>> mouth is on this chorizo. burning my mouth. it's burning up the charts. >> come on, dude. >> zika. >> 30 bucks, off to the races. >> all right. i'm melissa lee. thanks so much for watching. see you back here tomorrow at 5:00 for more "fast money." at for more "fast money." ma'am ma' "mad money" with jam cramer starts right now. my mission is simple, to make you money. i'm here to level the playing field for all investors. there's always a bull market somewhere, and i promise to help you find it. "mad money" starts now. hey, i'm cramer. welcome to "mad money." welcome to cramerica. other people want to make friends. i'm just trying to make you some money. my job is not just to entertain but to educate and teach you. so call me at 1-800-743-cnbc or tweet me @jimcramer. uncharted waters. that's where we are right now. uncharted waters. that's because we've never had interest rates stay so low for

so long that it's always a shock when they go higher. you need a guide to what happens as they go up, which they will soon. and how you can survive and maybe even thrive as they go 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 it's almost about igniting the economy. they are two very different beasts with very different consequences. we have to explore what has worked when rates go higher in a different kind of environment we have ever seen before. we have to explore profiting from the decline and how it is harder than it works. then we have to return to the prince pls that brought us here, the bests ways to make money regardless of the fed.

first let's discuss some common miss perceptions on why the market can go down on good news and up on bad news. the fed perceived its job as helping the economy great jobs when things were bad and slowing the economy when things got better. makes sense. it's in everyone's interest, 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 cumbersome tools to get things moving because it doesn't have the ability itself to create jobs. that's something only the congress and president can do and of course private employers. what the fed can do is move interest rates down to levels where it's so cheap to borrow that it can impact not just business but everyone, ayou loing 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 did misread the economy and thought it was stronger than it looked. that's because he was just focusing on the housing market which was way too hot and raising rates repeatedly to cool off that matter as other parts of the economy weren't all that strong. what the fed didn't 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 home and apartments are built and then purchased. fed raised its short term rates 17 times between 2003 and 2006, stopping at 5.25%, almost principally to cool the housing market. then the fed turned a blind eye to how rapid these rapid fire increases do 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 fed attention with my rant predicting that many firms would go under

because the major investment banks had been the principal abettor of 7 trill dollars worth of debt in the housing market and the $7 trillion and the fed, i guess they were just oblivious about the interaction between housing and the rest of the economy. they kind of missed $7 trillion. even at that point we were seeing a tremendous number of loans turning sour. i don't want to play the unraveling or how many institutions were failed by and jobs wiped out. the destruction was so great that it crashed the world's economies and took our unemployment rate to almost 10% by 2010, roughly twice what it was just a few years before. the fed did everything within its power and some would say exceeded its powers by cutting rates to next to nothing, and then starting to buy bonds of all types to lower more than just the short rates. highly unusual behavior. fast forward to today, we see it's working. we're putting people to work at

levels that we haven't seen in years and even while wage rates have proven to be stub oshly low and the housing market hasn't reached close to where it was before the great recession, the fed's been able to declare victory and move on from its intent to keep historically low rates historically low. so where does the stock market come in? let's count the ways. first the fed with historically low rates was able to stimulate hiring that allowed people to begin to spend again at greater levels than during the great recession. remember, we are a consumer-led economy in this country, maerning that two-thirds of our economy revolves around spending, not the exploitdation of our raw goods, manufacturing them into finished merchandise and then selling them or exporting them. that is a huge part of the economy but it's not as important as spending. low rates allow consumers to spend on homes, cars and of course themselves. all produce a stronger economy and translate to higher profits for all the industries and the people who cater to them. not bad. number of autos sold in the

country almost doubled from the great recession. we have much stronger retail sales. a massive refinancing boom spurred lots of home spending. the low rates didn't initially do much to help by trig, including one of the most important growth engines of the economy, non-residential construction. even that kicked in by the end of 2014. so these portions of the economy and the stocks of companied 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 more important, take over other companies, which led to an amazing merger boom which also helped stocks. the merger boom cannot be underestimated because it helps raise the price of all stocks 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 purchase 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. people always reach for yield, and it always ends up badly. others reach for what we call bond market equivalents. that's stocks that gave you yields well in excess of treasuries. these stocks, many of which were in the consumer packaged goods indust industries 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 that's the mantra of "mad money." some become increasingly impossible as old certificates of deposited rolled over. all of these had the impact of starting the economy and producing decent employment. but it wasn't 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 so it made it so the fed could at last declare victory.

the bottom line, the fed's done its job as best as it can and now the regular economy takes over. what does that mean? well, when you want to know what it means for the stock market, may i suggest that you stay 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 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 than when rates go higher, jpmorgan makes a ton more money. that includes all the banks. you can buy the xof if you're so inclined but the major banks in this country are the beneficiaries. glen in illinois, glen. >> caller: jim, booyah from chicago, home of the chicago americaen teal 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 selling stock, what's your thought on using market orders as opposed to a limit or a -- >> no. we're 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 action alerts plus.com. you're either watching the market if you're 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. you've done your job. our special fed focus show that you're 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 it's 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. don't miss it. "mad money" will be right back. >> announcer: don't miss a second of "mad money." follow @jimcramer on twitter. have a question? tweet cramer, #madtweets. send jim an e-mail to madmoney@cnbc.com or give us a call at 1-800-743-cnbc. miss something? head to madmoney.cnbc.com.

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. they're two very different animals despite what you may hear from many commentators. first those who think that the stock market's wrong to go down when job growth is so plentiful, unfortunately you don't understand short term history. even as you may have a good grasp on a longer term vision. 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 don't 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, then the stock market come down and must come down hard because it's been propped up by the fed for so long. these people are presuming four factors that i think may not be sound. number one, they think the stocks 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 don't agree with this point of view until there have been many rate increases. rates are so low that even after multiple increases, stocks that yield 3% are still going to be more attractive versus bonds on a short term and intermediate term basis. second, the economy will succumb to increases in rates because it's too weak to sustain the slight of move up of any consequence. i know that seems irrational.

anytime we get a non-farm employment number from here on, we'll hear the fed acted too soon or is be -- i disagree with them. third, there will be critics who say anytime the fed raises rates the dollar will get stronger and a strong dollar is terrible for exporters both in terms of translation when they go to calculate the revenues, the sale produces, don't add up to -- and in terms of lost businesses. if you don't understand this, always remember that foreign cars are cheaper when you have a strong dollar. there's some truth there. now, all these kind of to a degree can be argued, you know, this he have credence. think about the last fed 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. that's 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 concom tant decline in stocks, so they will simply -- >> sell, sell, sell. >> each time you get a tightening. you can understand that tightening history will always spook people out of stocks too soon. always. it's 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, we'll be okay. the u.s. economy, once it starts humming, is difficult to stop, and we've had terrific growth in this country with four, five, and even six percent feds funds rate, so stop freaking out. i don't 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 post-the bottom of the great recession is telling you it is very data dependent. i'm not concerned we'll return to the old days of the green span fed. i think those days are over. nevertheless again many don't 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 don't. finally the dollar. okay, i'm giving you that one. that's a real worry. i am very concerned that higher short-term rates will make our country a magnet for money around the globe. if you're 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, you would much rather go buy our dollars and take them and buy our bonds. that will keep jacking the 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 don't want you to think for a second that when the fed is 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 matter zwine, a fabulous money manager who always preached don't fight the fed and don't fight the tape. don't fight the fed meant that when the fed was cutting rates, you had a tail rate at your back. as we know from this amazing rate cutting cycle, his wisdom prevailed the whole time. those who doubted the fed's

resolve, and there were many, many who thought the fed was just pushing on a string, meaning it couldn't 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. every single one. and each time they made money even as it seemed too good to be true. it wasn't. now, when you buy stocks right now and when the fed's raising, what can i say? you are violating -- you're 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 nottage that is to be a fool. so here's the bottom line. while i do not expect many of the more disastrous scenarios to pan out, i do know the fed is now the enemy of higher stock price zpz it can be a powerful enemy if it doesn't watch how fast it raises rates.

still ahead on this fed focus edition of "mad money." when the fed makes its move, what do you do for yourself? a game plan of when to buy and sell. then the stocks that can actually succeed in a rising rate environment. hallelujah. send your tweets to jim cramer. i'm about to answer your questions. "mad money" will be right back.

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when this special show about how a stronger economy can have negative consequences for the stock market, we've now covered how higher rates in the federal reserve can derail the stock market. we accept the admonition you shouldn't 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 and some stocks that will be hurt from stronger bond market competition and, yes, housing will get hurt period, end of story. so why shouldn't 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 don't work. first let's think about why we should own stocks to begin with because that's the more logical question. why not just turn me off, turn everything off? we know that stocks have been fabulous generators of wealth, and wile there are a whole long periods where they haven't been 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. i've 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. and even then, if you can't follow them and do homework or maybe get help from a professional as i've out lined in so many books and so many shows and my daily blog and my charitable trust bulletins, i

don't want you buying individual stocks. wow, i'm going to repeat that because it's just so wild. i don't 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. hopefully without my help. we know that it is not healthy at all times to own stocks. that's 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. that's the hanes bottom as we call it, who said enough is enough and called a spectacular turn. i went with hanes. always did. it's 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 time. it was because i perceived -- write this one down -- systemic risk to the economy and the stock market. i just didn't 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 drougs to own anything but cash in a systemic situation. we had to worry in the atms would work and the company you worked for might go under. i was worried. we were right to worry. a period where the fed is raising rates, however, is not one where there's 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 that's not in the foreseeable future, particularly if oil stays lower longer. you take systemic risk off the table, you shouldn't try to time the market per se and get in and out ahead of every fed meeting or release. that's nonsense. you should be using it to buy the stock of companies you like 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. you might want to add a little each month before a fed meeting rath 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 fe fed meeting. at a time when rates are rising, you're 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 knonothino you. you look for good growth and opportunities. you've got your whole life ahead of you. but older people, those who need income, be aware that higher rates mean you can expect the stocks that serve as fixed income equivalents, you're going to take hits. i would make changes now to

those allocations. if you're in a long-term bond fund, i would sell it now. long-term 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 should sell them. you should sell them now. i know that's 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 you're going to lose money. i don't want you to lose money. why not take the gains or minimize the losses? i don't care if you have losses, they're 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 it's 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. don't 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. we like growth. not all is lost, though. while those stocks do not do well, there's a whole other group of stocks that genuinely benefits from higher rates and that's 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 hasn't been earning very much for them at all. people love banks for the risk free earnings. but there haven't been any really kind of risk free income for a long time. now they'll start getting that return and that will swell their bottom lines. similar insurance companies which take your premiere and

invest them in bonds, they'll 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 going to happen. and every time you get a raise in the fed funds rate, you're going to get raises in the estimates for banks and raising estimates is the mother milk of higher prices. so here's the bottom line. you aren't 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 you're just in them for yields and go into financials that directly benefit going forward. remember, don't be afraid to take money off the table. and certainly don't 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. what's up? >> caller: okay. hey, my question is what's your take on etfs versus common stock. >> i like to think that i can pick the best stocks in etf. that's why we're given brains is to be able to look at that. some people feel like it's too hard. i don't want to have the individual stock risk. they call it risk. to me, you're owning a company, and the company is not the stock. you're buying a piece of paper that's a share in a company. but a lot of etfs make people feel more comfortable. they don't 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. what's happening? >> caller: love your show. 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 i've been dialing tiny a few corporate conference calls and doing my homework as you stated in your book. >> thank you. >> caller: i've 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 the pent up demand or pending orders? >> no, there's always someone willing to do a trade. it's all electronic now. unless there's 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 don't want you to freak out. just be more keen to timing and to what you're buying and sellingment i'll help you out. a potential pitfall that could be lurking once the fed moves really ramp up. i'm clue you in. then i'm answering your tweets. you' plus there was a substantial piece of strategy back in my old hedge fund but i haven't covered it all in this show. that's been wrong until now.

stay with cramer!

we've now gone over why we can expect that the stock market will be choppier as rates rise than when they fell. but there's 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? welcome to the world of intense rotations, which have already begun since the fed sing nalled 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 year-over-year because the economy is getting better. remember how do we look at stocks? how did this year's quarter compare against last year's quarter. however, these are not normal times. the big industrial companies that would be the go tos have become too dependent on overseas eerngs to make that simple to predict. 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 they're going away. so the tried and true big industrials can't 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 didn't 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. it's my old handbook, real money. doesn't work like that anymore. it also means we have to be careful buying tech companies with large exposure to europe. many do because their eerngs might not pick up quickly as they have in the past. all industries will be 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 year-over-year eerngs revisions. chiefly u.s. industrials without a lot of overseas business. high growth stocks that aren't 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 bottom line. now, these gains will be in fits and starts will always be called into question from now on as the fed tightens. that's okay. people just get gloomier and they get more pessimistic. that's 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 that's where the bargains are created. how does this play out in the market? simple. many three day selloffs in the future. that's what i predict. on each piece of news that could incite a rate hike, a three-dayer. 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. here's 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, they're going to be slashed. t 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 plentiful but don't count on it. overall, the market's 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 that's what all stocks are priced off of. the priced earnings multiple shifts lower because people will be worried about inflation. why would the fed be raising rates if queer nwe're not in in. believe me, there will be plenty of people who see inflation coming and others will say the fed is behind the curve. you're going to hear that. behind the curve because it didn't tighten fast enough. those are the people that are going to be on air constantly. those voices are always heard. we're going to have to hold our breaths every time a consumer price number comes out because we'll fear that the economy is overheating and we'll get an instant federate increase. but when you hear talk of inflation, you're also going to hear talk about buying gold. i expect that to be something we're focusing on, especially because when this d h -- 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. there's one issue with gold you might want to keep in mind. 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. please store it in a safety deposit box. you do not have to hurry to take advantage of gold. i don't see inflation on the horri 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 won't tell you that, but

that's what happens. this is something that always happens. the bears portray whatever is negative in the worst possible light and scare you into thinking it's the end of the world. when the economy was weak, the worry was it will never get better. now the worry will be it's too strong and the feds lost control of it. don't worry, i'll 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 loud-mouthed and as righteous and as biased as usual without ever revealing their true portfolio stance or admitting that they are just being political. so here's the bottom line. 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 overseavers markets while gold white once again shine and come in vogue as inflation talk will wermiate the airwaves endlessly going forward. stay with cramer!

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we know we'll be fighting the fed. we'll have to be more careful allocating capital when we do it. low interest bearing paper, 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 let's do it. let's do something i never talk about. let's cover short selling. now, i never recommend shorts on the show. i might not like a company but i won't tell you to bet against it. that's not my job. i'm not allowed to go short for my charitable trust. i have no personal account. i can't 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. here's what i'm 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 straight out. they are timeless, even if some of the examples now seem a tad quaint. rule number one's 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, i've augmented this rule, and it's very simple. never short a best of breed company. there are so many crummy, awful companies out there. why bother to short a company that's a standout that could be considered among the best of the best just because you're 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, don't short it. in my years at my hedge fund, i

was short three takeover targets. the ones with the wicked fundamentals, they turn out to 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 didn't 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 it's just too risky to bet against even the worst companies if you think that someone's stupid enough to buy them and there are a lot of stupid acquirers. rule number three, never short a stock because it seems like it's overvalued. this is a common mistake. actually it's the most common mistake. never ever try to call an irrational top based sole oi 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. still others have no earnings like many bioteches but they get bids anyway. it doesn't matter if you think something is too expensive. beauty is in the eye of the behold erd or the buyer for that matter as we know from the people who bought -- who were short farm asick licks or short farm aset. wow, those were horrendous. rule number four, never actually use common stocks to short if puts are available. if you don't know how to work options, i have a simple explainer in real money and a very complicated primer in getting back to even. puts would have stopped me out 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 can't 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 pluublic.

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 dollars. if you are sure something is going down but you aren't sure when it's 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 you're shorting, i can tell you you will be a dead man. they will break ranks if things get tough and take the stock up with you. 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 aren't going to short it. there is way too much risk that it can blow up in everyone's 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. karen short sold for a living and it can be gut-wrenching and harrowing and extremely rewarding when you are right. and my numbingly painful when truly know vo cane free when you're wrong. there's 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 can't quantify the loss. so short sellers, good luck. you will need it. what's a better way to go? simple. if you truly don't like the market here, if you think it's going to go down a lot and you're concerned, sell some stocks. raise cash. rate them. rate them. we do it at actionalertsplus.com. we decide which ones you don't

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 rates and staying accommodative, cash was rarely king, although the government periodically squabbled long enough -- i'm saying the market is getting more difficult because you don't 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. it's always like that, but you will have to put it to use because as you have learned tonight, there's 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 fed-related downturn as the fed, alas, is no longer your friend. stay with cramer.

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hey, you know i love to tweet, but i also love to talk. so let's step away from my phone and answer some of your tweets without that 140-character limit. wondering what is the multiple that needs to be divided by price to earnings ratio to find out if a stock is cheap. i'm going to explain this to you in a very simple way f. a company is growing faster than the average company and yet sells at a price earnings multiple that's lower than the

average stock in the s&p, i think you might have a bargain. here's@futures 1978 who is wondering, enough room to dance on a bar at san miguel like they do at coyote ugly. lisa doesn't fall far from the bar. i'm just kidding. next, is @tiffany dunn? sorry. i'll get to you the next show. stay with cramer. the highly advanced audi a4, with available virtual cockpit. the conference cal hour after hour of diving deep, touching base, and putting ducks in rows. the only problem with conference calls: eventually thehave to end. unless you have the comcast business voiceedge mobile app. it lets you switch seamlessly from your desk phone to your mobile with no interruptions.

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don't fight the fed. don't fight the tape. i like to say there's always a bull market somewhere. i promise to try and find it just for you right here on "mad money." i'm jim cramer, and i will see you next time!

a maker of upscale cleaning products faces a crisis." so, last year, the company lost $477,000. but its owner refuses to face reality. max: marcus, some tea. lemonis: feels like you guys are, like, a little delusional about what's happening. her fancy branding is way off the mark. taylor: it looks like the queen of england would have it. and i don't think it should 'cause we make toilet cleaner. lemonis: her extravagant price point is way out of reach. max: so, the triggers, they're all $9 at retail. lemonis: who can afford that? max: yeah. lemonis: and yet she's more interested in her image than fixing the problem. kathy: my hope for you is throw away the facade. lemonis: if i can't force her to accept the truth,