Let's get down and dirty. What didn't work in 1994? What killed you? What would occasionally rally and then just fail and cut your heart out? What was a good sale every time it rallied?

First, remember the context of 1994. Then, as now, the


had been too free with liquidity in the past. Then, as now, the Fed had to tighten aggressively in order to keep inflation under control. At the time the inflation in 1994 was mostly in

commodities. This time the inflation is commodity-based, but all


. Remember, the Fed thinks the consumer is spending too hard because he has too much of

a wealth effect.

You may think the Fed doesn't know what it is doing, but when a company like


(WMT) - Get Report

says what I am hearing out of the mouths of Fed governors, I am going with Wal-Mart. (Many of you e-mailed me to say that Wal-Mart is not representative of the economy, to which I respond: What rock are you living under? Wal-Mart


the economy!)

So, we have to keep in mind that what may have been the enemy in 1994 is not necessarily the enemy in 2000. But the tightenings are designed to cool off everything, so lots of things get hurt whether the Fed wants them too or not, because the economy is pervasive in our lives.

Also, keep in mind the urgency of the Fed's position. It doesn't want to play a role in the 2000 elections, but it doesn't want a Japan circa 1989 on its hands (stocks keep going up, causing people to borrow money to buy stocks, causing stocks to go up causing ... until there is a crash). The Fed doesn't want a crash and it doesn't want inflation. It wants to finish its business before the election, but it probably can't.

With those caveats, here's what didn't work then. First of all, the financials. They were awful. Particularly the savings and loans. These went down virtually every day while the tightening went on. I was heavily involved with the group at the time and a ton of them blew up, missed earnings and watched their stocks get cut in half almost overnight. Banks fared terribly, too, as they could not adjust to the rapidity of the rate rises. As many of the banks at that time were borrowing short- to buy longer-term bonds and living off that spread or

arbitrage, this game ended almost immediately with the sharply rising rates. Everybody who was playing that game got scalded. Remember the

Orange County

portfolio? Remember those knuckleheads who had all of those derivatives on? They were taking advantage of this trade and got whacked by the Fed's dramatic tightening.

Cyclicals do quite badly in this environment, as the short-rates ratchet up inventory costs. This time it could be even worse because the rates are taking the dollar up with it, making the possibility that the U.S. loses competitive advantage to those euro-denominated companies all the more likely.

Be careful here. The cyclicals already sell at low multiples so they are a tough short. They are too logical and many

hedge funds are short them already. But many of these companies will begin to miss

earnings estimates as the rates go up, and they will disappoint. The companies levered to the housing industry will be very hard hit, as mortgage rates have gone up huge -- even as the long-term

Treasuries haven't. Nine-percent mortgages put a real crimp on housing, especially in the context of the boom we have been seeing.

Retail gets clubbed. You saw

the downgrade by Goldman whack the retailers. That "makes sense," judging by the way this group has acted before, notably in 1994. You didn't want to touch these stocks. I am

betting that a secular case,


(TGT) - Get Report

, can withstand the pressure, because it is opening many stores and is the ideal "trade down" in this environment. But it is not a bet that the odds favor, based on 1994.

Finally, the brokers, as mentioned above, just do awfully and simply can't be owned at all. Their customers get hit because of the higher borrowing rates (except short-sellers who get a higher rebate on the proceeds) and that discourages margin buying, which lowers the amount of commissions. The new-issue market vanishes. We've seen that already this time. It is just dead.

Now, here is the big worry of 1994 vs. the big worry now, and why 2000 feels so bad when compared to 1994. In 1994 nobody cared about the new-issue market other than the brokers.

In 2000, the new-issue market has been the lifeblood of technology. I have heard or seen dozens of companies that I now believe will not get funded that would have been huge paying customers of the business-to-business and Web-infrastructure companies. Numbers for these companies, while strong near-term, are probably all too high in next year because of the new-issue fiasco. And the already-public companies that need financing won't get it. How much infrastructure equipment will

Value America











be able to buy if the financing windows don't open again?

That's why, even though tech did well in 1994, I am far more suspicious of it in 2000. I am not selling my favorite tech companies, but I am not doing much buying of them either, because of this new-issue decline. It is too dangerous for the out years.

So why do I stay long some


(CSCO) - Get Report

and some



and some

Texas Instruments

(TXN) - Get Report

? Because I have a big portfolio and I have room for these stocks. They are not my biggest positions by any means. They are positions. I can handle the pain and I work up short ideas against the ones I am long to make the pain more tolerable. Why don't I share those short ideas with you? Because

shorting is a dangerous game. Because I don't want to have to disclose which companies I am short, for fear our readers will gang-tackle me. Because I don't want to risk the wrath of companies that will demand that I be investigated because I am short them. I have already been investigated by the government for saying negative things about a company that I


short. That's all I need: is to be investigated for something that I am short!! No thanks. Life is too short!

One other area of concern: foreign stocks of countries with weak currencies (i.e. Latin America). These act terribly when the Fed tightens. In fact, in the final installment of this series, on Friday, I will reveal what got us out of 1994 -- that is, foreign crisis -- and how it will probably do the same again.

James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund was long Cisco, EMC, Texas Instruments and Target. His fund often buys and sells securities that are the subject of his columns, both before and after the columns are published, and the positions that his fund takes may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he invites you to comment on his column at