Paulson is that rare animal in Washington, a can-do guy

Foreign Exchange Currency Outlook : Consolidation in the US banking sector has been on-going for over two decades, so mergers and acquisitions don’t necessary cause contraction in the sector. A liquidity and credit crisis does cause contraction, and contraction in turn causes recession. We have seen little sign of recession yet, just slowdown. That is about to change. Some analysts say that even when the House meets again on Wednesday night or Thursday morning, the Paulson plan will not get passed - and there will not have been enough time for major changes to have been made that would make it acceptable to those who voted against it Monday. Of course, Pelosi could grovel and change enough minds or some other political event could occur—the presidential candidates promising administrative office if the pro-plan members lose their elections, for example.

The latest word seems to be that the Senate Banking Committee's ranking Republican (Gregg) and Obama both said the plan will eventually pass; the FT reports that the FTSE 100 rose on the news.

Meanwhile, Bush will address the nation on TV this morning. TreasSec Paulson was visibly angry when he addressed the press after the vote yesterday, and it would not surprise us at all if Bush announces a series of initiatives that the Treasury can take immediately without Congressional authorization. It could tap the FDIC or other Executive-branch money pool (to buy equity or warrants), it could suspend mark-to-market, it could increase the size of swap lines with everybody for any reason, and probably a few other things.

It could even sell gold (gasp!).

The reason the House was involved in the first place is that this is where the power of the purse resides.

It’s called “revenue power,” but in the end, the Executive Branch can do (and has often done) an end-run around it. We can just imagine Paulson egging Bush on, like a coach with a sports team. Bush is likely to respond heartily to such macho stuff. Paulson is that rare animal in Washington, a can-do guy. Do we really think he went to bed last night or will sit around waiting for these childish bozos in the House? It’s a Jewish holiday today, actually a good time (in somewhat thinner markets) to take strong action. It’s also possible the Fed could cut rates, even inter-meeting, but nobody thinks that’s a good idea or an idea that would work.

This is the basis on which we imagine the US Dollar exchange rate could rise today. Foreign Exchange traders just love vigorous, decisive action from can-do guys.

They bought the dollar upon the US invasion of Kuwait and then the US invasion of Iraq not because they are a blood-thirty lot, but because they like decisiveness.

If Bush/ Paulson come up with a new initiative today, the US Dollar futures should go up.

If Congress comes up with a bill that passes tomorrow, the dollar could go up.

But we can’t count on it. This is just one more reason to stand aside and let the market gyrate on too much noise. Most retail forex traders can’t push the button fast enough to take advantage of warp-speed markets. A lot of professionals can’t, either. The one big mistake to avoid is thinking that sound macro analysis is a good basis for a short-term trade. It’s not.

The right timeframe for Foreign Exchange Markets today is 5 minutes, or maybe three.

Bye for Now

Barbara Rockefeller - Forex Trading Reports

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