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You’ve seen this within this bear market..A stock way down from where it was raided by the shorts and sellers..A company on the high and high that bought much of their asset base on the ecstatic subprime binge some years ago..All of the sudden — broken down assets that would be normally sold for gains have to be rendered as over graded assets that now become a myriad of write downs as the adjustable rates of real estate hit the company’s net worth ..However,spreads are now wider than ever in years where many banks are now making money right when they open their doors for business..The 30 year fixed mortgage loans over the 10 year treasury yield is widening..Is the TARP working? Maybe..However,there is still fear about banks to the private sector..The private sector is trying to be enticed to go back into the market.. The TALF has to have good caveats for them to go back into the market..If the private sector comes back into the market, the mark to market plan really doesnt matter right now for the banks dont have the benefit to write their assets back up…The private sector will have a difficult time in jumping in because of this..Credit cards will be the next crunch in my opinion..I heard one analysts predict 2 trillion in credit card lines will be cut in 2009..This part of the banking’s business will hurt their earnings–the profitability of their credit card interest income.. The re-setting in 2009 of ARMS ( a potential 500 Billion dollar liability to the financial industry that is being lossed in this excitement) is the reason I believe such credit lines will be cut …We better be aware of a quick trade of such banks and they are at about a top to consider a sell soon in my opinion if you recently invested in some of the bank stocks…..The operating profit of such banks as Citi are now good as we have seen this week,but we are ignoring this week the TOXIC assets they still have..

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With this first release of TALF–you see good news for the market–CITI bank reporting making money on operating side…This will look good going in only for the first quarter..That is where I believe the head fake ends and investors of banks will be hurt some thereafter in this year of 2009..Be wary of such a longer horizon on banks such as the 2nd quarter..However,B grade & AA corporate bonds and junk bonds have declining yields which to me makes a good case for a uptrend this year in the general market for stocks..Sure,corporate bonds are great..An HSPC corporate bond in the 2 year range for example is right now 8%..However,doesnt this great caveat for corporate bonds make it a great view of the profitability of business?…So equities may be psychologically perceived as a good way to diversify (that is a twist-diversify money by going into the market?) along with corporate bonds…

So is this as Buffet calls ‘cigar butt investing’?..Not really..I will shortly discuss according to Mr Buffet what cigar butt investing is..Before that let me explain this: that some banks wouldnt be a cigar butt investment…We got to always have banks and if run correctly –they can easily earn 20 % returns..If not, as we have all seen –they can tank and even fall out of business..So a long term view on such strong banks that are helped by the government wouldnt be construed as cigar butt investing …What I mean are stocks that have such ongoing subprime exposure and because of its strong decline –you think you will get a last lit of a cigar- i.e.profit–before that last butt goes out..Avoid this poor habit of investing or trading..Like author Lawrence A. Cunningham states about Warren Buffet in ‘The Essays Of Warren Buffet:Lessons For Corporate America’ that if you buy that very low price stock ,there will be this hiccup in the money or fortunes of the company that gives an investor a chance or a quick profit..According to Warren Buffet as discussed by author Lawrence A. Cunningham in the book,you are cigar butt investor on a stock if its long term performance of such a stock is terrible and you invest to get that one puff left –that “bargain purchase” that will be ‘all profit’..According to Buffet in the book By Mr Cunningham-the reason that is a mistake is: 1) If it is a difficult business that relies on all types of variables,the original “bargain” price may not be a good one..Once one problem is solved –all the sudden is another leak of the ship that has to be repaired..2) Any initial advantage of that first “bargain price” may not be realized till far down the line–like years away that will erode your portfolio by the cost of inflation and time..Wall Street will simply turn away and state this is too long of a horizon to see if this business turns around and the stock is a stock in a sandtrap so will ignore its low price over what it once was..Contrary to myth, Buffet isnt really just a Value Investor per say,but really looks for strong companies that are growth stocks when he looks for first initial buying of such stocks..He advised most companies simply dont turnaround so why invest in a company that may be low-priced and more likely never turnaround? Even if that last puff for ‘all profit’ is there and the stock doesnt go bankrupt, that puff may be many years down the road-the 20% hope of a near term puff may be a 20% puff 10 years down the road..My take,always invest in strong companies with long term performance capabilities and hopefully low to mid cap stocks at good valuations…Dont invest in ideas–invest in performance..

Rob and Mike currently own no shares in Citigroup..There are many ways to invest money Please do your own independent research before you make an investment purchase..See our disclaimer.

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