When the Safe Move Doesn't Make Sense

How do you figure a bank-stock rally even as inflation fears loom?
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Look at this battle royal! In one corner, we have bonds signaling some sort of increased worry over inflation. (Bonds down equals rates up.) In the other, we have the bank index soaring.

We go crazy with worry over these situations. We know only one of these indicators can be right. We take solace that banks might have been on hold until

Greenspan's

speech was out of the bag and then took off. But the disparity between these two normally lock-step entities just doesn't make sense. If inflation is roaring back, you want to sell the banks, not buy them.

Our own take? The economy is getting weaker. Greenspan doesn't want to slam on the brakes if he doesn't have to. But he will if the economy heats up again. Of course, there is a note at the end of the speech that talks about stock-market inflation (the Tokyo '89 nightmare scenario), and that knocked some of the stuffing out of the market.

But what we see happening is a quick rotation into some safer stuff by the market. That might be signaling that people are concerned that another tightening might really kibosh the economy. (I think that is wrong, but I have my observer hat on here, not my judicial wig.)

Some of that could be what we are now hearing from cyclical companies that have been trashed in Latin America and would be further impeded on any tightening. In other words, the happenstance of

Xerox

(XRX) - Get Report

telling us about Latin weakness on the same day that Greenspan is worried about American strength gives cyclical followers a ton of worry.

For us, we want to watch a little more. To call it confusing is to be kind.

James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund had no positions in any stocks mentioned. His fund often buys and sells securities that are the subject of his columns, both before and after the columns are published, and the positions that his fund takes may 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 at

jjcletters@thestreet.com.