WEBVTT - Bill Gross on Institutional Bond Trading (Podcast) 0:00:00.080 --> 0:00:06.040 M This is Mesters in Business with very Renaults on 0:00:06.240 --> 0:00:10.920 Bluebird Radio. This week on the podcast, we have an 0:00:10.920 --> 0:00:15.640 extra special guest. I'm trying to to maintain low tones 0:00:15.760 --> 0:00:20.080 and I'm trying to keep my insane enthusiasm down, but 0:00:20.760 --> 0:00:25.120 holy cow, Bill Gross, the Bond King, spent three hours 0:00:25.160 --> 0:00:29.720 talking with us literally about everything. Um, this is a 0:00:29.760 --> 0:00:34.559 pretty amazing conversation. He does not hold anything back. He 0:00:34.720 --> 0:00:38.479 names names, he calls people out. He I don't even 0:00:38.520 --> 0:00:40.600 want to say he has scores to settle because he 0:00:40.640 --> 0:00:44.920 did that in his book. Uh. He explains what made 0:00:44.960 --> 0:00:50.640 PIMCO such a unique place, how they accumulated a trillion dollars, 0:00:51.159 --> 0:00:57.040 essentially creating the concept of institutional bond trading before Pimco, 0:00:57.880 --> 0:01:01.680 bond trading was by appointment only that this didn't exist before. Then, 0:01:02.080 --> 0:01:06.240 we cover everything from card counting to inflation, to the FED, 0:01:06.840 --> 0:01:09.759 to his book, to Marry Child's book The Bond King 0:01:10.160 --> 0:01:15.280 about him. Really there were no comments left unturned, and 0:01:15.319 --> 0:01:19.880 we also revealed what his thoughts were about when his 0:01:20.120 --> 0:01:25.880 bonus was revealed by a certain podcast host about eight 0:01:25.920 --> 0:01:29.640 years ago, and and how that came about his and 0:01:29.720 --> 0:01:37.000 Muhammadalarian's multibillion dollar bonus pool, how that thing could even exist, 0:01:37.040 --> 0:01:40.280 how Alliance allowed them to do it, and and how, 0:01:40.400 --> 0:01:44.880 after almost being a parlor game of speculation, how those 0:01:44.920 --> 0:01:49.320 billions of dollars in who got what bonus pool was 0:01:49.400 --> 0:01:56.240 finally revealed. This was an absolutely fascinating conversation and an 0:01:56.320 --> 0:02:01.080 extra special guest. So, with no further ado, iye conversation 0:02:01.720 --> 0:02:08.920 with PIMCO co founder Bill Gross. This is Mesters in 0:02:09.000 --> 0:02:15.320 Business with very renaults on Bluebird Radio. My extra special 0:02:15.360 --> 0:02:18.600 guest this week is the bond King, Bill Gross, the 0:02:18.680 --> 0:02:23.120 co founder of Pimco. At one time, Bill's total return 0:02:23.200 --> 0:02:27.040 fund was nearly three hundred billion dollars. It was the 0:02:27.080 --> 0:02:32.040 world's largest mutual funds. Gross controlled more bond money than 0:02:32.120 --> 0:02:35.160 anybody else in the world. He advised the U. S. 0:02:35.240 --> 0:02:38.679 Treasury on the role of sub progme mortgage bonds in 0:02:38.720 --> 0:02:42.200 the O eight oh nine crisis. He was named morning 0:02:42.240 --> 0:02:47.200 Stars Fund Manager of the Decade. They observed no other 0:02:47.280 --> 0:02:51.240 fund manager made more money for more people than Bill Gross. 0:02:51.240 --> 0:02:55.480 He is the author of several books, including Bill Gross 0:02:55.600 --> 0:03:00.560 on Investing and most recently his book I'm Still Standing 0:03:01.120 --> 0:03:06.000 Bill Gross and The Pimco Express. Bill Gross. Welcome back 0:03:06.560 --> 0:03:10.120 to Masters in Business. Thank you, Barry. Actually I'm I'm 0:03:10.160 --> 0:03:13.600 sitting talking to you, but I'm standing in life. So um, 0:03:13.639 --> 0:03:16.840 that's why the title applies, I think. But it's good 0:03:16.880 --> 0:03:19.000 to be here, it's good to have you back. And 0:03:19.120 --> 0:03:22.480 in fact, um, I owe you a debt of gratitude 0:03:22.520 --> 0:03:26.880 because when you came on the show, you know it's 0:03:26.880 --> 0:03:29.960 got to be six seven years ago. You were really 0:03:30.040 --> 0:03:33.200 the first big name that said, all right, let's let's 0:03:33.400 --> 0:03:37.200 try this podcast thing out, and you open the floodgates. 0:03:37.280 --> 0:03:41.800 So if I'm lacking in any objectivity, let me disclose 0:03:41.880 --> 0:03:45.960 that right up front. But but let's talk about your career. 0:03:46.160 --> 0:03:50.240 Starting with Pacific Life. You're you're a junior guy there, 0:03:50.880 --> 0:03:55.800 literally going into the vault taking bond certificates and clipping 0:03:56.360 --> 0:03:58.760 coupons off of that. How do you get from that 0:03:59.360 --> 0:04:04.480 sort of junior intern menial labor to launching a standalone 0:04:04.720 --> 0:04:08.760 active bond shop. We'll let me add to that quickly. 0:04:08.840 --> 0:04:12.880 I could only clip coupons for half of the day, 0:04:12.920 --> 0:04:15.800 I guess the other half I was off making private 0:04:15.800 --> 0:04:23.000 placements loans to fledgling companies such as Berkshire, Hathaway and Walmart. 0:04:23.120 --> 0:04:26.480 I visited Sam Walton with his two kids as his 0:04:26.640 --> 0:04:32.640 dog I struck. They had two walmarts in uh Bentonville, Arkansas, 0:04:32.680 --> 0:04:35.960 and same thing with Buffett and Charlie Munger. So I 0:04:36.480 --> 0:04:40.240 was doing some of that UM, but just to make 0:04:40.240 --> 0:04:45.839 the transition, I guess the managing money. I did a 0:04:45.880 --> 0:04:49.160 master's thesis at u C. L A and I just graduated, 0:04:49.200 --> 0:04:53.960 and it was about convertible bonds, but also about Warrens 0:04:54.120 --> 0:04:58.599 and UM an option related vehicles. So I was interested 0:04:58.600 --> 0:05:00.520 in the bondmarket even though I want to get into 0:05:00.520 --> 0:05:04.640 stocks and UM specific mutual in downtown l A had 0:05:04.680 --> 0:05:09.360 a billion dollars worth of buns and m A broker 0:05:09.600 --> 0:05:14.240 from Weeden and Company, Howard Rakoff, decided to visit and 0:05:14.360 --> 0:05:18.040 tell me that somebody else in town was trading some 0:05:18.120 --> 0:05:22.280 bonds from boxes. And in those days, as you know UM, 0:05:22.600 --> 0:05:25.880 there weren't any computers or IBM three sixties, but we 0:05:25.920 --> 0:05:30.440 only had one UM. You couldn't really buy and sell 0:05:30.760 --> 0:05:33.480 on the wire, and so it was very difficult to trade. 0:05:33.520 --> 0:05:39.120 But I convinced him to let me use five million 0:05:39.240 --> 0:05:42.080 of their bonds and set up an active trading account. 0:05:42.080 --> 0:05:46.520 And that was the beginning of PIMCO, and before PIMCO. 0:05:46.920 --> 0:05:52.159 I've heard bond trading described as by appointment only. Is 0:05:52.160 --> 0:05:56.120 it fair to say you and your team invented fixed 0:05:56.120 --> 0:06:00.720 income trading? Am I am I overstating that? Um probably 0:06:00.760 --> 0:06:03.119 just a little. Uh. There was a gentleman I forget 0:06:03.120 --> 0:06:05.480 his name and Occidental life Insurance in l A there 0:06:05.560 --> 0:06:09.600 was doing some of that. There was a Jim guy 0:06:09.920 --> 0:06:13.920 from Lehman who later died that was doing some of that. 0:06:14.000 --> 0:06:16.440 But I was certainly one of the first who I 0:06:16.520 --> 0:06:23.440 was certainly one that pursued it and convinced at least 0:06:23.440 --> 0:06:26.520 the executives of specific mutual that this could be turned 0:06:26.520 --> 0:06:30.480 into a business. So maybe I should say PIMCO helped 0:06:30.560 --> 0:06:36.880 to bring about institutional trading on a level that just 0:06:36.960 --> 0:06:40.919 didn't exist before. You guys helped systematize it. Is that 0:06:41.080 --> 0:06:44.520 Is that more accurate? Yeah? I think that's true. But 0:06:45.120 --> 0:06:48.280 because back then, uh, you know, stocks were the vehicle 0:06:48.839 --> 0:06:53.160 to trade, and even uh then, they weren't traded that actively. 0:06:54.040 --> 0:07:00.880 Hands were basically bought and ultimately matured. I guess the 0:07:00.920 --> 0:07:04.480 big banks in the East and New York, in Boston 0:07:04.600 --> 0:07:09.000 and Chicago, and so we have a bond trading was 0:07:09.000 --> 0:07:11.200 was an active thought. No one thought that you could 0:07:12.280 --> 0:07:15.120 sell one bond by another and make some money. Um. 0:07:15.440 --> 0:07:19.080 And so it was innovative and I was glad to 0:07:19.120 --> 0:07:22.520 be part of it. So in the book, you describe 0:07:22.760 --> 0:07:27.200 how PIMCO grew in the nineteen eighties and nineteen nineties. Well, 0:07:27.240 --> 0:07:32.000 we'll talk about the latter years later, but that period, um, 0:07:32.160 --> 0:07:36.000 following everything that Chairman Paul Vulker had done with the 0:07:36.000 --> 0:07:40.440 bond market, that really was a perfect storm to to 0:07:40.680 --> 0:07:44.480 plow into the fixed income space. Tell us about the 0:07:44.560 --> 0:07:49.239 growth of PIMCO in the nineteen eighties and nineteen nineties, okay, 0:07:49.480 --> 0:07:52.200 And and so you're right, Uh, we started at a 0:07:52.200 --> 0:07:55.320 great time, not in the seventies because the bear market 0:07:55.360 --> 0:08:01.600 didn't really end until eighties three, depending on you know, 0:08:01.640 --> 0:08:07.080 the maturities of bond. But um, you know it's it's 0:08:07.080 --> 0:08:10.040 set up the premise for total return in bonds where 0:08:10.080 --> 0:08:13.200 you could not only get a coupon, get an inters payment, 0:08:13.240 --> 0:08:16.800 but get a capital gain. And when you're starting at 0:08:17.200 --> 0:08:21.720 close to fifteen percent for a third year treasury, um, 0:08:21.800 --> 0:08:26.400 you know, it was it was fairly easy ultimately to 0:08:27.040 --> 0:08:30.600 get a capital gain, and so that helped us. We 0:08:30.600 --> 0:08:35.719 were also helped by legislation from the Congress. Um A 0:08:35.840 --> 0:08:42.679 built that legislated RISKA, which basically mandated that mentioned managers 0:08:43.520 --> 0:08:49.840 had to diversify UM and not just diversified between UM, 0:08:50.160 --> 0:08:53.040 you know, the obvious, but also diversified between east coast 0:08:53.120 --> 0:08:56.319 and west coast. And so this little company called a 0:08:56.440 --> 0:08:59.800 T and T, the biggest in the world, came according 0:09:00.640 --> 0:09:04.280 UM Lady in the seventies and like what they saw, 0:09:04.280 --> 0:09:07.240 and they heard pim go, and that really was the 0:09:08.040 --> 0:09:10.839 beginning of it all. I mean, who who wouldn't open 0:09:10.880 --> 0:09:14.000 the door to a person or to a company that 0:09:14.040 --> 0:09:16.440 had just been hired by A T and T. But 0:09:16.600 --> 0:09:19.800 this is more than just lucky timing for a couple 0:09:19.800 --> 0:09:22.560 of reasons that I want to go into. We'll talk 0:09:22.600 --> 0:09:25.840 a little later about some of the technical aspects that 0:09:26.000 --> 0:09:30.600 pim go really figured out to generate fixed income out alpha. Well, 0:09:30.640 --> 0:09:33.280 we'll circle back to that. I want to talk a 0:09:33.320 --> 0:09:38.359 little bit about your investment outlooks. These were highly regarded. 0:09:38.679 --> 0:09:42.040 People thought they were both insightful and well written. And 0:09:42.080 --> 0:09:44.839 this is at a time when you know, we kind 0:09:44.840 --> 0:09:48.640 of take it for granted today that so many people 0:09:48.720 --> 0:09:53.520 write about financial investing and strategies. When you started doing 0:09:53.559 --> 0:09:57.680 the investment outlooks each month. That was somewhat unusual, wasn't 0:09:57.720 --> 0:10:01.640 it tell us about that? Yeah, it was unusual. And 0:10:01.679 --> 0:10:04.080 I thought about it from a business context, and I said, 0:10:04.520 --> 0:10:08.440 you know, if I want to be successful at Pinco, 0:10:08.520 --> 0:10:11.440 if we want to grow as a company, you've gotta 0:10:11.480 --> 0:10:13.839 say hello. And the best way to say hello is 0:10:13.920 --> 0:10:17.400 to write these investment outlooks. I mean, I mean, there 0:10:17.400 --> 0:10:20.719 were a few. Um, there was a famous guy, you know, 0:10:21.240 --> 0:10:25.800 Barton Biggs from Morgan Stanley. There was a real good writer, 0:10:25.920 --> 0:10:28.800 and I don't think Jim Grant had started yet, but 0:10:28.840 --> 0:10:31.280 he was a excellent writer in the time. So I 0:10:31.320 --> 0:10:33.920 wasn't the only one. But I I thought that if 0:10:33.920 --> 0:10:38.480 I can inject some personal uh then yettes into my 0:10:38.920 --> 0:10:41.880 uh forecast for the bond market, the people would read 0:10:41.920 --> 0:10:45.120 it because they didn't really read these things that came 0:10:45.120 --> 0:10:49.000 out of First Boston and Solomon Brothers and so on, 0:10:49.080 --> 0:10:53.800 and so I, uh, I decided to take a little risk. Um. 0:10:53.840 --> 0:10:56.839 You know. One of the things that I wrote at 0:10:56.840 --> 0:11:00.199 the beginning of my book a quote It said, the 0:11:00.520 --> 0:11:05.760 talent is helpful in writing, but guts are absolutely necessary. 0:11:05.920 --> 0:11:09.400 And so I decided to have a few guts and 0:11:09.559 --> 0:11:13.160 opened myself up to people and something like that, and 0:11:13.360 --> 0:11:17.640 some didn't, but you know, the reputation grew well. I 0:11:17.840 --> 0:11:20.320 want to point out first you were you the o 0:11:20.480 --> 0:11:24.320 G the original gangster when it came to financial writing, 0:11:24.440 --> 0:11:29.880 because of course there were lots of professional writers and 0:11:30.000 --> 0:11:34.680 journalists writing about it, but as far as I recall, 0:11:35.640 --> 0:11:39.439 you might be one of the earliest people who were 0:11:39.559 --> 0:11:44.880 managing money. To describe what you were doing, I want 0:11:44.880 --> 0:11:47.440 to say it was Howard Marks and you pretty much 0:11:47.480 --> 0:11:50.959 you were the guys that were putting out regular commentary. 0:11:51.320 --> 0:11:55.680 Before you know, anybody could could go online and find 0:11:56.320 --> 0:11:59.720 letters from Warren Buffett or or things that Ray Dalio wrote, 0:11:59.840 --> 0:12:04.280 or any one of thousands of other professional money managers. 0:12:04.280 --> 0:12:06.720 When you began. I don't think there were many other 0:12:06.760 --> 0:12:10.920 money managers putting out written commentary the way you guys were. You. 0:12:11.160 --> 0:12:14.360 Buffett and Marx are kind of the three that that 0:12:14.400 --> 0:12:19.480 blazed this trial. I think so. And you know, one 0:12:19.480 --> 0:12:24.160 of my positive attributes is that I I wasn't afraid 0:12:24.200 --> 0:12:29.400 to take risk and to take chances and so um. 0:12:29.440 --> 0:12:32.600 You know, there were those that PIMCO and Marketing and 0:12:32.600 --> 0:12:34.960 so on that would suggest that you can't do that 0:12:35.080 --> 0:12:38.400 because people would just jump on your ideas in front run. 0:12:38.480 --> 0:12:41.760 But you know, I'm I'm tearing with in a lot 0:12:41.800 --> 0:12:43.959 of things. But it wasn't paring Wood, not in terms 0:12:43.960 --> 0:12:50.200 of um thinking that no one really cared and so 0:12:50.200 --> 0:12:53.240 so why not why not tell people what I thought? 0:12:53.360 --> 0:12:57.240 And uh, I think it worked. So it's no doubt 0:12:57.240 --> 0:12:59.400 it worked because the firm did well in the eighties 0:12:59.440 --> 0:13:02.640 and nineties. Is at what point did you come to 0:13:02.760 --> 0:13:06.280 the realization, Hey, this is kind of a one of 0:13:06.320 --> 0:13:09.360 a kind company and it's going to be special. Did 0:13:09.400 --> 0:13:12.000 you ever imagine you would have a trillion dollars in 0:13:12.080 --> 0:13:17.000 assets under management? Well, of course not, UM at some 0:13:17.080 --> 0:13:24.400 point I did when we were but um no, My 0:13:24.400 --> 0:13:30.160 my objective was was to grow the company two Um 0:13:31.280 --> 0:13:35.000 you know, have a fiduciary responsibility to clients in terms 0:13:35.000 --> 0:13:40.240 of products and not not charging them too much or 0:13:40.280 --> 0:13:43.840 inventing products that ripped them off. Um. But I also 0:13:43.960 --> 0:13:47.400 want to uh or wanted to be famous. I mean 0:13:47.440 --> 0:13:52.280 that's that's in my book and in the other Child's 0:13:52.280 --> 0:13:57.120 book as well. And um, you know, growing into a 0:13:57.120 --> 0:14:02.400 trillion and ultimately into two trillion is uh was very 0:14:02.440 --> 0:14:08.959 productive in terms of being famous, and I guess ultimately infamous. So, 0:14:09.040 --> 0:14:12.319 now that you look back, which is more important in hindsight, 0:14:12.760 --> 0:14:18.400 money power of fame? Well, I never enjoyed my power, 0:14:18.600 --> 0:14:22.040 and I've enjoyed some of the money, but after a 0:14:22.040 --> 0:14:27.000 certain point, it's not that productive unless you give it away. 0:14:27.160 --> 0:14:31.280 And so I think, ultimately, if those are the three choices, 0:14:31.320 --> 0:14:35.600 and I did offer those to potential recruits, who, by 0:14:35.640 --> 0:14:38.760 the way, would never answer the questions because they were 0:14:38.760 --> 0:14:42.360 afraid that any of the answers would be view negatively. 0:14:42.480 --> 0:14:48.080 And I'm certain you know I would choose fame again, 0:14:48.160 --> 0:14:52.240 and I, um, I was. I was cognizant at the 0:14:52.320 --> 0:14:57.760 time that fame can turn into infamy, that you could 0:14:57.800 --> 0:15:02.720 fly too close to the sun, etcetera, etcetera, from objective standpoints. 0:15:02.760 --> 0:15:05.120 But I must say I didn't think it could happen 0:15:05.160 --> 0:15:07.880 to me because I was always on the up and up, 0:15:07.920 --> 0:15:11.640 always on us, always open and and why would anybody? Uh? 0:15:12.360 --> 0:15:18.600 And I think, ultimately, um, that was hige opening to me. 0:15:19.400 --> 0:15:25.320 But I do it again. Really interesting. Let's talk a 0:15:25.360 --> 0:15:31.280 little bit about the way PIMCO grew and generated profits 0:15:31.320 --> 0:15:36.440 for clients. You describe a lot of very technical aspects 0:15:36.480 --> 0:15:42.440 to bond management and trading, which all contributed to fixed 0:15:42.480 --> 0:15:45.800 income alpha, which I think a lot of people reading 0:15:45.840 --> 0:15:50.200 your latest book might not have realized all the ways 0:15:50.280 --> 0:15:55.880 that you guys generated out performance. The question I asked is, 0:15:56.240 --> 0:15:58.840 how is it possible with all this money laying around? 0:15:59.640 --> 0:16:02.760 Nobody he thought of this before? Why didn't anybody else 0:16:02.800 --> 0:16:09.560 try and systematize total return of fixed income portfolios? Well, 0:16:09.600 --> 0:16:12.520 I think, Barry, I mean, a lot of bond managers 0:16:12.560 --> 0:16:16.440 were and probably still are very conservative. That's their job 0:16:16.520 --> 0:16:21.080 to protect principle, and therefore on the sales side, on 0:16:21.160 --> 0:16:24.880 the wall street side, they were facing the clientele that 0:16:26.200 --> 0:16:31.000 didn't really want to accept any of their suggestions whatever 0:16:31.040 --> 0:16:34.400 they were. Um, yeah, it was just the other way 0:16:34.520 --> 0:16:38.200 for me and for PIMCO. And you know, we were 0:16:38.520 --> 0:16:41.960 very innovative from the standpoint of new products. We were 0:16:42.200 --> 0:16:46.680 one of the first to buy financial futures. Uh. We 0:16:46.680 --> 0:16:50.480 were one of the first to to buy mortgages. A 0:16:50.560 --> 0:16:54.240 fan amame mortgage. I mean, most most bond managers didn't 0:16:54.240 --> 0:16:56.920 want to go through the problem of segregating principle and 0:16:57.040 --> 0:17:00.720 interest in determining performance. That took along time and a 0:17:00.880 --> 0:17:03.960 separate staff, and so we did that and then of 0:17:04.000 --> 0:17:09.679 course into later into global and UM tips and so on. 0:17:09.760 --> 0:17:14.639 So the innovation was key. I think to Alpha generation, 0:17:15.400 --> 0:17:20.679 the biggest key was the thrust of what we called 0:17:20.880 --> 0:17:27.160 secular forecasting, secular outlooks. And I read a book early on, 0:17:28.640 --> 0:17:33.560 just after a joint temco UM called Investing for the 0:17:33.640 --> 0:17:36.520 Long Term. I forget who wrote it, but you know it. 0:17:36.640 --> 0:17:41.280 It focused me on the dangers of trading for the 0:17:41.320 --> 0:17:45.200 short term because fear and greed on the other side 0:17:45.720 --> 0:17:48.119 get involved and you tend to make the decisions. And 0:17:48.160 --> 0:17:51.200 so we approached it from the standpoint of three to 0:17:51.320 --> 0:17:54.359 five years in terms of an outlook. We brought in 0:17:54.480 --> 0:17:58.399 speakers that spoke to that, many of them you know, 0:17:58.440 --> 0:18:02.960 feed officials or extra shoals, um, et cetera. And so 0:18:03.119 --> 0:18:06.199 I think that really helped us to avoid you know, 0:18:06.280 --> 0:18:10.280 the bad the bad months of the bad quarter by 0:18:10.320 --> 0:18:14.200 looking at three to five years. So those were several 0:18:14.240 --> 0:18:16.679 of the keys. And when you say investing for the 0:18:16.760 --> 0:18:20.800 long run, you're not talking about Jeremy Seagull's stocks for 0:18:20.920 --> 0:18:25.440 the long run. You're talking about something more specific. Yeah, 0:18:25.880 --> 0:18:30.520 And it basically it involved forecasting interst rates, UM and 0:18:30.520 --> 0:18:33.359 and to be fair, UM you know throughout the period 0:18:33.400 --> 0:18:37.000 of time that the secular outlook for interest rates was down, down, down, 0:18:37.080 --> 0:18:42.240 and um, you know during our annual secular forms that 0:18:42.320 --> 0:18:46.200 we had where we brought in outside speakers and basically 0:18:46.240 --> 0:18:49.480 set the tone for the next to all months. Um, 0:18:50.840 --> 0:18:53.919 you know, for the most part, it was a bullish forecast, 0:18:54.000 --> 0:18:57.800 which turned out to be true. If we uh had 0:18:57.840 --> 0:19:00.720 a forecast that went the other way for the long 0:19:00.840 --> 0:19:04.320 term for the next three to five years, and obviously 0:19:04.359 --> 0:19:08.240 the company would have disappeared. But by focusing on that 0:19:08.440 --> 0:19:11.920 forgetting about the day or the week of the months, 0:19:12.560 --> 0:19:16.119 I think it became very successful in terms of positioning 0:19:16.119 --> 0:19:22.880 a portfolio duration wise and volatility wise and credit wise. Huh. 0:19:23.040 --> 0:19:27.520 Really intriguing. So so let's talk a little bit about 0:19:28.000 --> 0:19:30.840 you know, you as a investor and trader. I'm I'm 0:19:30.920 --> 0:19:35.119 kind of entranced by the way I've heard the Pimcote 0:19:35.600 --> 0:19:40.080 trading floor described. Your desk was a horseshoe and the 0:19:40.119 --> 0:19:43.600 traders and analysts were arranged in a really specific manner. 0:19:43.920 --> 0:19:48.280 Tell us a little bit about about the thinking they're Well, 0:19:48.600 --> 0:19:50.920 I thought it was pretty simple and I don't really 0:19:51.520 --> 0:19:56.760 remember the horseshoe. Um, but you know, I was positioned 0:19:56.800 --> 0:20:00.640 in the middle certainly, and the trade years of which 0:20:00.680 --> 0:20:07.280 they eventually grew that were you know, basically positioned in pods. 0:20:07.359 --> 0:20:14.240 The mortgage people, how yelped people, global people, m etcetera. 0:20:14.520 --> 0:20:19.000 And uh, you know, they would work together and almost 0:20:19.040 --> 0:20:25.320 independently day to day. But I would check and others 0:20:25.440 --> 0:20:27.680 would check in terms of what they were doing, make 0:20:27.760 --> 0:20:32.080 suggestions and so on it as we walked around the floor. So, um, 0:20:33.119 --> 0:20:34.560 it made a lot of sense. It was a big 0:20:34.600 --> 0:20:37.800 trading room with I don't know how many square feet, 0:20:37.880 --> 0:20:42.680 but I think functionally it really worked for so who 0:20:42.680 --> 0:20:45.119 got to sit close to you and who sat further away? 0:20:45.240 --> 0:20:49.119 Was that a function of how accurate, how active those 0:20:49.160 --> 0:20:52.840 markets were, or was it, you know, just a seniority 0:20:52.880 --> 0:20:57.239 basis you know, well it was both. Um. You know, 0:20:57.480 --> 0:21:01.600 I remember that Scott Simon uh sat to the left 0:21:01.640 --> 0:21:06.360 of me and and build powers, and I don't think 0:21:06.440 --> 0:21:08.800 christ Allen has ever sat next to me. He was 0:21:09.000 --> 0:21:12.240 he was content to be on the wing, so to speak, 0:21:12.280 --> 0:21:15.639 and do his own thing. But but usually it would 0:21:16.400 --> 0:21:19.679 be determined as well by who would who would be 0:21:19.800 --> 0:21:24.480 quiet as supposed allowed. Um, you know, I liked quiet 0:21:24.920 --> 0:21:27.720 to be able to think myself and somebody would allowed 0:21:27.800 --> 0:21:31.800 voice talking to brokers or calling up their spouse. Uh, 0:21:32.240 --> 0:21:34.440 you know, it just wasn't working for me in terms 0:21:34.480 --> 0:21:38.400 of trading to so um. You know, it's the quiet 0:21:38.680 --> 0:21:42.040 and function and seniority all sort of fit in and 0:21:42.119 --> 0:21:46.679 I I didn't pick, somebody else picked, and I just 0:21:46.680 --> 0:21:49.359 went along with it until the noise got too loud, 0:21:49.400 --> 0:21:52.000 and then they were out and somebody else was in. 0:21:53.480 --> 0:21:56.399 So So you mentioned the number of your colleagues in 0:21:56.480 --> 0:21:58.480 the book, which we'll talk about in a little bit. 0:21:58.960 --> 0:22:02.480 You're very general risk in giving lots of credit to 0:22:02.640 --> 0:22:06.480 your colleagues for being major drivers of of the firm's success. 0:22:07.040 --> 0:22:10.320 Tell us about some of these colleagues and how they contributed, 0:22:11.000 --> 0:22:14.679 uh to Pimco's growth. Well, they were, you know, we 0:22:14.760 --> 0:22:19.400 hired some really smart pupil and really aggressive people, um, 0:22:19.440 --> 0:22:23.120 obsessive people that really loved to do what they're doing. 0:22:24.240 --> 0:22:28.080 Chris Dialis was one of the first. He was my 0:22:28.600 --> 0:22:32.560 co portfolio manager, so to speak, from the early eighties. 0:22:32.600 --> 0:22:34.880 He wanted to be a baseball player for the Angels, 0:22:34.920 --> 0:22:40.080 but decided to take our dollar offer and he came 0:22:40.200 --> 0:22:44.320 and he had gone to the university of Chicago and 0:22:45.960 --> 0:22:48.840 you know, studied there about options and so on, and 0:22:50.040 --> 0:22:57.879 ultimately became instrumental in terms of bringing financial futures to 0:22:57.880 --> 0:23:02.679 to the portfolios and suggesting some very creative ideas in 0:23:02.800 --> 0:23:07.080 terms of Jenny May futures, which you know, some say 0:23:07.160 --> 0:23:10.679 we broke the market. But he was one. And then 0:23:10.720 --> 0:23:16.800 there was another gentleman, Chang Hong Zoo um that came 0:23:16.840 --> 0:23:20.919 to us from Wells Fargo in San Francisco. He ultimately 0:23:21.000 --> 0:23:23.679 left after ten years to go back to China with 0:23:23.760 --> 0:23:27.400 his family and head up you know, a key position 0:23:27.440 --> 0:23:33.920 in the Chinese Central Bank. I think, Um, but he um, 0:23:34.000 --> 0:23:37.480 you would make lots of suggestions and investment committee in 0:23:37.560 --> 0:23:43.680 terms of convexity and yield curve strategies, Euro dollar futures, etcetera. Um. 0:23:43.720 --> 0:23:46.560 He was perhaps the smartest guy on the floor, including me, 0:23:46.680 --> 0:23:49.879 and you know so I think a lot of his 0:23:49.920 --> 0:23:54.800 strategies are due to his suggestions. Um. You know, there 0:23:54.840 --> 0:23:57.720 was a high yield gentleman, Ben Trotsky who was really 0:23:57.720 --> 0:24:01.120 a master of that. All of our mortgage people, uh, 0:24:01.440 --> 0:24:05.159 Bill Powers and John Higg and Scott Simon that I 0:24:05.240 --> 0:24:09.160 mentioned were really smart and their performance and mortgages through 0:24:09.200 --> 0:24:12.399 the years in terms of their own portfolios just float 0:24:12.440 --> 0:24:16.359 over into the total return funds. So all of these 0:24:16.800 --> 0:24:20.159 people and there are a lot other ones. Um, you know, 0:24:20.520 --> 0:24:23.840 we were a team. And you know, the term bond 0:24:23.920 --> 0:24:30.200 king was I guess that's more of a pr acceptance 0:24:30.280 --> 0:24:32.960 than anything else. I don't think there was a king. 0:24:33.040 --> 0:24:36.000 I was a leader, um, and certainly a leader of 0:24:36.000 --> 0:24:40.560 the investment committee, and in terms of accepting a standard 0:24:40.600 --> 0:24:45.639 portfolio for those to manage. But lots of smart people, 0:24:45.800 --> 0:24:49.880 and um, I think it theired acknowledgement in my book, 0:24:50.359 --> 0:24:55.320 So lots of these colleagues eventually became successful, they became 0:24:55.440 --> 0:24:58.720 very wealthy, and they, you know, hit the eject button 0:24:58.760 --> 0:25:03.000 and retired. You stuck around for forty three years. That's 0:25:03.040 --> 0:25:06.720 a long time. What led to that longevity that's pretty 0:25:06.800 --> 0:25:11.720 unusual these days. I think it was because I loved it. Uh. 0:25:12.240 --> 0:25:18.600 And you know, the the standard, the standard idea that 0:25:18.680 --> 0:25:21.880 you should do what you love is fine. It can't 0:25:21.920 --> 0:25:25.719 really apply to the billions of people. Uh. You know 0:25:25.760 --> 0:25:29.920 throughout the world. They all can't find jobs that they love. 0:25:30.000 --> 0:25:33.360 They can't all paint, they can't all write music. But 0:25:34.080 --> 0:25:36.919 this was an area that I loved in terms of 0:25:37.680 --> 0:25:42.160 buying and selling and competing and making money and becoming famous, 0:25:42.200 --> 0:25:46.119 of course. And so I think I stuck around for 0:25:46.240 --> 0:25:49.000 that long until I was seventy two at PEMCO or 0:25:49.040 --> 0:25:54.080 seventy one, simply because I loved coming in. Um. It 0:25:54.240 --> 0:25:58.960 just it made my week. Um And you know, PEMCO, 0:25:59.040 --> 0:26:01.800 we would have them in from committee until from twelve 0:26:01.880 --> 0:26:05.720 to three every day, but after three, and certainly in 0:26:05.720 --> 0:26:08.199 the summertime, I could just go across the street and 0:26:08.240 --> 0:26:10.720 hit some balls and to play golf too. So I 0:26:10.880 --> 0:26:15.920 wasn't a one way uh horse writer. I guess I 0:26:16.280 --> 0:26:19.680 could do a lot of things, but managing money and 0:26:19.760 --> 0:26:25.080 investing and talking about it, writing about it was something 0:26:25.160 --> 0:26:28.840 I truly enjoy. So let's talk a little bit about 0:26:29.520 --> 0:26:33.879 the two thousands. You guys, really, because of what you 0:26:33.880 --> 0:26:38.040 were positioned, got a very early warning look at what 0:26:38.119 --> 0:26:40.600 was going on in the bond market and the housing market. 0:26:41.280 --> 0:26:46.520 You were pretty well positioned before, during, and after the 0:26:46.560 --> 0:26:49.840 financial crisis of O eight oh nine. How did you 0:26:49.920 --> 0:26:55.199 manage to to accomplish that well? I give most of 0:26:55.240 --> 0:26:58.520 the credit in this case to Paul McCulley, and Paul 0:26:58.560 --> 0:27:01.080 still around. He's on TV, he's got that long hair 0:27:01.119 --> 0:27:06.320 in that southern drawl. Um, but at least the yes. 0:27:07.520 --> 0:27:12.359 But he was an economist at heart, and he was 0:27:12.400 --> 0:27:15.160 a permanent member of the Investment Committee, and he would 0:27:16.320 --> 0:27:22.000 speak about Himan Minsky and his theory about stability turning 0:27:22.040 --> 0:27:26.439 into instability. And then as the housing market roared and peaked, 0:27:27.000 --> 0:27:33.000 we became sensitive to um the potential for instability. I 0:27:33.040 --> 0:27:36.800 had a brother in law who was a mortgage banker 0:27:36.960 --> 0:27:40.040 on a small scale, and we would have dinner sometimes 0:27:40.040 --> 0:27:43.000 he would tell me about no docks and flyer loans 0:27:43.040 --> 0:27:47.439 and so on, before anyone at the FED knew anything 0:27:47.480 --> 0:27:51.439 about that. And so I decided to take ten of 0:27:51.480 --> 0:27:54.960 our credit analyst and send them out throughout the country 0:27:54.960 --> 0:27:57.240 and pretend that they were buying houses and to see 0:27:57.280 --> 0:28:02.240 what was going on. UH. They came to h and said, Hey, 0:28:02.280 --> 0:28:07.480