Kass Katch: Buy the Financials. Yes, Buy

And significantly, the financial sector -- including money center and regional banks, multiline brokerages and monoline insurance/credit card entities -- have been almost universally managed by a host of corporate posers -- for instance, Stan O'Neal at Merrill Lynch (MER Quote), James Cayne at Bear Stearns (BSC Quote) and Charles Prince of Citigroup -- who took uncommon risks that initially produced common returns but which have now morphed into unprecedented write-offs and loss of permanent capital.

"Buy when the factory doors are padlocked; sell (or short) when the rate of earnings growth is phenomenal. That growth will not prove to be sustainable."
-- Roy Nueberger, Neuberger & Berman (told to me when I was a young one back in the early 1980s)

Roy Neuberger, the founder of Neuberger & Berman, taught me the lesson above that I have never forgotten. It is a lesson (which can be viewed as supportive of financials) that has saved and made me a lot of money over the past decade.

That said, buying the XLF is more than just a contrarian play.

Someone less famous than Roy, but closer to my heart, Grandma Koufax, used to put it this way, "Dougie, buy/short on your analysis, sell/cover on the news."

The ride in financials will not likely be a smooth one -- profitability has been impaired and will be slow to recover -- but, in the fullness of time, it may be a profitable one.

Here's why.

Permanent capital is being replenished. While costly and dilutive to existing shareholders, the curative process is now well under way (though ignored by investors). Sovereign wealth funds (Kuwait Investment Authority, Abu Dhabi Investment Authority, China Development Bank, Singapore's and Temasek Holdings all with Citigroup; and Government of Singapore Investment Corporation with UBS (UBS Quote)), private equity (Warburg Pincus with MBIA (MBI Quote)), hedge funds, long-term institutional investors (Davis Selected Advisors with Merrill Lynch), domestic corporations (Bank of America with Countrywide Financial (CFC Quote)) and international corporations (Citic Securities with Bear Stearns) have recently infused much-needed capital to shore up financials' capital bases.