Buy The Bad Banks?


As you may know the Obama team appears ready to create a bad bank that would buy up toxic assets and investors apparently like the concept.

Despite the fact that details are still coming together, financial stocks led Wall Street sharply higher Wednesday with shares of Wells Fargo , Citigroup and Bank of America leading the charge.

Adding to confidence in banks, an industry source says Sheila Bair, the chairman of the FDIC, is floating the idea that her agency should manage the "bad bank."

On recent bets that the government will save the day, the indexes have swiftly erased most of their year-to-date losses as a loosening up of lending would drive both consumer and business spending, and motivate investors.

But the market’s euphoria may be short lived.

“We think this bank thing is just a lot of noise,“ says Paul Miller, FBR Capital Markets head of financial services. He tells Fast Money “(I think) the move in the stock market is just short covering. When the details come out I think the market will be disappointed. Nobody knows the pricing.”

How should you trade it?

If you’re long banks sell them, counsels Miller. There’s nothing in the banking world that he finds attractive.

I’d get out of State Street if you’re long, adds Guy Adami. However, Bank of America could have a little more room to run.

What do you think? Tell us now!

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Trader disclosure: On Jan 28, 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 (BAC), (MSFT), (MS), (TM), (MCD); Seymour Owns (AAPL), (BAC), (EEM), (F), (FXI); Adami Owns (AGU), (C), (BTU), (GS), (INTC), (MSFT), (NUE); Finerman's Firm Owns (MSFT), (UNH); Finerman's Firm Owns (DNA) & (DNA) Call Spread; Finerman's Firm Is Short (IYR), (IJR), (IWM), (MDY), (SPY), (COF), (USO)

FBRC Acts as a market maker in the securities of (BBX); FBRC Acts as a market maker in the securities of (WFC) with wires