From Froth to Investible

Here's still one more version of a short-seller's nightmare. What happens when froth turns to investible? What happens when you see behavior that clearly indicates froth and then, somehow, the fundamentals change, and the stock takes off?

We have seen that recently in so many situations that it is pretty dazzling. It was one thing to see Genworth (GNW - commentary - Trade Now) back from the dead on its own.

But then we had Regions (RF - commentary - Trade Now), Zions (ZION - commentary - Trade Now), Huntington (HBAN - commentary - Trade Now), KeyCorp (KEY - commentary - Trade Now) and Fifth Third (FITB - commentary - Trade Now) recover from their death beds. They all seemed frothy at the time. Now, however, they are "turnarounds," which, while one step above froth, has a ring of authenticity to it. Fifth Third, in particular, raised so much money that Goldman Sachs recommended it as a conservative regional. From zero to hero! Anti-froth!

Last week you got total revenge of the alleged froth. It started with AIG (AIG - commentary - Trade Now), which would have gone nowhere if it hadn't split, but once it had, the shorts figured layup.

Then we got the change in management and the profit number -- however specious you might regard the profit given who and what is owed -- and suddenly you had an investible short squeeze.

I am still, as I told a caller last night, trying to get my arms around Fannie Mae (FNM - commentary - Trade Now) and Freddie Mac (FRE - commentary - Trade Now).

There were very specific profit accruals to other securities that, barring house price appreciation of tremendous magnitude, should have made the common stocks all but worthless. These companies, like AIG, were basically in reorganization, meaning that the common will most likely be canceled and the bonds takeover.

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Jim Cramer is co-founder and chairman of TheStreet.com. He contributes daily market commentary for TheStreet.com's sites and serves as an adviser to the company's CEO. Outside contributing columnists for TheStreet.com and RealMoney.com, including Cramer, may, from time to time, write about stocks in which they have a position. In such cases, appropriate disclosure is made. To see his personal portfolio and find out what trades Cramer will make before he makes them, sign up for Action Alerts PLUS. Watch Cramer on "Mad Money" weeknights on CNBC. To order Cramer's newest book -- "Jim Cramer's Stay Mad for Life: Get Rich, Stay Rich (Make Your Kids Even Richer)," click here. Click here to order "Mad Money: Watch TV, Get Rich," click here to order "Real Money: Sane Investing in an Insane World," click here to get "You Got Screwed!" and click here for Cramer's autobiography, "Confessions of a Street Addict." While he cannot provide personalized investment advice or recommendations, he appreciates your feedback and invites you to send comments by clicking here.

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