Best Trade Among The TARP Testifiers

If the government is putting a safety net under most banks, it should be a good time to invest, right? Not so fast.

According to Gerard Cassidy, a banking analyst with RBC Capital Markets, up to 1,000 of the nation’s 8,400 banks could fail over the next three to five years if the economy worsens. That’s right. 1,000 banks could fail.

We found the projection so intriguing that we invited Mr. Cassidy to join us on Fast Money.

For certain, Cassidy's prediction is a worst case scenario and we're all hoping that the new Financial Stability Plan prevents anything like that.

(Click here to check out the FDIC Failed Bank List.)

In fact, Cassidy tells Fast Money he’s particularly interested in the part of the new bank plan that involves giving a stress test tobanks before giving them funds. “It’s going to be very interesting to see how they do the stress test,” Cassidy says. Depending on the criteria, it could really reveal where the problems are.

And Cassidy thinks we'll soon learn the problems are in commercial real estate. In an investor note published a few days back Cassidy wrote, "we are nowhere near the end of this down leg.”

And on Fast Money he told the traders, “you want to stay away from (banks with exposure to) the commercial real estate market. I think we’re just starting to get into that.”

What’s the trade?

On Fast Money he suggests the trade is short commercial real estate while getting long the capital markets names. And he also says you can get long the real estate market in Southern California. "That market is starting to come back."

What do you think? Tell us now.

Read More:

> One In Eight Lenders May Fail

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Trader disclosure: On Feb. 11th, 2008, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Najarian Owns (CAT) Call Spread, (ENER) Call Spread, (EEM) Call Spread, (GDX) Call Spread, (GLD) Call Spread, (STI) Call Spread, (MOS) Call Spread; Najarian Owns (CHK) Put Spread; Najarian Owns (FCX) & (FCX) Calls; Najarian Owns (GS) Calls; Najarian Owns (GE) Puts; Najarian Owns (MSFT) & (MSFT) Short Calls; Najarian Owns (MS) & (MS) Short Calls; Terranova Owns (DIS), (KCE), (XBI), (FXC); Terranova Owns (IBM) Call Spread; Terranova Owns (AMGN) Puts; Seymour Owns (MT), (BAC), (EEM), (FXI); Seymour's Firm Owns (VIP), (TKC); Adami Owns (AGU), (BTU), (C), (GS), (INTC), (MSFT), (NUE)

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