To Our Clients, Colleagues and Friends:

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· Regardless of your views on Washington Mutual, it is going to survive.  And with that being the case, have you considered buying some of their bonds?  How about their 4.2’s of Jan. 15, 2010.  Last we checked, they were trading at about 89.25 for a 10.2% yield.  Not bad for two years.

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· Speaking of Wamu (actually, that should be writing about Wamu), we expect a monster 4^th quarter write-off and loan loss provisioning.  It’s being whispered that Citigroup will take a $15 billion charge, and when we look at what has happened to them and Merrill, and everyone else, it just seems that Wamu has been under-reserving relative to the rest of the world.

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· Congratulations to Guaranty Bank ( Texas ).  They have been spun off from Temple-Inland and are now independent, trading under the symbol GFG. They have some very smart people running their mortgage business.  They essentially pulled back over the past several years and avoided all the ugly problems their competitors are dealing with now.  We look for big things from their correspondent and warehouse lending divisions.

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· How weak is the dollar?  Last year it depreciated 6.4% versus the Yen, 9.6% versus the Euro, and 14.7% against the Canadian dollar. This is not a good time to travel abroad.

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· When we run out of things to write about, we like to resort to lists. They take up lots of space and give the illusion of being meaningful. In that spirit, here are the five largest credit unions, based on deposits.

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Credit Unions generally don’t do lots of mortgages, but they sure love their HELOCs.  And doesn’t it seem inevitable that some credit unions that loaded up on these will fail?  We were brought in to help liquidate a credit union that failed a few years back, and we were pretty astonished at how lightly regulated they seemed to be.

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· Here’s how the stocks of some other sectors financial services did in 2007.  This is from SNL Financial, one of the great research firms out there for financial services stocks.

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· Did you even know there are publicly traded pawnshop companies?  They’re pretty interesting businesses, with APR’s on their pawn loans in the 150-200% range.  Some of them have big numbers of outlets, but the problem is that their average loans are too small ($100-150) for it to be a business with any real scale.

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· Now we understand that phrase “watch your back”.  Some loser named Adam Grenann robbed a bank in Dorchester , Massachusetts last week. What he didn’t know was that the man behind him in line was a policeman.  He was arrested him on the spot. When he’s in prison, watching his back will be even more important.  Hopefully, for his sake, this is a lesson learned..

· We just finished reading Fair Isaac’s 2007 Annual Report. The company earned $104 million last year and $342 million over the past three years.  What we find interesting is that in the last three years they expended $1.03 billion in buying back stock.  One way to view this is that that they don’t see many opportunities where they can invest for growth.  Our view is that (a) we’d rather see them return capital to shareholders than spend it on bad acquisitions, and (b) buying back stock shows that the Board is concerned with their shareholders.

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Corky Watts  and Joe Garrett  -  Garrett, Watts & Co. -  http://garrettwatts.com/