Bloomberg Radio host Barry Ritholtz speaks with "Bond King" Bill Gross, who has been a pioneer in fixed income investing for more than 40 years. Gross co-founded Pacific Investment Management Co. in 1971 and served as managing director and its chief investment officer until 2014, when he joined Janus Capital Group (now Janus Henderson Group). He retired in 2019 to focus on managing his charitable foundation. Gross is also the author of several books, including the just-published "I'm Still Standing: Bond King Bill Gross and the PIMCO Express."
M This is Mesters in Business with very Renaults on Bluebird Radio. This week on the podcast, we have an extra special guest. I'm trying to to maintain low tones and I'm trying to keep my insane enthusiasm down, but holy cow, Bill Gross, the Bond King, spent three hours talking with us literally about everything. Um, this is a pretty amazing conversation. He does not hold anything back. He names names, he calls people out. He I don't even want to say he has scores to settle because he did that in his book. Uh. He explains what made PIMCO such a unique place, how they accumulated a trillion dollars, essentially creating the concept of institutional bond trading before Pimco, bond trading was by appointment only that this didn't exist before. Then, we cover everything from card counting to inflation, to the FED, to his book, to Marry Child's book The Bond King about him. Really there were no comments left unturned, and we also revealed what his thoughts were about when his bonus was revealed by a certain podcast host about eight years ago, and and how that came about his and Muhammadalarian's multibillion dollar bonus pool, how that thing could even exist, how Alliance allowed them to do it, and and how, after almost being a parlor game of speculation, how those billions of dollars in who got what bonus pool was finally revealed. This was an absolutely fascinating conversation and an extra special guest. So, with no further ado, iye conversation with PIMCO co founder Bill Gross. This is Mesters in Business with very renaults on Bluebird Radio. My extra special guest this week is the bond King, Bill Gross, the co founder of Pimco. At one time, Bill's total return fund was nearly three hundred billion dollars. It was the world's largest mutual funds. Gross controlled more bond money than anybody else in the world. He advised the U. S. Treasury on the role of sub progme mortgage bonds in the O eight oh nine crisis. He was named morning Stars Fund Manager of the Decade. They observed no other fund manager made more money for more people than Bill Gross. He is the author of several books, including Bill Gross on Investing and most recently his book I'm Still Standing Bill Gross and The Pimco Express. Bill Gross. Welcome back to Masters in Business. Thank you, Barry. Actually I'm I'm sitting talking to you, but I'm standing in life. So um, that's why the title applies, I think. But it's good to be here, it's good to have you back. And in fact, um, I owe you a debt of gratitude because when you came on the show, you know it's got to be six seven years ago. You were really the first big name that said, all right, let's let's try this podcast thing out, and you open the floodgates. So if I'm lacking in any objectivity, let me disclose that right up front. But but let's talk about your career. Starting with Pacific Life. You're you're a junior guy there, literally going into the vault taking bond certificates and clipping coupons off of that. How do you get from that sort of junior intern menial labor to launching a standalone active bond shop. We'll let me add to that quickly. I could only clip coupons for half of the day, I guess the other half I was off making private placements loans to fledgling companies such as Berkshire, Hathaway and Walmart. I visited Sam Walton with his two kids as his dog I struck. They had two walmarts in uh Bentonville, Arkansas, and same thing with Buffett and Charlie Munger. So I was doing some of that UM, but just to make the transition, I guess the managing money. I did a master's thesis at u C. L A and I just graduated, and it was about convertible bonds, but also about Warrens and UM an option related vehicles. So I was interested in the bondmarket even though I want to get into stocks and UM specific mutual in downtown l A had a billion dollars worth of buns and m A broker from Weeden and Company, Howard Rakoff, decided to visit and tell me that somebody else in town was trading some bonds from boxes. And in those days, as you know UM, there weren't any computers or IBM three sixties, but we only had one UM. You couldn't really buy and sell on the wire, and so it was very difficult to trade. But I convinced him to let me use five million of their bonds and set up an active trading account. And that was the beginning of PIMCO, and before PIMCO. I've heard bond trading described as by appointment only. Is it fair to say you and your team invented fixed income trading? Am I am I overstating that? Um probably just a little. Uh. There was a gentleman I forget his name and Occidental life Insurance in l A there was doing some of that. There was a Jim guy from Lehman who later died that was doing some of that. But I was certainly one of the first who I was certainly one that pursued it and convinced at least the executives of specific mutual that this could be turned into a business. So maybe I should say PIMCO helped to bring about institutional trading on a level that just didn't exist before. You guys helped systematize it. Is that Is that more accurate? Yeah? I think that's true. But because back then, uh, you know, stocks were the vehicle to trade, and even uh then, they weren't traded that actively. Hands were basically bought and ultimately matured. I guess the big banks in the East and New York, in Boston and Chicago, and so we have a bond trading was was an active thought. No one thought that you could sell one bond by another and make some money. Um. And so it was innovative and I was glad to be part of it. So in the book, you describe how PIMCO grew in the nineteen eighties and nineteen nineties. Well, we'll talk about the latter years later, but that period, um, following everything that Chairman Paul Vulker had done with the bond market, that really was a perfect storm to to plow into the fixed income space. Tell us about the growth of PIMCO in the nineteen eighties and nineteen nineties, okay, And and so you're right, Uh, we started at a great time, not in the seventies because the bear market didn't really end until eighties three, depending on you know, the maturities of bond. But um, you know it's it's set up the premise for total return in bonds where you could not only get a coupon, get an inters payment, but get a capital gain. And when you're starting at close to fifteen percent for a third year treasury, um, you know, it was it was fairly easy ultimately to get a capital gain, and so that helped us. We were also helped by legislation from the Congress. Um A built that legislated RISKA, which basically mandated that mentioned managers had to diversify UM and not just diversified between UM, you know, the obvious, but also diversified between east coast and west coast. And so this little company called a T and T, the biggest in the world, came according UM Lady in the seventies and like what they saw, and they heard pim go, and that really was the beginning of it all. I mean, who who wouldn't open the door to a person or to a company that had just been hired by A T and T. But this is more than just lucky timing for a couple of reasons that I want to go into. We'll talk a little later about some of the technical aspects that pim go really figured out to generate fixed income out alpha. Well, we'll circle back to that. I want to talk a little bit about your investment outlooks. These were highly regarded. People thought they were both insightful and well written. And this is at a time when you know, we kind of take it for granted today that so many people write about financial investing and strategies. When you started doing the investment outlooks each month. That was somewhat unusual, wasn't it tell us about that? Yeah, it was unusual. And I thought about it from a business context, and I said, you know, if I want to be successful at Pinco, if we want to grow as a company, you've gotta say hello. And the best way to say hello is to write these investment outlooks. I mean, I mean, there were a few. Um, there was a famous guy, you know, Barton Biggs from Morgan Stanley. There was a real good writer, and I don't think Jim Grant had started yet, but he was a excellent writer in the time. So I wasn't the only one. But I I thought that if I can inject some personal uh then yettes into my uh forecast for the bond market, the people would read it because they didn't really read these things that came out of First Boston and Solomon Brothers and so on, and so I, uh, I decided to take a little risk. Um. You know. One of the things that I wrote at the beginning of my book a quote It said, the talent is helpful in writing, but guts are absolutely necessary. And so I decided to have a few guts and opened myself up to people and something like that, and some didn't, but you know, the reputation grew well. I want to point out first you were you the o G the original gangster when it came to financial writing, because of course there were lots of professional writers and journalists writing about it, but as far as I recall, you might be one of the earliest people who were managing money. To describe what you were doing, I want to say it was Howard Marks and you pretty much you were the guys that were putting out regular commentary. Before you know, anybody could could go online and find letters from Warren Buffett or or things that Ray Dalio wrote, or any one of thousands of other professional money managers. When you began. I don't think there were many other money managers putting out written commentary the way you guys were. You. Buffett and Marx are kind of the three that that blazed this trial. I think so. And you know, one of my positive attributes is that I I wasn't afraid to take risk and to take chances and so um. You know, there were those that PIMCO and Marketing and so on that would suggest that you can't do that because people would just jump on your ideas in front run. But you know, I'm I'm tearing with in a lot of things. But it wasn't paring Wood, not in terms of um thinking that no one really cared and so so why not why not tell people what I thought? And uh, I think it worked. So it's no doubt it worked because the firm did well in the eighties and nineties. Is at what point did you come to the realization, Hey, this is kind of a one of a kind company and it's going to be special. Did you ever imagine you would have a trillion dollars in assets under management? Well, of course not, UM at some point I did when we were but um no, My my objective was was to grow the company two Um you know, have a fiduciary responsibility to clients in terms of products and not not charging them too much or inventing products that ripped them off. Um. But I also want to uh or wanted to be famous. I mean that's that's in my book and in the other Child's book as well. And um, you know, growing into a trillion and ultimately into two trillion is uh was very productive in terms of being famous, and I guess ultimately infamous. So, now that you look back, which is more important in hindsight, money power of fame? Well, I never enjoyed my power, and I've enjoyed some of the money, but after a certain point, it's not that productive unless you give it away. And so I think, ultimately, if those are the three choices, and I did offer those to potential recruits, who, by the way, would never answer the questions because they were afraid that any of the answers would be view negatively. And I'm certain you know I would choose fame again, and I, um, I was. I was cognizant at the time that fame can turn into infamy, that you could fly too close to the sun, etcetera, etcetera, from objective standpoints. But I must say I didn't think it could happen to me because I was always on the up and up, always on us, always open and and why would anybody? Uh? And I think, ultimately, um, that was hige opening to me. But I do it again. Really interesting. Let's talk a little bit about the way PIMCO grew and generated profits for clients. You describe a lot of very technical aspects to bond management and trading, which all contributed to fixed income alpha, which I think a lot of people reading your latest book might not have realized all the ways that you guys generated out performance. The question I asked is, how is it possible with all this money laying around? Nobody he thought of this before? Why didn't anybody else try and systematize total return of fixed income portfolios? Well, I think, Barry, I mean, a lot of bond managers were and probably still are very conservative. That's their job to protect principle, and therefore on the sales side, on the wall street side, they were facing the clientele that didn't really want to accept any of their suggestions whatever they were. Um, yeah, it was just the other way for me and for PIMCO. And you know, we were very innovative from the standpoint of new products. We were one of the first to buy financial futures. Uh. We were one of the first to to buy mortgages. A fan amame mortgage. I mean, most most bond managers didn't want to go through the problem of segregating principle and interest in determining performance. That took along time and a separate staff, and so we did that and then of course into later into global and UM tips and so on. So the innovation was key. I think to Alpha generation, the biggest key was the thrust of what we called secular forecasting, secular outlooks. And I read a book early on, just after a joint temco UM called Investing for the Long Term. I forget who wrote it, but you know it. It focused me on the dangers of trading for the short term because fear and greed on the other side get involved and you tend to make the decisions. And so we approached it from the standpoint of three to five years in terms of an outlook. We brought in speakers that spoke to that, many of them you know, feed officials or extra shoals, um, et cetera. And so I think that really helped us to avoid you know, the bad the bad months of the bad quarter by looking at three to five years. So those were several of the keys. And when you say investing for the long run, you're not talking about Jeremy Seagull's stocks for the long run. You're talking about something more specific. Yeah, And it basically it involved forecasting interst rates, UM and and to be fair, UM you know throughout the period of time that the secular outlook for interest rates was down, down, down, and um, you know during our annual secular forms that we had where we brought in outside speakers and basically set the tone for the next to all months. Um, you know, for the most part, it was a bullish forecast, which turned out to be true. If we uh had a forecast that went the other way for the long term for the next three to five years, and obviously the company would have disappeared. But by focusing on that forgetting about the day or the week of the months, I think it became very successful in terms of positioning a portfolio duration wise and volatility wise and credit wise. Huh. Really intriguing. So so let's talk a little bit about you know, you as a investor and trader. I'm I'm kind of entranced by the way I've heard the Pimcote trading floor described. Your desk was a horseshoe and the traders and analysts were arranged in a really specific manner. Tell us a little bit about about the thinking they're Well, I thought it was pretty simple and I don't really remember the horseshoe. Um, but you know, I was positioned in the middle certainly, and the trade years of which they eventually grew that were you know, basically positioned in pods. The mortgage people, how yelped people, global people, m etcetera. And uh, you know, they would work together and almost independently day to day. But I would check and others would check in terms of what they were doing, make suggestions and so on it as we walked around the floor. So, um, it made a lot of sense. It was a big trading room with I don't know how many square feet, but I think functionally it really worked for so who got to sit close to you and who sat further away? Was that a function of how accurate, how active those markets were, or was it, you know, just a seniority basis you know, well it was both. Um. You know, I remember that Scott Simon uh sat to the left of me and and build powers, and I don't think christ Allen has ever sat next to me. He was he was content to be on the wing, so to speak, and do his own thing. But but usually it would be determined as well by who would who would be quiet as supposed allowed. Um, you know, I liked quiet to be able to think myself and somebody would allowed voice talking to brokers or calling up their spouse. Uh, you know, it just wasn't working for me in terms of trading to so um. You know, it's the quiet and function and seniority all sort of fit in and I I didn't pick, somebody else picked, and I just went along with it until the noise got too loud, and then they were out and somebody else was in. So So you mentioned the number of your colleagues in the book, which we'll talk about in a little bit. You're very general risk in giving lots of credit to your colleagues for being major drivers of of the firm's success. Tell us about some of these colleagues and how they contributed, uh to Pimco's growth. Well, they were, you know, we hired some really smart pupil and really aggressive people, um, obsessive people that really loved to do what they're doing. Chris Dialis was one of the first. He was my co portfolio manager, so to speak, from the early eighties. He wanted to be a baseball player for the Angels, but decided to take our dollar offer and he came and he had gone to the university of Chicago and you know, studied there about options and so on, and ultimately became instrumental in terms of bringing financial futures to to the portfolios and suggesting some very creative ideas in terms of Jenny May futures, which you know, some say we broke the market. But he was one. And then there was another gentleman, Chang Hong Zoo um that came to us from Wells Fargo in San Francisco. He ultimately left after ten years to go back to China with his family and head up you know, a key position in the Chinese Central Bank. I think, Um, but he um, you would make lots of suggestions and investment committee in terms of convexity and yield curve strategies, Euro dollar futures, etcetera. Um. He was perhaps the smartest guy on the floor, including me, and you know so I think a lot of his strategies are due to his suggestions. Um. You know, there was a high yield gentleman, Ben Trotsky who was really a master of that. All of our mortgage people, uh, Bill Powers and John Higg and Scott Simon that I mentioned were really smart and their performance and mortgages through the years in terms of their own portfolios just float over into the total return funds. So all of these people and there are a lot other ones. Um, you know, we were a team. And you know, the term bond king was I guess that's more of a pr acceptance than anything else. I don't think there was a king. I was a leader, um, and certainly a leader of the investment committee, and in terms of accepting a standard portfolio for those to manage. But lots of smart people, and um, I think it theired acknowledgement in my book, So lots of these colleagues eventually became successful, they became very wealthy, and they, you know, hit the eject button and retired. You stuck around for forty three years. That's a long time. What led to that longevity that's pretty unusual these days. I think it was because I loved it. Uh. And you know, the the standard, the standard idea that you should do what you love is fine. It can't really apply to the billions of people. Uh. You know throughout the world. They all can't find jobs that they love. They can't all paint, they can't all write music. But this was an area that I loved in terms of buying and selling and competing and making money and becoming famous, of course. And so I think I stuck around for that long until I was seventy two at PEMCO or seventy one, simply because I loved coming in. Um. It just it made my week. Um And you know, PEMCO, we would have them in from committee until from twelve to three every day, but after three, and certainly in the summertime, I could just go across the street and hit some balls and to play golf too. So I wasn't a one way uh horse writer. I guess I could do a lot of things, but managing money and investing and talking about it, writing about it was something I truly enjoy. So let's talk a little bit about the two thousands. You guys, really, because of what you were positioned, got a very early warning look at what was going on in the bond market and the housing market. You were pretty well positioned before, during, and after the financial crisis of O eight oh nine. How did you manage to to accomplish that well? I give most of the credit in this case to Paul McCulley, and Paul still around. He's on TV, he's got that long hair in that southern drawl. Um, but at least the yes. But he was an economist at heart, and he was a permanent member of the Investment Committee, and he would speak about Himan Minsky and his theory about stability turning into instability. And then as the housing market roared and peaked, we became sensitive to um the potential for instability. I had a brother in law who was a mortgage banker on a small scale, and we would have dinner sometimes he would tell me about no docks and flyer loans and so on, before anyone at the FED knew anything about that. And so I decided to take ten of our credit analyst and send them out throughout the country and pretend that they were buying houses and to see what was going on. UH. They came to h and said, Hey, this this stuff is danger these subprime mortgages, etcetera, etcetera. And so we were wise to this. Early on. We avoided portfolios of subprime mortgages and UH yields in general, anticipating crisis at some point. So I I think our Investment Committee, and again Paul McCully was the leader in this regard, really helped in terms of anticipating what might happen at some point that did happen. Huh, to say the least full disclosure. I know McAuley really well. We've gone fishing together in Maine. I've had him on the show before, and full credit to him for giving Minsky's work a wider modern um audience. So, given that you were positioned so well during the financial crisis, how did the relationship with the U. S. Treasury developed? Tell us a little bit about that. Well, UM, I guess it's this sounds delicate, but it shouldn't be. Um. You know, almost all of us don't. Weren't in touch with the Treasury. I mean I talked to um Timothy Geitner once over the phone on a Sunday evening when he called me up after he'd had a few beers and wanted to know what was happening in the economy. But that's the only time I can ever remember talking to the Treasury. We weren't like black Rock and Larry Fink put nothing wrong with that, but we were a company on the West Coast that basically did our own research and weren't in touch with Treasury officials unless they were FED officials that had retired, like uh, you know Bernanke and Paul Volker and h and others, And so I don't really know how it developed. Uh it certainly wasn't a phone call. They called us and and said can we UM helped manage a portfolio of mortgages for them? And we said short and uh so that was basically yet. And you know, there was a rumor that we badgered them into guaranteeing Fanny and Freddy mortgages. Nothing could be further from the truth. Nobody made a phone call to badge her or to to influence in any way. What we did see is that of all the mortgages, that Fannie and Freddie were the highest quality, and that they were yielding astronomical yields relative to treasuries and much wider spreads and had ever occurred. And so that was the fascination with Fannie and Freddy. We did well with mortgages, and we did well during the crisis and after the crisis to Pimpto went from one trillion to two trillions because we had protected their money. So we mentioned earlier the new book by Married Child, The Bond King is out Um and I know you participated in in responding to some questions about um at least validating certain things or not factually. But it's pretty easy to read that book and see that she's trying to make the case that PIMCO was the largest holder of Fannie and Freddie bonds and that you guys bully the government into guaranteeing them. Make your case rebut that premise was it simply, Hey, we never spoke to anyone at Treasury about Fannie and Freddie exactly. I mean, how could we relay our badger if um I or um I guess Mohammed didn't pick up the phone and and and Badger and Billie. First of all, we were bullies in the trading room, but we weren't bullies from the standpoint of uh, you know, Treasuries strategy. Were you bullies or were you really just the eight hundred pound guerrilla in the space? Yeah? I think so. You know, we had a lot of money, we bought a lot of bonds, and um you know that health our performance. But you know, bullies, No, you can't be a bully if you don't pick up a phone. So your counter to the book The Bond King is no, we we didn't force the government to guarantee these. The government did that cause for their own reasons. Primarily they were desperate for liquidity, and they were desperate for some degree of stability, and this is how they achieved it. Is that a fair counter argument to our book? Um, It certainly is. And one interesting sidelight. I mean, during the crisis, as Congress was voting UM, I guess for their in the Ollar package bailout package, you know, Warren Buffett called me up and uh and told me about a plan he had to contribute a hundred million in equity hundred millions, hundred hundred million and equity and to UM, you know, to basically buy subprime mortgages from the banks, in other words, to take a load off their shoulders obviously, to buy them that are at the right price. And within thirty minutes after checking with our executive committee, I said, fine, we'll do it. UM. The next day, however, you know, the Treasury Secretary decided to go the other way, and that's when they decided to to ask banks to to issue preferred stock and the bailout took another form. But that's about the only potential connection we had with um the Treasury, and as I say, it never came to fruition, and it was just like a forty eight hour idea, really intriguing. Let's talk a little bit about this book, which generated a little bit of controversy. People blamed you for just seeking to settle scores. Tell us about the book and what motivated you to sit down and write it. Well, had written a book twenty years ago, and I didn't really think at the time that I had another book in me, sort of like Wroting writing novels. I guess, um, after the first one, it's all downhill. But I was in touch with Mary Childs for five or six years, certainly after I left Tempt. We were not good friends, but she would interview me occasionally, and so I was alerted to the factor. I read something on Apple Books that a book by Mary Childs was coming, you know, twelve months in the future, and it had a prospective cover on it described me on the cover as ruthless and you know, having lost everything. And I I said to myself, that's not who I am, as the look in the mirror. And and so, you know, rather than thinking about a lawsuit or any of that, I said, well, the best way to count that and to give your impression of pimpto and it's years and your part in it, I was to wreat your own version. And I had time. I'm not here in the desert. I played golf in the afternoon. I uh get up at six in the morning, and I managed my portfolios for five or six hours. And uh, I had time, and so I just started writing in order to say that I'm still standing. I haven't lost everything. And the ruthless part, I'm not sure what she was referring to. I called her up and I said, Mary, Uh, you know, I kind of get the ruthless part. And I think she decided to take it off the cover, right. I haven't read the book, of course, because I'm too sensitive criticism, and I know there's criticism in it. But the ruthless part, I I just went overboard, and that's what set me off. And said, write your own book, tell your own story, and hopefully after five or six years, um. You know, the the wounds as in time heals all wounds. UM had healed pretty much and the scars, said, turned from red to white. Um. And so I thought I could write in active book about the pluses and the minuses each argument, Tempo's argument, my argument why I left, and um why I wasn't necessarily the bond kings. The company was full of bond kings and bond queens for a long long time. Huh. And and the book title does not have ruthless in it. Um And for those people who may not be familiar with Mary Child's um, she covered Pimco and the bond market at Bloomberg News for a while. Before that, she worked at the Financial Times, and now she's a co host of Planet Money podcast at NPR. And we'll talk a little later about a project she and I did together, but let's talk about the book. You do not and I think ruthless may not be the right word, but you don't hold anything back in the book. I mean, you are completely blunt and worthcoming an example, I want to ask you about. You said your partner who negotiated the Alliance purchase of Pimco skinned them alive. So so that's a serious um line. Tell us about the Alliance takeover of Pimco and how you guys managed to get such a one sided deal that worked to the benefit of the Pimco owners. And the company oh so much so UM and Ken Covies no longer will this. But he was brilliant. He was He was a leader in terms of negotiating with Alliance. And by the way, all ants when they bought Pimco, they um, they only bought it specific mutual held onto it for you know, a year or two, and they left with us the people the partners UH of the profits going forward which still exists and UM. And so that basically meant that what they were paying for was was about a sixth of PIMCO in terms of the ongoing revenue stream. But to talk about proving what he did, he basically suggested to them and we would suggest to him. And yes, we were very ruthless from the standpoint of, UM, you know, trying to strike a very good deal if we're ever going to sell part of the company and UM, Poopy would will always tell them and I would participate in the discussions that these people needed to be incentivized. UM. Not that of the profit pool wasn't incentive enough. But Poopy would say, UM, you know, these partners will be there twenty five now that we fifties WI, this won't be enough to keep incentivizing the existing partners and to bring a new partners. So he devised what he called a B share UM sort of a fake equity UH type of plan where partners would be given a certain amount of B shares and and that the value of those shares ten five, ten years forward when they could be cashed in, would be based upon multiples ten twelve, fourteen, sixteen time multiples of existing earnings. And basically, when I say he skinned them, Alliance had no idea that what they would be pain in terms of those multiples and in terms of the performance of that we're anywhere close to would eventually occurred. And um, it was a brilliant idea. He uh pulled the wool over their eyes. They were I guess star struck with you know, buying Pempco and looking forward to um wonderful publicity. But it was really that B share plan that made made me more money and made partners more money than the existing thirties represent profit pool. It was a total billions and billions of dollars in terms of B share payoffs. And you you don't again, you don't hold back, you say in the book quote none of us were worth what we were paid. Unquote explain if if you're generating billions and dollars of profits, what should you have been paid. Well, there's a certain logic of that. I mean, our our fees weren't excessive. We were charging thirty five basis points on average. We just grew and grew and grew and grew and grew. And one of the beauties of working at PEMCO was that it was small. We kept our expenses down and our people low. You know, companies like Bank of America had two hundred and fifty thousand people. We had two thousand, five hundred or a hundreds of their size, with profits about the same size, and so um. You know, that was part of our strategic brilliance as well. I guess Jim Muzzy and early on Bill Pondlock, the original partners, uh you know, simply thought that we should keep expenses and people low. With that we could manage without a lot of people, and so you know, that generated huge bonuses where we're worth it. Uh you know, I simply said that I don't think anybody's worth uh that type of money. Um, yeah, maybe maybe Bezos and Elon Musk in terms of their creativity but it's just it was too much money. You know, as as I left him go, our executive secretaries were making five hundred million dollars um um. Our our our head corporate lawyer, you know that the ge lawyer uh was making one or two million dollars. Our our lawyer was making ten to twelve million dollars. It's like we didn't know we had so much money. We didn't know how to get rid of it, um and um. We had this egalitarian type of attitude that we should spread it out as much as possible. But I don't think anybody there to deserve to make what they were making. So we're gonna circle back to the bonus structure. But unfortunately, at this point I have to insert myself into our conversation. So you get fired from pimco in and I save a bunch of UM your I O s from previous dates, and in the train home from work, I just read a bunch just you know, across a couple of years. By the time I get home that night, your voice is in my head. And you know, whenever they arrest a painting forger, they always say the same thing. Once I had his stroke down, everything I painted looked like Picasso. Well, once I had your voice in my head, whatever I wrote sounded like you, and so for it was then called Bloomberg View. I wrote your final investment outlook in your voice, Um, purposefully making it outrageous. But you know, by the time it got through the editing process, it was smoothed out enough that it very much sounded like your voice, so much so that PIMCO called Mary Child's asking her, Hey, how the hell did you guys get bills last? I? Oh, this is wrong, and it's in Bloomberg View. It's an opinion piece. It's a satire, it's a parody. Um. And so you and I began speaking about that. But before we get into the bonus discussion, how us a little bit about that day. What was it like after forty three years to be sent to the principal's office and sent home? Well, I was traumatic. I mean I was the one of the founders. I was one of the leaders of the Chief Investment Officer. The performance was flat for twelve months, but you know, nothing tragic. And you know the executive committee which was going to fire me on Friday afternoon because they thought I was unsettling in terms of my pursuit of insiders talking to the press in any case, UM, you know, I I decided I'm not walking that plank that I deserved better than this. I even asked in the last a week or two when when I knew that, you know, the inevitable was coming up that Friday afternoon, I said, why don't you just let me manage you know, a small portfolio closed in fund, just so I can stay in it. Um. They said, I don't even work in another building if you want, UM, and they looked at me. They said, it's not going to happen. And so I at the time I couldn't understand that. Now, I sort of do you know, when you when you kill the king, you better make sure he's dead. And uh, they didn't want any presence of Bill grows in the ongoing PEMCO. I objectively understand that, but UH, to turn down uh an offer to let me manage a few small portfolios and maybe write some investment out looks, I couldn't believe it. Um. I made a quick call to the Janice with Dick Wile, who was heading that up and um ce at PIMCO a few years before, and UH, he said sure, come over And so I I didn't want to walk the plank. I didn't want to go into that committee and be fired. And so I left that night, walked down the floor stairs for the last time, and uh, and the next morning I was off to Denver. Um. I just I didn't think it was the way you should treat somebody that was a founder and responsible for much of their success. And there was at the time a lot of sniping in the news. They had said you had become disruptive and we're a problem on the training floor and was affecting morale, and there was a lot of personal stuff. Hey Bill is a little unstable, And they trotted out that picture from you at the morning Star conference with the glasses, which I think we're or two I was years before. You know, what was your reaction when this became so you know, personal and to be blunt, so petty, on on all around. Well, it wasn't good. Um, you know, I guess like in a divorce, and this was a divorce. Both sides started picking at each other, you know, wore the roses type of thing. Um. So of you know, I didn't enjoy what they were leaking to the press. I never talked to the press, by the way, but I didn't enjoy that. They said the performance was bad, that I was erratic, etceteratera etera. I was always somewhat not erratic, but always uh quirky, somewhat of a quirky character. And I don't think that had changed. But but there had been you know, two or three people that our lawyers eventually discovered that we're leaking, leaking information to the press and favoring Muhammad supposed to me in terms of why he left, and I I didn't think that was nice, and so uh that ultimately, and to be fair, as I wrote in my book, you know, one of the main reasons I think that they fired me, what was I was in favor of low fees and they were in favor of high fees. You know, Dan Iverson and the mortgage department had created, uh, you know, products that had two and twenty hedge fund types of types of seas and we're making a lot of money. I was making some of it. But it just seemed to me in terms of buduciary responsibility that low fees were something we owed to clients and we weren't hedge fund managers. And so UM. Ultimately, I think the executive committee which was formed with eight people, uh three of which were portfolio managers, one uh Iverson who eventually led the the coup as I called it. UM. You know, they went in the direction of high seas as opposed to low fees E T f s and UM and so on. So UM there was a fundamental reason, but there there was also other personal reasons. Um. I was seventy two was the time to go. Um, not in my mind, but in their mind because at seventy two, as I wrote in my book, if you're not as sharp as you are fifty two, and certainly not as sharp as you you at seventy seven as you as you were at seventy two. So so maybe there was some of that, and I understand some of that. I just still don't understand the exit and why they had to do it that way. So let's talk a little bit about that. Wore the roses so I got I don't remembered as the facts or an email, but a spreadsheet that was you know, the long debated and wondered about bonus pool at PIMCO, and it had you earning about three hundred million dollars a year in bonus. Um. Muhammad Alarian about two hundred and forty million dollars in bonus uh, and down the run a whole run of of literally billions of dollars in excess compensation. So tell us about why that was released and and did that have the intended effect of really rattling the senior management at PIMCO and and causing turmoil uh in the C suite. Well, I think it might have had an effect. That was the intense. I didn't have anybody in the company that could tell me, um, whether or not their esteem coming uh, you know, out of the years of many of the partners. But I, you know, like I say, I had been fired. Uh. They were talking in the press negatively about me, and I didn't want to call up the press and talking negatively about them. And so what I did was, I said, uh, well, I know how I can get back at them, um. And it was childish in a way, but it was it was a way to you know, to stop taking bunches and maybe throw one of them out. And so I I took last year's bonus pool and I mailed into eight random of partners UH in an envelope and sent it as a package to PIMCO and I as soon they ultimately distributed it. Um. You know, for the most part, I assumed anyway the partners knew what other partners were making. You know, that happens over drinks and over the water cooler. But UM, it just made me feel better that I could do something to counder what they were doing. So in the book you said you could hear the screams from the top floor all the way uh your house. But let me just shed a little color about what took place when when I got the document, I walked it over um to some senior editors at Bloomberg who walked it through legal and we brought in, of all people, married Childs, who was covering PIMCO, and UM. The plan was I would write the opinion piece about how outrageous this was, and Mary would cover it as straight news. Uh, and that after we had vetted everything. And they, you know, to Bloomberg's credit, their process is just absolutely fastidious and top notch. I was very comfortable that we checked every box, both from a journalistic side and the legal side. And UM, what they did is they waited till eight p M East Coast time after the Wall Street Journal and the New York Times print editions had gone to bed, and they called up Pimco to get a comment on it, and um, they seem to not really believe that we had what we had And so the next day both pieces ran and all hell broke loose. That was the most read pieces on the Bloomberg terminal for like six months. I don't remember the exact date, but it absolutely blew up. And I know it was a parlor game. People were trying to guess what Pimco's bonus pool was. So now that you look back at it, did did this accomplish what you hoped? And you know, do you have any regrets about that? You know? Were the roses era? Oh god, God no, I mean I thought then I still think now that it was just a little job to counter their uppercuts and so, um, they really do any damage to the structure of the company in terms of compensation, I don't know, um, but since they were all very good in terms of the executive committee in terms of smoothing things, and I assume internally that you know, they gave it an after that, but not not for a six month. I'll tell you a funny story that I never shared with you, but I might as well as long as we're coming clean. Um. So, in order to protect our source, spreadsheet was to the penny. I mean it was really precise. It wasn't two hundred forty million dollars. It was two hundred million, eight hundred and seventy seven thousand, six hundred, you know, in forty three and fifty two cents. But all right, let's make it to forty and it'll pre text the source a little bit. And I don't remember the gentleman's name who was the head of pr at Pimco at the time, but I was very annoyed that he would come out and say, oh, those numbers are wrong and um, and he accused me of getting it, not just that they weren't precise. Oh this is wrong. Results doesn't know what he's talking about. It's all wrong. So I recall sending an email to him with his exact salary and bonus to the penny and said, next time you say something wrong, I will release the salary of every person of Pimco down to the penny. So your career, most of us have followed your career for decades, and there's a sense that you grew up kind of hard, scrabbled, you didn't come from money. I'm I'm curious do you today do you think of yourself as rich? Have you wrapped your head around the fact that you're a billionaire, because sometimes we we see some of the things you write and say and do, and it's like he still thinks he's that kid from you know, fifty sixty years ago. I do, Um, you know, objectively, I know I'm a billionaire. I see it every morning with my uh you know, financial statement and my portfolios. But um, you know, I think that comes from a certain insecurity. I and and to be fair, you know, I've got a plane, I've got several homes, and so that's typical of billionaires. But all throughout my life, in my marriages and so on, I you know, I would bring home take up dinners from the local Taco bell um three times a week. You know, we we never lived and still don't live high off the hog. We eat very simply. We go to sleep but eight o'clock and and watch Netflix and so on and so on. We don't out of parties, we don't uh dress up a lot and and and so. Um. You know my idea of living well is, yes, certainly have enough money to live well, but then to to live simply and to ultimately give give back. Uh not in terms of time. I don't give back time like Bill Gates, and we'll INDI Gates do. That's not my strength. But you know I give back a lot of money. Um, I've done the giving pledge. I've already given a billion or so in in terms of money, I have a five million dollar foundation, etcetera, etcetera, and so so you know, it's a simple life, but not so simple in terms of all the money that I have to to give back, not just two people and um organizations. But you know, certainly to the government want to check the bucket, they'll they'll take it unless you give it all the way. That's a good enough reason to a having a state tax and B give the money away. So I have to ask this question, what's the deal with Gilligan's Island. You have to explain and ps. I always understood that you could put whatever you want in your backyard. Nobody has the right to a view across the neighbor's property. Um, but tell us about Gilligan's Island. Well, our our house is right across from the the bay or the entrance. Um that the opening segment of Gilligan's Island takes place in him a few years ago. And this is in Newport Beach or in Laguna. It's a Newport Beach. It's a home in Newport Beach. And um, so we watched it and we said, hey, that's where this house is. And so we we learned to love Gilligan Islands. That the skipper and the movie star, and we would sing it to each other. And so when we would go down to the hole in South Vaginas, we'd just seen Gilligan's Island, and and the whole neighbor things started with a sculpture in the backyard that the neighbor didn't disapprove of at a fact, he had said he liked it. But one day there was a one storm the palm tree fronts um broke down and broke some of the the glass, and so we put up the net um, you know, during inclement, whether to protect it. He didn't like that any sued and that was the start of the whole thing, uh, which resultimately ridiculous that that Um, you know I spent five and a million or five five or a million. Um you know, I spent five and a thousand. Lawyer's face. I think he did too. Um. I suggested we just give it all to local charities. He didn't want to do that. I think he. I think being a personage. Um, you know, like the bon King was part of the problem. He wanted to take it to the Bond King, and he did. And you mentioned in the book he was always sort of watching you guys, had cameras trained on your house. How much of this is just? Gee, you know, I don't care if I'm a billionaire Bond King. I'm entitled to have some degree of privacy in my own backyard. Where's the line there? Well, that's true, and that's our argument that it didn't fly with the judge. But you know, the city ordinance has said that the sixty decibels was as loud as you could play the music. We had a decibel meter that kept it at sixty year under. But it didn't please the neighbor, especially at eight or nine o'clock when we were in the pool, and so, um, you know, he kept seeing and kept calling the cops. Etcetera to tour and ultimately we wound up in court for playing loud music. And it is sort of disheartening. Um, not that it diminishes my career, but it's certainly what people talk about. And you know, I guess my epitaph will be half on King and half you know, loud music, which is a little disturbing, but that I was part of it. Bill, I wish you would have called me for advice. I would have given you a very simple solution. Asked him when he wants for the house, by it and knock it down, and him solved he didn't have as much money as I did. I'm going to tell you I someone I worked for at a neighbor that was problematic and that was their solution, Hey, what do you want for your house? And the guy threw out a ridiculous numberies like done. Have your lawyer called my lawyer and we'll we'll be bulldozing this in a month. Um. So, so you know, Harry's book is out. Your book is out. There's been reviews of both. Your book actually got some pretty good reviews. Also, you really let a lot of stuff out there that most people don't any regrets about the book. Is there anything you feel like, well, maybe I shouldn't have gone that far here or hey, this is who I am and you gotta take the good with the bad. No, no regrets about the book. I mean I read it myself about a hundred times over and over and over again and and cut some stuff and not um what I wanted to do. What was to present subjectively of course from my uh classes, but uh, what I thought was a fair arguments on either side from pim Pill and myself and tend to explain to what I called the you know, the Pimpco magic um why we were so successful? And I I think that's the heart of the book. Um, you know why it was spent Pimco successful? What what were the people like? Um? So it um. I think it was a good book. It was I think it. I shouldn't say this. I think that a great book and I think people should read it. Not not thoroughly. You can't spend three or four hours reading it. But there's some very interesting parts and there's some interesting investment outlooks in the appendix h that you know, I think are pretty humorous. Since some of the best and so I, uh, it's only four ninety nine, So I'd recommend, you know, going to where you need to go, Amazon or wherever it is, and and all the proceeds are donated to charity. Yeah, to the to the extent that that matter as much, But that's where where it goes. Let's talk a little bit about the state of the market today and what's going on. When you wrote the book, inflation was looking like it was gonna tick all the way up to five. We're recording this towards the end of March. The last print we got was just about eight percent. What's your view of inflation here? Is this transitory or is this a kin to the nineties seventies or is this something completely different? Well, I don't think it's transitory. Uh. In other words, going back to two or less. Um, I think it's a result, yes, of supply shocks, of oil prices, of the war in Ukraine. Um, you know a lot of global considerations, but it's also, um, you know, a Freedman Milton Freedman type of thing in which you know, basically money supply matters. And I'll take it back very and uh, I don't think he started then, but you're certainly aware of Nikon went off the gold standard, and credit was free to be created as opposed to be tied to the gold and and back the inn Total credit in the United States and I'm talking about mortgages, I'm talking about government that, I'm talking about credit cards, I'm talking about everything was one trillion dollars um. Today that number is eighties seven trillion. And so talk about a growth industry um one to eight seven over what fifty one years UM. And so it's been this tremendous creation of credit in the last few years, certainly based upon the COVID bill out and as well as the fiscal uh stimulation of four trillion dollars. Uh. You know, to study the economy. So when you combine a huge discal push with monetary creation and the FED increasing its balanchie date brillion and like I say, credit credit credit um, inflation is inevitable. And so if they continue to do this, and I know the Fed's talked about reducing its balance sheet UM, and the government isn't issuing a four trillion dollar deficit, perhaps there's one trillion now um. Yeah, this is certainly excessive in terms of the possibility of exceeding too pers and inflation. So yeah, we're coming back down. Yes, oil prices and gasoline prices will uh steady at some point and come back down. The same thing with food and wheat and um, all of the commodities. Um. But um. And this is a guess, um, you know, forty five inflation for the next several years I think is baked in the cake. And the question becomes, now that the FED isn't buying bonds, who wants to buy them? At you to thirty five of the tenure and and two for the third year, and and perhaps a flight to safety, I can see that. But but you're certainly being out inflated. I guess by um, you know, the the existing in the future trail of inflation going forward, bonds are definitely something to avoid. Huh. That's really interesting. The FED. Are they behind the curve? And if so, by how much? Yeah, they're way behind the curve. And I can see, uh, you know, the COVID crisis of a year two years back now or getting onto two years. I can see how that would be a reason to not raise interest rates, to not stop buying bonds. But you know, I think Powell should have figured it out that you know, a four trillion dollar budget deficit. In the stimulation in the economy that that creates, as well as the credit that is being created by his policies at near zero posent industry, it's was was ultimately going to be very inflationary, and that to think that he could stop it, um, And he doesn't speak to stop in it at a time. He says it will take time. But once you get the momentum going like in the seventies, um, you know, in the in the rays is you know, based upon prices at the stores and grocery stores. Uh, you know, it's pretty hard to stop. And in order to keep the economy above the line, that's the important thing. To keep it above the line in terms of fortified percent nominal GDP, which was the standard before. Uh, you have to keep on printing money. And ultimately that becomes destructive, not just in terms of inflation, but in terms of savings, and it distorts the U. S economy, and it's distorts the global economy. So I'm going to assume you don't think bonds are buy anytime soon. No, I don't, But but I don't see here, you know, I think there's a limit to the tenure. I've talked about in my tweets in the last few weeks about you know, breaking a long term down trendline at two fifteen for the tenure, and now it's at two thirty five, so theoretically it's broken the line. Um, I don't don't think the economy can stand much more in terms of higher yields. I mean, we have a flat Yielker, what does that mean ultimately in terms of forward interest rates? It it basically means that the tenure at two thirty five five years forward is estimated to be two forty or two forty five. So all of all of the curve going forward basically in terms of current pricing, is suggesting that interest rates don't go up much. And so why that be if inflation is four it would be simply because if it ten year goes to three or three and a half or four um, then it'll break the economy, much like when the said went to five and a quarter in two thousand and six, it broke the mortgage market. You know now are at much lower levels, but there's been a lot more debt created. And I simply think that uh fifty basis points higher is about as much as as the economy can take. Otherwise we see recession. And that's basically what the flat you care You'll curve is telling you that that you've got to be careful. And that's why the thirty year bond with um, you know, a duration of of you know, close to twenty is trading at two and a half percent. It's simply because there are those that think, um, that it interest rates go much higher, the economy will enter a recession. UM. So I don't like bonds. Obviously, if you buy a tenure at two thirty five, you're not getting paid your money's worth relative to inflation. You should go elsewhere. But I don't. I don't think there's the nineteen eighty one risk anytime soon of interest rates moving much more than a hundred risk spots higher. Huh, that's really interesting. Let me give you a counterfactual to the issue of a trillion dollars in credit. Fifty years ago. Hypothetically, there wasn't this massive credit creation, uh Fanny Freddie, the government, the private sector, of the household sector. Let's say the outstanding credit was a couple of trillion dollars. What would that lack of credit creation have meant for the economy. Asked differently, how much of our wealth and success and GDP expansion and rising in corporate profits is related to all of this credit that's been issued. Oh, it is um and and certainly you need to create credit, ongoing credit relative till last year and the year before, in order to to keep the economy going. Um. The question becomes how much how much credit? And uh, certainly in the last several years, it's accelerated dramatically because of the physical and the monetary stance at zero pers and interest rates. And no one can really judge, no one. No one can tell you or any no one can tell me that they know what the number is. It's just that the global economy, than most part is hooked on more and more credit, more and more money. And that's what you know, the cryptos, that's what bitcoin and ethereum and so and represent in terms of people that are fearful that the government keeps on printing. So, so let's talk about that. I'm gonna suggest it's not a huge coincidence that all the credit created during the financial crisis in a eight and oh nine and beyond coincided with the creation of a lot of different cryptocurrencies and their rise in price. You mentioned your own bitcoin, You're optimistic about etherorium. This is not the typical safe bond experience. This is a bit of a long shot. So tell us why you've jumped aboard the cryptocurrency train. Well, it it's not a because of its volatility and compared to the dollar. You know, it's certainly ten times as volatile as the dollar, uh during any particular period of time. So to use it as a medium of exchange, which ultimately I think it will be um and is becoming. Uh, you know, it does a very risky proposition that depends on on the level of bitcoing on any particular day, any particular moment. I think it's fascinating on Saturday and Sunday at at midnight, I can I can see trading in in bitcoin. Um. You know, limited though it is, but UM, I think ultimately you know the global financial system which is dollar dependent and dollars supported. Um. You know, much like in the seventies in which Nixon broke the code from gold. Um, you know, things happen, and now that there is a potential alternative in terms of bitcoin and some of the other cryptos UM. You know, I think it offers the opportunity to UM to avoid, to avoid a currency that goes down, down, down, in terms of its value. UM. You know, the bitcoin ultimately is capped, at least they say it's kepped, you know, at a certain level, most of which has already been mined or or supplied, and so UM to the extent that future supply is limited, and to the extent, and this is important, to the extent that it becomes a medium of exchange and it's not really a medium of exchange yet. You can't buy a donut with bitcoin, but you can buy other things. And there are countries that UM are are using it. So UM, you know, it's it's up in the air. And you know, did I get in at a good price? No, I think I got in it through a mutual under fifty. But I just it's just a small, it's up, small piece. I use it mainly for observation and to remind me that that even the dollar has a global standard, UM is subject to future volatility and certainly to appreciation in terms of its value relative to what it can buy. Really interesting, let's let's talk growth stocks and technology UM. They had a great couple of years until I don't know, about four or five months ago, we've seen that the complex really takes some some hits. What what are you thought about the various tech stocks that are out there and and some of the managers who kind of rose to fame on on the rallying technolog ology. Well, I think two months ago at the Pig there was a bubble in most of these talks. Um. You know, many of them had no earnings and really no prospect for earnings two three or four or five years in the future. Um. You know, they were based on hope and and yes, on objective and subjective estimations of a changing world in terms of technology, um, and a consumer use of that technology. Sylum that you've pointed out in the past that quote the new stock Queen Cathy would seems to be a two year wonder and since then the art complex has had some pretty serious draw downs. What are your thoughts on managers like Woods who have you know, put together a great track record when the big cap profitable companies the Google's, Amazon's Apples, Tesla's Netflix and Video, when when those have been screaming higher, Well, you know, I give her credit. I watched she's got fifteen billion under management, and and that's that's just how you break into this market. You don't break in by being a junior clerk like I was it at Pacific Mutual. You break in with an innovative, innovative idea, and hers was that these companies that she was buying, um, you know, we're a significant part of our future economic future. And I think that's true. But you know, I listened to her on CNBC all the time, and it seems like she doesn't have an excellent sense of value and when to buy and what to pay. Um. She she simply thinks that at some point down the road, on the long term road, that her her judgment in terms of owning these securities will be validated. And perhaps I will. But in the meantime, um, you know, subject to the huge veil of volatility. And I I also think, you know, much like Peter Lynch back and not to knock Peter Lynch because uh, you know, he was a significant part of the late eighties and early nineties UM in terms of Magellan, but you know, once more money started to come into was fun because he was doing well, that money went straight into the same stock that he was owning and buying, and uh, you know, I went up, up, up, because the cash flow was going straight into that. And I think the same thing for the last several years with arc Um and uh some of the other funds that she manages, huge inflows would lead to more and more and more buying, and now, uh, some of the outflows lead to lower and lower prices. And so I think you just have to be careful in terms of anointing someone that has a had a good record for two years. Now it's the last year, it's not so good. Um, you know, let's let's see what happens five years from now. I think it's a little early fit fair enough. And to clarify the assets under management, I want to say that it was about coming up on sixty billion at its peak, and it's since fallen at least as of the beginning of this year, to about twenty three or twenty five billion dollars. I'm not looking at her releases, but more or less that seems to be a ballpark number when I'm looking at their website. So let's talk about someone else you actually mentioned in the book. Who's another fund manager you you talk about Jeff Gunlock, who many anointed as the heir apparents or placed you. I don't know if that worked out that way. What are your thoughts about gunlocks approach to managing fixed income? Well, he's sort of anointed himself. I mean, one of the commentators on CNBC throughout the term once and and he ran with him. I guess, I guess I did too. But you know, to be a bond king, you've got to have a kingdom. And you know, Pemco's kingdom, although ultimately grew to one to two trillion dollars a gun Lex kingdom, in terms of his mutual funders around fifty billion dollars and not growing, and and his performance has been like sixtieth percentile for three years, five years or whatever. I think he's a smart guy. You know, when I listened to him on c NBC, I O, yes. And he he follows markets, you know, very assiduously. He's he's really into it. So I respect that. But you got to put up the numbers, and you've got to build your kingdom in order to be the bond king or the new bond king. And you know, I don't think anybody can be the future bond king because central banks basically are the kings and the queens of the market. They rule, They determine where interest rates are going, not um you know von managers like him too or uh you know Double Line, etcetera, etcetera. So you know, I think the term is sort of passe and certainly unlock doesn't tip uh you know, the the past definition of what a bond king should be. Right, And and as of December thirty one, Double Line had add thirty four billion in assets under management. Totally, I don't I'm not seeing the breakdown by fund, but you know it's definitely a substantial amount of money, but you know, not a trillion dollars worth. Let's you know, one of the things we should talk about is risks to financial markets. And you have pointed out that climate change is an actual risk factor. Tell us what you see, um as that risk from rising temperatures and and how do you think about E S G investment? Well, I think the risk is is it's sort of like the broken window syndrome. I mean, so that sends a baseball through a window on their brakes and you've got to replace it. Um, that increases G D p the replacement of a window, but it doesn't make the window any better than it was before. And it's it's really the same thing. I think in terms of global warming, UM does um, you know, because it requires a huge amount of investment in order to to stop it from going forward, and a huge change in terms of societal behavior and and so that investment that goes into capping carbon creation at a certain level. You know, if if global warming wasn't taking place, then um, then you could use that money for something more productive. But it's it's you can't really call it productive. If you simply stop a negative trend from happening, it it makes things better than they would be. But it's sort of like the broken window. And so UM, I think in the future enormously countries and companies will be moving in the direction of of creating a better future environment for us and for our kids and grandkids. But but ultimately, UM, it won't make it any better and then it is now. It will simply not make it worse. And uh, that costal lot of money, and I don't don't make it worse that that's the advice at this point. Huh. Interesting, you know we've gone this far into the conversation, and I just haven't gotten around to ask you about your days as a card counter playing blackjack. Tell us a little bit, which also you mentioned in the book. Tell us a little bit about Ed Thorpe and his books and what led you to to head to Sin City. Well, I'll go through it quickly. Uh. You know that the year before I graduated from Duke in sixty I had gone to Bahamas on the spring break and I lost fifty on the black jack table um. And I remembered that after I uh nearly cut off the top of my head in a car accident and was in a hospital for a long time, and somebody introduced me to this new book called Beat the Dealer. Until I had all the time in the world to sit there and and to discover whether or not his theory about car counting worked. I didn't have a computer, but I would play thousands of hands of black jack back and forth, back and forth, and I discovered it worked. And so when I graduated from Duke in May of sixty six, and before I was going into the Navy and ultimately to Vietnam. Four months later, I went to Las Vegas. I hopped on a freight train. I had two hundred dollars that's all I could afford to put on the tables, and took a freight chain, took seven days to Vegas, got off at the Golden Nugget right in downtown and U and rented a six dollar a day motel that n cents of free nickels and a free breakfast. And so I started playing black jack. That that basically taught me. I ultimately turned it into ten thousand and it paid for my graduate school. But it taught me about money management. It basically it worked off what they all the Kelly system, UM, the system where you can't bet more than two of your um your your stake, even if the odds were tremendously in your favor, because things can go wrong. And so when I ultimately went to Pacific Mutual and Independo, it became an instrumental part of risk management for me because it made a lot of sense and uh and it still does. Um but um yeah, Vegas for me was was was the heart of my career ultimately as as it came to pass it it it taught me what I like to do it just to bet against the house and to make money it um it provided a system of money management, and ultimately I would all to at Thorpe who eventually I met he ups out here and yeah in Newport Beach Irvine, who was a mathematics professor, and we came together to to fund a stem cell research center at ten million dollars. Um you know what you see, Irvine, And so we contact each other once in a while. Um. Uh. He's a very smart guy, smarter than me, but um you know, very fun to talk to and uh and to talk about his times in Las Vegas, which were much much larger than my ultimate ten dollars. Did you ever run into any of the trouble he did? The Vegas is not fond of either people who win money from them, and especially not fond of card counters as they're known. Did you have the same sort of problems of getting chase from casino to casino like he did. Yeah, I get chased from a few and I was very proud of it. Was like a badge of honor to be to be kicked out. I would wear different disguises, I would wear a hat, I would wear different clothes to the extent of that had them, but that they could eventually track a card counters simply by watching the size of their bets. You know, I would bet two dollars and then ten, and then three dollars and then fifteen, back and forth, back and forth, and they could ultimately watch my eyes and see me covering the table in three or four seconds in terms of counting the cards. So, um, was I killing the casinos with my UH ten dollar winning to no? But they simply didn't like the trend, and so yeah, I got booted a few times. So last question before I get to my favorite questions that we ask all our guests. In the book, you talk about having a mild case of Asperger syndrome. Tell us about that. How has this affected your life? How is it manifested? A number of other great investors UM have either discussed being on the spectrum or wondered if they're on the spectrum. Tell us about your experience with Asperger syndrome. Well, I was never aware of it until I read Michael Lewis's book The Big Short and in one of the chapters he talks about an individual called Michael Drury who has still as prominent in the press. I guess with shorting and managing money. But he um, he was either he or his son. I forget, it's probably him, um that had Aspergers. And he listed like ten things that alert you to the fact that he had it and and therefore I might have it. And and one of them was not people in the eye or never observing the color of their eyes. And to tell you the truth, I am my ex wife. I didn't know she had brown eyes until seven years into the marriage. Um. And and so there were other things too about the characteristics. And I I took this page out to the kitchen to my ex wife and I said, look at this, Look at this. I said, I think I have asked Berger's And she goes, you do it was certainty? And I said, how do you know? She said, well, we were up at Bill Gates house in Seattle on an open house about four years ago. And I was watching Gates, and I was watching you. You're at the same table, um, and you were doing the same thing he was doing. He was doing the same thing. You were going looking down at the table, not being engaging that type of thing. And I'd heard that Gates had a mild case of Aspergers, and and so I I went to a psychologist on my own and described the symptoms that she said, he does, he's an asperger. And so that's how I discovered it. I ultimately, after my divorce, I went to a psychologist and after the first meeting, I as my closing question, I said, do you think I have asked Burgers? And she said most definitely. And so that's how I became aware of it. And what are the symptoms of characteristics or how has it affected my life? I think what it does is it allows me to to screen out of you know, minuan and everything that's going on. Um For instance, example, when I played golf with Tiger Woods and Phil Nicholson at the A T and C. You know, people would say, how do you do it? You know, I'm afraid of getting my drive into the crowd. I go, I never seen the crowd. I know they're there, but I never see them. And and so, um, you know, in terms of uh PIMCO, in terms of managing money, I rarely see the minusha. I see the big picture because of my Aspergers. That's just what aspergers that the spectrum do. And um, so I think it's been very helpful. I owe a lot to ask Murgers. That's interesting, and I'm glad you brought up Tiger Woods because that could be my favorite story in the entire book. You talk about almost missing a golf pro am game with him. Tell us about that story. Okay, this wasn't a setup. This wasn't a question of paying ten tho dollars to play with Tiger Woods. This was the A T and T pro am. This was big time. You gotta qualify, right, You gotta hit your way into the actual game, right. The first three days you qualify and if you have a certain score, you make it into Sunday. And so. Um. When Bill Thompson and I the CEO, went up there in two thousand and two, um, you know, the rumor was that you needed to be nineteen under as a team in order to qualify for Sunday. And so I I finished my round on Saturday and Thompson came up and he had been fourteen under and he said, what are you? I said, sixteen under. He said, well, let's go home because nineteen under makes the cut. And I said, I don't know, LABI should stay and he goes, now, let's go. So I went to the airport and we're waiting in line, and um, this guy from my local country club had a cell phone, and cellphones weren't said popular back then. I certainly didn't have one. And he said, Bill, how did you do? I said, sixteen under probably miss a cut by two, and he goes, no, I said, he said, I just checked. He said, sixteen under is in a card off. I go, oh, okay, And so I told Thompson, you better go home, and I'd better go back to the hotel. So I went back to the hotel and at nine o'clock my Caddy calls up and he says, Mr Gross, we made the cut, the card off. We made the cut. I guess who we're playing with? At eight thirty in the morning, I go, who because and I almost saying it. And of course I never slept, But um, if that gentleman hadn't seen me at the airport check in line and told me I had a chance, I would have been sleeping Sunday morning in Newport Beach while Tiger was waiting for me to meet him on the first day it was. It was incredible luck, incredible luck. That's just an amazing story. And sometimes right place, right time is all that matters. All right, so I've kept you for two hours, far longer than I usual. Let me jump to my favorite questions we ask all our guests, starting with something that you actually mentioned earlier. Tell us what you're streaming these days? What kept you busy during uh the lockdown on either Amazon Prime or Netflix or or whatever you were entertained with. Well, I get up at five thirty. I've got a bloomberg here, and I've got a bloomberg at my other homes, and so I get up in uh, you know, the markets here. I've been up at six thirty, and so I've start managing my portfolio, doing trading, mostly in stocks these days, and stock options. But it occupies my time till market closed at twelve thirty. Sometimes I take a nap because I had gotten up so early. In my lovely wife keeps me up till eleven o'clock to watch uh serial programs and so on, so I don't get that much sleep. But in any case, I manage money, and then here I am out for eight months of the year. Out at the vintage in Indian who else it's eighty five degrees. It's almost always seventy five degrees. It's like Hawaii, and I'm looking out at the golf course and I have a little lunch, I top in my cart with Amy and we go play golf in the afternoon. That's like, what you know, this this is uh, this is paradise. You know. Our family comes out into visit and it's just the all around best time I could ever imagine, doing something I love in terms of investing, and doing something I love in terms of golf, which I do every day. And so um, that's that's basically my day. Tell us about some of your early mentors who helped to shape your career. Well, to be honest and say, I only had one UM, and that was well for Girkin, who was the CEO and chairman of the board of Pacific Mutual. And it was Kirkin that basically who was a risk taker for an insurance executive. UM. It was Girkin who basically gave the go ahead and they all clear to to start the five million dollar bond fund. And and and the man would take me to New York for conferences and so on and so on, and clearly he was supporting me for some future role. I don't think he unnecessarily knew that Tempco was going to be a raging success. But he was willing to take the chance and to give me his moral and I guess financial support, because there was a time in the first few years of TEMPKO where we weren't making any money and not getting very many clients. And you know, they could have canceled us, um straight away, but he didn't. They supported me, you know, throughout the but in fifteen twenty years that that he was active within the industry. And so as I say, it was Mr Gherkin who's no longer with us. Let's talk about books. What are some of your all time favorites and what are you reading right now? Well, um, you know, all time favorites is one thing, um, I guess. Um. One of my favorite books was by a brilliant author who won the Pulitzer Prize, Annie Dillard, who wrote a an incredible book called Bilgrament Thinker Creek, which was about observations of life, nature and and personal reflections on on both. And I would encourage any of your listeners to pick up any Dilert's Pilgrim at Tinker Creek. She also wrote a book called American Childhood, which was much like mine. Um, she's the same age, grew up in Pittsburgh, and her childhood memories are quite similar to how I was, um, how I was growing up. I also, I'm recently uh, I recently bought recently reading a book called The Age of AI, which is a book co authored by Henry Kissinger and Eric Smith from Google and a third party who probably wrote most of it. But it's very interesting about artificial intelligence in the future that has for for all of us going forward. And then there's another book. There's an author called Julian Barnes who has written fifteen books. He's a wonderful writer, very introspective, and it's called Done Nothing to be Afraid Of It, and it's it's about death and dying and his thoughts going forward, which is sort of apropost I sort of say, I'm in uh, in the death zone at because that's when people uh find out they have prostate cancer or breast cancer or whatever. It's it's not a good time going forward. And so it you know, it's very introspective, and the man has written other books that I think other people would enjoy, Julian Barnes and Nothing to be Afraid Of So uh, those are some of them really interesting stuff. Our final two questions, what sort of advice would you give to a recent college grad who was interested in a career in either investing or fixed income? O. Um, well, I would say this. I mean, the market is much different now than it was then, and I had an opening in terms of the little line that you know, even a ten year old could have run through. I guess, um, now it's a different story. But that I think finance um will always be with us, whether stocks, bonds, real estate. Um uh, you know, money is something that's always been with us, and the making of money with money has always been with us. I don't see that. Um, I see it changing, but I don't. I don't see it declining in any form or fashion. And so I would advise those that are thinking about the industry they do do something like yeah, like Cathy Wood did. I mean she she innovated in terms of her ideas and there in terms of her portfolio construction. She did take a risk in terms of her ideas. I mentioned before that she didn't be too much attention to price, but obviously she created this huge wedge and opening for herself. What's a product that no one else was thinking of, and so one of those products I don't know. Um, I'm past the stage of innovation, but yeah, I would say in addition to spending your one or two years of Goldman or whatever in terms of the background, that you know, you kind of go out on your own and innovate with some type of product that will it will get you going and make you a a star and make you some money and and lead you to hopefully to obsessive enjoyment of of what you're doing. You you can't succeed, I would tell them, you can't succeed unless you love what you're doing. Really really interesting. And our final question, what do you know about the world of finance today that you wish you knew fifty years or so ago when you were first getting started out. Oh? Um, you know when I think it is Barry, I think. Um. You know. There was an old soft from Will Rogers, the old journalists in the thirties, and he said a lot of funny things, sort of like Yogi berra. Um. He was known for, um, you know, funny equips and funny comments. And uh I remember him saying about the stock market. He said, if you if you have a stock that goes up, buy it and it goes If it doesn't go up, don't buy it. Um. And I thought that was really funny, and I didn't and I think he thought it was funny too. I don't think he knew what he was talking about. But it really refers to a momentum. If you find this stoctor goes up by it, and if it goes down, and don't buy it. Because momentum is a very powerful force that I learned, you know, sort of in the last ten or fifteen years of managing money. Um. It's an alpha generator. It's statistically proven to be an alpha generator. You can turn against you, like in the last few months when momentum upward momentum turns negative and it uh, it turns into downward momentum. But momentum is something that really predocated upon human nature. They do what has been successful before and it continues until a dozen't And so I think that's what I That's what I was always skeptical, skeptic, skeptical. I was all skeptical of people that UH followed momentum because I thought that was just joining the crowd. Well, joining the crowd works for while until a dozens and and how do you measure it? Well, you can measure it with two hundred moving day averages with owns or bands, with lots of different things. But it's it's statistically an alpha generator in addition to several of the things that I discovered before that. So I say I should have been more appreciative of momentum, not that the Tempco with its secular forecast wasn't really doing the same thing, and and following momentum downward in terms of interest rates and upward in terms of bond prices. But I I follow momentum today. It's important, really really great stuff. Bill, Thank you for being so so generous with your time. We've been speaking with the bond king, Bill Gross, co founder of PIMCO, the man who managed more bond money than literally anybody else UH in the private sector has ever done. If you enjoy this conversation, check out any of our previous four hundred plus discussions we've held over the past eight years. iTunes, Spotify, wherever you get your podcast from, you'll find Masters in Business. We love your comments, feedback and suggestions right to us at m IB podcast at Bloomberg dot net. You can sign up from my daily reading list at dhults dot com. Follow me on Twitter at rit Halts. I would be remiss if I did not thank the crack team that helps me put these conversations together each week. Katherine Silva is my audio engineer. Sean Russo is my head of research. Paris Wald is my producer. I'm Barry Hults. You've been listening to Masters in Business on Bloomberg Radio.