Bear-Bull Hybrid Is Beating the Market

Rodriguez's fund is closed to new investors, not because he had so much money flowing in, but because he cannot find productive investments for any more cash.

Rodriguez began 2007, as he had for some time, with a very bearish stance. Has that changed at all since then?

"I'm still very bearish," he says. "Even more so. I've been selling into this rally. We've done very little buying this year." He's selling 10 or 15 stocks for each one he's buying. The percentage of cash in the portfolio is in the low forties.

Rodriguez sees "signs of excess in many areas," and he's increasingly worried about the financial picture here in the U.S.

The fund manager thinks mortgage defaults are going to increase dramatically and the contagion will spread. Lending standards, he says, collapsed during the last few years of the housing bubble and the bill is going to come due.

He sees house prices continuing to fall. And he is concerned about toxic amounts that hedge fund and private-equity managers borrow to goose up their returns.

Rodriquez plans to scare audiences in Chicago next week, where he is due to give speeches to a Morningstar conference and a meeting of Chartered Financial Analysts.

"You never know when there's going to be a crash," he says. But his favorite investment right now? "It's a four-letter investment called cash."