The first thing that I know is not to listen to the guy who gutted the bank stocks this morning… a fellow by the name of Mike Mayo at Calyon Securities… Mayo has been around making erratic calls for years, but always with a big splash… and today was no different… as he said sell, sell, sell everything in the group… now I have to tell you in all fairness, which always means that I am about to say something really mean, this would have been a great piece of research had it come out in 2007... not so much in 2009... it is one of those where you should say, with all due respect it would have been better in 2007... with all due respect being a code word for the guy is a complete idiot.

Now, how do I know not to pay any attention to this guy… well, here we go, Mayo was telling you to buy, buy, buy Lehman Brothers right into its collapse… this is a not subjective view… it is just the facts ma’am, Dragnet style… here is Joe Friday… here is a piece of research that dates September 5th, 2008, a week before Lehman’s demise… it is a buy recommendation… talking about how the stock then at $16, could zoom all the way up to $28... because of “near term pain and long term gain, from mortgage market relief”… excellent… oh look, here is a piece from September 10th, with the stock at $7.79, reiterating the buy after Lehman pre-released a loss of $4b… saying that the stock is headed to, yes once again, to $28... based on a one time book value call… oops… here is where Mayo changed his mind the next day, he is using the price of the stock the day before $7.25, but now he is downgrading it to a hold… using an $11 target… what happened to the $28 target… of course, by the time the piece came out the stock was actually at $3 headed toward $1... what was the charge here… liquidity and charges had seemed manageable he said… the company filed for bankruptcy immediately… oh look at this, September 15th… company announcement hold… discontinuing coverage… value added… with a record like that maybe we should pay no attention to Mr. Mayo… I think he would be better off… well, I think we would be better off if we did our homework instead of relying on his… now that we have some accounting changes that govern the whole group.

First, you need to know that the changes involving this incredibly difficult to understand, and therefore boring mark to market accounting… simply allows the banks to have more leeway in marking their portfolios… now why is that confusing to you, what is marking… it is where you value things in your portfolio… this concept is alien to you home gamers, because when you get your monthly statements you never have a question about valuation… you own Intel (INTC), it is at $15... you own Microsoft (MSFT), it is $18... same with AT&T (T), oh $26... it is not like that with bank portfolios… we can’t tell what they are really worth… because there is not truly a market for the stuff that they own… a bunch of houses, it is not like a Monopoly game… oh look at that... Connecticut is worth X… no, under the old rules they had to mark some of their portfolios to the most distressed sales out there… that means that some of the portfolios are actually too cheap relative to the real market… many aren’t though.

What you need to know about these changes is that banks can now approximate what they think is reasonable… some people would say that that means that they can make it up, and make themselves look good… it is not that simple… but let’s just say that the banks will have an easier time going forward… because they will not have to take big losses for now… off the table… on the table… so who wins first… Goldman Sachs (GS*), it is a stock that I own for my charitable trust, ActionAlertsPlus.com, where I play with an open hand telling you what my moves will be before hand, and you can play along… and actually play ahead of what I do… Goldman doesn’t even have any mortgages to speak of… and investors go lady gaga over that … the company can pay back TARP right now, which is what the street loves… it is why the street has more than doubled off of the bottom… I would still buy it ahead of earnings… which I think will be excellent… today I sent a bulletin of my subscribers at ActionAlertsPlus.com, that I would be a buyer of Goldman ahead of the earnings… it is due to report on the 14th… but only on a pullback below $100.

The second winner, I think that it will be JPMorgan (JPM*), another ActionAlertsPlus.com name… this bank has taken aggressive marks… meaning it has been pretty realistic if not sadistic about what its stuff is worth… again, I would buy it ahead of earnings… as I think it will be the go to bank out there.

Third, I would buy the trust banks… Meredith Whitney agreed with me, the noted bear, on Closing Bell… Bank of New York (BK) and State Street Corp. (STT)… does a trust bank mean that I trust it more than others… no, it simply means that these two banks are the safes… the repositories of a lot of the securities around Wall Street including mutual fund moneys… they are where the banks bank… good business.

Alright, what would I avoid… here we go… I would avoid every single regional bank… all of them… because this mark to market change won’t matter much to them… and because they have a huge number of loans going bad… I would be careful of BB & T Corp. (BBT), SunTrust Banks Inc. (STI), PNC Financial (PNC), First Horizon (FHN), and US Bancorp (USB)… I would sell, sell, sell them… I would also sell the big Ohio banks, KeyCorp (KEY), and Fifth Third Bancorp (FITB), and Huntington Bancshares Inc. (HBAN)… they may not even go up… you know the stress test is coming up, and not everybody passes the stress test you know…

I would buy FirstMerit Corp. (FMER) as the winner in the state, and certainly the winner taking a lot of the business away from those three.

Finally, I like some of the thrifts… those banks that make mortgage loans, and are really good at them… the two I would focus on are our old friend Hudson City Bancorp (HCBK), which has went all the way down, told you to sell at 6 points higher… and a new name for the show, New Alliance (NAL)… a well-run New Haven Connecticut bank… why do I think they are okay… because these two thrifts never went nuts… guess what they made you do… they made you put money down.. shocker… it is time to reject some realism into the discussion about the banks… don’t freak about Mike Mayo’s sell call… we have got the record right here… it was… in all due respect… it was all sizzle, no steak.

The bottom line...