Financials

Highlighted stocks include Huntington Bancshares Inc. ( HBAN - Analyst Report ) , MGIC Investment Corporation ( MTG - Analyst Report ) and MBIA Inc. ( MBI - Analyst Report ) .

While the financial markets and financial institutions in particular have received a lift in recent days, until there is a quality plan to get the financial institutions back on the lending track, this may amount to a bit of irrational exuberance.

Our banking system remains in a fairly frozen state. Financial institutions remain afraid of the potential for additional losses, but continuing their anaconda grip on lending only exacerbates the problem.

A financial institution's true willingness to lend remains only to "qualified" home buyers. Clearly, the definition of "qualified" has changed dramatically over the past year to mean "pristine credit," or a FICO credit score of 750 or better out of a 300-850 range.

As credit score requirements continue to be ratcheted higher, additional hurdles have been added, though the credit scoring agencies continue to have excessive errors in their data. More times than not, these errors can only be addressed by paying for your credit report for a number of months from the three agencies (there is clearly unfair business practices afoot which the US governmental agencies should address).

In addition, credit card client "profiling," with respect to shopping habits, has increased. So by example, you previously shopped at a gourmet grocer and now it's predominately at a Super Target or Wal-Mart. Even though the change stemmed from being fiscally more responsible in trying times and you continue to pay promptly, potentially you could see your credit card limit cut without notice, which in turn raises your balance-to-credit limit ratio (a bad thing), which negatively impacts a potential mortgage (i.e. NO MORTGAGE FOR YOU!!).

Therefore, it does not really matter how low interest rate levels go if you cannot get credit.

Where does the fault lie? With ourselves for not understanding our personal finances and what we could ultimately afford, as well as our senators and congressional representatives (from both sides) that kept pushing the idea that everyone needs to buy a home.

The President's stimulus plan appears to be being hatched at by both sides of the aisle. Unless the president's plan to revitalize the banking system has aspects we have not thought of, schemes such as a "good bank/bad bank" or the "nationalization" of a number of institutions could take until another presidential term to gain much needed clarity.

OPPORTUNITIES

We think the market gyrations of the past week are a bit a head of the curve. While we do not cover the area, the only bright spots could be for the pay-day lenders and pawnbrokers, currently.

WEAKNESSES

At this point in time, with no positive catalysts visible, we remain more negative on the near-term prospects. In 2008, we covered our Sell recommendations on the shares of Washington Mutual and Ambac Financial ( ) -- combined, these calls yielded in excess of a 90% return -- and in 2009 we recently covered our Sell recommendation on Hudson City ( HCBK - Analyst Report ) .

We continue to retain our Sell recommendation on the shares of Huntington Bancshares Inc. ( HBAN - Analyst Report ) , MGIC Investment Corporation ( MTG - Analyst Report ) and MBIA Inc. ( MBI - Analyst Report ) .