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When He Talks, Markets Move

The president of  the Dallas Federal Reserve Bank gets as candid as he can about his success as a fund manager, his role in fiscal policy, his impact on the market, and what a terrible, terrible politician he was.
By Joseph Guinto |
FED GAMES: “You have to be on your best behavior, and you parse your words carefully,” says Dallas Fed chief Richard Fisher. photography by Randal Ford

Richard Fisher, the president of the Dallas Federal Reserve Bank, apparently doesn’t like Donald Trump. This is probably not news that would make anyone dump their shares in General Electric or any other stock. Then again, when it comes to the closely parsed statements of Fed officials, you never know what’s going to trigger a Wall Street stampede.

Take the time in October of 2005 when U.S. stock markets moved sharply lower—some $285 billion lower according to Bloomberg News—after Fisher declared in a speech that the Fed could not “let the inflation virus infect the blood supply and poison the [economic] system.” Or take the time in June of that same year—just two months into his new job at the Dallas Fed—when Fisher really made news. At each of its prior meetings, the Fed’s Open Market Committee had raised the fed funds rate, a key driver of other interest rates. So when Fisher told CNBC that he believed the Fed was in the “eighth inning” of rate increases, and even when he warned “extra innings” could follow, some traders took it as a signal that fed funds rate hikes would soon end. Bond yields fell. Stocks rose. And Fed officials, a tight-knit, tight-lipped group fumed—off the record, of course—at Fisher’s directness.

Since then, Fisher has taken close care of what he says in public and on the record. “You have to be on your best behavior, and you parse your words carefully,” he says. That’s bad news for Trump. See, during a wide-ranging and, assumedly, carefully parsed interview with DallasCEO, Fisher compared The Donald to one E.H. Harriman. Harriman, as Fisher will tell you whether you ask or not, bought the Brown Brothers investment firm around the time of the Great Depression. Brown Brothers (now Brown Brothers Harriman) was an old and respected firm. Harriman? Not so much. “Harriman was the Don Trump of his day,” Fisher says. He was “equally vulgar and unattractive.” Fire that, Trump.

Of course, taking a stand against The Donald’s self-promotion and, we assume, hair, isn’t entirely novel. Especially in Dallas. Mark Cuban has been there, done that. Repeatedly. But it’s hard to imagine Alan Greenspan saying such a thing. It’s harder still to imagine Greenspan criticizing his own monetary policy. But that’s what Fed watchers say Fisher did near the end of last year when Fisher said the Federal Open Market Committee helped create a speculative run on housing by keeping interest rates lower than they should have been.

Other Fed officials might not have gone there, but Richard Fisher is not like other Fed officials. “He spent decades in the private sector, so he’s not an academic, like most of the other Fed presidents are,” says Harvey Rosenblum, director of research at the Dallas Fed. “He’s not a Ph.D. economist looking at something from an economic model. He’s coming at the economy as a practical businessperson—‘What do I need to know about the economy? How does it function? How can we make it more effective?’”

>> THE TAKEAWAY
1. Richard Fisher’s statements have more impact than he acknowledges—or intends.
2. He’s a better banker than he was a politician.
3. Fed presidents should steer clear of sports analogies.

Which is not to say that the 57-year-old Fisher doesn’t know about economics. His undergraduate degree, from Harvard, is in economics. He also has an MBA from Stanford. But what got Fisher the job with the Fed wasn’t his education as much as his practical experience, much of it running his own businesses in Dallas. After a career on Wall Street and a stint in the Carter Administration’s Treasury Department, Fisher came to Dallas with Brown Brothers Harriman in 1981. He left in 1987 to found his own firm, Fisher Capital Management. He also ran a hedge fund, Value Partners, which posted a compound rate of return—23.6 percent a year for nine years.

All of that, though, isn’t half as fascinating as the story of Fisher’s immigrant parents’ struggles to survive, reach the U.S., and feed their children. And none of that is half as important as the fact that Fisher, as Dallas Fed president, is the top man at an enormously powerful quasi-public bank that helps regulate local financial institutions, controls $39 billion in assets, and posted net income of $1.1 billion in 2005.
Indeed, there are a lot of things worth knowing about Richard Fisher and the Dallas Fed. Foremost among them: 

1. HE MIGHT BE PSYCHIC. Richard Fisher first came to Dallas in 1981. As a kid, he’d lived in California, Mexico, and Florida. As a teenager, he’d lived at a boarding school in New Jersey. In college he’d gone coast-to-coast and overseas: Harvard, Oxford, Stanford. Then Wall Street, then Washington. But never Dallas.

His employer, Brown Brothers Harriman & Co., didn’t even have an office in Dallas in 1981. But Fisher’s wife, Nancy Miles Collins, the daughter of former U.S. Rep. Jim Collins and niece of philanthropist Ruth Collins Sharp Altshuler, was from Dallas. So Fisher set up Brown Brothers’ first Texas office. “The first deal we did,” says Fisher, a tall, bespectacled man with swooping silver hair who speaks with the deliberate cadence of a college professor, “was we sold Fidelity Union Life, which had been founded by my in-laws’ family, to Allianz of Germany. It was pure nepotism.”

photography by Elizabeth Lavin

But it worked. Seven years later, Fisher was successful enough in private banking to go out on his own. That year he founded Fisher Capital Management, a firm that today operates as FCM, and took the entire staff at Brown Brothers with him.

“We felt fairly strongly then that the markets were getting ahead of themselves,” Fisher says from his office at Dallas Fed headquarters, overlooking downtown Dallas. “So the first thing we did with all the money that came with us was we sold everything we had. We completely got out of the stock market. We held our breath. Then, in October of 1987, everything fell apart. That put us on the map and we quickly raised a lot of money—several hundred million dollars—and we were off and running.”

That wasn’t his only moment of business soothsaying. Ten years later, Fisher took his family to Hong Kong to witness the handover of the city to China. Somewhere between sightseeing stops, he called the office and told them he had a feeling something bad was happening in the Asian economy. His instructions: Sell every Chinese security they had. That was late June of 1997. The Asian stock markets crashed in October of that year.

A few days later, while on a small cruise ship cutting through the waters off southeast Asia, Fisher got a personal call from the White House. President Clinton wanted Fisher to come back to Washington and work as a high-ranking trade representative and ambassador. Taking the job would mean selling his stake in his Fisher Capital Management and in Value Partners, a hedge fund he co-owned. Funny thing was, he’d been thinking about selling even before that call.

“I’d made more money than I’d ever dreamed of and had succeeded where my parents had not, on the financial side,” Fisher says. (Bloomberg reports that Fisher is wealthier than almost all of the other Fed bank presidents, with reported assets in 2001 valued at as much as $20.6 million. ) “And I had a great marriage and four wonderful children, and things seemed to be on their way, so it seemed like the right way to go.”

2. WHEN HE TALKS, MARKETS MOVE. (yet he doesn’t believe that.) No matter what Bloomberg News sources say, Richard Fisher doesn’t buy the belief that his statements have caused markets to rise and fall in any meaningful way. “I don’t believe that I move markets or that any of us move markets,” Fisher says. “Markets move themselves. It’s our job to get the economy correct.”

BY THE NUMBERS  
Federal Reserve Bank of Dallas
$39 billion
IN ASSETS, the overwhelming majority of which are in U.S. government securities. Foreign currency investments account for $217 million and gold certificates $549 million of that total.
$216 million
IN OPERATING EXPENSES in 2005. Includes salaries for about 1,500 employees and upkeep of Dallas Fed facilities.
$1.14 billion
2005 NET INCOME. Since the Dallas Fed is a non-profit operation, this must be paid out to member banks as annual dividends ($9 million last year) or sent back to the U.S. treasury ($1.113 billion in 2005).

Of course, there are plenty of experts who beg to differ with Fisher on this point. A recent study by Macroeconomic Advisers, in fact, found that markets do react to what Fed officials say. The study, which was co-authored by former Fed governor Laurence Meyer, tracked Treasury yields’ movement on days in 2005 when Fed officials made public comments. Alan Greenspan, no surprise, had the most impact, followed by St. Louis Fed President William Poole and Fed Governor Donald Kohn, the study found. Who was No. 4? Richard Fisher.

Still, Fisher is adamant that he’s being given credit for too much when it comes to moving markets. Even so, he does say that he has concerns that when he speaks, some investors may not be listening enough. “The true professionals in the market—the big guys—either read our speeches or understand what we’re talking about. It’s the smaller operators that rely on news reports and on the wire services that may not take the time to look into the full scope of what you’ve said. And sometimes maybe they’re committing capital in a way that isn’t prudent on the basis of that. Whereas, had they looked at things in their entirety, maybe they would have come to a different conclusion. But, then again, markets are manic-depressive mechanisms.”

He pauses for a moment to make sure this comes across clearly in, at least, this story. “But our job is not to please markets,” Fisher says sternly. “Our job is to get the economy right. We’re very aware of how markets do act. But our job is one of delivering non-inflationary economic growth.”

3. HE AND PAST DALLAS FED PRESIDENT ROBERT MCTEER ARE DIFFERENTLY DIFFERENT. BUT THEY BOTH LIKE ROBERT EARL KEEN. Before Fisher arrived at the Dallas Fed, the bank had a well-known reputation in econ circles for being outspoken and “dovish” on the economy. Much of that was credited to former Dallas Fed President Robert McTeer, a Ph.D. economist who projected a populist persona. But Rosenblum, who also worked with McTeer, says Fisher and McTeer are both different from the rest of the Fed, but not in the same way. “Richard’s predecessor worked hard at making Dallas different from the pack as part of his strategy to sort of promote himself,” Rosenblum says. “Richard isn’t doing it deliberately. He’s just different. When he gives a speech, it’s got humor, it’s got depth. It challenges conventional wisdom.”

POLI-BAGGED: Fisher, by his own admission, was a “terrible, terrible, terrible” politician. He’s better at policy. photography by Randal Ford

It also may have some Texas troubadour thrown in. Fisher says he’s sure he’s the “only Fed president who quotes Robert Earl Keen.” Maybe so. But he’s not the only Fed president to ever quote the Texan. McTeer did it, too:

         Robert McTeer, speaking on “The Great Trade Debates and What’s at Stake,” October 10, 2000: “I don’t know whether to quote Buddy Holly saying ‘Rave On’ or Robert Earl Keen saying ‘The road goes on forever and the party never ends.’

         Richard Fisher, speaking on “Confessions of a Data Dependent,” November 2, 2006: “We must strive to develop reliable real-time data collection technologies … . That process is ongoing. To paraphrase singer-songwriter Robert Earl Keen, the road goes on forever and the analytical party never ends.

4. HE CLEARS MORE CHECKS THAN A CHECK-N-GO ON A FRIDAY AFTERNOON. The Dallas Federal Reserve Bank is, in some sense, owned by local banks. It’s infinitely more complex than that, but so-called member banks in each local Federal Reserve district own shares—shares they cannot sell—and reap dividends from the operations of the regional Federal Reserve banks.
That means that Richard Fisher, technically, works for the member banks that are part of the Dallas Federal Reserve.

Working with member banks is just one aspect of the job of a bank that has operations in Houston, El Paso, San Antonio, and Dallas. The Dallas Fed also runs a major IT center for the overall Federal Reserve system and has a large and respected economic research team analyzing the economy. Former Dallas Fed chief McTeer gives Fisher props in this area. “Richard’s theme of the effect of globalization on the conduct and impact of monetary policy is very timely and very important,” McTeer says, speaking unpopulistly for a moment. Indeed, Fisher says that through its research the Dallas Fed is solidifying a reputation as the Federal Reserve Bank that best understands globalization. “The quality of our work is superb,” Fisher says. “Yet, most people don’t have any idea that Finn E. Kydland, who won the Nobel Prize in 2004 for economics, is one of our associates.”

Most people also probably don’t realize that the Dallas Fed distributes currency to banks. The bank received 5.4 billion in circulating notes, worth almost $92 billion, in 2005. It also processed almost one billion checks, worth $900 billion, in 2005.

5. POLITICS WASN’T HIS BAG. In the official press release announcing Fisher’s appointment to the presidency of the Dallas Federal Reserve bank, there is the oddest of statements. It reads, “Mr. Fisher took leave of his senses in 1993 and ran for the United States Senate as a conservative Democrat. To his surprise, he won the nomination in a run-off against an incumbent congressman and a former Texas attorney general, but garnered only 1,639,615 votes (38 percent) in the general election of 1994 to the Republican incumbent.”

It goes on to include an equally odd statement from Fisher. “I labored briefly in the vineyards of partisan politics,” Fisher says. “But all it yielded was prune juice.”

Fisher was 44 at the time, financially successful, known in the Dallas business community, and connected by marriage to the politically influential Collins family. So why does he think he was taking leave of his senses to try and run for office? “I was a lousy politician,” he says. “Terrible. Terrible, terrible, terrible.” Among other things, he wouldn’t engage in a negative campaign against incumbent Kay Bailey Hutchison. But he also found that he’d lost the edge on leadership skills he’d once honed as a high-school quarterback and a midshipmen at Annapolis. “When you manage money you’re tearing companies apart and analyzing them. It’s mostly applied probability theory and mathematics,” Fisher says. “You don’t really develop your people skills when you’re at the top of a big steel and glass box looking at electronic impulses on a screen. I’d stepped away and I had lost track of my leadership skills, so I just wasn’t very good running for office. And Kay was very good at it.”

But surely there are politics in the kind of public service Fisher is doing. Moving up within the secretive Fed, becoming the next Alan Greenspan or Ben Bernanke or Treasury secretary or some such is all politics. Right?

“No,” Fisher says sharply. “No. Elective politics has nothing to do with policy. If you become a senator or whatever office you run for, you deal with policy. But to get elected is theater. It’s politics, not policy. I think someone like me is better at policy and not politics. And there are no politics at the Federal Reserve. That’s not what we’re here for.”

6. HE BLAMES THE MESSENGER, BUT RICHARD FISHER WAS WRONG ABOUT “EXTRA INNINGS.” The “eighth inning” comment first aired live on CNBC. But in subsequent airings, Fisher says the network clipped the “extra innings” part of his statement, and that distorted his true meaning. The trouble with that explanation is that, later the same day, Fisher repeated the same quip—in its entirety—to the Wall Street Journal, even adding that the statement “speaks for itself.” The Journal still came away with the same impression CNBC’s talking heads had: that Fisher was signaling a likely end to rate hikes in the somewhat immediate future, despite the fact that no one else at the Fed was signaling the same.

The problem is, if this were the fault of a CNBC attention-grabbing editing, then the Fed should have stopped hiking rates after a few extra innings. After all, how long does a baseball game last? In this case, it was 17 innings. That’s the number of consecutive rate hikes the Federal Open Market Committee made, including nine times after Fisher’s comments.
 
In any case, Fisher certainly heard from the higher-ups about what had happened. “I remember Chairman Greenspan saying, ‘Look, Richard, if you’re standing outside a building and a body falls out of that building and lands right next to you, you’re going to get the blame for it.’ You notice, Mr. Greenspan never went on CNBC.”

Mr. Greenspan never commented on The Donald, either. But we won’t hold that against him.

CEO SNAPSHOT   Richard W. Fisher, president and CEO, Federal Reserve Bank of Dallas
PERSONAL BACKGROUND: Born in Los Angeles, 1949 to immigrant parents. Australian father, who was orphaned as a child, and Norwegian mother met in South Africa. Father worked odd jobs to raise money for their move to U.S. “My father had done everything from being a bus driver in South Africa to being an auto salesman,” Fisher says.
His parents became U.S. citizens in 1947, but Fisher spent his early childhood in Mexico. He speaks fluent Spanish. When Fisher was in the fifth grade, the family briefly moved from Mexico to South Florida, right about the time the Cuban immigration wave was hitting. “I became

the translator for the principal of the school,” Fisher says. “My mother would say, ‘I understand you were in the principal’s office again.’ And I’d say, ‘That’s not because I’m a bad boy. That’s because I am translating for the principal.’”

EDUCATION: Attended U.S. Naval Academy, 1967-1969. Transferred to Harvard University after displaying aptitude in economics. “This was 1969, during the height of student revolution, so there were very few transfers

like that during those days,” Fisher says. “I was the only kid with a whitewall haircut at Harvard.” Graduated with economics degree in 1971. Studied modern Latin American politics at Oxford, 1972-1973. Received MBA from Stanford University, 1975.

PROFESSIONAL EXPERIENCE: Fixed income and foreign exchange market specialist, Brown Brothers Harriman & Co., 1975-1987. Founded Texas operations of the private bank in 1981. Founder and owner of Fisher Capital Management, 1987-1997. Firm operates in Dallas today as FCM. Co-founder and co-owner of Fisher Ewing Partners, 1988-1997. Firm operates in Dallas today as Ewing Partners and manages

the Value Partners hedge fund.

PUBLIC SERVICE EXPERIENCE: Assistant to the secretary of the Treasury, 1978-1979—worked on dollar crisis. Deputy U.S. trade representative and ambassador, 1997-2001—oversaw implementation of NAFTA, negotiations for the Free Trade Area of the Americas, and deregulation of Japanese economy. Joined Dallas Fed in April 2005.

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