Jim Cramer: We Are Off Fantasy Island and Not Going Back

 | Feb 07, 2018 | 6:41 AM EST
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Get used to some things, get used to them or go home. Right now.

First, the market never does what it just did for ages -- consistently go up for ages and never have a real pullback. That was Fantasy Island. Man, are we ever off Fantasy Island now. We're not going back to it, so take off the wristband and rip up the ticket that got you in. It's no longer valid.

Second, lose the whole "opening bell, closing bell" lexicon. Even though futures markets are thin, they are trading like in the old days, when the financial wars for life were fought in the trenches of Wall Street back some 10 years ago, which means that we should take little stock of the close of the market. Or the opening.

The fact is that two nights ago we experienced a mini-bull market in the S&P futures between 3 and 4 a.m. that was as powerful -- or lacking in staying power -- as the one we experienced in the last hour and 45 minutes of the day's session.

The meaninglessness of "closing prices" has been brought home by the fact that some stupid, moronic, greedy exchange-traded product with $1.5 billion in alleged assets could bring down the entire Dow Jones Average 1500 points in about 40 minutes, including the equivalent of 500 points of that at 4:01 p.m. when the value of the piece of paper had to be reset down 90%. I am talking about that inverse VIX betting sheet -- surely you don't regard it as an investment -- that had to be adjusted at the closing price of the near-term VIX every day.

Any piece of paper that resets at the bell is something I have despised forever, including all of those double and triple wagers that the government in a fit of total and utter stupidity approved years ago. This (XIV) inverse wheel of misfortune was particularly heinous.

The stock market, as we discovered, can't handle yesterday's downward pressure. Or today's opening either, as I can tell you that both the rally into the bell and the decline at the opening are related to the pulling away of assets from managers who gun money in these instruments. I have seen it before, it's happening again. Am I asking you to trust me that this is happening? I don't care if you trust me or not, it's true.

Third, understand that what destroyed the market on Monday is what will ultimately make the market better, but in a different form. I have heard a lot of how we have just seen the high tide of passive investing because you could lose so much in a week -- the fourth sharpest selloff in S&P history.

The rhetoric is completely overblown. There's way too much brainwashing and way too much "literature" about single-stock risk to ever undo the "necessity" of index investing. I dare not buck the orthodoxy, for fear of the doctrinal police arresting me. But I have always said you have the right to remain silent and still buy, say, the stocks in FANG -- Action Alerts PLUS holding Facebook (FB) , Trifecta Stocks name Amazon (AMZN) , Netflix (NFLX) and Google parent Alphabet (GOOGL) -- which have crushed the S&P by advancing 534% percent, more than seven times what the sainted index has gained during the last five years.

Of course, the S&P is no passive investment. Any basket that can remove the stocks of the weakened companies while reaping the profits of takeovers is, frankly, as active as they get, which is why it is so hard to beat the index if you are taking high fees. Not so if you are able to own individual stocks and time your tax payments.

But one thing is for certain: these wild swings allow you to buy individual stocks at absurd prices if you are simply there, waiting. There are too many bargains to mention, but just stay focused on the obvious: Micron (MU) , Skyworks (SWKS) , Disney (DIS) , all of which reported in the tsunami and made you so much quick money so fast, that you will chart-top the S&P if you simply take what you made and buy the S&P on today's dip.

Finally, no one wants to say goodbye to anyone. But the confident people who came in after the good news of tax reform and good employment are not going to be able to stick around. Their losses will be too great. The volatility will prune them, just like the flash crash, the crash of 2007 to 2009 and the dot-com explosion.

A new generation who will stay in cash rather than be tortured by this occasionally broken asset class. What can I say? Nice to meet you, don't let the door hit you on the way out? Or perhaps better: come back another time, you were way late to the now-ended party.

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