Asteroid-World Fall 1987 Part 2
Zip Dobyns and Rique Pottenger
An Economic Overview
After the biggest-ever one-day drop in the stock market on October 19, 1987, it seemed time to do what I had been planning for over a year, to devote a major part of one issue of Asteroid-World to a more thorough discussion of the world economic situation. When time and newsletter space both got out of hand, I decided to separate the more typical Asteroid-World material from the lengthening financial analysis, expecting to mail this section later. By the time I finished copying charts for Part 1, it was Thanksgiving weekend and I had time to pull together most of the material I wanted to include in this economic survey, so the two parts could have been mailed together. But I decided to send this Part 2 of Asteroid-World to our whole subscriber list. It is also going to a few additional people who are interested in the economic picture but have little knowledge of astrology.
Some of the following material may seem so basic that everyone already knows it, but I want to present a fairly complete overview. I have been reading extensively in the business and financial area for the last few years (since my progressed Sun entered Scorpio) and I have been continually frustrated by the inadequacy of the treatment of the financial picture by most so-called “experts”. Of course, many of the experts emphasize only a part of the picture because it leads to conclusions which promote their own interests. For example, the people selling gold and silver point to the rising supply of money as inevitably leading to inflation. Inflation means that paper money decreases in value as prices rise, but precious metals, especially gold, hold their value. Naturally, the metal salesmen focus on the threat of inflation. I am not a financial expert, and this effort is partly to organize a mass of data hoping to clarify my own understanding of the situation in the world.
I was not surprised to see a drop in the market this fall, but did not expect such a spectacular one. Of course, looking with hindsight, it seems obvious that panic is inevitable with a market increasingly dominated by speculative traders who mostly expected it to go down and who all hoped to sell at the top. A panic occurs when most of the players want to sell at the same time and no one wants to buy. Though this section of Asteroid-World has less jargon, the non-astrologer readers will have to put up with some. The 1987 Libra Ingress (transiting Sun into Libra) had Pluto rising in Scorpio in an exact square to the MC in Washington, DC, suggesting tension over joint resources including debts and return on investments. Remember the MC is like Saturn, a symbol of the Executive form of power as well as the limits of personal power and the consequences of our past handling of “the reality game”. Also, the whole chart of the coming Capricorn Ingress calculated for Washington, DC is screaming “money”. I have written about the latter chart before. It was clear from that chart for December 23, 1987 that the U.S. government (and people?) would be obsessively focused on money during the winter of 1987-8, and the spectacle is now before us. The executive and legislative branches and the Republicans and Democrats are locked in a struggle over how to cut the budget deficit, after being told that the deficits were a primary cause of the stock market crash.
Actually, the deficits were a primary cause of the stock market rise as the Reagan government lowered the taxes on the rich, lowered the assistance given to the poor, and enormously increased the spending on weapons, using borrowed money which largely went into the pockets of the already-rich. The rush into stocks was further fueled by the Federal Reserve’s demonstrated ability under Volcker to control inflation and later by OPEC’s price collapse which further reduced inflation fears so vast amounts of capital moved out of speculative real estate and other inflation-hedged high yield investments into the stock market. The strong desire for a high rate of return, “get rich quick greed,” also contributed to the market boom. Further complicating the situation is the fact the production of weapons which will mostly never be used or will be used to practice skills which again will (we hope) never be used, actually adds very little to the well-being of the society. Some thousands of jobs are involved, but there is far less beneficial growth in the economy in general than would occur if the same funds went into modernizing civilian factories, improving education, and providing entry-level jobs for the hard-core unemployed who lack the self-esteem and skills to handle most jobs.
I have just finished reading The Over-Burdened Economy by Lloyd Dumas, a whole book devoted to the theory that the economy has three sectors. The contributive sector actually produces goods or services that improve the material standard of living of the society. The neutral sector is made up of people who are unnecessary, a category that used to be called “feather-bedding.” They are working but they are not adding anything to the output of their organizations; as much would be produced if they were not there. Dumas suggests that much business and government middle management is in that category. The distractive sector is not producing anything to add to the material well-bring of the society. Dumas includes the military and some religious activity in this area. (Church activities such as running schools or feeding the poor etc. are in the contributive area. I would add most advertising and some of the U.S. excess of lawyers to the distractive sector). Dumas suggests that the main reason the U.S. has lost its competitive edge in the world is the massive proportion of our labor and capital which goes into military R & D (research and design) and production. According to his figures, 4% of Japan’s R & D goes to military purposes; 20% of Germany’s; and 70% of the U.S. government spending, much of the latter on forms of nuclear weapons which provide almost no usable information to assist civilian productivity. Of the total R & D spending in the U.S., 50% is funded by the government. Dumas suggests that the neutral and distractive sectors of the economy are equivalent to people on welfare; parasites depending on the contributive portion of the economy. Many of them are the brightest and best trained scientists and engineers in the society, they have first claim on limited resources, they mostly work on a “cost-plus” basis so have no incentive to economize, and the bombs etc. that they produce make the world an increasingly dangerous place. Dumas feels we should start transferring them to contributive work as rapidly as possible. Dumas points out that the U.S.A. and U.S.S.R. have both lost the competitive edge and threatened the standards of living of their people through their military obsession. Whether the economy is market driven or socialist controlled does not matter: productivity and general living standards decline as resources are diverted from the contributive sector. Dumas is a professor at the University of Texas at Dallas.
Of course, Reagan has been operating on Arthur Laffer’s and Jack Kemp’s supply-side theory. After the rich became richer, they were then supposed to invest their increased wealth in productive businesses which would hire the poor so some money would “trickle down”. But the world already produces more than can be sold: the rich getting richer and the poor increasing in numbers and in poverty is a world-wide phenomenon, and you can’t buy without money. So the rich used a fair amount of their increased money to speculate in the market in the wake of the inflated land values and excessive commercial building of the seventies. Both land prices and stock market prices in Japan are incredibly inflated, far beyond the U.S., since the Japanese save a large part of their earnings and have to put them somewhere.
Hostile takeovers also helped to blow up the market bubble (increase stock prices) as raiders found that rather than starting their own businesses, they could make more money by buying stock and blackmailing the company managers into buying it back at higher prices. Some investors seeking higher returns supported the raiders’ attacks on corporate managers who were considered complacent and inefficient. If the managers did not buy back the purchased stock, they risked having the company taken away from them. Alternately, the raiders could take over the company using borrowed money (gained from selling so-called “junk bonds”) and then sell off the company’s assets to pay back part of the borrowed money, still keeping a smaller more-or-less functioning company. The “more or less” often included angry and fearful employees whose pay was cut, health care reduced, pension funds raided, work pressures increased, unions destroyed, whose friends had been fired and who were forced to move to keep their jobs, etc.
There was another alternative to which many besieged managers resorted to keep their jobs. They “restructured” the company by selling the assets which had attracted the raiders (land, buildings, subsidiaries etc.) and by going deeply into debt so the company was no longer as viable and attractive to the raiders. (“Junk bonds” are those rated as less reliable, that is they might not be paid back when the due date arrived, so they pay a higher interest to attract buyers willing to risk their capital). Managers might also buy back large chunks of their company’s stock to keep it out of the hands of the raiders, going into debt to do it. They could also increase the dividends paid by the company so it had less available cash to make it attractive to a raider and also to keep the price of its stock higher so it was harder to buy enough to get control. Some increase in stock prices occurred due to the shrinking number of available stock shares as managers and/or raiders bought them up in their contests for control. The end result of the raiding mania has been a depletion of cash reserves held by businesses and an escalation of business debt, whether produced by the original managers or by the raiders. Where many businesses in 1929 had a safety net of savings to see them through the depression, many today are mired in massive debts.
In earlier and less sophisticated times, the majority of small investors bought stocks and held them for years, receiving dividends from company profits. (The native investors in Japan’s stock market still tend to operate in those traditional ways.) But in most countries in recent years, (much as in the 1920s), stocks have been treated like commodities, as items to be bought and sold constantly as soon as the prices edged up or down, rather than as a nest egg to be bought and held. Adding futures, options, and indexes to the game let speculators gamble with a small down payment on the future prices of the stocks, so the stock market increasingly resembled a Vegas casino. According to Adam Smith, a modern financial commentator who took the name of the famous original, the markets have added 400 new instruments in recent years with the futures, options, indexes, etc., encouraging the casino mentality. If company managers did not produce a good report every three months, the price of their company’s shares would go down as the managers of pension and mutual funds (who also had to show short-term results) sold the stock. Then raiders would start eyeing their assets, so long-range goals tended to be overwhelmed by the need to show short-term results.
Meanwhile, the Japanese saved money and invested in research and development which produced quality cars and TVs and VCRs while Americans borrowed and spent on the Japanese-produced consumer goods. Contributing to Japan’s rate of saving has been a deliberate government policy of discouraging debt. It was hard for ordinary citizens to get bank loans and credit cards have only recently been permitted in Japan. Debt is constructive when it is used to improve production which will eventually be able to repay the borrowed money. But American debt has gone into consumer goods which are used up or wear out while the debt remains. Americans were borrowing partly because their wages were not keeping up with rising prices and with the rising expectations of the baby boomers. A contributing factor was the movement overseas of U.S. owned manufacturing plants to take advantage of cheap labor at the same time that newly industrializing countries were developing their own modern factories. So thousands of Americans lost higher paying industrial jobs, replacing them with lower paying service jobs. Millions of wives and mothers went to work, trying to maintain previous standards of living, and millions of kids became “latchkey” orphans after school, but it still took credit cards to maintain previous standards.
While the middle class went deeper into debt and increasing numbers slipped below the poverty level, the rich were getting richer, with the lowest taxes in the industrialized world, and with million dollar salaries and bonuses. A good bit of that excess wealth went into the stock market, much of it into the mutual funds with professional managers buying and selling the stocks. By the middle of 1987, the ratio of stock prices to company earnings (the P/E ratio) had gotten so high, and the run-up of the DOW Jones Industrial average (DJIA) from 1900 to 2700 in just under eight months had happened so quickly, that intelligent investors expected a “correction” and were ready to sell as soon as the market looked as if it had reached a top. Of course, all the speculators wanted to be out at the top, so large blocks of stocks were thrown on the market simultaneously. But since many expected the market to go down, once it started there were many sellers and no buyers. As is typical in a panic, the faster and the farther the market dropped, the greater the number of investors who tried to sell, to get out before it hit bottom, so we ended up with a record drop of 508 in one day. In all, the DJIA lost about 36% of its value between the market top on August 25 and the end of trading on October 19. There are also averages for transportation and utilities groups of stocks on the so-called Big Board, the first developed New York Stock Exchange, as well as averages for the other exchanges, such as the American and the NASDAQ which includes many “over the counter” (OTC) stocks. They all went down varying amounts.
A fascinating article on page 44 of the November 30, 1987 issue of Time magazine is titled “You Thought Monday Was Bad?”. An in-depth investigation by the Wall Street Journal claimed that the market came closer to total meltdown on Tuesday, October 20 than it did on Black Monday. Traders started the day in despair. Banks that usually provided loans had stopped lending and some started calling in major loans. Remember that depressions start when debts cannot be paid. major companies go into bankruptcy when their loans are called, and the process dominos. On Terrible Tuesday, a number of securities dealers were close to financial ruin. At midday, trading in stocks, options and futures in a variety of markets “virtually shuddered to a halt.” There were no buyers! Normally, the securities dealers buy whatever their customers offer for sale. Part of their role is to act as a bridge between buyers and sellers. But even the well-funded dealers were in trouble. The Fed (Federal Reserve) quickly pumped dollars into the banking system. The head of the New York Federal Reserve bank telephoned other top bankers to urge them to provide credit.
But the turning point is credited to an upward surge of a little-known stock index futures contract traded in Chicago, the Major Market Index (MMI) which is made up of blue chip stocks much like the DJIA. In a five-minute period after 12:30 P.M., the MMI futures staged their most powerful rally in history, rising what would be equivalent to 360 points on the DJIA. The rise was a bet that the market was about to go back up, and it lured enough potential buyers into action to start the DJIA back up. The Wall Street Journal suggests that a group of major investment houses (identities still unknown) made a concentrated and perhaps desperate effort to buy up the MMI futures, hoping to turn the market. Since futures are bought mostly on credit, they were able to pour enough money into the contracts to produce a substantial move in their price and it did the trick.
Many factors helped initiate the drop which really started in earnest on Friday, October 16 when the DJIA fell over 100 points, leading to Monday drops in Japan and Europe, with their markets preceding the U.S. Among the contributing factors were the high trade deficit figures for August which were reported in September, fear of protectionist legislation being discussed in Congress, the hike in interest rates in both the U.S. and Germany, Treasury Secretary Baker’s expressed displeasure about the German increase which suggested that the major democratic countries were no longer cooperating, the visible struggle between Reagan and Congress over Supreme Court nominee Bork, the budget, the Contras, etc. which suggested that our government was out of control in an internal impasse power-struggle, and a proposed change in the tax laws which would not have permitted interest deductions for debts due to takeovers when the debts were above a certain level. (Some of the Establishment was pretty upset over the hostile takeovers though some brokers and commercial bankers were making millions through helping the raiders.) A sizable amount of the rise in stock prices had been credited to takeover activity as raiders bid up the prices. The proposed new law which would have discouraged most raids led to the raiders dumping large quantities of stock, and that along with the interest rate rises in the week of October 11-16, helped to start the ball rolling downhill.
Rising interest rates tend to depress first bonds and eventually stocks. Bond prices go down because they pay a set interest and if the interest rates go up, investors want to shift to forms of investment which pay the higher rates. The hope that stocks would rise and provide a better return than bonds was one of the driving mechanisms behind the market boom. But stock prices also go down eventually because modern businesses and individuals survive with borrowed money. If interest rates get too high, we have a recession as businesses fail or at least cannot grow, and individuals cannot afford the interest to buy “big ticket” items, especially cars and homes. Interest rates go up in times of inflation when prices are rising, because people are not willing to lend money that will be worth less when they get it back unless they are paid more than the increasing prices (which amount to a decreasing value for the money). The enormous increase in interest rates at the beginning of this decade was the Federal Reserve response to the plummeting value of U.S. bonds and money after the second massive rise in oil prices. To sell our bonds which we had to do to finance our government deficits, we had to pay more interest. Yes, the high interest helped to produce the depression of the early 1980s, and helped (along with the Iranian captivity) to give Reagan the presidency. Volcker, chairman of the FED, became (and remains) a hero to the rich for conquering inflation. Some people feel that his August 1987 resignation from the FED and his replacement by Allan Greenspan was another small contributing factor to the loss of confidence which led to the fall market crash.
To fully understand the gathering economic storm, we have to look back to the oil price jumps of the 1970s. Some years ago, I presented excerpts from a book which offers one of the keys to what is happening. The Rise and Decline of Nations by Mancur Olson, a University of Maryland professor of economics, describes the role of cartels in economic growth and recession. Assuming the nearly universal tendency of humans to seek personal gains, Mancur describes how cartels or monopolies can increase profits for themselves by maintaining higher prices on their products or services. He writes that cartels are possible when the number of relevant enterprises is small enough to allow each individual enterprise to get a significant share of the gain from collective action. Cartel resources may be money (capital), personal skills, or products. The larger the number of enterprises, which usually includes producers of commodities such as farmers and miners, and unskilled labor in general, the less likely it is that they can effectively combine forces to set and maintain higher prices. For this reason, depressions usually hit those areas first and hardest. To use Olson’s terms, as demand slumps, the areas of “flexprice” (mostly commodities except for some recent successful cartels) drop while the “fixprice” goods (mostly manufactured) resist the price drops. Instead of lowering prices, the monopolistic producers curtail production to maintain both their high prices and their profits. This is the main reason that protectionism can injure the U.S. economy. It permits producers to lower wages and fire employees but still maintain prices at the expense of (captive) buyers who can’t go elsewhere. Japan has successfully maintained a high level of protectionism by also working very hard to maintain full employment. They have been helped in that goal by smaller numbers of working women.
Anyone who has played the game of Monopoly knows that the key to winning involves buying sets of properties and getting hotels built on them so you can charge high rent when opponents land on your spaces. Much of Olson’s book is a highly technical description of several countries and periods in history which illustrate the importance of such “restraint of trade” whether it is carried out by medieval guilds or by OPEC (Organization of Petroleum Exporting Countries.) Olson contrasts the worst U.S. depression in the 19th century with the one starting in 1929. From 1839 to 1843, the U.S. money stock dropped 34% in contrast to a 27% drop between 1929 and 1933. Prices dropped 42% in the early period versus a 32% drop in the later one. The number of banks dropped 23% versus 42%. Real gross investment dropped 23% versus a drop of 91%! But in the 19th century depression, real consumption rose 21% and the real gross national product rose 15% while in the 20th century depression, they dropped 19% and 30% respectively. The difference is dramatic. With fewer monopolies able to maintain prices while cutting production, workers, and wages, both wages and prices dropped but production and consumption continued to rise. In the early 1930s, prices dropped less while more banks failed, investment stopped almost totally, and consumption and GNP fell. The bite is actually bigger than the figures suggest when we remember that the population continued to grow throughout the period so more people were living on less goods.
Olson successfully demolishes Milton Friedman’s simplistic assertion that inflation is “always and everywhere a monetary phenomenon”, meaning that inflation is solely due to governments printing money. Government printing presses or extension of credit can produce hyperinflation. But a huge rise in prices from the action of a world-wide cartel controlling a basic necessity (oil) also can and did inject massive inflation into the world economic system, creating major imbalances in debts and spending. The oil producing countries gained enormous (though temporary in many cases) wealth at the expense of the oil users. Much of the new wealth was spent, some on very conspicuous and wasteful consumption or on ineffective industrial plants. In many countries, the major share of the wealth ended up in the Swiss bank accounts of a few rulers. Much was also deposited in U.S., English, German, etc. banks which then had to find places to loan it in order to pay interest on the accounts. What better place was there to loan it than to the countries who were confronted with inflated bills for the oil and who wanted to industrialize to improve their living standards? Following both “oil price shocks”, we had recessions as people who had to spend more for one necessity (along with all the other products which use oil and which therefore went up in price) had less money to spend on other things.
Of course, every country handled the challenge differently. Japan kept its unemployment down to about 2%, partly by an expansion of its exports. Germany also pushed exports. Britain and Norway developed their own oil in the North Sea. The U.S. elected Reagan and began the disaster which is now approaching a climax, taking on more debt in this brief period than in our whole history prior to Reagan. Under Reagan, we have moved from being an international creditor to being an international debtor. We are approaching the same crisis which Mexico, Brazil, Argentina, Peru, etc. have been facing since 1980. Interest payments will soon take the biggest share of our gross national product, and they stretch ahead as far as the eye can see while national polls show that most Americans are totally unwilling to see either taxes raised or spending cut on social services.
All fields of study which deal with human beings are lumped as “soft” sciences; less rigorous, clear, objective, capable of producing accurate predictions, etc. than so-called “hard” sciences like physics. (Physics is no longer as “hard” as it used to be, but that is outside our current concerns.) Humans are highly complex and still not really well understood. The study of economics is especially in a state of total conflict with some “experts” predicting inflation, some depression, some moderate growth, some stagflation etc. The hopeful ones point to 1962 when we had a 25% fall in stock market values without it leading into any general economic slowdown. But a lot of anxiety has been generated by economic gurus who have predicted trouble and by general knowledge from history or from common sense that eventually we have to face the unprecedented debts of countries, businesses and individuals. As the stock market did its spectacular levitation in the first six months of 1987, many people took it as a sign of coming inflation, interest rates started going up, bond prices fell, until finally the interest rates got high enough to produce the specter of a recession-depression to start the stock selling.
Once the stock prices started down, the climate of fear already present produced a landslide. Program trading contributed its part, since once stocks went lower than futures, computer programs sold futures and bought stocks; then when the futures dropped (because of the selling), they sold the stocks and bought the futures, increasing the rout as massive amounts of stock and futures came on the market simultaneously with many computers following similar instructions. (The Wells Fargo bank in California is said to have been the source of a large proportion of the program trading). Some additional pressure came from people selling their shares in Mutual Funds which are devoted to stocks, which in turn forced the managers of the Funds to sell the stocks to give the owners their money. But according to the analyses I have read, the greatest pressures and the greatest losses involved the people who had bought on margin, that is, by borrowing part of the cost of the stocks from the broker who sold them. After the famous 1929 market crash, laws were passed limiting the purchase of stocks to 50% margin, but futures and options allow margins as small as 5 to 10%. The following explanation was written by my son Rique Pottenger who has been writing computer programs dealing with futures, indexes and options. An index is a specific group of stocks. Examples include the S & P or Standard & Poors group of 500 stocks.
Options and Futures
An option is the right to buy or sell something at a set price anytime from when the option is bought to its expiration date. A call option is the right to buy something, a put option is the right to sell something. The option costs a fraction of the underlying commodity; it will rise as the price of the commodity rises, and if the commodity reaches the strike price of the option, the value of the option will thereafter follow the value of the commodity.
For example, say one thinks that IBM stock, trading now for $100, will go up. One may buy a March IBM 110 option for perhaps $5 (except that they are always sold in lots of 100). The outlay of $500 thus gives the purchaser the right to buy 100 shares of IBM at $110 at any time until the option expires in March. If IBM goes above $110, the option can be exercised, meaning a further outlay of $11,000, and the stock then sold, or the option can be sold to someone else. As IBM went to $110, the option would have gone to $10 or so, and for every dollar over $110 the stock goes, the option will be worth another dollar.
Options therefore are limited risk instruments—you cannot lose more than what you paid for the option. If you are correct in your assessment of which way the underlying commodity will move, you may make several times your investment (or you may make only a little). If you exercise the option, the person who sold it to you must then sell you the stock (commodity) at the specified price for a call option, or buy it (for a put).
Futures, on the other hand, represent the commodity itself at a future date. The investor pays now for delivery of something later. What he pays is what the market thinks the commodity will be worth at the date of the contract. If the value of the commodity goes up in the interval, the future can be sold for a profit; if it goes down, the owner takes a loss.
Futures for commodities actually represent real items. If you pay for gold futures and hold them, at the end of the contract you have gold. But stock index futures have no deliverable underlying commodity—investors are betting against each other on which way the market will move, which is a zero sum game (of course the brokers always get their commissions).
Futures example: Say the S&P 500 index is trading at 200.00. A futures contract at $5 a point (.01) costs $100,000. If the index goes to 201.00, the contract can be sold for $100,500. Futures can also be sold before they are bought (this is how one bets on the value going down).
Futures can be bought and sold on margin, meaning only part of the full purchase price is put up. Say the margin is 10%. That means instead of $100,000 for a contract, one need only pay $10,000. But if the index goes up 100 points, one can still sell for $10,500. Thus the user of margin has made 5% on his money, instead of 1/2%. The problem with margin is that if the underlying value goes the wrong way, the investor is required to put up more money. Say that $10,000 has been paid for an S&P 500 future at 200.00. If the index should drop to 150.00 (and it dropped from 300 to 200 October 19), the investor is in the hole for $25,000. Since he only put up $10,000, the brokerage firm through which he bought the future will immediately ask him for a further $15,000. This is called a margin call. Brokers may ask for more margin at their discretion, and often will do so as soon as the contract gets anywhere close to where the initial percentage is wiped out.
Zip Dobyns continuing
One broker (Charles Schwab) lost about 22 million dollars from a single client in Hong Kong who was heavily margined and could not pay when his stocks lost value. When margin buyers were unable to put up enough additional money, the brokers sold the stocks for whatever they could get, putting more pressure on the market.
Adding to the volatility of the market is the complication of markets in other countries trading in each others’ stocks and following each others’ leads up or down. After our Black Monday on October 19, Tokyo had a Black Tuesday. Toronto, London, Frankfort, Australia and many other countries also had major losses. Hong Kong closed for almost a week, saying they could not keep up with the paper work. (The Economist magazine says that the closing was a futile effort to prevent disaster in the over-inflated futures market. The Hong Kong government, banks, brokers and others raised a fund of 2, later increased to 4 billion Hong Kong dollars to save the system. They also belatedly raised the margin requirements). The New York market closed early for more than a week to let the brokers catch up on the enormous number of orders. The market in Mexico lost a larger percent of its value than any other country; 70% as this is written. The government is trying to figure out how to stop the hemorrhaging. One action has been to stop defending the value of the peso, Mexico’s money. The peso promptly dropped to over 2,000 to one U.S. dollar, and people did buy stocks rather than hold the deteriorating pesos which brought the market back up a little. The interdependency of different parts of the world’s financial system has become awesome. Computers are again part of the picture in this international casino, along with modern telecommunications, since they permit orders for purchases or sales or the transfer of funds to be given and carried out almost instantly across the world.
Many financial “experts” had expected the Japanese stock market to crash first since it is much more “over-valued” than any other country in terms of prices of stocks compared to the potential earnings and basic value of the companies issuing the stocks. The “price-earnings” or P/E ratio is based on a comparison of the price of a share of stock with its potential earning power. But the Japanese banks which hold large chunks of their market keep their values listed on their books at the prices they paid for them, generally much less than the current prices. So they had no pressure to sell when the prices dropped, as they still remained mostly above the purchase costs. Large companies also own massive amounts of each others’ stocks and they along with the large brokers often choose (or are pressured by the government) to hold them to maintain the stability of the general economy. I have a questionable chart on the opening of the main Stock Exchange in Tokyo with two different days given by different sources and uncertainty over the time when the market first opened, so I can’t do much until that data is clarified. I also have tentative charts on the Freedom of Japan (after their defeat in World War II), and on their Constitution. Both of these horoscopes suggest the likelihood of major changes in the next few years, possibly including the death of Emperor Hirohito (expected soon) and basic shifts in the world’s financial structure.
The chart for the opening of the New York market on our “Black Monday” had some conflict but was not really remarkable with Saturn in the first house square a tenth house Moon and the Sun opposed to Jupiter across the fifth-eleventh houses. But when we compare the transits of that day to the natal NY market chart, the transiting Moon was on natal Mars with Saturn square Mars while transiting Sun-Jupiter fell across the Jupiter-Saturn opposition in the original market chart. The transiting Ascendant at the 9:30 A.M. opening that day was exactly square the progressed Ascendant of the original chart which had just reached P Pluto.
One of the treasures I have received from two sources in recent weeks was an excerpt from the journal Cycles. This particular issue included forecasts of coming market activity by a collection of so-called “experts”. Many were totally wrong in their predictions. Among the more successful were two men who work with astrology; Sam Crawford and Ray Merriman. Sam (or Arch) was spectacularly right in his newsletter sent out August 8, 1987. He wrote “We could have even more of a wild speculative ride up to the Grand Trine and we pick the TOP for 24 August, give or take 3 days. Then a horrendous Crash into the Eclipse of the SUN. No major new rise until after March, 1988.” The underline and caps are Sam’s, and the market top was August 25. After some additional comments, Sam wrote “the LONG TERM SELL SIGNAL IS SET IN STONE so be out of everything by the 24th!” If his subscribers believed him, they are now ahead of the game. Of course, if everyone received Sam’s newsletter and believed him and acted on it, we would just have had the crash on August 24 instead of October 19.
It is ironic to watch the same people who were bellowing for “total freedom”, opposing taxes that go for welfare and other government assistance, now assuring prospective clients that we couldn’t have a repeat of the 1929 depression because we now have safety nets like unemployment insurance and social security and insurance on bank deposits. It is also ironic to watch the opponents of all government regulation scream for the government to do something to restore the confidence of their clients so they will buy more stocks. If you have followed this lengthy analysis of the financial melee, you can see how the increasing deficit could feed the stock market rise as the rich got richer and put the money into the market, but how the deficit could also threaten the market once people lost faith that the government could handle the situation. The whole financial structure rests on faith, and once that is really gone, people can stop spending for anything beyond necessities and can put their money in mattresses. The government owes trillions of dollars and borrows billions more every year to keep meeting its obligations. What does its insurance of bank deposits really mean when the insurer is broke? But as long as people have faith in the government’s promises and power, they do not challenge the fiction that their money in the bank can be taken out whenever they want.
As we edge up to the Gramm-Rudman-Hollings deadline when 23 billion would be taken from the budget in across-the-board cuts (everywhere except in social security, government pensions and interest payments) and there is still no agreement on precisely how to cut the spending, the nations of the world seem to be watching the performance and chiding our leaders for their inability to agree. What they say is accurate, as far as it goes. If our government borrowed less, there would be less danger of interest rates being pushed up which in turn would bring on the feared recession-depression. But when the government borrows less it must also spend less or tax more and either action will mean more austerity (less money for anything beyond necessities) for an increasing number of Americans. Less money in American pockets will mean less spending on imports, sending those who chide us in Japan and Germany into their own recessions. The economies of an astonishing number of countries have been dependent on their exports to the U.S. Though only about 8% of Germany’s exports go to the U.S., Japan at one time depended on us for nearly 50% of their exports. The figure is now closer to one third but still leaves them very vulnerable to the well-being of our economy. The four NICs (newly industrialized countries) of Korea, Taiwan, Hong Kong, and Singapore are also heavily dependent on the U.S. Alternately, if instead of cutting imports we spend less on U.S. goods, we produce the business failures and job losses and consequent recession here first, and eventually it reaches the rest of the world which depends on us.
To summarize what I have been saying, speculation in stocks, commodities etc. which inflate their prices well above their intrinsic values create “bubbles” which eventually burst, usually initially sending the prices below the intrinsic values from which they eventually rise again. The Wall Street Journal on November 17, 1987 described experiments at the Universities of Arizona and Indiana in which students of economics received “shares” and “money” for simulated trading. In spite of all being given the same information about the dividends that would be paid, the students inevitably went through booms and busts in the 15 day periods of the experiments. Eventually, the share prices would settle near their “real” (dividend) worth. Even when experienced business men and investors played the game, they went through the same roller coaster result of bubbles forming and crashing. Of course, the “real world” betters hope they will be able to sell the shares at the top, when their prices are higher than the purchase prices.
By themselves, stock market bubbles and bursts are not enough to create a depression, but if the bubble is produced with borrowed money we have another story. Extreme debts, which are one form of wealth disparity, help to produce depressions. We do have to stop borrowing eventually when interest costs reach a level that prohibits additional purchases of anything more than necessities or that leads to extensive bankruptcies. If the whole system has been supported by borrowing, even a single bankruptcy of a large company can begin a process of toppling others like a row of dominos going down. History is full of examples of this scenario and the levels of debt today are higher than they have ever been. Are we smart enough to forgive a major part of the world’s debts or do we have to go through a depression and bankruptcies to cleanse the system and start over?
Ravi Batra’s book forecasting the great depression of 1990 emphasizes that it is the increasing disparity in wealth that produces depressions, when people cannot buy what they produce. Buying has to stop when interest payments take too much of earnings. Koreans paid $2 an hour cannot buy the cars they build. As I have pointed out previously, it is crazy for the “experts” to say that American workers should work for less so our products will be competitive in the world, and they should spend more to keep our economy growing, and they should save more to invest in more efficient robots to take their jobs away. How can people with reduced wages and deeply in debt expand either their spending or their saving? In the meantime, hunger grows and the government pays farmers not to produce so next year there will be only half as much food to share with the organizations trying to feed the hungry. The world can produce enough to provide food and necessities for everyone if we could figure out how to share it. But the system breaks down when the CEO gets a bonus of millions of dollars and the company pays more to the stockholders, (many of them already wealthy), while the workers have wages and benefits cut.
The need to provide enough wages to permit workers to buy what they produce seems so obvious, it is hard to understand how Reagan and his rich friends can fail to grasp the principle. Yet the struggle now underway in Congress over the budget cuts is between the Republicans determined to keep spending on weapons and to avoid taxing the rich versus the Democrats who want to educate and feed and house the poor and to build fewer weapons which we hope we will not have to use. We used to sell our commodities to the developing countries. Our trade deficit is high now only partly because we buy Japanese and Korean cars and VCRs. It is high partly because Africa and South America and Central America can no longer afford to buy our commodities and products if they are to pay the interest on their debts. As James Flanagan wrote recently in the Los Angeles Times, it is getting harder to achieve growth in an incomplete world economy with little new business from the needy but debt-ridden economies of the developing world. The leaders of the countries representing 80% of the people of Latin America are currently meeting in Acapulco, Mexico, trying to decide what to do about the interest costs which are driving their people deeper into poverty.
It also must be said that part of the reason we sell less of our farm products is due to the development of improved techniques of farming including plants that produce more. It is not only in manufacturing that the world has become more competitive. Countries which used to import grains now produce an excess which they seek to sell in world markets. But the number of hungry people continues to expand, partly because of continued population growth in the poorest countries. The need grows while the money to satisfy the need is swallowed up by increasing interest payments and decreasing earnings. Meanwhile, Reagan cuts the funds for groups offering advice on family planning because they sometimes mention that abortion is one option. A Conrad cartoon in the Los Angeles Times summed up the situation. It showed a small ragged child tugging at Reagan’s pants leg with his hand up asking for help. Reagan was looking off into space with an impatient gesture motioning the child away and saying “Go away kid. I got you born. Isn’t that enough?” And the cases of child abuse continue to increase along with the number of children living below the poverty level.
A further example of incredible high level stupidity is demonstrated in a recent decision by Bennett, Reagan’s Secretary of Education. Bennett has found a clause in the law which permits him to cut government aid for vocational training schools and community colleges when 20% of the students fail to repay their loans. Banks actually make the loans, guaranteed by the government, and banks are responsible for collecting them. But Bennett is not threatening the banks. He will put the schools out of business. It is the minority schools in the minority areas of the big cities which are offering training to the hard core unemployed that will be destroyed. The result will be more desperate unemployed who turn to drugs and crime.
Unpayable debts and bank failures brought down the financial system in the 1930s, including the unpayable German reparations for the First World War. After World War II, we were wiser and had the Marshall Plan to help other countries rebuild their economies. We are spending some 7% of our gross national product for defense, including the defense of Western Europe and Asia. The Japanese are not allowed to spend much for armaments according to their constitution which we demanded to insure against any future militancy. So they invest their savings in productive businesses. The biggest seven banks in the world are now Japanese. Japanese own every major hotel on Waikiki beach in Hawaii. They own most of the big buildings in downtown Los Angeles. Is Japan able to mount a Marshall plan for the less developed and deeply indebted countries or to take over the policing of the world? The U.S. took over the world police job after Britain gave it up in the 1930s. The British market collapsed about ten months before the American one in 1929 but it also recovered much faster than ours. Will Japan’s market follow ours after a similar interval? One “expert” suggests that the Japanese market will go about six months after the yen falls to 130 to the dollar. It reached 133 recently. But I have already suggested why their market may not crash even though it was rocked by the drops in our market. Some economists expect the yen to reach 100 to the dollar, making it equivalent to our penny. Will the yen replace the dollar as the U.S. dollar replaced the British pound as the world currency? Or are we capable of agreeing on a truly international monetary standard
The parallels between 1929 and 1987 are astonishing, but the Japanese culture is very different from ours. It will be interesting to see how they handle their world role. At present, only about 4% of their stock market shares are owned by foreigners who would be likely to sell out if a crash looked likely. The Economist magazine reports that it would take 270 years of dividends to recover the cost of one share of Japan’s big telegraph and telephone company, but their loyal citizens are not selling so far. Of course this may be partly because Japanese law requires the big banks, pension funds and other nation-wide investors to keep 70% of their funds in the country. They can’t buy land in Japan; no one will sell it even for astronomical prices. The Japanese continue to save, the money rolls in, and the banks, insurance companies, and pension funds have to put it somewhere. So they work, sell the products to us, loan us the money to buy them, spend some of the money on our land and businesses to make more money while we play grasshopper to their ant. And the winter of Capricorn is coming soon.
Modern technology could provide the needs of everyone if we could learn to share it. But we would have to move closer to socialism while Russia moved closer to democracy. China is trying such an experiment now, partly out of desperation because they are struggling with increasing unemployment and industrialization seems their only hope. But the Party remains firmly in control and they continue to oppress Tibet. We cannot beat all of our swords into plowshares, but we could give up MX missiles and Star Wars, relying primarily on our nuclear submarines. According to a former scientist at Livermore Lab, Teller lied to Reagan and claimed that lasers could do more than had been demonstrated. Certainly, the claim that they would shield our cities is a lie. The most that is hoped for is protection of our missiles so they could strike back if Russia tried a nuclear first strike.
Russian style Communism provides minimal necessities for everyone but stifles initiative and creativity. Without incentives, many people will do as little as possible. Ruthless capitalism on the other hand, (advocated in some of the newsletters I have been getting), allows maximum freedom so the already rich and powerful (or those clever enough to get away with dishonesty) can take advantage of the masses. Somewhere in the middle there must be a better way. The countries of Western Europe have tried to find it, but they are mostly just muddling through with high unemployment and growing tensions. Blavatsky said “the only sin is belief in separation”. We are supposed to become aware of the oneness of all life in this Piscean Age, but much of the world is still acting as if we were stuck 2,000 years back in the Arian Age. We can recognize our familiar astrological dilemma of self-will versus the rights and needs of others. Part of the Scorpio lesson, as I have written repeatedly, is to learn to share possessions, pleasures, and power, learning moderation, self-knowledge and self-mastery in the process. As Pluto continues through its own sign, we need to live up to the high potentials of both Scorpio and Pisces.
In light of the rest of the charts I have been examining, I am not sure that I trust the 1988 Aries Ingress. It still shows stress, but compared to the Capricorn Ingress, the chart is beautiful. The Moon is conjunct Jupiter in double Taurus (sign and house) trine Uranus-Saturn in early Capricorn, so it looks as if the government may have persuaded the public to trust that they are handling things. Venus is also in Taurus trine Mars in Capricorn. Other favorable aspects include Pluto trine Antivertex, Mars trine the Moon’s south node, Chiron trine Ascendant, and Ceres, Mercury, and East Point in the middle of Saturn-Uranus and Moon-Jupiter, sextile all of them. The Virgo south node of the Moon is sextile Vesta with both quincunx the Ascendant, forming a yod that indicates a new direction in dealing with workers and employment issues. Vesta in its own sixth (Virgo) house is also square Juno with both trioctile the MC, additional support for the emphasis on work.
The noon chart for the New York Stock Exchange (using local apparent time on May 17, 1792) looks much more challenging. P Ascendant reached a conjunction to P Pluto just before the crash. It was two minutes into the allowed one degree orb on October 19. Remember that natal Pluto (which is two degrees higher) is opposite P Uranus with both square natal Mercury; all in fixed signs in mutable houses. The fixed signs including Pluto and Uranus as fixed planets fit the focus on money (Taurus), investment (Leo) and return on investment and debt (Pluto with the same meaning as Scorpio). Uranus and Aquarius included in the pattern add to the explosive volatility of the situation. The P Ascendant in Aquarius moves faster than one degree a year, so it will set off the full T-square in less than a year. After a winter of crisis, the market may rally in the spring of 1988, only to go down again in the fall, and next time farther and for a longer period as we have transiting Saturn and Uranus going into their longer stay in Capricorn in the fall of 1988. The two planets go briefly into Capricorn in February 1988, but soon retrograde into Sagittarius for one last burst of optimism before we face the consequences of the monstrous debts in the world. Then it is belt-tightening-time. Yet even in the midst of the challenge, the U.S. has the largest market in the world; it has the capacity to provide most of its personal needs (energy is an exception and could demand much more conservation); and it is still seen as a “politically stable, safe haven” by many in the developing world who put their money in our “insured” banks. We can continue to play a role of leadership in the “free” world if the Executive branch of the government and Congress, the Republicans and the Democrats, the rich and the poor, can learn to cooperate.
From my friend Jill in New York, I have just acquired three new dates for stock market charts, marking steps in its development. The decision to form the trading group which actually evolved into the current New York Stock Exchange was made on February 25, 1817 at an unknown time. The first trading by members of the new group occurred on March 8, 1817, scheduled to occur “when convenient” according to the record. On April 8, 1817, it was agreed that the group would meet regularly at noon. I would tentatively assume that local astronomical time (LAT) was still in effect for those dates. So we have three more charts to study, to see if any are a better fit to this current volatile fall. To be continued: stay tuned.
Many astrological cycles offer clues to the evolving patterns in the world. As our regular readers know, I believe that character (habitual attitudes and actions of both individuals and nations) creates destiny, and that by changing our character we can change our destiny. Astrology shows us the psychological-life principles with which we are dealing at any given time. It is up to us to manifest the positive potentials of those principles. We can learn from history, or we can repeat it.
Mark Lerner’s journal quotes James Valliere’s current Natural Cycles Almanac which presents a fascinating repetitive cycle. The Encyclopedia of American History edited by Richard B. Morris has an article by Sachs-Thorp which lists 17 depressions in the U.S. since 1800. Valliere listed the five longest and noted that they coincided with the only five times since 1800 when both Venus and Moon were at their maximum north declination close to the same time. The table follows giving the dates and duration of the depressions with the years in which Venus and Moon reached maximum north declination.
1815-1821: 71 months Venus 1820 Moon 1820
1837-1843: 72 months Venus 1936 Moon 1838
1873-1878: 66 months Venus 1876 Moon 1876
1893-1897: 48 months Venus 1894 Moon 1892
1929-1933: 42 months Venus 1932 Moon 1932
Venus reaches its next maximum in 1988. Moon reached it in 1987. Will history repeat? Another coincidence is that Saturn was at its aphelion (farthest from the Sun) and its maximum declination in November-December 1929. It repeats these positions once in approximately 29 years, coming next in November 1988.
The November 13, 1987 issue of the Wall Street Journal offered two fascinating “coincidences” involving Fridays which fall on the 13th of the month. Robert Christian, chief economist at Provident National Bank in Philadelphia, noted that in the past 40 years there have been six years with three Friday the 13ths. A recession started in three of those years, 1953, 1970, and 1981. In two more years, 1956 and 1959, economic contractions started in the following year. 1984 was the only exception, and economic growth did slow that year. There have been three Friday the 13ths in 1987. Another study done by two professors at the University of Miami pointed out that stock prices tumbled at an average annual rate of 24.5% on Friday the 13ths from 1962 to 1985. The figures are more striking because on all other Fridays, stock prices rose at a 27.9% average rate. What role does superstition play?
As I have written in earlier issues of The Mutable Dilemma and Asteroid-World, both our Constitution chart and my version of the Declaration of Independence point to major actions in the spring of 1988. Both charts have P Moon quincunx Mars between the third and tenth houses, fitting a change involving the executive branch and the public with the media jumping! The Constitution chart also has a progressed New Moon, beginning a new 30-year cycle.
It is astrologically significant that we have three Saturn-Uranus conjunctions in the last degree of Sagittarius at the same time, just before the Capricorn years. Sagittarius symbolizes our conscious faith, whether in a materialistic science, in a conventional religion, in reason, logic and philosophy, or in a personally defined set of beliefs and values. Our faith determines what we trust, where we seek meaning, what we think is possible, desirable, morally right, etc. Saturn symbolizes THE LAW, of nature, societies, and one’s conscience, and the consequences of our past handling of the law. It’s coming notifies us that it is report-card-time. Saturn, and its sign Capricorn, represent what we can do, what we can’t do and what we have to do if we want to survive in this world.
Uranus symbolizes our urge to go beyond the LAW, to break down the executive hierarchy of bureaucracy. to gain and share new knowledge, to be the equal of everyone. It offers total freedom so long as everyone has internalized in his or her conscience the really necessary laws of Saturn which protect the rights of everyone under the law, and so long as we are willing to give the same freedom to everyone that we want for ourselves. Integrating these two principles can be a major challenge. People often polarize between rigid traditionalism and radical revolution. We will see advocates of Orwell’s 1984 (Neptune came into Capricorn that year, beginning our report-card period), and of anarchy. The positive potentials of Saturn include being practical, productive, responsible, organized, thorough, law abiding, etc. The positive potentials of Uranus include being innovative, intelligent, open, accepting, equalitarian, independent, etc. If we can take responsibility for the current state of the world and take innovative and practical steps to solve the increasing desperation of millions of people; if we can use our marvelous and growing technology to produce and provide for the needs of the world; if? Competition (preferably game-playing not life and death) has its place but cooperation is needed to handle the current crisis. Christianity as Christ taught it is the essence of Pisces. The original faith taught “from each according to his/her ability and to each according to his/her need.” (The expanded pronouns are my addition). The Piscean experience of oneness is the antidote to greed and fear. Love and faith along with intelligence and willingness to work can create the New Age of our dreams.
EN ROUTE TO THE PRINTER: Gold has just gone briefly over $500 an ounce. The dollar hit a new low compared to the yen and several European currencies. The stock market is playing roller coaster on this Monday, November 30. The crazy world is getting crazier, but I hope you all have a Merry Christmas and a Happy New Year anyway. The Sagittarius Mutable Dilemma will probably reach you some time in January 1988, so we’re sending love and peace from all of us to all of you: eyes on the stars but feet on the ground.