And so the mother of all bailouts metamorphosis’s into the mother of all compromises as Hank Paulson’s 3 pager swells to 451. Good enough for the US Senate who voted in favour of it last night by a wide margin of 74 to 25. I don’t mean to rain on Hank and Ben’s parade but history shows us that well-meaning, but hastily-drafted, knee-jerk laws often have profound unintended consequences.

Today’s Market Moving Stories

• The WSJ is reporting that the U.S. Federal Reserve is now contemplating further interest rate cuts even if the House of Representatives passes the bailout second time around the track.
• Yesterdays economic figures from across the pond made for fairly grim reading with Vehicle Sales plunging to a 15-year low and Manufacturing ISM falling off of a cliff. Yet another reminder of the deep recession coming ever closer to a Main Street near you. Note that the Fed recently published a study saying that only two economic releases truly affect the markets and yes, you guessed it, the ISM is one of them. It was lost in the deluge of news yesterday, but the sharp drop to 43 is VERY significant. Non Farm Payrolls is this Friday (coincidentally the other number that moves markets!) A soft print would copper fasten the case for U.S. rate cuts.
• Chinese PMI overnight slipped to 47.7. Another contractionary read. The global economy appears broken.
• UK housing numbers just added to the gloom with figures from Nationwide showing a –12.4% decline in house prices year on year as if you need to be told that. In sum there is NO sign that the market is bottoming out. What price a BoE cut next week?
• The Merchant of Omaha is back. Buffet’s Berkshire bought $3bn of troubled General Electric’s preferred stock. This is a massive fillip for GE.
• The SEC has extending the ban on short selling until midnight on Oct 17th.
• Asian equities haven’t exactly embraced the successful Senate vote on the bailout and are currently down, as is the Dow Jones future.

What Next For The Bailout Bill
So the Bill has cleared the first hurdle. Now the legislation must make it over Beacher’s Brook, the House of Representatives vote on Friday. Will it fall again there second time around? The roll call of those who voted against it first time of asking is telling. Nearly every member of the Lower House who is standing for re-election in November (in the U.S. system only half of either house is up every 4 years, the idea being to prevent a landslide) voted against the 1st draft. It remains wildly unpopular with the folks on Main Street. Have the direst predictions of a failure to bailout Wall Street made an impression on Average Joe yet?

This process can really get quite daft with the Senate putting in stuff like SEC 503 Exemption From Excise Tax For Certain Wooden Arrows Designed For Use By Children. That’s not going to sort out the big freeze in the inter bank market and narrow the TED spread!

But more seriously the bit of the legislation that sticks in my throat the most is the proposed suspension of “marked-to-market” accounting for banks (see yesterdays rant). It may reduce fire sales, but it will reduce transparency, and that was at the ROOT of the original problem.

And What Of Our European Chums?
The Americans may be starting to feel that they are doing all the heavy lifting at this stage with the Europeans (& the ECB in particular) piggy backing. It’s a classic free-rider problem. Now if you think that the U.S. solution was like a visit to the dentist, then be prepared for a lot more angst awaiting any Eurozone solution. The Germans have already ruled out the French “Irish style” solution. I feel more localized piecemeal national solutions will be the preferred or indeed the only route for now.

Data Today
From the US at 13.30, we get the weekly jobless claims and continuing claims. Both have been on worrying trend ever higher lately (475k and 3550k expected.) Then at 15.00 factory orders (consensus –30%) are released.

The ECB have an interest rate decision at 12.45, but the press conference is as ever the key at 13.30. Breaking from tradition, the BoE rate announcement isn’t until next Thursday.

On the lighter side and especially for anyone who has ever traded commodities, I give you:
“Hitler Gets A Margin Call”