Long-time bear investor David Tice is warning investors a drawn-out bear market can happen where stocks will fall 30%. David Tice, president of Tice Capital, became known for running the Prudent Bear Fund as the financial crisis started in 2008. Tice managed to sell off Prudent Bear to Federated within the year.
“People thought I was crazy when I was bearish back in ’97, ’98’, ’99. I saw that a bubble was developing and we ended up crashing ’00 to ’02,” Tice recalled. “I tend to be very, very early,” he said. He said that he got out early again in 2008. “This really seems like it seemed in early ’08. Remember, in September ’08 after Lehman went down, it wasn’t until October and November until the market started crashing,” he noted.
Business Unfriendly Policies
Tice says that business-unfriendly policies from the White House are one of the major reasons for a bear market. “We now have a Biden administration that has a Senate and a House. They’re likely to enact very much more anti-capitalist policies. They have already raised the minimum wage. That’s going to hurt earnings on the cost side,” Tice said on Friday’s “Trading Nation” show. He thinks that the bear market can last two or three years.
In addition, Tice said that easy monetary and fiscal policies that encourage printing money will hurt Wall Street further. “All of this is not good for financial markets,” he added. Then, he says that problems will continue piling higher. There are concerns over an overvalued market and concerns over coronavirus vaccines. “The vaccine is not really a panacea. We’ve seen a lot of optimism about that, but there are new strains of the virus, and there is certainly risk going forward,” he added.
TIce spent much of his career making bearish bets during bull markets. He does admit his timings are not always accurate. In fact, his current fund, which also seeks to profit in underperforming markets, is down 32% in the last three months.
“I’ve seen bear markets approach, and people have called me a Perma bear,” Tice explained. “I’m a believer in the Austrian School of economics that says that the magnitude of the decline is proportional to the excesses created during the prior boom, ” he said. Tice said he got out in 1998, 1999, and in 2006 to 2007. ‘When it breaks, it’s likely to break hard,’ Tice added.
Go For Gold or Bitcoin Instead
Despite the bearish outlook where stocks will fall 30%, Tice has no idea when the market downswing will begin. He said that an extended market can happen. “But when it breaks, it’s likely to break hard and cause investors to suffer for a long time,” he said.
Instead of the stock market, Tice advocates gold. The precious metal is up by more than 25% since the market bottomed out last March 23. Tice said gold remains “dramatically under-owned” by individual investors and portfolio managers. He mentioned they’re incredibly cheap as well. At the same time, Tice thinks Bitcoin also merits attention. “We have seen the price of bitcoin go from $10,000 to $40,000 which I think is foreshadowing potentially what might happen in gold,” he said.
Now, he sees the markets picking up on the coming bear market. Tice expects the volatility to spike, sending the VIX to “70 or 80.” The CBOE Volatility Index, or the VIX, measures the stock market’s 30-day volatility. It derives from market prices of the call and put options on the S&P 500. When the market goes down, investors want to buy insurance. Insurance then drives the prices of put options up which increases the VIX. The VIX decreases with lesser demand for options while the market begins to move up. VIX usually moves inversely to equities. “I own a VIX position that I have had my head handed to with that,” he said on CNBC’s Fast Money. “It has been hard to be a bear,’ he added.
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Do you agree with David Tice that the markets are heading to bear territory and stocks will fall 30%? When do you think the expected crash will happen? How long will it last? Let us know what you think by leaving your comments below.