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Cramer's Crash Course: Part 3

The trader tells you what can still go wrong in this market.
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Editor's note: This is the third installment of a five-part series titled "Cramer's Crash Course," which outlines the things investors need to know to survive and thrive after the stock market crash of 2000. Be sure to check out Part 1, Part 2 and Part 4 of the series!

What Could Still Go Wrong? Plenty!

Understand that I am no pollyanna. My wife, the

Trading Goddess

, played most of her career form the short side. We have spent whole years being net short. We lost nothing during the crash of '87 and had positive years in '89, '90 and '94. We have outperformed the market every year but 1998 since 1982. We have never lost money. So we are not bulls per se, but realists.

Here's what could go wrong and what to watch for.

    Watch these Fed governors. They still think the economy is red-hot. If they keep raising rates, they will take them to where you will make too much money in cash. When that happens -- 7% to 8% -- we will sell almost everything and sit in cash. Why the heck not, as money does very well compounded at 8% risk-free and we are not stooges. The IPO market, if it gets totally KO'd instead of just partially, is going to put us in a heap of trouble. Take the AT&T (T) - Get AT&T Inc. Report wireless deal. You cancel that, what does that mean for all of those equipment providers who were banking on big wireless orders? How about all of these dot-com infrastructure plays? They are counting on all of these deals to go through so they have work to do! Do you want to be in Viant (VIAN) if the music stops? Or in Exodus (EXDS) for that matter? Other markets get hot. Our biggest enemies might be Japan or Europe. They didn't have as much of a bubble as we had, so maybe they have a better risk-reward ratio here. The cyclicals, a place to hide, get wiped out if the Fed raises rates too aggressively. Just happens. Go with me on this. The brokers, the bellwether stocks, get annihilated if there are no more IPOs. That could have a very negative psychological effect on the market. The individual investors get too scared to play. Given that they represent the marginal dollars to buy stock, this would be super bearish and must be watched closely. Another MicroStrategy (MSTR) - Get MicroStrategy Incorporated Class A Report, drkoop.com (KOOP) -type scandal breaks, shattering the fragile consensus that, no matter what, at least you can count on what the companies are saying. This is the Achilles heel of this market, because people believe that business is still good, until it turns out that maybe some of it was just fabricated. Devastating. Abby Joseph Cohen or Joe Battipaglia change their minds. Abby is still on record liking it, Joe could hurt. We turn to gurus at this time and if they go negative, you get a quick burst down. I regard this one as an extremely low probability. Consumer spending doesn't slow. Put this one down as the absolute killer. We need to see the Fed back on our side and it won't be as long as the consumer keeps spending. Gore and Bush both screw it up and talk about how they will mess with the Fed or intervene in the market somehow -- which gives us fear for November. I am very worried about this one because we have had one great president for this market and he will be heading to Chappaqua, NY shortly, where he can hang out at Starbucks (SBUX) - Get Starbucks Corporation Report and cause a lot of traffic jams, but not do much for stocks.

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Remember to check out Part 1, Part 2 and Part 4 of the series!

James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund was long AT&T. 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

jjcletters@thestreet.com.