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Earnings vs. liquidity. That's the battle now. There is no doubt that a ton of money is building on the sidelines. As deals have virtually ceased and as the lockup expirations don't seem to be having much impact, one has to conclude that money is waiting, begging, to come in. This will be the first quarter in a long time that issuance will not exceed supply. So the potential for a rally is great.

But these higher rates are starting to impact business. People aren't refinancing like they did. People aren't spending like they did. Mortgage issuances are way down. They drop each week. As much as I am long and love

Home Depot

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, the company admits to seeing the end of the refinancing boom and is now just enjoying the garden-variety strong business it has always had. (I am long it because I think that the rate news is priced in and that the stock has gotten oversold.)

Right now we have a sweet spot. Companies are still experiencing the gains of a strong economy -- one that isn't as strong as it was before the rate increases, but one that is darned strong still. That won't be the case in the future. We think that beginning next month you will see shortfalls for companies that need a stronger economy. That's why we continue to purchase stocks that don't need a strong economy and sell those that do. (That means we are buying


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American Home Products



Sara Lee




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and selling


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and shorting some papers and chemical stocks.)

But we know this market could spike up on any slow data. We think the spike down from here on fast data won't hurt us because fast data means that the Fed will tighten even more which makes it increasingly likely that the soft-goods stocks will outperform the hard goods stocks down the road.

Where does that put the high-multiple

Red Hots? In no man's land. I can't see owning them but they have declined too much to short. In other words, there is more reward than risk to owning stocks here, yet it is still very dicey because of the coming earnings risk. The sweet spot is solely because companies don't have to report yet about how they are doing this quarter and it is still too early to have to preannounce bad earnings.

A small window. But worth climbing through.

James J. Cramer is manager of a hedge fund and co-founder of At time of publication, his fund was long Home Depot, Pfizer, American Home Products, Sara Lee and Pepsi. 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