Cramer: Hedge funds roiling your profits

Volatility making your insides flip? Jim Cramer says hedge funds are largely to blame.

"The machinations of hedge funds darting in and out of stocks," are at least partly behind the weakness, Cramer said.

And the "Mad Money" host fears it's not readily apparent to individual investors because there's an unusual dynamic in the market, obscuring developments.




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Specifically, Cramer says because overseas events ranging from protests in Hong Kong and tensions in Russia to violence in the Middle East seem negative, investors may be prone to believe they're driving declines.

But Cramer says that's the case, at least not entirely.

Instead, he says hedge funds are another big force behind the weakness, especially those that made big bets on emerging markets. "They're floundering. So what are they doing? They're raising capital," Cramer said, to leverage new bets in an attempt make back their losses. "And they're doing it by selling their winners, which are largely U.S. companies."

Cramer believes this phenomenon is either behind swings lower or exaggerating them, once they happen.

That may sound a little inside baseball, but Cramer believes the concept is important for individual investors to understand, because he thinks rallies are, in fact, being driven by fundamentals.

For example, "Before the opening I was incredibly heartened to learn that consumer spending in this country rose 0.5 percent while incomes increased 0.3 percent, both perfect numbers that show a content and confident consumer emerging, a nirvana combination something that should have driven our stock market up."

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Because Cramer thinks fundamentals are behind the swings higher, but not always behind the swings lower, he says, when volatility shakes the market, don't panic. Instead, he says, step back, "and let hedge funds lash out with their selling. But then reach for uniquely American situations. I think they will go right back up, again."



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