INTERVIEW WITH TED LEE FISHER,
CONDUCTED BY RAYMOND MERRIMAN
APRIL 5, 2016
Greetings, Ted. MMA is very excited to have you as our featured speaker at our 2nd annual MMA Investor’s Retreat, taking place in San Diego, CA, March 10-13, 2017. We’d like to ask you a few questions so our attendees can get a sense of who you are and what you will speak on.
Ray: Tell us about your background as a trader? When did you first begin trading?
The simple answer is August of 1976.
Nixon had closed the gold window and devalued the USD, which by default opened gold sales to us citizens for the first time since 1932. The Europeans had run the price up to $200 in anticipation of the US entry into the gold market. Once open, they then drove the price down.
The more complicated answer revolves around my studies at the University of Michigan over the previous ten years. I had been fascinated with the history of ideas and especially the history of exchanges, which constituted value. In the process of my studies, I acquired degrees in economics, philosophy and social science research.
By the summer of 1976, I had passed my preliminaries and was working on a dissertation on the business cycle’s impact upon U.S. education. It was late July 1976 and I was at my friend’s house when this extremely energetic character bounced in and sat next to me as we watched baseball on TV. In the process, he asked who I was and what I was up to. I explained, and he said (with a large cigar firmly lodged between his teeth), “You what? Are you out of your mind? You must come down to my office Monday morning!” So I did.
As it turned out, he was an extremely successful commodities broker. I sat down next to him and watched the screen. He explained how everything worked. I filled out some paperwork. I had a small nest egg saved from fellowships and teaching positions within the university and I opened an account. That day, I watched gold trade $101.50 three times over a two-hour period. Late in the afternoon, I paid $107 for 10 contracts. The rest of the story is history.
Ray: I understand you played a role in the creation of the Treasury Bond futures. When was that and how did it happen?
Well, not exactly. When I was in the university, none of these financial futures existed. With the floating of the USD, everything changed and the exchanges in Chicago were quick to embrace the change. I migrated to Chicago in 1978. Dr. Richard Sandor deserves all the credit for the creation of the contract.
What I did do, however, is solicited money market banks and other financial service companies to encourage them to use these new markets to hedge their interest rate risk. In the process, I became the first futures broker for the chief dealer in government securities at Chase Manhattan Bank, and in so doing, I became a prominent participant executing his business at the exchange.
By 1981, I moved from the Chicago Board of Trade (CBOT) to the Chicago Mercantile Exchange (CME). I maintained my presence at the board through a very competent staff, and by doing so, I was able to develop business in a newly devised contract entitled “Eurodollar futures,” which was the 90 day Libor for USD deposits in London. It happened that this contract took off in volume and prestige, and I found myself standing in the largest pit in the world, setting deposit rates for virtually all related derivatives with the largest nominal value and volume, as well as the largest outright daily number of contracts traded anywhere in the world.
Ray: What is your background in commodity futures? Have you always been a trader, or did you work for any commodity future firms along the way?
When I first came to Chicago, I had a letter of introduction from Jimmy Kerr, who was the most prominent wheat trader in the history of the CBOT. In a very serendipity way, I met Jimmy in Florida and he took an immediate liking to me and mentored me.
The side story is that the blustery commodities broker and I moved from Michigan to Palm Beach, FL, and opened an office on Brazilian Avenue. It so happened that some fifty years prior, Jesse Livermore had occupied those same offices.
As our trading and brokering grew, I felt I needed to be closer to the mouth of the river (so to speak). So I consulted Jimmy, who said he thought I was correct, and that when I got to Chicago, he wanted me to immediately introduce myself to a grain trader by the name of Freddie Brzozowski, which I promptly did. I explained to Freddie that I had this idea to cold-call financial institutions and solicit their hedging business. Freddie was this 6 foot 5 inch south sider whose uncle had worked at the board for many years and when Freddie came of age his uncle got him a job as a floor runner. One day he was sent into the corn pit to ask for orders that were late in reporting and the corn broker blew up and unloaded on Freddie. As Freddie walked out of the pit, he threw his jacket down and caught the next train south. His uncle was right behind him. They caught the next train back and were on the trading floor well before the close. That young runner developed first into order filler, and then a trader, and by the time he was the “Prince of the bean oil pit,” Jimmy Mckerr told him to form his own company because he was crazy to pay JT Mckerr and Company so much brokerage every day. Thus, the Chicago Grain Company was born.
But I digress. Freddie leaned back in his chair, took a long puff on his cigarette and looked me up and down. Then said, “Frankly, I think you are out of your mind. But because I can see you want to own the agency and not just be a salesman, I will back you.” Three months later, Chase Manhattan Bank was clearing Chicago Grain Company. I will be forever indebted to JT Mckerr and Freddie Brzozowski for what they did for me and what they did not do for me.
Ray: You had a boutique set up with a seat on the CME. When did that begin? Tell us about that, like what kind of services did you provide and for whom?
The boutique grew out of my early days at Chicago Grain. Trading my own account first drove me to find ways to analyze and forecast the market independently. I applied the discipline I had acquired at the University of Michigan and developed several models to predict cyclic patterns for interest rates and structural analysis of price patterns, or what we now call “charting” or “technical analysis.”
I offered my research in exchange for execution business in financial futures as opposed to the more traditional subscription model. My first institutional client had traded government securities for 27 years, and as chief dealer, he had mentored many traders who sat next to him over the years. Once he was my client, I never solicited business again as the referrals kept me at full capacity.
There was a period where I was covering the head of the funding desk at Chemical, and the managing director at Morgan Stanley, who was responsible for taking risk. All because they wanted access to my research and especially my forecasts on interest rates.
Ray: Did you manage monies for people? Do you still manage funds?
I always traded my own account and executed orders for customers. That changed in 2000 to 2001. My mother had been diagnosed with dementia/Alzheimer’s. She first stayed in a very upscale assisted living facility, but I could see she was not adapting well and they were giving her copious amounts of narcotics to keep her quiet. I had a very hard time accepting any of this.
Consistent with the out-of-the-box signature of my life, I happened to have a very strong connection to the Thai medical community. They begged me to bring my mother to Thailand for treatment. I did. After 3 months, the doctors said she could be in a residential setting if I had a nurse for her 24/7. So I bought a house in Phuket, Thailand, hired a nurse and a couple to take care of house and support the nurse, and in so doing created a private care facility for my mother.
She had 13 years of narcotic-free care, never had an episode of agitation and experienced a very high quality of life and care. In so doing, I realized that I had to sacrifice my presence on the trading floor.
Several local traders had approached me over the years, asking me to trade money for them. I went to them and began trading other peoples’ money in early 2001. I have never held myself out to the public per se.
Coincident with all this, my models showed a major shift in June of 2001. My main deposit rate model was forecasting 1.5% deposit rates. The whole world was looking for a Federal Reserve tightening cycle to continue to unfold. After showing this to my clients I took substantial positions in my managed accounts that reflected what market logic would imply if deposit rates were 1.5%. I bought the first 3 years of the Eurodollar futures, (the equivalent of buying the 3-year note). I bought Gold, Silver and the Swiss Franc and I sold short the S&P 500 futures and the NASDAQ 100 futures. Over the next 2 years, that trade worked out quite well (understatement).
It also proved, beyond a doubt, that the markets know what we, as individuals, cannot comprehend. On June of 2001, 9/11 was inconceivable, but the market was already forecasting the market reaction.
I still accept money to manage on a referral basis.
Ray: What are you doing these days? Where do you reside?
My mother passed away in June of 2014 at age 92. I still reside in Phuket, Thailand, and at this point cannot imagine living anywhere else.
Over the last 40 years, I have been actively involved in the preservation, study and practice of Tibetan Buddhism. I find my residence and the general ambiance of Phuket to be supportive of this practice.
Ray: You have some strong ideas about the world economy, world financial system, and world financial markets that differ from mainstream thought. Can you briefly describe what you see happening in the next 1-4 years?
Well, I basically see the great socialist experiment that began in early 20th century coming to an end, as all things must. There is a natural life/death cycle to everything. Capital and political organization cannot be immune. This means there are some extremely decadent (aka fragile, aged, decrepit) formations of capital and political organizations that emerged around the socialist/progressives of the early 20th century. As the unsustainability becomes apparent, it is only natural for change to occur.
The problem is that the current system will not allow the forces to clear naturally. Thus, the longer the forces of nature are repressed, the more violent and extreme will be the final resolution. In the transition, where there was freedom there will be authoritarianism.
My greatest concern is that we are moving into a time of sovereign default. If this is the case, then savings within the financial system will be subject to or at risk of confiscation through taxation and bail-ins. Personal financial mobility in such an environment will be seriously curtailed through capital controls and other forms of restrictions. I fear the individual will experience an ever-rising level of repression and fascism in their daily lives.
Ray: How should individual investors position themselves to deal with that scenario?
There is no easy answer to this. Diversify, of course, but diversify everything. Diversify deposit risk, diversify foreign exchange risk, diversify duration risk, and diversify domicile risk. I am not a gold bug advocate, nor am I a survivalist advocate, but I have great empathy for their position and believe their fears are well justified.
The greatest risk going forward may well be having deposited assets within the financial system. While U.S. history has demonstrated that physical assets in your possession can and will be confiscated, history has also shown that it was physical possession of real assets that allowed individuals to weather previous financial storms.
Ray: You will be giving the keynote presentation at the MMA Investment Retreat, March 10-13, 2017, in San Diego, California (www.mmacycles.com, under “Events”). Will you be talking about these ideas there? Or anything else?
We will have to see what unfolds between now and then. I have never been fixed on an idea or position. What I can say is that I will try bringing ideas to the table that are as relevant then as I believe these are today.
I understand you have an extensive background in Buddhism. Can you something about your background here with our readers?
Over the years, I have had the great good fortune to study with many of the great lamas who went into exile as a result of the invasion of Tibet. Buddha was not a Buddhist. He advised: “Do not believe in my teachings but instead take my teachings and use your mind to analyze the world and see if what I say is true.” Thus, the practice of Buddhism is not a religion, but mind training. It just happens naturally that as one meditates and trains one’s mind, their behavior becomes more grounded in a natural ethical base. Anecdotally, I was invited by one of the most revered forest monks of Thailand to ordain as a monk at his monastery for a 15-day intensive retreat in honor of the King of Thailand’s 88th birthday this last December.
Ray: Thank you, Ted, for a very insightful interview.
I look forward to your presentation and round table discussions with our faculty and attendees at the MMA Investment Retreat next March! They are in store for a very special experience!