Once again I´m pleased to host a guest post by, as David Glasner put
it, “our esteemed Benjamin Cole” This time Benjamin applies his
journalistic talents on a profile of Dallas Fed President Richard
Fisher. Read and enjoy.
The images of the Federal Reserve Board building in Washington, D.C. are suitably august, graced by stolid Roman pillars, marble floors and handsome sculptures of giant-sized eagles. It is a place of reserve and solemnity. Well, except for one recent Federal Open Market Committee member.
In the longish-haired and effusive Dallas Fed President Richard Fisher, FOMC member in 2010, the prospect has instead been for florid homilies about the scourge of inflation, while—unknown the public—his personal money managers were using multi-million dollar chunks of Fisher’s $20-million booty-hoard to periodically “super-short” the S&P 500.
For example, in mid-May 2010 Fisher’s managers bought at least $3,050,000 worth of shares of an ETF identified on Fisher’s disclosure statements as “Proshares Double Inverse S&P 500.”
In English, that means if the S&P goes down, Fisher’s ETF shares go up, way up. As the Fed’s “disclosure” forms are marvelously general, Fisher actually could have been short by many, many millions of dollars. Fisher marked the category “more than $1 million” on May 16, 2010. On that day his managers went super-short more than $1 million, but no bottom limit was specified on that deep drill into the Wall Street Netherworld.
In radio-talk-show vernacular, Fisher’s personal money manager was placing Gong Show-scale bets against America while Fisher sat on a board that makes national monetary policy.
While Fisher—a financial-industry hotshot himself—contends he was not kept apprised of his money manager’s gyrations, these facts can hardly be comforting to the American public, nor are Fisher’s investment machinations the sort of comportment one associates with central bankers. Worse, Fisher is a deeply skilled Wall Street veteran, a former star at Brown Bros. Harriman, and founder of the successful Dallas-based Fisher Capital Management.
The case put to the public is this: Fisher’s personal money manager, of his own initiative and volition, just decided to go ape-shat super short by a few millions in mid-May, without even so much as a secret handshake from Fisher. The public may well wonder, and that sort of uncertainty is corrosive to good governance, especially of the monetary variety.
But here comes in Fisher’s somewhat lovable Inspector Clouseau side: The super-short positions were super-duds. With exquisite timing, the Fisher team nearly chose the exact market bottom, and there was a slow mixed grind upward from there for the rest of the year, and indeed, mostly ever since. Fisher’s super-short Netherworld shock troops declared ignominious defeat in October 2010, and retreated to higher ground, perhaps losing 15 percent on the position. Hey, only a half-mil or mil or so down the tubes. Timing, comedians will tell you, is everything. And Fisher is a funny man.
Fisher’s Waterloo in the ETF short-world has become the sort of drama one expects from the extroverted Fisher. As President of the Federal Reserve Bank of Dallas, Fisher has never been shy about delivering strident public commentary that is or was at odds with the stewardship (failed or otherwise) of Chairman Ben Bernanke. While freedom of expression is generally a positive, Fisher’s limelight gushing has presented a media image of a FOMC board riven by diametrically opposed divisions—just when the United States economy needed forthright and bold monetary leadership. Regime certainty is what actors in the economy crave, but the Fisher Follies during the Great Recession have instead suggested the FOMC board is in multi-headed chronic confusion. A blind dog in a meathouse has more perceived directional resolve than our Fed.
And Fisher, despite leaving the FOMC in 2012 (he is still Dallas President), is not letting up: On Feb. 3, 2012, Reuters ran an article headlined, “Fed Still Divided as Fisher Sees No Need For QE3.” That’s our Richard Fisher.
Yet Fisher, as with his personal money manager’s ill-fated super-short downhill rollercoaster ride, has been consistently wrong in his monetary policy positions. Why is Fisher always wrong? It is an odd condition. Fisher’s IQ must be off the charts, and his handsome career is one success after another. His academic credentials are solid gold, studded with Harvard economics degrees and an MBA from Stanford. On paper, Fisher can’t miss.
But in real life, Fisher is afflicted with a myopia borne of his favorite time-piece, that of a broken clock unearthed circa 1978. Fisher has inflationitis fever, burning hotter than Romeo for Juliet. Like a financial Inspector Clouseau, Fisher has a simple theory for every bit macroeconomic evil-doing: Inflation did it, has done it, or will do it.
Fisher has a peevish fixation on inflation, even as the United States has posted the lowest inflation rates since WW II, even as unit labor costs have been falling for several years straight, even as commercial real estate is selling for half-price all across the United States, even as the United States Nominal GDP is perhaps 13 percent below where it should or could be.
Let’s take early 2008, a year that went down in infamy in Economic History as one of the most frightening GDP plunges of all time. Not a year to worry about inflation, but rather a year to try to keep the economy from a death gurgle.
No matter to Fisher. As the year unfolded, Fisher was adamantly pettifogging against inflation and suggesting an upward price spiral was imminent. Fisher’s best piece of advice was in June 2008, delivering insights to the prestigious Council of Foreign Relations in New York City. According to the Wall Street Journal, Fisher told the assembled notables that “though the economy still faces a period of slowdown, or “anemia,” and smaller businesses in particular are likely to feel some pinch from a tighter credit environment…the U.S. will skirt recession.”
Fisher’s prediction, of course, was as wrong as a pickled onion on a banana split. The second half of 2008 was especially black, and by the fourth quarter the US economy was suffering from an “anemia” that was contracting the GDP at a horrific 10 percent annual rate. Fisher seems to have the knack for a timing that is precise, accurate and exactly incorrect.
Nevertheless, Fisher, who has a personal wealth of at least $20 million and a near-sinecure as President of the Dallas Fed, bravely assured listeners that he was in the trenches with them in the fight against inflation: “I prefer the word “anemia” because I think we’re going to have anemic economic growth for a longer cycle,” intoned Fisher. “I’m not sure how long. I will pay that price personally if the price of that is that we don’t increase inflation….”
Fisher, in the best Clouseau-like style, is nothing if not enviably serene and self-confident even as he blunders across the economic landscape. Indeed, Fisher seems blissfully unaware or unconcerned that the Fed, over-responding to global commodities inflation in 2008, helped steer the United States economy into near-collapse by the second half of 2008, and helped wreak commercial carnage globally as well.
“I have a reputation for being the most ‘hawkish’ participant in the deliberations of the Federal Open Market Committee, and I have a record that substantiates that reputation, having voted five times against further accommodation during the commodity-driven price boom of 2008,” Fisher inexplicably but proudly admitted to a Tokyo audience in April, 2009. “I consider inflation an evil spirit that rots the core of economic prosperity and must never, ever be countenanced.”
Fisher the preening hawk—but one wonders at the Tokyo response to that statement of virtue, or how quickly they deposited him at the Osaka airport for his trip home. Fisher’s remarks are stupefying alone, but doubly so in context: In Japan, in a nearly continuously deflationary environment since 1992, industrial production has fallen 20 percent, the stock market has fallen 75 percent, and property markets are down 80 percent and still falling, while the yen has nearly doubled against the dollar. Tight money has been an epic, ruinous failure, only alleviated by Japan’s already high (but since largely frozen) living standard of 1992, and an exemplary society of personal sacrifice, cultural socialization, and stability. Even so, the Bank of Japan has all but asphyxiated the nation. (By comparison, in the United States industrial output doubled from 1992 to 2008, and inflation usually ranged from 2 percent to 6 percent.)
Lesser lights to Fisher, from Milton Friedman, to Allan Meltzer, to John Taylor, to Ben Bernanke (oh, them?) have all told the Bank of Japan to print more money, and then print a lot more money, and to keep printing money to break their deflationary spiral. But not Fisher. He all but told the Japanese that a twenty-year-long deflationary recession is a worthy price to pay, while inflation may lurk. And that as a FOMC member he voted against “accommodation” five times in 2008—just as too-tight money helped plunge the United States into the Great Recession, from which we still have not recovered.
Okay, so let’s go forward (even as we cringe) to a now-domestic Fisher speaking in hometown Dallas in September 2009. While most employees and private-sector businesses were in a cold sweat from the near-death experience of the 2008-2009 financial collapse, Fisher reassured his neighbor Chamber of Commerce burghers thusly: “As to the long-term dangers of inflation posed by the expansion of the Federal Reserve’s balance sheet, I remain ever vigilant. I have been outspoken on the reduced need for monetary stimulus in the future.” One can only imagine a Dallas hotelier, or office-building owner, banker or retailer musing about that reassurance: “Our building is now worth 50 cents on the dollar, but Fisher is discussing the fine points of fighting inflation.” Perhaps they were wondering if Fisher could be stationed more permanently in Japan.
But of course, Fisher, in best Clouseau fashion, is a man confident in his obsessions. While Fisher’s nearly innumerable public presentations from 2006-2011 always contained a fierce homage to inflation-fighting, in fact inflation has been deader than Jimmy Hoffa on a bad day. According to the BLS, what a Ben Franklin would have bought in 2008 required a whole $104.48 in 2011, annual averages. That’s a 4.48 percent increase in a three-year period. You are talking less than a 1.5 percent annual increase in prices, as measured by the CPI. It is a historically low rate of inflation, and below even the Fed’s questionably low 2 percent target—a target that obviously should be lifted to get the United States out of long-term recession-land.
No wonder wall Street Journal reporter Mark Gongloff recently wrote that Fisher, “has incorrectly seen inflation coming around every corner for the past several years.”
Oddly, one never hears Fisher bragging about success of Fed policy in suffocating inflation (and the economy), although that is closer to the reality. Indeed, for the last four months the CPI has been dead flat or down for three. (And set aside arguments that even measuring inflation has become dubious, and that many believe the CPI over-counts inflation, due to rapidly evolving and improving goods and services).
Happily, as Fisher presented one of the true active menaces to prosperity in America, he is now off of the FOMC. The Fisher role going forward, through his pulpit in Dallas, will be limited to confusing markets about the Feds resolve and direction and perhaps explaining why his personal money manager occasionally placed multi-million-dollar maxi-wagers against the S&P 500.
Of one thing you can be sure: Right now, Fisher is very, very determined to rout inflation. And that Inspector Clouseau is on the job, and defending you.