0:00

M This

0:02

is Mesters in Business with very

0:04

Renaults on Bluebird Radio.

0:08

This week on the podcast, we have

0:10

an extra special guest. I'm

0:13

trying to to maintain low

0:15

tones and I'm trying to keep my insane

0:18

enthusiasm down, but holy

0:21

cow, Bill Gross, the Bond King,

0:23

spent three hours talking with us

0:26

literally about everything. Um,

0:29

this is a pretty amazing conversation.

0:31

He does not hold anything

0:34

back. He names names, he calls

0:36

people out. He I don't even

0:38

want to say he has scores to settle because he

0:40

did that in his book. Uh.

0:43

He explains what made PIMCO

0:45

such a unique place, how

0:48

they accumulated a trillion dollars,

0:51

essentially creating the

0:53

concept of institutional

0:55

bond trading before Pimco, bond

0:58

trading was by appointment only that this

1:00

didn't exist before. Then, we cover

1:02

everything from card counting to

1:04

inflation, to the FED, to his

1:07

book, to Marry Child's book The Bond

1:09

King about him. Really there

1:11

were no comments left unturned,

1:15

and we also revealed what his

1:17

thoughts were about when

1:19

his bonus was

1:22

revealed by a certain podcast host

1:25

about eight years ago, and and how that

1:27

came about his

1:29

and Muhammadalarian's multibillion

1:32

dollar bonus pool,

1:34

how that thing could even exist,

1:37

how Alliance allowed them to

1:39

do it, and and how, after almost

1:41

being a parlor game of speculation,

1:44

how those billions of dollars in who

1:47

got what bonus pool was

1:49

finally revealed. This was

1:51

an absolutely fascinating conversation

1:55

and an extra special guest.

1:57

So, with no further ado, iye

2:00

conversation with PIMCO

2:03

co founder Bill Gross.

2:07

This is Mesters in Business

2:09

with very renaults on Bluebird

2:12

Radio. My extra

2:14

special guest this week is the bond

2:17

King, Bill Gross, the co founder

2:19

of Pimco. At one time,

2:21

Bill's total return fund was nearly

2:24

three hundred billion dollars. It

2:26

was the world's largest mutual

2:28

funds. Gross controlled more

2:31

bond money than anybody else in the world.

2:33

He advised the U. S. Treasury

2:35

on the role of sub progme mortgage

2:38

bonds in the O eight oh nine crisis. He

2:40

was named morning Stars Fund

2:43

Manager of the Decade. They

2:46

observed no other fund manager made

2:48

more money for more people than Bill

2:50

Gross. He is the author of several

2:52

books, including Bill

2:55

Gross on Investing and most recently

2:58

his book I'm Still Standing

3:01

Bill Gross and The Pimco Express.

3:04

Bill Gross. Welcome back to

3:06

Masters in Business. Thank you, Barry.

3:09

Actually I'm I'm sitting talking to you, but

3:11

I'm standing in life. So um,

3:13

that's why the title applies, I think.

3:15

But it's good to be here, it's

3:17

good to have you back. And in fact, um,

3:20

I owe you a debt of gratitude because

3:22

when you came on the

3:25

show, you know it's got to be

3:27

six seven years ago. You were

3:29

really the first big name

3:31

that said, all right, let's let's try this

3:33

podcast thing out, and you

3:36

open the floodgates. So if

3:38

I'm lacking in any objectivity,

3:40

let me disclose that right up front. But

3:43

but let's talk about your career.

3:46

Starting with Pacific Life.

3:48

You're you're a junior guy there, literally

3:51

going into the vault taking

3:54

bond certificates and clipping coupons

3:57

off of that. How do you get from that sort

3:59

of junior intern menial labor

4:02

to launching a standalone active

4:05

bond shop. We'll

4:07

let me add to that quickly. I could

4:10

only clip coupons for half

4:12

of the day, I guess the other half I was off making

4:15

private placements loans to fledgling

4:19

companies such as Berkshire, Hathaway and

4:22

Walmart. I visited Sam

4:24

Walton with his two kids as his dog

4:27

I struck. They had two walmarts

4:29

in uh Bentonville, Arkansas,

4:32

and same thing with Buffett and

4:35

Charlie Munger. So I was doing some of

4:37

that UM, but just

4:39

to make the transition, I guess the managing

4:43

money. I did

4:45

a master's thesis at u C. L

4:47

A and I just graduated, and it was about convertible

4:51

bonds, but also about Warrens

4:54

and UM an option related

4:57

vehicles. So I was interested in the bondmarket even

4:59

though I want to get into stocks and UM

5:02

specific mutual in downtown l A

5:04

had a billion dollars worth of buns and

5:07

m A broker from

5:09

Weeden and Company, Howard Rakoff, decided

5:13

to visit and tell me that

5:15

somebody else in town was trading

5:17

some bonds from boxes. And in

5:20

those days, as you know UM, there

5:22

weren't any computers or IBM three

5:25

sixties, but we only had one UM.

5:27

You couldn't really buy

5:29

and sell on the wire, and so it

5:32

was very difficult to trade. But I

5:34

convinced him to let me

5:36

use five million

5:39

of their bonds and set up an active trading

5:41

account. And that was the beginning of

5:44

PIMCO, and before PIMCO.

5:46

I've heard bond trading described

5:49

as by appointment only.

5:52

Is it fair to say you and your team

5:54

invented fixed income trading? Am

5:57

I am I overstating that? Um

6:00

probably just a little. Uh. There was a gentleman

6:02

I forget his name and Occidental life Insurance

6:04

in l A there was doing some of that. There

6:07

was a Jim guy from

6:10

Lehman who later died that

6:12

was doing some of that. But I was certainly

6:15

one of the first who I was certainly

6:17

one that pursued it

6:19

and convinced at

6:23

least the executives of specific mutual that

6:25

this could be turned into a business.

6:28

So maybe I should say PIMCO helped

6:30

to bring about institutional

6:33

trading on a level that

6:36

just didn't exist before. You guys helped

6:39

systematize it. Is that Is that more accurate?

6:43

Yeah? I think that's true. But because

6:45

back then, uh, you know, stocks

6:47

were the vehicle to trade, and even

6:50

uh then, they weren't traded

6:52

that actively. Hands

6:54

were basically bought and

6:57

ultimately matured. I

6:59

guess the big banks

7:01

in the East and New York,

7:03

in Boston and Chicago, and

7:06

so we have a bond trading was

7:09

was an active thought. No one thought that you could

7:12

sell one bond by another and make some money.

7:14

Um. And so it was innovative

7:17

and I was glad to be

7:19

part of it. So in the book,

7:21

you describe how PIMCO grew

7:23

in the nineteen eighties and nineteen nineties.

7:27

Well, we'll talk about the latter years later,

7:29

but that period, um,

7:32

following everything that Chairman

7:34

Paul Vulker had done with the bond market,

7:37

that really was a perfect

7:39

storm to to plow into the

7:41

fixed income space. Tell us

7:43

about the growth of PIMCO

7:45

in the nineteen eighties and nineteen nineties,

7:48

okay, And and so you're right, Uh,

7:51

we started at a great time, not in

7:53

the seventies because the bear market didn't really

7:55

end until eighties

7:59

three, depending on you

8:01

know, the maturities of bond. But um,

8:05

you know it's it's set up

8:07

the premise for total return in bonds

8:09

where you could not only get a coupon,

8:12

get an inters payment, but get a capital

8:14

gain. And when you're starting

8:16

at close to fifteen percent for

8:18

a third year treasury, um,

8:21

you know, it was it was fairly easy

8:25

ultimately to get a capital

8:27

gain, and so that helped us.

8:30

We were also helped by legislation

8:32

from the Congress.

8:34

Um A built

8:36

that legislated RISKA, which

8:39

basically mandated that mentioned

8:42

managers had to diversify

8:45

UM and not just diversified between

8:48

UM, you know, the obvious,

8:51

but also diversified between east coast and

8:53

west coast. And so this

8:55

little company called a T and T, the

8:57

biggest in the world, came according

9:00

UM Lady in the seventies and

9:03

like what they saw, and they heard pim go, and that really

9:07

was the beginning of it all. I

9:09

mean, who who wouldn't open the door

9:11

to a person or to a

9:13

company that had just been hired by A T and

9:15

T. But this is more than just

9:17

lucky timing for a couple of

9:19

reasons that I want to go into. We'll

9:22

talk a little later about some of the technical

9:24

aspects that pim go really

9:26

figured out to generate fixed

9:29

income out alpha. Well, we'll circle back

9:31

to that. I want to talk a little

9:33

bit about your investment

9:35

outlooks. These were highly regarded.

9:38

People thought they were both insightful and well

9:40

written. And this is at a

9:43

time when you know, we kind of take

9:45

it for granted today that so

9:48

many people write about financial investing

9:51

and strategies. When you started

9:53

doing the investment outlooks each month. That

9:56

was somewhat unusual, wasn't it tell us about

9:58

that? Yeah, it was unusual.

10:00

And I thought about it from a business

10:03

context, and I said, you know, if I want

10:06

to be successful at Pinco, if we

10:08

want to grow as a company, you've

10:11

gotta say hello. And the best way to

10:13

say hello is to write

10:15

these investment outlooks. I mean, I mean, there

10:17

were a few. Um, there was

10:19

a famous guy, you know, Barton

10:21

Biggs from Morgan

10:23

Stanley. There was a real good writer, and

10:26

I don't think Jim Grant had started yet,

10:28

but he was a excellent writer in the

10:30

time. So I wasn't the only one. But I

10:32

I thought that if I can inject some personal

10:35

uh then yettes into

10:38

my uh forecast for

10:40

the bond market, the people would read it because

10:42

they didn't really read these things

10:44

that came out of First Boston

10:47

and Solomon Brothers and so on, and so

10:49

I, uh, I decided to take

10:51

a little risk. Um.

10:53

You know. One of the things that I

10:56

wrote at the beginning of my book a

10:59

quote It said, the talent is

11:01

helpful in writing, but guts are

11:04

absolutely necessary. And so

11:07

I decided to have a few guts

11:09

and opened myself up to people

11:11

and something like that, and some didn't,

11:14

but you know, the reputation

11:16

grew well. I want to point out

11:18

first you were you the o G the original

11:21

gangster when it came to financial

11:23

writing, because of

11:26

course there were lots of professional

11:29

writers and journalists writing

11:31

about it, but as far

11:33

as I recall, you

11:35

might be one of the earliest

11:38

people who were managing money.

11:41

To describe what you were

11:43

doing, I want to say it was Howard

11:45

Marks and you pretty much you were

11:47

the guys that were putting out regular commentary.

11:51

Before you know, anybody

11:53

could could go online and find letters

11:56

from Warren Buffett or or things that Ray

11:58

Dalio wrote, or any one of

12:01

thousands of other professional

12:03

money managers. When you began. I

12:05

don't think there were many other money managers putting

12:07

out written commentary the way you guys

12:10

were. You. Buffett and Marx

12:12

are kind of the three that that blazed

12:14

this trial. I think

12:17

so. And you know, one

12:19

of my positive attributes

12:22

is that I I wasn't afraid to take

12:24

risk and to take chances

12:27

and so um.

12:29

You know, there were those that PIMCO

12:31

and Marketing and so on that would suggest

12:34

that you can't do that because people would just jump

12:36

on your ideas in front run. But

12:40

you know, I'm I'm tearing with in a lot of things.

12:42

But it wasn't paring Wood, not in terms of um

12:45

thinking that no one

12:47

really cared and so

12:50

so why not why not tell people what I

12:52

thought? And uh, I think it

12:55

worked. So it's no doubt

12:57

it worked because the firm did well in the eighties

12:59

and nineties. Is at what point

13:01

did you come to the realization,

13:04

Hey, this is kind of a one of a

13:06

kind company and it's going to be special.

13:09

Did you ever imagine you would have a trillion

13:11

dollars in assets under management? Well,

13:14

of course not, UM at

13:16

some point I did when we were

13:20

but um no,

13:24

My my objective was was

13:26

to grow the company

13:29

two Um you know,

13:31

have a fiduciary responsibility

13:33

to clients in terms of products and

13:35

not not

13:39

charging them too much or inventing products

13:41

that ripped them off. Um. But I

13:43

also want to uh or wanted

13:45

to be famous. I mean that's

13:48

that's in my book and in the

13:51

other Child's book as well. And

13:54

um, you know, growing

13:56

into a trillion and ultimately

13:58

into two trillion is uh

14:01

was very productive in terms of being

14:05

famous, and I guess ultimately infamous.

14:08

So, now that you look back, which is more

14:10

important in hindsight, money

14:13

power of fame? Well, I

14:15

never enjoyed my power,

14:18

and I've enjoyed some of the money, but

14:21

after a certain point, it's

14:23

not that productive unless

14:26

you give it away. And so I

14:29

think, ultimately, if those are the three choices,

14:31

and I did offer those to potential

14:33

recruits, who,

14:35

by the way, would never answer the questions

14:38

because they were afraid that any of the

14:40

answers would be view negatively.

14:42

And I'm

14:45

certain you know I would choose

14:47

fame again, and I, um, I

14:50

was. I was cognizant at the time

14:53

that fame can

14:55

turn into infamy, that you

14:57

could fly too close to the sun, etcetera,

15:00

etcetera, from objective standpoints.

15:02

But I must say I didn't think it could

15:04

happen to me because I was always

15:07

on the up and up, always on us, always open

15:09

and and why would anybody? Uh?

15:12

And I think, ultimately, um,

15:16

that was hige opening

15:18

to me. But I do

15:20

it again. Really

15:22

interesting. Let's

15:24

talk a little bit about the

15:26

way PIMCO grew and

15:29

generated profits

15:31

for clients. You describe a

15:34

lot of very technical aspects

15:36

to bond management and trading,

15:39

which all contributed to fixed

15:42

income alpha, which I

15:44

think a lot of people reading your latest book might

15:47

not have realized all

15:49

the ways that you guys generated

15:53

out performance. The question I asked

15:55

is, how is it possible with all this

15:57

money laying around? Nobody

16:00

he thought of this before? Why didn't anybody

16:02

else try and systematize

16:05

total return of fixed income

16:07

portfolios? Well, I think,

16:09

Barry, I mean, a lot of bond

16:12

managers were and probably still are very

16:15

conservative. That's their job to protect

16:17

principle, and therefore on

16:20

the sales side, on the wall street side, they

16:23

were facing the clientele that didn't

16:26

really want to

16:28

accept any of their suggestions whatever

16:31

they were. Um, yeah, it was

16:33

just the other way for me and

16:35

for PIMCO. And you

16:37

know, we were very innovative from the standpoint

16:40

of new products. We were one

16:42

of the first to buy

16:44

financial futures. Uh. We

16:46

were one of the first to

16:48

to buy mortgages. A fan

16:50

amame mortgage. I mean, most most

16:53

bond managers didn't want to go through the problem

16:55

of segregating principle and interest

16:57

in determining performance. That took

16:59

along time and a separate staff,

17:01

and so we did that and then

17:03

of course into later into global

17:06

and UM tips

17:08

and so on. So the innovation

17:11

was key. I think to Alpha

17:14

generation, the biggest key

17:16

was the

17:18

thrust of what we called secular

17:23

forecasting, secular outlooks. And I

17:25

read a book early on, just

17:28

after a joint temco

17:31

UM called Investing for the Long

17:33

Term. I forget who wrote it, but you

17:36

know it. It focused me on

17:38

the dangers of trading

17:41

for the short term because fear and greed

17:44

on the other side get involved

17:46

and you tend to make the decisions. And so we

17:49

approached it from the standpoint of three to five

17:51

years in terms of an outlook.

17:53

We brought in speakers that spoke

17:56

to that, many of them you

17:58

know, feed officials or extra shoals,

18:00

um, et cetera. And so

18:03

I think that really helped us to avoid

18:06

you know, the bad the bad months of the bad

18:09

quarter by looking at three

18:11

to five years. So those were

18:13

several of the keys. And when you say

18:15

investing for the long run, you're not talking

18:17

about Jeremy Seagull's stocks

18:20

for the long run. You're talking about

18:23

something more specific. Yeah,

18:25

And it basically it involved forecasting

18:28

interst rates, UM and

18:30

and to be fair, UM you know throughout

18:32

the period of time that the secular outlook

18:35

for interest rates was down, down, down, and

18:38

um, you know during our annual

18:40

secular forms that we had where

18:43

we brought in outside speakers

18:45

and basically set the tone for

18:47

the next to all months. Um, you

18:50

know, for the most part, it was a bullish

18:53

forecast, which turned out to be true.

18:55

If we uh

18:57

had a forecast that went the other way for

19:00

the long term for the next three to five

19:02

years, and obviously the

19:04

company would have disappeared. But by

19:07

focusing on that forgetting about the

19:10

day or the week of the months, I

19:12

think it became very successful

19:14

in terms of positioning a portfolio

19:17

duration wise and volatility

19:20

wise and credit wise. Huh.

19:23

Really intriguing. So so

19:25

let's talk a little bit about

19:28

you know, you as a investor and trader.

19:30

I'm I'm kind of entranced

19:33

by the way I've heard the Pimcote trading

19:36

floor described. Your desk

19:38

was a horseshoe and the traders

19:40

and analysts were arranged in a really specific

19:43

manner. Tell us a little bit about about

19:45

the thinking they're Well,

19:48

I thought it was pretty simple and I don't really

19:51

remember the horseshoe. Um,

19:54

but you know, I was positioned

19:56

in the middle certainly, and

19:59

the trade years of which they eventually

20:01

grew that were

20:05

you know, basically positioned in pods.

20:07

The mortgage people, how

20:09

yelped people, global

20:11

people, m etcetera.

20:14

And uh, you

20:16

know, they would work together and almost

20:19

independently day to day.

20:21

But I would check

20:24

and others would check in terms

20:26

of what they were doing, make suggestions and so on

20:28

it as we walked around

20:30

the floor. So, um, it

20:33

made a lot of sense. It was a big trading room with

20:36

I don't know how many square feet, but

20:39

I think functionally it really worked for

20:42

so who got to sit close to you and who

20:44

sat further away? Was that a function

20:46

of how accurate, how active

20:48

those markets were, or was

20:51

it, you know, just a seniority basis

20:54

you know, well it was both. Um.

20:57

You know, I remember that Scott Simon

21:00

uh sat to the left of me and

21:04

and build powers, and I don't

21:06

think christ Allen has ever sat next

21:08

to me. He was he was content

21:10

to be on the wing, so to speak, and do

21:12

his own thing. But but

21:14

usually it would be determined

21:17

as well by who would who

21:19

would be quiet as supposed allowed.

21:21

Um, you know, I liked quiet

21:24

to be able to think myself and somebody

21:27

would allowed voice talking to brokers or

21:30

calling up their spouse. Uh, you

21:32

know, it just wasn't working for me in terms

21:34

of trading to so um.

21:36

You know, it's the quiet and function

21:39

and seniority all sort of fit in

21:41

and I I didn't pick, somebody

21:44

else picked, and I just

21:46

went along with it until the noise

21:48

got too loud, and then they were

21:50

out and somebody else was in. So

21:53

So you mentioned the number of your colleagues

21:56

in the book, which we'll talk about in a little bit.

21:58

You're very general risk in giving lots

22:01

of credit to your colleagues

22:03

for being major drivers of of the firm's

22:06

success. Tell us about some of

22:08

these colleagues and how they contributed,

22:11

uh to Pimco's growth. Well,

22:13

they were, you know, we hired some really

22:15

smart pupil and really aggressive people,

22:18

um, obsessive people

22:21

that really loved to do what they're doing.

22:24

Chris Dialis was one

22:26

of the first. He was my co

22:28

portfolio manager, so to speak, from the

22:31

early eighties. He wanted to be a baseball

22:33

player for the Angels, but decided to take

22:36

our dollar

22:38

offer and he came and he

22:40

had gone to the university of

22:43

Chicago and you

22:46

know, studied there about options and so

22:48

on, and ultimately

22:50

became instrumental

22:53

in terms of bringing

22:55

financial futures to

22:57

to the portfolios and suggesting

23:00

some very creative ideas in terms

23:03

of Jenny May futures, which

23:06

you know, some say we broke

23:08

the market. But he was one.

23:10

And then there was another gentleman,

23:14

Chang Hong Zoo um

23:16

that came to us from Wells Fargo in

23:18

San Francisco. He ultimately

23:21

left after ten years to go back

23:23

to China with his family and head up

23:26

you know, a key position in the Chinese

23:30

Central Bank. I think, Um,

23:32

but he um, you would

23:34

make lots of suggestions and investment

23:36

committee in terms of convexity

23:39

and yield curve strategies, Euro dollar

23:41

futures, etcetera. Um.

23:43

He was perhaps the smartest guy on the floor,

23:45

including me, and you

23:48

know so I think a lot of his strategies

23:50

are due to his suggestions.

23:53

Um. You know, there was a high yield

23:55

gentleman, Ben Trotsky who was really

23:57

a master of that. All of our mortgage people,

24:00

uh, Bill Powers and John

24:03

Higg and Scott Simon that I

24:05

mentioned were really smart and

24:07

their performance and mortgages through the years

24:09

in terms of their own portfolios just

24:12

float over into the

24:14

total return funds. So all of these

24:16

people and there are a lot other ones. Um,

24:19

you know, we were a team. And you

24:22

know, the term bond king was

24:27

I guess that's more of a pr acceptance

24:30

than anything else. I don't think

24:32

there was a king. I was a leader, um,

24:34

and certainly a leader of the investment committee,

24:37

and in terms of accepting a

24:40

standard portfolio for those to

24:42

manage. But lots

24:44

of smart people, and

24:46

um, I think it theired acknowledgement

24:49

in my book, So lots of these colleagues

24:52

eventually became successful,

24:54

they became very wealthy, and they,

24:57

you know, hit the eject button and retired. You

25:00

stuck around for forty three

25:02

years. That's a long time. What

25:04

led to that longevity that's pretty unusual

25:07

these days. I think

25:09

it was because I loved it. Uh.

25:12

And you know, the the standard,

25:17

the standard idea that you should

25:19

do what you love is fine.

25:21

It can't really apply to the

25:23

billions of people. Uh. You know

25:25

throughout the world. They

25:28

all can't find jobs that they love. They can't

25:30

all paint, they can't all write

25:32

music. But this was an area

25:35

that I loved in terms of buying

25:38

and selling and competing and making money

25:41

and becoming famous, of course. And

25:43

so I think I stuck around

25:46

for that long until I was seventy

25:48

two at PEMCO or seventy one, simply

25:51

because I loved coming in. Um.

25:54

It just it made my week.

25:56

Um And you know, PEMCO,

25:59

we would have them in from committee until from

26:01

twelve to three every day, but after

26:03

three, and certainly in the summertime,

26:06

I could just go across the street and hit some

26:08

balls and to play golf too. So I

26:10

wasn't a one way uh

26:14

horse writer. I guess I could

26:16

do a lot of things, but managing

26:18

money and investing and

26:21

talking about it, writing about

26:24

it was something I truly enjoy.

26:26

So let's talk a little bit about the

26:29

two thousands. You guys,

26:32

really, because of what you were positioned,

26:34

got a very early warning look

26:37

at what was going on in the bond market and the

26:39

housing market. You were pretty

26:43

well positioned before, during,

26:45

and after the financial crisis

26:47

of O eight oh nine. How did you

26:49

manage to to accomplish that well?

26:53

I give most of the credit in

26:56

this case to Paul McCulley, and Paul still

26:58

around. He's on TV, he's got that long

27:00

hair in that southern drawl. Um,

27:03

but at least the yes.

27:07

But he was an economist

27:09

at heart, and he

27:12

was a permanent member of the Investment Committee, and

27:14

he would speak

27:16

about Himan Minsky and his

27:19

theory about stability

27:21

turning into instability. And then

27:23

as the housing market roared and

27:26

peaked, we became sensitive

27:28

to um the potential

27:30

for instability. I

27:33

had a brother in law who was a mortgage

27:36

banker on a small scale, and

27:38

we would have dinner sometimes he would tell me about

27:41

no docks and flyer loans and

27:43

so on, before anyone

27:45

at the FED knew anything about

27:47

that. And so I decided

27:50

to take ten of our credit analyst and send them

27:53

out throughout the country and

27:55

pretend that they were buying houses and to see

27:57

what was going on. UH.

27:59

They came to h and

28:01

said, Hey, this this stuff is danger

28:04

these subprime mortgages, etcetera,

28:07

etcetera. And so we

28:09

were wise to this. Early on. We

28:11

avoided portfolios of subprime

28:13

mortgages and UH yields

28:17

in general, anticipating crisis

28:19

at some point. So I

28:22

I think our Investment Committee, and again

28:24

Paul McCully was

28:26

the leader in this regard, really

28:29

helped in terms of anticipating what

28:32

might happen at some point that did happen.

28:35

Huh, to say the least full

28:37

disclosure. I know McAuley really well. We've

28:39

gone fishing together in Maine. I've had him on

28:41

the show before, and full credit

28:44

to him for giving Minsky's

28:46

work a wider modern

28:49

um audience. So, given that you

28:51

were positioned so well during the

28:53

financial crisis, how

28:55

did the relationship with the U. S. Treasury

28:58

developed? Tell us a little bit about that. Well,

29:01

UM,

29:04

I guess it's this sounds delicate,

29:06

but it shouldn't be. Um. You

29:08

know, almost all of us don't. Weren't in touch

29:11

with the Treasury. I mean I talked to

29:13

um Timothy

29:15

Geitner once over the phone on

29:17

a Sunday evening when he called me

29:19

up after he'd had a few beers and wanted to know

29:22

what was happening in the economy. But that's

29:24

the only time I can ever remember

29:27

talking to the Treasury. We weren't

29:29

like black Rock and Larry Fink

29:31

put nothing wrong with that, but

29:34

we were a company on the West Coast that basically

29:37

did our own research and weren't

29:40

in touch with Treasury officials unless

29:42

they were FED officials

29:45

that had retired, like uh,

29:48

you know Bernanke and Paul

29:52

Volker and h and others,

29:54

And so I don't really know how

29:56

it developed. Uh it certainly wasn't

29:59

a phone call. They called us and and said

30:01

can we UM helped

30:04

manage a portfolio

30:06

of mortgages for

30:08

them? And we said

30:11

short and uh so

30:14

that was basically yet. And you know,

30:16

there was a rumor that we badgered

30:18

them into guaranteeing

30:22

Fanny and Freddy mortgages.

30:24

Nothing could be further

30:26

from the truth. Nobody

30:28

made a phone call to badge

30:31

her or to to influence in any

30:33

way. What we did see

30:35

is that of all the mortgages,

30:37

that Fannie and Freddie were the highest quality,

30:40

and that they were yielding astronomical

30:44

yields relative to treasuries

30:46

and much wider spreads

30:48

and had ever occurred. And so that

30:51

was the fascination with

30:53

Fannie and Freddy. We did well with mortgages,

30:55

and we did well during the crisis

30:58

and after the crisis to

31:00

Pimpto went from one trillion to

31:02

two trillions because we had

31:05

protected their money. So

31:07

we mentioned earlier the new book

31:09

by Married Child, The Bond King is out

31:12

Um and I know you participated

31:15

in in responding

31:17

to some questions about um

31:19

at least validating certain things or not

31:21

factually. But it's pretty

31:23

easy to read that book and

31:26

see that she's trying to make the case that

31:29

PIMCO was the largest holder

31:31

of Fannie and Freddie bonds and that

31:33

you guys bully the government into

31:36

guaranteeing them. Make your

31:38

case rebut that premise was it simply,

31:40

Hey, we never spoke to anyone at

31:42

Treasury about Fannie and Freddie exactly.

31:45

I mean, how could we relay our badger

31:47

if um I or

31:51

um I guess Mohammed didn't

31:54

pick up the phone and

31:56

and and Badger and Billie. First

31:59

of all, we were bullies in

32:01

the trading room, but we weren't bullies

32:04

from the standpoint of uh,

32:07

you know, Treasuries strategy.

32:10

Were you bullies or were you really just the eight hundred

32:13

pound guerrilla in the space? Yeah?

32:15

I think so. You know, we had a lot of money,

32:17

we bought a lot of bonds, and um

32:21

you know that health our performance. But you

32:23

know, bullies, No, you can't

32:26

be a bully if you don't pick up a phone. So

32:28

your counter to the book

32:30

The Bond King is no, we

32:32

we didn't force the government to

32:35

guarantee these. The government did that cause

32:37

for their own reasons. Primarily they

32:40

were desperate for liquidity, and they were desperate

32:42

for some degree of stability,

32:44

and this is how they achieved it. Is that

32:46

a fair counter argument to

32:49

our book? Um, It

32:51

certainly is. And one interesting sidelight.

32:53

I mean, during the crisis, as

32:56

Congress was voting UM,

32:58

I guess for their in the Ollar

33:00

package bailout package,

33:04

you know, Warren Buffett called me up and

33:07

uh and told me about a plan

33:09

he had to contribute

33:12

a hundred million

33:14

in equity hundred millions,

33:17

hundred hundred

33:19

million and equity

33:21

and to UM, you know,

33:24

to basically buy subprime

33:27

mortgages from the banks, in other words,

33:29

to take a load off their shoulders obviously,

33:31

to buy them that are at the

33:33

right price. And within thirty

33:35

minutes after checking with our

33:37

executive committee, I said, fine, we'll do it. UM.

33:41

The next day, however, you

33:43

know, the Treasury Secretary decided

33:46

to go the other way, and that's when they decided

33:50

to to ask banks

33:52

to to issue

33:54

preferred stock and the

33:56

bailout took another form. But that's

33:58

about the only potential

34:00

connection we had with

34:03

um the Treasury, and as I say, it

34:05

never came to fruition, and it was just like a forty

34:08

eight hour idea, really

34:10

intriguing. Let's talk

34:12

a little bit about this book, which

34:15

generated a little bit of controversy.

34:18

People blamed you for just seeking to

34:20

settle scores. Tell us about

34:22

the book and what motivated you to sit

34:25

down and write it. Well,

34:27

had written a book twenty years ago, and

34:29

I didn't really think

34:31

at the time that I had another book

34:33

in me, sort of like Wroting

34:35

writing novels. I guess, um,

34:38

after the first one, it's all downhill.

34:42

But I was in touch with Mary

34:44

Childs for five or six years, certainly

34:47

after I left Tempt.

34:51

We were not good

34:53

friends, but she would

34:56

interview me occasionally,

34:58

and so I

35:01

was alerted to

35:03

the factor. I read something

35:05

on Apple Books that a book by

35:08

Mary Childs was coming, you know,

35:10

twelve months in the future,

35:12

and it had a prospective cover

35:14

on it described

35:17

me on the cover as ruthless

35:19

and you

35:21

know, having lost everything. And I

35:24

I said to myself, that's

35:28

not who I am, as the look in the mirror. And

35:30

and so, you

35:32

know, rather than thinking about a lawsuit

35:34

or any of that, I said, well, the best

35:36

way to count that and to

35:39

give your impression

35:41

of pimpto and it's years and

35:44

your part in it, I

35:46

was to wreat your own version. And I

35:48

had time. I'm not here in the desert. I

35:51

played golf in the afternoon. I

35:53

uh get up at six in the

35:55

morning, and I managed my

35:58

portfolios for five or six hours. And uh,

36:01

I had time, and so I just started

36:03

writing in order to say

36:06

that I'm still standing. I haven't

36:09

lost everything. And the

36:12

ruthless part, I'm not sure

36:15

what she was referring

36:17

to. I called her up and I said, Mary,

36:19

Uh, you know, I kind of get the ruthless

36:22

part. And I think she decided

36:24

to take it off the cover, right.

36:26

I haven't read the book, of course, because I'm too

36:28

sensitive criticism,

36:31

and I know there's criticism in it. But the

36:33

ruthless part, I I just went overboard,

36:36

and that's what set me off. And said, write

36:38

your own book, tell your own story, and hopefully

36:41

after five or six years,

36:43

um. You know, the

36:47

the wounds as in time

36:49

heals all wounds. UM had

36:52

healed pretty

36:54

much and the scars, said, turned

36:56

from red to white. Um. And

36:58

so I thought I could write in active book

37:01

about the pluses and

37:03

the minuses each argument, Tempo's

37:06

argument, my argument why I left,

37:08

and um why

37:11

I wasn't necessarily the bond kings. The

37:14

company was full of bond

37:16

kings and bond queens for a long long

37:18

time. Huh. And and the

37:20

book title does not have

37:23

ruthless in it. Um And for those

37:25

people who may not be familiar with Mary

37:27

Child's um, she covered

37:30

Pimco and the bond market at

37:32

Bloomberg News for a while. Before that, she

37:34

worked at the Financial Times, and now she's

37:37

a co host of Planet

37:39

Money podcast at NPR.

37:42

And we'll talk a little later about

37:44

a project she and I did together, but

37:46

let's talk about the book. You

37:49

do not and I think ruthless

37:51

may not be the right word, but you

37:54

don't hold anything back in the book.

37:57

I mean, you are completely blunt

37:59

and worthcoming an example,

38:01

I want to ask you about. You said

38:03

your partner who negotiated

38:06

the Alliance purchase of Pimco

38:09

skinned them alive. So

38:11

so that's a serious um line.

38:15

Tell us about the Alliance takeover

38:18

of Pimco and how

38:20

you guys managed to get such a

38:23

one sided deal that worked to the benefit

38:25

of the Pimco owners.

38:28

And the company oh so much

38:30

so UM and Ken Covies no

38:33

longer will this. But he

38:35

was brilliant. He was He was a

38:38

leader in terms of negotiating with Alliance.

38:41

And by the way, all ants

38:43

when they bought Pimco, they

38:46

um, they only bought

38:49

it specific mutual held onto it

38:53

for you know, a year or two, and

38:56

they left with us

38:58

the people the partners UH of

39:01

the profits going forward which

39:04

still exists and

39:06

UM. And so that

39:08

basically meant that what they were paying for

39:10

was was about a sixth of PIMCO

39:13

in terms of the ongoing revenue

39:16

stream. But to

39:20

talk about proving what he did, he

39:22

basically suggested to them and we would

39:24

suggest to him. And yes, we were very

39:28

ruthless from the standpoint of, UM,

39:31

you know, trying to strike a

39:33

very good deal if

39:35

we're ever going to sell part of the company

39:38

and UM,

39:40

Poopy would will always tell

39:42

them and I would participate in the discussions

39:45

that these people needed to

39:47

be incentivized. UM. Not

39:49

that of the profit

39:52

pool wasn't incentive enough. But Poopy

39:54

would say, UM, you know, these

39:57

partners will be there twenty five now

39:59

that we fifties WI, this

40:02

won't be enough to

40:04

keep incentivizing the

40:07

existing partners and to bring a new partners.

40:09

So he devised what

40:12

he called a B share UM sort

40:14

of a fake equity UH type

40:17

of plan where partners

40:19

would be given a certain amount of B shares and

40:21

and that the value of those shares ten

40:24

five, ten years forward when

40:26

they could be cashed in, would

40:29

be based upon multiples ten

40:31

twelve, fourteen, sixteen time

40:34

multiples of existing

40:37

earnings. And basically,

40:40

when I say he skinned them, Alliance

40:43

had no idea that what they would

40:45

be pain in terms of those

40:47

multiples and in terms of the performance of

40:50

that we're anywhere close to would eventually

40:52

occurred. And um, it was

40:55

a brilliant idea. He uh

40:57

pulled the wool over their eyes. They

40:59

were I guess star struck

41:02

with you know, buying

41:04

Pempco and looking forward

41:06

to um wonderful

41:09

publicity. But it

41:11

was really that B share plan that made made

41:14

me more money and made partners more money

41:16

than the existing thirties

41:18

represent profit pool. It

41:19

was a total billions

41:22

and billions of dollars in terms

41:24

of B share payoffs.

41:26

And you you don't again, you

41:28

don't hold back, you say in the book quote

41:31

none of us were worth what we were paid.

41:34

Unquote explain if if

41:36

you're generating billions and

41:38

dollars of profits, what should

41:40

you have been paid. Well,

41:44

there's a certain logic of that. I mean, our our fees

41:46

weren't excessive. We were charging thirty

41:48

five basis points on average. We just grew

41:51

and grew and grew and grew and grew. And

41:54

one of the beauties of working at PEMCO was

41:57

that it was small. We kept our expenses

41:59

down and our people low. You

42:01

know, companies like Bank of America had two

42:04

hundred and fifty thousand people. We had

42:06

two thousand, five hundred or a hundreds

42:08

of their size, with profits

42:10

about the same size, and so um.

42:14

You know, that was part of our strategic

42:18

brilliance as well. I guess Jim Muzzy

42:20

and early on Bill

42:22

Pondlock, the original partners,

42:24

uh you know, simply thought

42:26

that we should keep expenses and people low.

42:29

With that we could manage without a lot

42:31

of people, and so you

42:33

know, that generated huge bonuses where

42:36

we're worth it. Uh

42:38

you know, I simply said that I

42:41

don't think anybody's worth uh that

42:43

type of money. Um,

42:45

yeah, maybe maybe

42:47

Bezos and Elon Musk

42:50

in terms of their creativity but it's

42:52

just it was too much money. You

42:54

know, as as I left him go, our executive

42:57

secretaries were making five hundred million dollars

42:59

um um. Our

43:02

our our head corporate lawyer, you

43:04

know that the ge lawyer uh

43:07

was making one or two million dollars. Our

43:09

our lawyer was making ten to twelve million

43:11

dollars. It's like we didn't know we

43:13

had so much money. We didn't know how to get rid of it,

43:15

um and um. We

43:17

had this egalitarian type of attitude

43:20

that we should spread it out as much as possible.

43:22

But I don't think anybody there

43:25

to deserve to make what

43:27

they were making. So we're

43:29

gonna circle back to the bonus

43:31

structure. But unfortunately,

43:34

at this point I have to insert myself

43:37

into our conversation. So

43:40

you get fired from pimco

43:42

in and

43:45

I save a bunch of UM

43:48

your I O s from previous dates,

43:50

and in the train home from work, I just

43:53

read a bunch just you know, across

43:55

a couple of years. By

43:57

the time I get home that night, your voice

44:00

is in my head. And you know,

44:02

whenever they arrest a painting

44:04

forger, they always say the same thing. Once

44:07

I had his stroke down, everything I

44:09

painted looked like Picasso.

44:12

Well, once I had your voice in

44:14

my head, whatever I wrote sounded

44:16

like you, and so for it was then

44:18

called Bloomberg View. I wrote

44:21

your final investment outlook

44:24

in your voice, Um,

44:26

purposefully making it outrageous.

44:28

But you know, by the time it got through the

44:30

editing process, it was

44:32

smoothed out enough that it very much

44:35

sounded like your voice, so much

44:38

so that PIMCO

44:40

called Mary Child's asking her,

44:43

Hey, how the hell did you guys get bills last?

44:45

I? Oh, this is wrong, and it's

44:48

in Bloomberg View. It's an opinion piece. It's

44:50

a satire, it's a parody. Um.

44:52

And so you and I began speaking

44:55

about that. But before we

44:57

get into the bonus discussion, how

45:00

us a little bit about that

45:02

day. What was it like after forty

45:04

three years to be sent to

45:06

the principal's office and sent home?

45:09

Well, I was traumatic. I mean

45:12

I was the one of the founders. I

45:14

was one of the leaders

45:16

of the Chief Investment Officer. The

45:19

performance was flat

45:22

for twelve months, but you

45:24

know, nothing tragic. And

45:27

you know the executive committee

45:31

which was going to fire me on Friday

45:34

afternoon because

45:36

they thought I was unsettling

45:39

in terms of my pursuit of

45:42

insiders talking to the press

45:44

in any case, UM,

45:47

you know, I I decided I'm not walking

45:50

that plank that I deserved better

45:52

than this. I even asked

45:54

in the last a week or two when

45:57

when I knew that, you know, the inevitable

46:00

was coming up that Friday afternoon,

46:03

I said, why don't you just let me manage you

46:06

know, a small portfolio closed in fund,

46:08

just so I can stay in it. Um.

46:12

They said, I don't even work in another building if

46:14

you want, UM, and they

46:16

looked at me. They said, it's not

46:18

going to happen. And so I

46:21

at the time I couldn't understand that. Now,

46:23

I sort of do you know, when you when

46:26

you kill the king, you better make sure

46:28

he's dead. And uh, they

46:30

didn't want any presence of Bill grows

46:32

in the ongoing PEMCO. I

46:35

objectively understand that, but UH,

46:38

to turn down uh an offer

46:40

to let me manage a few small

46:42

portfolios and maybe write some investment

46:45

out looks, I couldn't believe it. Um.

46:47

I made a quick call to the

46:50

Janice with

46:52

Dick Wile, who was heading that up and

46:56

um ce at PIMCO a

46:58

few years before, and UH,

47:00

he said sure, come over And so I

47:04

I didn't want to walk the plank. I didn't want to

47:06

go into that committee and be fired. And so I

47:09

left that night, walked

47:11

down the

47:14

floor stairs for the last

47:16

time, and uh, and the

47:18

next morning I was off to Denver. Um. I

47:21

just I didn't think it was

47:24

the way you should treat somebody

47:26

that was a founder

47:29

and responsible for much of their

47:31

success. And there was at

47:33

the time a lot of sniping in the news.

47:35

They had said you had become disruptive

47:38

and we're a problem on the training floor

47:41

and was affecting morale, and there

47:43

was a lot of personal stuff. Hey

47:45

Bill is a little unstable, And they trotted

47:47

out that picture from you at the morning

47:50

Star conference with the glasses,

47:52

which I think we're or

47:54

two I was years before. You know, what

47:56

was your reaction when this became

47:59

so you know, personal and

48:01

to be blunt, so petty, on on

48:04

all around. Well,

48:07

it wasn't good. Um,

48:10

you know, I guess like in a divorce,

48:12

and this was a divorce. Both

48:15

sides started picking at

48:17

each other, you know, wore the roses type of thing.

48:20

Um. So of

48:23

you know, I didn't enjoy what

48:25

they were leaking to the press. I

48:28

never talked to the press, by the way, but

48:31

I didn't enjoy that. They said the performance

48:33

was bad, that I was erratic,

48:36

etceteratera etera. I was always

48:38

somewhat not erratic,

48:41

but always uh quirky,

48:43

somewhat of a quirky character. And I

48:46

don't think that had changed. But

48:48

but there had been you know, two or three

48:50

people that our lawyers

48:53

eventually discovered that we're leaking,

48:55

leaking information to the

48:57

press and favoring Muhammad

49:00

supposed to me in terms of why he

49:02

left, and I I didn't

49:04

think that was nice, and so

49:08

uh that ultimately,

49:10

and to be fair, as I wrote

49:12

in my book, you

49:14

know, one of the main reasons I

49:17

think that they fired me, what

49:19

was I was in favor of low

49:22

fees and they were in favor of high fees.

49:25

You know, Dan Iverson and the mortgage department

49:27

had created, uh, you know,

49:30

products that had

49:32

two and twenty hedge fund types

49:34

of types of seas and we're

49:36

making a lot of money. I was making some of it. But

49:39

it just seemed to me in terms of

49:42

buduciary responsibility that

49:44

low fees were something we owed

49:47

to clients and we weren't hedge fund

49:49

managers. And so UM.

49:51

Ultimately, I think the executive

49:54

committee which was formed with

49:58

eight people, uh three of

50:00

which were portfolio managers, one

50:02

uh Iverson who eventually led

50:05

the the coup as I called it.

50:07

UM. You

50:10

know, they went in the direction

50:12

of high seas as opposed to low

50:14

fees E T f s and UM

50:17

and so on. So UM there

50:19

was a fundamental reason, but there there

50:22

was also other personal reasons.

50:24

Um. I was seventy two was the time

50:26

to go. Um, not in my

50:28

mind, but in their mind because

50:31

at seventy two, as I wrote in my

50:33

book, if you're not as sharp

50:35

as you are fifty two, and certainly

50:38

not as sharp as you you at

50:41

seventy seven as you as you were at seventy

50:44

two. So so maybe there was some

50:46

of that, and I understand some of

50:48

that. I just still don't understand

50:52

the exit and why they had to do

50:55

it that way. So let's talk a

50:57

little bit about that. Wore the roses

51:00

so I got I don't remembered as the facts

51:02

or an email, but a spreadsheet

51:05

that was you know, the long

51:07

debated and wondered about bonus

51:10

pool at PIMCO, and

51:12

it had you earning

51:14

about three hundred million dollars a

51:16

year in bonus. Um. Muhammad

51:18

Alarian about two hundred and forty

51:21

million dollars in bonus uh,

51:23

and down the run a whole run of

51:26

of literally billions

51:28

of dollars in excess compensation.

51:31

So tell us about why that

51:33

was released and and did

51:35

that have the intended effect

51:39

of really rattling the senior

51:41

management at PIMCO and and causing

51:44

turmoil uh in the C

51:47

suite. Well, I think it might

51:49

have had an effect. That was the intense. I

51:51

didn't have anybody in the company that could

51:54

tell me, um,

51:56

whether or not their esteem coming uh,

51:59

you know, out of the years of many

52:02

of the partners. But I,

52:05

you know, like I say, I had been

52:07

fired. Uh. They

52:09

were talking in the press negatively

52:12

about me, and I didn't want

52:14

to call up the press and talking negatively about

52:16

them. And so what I did

52:18

was, I said, uh, well,

52:20

I know how I can get

52:23

back at them, um. And it was childish

52:26

in a way, but it was it was a way

52:28

to you know, to

52:30

stop taking bunches and maybe throw one

52:32

of them out. And so I I

52:34

took last year's bonus pool and I mailed

52:38

into eight random of partners

52:41

UH in an envelope and sent

52:44

it as a package to PIMCO and

52:47

I as soon they ultimately distributed

52:49

it. Um. You

52:51

know, for the most part, I assumed anyway

52:53

the partners knew what other partners were

52:55

making. You know, that happens over drinks

52:58

and over the water cooler. But UM,

53:00

it just made me feel better that I could

53:02

do something to counder

53:04

what they were doing. So in the book

53:07

you said you could hear the screams

53:09

from the top floor all the way uh

53:11

your house. But let me just shed

53:14

a little color about what took

53:16

place when when

53:18

I got the document, I walked

53:20

it over um to some senior

53:23

editors at Bloomberg who walked it through

53:25

legal and we brought in, of

53:27

all people, married Childs, who was covering

53:29

PIMCO, and UM.

53:31

The plan was I would write the opinion

53:34

piece about how outrageous

53:36

this was, and Mary would cover it as

53:39

straight news. Uh, and that

53:42

after we had vetted everything.

53:44

And they, you know, to Bloomberg's credit, their

53:46

process is just absolutely

53:49

fastidious and top notch. I

53:51

was very comfortable that we

53:53

checked every box, both from a

53:56

journalistic side and the legal

53:58

side. And UM,

54:00

what they did is they waited till eight

54:02

p M East Coast time after

54:05

the Wall Street Journal and the New York Times

54:07

print editions had gone to bed,

54:10

and they called up Pimco to

54:12

get a comment on it, and

54:15

um, they seem to not

54:17

really believe that we had what

54:19

we had And so the next

54:21

day both pieces ran and

54:23

all hell broke loose. That was

54:25

the most read pieces on the Bloomberg

54:28

terminal for like six months. I

54:30

don't remember the exact date, but

54:32

it absolutely blew up. And

54:34

I know it was a parlor game. People were

54:36

trying to guess what Pimco's

54:39

bonus pool was. So now

54:41

that you look back at it, did did

54:43

this accomplish what you hoped? And

54:46

you know, do you have any regrets about that? You

54:49

know? Were the roses era? Oh

54:52

god, God no, I mean I

54:56

thought then I still think now

54:59

that it was just a little

55:01

job to counter

55:03

their uppercuts

55:06

and so, um, they

55:08

really do any damage to the structure

55:11

of the company in terms of compensation, I

55:13

don't know, um, but since

55:15

they were all very

55:18

good in terms of the executive committee

55:21

in terms of smoothing things, and I assume

55:23

internally that you know,

55:25

they gave it an after that, but

55:28

not not for a six month. I'll

55:30

tell you a funny story that I never shared

55:32

with you, but I might as well

55:35

as long as we're coming clean. Um.

55:38

So, in order to protect our

55:40

source, spreadsheet

55:42

was to the penny. I mean it was really precise.

55:45

It wasn't two hundred forty

55:47

million dollars. It was two hundred

55:50

million, eight hundred and seventy seven thousand,

55:52

six hundred, you know, in forty three

55:55

and fifty two cents. But all right,

55:57

let's make it to forty and it'll

55:59

pre text the source a little

56:01

bit. And I don't remember the gentleman's

56:04

name who was the head of pr at

56:06

Pimco at the time, but I

56:08

was very annoyed that he would come out and

56:10

say, oh, those numbers are wrong and

56:13

um, and he accused

56:15

me of getting it, not just that they weren't

56:18

precise. Oh this is wrong. Results

56:20

doesn't know what he's talking about. It's all wrong. So

56:23

I recall sending an email

56:25

to him with his exact salary

56:27

and bonus to the penny and said,

56:30

next time you say something wrong, I will release

56:32

the salary of every person of Pimco

56:35

down to the penny. So your career,

56:37

most of us have followed your career for

56:39

decades, and there's a sense

56:42

that you grew up kind of hard, scrabbled,

56:44

you didn't come from money. I'm I'm curious

56:47

do you today do you think of yourself

56:50

as rich? Have you wrapped your head

56:52

around the fact that you're

56:54

a billionaire, because sometimes we

56:56

we see some of the things you write and say

56:58

and do, and it's like he still thinks

57:00

he's that kid from you know, fifty

57:03

sixty years ago. I do, Um,

57:06

you know, objectively, I know I'm a

57:09

billionaire. I see it every morning with

57:11

my uh you know,

57:13

financial statement and my portfolios.

57:16

But um, you

57:18

know, I think that comes from a certain insecurity.

57:21

I and and to be fair, you

57:23

know, I've got a plane, I've got

57:26

several homes, and so that's

57:28

typical of billionaires. But all

57:31

throughout my

57:34

life, in my marriages

57:36

and so on, I you

57:38

know, I would bring home take up

57:41

dinners from the local Taco

57:43

bell um three times a week. You

57:47

know, we we never lived

57:49

and still don't live high off the

57:52

hog. We eat very simply. We go

57:54

to sleep but eight o'clock

57:56

and and watch Netflix

57:58

and so on and so on. We don't out of parties,

58:00

we don't uh dress up

58:02

a lot and

58:05

and and so. Um. You

58:07

know my idea of living well

58:09

is, yes, certainly

58:12

have enough money to live well, but

58:14

then to to live simply

58:17

and to ultimately give give

58:19

back. Uh not in

58:21

terms of time. I don't give

58:23

back time like Bill Gates,

58:26

and we'll INDI Gates do. That's

58:28

not my strength. But you

58:31

know I give back a lot of money. Um,

58:34

I've done the giving pledge. I've already given

58:36

a billion or so in in terms of

58:39

money, I have a five million

58:41

dollar foundation, etcetera, etcetera, and

58:43

so so you

58:46

know, it's a simple life, but not so simple

58:48

in terms of all the money that

58:51

I have to to give back,

58:53

not just two people and um

58:57

organizations. But you know, certainly to

58:59

the government want to check the

59:01

bucket, they'll they'll take it

59:04

unless you give it all the way. That's a

59:06

good enough reason to a having a

59:08

state tax and B give the money

59:10

away. So I have to

59:12

ask this question, what's

59:15

the deal with Gilligan's Island. You

59:17

have to explain and ps.

59:21

I always understood that you could put

59:23

whatever you want in your backyard. Nobody has

59:25

the right to a view across

59:27

the neighbor's property. Um,

59:29

but tell us about Gilligan's Island. Well,

59:32

our our house is right across from

59:35

the

59:37

the bay or the entrance. Um

59:41

that the opening segment of

59:43

Gilligan's Island takes

59:46

place in him a few years

59:48

ago. And

59:50

this is in Newport Beach or in Laguna.

59:54

It's a Newport Beach. It's a home in Newport

59:56

Beach. And um,

59:58

so we watched it and we said, hey, that's where

1:00:01

this house is. And so we

1:00:03

we learned to love Gilligan Islands.

1:00:06

That the skipper and

1:00:08

the movie star, and we would sing it

1:00:10

to each other. And so when

1:00:12

we would go down to the hole in

1:00:15

South Vaginas, we'd

1:00:18

just seen Gilligan's Island, and and the

1:00:20

whole neighbor things started with

1:00:22

a sculpture in the backyard that the

1:00:24

neighbor didn't disapprove

1:00:27

of at a fact, he had said

1:00:29

he liked it. But one

1:00:31

day there was a one storm the

1:00:34

palm tree fronts um

1:00:36

broke down and broke some of the

1:00:39

the glass, and so we put up the net um,

1:00:42

you know, during inclement, whether to protect

1:00:44

it. He didn't like that any sued and

1:00:47

that was the start of the whole

1:00:49

thing, uh, which resultimately

1:00:52

ridiculous that

1:00:55

that Um, you know I spent five and

1:00:57

a million or five five or a million. Um

1:01:00

you know, I spent five and a thousand. Lawyer's

1:01:02

face. I think he did too. Um.

1:01:05

I suggested we just give it all to local

1:01:07

charities. He didn't want to do that. I

1:01:10

think he. I think being a

1:01:12

personage. Um, you know, like the

1:01:14

bon King was part

1:01:16

of the problem. He wanted to take it

1:01:18

to the Bond King, and he did.

1:01:21

And you mentioned in the book he was always

1:01:23

sort of watching you

1:01:25

guys, had cameras trained on your

1:01:27

house. How much of this is

1:01:30

just? Gee, you know, I

1:01:32

don't care if I'm a billionaire Bond King. I'm

1:01:34

entitled to have some

1:01:37

degree of privacy in my own backyard. Where's

1:01:39

the line there? Well,

1:01:42

that's true, and that's our argument that it didn't

1:01:45

fly with the judge. But you

1:01:47

know, the city ordinance has said that the

1:01:49

sixty decibels was as loud as you

1:01:51

could play the music. We

1:01:53

had a decibel meter that kept it at sixty

1:01:55

year under. But it didn't please the neighbor,

1:01:59

especially at eight or nine o'clock when we were

1:02:01

in the pool, and so, um, you

1:02:03

know, he kept seeing and kept calling the cops.

1:02:05

Etcetera to tour and ultimately we wound

1:02:08

up in court for playing loud music. And it

1:02:11

is sort of disheartening. Um,

1:02:14

not that it diminishes my career, but it's

1:02:18

certainly what people talk about. And

1:02:21

you know, I guess my epitaph will be half

1:02:23

on King and half you

1:02:26

know, loud music, which is a

1:02:28

little disturbing, but that I

1:02:30

was part of it. Bill, I wish

1:02:32

you would have called me for advice. I would

1:02:34

have given you a very simple solution. Asked

1:02:36

him when he wants for the house, by it and knock

1:02:38

it down, and him solved he

1:02:42

didn't have as much money as I did. I'm

1:02:45

going to tell you I someone I worked for at a

1:02:47

neighbor that was problematic and that was their solution,

1:02:49

Hey, what do you want for your house? And the guy threw out a ridiculous

1:02:52

numberies like done. Have your lawyer called

1:02:54

my lawyer and we'll we'll be bulldozing

1:02:56

this in a month. Um. So, so

1:02:59

you know, Harry's book is out. Your book

1:03:01

is out. There's been reviews of

1:03:03

both. Your book actually got some pretty good reviews.

1:03:06

Also, you really let a

1:03:08

lot of stuff out there that most people

1:03:11

don't any regrets about

1:03:13

the book. Is there anything you feel like, well,

1:03:15

maybe I shouldn't have gone that

1:03:17

far here or hey,

1:03:20

this is who I am and you gotta

1:03:23

take the good with the bad. No,

1:03:25

no regrets about the book. I mean I read

1:03:28

it myself about a hundred

1:03:30

times over and over and over again and and cut

1:03:32

some stuff and not um what

1:03:34

I wanted to do. What was to present

1:03:38

subjectively of course from my

1:03:41

uh classes, but uh,

1:03:44

what I thought was a fair arguments

1:03:46

on either side from pim Pill and myself

1:03:49

and tend to explain to what I called

1:03:51

the you know, the Pimpco magic

1:03:54

um why we were so successful?

1:03:56

And I I think that's the

1:03:58

heart of the book. Um,

1:04:00

you know why it was spent Pimco successful?

1:04:03

What what were the people like? Um?

1:04:07

So it um. I think it was

1:04:09

a good book. It was I think it. I

1:04:12

shouldn't say this. I think that a great book

1:04:14

and I think people should read

1:04:17

it. Not not thoroughly.

1:04:20

You can't spend three or four hours

1:04:23

reading it. But there's some very interesting parts

1:04:25

and there's some interesting investment

1:04:27

outlooks in the appendix h that

1:04:31

you know, I think are pretty humorous.

1:04:33

Since some of the best and so I,

1:04:36

uh, it's only four ninety nine, So I'd

1:04:38

recommend, you know,

1:04:40

going to where you need to go, Amazon

1:04:43

or wherever it is, and

1:04:45

and all the proceeds are donated to charity.

1:04:47

Yeah, to the to the extent

1:04:49

that that matter as much, But

1:04:52

that's where where it goes. Let's

1:04:55

talk a little bit about the state of the

1:04:57

market today and what's going

1:04:59

on. When you wrote the

1:05:01

book, inflation was looking

1:05:03

like it was gonna tick all the way up to

1:05:06

five. We're recording

1:05:08

this towards the end of March. The last print

1:05:10

we got was just about eight percent.

1:05:13

What's your view of inflation

1:05:15

here? Is this transitory or

1:05:17

is this a kin to the nineties seventies

1:05:20

or is this something completely different?

1:05:22

Well, I don't think it's transitory. Uh. In

1:05:25

other words, going back to two

1:05:29

or less. Um, I

1:05:31

think it's a result,

1:05:34

yes, of supply shocks,

1:05:36

of oil prices, of the

1:05:39

war in Ukraine. Um, you

1:05:42

know a lot of global

1:05:44

considerations, but it's also, um,

1:05:47

you know, a Freedman Milton Freedman

1:05:49

type of thing in which you

1:05:52

know, basically money supply matters. And I'll

1:05:54

take it back very and uh,

1:05:57

I don't think he started then, but you're certainly

1:05:59

aware of Nikon

1:06:02

went off the gold standard, and credit

1:06:05

was free to be created as

1:06:07

opposed to be tied to the gold

1:06:09

and and back the inn Total credit

1:06:12

in the United States and I'm talking about mortgages,

1:06:14

I'm talking about government that, I'm talking about

1:06:16

credit cards, I'm talking about everything

1:06:19

was one trillion dollars um.

1:06:21

Today that number is

1:06:23

eighties seven trillion. And

1:06:26

so talk about a growth industry um

1:06:29

one to eight seven over what

1:06:32

fifty one years UM.

1:06:34

And so it's been this tremendous creation

1:06:37

of credit in the last

1:06:39

few years, certainly based upon

1:06:41

the COVID bill out and

1:06:44

as well as the fiscal uh

1:06:47

stimulation of four trillion dollars.

1:06:49

Uh. You know, to study the economy.

1:06:52

So when you combine a huge discal

1:06:54

push with monetary

1:06:56

creation and the FED increasing its

1:06:59

balanchie date brillion and like I say, credit

1:07:01

credit credit um, inflation

1:07:04

is inevitable. And so if they continue

1:07:06

to do this, and I know the Fed's talked about

1:07:09

reducing its balance sheet UM,

1:07:11

and the government isn't issuing

1:07:14

a four trillion dollar deficit,

1:07:17

perhaps there's one trillion now um.

1:07:20

Yeah, this is certainly excessive in terms

1:07:22

of the possibility of exceeding

1:07:24

too pers and inflation. So yeah, we're

1:07:26

coming back down. Yes, oil prices

1:07:28

and gasoline prices will uh

1:07:31

steady at some point and come back down. The same

1:07:33

thing with food and wheat and um,

1:07:35

all of the commodities. Um. But

1:07:39

um. And this is

1:07:41

a guess, um, you know, forty five

1:07:44

inflation for the next several years

1:07:46

I think is baked in the cake. And the question

1:07:49

becomes, now that the FED isn't

1:07:52

buying bonds, who wants

1:07:54

to buy them? At you

1:07:57

to thirty five of the tenure and and

1:07:59

two for the third year,

1:08:01

and and perhaps a flight

1:08:04

to safety, I can see that. But

1:08:07

but you're certainly being

1:08:10

out inflated. I guess by

1:08:13

um, you know, the the existing

1:08:16

in the future trail

1:08:18

of inflation going forward, bonds

1:08:21

are definitely something to avoid. Huh.

1:08:24

That's really interesting. The FED. Are

1:08:26

they behind the curve? And if so, by how

1:08:28

much? Yeah, they're way behind the curve.

1:08:30

And I can see, uh,

1:08:33

you know, the COVID crisis of a

1:08:35

year two years back now or getting

1:08:37

onto two years. I can

1:08:39

see how that would be a reason to not

1:08:43

raise interest rates, to not stop

1:08:45

buying bonds. But you know, I

1:08:47

think Powell should have figured

1:08:50

it out that you know, a four trillion

1:08:52

dollar budget deficit. In the stimulation

1:08:55

in the economy that that creates,

1:08:58

as well as the credit that is being

1:09:00

created by his policies

1:09:02

at near zero posent industry,

1:09:05

it's was was ultimately going to be very

1:09:07

inflationary, and that to think that

1:09:09

he could stop it, um,

1:09:12

And he doesn't speak to stop

1:09:14

in it at a time. He says it will

1:09:16

take time. But once you get

1:09:18

the momentum going like in the seventies,

1:09:20

um, you know, in the in the rays

1:09:23

is you know, based upon prices

1:09:26

at the stores and grocery stores. Uh,

1:09:28

you know, it's pretty hard to stop. And

1:09:31

in order to keep the economy above the

1:09:33

line, that's the important thing. To keep it above

1:09:35

the line in terms of fortified

1:09:38

percent nominal GDP,

1:09:40

which was the standard before.

1:09:43

Uh, you have to keep on printing

1:09:45

money. And ultimately

1:09:48

that becomes destructive,

1:09:51

not just in terms of inflation, but in terms

1:09:53

of savings, and it distorts

1:09:55

the U. S economy,

1:09:57

and it's distorts the global economy. So

1:10:00

I'm going to assume you don't think bonds

1:10:03

are buy anytime soon. No,

1:10:07

I don't, But but I don't see here, you

1:10:09

know, I think there's a limit to the tenure. I've

1:10:12

talked about in my tweets in the last few

1:10:14

weeks about you know, breaking

1:10:16

a long term down trendline at

1:10:18

two fifteen for the tenure, and now it's

1:10:21

at two thirty five, so theoretically it's

1:10:23

broken the line. Um,

1:10:26

I don't don't think the

1:10:28

economy can stand much

1:10:30

more in terms of higher yields.

1:10:32

I mean, we have a flat Yielker, what does

1:10:35

that mean ultimately

1:10:37

in terms of forward interest rates? It

1:10:39

it basically means that the tenure at two

1:10:41

thirty five five

1:10:43

years forward is estimated to be two

1:10:45

forty or two forty five. So all

1:10:48

of all of the curve going

1:10:51

forward basically in terms

1:10:53

of current pricing, is suggesting

1:10:56

that interest rates don't go up

1:10:59

much. And so why that be if

1:11:01

inflation is four it

1:11:04

would be simply because if

1:11:07

it ten year goes to three

1:11:10

or three and a half or four um,

1:11:14

then it'll break the economy, much

1:11:16

like when the said went to five and a quarter

1:11:20

in two thousand and six, it broke

1:11:22

the mortgage market. You know

1:11:24

now are at much lower levels, but there's

1:11:27

been a lot more debt created. And I simply

1:11:30

think that uh

1:11:33

fifty basis points higher

1:11:35

is about as much as as the economy

1:11:37

can take. Otherwise we

1:11:40

see recession. And that's basically what

1:11:42

the flat you care You'll curve is telling you

1:11:44

that that you've got to be careful.

1:11:46

And that's why the thirty year bond

1:11:48

with um, you know, a duration

1:11:51

of of you know, close to twenty

1:11:54

is trading at two and a half percent.

1:11:56

It's simply because there are those

1:11:59

that think, um, that

1:12:01

it interest rates go much higher, the

1:12:04

economy will enter a recession. UM.

1:12:07

So I don't like bonds. Obviously,

1:12:09

if you buy a tenure at two

1:12:11

thirty five, you're not getting paid your money's

1:12:13

worth relative to inflation.

1:12:16

You should go elsewhere. But I

1:12:18

don't. I don't think there's the

1:12:20

nineteen eighty

1:12:23

one risk anytime soon

1:12:25

of interest rates

1:12:28

moving much more than a hundred risk spots

1:12:30

higher. Huh, that's really

1:12:32

interesting. Let me give

1:12:34

you a counterfactual to the

1:12:37

issue of a trillion dollars in credit.

1:12:40

Fifty years ago. Hypothetically,

1:12:43

there wasn't this massive credit creation,

1:12:47

uh Fanny Freddie, the government,

1:12:49

the private sector, of the household sector.

1:12:51

Let's say the outstanding

1:12:54

credit was a couple

1:12:56

of trillion dollars. What would that

1:12:59

lack of credit creation have

1:13:01

meant for the economy. Asked

1:13:03

differently, how much of our

1:13:07

wealth and success and GDP

1:13:09

expansion and rising

1:13:12

in corporate profits is

1:13:14

related to all of this credit that's been

1:13:16

issued. Oh,

1:13:18

it is um and

1:13:20

and certainly you need to create credit,

1:13:23

ongoing credit relative

1:13:25

till last year and the year before, in

1:13:27

order to to keep

1:13:30

the economy going.

1:13:32

Um.

1:13:34

The question becomes how much how much

1:13:36

credit? And uh, certainly in the last

1:13:39

several years, it's accelerated dramatically

1:13:42

because of the physical and the monetary

1:13:44

stance at zero pers and interest rates. And

1:13:47

no one can really judge, no one. No one

1:13:49

can tell you or any

1:13:51

no one can tell me that they know what

1:13:53

the number is. It's just

1:13:56

that the global

1:13:58

economy, than most part

1:14:00

is hooked on more

1:14:03

and more credit, more and more money. And

1:14:05

that's what you know, the cryptos,

1:14:08

that's what bitcoin

1:14:10

and ethereum and so and represent

1:14:13

in terms of people that are

1:14:16

fearful that the government

1:14:19

keeps on printing. So, so let's

1:14:21

talk about that. I'm gonna suggest

1:14:23

it's not a huge coincidence

1:14:26

that all the credit created

1:14:28

during the financial crisis in

1:14:30

a eight and oh nine and beyond

1:14:33

coincided with the creation

1:14:36

of a lot of different cryptocurrencies

1:14:38

and their rise in price. You

1:14:40

mentioned your own bitcoin, You're optimistic

1:14:43

about etherorium. This is

1:14:45

not the typical safe bond experience.

1:14:48

This is a bit of a long shot. So

1:14:50

tell us why you've jumped aboard

1:14:53

the cryptocurrency train. Well,

1:14:56

it it's not a because

1:15:00

of its volatility and

1:15:02

compared to the dollar. You

1:15:05

know, it's certainly ten times as volatile

1:15:08

as the dollar, uh

1:15:10

during any particular period of time. So

1:15:13

to use it as a

1:15:15

medium of exchange, which

1:15:18

ultimately I think it will be

1:15:20

um and is becoming. Uh,

1:15:23

you know, it does a very

1:15:25

risky proposition that depends on

1:15:27

on the level of bitcoing on any

1:15:30

particular day, any particular moment. I

1:15:33

think it's fascinating on Saturday and Sunday

1:15:36

at at midnight, I can I

1:15:38

can see trading in in bitcoin.

1:15:40

Um. You know, limited though

1:15:42

it is, but UM, I

1:15:45

think ultimately you know the global

1:15:47

financial system which is dollar dependent

1:15:49

and dollars supported. Um.

1:15:52

You know, much like in the seventies in which Nixon

1:15:55

broke the code from gold.

1:15:57

Um, you know, things

1:16:00

happen, and now

1:16:02

that there is a potential alternative

1:16:05

in terms of bitcoin and some of

1:16:08

the other cryptos

1:16:10

UM. You know, I think

1:16:13

it offers the opportunity

1:16:15

to UM

1:16:18

to avoid, to avoid a

1:16:21

currency that goes down, down, down, in

1:16:23

terms of its value. UM. You

1:16:25

know, the bitcoin ultimately

1:16:28

is capped, at least they say it's

1:16:30

kepped, you know, at a certain

1:16:32

level, most of which has already been mined

1:16:34

or or supplied, and so UM

1:16:37

to the extent that future supply is limited,

1:16:40

and to the extent, and this is important,

1:16:42

to the extent that it becomes a

1:16:44

medium of exchange and it's

1:16:47

not really a medium of exchange yet.

1:16:49

You can't buy a donut with bitcoin, but you

1:16:52

can buy other things. And there are countries that UM

1:16:55

are are using it. So

1:16:58

UM, you know, it's it's up

1:17:00

in the air. And you

1:17:02

know, did I get in at a good

1:17:04

price? No, I think I got in it through

1:17:07

a mutual under fifty. But

1:17:10

I just it's just a small, it's

1:17:13

up, small piece. I use it mainly for

1:17:15

observation and to remind me that

1:17:18

that even the dollar has

1:17:21

a global standard,

1:17:23

UM is subject to future

1:17:26

volatility and certainly to appreciation

1:17:30

in terms of its value relative

1:17:33

to what it can buy. Really

1:17:35

interesting, let's let's talk growth

1:17:37

stocks and technology UM.

1:17:40

They had a great couple of years until

1:17:43

I don't know, about four or five months ago, we've

1:17:45

seen that the complex really takes

1:17:48

some some hits. What what are you thought about

1:17:50

the various tech stocks that are out

1:17:53

there and and some of the

1:17:55

managers who kind of rose to fame

1:17:57

on on the rallying technolog

1:18:00

ology. Well, I think

1:18:03

two months ago at the Pig there

1:18:06

was a bubble in most of these talks.

1:18:08

Um. You know, many of them had

1:18:11

no earnings and really no prospect

1:18:14

for earnings two three

1:18:16

or four or five years in the future. Um. You

1:18:19

know, they were based on hope and

1:18:21

and yes, on objective

1:18:24

and subjective estimations of a

1:18:27

changing world in terms of technology,

1:18:30

um, and a consumer use

1:18:32

of that technology. Sylum that

1:18:35

you've pointed out in the past that quote the new

1:18:37

stock Queen Cathy would seems

1:18:39

to be a two year wonder and since then the

1:18:42

art complex has had some pretty

1:18:44

serious draw downs. What are

1:18:46

your thoughts on managers like

1:18:48

Woods who have you know, put together a

1:18:50

great track record when the big

1:18:53

cap profitable companies the Google's,

1:18:55

Amazon's Apples, Tesla's

1:18:58

Netflix and Video, when when those have

1:19:00

been screaming higher, Well, you

1:19:03

know, I give her credit. I watched

1:19:05

she's got fifteen billion under management,

1:19:08

and and that's that's just how

1:19:11

you break into this market.

1:19:13

You don't break in by being a junior

1:19:16

clerk like I was it

1:19:18

at Pacific Mutual. You break in with an

1:19:20

innovative, innovative idea, and

1:19:22

hers was that these

1:19:24

companies that she was buying, um,

1:19:27

you know, we're a significant part of our future

1:19:31

economic future. And I think that's true.

1:19:33

But you know, I listened to her on CNBC

1:19:35

all the time, and it seems

1:19:38

like she doesn't have an excellent

1:19:40

sense of value and when

1:19:43

to buy and what to pay. Um.

1:19:46

She she simply thinks that at some

1:19:48

point down the road,

1:19:50

on the long term road, that her

1:19:54

her judgment in terms of owning

1:19:56

these securities will be validated.

1:19:59

And perhaps I will. But in the meantime,

1:20:02

um, you know, subject to the huge

1:20:04

veil of volatility.

1:20:07

And I I also think, you

1:20:09

know, much like Peter Lynch back and not to knock

1:20:11

Peter Lynch because uh, you

1:20:13

know, he was a

1:20:16

significant part of the

1:20:18

late eighties and early nineties UM

1:20:21

in terms of Magellan, but you

1:20:23

know, once more money started to come into was

1:20:25

fun because he was doing well, that

1:20:27

money went straight into the same stock that he

1:20:29

was owning and buying, and uh,

1:20:32

you know, I went up, up, up, because the cash

1:20:34

flow was going straight into that.

1:20:36

And I think the same thing for the last several

1:20:38

years with arc Um and uh

1:20:41

some of the other funds that she manages,

1:20:43

huge inflows would

1:20:46

lead to more and more and more buying, and now,

1:20:48

uh, some of the outflows lead to lower

1:20:52

and lower prices. And so I

1:20:54

think you just have to be careful in

1:20:56

terms of anointing someone that

1:20:59

has a had a good record for two years.

1:21:01

Now it's the last year, it's not so good.

1:21:04

Um, you know, let's let's see what

1:21:06

happens five years from now. I think it's a little

1:21:08

early fit fair enough. And to clarify

1:21:10

the assets under management, I

1:21:13

want to say that it was about

1:21:16

coming up on sixty billion at its

1:21:18

peak, and it's since fallen

1:21:21

at least as of the beginning of this year,

1:21:23

to about twenty three or twenty five billion

1:21:26

dollars. I'm not looking at her

1:21:28

releases, but more or less that seems

1:21:31

to be a ballpark number

1:21:33

when I'm looking at their website.

1:21:36

So let's talk about someone else you actually

1:21:38

mentioned in the book. Who's

1:21:41

another fund manager you you talk about

1:21:43

Jeff Gunlock, who many

1:21:45

anointed as the heir apparents or placed

1:21:47

you. I don't know if that worked

1:21:50

out that way. What are your thoughts about

1:21:52

gunlocks approach to managing

1:21:55

fixed income? Well, he's

1:21:57

sort of anointed himself. I mean,

1:22:00

one of the commentators on CNBC throughout

1:22:03

the term once and and he

1:22:05

ran with him. I guess, I guess I did too. But

1:22:09

you know, to be a bond king, you've

1:22:11

got to have a kingdom. And you

1:22:14

know, Pemco's kingdom, although

1:22:17

ultimately grew to one to two trillion

1:22:19

dollars a gun Lex kingdom,

1:22:22

in terms of his mutual funders around fifty

1:22:25

billion dollars and not growing, and

1:22:27

and his performance has been like sixtieth

1:22:30

percentile for

1:22:33

three years, five years or whatever. I think

1:22:36

he's a smart guy. You know, when I listened

1:22:38

to him on c NBC, I O, yes. And

1:22:42

he he follows markets,

1:22:45

you know, very assiduously. He's

1:22:47

he's really into it. So

1:22:50

I respect that. But you

1:22:52

got to put up the numbers, and you've got to

1:22:54

build your kingdom in order

1:22:56

to be the bond king or

1:22:59

the new bond king. And you

1:23:01

know, I don't think anybody can be the future

1:23:03

bond king because central

1:23:05

banks basically are the kings

1:23:08

and the queens of the market.

1:23:10

They rule, They determine where interest rates

1:23:12

are going, not um you

1:23:14

know von managers like him too

1:23:16

or uh you know Double

1:23:19

Line, etcetera, etcetera. So you

1:23:22

know, I think the term is sort of passe and

1:23:24

certainly unlock doesn't tip uh

1:23:27

you know, the the past definition

1:23:29

of what a bond king should be. Right,

1:23:32

And and as of December thirty

1:23:34

one, Double Line had add

1:23:37

thirty four billion in assets under management.

1:23:39

Totally, I don't I'm

1:23:41

not seeing the breakdown by fund, but

1:23:44

you know it's definitely a substantial

1:23:46

amount of money, but you know, not a

1:23:48

trillion dollars worth. Let's you

1:23:51

know, one of the things we should talk about

1:23:53

is risks to financial markets.

1:23:55

And you have pointed out that

1:23:58

climate change is an actual

1:24:00

risk factor. Tell us what

1:24:02

you see, um as that risk from

1:24:06

rising temperatures and and how do

1:24:08

you think about E S G investment?

1:24:12

Well, I think the risk is

1:24:14

is it's sort of like the broken window syndrome.

1:24:17

I mean, so that

1:24:21

sends a baseball through a window on their brakes

1:24:23

and you've got to replace it. Um,

1:24:26

that increases G D p the

1:24:28

replacement of a window, but it doesn't make the

1:24:31

window any better than it was before. And

1:24:33

it's it's really the same thing. I think

1:24:36

in terms of global warming, UM

1:24:40

does um, you know, because

1:24:42

it requires a huge amount

1:24:44

of investment in order to to stop

1:24:46

it from going forward,

1:24:48

and a huge change in terms of societal

1:24:52

behavior and

1:24:54

and so that investment that goes

1:24:56

into capping carbon

1:25:00

creation at a certain level. You

1:25:03

know, if if global warming wasn't

1:25:05

taking place, then um,

1:25:08

then you could use that money for something

1:25:11

more productive. But it's

1:25:14

it's you can't really call it productive.

1:25:16

If you simply stop a

1:25:19

negative trend from happening, it

1:25:21

it makes things better

1:25:23

than they would be. But it's

1:25:25

sort of like the broken window. And so UM,

1:25:28

I think in the future enormously

1:25:31

countries and companies will

1:25:34

be moving in the direction of

1:25:37

of creating

1:25:40

a better future environment for

1:25:44

us and for our kids and grandkids. But

1:25:46

but ultimately, UM, it

1:25:48

won't make it any better and then it is now. It

1:25:50

will simply not make it worse. And

1:25:54

uh, that costal lot of money, and I don't

1:25:56

don't make it worse that that's the advice

1:25:58

at this point. Huh. Interesting,

1:26:01

you know we've gone this far into the conversation,

1:26:04

and I just haven't gotten around to ask

1:26:06

you about your days

1:26:09

as a card counter playing blackjack.

1:26:12

Tell us a little bit, which also

1:26:14

you mentioned in the book. Tell us a little

1:26:16

bit about Ed Thorpe and

1:26:18

his books and what led you

1:26:20

to to head to Sin

1:26:22

City. Well,

1:26:24

I'll go through it quickly. Uh. You know that

1:26:27

the year before I graduated from Duke in

1:26:30

sixty I had gone

1:26:32

to Bahamas on the spring break and I lost

1:26:35

fifty on the black jack table

1:26:37

um. And I

1:26:40

remembered that after I uh

1:26:43

nearly cut off the top of my

1:26:45

head in a car accident and was in

1:26:47

a hospital for a long time,

1:26:50

and somebody introduced me to

1:26:52

this new book called Beat the Dealer. Until I had

1:26:54

all the time in the world to sit there and

1:26:56

and to discover

1:26:58

whether or not his theory about

1:27:01

car counting worked. I didn't have a computer,

1:27:03

but I would play thousands of hands

1:27:05

of black jack back and forth, back and forth,

1:27:08

and I discovered it worked. And

1:27:10

so when I graduated from Duke

1:27:13

in May of sixty six, and before

1:27:15

I was going into the Navy and

1:27:18

ultimately to Vietnam. Four months

1:27:20

later, I went to Las

1:27:22

Vegas. I hopped on a freight train. I had

1:27:24

two hundred dollars that's

1:27:27

all I could afford to

1:27:29

put on the tables, and took

1:27:32

a freight chain, took seven days to Vegas, got

1:27:34

off at the Golden Nugget right in downtown

1:27:36

and U and rented

1:27:38

a six dollar a day motel that n

1:27:41

cents of free nickels and a free breakfast.

1:27:44

And so I started playing black

1:27:46

jack. That

1:27:49

that basically taught me. I ultimately

1:27:51

turned it into ten thousand and it paid

1:27:54

for my graduate school. But it taught

1:27:56

me about money management. It basically it

1:27:58

worked off what they all the Kelly system,

1:28:01

UM, the system where you can't bet more than

1:28:03

two of your um

1:28:06

your your stake, even if the odds

1:28:09

were tremendously in your favor, because things

1:28:11

can go wrong. And so when

1:28:14

I ultimately went to Pacific

1:28:17

Mutual and Independo, it became

1:28:19

an instrumental part of risk management

1:28:22

for me because it made a lot

1:28:24

of sense and uh and it

1:28:27

still does. Um but um

1:28:30

yeah, Vegas for me was was

1:28:34

was the heart of my career

1:28:37

ultimately as as it came to

1:28:39

pass it it

1:28:42

it taught me what I like to do it just

1:28:45

to bet against the house and to make money

1:28:48

it um it provided

1:28:50

a system of money management, and

1:28:53

ultimately I

1:28:55

would all to at Thorpe who eventually

1:28:59

I met he ups out here and yeah in

1:29:02

Newport Beach Irvine, who was a

1:29:04

mathematics professor, and we came together

1:29:07

to to fund a stem

1:29:09

cell research center at ten million

1:29:12

dollars. Um you know what you see,

1:29:14

Irvine, And so we contact

1:29:16

each other once in a while. Um. Uh.

1:29:20

He's a very smart guy,

1:29:22

smarter than me, but um

1:29:24

you know, very fun to talk to and

1:29:27

uh and to talk about his

1:29:29

times in Las Vegas, which were

1:29:31

much much larger than my

1:29:34

ultimate ten dollars. Did

1:29:37

you ever run into any of the trouble

1:29:39

he did? The Vegas is not fond

1:29:42

of either people who win money

1:29:44

from them, and especially not fond of

1:29:47

card counters as they're

1:29:49

known. Did you have the same

1:29:51

sort of problems of getting

1:29:53

chase from casino to casino like

1:29:56

he did. Yeah, I get

1:29:58

chased from a few and I was very proud of it.

1:30:00

Was like a badge of honor

1:30:03

to be to be kicked

1:30:05

out. I would wear different disguises,

1:30:08

I would wear a hat, I would wear different clothes

1:30:11

to the extent of that had them, but that they

1:30:13

could eventually track

1:30:16

a card counters simply by watching

1:30:20

the size of their bets. You know, I would

1:30:22

bet two dollars and then ten, and then

1:30:24

three dollars and then fifteen, back and forth,

1:30:26

back and forth, and they could ultimately

1:30:30

watch my eyes and see me covering

1:30:32

the table in three or four seconds in terms

1:30:34

of counting the cards. So, um,

1:30:37

was I killing the casinos with

1:30:39

my UH ten dollar winning

1:30:42

to no? But they simply

1:30:44

didn't like the trend, and so

1:30:47

yeah, I got booted a few times. So

1:30:51

last question before I get to my favorite

1:30:53

questions that we ask all our guests. In

1:30:56

the book, you talk about

1:30:58

having a mild case of Asperger

1:31:00

syndrome. Tell us about

1:31:02

that. How has this affected

1:31:05

your life? How is it manifested?

1:31:08

A number of other great investors

1:31:11

UM have either discussed

1:31:13

being on the spectrum or wondered if

1:31:16

they're on the spectrum. Tell us about

1:31:18

your experience with Asperger syndrome.

1:31:22

Well, I was never aware of it until I read

1:31:25

Michael Lewis's book The Big Short and

1:31:28

in one of the chapters he talks about an

1:31:30

individual called Michael Drury

1:31:34

who has still as prominent

1:31:36

in the press. I guess with shorting

1:31:39

and managing money. But

1:31:42

he um, he was either he or

1:31:44

his son. I forget, it's probably him,

1:31:47

um that had Aspergers.

1:31:49

And he listed like ten things that

1:31:52

alert you to the fact that he

1:31:55

had it and and therefore I might

1:31:57

have it. And and one of them was not

1:32:00

people in the eye or never

1:32:02

observing the

1:32:04

color of their eyes. And

1:32:08

to tell you the truth, I am my

1:32:11

ex wife. I didn't know she had brown eyes until

1:32:14

seven years into the marriage. Um.

1:32:17

And and so there were other things too

1:32:19

about the characteristics. And I

1:32:23

I took this page out to the kitchen to my

1:32:25

ex wife and I said, look at this, Look at this. I

1:32:27

said, I think I have asked Berger's And

1:32:29

she goes, you do it was

1:32:32

certainty? And I said, how

1:32:34

do you know? She said, well, we

1:32:37

were up at Bill Gates house in Seattle

1:32:39

on an open house about four years

1:32:42

ago. And I was watching

1:32:44

Gates, and I was watching you. You're at the same table,

1:32:46

um, and you were doing the same

1:32:48

thing he was doing. He was doing the same thing. You were going

1:32:51

looking down at the table, not being engaging

1:32:53

that type of thing. And I'd heard

1:32:55

that Gates had a mild case of Aspergers,

1:32:58

and and so I

1:33:01

I went to a psychologist on my

1:33:03

own and described

1:33:05

the symptoms that she said, he does, he's

1:33:07

an asperger. And so that's

1:33:09

how I discovered it. I ultimately,

1:33:11

after my divorce, I went to a

1:33:14

psychologist and after the first meeting,

1:33:16

I as my closing

1:33:19

question, I said, do you think I have asked Burgers? And

1:33:22

she said most definitely.

1:33:25

And so that's how I became

1:33:28

aware of it. And what are

1:33:32

the symptoms of characteristics

1:33:35

or how has it affected my life? I think

1:33:37

what it does is it allows me to

1:33:40

to screen out of

1:33:42

you know, minuan and everything that's going

1:33:45

on. Um For instance,

1:33:47

example, when I played golf

1:33:49

with Tiger Woods and Phil Nicholson at the A T

1:33:52

and C. You know, people would say, how do you do it?

1:33:54

You know, I'm afraid of getting my drive

1:33:56

into the crowd. I go, I never seen the

1:33:58

crowd. I know they're there, but I

1:34:00

never see them. And and so, um,

1:34:03

you know, in terms of

1:34:06

uh PIMCO, in terms of managing

1:34:08

money, I rarely

1:34:10

see the minusha. I see the big picture because

1:34:13

of my Aspergers. That's just what aspergers

1:34:17

that the spectrum do. And

1:34:20

um, so I think it's been very helpful. I

1:34:23

owe a lot to ask Murgers. That's

1:34:25

interesting, and I'm glad you brought up Tiger

1:34:27

Woods because that could be my

1:34:30

favorite story in the

1:34:32

entire book. You talk about almost

1:34:35

missing a golf pro

1:34:38

am game with him. Tell us

1:34:40

about that story. Okay,

1:34:42

this wasn't a setup. This wasn't a question of paying

1:34:45

ten tho dollars to play with Tiger Woods.

1:34:47

This was the A T and T pro am. This was

1:34:49

big time. You gotta qualify, right, You gotta

1:34:51

hit your way into the actual

1:34:54

game, right. The first three days

1:34:56

you qualify and if you have a certain score,

1:34:58

you make it into Sunday. And so. Um.

1:35:02

When Bill Thompson and I the CEO,

1:35:04

went up there in two thousand

1:35:06

and two, um,

1:35:10

you know, the rumor was that you needed to be nineteen

1:35:13

under as a team in order to qualify

1:35:15

for Sunday. And so I

1:35:17

I finished my round on Saturday and Thompson

1:35:19

came up and he had been fourteen under

1:35:21

and he said, what are you? I said,

1:35:23

sixteen under. He said, well, let's

1:35:26

go home because nineteen under makes the cut. And I

1:35:28

said, I don't know, LABI should stay and he

1:35:30

goes, now, let's go. So I

1:35:32

went to the airport and we're

1:35:34

waiting in line, and um,

1:35:37

this guy from my local country club

1:35:40

had a cell phone, and cellphones weren't

1:35:42

said popular back then. I certainly didn't

1:35:44

have one. And he said, Bill, how did

1:35:46

you do? I said, sixteen under probably

1:35:48

miss a cut by two, and

1:35:50

he goes, no, I said, he said, I just

1:35:52

checked. He said, sixteen under is

1:35:54

in a card off. I go, oh,

1:35:58

okay, And so I told Thompson,

1:36:00

you better go home, and I'd better go back to the hotel.

1:36:03

So I went back to the hotel and at

1:36:05

nine o'clock my Caddy calls

1:36:07

up and he says, Mr

1:36:09

Gross, we made the cut,

1:36:11

the card off. We made the cut. I guess

1:36:14

who we're playing with? At eight thirty in the morning, I

1:36:16

go, who because and

1:36:21

I almost saying it. And of course I never slept,

1:36:24

But um, if that gentleman

1:36:27

hadn't seen me at

1:36:29

the airport check in line and told

1:36:31

me I had a chance, I would

1:36:33

have been sleeping Sunday morning in

1:36:36

Newport Beach while Tiger

1:36:38

was waiting for me to

1:36:41

meet him on the first day it was. It was

1:36:44

incredible luck, incredible

1:36:46

luck. That's

1:36:49

just an amazing story.

1:36:51

And sometimes right place, right time

1:36:53

is all that matters. All

1:36:55

right, so I've kept you for two hours,

1:36:58

far longer than I usual. Let

1:37:00

me jump to my favorite questions

1:37:03

we ask all our guests, starting

1:37:05

with something that you actually mentioned

1:37:07

earlier. Tell us what you're streaming

1:37:09

these days? What kept you busy during

1:37:11

uh the lockdown on either Amazon

1:37:14

Prime or Netflix or or whatever

1:37:16

you were entertained with. Well,

1:37:19

I get up at five thirty. I've got

1:37:21

a bloomberg here, and I've got a bloomberg

1:37:24

at my other homes, and so

1:37:26

I get up in uh, you know,

1:37:28

the markets here. I've been up at six thirty, and

1:37:31

so I've start managing

1:37:34

my portfolio, doing trading, mostly

1:37:37

in stocks these days, and stock

1:37:40

options. But it occupies

1:37:42

my time till market closed

1:37:44

at twelve thirty. Sometimes I take a

1:37:46

nap because I had gotten

1:37:49

up so early. In my lovely

1:37:51

wife keeps me up till

1:37:53

eleven o'clock to watch uh

1:37:57

serial programs and so on,

1:37:59

so I don't get that much sleep. But

1:38:02

in any case, I manage money,

1:38:04

and then here I am out for

1:38:06

eight months of the year. Out at the vintage in Indian

1:38:09

who else it's eighty five degrees. It's almost

1:38:11

always seventy five degrees.

1:38:14

It's like Hawaii, and I'm looking out

1:38:16

at the golf course and I

1:38:19

have a little lunch, I top in my cart

1:38:21

with Amy and we

1:38:24

go play golf in the afternoon. That's

1:38:26

like, what you know, this this

1:38:28

is uh, this is paradise. You

1:38:30

know. Our family comes out into visit and

1:38:34

it's just the all around best time I

1:38:36

could ever imagine, doing something

1:38:38

I love in terms of investing, and doing something

1:38:41

I love in terms of golf, which

1:38:43

I do every day. And so um,

1:38:46

that's that's basically my day. Tell

1:38:48

us about some of your early mentors who

1:38:51

helped to shape your career.

1:38:54

Well, to be honest and say, I only

1:38:57

had one UM, and

1:38:59

that was well for Girkin, who was the

1:39:03

CEO and chairman of the board of Pacific

1:39:05

Mutual. And it was Kirkin that basically

1:39:08

who was a risk taker for an

1:39:10

insurance executive. UM.

1:39:13

It was Girkin who basically gave the go

1:39:16

ahead and they all clear to

1:39:19

to start the five

1:39:22

million dollar bond

1:39:26

fund. And and and the man would

1:39:29

take me to New York for conferences

1:39:31

and so on and so on, and clearly

1:39:34

he was supporting me for

1:39:36

some future role. I don't think

1:39:38

he unnecessarily

1:39:41

knew that Tempco was going

1:39:43

to be a raging success. But he was willing

1:39:46

to take the chance and to give

1:39:48

me his moral and

1:39:51

I guess financial support, because there was a time

1:39:54

in the first few years of TEMPKO where

1:39:56

we weren't making any money and not getting

1:39:59

very many clients. And you

1:40:01

know, they could have canceled

1:40:03

us, um straight

1:40:06

away, but he didn't. They

1:40:08

supported me, you know, throughout the

1:40:10

but in fifteen twenty years

1:40:13

that that he was active

1:40:15

within the industry. And so

1:40:18

as I say, it was Mr

1:40:20

Gherkin who's no longer with us. Let's

1:40:24

talk about books. What are some of your all

1:40:26

time favorites and what are you reading right

1:40:28

now? Well,

1:40:30

um, you know, all

1:40:33

time favorites is one thing, um,

1:40:36

I guess. Um.

1:40:41

One of my favorite books was by

1:40:44

a brilliant author who won the Pulitzer Prize,

1:40:47

Annie Dillard, who

1:40:49

wrote a an incredible book

1:40:51

called Bilgrament Thinker

1:40:54

Creek, which was about observations

1:40:56

of life, nature and

1:40:59

and personal reflections on

1:41:01

on both. And I would encourage

1:41:04

any of your listeners to pick up

1:41:06

any Dilert's Pilgrim at Tinker

1:41:09

Creek. She also wrote a book called American Childhood,

1:41:11

which was much like mine.

1:41:13

Um, she's the same age, grew

1:41:15

up in Pittsburgh, and her

1:41:18

childhood memories are quite

1:41:20

similar to how I was, um,

1:41:23

how I was growing up. I also,

1:41:28

I'm recently uh, I

1:41:30

recently bought recently reading a

1:41:32

book called The Age of AI,

1:41:35

which is a

1:41:37

book co authored by Henry Kissinger

1:41:39

and Eric Smith from

1:41:41

Google and a third

1:41:43

party who probably wrote most of it. But it's

1:41:46

very interesting about artificial intelligence

1:41:49

in the future that has

1:41:51

for for all of us going

1:41:53

forward. And then there's

1:41:56

another book. There's an author called Julian Barnes

1:41:58

who has written fifteen books.

1:42:01

He's a wonderful writer, very

1:42:04

introspective, and it's

1:42:06

called Done Nothing to be Afraid Of It,

1:42:09

and it's it's about death and dying

1:42:11

and his thoughts going

1:42:13

forward, which is sort of apropost

1:42:18

I sort of say, I'm

1:42:21

in uh, in the death zone

1:42:23

at because that's when

1:42:27

people uh find out they have

1:42:29

prostate cancer or breast cancer or whatever.

1:42:31

It's it's not a good time going forward.

1:42:34

And so it you know, it's

1:42:36

very introspective, and the man has written other books

1:42:39

that I think other people would enjoy, Julian

1:42:41

Barnes and Nothing to be

1:42:43

Afraid Of So uh,

1:42:46

those are some of them really

1:42:48

interesting stuff. Our final two questions,

1:42:51

what sort of advice would you give to a

1:42:54

recent college grad who was interested

1:42:56

in a career in either investing

1:42:59

or fixed income? O. Um,

1:43:04

well, I would say this. I mean, the market

1:43:06

is much different now than it was then, and I

1:43:09

had an opening in terms of the little line that

1:43:14

you know, even a ten year old could have run through.

1:43:16

I guess, um,

1:43:18

now it's a different story. But that I

1:43:20

think finance um

1:43:23

will always be with us, whether stocks,

1:43:25

bonds, real estate. Um uh,

1:43:28

you know, money is something

1:43:31

that's always been with us, and the making of money

1:43:33

with money has always been with us. I

1:43:35

don't see that. Um,

1:43:38

I see it changing, but I don't. I don't see it declining

1:43:41

in any form or

1:43:43

fashion. And so I would advise those

1:43:47

that are thinking about the industry they do

1:43:49

do something like yeah, like Cathy Wood

1:43:51

did. I mean she she innovated

1:43:53

in terms of her ideas and

1:43:56

there in terms of her portfolio construction.

1:43:58

She did take a risk in terms of her

1:44:00

ideas. I mentioned before that

1:44:02

she didn't be too much attention

1:44:05

to price, but obviously she created

1:44:07

this huge wedge and opening for

1:44:10

herself. What's

1:44:12

a product that

1:44:14

no one else was thinking of, and so one

1:44:17

of those products I don't know. Um,

1:44:20

I'm past the stage of innovation, but yeah,

1:44:24

I would say in

1:44:26

addition to spending your

1:44:28

one or two years of Goldman or whatever

1:44:32

in terms of the background, that you

1:44:34

know, you kind of go

1:44:37

out on your own and innovate with

1:44:39

some type of product that will it

1:44:41

will get you going and make you a

1:44:44

a star and make you some money

1:44:48

and and lead you to hopefully

1:44:50

to obsessive

1:44:52

enjoyment of of what you're doing. You

1:44:55

you can't succeed, I would tell them, you can't

1:44:57

succeed unless you love

1:44:59

what you're doing. Really

1:45:01

really interesting. And our final question,

1:45:04

what do you know about the world of finance

1:45:07

today that you wish you knew fifty

1:45:10

years or so ago when you were first

1:45:12

getting started out. Oh?

1:45:15

Um,

1:45:19

you know when I think it is Barry, I think. Um.

1:45:22

You know. There was an old soft from Will Rogers,

1:45:24

the old journalists in the thirties,

1:45:27

and he said a lot of funny things, sort of like Yogi

1:45:29

berra. Um. He was known

1:45:31

for, um, you know, funny

1:45:34

equips and funny comments. And uh

1:45:36

I remember him saying about the stock

1:45:39

market. He said, if you if

1:45:42

you have a stock that goes up, buy

1:45:44

it and it goes If it doesn't

1:45:47

go up, don't buy it. Um.

1:45:50

And I thought that was really funny, and I didn't

1:45:53

and I think he thought it was funny too. I don't

1:45:55

think he knew what he was talking about. But it

1:45:57

really refers to a momentum. If

1:46:00

you find this stoctor

1:46:02

goes up by it, and

1:46:05

if it goes down, and don't buy it. Because

1:46:07

momentum is a very powerful

1:46:10

force that I learned, you

1:46:12

know, sort of in the last ten or fifteen

1:46:14