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Cramer: Should financials be climbing – or sliding?

(Click for video linked to a searchable transcript of this Mad Money segment)

The Mad Money host couldn't help but note the sharp increase in the financial sector since late August.

And he wonders what's driving the advance.

"There's been a sudden and shocking decline in mortgages applications and refinances," he mused.

That's hardly positive for bank stocks.

And Cramer isn't seeing any meaningful pick-up in construction loans, or any other loans for that matter.

That isn't positive, either.

Also, he noted that the yield curve isn't steep enough yet to warrant the recent advance. And he added mergers and acquisitions haven't picked up enough to benefit these stocks.

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Looking at those catalysts it would seem reasonable to conclude that the banks should be sliding not climbing – that is, if anything they're overbought.

However, comments made by a CEO guest during a recent interview on Mad Money keep turning over in Cramer's mind. Those comments suggest there may be an overlooked tailwind.

That is, Cramer thinks the housing recovery may be benefiting banks in unexpected ways.

"I keep thinking about what Russell Goldsmith, the president and CEO of City National told me the other day," Cramer said. "That is, there are now fewer than 3 months' worth of inventory in California and the homes themselves have increased by about 30% year over year. Yet every bank continues to carry gigantic reserves for bad loans."

To Cramer that data points suggests two things 1) there is a dramatically reduced number of bad loans on the books and 2) banks may actually have big profits on repossessed homes.

That's bullish.

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Also with interest rates ticking higher, Cramer thinks home buyers, who had been on the fence, will take the plunge. If that's the case, "it's reasonable to expect better numbers in 2014 on mortgages," Cramer added.

That's bullish, too.

"I think that's the story: bad loans going to good at the same time as the possibility of a stronger economy actually generating some loan growth away from mortgages," Cramer concluded.

"It makes sense. Or at least it's a rationale for the strength in a group that otherwise should be coming down."

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