Jim Cramer welcomed investors back to Crazy Town on Tuesday. That is the strange world of the market lately where everyone is doing everything wrong. They are buying the wrong stocks, reaching the wrong conclusions and taking the wrong risks.
And it is all oil's fault.
In Cramer's opinion, investors are worshiping a false god of higher oil. Thus, even the slightest rise in crude prices allows stocks to go higher. To explain the crazy linkage between higher oil and stocks, Cramer shared three reasons why stocks tend to rally when the price of crude goes up.
First is that people believe that higher oil means less stress on the system. On average, the price of crude must be at $45 a barrel to keep most troubled companies alive in the U.S. As of Tuesday, there is a $9 gap to get to $45, and that is a big one. Nevertheless, the entire group tends to roar back on a bet that that oil will hold at levels north of $30.
"To me, this is silliness. We need to see some substantial movement upwards to sustain most of these oil companies because many will have to reorganize next year if oil stays here," Cramer said.