Morning Coffee: Buy Financial Stocks!

To see our current views on financial stocks and markets, visit our FRONT PAGE.

(Stocks in article: NYSE: SPY, NYSE: DIA, Nasdaq: QQQQ, NYSE: COF, NYSE: SDS, NYSE: BAC, NYSE: CFC, NYSE: JPM, NYSE: WM, NYSE: MER, NYSE: TIF, NYSE: UBS, Nasdaq: PFCB, NYSE: GIS, NYSE: GS, NYSE: STP, NYSE: LDK, NYSE: TSL, NYSE: LEH, NYSE: MS, NYSE: LEH, Nasdaq: FSLR, Nasdaq: ESLR, NYSE: BSC, NYSE: BCS, NYSE: C, NYSE: STI, NYSE: PNC)

The Greek is facing a lot of skeptics lately. Readers have forgotten how prescient we were last year in the face of being labeled an Armageddon analyst by CNBC. Now that we are calling for investors to buy, those same headless chickens are calling The Greek crazy. Hey, call us courageous, and that we are, but we would rather be rich than part of the herd. The best advice told time and time again by the greatest of investment gurus is to "buy into fear, and sell out of greed." This is the hardest advice to follow because intense emotions are involved, and we can't blindly follow the creed either. The market is in fact dynamic and yesterday's advice could prove fatal today if followed. Still, we are pounding the table right now for a near-term rally.

Federal government stimuli and deep cuts from the Federal Reserve, plus Democratic Party efforts to help in Congress, will give great aid to the economy in this ELECTION YEAR. That term, "election year" is not just a play on words for pundits to use on television. It's meaningful. Never has it been more meaningful as it is this year, with the economy teetering on recession and the race for president as competitive as ever.

We want you to avoid retail though still, and keep away from commercial construction and similarly sensitive REITs focused on retail space. This is your value trap right now, and stay out health care as well. This year, with the Democrats seriously threatening, health care should fall out of favor. However, you have to look toward the financial sector now. If companies are not benefiting from Fed aid to the yield curve, then they will be taken out as Countrywide Financial (NYSE: CFC) was today by the savvy Bank of America (NYSE: BAC). We'll have more advice for you on the year ahead with our publishing of a special report Monday morning or Sunday evening.

M&A Signals Bottom Again

The Greek loves seeing every pundit and his mother saying, "the time to buy financials is coming, but not yet." You know when they will tell you it's time to buy? I'll tell you when, when these stocks are already up 20%. Avoid the herd, grow some (insert word here) and lead, don't follow. These hired hands are afraid to stick their necks out, just like they were afraid to recommend selling around this time last year. The only place you are going to find gutsy calls, are right here at the independent Greek.

Let me share another Greekism... I recently came across a traditional financial advisor seeking to present an independent or even radical image with a new product. However, deep within their mindset was a certain embedded problem, the corporate mentality disease. They feared risk- taking the same as most established firms; it's that corporate mentality issue that overcomes the employee base that can't be overcome easily. We swear you will never find that here, and we'll never accept people who play it safe. Remember Buddy Ryan, and that best defense of all time he designed. That "46" football defense dominated because they NEVER played it safe, and the competition always did. I say blitz on every down, not just 3rd. We'll give you 200% on every down.

Bank of America (NYSE: BAC) announced it is acquiring America's mortgage servicer, Countrywide Financial (NYSE: CFC). Angelo Mozilo is happy again! His tan is a little faded, but he'll have even more time to work on that now. Angelo has clearly taken the baton as the spokesman for tanning from George Hamilton, who is probably now the spokesman for the American Cancer Society. Angelo is now going to also be spokesman for the time to relax and retire society; man he's had a tough year. The company he founded almost went bankrupt in the senior years of his tenure, and the government wanted to know why he was selling shares ahead of much of the bad news. On Angelo's behalf, we note he was involved in a steady share sales effort; the last thing I want to do is imply something else. It's easy to do, and too many of our media jump at the opportunity to slam the rich and famous.

B of A is buying Countrywide for $4.1 billion in stock, and somewhere in Bedford Falls the old Bailey's Savings & Loan drew a special beam and George himself grew a smile up in heaven. Bank of America is now without a doubt America's bank. This makes BAC the country's largest mortgage lender and servicer. While on the surface the deal seems risky, at 31% of book value, it's also a bargain buy. Bank of America has taken on a lot of risk in recent years. Besides this acquisition, it owns MBNA remember, and judging by yesterday's news from Capital One (NYSE: COF), that business can't be too stellar at the moment. Regarding COF, we hope you have not forgotten The Greek's early warning on that one (find the material at the bottom of the article, or see the next paragraph).

Regarding Capital One, on June 28, 2007 we wrote " However, it's worth noting that Capital One Financial (COF) announced it would layoff 2,000 people as part of a cost restructuring initiative. Yes, this is that same Capital One that was willing to lend to everybody and their mother about a year ago. I'm not sure who could not see this one coming, but I think they should probably be taken out and shot to help improve the IQ of society. Capital One announced a comprehensive plan to save $700 million pretax annually starting in 2009. The idea is to improve the cost structure of the company. It figures that if you run such a risky lending operation, you must do it bare bones in order to do it effectively. If I was managing that company, it would be the lowest cost operation in the business, outside of debt recovery mitigation operations, which would be top of the line. Still, that's no guarantee of survival, depending on how bad the consumer and employment environment gets.

JP Morgan (NYSE: JPM) is rumored interested in another troubled lender, Washington Mutual (NYSE: WM). About a half hour after famed banking analyst Rick Bove said "JPM should look at WM," CNBC reported that in fact JPM and WM were in discussions about a potential combination. It looks like CNBC basically took the lead from Bove, and JPM is reportedly considering a handful of banks, including Suntrust (NYSE: STI) and PNC Bank (NYSE: PNC).

The Greek asks, is this information reported by Charlie Gasparino more valuable than when we advised going underweight the financial sector in early 2007, specifically pointing to WM as a nice short opportunity... We're looking for this specific reference still to add to the prescient piece, but we know it's there.

Anyway, before we get lost in victory lap, the point we hope to make is that these very wise financial institutions see value in purchasing the financial sector. This is validation that our call to go long financials now is well-advised. Yes, the economy is falling into recession, but the financial sector has well-priced this in and should benefit from Fed rate cuts. The most troublesome fly in this ointment is the risk of messy war with Iran. We'll do our best to head this off for you though before it impacts your longs. For now, we have to buy financials.

Economic Data & Analysis

The most important information today came from the least observed report, the RBC Cash Index. It showed that consumer confidence reading fell to 56.3, breaking record lows; we observed another report that had the figure higher than this, but the point is that confidence remains extremely low.

Today's crop report showed winter wheat planting below expectations and corn inventory also short. The entire grain complex is pressured today, and it looks like food inflation will remain a problem in 2008. Protein prices have also been impacted as feed prices rise, and various foods producers have handled the situation differently. Some have hedged better than others and also transferred price increase to consumers faster than others. We're planning a piece to show you who's managing the situation best.

Market-Moving News

• AP/Yahoo!: Bank of America (NYSE: BAC) to Buy Countrywide (NYSE: CFC)


• AP/Yahoo!: RBC Cash Index Shows January Consumer Confidence at Record Low


• Bloomberg: November Trade Deficit Widens to $63.1 Bln. on Oil, Vs. $57.8 in Oct.


• BLS: Import Prices Unchanged December


• CNN Money: Asian Stocks Fall


• MarketWatch: Europe Moves Lower on Consumer


• Platts: Crude Weaker Despite Nigerian Tanker Explosion


• CNBC: Another Great Greek Call - Mall Vacancies on Rise


• Bloomberg: Wall Street Making 38% Less on LBO Funding


• 2:00 Treasury Budget December (Consensus $50.0 Bln. Surplus due to corp. tax receipts)


• Platts: Metals '07, Precious Vs. Industrial


• DailyFX: Gold May Glitter While Oil Turns to Sludge


• Fed Gov. Fred Mishkin Scheduled to Address Economic Outlook


• SeekingAlpha: Natural Gas Report, Winds of Change


• Yahoo! Earnings Calendar


• CNBC: WaMu (NYSE: WM) in Discussions with JP Morgan (NYSE: JPM)


• MarketWatch: Merrill (NYSE: MER) Reportedly About to Write EVERYTHING Off


• Fortune: Tiffany (NYSE: TIF) December Sales Miss


• Financial Times: UBS (NYSE: UBS) Warns of Tough Times Ahead


• CNN Money: P.F. Changs (Nasdaq: PFCB) Expects to Beat Numbers


• CNN Money: General Mills (NYSE: GIS) Bracing for Costly Commodities


• BBC: EU Warns Serbia Over Russian Oil Deal


• Greek: Buy Investment Banks


• Greek: Sunset for Solar Stocks


• Economist: The Geopolitical Week Ahead


• Iran Daily: Tales from the Dark Side

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