The doom and gloom crowd was piling on after a record one-day 777-point drop in the Dow Jones Industrial Average (DJIA).
David Tice, who manages the $1.1 billion Prudent Bear Mutual Funds from the Virgin Islands, offered a bleak assessment of the financial future in an interview with Bloomberg TV anchor Carol Massar on Sept. 30.
“Unfortunately Carol, we don’t believe that the pain is over,” Tice said. “We think that we’re going to have to pay for the excesses of really the last five to 10 years of this excessive credit growth with a dramatic slowdown in the economy, dramatically lower markets. We’re still above 10,000. We think we’re going to, you know, fall below 5- or- 6,000 on the Dow and we think we’re going to have to readjust the
Tice has made similar predictions in the past. In 2002, he said the Dow would drop to 3,000, although the 10-year low for the Dow is just below 7,500 – occurring in late 2002. However, if his prediction were to come true, the Dow Jones Industrial Average would reach depths not seen since the early 1990s. Tice didn’t have a definitive timeline for his market plunge.
“It all depends on – who the heck knows, Carol, as far as timing – because there’s so many bailouts, so much – Bernanke has essentially been known as, you know, possessing the printing press, etc. and, you know, it depends a lot on foreigners as far as how quickly they lose confidence in the dollar and what happens throughout the world as well,” Tice said.
His advice – flee the equity markets for safety. Tice recommended precious metals – especially gold, which he said was bound for $2,000 per troy ounce. Gold is currently trading just under $900.
“I think you certainly invest some time in analyzing what’s going on and I think you reduce equity exposure,” Tice said. “I think you do own gold. I think you own precious metals because this is a time when the bailouts are going to be so expensive. Our currency’s going to be diminished even though gold has been very, very volatile – down $250 just over a few months. I think it’s going to head to $2,000 eventually and it will protect you. And I do think less equity investments make sense.”
In recent months, traders who engaged in short selling were criticized for being behind some of the bank collapses. The Security and Exchanges Commission banned short-selling of nearly 800 financial stocks on Sept. 19 to prevent short sellers from “creating chaos in the market,” according to the Sept. 26 Boston Globe. Tice defended short sellers in his interview, explaining that it is a legitimate trading practice.
“Our fund does short the market,” Tice said. “We’re diversified through a number of industries. It really has not hurt our ability to be able to be short. Short sellers are not really bad people. They’re just trying to take – utilize well-known investment techniques in order to hedge investors and we do think shorting stocks does make sense.”
