It's the Doomsayers' Turn to Hurt

Better. It's better. The credit markets are better. Those who have all of those reams of credit defaults, the ones meant to profit from the imminent demise of the financial system, are right now feeling the sting. They, alone, unwound, praying for negatives, are the source right now of the upside.

People are focused on earnings power for banks. I have been focused on earnings power.

Maybe that's a mistake in the short term. We should be focused on something very different: inventory. The inventory the banks carry will turn out to be a positive this quarter. Remember, Goldman Sachs (GS - commentary - Cramer's Take) stopped selling most of its inventory in the last month. It will now turn positive. Goldman also covered much of its mortgage paper short bets. That will also be a huge positive. This could be the moment when things that have been horrible go well.

Not only that, but we could also be in a moment where there could be gigantic bond issuance to clear up short-term problems.

And best of all, we are not seeing the hidden shorts. Hedge funds bet against the system using credit default swaps, bets that the bonds of institutions would spread in value from Treasuries or go belly-up. The hedge funds levered up in this trade. The price of these swaps is plummeting. Those who are stuck in these positions are going to go belly-up. And the banks that are technically on the other side will zoom.

Recall that the biggest worry two months ago was the $4 trillion credit default market and whether there was counterparty risk. There is, but this time it's on the hedge funds' side.

This is something to watch as the big macro funds that made these bets, one by one, try to get out of these stupid pieces of paper that they are rapidly proving so wrong on.

That, in the end, not just inventory and a better housing market, may be why this bank stock rally is so for real.

At the time of publication, Cramer was long Goldman Sachs.

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