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Cramer: Is Street unfazed by increasing tensions?

There's fighting in Gaza, shelling in Ukraine and tremendous tension in Libya, and yet stocks are rallying as if none of it was happening.

The price action doesn't make much sense. "The air is thick with geopolitical risk and a sense of global mayhem," Cramer noted. Yet stocks ended Monday's session with a modest advance.

Although world events would suggest stocks should selloff, Cramer thinks strength has prevailed because of a phenomenon underway deep inside the market.

Because there's been so much unexpected M&A, Cramer says pros are reluctant to make major bets against stocks, even when the negative bet involves a company that's executing quite poorly.

An Israeli army Merkava tank rolls along the border between Israel and the Hamas-controlled Gaza Strip on July 28, 2014.
David Buimovitch | AFP | Getty Images
An Israeli army Merkava tank rolls along the border between Israel and the Hamas-controlled Gaza Strip on July 28, 2014.

As an example Cramer cited Family Dollar, a company that he's often lamented was poorly run, and its acquisition by Dollar Tree on Monday.

"In the old days when there was a hobbled competitor like Family Dollar you shorted it and stayed short, betting that it would just go away. But in this market you can't do that. You have to be sensitive to the possibility that it could get a takeover bid."

In fact, the acquisition makes shorting a poorly performing company such as Family Dollar quite hazardous. Dollar Tree offered $59.60 in cash and the rest in stock for each Family Dollar share, in a deal with an enterprise value of about $9.2 billion. By the close shares had rallied almost 25 percent.

That's the kind of development rattles pros who are thinking about betting against the market.

And it's a phenomenon that's hardly limited to retail. Cramer said a similar development happened within the Internet sector, too, on Monday when Zillow bought Trulia.

"Just like with Family Dollar, CEO Spencer Rascoff realized that it's better to buy Trulia than to beat them," Cramer said. The deal makes sense. Zillow and Trulia, which are rival real estate sites, said they expect to save at least $100 million every year by 2016."

On the news Trulia's shares jumped 20 percent; investors who were short were left licking their wounds.

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Of course, if overseas events deteriorate significantly then all bets are off. However, given the widespread M&A, unless geopolitical events take a sharp turn for the worse, Cramer can see the market holding its gains.

"If the Family Dollar and Trulia mergers were isolated needles in a haystack that would be one thing, but they've become almost daily occurrences. If even the worst companies in a given sector pop on deal activity, I suspect the Street will stick along for the ride."

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