Extended losses in the market – not one or two down sessions, but day after day of declines – are caused by either inflation or recession, Cramer said. For tonight’s Mad Money, he showed investors how to play both.
The strategies for each are pretty simple, actually. As inflation increases, so do the share prices of gold and minerals stocks. So Cramer recommends owning them as a hedge. And it’s not a requirement that they’re in your portfolio before the sell-off starts, he said. Just buy them as soon as you figure out what’s going on. (Which shouldn’t be too hard because every news outlet and pundit will be telling you exactly why the market is going down.)
For recessions, Cramer said you should head to the supermarket and drug store. Get defensive with food-and-beverage stocks, tobacco, medicine and soft goods. These are the items consumers buy no matter which way the economy is headed.
Whatever you do, though, don’t confuse the two, Cramer said. Owning recession stocks during inflation troubles will get you killed, and vice versa. Unless the Federal Reserve plans to tighten rates – which is like slamming the brakes on the economy – recession stocks should not be owned during a time of inflation.
Even when the market is getting clobbered you can find a bull market, Cramer said, as long as you look in the right places.
Questions for Cramer? madmoney@cnbc.com
Questions, comments, suggestions for the Mad Money website? madcap@cnbc.com