David Tice has made himself famous for successfully shorting stocks. Now the investment manager sees a bear market for the next five years, with share prices dropping 50 percent to 70 percent over the next 18 months.
That would put the Dow Jones Industrial Average somewhere between 3,425 and 5,708.
"We believe stocks have benefited from an unbelievable credit bubble" that is now bursting, Tice told Bloomberg TV.
"Policymakers and central bankers have perpetuated a bubble like we've never seen before, with mortgage financing that has put government sponsored enterprises (Fannie Mae and Freddie Mac) in trouble," he says.
"The whole structure of the financing mechanism, where foreigners bought all these [mortgage] securities, has broken down. Institutions and foreigners no long trust our structure, insurance, ratings, etc."
As a result, Tice says, "We're in big trouble."
Tice says it's difficult to predict when the market's plunge will begin. "Who knows what will happen to the market until the end of the year?" he asks rhetorically.
"The market is like boiled frog. You drop a frog into pot of boiling water, and it jumps out. In this environment, he's staying in because the heat is gradually rising."
Tice's Prudent Bear Fund returned 9.9 percent in the year ended July 31, compared to an 11.09 percent drop by the S&P 500 over that period.
Technology stocks represent the next sector ready to plunge, according to Tice. "Tech is very dependent on the economy," he says.
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