Do the Financials Have a Pulse?

The financials are rallying? What could it be? The SEC going to extend the short-selling ban? A short squeeze? Rate cuts? French banking bailout? Intriguing European solutions to banking issues?

Maybe, just maybe, there is a sense that the companies will benefit -- heaven forbid! -- from the changes afoot, everything from deposit insurance to the possibility of more forbearance on mark-to-market. Maybe there is a sense that things can get better with the hope of legislation.

Whatever, given the circumstances involving the survival of the banking industry, this is the only group that can lead a rally with any import, not Pepsi (PEP - commentary - Cramer's Take), Coca-Cola (KO - commentary - Cramer's Take) or Procter (PG - commentary - Cramer's Take), which are strictly recession stocks. (By the way, KO has been acting fabulous of late, intriguing given that it has been a real dog of the Dow.)

Now let me say this about the mark-to-market provision. Everything I have seen on this site about the need for it makes sense to me. I know the assets are bad. I know transparency matters. But I also know that sometimes function must triumph over form. I have no doubt that the vast majority of banks are basically bankrupt. If we wanted to, we could put 'em all out of business. But there is a public policy concern that trumps the stock market. It simply isn't worth closing all the banks because of mark-to-market. If you think it is, I do not believe you are thinking about the larger issue of what could happen to our country if we let this play out.

That's why it is important, because if we wanted to, we could wipe out the entire banking system, as Citigroup (C - commentary - Cramer's Take), JPMorgan (JPM - commentary - Cramer's Take) and Bank of America (BAC - commentary - Cramer's Take) even would not survive marks that represent the latest in depressed asset sales.

You want that?

I don't.

Random musings: Morgan Stanley (MS - commentary - Cramer's Take) is still not moving up with the other banks. I believe that we could see a rally in the stock for the simple reason that if it isn't going under, it sure looks a lot like Merrill Lynch (MER - commentary - Cramer's Take) before the bid it got. This is a franchise that is worth what it was worth 10 years ago even if it is much, much stronger and better than it was 10 years ago. Something to think about.

At the time of publication, Cramer was long JPMorgan, Morgan Stanley, Pepsi and Procter & Gamble.

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