Cycle of Financing the Banks Begins Again

Yep, short base lost. Shorts seem to have vanished, leaving behind an uneasy feeling that we don't have the horses right now to move higher until we take a dive.

Look how easy it was to take this market down. We want to pin it on oil, but that doesn't work, because the oil stocks are doing poorly. What happened is that staying short got too costly and people are wary that the financials all need another round of financing, courtesy not just of Fannie Mae (FNM - commentary - Cramer's Take) but of Citigroup (C - commentary - Cramer's Take), which continues to finance around the clock. (By the way, has Citigroup done anything right? I am deeply discouraged about that one now that the stock is back to where the big deal was done. It'll go lower, I think.)

I understand this fear. If I were Merrill Lynch's (MER - commentary - Cramer's Take) CEO, I would go issue more paper, beyond even the 30-year paper they are bringing. They may need it, and the last equity offering was much lower. Same with Wachovia (WB - commentary - Cramer's Take). And these guys want to beat the market to the downside.

The people who run the financials know that it's been wise to issue stock and preferred every single time there has been a ramp.

The supply then drags the group down, and then the value guys start coming back again.

These financials aren't having great quarters. They don't want to issue equity lower.

Who can blame them? But without shorts, you can only imagine how the prices today seem inflated vs. what we could see a week from now.

At the time of publication, Cramer had no positions in the stocks mentioned.

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