JBL: Banking on Financials' Earnings

Bank of America was not alone in this. Among other leading financial institutions:

Citigroup (C Quote) put its pretax credit losses at more than $600 million.

JP Morgan (JPM Quote) put its losses due to the new bankruptcy law at $575 million.

Wells Fargo (WFC Quote) reported losses of $238 million for the same reason.

American Express (AXP Quote) reported that it raised its provision for losses related to the bankruptcies to $509 million.

The next quarter will not feel the effect of this window of opportunity for consumers to take bankruptcy as an easy option. The good big banks are still buying opportunities.

My Favorite Banks

I recommended Bank of America in late October and America Express in mid-December. I still like both stocks. I believe that the big banks are not as susceptible to a flat or inverted yield curve. I believe the regional banks that derive more than 60% of their revenue from spread lending are the ones that are susceptible to the flat or inverted yield curve.

The only conundrum I see is why one anyone would consider a flat or inverted yield curve a conundrum. In 2001, there was $18.5 billion of foreign purchases of U.S. long-term Treasuries. By 2005, that number grew to more than $300 billion. The simple math is that supply and demand will keep long-term rates low. I went to public schools and even I can figure that out.

The only way I see to sharpen the yield curve is to lower rates like Greenspan did in 2001. However, this won't happen soon because of the Fed's desire to limit the adjustable-rate mortgages.

The simple solution to making money in this sector is this; buy the big banks with great growth potential. Bank of America and AmEx still are the best buys in the field. However, stay away from companies that soon will be exposed like the Buffalo Bills in the Super Bowl. I would not recommend Citigroup or any regional banks.

Upon marrying my beautiful stock analyst wife, the only negative was I could not and still cannot sell or buy any stock she covers. I owned shares of Citi and JP Morgan when we got married, and now I am stuck with them because of these compliance issues; otherwise I would own Bank of America and AmEx.