Tice: Stocks Could Drop 50 Percent

Monday, December 8, 2008 4:12 PM

By: Dan Weil

Renowned stock market bear David Tice, strategist of Prudent Bear Fund, says stocks may plunge another 50 percent from current levels.

That would put the Dow Jones Industrial Average at a measly 4,450 points.

"We got into this problem from too much credit, and we are creating even more credit now," Tice told Bloomberg.

"We are trying to fight between inflation and deflation. Unfortunately, both of those will end badly."

The upshot: "We think the market can fall another 50 percent," Tice says.

Loose fiscal and monetary policy will sink the U.S. economy, he argues. "We are just creating so much credit. There's never been an expansion of liabilities like we've seen."

The policy stimulus will add about $2 trillion to the federal debt over the next year, Tice estimates. "That's right out of our playbook from the 1930s and '50s, and Japan over the last 20 years."

He says the strategy might work for a little while, "but not for long."

Tice is bullish on one asset class: precious metals. "We love gold and silver," he says. "The Fed is throwing everything but the kitchen sink to avert deflation, which will end in inflation and a collapse in the dollar."

Financial analyst Meredith Whitney, managing director of Oppenheimer & Co., says she is "more bearish" than she has been at any time during the last 18 months. She believes that the U.S. economy has "been derailed."

Writing in the Financial Times, Whitney, whose predictions of problems in the mortgage market preceded those of other experts on Wall Street and in Washington, posits that the "capital destruction" continues in the financial sector.

"More than $3 trillion of available credit has been expunged from the markets, and, therefore, corporate and consumer borrowers so far this year," Whitney notes.

Whitney believes that the American mortgage market will shrink this year for the first time in history and that the consumer credit card market is about 18 months behind the housing market.

http://money.newsmax.com/streettalk/dav ... ode=73F3-1