A Conversation With Dr. Death

Five years ago this week, on August 5, 2002, to be precise, I wrote my first column for The New York Sun. I came across it the other day and was struck by the similarities between the situation then and the increasingly rocky financial arena today.August 2002 was characterized by a slowing economy; a sharply rising budget deficit; eroding consumer confidence; and an increasingly volatile stock market, which prompted many nervous investors to unload both their shares and their holdings in equity mutual funds.As is often the case during periods of stress, it turned out to be a rotten time to sell: The S&P 500 subsequently ballooned more than 75% from its August 5, 2002, close of 834.60.Nonetheless, investors once again are selling — dumping might be a more appropriate word — as evidenced by the recent series of triple-digit declines in the Dow and the wave of selling in stock mutual funds, $14.8 billion worth in the past two weeks.That figure could well swell soon following Friday’s market thumping, a Dow plunge of 242.92 points, or nearly 2.1%.Given the market’s beastly behavior in recent weeks, I figured it was high time to get a timely update from money manager David Tice, described to me by several pros as a pretty smart guy. At any given time, Wall Street always has its so-called Dr. Deaths, those super bears who invariably see hellish times ahead for the stock market. Given his grim view, Mr. Tice, 52, surely earns such a designation at this juncture.Our doomsayer, who is about as scary as a combination of Godzilla, Frankenstein, and Dracula all wrapped up into one, is the president of an 11-year-old fund out of Dallas, the Prudent Bear Fund, that manages about $770 million of assets. It’s an actively managed mutual fund whose strategy is to make money in a bear market by shorting stocks (a bet they will decline in price) and by owning precious metal securities.So far this year, the fund tells me, the fund is up 7.2%. Last year, it underperformed the market with a 9% increase, versus a 15% rise for the S&P 500.Fasten your seatbelts. Given his expectations of a more rapid and widespread contraction of credit and an impending housing bust, Mr. Tice, who views the market as still 50% overvalued, paints a dire picture ahead. His outlook factors in his expectations of:• A severe recession next year, the worst in 60 years, which he sees kicking off with an appreciable economic slow down beginning in this year’s fourth quarter.• About a 10% to 20% decline in 2008 per-share earnings.• A 10% drop in housing prices this year, followed by a 10% to 20% decline in 2008.In sharp contrast, many economists are calling for an economic and earnings pickup in the second half, a housing rebound later in the year, and a recovery in the credit markets within the next few months.To Dr. Death, who doesn’t buy any of these economic scenarios, the investment course is clear. “I’d sell all stocks now,” he told me. His rationale: The mortgage market is unwinding; the subprime market has imploded; the junk bond market has essentially been shut down; funds for mergers, acquisitions, and leveraged buyouts have dried up; credit is unwinding here and abroad; liquidity is drying up; real estate prices are in decline; and foreclosures are rocketing, up 58% in the first half.“How,” he asked, “given what’s going on now, can anyone be bullish on stocks? The answer is they can’t be.” As for investors who think they’ve been snapping up supposed bargains during the market’s recent declines, Mr. Tice believes they’re playing Russian roulette with their finances.His year-end 2007 outlook for the Dow is ominous — a slide to 10,500, a more than 30% decline from Friday’s close of 13,181.19.On what basis, I inquired, does he view the market as 50% overvalued? That’s based, Mr. Tice said, on his projected earnings collapse and the many excesses in the system. “Keep in mind, we’re in a secular bear market,” he added. He also pointed out that the peak in price/earnings multiples around the 1929 Depression was 12 (versus currently 16–17 in the S&P 500).He declined to identify any of his specific short sales, but he did note the fund was heavily short financial and consumer discretionary stocks, as well as some technology shares.Is there a possibility he could be spouting too much gloom and doom? I asked. “Not if you believe in living in the real world,” he replied.dandordan@aol.com

A Conversation With Dr. Death

More from the New York Sun

Pam Bondi Plows Past ‘Paperwork Mistake’ To Revive Criminal Prosecutions Against Letitia James and James Comey

How Margot Robbie Made Girlboss Cinema a Brand

Judge Blocks Trump Administration From Cutting Funds to California for Not Disclosing Students’ Gender Transitions to Parents

More from the New York Sun

Pam Bondi Plows Past ‘Paperwork Mistake’ To Revive Criminal Prosecutions Against Letitia James and James Comey

How Margot Robbie Made Girlboss Cinema a Brand

Judge Blocks Trump Administration From Cutting Funds to California for Not Disclosing Students’ Gender Transitions to Parents

‘Wuthering Heights’ Is a Mad, Bad, and Sexy Romp That Makes Brontë ‘Brat’

Pro-Hamas Activist Provokes Outrage — by Insisting Dogs Should Be Homeless

The Democrats Beyond the Water’s Edge

Student Sues University of Michigan, Claiming It Mistook Her Anxiety-Ridden Writing Style for AI

Bipartisan Group in Congress Warns of ‘Serious Safety Risk’ From Illegal Biolabs