Ok. the fact that Wachovia (WB) is up 2% pre-market at $15.90 as a result of a Merrill Lynch upgrade to Neutral form Underperform is probably not by itself sufficient motive to bet the farm on a bank stock. However, indications of a broad financial bottom are beginning to emerge. Here is why:

• All of Wall Street both domestic and overseas have dumped financials and run for cover in treasuries. That money flow may reverse in the next 3-6 months. In fact, shorting the 20 year treasury will likely be a great play in about 6 months.
• The valuations of banks at current levels are very compelling. The major reason for the undervaluation is the remaining uncertainty of additional write downs and a further deterioration of consumer lending.
  
• Banks are taking significant steps to repair their balance sheets. Even though some people might not be happy with the speed, the reality is things are improving.
• Last but not least, the analyst community is beginning to see the bottom with a near complete cessation of downgrades relative to the previous quarter.

Not sure where to invest? Consider Assured Guarantee (AGO), a mortgage insurer that has gone from a 1% market share to roughly 40% over the last 6 months. Billionaire investor Wilbur Ross tends to agree as he has disclosed his investment in Assured Guarantee (AGO). Ross has acquired 12.1 million shares or 15% of the total.

Wilber isn't the only billionaire investor that likes AGO. Berkshire Hathaway Assurance Corp. have AAA ratings with stable outlooks.

In June, Standard & Poor's Ratings Services affirmed Assured Guaranty Corp.'s AAA financial strength and financial enhancement ratings. "Relative to a year ago when the company was at a trading value disadvantage compared with the major primary companies, Assured's successful negotiation of the nonprime RMBS situation has resulted in trading value improvement and affirmation of its rating," said Robert Green, an S&P credit analyst. The outlook is stable which is supported strong capitalization, a favorable market position, and conservative investment policy.

May be a good time to dip your foot into the financial waters. Don't bet the farm but maybe a chicken or two.