With the Federal Reserve likely to stay on hold for a while, Jim Cramer prepared investors for the economic and market consequences once it does happen.
"They are two very different animals, despite what you might hear from many different commentators," the "Mad Money" host said.
In Cramer's opinion, those who think that it is bad for the market to go down when job growth is strong do not have a clear understanding of how the Fed works long term. It is good news when more people have jobs. The country is wealthier and the economy is strong.
But not everyone agrees with Cramer, so he decided to review their argument and why he thinks they are wrong. Many think the market has rallied so long because the Fed has propped it up, leaving easy money floating around.
The people who think this have four misconceptions, according to Cramer:
First, they think that stocks are up right now because they are just vehicles used for income and thus they will lose this status if rates go up. Cramer does not agree with that point of view unless there have been several rate increases already, because a stock that yields even 3 percent is still more attractive versus bonds.
The second is the belief that the economy will fall apart as soon as rates increase, because it is too weak to handle even the slightest move. Yet, Cramer has seen the economy experience whole quarters with dramatically lower growth.
The third misconception relates to the critics who think that any time rates go up, the dollar will get stronger and exporters will get hurt by the translation of the dollar and overseas competition. While both of these issues do have a degree of truth, Cramer warned investors not to get spooked and sell stocks too early when the Fed tightens, because that could damage their portfolios.
Ultimately, rates are so low now that Cramer thinks the country would need to see a significant increase in rates before there is a genuine effect on the growth of business.
"I don't think you have to sweat these increases. However, that, again is not enough to assuage those who think the Fed will go on autopilot and raise and raise without being data dependent," Cramer added.
Cramer does have some real concerns about the effect of higher rates on the , though. He is concerned that higher short-term rates will turn the U.S. into a magnet for money around the world. He fears the dollar will go so high that exporters could really get hurt.
Most importantly, Cramer does not want investors to think that when the Fed is raising rates it is a better time for the stock market than when rates are being cut. The best course of action in his opinion is not to fight the Fed.
When Cramer references "don't fight the Fed," he means even when the Fed is cutting rates, investors still have a tailwind on their backs. If you are too negative, then you could lose money in the market, too.
Looking back, Cramer saw that those who fought the Fed in the past or have doubted what the Fed was doing always lost. When you sell everything, there will always be buyers to swarm in and buy on every dip in the market.
"While I do not expect many of the more disastrous scenarios to pan out, I do know that the Fed is now the enemy of higher stock prices and it can be a powerful enemy if it doesn't watch how fast it raises rates," Cramer said.