Bad Vibes from the Stars

The latest planetary movements are enough to drive anyone to drink. First, good news. Now, terrible news.

In March, for example, two planets, Jupiter and Neptune, were in conjunct at the same place in the sky. That get-together, I'm told by Henry Weingarten, who monitors planetary influences, was very positive for the stock market. Why so? Because Jupiter is a planet that breeds hope, optimism and expansion, while Neptune is a planet of fantasy and without limits.

This may all seem like a lot of gobbledygook, but not to Weingarten, the skipper of the Astrologers Fund, a 30 year-old New York-based private advisory service for professional investors that tracks planetary movements. Factored into his thinking, as well, are fundamental and technical market trends.

If you're dubious, it's worth noting his most recent astrological reading would impress even the skeptics. For example, in early March with the Dow Industrials trading around 6,550 and bearish sentiment rampant, he urged his clients to become aggressive equity buyers. With the Dow now above 8,400, that proved to be a super call.

So what are the heavens saying now? Alas, hellish times ahead. By early July, the present positive astrological influences will have dissipated, Weingarten says. But in the wings, he points out, is a major solar eclipse on July 22, an event that's negative for the market three quarters of the time.

Last July, for example, the eclipse proved devastating for the Russian and Pakistani markets. Aside from its U.S. impact, he expects the eclipse to brutalize the Chinese market, which has been roaring this year in the hopes of a strong economic rebound.

Weingarten thinks much of the rally in global markets reflects the view that China will pull the world out of the economic doldrums, "but it won't happen," he says. The key reason: he feels China's stimulus package will fall short of revitalizing the country's economy because of economic weakness world-wide, leading to sharply diminishing exports.

Weingarten says he would shun the emerging markets, which he thinks are especially vulnerable. China is viewed as the worse. Accordingly, he's urging clients to shun the Chinese market.

Our astrological bear is convinced that Treasury Secretary Timothy Geithner's comment a few days ago that the U.S. economy is stabilizing has no credibility. As supporting evidence, he points to the latest housing numbers, which he notes raise serious questions about the validity of growing suggestions that the beaten-up housing market has reached a bottom. Specifically, he points to just-issued reports which show that April's existing home sales and building permits hit record lows. Against this background, he notes, the commercial real estate industry is ready to implode.

With 17.3 million Americans out of work and many more job losses on the horizon, Weingarten says it's obvious consumers will continue to cut back and be wary of any new spending. As an offshoot, he expects about 20% of all credit card debt to default.

Given his abysmal outlook, Weingarten says forget about all the talk -- which has been especially conspicuous from Federal Reserve chief Ben Bernanke -- that the economy will bottom this fall. "That's sheer fantasy," he says; "it ain't going to happen." As Weingarten sees it, "we're in one of those great recessions and great recessions don't end in 2 to 8 months, but rather 2 to 8 years." What he envisions ahead is a sideways, L-shaped, economy -- one that won't get much better or much worse, but one that will require an adjustment to both lower economic growth and a lower standard of living.

Weingarten is pushing clients to get out of stocks while the getting is good. He feels any further short-term market gains will disappear by July or August. At that point he believes the Dow will have retreated to 8,000 or perhaps a lot lower. "We've had a hell of a rally and stocks are now overpriced," he says. As such, he's advising clients to sell into any rally.

In a recent note to clients, Weingarten called attention to what he though was an especially relevant parting comment made by Merrill Lynch's well regarded North American economist, David Rosenberg, who is leaving the brokerage firm.

Rosenberg's comment:

If a few weeks ago, someone had said to you that you could sell your stocks 40% higher, most of you would have hit that bid. Now that this price, in fact, has been bid, do you want to gamble on a renewed bull run in the face of a shrinking economy? I suggest you give it some serious thought, or at the very least, put in some very real stop-loss protection (prices at which stocks should be sold if they reach specified price points).

Weingarten also took note of the thinking of former Comptroller David Walker, who observed that "signs are emerging that there is eroding confidence in the country's ability to maintain solid credit ratings. That instability would only worsen with costly health care reform or a failure by government to rein its budget process. The U.S has had a triple-A credit rating since 1917, but it is unclear how long this will continue to be the case."

Weingarten's reaction: "If you're not petrified, you're not paying attention."