Mad Money w/ Jim Cramer 10/16/26

Jim Cramer · CNBCBullish

Gold is a safe haven, and GLD is a hedge against economic chaos.

Cramer likes gold as a safe haven and believes everyone should hold some, preferably bullion. For investors who cannot buy bullion, he says the GLD ETF serves as a hedge against economic chaos. He frames gold as one of several alternative assets to stocks, alongside real estate and bonds, that can protect portfolios during periods of market stress such as Fed tightening.

“I like gold as a safe haven and I believe that every person should hold some gold, preferably bullion. But if not, then the GLD is a hedge against economic chaos.”at 36:14

Jim Cramer · CNBC

Fed backstops, such as Bernanke's pledge not to let banks fail, have ended past market crashes.

Cramer says the 2008 financial crisis bottomed when Fed Chair Ben Bernanke made a forceful public statement that American banks would no longer be allowed to fail. Before that, the Fed had been sitting on its hands while banks went under. Cramer ties this to 1987, when Alan Greenspan's pledge to provide liquidity halted the decline, and says the market turned as soon as Bernanke decided something had to be done. The implication is that decisive central-bank intervention can end a crash.

“What brought the market out of its funk was the statement by then Fed chair Ben Bernanke. ... They no longer let American banks go under.”at 27:16

Jim Cramer · CNBC

Fed policy causes the most frequent stock sell-offs, with tightening hitting high-risk groups hardest.

Cramer says the Federal Reserve causes the most frequent stock sell-offs. When the economy weakens, the Fed tries to restore growth through easing, as it did during COVID. When the economy overheats, the Fed fights inflation, and when it declared war on inflation in late 2021 the market rolled over and the highest-risk groups were eviscerated. As long as the Fed is printing money, he says, almost every decline is buyable. Persistent high inflation is unacceptable, but he also does not want the Fed to break the economy.

“First, you've got the sell offs caused by the Federal Reserve. That's probably the most frequent reason for stock dumping.”at 34:48

Jim Cramer · CNBC

The Fed's 17 straight rate hikes before 2007 broke the economy and drove the stock market bear market.

Cramer argues the Fed raised rates 17 straight times through 2004 to 2006 while ignoring the damage it was doing to the real economy. He says he excoriated the Fed on air in August 2007 for this. The mortgage market was already showing unsound lending, the economy fell off a cliff after cheering briefly, and the stock market went down with it. The Dow fell from about 14,000 to 6,470 by March 2009. He says Fed officials such as Bill Poole ignored warnings from people closer to the problems.

“But we also don't want the fed to break the economy like it did when it raised rates 17 straight times in lockstep.”at 35:28

Jim Cramer · CNBC

Fed rate hikes don't necessarily crash stocks; crashes usually need the economy to be crushed too.

Cramer argues that Fed tightening does not automatically crash the stock market, because a crash needs the economy to be crushed too. He cites the first half of 2023, when the Fed was tightening yet the market rallied strongly, and says forecasts of an inevitable crash after rate hikes are overstated. He does grant rational reasons stocks can fall during tightening: the Fed is not perfect and has sometimes hiked when it should have held or cut as the economy was already slowing. He credits Jay Powell with being more responsible than some earlier Fed chairs about not pushing the economy off a cliff.

“Fed rate hikes don't necessarily lead to crashes. In fact, I've seen plenty that do next to nothing.”at 35:54

Jim Cramer · CNBC

Crashes like 1987 and the 2010 flash crash were mechanical, not economic, so they can be buying opportunities.

Black Monday 1987 and the 2010 flash crash were driven by futures overwhelming the stock market, not by the economy. In 1987 the economy was strong going in and coming out, and there was no economic correlation with the crash. The Treasury found that specialists and brokerages failed to stabilize the tape, and Cramer argues index futures had become more powerful than underlying corporate earnings for day-to-day stock prices, especially for hedge funds. The 2015 mini-crash followed the same pattern. Once a sell-off is recognized as mechanical, it can present a buying opportunity. First, though, the investor must determine whether the decline is tied to the fundamentals of the economy.

“Sometimes crashes have nothing to do with the economy. They're caused by the mechanics of the market.”at 9:29

Jim Cramer · CNBC

Circuit breakers give investors false security; they failed in 2010 and 2015 and cannot stop fear.

The circuit breakers the government introduced after 1987 were meant to cool declines by halting trading briefly. Cramer says they failed to work properly during both the 2010 and 2015 flash crashes and did little to stop the losses. He argues they create a false sense of security that still exists today. Fear cannot be legislated or regulated out of the market, and people will react badly to an initial mechanical event, even when it has no substantive cause.

“But the circuit breakers created a false sense of security that oddly still exists today, even as they failed to work properly on both occasions and did very little to stop the destruction of your nest egg.”at 19:47

Jim Cramer · CNBC

Margin-driven forced selling marks sell-off bottoms; watch whether it ends by 2:45pm.

Cramer says money managers who borrow too much are forced to sell when stocks fall, because brokers' margin desks demand collateral or liquidate positions without consent. He cites February 2018, when funds short the VIX and long the S&P 500 on borrowed money were wiped out. He treats margin clerks as the source of 'butchering' that occurs between about 1 and 2 p.m. If the forced selling runs its course by 2:45 p.m., he sees a decent chance to start buying safety stocks and secular growth names.

“I always consider the margin clerk the butcher, and the butchering occurs between one and [two]. ... If the selling runs its course by [2:45pm], then I think you have a decent chance to start buying safety stocks”at 39:42

Jim Cramer · CNBC

Sell-offs can push good dividend stocks to unusually high yields, creating buying opportunities.

Cramer calls these 'accidental high yielders': companies with sound operations and strong balance sheets whose share prices fall during a market-wide decline. Their dividend yields then rise well above their historical levels, for example from a typical 2% to double that. He says to compare a stock's historical yield with the 10-year Treasury yield to spot them, and to focus on companies that are not very sensitive to economic swings. As long as the stock is falling for no company-specific reason, the high yield can be an opportunity.

“Those are stocks of companies that are doing fine, have good balance sheets. ... Their share prices have fallen so low that their dividends are starting to give you an unbelievable return.”at 32:23

Jim Cramer · CNBC

Sell-offs without systemic risk are long-term buying opportunities; systemic crashes like 2007 and 2009 are rare.

Cramer argues that most sell-offs, including those from Fed tightening, geopolitics, IPO supply, earnings shortfalls or politics, are not systemic and will prove to be buying opportunities over the long term. Systemic crashes such as 2007 and 2009 are increasingly rare. The key is to identify what is driving the decline, watch for signs it is subsiding, and then buy rather than panic-sell.

“unless they involve systemic risk, which is increasingly rare, like in 2007, 2009. They're gonna prove to be buying opportunities long term.”at 43:20

Jim Cramer · CNBC

A true systemic financial crisis is rare; worries about one are usually overdone.

Cramer argues that a systemic crisis like 2008 has happened only twice in roughly 80 years, so it is the exception, not the rule. He says the signs to check are whether business is being crushed, whether employment is falling sharply, whether the Fed is still hiking into real cracks, and whether runs hit multiple institutions nationwide. The COVID recession ended quickly once a viable vaccine arrived. Regional bank failures in 2023 were also resolved within a few months. For these reasons, he says, anyone worried about systemic risk is probably worrying too much.

“We heard about systemic risk when some of the regional banks went under in 2023, but within a few months, we were over it. So if you're worried about systemic risk, the odds are you're worrying too much.”at 27:16

Jim Cramer · CNBC

Short-term Treasuries yielding over 5% will pull money from high-yield dividend stocks as the Fed tightens.

With short-term Treasuries giving more than 5% risk-free, many investors cash out of stocks and park money in bonds. As the Fed tightens, short-dated bonds become more competitive with stocks. Cramer expects high-yielding dividend stocks to be among the worst performers during Fed tightening because they now face serious competition from fixed income. He warns investors not to treat these dividend stocks as safe havens during Fed-driven sell-offs, while distinguishing them from accidental high yielders that can rebound once tightening ends.

“You'll notice as the Fed jacks up rates, high yielding dividend stocks are gonna be among the worst performers because suddenly they got some serious competition from fixed income.”at 36:50

Jim Cramer · CNBC

Overseas worries rarely hit US company stocks, so foreign sell-offs are usually overdone and short-lived.

Cramer says commentators often scare investors with worries from places such as Greece, Cyprus, Turkey, Venezuela and Mexico. He argues that investors should ask whether these problems actually affect the earnings of American companies they own, and usually the answer is no, so they should not pay dramatically less for US stocks. He notes that overseas-driven declines often last about three days, since panicked sellers are eventually forced out, so investors should not buy stocks hand over fist into them before the selling ends.

“I always tell you to ask yourself, do any of these woes truly impact the stocks of the American companies in your portfolio?”at 40:24

Jim Cramer · CNBC

Heavy IPO and secondary share supply can trigger sell-offs; avoid the new-IPO blast zone.

Cramer argues that stock prices are driven by supply and demand. When bankers roll out many new IPOs and the companies then sell more shares through secondary offerings, supply can overwhelm demand. He recalls seeing this in late 2021, after the market was swamped by roughly 600 odd IPOs and SPAC deals. His advice is to avoid the 'blast zone' where new IPOs are concentrated and to focus instead on stocks down through collateral damage, especially those with yield protection.

“if the bankers start rolling out lots of new IPOs and then these companies sell more shares via secondary offerings, you could end up [in a] situation where there's just much too much supply and not enough demand.”at 41:20

Jim Cramer · CNBC

Political risk to stocks is tremendously overblown, except for companies with direct Washington earnings exposure.

Cramer finds political risk, whether from partisan standoffs, trade policy or war, tremendously overblown. He says investors should ask whether each holding has direct earnings exposure to Washington. Companies hit directly by a China trade dispute or a government shutdown can suffer real damage, but companies without such exposure have nothing to worry about. He has seen politics used as a reason to sell stocks since 1979, such as during debt-ceiling standoffs, but he says it has rarely been enough to sell everything.

“I often find this risk tremendously overblown.”at 42:12