Jim Cramer: Why the Cliff Makes the Short Side Look Good

Editor's Note: This article was originally published on Real Money on Dec. 3. To see Jim Cramer's latest commentary as it's published, sign up for a free trial of Real Money.

First, let me say, I hate politics. Second, let me say, I like profiting from stocks. Call me a profiteer, but you have to recognize that because we elected a president who favors tax increases and spending cuts, and because I have never heard any Republicans even be willing to say "tax increase," let alone vote for one, then you have to accept that going short beats going long here.

In other words, I am urging you in this column to recognize that no compromise means fiscal cliff jump, and cliff jump means lower profits for companies, and lower profits for companies means lower prices for stocks.

That's not GOP. That's not Democrat. That's just ineluctable.

What I don't like is that when I go on Twitter, Republicans disagree with that judgment.

Look, you can say that the president is going to cause a recession because we elected him, and he favored tax increases on the wealthier cohort. Romney didn't favor it. He's boxed by that vote.

The Republicans are boxed by their pledge not to disagree with the president by a pre-existing agreement to Grover Norquist's pledge.

One is a pledge to the electorate. The other is a pledge to Norquist. I think there is nothing wrong in putting it like that. It is not simplistic. It is simple

I don't care whether you agree with that judgment. I am simply saying that if you agree with it, there will be prolonged period where the short side might be preferable to the long side, because the president, right now, does not have enough pledge-breakers to get a deal done.

And what does a world look like with no deal?

There are three consequences. The first that is many will see less money from their paychecks, because more has to be withheld by law for everyone.

Maybe that doesn't matter as much as it sounds. I mean, if oil prices soar to $130, I think that would be a more important detriment to the health of the economy than just that increase.

Second, you will see some substantial layoffs made by prudent executives from publicly traded companies as well as definite layoffs from defense companies. The issue here is that when companies report in January, only foolish CEOs would say that they can have better growth once we go over the cliff.

Who wants to be a buffoon? Why not take down numbers because of the cliff? And when you take down numbers, your stock goes lower.

The final and far more insidious issue is this stupid alternative minimum tax. It is an impenetrable escalation of taxes that could be relatively larger than the current tax bite for perhaps 30 million Americans. You don't know until the bill hits you. So you better save up for it. Those people are critical to spending, and they don't even know who they are yet. Tax bills would increase an average of $3,000 for these people.

Now here's the problem with going over the cliff. While you can reverse the spending cuts, while you can revert to former tax rates, even if we go over the cliff, no one knows how to put the AMT back the bottle. I have yet to hear how that can happen. Tell me if it can. I haven't read a single positive word about how it can be reversed if there is no deal. If we go over the cliff before the end of the year, it seems etched in stone, and it is the most dangerous of the tax increases.

I believe there could be a deal. I believe the president might be able to "seduce" some Republicans to break their pledge to Norquist, which means the short side could be tough.

But if you think the president can't seduce some Republicans to break the pledge, "seduce" being Norquist's word, then how can you be big long? Why not short?

Just asking the question. Not telling you what to do. Just asking the question. Because it is the most important one out there to ask.