Cramer on BloggingStocks: Retail's rally is the key here

Inventories. Many of these companies repeatedly made the mistake of thinking that the turn was almost over, and they kept their merchandise flowing in, meaning severe markdown on existing merchandise. That didn't happen this quarter, so the companies may not have had great sales, but their gross margins didn't fall apart, and instead were much better than expected. That's why people are ignoring so much of the downbeat projections, aside from the obvious gasoline declines.

Now, here's another piece of the puzzle that few are talking about: It looks like the runs in these retailers might mean the housing crisis is winding down. People are getting their heads around the notion that Nevada, Florida, California and Arizona are responsible for the lion's share of disappointment, and they are seeing the declines in prices in real estate in those states and recognizing that the rate of rate of change has started to stabilize, and the bargains are bringing out the pent-up demand. We are in the very early stages of this, but the homebuilder stocks also represent a call on this change.

The lower gasoline's percolating in, but the leveling off of housing declines is being obscured by ever-higher foreclosure numbers. Those recognize the demand side, though, not the new supply side, which has dropped dramatically.

As we annualize the height of the defaults -- the bulge of 2-and-28-year mortgages with little money down and home-equity piggy-backed on top of it -- we will see things get better and better nine months from now.

Why then? Work it through: The worst loans were made from the summer of 2006 to the spring of 2007. We are now almost past the summer of 2006, that gives us seven more months until the really bad mortgage companies, responsible for the really bad loans -- the Novastars and the Fremonts and the American Home Mortgages -- went under or had to withdraw from the market. After that, the tightness began for all but Ditech and Washington Mutual (NYSE: WM) (Cramer's Take) and Wachovia (NYSE: WB) (Cramer's Take), which persisted in making some really bad loans until the summer of 2007.

All of these positives explain the extraordinary run in retail -- a run, as is typical to the market, that you had to start buying July 15, when we got the peak in oil and the trough in banking worries.

Just spoils for those who bought at the bleakest moment.

Random musings: With natural gas plummeting through the floor of $8, you need to ignore the storms. The country is flooded with natural gas, and the producing parts of natural gas are no longer hostage to the Gulf. We are closing in on a 50% decline from the top of pricing, a truly historical decline. The stocks will go lower.

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Jim Cramer is a director and co-founder of TheStreet.com. He contributes daily market commentary for TheStreet.com's sites and serves as an adviser to the company's CEO. At the time of publication, Cramer had no positions in the stocks mentioned.