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NEW YORK (
TheStreet) -- A new school of thought has entered the stock market, Jim Cramer told
"Mad Money" viewers Monday. This new contingent feels that going over the fiscal cliff wouldn't be all that bad.
The only problem is, that line of thinking is dead wrong.
Cramer said these newfound market optimists believe job losses won't come for months after going over the cliff, giving those in Washington more time to hammer out a deal, one that will most likely be retroactive to Jan 1. The optimists also think a rise in capital gains and dividend taxes won't affect that many investors because only 14% now have taxable investment accounts, down from 24% in years past.
But Cramer disagreed with these rosy outlooks, saying that without a budget deal by Jan. 1, company executives will have no choice but to lower earnings estimates starting on Jan. 2, a move that will send the stock market sharply lower.
With the economy surely headed into a recession, these same executives will be under immense pressure to start laying off staff soon as opposed to later.
But there are other reasons to worry, said Cramer, including the alternative minimum tax, which would snare up to 30 million unknowing Americans when they least expect it.
Finally, he said a deal is seemingly less likely with both Republicans and Democrats feeling they have the upper hand. There is no room for compromise when you believe the American voters are behind you, he said.
While the irony of the situation is that the "fiscal cliff"resulting from federal law was designed to be so horrible that it would force lawmakers to compromise, it now appears Congress may do just the opposite. That's why Cramer said investors need to stay flexible and be prepared for "deal or no deal," which may happen at any time.
Do Your Homework
Investors don't need to constantly search for new ideas, Cramer told viewers, especially if their old ideas are still working. That's why Cramer continues to recommend doing homework, circling back to the stocks already in your portfolios to see if they're still worth owning.