The Fed has to cut because the economy is running out of gas, says Jim Cramer

We are at a very tricky moment in the business cycle. It’s the gut wrench time, where the brown shoots we were looking for turn into the compost of an economic slowdown. It has to happen. And you know what? It’s actually end up being good news because it means the Fed can start cutting rates sooner than expected, but it still hurts. That’s why I want to walk you through the pain you’re going to experience. If you had that diversified portfolio and if you watch me have money, I know you do, we can provide you with some novocaine, there’ll be anesthesia and yes, there’ll be up days like today where the Dow gained 32 points, has to be advanced .13%, NASDAQ dip point 1%. But you need to expect and anticipate vicious intran day sell offs like we had today as the Fed plays coy and we await their next move. What I’m pretty simply the Fed needs to cut rates because the economy’s running out of gas and that changes the kind of stocks that can work here, at least in the short term. And some very good companies will be left behind taking their stocks down with them today. For example, one of the single best performing stocks, one we’ve been monitoring for a long time because it’s incredible several years now. It’s a company called Builders First Source. They just built one in Brooklyn. It’s Dynamite. They dropped the bomb on shareholders today and sent the stock down 19%. This is a major supplier to the home builders. So the story they told on their earnings call wasn’t great, it always is. So this was a shocker. Listen to this and I’m quoting early momentum in single family has slowed as persistent inflation has cooled. Short term expectations for interest rate reduction, Let’s see what are they really saying your slow down alert, there’s more quote low existing home inventories in pent up demand provide an environment where growth is continued to build. Builders across the board are having to navigate affordability issues and challenges with the regulatory environment, land development and infrastructure End Quote. OK. Now on the surface you’re thinking what is Kramer talking about that couldn’t this couldn’t have possibly knocked the stock down 19%? There’s nothing in here that could do that, correct? Wrong. Because the language is all in code. So let’s break it down. Let’s parse it. I’ll do the code breaking first. Early momentum and single family homes slowed. You know what that means? It means there were a lot of sales when people thought interest rates were going down. But then the economy surprisingly went on a hot streak. Long rates rebounded and home builders pulled back from buying goods and builders force that they needed to build new homes. Next, persistent inflation has cooled short term expectations for interest rate reductions. This is key. Remember a couple of months ago people were wondering the Fed stopped raising rates too soon because inflation was still too high. As long as inflation doesn’t come down, we’re not going to get the rate cuts. Until last Fridays Weaker employment number, there was a budding consensus that the Fed may even have to raise rates. Don’t miss a second of Mad Money. Follow at Jim Cramer on X. Have a question? Tweet Kramer Hashtag Mad Mentions Send Jim an e-mail to [email protected] or give us a call at one 807 four three. CNBC Miss something? Head to madmoney.cnbc.com.