From the perspective of presumably most people, the idea of short selling is repelling, perhaps even repulsive. As you know, short sellers profit from a downward movement in a stock or other tradable asset. In other words, they gain from people’s pain.
Naturally, that contradicts with our innate sense of fairness. After all, most folks who invest do so on the long side: they forward funds in the hopes that their investments rise in value.
Moreover, this is the direction that makes the most sense. For instance, no one buys a home hoping that it decreases in value; otherwise, when they decide to sell it, they may find themselves financially upside down. Add the concept that someone could profit from a crash in real estate prices and you have the odious reputation surrounding short sellers.
However, selling assets short isn’t necessarily a repugnant action. Indeed, a free market can’t exist without people willing to sell the target asset. More to the point, we all engage in some form of short selling.
This may not be evident right now. But as the economy erodes from the inside and as the national debt reaches unsustainable levels, we will all become short sellers. Let me explain:
Dollar Collapse a Boon for “Short Sellers”
Recently, I had the great pleasure of interviewing Brien Lundin, president and CEO of Jefferson Financial. Typically, gold bulls like Lundin usually measure their responses for understandable reasons. After a multi-year bear market in the precious metals, no one is truly anxious to stick their neck outs.
But despite natural incentives not to give a forceful message about the metals, Lundin actually surprised me. Throughout our conversation, he consistently hit home the point that everybody needs some exposure to gold and silver.
In thinking about his advice, I realized something. It may be philosophical, but nevertheless, Lundin is advocating for shorting the dollar. That’s because nothing would collectively kill the dollar faster than its lack of use.
Currently, nothing but empty government promises back the world’s reserve currency. Therefore, the only reason it retains its lofty status is because everybody else thinks it has value. But what if the greenback lost this credibility?
I imagine that very quickly, nations would seek alternative currencies and other platforms of value (i.e., gold and silver). Essentially, this is the ultimate short sale: gambling on the downfall of the dollar by investing in something else.
In that context, short sellers don’t deserve their negative reputation. When the monetary crisis comes to a head, we’ll all be short sellers.