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 magazine’s December issue, the Prudent Bear was the country’s top actively managed diversified mutual fund last year. It has had a three-year average return of nearly 32 percent. Tice’s firm also is publisher of Behind the Numbers, an institutional research service that provides “sell ideas” to money managers. Tice recently spoke with Newsday’s 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 that’s 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 “numerology”and saying we can’t have more than three years of a bear market and therefore the market’s got to endup [this year]. That’s preposterous because the [stock prices are being valued] at nearly 30 times earnings for the S&P. That’s trailing earnings. You can’t really look at future earnings because you can’t 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. That’s how we’re playing it. On the short-term basis, it’s 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 doesn’t go well, the market could crash. So we’re trying to minimize volatility.

Q. Most people think volatility is a short-seller’s best friend, isn’t 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 don’t 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 we’ve had three years of a down market?

A. It’s 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 can’t sell short unless there’s an uptick [in that stock], therefore we don’t 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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