Bad US jobs report: is the recovery running out of gas?

It was a bad week for the economy and a bad week for stocks.  The April jobs report showed that only 115,000 new jobs were created last month which was far below expectations as the recovery gave more signs of running out of gas. The unemployment rate actually fell to 8.1% but only because of all the discouraged workers who gave up looking for work were no longer included in the survey.   More questions are now being raised about the effectiveness of President Obama's policies and the Keynesian effort to stimulate the economy through deficit spending.  Free market critics insist that all that debt the US has incurred trying to kick start the economy hasn't worked as growth continues to limp along at an anemic rate of 2-3%.  They argue that the US would have been better off without any of the bailouts or QE and that the economy would have recovered by now.  Interestingly, there are no shortage of critics on other side who insist that the problem isn't too much spending but rather not enough.  Economist Paul Krugman asserts that the current recessionary phase could be ended quickly if only the government injected another several trillion dollars worth of stimulus.  Who is right?

It may well be an impossible question to answer with any certainty.  No matter how much economics attempts to mimic the practices of the physical sciences, any area of inquiry that concerns human behavior must accept the fact that much of it will simply be unknown.  It therefore demands we accept the notion of probability and relative risk and reward instead of certainty.  There are convenient facts for both sides in this debate.  The recovery has been weaker than previous recoveries so this suggests that something is wrong with the way this one has been handled.  Is it time to change the approach by cutting spending and perhaps cutting taxes?  Certainly, European-style austerity is not working either although there are specific Eurozone problems that may not be directly analogous to the US situation.  Plus, European governments are not cutting taxes so that is another divergence with the free market model.  The hard core Keynesians like Krugman and Stiglitz believe that more stimulus will boost growth.  It likely would create some growth in the short run but eventually it would also boost inflation, raise interest rates, and make foreign buyers of US treasuries like the Chinese increasingly reluctant to buy US debt. Is it a gamble worth taking?   Again, there are no easy answers here, especially since this is an election year in the US.  Fed Chair Bernanke may have to sit on the sidelines lest he be accused of political interference should be come forward with QE3.  He could still do it before November, but it would tend to be a last resort sort of move.  Obama will likely not be able to run on the promise of greater stimulus so he may have to finesse his current position.  The whole debate is a reminder of the extent to which the consequences of policy decisions are ultimately unknowable.  All claims to certainty should therefore be regarded with skepticism.

Stocks slumped last week on  disappointing US jobs report and political uncertainty in Europe in advance of key elections in France and Greece.   In New York, the Dow lost 2% closing at 13,038 while the S&P 500 finished at 1369.  Indian stocks were also weaker as the falling rupee made stocks less attractive for foreign investors.  The indices broke through some significant support levels as the Sensex declined 2% to 16,831 while the Nifty ended the week at 5086.  I thought we might have held onto the early week gains on the strength of the Venus aspect but it seems as though Saturn is moving to center stage now ahead of its entry into sidereal Virgo on 18 May. 

As I have noted, Jupiter and Saturn have been in an uneasy truce in the sky lately as stocks have traded within a fairly narrow range without clear direction since perhaps March. I suggested that bearish Saturn was likely to become stronger in May and June in part from its re-entry into Virgo in the coming days.  We may well be witnessing some early manifestation of this Saturn energy here.  However, the picture is complicated by the near-simultaneous Venus retrograde station on 15 May. Venus is normally a bullish planet but its geometric association with Saturn could nullify or even reverse its effects.  For this reason, we need to keep an open mind about the next week or two.  I would tend to think the Saturn will prevail here and the market will continue lower, but any outcome is possible. The added burden for the market is that the eclipse period begins on 20 May.  Eclipses often highlight areas of uncertainty and interrupt stable and predictable routines. 

The planets this week offer a mixed bag of influences. Monday's Moon-Rahu conjunction is likely to activate the negative Mars aspect so that may mean more selling, especially in Asian and European markets. Tuesday's Moon-Venus aspect may bring some relief but it does not seem to be overly positive.  As we move into the second half of the week, the Sun will approach its conjunction with bullish Jupiter.  This conjunction is exact next weekend, but some optimism looks likely to flow from it nonetheless.

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.

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.