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Cramer's rate hike reality check—Get used to pain!

Cramer's rate hike reality check—Get used to pain!
Cramer's rate hike reality check—Get used to pain!

Stocks closed lower on Wall Street on Monday, and to Jim Cramer this was a perfect example as to why he has been against the Federal Reserve raising interest rates. During his long career on Wall Street, Cramer has seen the first stages of a rate hike and knows it is not good for stocks.

"Stocks in a ton of industries go down, even as a few go higher, which is exactly what we saw today," the "Mad Money" host explained.

And while Cramer is against the rate hike, he does accept its inevitability. Low rates cannot last forever, even if they are good for the stock market for the duration.

Eventually, too much money would chase too few goods, and that would trigger inflation. The Fed has two mandates. First is to promote an environment for a flourishing economy. Second is to do so without igniting inflation, which could create a situation with people who cannot keep up with the rising price of goods.

The most important ramification Cramer expects is for the dollar to soar. That will cause exports of U.S. companies to decline dramatically versus overseas competition. That could prompt big layoffs for manufacturers that cannot keep up.

All I want is for you to know that we've been through this cycle many times before, and you'd better get used to it
Jim Cramer
Traders work on the floor of the New York Stock Exchange.
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But ultimately, Cramer knows that a rate hike has to happen. And his job is to show investors that there is a bull market somewhere, even when the environment is more difficult.

What stocks will be the biggest losers of the rate hike?

First, Cramer wants investors to beware of stocks that yield 3 percent. Those are considered bond-market equivalent. If there is another set of strong employment numbers in January, then there will be another rate hike.

That means that a stock with a 3 percent yield will not protect you. There are large shareholders who have been hiding behind the yield of these stocks and will now sell their positions and wait for higher rates from long-term treasuries and buy into them.

Second, autos and housing will peak. Cramer is seeing that auto stocks are showing early signs right now because they do not go up when terrific sales numbers are reported. That is because big money is betting auto stocks will peak when a higher rate cycle occurs.

Cramer also expects that many people will realize that it will be better to buy than rent, and housing will boom.

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Third, health care stocks usually do well when the economy slows. Cramer expects portfolio managers to dump health care stocks en masse.

Cramer recommended investors circle back to the highest growth stocks, because their earnings aren't really impacted by the Fed. Think FANG — Facebook, Amazon, Netflix and Google.

Lastly, there is one group that many investors do not think about, and it's the most important. Many stocks will not be impacted by higher interest rates or will do nothing. Those companies will get heat from activists or be forced to merge to gain heft.

Big companies know that the days of borrowing money cheaply are about to end, and they'll want to take advantage.

"I know what happens when the first set of rate hikes begin, and it's not good for the vast majority of stocks … All I want is for you to know that we've been through this cycle many times before, and you'd better get used to it," Cramer said. (Tweet This)

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