'Fast Money' Recap: Merrill Deal Haunts BofA

The trading panel says the bank bungled the Merrill Lynch deal.
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Wall Street closed up again on Friday despite more discouraging news from the banking sector and more layoffs.

The

Dow Jones Industrial Average

added 68.73, or 0.84%, to 8,281.22, while the

S&P 500

rose 6.38, or 0.76%, to 850.12. The

Nasdaq

climbed 17.49, or 1.16%, to 1,529.33.

Dylan Ratigan, the moderator of

CNBC

's "Fast Money" TV show, said

Merrill Lynch

(MER)

put

Bank of America

(BAC) - Get Report

in a big hole in the fourth quarter with $15.3 billion in losses.

That prompted Karen Finerman to wonder whether BofA did enough due diligence before it signed the deal to acquire Merrill. She said Merrill lost a fortune in commercial mortgage backed securities, when it had to write down half the value of those assets during the quarter.

Jeff Macke said BofA made some optimistic assumptions about the sales price for Merrill and Ken Lewis, the bank's CEO, assumed he would get bailed out by the government later.

Finerman vigorously disputed that point, saying she could not believe Lewis would go into the deal thinking the government will bail him out.

Ratigan moved on to the other another big story: the liquidation of Circuit City and loss of 35,000 jobs. He wondered whether this could be a "tipping point" for other destressed retailers.

Macke said it could mark the beginning of "torrent" of failing retailers. Finerman said it could affect traffic at malls where

Circuit City

(CC) - Get Report

was an anchor. Macke said a similar situation could occur in malls where

Sears

(SHLD)

and Kmart are anchors.

Ratigan turned to Jeff Terranova for his comments on crude oil prices, which declined 11% for the week.

Terranova said not to put too much stock in the current price of oil. Instead he said it's more meaningful to look at the price in March 2010 when the effects of the infrastructure play will begin to be felt. That's when oil will be "north of $60," he predicted.

Terranova still likes oil as a long-term play and told viewers to stick with the integrated names and a fund like

United States Oil

(USO) - Get Report

.

Tim Seymour added he liked copper and

Freeport McMoRan

(FCE)

at these levels. He also told viewers to check out companies like

Intel

(INTC) - Get Report

that expect to receive subsidies or tax breaks from Obama's huge stimulus package.

Ratigan said the Obama administration is going to have a serious problem fighting deflation, which, he said, discourages consumption and investment. The Labor Department released a report today showing a 0.7% decline in the Consumer Price Index in December that put inflation at a level not seen since 1954.

Seymour said the frightening part of that report is the velocity of the price movement and its linkage to a battered labor market.

Terranova expects the situation will get better in the second half of the year, when he sees a bear market rally and a move up in stocks.

Macke doubted whether that will happen, saying there's "no demand" in an economy where "people are scared to spend."

Ratigan asked Bill Siedman, former FDIC chairman, for his thoughts about setting up a bad bank to handle bad assets. Siedman said there is a real strain in the system now because the government has put up more than enough money to buy a troubled bank without taking it out of the hands of the private sector.

He said he would favor a plan that would result in the government buying the troubled bank, absorbing its losses, and then returning it to the private sector.

Ratigan asked David Kelly, chief market strategist for JP Morgan Funds, what investments he would make after the stimulus kicks in. Kelly said to be careful of Treasuries because the stimulus will result in a 25% increase in the amount of Treasury debt.

He said long-term assets would be a good place to invest because they will snap back if there is a rebound from the stimulus. He also liked municipal bonds because of a likelihood of an increase in the value of their tax exemptions for people in higher-income tax brackets, who are expected to shoulder a higher tax burden under an Obama administration.

Kelly didn't agree with the notion that there is a structural problem with U.S. economy, saying the economy has a good chance to rebound under the huge stimulus package. He acknowledged there have been "some problems with mortgage debt" but he said a lot of the economic pain has been caused by a "self-perpetuating fear cycle."

Going into earnings week next week, Jim Iuorio, of TJM Institutional Services, liked

Microsoft

(MSFT) - Get Report

and

Johnson & Johnson

(JNJ) - Get Report

, while Terranova liked

Google

(GOOG) - Get Report

.

In the final trades, Macke was up for

Toyota

(TM) - Get Report

. Terranova liked infrastructure names. Finerman said to cover

BB&T

(BBT) - Get Report

and

Capital One

(COF) - Get Report

if you're short. And Seymour liked

ConocoPhillips

(COP) - Get Report

.

"Check out

"'Fast Money'Portfolios of the Week" on Stockpickr every Thursday.