plus the other side of champions here, lindsey vonn. 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 pe w i'm just trying to make you some money. myob 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

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 all about igniting the economy. when the fed raises rates, it's 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 let's 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. it's in everyone's 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 doesn't have the ability itself to create jobs. it can't put people to work. that's 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 it's 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 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 homes and apartments are built and then purchased. the fed raised its short-term rates 17 times between 2003 and 2006, stopping at 5.25%, almost principally to cool the housing market. to how rapid these rapid-fire 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 fed's 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 don't 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 world's 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 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 stubbornly low and the housing market hasn't 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? 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 much stronger levels than during the great recession. remember, we are a consumer-led economy in this country, meaning that two-thirds 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 it's 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 didn't spring back to live, a massive

do much to help big industry, including one of the most important growth engines of the economy, non-residential 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. that's 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 that's the mantra of "mad money." it's 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 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 that made it so the fed could at last declare victory. the bottom line, the fed's 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 you're so inclined because you don't 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. 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 actionalertsplus.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 the best job you can, and now the regular economy is in control. our special fed-focused 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.

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. "is that credit kaai ou wanna check yours?" "scores don't change that much. i haven't changed." "oh really?" "it's girls'night. 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. it's free." "oh woah. that's different." "check out credit karma today. credit karma. give yourself some credit."

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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 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 and starts tightening or withdrawing liquidity of even the smallest amount, then the stock market come down and must come down hard because it's 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 don't 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 it's 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, non-farm employment number from here on, we'll 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 don't 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 don't 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 they've become versus our trading partners. there's 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. 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 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. 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 greenspan

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, 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 don't 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 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 tailwind 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.

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 not acknowledge that is to be a fool. so here's 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 doesn't watch how fast it raises rates. still ahead on this fed-focused 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. i'm about to answer your questions. "mad money" will be right back. is that ice-t? nope, it's lemonade. is that ice-t?

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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 anme 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,

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. 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.

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 haines bottom as we call it, who said enough is enough and called a spectacular turn. i went with haines. 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 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 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 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. 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, 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 nothing to 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 expec 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

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.

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

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. 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

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? 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

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 selling. i'll help you out. coming up on "mad money." be lurking once the fed moves really ramp up. i'll clue you in. then i'm answering your tweets. 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.

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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? 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 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 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 they're going away. 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 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 year-over-year earnings 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 bott l 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 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. 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 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 multip be worried about inflation. why would the fed be raising rates if we're 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. 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

instant fed rate 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 -- 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 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 don't 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 won't tell you that, but that's what happens. this is something that always happens. the bears portray whatever is 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

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 market's going to change its coloration. we know we'll be fighting the fed. we'll 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 let's do it. let's do something i never talk about. let's cover short selling. now, i ner 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

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, it 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

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. 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 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 doesn't 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 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. 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 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 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 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.

harrowing and extremely rewarding when you are right and mind-numbingly painful and truly novocaine-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. 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

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. you know your heart loves megared omega-3s... but did you know your eyes, your brain, and your joints

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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 let's step away from my phone and answer some of your tweets without that 140-character limit. let's 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. i'm 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 that's lower than the average stock in the s&p, i think you might have a bargain. here's @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 doesn't fall from the bar. oh, just kidding. miguel. next, uh-oh, is @tiffanydunn? but no. sorry, tiffany dunn. i'll get to you the next show. stay with cramer. you know your heart loves megared omega-3s... but did you know your eyes, your brain, and your joints really love them too? introducing megared advanced 4in1... just one softgel delivers the omega-3 power

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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! . 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 head-to-head, taking heat over a ptsd comment. speaking of election, right now, julian assange wikileaks is building a major announcement. details of a mysterious polio-like illness paralyzing u.s. kids. a caution for anyone that