Apr 9, 2003

One of the best-known U.S. bears, he is president of David W. Tice & Associates Inc., a Dallas investment research and management firm. It advises two mutual funds, Prudent Bear and Prudent Safe Harbor. The former is designed to profit from market declines, while the latter profits when the dollar falls in value.

According to Money magazineís December issue, the Prudent Bear was the countryís top actively managed diversified mutual fund last year. It has had a three-year average return of nearly 32 percent. Ticeís firm also is publisher of Behind the Numbers, an institutional research service that provides ďsell ideasĒ to money managers. Tice recently spoke with Newsdayís Pradnya Joshi.

Q. What is your strategy for investing in the current market climate?

A. We believe that the market is going lower. This is a secular bear market. It has a long way to run. As much as we would like there to be prosperity in the U.S., we see that the excesses and imbalances from this excess boom have got to be wrung out of the system.

Q. How long will this secular bear market last, and what are its causes?

A. The causes of it are excessive credit thatís been created - where corporations and households took on massive amounts of debt. We partied hard, but now we will experience the hangover.

Q. So this will be protracted over several years?

A. Yes. There are a lot of people essentially looking at ďnumerologyĒand saying we canít have more than three years of a bear market and therefore the marketís got to endup [this year]. Thatís preposterous because the [stock prices are being valued] at nearly 30 times earnings for the S&P. Thatís trailing earnings. You canít really look at future earnings because you canít really predict what future earnings are going to be, and Wall Street [analysts have] done a notoriously bad job of doing that.

Q. How do you handle a short-term and long-term strategy in a bear market?

A.We think we should short [sell] stocks and long [buy] gold stocks. Thatís how weíre playing it. On the short-term basis, itís just so tenuous given the war situation. Do we start bombing next week? A month from now? If it goes well, the market could rally for a while. If it doesnít go well, the market could crash. So weíre trying to minimize volatility.

Q. Most people think volatility is a short-sellerís best friend, isnít it?

A. Volatility hurts us. It hurts any portfolio manager, because if you lose 20 percent, you have to gain 25 percent just to make it back. It just chews you up.

Q. Is the gloom and doom out there a self-fulfilling prophecy?

A. There are definitely real fundamentals there. Our view on the market is comprised from three different elements. One is stock market history. Two is economic history. And thirdly, analysis of individual companies.

Q. Once the war is over, do you think the markets will turn positive?

A. We donít think so, because there are enough problems in the system with our excessive debt levels and our overcapacity in the system, our massive dependence upon foreign capital and our significant current-account deficit.

Q. Do you think short-sellers have gotten more respect now that weíve had three years of a down market?

A. Itís difficult to tell. Short-sellers - the name still connotes bad things for a lot of people because people misunderstand and think that short-sellers drive down stock prices. However, we canít sell short unless thereís an uptick [in that stock], therefore we donít really drive prices down. We bears have been the ones who have alerted people to the potentials for these declines, and investors should have listened to us.


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