Tedford's role fits the results-oriented culture at Stephens. After all, it's difficult to imagine Warren Stephens employing someone to sit in an office and do nothing but ponder what Lord Keynes called "the dismal science."
Still, there's evidence that Tedford's dabblings in economics pay off. In the 1970s he called the run-up in gold prices. As a result, he got pigeonholed as a "gold bug," a term he doesn't particularly like because it implies an irrational infatuation with gold. Tedford says that even today people stop him on the streets of downtown Little Rock to press him on the price of gold. (It was $387 an ounce on the day we had lunch.)
More recently, Tedford is proud that the fixed-income portfolio under management at Stephens beat the Lehman bond index by a whopping 500 basis points in 1995.
Given this track record, and given that Tedford is a combination economist, money-manager, gold bug and Federal Reserve Board-watcher, he's worth chatting with in an attempt to divine financial trends for 1996. He's as likely to have worthwhile insights as anybody else in these parts. (As an added qualification and personality quirk, Tedford is one of those guys who rises at 4:30 each morning to watch the financial shows on the cable networks.)
For starters, Tedford is quite a fan of Federal Reserve Chairman Alan Greenspan. "History will view him as probably the best [chairman] we've ever had," Ted ford says.
To support this flattery, Tedford produces historical graphs of the nation's money supply (M1) and points out how Greenspan poured liquidity into the nation's banking system to stem the savings and loan crisis in the early 1990s and then choked off the money supply as the crisis passed. The result? No lurches in the economy and stable inflation. (Ask the central bankers in Mexico how tough this is to pull off.) For this reason, Tedford views Greenspan's reappointment as Fed chairman next month by President Clinton as a sure thing.
Every Thursday afternoon, Tedford gets the numbers from the Federal Reserve on the fluctuation in the nation's money supply. The trends over the past two years reveal an actual shrinkage of M1 for the first time since Tedford began tracking the data on yellow legal pads in the 1960s. "I've never seen monetary policy this tight," he says.
When Tedford speculates about Greenspan's motives for this money supply shrinkage, he admits he's not sure what the Fed chairman is thinking. Tedford muses that the Fed may be basing its money supply targets on the price of a fixed commodity like gold. This, however, suggests Greenspan is himself a gold bug (or perhaps just someone who rejects the Keynesian notion that the Federal Reserve should relax the money supply to address nonmonetary phenomena like unemployment).
Regardless of Greenspan's motives or logic, this shrinkage signals inflation rates dropping to as low as 1 percent in 1996. For this reason, Tedford admits to being "raving bullish about interest rates" and also about bond prices.
Yet he concedes the contraction in money supply when combined with two other notable trends - a downturn in consumer debt creation and a reduction in the federal deficit - could dampen the economy this year. (The kicker, of course, could be a change in fiscal policy to stimulate the economy).
As for stock prices in 1996, Tedford admits that he, like many other people, was surprised by the run-up of 1995. Despite today's near record-high stock prices, Tedford claims the current price-earnings ratios are not out of line from a historical perspective. Furthermore, he doesn't sense a lot of speculatory excess in the stock market. And, if interest rates go lower, there may some leg left in stocks.
Yet Tedford's bullish certainty about bond prices does not extend to stocks. While he's reduced fixed-income investments to a semi-science of watching the Fed's money-supply targets and judiciously allowing for time lags, the corporate earnings that drive stock prices have too many variables and unknowns to predict.
Ever modest, Tedford concedes he got into investment banking because he knew a career at Stephens would give him the opportunity to stay in Arkansas. His common-sense pedigree is perfect for a part-time student of the dismal science.
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|Title Annotation:||On Principle; Bill Tedford|
|Date:||Jan 1, 1996|
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