What turns it around? What happens to spark a real rally, not just a short squeeze -- we now exceed minus-9 on the S&P oscillator. What's the tinder?
Here are a couple of possibilities. No. 1 is a deal on a major bank that's in trouble. We know that the peak in subprime loans occurs this summer. That's when the worst were written; after this summer, you are going to be dealing with the better loan standards for most banks -- except for Wachovia (WB - commentary - Cramer's Take), which we learned this week was still issuing Option ARMs, the terrible product that Wachovia kept writing after it inherited it from the sainted Sandlers when it stupidly bought Golden West. That's the $25 billion acquisition that is going to cost $50 billion and could obliterate Wachovia.
Anyway, that means it is possible that you could see a risk-taking bank buy another bank, betting that the deposit base and the peak in subprime loans might actually produce a positive. Now, we know Bank of America (BAC - commentary - Cramer's Take) made this bet already, but it was obviously too early and it was also obviously the most tainted brand that has ever been bought. They might as well have bought a tobacco company. Still, a major acquisition or a gigantic cash infusion from the Middle East will cause a short squeeze of huge proportions. It's just a tourniquet, but that's what's needed to send this horrible cohort up. No respite for Fannie (FNM - commentary - Cramer's Take) and Freddie (FRE - commentary - Cramer's Take), but those too might benefit from the talk of the fact that the worst subprime vintages are now peaking. Of course, any clarity that CDOs are not defaulting or defaulting more slowly would be hugely positive too, and would cause a bottom in some of these financials. Don't forget that Lehman (LEH - commentary - Cramer's Take) and Merrill (MER - commentary - Cramer's Take) are stocked up with this junk courtesy of their in-house issuers, which were among the worst out there.
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