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Forced selling by hedge funds is behind the late-day market volatility these days, Jim Cramer told the viewers of his "Mad Money" TV show Thursday.

He fears we may never see a bottom until the selling comes to an end.

Cramer said many hedge fund strategies have just been dead wrong, such as the betting on a Chinese recovery after the Olympics that failed to materialize. As evidence, he used the Baltic Dry Shipping Index and the Shanghai Composite Index to graphically show how much China's economy has slowed.

The result of hedge funds gone bad is forced selling, he said. At around 2:45 p.m. each day, hedge funds begin preparing for the next day's round of redemptions by liquidating their ill-conceived positions.

These billion-dollar liquidations, in turn, wreak havoc on the markets, causing huge late day declines and subsequent snap-back rallies. "These funds are getting killed," he said.

Cramer also blamed on what's known as "fund-to-fund managers," middlemen between the large hedge funds and their clients. These managers, who typically take a 1% to 2% commission for their services, often pressure funds for immediate redemptions, forcing managers to think only for the short term.

Cramer doesn't expect this trend to end anytime soon. Even worse, he expects to see a pickup in mutual fund selling about the time many investors receive their October statements and realize the magnitude of their losses. "This is when people will really start pulling their money out," he warned.

Until then, Cramer said this market hasn't bottomed yet. "Until the only ones left in stocks are the ones who never sell, we won't find a bottom," he said.

Cramer: How to Spot the Next Winners

A High-Yielding Dividend Machine

In the hunt to find high-yielding, recession-resilient dividend stocks, Cramer invited Kinder Morgan Energy Partners' ( KMP) chairman and CEO, Richard Kinder to talk about his company's whopping dividend yield.

Stockpickr

Cramer explained that as a master limited partnership, Kinder Morgan must return all of its profits to its shareholders, and that's exactly what this natural gas pipeline operator has been doing. Kinder currently has a 8.6% dividend yield, and is expected to raise that yield 15.3% in 2009.

Given Kinder's long history of dividend raises, Cramer said money invested in the company will double every eight years. In fact, an investment made in December of 1997 would be up 213% solely on dividend yield, and had those dividends been reinvested, the return would be a stellar 498%. "I like this stock," he said.

Kinder explained that his company acts much like a toll road, collecting fees for the products that travel through it. He said the company is not affected by the price of natural gas and even has long-term through-put contracts in place to hedge against large scale declines in volume.

According to Kinder, his company's goal is simply to provide nice growth on top of a nice yield. The company continues to expand its pipeline system, connecting to both new natural gas sources as well as to new areas of demand.

Healthy Nuts

As evidence that some companies are still making money in this horrible market, Cramer welcomed Michael Mendes, president and CEO of Diamond Foods ( DMND) to the show to see if he's nuts for recommending this leader in the nut and snack category.

Cramer said the stock is up 51% since he last recommended it on Feb. 5, 2007.

BankingMyWay

Mendes said his company has brought innovation and excitement to what traditionally had been a commodity business. He said it has introduced new flavors and packaging to nuts and nut snacks, and is appealing to a younger demographic for the first time.

He said Diamond has positioned itself and its products as a healthy alternative to most other snacks.

Mendes said his company is working hard to increase distribution and break into non-traditional distribution channels. He cited the company's recent acquisition of the "Pop Secret" brand of popcorn from General Mills ( GIS) as an opportunity for the company to expand and innovate.

Cramer called Diamond a great company, citing its recent earnings beat by 6 cents a share as proof that Mendes' plan is working.

Mad Mail

In this segment, Cramer told a viewer that Apple ( AAPL) and Google ( GOOG) are two of the best run companies in America.

He said if these two companies can't rally in this market, then nothing can.

Lightning Round

Cramer was bullish on Duke Energy ( DUK), Eaton ( ETN), Qualcomm ( QCOM), Apple ( AAPL) and Google ( GOOG).

He was bearish on Netflix ( NFLX), General Motors ( GM), Ambac Financial Group ( ABK), Broadcom ( BRCM), Amylin Pharmaceuticals ( AMLN), Mosaic ( MOS) and Amazon.com ( AMZN).

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At the time of publication, Cramer was not long on any stock.

Jim Cramer, host of the CNBC television program "Mad Money," is a Markets Commentator for TheStreet.com, Inc., and CNBC, and a director and co-founder of TheStreet.com. All opinions expressed by Mr. Cramer on "Mad Money" are his own and do not reflect the opinions of TheStreet.com or its affiliates, or CNBC, NBC UNIVERSAL or their parent company or affiliates. Mr. Cramer's opinions are based upon information he considers to be reliable, but neither TheStreet.com, nor CNBC, nor either of their affiliates and/or subsidiaries warrant its completeness or accuracy, and it should not be relied upon as such. Mr. Cramer's statements are based on his opinions at the time statements are made, and are subject to change without notice. No part of Mr. Cramer's compensation from CNBC or TheStreet.com is related to the specific opinions expressed by him on "Mad Money."

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