A Whole New Ball Game

Frederick “Fritz” Fuerherm has been around the investment business as a bond and bond-fund manager for a long time—38 years, to be exact. Since 2003, Fuerherm has served as managing director of the Minneapolis office of asset management firm AXA Investment Managers based in Luxembourg. Prior to joining AXA, he was vice president of investment strategy for Advantus Capital Management, an investment and asset management company in St. Paul, where he managed the total-return fixed-income group.

AXA recently announced that it was consolidating its Minneapolis office into its Greenwich, Connecticut, operation. Fuerherm will retire and will use the next few months to decompress, do some hunting, and relax a bit. I spoke with Fuerherm three days after the markets took a dive on Monday, September 15.

Have you ever seen anything like this?

Fuerherm: Absolutely not. We’ve seen stress situations before. In particular, if we go back to the late ’70s, early ’80s. That was an environment where we had 12 percent unemployment, 12 percent inflation, and interest rates were extremely high. We were facing a very aggressive inflationary environment. I think the environment we’re facing today could actually be a deflationary environment. It certainly will be until we can turn this housing market around.

What’s worse, inflation or deflation?

Fuerherm: We seem to know how to deal with an inflationary environment better than a deflationary environment. If you go back to early 2000, Alan Greenspan was very concerned about fighting a deflationary environment. We haven’t fought one of those since the 1930s, and the methods we had to engage certainly haven’t been remedies we’ve had to use in a long time. So I think the concern of a deflationary environment is probably a little more critical.

What should the Federal Reserve Bank and policymakers in Washington do?

Fuerherm: One of the things the Fed has tried to do is flood the economy with money. That hasn’t been extremely successful. If you look at fiscal policy, obviously the government is spending a considerable amount of money—more than it’s taking in—and that tends to be stimulative. Yet other parts of the economy—the consumer and business [parts]—have not responded. I think consumers and businesses are still very concerned about the outlook. [They’re] unwilling to spend. So you only have one engine pulling the train.