Mad Money w/Jim Cramer 10/26/18


The mad money with Jim Cramer podcast is punctured by Fidelity Investments at fidelity, we believe nothing should come between you and your money. So we're introducing zero counties with zero minimums to open an account all because we want you to invest with zero tradeoffs visit fidelity dot com slash value. To learn more. Zero count. Minimums zero counties of ladder, retail brokerage accounts, only expenses, charged by investments such as funds and managed accounts for commissions interest charges or other expenses for transactions may still apply. Fidelity brokerage services number NYSE SIPC. My mission is simple to make you money on here to level the playing field, all investors. There's always a bulwark at summer, and I promised help you find mad money starts out. Hey, kramer. Well, can a mad money. Welcome to KMart. That'd be wanna make France. I'm just trying to make some money by job. Researchers entertain. But that's getting teachers a calming at one eight hundred sixty three CBC or tweet me at Jim Cramer. Tough days don't last forever. But when it come on, you need to know how to respond you need a game plan totally developed and ready. So you can decide what kind of self we're dealing with. I wish I could say that we always know how to respond, but the early days of the decline. Well, they're never easy to navigate. I borrow line from Tolstoy's fabulous, Anna, Karenina, all happy rallies. Are like each selloff is unhappy in its own way. It's so true bull market send stocks higher and everyone thinks they're genius for. Them. Darn easy. Big declines. Because they could be the start of a bear market. They could be just the beginning of something unfathomable or they might actually be by blanche. That's why I wanna use history to try to identify some of the common qualities. So that you can figure out how to handle these inevitable moments of weakness without panicking. I let me offer some historically constructive words of relief sanity and real not phony but real assurance there. Have only been two truly horrendous sell off since I started investing in nineteen seventy nine the one day crash of nineteen eighty-seven and the rolling crash of two thousand seven to two thousand nine I could've done the NASDAQ crash, but the S and P Elba. Pretty well. Let's deal with these two big ones though, head on because these two declines are great examples the polar opposites of each other even as the percentage of the clients were somewhat similar on October nineteenth nineteen eighty-seven black Monday. The Dow fell five hundred and eight hundred twenty two percent in a single session. Twenty two percent of his trading that day and even as the previous week had been one of the worst weeks market history. Monday hit fast hit hard. It was almost as if there were no buyers to be found from Dow two thousand two hundred forty six with a crash started to Dell seventeen hundred and thirty eight where ended that day. It was telling a friend. The clothes. I remember thinking I remember thinking saved by the bell. Except felt like there weren't many left to be saved. But most people don't remember as I mentioned is that the week before was one of the markets worse weeks, ever as doubt already plunged from twenty five hundred to twenty to forty five that's ten percents club that encourage bargain, hunters, and it turned out to be classic bad money in retrospect because these intrepid souls so that they could flip Monday morning in some strength and that strength never developed. In fact, the weakness that they were buying occurred. The next day in what became known as terrible Tuesday with DAL actually, kind of just broke down the market simply stop functioning. But you know, what I was there, and I was actually able to calculate that bottom. The actual bottom that occurred, and it was around Dow fourteen hundred off another fear and thirty eight points from where the market close implant flack day, then fed chairman Alan Greenspan step stopped the decline in his tracks. When he said he'd provide all quitting necessary. To stabilize the market. I still remember that green line when it came over your screen. He listed multiple firms around Wall Street, they'll put in the bottom and the market states remarkable two day rally that took us up more than five hundred points the effects of the crash listed for three months when we had a re-test that held. But you went to almost sixteen months until the averages returned to where they were trading before this big break down the bear market began October two thousand seven it was totally different animal. The Dow fell from fourteen thousand one hundred sixty four didn't bottom to March ninth of two thousand nine when it landed six thousand five hundred forty seven we didn't return to that. How two thousand seven level to watch two thousand thirteen why did oneself and so quickly while the other took six years. That's the question that defines the two extremes of unhappy. So offs the initial in black Monday wasn't mechanical so off the first one. I remember that occurred simply because the stock market failed to be able to function it's instructive unpacked black Monday. Because the way it played out was reminiscent of two other crashes. The flash crash twenty ten minutes Dapo ganger in two thousand fifteen. You may have heard theories about what causes these three crashes, but most of them are wrong. Okay. All three started with the stock market futures. Yes. And five hundred futures in Chicago overwhelming, Wall Street, New York, where the stocks underneath a trader buck Monday happen being the stock. Traders didn't understand the power of the futures market which could flood the stock market with instant unseen supply. These days we accepted the futures are worth watching. But it wasn't like that back then because they were relatively new instruments founded five years before the crash the power of the future snuck up on the people because they were they were initially a much smaller market than the stocks themselves. Because of the great liquidity, oh, the ease with which portfolio managers you can go in and out of them. They became the most powerful drivers and stock prices even more powerful than the actual performance of the underlying companies that stocks are meant to represent underlying companies earnings used to me, much more. Now, it's really these futures. That matter the thing is even with relatively new impact of futures. Black Monday was unu-. Usual. We had had a big run going into eighty-seven remarkable multi rallied with nary a substantial decline and don't I know it I love Goldman Sachs that you're start my own hedge fund because my returns have been so bountiful. The monitor rally created such stupendous gains that group of clever sales people started selling what Clinton what they claimed were insurance policies that could locking gains and stop out losses for big funds. So called portfolio insurance involved. What was known as dynamic Heggie would sound so dynamic hedging where these specialists said that using futures you could ensure that you would no longer be exposed to stock market risk say down five percent or ten percent or whatever the policy took out the Termine. The idea was that they let you suck. Step the labs. I said the losses is impossible to do that. Unfortunately, much like communism portfolio insurances well concede in theory. But it doesn't work it live. The losses will kick didn't want some black Bundy and insurance didn't work if anything the future selling insurance, accelerated Klein and costs incredibly large losses for the actual insurance. The people who sold these policies were charlatans and mount bunks they were never exposed as such. But then just now, but that's exactly they were. There's no magic trick get the returns from investing in the stock Martin without much of the risk. Don't believe anyone ever tells you any different. Of course, it's a time. We didn't know that the power of the futures could cause a crash we figured where there's smoke. There's fire if the market crashed. And there's got to be something real with the economy. There simply has to be a recession lurking there had to at least. That's what we told ourselves. The economist strong going the eighty seven crash in it was strong coming out of it. There just wasn't any economic correlation with black Monday at all it was the interplay between Chicago and New York that set off the conflict Gration, and when the treasury department examine what a that day, a YouTube port it concluded the future set of so much Sally that some specialist firms on the floor of the exchange and some brokerage houses failed to step up and stabilize the tape. The latter had no duty to do. So, but the former were supposed to do it and treasury found that many didn't do their jobs. I was fortunate enough to being cash on black Monday having liquidated, but liquidated my portfolio early in the previous week because the market had acted so badly. It made my career for the next fourteen years of professional money management. I could show perspective investors that I had sidestep the crash for real. They thought I was a genius. But the truth is I was just frightened of the market. And wanted to regroup. But as I never tire saying, it's better to be lucky than good. So here's the bottomline. Sometimes crashes have nothing to do with the economy there caused by the mechanics of the market. Stay tuned for more examples of this kind of decline and the more serious Hannibal the market two thousand seven two thousand nine C you can figure out what to do when they happen. Let's go to Keith in Texas cave. Hey, Jim, how're you doing? I'm doing well. How about you? Pretty good question is, hey, how'd you decide when a collection like we had back in February has made a bottom, and it's okay to get back into the market. Well, what I like to do is elect to see try to get a sense on whether the selling has run its course. And what it takes to do that is to be able I you get a level where it bounces, and then it comes back, and it tests that level it that second test as we call it holds, then it's more than likely that you have to come back from the sidelines. And sometimes crashes have nothing to do with the economy. They have to do with the mechanics of the market knowing how to respond is essential to your money money tonight. My Selous strategy session continues. Don't miss my take on the micro crashes that may be sure but could have lasting effects that when you view investing. Then you might know chicken little and the boy who cried wolf from. Fairy tales, but they also play a role in the stock market. Is it all the feds fall, not always of mine the rational reasons rational that the market declines when it comes to the central Bank. So stick with. Don't miss a second of that money. Follow at Jim Cramer on Twitter. I have a question. Tweet Graber hashtag bad tweaks sin Jimmy mail to mad money at CNBC dot com or give us a call at one eight hundred seven four three CNBC miss something. Head to mad money dot c C dot com. Welcome back to a special how to deal with all sorts of declines at dish of mad. My. We've already covered. What happened the crash eighty seven? How wasn't really related to the economy? Shocker. So it was okay. To buy stocks in that we nineteen eighty-seven was a rare opportunity that took a little TIME TO REVEAL itself. But when it did. Ooh. La la. It was also the first instance of the s and p futures exercising their pernicious power over individual stocks. They were like playthings the stocks. Sadly, it was the first of many, which brings me to the fable flash crash of twenty ten one of those negative moments that drove away so many investors who never came back to stocks because they know their value could be destroyed so quickly almost wims Clea who wants to keep their life savings and instruments that can blow up in the blink of an eye. What happened at at June? It was pretty much the same deal as black money of eighty seven. The futures overwhelm the stock market and bars just walked away betting. There had to be something subsidy behind the destruction. It couldn't just be the machines breaking down for heaven's sake. Last craft started at two thirty two PM may six two twenty ten it lasted for thirty six minutes in that thirty six minutes. The Dow fell almost one thousand points from lucky the ten thousand level it was member for me because I happen to be on TV at the same time. Some money managers have been speculating that the market was going down precipitously because of riots in Greece. Oh, queens was on everyone's mind back then because been endless worries at Henry about what would happen if the Greeks deformed on their bonds, others pinned it on new fan weakness in the US economy, which for the record there really wasn't any because I had the benefit of trading on black Monday. I recognize exactly where what it really was when it was happening. Now, the situation where the futures were overwhelming stocks and the machines were breaking we didn't know as the time. But a gigantic Aaron. Ellwood or caused tremendous fear that spread like wildfire. Many buyers simply disappear they didn't want to wait around to find out. What was causing the landslide? They just wanted to get away from it as fast as they could one air. I call them the phony sell up because the decline of no basis it economically alley which made it a tremendous by. What we're seeing right now. I mean, maybe I believe maybe unprecedented. There a fantasy that sock with stupid system, obviously broke down redefined list from which into talking about when Shane's failed nude obviously broke that job. Didn't work at broke down the machines broke down. That's what happens. It didn't work the machines broke down. And that's what happened on that later. Well, some listen and actually bought stocks a move and talk about that too. Many people simply didn't believe that equities could be that fragile was shocking in all the years. I've been doing this show. I hope I've taught you that stocks are not hard assets. There's subject to all sorts of whims that can reduce their value at a heartbeat including mechanical issues like those that happened during that thirty six minutes. So anyway, the market quickly regained its equilibrium. But not before another round of individual investors left the asset class entirely and never came back. Okay. How about the August? Twenty fifteen up for the Dow fell one thousand points, what if the open that will miss seemingly related to fears that the fed was it's into raise interest rates read into the weakest in the CIA after what was happening in the Chinese market, not our market as Tiny's market had just fallen more than eight percent in a single day. Many seem to forget, but back then the Chinese market was the most dominant negative story out there as people fretted that the whole economic edifice in the PR C could collapse from too much leverage, and too little acquitting some L I five. I five I found myself on air at all the right time witnessed these events that Friday for the self that been a monstrously ugly days, a fed official lake near to noon had suggested it was time to raise rates despite the Chinese sell off. It was an aggressive statement that demonstrated a cavalier attitude toward the markets ugly. But also fragile mood when we came in on Monday, August twenty fourth we heard that there were some very large sell order, some places from major stocks. I mean, we we weren't ready though, for the gap. Dow's we saw who picked capitalization stocks were shedding hundreds of billions of dollars value with many twenty percent down as the market open like the question baby seven, it was very tough to tell what the real prices were the confusion was that horrific. It was like the fog of war. The fact of training, but Val ended up tally a decline of about one thousand points when the smoke cleared at ten o'clock, I and my partner some squawk on the street, we're pretty stymied at the time. You know, what I remember turning David favorite? Chad. About the meaning of the sell off in the midst of the conflict Gration, his reaction priceless. The Dallas house down two thousand points. And the wall says on some of these names UNH Verizon GE down thirteen I this is. I got I got to make some phone calls because that's. Someone boss or a Norma smooths? Going to make some phone calls. I remember what he said. I said, yeah, that's it. I gotta make some costs. That's how confused we were. Again, we figured the had to be something. But you get the kind of decline, right? That'd be something going on the economy. Some somebody knew something we did. Something mysterious something other worldly, something ferrying, maybe China actually collapsed. Maybe there've been something that occurred in Europe. We didn't know about the economy is still fragile that warranted. The decline I was suspicious though suspicious because some of the hardest hit stocks were the recession proof names, especially the biotechs, which are some reason declined harder than almost all the rest of the market. Think about that that shouldn't be happening. If there was really something wrong with the economy. That's what people buy those talks are often, the safest of havens and moments when it's the economy that's at work. Once again, I suggest the machines that were causing the problem that the future should overwhelm the stocks and the computers they'd gone haywire by mid morning. We learn that was exactly the case and the stock market them. Underwent a beautiful metamorphosis furious rally jumping five hundred points from the bottom strong stomach virus came in and took advantage of that opportunity. The economy is gaining strength. Not losing it. But a thoughtful fed actually wasn't about to tighten with. Not with China teetering. It was an excellent time to buy stocks. Why was there such fear and confusion at the time of both the two thousand ten in two thousand fifteen minute crashes. I think investors weren't ready for either flash crash because post nineteen eighty-seven the government put him known as circuit breakers. There were supposed to cruel these declines by stopping trading momentarily. But these circuit breakers created a false sense Curie that Ali still exist today, even as they failed to work properly. Both occasions did very little stop the destruction. So please when you hear talk of circuit breakers, protecting you from fast declines, no don't believe it. Fear can't be legislated or regulated out of the market. It will always be there. There will always be people react horribly after an initial then even that events mechanical not truly substantive in nature. So what's the bottom line here? If you can determine whether so office caused by the mechanics of the market breaking down, the new might have an incredible buying opportunity. I though you have to figure out whether the selloff is related to the fundamentals economy. If it is then state who if it is stay tuned anyway, but recognize that you have a first class panic in your hands and nobody ever made a dime panicking. But boy, oh, boy did they coin money taking the other side of the trade. We're going to go to Jeff in Florida. Jeff. Mad money. It's an honor your very very by. What's going on your welcome? Here's my question. Jim they're an equation formula rule of thumb anything to dictate when or especially what percentage of profits to take off the table and really good gains or grabs. We you know, what I have had the shows in at all times. I always try to measure these things, and what I've come to realize is that I used to tell people when things were really bad in the market. You know, look up twenty five per cent. Take some off the table but for actions plus dot com. What I've learned it's got to be a little more patient that when you have a really good stock goes up fifty percent, then you start taking some off. And then a hundred percent, then you take out that you take out your basis you put in and then you let the rest ride on not as anxious to trade or recommend trading as I used to. I like longer time investing the situation. Bomb whoever nobody ever made a dime panicking. Okay. If a cell has caused by the mechanics of the more, you may actually have an incredible buying up to but for made money at the market falling the Marcus point, it's more than just immersing. Teach. You a lot about any best. Then don't get fed up on breaking down the fed vers erves role in the mortgage and a sell off or says a by the key to tell a difference is a little something I like to call systemic risk. Day two dollars plate and stick with Kramer. We are that discussing what to do in a selloff? SSL sell sell, sell and how to figure out what the right approach is given how difficult different they all. Are we covered? The crash of nineteen eighty-seven is example of one of the most horrific and quick declines imaginable. And yet there was no economic ramifications whatsoever. Many foot we had to be on the verge of a recession because the stock market projects. What is supposed to happen in the future? It's kind of an early warning system. But not that time it was a cell a full of Salman fury that signified nothing. Same with the to flash crashes that we've been through two thousand ten in two thousand fifteen the Selva two thousand seven to two thousand nine was exactly the opposite. It was a multi Klein that started when the Federal Reserve raised rates seventeen times in lockstep trying to cool an economy that already long since cooled off. It's the most dangerous kind of sell off. Bobby calls the static wrist decline. And it's one that we can't travel with and we got to spend some time. Fortunately, they don't happen. Very often. Call it say how about twice in eighty years the first being the great depression. Unfortunately, every time we have a severe a couple data Klein, we hear this great recession bear market vote. Lots of investors curry out believing that the sky is for you. And then they never come back, and they lose money, and it's breaking my heart ear, so let's set stage back in October of two thousand seven the stock market Pete and a little more than fourteen thousand when as I mentioned the fed brace rates over and over and over again seventeen times and economy after cheering for just a bit fell off a cliff and took the stock market. What's it is those things that you could have seen coming if he had paid attention done? A lot of talking some homework, or at least paid attention to me went back on August. Third of two thousand seven I escorted the fed for continuing to raise rates oblivious to the damage it was doing to the real Konami. People better this game for twenty five years, and they are losing their jobs, then these are going to go out of business and he's nuts. Nuts. They know. Nothing kramer. I have not seen it like this since I went five bid for a half a million shares of CitiGroup when I got hit nine thousand nine hundred this is a different kind of market and the fed is a sleep. Okay. But here's the mount Bill pool is a seen. He's shameful. They. Nothing. Nothing nothing. Oh, excuse me. What does that mean? But well shortly before I came out to the set that moment to be interviewed on my old friend earn Burnett. I haven't talked to the heads of what to ahead of actually one Wall Street firm about problems in the mortgage market pretty much everyone who follow this market, which is incredibly important to the healthy economy, you that there were a lot of unsound practices occurring. Stewart was jarring when I was told by this executive that he couldn't believe how many people would be getting to default on their mortgages talked about how many mortgages of the two thousand and five vintage he used a term that I had really before they associated with fine wine just weren't money. Good. Something only had happened once in our country's history and was never supposed to happen. Again. The great depression, I was gas. But you know, what I lot of friends a lot of firms. So what I did it start making a lot of calls. I wanted to see if this two thousand five vintage thing was in trouble everywhere. I was adamant I got off the phone is the problem seemed to be spreading like wildfire. Called mortgage bankers guys major Wall Street. I everybody's and that's why I went off so strongly my red. Oh, well, the fed didn't listen uh specially Bill pool who at the time was an important fed official who is so sanguine about things that I had to single out in the ran years later, I found out when the feds transfer released from that period that my reate was brought up in the fed had a hearty laugh about it. We then had a series of renders defaults of large banks and savings and loans some of which were thought to be too big to fail and failed. Anyway, including gorgeous, save me some loan and two of the largest and most people brokerage houses, I did my best to try to get people out including going on the today show to urge people who needed money near-term to take it out of the stock market less. Dippy lost. Whatever money you may need for the next five years. Please take it out of the stock market right now. I don't think many listen and the market fell another forty percent before it bottomed. Bought anytime from when the stock market peaked at fourteen thousand till was cut more than in half by March of two thousand nine. You did lose a fortune. So how you void binding. This kind of dip isn't that what we need to learn? How do you would this kind of dip versus buying that black Monday opportunity? They seven the first thing you have to ask yourself is about the economy is business is business. Really getting crushed is employment. So important when considering the direction the stock market falling off and falling wealth hard is the fed standing pattern even raising rates when their signs of real cracks like major firms going under or big companies unable to pay bills are their actual runs. Unbelievable financial institutions around the country, not just in one area. If the answer is yes, then you ever decline that could be deeply rooted and joined at the hip with the real economy, and that has what I've mentioned is systemic risk. Meaning that the entire country could collapse. That's how it was back then and it is why I get so angry. When I hear people say, this is going to be as bad or worse than two thousand seven two thousand nine when there's of course, nothing. Like that car because like I said only twice in eighty years. You don't expect systemic Chris continue happen. That's not the way it works in our country. Second if you wanna know if there's anything in place that can actually save the economy or actually turned around that's important to eve is the government tried to intervene with a troubled asset program and yesterday, she tried to institute rules that forbade short-selling. None of those things mattered what brought the market Alabama's funk was a statement. By Ben vernacular, forceful statement. When sixty minutes, no less that he would no longer let any more banks go under in our country before that we watch is the fed had pretty much indicated it was unable to stop anything dramatic from Akari. Bernanke was no longer worried about such niceties and a bottom was put in. We're their ways to spot the bottom. I got a couple of signs that can help one that I monitor closely is the standard and Poor's oscillator that's a paid subscription product that I get which is updated if because and trading every day it measures buying or selling pressure. When you get a minor spied that indicates that there is most likely too much when you get a minus ten you gotta do some by. We were getting sales or much worse than that near the bottom is a sign that it was time to buy another way to look at it. I like to say who's been pessimistic or concern about stocks. But it's good walk into say anything positive who then changes his tune the best example of that kind of switch came from the late. Great Mark Haines who had this to say back then. However, I'm going to step out on a limb here. My rethink hold on every word about him. I really don't look at that March ten of two thousand nine the day after Bernanke he was on sixty minutes. And that's why we call it the Hanes bottom bottom. It was that much of a country and call from someone who hadn't been mowing to make one until that moment. Now, certainly made a ton of sense to sell what I said to sell. But before you say to yourself. What happens if no one more you again, the next time? What do you know what I've got some good news for you little sobering. But it's good. If you waited long enough six years to be exact you actually did get back to where you were before the bear market begin. All right yet, six years. But if you'd sat tight you've actually did get back to even since then, of course, you made a lot of money. Yes. It would have been better to take something off the table. But one of the reasons why I am always always always stressing that it might just pay the sit tight if you haven't sold is because even in the worst stock market economic boom of our lifetime is still did fine. If you bought in hell, so here's the bottom line be where the chicken Littles of the world be mindful that there are tons of people who cry wolf every time we're down for a couple of days. But then again, there's been one time where it paid. Actually sell when there was real systemic risk. Remember that term to the US economy unless there is again, it's okay to do some selling. But otherwise, maybe just sit tight and wait for those signals to buy Dada and decimated. Donna. In my husband, watches, you all the time and really trust your opinion off, fabulous fabulous. I want to invest five thousand dollars for my grandsons. I birth date for college. Galaxy Minolta house when he gets older I know that it to bottle market, and I wanna invent long-term, but I want to be offensive against Delo. So what's my death way to go? All right. Here's what we're going to do. We'll get into that five thousand to one thousand each time. You get to put the five thousand in one thousand time. Why don't you do this way every other month one thousand say January then one thousand March until it's all in that way? If you do get a big self knee. Interim then put all that in that's left at once. That's my role and it's worked for me literally since nineteen seventy nine let's go to Jake up in Florida Jakup. Kramer. How are you, sir? Picking my call ticket from Tallahassee Florida T has let's go to Jim in Milton for some barbecue. Yes. Absolutely. Like question for you, sir is when there's the bear market, and I have a thought that been performing well consistently in the past. But factor the look at the site weather to get out or if you should old onto it for the long term well in the end, it's gonna come down to if it's a bear market. We're going to look for companies with incredible balance sheets that we think had not far too much money and therefore can wide it out. And then we'll ride it outright with sellers. Beware. Beware of the chicken Littles unless they're systemic risk. Be mindful when investors cry wolf much, we're mad money had including interest rate. Intrigue I'm explaining how to handle sell offs in the wake up interest rate hikes, then they cover all the ways to sell off. They could get my strategy session continues. And I'm taking all your tweets, so send your questions by way. And of course, dick way, Kramer. Tonight special survival guide edition bed money, we're discussing how to deal with brutal selloffs. Separately. How to defend against them? Take advantage of even I told you not to be glib about the systemic risk. So often involve the potential collapse of the US Konami, but those are easy to spot because it will seem like the world's flam part like in two thousand eight you don't need me for that. But now I wanna help you game out the other less dangerous kind of crash the mechanical kind caused by a broken market in a healthy economy. The best way to deal with these sudden declines is director is that there's a bottoming process when you can spot. So what did you do? I like to look for what it called accidentally high yield or so he used to call eight h wise on the show. Those are stocks of companies that are doing fine good balance. But their stocks have fallen solo dividends are starting to give it outstanding return not one that you could ever believe would be from such a high quality company. How do you spot these I like to look at the stork level of dividend yields you've gotten from certain stocks as well as the rate the tenure treasury gives you if it's typically he'll take two percent. Suddenly, it's paid double that. Because of a market why? Decline. That means the stock went down. Then you're probably looking at what we call an accidental high yield as long as the stocks going down for no particular reason. That's why I like to look at companies that are particularly sensitive to the economy second, if the U level isn't constructive or giving you opportunities I use a mechanical sell off to pick some stocks that you like and begin to buy them using what's known as wide scales. That's what I recommended during the two thousand ten flash crash pick one of the best stocks out there premier stock and buy some using limit orders. Only don't use barking orders. Please. You might end up getting terrible prices, frankly, you should never use market orders. But it's especially stupid during a crash. I like because if the market does come right back because it didn't to flash crashes you've picked up some terrific merchandise at amazing prices, then you can flip the stocks. If you want to for big profits or you can hold onto them. But thick look I demonstrated how to do this in the flash crash of two thousand ten. Nine two quarter bid for fifty thousand Proctor fire at my hedge fund. I mean, this is a good. I'm just taking up in that name. Minutes when I walked out. It was the sixty one. I'm not that interested in it. It's a forty seven well, that's a different security entirely. So what you have to do though you have to use limit orders. Because Procter just jumped seven points that I said I liked it at forty nine. So I mean, you know, you gotta be careful. That's the craziest. I'm talking about. And a lot of people ended up doing that Procter trade. So I always feel good. Remember the limit order. Vice still rings true. Now, we've covered a recognized systemic risk and have a sidestep it it. And we've talked about how to profit from many crashes how about the rest of the selves, we experience the garden variety. Pobox? Those are the most common types by far what causes these declines. Well, they're bunch of of different varieties. I you've got so offs caused by the Federal Reserve probably the most important because their top of mind, and that's the most frequent reason for stock dumping. There's a reason the business media's constantly talking about the fed when the economy's weaking Federal Reserve job is to try to restore growth as long as the fed is cutting interest rates almost every decline is a bible on unless they're systematic risk. Of course, it's just the fact of life. It's been like. They got a business. But when the economy strengthening, and perhaps even overheating the fed has a different mandate in an expansion. Its job is is to temper growth in order to stop inflation. And look the fed is right to be worried inflation erodes the purchasing power of individuals. It makes it so your dollars by fewer and fewer goods and your savings are less likely to cover your long term needs. But we don't want the fed to break the economy. And here I'm talking about the beat are kind like it did when it raise rates seventeenth straight times in lockstep going the great recession. Now, there are plenty of times in the Fed's tightening and the stock market wasn't crushed. Because the economy was crushed. However, whenever the fed tightened some prognosticators will come out of the woodwork to tell you the market will crash, or at least take a very big header, it's inevitable. So when you hear were read these comments do not panic fed rate hikes, don't necessarily crashes. In fact, I've seen plenty to next to nothing. But there are rational reasons why the stock market should. And does go down when the fed raises rates. I only one of the assets available to individuals institution. There's cold real estate. Of course, the bonds I like goal to safe haven, and I believe that every person should hold some goal, preferably Bouillon. But if not then the deal D is a hedge against inflation. But otherwise as we've seen Golez Minneapolis, protect you against much in the last two decades, Senator a hedge against a catastrophe that hasn't yet occurred real estate actual real estate can be cool hedge. But most people don't have the money you invest in the kinds of real estate that big institutions can by now, we do have real estate investment trust. But they're not reliable as a proxy for real estate. Finally, we have bonds is investment alternative and bonds are the source of the problem when the fed raises rates as the fed tightens bonds, particularly short-term piece of paper become more competitive with stocks. You'll notice that is the fed Jackson breaks high yielding dividend. Stocks are going to be among the worst performers. That's because they're yield. Suddenly look a lot less attractive versus what you get from bonds in their stocks are inherently more risky than treasury's. So please, be careful. All of these stocks as safe havens to win the sell off is caused by the fed. They're very different from accidental high yield that can spring back when the fed is tightening. The second reason why stocks can go down with generally when the fed raises rates because the fed is perfect. I keep talking about the seventeen lockstep rate hikes will cause the fed is 'perfect the fed kept tightening and tightening long after it should have stopped. They've raised rates when they shoot a stood Pat because economies already slowing or even cutting rates fast. Because of what was going on underneath when that's the case cells can materialize going to the fed meeting. And then the pain will continue after you get that kind of pullback in, you know, you need to be extra careful not to be buying any stocks, especially defensive high yielding bomb market alternative SaaS is not going to work. Here's the bottomline. Gordon body pullbacks can be gained as long as there's no systemic risk. But sell-offs in the wake and the fed raising rates those are trickier, although they can lead to decent. Opportunities as long as you stay away from the high yielders that become less attractive when the fed tightens and stick with the accidentally high yielders that might just give you that the wishes bouts when the fed is done tightening their money's back after the brain. Tonight. We're talking sell us specifically during this plot. What causes cartoon variety pullbacks? Then he comes to problem is indeed the fed a mentioned for the break. But sometimes there are other issues that are really important for starters. There's the issue of margin as a former hedge fund guy, I'm well aware that there are many times when money managers borrow more money than they should. So when the stock market goes down, they don't have the capital to meet the margin clerks demands, these kinds of margins used to clients have happened repeatedly, including the beginning of two thousand eighteen when funds that had borrowed money to bet against stock market volatility. The so-called Vicks cut their heads handed to them. They were short the vix betting, the market remained, calm stupid people and against and they bought the S and P five hundred using borrowed money again real stupid when the stock market fell. These managers were forced to sell their S and P five hundred positions in I'm wide their trades. There was so many matches doing this once that they're selling it ended up call. Zing some severe market wide losses. These margins use breakdowns often occur after several days that are where the market's damn that's why I'm often reluctant to tell you to be aggressive in the first few days of a big decline because there are always going to be more clerks against these managers who bought buy stocks with borrow money. They're going to have to keep chopping. How do you spot these clients? And when they're going to be over, you know, what I use the clock margin. Clerks don't want from Scipio on the hook for overstretched. Individuals a hedge funds so margin clerks demand, the collateral be put up raise some cash or they sell you out of your positions without your say. So I always decision the margin clerk the butcher and the butchering occurs between one and two o'clock if the selling runs its course by two forty five pm. Yes, I find it to be actually that specific. Then I think you have a decent chance to start buying safety. Stocks kind of stocks that tend not to be not to need the economy to be strong in advance to advance like healthcare stocks. You might also want to buy the stocks of the fastest growing companies with great secular theme. That work in any environment. I talk about them all the time. What else can create bible opportunities? So Ostrom overseas. I cannot tell you how often I've heard commentators who scare the bejesus out of us. Because of imported worries from say, Greece or Cyprus Turkey Venezuela. Mexico callous other places, I always tell you to ask yourself. Do it any of these woes really impact the stocks of the American companies you've invested in how much we should pay for them. You see any real impact? Do they make really make you want to pay dramatically less for an individual stock? Usually, I know, unfortunately, you can't just start by hand over fist. You should always assume there are people who don't understand how unimportant these worries are the best ethics. And of course, these people going to sell even panic sell if you would have thought that they know better. That's why these international clients often last for three days again the best way to figure it out after tons to watch the clock as the sellers usually need to be margin doubt against the world is going to be a bottom. Now, the kind of self the IPO related decline. Remember at the end of the day stock mar-. Remark. It's first and foremost end markets are controlled by supply demand. So if the Bank start rolling out, lots of new IPO's, and then those companies sell more shares via secondary offerings. You could end up in situation where there's just much too much supply not enough demand. My suggestion avoid the blast zone. Please the air most of the new IPO's concentrated and focused on the stock center down because of collateral damage. Sometimes we get the clients triggered by multiple simultaneous earnings shortfalls, you need to be real nimble with these you want to buy stocks after earnings induced pullback isolate the sectors with the shortfalls are occurring and avoid them. There's no reason to be hero here. People instead buy stocks hit by much porter selling VS be five hundred futures that have nothing to do with what went wrong, then there's the chick is kind of risk one. That's really truly Tolstoy ask political risk. I often find this risk tremendously overblown, whether it's because of strife between parties or terrain policies or even all out war with these and of course, nuclear war where money should be the last thing, you're worried about I'm not a political guy. And I hate talking about this stuff. But. With every stock you own you need to ask yourself. Does this company director and risk when it comes to Washington if not then you've got nothing to worry about. However, if you own something directly impacted by say, a trade dispute with China government shutdown that could turn to house pain. I o political risk isn't is enticing negative and fearful because there are so many pundits everywhere waiting in and giving you their two cents. These guys want to scare you my suggestion. Tune it out, please. Instead, look for companies that have nothing to do with the political fray, even as their stocks have been brought down by it. I can't do any time since nineteen seventy nine. I've seen politics used as a reason to sell stocks. They may be reason to sell some stocks. But really is anything Washington enough to sell everything? Here's about a mine there are all sorts of selloffs, but unless they involve systemic risk. They're going to prove to be buying opportunities. You just need to recognize why the solve is occurring note the signs that it might be subsiding and then take action to by not sell and never to panic stick with framer. I always said, the smartest audience television. I love the from. So let's get to some of your tweets first up at CIA eighteen fifty seven tweets. Hi, jim. I'm a little bit of dilemma, my mad money is ninety five percent allocated. But I know I should have more cash at the same time. I don't wanna sell at the bottom. What should I do? Thank you very much in advance. Okay. This is really important. Gotta listen to not sell until we get some lift. I know that a lot of people feel there will never be lift there always is. And then after the second day of after let the second you sell THEO. Okay. Next up a tweet from Todd Palley. Hey, Jim Cramer. This could be new many you hashtag Kramer, a hashtag mad money. Abc Kramer, welcome. Crame villager and makes our family. Kids got horse outs next up from at Dane, hey seed, nineteen seventy five truck truckin with Jim Cramer and audio book. That's gotten lots us. I get something more out of hashtag carefully. Every time. Thank you so much. I cannot believe how hard those audio books are to re that took me about four straight weekends. And a lot of nights. I'm glad you're getting something out of next up a tweet from at Mike house five one six Jim Cramer's mad money on CNBC a little what how will number one bulls make money bears make money pigs. Get slaughtered. Applies to my S P five hundred index fund. It's been a long run. If this is bedrock money for retirement, you do not touch it. If it's money to put away for kids. Do not touch it. I school do not touch it. I am talking about mad money that should be traded and taking some off the table. Not that basic index fund that's to be run for as long as you can stay. I like to say there's always a bull market somewhere com. Finding just for you right here. Mid money. Jim Cramer seeing time.

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