Monday, March 16, 2009
(Cont'd from above)...

Jim:      Ben Bernanke's become the market's salvation, even if today's decline broke a wondrous four-day winning streak... And I say this being someone who spent months being Bernanke's most precipitous critic... I screamed that he and his colleagues - including the now-retired Bill Poole... "They know nothing!"... knew nothing two years ago when they refused to cut rates, because of worries about inflation at the beginning of the crisis, when we were headed into the worst deflationary spiral... since the Depression. As the situation worsened, Bernanke seemed oblivious at the time to the damage...

But no more...

He's got it all figured out more than any of us. Our Fed chief has changed, and he's grown up, and he truly gets it. Bernanke is so together that he inspires a remarkable confidence. He is on the case...

Before Bernanke, I always figured it was a mistake to go against the Fed... he fiddled while the financial system burned, and made going against the Fed the best bet in town...

Not anymore... Now, it's "In Bernanke We Trust"...

But these were not separate rallies. They had a common theme... Ben Bernanke's two-part interview on "60 Minutes"... The abbreviated version of what he said... "We're going to have growth without inflation"... "a turn in the economy before the end of the year"... "and we're going to save the financial system without needing to nationalize the banks."

When I heard this troika, I cheered louder than when my fave NCAA team, Villanova, drew home court advantage for March Madness...

Bernanke changed the entire tone of the market with this interview... and allowed the strength that started last week to continue for most of the day...

And things could get even better going forward. Why?... Because this is what's known as a virtuous cirle. Every day we go higher from here, the rally gains adherence. People are saying to themselves, "wait a minute, maybe I can make money in stocks again"...

Of course, the virtuous circle is strongest in the bank stocks... which we need for any sustained rally to work...

I mean, look at BAC and WFC, two banks that are hobbled by acquisitions... Executives at each one are denying that there's any trouble... but no one will step up and defend them, because anyone who's taken that defensive position... they've been burned and they've been made to look like a fool... your truly... on two different occasions...

But both banks are going higher... partially because they've stated that they're profitable. This is not the whole story though. If BAC or WFC had made those statements a month ago, we would have said, "please, of course... of course, you're making money as a bank"... You're just losing so much more as a repository of bad loans at your bank.

But, this time, there's a sense that maybe they mean it...

Why?...

The virtuous circle.

A month ago, these banks looked like candidates for nationalization. Now we can see a path to health for these companies that doesn't involve the government destroying the common stock. You see, they aren't losing money making cars. They're making money taking in deposits...

Until this past week, we had forgotten that banks make money every day they turn on the lights...

After Bernanke's talk on "60 Minutes," we now feel that he will preserve the private banking system, no matter what... When you add in that it looks like the accounting standards on the banks will now be eased, thanks to Barney Frank, who really beat the heck out of the FASB last week... and the uptick rule will be reinstated, thanks to Mad Money, and some others that we've continued to call for... that will end the vicious bang-down on the bank stocks... and you've got a rally that's not going to go away, even as it can succumb to profit-taking, as it did at the end of the day...

How do we play this Bernanke bounce?...

I would go for a basket of beaten up financials, okay...

I would go for Citigroup (C)... I would go for Bank of America (BAC)... I would go for US Bancorp (USB)... I would go for... here's a strange one... The Blackstone Group (BX)... and I would go for Wells Fargo (WFC*)...

This is the Bernanke Basket, and it has real resonance, because the amount of money involved is minimal... It is... yes, and I will say the Cardinal sin... and this is what you're never supposed to do... they tell me... on cable... It's exciting. It could be exciting, if you can forgive my insistence that it could be interesting now and then to follow and make money.

I expect this basket to trade down tomorrow and Wednesday on profit taking... but I would get right back in at the end of the week.

Here's the bottom line...

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