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US Senate Passes Bailout Bill − Markets Unimpressed

Thu, Oct 2 2008, 03:55 GMT
by Andrei Pehar

fxKnight.com

The United States Senate today approved the revised and expanded $700 billion dollar bailout bill with a vote of 74 to 25.  Now the bill returns to the House of Representatives for a re-vote on Friday, before heading to President Bush to be signed into law.

The bill includes tax breaks for corporations, as well as certain individuals in special situations such as disaster victims and mental health patients.  No doubt it will soon be sold to the public (which previously phoned the offices of elected offices with a 30-to-1 disapproval ratio) as a tax relief package for the average worker hit by the turbulent economy.
 
Will it work?

That remains to be seen - and will most likely take several months, if not years.  Certainly, there will likely be a rally lasting a couple days, but whether it can be sustained in the face of the 9th straight month of job losses in a row or threats of failure from additional banks, and even super-corporations such as GE.

Underneath, many of the fundamental factors behind this crisis - falling home prices, the need for credit as wages rise slower than living expenses, a lack of liquidity, the threat of inflation, a national deficit which will only increase as a result of this bill's passage - still remain.  One wonders whether the outcome of today's vote was more in response to the 777.68 point drop of the Dow following Monday's rejection of the first draft of this bailout package.

In Asia, the NIKKEI rose slightly in anticipation of the vote, then slid slowly by more than 112 points following the announcement of the results.  The Hang Seng followed it down, dropping 80 points and confirming that the initial market reaction is one of skepticism.

Back in the US, Dow futures are currently trading below resistance at 10848, suggesting a re-test of support at 10547 if it can hold.  A break below that brings one a step closer to 9912.  If price can manage to get back above 10848, then the next resistance is at 11091.

Most likely, the larger movements will take place on Friday - when we get the non-farm payroll numbers (widely expected to post a loss of 100,000 jobs) and the results of the re-vote in the House.

Published on  Thu, Oct 2 2008, 04:40 GMT