continue its run at least through the election.  Use the crazy spikes to liquidate positions if you are fortunate enough to hold shares of oil companies or those leveraged to oil’s inflation.

Interestingly the oil refiners are getting crushed as a result of the volatility in prices.  I expect that to change during the rest of the year.  Stocks like Tesoro (TSO), Valero (VLO) and Western Refining (WNR) all look very cheap at current levels.

Financials

The story of the year has to be the collapse of the financial sector (see, "Lehman Brothers (LEH) Share Price Smack Down."  Banks, finance companies and investment houses have all been damaged in the carnage of a credit crisis.  We have not seen anything like this since the great depression.

The bottom line of the destruction is that the U.S. stock market cannot go higher without the participation of this vital cog to capitalism. The good news is that with the balance sheet write-downs and such, the financials are rebuilding their foundations.  Certainly, there may be more ghosts in the closet, but I believe most of the damage has been done.

From that base, the future looks much brighter.  Under the radar, the yield curve is providing an important clue as to the profit picture of the group.

The steeper the curve, the more money there is to be made from lending activity.  Banks can borrow at low rates and lend at higher rates.  It is that simple and right now the yield curve is steep. Over the last decade, the business became overly complicated. Credit default swaps and other derivative securities provided huge returns, supposed low risk and profits for the underwriters.

Those profits have all been wiped out.

I expect the industry to migrate back to traditional, conservative operational activities.  Doing so will bring back profits and positive returns for investors.

Some interesting speculations include: Washington Mutual (WM), MGIC Investment Corp. (MTG) and CIT Group (CIT).  All of these names have been pushed to the brink, spreading your risk across a few names like these makes Rational sense to me.

I also like the community banks.  As the Rational Investor I recommended that my readers short these stocks back in the spring of 2006.  That was sage advice.

Now, with most of the damage done, investors can buy these banks at discounted valuations.  Here are names I would consider: