This is The Wall Street Digest Hotline Update for Tuesday, September 16, 2008, at 6:00 p.m. EST.
Stock prices were volatile today, but the good news is that AIG survived for another day. At the closing bell, the Dow jumped 141 points, closing at 11,059, while the Nasdaq gained almost 28 points, closing at 2,207. The S&P 500 closed almost 20 points higher at 1,213. Oil closed $4.56 lower at $91.15 per barrel, and gold closed $6.50 lower at $780.50 an ounce.
But here is the bad news:
Everything that is happening today (Bear Sterns, Fannie & Freddie, IndyMac Bank, Lehman Brothers) is a symptom of the real problem, which is the enormous level of defaulting debt. There is almost $600 trillion in derivatives debt, over $2.5 trillion in credit card debt, and $58 trillion in credit default swaps. We are witnessing the very beginning of a worldwide credit-market meltdown. Long-term, the banking and financial sectors may not bottom anytime soon.
Wall Street fears that the Fed and/or the Treasury will allow AIG to fail. That would create a financial mess that could trigger a financial meltdown.
First, tomorrow morning let's sell all remaining positions so we are 100 percent cash at the end of the day.
On Wednesday's hotline I will provide you with ETFs that will allow you to short the market and the sectors by 100 percent and 200 percent.
The next Hotline Update will be on Wednesday, September 17, 2008, at 6:00 p.m. EST.