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Investor Profile: Tice's views are born of distrust

By Anna Driver
Reuters
Tuesday, January 3, 2006

http://yahoo.reuters.com/financeQuoteCompanyNewsArticle.jhtml?
duid=mtfh20882_2006-01-03_18-40-36_n03180609_newsml

NEW YORK -- Investment manager David Tice, who made a name for
himself by staring down a revered U.S. corporation, attributes his
maverick style to his Midwestern roots.

The head of the $411 million Prudent Bear Fund raised eyebrows in
1999 when he was among the first to suspect accounting fraud at Tyco
International Inc., then a darling on Wall Street.

"I'm from Independence, Missouri, the home of (former U.S.
President) Harry Truman, so I've been an independent thinker for a
long time," he told the Reuters Investment Outlook Summit in
December.

Tice, who as a short seller makes a living by betting on bad news,
views his firm as a "truth squad for Wall Street." U.S. Virgin
Islands-based David W. Tice & Associates looks for companies to
short by examining earnings quality, business fundamentals and
earnings expectations that get ahead of reality.

"We're trying to find all kinds of reasons why favored stocks might
decline," Tice said.

Short sellers are a small and often disliked group on Wall Street
because they effectively bet against the future of a company. They
borrow shares that they think will lose value, only to repay their
loan for less and pocket the difference.

Tice, 51, cemented his reputation in the small club of short sellers
by calling Tyco's accounting into question when all 26 Wall Street
analysts following the manufacturing conglomerate had a "buy"
recommendation on the stock.

His comments drew the ire of former Tyco Chief Executive Dennis
Kozlowski, who went on television to publicly lambaste Tice.

"We don't know this David Tice," Kozlowski said in 1999. "He has
never spoken to anyone at Tyco, and we don't who he is or what he
does." He labeled Tice's charges about Tyco's accounting "false"
and "unfounded."

But Tice turned out to be right, and Kozlowski and former Tyco Chief
Financial Officer Mark Swartz were each sentenced to 8-1/3 to 25
years in prison for stealing more than $150 million from the company
in September.

Tice started out in 1988 doing investment research for money
managers in a spare bedroom with a screaming baby next door. He
started the Prudent Bear fund in 1996 because he and his associates
felt many stocks were overpriced.

But in 2005, the fund, which is about 70 percent shorted stocks,
lagged behind the broader market. Prudent Bear was up about 1.5
percent last year, compared with a gain of 3 percent for the
Standard & Poor's 500 stock index .

Tice, who moved his firm from Dallas to the Virgin Islands a few
years ago, now sees trouble ahead for the U.S. housing market. This
in turn poses the risk of a long-term bear market for equities, he
believes.

The United States has leaned heavily on housing and related
industries for economic growth in recent years.

That trend, fueled by rounds of cash-out mortgage refinancing that
have propped up consumer spending, will give way in 2006 or 2007 to
a vicious cycle that drags down corporate earnings and employment,
he said.

As a result, the Prudent Bear fund has been short shares of Fannie
Mae, the largest U.S. home lending company, and is downbeat on the
housing and mortgage business in general.

"The excesses in mortgage finance are just astounding," Tice said.

His bearish views on the housing market investing are rooted in the
notion that the Federal Reserve has left the economy too dependent
on easy financing, which has led to a "credit bubble."

"We place great fault on our Federal Reserve system for being a
perpetrator of this bubble," Tice said. "If you continue to goose
the economy with more debt, more debt, it's almost like keeping your
8-year-old on a sugar high."

The Prudent Bear fund's other short holdings include struggling
automaker General Motors Corp. and Plantronics Inc., which makes
portable headsets.

As a hedge to the fund's short bets, Prudent Bear is long on a
number of gold and precious metals equities. Surging gold prices,
which recently neared a 25-year peak, are often a leading indicator
of financial systems falling into disrepute.

Precious-metals shares account for about 18 percent of the fund.

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----------------------------------------------------

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