This is The Wall Street Digest Hotline Update for Tuesday, December 18, 2007, at 6:00 p.m. EST.
The Bank of England and the European Central Bank added $500 billion to liquefy the banking system between now and year-end. At the close, the Dow gained almost 65 points, closing at 13,232, while the Nasdaq added almost 22 points, closing at 2,596. Oil closed $0.14 lower at $90.49 per barrel, and gold closed $8.10 higher at $807.40 an ounce.
Global liquidity is still at record levels, but the mortgage mess and tight credit conditions in the U.S. are creating a volatile stock market. The Fed is working with alternative methods to liquefy both the mortgage market and the banking system. The banking system may be temporarily broken, but huge sums of capital are available to fix it. The fear of the unknown is worse than the problem. The Bernanke Fed would like to fix the problem without creating more inflation. That will take more time than using the Greenspan fix, which amounted to shoving $200 billion into the banking system and worrying about inflation next year.
Stay fully invested. In the U.S., I would continue to avoid the following sectors: financials, brokerages, banks, and the insurance companies. No one knows how much collateralized debt obligations (CDOs) these companies still own; nor do they know what the CDOs are worth. I would also avoid the housing sector. I would not purchase a home or a condo, nor would I bottom-fish the housing stocks. The housing market will not bottom during 2008 in most markets.
Stay fully invested! Stock prices in India, Asia and the emerging markets will outperform the U.S. stock market. Stay close to our telephone/e-mail/website Hotline Updates.
The next Hotline Update will be on Friday, December 21, 2007, at 6:00 p.m. EST.