Permabears are coming out of hibernation

May 27, 2009

After a 40-percent gain, the rally in world stocks might be losing momentum.

For permabears who live on doom and gloom to make money this is just a blip which is going to end in tears.

David Tice, a 20-year veteran short seller who manages Federated Investors’ $1 billion short fund, says we are in for a secular bear market which is going to last for 10 years.

“I’ve never more been convinced than anything in my life that this is a suckers rally,” Tice says.

He says short funds — which borrow stocks to sell to buy at a lower price — are negatively correlated to stocks and risky assets, allowing investors to diversify their portfolio.

“An individual really has three legs to his financial stool — pay check/bonus, stocks, real estate. In 2008 all these legs to his financial stool declined,” he says.

“A short fund is negatively correlated. Therefore in a bad economic environment, when people run the risk of all three of those legs declining and are lucky enough to have a pot of liquidity, they should consider putting that to work to a negatively
correlated vehicle like a short fund.”

Experts say investors should choose short funds with stricter risk management than their long counterparts as their upside is limited — performance reaches its maximum when a stock price go to zero — while the downside, brught by a stock price going higher — can be infinite.

No comments so far

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/

[...] After a 40-percent gain, the rally in world stocks might be losing momentum. For permabears who live on doom and gloom to make money this is just a blip which is going to end in tears. “I’ve never more been convinced than anything in my life that … Read Full Post: Permabears are coming out of hibernation – Reuters Blogs [...]