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Cramer: Janet Yellen saying short Yelp?

(Click for video linked to a searchable transcript of this Mad Money segment)

You wouldn't think that Fed Chief Janet Yellen is in the stock market game. Yet, after recent comments, pros can't help but wonder.

That kind of speculation was rampant up and down Wall Street after Yellen suggested, before a senate committee, that there was too much of a premium in parts of the market.

"That is certainly the veiled charge she made when she said that valuations were substantially stretched 'particularly those for smaller firms in the social media and biotechnology industries,'" Cramer noted.

In the wake of Yellen's comments, shares of Yelp tumbled, with social media and biotech stocks leading the decline in the Nasdaq, which was off more than 1 percent before recovering some of the losses.

Federal Reserve Board Chair Janet Yellen testifies before the Senate Banking, Housing and Urban Affairs Committee July 15, 2014 in Washington.
Getty Images
Federal Reserve Board Chair Janet Yellen testifies before the Senate Banking, Housing and Urban Affairs Committee July 15, 2014 in Washington.

"Looking at the commentary, it would stand to reason that you should sell out of your e-commerce and biotech plays," Cramer said. It would make all the sense in the world. In fact, it would seem reasonable Yellen wanted you to sell.

Cramer doesn't like that.

"I don't like it when Fed chiefs address the stock market with gratuitous comments," he explained.

The "Mad Money" host doesn't think the Fed chief should be nearly so stock specific. "I say, Ms. Yellen, don't just release a statement that impacts some stocks."

Not only does Cramer believe it's inappropriate, he thinks the Fed chief has much more effective tools at her disposal.

Cramer says if Yellen is concerned about valuations, "She should take margin rates up to 60 or 70 percent, forcing investors to put up more money per trade. That has always worked to tamp investing in speculative securities."

Increasing margin rates, Cramer insisted, will take some of the premium out of the market. It will be effective and it will work while allowing the market dynamics to remain intact. "Just raise how much it costs to borrow money from brokers. That will do the trick," he repeated.

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Of course, Janet Yellen is still relatively new in her role as Fed chief and Cramer understands that she may misstep here and there. But he also hopes this is the last time she says anything so specific that it takes down a single stock.

"Blunt instruments and pot shots don't work. Margin does. I say speak softly and use the big margin stick or don't speak at all," he said.




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