Speaker 1: Hello, and welcome to another episode of the All Thoughts Podcast.
Speaker 1: I'm Tracy Alloway and I'm Joe.
Speaker 2: Why isn't thal Joe.
Speaker 1: We are at the future Proof Conference in the glorious
Speaker 1: Huntington Beach and we have a very very special guest.
Speaker 1: This is something that we recorded live on stage on
Speaker 1: a beach. We've never done that before.
Speaker 2: Never on a beach before. Truly extraordinary moment, beautiful Huntington Beach.
Speaker 2: It really is kind of like a festival here, and
Speaker 2: this was a really fun conversation to do.
Speaker 1: Yeah, so we are speaking with Bill Gross, the bond
Speaker 1: king himself. Obviously he has a lot of thoughts on
Speaker 1: the state of the bond market now, but we're also
Speaker 1: going to talk to him about his career and how
Speaker 1: investing in trading debt has actually changed over the decades.
Speaker 2: Yeah, really fun conversation.
Speaker 1: Take a listen, Bill, you brought out the sungloves.
Speaker 3: Huh I did. It's been ten years. Last time it
Speaker 3: didn't work too well, But.
Speaker 2: Try it again.
Speaker 1: It'll be good this time. I want to start out
Speaker 1: with you know, we're in the midst of what seems
Speaker 1: like another interest rate cycle of some sorty. No one
Speaker 1: really knows how long it's going to last. There aren't
Speaker 1: that many people around nowadays who have lived through different
Speaker 1: interest rate cycles. And you actually started your career in
Speaker 1: the nineteen seventies in an era of stagflation, in an
Speaker 1: era where the Fed was hiking. We didn't have derivatives
Speaker 1: to hedge duration risk, We didn't have Bloomberg terminals, we
Speaker 1: had quotrons.
Speaker 3: What was that like, Well, it was much different. You know,
Speaker 3: bear markets are not as much fun as bull markets,
Speaker 3: depending upon your position. But you know, interest rates got
Speaker 3: fifteen percent and eighty one, eighty two somewhere in there.
Speaker 3: And the interesting thing is that they were almost self
Speaker 3: hedging because the duration of a thirty year treasury at
Speaker 3: fifteen percent was about four and a half to five years.
Speaker 3: It was it was like a five year today or
Speaker 3: close to it, and so at fifteen percent with a
Speaker 3: very short duration, it meant that interest rates could go
Speaker 3: up to eighteen percent and you still wouldn't lose money.
Speaker 3: It was a it was a golden opportunity when you
Speaker 3: think back.
Speaker 2: And you know, obviously, as Tracy mentioned, you started at
Speaker 2: PIMCO in the early seventies, and so there were several
Speaker 2: years of bond bear market before the Great bull market,
Speaker 2: which we'll talk about. What did you learn then about
Speaker 2: like surviving in a bear market for an asset class.
Speaker 3: Well, you know, it depends on who you're investing for.
Speaker 3: If you're looking for a client and trying to glow
Speaker 3: a business, then you have to be aware the relative
Speaker 3: performance is important, but if it's a significant bear market,
Speaker 3: that absolute performance is crucial as well. Investors and clients
Speaker 3: will just leave no matter how good you were relative
Speaker 3: to the market. So I think that was keyback then,
Speaker 3: relative performance. And then you know, stepping on the accelerator
Speaker 3: in eighty one eighty two and buying a secular bull market,
Speaker 3: and it was a bull market.
Speaker 1: So nowadays we kind of take for granted that people
Speaker 1: actively trade bonds, you buy and sell them, But when
Speaker 1: you started out, that wasn't the case at all. Walk
Speaker 1: us through the thought process and the opportunity that you
Speaker 1: saw in trading bonds.
Speaker 3: Right, Well, there were no real computers, no clearing house,
Speaker 3: overnight types of trades. You. As a matter of fact,
Speaker 3: I pimp Go, which was owned by Pacific Mutual Downtown LA.
Speaker 3: We had a billion dollars in a vault and I
Speaker 3: was hired not for Pimco but really for private placements.
Speaker 3: And one of my jobs, twenty five percent of the
Speaker 3: eleven thousand dollars I made each year, was to go
Speaker 3: down into the vault and to actually clip coupons. You've
Speaker 3: you've heard a coupon clipping. I did a lot of that.
Speaker 3: Uh and and back in the day, because the bonds
Speaker 3: were in the vault, it was pretty hard to get
Speaker 3: them to New York. It took two or three days
Speaker 3: to get them to New York. Like I say, there
Speaker 3: were there were IBM three sixties, but nothing in terms
Speaker 3: of connectivity. And so you know, the physical trading of
Speaker 3: bonds and stocks was was very difficult and allowed for
Speaker 3: for ill liquid mar makes.
Speaker 2: Talk to us more about you know, you mentioned anyone
Speaker 2: and then you like pressed down the accelerator and rode
Speaker 2: this incredible wave, right, this incredible roughly I guess forty
Speaker 2: years basically bull market in bonds.
Speaker 3: But talk to us.
Speaker 2: You know, if you look at your career and you
Speaker 2: think the bond king, like talk to you about the
Speaker 2: role of timing and how crucial that was. And when
Speaker 2: you think about the success that you had at pimp Co, etc.
Speaker 2: Are like just being there at the right time, and
Speaker 2: the role of I guess a little bit of luck.
Speaker 3: Right, Well, it the key of Pimpco for us, said Pimpco.
Speaker 3: It wasn't just me. We had a lot of smart people,
Speaker 3: and more and more as as time went on. But
Speaker 3: the key was was really a book that I forget
Speaker 3: who wrote it.
Speaker 2: Uh.
Speaker 3: It was called Investing for the Long Term. It was
Speaker 3: it was about stocks, but I mentioned the long term,
Speaker 3: the secular movement of financial and instruments as opposed to cyclical,
Speaker 3: as opposed to short term trading. And it seemed to
Speaker 3: me that the bane of investor is emotion. And I'm
Speaker 3: the same way. I never thought of myself as a
Speaker 3: good trader. I mean, if in Nvidia, you know, hits
Speaker 3: five hundred, I'm just as likely to buy it as
Speaker 3: to sell it and then regret it the next day.
Speaker 3: But in any case, if you take a longer term
Speaker 3: view and not go to sleep, but if you take
Speaker 3: a longer term view and know that forces in the economy, inflation, demographics, globalization,
Speaker 3: if you know that those are working in the favor
Speaker 3: of either a bull or a bear, then sticking with
Speaker 3: what we called a three to five year forecast, as
Speaker 3: opposed to a three to five day forecast was the key.
Speaker 3: And it does it hurt mentally when you're long and
Speaker 3: you should be short for a short period of time. Yeah,
Speaker 3: it does, but you just you have to you have
Speaker 3: to stay with that mind frame of a longer term
Speaker 3: secular market.
Speaker 1: How did the way you trade it actually change as
Speaker 1: PIMCO grew larger because I imagine you know, at one
Speaker 1: point PIMCO has hundreds of billions of dollars under management,
Speaker 1: trillions even, and there are pros and cons to that, right,
Speaker 1: like you get first allocation of debt, but maybe it's
Speaker 1: hard to hug your benchmark because you are gigantic.
Speaker 3: And that's true. So you know, as we grew larger
Speaker 3: and larger, clients would always say, well, how can you
Speaker 3: keep doing this at one hundred billion or two hundred
Speaker 3: billion or five hundred billion, because your size, you know,
Speaker 3: is prohibitive in terms of liquidity. It wasn't because we
Speaker 3: found the futures market, we found the foreign markets, we
Speaker 3: found markets that that added liquidity, and actually we'd stay
Speaker 3: in this trading room and this this is not a
Speaker 3: good joke for for now, but I'll tell it anyway,
Speaker 3: that the client. Uh, the client would say, how can
Speaker 3: you do it? And then we tell them how we
Speaker 3: did it. And then we go back in the trading
Speaker 3: room and and look at each other and they say,
Speaker 3: you know, how we do it. We just add a
Speaker 3: zero to the ticket.
Speaker 2: Yes, ticket, I mean, I know we're gonna talk. We're gonna,
Speaker 2: you know, at some point, like talk about this current
Speaker 2: market a little bit. But maybe it's like a sort
Speaker 2: of sag, you know. Obviously there were a lot of
Speaker 2: in the inflation of the late seventies and early eighties.
Speaker 2: There were a lot of false dawns right where they
Speaker 2: thought they had defeated inflation and the FED was like, Okay,
Speaker 2: we're going to like we're gonna be able to bring
Speaker 2: raids down, and then inflation shot up and they it
Speaker 2: took them a long time before they like it's good
Speaker 2: for good. Did it feel today when like similar to
Speaker 2: that or do you feel like, does it feel like
Speaker 2: the late seventies, this inflation, or did it feel like
Speaker 2: substantively different what we've experienced over the last few years.
Speaker 3: Well, the late seventies influenced by seventy one seventy two
Speaker 3: when Nixon went off the gold standard and it was
Speaker 3: easy error and then easy for central banks to print money.
Speaker 3: There was also OPEC, and once they got going, it
Speaker 3: was hard to stop. You know, I think the FED
Speaker 3: and other central bankers are more aware now, hopefully they are,
Speaker 3: they weren't two years ago. So it's hard to make
Speaker 3: that claim. But it's it's a market these days that
Speaker 3: can be controlled to some extent with higher interest rates,
Speaker 3: but not necessarily, not necessarily, and we're seeing that right
Speaker 3: now because the you know, the the real five year note,
Speaker 3: the real five year note in terms of interest rates,
Speaker 3: was bottomed at minus two hundred basis points. It's now
Speaker 3: a plus two fifty. It's gone up four hundred and
Speaker 3: fifty basis points in the last year and a half,
Speaker 3: which is incredible and to my way of thinking, when
Speaker 3: we start talking about stocks, it's definitely a negative influence
Speaker 3: in terms of valuations and pees, but the market doesn't
Speaker 3: seem to recognize it.
Speaker 1: Wait, when you say the economy can't be controlled through
Speaker 1: interest rates as much as it once maybe could be,
Speaker 1: can you expound on that. Why is that the case?
Speaker 3: Well, you've you've got you've got foreign markets which didn't
Speaker 3: exist really in size back then, and they have an
Speaker 3: influence on the treasure market. All it's it's usually the
Speaker 3: other way around, and pretty decent uh uh size. And
Speaker 3: you've you've got you've got demographics that are important now
Speaker 3: with the boomers myself and others that are spending their savings,
Speaker 3: and that uh has a significant effect in terms of
Speaker 3: supply relative to demand. You didn't have that demographic influence
Speaker 3: back then. And then you know, globalization crept up in
Speaker 3: the last ten years or so made for higher productivity,
Speaker 3: and now it's going the other way. So they're just
Speaker 3: other forces to think about and and and that's what
Speaker 3: Powell is doing. He's trying to He's trying to gauge
Speaker 3: the appropriate real interest rate that will produce two percent inflation,
Speaker 3: which I think is a is a dream, but uh,
Speaker 3: that's what he says he's going to do, and that's
Speaker 3: what he tries to do. And that's why you know
Speaker 3: FED funds are five and a quarter to five and
Speaker 3: a half. We'll see what happens.
Speaker 2: A lot of people think that rate cuts are coming,
Speaker 2: that we're in some like abnormally high level of interest
Speaker 2: rates and it's only a matter of time before like
Speaker 2: the FED is able to normalize and by normalize, what
Speaker 2: they mean is cut to something that maybe would be
Speaker 2: more familiar in the not you know, not go back
Speaker 2: to desert, but something that may be more familiar several
Speaker 2: years ago. Do you see that in the cards? Like,
Speaker 2: do you think that the Fed is going to be
Speaker 2: able to cut sometime soon and rates are going to
Speaker 2: come back down?
Speaker 3: Yeah? I don't think so unless recession comes with a
Speaker 3: capital R and it doesn't seem to be doing that.
Speaker 3: Let me give you my value metric for the ten ure.
Speaker 3: The tenure at four and a quarter for treasuries. So
Speaker 3: Powell wants to get FED funds down to two. Let's
Speaker 3: say is successful. Let's say power is successful, which would
Speaker 3: be seemingly very bullish for the market. And if Fed
Speaker 3: funds are at two and then the the R star
Speaker 3: as they call it, you know, the real Fed funds
Speaker 3: rate would be a two and a half. But then
Speaker 3: there's a term premium, Joe, a term premium that historically
Speaker 3: has been about one hundred and thirty basis points over
Speaker 3: FED funds. And we're talking about the term premium of
Speaker 3: the ten versus the short term rate. And why is
Speaker 3: there a premium for a ten versus a short term
Speaker 3: rate because it's riskier because it goes up and down
Speaker 3: and you can lose money, whereas you can't with a bill.
Speaker 3: So let's just say that power is successful gets to
Speaker 3: two are stars at two and a half term premium
Speaker 3: three and a half close to four? I mean at
Speaker 3: four quarter, we're basically anticipating the Fed being successful and
Speaker 3: containing inflation at a two percent level. And if he doesn't,
Speaker 3: then we certainly haven't got a bull market, and we
Speaker 3: certainly don't have a context where Powell and the Fed,
Speaker 3: you know, are likely to cut interest rates. I just
Speaker 3: don't see it. It's not that unsignificantly bearish, although we
Speaker 3: can talk about that in a second. But four and
Speaker 3: a quarter is not a bad level for now as
Speaker 3: long as inflation keeps going down. If it doesn't, then no.
Speaker 1: No, I'm going to take you up on the bearish
Speaker 1: period offer in a second. But since you mentioned the
Speaker 1: term premium, when you look at the yield curve right now,
Speaker 1: the fact that it's inverted, what do you see? What's
Speaker 1: that telling you? Because I feel like there's a group
Speaker 1: of people who will say this time definitely isn't different.
Speaker 1: It's a tradition indicator of recession, and then there are
Speaker 1: a lot of people who will say times have changed.
Speaker 1: The term premium is a lot lower than it used
Speaker 1: to be. Maybe that's what's causing the inversion.
Speaker 3: Well, I think it is, but that's another way of
Speaker 3: saying that the term premium, which appears to be close
Speaker 3: to zero, is wrong. But I've been baffled by the
Speaker 3: you know, the length and the extent of the negative curve.
Speaker 3: I mean, we had we had one in seventy nine,
Speaker 3: eighty eighty one, and it seemed to work for Volcar.
Speaker 3: Doesn't seem to be working that well now. And I
Speaker 3: think perhaps one of the reasons is that fiscal policy
Speaker 3: has been so expansive. I mean, we're looking at a
Speaker 3: two trillion dollar deficit this year. Last year it was
Speaker 3: three three and a half during COVID, and so you know,
Speaker 3: when you have phi school policy in such a deficit
Speaker 3: and people spending money, it's like bernank remember Bernanke with
Speaker 3: a helicopter. I'll be damned, but that's what we did.
Speaker 3: We threw money out of a helicopter. We threw trillions
Speaker 3: of dollars out of a helicopter. And so the last
Speaker 3: of it is just now being spent, and I I
Speaker 3: think the reason why term premiums are so low is
Speaker 3: that the economy is good and people have money to
Speaker 3: uh to invest.
Speaker 2: All right, I'm gonna jump. What do you you said,
Speaker 2: you hinted, or maybe that you're there's something that you're
Speaker 2: bearish on.
Speaker 3: What do you bearish on? You mean in terms of markets?
Speaker 2: I don't know, you sent not burishing thing like I'll
Speaker 2: get back to that.
Speaker 3: Oh well, in terms of bonds, So we have a
Speaker 3: deficit of uh close to two trillion, The outstanding treasury
Speaker 3: market is about thirty three trillion. I've read on Bloomberg
Speaker 3: and others, things of the Plug and other sources that
Speaker 3: basically say about thirty percent of the existing outstanding treasuries
Speaker 3: that's thirty three trillion. So ten trillion have to be
Speaker 3: rolled over in the next twelve months, including the two
Speaker 3: trillion that's new. So that's twelve trillion dollars worth of
Speaker 3: treasures that have to be financed over the next twelve months.
Speaker 3: And who's going to buy them at these levels? Well,
Speaker 3: some people are buying them, but it just seems to
Speaker 3: be a lot of money. And when you add onto
Speaker 3: that that Powell is doing quantitative tightening, as you know,
Speaker 3: and that theoretically is a trillion dollars worth of reduced
Speaker 3: well trillion dollars worth of added supply, I guess. And
Speaker 3: so it just it seems like a very dangerous time
Speaker 3: based on supply, even if inflation does come down. So
Speaker 3: I wouldn't necessarily be bearished, because I think the FED
Speaker 3: talks a good game, even though they don't play a
Speaker 3: good game. They talk a good game, and they seem
Speaker 3: to have convinced investors that interest rates will come down
Speaker 3: once we get close to two percent. I think that's
Speaker 3: a stretch.
Speaker 1: You know, given that deluge of supply and the fact
Speaker 1: that you are going to need a lot more buyers
Speaker 1: to take that up at exactly the time when it
Speaker 1: seems like a lot of traditional foreign buyers of US
Speaker 1: debt have stepped away. Do you think financial repression comes
Speaker 1: back into play. We're already seeing the FED talk about
Speaker 1: higher capital rules for some of the banks, things like that.
Speaker 1: Is that a risk in your mind? I remember you
Speaker 1: talking about this way back in twenty eleven, twenty twelve.
Speaker 3: Well, I think it is all of the new rules
Speaker 3: the you know, in terms of the intermediate banks UH
Speaker 3: which followed on from Silicon Valley Bank the new rules
Speaker 3: and Schwab, by the way, not to if Schwab's out there,
Speaker 3: Chuck and I played golf once in a while, so
Speaker 3: sorry about that. The banks have gone overboard in terms
Speaker 3: of duration. I mean, Schwab basically takes all all their
Speaker 3: money market instruments and not all, sorry, but a lot
Speaker 3: and puts it into long term bonds. And that's how
Speaker 3: they've gotten caught. And that's how Silicon Valley got caught.
Speaker 3: And so you know, the repression, uh you know, it
Speaker 3: hasn't necessarily in terms of what I read, come in
Speaker 3: the form of duration, but it's come in the form
Speaker 3: of increased capital and increased debt. A lot of these
Speaker 3: intermediate banks have been ordered or will be ordered to
Speaker 3: issue six or seven billion dollars worth of debt in
Speaker 3: order to absorb you know, what happened to six to
Speaker 3: twelve months ago. So I think that's a that's an
Speaker 3: effect of what we have. We have a financial system
Speaker 3: that that's that's dependent upon asset prices going up. If
Speaker 3: you if if you remember anything I said today, we
Speaker 3: we have an asset we have an economy that's based
Speaker 3: on asset prices, going up. If they don't go up,
Speaker 3: there are problems. There are problems because there's so much
Speaker 3: debt and there's such high expectations in terms of PE
Speaker 3: ratios and the like that if this asset based economy,
Speaker 3: which is depends upon higher stock prices, depends upon higher
Speaker 3: or relatively high bond prices, it's it's precarious at some point.
Speaker 3: Not I I'm not saying get out, I'm just saying
Speaker 3: that assets have to go up or else the economy
Speaker 3: will not do well.
Speaker 1: Since you mentioned duration, how would you manage or hedge
Speaker 1: duration risk right now? And you can't just say that
Speaker 1: you wouldn't take it on. If I gave you one
Speaker 1: hundred dollars to invest in bonds, how would you hedge
Speaker 1: that duration risk?
Speaker 3: You know, Pimpko was always successful. Most people didn't realize
Speaker 3: it until the books came out. Pimko is always a
Speaker 3: great believer in selling volatility. Selling volatility has an alpha,
Speaker 3: pretty consistent alpha over time momentum. It doesn't always work,
Speaker 3: obviously when black swans appear, but momentum is like an
Speaker 3: insurance company, and so that's the way Buffett works. Buffett
Speaker 3: doesn't say that's the way it works. But that's the
Speaker 3: way it works. He takes that float and he sells
Speaker 3: volatility by investing in longer term stock options, et cetera,
Speaker 3: et cetera. I would and what have I done? I
Speaker 3: would sell a put n a call on a say,
Speaker 3: a ten year treasury the t y contract tyz C
Speaker 3: three trades are around one hundred and nine. You know,
Speaker 3: I just sell one hundred and eight put one hundred
Speaker 3: and ten call for thirty days, and the volatility is decent,
Speaker 3: not as high as it has been, but it's decent,
Speaker 3: and you just you just bring those premiums down to
Speaker 3: the bottom line as long as the market doesn't take
Speaker 3: off like a firecracker one way or the other.
Speaker 2: So Tracy poses this hypothetical to you. It's like, okay,
Speaker 2: how do you how would you hedge this duration? But
Speaker 2: listening to like, I'm just wondering, like why should anyone
Speaker 2: buy a bond? And the reason that you know, as
Speaker 2: you said, like at the long end is almost already
Speaker 2: priced in a sort of success from the Fed, like
Speaker 2: already pricing in a sort of good scenario. There's upside risk.
Speaker 2: There's this deluge of issuance, and unlike say for the
Speaker 2: last at least the last fifteen years going up until
Speaker 2: twenty twenty one and longer, like we're not even getting
Speaker 2: these sort of like inverse correlation to equities in the portfolio.
Speaker 2: So you no longer get that sort of like beautiful
Speaker 2: sixty forty portfolio where something in your portfolio is green
Speaker 2: on the day and green on the quarter.
Speaker 3: So why why on a bond? Well that's a good question.
Speaker 3: So say you buy a ten year Apple or ten
Speaker 3: year Amazon, you know, at five and a quarter bless
Speaker 3: and minus, and this is you know, I've been in
Speaker 3: this business a long time and I've been taxed sensitive,
Speaker 3: but I haven't I'm not a real estate guy. All
Speaker 3: my buddies at the country club are in real estate
Speaker 3: and they've never paid a tax in their life for
Speaker 3: having paid taxes, so I'm thinking about this, and so
Speaker 3: I've paid a lot of taxes. So it's so, say
Speaker 3: you aren't five and a half from an Amazon tenure,
Speaker 3: and say you live in California and New York, just
Speaker 3: say so, that's a fifteen percent hook right there, and
Speaker 3: the federal is probably forty percent plus or minus depending
Speaker 3: upon what your bracket is. So so take it up
Speaker 3: to fifty five, So the government takes fifty five of
Speaker 3: the five fifty and fifty five times five fifty fifty
Speaker 3: five five, it's probably like six, well fifty five times
Speaker 3: sweet five is it's like six twenty five whatever. You
Speaker 3: start to lose it when you're seventy nine anyway, So
Speaker 3: the government's taking like fifty five percent right away. And say,
Speaker 3: say you're trying to build a a state leads something
Speaker 3: for your grandkids, and yeah, you can set up a
Speaker 3: trust et cetera, et cetera, but that costs money too,
Speaker 3: But the estate tax is forty percent, and so they
Speaker 3: so if you got forty five left and you got
Speaker 3: forty percent on the state tax, that's sixteen seventeen percent,
Speaker 3: and so you're you're basically up to seventy percent that
Speaker 3: that government takes. That government takes seventy percent of your
Speaker 3: money and you get thirty percent. And so why why
Speaker 3: would you risk thirty percent one hundred percent of your
Speaker 3: money for a thirty percent payoff at five and a half.
Speaker 3: It doesn't make any sense, and it didn't make it
Speaker 3: certainly didn't make any sense two years ago or a
Speaker 3: year and a half ago when interest it's for zero,
Speaker 3: So you got to beat the taxman in one form
Speaker 3: or another. I'm not a pro at that. You know,
Speaker 3: Go buy a Go buy an office building in New York.
Speaker 2: I guess I heard they have their own problem buildings
Speaker 2: some other.
Speaker 1: Yeah, Bill, you kind of alluded to this. But you're
Speaker 1: managing your own money now, and you're invested in a
Speaker 1: lot of different things. So stocks, bonds, MLPs, what's your
Speaker 1: favorite thing to trade now?
Speaker 3: Idea? Unfortunately, uh, you know, oil is at a cyclical peak.
Speaker 3: Maybe it goes higher. I hope it does. But there's
Speaker 3: master limited partnerships mainly in uh, the oil and gas
Speaker 3: pipeline areas. At some point ten fifteen years ago Congress,
Speaker 3: somebody paid off a congressman and he inserted it into
Speaker 3: a bill, and so MLPs, you know, basically our partnerships
Speaker 3: just like real estate, it's the way, it's a way
Speaker 3: to get even with your real estate golf buddies. And
Speaker 3: so what it is is that you don't pay any
Speaker 3: taxes until you sell it. Okay, just like real estate,
Speaker 3: they don't pay any taxes even when they even in
Speaker 3: real estate, guys sell it, they transfer it to another property.
Speaker 3: They don't pay any taxes. They don't pay taxes ever. Anyway,
Speaker 3: So these MLPs, and they're about six or seven or
Speaker 3: eight of them, they turned pretty frequently. The largest one
Speaker 3: is called Energy Transfer. It's et it's the biggest in
Speaker 3: the country. It yields nine percent, And is that safe?
Speaker 3: It's been pretty steady, and as it dependent upon oil prices, yeah,
Speaker 3: the price of the stock is affected to some extent
Speaker 3: of oil goes down. But so so I've got an
Speaker 3: MLP with energy transfer it a nine percent yield that
Speaker 3: I don't pay taxes on until I sell it or
Speaker 3: it pops into a state, and I don't think you
Speaker 3: even get taxed then. And all of these MLPs are
Speaker 3: like eight eight and a half nine percent, And you
Speaker 3: know that suggests that there's a lot of risk there,
Speaker 3: and I suppose there is. They've gone down and they'll
Speaker 3: go down again. But from a tax standpoint, I really
Speaker 3: like them. About forty percent of my portfolios or in
Speaker 3: oil and gas MLPs. The other symbols would be MMP, MAGELLAN, MPLX,
Speaker 3: NS A new Star. There's like eight of them. Just
Speaker 3: get your Bloomberg and hit r V for relative value
Speaker 3: and it'll show you everything you should invest in.
Speaker 1: We asked Bill to give you tips on terminal function.
Speaker 2: No, I love so I love like you know the
Speaker 2: exact price of the part of the Treasury futures curve
Speaker 2: whar it's trading right now. It various tickers in their
Speaker 2: yields of MLPs. So you're still like, you're getting up
Speaker 2: at five thirty every day, still and just as active
Speaker 2: as ever.
Speaker 3: Yeah, And I know that's sort of stupid. And people
Speaker 3: say smell the roses, and I think I do. My
Speaker 3: wife Amy and I play golf in the afternoon. That
Speaker 3: that that's smelling the roses. But in the morning, what
Speaker 3: else would I do. I'm not gonna watch the morning
Speaker 3: talk shows, and so yeah, I get up and I
Speaker 3: watch I watch the market and it's fun. You know,
Speaker 3: I told you this back. But there's a good definition
Speaker 3: of happiness. It's not the only definition. You've got plenty,
Speaker 3: I'm sure, but one definition says you need someone to love,
Speaker 3: that's for sure. You need something to do and something
Speaker 3: to look forward to. And so for me, the market
Speaker 3: is something to do in the morning and something to
Speaker 3: look forward to. I look forward to in video and
Speaker 3: the earnings announcement. I'm hanging at one o'clock Pacific time
Speaker 3: just waiting for that announcement, and I go, what are
Speaker 3: you doing? Why is this so important to you? But
Speaker 3: I guess it is.
Speaker 2: I love that of the three things you need to
Speaker 2: be happy, the market.
Speaker 3: Is two of them for you. All right.
Speaker 1: Well, on a related note, I remember in one of
Speaker 1: your very famous investment outlooks, you said that you didn't
Speaker 1: consider yourself a good trader. So fast forward many years
Speaker 1: do you think you're a good trader?
Speaker 3: Now?
Speaker 1: Have you gotten better? No?
Speaker 3: I'm not a good trade. I'm as emotional as everybody else.
Speaker 3: And that's the bread. You can't be emotional, and so
Speaker 3: you know, take Buffet. Buffett's is not emotional. He's funny,
Speaker 3: he's a great personality, but I don't see him as
Speaker 3: an emotional person. He's just tried, tried in terms of
Speaker 3: how he looks at markets and the timing. He looks
Speaker 3: at markets going forward, and so it kicks the emotion
Speaker 3: out of there. Yes, he's got to be right if
Speaker 3: he thinks the market's going up or going down. He's
Speaker 3: got to be right on a long term, but the
Speaker 3: emotions out of there. And so you know, I've found
Speaker 3: for myself, I'm very emotional. If I make a trade
Speaker 3: during a day and it closes lower than worry about it.
Speaker 3: I'm not in a good mood. Amy knows, sorry, but
Speaker 3: I'm not a good trader. I am a good long
Speaker 3: term secular investor. I have a good sense of what
Speaker 3: makes for markets in the law long term.
Speaker 2: You mentioned do you see forty percent by the way
Speaker 2: of your of what you in the MLPs these days?
Speaker 2: What are the other big or what's the other sixty percent?
Speaker 3: Like, what are the.
Speaker 2: Other long term things that you want to bet on
Speaker 2: right now?
Speaker 3: Well, so you know, there's a lot of not totally
Speaker 3: safe arbitrage situations that that you'll ten to twenty percent.
Speaker 3: I mean you all know the Microsoft activision deal that
Speaker 3: probably in two weeks will be approved by the UK.
Speaker 3: The trades at ninety two. They're going to pay ninety five.
Speaker 3: That's three points for a month I think it's a month,
Speaker 3: and that's a third six percent annualized return. There are others.
Speaker 3: There's there's there's a new one called Capri which is
Speaker 3: Amy told me about this because they they sell Jimmy Choose.
Speaker 3: I'm sure some of the women know Jimmy Choose Versace
Speaker 3: and uh, there's there's one other company anyway they're being
Speaker 3: acquired by a private entity. You know, there's a ten
Speaker 3: to fifteen percent discount in a relatively safe industry. It's
Speaker 3: not a high tech industry, and there's there's quite a
Speaker 3: few others where a five to ten fifteen percent return
Speaker 3: relative safety can can be achieved, And so I look
Speaker 3: for those, and uh, you know, it's better than five
Speaker 3: percent treasures, but certainly riskier as well.
Speaker 1: I don't know if anyone's ever asked you this before,
Speaker 1: but are you ever tempted by private credit? It seems
Speaker 1: to be all the rage at the moment. I've heard
Speaker 1: one person describe it as bonds without the liquidity issues
Speaker 1: of publicly traded debt. Is that something that interests you?
Speaker 3: Well? Well, no, I think I think you'd be most
Speaker 3: of you would be surprise. I'm I'm not well connected.
Speaker 3: I never was well connected. I came into Newport, I
Speaker 3: sat up my desk, I had my investment committee. I
Speaker 3: had great people working with me, but I didn't know
Speaker 3: many people in New York or Chicago, and I don't
Speaker 3: know many people now. I would if I wanted to
Speaker 3: invest in private equity, I wouldn't know where to go.
Speaker 3: So I'd say no.
Speaker 2: Extremely plugged in to random like merger arbitrage opportunities. But
Speaker 2: I don't know all the fancy people with their private deals.
Speaker 2: Let's talk about a few other topics that are sort
Speaker 2: of in the news a lot of interest these days
Speaker 2: in China and whether there's like a going to be
Speaker 2: a sustained slow down there. But I feel like, you know,
Speaker 2: there's certain things that people talk about like every ten
Speaker 2: years and been warning that their model is going to implode,
Speaker 2: and it's like a permanent thing. Does it having followed
Speaker 2: these things for years, does it feel like there's something
Speaker 2: different going on globally or in China in particularly.
Speaker 3: Yes, certainly in China. You know at PIMCA long ago
Speaker 3: we were onto this long ago, fifteen years too early.
Speaker 3: But China has during that there's stretch of success, been
Speaker 3: successful because of investment, not because of consumption. They don't
Speaker 3: consume seventy percent of the economy like we do in
Speaker 3: the US. Is probably more like forty forty five. And
Speaker 3: the trick for China has been to increase that to
Speaker 3: be more like you know, Western economies and certainly the US.
Speaker 3: Where they've gone wrong is that they've reached the sort
Speaker 3: of a dead end with their investment in housing and construction.
Speaker 3: They've built bridges to nowhere just to keep on building
Speaker 3: and to keep on investing and keep jobs plentiful. And
Speaker 3: so it seems like I say, at PIMCO, we were
Speaker 3: talking about this fifteen years ago and never happened, but
Speaker 3: it seems to be happening now. And so the Chinese
Speaker 3: miracle of six percent growth, I mean we would wonder
Speaker 3: how could that, how could that happen? How could that
Speaker 3: keep on happening with such a large economy, How could
Speaker 3: they grow at six or seven every year? And of
Speaker 3: course they did because they kept on building condos and
Speaker 3: apartments that are now vacant. So I think China's got
Speaker 3: a problem. They got a debt problem like most countries,
Speaker 3: like the US has a dead problem, Japan has a
Speaker 3: huge debt problem. But they've got a dead problem that
Speaker 3: they're going to have to figure out. And it always
Speaker 3: seemed to me that and this has been disproven because
Speaker 3: has grown and grown and grown successfully and become a
Speaker 3: not just an economic force but a geopolitical force. But
Speaker 3: so they've grown and grown and grown, but at some
Speaker 3: point it seems you just can't grow at six percent anymore.
Speaker 3: And and as we know, much of the world is
Speaker 3: dependent upon China, and not just their imports but their
Speaker 3: exports as well. So I would think the Chinese situation
Speaker 3: is a serious one and should be factored into to
Speaker 3: market expectations. But it isn't really. I mean, people, investors,
Speaker 3: once you get on the AI train, and that's okay.
Speaker 3: I'm a believer in that. I don't know much about it,
Speaker 3: but I have a sense that it will improve productivity
Speaker 3: by a half or maybe one percent a year. That's
Speaker 3: big time stuff. But once you get on the AI train,
Speaker 3: you know you're looking for twenty thirty hints. You know what.
Speaker 3: Peter Lynch used to say, five bangers or ten bangers.
Speaker 3: I never liked Peter Lynch, mainly because I thought he
Speaker 3: got out too early and people were always calling me
Speaker 3: the Peter Lynch of bonds, and I said that sucks.
Speaker 1: Okay, all right, we did China, we did Ai, we
Speaker 1: did Peter Lynch. Shall I just throw out some more topics, Yeah,
Speaker 1: you could just appine on them. The Fitch down grade
Speaker 1: of the US credit rating.
Speaker 3: Well, I think it reflects a certain reality, not that
Speaker 3: the US could ever default in terms of not being
Speaker 3: able to cover its bills. The Treasury just hands it
Speaker 3: off to the FED and the Fed prince money they
Speaker 3: have fed like the helicopter that BERNANKI talked about. So
Speaker 3: I don't think that's realistic, but it is. The interruptions
Speaker 3: are potentially realistic. As we know, every time you know
Speaker 3: it comes up for approval, there's there's something that takes place.
Speaker 3: And so I think from the standpoint of a downgrade
Speaker 3: W A plus, it's probably appropriate. But it doesn't there's
Speaker 3: no default ahead. It just maybe it affects the the
Speaker 3: CDs spread a little bit.
Speaker 2: Sorry, I know I'm throwing out topic. Going back to
Speaker 2: bonds though for a second and speaking to the bond king,
Speaker 2: if the could we could there be another bond king
Speaker 2: in a bond bear market? Could there like or do
Speaker 2: you or if you're in bonds and it's like, does
Speaker 2: it just mean you're going to have to like move
Speaker 2: somewhere else? Could there be a great bond manager at
Speaker 2: a time if we don't have a great bond ball market.
Speaker 3: See I sort of wrote this as I was leaving
Speaker 3: what which is a little I don't know what the
Speaker 3: right adjective for that is, but I shouldn't have said it,
Speaker 3: but I don't I think to be a I don't
Speaker 3: think there could be another Bond King, because my reputation
Speaker 3: is Bond King was first of all made by fortune.
Speaker 3: But they printed a four page article with me standing
Speaker 3: on my head doing yoga and I was supposedly the
Speaker 3: bond King, and that was good because it sold tickets.
Speaker 3: But I never never really believed it. The minute you
Speaker 3: start believing it, you're cooked. That the minute you start,
Speaker 3: you're at the three point line. You think you can't miss,
Speaker 3: you miss, And so I never really believed it. But
Speaker 3: you know, it was the function of a bull market
Speaker 3: for thirty years that was growing and Pimpko was doing well.
Speaker 3: And there are too many names I could mention a
Speaker 3: Pimpko that that that helped me along. But you know,
Speaker 3: today could there be a bond King. The Bond Kings
Speaker 3: and Queen's now are at the Fed. They rule, They
Speaker 3: determined for the most part which way interest rates are going,
Speaker 3: sometimes not so well, so they're in charge. And there
Speaker 3: was a time where you know, Pimpko was pretty much
Speaker 3: in it in two thousand and nine and eight, and
Speaker 3: those are my most proud moments where Pimpko was called
Speaker 3: upon by the Treasury and by Warren Buffett to help
Speaker 3: save the economy, and we did that because we were sizable,
Speaker 3: we had a reputation, and the government let us support
Speaker 3: them in the mortgage market and we made money at
Speaker 3: the same time. But I don't think so, and certainly
Speaker 3: so I nailed Peter Lins. I'll nail Jeff Gunlock because
Speaker 3: he nailed me. When I was leaving Pimpko, I went
Speaker 3: up to his house and said, you know, maybe I
Speaker 3: could work with you. We could be two bun kings.
Speaker 3: And he he trashed me for the next twelve months,
Speaker 3: you know, in the press and so on. Just just
Speaker 3: and I'm a sensitive.
Speaker 1: Going We'll get you both on stage a lot of few.
Speaker 3: Anyway, But so so if John, if Jeff Gunlock is
Speaker 3: a bond first of all, to be a bond king
Speaker 3: or a queen, you need a kingdom. You need a kingdom. Okay.
Speaker 3: Pimpko had two trillion dollars, okay, double lines got like
Speaker 3: fifty five billion. Come on, come on, that's no kingdom.
Speaker 3: That's like Latvia or for Estonia, whatever. Okay, and then
Speaker 3: his then look at his record for the last five, six,
Speaker 3: seven years, had a sixtieth percentile smack of a bond king.
Speaker 3: That doesn't.
Speaker 1: There, I got your back, Jeff, Wow, Okay, keep going.
Speaker 1: I'm trying to think where to take the conversation next.
Speaker 1: All right, I want to ask a kind of serious
Speaker 1: question because we only have a few minutes left. But
Speaker 1: you've been very modest and humble sort of except for
Speaker 1: that last answer. Except for that last answer, you've sort
Speaker 1: of rejected parts of the bond king story. You've attributed
Speaker 1: a lot of your success to the bull run in bonds.
Speaker 1: You still think you're not a great trader. How do
Speaker 1: you want people to think of your legacy? When people
Speaker 1: think Bill Gross, what do you want them to think about?
Speaker 1: And I realized, you know you've written your own book
Speaker 1: on yourself, right, someone else has also written.
Speaker 2: A book about you?
Speaker 1: Like, what is what is the legacy that you want?
Speaker 4: H Well, I think Pimpkoh was and and they're still
Speaker 4: close to two trillions, so there's still an important uh
Speaker 4: factor in the marketplace.
Speaker 3: But but the growing of Pimpco from nothing I mean that.
Speaker 3: I mean you talk about careers where you're assisted by
Speaker 3: by this and by that and by parents and whatever.
Speaker 3: You know. I had nothing and Pimpko had nothing. And
Speaker 3: so to go from nothing to to two trillion dollars,
Speaker 3: you know, we we not only did something right, but
Speaker 3: we we did something for our clients. I mean Pimpco.
Speaker 3: The Pimco mantra was the client comes first, and and
Speaker 3: that sounds like bullshit, but it wasn't. We We traded
Speaker 3: for clients, not for ourselves, and we knew what we
Speaker 3: thought as it turned out that if we traded for clients,
Speaker 3: that that would redown to our own benefit. And so
Speaker 3: I'm proud of the growth. I'm proud of our Like
Speaker 3: I say, the financial crisis and how we helped to
Speaker 3: salvage the economy during those days, I'm not so proud of,
Speaker 3: you know, the aftermath with you know, Pimpco firing me.
Speaker 3: Still I still don't have no idea. I have no
Speaker 3: idea why a company a two trillion would fire a
Speaker 3: person and the next week they would lose five hundred
Speaker 3: billion dollars. I have no idea from a business standpoint
Speaker 3: why that would happen. But for some reason, you know,
Speaker 3: they thought my time was over, and I guess it was.
Speaker 3: But I'm certainly proud of not just the growth, but
Speaker 3: the importance of Pimpco in the capital markets and helping
Speaker 3: people along. I mean people come up to me. I
Speaker 3: don't have they still recognize me at seventy nine. I
Speaker 3: look in a mirror, I can't recognize myself, but they
Speaker 3: come up and they say, you know, you really helped
Speaker 3: me that total return fund. It made, it made my portfolio.
Speaker 3: And so those are those are the plauts and the
Speaker 3: compliments that I really treasure the most.
Speaker 2: Bill Gross. Incredible to chat with you here on the
Speaker 2: beach and really appreciate you. Thank doing this interview though
Speaker 2: this is a blast.
Speaker 3: Thank you. And I was going to say, like like
Speaker 3: in the US Open, we're at one o'clock in the
Speaker 3: morning where Djokovic or Coco or whatever they say, and
Speaker 3: thanks for staying so like, thank you. Well.
Speaker 1: That was our conversation with Bill Gross, the Bond King,
Speaker 1: recorded live at the future Proof Conference on Huntington Beach.
Speaker 1: I'm Tracy Alloway. You can follow me at Tracy Alloway and.
Speaker 2: I'm Joe Wisenthal. You can follow me at the Stalwart,
Speaker 2: Follow Bill at Real Underscore, Bill Underscore Gross. Follow our
Speaker 2: producers Kerman Rodriguez at Carman Arman and dash El Bennett
Speaker 2: at dashbot and check out all of our podcasts is
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Speaker 2: Lots content, go to Bloomberg dot com slash odd Lots
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