A contact of mine recently commented that the demise of Bear Stearns marked the greatest buy signal in the world. “It’s all uphill from here, Buddy!” 

Why, I asked him, would one more corpse in a long string indicate a turning point for the stock market?

“They’ve got to run out of victims sooner or later,” he replied. “Besides, all the skeletons are out of the closet now.”

That’s it. That’s what the bulls have for you. “We’re all out of blood, so it must be the end.” Yeah, someone’s end is coming, “Buddy.” Yours!

Call me paranoid, but when the bullets are flying and the bodies are falling, I’m inclined to worry that I might be next. As for the big banks (investment and otherwise), Bear Stearns is not in anyway shape or form the last man to hit the ground.

The Bottom for Banking: Whistling Past the Graveyard

Even since that massive, ill-thought out (and possibly illegal) bailout took place, we’ve heard more and more strange news from the banking sector. Sometimes it’s hard to make out the exact nature of this news, what with all the smoke in the air. (Gun smoke, I suppose, if we are going to play this metaphor out to its bitter end.)

Just the other day, the United States’ largest savings and loan, Washington Mutual (WM: NYSE), announced that it will lose $1.1 billion during the first quarter of 2008. What’s more, WaMu is being forced to take another $3.5 billion out of circulation so as to armor itself against further write-downs.

While there have been so many massive write-downs recently, this episode is particularly instructive. Both figures are a bit larger than Wall Street had projected -- by an order of magnitude!

The Bottom for Banking: A Miss is as Good as a Mile

Following previous guidance, Thompson Financial’s survey of analysts had WaMu’s losses slated at $344.3 million. The bank’s set aside funds totted up at $2 billion. That’s a shortfall error of $2.26 billion, or roughly 96%.

And the analysts’ response, after getting the numbers so massively wrong? “Oops. Our bad.”

And now, in an attempt to set the record straight, these late-to-the-party analysts are predicting WaMu will have to set aside another $10 or $12 billion this year.

So what do you do after you’ve misplaced five billion of your investors’ dollars? In Japan, you write an extremely apologetic note, go into a quiet corner, and disembowel yourself. We, however, are a younger, more energetic culture. Here, when we have shamed ourselves, we lie, cheat and spin instead.

The Bottom for Banking: No Such Thing as a Free Lunch – Or Free Money

So, prior to announcing this awesome failure, WaMu execs announced that they had somehow ginned up $7 billion with which they could reenergize their operations!

Needless to say, when investors got wind of this magnificent windfall, they practically fell over each other buying shares up. WaMu stock went up some 37% over 24 hours.

They should have read the fine print.

That $7 billion did not magically fly in over the transom. Rather the company sold its, umm, “assets” to a group of cold-hearted venture vultures in exchange for 176 million shares of common stock at a 33% discount to market. WaMu also issued some 55,000 brand new shares of preferred stock at $100,000 per share.

The Bottom for Banking: Squeezing the Last Penny out of Investors

But wait, there’s more! Not only did management screw existing shareholders by massively diluting the value of their holdings, they also announced that they were cutting dividends from 15 cents a share… to one measly, insulting penny!  

And then, they admitted to the aforementioned losses.

As I write, WM shares are down some 20% for the week, and 74% over the past 12 months. I suppose the only reason they are not down more is because my “buddy” thinks that banking has hit its bottom.

Again.

If you are appalled at the rapacity and outright gall of these financial insiders -- and the utter cupidity of the fools who believe their press releases -- then I recommend to you what I have recommended to my WaveStrength Options Weekly readers (for max gains of some 654%). Buy puts against the lot of ’em. 

Because there are plenty more bodies where that last one came from.