Street Capitalist: Event Driven Value Investments

Today we saw the release of the ISM manufacturing index numbers, which came in at 52.0% versus an 52.9% in August. This drop was unexpected but did not seem to resonate in the market as the Dow set a record high of 14087.55 today.

We’re still seeing the Libor move at a significant premium to the Fed rate, currently it’s at 5.231% while the Federal Reserve’s rate cut brought us to 4.75% last week. Until the two converge, we should see more uncertainty in the credit markets, evidence of that is already emerging with the current contraction of the commercial paper market.

We also saw the Euro set another high against the dollar today, but there is a lot of talk that the ECB may opt for a rate cut in order to reign in the Euro. France’s President Nicolas Sarkozy has been lobbying for this kind of action, because a number of large European companies fear that they will see a reduction in exports due to such an expensive currency.

Such a rate cut would definitely hurt my bullish stance on the EUR/USD, so traders should proceed with caution. For short to medium-term trading, one could very will expect the dollar to reverse some of its losses against the Euro and Yen.

Some of my ideas that I’ve posted in the past, like shorting the dollar and looking at foreign equities are contingent on negativity with the US economy, if that’s not present they will take longer to pan out. Right now the key piece of data to look for is Friday’s Unemployment Rate release. This data will give us a better idea on the economy’s health so we can gauge where there will be a continuation of the current negativity.