Summary Of Last Week’s Influences:
Bloomberg radio reported on Friday that Goldman Sachs (GS) took physical delivery of uranium. This gives a whole new meaning to the firm’s mantra that “we are not a retail bank.” The fact that Iran began loading its nuclear reactor the following day is pure coincidence as GS no doubt has more lucrative deals in mind. And if those potential deals fall through maybe Bernanke would buy the uranium to put in his virtually empty toolkit. The cure for “unusual uncertainty” is Uranus-ruled uranium since at that point Bernanke could rightfully claim he has the nuclear option!
Now we’re getting a little bit ahead of ourselves as the influence of Uranus squaring Pluto (nuclear issues) won’t start to become a strong influence until later in 2011.* Now it’s time to get back to what happened last week (which will return back to the Fed’s doorstep anyway).
As described in the Weekly Forecast, Jupiter opposing Saturn and Saturn squaring Pluto did bring large intraday moves in the major indices every day last week. Jupiter’s preference to see the glass as half full only prevailed on Tuesday and Wednesday when the Moon (sentiment) was in Jupiter-ruled Sagittarius. The Dow hit its intraday high Tuesday when Minneapolis FRB president Narayana Kocherlakota (a non FOMC voting member) said the Fed doesn’t have any new doubts about the economic recovery and he doesn’t believe deflation is a possibility. (So why is the Fed buying more Treasuries other than to appease PIMCO's Bill Gross and certain Wall Street heavies?)
Once Saturn-ruled Capricorn took charge Thursday and Friday, the glass was now half empty. Giant Jupiter is no match for Saturn when the lord of the rings is also involved with Pluto the wealthy lord of the underworld in Saturn-ruled Capricorn. Jupiter just ends up exaggerating Saturn’s fears.
Jupiter (expansion/optimism) and Saturn (contraction/fear) are the two leading economic indicators. Their opposition cycle tends to occur during times of economic recession. Combined with Saturn squaring Pluto, sentiment is pulled to the negative side and is only being supported by the Fed’s overly accommodative policies.
Thanks to the Fed, US corporations have been borrowing cheaply and have built a mountain of cash equal to the Fed’s $2 trillion balance sheet. But instead of using the cash to grow (Jupiter) organically, companies have primarily exhibited a desire to use their excess cash for acquisitions. This results in further economic contraction (Saturn) as unemployment rises when many of the workers at the acquired company are laid off. And there’s no need to worry about deflation since acquisitions limit competition, allowing companies to raise prices.
Pluto rules M&A; its specialty is the hostile takeover. Jupiter’s optimism opposing Saturn’s limitations and squaring Pluto got the merger mania started last week when BHP Billiton (BHP) made a $38.6 billion unsolicited offer for Potash Corp (POT). Then Intel (INTC) announced its biggest acquisition ever in acquiring McAfee (MFE) in a $7.68 billion all cash deal. Soon it will likely cost more to dispose of your trash if you use Hefty brand bags since Rank Group is acquiring Pactiv (PTV) for $4.6 billion.
Venus rules banking. Venus conjoining Mars in the marriage sign Libra for the first time since the shotgun weddings during the financial crisis reflected that banks are getting back in the act as First Niagara Financial Group agreed to acquire NewAlliance Bancshares for $1.5 billion. (A Wall Street Journal article about the deal notes that bank mergers probably won’t accelerate until next year which correlates to when Jupiter transits banking sign Taurus June 2011-June 2012.)
As Saturn and Pluto begin to separate from their frictional square for the final time, it will be interesting to see if the fear driven mania for buying government and corporate debt at the current ridiculously low yields continues unabated or begins to top off.
The Fed is trying to do everything it possibly can to push people into spending and making risky investments. This is why the Dow is only down 2.1% year to date and crude oil is still trading over $70/barrel despite the fact that inventories are at their highest levels since November 1983. People want to be invested in hard assets as a protection against future inflation.
The reality is that the supposedly astute investors in long term Treasury securities think they will know when to sell, achieving a smart capital gain before the bottom falls out of the Treasury bubble. They will aptly tell you that nobody in their right mind believes they will be invested in Treasuries for the long haul. But doesn’t this sound like a repeat of the real estate market before the bubble burst? The same parallels can be drawn in oil and gold.
An op-ed piece in Thursday’s Wall Street Journal (“Bye-Bye to the Fed-Funds Rate”) by Benn Steil and Paul Swartz discusses the inability of the Federal Reserve to control both the Fed funds rate and the money supply. Given the current excess bank reserves sitting at the Fed surpasses $1 trillion, the Fed cannot both maintain a low interest rate and prevent the sudden exit of this excess liquidity into the economy. The article states that the Fed would have no choice politically but to target interest rates at the expense of the money supply, concluding that the ECB was unable to tempt Eurozone banks to maintain excess reserves at a paltry 1% interest.
When US banks are ready to start employing their excess reserves, the Fed’s interest on these would have to surpass the economic value to the banks in order to control the money supply. The choice being to let $1 trillion times an accelerated velocity of money escape or substantially raise the Fed funds rate through interest paid on reserves to an “extraordinary” level. Steil and Swartz provide one of the best explanations of these forces I have ever read. The problem is accentuated if the Fed starts a new phase of quantitative easing on the same scale as its original phase. Preventing $2 trillion in excess reserves from escaping would require an even higher interest rate paid on reserves.
Saturn square Pluto reflects how Fed policy is causing hardship for insurance companies as investment income cannot help to offset claim losses, pressuring premium rates to rise. Additionally, pension shortfalls are not being helped by extraordinarily low interest rates for an extended period of time. Individuals have to save more money for retirement to make up for the lost interest income. Retirees have far less interest income to spend.
Fidelity reported a record number of hardship withdrawals from 401(k) plans in the second quarter, citing medical expenses as a reason individuals took money out of their retirement savings. (The high medical costs to keep our “free market” healthcare system going are never factored into inflation and neither is its drag on GDP.)
Individual investors shunning stocks for Treasuries in the belief that they can’t lose their initial investment (principal) are not taking into account two important factors. First, if they need to cash out prior to maturity or invest in a mutual fund that trades fixed income, their withdrawals could represent losses before maturity. Secondly, their purchasing power would obviously be eroded with interest rates below the rate of inflation for the majority of time they’re invested.
Mercury the planet of communication, commerce, and movement turned retrograde in its home sign Virgo at 3:59 PM EDT Friday. Miscommunications and reversals can be more likely to occur while Mercury is retrograde until September 12.
Mercury turned retrograde squaring the Federal Reserve’s natal Venus in Sagittarius and Fed Chairman Bernanke’s natal Sun in Sagittarius, indicating the central bank and its Chairman could come under criticism over its latest monetary policy gambit. If a Bloomberg story published yesterday is accurate, it would indicate the Fed has reversed their own policy back to purchasing longer dated Treasuries alluded to in the FOMC statement rather than the 2-10 year maturities stated on the NY Fed’s fact sheet.
Summary Of This Week’s Influences:
Monday marks the first full trading day that Mercury is retrograde. Mercury retrograde can temporarily reverse the trends in place prior to retrograde. Many times Mercury retrograde brings choppy trading that keeps the market range bound for three weeks. Any trends that emerge now could reverse when the Sun conjoins Mercury at the halfway point of the cycle on September 3. (Virgo rules the work force; the August employment report will be released five minutes before their conjunction.)
The Sun (speculation) enters Virgo early Monday morning until September 22 putting the central focus on job creation, healthcare, diet, hygiene, schedules/daily routines, and the armed services. Virgo is both the accountant and the analyst who scrutinizes every detail to discern what’s really important.
Mercury retrograde in Virgo is only likely to increase the mixed messages. Data feeds display inaccurate information and media outlets could be reporting rumors rather than facts, especially around August 24-25. New deals announced during retrograde are more likely to fall through. But the good thing about Mercury retrograde is that information that was overlooked is revealed.
The Moon in Uranus-ruled Aquarius Monday could accentuate the choppy and erratic behavior the market tends to exhibit when Mercury is retrograde.
The Moon will be in Pisces Tuesday through Thursday. The Pisces Full Moon occurs on Tuesday at 1:04 PM EDT. What has been obscured will be revealed now. Neptune-ruled Pisces likes to blur the boundaries and can make rumor appear to be fact as part of the propaganda. Deceptive and fraudulent activities might occur now. The credit, oil, chemical, drugs, hospitals, and film industries could be in the spotlight.
Since Pisces rules the sea, the Full Moon increases the potential for precipitation and storms. August 24 marks the 18th anniversary of Hurricane Andrew. The East Coast, especially VA, NC, and Florida could experience coastal storms. Other countries that could be impacted by storms are Cuba, Jamaica, Panama, Colombia, Ecuador, and Peru.
Kansas City FRB president Thomas Hoenig is the host for the Fed’s annual confab in Jackson Hole, Wyoming Thursday to Saturday. This year’s conference theme is “Macroeconomic Challenges: The Decade Ahead” which correlates to the decade between 2010 when Jupiter and Saturn are in the opposition (Full Moon) phase of the economic cycle, to 2020 when Jupiter and Saturn will conjoin in innovative and revolutionary Aquarius, starting a new 20 year business cycle. Fed Chairman Bernanke will speak Friday morning on “The Economic Outlook and the Federal Reserve’s Policy Response.” It would be far more interesting for Bernanke and Hoenig to engage in a public debate on monetary policy.
After being told at last year’s gathering the astronomy club would be hosting a night of stargazing for attendees, Bernanke asked Kansas City Fed president Thomas Hoenig: “Do you know if they do astrology? It couldn’t hurt.” Although the stargazing is back on the agenda again this year, it is unfortunate that it will probably take at least another decade before astrology is presented at Jackson Hole.
Monday, August 23, 2010
Seesaws between moderately positive to moderately negative; closes mixed.
Tuesday, August 24, 2010
Negative to mixed conditions improve to positive. Loses momentum and becomes choppy in last hour closing mixed to moderately positive.
Wednesday, August 25, 2010
Positive conditions weaken approaching the close; ends moderately negative.
Thursday, August 26, 2010
Positive trend bias.
Friday, August 27, 2010
Improving conditions as day progresses; ends positive.
*Uranus will exactly square Pluto 2012-2015.
**The other signs in the earth element are Taurus and Capricorn.