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Fast Money

Did Sell-Off Create Trading Opportunity?



The Dow fell sharply on Tuesday after Treasury Secretary Tim Geithner rolled out a reworked financial rescue plan but did not provide enough details to satisfy investors.

Wall Street was hoping to hear specifics about how to mop up bad bank assets and revive consumer lending.

Main Points Of The Geithner Financial Stability Plan

1. Public-Private Fund to Buy $1 Trillion in Toxic Assets
2. Additional Capital for Banks
3. $50 Billion to Prevent Foreclosures

The Problems

1. Vague: Which Banks Get What?
2. Vague: Which Homeowners Get What?
3. Nationalizing the Losses, But Not the Profits?
4. Private Capital Has No Idea What the Plan Is

With the Geithner plan triggering more questions than answers, investors once again turned to the flight to quality trade -- and bid gold and Treasuries higher.

Considering the steep drop in financials, should you buy bank stocks on the dip?

Word on the Street

The Fast Money Trades

If you want to play financials look at the book value of Wells Fargo versus JP Morgan , counsels Pete Najarian. Wells Fargo is still trading above its book value and JP Morgan still trades at a big discount. Consider a pairs trade, he says. And look at Visa and Mastercard . They’re not really affected by the new TARP.

In the materials space nothing has changed since yesterday, adds Tim Seymour. I see the underpinnings of increased demand in the space.

I think the sell-off presents an opportunity, says Guy Adami. I would look to Intel on the dip or even Bank of America as a trade, he says.

Bank stocks are trading vehicles only, reminds Jeff Macke. If you go to bed with Bank of America you’ll wake up with fleas. If you want a trade buy Morgan Stanley on the dip. Otherwise let things come back to you.

Musings From The Fast Money Traders

A centerpiece of the TARP now renamed "Financial Stability Plan" is a proposal to set up a public-private investment fund, in partnership with the Federal Deposit Insurance Corp, a bank watchdog, and the Federal Reserve, the U.S. central bank.

The traders like the concept but don't understand how the government intends to value toxic assets.

Private capital will bid on anything if they can figure out a way to price it but the plan has no way of pricing anything, says Jeff Macke’s. That’s what sent the market tumbling.

I wish they’d use Morgan Stanley as a test case, muses Guy Adami. They took their lumps and they’ve come out the other side. I think the message here is that banks need to take their lumps.

I agree, says Pete Najarian. Morgan Stanley and Goldmanhave taken their write-offs. Those are the stocks to put on your radar. Stay away from them money-center banks

I’m concerned that in his testimony Geithner told Congress that there are banks that are too big to fail, observes Dylan Ratigan.

I think we need to allow some banks to fail, adds Macke. Ultimately, people will step in and the markets will work.

And why can’t we let the bond holders fail too, adds Tim Seymour. Bond holders know they’re taking risk and with that risk comes failure.

We’re spending too much time propping up banks that are on the brink of failure, adds Macke. We’ve got to start thinking about other industries such as the automakers.

We don’t need these banks, adds Ratigan. We just need banks. Others will do.

What I think the feds should do is put a bottom on the toxic assets, says Guy Adami. For example, for every dollar of toxic assets, price them at 40 cents and let the chips fall where they may.

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Trader disclosure: On Feb. 10th, 2009, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Macke Owns (TM), (SDS), (AAPL), (MS); Adami Owns (AGU), (BTU), (C), (GS), (INTC), (MSFT), (NUE); Seymour Owns (AA), (BAC), (EEM), (FXI), (MOS), (MON); Seymour Is Short (PBR); Seymour's Firm Owns (VIP); Najarian Owns (CAT) Call Spread; Najarian Owns (MT) Calls; Najarian Owns (ENER) Call Spread; Najarian Owns (EEM) Call Spread; Najarian Owns (CHK) Put Spread; Najarian Owns (FCX) & (FCX) Calls; Najarian Owns (GS) Calls; Najarian Owns (GE) Puts; Najarian Owns (GDX) Call Spread; Najarian Owns (MSFT) & (MSFT) Short Calls; Najarian Owns (MS) & (MS) Short Calls; Najarian Owns (MOS) Call Spread with wires