Bernanke’s Bubble Lab

An above the fold story in today’s Wall Street Journal “Bernanke’s Bubble Laboratory” is about “a band of young scholars” the Federal Reserve Chairman and former Princeton professor hired to work at the university to figure out what causes stock market manias. The scholars concluded that the Fed should act to restrain bubbles, yet there’s no mention about Fed policies creating the nurturing environment needed for bubbles to grow. Perhaps these guys don’t want to bite the hand that feeds them. (Bernanke secured $10 million from a foundation to sponsor the research.)

Monetary policy is controlled by the Fed. Periods of excess liquidity and low interest rates feed bubbles as it pushes investors further out on the risk curve to obtain a decent investment return. The Fed funds rate is 2% and core inflation calculated by the government is running at 2.3% year over year. If I invest my money in a safe instrument such as an FDIC-insured Certificate of Deposit or Treasury bill, I will earn less than the rate of inflation – especially after paying tax on interest income. This economic environment pushes the investor into stocks and commodities. No offense guys, but this is not rocket science. Still, we’re curious to know what’s been brewing in the lab.

The herd/momentum mentality keeps bubbles growing. As more people tout how much money they’re making from the hot trend, more people pile in for their piece of the pie. The Shorts throw in the towel, and for a time nothing stands in the bubble’s way.

Friends and groups of people are ruled by Uranus and the sign Aquarius. From a financial perspective, the planetary energy of Uranus relates to trends and sudden and sharp price movements. It takes Uranus around 7 years to transit a sign. Other planetary energies and factors will come into play that will usually crash the trend before Uranus moves into the next sign. Uranus was in its “home” sign Aquarius from 1996-2003. Aquarius rules computers and the internet. From 2003-2011, Uranus is in Pisces. Pisces rules oil. A study by bubble lab economist Harrison Hong with Motohiro Yogo of the Wharton School has concluded that “’prices for commodities are expensive’ but not a bubble.”

The guys cite borrowed money as a factor fueling bubbles and the subsequent margin calls that force investors to sell when the market begins to turn down. Again we must look to the Fed. Alan Greenspan was consistently against raising margin requirements. A bill is currently going through Congress that would raise margin requirements only for oil futures trading.

The next bubble discussed is housing. Saturn takes a little over 2 years to transit a sign. From June 2003 to July 2005, Saturn was in Cancer, the sign that rules real estate. Numerous statistics cite the peak in house prices occurred in most areas in July 2005. The economists concluded that many people realized housing prices were unsustainable, but “betting against house prices is hard.” True, but housing bears during that time could have bought cheap long term out of the money Puts on the homebuilders and related offshoots of the real estate industrial complex.

From July 2005 to August 2007, Saturn was in Leo which rules all forms of speculation. Between mid 2006 and summer 2007, Saturn was opposing Neptune, the planetary energy relating to credit. The end of the housing bubble had morphed into excessive financial alchemy (Neptune rules magic). As Saturn approached the end of its Leo transit and had concluded its oppositions to Neptune in Aquarius, the credit crunch began. The commodity bubble began around the time Saturn entered Virgo last September.

And when do bubbles burst? When enough “skeptics are on board to bet against the bubble.” This is why the Princeton PhDs conclude that hedge funds are in the best position to profit. They jump on board the train in the early stage of the bubble, head for the exit when the train is almost full, and turn bearish.

Just like Greenspan, Bernanke has no desire to keep bubbles confined to the bathtub.

Related Post: “Stocks ‘Lost Decade” from a Planetary Perspective”

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Paul Volcker Can Save Us Again From That 70s Show

Yesterday former Federal Reserve Chairman Paul Volcker appeared before the Joint Economic Committee of Congress. In watching the video of his testimony, it was easy to imagine how our economy and financial institutions could be so much healthier if Volcker was back at the helm of the Fed.

At 6 foot 7 inches tall, Volcker is a commanding presence, yet he has a humble and unassuming demeanor. George Soros calls Volcker “the exemplary public servant – he embodies that old idea of civic virtue.”* Virgo is the sign that rules work and service. Volcker embodies this archetype as he was born with the Sun, Mercury, Venus, and Mars in Virgo. Today’s Wall Street Journal “Fed Balance Sheet Worries Volcker”, aptly describes Virgo energy. Accountants are ruled by Virgo as it is a very detailed oriented sign. People who strongly embody this energy tend to be worriers. With his Sun (self-identity) conjoined with Virgo’s ruler Mercury (communication), Volcker doesn’t masquerade his thoughts and intentions. Masquerading is a characteristic of Volcker’s successor, Alan Greenspan, who has the Sun in Pisces – the opposite sign of Virgo.

In addition to the Sun and Mercury, Volcker has Venus and Mars in Virgo. Venus rules finance, and Volcker would like to see the Federal Reserve take greater responsibility in regulating financial markets. Mars is the warrior; the planetary energy of action. Volcker’s Mars opposes Jupiter and Uranus in Aries (a sign ruled by Mars). He had the courage (Aries) to rebel (Uranus), ignoring the political (Jupiter) mandate imposed on the Fed in 1978. Greenspan and Fed Chairman Ben Bernanke have used the Full Employment & Balanced Growth Act as an excuse to ignore inflation. By raising the Fed funds rate to a record 20% in 1980, Volcker won the battle against inflation.

Virgo is an earth sign, and as such takes a common sense approach in all matters. Volcker is more concerned about how monetary policy affects real world economics than any other Fed chairman. With his Mercury favorably aspecting Pluto, Volcker has a penetrating mind that cuts through the financial engineering. He said that the Consumer Price Index’s so-called “core” inflation that excludes food and energy, “doesn’t feel quite right” because these prices have been on a consistent upward trajectory rather than “volatile” as the government describes. Volcker warned that without focusing on this and other inflationary indicators such as the weak dollar, “we are back to the inflation of the 1970s or worse.”

Volcker should know. Volcker became Fed Chairman on August 6, 1979 (until August 11, 1987). Transiting Saturn in Virgo conjoined Volcker’s Sun then, indicating his increased responsibilities and powerful government position. Now that Saturn is back in Virgo again, the world is faced with some of the same issues it faced in the late 1970s: inflation, tighter supplies of food and fuel, and stagnant wages. Yesterday Volcker described the economy as “too dependent upon consumption.” The lack of savings in America is made worse by the current Fed funds rate at 2% and “core” inflation running above that.

Pluto in Capricorn is challenging Volcker’s Jupiter in Aries, motivating him to publicly express his monetary and political positions. (Yesterday he formally endorsed Senator Obama for President.) At the Congressional hearing yesterday, Volcker suggested a “chief supervisory regulator” who “could be the Fed Vice Chairman.” This person should be confirmed by Congress to make the official more “accountable.” He believes the regulator should be part of the Fed due to its capacity as the lender of last resort and the Fed’s degree of political independence. In my opinion, how much political independence you get from the Fed depends on who’s running the show.

I wrote last year that planetary transits to the Federal Reserve and Bernanke’s charts would bring major changes and increased responsibilities for the central bank and its current Chairman. Volcker stated yesterday the Fed is “not equipped to do it now” as the central bank would need “a strong staff” and “math experts to match the other side” (Wall Street).

In September 2008, transiting Saturn will once again conjoin Volcker’s Sun and Mercury, along with natal Venus in November. Between September and the end of the year, Jupiter in Capricorn will harmonize with Volcker’s Mercury, Venus, and Mars. There’s a good chance that Volcker will be back in the limelight. While I would like nothing better than Paul Volcker replacing Bernanke as Fed Chairman, I hope at a minimum the new Administration and Congress will regularly seek his wise counsel in an official capacity to guide us through these challenging economic times.

Paul Volcker: September 5, 1927 time unknown Cape May, New Jersey

*Financial Times: “Man in the News” by Chrystia Freeland

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Deconstructing the April Consumer Price Index

The Bank of England sees inflation as a growing problem, but once again the magicians at the Bureau of Labor Statistics waved their magic wands over the April Consumer Price Index.

April CPI was 0.2%, up 3.9% y/y (year over year) and excluding everything, core increased 0.1% (2.3% y/y), slightly lower than Wall Street’s expectation.

Let’s start with what the BLS is reporting as a decrease for April, since it is a lot shorter than the list of price increases. Try to keep a straight face as you read the numbers.

April Decreases:

• The transportation index dropped 0.7% due to a 2% decrease in the index for gasoline. (“Real world”, not BLS calculated retail gas prices increased 11% and retail diesel by 7.5%.)
• The public transportation index dropped 0.4%, primarily due to a 0.5% decrease in the index for airfares. Before the BLS calculated the numbers on a seasonally adjusted annual rate (SAAR), airfares rose 0.9%, or 10.1% y/y. (I guess the airlines exempt the government from all their price increases.)
• The cost for new motor vehicles dropped 0.2%. (Is this stat based on consumers purchasing more fuel efficient compact cars vs. SUVs? Otherwise, the number needs to be higher as automakers are adding features to compacts to boost sticker prices by $2-3,000.) Used vehicle prices fell 0.3%. (The result of an offset in the drop in residual value of SUVs?)
• Household furnishings declined 0.1%.
• IT Hardware/Services dropped 0.7% on lower costs for computers, peripherals, and the internet. (I’d really like to know the government’s ISP as my internet costs have never declined.)
• For the third consecutive month, lodging dropped 1.9%.
• The recreation index decreased 0.1%, largely due to a drop in the audio/video index (0.4%). Other items contributing to the decline were toys, photography, movie tickets, and concert/theater tickets. (If the recreation and lodging numbers are accurate, this will not bode well for consumer discretionary stocks.)

April Increases:

• Food. SAAR calculated, the food index increased 6.9% so far this year. Food at Home increased 1.5% “reflecting substantial increases in all six major grocery store food groups.” Nonalcoholic beverages increased 1.7% on large coffee and carbonated drink increases. Produce increased 2% from March, as fresh fruit increased 3.2% and processed fruits/veggies by 3.4% (but fresh veggies dropped 0.2%). Bread prices are up 14.1% y/y, with cereal & bakery prices up 1.4% from March. April prices for meats, poultry, fish, eggs increased 0.9%; dairy products increased 1.2% (butter was up 7.8%).
• Shelter. The Housing index increased 0.3% and shelter by 0.1%. Rent increased 0.3%. OER (Owner’s Equivalent Rent – what the government calculates you could rent out your home for) increased 0.2%. Electricity, fuel oil, and natural gas cost increases boosted Household energy costs 2.6%.
• Medical. Medical Care Services increased 0.3%, and Medical Costs by 0.2%, up 4.3% y/y. However, the BLS claims the cost for prescription drugs, over the counter medications, and medical supplies decreased 0.2%.
• Communications/Phone Services. Education costs increased 0.6%; Communications 0.4%.Wireless costs increased 0.3%. Local landline 0.8%; long distance landline 0.3%.
• Apparel. SAAR-adjusted, apparel increased 0.5% (ex-SAAR up 1%).
• The Personal Care products index increased 0.6%, primarily due to an increase in hair, dental, shaving and “miscellaneous” products. Smoking/tobacco products increased 0.3%.

From a trading perspective, the most important thing is the market’s reaction rather than the lack of reality in the numbers. In spite of the magic, the April CPI shows consumers are paying more for goods and services needed for daily living. Goods and services that are not necessary are being cut back. For the stockmarket, this could be party now, pay later.

Related Post: “March CPI: Desperate Housewives Want to Know Where the Government Shops”

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“The Housing Crisis Is Over” – NOT!

Today’s Wall Street Journal features an op-ed by Cyril Moulle-Berteaux (“The Housing Crisis is Over”). The piece is a perfect example of what looks good on paper does not necessarily reflect reality.

Since home sales peaked in July 2005 (the end of Saturn’s transit in the real estate sign Cancer), new home sales have declined 63%. The author’s thinking is that since house prices have fallen 10-15% and mortgage rates are down 70 basis points, homes are as affordable now as during the 1990s. His final argument is that despite falling prices and high inventories, home sales will pick up “because they always do.”

Moulle-Berteaux disagrees with analysts who believe house prices must fall at least 30% further to be back in line to their historical inflation-adjusted average. His reasoning is that most buyers take out a mortgage to purchase real estate, and thus are only concerned with “how much of one’s income is required to be able to make the mortgage payments.” On that basis, today’s mortgage rates are a bargain compared to the high interest rates of the past.

There are so many factors the author left out of his analysis. Despite the decline, home prices are still at record levels historically. More importantly, all the costs associated with owning a home have skyrocketed: taxes, insurance, association fees, repair costs, and utilities. The 5.70% 30 year fixed mortgage cited seems like a low rate to purchase a home, but when all the factors are taken into consideration, how many buyers can make a 20% down payment as required under current lending standards? Additionally, lenders are blacklisting condo mortgages; mortgages issued are becoming “covenant heavy” (as opposed to the LBOs “covenant lite”).

The government and the real estate industrial complex do everything possible to encourage people to buy as much house as they can qualify for. As more and more homeowners are waking up to the folly of that notion, the smart buyer realizes that buying a home for the lowest price possible is the most important consideration. Always buy well below what the calculations determine you can “afford”. You never know what market factors will do, or how your circumstances might change. Carrying costs very rarely decline. As far as mortgage rates are concerned, it is better to have higher mortgage rates and lower housing prices than lower mortgage rates and higher housing prices. Besides benefiting the cash buyer, a high rate is a great motivator to pay off the loan, or refinance as rates decline. Just like buying a stock, it’s the price you pay that determines the profit or loss.

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Satellite Searching for Saudi Oil

With crude oil up 95% year over year and touching over $120 a barrel yesterday, analysts are turning to satellite images to gauge oil supply.

Today’s Wall Street Journal cites a study by Sanford Bernstein that compared high res sat images from 2001 to 2007 of Saudi Arabia’s Ghawar field. Ghawar is 20 miles wide and 175 miles long, and began production in 1951. It comprises 60% of total Saudi production and around 7% of global supply; the equivalent to all US combined daily production.

In a report issued to clients last month, Bernstein concluded that only part of Ghawar “is suffering signs of old age” and faces “mild production declines at worst.” The northernmost part of the field called Shedgun, showed signs of being “uplifted.” This indicates that heavy water injection is being used to lift the crude to ground level, a method used to maximize fields in heavy decline.

Thanks to Google Earth, anyone can take a peek at peak oil. Satellite O’Er The Desert is a blog that examines the images and according to the WSJ, has concluded that Aramco’s “massive redrilling at Ghawar is part of a ‘constant struggle to maintain the field’s current production level.’”

Interpretations of satellite images have their critics, from investment banker Matthew R. Simmons, author of the book “Twilight in the Desert,” to Nansen Saleri, Aramco’s former head of reservoir management. Saudi Arabia and other OPEC members have never revealed data showing the state of their production holdings.

As I wrote about in “Factors Fueling Oil Prices,” the planetary energies of Uranus in Pisces and Pluto in Capricorn relate to oil becoming increasingly more difficult and expensive to extract. Today’s Journal article cites Mexico’s Cantarell and Kuwait’s Burgan fields have lost their vitality and “need help”. Alaska’s North Slope and the North Sea platform is in “serious decline.” The North Sea and Venezuelan production show “sharp subsidence rates” (surface collapse that could indicate heavy depletion rates underground). Throw in continuing geopolitical tensions in Nigeria, Iraq, and Iran that I see only escalating this summer, and you’ve got continued high crude prices. Moderate relief is possible; not through cutting the gas tax, but by the Federal Reserve raising interest rates to tame inflation.

As analysts now view crude’s next leg up to $140 a barrel, people need to realize that it is not in the Saudis and OPEC’s best interest to have the price of crude at these levels. If they could, they would increase production in an instant to bring the price down to a level that would be palatable enough to curtail a western push to converting to an alternative energy sources. This is why production specs are kept secret. The Arabs have used sovereign wealth funds to make western investments as one method to begin weaning themselves from an oil-based economy.

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Bernanke Fed Lowers Rates; Indifferent to Inflation

“I want to know who fills up their gas tank.” – Rick Santelli, CNBC’s Bond Market Commentator

Bernanke and the majority of the FOMC must have thought that with the Moon in dreamy Pisces today, it was time to close their eyes to the real world and journey out of body to an another world.

Most market watchers expected the Fed to lower another 25 basis points to 2% and as usual, they accommodated. But along with the rate reduction was a growing expectation by many market watchers that inflation must be addressed to stop the dollar from falling further, and prevent food and fuel prices from escalating further out of control.

The only semi-sensible people on the Committee are Richard Fisher and Charles Plosser who wanted rates to remain unchanged. To a man lacking earth in his horoscope like Bernanke, the prominent energies of Saturn in Virgo this week is interpreted that the Fed must be cautious and fearful about a lack of growth. Bernanke refuses to relinquish being Jupiter’s poster child for growth and expansion, despite the fact that the only thing the Fed is growing is a bigger bubble in commodities and oil, further harming consumers. Today’s FOMC statement continues to reiterate that “The Committee expects inflation to moderate in coming quarters, reflecting a projected leveling-out of energy and other commodity prices.” (I guess we're supposed to make this our mantra each time we visit the grocery store, gas station, etc.) The Committee’s only concession to inflation is “energy and other commodity prices have increased.” However, it is an insult to the American people who are struggling under these inflationary pressures, to preface that statement with “Although readings on core inflation have improved somewhat,” The FOMC should be condemned to live their lives in “core” (without food and fuel).

Which brings me to the Treasury’s idea that the Federal Reserve should be given more powers than it currently has. Today’s Financial Times quotes David Nason, assistant secretary for financial institutions, who said the Fed “could even use its authority to order banks, hedge funds and other entities to curtail strategies that put financial stability at risk.” Fine, but first the Fed would have to be trained to properly perform their current job before their duties are expanded. As I have previously written, a far better idea is to replace Bernanke with former Chairman Paul Volcker, or someone who thinks like him. I bet Bernanke is sitting in his office looking perplexed at the red numbers on his Bloomberg or Reuters terminal. Hopefully it doesn’t prompt him to have a panic attack emergency rate cut. I am more confident than ever that my prediction of the Fed’s future will come to pass.

Related Posts: “Enough With the Interest Rate Cuts”, “Factors Fueling Oil Prices”

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The Stimulus Will Not Raise Sales

This morning President Bush was willing to concede that “it’s obvious our economy is in a slowdown”. This is probably the closest the Administration will come to admitting the US economy is in a recession.

But fear not, the economic stimulus checks are on their way! “Eligible” people will begin to receive their gift from the government beginning May 2, depending on when they filed their 2007 tax return and the last two digits of their Social Security number.

To help fulfill the government’s objective to get citizens to splurge, retailers are preparing special sales and promotions between May and July. According to USA Today, many retailers will offer discounts on certain types of merchandise or no interest financing. Wal-Mart (WMT) will announce their stimulus specials next week.

In an effort to ensure they get all your stimulus money (and perhaps a bit extra), some retailers will exchange your stimulus check for a store gift card with a bonus amount added. Sears/Kmart (SHLD) will add 10% to a check amount exchanged for a gift card. Grocery chains Kroger (KR) and Supervalu (SVU), will add $30 to every $300 of stimulus money.

And just in time for summer vacation season, the travel industry is salivating for the stimulus money too. Economist Stephen Morse, director of the Tourism Institute at the University of Tennessee, believes people will feel they “deserve to get away.”

What Morse, many on Wall Street, and the politicians fail to grasp is that the dynamics are far different than they were when stimulus checks went out in 2001. Inflation wasn’t running rampant, debt wasn’t climbing into the stratosphere, and most people wouldn’t use the term “negative amortization” to describe their home. A large SUV will consume half a stimulus check to fill up its tank.

And the timing couldn’t be worse. Saturn, the planet of economic contraction and caution, will be moving direct* May 2. When a planet appears to be stationary in the sky, the energies it represents are extra strong. Saturn’s rings physically symbolize that people must not spend beyond their means. Saturn in Virgo reinforces extra income received will be spent on items required for daily living, such as groceries and gas. Virgo is the sign of the bookkeeper, so stimulus money will also go to pay bills and pay down debt. While the IRS will distribute the money from early May to mid-July, the energies surrounding the beginning of the stimulus program matter the most.

*Saturn went retrograde December 19, 2007. Planets do not really move backwards, but appear to from Earth’s vantage point.

Related Post: “Healthy Stimulus”

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A Run on the Rice

A food crisis has developed in certain parts of world, part of the fallout from the US financial crisis that panicked the Federal Reserve to lower interest rates too far. We’ve went from a run on the bank (Northern Rock), an investment bank (Bear Stearns), to a run on the rice.

As I predicted last summer, the transit of Saturn in Virgo to mid-2010 is causing limited supplies (Saturn) of food staples (Virgo). Mars in Cancer has elevated food prices such as rice to record highs that violence has broke out in countries such as Haiti and Bangladesh. Jupiter in Capricorn reflects governments such as the Philippines buying rice in an effort to keep prices lower for their citizens. Several nations (China, Cambodia, Egypt, India, and Vietnam), have imposed export restrictions on rice and other staples. While the governments (Capricorn) have benign intentions (Jupiter), it has had the opposite effect. With Pluto in Capricorn, world leaders know from history the consequences of governments who did nothing while their citizens suffered and starved.

The situation has gotten worse with Venus in Aries from April 6 - 30. Venus rules asset values. In Aries, a sign ruled by Mars, it has strengthened the influence of Mars in Cancer’s elevation of food prices and concern over food supplies. Cancer rules food along with what makes us feel secure. If you don’t have anything to eat or even the perception there might not be enough to eat, panic ensues. Since Cancer is ruled by the Moon, this is a primal emotional response.

With Venus and Mars challenging Jupiter yesterday and today respectively, US rice futures closed yesterday at a record $24.82 per hundredweight. (The US is the world’s fourth largest exporter of rice.) The global benchmark, Thai 100% B grade white rice, hit above $1,000 a ton today on continued buying pressure from number one importer the Philippines.

The media have had a field day talking about limits on rice and other food staples at Costco (COST) and Sam’s Club (WMT). In some parts of the US, people are stockpiling basmati and jasmine rice. According to today’s Wall Street Journal, Costco has rice limits in selected stores. There is a limit on flour and soybean oil purchases (four 35 lb. containers – attention weight lifters!) at its Queens, New York store. Sam’s Club has limits of four 20 lb bags of rice per visit. Why the average family needs to buy 80lbs of rice is beyond me! I buy a 2 lb bag of brown rice every two weeks to feed two adults two to three servings per week.

While it’s always a smart idea to maintain a well stocked kitchen, this is obviously hoarding. America with its Sun (self-identity), Mercury (thoughts), Venus (desires/values), and Jupiter (abundance) in Cancer, is a nation of hoarders. The pack rat problem is further exasperated by the fact that the US is a Jupiter-ruled nation. Warehouse clubs such as Costco and Sam’s Club brilliantly feed into the national psyche that “bigger is better.” If food and other grocery goods are available in huge sizes sold in a warehouse environment, it must be a bargain. When you calculate the cost of membership, the (usually) extra gas cost to drive to their location, the fact you must buy in bulk, and your weighted down vehicle further erodes fuel efficiency, I fail to see the savings. To me, the best shopping strategy is to buy non perishable items from sale to sale, and look at the per ounce cost of an item in various sizes as the biggest size is not necessarily the cheapest.

Related Post: “The Commodities Craze”

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Our Strong Dollar Policy

One could speculate that President Bush, Treasury Secretary Paulson, and Federal Reserve Chairman Bernanke are using affirmations and mind programming to affect the movement of the US dollar. Perhaps they read or watched The Secret together and decided if they adopted the phrase strong dollar policy as their affirmation, it would become reality.

It’s obvious that the trio need a crash course in “Metaphysics 101”. In order to achieve the change you desire, you have to be 100% confident it will occur, and you have to take the appropriate actions to help manifest it.

Yet the more they repeat the strong dollar policy mantra, the lower the dollar drops. The US has “de-coupled” from the rest of the world because we are not taking action to tame inflation. This is why the Euro climbed over $1.60 yesterday. The oil exporting countries are exchanging some of their dollar reserves to buy Euros. The weak dollar increases the cost of commodities prices, creating a global food crisis and record oil prices.

On the surface their manifestation techniques appear to have failed. But maybe we are the ones who are misinterpreting what the Administration’s true economic policy is. A weak dollar boosts exports, helping to lower our huge trade deficit. More importantly, a weak dollar boosts the profits of US multinational corporations when they translate those Euros back into dollars. Corporate earnings appear stronger than they actually are, keeping the stock market indices artificially elevated. This way they can say “recession is possible” with a semi-straight face.

Just as the banks are the only ones benefiting from the Fed’s low interest rates, only the largest multinationals benefit from a debased dollar.

Related Post: “Recession: The Truth Is Out There”

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Factors Fueling Oil Prices

Oil continued its upward trajectory, with West Texas Intermediate crude closing at a record $119.37. The futures market is not looking for the oil bubble to pop any time soon, as the entire forward curve is trading above $100 to December 2016.

Crude and other commodity speculation has surged as a hedge against inflation and the falling US dollar. The world hasn’t seen a speculative surge of this magnitude since the late 1970s to 1980. This corresponds to the last time Saturn was in Virgo. Saturn here relates to supply constraints of basic materials needed for daily living. Oil primarily relates to Neptune, as this planetary energy rules chemicals. Neptune rules Pisces, the sign that Uranus has been in since 2003. Because Pisces/Neptune rules the sea, unexpected oil discoveries are likely to be found at much deeper levels further out at sea. Uranus represents sudden and sharp price movements and unpredictable trading patterns.

The quickest way to burst the speculation pushing up oil and commodities is for the Federal Reserve to raise interest rates until the carrying cost of the contracts outweighs possible gains. As long as the Fed continues its overly accommodative monetary policy, oil will continue to have strong support.

Even after removing the speculators out of crude, prices will not fall as far as people anticipate. In order to get crude to crash, clean and economically viable alternative sources will need to enter the energy market. “Peak oil” is a bit of a misnomer. Earth has lots of oil, but the largest supplies are located in the most inhospitable areas of the world – geographically and geopolitically, so crude continues to become more difficult and expensive to extract. In the 1990s it cost $4,000 to add 1 barrel of daily production capacity. Today it’s about $16,000. Production costs at Alberta’s tar sands cost about $65 a barrel. Pluto represents things that are below the surface. In Capricorn from 2008-2024, it represents the reality that oil companies must dig deeper. The greatest yields will be found in the coldest and most inhospitable locations on Earth.

OPEC reiterated at the International Energy Forum yesterday there’s no need to pump more oil now. Exports are not increasing as the development boom in the Persian Gulf nations has caused electricity shortages. Natural gas and water injection used to power the oil fields gets periodically diverted to power plants during peak electricity demand. Uranus rules electricity and power disruptions. Saturn will oppose Uranus between Autumn 2008 and Summer 2010, heightening the likelihood of global power disruptions.

Saudi Arabia:
Supplies more than one fourth of the world’s known recoverable reserves, producing 11 million barrels a day (b/d). The Kingdom plans to increase capacity to 12.5 million b/d by 2009 and then halt capacity expansion. The oil minister told Petroleum Argus over the weekend that the world doesn’t need more Saudi oil through 2020.

Today’s Wall Street Journal talks about how it is becoming more difficult and expensive to continue production yields in established fields. The Saudis have spent $15 billion to reopen their Khurais field that was last in production one Saturn cycle ago. For every 1 barrel of oil extracted, they must inject 2 barrels of seawater into specially built structures. Saudi Arabia’s only other new major source is Manifa, located offshore in the Persian Gulf and expected to come online in 2011. Labor and steel shortages are not helping matters.

Nigeria:
Nigeria is Africa’s largest oil exporter at about 2.47 million b/d. It has high quality, light crude, but a fifth of its production is on hold due to escalated violence. Shell declared force majeure* today on April and May delivery contracts, affecting 400,000 b/d after a pipeline at its Bonny fields was attacked. Looking at Nigeria’s horoscope shows that violence will continue to affect production capacity.

In an internal report obtained by the Financial Times last week, Nigeria risks losing a third of its oil output by 2015 unless it can receive investment aid from foreign energy companies. China has already given the government a $500 million loan and is expected to lend an additional $2 billion for infrastructure projects in an effort to win access to energy exploration rights. The primary foreign oil companies in Nigeria are ExxonMobil (XOM), Royal Dutch Shell (RDS-B), and Total (TOT).

Russia:
After producing 10 million b/d in 2007, the International Energy Agency announced last week that Russian oil output fell for the third month in a row, the first decline in 10 years. Leonid Fedun, the vice president of Lukoil, said Russia needs $300 billion during the next 8 years just to maintain current levels. More sources of oil exist in the harsh conditions of eastern Siberia where no real infrastructure exists.

Blame the Russian government for:

• 80% of oil revenue is taxed = $27 per barrel. An oil company’s estimated income after all expenses is about $11 per barrel.
• Companies cannot have more than 51% participation in new oil fields.
• Rosneft, Exxon’s state partner in the Sakahlin-1 field says Russia is limiting its expansion. Rosneft estimates production will decline 25%+ in 2008.

Brazil: (potential bright spot)
Tupi field discovered in 2007 has estimated reserves of about 8 million barrels.
State owned Petrobas announced last week the unconfirmed reports of potentially 33 billion barrels in a “pre-salt area.” The oil is 6,000+ feet beneath a further 10,000 feet of sand and rocks and a 6,000 feet thick salt layer.

*Declaring force majeure protects the company from litigation if it fails to deliver on its contractual obligations to buyers.

Related Post: “Horsing Around About Oil”

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March CPI: Desperate Housewives Want to Know Where the Government Shops

You have to be a creative type to work at the Bureau of Labor Statistics. No other reason would explain how this governmental agency is able to churn out consumer price statistics that in no way correlate to the cost of living in America today.

The March Consumer Price Index (CPI) came in up 0.3%, up 4.0% year over year. Excluding food and energy costs (in real life you’d be dead), was up 0.2%. On a year over year basis, “core” inflation is up 2.4%. Despite Core being 0.4% above the Federal Reserve’s inflation “comfort” level, as CNBC’s Fed apologist Steve Liesman said, the Fed is “waiting”.

Waiting for what? For rioting over food and energy costs to break out on the streets here? If inflation is still able to leak through these manipulated numbers, you know that inflation is totally out of control. And the price of commodities reflect that as speculation increases as a hedge against runaway inflation.

With the Moon (food/domestic needs) in analytical Virgo today, let’s pick apart some of the components from the March CPI:

Food Index: up 5.3% in the first quarter of 2008 (In 2007, it was up 4.7%). Grocery store prices increased at an annual rate of 5.9%. Bread was up 2.1%, an increase of 14.7% year over year. Cereal and bakery products increased 1.3%. Produce increased 0.1%, nonalcoholic beverages up 0.3%. The numbers get totally ridiculous when the Bureau claims that the cost of meats/poultry/seafood and Eggs was “virtually unchanged”, and Milk dropped 2.2%. At this point, housewives reading this must be wondering where these people shop. As today’s Wall Street Journal points out, the lower cost of meat is a temporary phenomenon as farmers are slaughtering their livestock due to the high cost of feed.

Household Costs: The cost of shelter increased 0.1%, and Rent/OER by 0.2%. Rather than calculating the cost to purchase a home, OER (Owner’s Equivalent Rent) calculates the monthly rent you’d receive if you put your home out for rent. (But then where would you live?) The cost to sleep (bedding) increased 1.7%. For people who still had money left to decorate, it cost 0.5% more.

Utilities increased 2.0%, Electricity 0.8%, Natural Gas 4.6%, and Fuel Oil 10.1% (up 48.4% year over year). Talk wasn’t cheap, as local calls increased 0.5% and long distance calls by 0.2%. (Costs for mobile phones remained unchanged.)

Internet costs are lumped in with computers, peripherals, and software accessories, which the government claimed dropped 0.1%. Does that mean I can tell my ISP to lower my monthly charge? I guess I’m using the wrong provider.

Recreation: It costs more to dine out (0.3%), but the cost of a “liquid lunch” decreased 0.1%. It cost more to get away, with air fares increasing the most (3%). Being a couch potato increased 0.6% (TV/satellite). Pet costs increased 1.1%, so they better be doing more to earn their keep than fetching the paper or killing mice.

Apparel/Personal: CNBC’s Liesman touted that Apparel costs were lower. I guess he was only concerned about his costs. Looking at the details, women’s and girls’ apparel increased 2.6%.

Women were probably hit harder than men as personal care costs increased 0.6%. The increase was due to higher costs for haircuts and “miscellaneous personal goods. And get this: the government assumes we all smoke because: “These increases were partially offset by a 0.1 percent decline in the index for tobacco and smoking products.”

Related Posts: Mars in Cancer and Saturn in Virgo

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“Enough With the Interest Rate Cuts”

“It’s time for the Federal Reserve to stop reducing the federal funds rate, because the likely benefit is small compared to the potential damage.” So speaketh Martin Feldstein, president and CEO of the National Bureau of Economic Research. (The NBER is the organization that officially declares when the US economy is in a recession.)

In an op-ed piece in today’s Wall Street Journal (“Enough With the Interest Rate Cuts”), the Harvard professor states that lowering the fed funds rate from its current 2.25% would increase inflation. Back in December, Feldstein was on CNBC demanding the Fed continue cutting rates. Just like his organization’s recession forecasting, Feldstein has arrived late to the realization that low interest rates are hurting rather than helping consumers. I have written since last August that
Saturn in Virgo (2007-2010) would bring deflated supplies and inflated prices. I had also written long before Feldstein’s epiphany that borrowers are not benefiting from lower interest rates.

Feldstein fails to mention that the Federal Reserve is keeping rates low to create a wider yield spread to help the banks. Beyond that, we know that Bernanke is obsessed with the Great Depression, and seems determined to create another one. He believes that the Fed was too tight with monetary policy then, so taking the opposite stance now should surely prevent economic collapse. If Bernanke understood planetary cycles, he would only have to go back one Saturn cycle ago to the late 1970s to see history repeating itself. As a Jupiter ruled Sagittarian, Bernanke is obsessed with growth and expansion. He thinks he can focus on fostering growth first and worry about inflation later. With his Mercury (thoughts) and Venus (values) also in Sagittarius, he is optimistic that economic conditions will improve in the second half of the year. Bernanke blames investor speculation for high commodity prices and their resulting inflation. He forecasts that once the bubble bursts, inflation will diminish. His mind is simply incapable of correlating that low interest rates fuel inflation by decreasing the value of the dollar, pushing up the cost of food and energy worldwide. This is why you must have a Federal Reserve comprised of members who are not missing the common sense earth element in their horoscopes. It doesn’t matter what your studies and data models show that you pour over in your ivory tower when people are struggling to survive.

BREAKING NEWS! In the unfortunate honor of the March Producer Price Index up 6.9% year over year, with “core” (ex-everything) up 2.7% year over year, here’s a linkfest of Wall Street Weather posts I’ve written about relating to inflation: Wheat Goes Wild, Deadly Inflation, Inflationization, Jim Rogers Speaks His Mind, Bubbles Beyond the Bathtub, Inflation is like Dandelions, The Commodities Craze, No Core Inflation for the Post Office, Larry Kudlow, Inflation Fighter, Fund Managers Say Stagflation is Here, A Prudent Bear is Better Than an Over-Fed Bull, The Fed’s Future, The Bank vs. Bernanke, Federal Reserve lowers rates, determined to destroy U.S. economy, The Fed Under Fire.

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Recession: The Truth Is Out There

The evidence exists, but it is covered up and denied. Every time it appears that the government is about to admit it, officials back away. The most they will admit to is it’s “likely”, “possible”, “probably,” “we don’t have enough evidence at this time”, etc.

The truth is the government treats recession and UFOs/extraterrestrials in the same manner. They know we’re in a recession, and they know that we are visited by beings from other worlds. The government is afraid if they admit to these things, people will panic - especially in an election year.

The real truth is it is the government who is living in an illusion. They mistakenly believe the American people cannot handle the truth, that soothing words by the President and government agency chiefs will convince people that the government has everything under control. They reason their persuasive abilities will counter the physical evidence seen at the grocery store, the gas station, and the crop circles of a different kind, signs showing “Reduced” and “Pending Foreclosure.”

Yes, the American people are smarter than the leaders they elect. They don’t need to wait for the high priests at the National Bureau of Economic Research to tell them after the fact that the US economy is in a recession with eerie parallels to the 1970s. And while most of the public does not believe that every UFO photograph, crop circle, or alien encounter is true, they know it is arrogant to assume that Earth contains the only vestige of intelligent life in this vast universe.

NOTE: “The Truth Is Out There” is the by-line of the television series The X-Files.

Related Post: “Bernanke Rejects Role in ‘That ‘70s Show’”

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Greenspan: The Maestro is Mad

Former Federal Reserve Chairman Alan Greenspan has become extremely concerned that his legacy is being tarnished by the loud chorus of critics who blame him for engineering the housing bubble. After being criticized by several economists for his March 17 op-ed piece in the Financial Times, Greenspan is back this morning, defending his actions in “The fed is blameless on the property bubble.”

Here are the Maestro’s key arguments of why the Fed under his leadership did not contribute to the housing bubble:

“The US bubble was close to median world experience and the evidence that monetary policy added to the bubble is statistically very fragile.” Greenspan’s attitude is that housing bubbles occurred worldwide. Forget the world takes its cues from US economic and monetary policies, and many of the world’s currencies are tied to the US dollar.

“The problem is not the lack of regulation but unrealistic expectations about what regulators are able to prevent.” Greenspan argues that stronger Fed regulation of lending products would not have prevented the subprime mortgage crisis. Indeed, Greenspan took the opposite view. In speeches and Congressional appearances, Greenspan outright encouraged lenders to engage in financial alchemy. In 2004, Greenspan said “American consumers might benefit if lenders provided greater mortgage-product alternatives to the traditional fixed-rate mortgage."* Despite low fixed mortgage rates, Greenspan kept touting the benefits of adjustable- rate mortgages.

By keeping interest rates too low for too long, Greenspan encouraged institutional and individual investors to go further out on the risk curve for yield. Every time Congress proposed to raise FDIC insurance on bank held deposits above $100,000, Greenspan vehemently objected.

“Even with full authority to intervene, it is not credible that regulators would have been able to prevent the subprime debacle.” The Bernanke Fed has a proposed rule to amend the home mortgage provisions of Regulation Z. If these proposals had been in place, the “subprime debacle” would not have occurred. Bernanke’s proposal requires borrowers to repay the loan from sources other than the home’s value, their income/assets must be verified, and banks would be prohibited from giving “yield-spread premiums” to mortgage brokers, amongst many other important rules. Greenspan constantly talked about the home as a vehicle of “wealth extraction” (your home as an ATM machine). As long as home prices kept rising, people could profit from real estate speculation as well as tap into the increased value of their residence for a home equity loans to buy cars, vacations, BigMacs, etc.

Greenspan’s tone toward the end of the piece suggests that he doesn’t believe his policies are being treated fairly against other economic views expressed by the FT’s Economists’ Forum.

Pluto in Capricorn is challenging Greenspan’s Mercury in Aries, indicating a deep questioning by other economic experts about the root causes of the credit collapse. The April 5 Aries New Moon is challenging Greenspan’s natal Mars in Capricorn. Greenspan feels he must fight to defend his reputation. Saturn in Virgo will oppose Greenspan’s Pisces Sun in late September, increasing the criticisms against his Fed tenure. These and other upcoming challenging transits show the need for Greenspan to take steps to relax. Instead of fighting his critics, Greenspan could be enjoying life with his wife (NBC News reporter Andrea Mitchell) and the freedom of retirement.

Related Posts: “Bubbles Beyond the Bathtub”, “Dumb and Dumber by the Day”, “Headwinds Hit Wall Street”.

Alan Greenspan: March 6, 1926 time unknown New York City.

* “Understanding Household Debt Obligations” : speech given by Greenspan at the Credit Union National Association 2004 Governmental Affairs Conference, February 23, 2004.

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A Prudent Bear is Better Than an OverFed Bull

I admit it. I love bears – panda bears, that is. Let’s face it; bulls are not cute to look at. And the more the Federal Reserve and the government do to feed the bull, the uglier it becomes.

Today’s Wall Street Journal features an interview with David Tice, manager of the Prudent Bear Fund. Tice believes the Fed’s financial engineering and dramatic interest rate reductions create “a huge problem for the dollar because foreigners see us continuing to debase our currency. It’s going to be a massive recession if not a depression.” Tice believes that the U.S. economy will fare even worse than Japan’s “lost decade” of the 1990s because “we have depended on foreign creditors” to support our bubble.

And now the foreigners are starting to have enough of our ridiculously low interest rates. Today’s Financial Times reports that South Korea’s National Pension Service, the world’s fifth largest pension fund ($220 billion assets), will no longer buy U.S. treasuries because the yields are too low. The fund says it will buy higher yielding European government debt in an effort to boost its returns as it faces a pension shortfall due to its aging population. The dollar dropped against the Euro to $1.5832 after ECB president Jean-Claude Trichet told the EU parliament yesterday that “rate cuts would only have encouraged risk taking”, and that he will remain “vigilant”. The ECB rate is 4%; “vigilant” has been known to be a code word for a rate increase.

Prudent Bear Tice asserts that one of the factors needed to turn him into a bull on the U.S. economy is a “massive adjustment away from consumption towards saving and investment”. The only way to grow savings is to raise interest rates to control inflation so that money saved has actual value. A decent rate of return would also encourage investing in more conservative financial instruments, such as FDIC-insured certificates of deposit. Unfortunately, government and Federal Reserve policies act as a deterrence to saving.

South Korea is not the only country facing the issue of a growing elderly population. The world has the greatest number of elderly people ever. Capricorn rules the elderly. Pluto in this sign until 2024 means that hard choices will need to be made, probably along with higher taxes, to make up for the years of out of control consumption that has left too many people and nations with a mountain of debt. Indeed, the need for the world’s population to increase their savings is more imperative than ever before.

Related Post: “America Saves Week”

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Stocks “Lost Decade” from a Planetary Perspective

Today’s Wall Street Journal features an above the fold cover story called “Stocks Tarnished By ‘Lost Decade’” By E.S. Browning. The Journal article defines a “lost decade” as a period lasting over 10 years when stocks end up back where they started from.

The stock market is currently in a lost decade that began in 1999, as the S&P500 is trading “below the 1362.80 level it hit in April 1999.” Citing Morningstar, Browning writes: “When dividends and inflation are factored into returns, the S&P 500 has risen an average of just 1.3% a year over the past ten years, well below the historical norm.” Examining the bar graph in the article supports that: “Over the past nine years, the S&P500 is the worst-performing of nine different investment vehicles, including commodities, gold, foreign stocks, and Treasury bonds (adjusted for inflation).”

The lost decade is essentially the bust that follows a boom cycle. The article’s accompanying chart outlines two prior lost decades: 1929-1942 and 1966-1982. These periods, along with the current period, have one thing in common: Saturn’s opposition to the outer planets.

The planetary energy of Saturn relates to economic contraction. It rules business and government structures. Pluto rules debt and massive financial gain and loss. The overall cycle begins when Saturn conjoins with Pluto, starting a business boom of massive financial speculation that peaks around the time the two planets are in opposition to each other. From the opposition to the next time the two planets are conjoined represents a period of stock market stagnation. The market may reach new highs, only to fall further than before. In most cases, this part of the Saturn/Pluto cycle results in increasing government deficits, taxes, and inflation. Business and government structures must be reformed or new ones established as the result of unsustainable growth and risk taking.

Within the waning economic cycle of Saturn opposite Pluto, Saturn usually also opposes Uranus and Neptune. Uranus energies create shocks, extreme volatility, upheavals, and a push/pull between what is new and emerging vs. the status quo. Neptune rules credit. The planet of illusion creates and dissolves asset bubbles.

Here is a planetary analysis of the three lost decades the Journal cites:

Lost Decade #1: 1929 - 1942

• 1929: The October crash occurred at a time when Pluto’s energies were dominant, representing massive financial loss. Pluto was discovered on February 18, 1930.
• 1931: Saturn in Capricorn opposes Pluto in Cancer (1915: Saturn conjoined Pluto = start of cycle).
• 1936: Saturn in Pisces opposes Neptune in Virgo
• 1920: Saturn in Virgo opposes Uranus in Pisces. Of the three lost decades, this was the only instance where Saturn did not first oppose Pluto before reaching opposition to Uranus and Neptune. However, in 1920 Saturn was in Virgo and Uranus was in Pisces – the same signs they are in now. (Pisces is ruled by Neptune.)

Lost Decade #2: 1966 – 1982

• 1966: Saturn in Pisces opposes Pluto in Virgo (1947: Saturn conjoined Pluto = start of cycle)
• 1966: Saturn in Pisces opposes Uranus in Virgo
• 1972: Saturn in Gemini opposes Neptune in Sagittarius
• 1977-1980: Saturn in Virgo creates high inflation and a commodity Bull Run just like now.

Lost Decade #3: 1999-2008

• 2001: Saturn in Gemini opposes Pluto in Sagittarius (1982: Saturn conjoined Pluto = start of cycle).
• 2007: Saturn in Leo opposes Neptune in Aquarius. The final alignment of these two energies occurred on June 25, signaling the Party’s Over.
• 2008: Pluto in Capricorn, the opposite sign it was in during the Great Depression. (Capricorn is ruled by Saturn.) After sojourning back into Sagittarius from June 13-Nov 26, Pluto will remain here until 2024, transforming corporate and governmental structures.
• 2008: Saturn in Virgo opposes Uranus in Pisces five times between November 2008 and July 2010.

The next time Saturn begins a new cycle with Pluto is January 12, 2020. That’s not to say the lost decade will continue until then, as there are many other planetary energies that affect market cycles besides what is outlined here. However, I think the earliest the stock market will reach rock bottom is during the summer of 2010. This is when Jupiter (big moves), Saturn, Uranus, and Pluto are aspecting each other in signs that usher in rapidly unfolding events resulting in massive financial and global transformation.

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“Survivor’s Euphoria” Causes Stock Market Rally

Yesterday’s mega rally was described as “survivor’s euphoria” by Bill O’Donnell, a strategist at UBS. As stated in my Vernal Equinox post, “stock market volatility gyrates from hope and euphoria to massive panic, with sentiment highly influenced by rumors and ‘happy talk’ from the Federal Reserve and the Bush administration.” With the Moon in Virgo today, let’s dissect some of the key drivers of yesterday’s market.

In my Weekly Forecast for March 18, I predicted that the market was “likely to be down on reports of further write downs projected or to be taken.” My forecast was based on the alignment of Mercury and Mars. This represents news that investors sharply react to. Due to Mars retrograding in Cancer, this aspect previously occurred on November 19, 2007. Markets were sharply down that day after a Goldman Sachs (GS) report forecast the financials face $48 billion in write downs by the end of 2008. Citigroup (C) forecast a $22 billion write off split between $11 billion in the fourth quarter of 2007, and the other half taken in 2008. The difference then was Mercury (news) was in Scorpio, the sign of debt/lending. Mercury is now in Pisces. Mercury in this sign brings news of rumors, deceit, hope, and euphoria – whether real or imagined. One factor I covered up by stupidly sticking a post-it note on top of my chart, was Mercury harmonizing with the USA Jupiter in Cancer yesterday. Unless overruled by other factors, this usually creates an up market, as Jupiter creates big moves resulting from overblown reactions to market happenings.

The indices opened strong, with the DJIA up 200 points in the first three minutes of trading, after investment banks Goldman Sachs and Lehman Brothers (LEH) released first quarter earnings. Goldman lost $2 billion on mortgages and credit products, but beat expectations in commodities and asset management. It was the first decline in year over year earnings for GS in 11 quarters. GS closed up $24.57 to $175.59. Lehman announced a 57% profit drop on fixed income losses. LEH closed up $14.74 to $46.49, a record one day gain. The “survivor’s euphoria” refers to the fact that on March 16 the Federal Reserve now allows primary dealers to bring “a broad range of investment- grade debt securities” to the discount window at the Fed’s 2.50% discount rate. (If the Fed had taken this action before last Friday’s market open, the fate of primary dealer Bear Stearns might have taken a different course.) Lehman’s CFO Erin Callan described the Fed’s action as “a great opportunity to do more client business.” The market ignored her comment during the earnings call that Lehman “doesn’t anticipate market conditions to improve anytime soon.”

At 2:15 PM, the FOMC released its statement on interest rates. Indices began to weaken after the Fed announced a 75 basis point cut in fed funds to 2.25%, when many expected a full percentage point decrease. The market also didn’t like additional inflation concerns inserted into the statement, along with the fact that two members voted against the largest interest rate cut by the Committee since 1994.

I think the market began to realize that the Fed inserted the inflation remarks as an effort to revive the ailing dollar. Comforting phrases such as “downside risks to growth remain” and “the Committee will act in a timely matter as needed” was still there, indicating the helicopter engines are still running and ready for liftoff.

Yesterday’s stock market entry additionally forecast “Improving conditions around 2:30 PM.” This was because the Moon in Leo was going to exactly oppose Neptune at 2:39 PM. Lunar aspects start influencing the market a bit before they are exact. At 2:38 PM, the indices began rapidly climbing higher after President Bush said during a speech in Jacksonville that “they'll (Bernanke and Paulson) continue to closely monitor the markets and the financial sector. And the point I want to make to you is, if there needs to be further action we'll take it, in a way that does not damage the long-term health of our economy.”

As CNBC’s Bob Pisani commented after the market closed, a lot of the rally was due to short covering as well. Bear Stearns (which closed at $5.91) was a “watershed” moment for the market, which Treasury secretary Paulson used as the catalyst to inspire the market to rally on the belief that the big problems in the financial markets are over. For now.

Financial Times: “’Survivor’s euphoria’ may be only short lived”
Bloomberg: “’Big Rally’ for Stocks to Continue, Jim Rogers Says” (don’t let the title fool you)
Wall Street Journal: Editorial: “Inflation Dissent”

USA: July 4, 1776 5:10 PM LMT Philadelphia, Pennsylvania

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The Fed under Fire

Yesterday Mars, the fiery planetary energy of action, began its sojourn in emotional and security conscious Cancer until May 9, 2008. Cancer rules real estate.

Right on schedule, Mars in Cancer began to attack the Federal Reserve. Wall Street and Congress are fed up with the Fed for its failure to satisfy all of its constituencies. Congress is asking for greater oversight of the banking industry, but at the same time they’re resisting the Fed’s efforts to improve the mortgage underwriting process. Likewise, Congress is asking the Fed to control inflation, and simultaneously applauding an accommodative monetary policy to address the subprime crisis.

The days of Congress fawning over FOMC members are over. Yesterday Vice Chairman Kohn was grilled by the Senate Banking Committee for the Fed taking a relaxed stance when banks were taking on too much risk during the housing boom. The hearing marked the first time a Fed plutocrat had to acknowledge their role as bubble enabler: “I don’t know that we fully appreciated all the risks out there. I’m not sure anybody did to be perfectly honest.” Under questioning, Kohn later acknowledged that “the Fed did not perform flawlessly.” Republican Senator Richard Shelby asked Kohn if the Fed was afraid of the banks. Shelby was referring to the Fed and regulators caving into the banks’ lobbying efforts last July to prevent stronger risk guidelines on U.S. banks than European banks have under the Basel II agreement.

At a conference of the Independent Community Bankers of America in Orlando yesterday, Chairman Bernanke urged lenders to help struggling borrowers stay in their homes by reducing the principal of their mortgage as a way to reduce their monthly payments. Lowering principal alleviates homeowners being “upside down” (negative equity), as they owe more on the home than it is worth. Wall Street was not warm to the idea, with the indices lower until happy talk rumors regarding bond insurer Ambac (ABK) surfaced late in the day.

Mars was previously in Cancer from September 28 – December 31, 2007. It was during this time that banks began taking large write downs on their bad debt. As befitting of Mars in Cancer, S&P’s Sam Stovall at that time called it the “kitchen sink quarter.” With Mars back in Cancer again, the world is finding out that the corporate kitchen sink is clogged with stagnant water. The “Plunge Protection Team” (as the Fed is nicknamed), would like to unclog the drain but the lenders are not willing to take a “real” write down (actual financial loss).

Between now and May 9, Mars attacks the USA’s Venus, Jupiter, and Sun in Cancer. This means that over inflated real estate prices must come sharply down, impacting the overall American economy. Mars also challenges the USA’s Saturn in Libra located in the area of the horoscope representing Congress. Mars makes its finale with an opposition to the USA Pluto in Capricorn in the house of banking and the economy. Legislative and governmental regulation will force the financials to fix the sink. And the Fed? The public is angry (Mars) that lower interest rates have not only failed to reduce their loan payments, but the resulting higher inflation has spiked the cost of food (Cancer). Mars in Cancer is a brief preview of what the Fed faces in late 2008 to 2009 when Pluto in Capricorn impacts the Fed’s Pluto in Cancer and Sun in Capricorn. The structure and power of the Fed and the influence of its Chairman will be transformed.

Federal Reserve: December 13, 1913 6:02 PM Washington, DC
USA: July 4, 1776 5:10 PM Philadelphia, Pennsylvania

Wall Street Journal: “Fed Admits Missteps on Banks” and “Fed Chief to Lenders: Cut Mortgage Principal”

Related Posts: “Resetting the American Dream”, “The Missing Element”, and “The Fed’s Future”

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Bernanke Rejects Role in “That ‘70s Show”

Federal Reserve Chairman Ben Bernanke told the Senate Banking Committee yesterday that he rejected being cast in “That ‘70s Show.” Bernanke told Committee members that he does not believe inflation poses a threat to the economy, since the show’s producers made it clear he could not demand Ashton Kutcher’s salary.

The Fed Chairman displayed his usual nervousness in his semi-annual testimony to Congress. However, Bernanke became somewhat testy when asked by several Senators if the economy is experiencing the s-word: stagflation. Bernanke kept reiterating that “I don’t think we’re anywhere near a 1970s-type situation.” This is because “our anticipation is inflation will come down later this year.” With his Sun, Mercury, and Venus in Jupiter-ruled Sagittarius, Bernanke is only focused on economic growth and expansion.

Bernanke attributes the rise in food and energy costs (core inflation) to investor speculation. While that is partially true, commodity and energy prices have been on a tear since the FOMC began lowering rates last September. This coincides with the entrance of Saturn (contracted supply) in Virgo. Virgo rules consumer staples, and is represented by a maiden holding a shaft of wheat. Saturn was last in Virgo from 1977-1980. The FOMC’s monetary policy has resulted in the U.S. dollar at record lows, causing commodity users to spend more dollars for those materials.

Even some members of Congress along with a few Permabulls are getting angry that he refuses to acknowledge his other mandate of price stability as enacted by Congress under the Full Employment & Balanced Growth Act. Ironically, this mandate came into being in 1978, one Saturn cycle ago during the last period of stagflation.

It is clear that the only beneficiary of the Fed’s lower rates is the banks. Mortgage rates have risen since the rate cuts (and lending requirements are tighter). This morning’s release of January Personal Income and Spending shows consumers are spending more than they are earning. Even the Fed’s favorite, the Core PCE Index, was 2.2% - once again above the Fed’s so-called “comfort level.” As today’s Wall Street Journal editorial rightly points out, “The people who aren’t being fooled by all this are the American people. They don’t pay their bills with “core” dollar bills, and they know those dollars buy less with each passing month.”

Because consumers can no longer tap into their home equity to offset the higher cost of living, demands for higher wages are about to arrive. Companies will have no choice but to acquiesce to higher wage demands as the low hanging fruit of productivity and outsourcing has already been picked.

Sir John Templeton once said: “The four most expensive words in the English language are ‘this time it’s different’.” Cycles repeat themselves, but this time it is different. This time is worse than the 1970s as we have stagflation AND a housing and credit crisis like the world has never seen.

Allan Meltzer, an economics professor at Carnegie Mellon, wrote an outstanding op-ed piece* in the Wall Street Journal, which Bernanke was asked about at yesterday’s hearing. Bernanke stated he disagreed with the piece. In the piece, Meltzer warns of the repercussions of not taming the inflation beast: “A country that will not accept the possibility of a small recession will end up having a big one when the politicians at last respond to the public’s complaints about inflation. Instead of paying the relatively small cost of a possible recession, the public pays the much larger cost of sustained inflation and a deeper recession.”

If Bernanke wants to bring back “That ‘70s Show”, we need Paul Volcker in the starring role. Volcker took over as Fed Chairman in 1979 after another Chairman whose last name began with a B – Arthur Burns, fed inflation in the name of growth. With his Sun, Mercury, Venus, and Mars in no-nonsense Virgo, Volcker put inflation on a starvation diet. His tough love approach ushered in the prosperity of the 1980s.

* Professor Meltzer’s WSJ op-ed piece is entitled “That ‘70s Show”
Related Posts: “The Fed’s Future”. Also check out the Cycles section of Wall Street Weather.

Ben Bernanke: December 13, 1953 time unknown Augusta, Georgia
Paul Volcker: September 5, 1927 time unknown Cape May, New Jersey

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Larry Kudlow, Inflation Fighter

There are many indicators that all point to inflation spiraling out of control: food, energy, medical, commodity prices, and a falling dollar. But you know inflation is really a problem in America when free market capitalist Larry Kudlow is “concerned.”

Larry Kudlow is the host of CNBC’s Kudlow & Company, a show described by the host as “money, politics, stocks – that’s our beat.”

With his Sun in Leo (the stock market), conjoined with Mercury (communication) and Venus (finances), Larry Kudlow always sees the sunny side of the financial markets. Li