From the Bear's Den

June 21, 1999

Sage Crystl: Sage is proud to introduce Mr. David Tice, Portfolio Manager for the Prudent Bear Fund. Thanks for joining us today David.

Tice: This was an interesting day in the market. The Dow being up yet the NASDAQ being down some 50 points. It had to have been very disturbing to many Internet stock investors with the street.com Internet down nearly 10%. Unfortunately, I believe these Internet stocks investors have a great deal more pain to go as margin calls are no doubt ahead. With that somber introduction, I will be glad to answer any questions.

Question: Do you see interest rate worries dominating the market for longer than just this month?

Tice: Yes I do. I believe that the stock market has enjoyed declining interest rates for some time and advancing earnings. Lately earnings growth has slowed down with the Fortune 500 having suffered an earnings decline in 1998. Now interest rates are headed higher and we expect this to continue for some time.

Question: What is your fund up to for year-to-date?

Tice: Our fund is still down for the year. Through Friday was down just over 15%.

Question: Where do you think investors should be putting there money right now?

Tice: I believe investors should reduce stock market exposure the 2 year bond yields close to 5.8%. This is a great yield with little risk. The stock market is about ready to become a very dangerous place. Those investors who have considerable gains in individual stock holdings should consider the fund like The Prudent Bear Fund to offset their long exposure and avoid paying capital gains.

Question: Would you recommend starting to go short any indices or individual stocks?

Tice: Yes. It is difficult to determine how the rest of this week goes with Friday being options expiration. However, we believe that the market has definitely turned with interest rates rising, credit spreads increasing, the Internet stock bubble seemingly broken. It seems that now is a very appropriate time to be short.

Question: Has gold hit a short term bottom and would gold stocks be good investments right now?

Tice: Gold is a manipulative market in our opinion. The price of the metal has declined significantly since the U.K. announced they would be selling their gold. Gold and silver mining index or XAU Index has declined substantially from its level of a month ago. Before this year ends, gold and silver stocks will become a great investment. In the next 2-3 weeks, it's hard to tell if gold has bottomed or not.

Question: What is the asset allocation of the Prudent Bear Fund right now?

Tice: The Prudent Bear Fund is now 65% short, 15% long, with a 2% exposure to put options.

Question: What do you consider a fair valuation for the market that would cause you to become positive?

Tice: That is a difficult question because as the market declines, the economic outlook will change. We will have to reassess all the way down. However, it will require at least at 50% decline for us to become bullish and I fear that economic policies instituted will become less favorable for free market economy and we will suffer even greater economic turmoil and it is very likely that even 5000 will not be low enough to stimulate us to buy stocks again.

Question: Do small stocks, in general, offer good value and opportunity in this market?

Tice: Many small stocks are selling at very cheap prices and on a relative basis, represent better value. However, with the overall market selling at this level, if the market falls apart as we expect, even small value stocks will decline. Therefore, one should be extraordinarily careful.

Sage Crystl: Thank you for joining us today David. It's been a pleasure.

Tice: Although a number of people in the room are likely stock Internet stock investors and have obviously been hurt badly by today's stock price action, and they might be expecting that they should buy this dip, I believe that is the wrong conclusion to reach. Internet stock investing has enjoyed a phenomenal mania and these stocks will eventually fall by 70-90% in my opinion, so if you have a profit remaining or if you are still substantially exposed to the Internet sector, I would recommend getting out as soon as possible. Best of luck.

In the Aztec language the name for gold is teocuitlatl which means "excrement of the gods."

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