Over the past few weeks, the financial sector and its exchange traded funds (ETFs) have posted better than expected earnings reports, made up some lost ground and started to shows signs of prosperity.  Does this mean we should forget about the past year and move on? 

According to investment guru Warren Buffet, that is exactly what they should do. In an interview with CNBC’s Squawk Box, Buffet stated that it a great time to be in banking because of the quality of mortgage loans being handed out. He stated that we need to get past the financial meltdown.

In fact, Warren Buffet’s Berkshire Hathaway owns five different banks.  They are the largest shareholder of Wells Fargo (WFC), owns U.S. Bancorp (USB), M&T Bank (MTB), SunTrust (STI) and Bank of America (BAC).  This is significant because Buffett tends to move markets and investors around the globe listen and follow his moves, states Sean Goldsmith of the Daily Crux. Don’t forget, too, that Buffett invested $5 billion in Goldman Sachs (GS) in a bid to keep the company afloat.

From a pessimistic point of view, keep in mind that the banks are still not in the clear.  All but three of the banks that received TARP money originated fewer loans than before receiving the money, indicating that the credit markets are still tight. Additionally, investors are taking out additional insurance against the possibility of defaults in banking stocks and the yields of corporate bonds suggest elevated concern.

If you do decide to take a look at the financials, follow a strategy, look under the hood and do your homework.  An ETF to watch is the Financial Select SPDR (XLF), down 21.2% year-to-dater.  WFC is 8%; BAC is 5.8%; USB is 3.4%.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.