Volcker legacy included Schultz friendship

The men started working together in 1979 at the Fed during a period of runaway inflation in the U.S.

  • By Mark Basch
  • | 5:20 a.m. December 26, 2019
  • | 5 Free Articles Remaining!
Former Federal Reserve Board Chairman Paul Volcker died Dec. 8. (Edmond J. Safra Center for Ethics)
Former Federal Reserve Board Chairman Paul Volcker died Dec. 8. (Edmond J. Safra Center for Ethics)
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When former Federal Reserve Board Chairman Paul Volcker died two weeks ago, many news stories recalled his successful efforts that permanently ended an era of runaway inflation in the U.S.

What many Jacksonville residents may not realize is the key role a local civic leader played in assisting Volcker’s crusade.

Fred Schultz, a Jacksonville investor and Florida politician, was appointed vice chairman of the Fed in July 1979 just a few days before Volcker was brought in as chairman.

It was a critical time in U.S. financial history when global markets had lost confidence in the U.S. dollar because of double-digit inflation rates.

Almost immediately after Schultz was sworn in as vice chairman, Fed Chairman G. William Miller resigned to become Secretary of the Treasury. That left Schultz temporarily as the highest-ranking member of the Fed board.

In an interview with me for a story published in The Florida Times-Union during the most recent U.S. financial crisis in 2008, Schultz said he told Miller “thanks a hell of a lot.”

Schultz had served in the Florida House of Representatives from 1963 to 1970 and was speaker of the House during his last two years there, but he was largely unknown outside of the state, particularly in the financial community.

“They didn’t know me from Adam,” Schultz said. 

That made investors more nervous. However, Volcker, president of the Federal Reserve Bank of New York, was a well-known figure on Wall Street and the markets calmed down when he was appointed Fed chairman a few days later.

Volcker, with Schultz’s support, was determined to squeeze inflation out of the U.S. economy. He embarked on a tight monetary policy that sent interest rates even higher. 

That led to a six-month recession in 1980 that doomed the reelection campaign of President Jimmy Carter, who had appointed Volcker and Schultz.

With interest rates remaining high, another recession hit the economy during the first two years of President Ronald Reagan’s first term in 1981 and 1982, but inflation started to come down and the economy recovered.

Schultz left the Fed in 1982 but Volcker was appointed to a second four-year term as chairman. Inflation has not been considered a major issue in the U.S. economy since he left in 1987.

Schultz, who died in 2009 at age 80, remained close friends with Volcker. After leaving the Fed, Volcker became the Frederick H. Schultz Class of 1951 Professor of International Economic Policy at Princeton University, alma mater of both men.

Schultz remained active in civic affairs in Northeast Florida, particularly efforts to promote education. But he never tired of talking about his years at the Fed with Volcker and the legacy they left on the U.S. economy.

Regency Centers downgraded

Two analysts last week downgraded Regency Centers Corp., with the Jacksonville-based shopping center developer expecting slower earnings growth in the new year.

Morgan Stanley analyst Richard Hill downgraded his rating on Regency from “overweight” to “equal weight,” and J.P. Morgan analyst Michael Mueller downgraded it from “overweight” to “neutral.”

“We remain constructive over the medium to long term, given a higher-quality portfolio of assets and strong balance sheet, but we don’t see a near-term catalyst as the market will not reward the company for SS-NOI growth that is expected to be flat to slightly positive in 2020,” Hill said in his report.

Jacksonville-based Regency, which operates mainly neighborhood shopping centers anchored by supermarkets, warned in its third-quarter earnings report that bankruptcies of some retailers are likely to affect the growth of its same-store net operating income, or SS-NOI. 

Regency isn’t losing too many tenants, however. Its portfolio of 422 properties across the country was 94.8% leased at the end of the third quarter.

“Regency’s portfolio and platform are top-notch, in our view, and we recognize that the stock screens as being attractive on both an absolute and relative basis at current levels,” Mueller said in his report.

“While management already telegraphed that 2020 should be a modest-to-very low growth year, making it not ‘new news’, our Neutral stance better reflects our view that the market has a little bit of time to wait before growth reaccelerates,” he said.

Hill’s report on retail real estate investment trusts like Regency said smaller strip malls are in a better position to weather the “challenging retail backdrop” than the big regional malls.

“Historically, mall REITs have generated stronger SS-NOI growth, but recently strips have generated higher growth than malls,” he said.

Hill said strip centers account for 71.5% of all leasable space, with about 115,000 strip malls in the U.S. and only 1,200 large malls.

“Malls receive much of the media headlines, but strip centers are a much bigger part of retail real estate,” he said.

“Bottom line, we think the market views strip REITs as more investable than malls, given a better risk-reward balance.”

Mueller’s downgrade also was part of an overall assessment of REIT stocks, and J.P. Morgan analysts also said trends for strip malls operators are better than larger mall REITs.

Regency expanded in 2017 by acquiring Equity One Inc., but the J.P. Morgan analysts said that deal was an exception in a period of “muted” acquisition activity by strip mall operators. They think acquisition activity may heat up again soon.

“The topic of acquisitions (and M&A) has come up more in conversations throughout the year, implying that it is more front and center for management teams,” they said.

Analyst labels FIS a ‘fresh pick’

Fidelity National Information Services Inc., or FIS, had underperformed the S&P 500 index by about 3% since it completed its $43 billion acquisition of Worldpay Inc. on July 31, Robert W. Baird analyst David Koning said in a research note last week.

But Koning thinks investors have been too pessimistic so, as he has before, he designated Jacksonville-based FIS as a “fresh pick” stock.

“We think there are several ways for estimates to rise, while the backdrop of growth seems quite healthy, and valuation seems quite reasonable,” he said.

Besides underperforming the S&P 500, FIS also has underperformed its peer group of companies that made big acquisitions recently, Koning said.

Investors “seem a little dissatisfied” with the financial technology company’s third-quarter trends in its merchant services division and its projection of revenue growth “approaching 7%,” he said.

“Yet we think acceleration is likely and 7% plus could ultimately be possible,” he said.

mCig is shifting focus to health care CBD products

Jacksonville-based mCig Inc., which has been engaged in several areas of the legal marijuana markets, said it is shifting its focus to “healthcare and medically driven CBD (cannabidiol) botanical products.”

After announcing a joint venture last month with a company called Bareroots Rx Inc., mCig said it is working with Bareroots to develop the products.

“A new joint company will be one of first to market scientifically backed nutrigenetic CBD based proprietary botanical result driven products, that is so terribly needed in the industry,” CEO Paul Rosenberg said in a news release.

The joint venture expects to launch new over-the-counter CBD botanical nutrigenetic products in the next 90 days under the brand name BRRX Clinical.

Publicly traded mCig reported revenue of $2.3 million and an adjusted net loss of $1.8 million in the fiscal year ended April 30.



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