Another way to value stocks, though, is by looking at how equities compare to bonds, Cramer said. Right now, the 10-year note yields just 1.875 percent.
"That's a ridiculous alternative even if it's risk free. In the past, when we've have that kind of rate, stocks have historically sold at 17 times earnings," Cramer said. "So while the S&P isn't cheap versus itself, when it's compared with the alternative from fixed income … you are getting a steal."
It's important to note that the Federal Reserve is artificially keeping bond yields down, too, by endlessly cutting the prime interest rate, Cramer added. In a sense, the Fed is actually helping drive investors into the market, he suggested.
But Cramer said critics are right to think some parts of the market have become frothy lately.
"Because the Fed is keeping down the interest rates of the bond competition, the utility index, which has all of these steady Eddie dividend payers, has now hit a four-and-a-half year high and has been up for eight straight days. That's just not sustainable and not right," Cramer complained. "I would not be buying a utility stock right now if it yielded less than 3.5 percent."
Before long, Cramer thinks utility stocks could tank, as could select food and beverage and big drug stocks, as their yields shrink from price appreciation. Cramer's charitable trust recently dumped out of Bristol-Myers Squibb, for example, because it sells at 2.5 times its growth rate.
"I don't like stocks that sell at more than twice their growth rate, as I like growth at a reasonable price, and that is unreasonable, and because the stock yields less than 3.5 percent, which, while bountiful versus Treasurys, won't necessarily cushion the stock if it turns out that Bristol doesn't deliver the already high bar earnings per share number that I'm looking for," Cramer said. "Bristol Myers is leaving no room for disappointment and the trust can always buy the stock back when it reports on April 25."
In the end, Cramer said the market isn't frothy, but does have a few "pockets of froth." Basically, people are simply paying too much for "best of breed," dividend-paying stocks that are deemed safe.
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