SPECIAL ALERT 9/7/2007:

With the recent sell off again today on weak job numbers, it has given us a chance to get in heavy again on KFED under $12.50. This is as good as it gets. No bad loans, great markets and management that was buying stock at much higher level’s. They are doing a second step and will sell in 1-2 years we feel strongly. They are worth at least $25 a share today or a 100% return, yes 100% upside + and 5-10% downside risk. This is as good as it can get, if you are not loading up the truck on this now, then you don’t need to follow my letters anymore. I will quote one of my past letters below from 1999 and in that letter we had 12 stocks, 9 were taken out over the past 8 years, wow, that says it all. If you are not adding money in this market now, we are not on the same page and maybe my letter is not for you. You rarely see a risk reward ratio in my space that is very safe with this much upside, but this is what happens in a crash, this is a crash. Real estate will still crash much more, but KFED makes no bad loans and they have been thru these cycles many times before.

COBH we are still adding strongly under $28.00. Again, look for a sale to someone other than CBH, we feel now, and a much higher price of closer to $48 a share or a 77% upside return within 1-3 years, sooner than later. Also, FLIC, we are still buying heavy now under $19.75, no takeout we feel, but very, very safe.

FBFS the bank is buying, we are buying, someone keeps selling, lucky for us. Now a top holding.
COBH has taken up most of our money this year and is our # 1 holding now.
GBTB still adding under $13.20 slowly.
CAPB still adding under $13.50 slowly.
WTNY will get $40.00+ now in a deal also sooner than later.
With the big premium for ALAB this week a floor has been set in these markets on pricing.

Recap, three deals already this week, ALAB, KNBT and a private Upstate New York Bank. Big down days with the “short” sale rule now gone, will create lots of opportunities for us in NASDAQ listed bank stocks at new lows already, as they get hit unfairly on these days, like today for KFED.

I am also enclosing my Investment Contract again with my letter. If you are not regularly adding funds to the market, you cannot beat it period. If you take out funds, you have almost a zero chance to beat it in the long run. Most important if you don’t add more aggressively on days like today when a KFED drops you will never beat the averages, so just buy a cheap index fund like vanguard that takes funds right of of your paycheck so you are forced to add all the time.

This is as good as it gets for us, if you are not adding lots of funds here now, we will have to talk very shortly. We have waited 7 years for this, August gave us some of the best days since September 2001, September 2007 is now giving us more.

Risk Takers:
NYB with rates almost surely coming down, should benefit greatly, buy only sept or October 17.5 calls at $.60 or less and sell at $1.60 for traders only. Risk takers only.
BPOP buy 12.5 calls for January 2008, risk takers only, at $1.20 or less.

“2/1/1999 Newsletter quote below:

This is the most stocks we have had in our newsletter since December 1997, as we continue to find bargains in this high priced over-all market. Many bank stocks are still at their lows or are making new lows for no fundamental reasons. This has given us the opportunity to take positions in many banks that we have wanted to own over the past 2-3 years. Earnings are again, very strong this quarter, for many of these institutions, and this should continue with most of the technological costs behind them now and new software giving many banks much more efficient run operations. The way to make money the next few years will to be to own a basket of 20-40 of these stocks. The downside is limited to 5-10% on many of theses stocks, we feel, and the upside is 50-100% on most, a ratio we like. Investing in this sector has much less overall market risk, if you buy the right banks at the right prices. Earnings will continue to surprise on the upside here on many of these stocks. If you can’t pull the trigger when these stocks are making new lows to buy or if you can’t sell when they are fully valued, let us manage your account for you.”

What is different this time is rates are still very low, and earnings are going down, not up. This is a big difference, but prices on bank stocks are much cheaper on many on a book basis, than they were in 1999, and that is more important we feel as earnings will rebound stronger than ever in 2 years. If they don’t lower rates by .50-.75 basis points this weekend, many home builders will fold next and they might anyway. This is a serious problem, but without such bad news you could never buy KFED at $12.50, so it is good news for savvy investors.

“This is a Crash” do you have the financial education and more important financial resources to take advantage of it!!??

People are dumping bank stocks and people are buying bank stocks. Which group are you in?
Also, this time there is not 20-40 stocks to buy, but there are a few and that’s all you need.

Douglas Hughes
9/7/2007: Special Alert:

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