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) -- As worries spread across Wall Street that the autumn rally has finally come to an end, many investors are wondering if it's time to short the market.

Perma-bear David Tice was never swayed by the

Dow Jones Industrial Average's

7.3% rally this year and is still shorting equities.

Tice is Federated's chief portfolio strategist for bear markets and launched the

Prudent Bear Fund


in 1995 as a broad hedge against the U.S. stock market.

Tice doesn't like losses, but is willing to endure them to hit payday. Back in 2008, the fund was up 20% as the Dow tanked 33%. Year to date the fund is down 10%, however, as stocks recovered to pre-


levels. Tice is no longer the portfolio manager but plugs his bear case nonetheless.

I interviewed Tice back in January

when he said the


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would fall to 400. With the index trading around 1,200, I sat back down with Tice to see if he stood by his controversial call.

David, last time we spoke back in January you said the S&P would hit 400 in 18 months so this would be this coming June. Is it going to happen



: Well, I tell you what I hate to say six months from now, and it sounds like I'm vacillating here and I guess I am, but the policy-makers continue to surprise us with the magnitude by which they will kick this can down the road. We now have another $600 billion of quantitative easing. We know there is going to be pain ... Everything the


is doing now is not going to change that, it

just might defer it a little bit.

Right. So do we have to wait until that $600 billion is totally out of the market until we can see a lower S&P


Not necessarily, I mean markets can also anticipate too and already I think the market's been down four out of the last five days when everybody thought that the market had free run. Maybe the market stays up through Christmas and all the Wall Street guys can get all their bonuses. Short-term timing has never been our forte. We think that longer term, we feel much more comfortable being short rather than long.

So then what happens in the next year or so to the markets that will eventually lead stocks lower


Well, there are a lot of balloons out there in search of a pin and there's a lot of pins.

Balloons meaning bubbles


Yes. You look at China. You look at inflation starting to pick up there, you look at the PIIGS

Portugal, Ireland, Italy, Greece, Spain, you look at Europe and issues with Germany. We're starting to have civil unrest in London, Europe, Paris relative to what's going on with austerity. We've had some corporate earnings that have started to disappoint. Maybe earnings are less robust in January relative to expectations given that these have been easy expectations up

until now. You look at the uproar around the world from Brazil, Germany, China relative to QE2. There

are a lot of people that are ticked off at the U.S. There

are all kinds of things that can occur.

Now in terms of China's inflation -- if they wind up raising interest rates and that trickles to other governments won't that hurt your thesis


Well, if there is tightening in China and they slow down Chinese growth, China has been a huge asset and a place where global growth has been concentrated. You could start to see tightening around the world, different places and that's not necessarily good news for short-term stock prices.

The S&P might head down to 400 so what does that do to the Dow, Nasdaq and commodities


Well, we expect similar percentage declines in the Dow and the Nasdaq. The Nasdaq will probably be down more in percentage terms because its higher beta.

In terms of commodities, we worry about industrial commodities copper, zinc, lead, etc. We feel better about the precious metals because the precious metals have a monetary component and in deflation gold and silver have typically done well because they are the one asset that aren't somebody else's liability ... Gold you carry around. It's real currency.

The thing that worries me about gold and silver is that it seems to have become a speculative bet now among traders. So it's not that it's trading with stocks but it's subject to the same kind of volatility that we see in the stock market. How, as an investor, can you protect yourself against that


Well, there certainly is a speculative component, but however, if you look at all the trillions of dollars of credit instruments and the hundreds of trillions of dollars of derivatives out there ... and all the currencies that are being debased, gold and gold mining stocks still represent a very small percentage compared to past years.

Therefore they can go down for a while. However, you look at the Chinese with the trillion dollars of Treasuries they own. They see gold as being protection for them and therefore in the real world outside the speculative world gold is still relatively small as a percentage of total fiat assets that are out there.

So what's a perfect portfolio


I truly believe as if the Federated Prudent Bear portfolio that is short stocks and long mining companies makes a great deal of sense because the long mining companies do help protect you in the levitation of financial assets with all this money printing.

Being short stocks even though it's painful and even though we've lost some money right now. We may lose money for another three-four months if they continue, it's hard to say when markets will eventually get smart again. People have said that markets can stay irrational longer than man can remain solvent. So that is a possibility ...

but our mandate is to be more short than long and therefore provide protection for investors.

We don't like to lose money. We like to offset some of those losses with gold stock gains and also by being judicious about our short exposure and being as careful as we can.

What's it going to take for you to be bullish? There are some positives right? The housing market is improving, we're seeing private job growth; stocks are doing relatively well for the year. What's it going to take


We've seen the big picture of this being a credit bubble ... Back in 1996 to 1999, we lost money for four straight years, you'd think we would have been pulling our hair out but we were bloody and bowed because we realized that it's simply asset inflation and it would end and it ended. Now the market was down for three years, the Fed brought it back for five years because it printed money like crazy. We created a housing finance bubble ... and therefore we kicked the can down the road.

Then in '08 things changed. We had a massive decline.

Fannie Mae



Freddie Mac


nearly went out of business. They would be out of business without government support. We created $1.7 trillion of fiscal stimulus, quantitative easing, buying mortgages, etc. We kicked the can down the road, so how can I get bullish with this?

We still have the same problems. We have too much debt, we have a dysfunctional global system, we're going to have to work off the excess.

You brought up currencies. How does this currency war, trade war that we are seeing, shake out? Do we get a gold standard? Do we get some kind of basket of currencies that is now the world reserve currency


There's certainly been a lot of discussion, a little bit more about a gold standard, a lot of discussion about a basket of currencies. People are ticked off at us around the world from Brazil to China to Germany for what we're doing.

Europe has taken on austerity rather than kicking the can down the road that's creating problems too but we will eventually have to confront reality. This is not the Wizard of Oz.

Would you be short currencies also or would you classify them more with gold


We like gold because it's the one currency that doesn't have a constituent interest group that's not trying to debase it in order to keep their workers employed and therefore that's why gold and silver have done pretty well. That's why we love gold but there are some currencies we like more than others.

Can you talk about the ones you do like


We do like the Swiss Franc. We do like the Norwegian Kronor. We like the Canadian dollar. We like those relative to the dollar.

Tice thinks the worst crisis facing the world in 2011 is currency debasement, which he thinks will only hurt stocks and help gold. To see how high Tice thinks gold can go, watch this video.

Reasons To Be Bearish on Stocks

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undefined by Alix Steel in

New York.

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