Cramer: Is it fundamentals or is it hedgies?

After the relatively strong jobs report, Cramer can't help but look at swings in the market and wonder what's driving volatility?

New data released on Friday showed that, for the first time since the middle of the recession, the jobless rate fell below 6 percent. And employers added 248,000 new jobs in September across a range of sectors.

That kind of data would suggest incremental improvement in the economy and an underlying fundamental strength.

Yet for the past several weeks, stocks have been all over the map; the price action certainly has not reflected strength.

CBOE traders
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Cramer thinks he knows what's going on. As crude oil marches lower, he thinks hedge funds have been wounded by bad bets. In turn, they are selling their big winners to raise cash, and largely those winners are domestic companies.

"The ability to perform, ironically, has been a negative for these stocks, because it makes them a source of funds for wounded hedge funds," Cramer explained.

And the phenomenon isn't limited to the energy sector. Although lower crude prices are a major source of indigestion for hedge funds, Cramer says, they struggling with other bad bets, too.

For example, Cramer says hedge funds have also been crushed by a Federal Judge ruling, which allows Fannie Mae and Freddie Mac to pay a quarterly dividend to the U.S. Treasury. The ruling suggests shareholders, many of whom are hedge funds, will have less access to profits.

Also Cramer added, "hedge funds that specialize in arbitrage have gotten blown away by the new rules imposed on companies involved in tax-inversion derived mergers."

All told, Cramer thinks hedge funds have taken it on the chin, and we're all paying for the mistakes of the few. That is, because hedge funds have made bad bets, they've unloaded winners to raise cash, and in the process created selling pressure that otherwise would not have existed.

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In support of his outlook, Cramer pointed to similar market weakess that also turned out to be triggered by hedge funds. "I have detailed in my book "Confessions of a Street Addict" how the stock market almost fell apart in 1998 because a huge, overly leveraged hedge fund, Long Term Capital, blew up," Cramer said.

Although today's hedge funds may not be in quite the same straights as Long Term Capital in 1998, Cramer still thinks the similarities are considerable.

"I am not being cynical when I play pin the tail on the hedge fund. I am simply being historical. And history says that, in times of stress, the hedge funds can play a much bigger role in a selloff than that of the fundamentals."

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