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Do you think the U.S. economy is poised for a comeback? The manager of the Prudent Global Income Fund doesn’t. In fact, David Tice is quite bearish and believes the U.S. is headed for a long and painful ride downhill.

According to Tice, the best way to capitalize on the lackluster situation in the U.S. is to take advantage of the falling greenback and rising gold. Yes, gold. In times of trouble, gold tends to shine bright, as it has done for the past couple of years. And Tice is banking on further gains in this lustrous commodity.

Fundemail.com: Why do you believe the U.S. economy in trouble?

David Tice: The U.S. has benefited from a credit bubble, which has generated a huge amount of financial claims against us. We now have a dysfunctional system where we are asking foreigners to finance our largesse. Eventually, there will be resistance to purchasing of U.S. securities.

Fundemail: What does that mean for the U.S. dollar?

David Tice: Reluctance to buy U.S. securities, will, in turn, hurt the dollar. Moreover, we feel that policy makers have perpetuated the bubble, creating a credit crunch, which will put further pressure on the dollar. In fact, we believe the dollar is headed for long-lasting future declines.

Fundemail: Is this fund a play on the dollar?

David Tice: This fund is not a play on anything. The objective is to protect global purchasing power. Since we expect the U.S. dollar to decline, eventually we will have to pay higher prices for goods. We can protect purchasing power by investing in our foreign trading partners who have a better current account and fiscal situation than ours.

Fundemail: What types of securities does the fund hold so as to benefit from a falling dollar?

David Tice: We have 65% of our assets in high quality sovereign debt with an average maturity of only 1.5 years.

Fundemail: Would you say this fund is risky and, therefore, not for the average investor?

David Tice: Not really. While this fund is somewhat geared toward the educated investor, in that he or she has an understanding that the investment arena extends beyond U.S. borders, the main idea is that one should keep cash safe. Now is not the time to grasp for yield or to move down the credit quality ladder. That is why the fund maintains a short maturity position and holds only high quality securities of those nations with better control of their financial situation.

Fundemail: Why does the fund hold gold?

David Tice: Gold has traditionally proved to be an excellent store of value in times of economic uncertainty. In addition, gold has a monetary demand component built into rising prices, which was absent in the past. The low interest rate environment favors gold because investors don’t worry about missed yield. Plus, reduced mine supplies are expected to accelerate as a result of the reluctance to spend adequate funds on exploration. This all bodes well for gold.

Fundemail: But isn’t gold a commodity, and don’t commodities usually decline during hard times?

David Tice: There is somewhat of a misunderstanding of gold, which does not act like a commodity does in a deflationary period. Gold should really be considered a quasi currency. While the yen, euro and U.S. dollar are the majors, the yen has serious problems attached to it, the dollar has been strong for the past five years and is now on a decline, and the euro will likely be vulnerable in the near future. Gold, on the other hand, has much brighter prospects.

Fundemail: What is the outlook for gold?

David Tice: The 20-year bear market for gold is turning around. We like to look at the ratio of the Dow Jones Industrial Average (DJIA) to gold. Generally speaking, when financial assets increase, gold declines in value. The ratio reached 40 in 1999 during the roaring bull market, but has now rolled over to the mid-20s. We think it is headed to 4 or 5.

Fundemail: But, what about the recent advances in equities?

David Tice: We see any advances in the DJIA as a short-term rally and we are generally bearish overall. Actually, we perceive recent comments by Fed and government officials to be quite misleading and we believe the beneficiaries of the credit bubble will eventually pay the price in a long hangover.

Fundemail: For how long do you expect the dollar to decline and gold to shine?

David Tice: Currency trends tend to be long lasting and we believe gold has a long way to run, especially if it is to reach the 4 to 5 level versus the DJIA, as we expect. We see the time horizon for the bear market somewhere around three to five years out.

Fundemail: Can you explain the fund’s less than stellar returns so far this year?

David Tice: Well, 2002 was a fantastic year thanks to rising gold stocks and falling interest rates (the fund returned 29.6% in 2002). This year, the fund has not done as well (5.5% year-to-date) versus its peers because gold stocks have been relatively flat after last year's run up. While the fund has benefited from the U.S. dollar decline, it didn’t pick up as much from the decline in yields (interest rates) as did funds with longer maturities.

Fundemail: What is the current makeup of the fund?

David Tice: As we mentioned, 65% of our assets are in global bonds. We also have 12.5% of assets in senior gold mining stocks, 2.5% in gold bullion and bullion related vehicles, and 20% in U.S. Treasuries

Fundemail: Can you give some specifics regarding the fund’s assets?

David Tice: We like the euro denominated securities of Germany, France and Switzerland - countries where there is a current account surplus situation. We also like Danish and Swedish bonds where yields are likely to fall further. Regarding gold stocks, AngloGold is our number one position and Newmont Mining is number two.

Fundemail: Why do you hold U.S. Treasuries?

David Tice: There is a lot of volatility in gold stocks and in currencies. Since the fund is priced in U.S. dollars, the U.S. Treasury position helps to manage this volatility. They are also necessary in the event of fund redemptions and provide the fund with some current income.

Fundemail: Why does the fund hold gold stocks instead of bullion?

David Tice: Because gold stocks tend to move more with every move in spot gold prices. Also, we believe there is more value in owning the gold industry, which consists of a small universe of very well managed companies. Plus, owning the stocks does provide the fund with dividends.

Fundemail: What is the dividend yield?

David Tice: About 2.25%, generated from dividends and bond interest. Although the objective of the fund is not to provide the highest level of current income, the 2.25% yield is better than a money market fund.

Fundemail: Have you seen significant inflows to the fund?

David Tice: Currently, total assets amount to about $385 million. There has been substantial inflow over the past six months, especially as more people have begun to understand our thesis.

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Cheryl Peress has been working in the field of finance for more than fifteen years, first as a eurobond and foreign currency trader, later as a reporter/editor for worldlyinvestor.com, an online investor content site, and currently as a freelance writer for a number of different financial sites and publications. She covers a wide variety of financial topics, including international and domestic equity markets, industry sectors, mutual funds, trading strategies, as well as retirement and estate planning and other personal finance issues.