The Center Will Hold

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Friday may have been among the most disconcerting days of my career. Gold stocks took off. The oils flew. At one moment,

General Electric

(GE) - Get Report

fell below

Microsoft

(MSFT) - Get Report

in market cap, not because of a surge in Mister Softee's stock -- it was declining -- but because a seller was wrecking General Electric, shredding this normally sound blue chip, like an Asplundh through a hapless, felled tree branch.

Was the world coming to an end? Was the center not holding, to echo the worries of 1932-33? Had the forces of stability given up the ghost? In other words, was a bottom forming?

Real bottoms are hideous, haphazard things, subject to derision and glorious dancing in the streets by empowered short-sellers and negative strategists alike. They are the final overreachings of those who have made so much money on the short-side that they press their bet to include the General Electrics and the

Cokes

(KO) - Get Report

-- after they have declined 15% and 20%. I know I did, furiously pressing my short Coke bet after

Goldman's

re-recommendation, like a shark smacking against the hull, demanding not only Robert Shaw's tasty legs, but the limbs of Roy Scheider too!

Somehow, in the calm beauty of a sweet Labor Day weekend, I think that buyers will deny me that last bit of satisfaction, and instead, I will be swallowing tanks of oxygen soon to be ignited.

Yes, the cross currents of Friday reminded me so much of 1990 that I was blinded to what happened in the fourth quarter of that year itself. We didn't bottom the week before the Gulf War, we bottomed way in front of that, as people realized that, heck, maybe

Citi

(CCI) - Get Report

won't go under and

Chase

(CMB)

could be a survivor. It was an elongated U bottom, not a V, formed months before, and then kept in a waiting pattern, a pen, not exploding to form the right serif of the letter until bombs were bursting in air.

Mind you, the declines in the banks last week, while monumental, have not erased the great gains of the decade. In fact, by the bottom of 1990 those high-yielding stocks were dealt an almost death knell of drastically cut dividends and furious shot gun marriages, in part stimulated by a worried government.

We are not there yet. But, to short these banks now you must believe that their dividends are in jeopardy and their managements hopelessly under water. You must think that every banker leveraged himself to the hilt with sold puts short, betting that the VIX would never see these levels, and SPX 1000 would always hold.

I thought we could be there, locked into that twilight of the group, by the eerie silences emanating from all of these financial institutions.

We heard nothing from

Frank Newman

, the master of

Bankers Trust

(BT)

, telling us that these derivatives are simply not that dangerous.

John Reed

did not emerge and tell us "this is not 1990, we are not in that kind of trouble." And

Sandy Weill

, oh where were you Sandy, to reassure us that this was all a big mistake and reason has to prevail. Where are the banking

Mark McGwires

and

Joe D's

when we needed them? Their silence said they were worried too, and it was right to shoot and ask questions later.

But now I wonder whether their silence was not business as usual. It was a summer Friday, with many people away for a long weekend. Maybe a statement of reassurance would be wasted. Maybe it could wait until Tuesday when everyone is back. For the first time since this miserable sell-off began I have fear that I will lose on my bank shorts, which have been my best friend through this period, as I realized that the yield curve and the strange, now choking collars, would put the squeeze on earnings from now until the millennium, when the Y2K problem would mop up whatever is left.

The overreaching is not just domestic. The dollar in all of its freefall, tells me that maybe the

Japanese

aren't so dumb. Maybe they are simply trying to avoid a Russian situation, where panic bleeds banks, as they seek a better, less panicky solution. The strength of the Yen since the

Long Term Credit

debacle gives me hope that maybe the Japanese have reliquified before our very eyes and raised enough capital (no doubt through their worldwide firesales of bonds and buildings) to beat this thing.

Why this sudden burst of optimism from me? Because in 1990, I knew I stayed short too long. I made money, but I lost much in the final inning as I refused to cover my

Bank of Boston

(BKB)

as I stayed short all of the Jersey and Pennsy regionals, not to mention those of New England and the Southeast, betting on a quick panic taking out everything that was still standing. I covered before the war started, but not soon enough, because at the bottom things were so bleak I could not possibly think of a reason to cover. (Then as now,

Charles Peabody

, forever the bank bear, gets trotted out by

Abelson

to preside over the death rattle dance that never occurred in '90 and won't again, much to the bears' vicious and wrongful revisionist historical claims.) And the reason was that seasoned hands like

Greenspan

saw what I did and reached out to calm things and put in a bottom, as the Fed King surely did in San Francisco Friday night.

Sure, Greenspan scared us with this recessionary talk, but the fact that he no longer believes that inflation is the enemy -- thank our lucky stars -- may be enough to get us started toward the end of deflation. Maybe that's what the moves Friday said, the moves of strength toward the inflation-based stocks. Deflation is what is killing us, after helping us for so long, and it is deflation that can still be slain right now if the leaders recognize that it, and not higher wages, is the true enemy.

That gold-oil stock rally is a knee-jerk move by traders, but it does signal that those who believe that financial deflation knows no bottom are wrong. It signals that the center will hold, because those still in charge of the center, Greenspan and

Rubin

, see the charts, know the dangers and will not let the world blow up on their watch. I know, I know, the cynics say these men are not up to the task, that they are small men caught in a worldwide maelstrom that they cannot control, that will sweep them like so much jetsam, inland, on a tide of busted pleasure boats and wrecked beach houses.

I don't think so.

Past earnings, even hideous earnings -- no, make that losses -- that are not in the book yet but are awaiting us, will get trumped by an easier Fed, just as they were in 1990, when it was the United States, not Japan, that teetered. In 1990 Long Term Credit Bank was the

Bank of New England

. We knew it had to go. Even those of us who had bought on all of those ill-fated prints on the way down knew that BONE had to go. But it was the blueprint, and it worked. Let the Japanese have their blueprint. Let them take longer than we did. But give this creditor nation some due. At the bottom idiots reveal themselves as cagey planners and fools as lucky winners.

If 1990 plays out, as miserable as that year was, look what awaited us. And look where we bottomed. We bottomed right here. Sure not everything bottomed. In fact, much carnage awaited us. If you bought in September of 1990, you felt Doestoevskian pain before feeling Tolstoiian pleasure. Get ready for that transitional pain.

It is upon us. Don't just stand there blocking the halls. Do homework on what wins when the Fed eases. And put cotton in your ears to tone out the real Doomsayers, the Circes who would freeze you with their sirens of gloom. The dangers are real, and some that you own will not be here come the conclusion of this brutal market. But the Center Will Hold. Those who believe that the end is near will be Wrong.

As they always are.

James J. Cramer is manager of a hedge fund and co-chairman of TheStreet.com. At the time of publication his fund held a long position in GE and short positions in Coke and Bankers Trust, though positions can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he invites you to comment on his column by sending a letter to TheStreet.com at

letters@thestreet.com.