The Return of Tice

Wednesday, May 05, 2004 | 09:49 AM


Barron's has an interview with Uber-Bear David Tice in their online version. Tice is -- Surprise! -- Bearish, and expects to see (brace yourself) Dow 3000 eventually.

While I'm no perma Bull, I do think that's an excessively grim scenario.

To his credit, Tice's BEARX fund only lost 5% NAV -- a respectable performance, helped primarily by "defensive" positions in Gold. He's 70% net short, dislikes Fannie Mae, his favorite precious metals stock is Crystallex (KRY). Additionally, Tice doesn't see terrorism as a defining bearish factor: "We see so many other problems from the excesses from this bubble. And it's not just a stock market bubble. It is a credit bubble, an economic bubble."

Here's an excerpt:

"But Tice, arguably the most prominent bear in the mutual fund world, sees a dark cloud surrounding the silver lining of an economy recovery. It's just a matter of time, he says, before the bear market, which started in 2000, resumes in earnest. "It's not atypical for there to be a rally inside a bear market,'' he says.

Over the last five years, at least, he's been right: Tice's fund produced an 11.9% annualized return during that time, even after subtracting the fund's hefty 2.3 % expense ratio, says Morningstar, Inc. By contrast, the Standard & Poor's 500 lost more than two percentage points a year on average over that period.

Barron's Online: It obviously has been a bad 12 months for bears with the stocks market's run of about 25% But are things about to change for the "better"?
Tice: Yes, we believe so. We think [this past years has] been a pause in a secular bear market. We believe that the market remains dramatically overvalued and that our economy is terribly unbalanced due to massive credit growth. And this secular bear market is likely to last five years longer or possibly as long as 10 to 15 years.

Q: You say the market is dramatically overvalued now. However, the S&P 500 is trading at about 23 times trailing earnings now, which is less than it was valued a year ago when stocks were trading much lower. Is the stock market really that overvalued, particularly given the decent economic recovery we're having and the strong first quarter corporate earnings?

A: Well, earnings have increased nicely, with this bounce in the economy, due to massive credit growth. And there has been cost cutting. However, those increases in earnings are unsustainable.

People forget that in the 1920s [before the market crash], the P/E in the market was in the low teens. So you can't necessarily look just at a P/E ratio. What is most important to look at is this massive debt increase that has occurred and the [refinancing] boom that has stimulated the economy. And that we've seen hundreds of billions of dollars of stimulus that has allowed individuals to go out and buy goods and services. We've had massive increases in real estate prices And individuals have been able to receive a call from a mortgage broker and tap into that equity in a home as essentially an ATM machine."

I have a hard time drawing parallels to the 1920s, as too much has changed within the broader structure of the economy.

That said, this has been a stimulus driven economic recovery, and its a valid point to observe that once the cycle of home building/selling/refurbishing/refinancing grinds to a halt, a huge source of stimulus will be gone.

By the end of the summer, I expect the pig will be through the python . . .

Tice Says the Bears Will Rule Again
TUESDAY, MAY 4, 2004 5:59 p.m. EDT,,SB108368559431301462,00.html

Prudent Bear BEARX    
David Kathman
Morningstar's Take | 09-24-2003

10 Questions: Prudent Bear Fund Manager David Tice
Beverly Goodman
05/06/2002 07:06 AM EDT

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