading week. The Sensex gained less than 100 points finishing at 17,486 and the Nifty ended the week at 5322. This mostly negative week was in keeping with my expectations for the approaching Mars-Neptune opposition. I thought we might get some upside on the Sun-Jupiter aspect although that manifested mostly on Monday. Interestingly, Friday's poor jobs report in the US saw futures tumble further although markets were closed for a holiday. Mars does seem to be having its predictably negative influence these days.

Bernanke's unwillingness to goose the market higher with QE3 was an indication of that the economic recovery is underway and that he cannot simply keep pumping money into the system without regard for its inflationary consequences. Gasoline is already pushing towards $5 a gallon in some states. This renewed awareness of the dangers of excessive expansion fits nicely with our hypothesis of the post-Jupiter alignment. Once Jupiter began to separate from its tight angles with Mars and Pluto in mid-March, I thought there would be a gradual reduction of optimism. This has largely played out although the process has been somewhat more protracted than I thought. Many stock indices are only now below their recent peaks, although there is greater awareness of the downside risks from inflation and lower growth than there was previously.

The events this week reveal just how dependent the market is on the largesse of the Federal Reserve. The market has rallied off its October lows largely as a result of Bernanke's Operation Twist in September and then the swap of Euros for Dollars that was orchestrated with the ECB in December. Before that, of course, the entire recovery rally since the low of March 2009 was prompted by Bernanke's QE1 aned QE2 programs. Without these central bank interventions, the stock market would likely be significantly lower than it is today. Investors suddenly woke up to the realization that if QE3 is not coming soon, then suddenly stocks are a whole lot riskier. This week's decline showed how critical QE3 is to support the stock market. In a very real sense, the Fed is in the business of propping up the stock market since Bernanke believes it is a major creator and transmitter of wealth in the US. And since it is also a gauge of economic confidence, it should be supported as much as possible in order to foster an environment where a recovery can take root. At the same time, he can't inject too much liquidity through an over-zealous commitment QE3 because that will create damaging inflation. In Obama's re-election year, $5 a gallon gas could become a major political problem. Bernanke likely wants Obama re-elected because the President is sympathetic to Bernanke's Keynesian economic approach. Probable GOP challenger Mitt Romney, by contrast, was more critical of the various government and Fed bailouts since the recession. Obama also receives a lot of campaign contributions from Wall Street so there may be a willingness by Bernanke to keep Obama at the helm for another term. At the same time, Bernanke has to be careful not to back off too far from further stimulus or else the market may suddenly collapse. A stock market rout and renewed recession fears would similarly damage Obama's re-election chances. So Bernanke needs to finesse his way through the minefield of inflation on one hand and recession on the other. This summer's Uranus-Pluto square aspect would suggest that there is a greater likelihood of something going wrong and that the Fed may fall victim to economic forces larger than it can control. The Gotterdammerung scenario would be that foreign investors refuse to buy US treasuries and demand a higher risk premium due to excessive government debt levels. A spike in yields is the last thing Bernanke needs since it would undermine his attempts to restore the US economy. Rising US interest rates would likely hasten the dreaded double dip recession.

This week we could see more fallout from the impending Mars-Neptune opposition. Mars ends its retrograde cycle on Saturday the 14th so it will remain quite strong here in the coming days. However, a possible ray of sunshine comes courtesy of Venus early in the week as it conjoins Ketu and enters an alignment with the Moon and Uranus. Ketu is a bit of a wild card here although its chameleon-like character may push it towards assuming a more positive influence due to the proximity of Venus. While Monday does not seem promising given the probable negative reaction to the weak US jobs report on Friday, there is still the real potential for gains early in the week.