The U.S. Treasury’s Troubled Asset Relief Program (TARP) is very important for preferred stock investors to understand as it has created what, in all likelihood, is the largest single preferred stock investing opportunity that we will see in our lifetimes. It’s no secret that the market prices of bank stocks (including bank preferred stocks) are at an all-time low. But which ones are safest?

If you are looking to ride the recovery wave in financials, you need to understand how the TARP program has affected the market for the highest quality preferred stocks – CDx3 Preferred Stocks*.

There are three components to the $700 billion TARP, one of which is critical to preferred stock investors as it is this component that is driving, and will continue to drive, the preferred stock marketplace for the next three to five years.

The first component is a $350 billion set aside for the next administration (subject to change). Nothing is happening with this half of the TARP funding so, for now, ignore it.

The $350 billion half that is in play has been divided into the two remaining components of TARP. $250 billion is being used for Treasury’s preferred stock purchase program (officially called the Capital Purchase Program).

What About Me!? The remaining $100 billion is still up for grabs so everyone from auto makers to real estate associations to hairdressers has been vigorously waving their “What About Me” flags. Don’t let the press coverage confuse you; the debate over the remaining $100 billion does not involve the $250 billion preferred stock purchase program and is not what has created the once-in-a-lifetime opportunity for preferred stock investors.

The $250 billion preferred stock purchase program is being doled out in two waves. The first wave was implemented during October then the second, and final, wave in November.

In October, Treasury took the lion’s share ($200 billion) and purchased custom-made preferred stocks from nine “healthy institutions” (as Treasury has termed banks that are able to qualify for the program) with each bank receiving $25 billion in cash (Bank of America received $15 billion and Merrill Lynch, which BofA is in the process of acquiring, received $10 billion).

Other banks were given until November 14 to prove to Treasury that they too were worthy of Treasury’s investment. Out of this second wave of applications, Treasury has approved 117 additional “healthy institutions” (and may approve more if there's need and cash left over).

126 Healthy Institutions: Out of 8,500 banks, Treasury has now approved a total of 126 (nine from the first wave plus 117 from the second) into their preferred stock purchase program (as of November 26, $161 billion in cash had actually been distributed to 53 banks with more on the way- see list).

If the U.S. Treasury ever wants to see their billions again, the “healthy institutions” that Treasury has allowed into their program cannot be allowed to fail for the next several years. These banks are essentially now “protected” (wondering for how long? see the CDx3 Question Of The Month article below).

These 126 “healthy institutions” were further subjected to the ten CDx3 Selection Criteria (Preferred Stock Investing, Chapter 1). This additional filtering eliminated three of the original nine banks from the first wave (producing “The Protected Six” mentioned in last month’s issue of the CDx3 Newsletter) and all but ten of the banks from the second wave during November.

The Protected Sixteen: That’s right; out of 8,500 U.S. banks, Treasury narrowed the field down to just 126 to let behind the walls of their castle. Then, of these remaining 126 “healthy institutions,” the CDx3 Selection Criteria eliminated 110, leaving what I refer to as The Protected Sixteen banks:

Bank of America, BB&T, Capital One, Citigroup, Citizens, Fifth Third, JPMorgan, KeyCorp, M&T, Merrill Lynch, Morgan Stanley, PNC, Regions, SunTrust, US Bancorp and Wells Fargo.

Subscribers to the CDx3 Notification Service know that the CDx3 Selection Criteria have had a perfect track record throughout this credit crisis. The CDx3 Selection Criteria have successfully filtered out every financial institution that has failed during this credit crisis. CDx3 Investors knew to stay away from Washington Mutual, IndyMac, Freddie Mac, Fannie Mae, Bear Stearns, New Century and Lehman Brothers from the beginning. Those who invest in CDx3 Preferred Stocks haven’t missed a single dividend - ever.

Might there be exceptions down the road, especially during this historic credit crisis? Sure. But, to date, there has not been. How many investment methods can make that claim?

26 CDx3 Preferred Stocks*: The Protected Sixteen have a total of 26 CDx3 Preferred Stocks* currently trading and provide an average annual yield of 10.9%. If you are looking to ride the recovery wave in financials, these 26 CDx3 Preferred Stocks* from The Protected Sixteen banks provide a historic and unique opportunity for your consideration.

Treasury is still considering adding more banks to the program. I will report back to you if additional CDx3 banks are allowed behind the walls of Treasury's castle.

* CDx3 Preferred Stocks: CDx3 Investors are only interested in the highest quality preferred stocks and there are lots of pretenders to weed out. Applying the CDx3 Selection Criteria (Preferred Stock Investing, Chapter 1) will eliminate about 90% of the regular preferred stocks trading on today's stock market.

For example, here are three of the ten CDx3 Selection Criteria that regular preferred stocks must meet to be considered "CDx3 Preferred Stocks:"

1. be issued by a company with a perfect record of never having suspended a dividend on a preferred stock;

2.  have the "cumulative" dividend requirement, which means that in the unlikely event that the issuing company misses a dividend payment to you (which I have never seen happen with a CDx3 Preferred Stock), they have to make it up to you later; they still owe you the money; and

3.  be rated "investment grade" by Moody's Investors Service.

Having specific and consistently applied selection criteria takes the emotion out of your investing decisions and leaves you with the highest quality preferred stocks - "CDx3 Preferred Stocks."

This credit crisis has created enormous opportunity for those willing to look under the right rocks. Financial analysts, writers and expert investors have been screaming over the last few months that the time is right to jump into preferred stocks.

The Three Rules of Market Price Predictability (Preferred Stock Investing, Chapter 5) explain why the market price of the highest quality preferred stocks behaves the way it does, even during this historic credit crisis.

Preferred Stock Investing shows readers how to screen, buy and sell the highest quality preferred stocks. And Chapter 9 lists every qualifying preferred stock that has been issued since January 2001. Book readers are also entitled to free periodic updates.

Preferred Stock Investing is written in plain English for non-experts. The book makes a great gift for any friend or family member who might be interested in learning something unique about investing.

And get this: Amazon has Preferred Stock Investing on sale right now for $17.95, about $2 off of the book's regular retail price (offer subject to change at Amazon's discretion). And Preferred Stock Investing qualifies for Amazon's free shipping deal. Order now to ensure delivery by December 24, 2008.