Global Investing

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.