Spain's banking crisis reached a critical point last week as talks are now underway for an EU bailout. The IMF estimates that Spanish banks may need up to €40 Billion to cover their loan losses. While bond yields have backed away from the precipice, they remain elevated above 6% reflecting their significant credit risk. The enormity of the European financial crisis cannot be underestimated as it threatens to bring down the global economy. President Obama's re-election chances are closely affected by the crisis since the state of the US economy is the central issue in the upcoming November vote. As Europe goes, so goes the US. Not surprisingly, Obama encouraged European officials to do whatever was necessary to prevent the crisis from getting out of hand.
Common sense would suggest that a solution will be forthcoming very soon, and the market rally last week reflects this reasonable expectation. No matter how divergent the interests of the key players, the seriousness of the problem should compel policymakers to arrive a workable plan. Failure to do so could spark a Lehman-style panic that we saw during the meltdown in 2008. But not all solutions are created equal, so there could be a range of market reactions to whatever the final agreement will be. The EU has faced similar crises in the past two years and have always managed to come up with something, although these tended to be temporary solutions that only postponed the inevitable day of reckoning. We may well get another postponement type of package this time around.
The trouble with all these sensible expectations is that they do not fit with the planetary picture at the moment. Basically, the planets don't look good right here so I am expecting some kind of disappointment or surprise to throw a wrench into all those best EU intentions and economic rationality. It could be that the bailout package is underwhelming and the markets decline in reaction. Or it could be that the bailout is welcomed by all parties, but then Greek voters elect an anti-austerity government on 17 June. Greek remains the wild card here since an anti-austerity vote would force the EU to implement radical firewall measures to prevent the banking crisis from deepening. With Saturn and Venus due to station in the last week of June, I would say the markets will have to run the gauntlet in the aftermath of the Greek election. And with the disruptive Uranus-Pluto square in the mix, there is the potential for some fundamental changes to the financial system. As we know, nothing is certain in this world, much less astrology, but the planets here are suggesting a situation of rising risk.
We will get a taste of the effects of the Uranus-Pluto square early this week as Mercury forms an alignment with that pairing on Monday. This t-square pattern is usually negative. The Sun and Saturn also form an aspect in the early week which could be problematic, especially for gold. Perhaps gains are more likely midweek near the Mercury-Venus aspect, although this does not look particularly strong. Oil may receive a boost this week from the transit of the Moon in Pisces. Even if the market ends higher this week, it may well be temporary.
Transits for Monday 11 June 2012 9.30 a.m New York
