Final Segment 1

Final Segment 1 Title: 'Credit Report' .  .  .  .  . Featured Stock(s): Wachovia Corp. (WB) JPMorgan (JPM) Mastercard (MA)

After this segment, you can see Jim's Sudden:Death picks here...

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JJC:    Last night, American Express (AXP), which unlike fellow traveler card carrying companies, Visa Inc. (V) and Mastercard (MA), actually lends people money, reported a simply miserable quarter, an earnings abomination... Naturally, the stock got the red-headed step child treatment... And now, it's justly down 7% from yesterday's close where it reported...

But the fallout from AXP's abysmal result seems to have damaged other stocks... I don't think all of them deserve to go down...

The four Fort Knox banks I appointed yesterday, Wells Fargo (WFC), US Bancorp (USB)... that thing, holy cow... Bank of America (BAC)... And JPMorgan (JPM), all traded down viciously and horribly after hours, apparently off of this bad news for AXP... At one point, JPM got taken down to $37... What a steal with the stock now back up to $40.86... I don't think there is any good reason to believe that bad news for AXP is also bad news for JPM, or any of my other fortress banks...

But that didn't stop investors from selling off the financials, all of them, just because one company, AXP, reported a heinous quarter... That's kind of stupid thinking... And stupid thinking is going to stop right here, right now...

What's the moral of this story?...

You know that the stock market parable, the Aesop fable, the joicien analog... There are a lot of players in the market who don't do their homework...

I think they're the ones who took down the four fortress banks because of AXP... If you do the homework, you'd be able to take advantage of what I think are great opportunities, like what you had with JPM when it was at $37... You could have had all of the fortress four for much less money than they traded at the close, as those four were among the top 7% gainers in the S&P 500 today... And you want to be in that position to catch these declines because now, we actually like some of the financials, especially the four Fort Knox banks, that neither Goldfinger, nor Cramer-favorite galore could knock over... We must, must, must, take advantage of every weakness, like the weakness generated by morons selling off of AXP's weakness... The big deposit banks should be able to rally because they're charge offs have exceeded the depreciation in house prices, exceeded them...

A week ago, we thought the house price depreciation was bigger than the writeoffs... But now that we know its the other way around... That the banks apparently have anything but too much aside for losses, I thought that Wachovia Corp. (WB) did that today... The systemic risk seems to be out of the system and it's both safer and smarter to think of banks as buys on weakness, we'll get some weakness, don't panic... Back to the C-change, and there is nothing better than taking advantage of weakness caused by ignorance of traders who can't see the difference between AXP and JPM...

What is the difference?... What would the homework have showed you?...

Deposit base... AXP doesn't have one... It makes money from transaction fees, interest on the loans and membership fees... That's it, okay?... And membership doesn't give you the privilege to not pay off your bill... AXP can't shrug off losses like at JPM, or even like at Wachovia, which rallied today after a real stinko report... Now I told you to invest with Bob Steel when he moved there, he's the new CEO of Wachovia, my old boss at my old firm Goldman Sachs (GS*)... He will make you money...

JPM's average core deposits for the second quarter were $730-23 billion... That's up 11% year over year... Wachovia's core deposits, $391 billion, up 3%... So even with Wachovia's incredible inability to loan you more than just incredible deadbeats, people still put money with them... To me that means it's a simple equation... Short Sealy Corp. (ZZ), buy Wachovia Corp. (WB)... There is no run at these banks except to run to throw your money at them... Both Wachovia and JPMorgan (JPM) have giant deposit bases, a real bank, and these are two banks, can take charge offs, and that generates its deposits... And don't forget, the deposits generate money every day... The great thing, and we've all forgotten this, the great thing about owning a bank is that every day you turn the lights on, you generally can make money off of deposits...

And, since the feds lowered short rates, so that they can make even more by borrowing from you at 2%, and lending sometimes as high as 8%, or even more, that difference is called the net interest margin, and its how most banks make their money... Plus, they lay out all sorts of fees that we don't even know about, or care about for that matter... I mean, it's a good business... Banking is a good business... People have forgotten that... JPM may have a credit business, but it's got deposits galore, and to me, that makes all the difference... AXP doesn't have that deposit base cushion... It's a bird of a completely different feather, like a kiwi... Yet, it managed to take the banks down because people were treating all financials as equals...

Oh, if you really wanted to buy a credit card company, I think you should scoop up Mastercard (MA), Cramer-fave MasterCard, which opened down $13, how stupid is that, even though they don't lend money, they're just a play on the worldwide transition from paper to plastic, and on transaction volume... AXP is the credit business and credit risk... MA has credit cards, but without any credit risk... AXP shouldn't have touched this one, but the foolishness of the market gave you what I think is the chance to buy it down $13... How did MA do today?... Up $6, a 19 point swing for those who did their homework... In fact, I think AXP has more in common with Target (TGT) than it does with a real bank that has a sizeable deposit base, one that makes its money while the bankers sleep and is actually worth something...

Why Target?...

It has a big credit card business and it had big charge offs today... At 9.5% of loans in its June Master trust, it's where it credit card lies, versus 8.1% in May... It's a hidden bank, but without any kind of deposit base... At least TGT, unlike AXP, has a retail component that should do better now that gas prices are headed $.50 lower... And truth be told about TGT, I love their Merona pants and their Cherokee Chinos which are every bit as good as Banana Republic's slacks, but are at least $2.98 cheaper per leg... You do the math, and you now know the real secret to how I stay rich and Mad For Life.

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The Bottom Line!:   Not all companies that lend people money are created equal... I don't think any of the banks with big deposit bases should have gone down off of American Express (AXP)'s stinko quarter... But they all did... The next time you get a chance like that, and believe me you will, because the market can be plenty dumb, I think you should use it by the unfairly tarnished beaten down Fort Knox banks.