A Legend Lost

Our nation lost a Great American this week. Paul Volcker dedicated his life to public service. It’s been commonly said he always believed it to be his calling. Volcker served in government across Democratic and Republican administrations for three decades in roles guiding monetary policy and overseeing the nation’s financial system. Paul Volcker cast a large shadow on the Market and American history. It was not just his 6-foot 7-inch frame or persistent cigar smoke. It was his courage to do what he thought was right, not what was popular. Volcker told people, not what they wanted to hear, but what they needed to hear. When you think about that, it’s quite refreshing and quite different from what we see in our society these days.

Paul Volcker presided over a much different economic and market environment than today. In many ways, it was the complete opposite. Volcker was nominated Fed Chair in 1979 by President Jimmy Carter. Perhaps more accurate, the financial markets forced Carter to nominate Volcker, who was head of the New York Fed and widely known as an advocate of stable money. The Fed needed a strong personality with guts. Volcker was that guy. He took office with the economy suffering from the highest sustainable inflation the nation had ever experienced. Inflation peaked at 14.7% in the Spring of 1980. The Arab oil embargo of the early 1970s exacerbated other inflationary forces, while loose monetary policy designed to stimulate growth pushed prices even higher. Ronald Reagan was elected President in 1980 and backed the Fed chief’s determination to break inflation. Reagan later reappointed Volcker to another term in 1983.

The U.S. economy experienced two recessions during his first term, with unemployment hitting nearly 11% in 1983. 30-year mortgage rates were over 18%, and rates on a 3-month CD’s yielded 18% in 1980. Today, they’re under 1%. Inflation continues to be very benign as we end this decade.

Volcker became perhaps the most unpopular Fed chair in history for pushing the Fed Funds rate to 20% with his plan to bust the runaway inflation, which consumed the U.S. economy in the 1970s. It worked. The highly controversial strategy whipped inflation from double digits down to 3%. The Stock Market bottomed in 1982, and the multi-decade secular Bull Market was born. Paul Volcker didn’t do what was popular. Quite the opposite actually. He did what he thought was right. That’s real leadership. Paul Volcker was one of the most successful central bankers in history.

In his later years, Volcker played a role behind the scenes in helping save the financial system a second time by urging the Bush Treasury to act during the Financial Crisis, as panic set in. Seeking his experience and wisdom, President Obama named Volcker Chairman of the President’s Economic Recovery Advisory Board. After the Financial Crisis, Volcker led the calls for breaking up big banks and banning commercial banks from speculating with higher-risk activities. This led to what is now called the “Volcker Rule.”

Paul Volcker wasn’t always popular nor well-liked in some circles. But he was respected. He acted with purpose and conviction. He didn’t play politics. He did what he thought was in the best interest of our nation. “Paul was as stubborn as he was tall, and although some of his policies as Fed chairman were politically costly, they were the right thing to do,” Jimmy Carter said.

My sense is Mr. Volcker did not approve of the interest rate cut back in October, with the unemployment rate already at a 5-decade low and a Stock Market at all-time highs. Things have changed.

We also lost a member of our Bedell Frazier family. Jessie Reilly, a Senior Portfolio Manager for over 15 years, passed away. She was something special that Jessie. She always had a spring in her step, a twinkle in her eye and a stubbornness that was admired. Jessie retired in 2014. The world is a better place for her contributions. She is missed.

Have a nice weekend. We’ll be back, dark and early on Monday.


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