SOMETIMES, HAVING A

grim view of the U.S. economy can cramp your style, even socially. During a recent first date, David Tice, manager of the highly successful

Prudent Bear Fund

These days, of course, the 53-year-old Tice is finding a much more receptive audience. By selling short and maintaining a relentlessly downbeat look at the market, his $1.2 billion fund is quietly scooping the bulls and beating the S&P handsomely. His Prudent Bear fund is up more than 15% in the past year, almost 20 percentage points ahead of the market. But to hear Tice talk, his bad-news-bear approach is just getting started: He argues the U.S. is entering a much overdue, multiyear bear cycle that will probably leave Americans in a lot of pain before it's over. Never mind the "r" word, he thinks something more like a Depression is a real possibility.

That's not to say that Tice is suddenly in the majority. While clearly discouraged by the market's woes, most analysts are still predicting that the economy will turn around if not this year, soon after. They argue most companies are sitting on enough cash to weather the down times and that growth overseas may slow but not stop. And Tice himself has been far from perfect: During its first three years, Prudent Bear lost an average of almost 19% annually from 1996 to 1999, according to Morningstar, at a time when the bull market was steamrolling bears like him. "We never said we would always make money," Tice says, noting that his fund isn't intended to be anyone's core holding. "The most important thing was to provide a reliable hedge."

A self-described "fun-loving guy," the Missouri-born Tice has not always been down on the U.S. stock market. There was a short period in the 1980s when he even advised clients to buy U.S. stocks. But once Tice saw real estate deals brokered on napkins in restaurants around Dallas, he says he knew a bubble was building and positioned clients to weather the Savings & Loan crisis. In 1988, Tice began an independent research firm from a spare bedroom in his house, often putting sell ratings on companies, and questioning what some on Wall Street took at face value. He raised red flags about the accounting hijinks at Sunbeam and Tyco and saw both the tech meltdown and the current credit bust coming.

David Tice Manager Prudent Bear Fund

Even since the bubble burst, Tice has thought bad news still lay ahead because the country's credit excesses and free spending ways had not been washed away by a deep economic slowdown. In 2000, he even tried to share his concerns with Congress, warning about a bigger credit bubble bursting but no one was listening back then. Now, he says, it's too late for quick fixes so much, in fact, he expects a painful period ahead of hyperinflation, another 40% drop in the stock market and the dollar possibly losing its role as the world's reserve currency.

Not every investor will want to take his current approach: The Prudent Bear fund is 75% short-betting against specific stocks or the broader index. Shorting exposes investors to bigger losses than owning stocks outright, and can be a risky move for many individual investors. But Tice also employs some more doable moves: He owns precious metals stocks as a hedge against inflation, for instance.

With the headlines on his side, we caught up with a well-sunned Tice at his eponymous firm in a nondescript office park in Dallas, where he spent an afternoon explaining why Swiss francs are better than dollars, why he thinks the market will fall another 40% and how to get some pretty bright results from such a bleak perspective.

How do you describe our current economic situation?

We borrowed too much from the future by living above our means for too long, without any discipline. Now we have to pay the price for the excesses and imbalances created during these artificially exacerbated boom times with an ugly economic and market period.

What needs to happen to get us back on track?

We're going to have to take some pain. We'll have to reconfigure our economy less towards consumption and more towards manufacturing more products that can be sold abroad. Our standard of living is going to have to come down.

What's the worst-case scenario?

The Federal Reserve's policy to always bail out the economy was a big mistake. The dollar is a huge problem because foreigners see us continuing to debase our currency. It's going to be a massive recession if not a depression. The fixes don't really fix anything; they just make it worse.

Since 1982 we've been in a long-term bull market, which means your bearish view hasn't panned out. What do you say to skeptics?

We essentially missed the extent to which policymakers would go to keep the economy going and how much credit would grow, especially to the lower-end borrower.

With such a bleak outlook, what's your advice to fellow Boomers who may be looking at retirement soon? What's in your retirement account?

Wall Street doesn't want to tell you this, but in 1929, there was a 17-year bear market. Yes, there were some rallies in between but largely a bear market. Same beginning in 1966. The big-name folks who talk to the media don't want to tell anyone to retrench and save money and store their nuts because that would make things worse.

So should I stash my cash in a mattress?

I'd say Treasury bills, but the problem with T-bills is that the dollar is going to decline. So I like Swiss franc-denominated bonds, gold and gold stocks. Keep your expenses down and consider selling your house, depending on how much of your savings is in your home equity. The housing decline is very early and much bigger declines are to come.

What do you make of the comparisons between the U.S. and Japan's lost decade in the 1990s?

In 1989, the Nikkei was at 35,000, now it is at 13,000. They had a humongous real estate bubble there, but they were different in that they loaned money to themselves. We have depended on foreign creditors so I think it could be worse.

Does this mean the end of the U.S. as an economic superpower?

We will always be a superpower but there will be a dramatic comedown. It depends on how foreigners play this. They possess all these dollars and asset-backed securities and they feel we've screwed them.

So what are you shorting these days?

We're widely diversified. We don't take more than a 1.2% position in any stock and are investing in larger companies to dampen volatility. We're playing in consumer discretionary names, banks/brokerage firms and technology names. Last year tech was represented as a safe haven area away from carnage of financials but there is a huge consumer sensitivity to lot of technology.

Are we talking about the Apple and Googles of the world?

I don't want to talk names but chip companies are also dependent on consumer demand.

What about retailers?

We moved away from some of these names in January because so many hedge funds were short those stocks and it got crowded. We're also not in housing but more housing suppliers.

What stocks do you own?

We are still long precious metals stocks gold, silver, uranium. We like several Canadian companies like Silverstone with market caps between $50 million to $5 billion. We're trying to identify companies that are still under-recognized and have operating leverage. We are also invested in copper company Capstone, which we have seen a 10-fold profit in but still like.

As a contrarian, does it trouble you that everyone likes gold too?

A little bit. We have less invested than two years ago. Over five years, gold has risen a lot. However, we still think it has a long way to run. The Dow Jones Index to gold price ratio has ranged from 43 to 3 and right now it's near 15. I think it will go to single digits. Most people still don't have gold in their portfolios and don't realize [Fed chief Ben] Bernanke is thinking about bailouts every day and the Fed Funds rate is dramatically below inflation.

Betting against stocks draws a lot of backlash. Why did you get into this?

People do consider short-selling as almost Anti-American. We felt like there needed to be a negatively correlated fund and the best tactic to use is shorting stocks. We're offering to fight for the little guy to defend against a bear market and there's nothing anti-American about that.

Where do you see other bubbles building?

China, emerging markets, the spread between the two-year bond and 10-year, the art market.

What would have to happen for you to become bullish on the U.S. market/economy?

I want to get bullish again but I think these excesses and imbalances are going to take a while to play out. This is probably a once in a hundred-year cycle. We will have to have a 40% plus decline in the U.S. stock market, plus a massive adjustment to the U.S. economy, away from consumption towards saving and investment, resulting in massive closures of various retailers and a dramatically reduced current account deficit.

You paint this dismal view for the next decade or two. How do you prepare your daughters for that future?

They're investing in education; both are in college. And I'm telling them to be cautious. They've heard this for 10 years from me. They think I'm too negative but they see more of this coming so my credibility is going up.