Kass Katch: Buy the Financials. Yes, Buy

Many managements have been turned over -- and more will be in the near term. The ne'er-do-wells have been replaced by more sober and experienced managers (e.g., John Thain at Merrill Lynch, Alan Schwartz at Bear Stearns and Vikram Pandit at Citigroup). The credit mistakes of the past will not be repeated in the near term -- at least not until the next cycle of overexuberance and folly in financial product offerings.

Business franchises are intact. While principal activity will no doubt be curtailed, financial companies' agency businesses -- including underwriting, merger and acquisitions, asset management, retail brokerage, etc. -- are intact and will remain so as the cycle runs its course again. Indeed, one can make the argument that the larger, more established and better capitalized entities will gain market share at the expense of its competitors.

Financials are statistically cheap against sustainable earnings. As seen in the statistics that I began this column with, financial shares are attractive on a valuation basis.

Financials have dramatically underperformed relative to the S&P 500. While one trading day does not make a trend, it is interesting to note that the financials not only withstood the dramatic market weakness on Friday but many financial stocks rose by 1% to 2% on that day. Friday's absolute and relative strength in financials was relatively broad-based and conspicuous.

XLF One-Year (Amex) Financial Select Sector SPDR

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Source: Yahoo! Finance

Finally!