December Begins With A Stock Market “Reality Check”
An overabundance of negative economic news and three market moving speakers created an avalanche that drove the stock market’s rapid retreat down the mountain, with the major indices erasing most of last week’s gains.
Describing the market’s action in terms of a mountain avalanche is befitting since the Moon, Venus, and Jupiter were aligned in Capricorn yesterday. Capricorn’s symbol is the mountain goat who seeks to ascend to the top of the mountain (representing the top of one’s profession and social standing). Venus (banking and finance) and Jupiter (growth and optimism) are traditionally considered beneficent energies, and the Moon represents our emotional outlook and the need to feel secure. In Saturn-ruled Capricorn these energies get contracted and reined in by the boundaries of Saturn’s rings.
Yesterday’s downdraft began in Asia after China’s purchasing managers index fell to a record low. Weaker than expected U.S. economic reports reflected contracting conditions not seen since the early 1980s. Around midday the economic high priests at the National Bureau of Economic Research (NBER) officially declared the U.S. has been in a recession since December 2007, the month payroll employment peaked. This marked the end of a 73 month economic expansion that began in November 2001, when Jupiter (expansion) conjoined the USA’s Sun in Cancer (growth through real estate by using one’s nest as an ATM machine). Jupiter in its “home” sign Sagittarius conjoining Pluto on December 11, 2007 describes a boom that went bust. The timing leading to the recession can be traced to housing prices peaking in July 2005 as Saturn concluded its transit in Cancer begun in June 2003. The credit bubble burst after Saturn in Leo concluded its series of oppositions to Neptune in June 2007 that began in August 2006. Once Saturn entered Virgo, the sign of the accountant in September 2007, the numbers no longer added up. By the NBER’s measurement, the current recession is already longer than the 1990-91 and 2001 recessions that lasted eight months. If the recession extends beyond April 2009 which is a high probability, it will mark the longest downturn since the Great Depression.
The speakers who helped accelerate the downturn represented the energies of the Capricorn triple conjunction. Unlike the market’s performance, the lineup of the Moon, Venus, and Jupiter was beautifully displayed in the early evening sky last night.
Federal Reserve Chairman Bernanke began speaking at 1:00 PM about “Federal Reserve Policies in the Financial Crisis.” With his Sun (self-identity) in Jupiter-ruled Sagittarius, Bernanke represents Jupiter. Sagittarius is represented by the Archer, and Bernanke spoke about “the second arrow in the Federal Reserve's quiver--the provision of liquidity” to maintain the Fed Funds rate target that has been overshot from a panicked flight to Treasuries that have created a bubble.
Despite this, “Helicopter Ben” vowed to pursue “quantitative easing,” meaning the Fed will purchase “substantial quantities” of Treasuries in the open market to bring down long term rates. His remarks brought a surge in Treasury buying. The 10 year note closed at 2.719%, its lowest level since 1955, and the 30 year bond closed at 3.232%. This will greatly expand the Fed’s balance sheet and end up creating more inflation, but Bernanke said inflation “is an issue for the future.”
Bernanke fails to grasp that the “future” is almost here, as Jupiter conjoining Neptune in April 2009 will increase inflation (especially food and shelter-related costs), hurting consumers as this alignment conjoins the USA’s natal Moon in Aquarius. The Capricorn energies were beginning to affect Bernanke’s aggressive rate cutting policy. He said that “although further reductions from the current federal funds rate target of 1 percent are certainly feasible, at this point the scope for using conventional interest rate policies to support the economy is obviously limited.” So if lowering the Fed funds rate won’t do anything other than make it worse for savers (something Bernanke abhors), why bother? Bernanke continued to defend the Fed and Treasury’s actions in allowing Lehman Brothers to collapse, adding that “the Treasury, the FDIC, and the Federal Reserve are now much better equipped to address potential systemic risks quickly and effectively, and we are firmly committed to doing so.”
Before the market could fully digest Bernanke’s speech, Treasury Secretary Paulson spoke at a Fortune magazine conference in D.C., providing an update on the economy and the financial markets. The market seems to view Paulson’s speeches as a “sell” indicator. The Moon represents our fluctuating moods which shift about every 2.5 days when our “emotional barometer” enters a new zodiacal sign, and Treasury’s actions are dependent upon what kind of mood Paulson is in on any given day. A couple weeks ago, Paulson announced the TARP would not be used for its original purpose. Then Paulson said he would leave the remaining TARP funds for his successor to allocate. Now he seems to be announcing at least one new plan a week, adding to the market’s anxiety.
What Paulson and Bernanke fail to grasp is that their inconsistent, reactive responses to the financial crisis spooks rather than instills confidence in already apprehensive investors. How do they think financial institutions can raise capital if potential investors are scared away from purchasing equity shares for fear the government will severely dilute or wipe out their shares? The “punish the greedy shareholders” strategy that began with Bear Stearns spawned a new investing strategy: Short the stock to drive investors out and keep potential investors from buying. The depressed stock price triggers ratings agency downgrades that force the companies to raise more capital which is impossible since no one is willing to take the risk. Sovereign wealth funds and other large investors have gotten burned too many times.
Every action by the government has been reactive and the terms change with every situation. American International Group (AIG) and Fannie Mae (FNM) and Freddie Mac (FRE) got the government’s 79.9% solution, while the “Golden One” (Goldman Sachs/GS) got to become a bank, received a $25 billion capital infusion, and got to sell $5 billion in debt last week under the FDIC’s TLGP program at far favorable terms than raising money privately. (Unlike GSE debt, this debt is on par with Treasuries.) The punitive deal for AIG simply passed money through to Goldman as CDS collateral at no charge to Goldman. In essence, Paulson gave Goldman free money via AIG. It’s good to have friends in high places.
Until the government stops punishing shareholders and commences a consistent policy to punish the management who caused the problems, the stock market will not recover.
Oppenheimer analyst Meredith Whitney represents Venus, as she covers the banking sector. She’s famous for her super bearish views (as well as her marriage to WWE wrestler John Layfield). Whitney wrote an op-ed piece in the Financial Times saying she’s “more bearish today than I have been in the past 18 months” (if that’s possible). She’s concerned that lenders will pull $2+ trillion in credit card lines to consumers, which would particularly impact retailers since consumer spending comprises over 70% of the U.S. economy. Whitney is siding with the banks in her stance against the Unfair and Deceptive Lending Practices Act that will be adopted in 2010. She’s concerned that the “unintended consequences” of banks cutting consumer’s credit lines as the result of the Act restricting a lender’s ability to reprice unsecured loans like credit cards. (But this is already happening anyway.) Whitney appeared on CBNC fifteen minutes before the close and the markets reflected her appearance.
CNBC reporter Bob Pisani kept saying the stock market was taking a “reality check” after last week’s overdone optimism when the Sun, Mercury, and Mars conjoined in Jupiter-ruled Sagittarius around the Thanksgiving New Moon. The Moon, Venus and Jupiter aligned in earth element Capricorn exaggerated sentiment to the opposite extreme. With Capricorn’s planetary ruler Saturn in pessimistic and worrywart Virgo opposing unpredictable Uranus in Pisces until mid 2010, volatility and record breaking extremes in market sentiment become even more pronounced.
Posted 12/02/2008 09:55:00 AM