Higher. This show tonight is that guide. First we have to deal with the counterintuitive nature of the whole prospect of the fed raising rates and why it tends to cause havoc in the stock market. Then we have to explore how we can reposition ourselves in a moment of what amounts to be planned turmoil. When the fed cut rates, its all about igniting the economy. When the fed raises rates, its all about reining in the economy. They are two very different beasts with very dre we have to explore what has worked when rates go higher in a different kind of environment than we have ever seen before. We have to explore profiting from the decline and how it is harder than it looks. Then we have to return to the principles that brought us here, the bests ways to make money regardless longer term of the fed. First lets discuss some common misperceptions about why the stock market can go down on good news and up on bad news. In the old days before the Great Recession, we had some pretty the fed perceived its job as helping the economy create jobs when things were bad and slowing the economy to prevent inflation when things got better. Makes sense. Its in everyones interest, of course except short sellers, to have a vibrant economy. We want to put as many people to work in order for our nation to be strong and allow people to participate in the progress, greatness, and profits of the greatest country on earth. So when times get tough, the fed swings into action with its admittedly cumbeto get things moving because it doesnt have the ability itself to create jobs. It cant put people to work. Thats something only congress and the president can do and of course private employers. What the fed can do is move Interest Rates down to levels where its so cheap to borrow that it can impact not just business but everyone, allowing them to refinance, take loans, build things, expand business. Puts more people to work. Now, at the time when the Great Recession was taking hold, the fed, under ben bernanke, did misread the economy and thought it was stronger than it looked. Which was way too hot, and raising rates repeatedly to cool off that matter even as other parts of the economy werent all that strong. What the fed didnt know is that the Housing Market, while only 10 of the economy, punches way above its weight, meaning it creates a ton of jobs and can produce a gigantic amount of debt as the homes and apartments are built and then purchased. The fed raised its shortterm rates 17 times between 2003 and 2006, stopping at 5. 25 , almost principally to cool the Housing Market. To how rapid these rapidfire increases did to the Housing Market. By 2007, it was pretty clear to many of the important executives on wall street that things were very much awry. This was around the moment when i lost my temper on air and tried to get the feds attention with my rant predicting that many firms would go under because the major investment banks had been the principal abettor of 7 trillion worth of debt in the Housing Market. And the 7 trillion and the fed, about the interaction between housing and the rest of the economy. They just kind of missed 7 trillion. Even at that point we were seeing a tremendous number of loans turning sour and debt holders were beginning to panic. I dont want to replay the unraveling or how many institutions were failed by it and jobs wiped out. But suffice it to say that unemployment skyrocketed, and the fed frankly backpedaled, but it was too late. The destruction was so great that it crashed the worlds economies and took our Unemployment Rate to almost 10 was just a few years before. The fed did everything within its power and some would say exceeded its power by cutting rates to next to nothing, and then starting to buy bonds of all types to lower more than just the short rates that it traditionally controls. Highly unusual behavior. Fast forward to today, we see its working. Were putting people to work at levels that we havent seen in years, and even while wage rates have proven to be stubbornly low and the Housing Market hasnt reached close to where it was before the Great Recession, the victory and move on from its intent to keep historically low rates historically low. So where does the stock market come in . Lets count the ways. First, the fed with historically low rates was able to stimulate hiring that allowed people to begin to spend again at much stronger levels than during the Great Recession. Remember, we are a consumerled economy in this country, meaning that twothirds of our economy revolves around spending, not the exploitation of our raw goods, manufacturing them into finished merchandise and then selling or exporting them. That is a huge part of the economy, but its not as important as spending. So low rates allow consumers to spend on homes, cars and of course themselves. All produce a stronger economy, which translates to higher profits for all the industries and for the people who cater them. Not bad. The number of autos sold in the country almost doubled from the low of the Great Recession. We have much stronger retail sales. While home sales didnt spring back to live, a massive do much to help big industry, including one of the most important growth engines of the economy, nonresidential construction. But even that kicked in by the end of 2014. So these portions of the economy and the stocks of companies that benefited for the most part went higher. Because the fed kept Interest Rates down, that allowed corporations to issue debt that could let them expand and, perhaps more important, take over other companies, which led to an amazing merger boom which also helped stocks. The merger boom cannot be underestimated in its importance where the takeovers occurred. And the cohorts were numerous and many. The bonds gave institutions and individuals more income than treasuries could throw off, so they were purchased at increasingly large amounts to the point where historically the amounts of money raised bordered on absurdity, and the price of the money, the actual rate, is way too low to be justified by any longer term picture of the economy. People always reach for yield, others reach for what we call bond market equivalents. Thats stocks that gave you yields well in excess of treasuries. Now this i liked. These stocks, many of which were in the consumer packaged goods industries, but also those in the Master Limited partnerships and oil and gas, utilities, and Real Estate Investment trusts, became much sought after as never before as individuals demanded some income in order to be able to make money with their money. You know thats the mantra of mad money. Its something that became increasingly impossible as old certificates of deposit rolled over and new ones produced next all of these had the impact of restarting the economy and producing decent employment. But it wasnt until oil prices were suddenly cut in half by a glut driven in part by u. S. Production that increased dramatically because of our technology that we got employment and some wage gains that made it so the fed could at last declare victory. The bottom line, the feds done its job the best that it can, and now the regular economy takes over. What does that mean . Well, when you want to know what tuned to find out. I want to start with garrett in texas. Garrett. Caller hey, jim. Another hook em horns booyah to you. Completely. Absolutely. Caller i was curious with the rate hike looking nearly inevitable if in your opinion there was an effective stock that maybe performs better after the Interest Rates we know from jamie diamond at jpmorgan that when rates go higher, jpmorgan makes a ton more money. That includes all ba you can buy the xof if youre so inclined because you dont want individual stock risk, but the major banks in this country are the beneficiaries. Glen in illinois, glen. Caller jim, booyah from chicago, home of the chicago mercantile exchange. As well as the bears, the bulls, the white sox, go ahead. Blackhawks. Caller i got a simple question for you, jim. For the retail investor, for a person who is either buying or thought on using market orders as opposed to a limit or a stop loss order . No. Were always going to use limit orders or else we should get someone else to help us run money. We have to be hands on about our money or we have to let professionals take care of it. We do not use stop losses. I talk about that at actionalertsplus. Com. Youre either watching the market if youre involved in it, or you need help, or you just go to an index fund. All are okay with me. You got to know your own suitability. Thank you, fed. Youve done the best job you can, and now the regular economy is in control. Our special fedfocused show that youre not going to get anywhere else, believe me, continues ahead with the consequences that are coming for both the market and the economy as a whole. What does it mean for you . Plus two reasons its a mistake to walk away as things on wall street get tough. And the changes you need to make with your money right now ahead of the major moves to come. Dont miss it. Mad money will be right back. Second of mad money. Follow jimcramer on twitter. Have a question . Tweet cramer, madtweets. Send jim an email to madmoney cnbc. Com or give us a call at 1800743cnbc. Miss something . Head to madmoney. Cnbc. Com. Is that credit kaai ou wanna check yours . Scores dont change that much. I havent changed. Oh really . Its girlsnight. Ah huh. They said business casual. I love summer weddings oh no. Yeah, maybe it is time. Maybe i should check my credit score. Try credit karma. Its free. Oh woah. Thats different. Check out credit karma today. Credit karma. Give yourself some credit. Now, were going to show you how degree dry spray is different. Degree dry spray. Degree. It wont let you down. Im here in bristol, virginia. And now. Im in bristol, tennessee. On this side of the road is virginia. And on this side its tennessee. No matter which state in the country you live in, you could save hundreds on Car Insurance by switching to geico. Im in tennessee. Virginia. Tennessee. And now im in virginessee. See how much you could save on Car Insurance. Or am i in tennaginia . Hmmm. He said sure, but dont just get any one. Get one inspired by dentists, with a round brush head go pro with oralb. Oralbs rounded brush head cups your teeth to break up plaque and rotates to sweep it away. And oralb crossaction delivers a clinically proven superior clean vs. Sonicare diamondclean. My mouth feels super clean oralb. Know youre getting a superior clean. Now that the fed has declared victory over the war against unemployment, we recognize that there are consequences to both the real economy and the stock market. Theyre two very different animals despite what you may hear from many commentators. First, those who think that the stock markets wrong to go down when job growth is so plentiful, unfortunately you dont understand shortterm history even as you may have a good it is indeed good that more people have jobs, that the country is wealthier, that the economy is healthier. Unfortunately not everyone agrees with that. Let me trace out in this segment why some people feel that way and why i dont agree with them. First, there are the people who genuinely believe that the market has rallied for so long solely because of easy money. These people believe that once the fed has done its job and starts tightening or withdrawing liquidity of even the smallest amount, then the stock market come down and must come down hard because its been propped these people are presuming four factors that i think may not be sound. Number one, they think the stocks of the whole market up largely because stocks have been used as a surrogate for income. Okay . Surrogate income vehicles you call them, and that they will now lose their status. Now, i dont agree with this point of view until there have been many rate increases. Rates are so low that even after multiple rate increases, stocks that yield, say, 3 are still going to be more attractive versus bonds on a short term and maybe an intermediate term basis. Second, the economy will succumb immediately to increases in rates because its too weak to sustain the slightest move up of any consequence. I know that seems irrational, but we have seen this economy experience whole quarters of dramatically lower growth and anytime we get a below average labor, nonfarm employment number from here on, well hear the fed acted too soon or is being too aggressive in its rate increases. I disagree with them. Third, there will be critics who say anytime the fed raises rates, the dollar will get terrible for exporters both in terms of translation when they go to calculate the revenues, the sales produced overseas dont add up to as many dollars as domestic sales and in terms of lost business to those who sell goods with weaker currencies. If you dont understand this, always remember that foreign cars are cheaper when you have a strong dollar, which is why the u. S. Auto companies always squawk about how uncompetitive theyve become versus our trading partners. Theres some truth there. Now, all these kind of to a degree can be argued, you know, they have credence. Tightening cycle. It went on 17 times over multiple years. If you sold all stocks when the rates started increasing, you missed out on some tremendous gains. Thats really important. You hear that . You missed out on some tremendous gains. Ultimately you did have to sell or you would have lost fortunes. So inherently a tightening cycle led to a dramatic cessation in business and a concomitant decline in stocks, so they will simply sell, sell, sell. The news each time you get a tightening. I will describe to you later in but you can understand that tightening history will always spook people out of stocks too soon. Always. Its going to happen over and over. How about the actual economy, though . Rates are again so low that you need to see rate increases that take rates much, much higher than they are now to see a genuine decline in the rate of growth of business. Not initially. You know, a little pow. But ultimately if the economy is really strong and the fed does its job, well be okay. The u. S. Economy, once it starts humming, is difficult to stop, and weve had terrific growth in this country with four, five, and even six percent feds funds rate, so stop freaking out. I dont think you have to sweat these smaller increases. However, that again is not enough to assuage those who think the fed will go on autopilot and raise and raise. This Federal Reserve postthe bottom of the Great Recession is telling you it is very data dependent. Im not concerned well return to the old days of the greenspan i think those days are over. Nevertheless again many dont trust the fed to do the right thing. I do. Many suspect that we can easily be thrown back into a recession without problem. I dont. Finally the dollar. Okay, im giving you that one. Thats a real worry. I am very concerned that higher shortterm rates will make our country a magnet for money around the globe. If youre a wealthy individual or a manager of a Huge Pension Fund or a mutual fund in our country and you are in the low rate environment yourself, would much rather go buy our dollars and take them and buy our bonds. That will keep jacking up the value of the dollar. It is a real and genuine concern. One that i am very on the fence about in terms of what i tell you i feel confident is the right course of action. A lot of it will turn on whether the economies of our trading partners get better because most would prefer not to have to buy u. S. Dollars and u. S. Bonds. I dont want you to think for a raising rates, it is a better time than when the rates are being cut. It can be better at times for some parts of the stock market, but i cut my teeth watching the late kaiser and he would introduce you to some of the greater minds in the business every friday night. One of the best was martin zweig, a fabulous money manager who always preached dont fight the fed and dont fight the tape. Dont fight the fed meant that when the fed was cutting rates, you had a tailwind at your back. As we know from this amazing rate cutting cycle, his wisdom prevailed the whole time. Those who doubted the feds resolve, and there were many, many who thought the fed was just pushing on a string, meaning it couldnt impact the real economy, they ended up being dead wrong. They were run over by the tape, meaning the buyers swarmed in and bought every single dip when the market was going down. Even as it seemed too good to be true. It wasnt. Now, when you buy stocks right now and when the feds raising, what can i say . You are violating youre fighting the fed. Rates that go up because Business Activity is good can be a positive for many sectors, but we no longer have the fed wind at our backs, and to not acknowledge that is to be a fool. So heres the bottom line. Whili the more disastrous scenarios to pan out, i do know the fed is now the enemy of higher stock prices and it can be a powerful enemy if it doesnt watch how fast it raises rates. Still ahead on this fedfocused edition of mad money. When the fed makes its move, what do you do for yourself . Then the stocks that can actually succeed in a rising rate environment. Hallelujah. Send your tweets to jim cramer. Im about to answer your questions. Mad money will be right back. Is that icet . Nope, its lemonade. Is that icet . Icet . Whats with these people, man . Lemonade, read the sign. Lemonade. Read it. Ok. Delicious. Icet at a Lemonade Stand . Surprising. Whats not surprising . How much money marin saved by switching to geico. Yo, icet its lemonade, man fifteen minutes could save you fifteen percent or more. Wi 80 of recurrent ischemic strokes could be prevented. And im doing all i can to help prevent another one. A bayer aspirin regimen is one of those steps be sure to talk to your doctor before you begin an aspirin regimen. If you take medication, you may sometimes suffer from a dry mouth. Thats why theres biotene. And biotene also comes in a handy spray. So you can moisturize your mouth anytime, anywhere. Biotene, for people who suffer when this special show about how a stronger economy can have negative consequences for the stock market, weve now covered how higher rates in the Federal Reserve can derail the stock market. We accept the admonition you shouldnt fight the fed if it really starts raising rates hard. That said because the historic low nature of rates, we recognize that the damage to the real economy might be slight, even as we have some companies that will certainly be hurt by a strong dollar anme that will be hurt from stronger bond Market Competition and, yes, housing will get hurt period, end of story. So why shouldnt we sell all stocks then . There are two ways to answer that. The first is a broader question about stocks in general and then we get into the specifics of what stocks do and dont work. First lets think about why we should own stocks to begin with because thats the more logical question. Why not just turn me off, turn everything off . We know that stocks have been fabulous generators of wealth, terrific, there have been many times where owning the s p 500 for very long periods of time has been fabulous, which is why we advocate doing so. This is a show about the stock market and how to invest in it, but we think the premiere way to do so is to own an index fund. People are always shocked that i say this. Ive been saying it for years. Only if you build up a sizeable position relative to your paycheck and your net worth in index funds, should you then universally to buy stocks. Follow them and do homework or maybe get help from a professional as ive out lined in so many books and so many shows and my daily blog and my Charitable Trust bulletins, i dont want you buying individual stocks. Wow, im going to repeat that because its just so wild. I dont want you buying individual stocks. This is not a show about finding the stock of the new millennium and finding a new millennium stock every day. It is a show about explaining how the stock market works so you can figure it out. We know that it is not healthy at all times to own stocks. Thats just true. I famously went out and urged you to sell all stocks several times going into the biggest selloff of our lifetime but then you had to get back in after the generational bottom was reached. Thats the haines bottom as we call it, who said enough is enough and called a spectacular turn. I went with haines. Always did. Its important to recognize why i did tell you to sell stocks in the first place if you needed the money in a short period of it was because i perceived write this one down Systemic Risk to the economy and the stock market. I just didnt believe it was worth it to own stocks when the fate of the whole Banking System was being debated in washington and when giant Financial Institutions were closing, people talking about nationalizing all the banks and they were taken seriously. It was too dangerous to own anything but cash in a Systemic Risk situation. We had to worry if the atms would work and the company you worked for might go under. A period where the fed is raising rates, however, is not one where theres Systemic Risk. Kind of the opposite. The fed is trying to slow down the economy before we get a bout of inflation that hurts the purchasing power of you, me, and all americans. Right now thats not in the foreseeable future, particularly if Oil Stays Lower longer. You take Systemic Risk off the table, you shouldnt try to time the market per se and get in and out ahead of every fed meeting or release. Thats nonsense. Yosh at the price you want. However, fed increases do matter. If you are adding to stock positions, you want to be aware that going into every fed meeting from now on, there will be an unholy volatility that could be worse than the aftermath of even a meeting where a tightening is announced. Both before and after a fed meeting might be a good time to do some buying, though. Similarly, if you are going to commit money to a retirement fund, see if you can get flexibility in the time when you put money to work. Rather than just commit your money all at once. Every little bit of performance helps. Notice that i say the bad damage will probably come before the fed meeting. At a time when rates are rising, youre going to get a better chance to have income in a safer way with less risk. Now, for the younger people watching, it may mean nothing to you. You look for good growth and opportunities. Youve got your whole life ahead of you. But older people, those who need income, be aware that higher rates mean you can expec income equivalents, youre going to take hits. I would make changes now to those allocations. If youre in a longterm bond fund, i would sell it now. Longterm bonds are going to give you a better entry point a year or two down the road if the economy stays strong. In the interim, you could lose money. Those who bought in 2015 and got absurdly low rates, well, you i know thats a big call, but you must know that you reached free yield. Shame on you. Just like the people that reached for yield in 2006, 2007, i think youre going to lose money. I dont want you to lose money. Why not take the gains or minimize the losses . I dont care if you have losses, theyre going to get worse. Those are lower yield utility stocks, make sure you like these stocks away from the yields because these stocks are going to be, as a unit, overvalued and under pressure. Many of them will be sold so people can buy bonds. Make sure you like the company itself. You own a piece of it. How do we know this is going to happen . Because its always happened. And while it might take longer because Interest Rates started the rate rising cycle so low, there will be many people trying to jump the gun and get out. Dont forget these stocks are richly valued overall both historically and relative to other stocks because of their yield characteristics, not because of their growth characteristics, which makes them less valuable as the cycle goes on. Not all is lost, though. While those stocks do not do well, theres a whole other group of stocks that genuinely benefits from higher rates and thats the financials. They represent 18 of the entire market, bigger than the utilities and the packaged goods stocks combined. Remember banks have really kind of underperformed the broad averages for the last decade because the principal sort of their income, it hasnt been earning very much for them at all. People love banks for the risk free earnings. But there havent been any really kind of risk free income for a long time. Now theyll start getting that return and that will swell their bottom lines. Similar Insurance Companies which take your premiere and invest them in bonds, theyll also see their earnings go higher for their bond portfolios. Particularly employment numbers or every time we get a hike because there will be instant analysis that more raisings are in the fed funds rate, youre going to get raises in the estimates for banks and raising estimates is the mother milk of higher prices. So heres the bottom line. You arent to freak out and abandon the market as rates go higher because there is no Systemic Risk. However you need to be more sensitive to the timing of your buying. You need to change up out of the bond market equivalents if youre just in them for yields and go into financials that directly benefit going forward. And certainly dont be afraid to take losses. Your first loss is your best loss. Pete in mississippi, pete. Caller hey. Glad to finally talk to you, man. Can you hear me . Good to talk to you. Whats up . Caller okay. Hey, my question is whats your take on etfs versus common stock. I like to think that i can pick the best stocks in etf. Thats why were given brains is hard. I dont want to have the individual stock risk. They call it risk. To me, youre owning a company, and the company is not the stock. Youre buying a piece of paper thats a share in a company. But a lot of etfs make people feel more comfortable. They dont make me feel more comfortable but i say to each his own. Kevin in minnesota, kevin. Caller hello, dr. Cramer. Big north woods minnesota and canadian booyah to you. I wish i were there. Whats happening . Listen to it on sirius radio each way and in case i miss it, i have a dvr at home. Thank you very much. Caller my question is about after hours trading. Thanks to you ive been dialing tiny a few corporate Conference Calls and doing my homework as you stated in your book. Thank you. Caller ive seen stocks swing up or down depending on the news after the markets closed. How can this happen if the u. S. Markets are closed for trading, or is this more of a gauge of how the market will react once orders . No, theres always someone willing to do a trade. Its all electronic now. Unless theres an official trading halt, everything can trade, and there can be buyers and sellers looking for each other at all times. Hey, cramerica, when rates go higher, i dont want you to freak out. Just be more keen to timing and to what youre buying and selling. Ill help you out. Coming up on mad money. Be lurking once the fed moves really ramp up. Ill clue you in. Then im answering your tweets. Plus there was a substantial piece of strategy back in my Old Hedge Fund but i havent covered it all in this show. Thats been wrong until now. . Harrys meeting clients from far away. . . But they only see his wrinkles. . . Hes gotta play it cool to seal the deal. . . If only harry used some bounce, to dry. . . Yeah. . Theres a bazillion ways to top your kids rice krispies. Whats yours . . A dash of fruit in their favorite color. . . A bunch of pineapple cause hey its summer . . Bananas and berries cause the letter b rocks. . . A little bit of yogurt . . . Sure why not . . The fun never stops how many ways can you snap, crackle, pop . Wi 80 of recurrent ischemic strokes could be prevented. And im doing all i can to help prevent another one. A bayer aspirin regimen is one of those steps in helping prevent another stroke. Fore you begin an aspirin regimen. Why are you checking your credit score . You dont want to live with mom and dad forever, do you . Im making smoothies how do i check my credit score . Credit karma. Dont worry, its free. Credit karma. Give yourself some credit. Dont let dust and allergens get between you and lifes beautiful moments. Flonase gives you more complete allergy relief. Most allergy pills only control one inflammatory substance. . Were going to prove just how wet and sticky your current gel antiperspirant is. Now, were going to show you how degree dry spray is different. Degree dry spray. Degree. It wont let you down. Will be choppier as rates rise than when they fell. But theres still plenty of good opportunities out there because there is no Systemic Risk at hand, and Many Companies earnings go higher when rates go higher, not counterintuitive. But how about the overall market . What happens when the economy generally does get better away from rates . In other words, what companies have stocks that do better when the economy does better despite higher Interest Rates . Rotations, which have already begun since the fed signaled in 2014 that things were getting too good to stay accommodative. In old times we would reach for industrials as their earnings will improve year after year and yearoveryear because the economy is getting better. Remember how do we look at stocks . How did this years quarter compare against last years quarter. However, these are not normal times. The Big Industrial companies that would be the go tos have become too dependent on overseas earnings to make that simple to think of it like this. Our company is developing ahead of steam as employment but not so fast as to make it so it can generate enough upside for most companies doing business there. China, while growing a great deal, is slowing in its rate of growth. But in other areas like latin america just seem to become an overall drag of growth and some of those countries make me feel like theyre going away. Industrials cant be bought if they have large amounts of business overseas unless that business is part of a larger cycle like say the aerospace cycle, which is more didnt end on getting new planes to meet demand than it is on the overall rate of the international economy. We have to be extra vigilant to be sure of what used to be automatic trades. Its my old handbook, real money. Doesnt work like that anymore. It also means we have to be careful buying Tech Companies with large exposure to europe. Many do because their earnings might not pick up quickly as they have in the past. Challenged by the stronger dollar that will come as the fed raises rates as foreign governments seek our dollar and bonds for both Capital Safety and appreciation. So what will work besides the banks . Companies that have the biggest yearoveryear earnings revisions. Chiefly u. S. Industrials without a lot of overseas business. High Growth Stocks that arent dependent for Economic Growth to do well but can get a boost from a better economy and restaurants and retailers that have benefited from some growth already and Lower Energy Costs that have meant so much to their bott l now, these gains will be in fits and starts will always be called into question from now on as the fed tightens. Thats okay. People just get gloomier and they get more pessimistic. Thats the way it is. But history is frankly on the bull side, at least in the early rounds of tightening, as they tend not to call the economy drastically. Therefore thats where the bargains are created. How does this play out in the market . Simple. Many three day selloffs in the future. Thats what i predict. On day one, all stocks go down. Blowing you out of the s p or of course selling the futures and selling and just crushing the stocks. Heres the big switch. On day two when the fed was on the bull side, you had to start buying the bond market equivalent stocks or the stocks with a higher yield. That will no longer be the case. Now the money is going to gravitate to the banks because their earnings are going to go up and to the highest Growth Stocks, the ones that have been seeing their earnings go higher regardless of the fed and higher rates. Some groups will be hurt, perhaps badly. While the housing boom never really got off the ground, housing stocks will get hit every single rate increase because mortgage money will cost more. Their earnings, their estimates, theyre going to be slashed. Home builders have to hope employment higher wages in the future might help that as well as more job security, and second jobs that become more overall, the markets entire priced earnings multiple tends to take a hit when rates go up. First, whenever we are concerned that the fed will tighten too quickly, we begin to doubt earnings will stay strong. You will hear a lot of talk about how this or that might be the peak earnings quarter or the entire market might be in peak earnings mode. That always forces down the ratio, and thats what all stocks are priced off of. The priced earnings multip be worried about inflation. Why would the fed be raising rates if were not in inflation. Believe me, there will be plenty of people who see inflation coming and others will say the fed is behind the curve. Youre going to hear that. Behind the curve because it didnt tighten fast enough. Those are the people that are going to be on air constantly. Those voices are always heard. Were going to have to hold our breaths every time a consumer instant fed rate increase. But when you hear talk of inflation, youre also going to hear talk about buying gold. I expect that to be something were focusing on, especially because when this that insurance policy has been a real drag for a very long time. People buy gold because it retains its purchasing power at a time when paper money loses it. If investors think inflation is coming they will embrace gold. Theres one issue with gold you might want to keep in mi gold has been in a bear market for so long that many of the producers that thought gold would grow to the skies dot no have the money to continue to find gold. With the sole exception of rand gold, which enhances its prospects position, i would not trust any of the gold miners. I would go with the gld, or probably best of all, gold bullion itself. Advantage of gold. I dont see inflation on the horizon yet. It is reasonable to think that you will hear a lot more about inflation than you do now. It will become especially vociferous from some managers who are making bets against the stock market or radically underexposed to bonds and stocks because they fear a rising market. They wont tell you that, but thats what happens. This is something that always happens. The bears portray whatever is light and scare you into thinking its the end of the world. When the economy was weak, the worry was it will never get better. Now the worry will be its too strong and the feds lost control of it. Dont worry, ill be in there to try to rein them in and cool emotions as i had to do on the down side. But they will be add loudmouthed and as righteous and as biased as usual without ever revealing their true portfolio stance or admitting that they are just being you are going to want to move toward more economically sensitive stocks but please be cognizant that Many International stocks may not do well because of weaker overseas markets while gold white once again shine and come in vogue as inflation talk will permeate the airwaves endlessly going forward. Stay with cramer you wanna see something intense . So we know this markets going to change its coloration. We know well be fighting the fed. Well have to be more careful those could be very dangerous. Maybe then we should just cover the topic that i know many of you might be thinking given that fighting the fed can be very difficult. Real tough job even though a better economy will produce better profits. So lets do it. Lets do something i never talk about. Lets cover short selling. Now, i ner i might not like a company but i wont tell you to bet against it. Thats not my job. Im not allowed to go short for my Charitable Trust. I have no personal account. I cant use puts. But you know what, when i was at my Old Hedge Fund, she shorted every day. It was her strength. She hated the long side. Heres what im going to do. A long, long time ago she wrote down some short selling rules to live by. I dug them up and am just going to give them to you. Not much commentary, just they are timeless, even if some of the examples now seem a tad quaint. Rule number ones got a bit of dust on it. She called the business week cover rule. At the time, trading publications like business week, forbes, fortune, they were incredibly powerful. They often featured companies on their covers and when they did, the stocks levitated higher. So she had a rule. She said never shot a company that you could imagine would be on the cover of a great publication. Now, ive augmented this rule, it never short a best of breed company. There are so many crummy, awful companies out there. Why bother to short a company thats a standout that could be considered among the best of the best just because youre hearing a negative story. Move on. Find Something Better to do with your time. Rule number two, ask yourself can the company be taken over . If it can, dont short it. In my years at my hedge fund, i was short three takeover targets. The ones with the wicked be disasters but not in time for me. They were disasters for the acquirers. In one case it was a total loss, yes, a write off. The third, i guess the acquirer didnt care about the technicals. In all three cases, i could have guessed that a takeover could have occurred. There were rumors in all of them. Sometimes its just too risky to bet against even the Worst Companies if you think that someones stupid enough to buy them and there are a lot of stupid acquirers. Stock because it seems like its overvalued. This is a common mistake. Actually its the most common mistake. Never ever try to call an irrational top based solely on there will always be some mutual fund out there that will keep the ball in the air and crush you for longer than you can take it. Others get more and more expensive because they fit the demands of the wall street fashion show. Bids anyway. It doesnt matter if you think something is too expensive. Beauty is in the eye of the beholder or the buyer for that matter as we know from the people who bought who were short pharmacyclics or short farm asset. Wow, those were horrendous. Rule number four, never actually use common stocks to short if puts are available. If you dont know how to work options, i have a simple explainer in real money and a very complicated primer in getting back to even. Of the hideous losses i had in the three stocks that caught takeover bids. Puts will keep you from being bought in, meaning that a Brokerage House cant come back and demand the stock and close out your short without your consent. That was something happened in the halcyon days right after shake shack came public. If you want a hoot, go read confessions of a street addict where i tell you how it worked and how it hurt me, yes, for hundreds of thousands of going down but you arent sure when its going down, use deep in the money puts and go out far in time. You will never regret paying the extra vig to go out in time. It will always be worth it. Stocks stay up longer than you think, and a lot longer than they should. Rule number five, never be part of a gang tackle short. If you ever hear of a bunch of people shorting the same stock that youre shorting, i can tell you you will be a dead man. They will break ranks if things karen would always ask me does anyone have this call . Or worse, does everyone have this call . If the answer was yes, then her answer was no, we arent going to short it. There is way too much risk that it can blow up in everyones faces and that weak will capitulate and destroy your time honored lovable trade. Finally she taught me a key lesson for you sharper traders and Hedge Fund Managers out there. It is not cool to short. Harrowing and extremely rewarding when you are right and mindnumbingly painful and truly novocainefree when youre wrong. Theres nothing suave or gallant or beautifully intelligent about shorting. Hedge Fund Managers like to brag about their shorts. They think it truly distinguishes them as brilliant, intense, rigorous thinkers. Nah, karen would say. Same as going long except you cant quantify the loss. Whats a better way to go . Simple. If you truly dont like the market here, if you think its going to go down a lot and youre concerned, sell some stocks. Raise cash. Rate them. Rate them. We do it at actionalertsplus. Com. We decide which ones you dont want to keep when things get tough and which ones you buy more of. We rate them on fridays. As long as the fed was cutting the government periodically squabbled long enough im saying the market is getting more difficult because you dont know when the fed is going to act again. So why not build a bigger reserve . Believe me, each time the fed raises rates, you are going to be able to put it to use. Its always like that, but you will have to put it to use because as you have learned tonight, theres plenty of places that do very well with higher rates. You need to be in them. The bottom line, i know you might be itching to short. I am just begging you to realize there is substantially more down side and you must be more disciplined if you are going to pull it off. Much better to raise cash and be ready to deploy that cash in the next fedrelated downturn as the fed, alas, is no longer your friend. Stay with cramer. You know your heart loves megared omega3s. But did you know your eyes, your brain, and your joints megared advanced 4in1. Just one softgel delivers the omega3 power of two regular fish oil pills. So give your body mega support with megared advanced 4in1. Hey julie, i know todays critical, but i really. Need a sick day. Dads dont take sick days. Dads take dayquil severe the. Head, no sick days medicine. Theres a bazillion ways to top your kids rice krispies. Whats yours . . A dash of fruit in their favorite color. . . A bunch of pineapple cause hey its summer . . Bananas and berries cause the letter b rocks. . How many ways can you snap, crackle, pop . My sweethearts gone sayonara. This scarf all thats left to remem. What she washed this like a month ago the long lasting scent of gain flings hey, you know i love to tweet, but i also love to talk. So lets step away from my phone and answer some of your tweets without that 140character limit. Lets get to it. ryes world is wondering what is the multiple that needs to be divided by price to earnings ratio to find out if a stock is jimcramer, madmoneyoncnbc. Im going to explain this to you in a very simple way. If a company is growing faster than the average company and yet sells at a price earnings multiple thats lower than the average stock in the s p, i think you might have a bargain. Heres futures1978, who is wondering, jimcramer enough room to dance at bar san miguel like they do at coyote ugly . Only when we close the place down on friday night and get the music blasting and lisa doesnt fall from the bar. Oh, just kidding. Miguel. Next, uhoh, is tiffanydunn . But no. Sorry, tiffany dunn. Ill get to you the next show. Stay with cramer. You know your heart loves megared omega3s. But did you know your eyes, your brain, and your joints really love them too . Introducing megared advanced 4in1. Just one softgel delivers the omega3 power with megared advanced 4in1. This kid makes stains like crazy so we got our new he washing machine but it took forever turns out it wasnt the machine, it was our detergent. So we switched to tide turbo clean. Now we get way cleaner clothes way faster he turbo clean. Dont fight the fed. Dont fight the tape. I like to say theres always a bull market somewhere. I promise to try and find it just for you right here on mad money. Im jim cramer, and i will see you next time . We are here to make the very hurricane mathieu is bearing down on haiti with category winds, dropping heavy rain in the southeast, races for an intense storm. Ahead of the and hillary cntli gonngoi headtohead, taking heat over a ptsd comment. Speaking of election, right now, Julian Assange wikileaks is building a major announcement. Details of a mysterious poliolike illness paralyzing u. S. Kids. A caution for anyone that