Are you shorting Financials?

The Federal Reserve's balancing act between weakening growth and rising prices is getting tougher. Fed Chairman Ben Bernanke said that since the Fed reduced short-term interest rates a quarter of a percentage point to 4.5% a week ago, concerns about credit-market strains have intensified while rising oil prices threaten to fuel inflation and put "further restraint on economic activity."

Mr. Bernanke's testimony to the Joint Economic Committee of Congress yesterday echoed the Fed's statement last week that it saw the risks of economic weakness and higher inflation as roughly balanced, a signal it thought no more rate cuts would be needed.

Since then, stocks have sunk on worries about the prospect of bigger mortgage-related write-offs by banks and other financial institutions. That has renewed expectations the Fed will cut rates, perhaps as soon as its Dec. 11 meeting. That expectation has contributed to a weakening of the dollar, which tends to fall when U.S. interest rates decline while foreign rates are steady or rising, and put upward pressure on oil, gold and other commodity prices.

Now the banks might not be able to pay the dividends, as rumors are floating on the Street, investors really are runing away from the Financials. It is a good time to short those stocks, or play the short ETFs.

There seems to be no end in the short run, for Financials to keep sliding. Some analysts think that this is an oversold situation, but I highly doubt that. The market ran up after the subprime disaster back in August all becuase of rate cuts. There were no "real" reasons for the Dow to jump up back over 14000. I mean, what was the driving force? Not the economy, not the write-offs every bank was posting, not inflation, not oil prices, and certainly not the USD currency. So this correction is long overdue, but due. Play it safe, short some Financials.