With panic in the air and fear all around us, it is easy for investors to become confused. That was a huge buying opportunity, but most investors did not know it at the time. The mood among investors is as gloomy as it was back at the last market low in October 2002. Today, just like 2002, no one on Wall Street wants to say Buy.

The Wall Street crowd is terrified of financial stocks, housing, mortgages and the U.S. economy. However, when you look more closely at history and the current state of the U.S. economy, the pes­simists are the ones at great risk. Yes, the market value of mortgage-backed securities has plunged, but we all need to keep in mind that most of those securities continue to generate cash flow.

In fact, the underlying fundamentals in housing are nowhere near as bad as feared. Soon we will see a stock market snapback that will catch all of the pessimists by surprise and drive depressed stock prices even higher. It's time to make a run on banks!

Three Bank Stocks Ready to Mint Money

Bank Stock #1 reported a decline in earnings, but that is par for the course with bank stocks in 2007. In 2006, it earned $4.59 a share. Last year, earnings were depressed by major write-downs in the second half. The final tally was $3.31 a share. For this year, estimates are $4.45. The Fed's rate cuts make this estimate look solid. During the fourth-quarter earnings call, this bank's CEO said that he expects earnings this year to be above $4 a share. The $2.56 per share dividend is secure. At $39.48, this is a 6.5% yield. Not bad. It definitely is a buy.

Bank Stock #2 has been suffering since the August shutdown of the secondary market for mortgage-backed securi­ties. To their credit, management changed the busi­ness model and adapted to the challenging market. But rumors of bankruptcy, by both Wall Street analysts and greedy short sellers, nearly became a self-fulfilling prophecy. The first bankruptcy rumor happened months ago when a certain Merrill Lynch analyst said this well-known mortgage lender might file for bankruptcy. It's CEO immediately responded with televised interviews, giving details about liquidity and funding, saying the risk of bankruptcy was no greater than when the stock was $40. This bank was well on the road to recovery when the attacks began again. In the fourth quarter, Bank #2 added $7.7 billion in deposits, originated more than $69 billion in loans and sold all but $8 billion of them. No doubt the profit margins on the loans sold were slimmer than a year ago, but the facts clearly showed that this bank is still very much in business and ready to rebound!

Bank Stock #3: the stimulus bill that Congress passed includes an upward revision of the limit for mortgages granted by the GSEs, Fannie and Freddie. The old limit was $417,000; the new limit will be $729,000. There are doubters, but in my view this is a very positive move, especially for this mortgage lender. Bank #3 reported earnings last Tuesday, and as expected, there was a loss. But the loss was much larger than anticipated because Bank #3 decided to create huge reserves for credit losses this year, next year and beyond. Smart move! Bank #3's CEO reported that it is finally enjoying deposit inflows. He then added that 95% of this bank's deposits are FDIC insured. That is very good news. He even went so far as to say that we are in a mortgage refinancing boom again. He is right. Bank Stock #3 is a buy.

There have been many previous housing cycles, but none this intense, and none that has created so much fear. The crowd out there thinks the economy is in terrible shape and wants more interest rate cuts from the Fed. The truth is that the economic news is mixed. Yes, the mortgage mess is not resolved, and delinquencies are still rising. But manufacturing and retail sales are doing better than expected, and retail sales were up in January. Now I'm not suggesting that a new housing boom is around the corner. No, we don't want to wish for that. What is around the corner is a more stable, healthy housing market. Confidence will be restored to the housing market, and banks will not just survive; they'll be more profitable than ever! This housing cycle's intense fear and panic has created a major opportunity for investors. Banks are on their way back–and it's time to buy them!

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