BKX Gives the Lie to the Bear Case

The bears must really be scratching their heads at the bank stock index (BKX) taking out its high here. You shouldn't be getting that at all, should you, if the Fed is about to tighten or even hold steady?

And if subprime lending is a huge contagion -- I accept that it is awful for subprime, I don't believe it's awful for all banks -- then the rally makes no sense, either.

Nor is it a short squeeze, or a hunt for takeovers; no Compass Bancshares (CBSS - commentary - Cramer's Take) in that one.

No, this is just another sign that the Fed sees the inflation reports coming down, no bounce in housing, no loans for the less well-off, and wants to take action.

In 1998, a week before they loosened, Alan Greenspan gave a hawkish speech about the need to keep interest rates high, or maybe take them up. At the time, it was disastrous. I learned my lesson: Don't trust what they say, trust what they need to do.

They need to get rates down for the pending subprime crisis.

And that explains the BKX going through 120, where the bears thought it would never be.

Oh, and don't blame the options. There's no option activity in that index whatsoever!

Random musings: Whirlpool (WHR - commentary - Cramer's Take) now takes out where it was before the so-called bad quarter. This one goes much, much higher.

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

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