In August 2007, when I last caught up with David Tice — the president of the Prudent Bear Fund, a Dallas-based $1.7 billion mutual fund that caters to bearish investors — the Dow Jones Industrial Average was in the 13,000s, and the 53-year-old money manager told me that the market faced major problems. At the time, he said, “I would sell all stocks now.”

His timing was somewhat off, but basically he captured the mood and direction of the market, as the Dow scooted to an all-time high of 14,164 in mid-October and then collapsed to below 11,000.

The Prudent Bear Fund is up about 2% in this year’s down market, so for an update, I rang him up and he’s still of the same ultra-bearish mind.

The recent rally of the dollar, Mr. Tice says, cannot last. Considering the dollar fell to $1.48 against the euro yesterday, he may be right. The reasons for his bearish view of the greenback include:

o The necessity of a government bailout of the mortgage financing giants Fannie Mae and Freddie Mac, which will run to hundreds of billions of dollars.

o The ongoing slide in real estate values.

o The near-certainty of more write-downs in the financial arena.

o Higher producer price inflation.

“Our problems are so severe that you can’t expect the next president to get us out of this mess easily,” Mr. Tice says.

Yet another investment worry is that if Senator Obama becomes our next president, he will move the country to the left, raising taxes and inflicting damage on a sagging economy.

Given his bleak outlook, Mr. Tice paints a grim picture of the stock market. “It’s going dramatically lower,” he says, with the Dow Jones Industrial Average possibly shedding another 50% over the next 18 months.

Reflecting this thinking, his fund is gearing its strategy heavily to the short side, betting that stock prices will go lower. With this strategy in mind, the portfolio strongly favors the financial, technology, and consumer discretionary sectors.

The fund’s portfolio also has stakes in short-term sovereign debt from foreign governments, namely Switzerland, Norway, and Canada. About 4% of the assets are in precious metal securities, notably gold and silver.

“It’s still a very choppy, dangerous market in an environment where the economy is sinking quickly and credit is tightening everywhere,” he says. “People have three legs to their financial security — their home, their portfolio, and their job — and unfortunately all three are going down at the same time.”

Another bear, the veteran San Francisco money manager Gary Wollin, who manages nearly $100 million of assets under the banner Gary Wollin & Co., also called the market correctly by souring on it last November, when the Dow was trading at around 13,300. He was especially negative on housing and financial stocks, two sectors that ran into a subsequent selling blitz.

Mr. Wollin is sticking to his bearish guns: “We’re in for another leg down,” he says. The main reason, he says, is the negative impact of rising wholesale inflation on corporate profits and the reappearance of wild, volatile swings in stock prices that are reminiscent of the volatility that occurred during the two weeks before the 1987 market crash. That crash, known as Black Monday, occurred on October 19, when the Dow dived 22.6%, or 508 points.

The point declines in the Dow preceding the crash weren’t as large then as they are today, since the Dow in October 1987 was only around 2,600. Still, Mr. Wollin points out, the swings then, even though of a lesser scale, are similar.

Mr. Wollin, whose fund was down 5.2% in the first nine months of the year, compared to a loss of 14.6% in the Dow over the same period, isn’t forecasting another crash, but he does see more chaos, with the Dow falling to around 10,800 and possibly skidding below 10,000.

One key reason for this dismal outlook is the rise in producer prices, which means corporate profits will suffer because companies will be unable to raise prices enough to keep up with their rising costs. Add to this continued declines in housing prices, which is creating a sense of poverty, in addition to the banking sector’s woes, and Mr. Wollin’s bottom line is a lot more red ink ahead for investors.

As such, his fund is about 30% in cash. “I’m not buying anything,” he says, “because buying anything right now is the equivalent of catching a falling knife, no matter the name or quality of the company.”

dandordan@aol.com