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