Buy the Banks!

Good morning! Check out the BKX. Banks are moving this morning based on perception that margin expansion will be increasing, even as their costs for credit stay low. Their spreads are widening due to the lack of competition from the securitization market, which is now dead. Many banks are now able to charge a premium for loans. Factor in a steepening yield curve, and some of these well run banks will see huge expansion in their margins.

Specifically, I like names like [[USB]], [[KEY]] and [[SIVB]], which have low exposure to construction and commercial real estate. Stay away from names like [[BBT]] and [[SNV]].

Remember, banks are not so much dependent on the economy to bring back earnings, but rather on an improvement in the credit environment to bring back earnings. So, it is possible that we continue to see a slow economy, but an improvement in the banks.

Where I will be dead wrong on this is if the employment market continues to deteriorate and we see this recession go into the second half of 2010.

We will probably see a pullback here at some point. Banks should be bought on weakness.

If you want to buy the banks, be selective. I wouldn’t necessarily buy an ETF or and index.

I’ll post more here and in The PPT, as I have time.

(Disclosure: Bought KEY @ $4.89 and USB @ $17.91 this morning)