NEW YORK ( Real Money) -- Bear markets create problems. Bull markets solve them. Bear markets sow seeds of worry. Bull markets harvest the seeds and turn them into something worth chowing down on. Bear markets frighten people out of stocks. Bull markets let the rest -- those with fortitude, those who are implacable -- enjoy the gains after the weak hands have left the table. The bear has objections; the bull rebuts them and trounces them.Go back four short months ago. What was the prevailing wisdom? Editor's Note: This article was originally published on Real Money at 8:15 a.m. EDT on April 10. To see Jim Cramer's latest commentary as it's published, sign up for a free trial of Real Money. 1. The federal government was going to jump off a cliff. Taxes would rise for 100% of the nation, particularly those in the middle class. Taxes on the rich would skyrocket and dividends would be taxed at the new, very-high ordinary income rates. 2. At the exact same time that taxes on popular dividend stocks would at least double, if not more, the Federal Reserve was going to raise rates, maybe dramatically, because it would be worried about the inflation caused by its bond-buying. That meant dividend stocks' after-tax rate of return would plummet and make them not much better than certificate of deposits. 3. Europe, after some months of calm, was back on the red-hot griddle, with Italian and Spanish bonds performing badly again and the usual litany of banks about to have runs. 4. The debt ceiling was going to derail the U.S., even if we solved the fiscal cliff, and the sequester lurked ominously no matter what deal was made. These would, of course, throw us off track and bring higher unemployment. 5. First-quarter earnings were around the corner, and they would be nothing to write home about, or maybe worse, particularly with the worldwide slowdown that Europe seems to have been mandating. That's a full head of bear steam coming into a year that was about to have its best first quarter in years and years. How was that possible? I think it's because the market has changed its coloration. It simply couldn't be scared any longer. For the people who were still in, they'd been hit over the head with these issues for so long that they had developed virtual helmets. Or if you want to get all Ulysses-like, they were strapped to the masts and they had heard all of these sirens before.
Who can blame the bulls? Let's look at what happened with the above five items. First, the tax code didn't change much at all. When it comes to income tax, 98% of the people in this nation of about 313 million don't pay any more now than they did last year. That's a phenomenal number of people who weren't impacted vs. the percent -- just about everyone -- who thought they would be. Spending had been shut down in this country because of the possibility that 98% of the people would pay much more. More important, many rich people thought stocks would not be good assets with the tax-code changes. Dividend-paying stocks were sold aggressively. Many companies rushed dividends to their shareholders, putting tons of money into the wealthier peoples' pockets. It was a bonanza. That dividend money, already acclimated to stocks, flowed right back in. The whole worry -- every bit of bearishness about how tax rates would wreck dividend-paying stocks -- totally backfired. Then, as we now know, it triggered the most incredible rebound in dividend payers we have ever seen. In fact, the companies that were paying 5% are now yielding 4%, and the 4s are yielding 3s. That's been the trade of the first quarter -- the defining trade of the year so far -- and it is all on the backs of the bears. Of course, the bears wouldn't stop. I remember saying at the beginning of the year that, now that taxes are unchanged, confidence can resume. Immediately I was hit with a tsunami of stories about the end of the tax holiday. I pointed out that the rate had only been a temporary dip anyway, and that it won't be a big deal. But the bears dug their paws in and made a real federal case out of it. Yet the last part of the rally of the previous quarter basically proved me right; this didn't matter at all. It was just another defeated bearish scenario that caused stocks to rally precisely because it was defeated. Second, the Fed didn't switch its strategy because its actions are employment-based. Lots of the bears are conflated with the ideologues on this and can't accept what Chairman Ben Bernanke is doing. The bulls know it doesn't matter. Their goal is not to reason why. It's just to make money or die. These silly ideologues are fighting wars that don't matter in this turf. They are cavalry against the bulls' quad 50s and Spandaus. It's downright stupid to ever bring in political feelings about what Bernanke is going to do. Just accept that it will be the case until he retires.
Third, who would have thought it? The Europeans might actually be at a point at which there's nothing more to do. The big flash point had been failed government auctions to pay for bills that couldn't be paid. Now governments can issue all the bonds they want. The banks that own them can sell all they want. That's in part because fleeing Japanese have bought everything that moves that isn't yen. That's in part because there's no inflation to speak of, and in part because the economy actually may be hitting some sort of rock bottom that will work in Europe the way it's worked here. The bulls seem to sense that. The stock markets over there are all flat now. They should, of course, be lower. But do you hear much about skyrocketing Italian rates? Cyprus made bond-buying even heavier, because bonds are safer than bank deposits. As for the sequester, it turned out to be a brilliant nothing -- "brilliant" because it revealed that there is no hope for President Obama to get anything done, maybe ever, if the Republicans take the House. "Nothing" because it turned out to be small vs. the wealth effect, which the bears still refuse to take seriously. They do so at their own peril. Think about what happened. Obama has twice tried to scare everyone that things were going to fall apart if he didn't get his way. It didn't happen. He's just an annoyance now. The press does his ceaseless bidding. He says that higher rates are still on their way, and that there will be a cap on tax deductions. Dream on. As we said on the trading desk, "take a nothing done." Plus, we will probably see a very big decline in the budget deficit because of all the tax-receipt increases. The Fear Monger-in-Chief is now the Boy-Who-Cried-Wolf-in-Chief. As for point No. 5? Looks like first-quarter earnings are going to come in and they, too, will be nothing to write home about. But they may actually be OK because of the wealth effect and because China might have to stimulate and because Europe may have hit bottom.
Now, all of those points may seem fanciful to the bears. But something else has happened here. The bears aren't in control of the agenda right now. They have cost people too much money. The 13-year reign of the bears seems to be winding down, going out in a blaze of their last gibberish, risk-on glory. It was never risk-on/risk-off. It was bearish or bullish. Nothing ever changes. Except the labels. Right now the label says, "Warning: Being bearish may be hazardous for your health," because you can't catch up to the averages. Oh, they aren't done. They want missiles to go off in North Korea -- which, of course, would just cause North Korea to fold and create a hugely profitable South Korea. They want a run in Slovenia. They want the president to attack the rich somehow, and be potent in his destructive force. They want shortfalls galore and have indices that show they will happen. They want chaos in the streets and mayhem. All I can say is that they'd better hire some actors real quick and not use those same people you used to line up at banks in Cyprus. They didn't scare anybody. Action Alerts PLUS, which Cramer co-manages as a charitable trust, has no positions in the stocks mentioned.