CALDEIRÃO DE BOLSA

Kass: I'm Putting My Money in the Banks

I have been an outspoken bear on bank stocks since 2005.

In the 2005-2007 interim, I was short many of the major money center banks as well as the mortgage and bond insurers, government-sponsored enterprises and other specialty financials.

I got it right when such a position was not popular, and, significantly (for a change!), I was right for the right reasons.

After shunning bank stocks (and being short) for a number of years, I am making a large (and growing) commitment on the long side for some of the following reasons:

* The curative process of substituting lost (or written off) capital for fresh capital continues apace and is now almost complete.

* The industry's historic financial (balance sheet) opaqueness is being replaced by renewed disclosure.

* The core banking franchises of deposit gathering and loan originating, which are producing solid growth in net interest income, remain intact.

* The banking industry's competitive position has been enhanced as the non-regulated shadow banking industry labors under high funding costs, funding availability, capital constraints and poorly diversified books of business.

* The banking industry's ne'er-do-well executives have been replaced by competent, pragmatic and more realistic management teams.

Despite all these emerging positive developments and with most negatives well known by now, sentiment toward financials remains at an historic nadir -- the sector represents only 15% of the S&P 500, down from its peak of 23% in 2007 -- as the stock prices have continued their almost never-ending descent.

And in a market in which so many investors/traders seem to worship at the altar of price momentum, that decline has no doubt been accelerated by those momentum-based market participants against a backdrop of almost total unanimity of opinion that the financials are untouchable from the long side.

While the negatives of the credit cycle, the dilutive effect of the industry's refinancings and other factors cannot be dismissed, quite frankly, I can make the case that we are now at an unprecedented point of time to get long financials.

I have added Bank of America to my banking basket of Citigroup and Wells Fargo.