Bearish News

Picking a good short mutual fund isn’t easy. The 2003-07 bull market decimated most interest in them. During that period rational bears were curb-stomped by an irrational bull market. Government regulation hasn’t helped either. But, even though the markets are down 40% from highs, I still think these are worth consideration. I’m still holding these two bear funds, and think a re-test of last year’s lows is inevitable.

Prudent Bear Fund

Prudent Bear is a unique fund. For the most part it shorts U.S. equities, indexes, and futures. But they also have some long positions in gold-mining stocks, as a hedge against inflation and devaluation of the dollar. They also hold a few long positions in stocks they think are undervalued. But the vast majority of the fund is short.

Ownership change – it should be noted that Prudent Bear was recently bought by Federated Investors. The previous chief manager, David Tice is no longer directly managing the fund. But he will still be closely involved as the “chief portfolio strategist for bear markets” at Federated.

Fortunately, the new guys running the fund have great resumes: Douglass C. Nolan and Ryan Bend. Mr. Nolan previously worked for shorting-god Bill Fleckenstein’s fund, which reaped huge gains shorting equities over the past few years. The other manager is Ryan Bend, who is coming over with Prudent Bear, so having him and David Tice around should ensure that it doesn’t veer too far from the previous manifesto.

Grizzly Short

GRZZX is a pure short fund. They use a proprietary tool called the “Vulnerability Index” to find juicy short opportunities. I have no idea how it works, but it works. Grizzly is up 69% over the last year, and up 7.57% over the last 5 years. Not bad compared to the S&P’s -40.5% performance over the last 52 weeks.

Fundamentally, a re-test of  2008 lows seems inevitable. I think U.S. equities will go a lot lower in 2009. That said, the bailout-effect is an unknown, so it’s impossible to make concrete predictions. Do U.S. equities deserve a big smackdown? Yes. Will they get one? Maybe.

It’s important to realize that the stock market is now entirely dependent on how our government is going to intefere. Not if, or when. The question is how. I like to think that Obama will let markets correct more naturally than Bush did. But the pressure from voters/pumpers to artificially prop up equity/housing markets is extremely strong.

Disclaimer: This is NOT investment advice. Always talk to a professional when making investment decisions. Disclosure: I have NO affiliation or interest in any funds or securities mentioned in this post.

Stephen Roseman on Seeking Alpha thinks so.  He outlines 5 of the major issues facing this behemoth of a department store.  Here’s one of his most damning points:

The company hoped to use its coming year operating cash to pay down its burgeoning $9.8 billion debt load (see Q3 conference call transcript). $950 million of debt comes due in 2009. It looks like Macy’s will have to dig into its short term credit facility to cover that shortfall. That’s a temporary fix. The company will need to find longer term financing (bonds for Macy’s are trading at 14 to 15%) and Macy’s will need to refinance more debt coming due in 2010 and 2011.

Indeed,  Macy’s outlook is ugly. But a lot of stocks that look ripe for shorting have proved quite resilient, so use caution.

And of course, the market shrugs off and even rallies on this wonderful news. Economists were expecting a reading of 45, but it came in at a much worse level of 38. Last month’s downward-revised reading was 44.7. Why is it that when the numbers get revised, they’re always worse than the original reading? Could it be that there’s a concerted effort to skew numbers to be more positive than they actually are? No, that would be crazy.

Another positive note:

The separate Present Situation index, which measures how respondents feel about business conditions and employment prospects, fell to 29.4 in December from 42.3 in November. It is now close to levels last seen after the 1990-1991 recession.

Stocks may claw upward for now, but the next quarter could be a different story. And while the threat of financial-stock collapses is fading, this brutal recession has far to go.

That’s the headline of legendary short hedge-fund manager Bill Fleckenstein’s recent column at MSN money. Although he recently closed his short fund and covered most of his shorts, Fleckenstein is still in bear-mode. The current rally can be attributed to what he calls “the market’s misplaced optimism”.

Damn smart guy. Wish I had followed his lead and covered some of my shorts a bit lower. But I still think we’re headed much lower in the long run, so it’s reassuring to see that Mr. Fleckstein thinks the same. His insight demonstrates how important it is to be aware of the impact of government interventions and mutual fund

The most exciting part of his announcement is this:

My efforts in 2009 will be directed toward setting up an investment vehicle to be managed by Fred Hickey and me. It won’t be a hedge fund and will hopefully be available to everyone.

I’ll be first in line if he opens up a fund available to small-timers like myself. Check out his site here (subscription required, but it’s very reasonable at $120/year). His MSN Money articles can be found here.