Should You Short the Stock Market? -- with David Moadel
hey everybody and welcome to looking at the markets with David Modell one of the
most common questions that I get is when do you think this market rally the stock
market bull markets that were having the bull run that's been happening since
2008 2009 when the S&P 500 and the Dow and the Nasdaq and the russell 2000 all
bottom doubt in around 2009 and then we've had a decade-long rally now it's
been 10 years since actually it's been about 10 years to the day i believe
today is the day while I'm recording this when 10 years ago exactly when it
bottomed out and people asked me when's this going to end because they might ask
me you know should I short the market should I short the S&P 500 or the Dow
NASDAQ whatever or should I buy an inverse some sort of inverse market ETF
or like a long VIX Volatility product should I buy TVI XT VIX or VXX or you
vxy something like that should I buy those in anticipation of a market crash
because it's due people will say it's do you know it's we're now entering into
the longest bull market in American stock market history
well what that's debatable depends how you measure it depends how you define
what a bull market is what a bear market is and how you measure it but it's
either the longest one or the second longest one if you know there was a
really long one in the 1990s there was another really long one in the 1960s so
it depends how you measure it but anyway it's among the the longest bull markets
ever when's it going to end should I short the market I would say
don't short the market that's a dangerous business to get into if you
feel like you must do it which I don't recommend but if you have to do it then
you could just take a really small position one that won't hurt you if it
goes against you but I would recommend just not doing it at all definitely
don't buy in my opinion I cannot tell you what to do or what not to do but I
for myself I'm not buying T VIX or VXX or UV s wine
holding on to those those have a lot of drag which comes from contango which is
that's a whole separate video probably but there's a problem if you buy and
hold T VIX you vxy VXX those types of exchange-traded products and then them
even if the stock market just goes sideways for a while you're going to
lose on your position you're going to start losing value and you're in your
holdings it's kind of like an option that decays
over time now if you decide to short the market by shorting the S&P 500 or s py
you know the Spyders ETF or something like that well now you're gonna have a
problem anyway because you've got borrowing costs all right costs money
the the your broker is a bank and they make money from loaning you shares too
short and so even if the underlying asset even if the stock or ETF or
whatever that you're shorting goes sideways you're not at breakeven because
you're it's like borrowing money from a bank you have to pay interest on that so
there's a borrowing cost for that and if you short indirectly by buying puts on s
py you know the Spyders ETF or whatever now you've got drag on that position
because even if the market goes sideways if you bought a put option that's going
to have time decay or theta decay as they call it and so it seems like no
matter how you choose to try to short the market well there are three
scenarios the market goes down okay you might
profit even then you might not profit because there's drag on your position no
matter how you get into it whether it's through buying puts or buying a Vicks
product or shorting the market somehow those all have drag on them so you could
actually have the market go down and yet if it doesn't go down fast enough and
far enough then you could still lose on your position but anyway there are three
possible outcomes you know either the market goes down in which case you might
win if it goes down fast enough and hard enough okay even then you might lose but
it goes down you might win if the market goes sideways you're probably gonna lose
because all those ways all those methods of shorting the market you know are
gonna have drag on them you're going to lose money over time even if the market
continues to go sideways for a long time or the market goes up in which case you
lose so the market goes up you lose market goes sideways you're probably
going to lose market goes down you could lose anyway market goes down really soon
after you put on your position and really far and really fast yeah then you
can win okay but there are more unfavorable possible scenarios than
favorable ones okay and it's all unfavorable because this the the market
the stock market has a tendency to go up over time and so it's kind of like
you're trying to swim against the ocean tide yeah it's working against you the
ocean tide tends to move in a certain direction and you're trying to swim
against it and you're putting in a lot of effort to swim against something that
tends to go against you okay so you're going to be by taking a short position
in the market you're trying to fight something that tends to go up over time
doesn't mean that it goes up every day or every month they're going to be
months when it goes down they're going to be entire years when it goes down
but the fact is that if if you had bought the S&P 500 at any point in
American market history and held it for 20 years you would have made money okay
so a buy and hold position in the S&P 500 no matter when you did it 20 years
later the SP 500 will be higher and you'll have made money even if you
bought at the worst possible time even if you bought right before 1929 or right
before 1987 or right before 2000 or right before 2008 well that was you know
that one hasn't been tested yet the 2008 one it hasn't been 20 years yet okay but
even if you bought right before 1929 or 1987 20 years later you would have made
money just by buying and holding the S&P 500 and so that's pretty good evidence
that it tends to go up over time do you really want to fight against that also
you've got a Federal Reserve that by order of the president basically is
going to prop up stocks no matter what there are they're going to try to at
least and that's been going on and and I'm not you know taking a political
stand or making a political statement here this has been true president after
president for a long time now okay this was true when Ben Bernanke was the Fed
chair and then Janet Yellen and then now with Jerome Powell so this has been
going on through multiple presidents of both political parties all right
no president is going to want the Fed chair to do things that will tank the
stock market they don't want to get blamed for that
and no Fed chair wants that either Jerome Powell j-pal tried in 2018 tried
an experiment in raising bond yields you know the 10-year interest rate four
times that year he tried to be a hawkish as they say or aggressive with with
tightening and what happened was we got our fur as a
result of that and other factors but chiefly as a result of that we had our
first bear market since the financial crisis 10 years ago so after that next
thing you know after that failed experiment I I wouldn't say it was
failed maybe he was doing the right thing by tightening but it failed in the
sense of it made the markets very unhappy it made the president very
unhappy and it jeopardizes his job because the next thing you know the
president is threatening to fire the Fed chair whether he whether he has the
authority to do that or not it just doesn't look good for the Fed chair and
the president they don't want to be remembered as the people who tanked the
markets and so next thing you know in early 2019 the Fed is now very dovish
talking about being patient that's very dovish the people are
actually talking about no rate hikes for the rest of the year maybe even a rate
cut so if you try to short the market you're going to be fighting against you
know a president and a Federal Reserve that is going to prop up the market or
do everything they can to prop up the markets do you want to fight against
them do you want to fight against the gradual upward bias of the stock market
which tends to go up over time I don't recommend trying to fight
against that so if the question is when is the stock market going to have a
crash well technically we had a bear market I call it a mini bear a mini bear
market but then it came right back up and really sharply came right back up
and quickly in early 2019 so far so you know when is the market really going to
crash Allah 2008-2009 or Allah you know in the
manner of to the extent of 2000 the dot-com bust 50%
crash when's that kind of happened I'm not going to try to predict that because
whenever people try to predict that they're wrong more often than they're
right so I don't recommend trying to predict I'm not really much into
predicting anyway it's not something I try to do I try to do as little
predicting as possible you have to do some predicting in life can't go through
life without predicting at all but it's a tough battle to win so I don't
recommend trying to predict when the next crash is going to happen I'm not
going to do it in this video that's for sure
and I don't recommend trying to short the market okay it can be a winning
strategy if you're lucky but trying to time shortening the market you're
fighting against the ocean tide basically not something I recommend so I
thought I would have this little talk with you and for anybody who's thinking
about shortening the market I don't recommend it as a good strategy doesn't
mean you go all into the market either you know diversifying into different
asset classes is not it's not a terrible idea at all okay so I hope this helped
you you know if you want some more help if you want to get some help with some
coaching or putting together and investing or trading plan I do help
people with that you can email me at David Modell at gmail.com for that if
this video is helpful to you please give it a like on YouTube and leave a comment
let me know what you think are you shorting the market do you think it's a
good strategy it's okay if you disagree with me I don't have a problem with that
I like to have a robust discussion on YouTube and hey if you haven't
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put out videos just like this one all right hey thanks a lot I really
appreciate it I'll talk to you again soon
you