WEBVTT - How Bill Gross Built a Bond Empire And Then Lost It All 0:00:09.160 --> 0:00:12.600 Hello, and welcome to another episode of the Odd Lots Podcast. 0:00:12.680 --> 0:00:17.119 I'm Tracy Alloway. My co host Joe Wisenthal is away. However, 0:00:17.440 --> 0:00:20.800 I have a replacement co host for this very special episode. 0:00:21.079 --> 0:00:23.919 We're going to be joined by Matt Levine. He is, 0:00:23.960 --> 0:00:27.840 of course, a columnist over at Bloomberg Opinion. Matt, Welcome 0:00:27.880 --> 0:00:32.479 to the show. Thanks for having me. So. I have 0:00:32.600 --> 0:00:35.680 been covering bond markets for many, many years now, and 0:00:35.920 --> 0:00:40.200 when you're covering bond markets, it feels like, at one 0:00:40.240 --> 0:00:44.760 point in time there was no escape from a certain 0:00:44.840 --> 0:00:49.120 bond investor, and that was a guy called Bill Gross. 0:00:49.240 --> 0:00:53.320 If you were covering bond markets, at one point or another, 0:00:53.600 --> 0:00:57.760 your path would cross with Bill Gross in some way. 0:00:58.040 --> 0:01:00.640 It was either something he was doing, something that he 0:01:00.680 --> 0:01:04.400 had said that you would inevitably have to write up. 0:01:04.400 --> 0:01:06.920 And I don't know if you feel the same way, Mat, Oh, yeah, 0:01:06.920 --> 0:01:09.440 I mean, in particular, he would write these monthly investment 0:01:09.440 --> 0:01:13.240 outlooks that were always both widely covered because they were 0:01:13.720 --> 0:01:16.320 the outlook of an important bond investor about the bond market, 0:01:16.560 --> 0:01:18.920 but also because he had, like he began them with 0:01:19.000 --> 0:01:22.080 embarrassing personal anecdotes, and you'd read them and be like, 0:01:22.120 --> 0:01:25.600 did did this? Did this professional investor really just say that? 0:01:25.880 --> 0:01:28.520 And every every month it would like he would top himself, 0:01:28.560 --> 0:01:30.880 This guy in charge of billions of dollars worth of 0:01:31.120 --> 0:01:34.559 people's money. Did he actually just write several hundred words 0:01:34.600 --> 0:01:37.200 about his cat and things like that cat watching him 0:01:37.200 --> 0:01:41.240 in the shower? I think was yeah? Okay. So Bill 0:01:41.240 --> 0:01:46.000 Gross loomed large in financial journalists imaginations end over the 0:01:46.040 --> 0:01:50.600 bond market. And then, of course we all remember when 0:01:50.640 --> 0:01:54.320 he actually left the company that he had founded, which 0:01:54.360 --> 0:01:58.080 is Pimco, and that just exploded into the headlines. You 0:01:58.120 --> 0:02:00.920 remember that, oh yeah, he went to Janis, which I 0:02:00.920 --> 0:02:03.480 think to this day remains a joke on financial Twitter 0:02:03.520 --> 0:02:05.680 when anyone leaves a job that we say that they 0:02:05.720 --> 0:02:11.080 went to Janis. That's that's sorry, that's exactly right. Um okay. 0:02:11.160 --> 0:02:14.480 So when Bill Gross left Pimco, there were all these 0:02:14.560 --> 0:02:19.000 questions swirling around both the man and the strategy and 0:02:19.080 --> 0:02:22.240 the company. And I remember writing at the time that 0:02:22.280 --> 0:02:26.480 there were still all these unanswered questions around who Bill 0:02:26.480 --> 0:02:32.120 Gross was, what he was actually doing at PIMCO, And 0:02:32.240 --> 0:02:35.400 I guess someone stepped up to try to answer all 0:02:35.400 --> 0:02:37.959 those questions. And I am very very pleased to say 0:02:37.960 --> 0:02:41.400 that today we're going to be speaking with Mary Childs. 0:02:41.440 --> 0:02:44.240 She is, of course, the co host of nprs Planet 0:02:44.240 --> 0:02:47.760 Money podcast and also the author of a new book. 0:02:47.919 --> 0:02:51.000 It's called The Bond King. How One Man made a market, 0:02:51.160 --> 0:02:54.560 built an empire, and lost it all And it's been 0:02:54.760 --> 0:02:57.960 many years in the making. And uh, I'm thrilled to 0:02:58.160 --> 0:03:00.480 have her on the show. So Mary, welcome to all thoughts. 0:03:00.800 --> 0:03:02.519 Thank you so much for having me. I'm excited to 0:03:02.560 --> 0:03:05.280 be here. So one of the things that always struck 0:03:05.320 --> 0:03:09.160 me about Bill Gross, and maybe this is why you know, 0:03:09.240 --> 0:03:11.400 you sort of took an interest in the story. But 0:03:11.760 --> 0:03:15.760 when people think about bond investing, they normally think about 0:03:15.800 --> 0:03:17.800 while you buy a bond and you know, you hold 0:03:17.840 --> 0:03:21.160 it to maturity and it's really really boring. But the 0:03:21.200 --> 0:03:23.800 thing about Bill Gross, and you go into this in 0:03:23.880 --> 0:03:27.120 some detail in your book, is that he was doing 0:03:27.320 --> 0:03:31.880 really complex things in the fixed income world. You know, 0:03:32.000 --> 0:03:34.960 his funds were full of derivatives, full of future swaps, 0:03:35.400 --> 0:03:39.040 lots of repo transactions, things that you wouldn't necessarily think 0:03:39.080 --> 0:03:44.320 of when you think about traditional plane vanilla bond investing. Definitely, 0:03:44.360 --> 0:03:46.320 and you're exactly right that That's one of the main 0:03:46.360 --> 0:03:48.600 reasons why I got interested in this in the first place. 0:03:48.600 --> 0:03:51.600 I feel like there is this misconception that, oh, my 0:03:51.680 --> 0:03:54.840 bond fund is managed by like some dork in Boston 0:03:55.200 --> 0:03:58.920 who doesn't do you know, Banana's stuff, And that's just 0:03:59.280 --> 0:04:01.160 kind of not the you know, so many of our 0:04:01.240 --> 0:04:04.080 retirement dollars do go to him, go and end up 0:04:04.320 --> 0:04:08.200 doing very exciting things. And yeah, there's there's so much 0:04:08.280 --> 0:04:11.480 room to to look into, you know, what Buil did 0:04:11.520 --> 0:04:13.760 and the kind of extremely complicated trades that he put 0:04:13.800 --> 0:04:16.680 on and the trade structures that I just find it 0:04:16.720 --> 0:04:20.039 really kind of it's interesting both because of that misconception 0:04:20.080 --> 0:04:23.000 but also just by virtue of being really elaborate and 0:04:23.080 --> 0:04:26.080 smart and and fun trades. So one of the most 0:04:26.120 --> 0:04:28.520 fun trades. And I feel like we could spend the 0:04:28.520 --> 0:04:30.680 whole odd lots on this because it's like very odd. 0:04:31.279 --> 0:04:33.360 In like the mid eighties, he did this trade on 0:04:33.520 --> 0:04:39.800 Jenny May futures that basically break that market forever. Can 0:04:39.800 --> 0:04:42.640 you describe that in enormous detail for the odd thoughts listeners? 0:04:43.960 --> 0:04:48.279 So this is my Yeah, this is my favorite trade. Basically, 0:04:48.279 --> 0:04:51.440 there was this futures contract that, um, I think was 0:04:51.680 --> 0:04:55.800 you know, extremely popular in and people were trading it 0:04:55.920 --> 0:04:58.119 with a lot of assumptions, you know, the mortgage markets, 0:04:58.120 --> 0:05:00.279 and nearly very few people feel like they are actually 0:05:00.360 --> 0:05:03.200 like can get into the particulars and the details and 0:05:03.240 --> 0:05:06.520 then kind of expand that into the way these things 0:05:06.520 --> 0:05:08.640 should be traded perfectly, Like like a lot of people 0:05:09.279 --> 0:05:12.039 trade on models that they got from someone else or whatever. 0:05:12.400 --> 0:05:15.560 And I think in this case, PIMCO just really read 0:05:15.600 --> 0:05:17.520 into the details of the contract and they heard that 0:05:17.560 --> 0:05:19.240 it was flawed, but they read into it and they 0:05:19.279 --> 0:05:22.440 were like, wait, this is really flawed. There were two 0:05:22.560 --> 0:05:26.040 kind of separate parts of it, two trades basically, where 0:05:26.040 --> 0:05:30.719 one trade relied on the ability to demand physical delivery 0:05:30.800 --> 0:05:33.000 and one trade relied on the fact that this this 0:05:33.320 --> 0:05:36.719 contract had the option for a perpetual so you could 0:05:36.760 --> 0:05:39.080 ask for it to be converted into a perpetual security 0:05:39.120 --> 0:05:43.880 that paid you eight percent forever. That makes no sense, 0:05:44.400 --> 0:05:46.720 I know. So I tried to talk to the guy 0:05:46.760 --> 0:05:48.919 who built the contract and he was kind of like, no, 0:05:49.000 --> 0:05:50.800 it's a great it's a great one. Love that one, 0:05:51.040 --> 0:05:54.880 by which I understand. But I think, you know, they 0:05:54.880 --> 0:05:57.320 were trying to make it attractive and rates were really 0:05:57.400 --> 0:05:59.080 high at the time, So I think there was some 0:05:59.200 --> 0:06:02.080 sense of like trying to entice people to play in 0:06:02.080 --> 0:06:03.800 this market in the first place, because again, mortgages were 0:06:03.800 --> 0:06:06.800 pretty poorly understood. I mean, there is a real explanation, 0:06:06.839 --> 0:06:09.080 but also they were still figuring stuff out, you know, 0:06:09.200 --> 0:06:11.400 like these were new contracts and this is kind of 0:06:11.440 --> 0:06:13.960 a new frontier, so trying to find out what would work. 0:06:14.000 --> 0:06:16.200 It was a little bit of trial and error. So 0:06:16.320 --> 0:06:19.760 what exactly did PIMCO do in this situation? So you 0:06:19.760 --> 0:06:23.200 have this new contract and this seems to be a 0:06:23.240 --> 0:06:26.719 bit of a hallmark of pimco's strategy at that time, 0:06:26.800 --> 0:06:29.800 but they actually read all the terms, did all their 0:06:29.880 --> 0:06:33.320 due diligence and research, and basically figured out a way 0:06:33.360 --> 0:06:35.880 to make lots of money out of it. That's exactly right. 0:06:35.960 --> 0:06:39.320 So they basically realized that the market was, you know, 0:06:39.400 --> 0:06:42.040 trying to account for the negative convexity of mortgage backed 0:06:42.080 --> 0:06:43.880 securities in that that you know, would show up in 0:06:43.920 --> 0:06:47.719 these Jenny May bundles. But what they weren't accounting for 0:06:47.960 --> 0:06:50.360 was the kind of optionality and the fact that if 0:06:50.400 --> 0:06:54.120 you accrued enough of the underlying the cheapest to deliver, 0:06:54.480 --> 0:06:56.440 there just weren't that many in the world, and raids 0:06:56.480 --> 0:06:58.160 had started to go down, so they were going to 0:06:58.200 --> 0:07:01.320 be fewer and fewer, right, So Pimco realized this kind 0:07:01.320 --> 0:07:03.480 of before anyone else, and they amassed a huge position 0:07:03.480 --> 0:07:06.680 in these contracts, and then they demanded physical settlement of 0:07:06.760 --> 0:07:08.760 the futures, which is to say, they will give me 0:07:08.800 --> 0:07:11.080 your cheapest to deliver. Jenny May's right, and they didn't 0:07:11.280 --> 0:07:13.800 have to demand physical settlement, right, They could have just 0:07:13.880 --> 0:07:16.240 let the futures roll off, exactly, And that was what 0:07:16.280 --> 0:07:18.760 everyone kind of expected everyone else to do. So part 0:07:18.800 --> 0:07:21.400 of what they're playing with here is expectations everyone else's 0:07:21.440 --> 0:07:25.240 normal behavior, and Pimco seems to always find that there's 0:07:25.280 --> 0:07:28.160 just a little bit extra performance if you don't act normal. 0:07:28.520 --> 0:07:32.800 Trade is just like you. These futures are priced assuming 0:07:32.840 --> 0:07:35.040 that you deliver the cheapest to deliver security. And they 0:07:35.040 --> 0:07:38.120 bought so many futures that that they sort of had 0:07:38.120 --> 0:07:40.360 stripped the cheapest to deliver and like they were getting 0:07:40.600 --> 0:07:43.680 much more valuable securities. That's exactly right. So yeah, they 0:07:43.720 --> 0:07:45.920 would go to these people, you know, the counterparties, and 0:07:45.960 --> 0:07:48.360 say give me your you know, I'm settling now, please 0:07:48.440 --> 0:07:50.600 to give me the all of the you know, cheapest 0:07:50.640 --> 0:07:52.920 deliver that you have, and the counterparty will be like, oh, 0:07:52.920 --> 0:07:55.680 we don't we don't have enough. You have more than 0:07:55.760 --> 0:07:58.560 we can satisfy, and they would have to hand over 0:07:58.760 --> 0:08:02.800 much more valuable Jinny May's just to satisfy the delivery, 0:08:02.840 --> 0:08:06.200 but the settlement. So basically, yeah, PIMCO was able to 0:08:06.360 --> 0:08:09.440 outsize the market, which is actually something that you'll see later. 0:08:09.600 --> 0:08:11.840 You know, they do this trade in different kind of 0:08:11.880 --> 0:08:15.760 flavors over the years. So this is something that I've 0:08:15.800 --> 0:08:18.040 been thinking about a lot, and I've thought about a 0:08:18.040 --> 0:08:20.120 lot over the years. You know, I said earlier that 0:08:20.280 --> 0:08:23.360 PIMCO and Bill Gross loomed large over the market, and 0:08:23.520 --> 0:08:27.360 that is literally true. There was such a massive investor 0:08:27.760 --> 0:08:31.360 that at times it seemed like their success was sort 0:08:31.400 --> 0:08:35.720 of mixed up with their size. How much of Bill 0:08:35.760 --> 0:08:39.600 Gross's strategy and the success that he enjoyed, how much 0:08:39.600 --> 0:08:43.120 of that came from simply being bigger than everyone else. 0:08:43.600 --> 0:08:46.080 I think that's such a good and astute question because 0:08:46.080 --> 0:08:49.319 people often get that backwards, where they're like, oh, did 0:08:49.320 --> 0:08:51.720 he underperform because he was too large for the market, 0:08:51.920 --> 0:08:53.920 And you're right that that it actually was an asset. 0:08:53.960 --> 0:08:55.800 You know, I guess in equities it's harder to maneuver 0:08:56.160 --> 0:08:58.880 or or something, but in bonds it definitely can be 0:08:58.920 --> 0:09:01.559 an advantage, especially in you know, anchoring a new issue 0:09:01.559 --> 0:09:03.760 bond as it comes to market, you're gonna get more 0:09:03.760 --> 0:09:08.160 of the allocation. And those always basically always outperform, you know, 0:09:08.200 --> 0:09:10.800 pop when they when they hit the market. So I 0:09:10.840 --> 0:09:13.359 think it's hard to say how much of the outperformance 0:09:13.480 --> 0:09:15.640 was due to size and thinking of this paper that 0:09:15.679 --> 0:09:18.400 to researchers did in that kind of teased out the 0:09:18.440 --> 0:09:21.079 reasons for Bill Gross and pimcoes out performance over the decades, 0:09:21.320 --> 0:09:24.200 and that was one of their kind of grab bag items, 0:09:24.200 --> 0:09:25.719 you know, they were like, this is not something that 0:09:26.120 --> 0:09:28.920 they were able to strip out as a factor, but 0:09:29.160 --> 0:09:32.760 it's basically present throughout pimcoes total returns history, where they 0:09:32.760 --> 0:09:34.880 were always a bit big for the market and for 0:09:34.960 --> 0:09:38.920 the mortgage backed market, but we're the big factors. So 0:09:39.200 --> 0:09:42.520 it's interesting. There are three main ones that those researchers found, 0:09:42.559 --> 0:09:45.679 and it actually aligns pretty well with what so a 0:09:45.760 --> 0:09:48.640 source told me, gosh five years ago, because I've been 0:09:48.640 --> 0:09:50.520 working on this for too long, that there were only 0:09:50.880 --> 0:09:53.319 four things you needed to know to do well at PIMCO. 0:09:53.360 --> 0:09:55.920 Theres there are four things at PIMCO does long duration, 0:09:56.440 --> 0:09:58.600 the curve, focusing more on like the four or five 0:09:58.640 --> 0:10:02.160 year part, going long credit, and short ball. That's it. 0:10:02.880 --> 0:10:06.080 And you know, short ball means selling volatility and finding 0:10:06.080 --> 0:10:09.560 other ways to kind of embed optionality and leverage in 0:10:09.559 --> 0:10:12.400 in your kind of everyday life if you will, and 0:10:12.440 --> 0:10:14.920 avoid buying options to write like like, one thing that 0:10:14.960 --> 0:10:16.640 he says in some of the outlooks is that he 0:10:16.760 --> 0:10:18.760 like doesn't want to pay up for bonds with a 0:10:18.760 --> 0:10:22.120 lot of convexity because like, optionality is not worth anything 0:10:22.160 --> 0:10:23.920 to him right right. He wants to be selling it, 0:10:24.000 --> 0:10:26.960 not buying it because he realizes that people want to 0:10:27.000 --> 0:10:30.200 sleep at night and he doesn't care. Everyone else wants 0:10:30.200 --> 0:10:33.880 the optionality and unless he can get compensated over and above. 0:10:34.000 --> 0:10:35.640 It's in contrast to the Jenny May where there was 0:10:35.640 --> 0:10:37.839 a lot of optionality, but it was stuff that they exercised. 0:10:38.000 --> 0:10:40.040 They don't want options just to be able to do 0:10:40.040 --> 0:10:41.559 what they want to actually do it if they want them, 0:10:41.559 --> 0:10:43.960 you know. So he like he was the bond king. 0:10:44.000 --> 0:10:47.200 He had a great run for decades and then he 0:10:47.280 --> 0:10:49.440 left to go to Janice. You know, I think it 0:10:49.440 --> 0:10:51.240 would be fair to say did not continue to have 0:10:51.280 --> 0:10:53.160 a great run. So like when you when you list 0:10:53.200 --> 0:10:55.480 those factors, it's like long duration, long credit, you know, 0:10:55.559 --> 0:11:00.240 short ball that describes a sort of placid market of 0:11:00.320 --> 0:11:03.480 generally declining that's a strategy for a placid market of 0:11:03.480 --> 0:11:06.160 generally declining rates, which is kind of what he had 0:11:06.200 --> 0:11:09.160 for like thirty years. Did he just like miss a 0:11:09.240 --> 0:11:11.560 regime change? Was he like a really good investor for 0:11:11.640 --> 0:11:14.599 like a particularly long bond bull market and then he 0:11:14.640 --> 0:11:17.720 couldn't adapt? You know what's going on? I think to 0:11:17.760 --> 0:11:20.680 some extent, yes. And there's this um famous at least 0:11:20.679 --> 0:11:24.040 to me, investment outlook from April where he asks, am 0:11:24.040 --> 0:11:26.720 I a great investor? No? Not yet, because he was 0:11:26.760 --> 0:11:29.040 basically seeing the same thing that you are. That he'd 0:11:29.080 --> 0:11:31.840 had a long bull market to invest in. He'd done 0:11:31.880 --> 0:11:33.680 really well over that time period, but he felt that 0:11:33.720 --> 0:11:36.120 he was pretty untested, he and all of his peers, right, 0:11:36.640 --> 0:11:39.640 and you know when he went to Janice. It's it's 0:11:39.640 --> 0:11:41.560 hard to say because over the longer term, you know, 0:11:41.600 --> 0:11:43.240 interest rates are lower now than they were then, or 0:11:43.280 --> 0:11:45.160 they you know, were lower now than they were then. 0:11:45.600 --> 0:11:48.000 So they've walked around a little bit, right, But from 0:11:48.120 --> 0:11:50.920 his start date at Janice through his retirement date, you know, 0:11:51.200 --> 0:11:54.480 it actually did interest rates date go up. So I 0:11:54.520 --> 0:11:57.319 do think you're right. I think that that over that period, 0:11:57.480 --> 0:11:59.480 over his long career, he did have the benefit of 0:11:59.559 --> 0:12:01.720 a bullmark it. And yes, his strategies I think did 0:12:01.800 --> 0:12:05.320 perform better in those in that environment, you know, like 0:12:05.360 --> 0:12:08.440 buying credit, focusing on duration, like all of these things 0:12:08.520 --> 0:12:12.080 absolutely perform better when you have the wind at your back. 0:12:12.400 --> 0:12:15.360 Cash and cash equivalent arbitrage kind of is that an 0:12:15.400 --> 0:12:18.920 abuse of that word? Are you upset? I think it's okay, 0:12:18.960 --> 0:12:21.360 this is a safe space. You're allowing that. Okay, thank you. 0:12:23.600 --> 0:12:26.079 There's a colloquial arbitrage and then a real one, and 0:12:26.080 --> 0:12:33.040 I'm using the colloquial thank you all accept But basically, 0:12:33.120 --> 0:12:36.840 they you know, when they had a position that required cash, 0:12:36.880 --> 0:12:39.360 required them to hold cash against it, a lot of 0:12:39.400 --> 0:12:41.600 their competitors would be like, okay, cash, great, I shall 0:12:41.640 --> 0:12:44.880 hold cash, and PIMCO was like, okay, great, and cash equivalence, 0:12:45.280 --> 0:12:46.920 what do you mean? You know, how how can we 0:12:47.000 --> 0:12:49.160 what does that mean? Exactly? And they would go as 0:12:49.200 --> 0:12:52.640 far as they humanly could to the extent of risk 0:12:52.679 --> 0:12:55.200 taking in that cash equivalent bucket. So that means, you know, 0:12:55.640 --> 0:12:58.800 short dated corporate floating notes and making sure that they're 0:12:58.840 --> 0:13:01.320 getting every last potential a basis point out of that 0:13:01.840 --> 0:13:05.840 and equivalence bucket, where everyone else is just getting whatever 0:13:05.880 --> 0:13:08.880 cash is yielding and not sweating it, not kind of 0:13:08.920 --> 0:13:11.920 going that extra marginal mile to to get the extra 0:13:11.920 --> 0:13:14.240 basis point. So I love that. Like he's like this 0:13:14.440 --> 0:13:18.719 renowned bond investor who becomes a billionaire and at the 0:13:18.840 --> 0:13:21.079 end of like a bunch of the years in the book, 0:13:21.160 --> 0:13:24.199 you know, when he's like performing the market, it's like 0:13:24.320 --> 0:13:26.360 he had a blowout yere in youth asand eight he 0:13:26.400 --> 0:13:29.079 saw the crisis and no one else did. He outperformed 0:13:29.160 --> 0:13:32.760 his peers by thirty five basis point. Okay, it was 0:13:32.800 --> 0:13:37.800 two percentage points actually, as like, but this is like 0:13:39.160 --> 0:13:41.439 we're like, you know, John Paulson is like tupled his 0:13:41.520 --> 0:13:45.880 funder or whatever. Right, like people who like called the crisis, right, 0:13:46.000 --> 0:13:48.520 you know, the sort of stereotype is that they like 0:13:48.880 --> 0:13:51.200 started with a little bit of money, ended at a billionaires, 0:13:51.240 --> 0:13:54.199 but like Bill Grass started with trillions of dollars and 0:13:54.240 --> 0:13:57.800 like added like two to it um. How does that like, 0:13:58.000 --> 0:13:59.920 how should we think about that performance? I don't know. 0:14:00.760 --> 0:14:02.520 The fundamental thing that I think you're hitting on there 0:14:02.640 --> 0:14:04.760 is the structure of the trade where a lot of 0:14:04.760 --> 0:14:08.640 the people that were you know, big short type crisis callers, 0:14:09.080 --> 0:14:13.319 they structured trades based more on time, where if they 0:14:13.360 --> 0:14:15.200 had messed up the time horizon, and many of some 0:14:15.280 --> 0:14:16.920 of them did and didn't make it into the kind 0:14:16.920 --> 0:14:20.360 of pantheon, the whole trade wouldn't work. So there was 0:14:20.400 --> 0:14:24.840 a lot of that was extremely risky. So the Pimco 0:14:25.280 --> 0:14:28.200 view was, yeah, we think this thing is coming, we 0:14:28.280 --> 0:14:31.800 have no ability to say when exactly, and we're going 0:14:31.840 --> 0:14:35.680 to structure a long, a longer term trade around this. 0:14:35.840 --> 0:14:38.720 Where they both pulled back on risk going into the crisis, 0:14:39.080 --> 0:14:41.560 and then we're able to scoop things up when things 0:14:41.600 --> 0:14:43.160 were healing. You know, everyone else was selling it a 0:14:43.160 --> 0:14:45.400 discount because they're panicking, and they weren't, you know, hadn't 0:14:45.440 --> 0:14:47.840 had the same foresight. Pim goes able to buy those 0:14:47.880 --> 0:14:50.400 assets at an extreme discount and then outperformed for more years. 0:14:50.400 --> 0:14:52.400 So if you look over the longer time horizon, and 0:14:52.440 --> 0:14:55.800 this is also Indiana Iversonce Fund and PIMCO income where 0:14:56.040 --> 0:14:59.040 you see that they not only did well stepping back 0:14:59.040 --> 0:15:01.040 and not taking the same risks as everyone going into 0:15:01.080 --> 0:15:03.560 the crisis, but then in the years after. So it's 0:15:03.600 --> 0:15:07.080 more of a cumulative over many years. But also, yeah, 0:15:07.120 --> 0:15:10.320 it's just mutual funds. You're going to have less exciting 0:15:10.480 --> 0:15:12.960 or you're supposed to have less exciting. You're not supposed 0:15:13.000 --> 0:15:15.280 to have a blow out like that. Just on that point, 0:15:15.400 --> 0:15:18.040 here's a slightly weird question, but do you think that 0:15:18.920 --> 0:15:25.640 Bill Gross, either knowingly or perhaps by accident, missold what 0:15:25.800 --> 0:15:30.280 bond investing actually was, because I remember in the early 0:15:30.320 --> 0:15:32.920 two thousands, you know, he was talking about this idea 0:15:33.040 --> 0:15:35.480 that if you do it the right way, you can 0:15:35.480 --> 0:15:39.080 get stock like returns on on bonds which are supposed 0:15:39.120 --> 0:15:41.000 to be safer, and the way you do it is 0:15:41.000 --> 0:15:44.960 you use lots of volatility selling strategies and use lots 0:15:45.000 --> 0:15:48.000 of leverage and things like that. Is that is that 0:15:48.040 --> 0:15:51.720 what bond investing should be or is there inherently, you know, 0:15:51.800 --> 0:15:54.720 a discrepancy between stocks and bonds and the returns that 0:15:54.760 --> 0:15:58.040 are possible there. I love that. I think there's probably 0:15:58.480 --> 0:16:02.240 you know, he always got this ding. I think where 0:16:02.480 --> 0:16:04.720 people called him a hedge fund manager and a mutual 0:16:04.720 --> 0:16:08.040 fund rapper, and I think that's probably true. You're exactly right. 0:16:08.080 --> 0:16:10.680 I kind of wanted my bonds to be managed my 0:16:10.680 --> 0:16:12.440 bond funds to be managed by a Doric in Boston. 0:16:12.480 --> 0:16:15.000 Like I'm trying to stay calm here. I don't necessarily 0:16:15.000 --> 0:16:17.040 want you to be doing Like one guy told me 0:16:17.080 --> 0:16:20.040 that the consultants used to call this gross cash. They're like, 0:16:20.080 --> 0:16:21.720 I don't know what you're doing with this cash and 0:16:21.720 --> 0:16:23.480 cash equivalent stuff and lamb to cash and all these 0:16:23.520 --> 0:16:27.120 other strategies that they used. It. It was like it's working, 0:16:27.160 --> 0:16:30.000 so I don't mind. But I'm like, whatever, you're doing, 0:16:30.040 --> 0:16:32.600 this like weird magic in the market, Like thank you great. 0:16:32.680 --> 0:16:35.280 I'm not going to look too closely. And I'm sure 0:16:35.360 --> 0:16:37.760 you know they're all fiduciaries. Everyone looked closely. I'm sure 0:16:37.760 --> 0:16:40.200 they did that. But there is an element of like 0:16:40.960 --> 0:16:44.760 not examining it when it's working and it worked for 0:16:44.800 --> 0:16:46.720 a long time. You know, it was obviously to your 0:16:46.760 --> 0:16:48.480 benefit for a very long time. But at the same time, 0:16:48.520 --> 0:16:51.120 it's like, is this good risk that we're taking? Is 0:16:51.160 --> 0:16:53.160 this what I want to be doing there? This is 0:16:53.280 --> 0:16:55.280 kind of funny. To me where like the cash equivalent thing, 0:16:55.800 --> 0:16:58.640 there was apparently a pretty robust debate at times about 0:16:58.640 --> 0:17:01.520 whether or not Russian owners should count in the cash 0:17:01.560 --> 0:17:05.399 equivalent bucket, saying that right now today it feels bananas, right, 0:17:05.440 --> 0:17:08.480 like that shouldn't be a conversation. But in other times 0:17:08.520 --> 0:17:10.680 you can imagine that that's like, it's probably fine, it's 0:17:10.720 --> 0:17:12.720 probably fine, we can get away with it. And is 0:17:12.720 --> 0:17:14.719 that what you want as a mutual fund investor, like 0:17:14.760 --> 0:17:16.359 with your retirement money, you want to get away with 0:17:16.400 --> 0:17:34.359 Russian floaters. I don't know. I feel like it's odd 0:17:34.359 --> 0:17:36.600 lots we should talk about the bond market, but like 0:17:36.640 --> 0:17:38.960 your book is like partially about the bond market, but 0:17:39.000 --> 0:17:41.919 it's also a lot about like the human drama of 0:17:42.000 --> 0:17:45.840 Bill Griss's overthrow. His character is sort of like he's 0:17:45.840 --> 0:17:49.160 a genius investor who is not good with people, and 0:17:50.000 --> 0:17:54.679 he works at this institution where he's not the CEO, 0:17:54.840 --> 0:17:57.720 he's the chief investment officer, he makes the trading calls, 0:17:58.200 --> 0:18:02.399 and someone else in charge of management, and yet his 0:18:02.520 --> 0:18:05.760 managerial style is sort of what pervades the place and 0:18:05.840 --> 0:18:09.639 what ends up I think getting him outsted. How can you, like, 0:18:09.800 --> 0:18:12.800 you know, have that guy, run your investments and not 0:18:12.920 --> 0:18:16.480 drive everyone crazy. Yeah, I think. I mean it worked 0:18:16.480 --> 0:18:19.399 for a long time in part because there were people 0:18:19.400 --> 0:18:22.760 in the CEO position that Bill trusted and respected, and 0:18:23.000 --> 0:18:25.320 if that's the case, he kind of can or could 0:18:25.760 --> 0:18:27.879 allow them to do their job and manage people and 0:18:27.880 --> 0:18:30.720 make executive choices, and he wasn't really going to interfere. 0:18:30.720 --> 0:18:32.800 He might like snark around a little bit and give 0:18:32.880 --> 0:18:35.280 them the silent treatment for hiring too many people or whatever, 0:18:35.320 --> 0:18:38.440 but he's not gonna He generally let them do their jobs. 0:18:38.680 --> 0:18:42.000 And I think that's part of it is, you know, 0:18:42.040 --> 0:18:44.399 in the seventies and eighties and nineties, this was a 0:18:44.400 --> 0:18:46.520 bit easier because a lot of the people came up 0:18:46.520 --> 0:18:49.560 with him and were his peers and he respected them. 0:18:49.600 --> 0:18:53.080 And then when you get Muhammadalarian in the door. You know, 0:18:53.119 --> 0:18:56.560 there are multiple reasons why that that relationship didn't really 0:18:56.600 --> 0:18:59.119 work out. Um one being that their personalities are just 0:18:59.200 --> 0:19:03.000 so different and their managerial instincts and investing instincts are 0:19:03.040 --> 0:19:06.600 so different. One reason being that, you know, Bill, you know, 0:19:06.640 --> 0:19:09.280 there's this this sense that Mohammed at the eleventh hour 0:19:09.400 --> 0:19:12.560 asked to be co c i O and co CEO Um, 0:19:12.640 --> 0:19:13.960 you know, he was supposed to just be kind of 0:19:13.960 --> 0:19:18.240 Bill's air. But I think you know, having that, having 0:19:18.280 --> 0:19:22.320 someone in that role who he mistrusted, was probably to 0:19:22.440 --> 0:19:25.360 some extent always going to be a cursed outcome. If 0:19:25.359 --> 0:19:28.440 you're able to keep the lanes clean and able to 0:19:28.440 --> 0:19:30.639 to let him just do his job, Yes, it creates 0:19:30.640 --> 0:19:33.239 this culture. But I think you I think they were 0:19:33.320 --> 0:19:35.560 able to navigate around that culture for a long time. 0:19:36.280 --> 0:19:38.440 Is that there's an open questions to whether that would 0:19:38.440 --> 0:19:41.919 have been successful even with the optimal chief executive in 0:19:41.960 --> 0:19:44.159 today's climate where we've done a lot of kind of 0:19:44.280 --> 0:19:47.920 renegotiation of what we ask from our employers. But but yeah, 0:19:47.960 --> 0:19:49.840 I think it's it's a matter of like respect and 0:19:49.880 --> 0:19:54.159 trust and allowing people to to give each other space. No, 0:19:57.920 --> 0:19:59.800 I think it's safe to say no. They were kind 0:19:59.800 --> 0:20:02.520 of trying to project that for a while, and I 0:20:02.560 --> 0:20:05.399 asked folks on the street, and I asked people inside, 0:20:05.440 --> 0:20:07.760 and they were like, no, if anything gets worse. So 0:20:07.960 --> 0:20:10.040 I don't know, take that as you will. So just 0:20:10.119 --> 0:20:14.280 on that note, I mean reading your your notes as 0:20:14.320 --> 0:20:17.600 an author, and there's a very funny but also disturbing 0:20:17.600 --> 0:20:21.639 anecdote about the rumors um swirling around you as you 0:20:21.760 --> 0:20:24.679 reported out this book for many, many years. But one 0:20:24.720 --> 0:20:27.200 of the things you talk about is this idea of 0:20:27.280 --> 0:20:31.600 the toxicity of that work environment kind of rubbing off 0:20:31.680 --> 0:20:34.680 on you as you interview all these people who all 0:20:34.800 --> 0:20:37.120 have their own agendas, who all want to tell their 0:20:37.119 --> 0:20:42.600 own versions of the history. What was that like. I 0:20:42.600 --> 0:20:44.760 don't know if this happens to every reporter, but I 0:20:44.800 --> 0:20:47.359 feel like when I talked to a particularly paranoid source, 0:20:47.400 --> 0:20:50.760