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Bill Gross on Institutional Bond Trading (Podcast) · Masters in Business

• 0:00
  Speaker 1: M This is Mesters in Business with very Renaults on
• 0:06
  Speaker 1: Bluebird Radio. This week on the podcast, we have an
• 0:10
  Speaker 1: extra special guest. I'm trying to to maintain low tones
• 0:15
  Speaker 1: and I'm trying to keep my insane enthusiasm down, but
• 0:20
  Speaker 1: holy cow, Bill Gross, the Bond King, spent three hours
• 0:25
  Speaker 1: talking with us literally about everything. Um, this is a
• 0:29
  Speaker 1: pretty amazing conversation. He does not hold anything back. He
• 0:34
  Speaker 1: names names, he calls people out. He I don't even
• 0:38
  Speaker 1: want to say he has scores to settle because he
• 0:40
  Speaker 1: did that in his book. Uh. He explains what made
• 0:44
  Speaker 1: PIMCO such a unique place, how they accumulated a trillion dollars,
• 0:51
  Speaker 1: essentially creating the concept of institutional bond trading before Pimco,
• 0:57
  Speaker 1: bond trading was by appointment only that this didn't exist before. Then,
• 1:02
  Speaker 1: we cover everything from card counting to inflation, to the FED,
• 1:06
  Speaker 1: to his book, to Marry Child's book The Bond King
• 1:10
  Speaker 1: about him. Really there were no comments left unturned, and
• 1:15
  Speaker 1: we also revealed what his thoughts were about when his
• 1:20
  Speaker 1: bonus was revealed by a certain podcast host about eight
• 1:25
  Speaker 1: years ago, and and how that came about his and
• 1:29
  Speaker 1: Muhammadalarian's multibillion dollar bonus pool, how that thing could even exist,
• 1:37
  Speaker 1: how Alliance allowed them to do it, and and how,
• 1:40
  Speaker 1: after almost being a parlor game of speculation, how those
• 1:44
  Speaker 1: billions of dollars in who got what bonus pool was
• 1:49
  Speaker 1: finally revealed. This was an absolutely fascinating conversation and an
• 1:56
  Speaker 1: extra special guest. So, with no further ado, iye conversation
• 2:01
  Speaker 1: with PIMCO co founder Bill Gross. This is Mesters in
• 2:09
  Speaker 1: Business with very renaults on Bluebird Radio. My extra special
• 2:15
  Speaker 1: guest this week is the bond King, Bill Gross, the
• 2:18
  Speaker 1: co founder of Pimco. At one time, Bill's total return
• 2:23
  Speaker 1: fund was nearly three hundred billion dollars. It was the
• 2:27
  Speaker 1: world's largest mutual funds. Gross controlled more bond money than
• 2:32
  Speaker 1: anybody else in the world. He advised the U. S.
• 2:35
  Speaker 1: Treasury on the role of sub progme mortgage bonds in
• 2:38
  Speaker 1: the O eight oh nine crisis. He was named morning
• 2:42
  Speaker 1: Stars Fund Manager of the Decade. They observed no other
• 2:47
  Speaker 1: fund manager made more money for more people than Bill Gross.
• 2:51
  Speaker 1: He is the author of several books, including Bill Gross
• 2:55
  Speaker 1: on Investing and most recently his book I'm Still Standing
• 3:01
  Speaker 1: Bill Gross and The Pimco Express. Bill Gross. Welcome back
• 3:06
  Speaker 1: to Masters in Business. Thank you, Barry. Actually I'm I'm
• 3:10
  Speaker 1: sitting talking to you, but I'm standing in life. So um,
• 3:13
  Speaker 1: that's why the title applies, I think. But it's good
• 3:16
  Speaker 1: to be here, it's good to have you back. And
• 3:19
  Speaker 1: in fact, um, I owe you a debt of gratitude
• 3:22
  Speaker 1: because when you came on the show, you know it's
• 3:26
  Speaker 1: got to be six seven years ago. You were really
• 3:30
  Speaker 1: the first big name that said, all right, let's let's
• 3:33
  Speaker 1: try this podcast thing out, and you open the floodgates.
• 3:37
  Speaker 1: So if I'm lacking in any objectivity, let me disclose
• 3:41
  Speaker 1: that right up front. But but let's talk about your career.
• 3:46
  Speaker 1: Starting with Pacific Life. You're you're a junior guy there,
• 3:50
  Speaker 1: literally going into the vault taking bond certificates and clipping
• 3:56
  Speaker 1: coupons off of that. How do you get from that
• 3:59
  Speaker 1: sort of junior intern menial labor to launching a standalone
• 4:04
  Speaker 1: active bond shop. We'll let me add to that quickly.
• 4:08
  Speaker 1: I could only clip coupons for half of the day,
• 4:12
  Speaker 1: I guess the other half I was off making private
• 4:15
  Speaker 1: placements loans to fledgling companies such as Berkshire, Hathaway and Walmart.
• 4:23
  Speaker 1: I visited Sam Walton with his two kids as his
• 4:26
  Speaker 1: dog I struck. They had two walmarts in uh Bentonville, Arkansas,
• 4:32
  Speaker 1: and same thing with Buffett and Charlie Munger. So I
• 4:36
  Speaker 1: was doing some of that UM, but just to make
• 4:40
  Speaker 1: the transition, I guess the managing money. I did a
• 4:45
  Speaker 1: master's thesis at u C. L A and I just graduated,
• 4:49
  Speaker 1: and it was about convertible bonds, but also about Warrens
• 4:54
  Speaker 1: and UM an option related vehicles. So I was interested
• 4:58
  Speaker 1: in the bondmarket even though I want to get into
• 5:00
  Speaker 1: stocks and UM specific mutual in downtown l A had
• 5:04
  Speaker 1: a billion dollars worth of buns and m A broker
• 5:09
  Speaker 1: from Weeden and Company, Howard Rakoff, decided to visit and
• 5:14
  Speaker 1: tell me that somebody else in town was trading some
• 5:18
  Speaker 1: bonds from boxes. And in those days, as you know UM,
• 5:22
  Speaker 1: there weren't any computers or IBM three sixties, but we
• 5:25
  Speaker 1: only had one UM. You couldn't really buy and sell
• 5:30
  Speaker 1: on the wire, and so it was very difficult to trade.
• 5:33
  Speaker 1: But I convinced him to let me use five million
• 5:39
  Speaker 1: of their bonds and set up an active trading account.
• 5:42
  Speaker 1: And that was the beginning of PIMCO, and before PIMCO.
• 5:46
  Speaker 1: I've heard bond trading described as by appointment only. Is
• 5:52
  Speaker 1: it fair to say you and your team invented fixed
• 5:56
  Speaker 1: income trading? Am I am I overstating that? Um probably
• 6:00
  Speaker 1: just a little. Uh. There was a gentleman I forget
• 6:03
  Speaker 1: his name and Occidental life Insurance in l A there
• 6:05
  Speaker 1: was doing some of that. There was a Jim guy
• 6:09
  Speaker 1: from Lehman who later died that was doing some of that.
• 6:14
  Speaker 1: But I was certainly one of the first who I
• 6:16
  Speaker 1: was certainly one that pursued it and convinced at least
• 6:23
  Speaker 1: the executives of specific mutual that this could be turned
• 6:26
  Speaker 1: into a business. So maybe I should say PIMCO helped
• 6:30
  Speaker 1: to bring about institutional trading on a level that just
• 6:36
  Speaker 1: didn't exist before. You guys helped systematize it. Is that
• 6:41
  Speaker 1: Is that more accurate? Yeah? I think that's true. But
• 6:45
  Speaker 1: because back then, uh, you know, stocks were the vehicle
• 6:48
  Speaker 1: to trade, and even uh then, they weren't traded that actively.
• 6:54
  Speaker 1: Hands were basically bought and ultimately matured. I guess the
• 7:00
  Speaker 1: big banks in the East and New York, in Boston
• 7:04
  Speaker 1: and Chicago, and so we have a bond trading was
• 7:09
  Speaker 1: was an active thought. No one thought that you could
• 7:12
  Speaker 1: sell one bond by another and make some money. Um.
• 7:15
  Speaker 1: And so it was innovative and I was glad to
• 7:19
  Speaker 1: be part of it. So in the book, you describe
• 7:22
  Speaker 1: how PIMCO grew in the nineteen eighties and nineteen nineties. Well,
• 7:27
  Speaker 1: we'll talk about the latter years later, but that period, um,
• 7:32
  Speaker 1: following everything that Chairman Paul Vulker had done with the
• 7:36
  Speaker 1: bond market, that really was a perfect storm to to
• 7:40
  Speaker 1: plow into the fixed income space. Tell us about the
• 7:44
  Speaker 1: growth of PIMCO in the nineteen eighties and nineteen nineties, okay,
• 7:49
  Speaker 1: And and so you're right, Uh, we started at a
• 7:52
  Speaker 1: great time, not in the seventies because the bear market
• 7:55
  Speaker 1: didn't really end until eighties three, depending on you know,
• 8:01
  Speaker 1: the maturities of bond. But um, you know it's it's
• 8:07
  Speaker 1: set up the premise for total return in bonds where
• 8:10
  Speaker 1: you could not only get a coupon, get an inters payment,
• 8:13
  Speaker 1: but get a capital gain. And when you're starting at
• 8:17
  Speaker 1: close to fifteen percent for a third year treasury, um,
• 8:21
  Speaker 1: you know, it was it was fairly easy ultimately to
• 8:27
  Speaker 1: get a capital gain, and so that helped us. We
• 8:30
  Speaker 1: were also helped by legislation from the Congress. Um A
• 8:35
  Speaker 1: built that legislated RISKA, which basically mandated that mentioned managers
• 8:43
  Speaker 1: had to diversify UM and not just diversified between UM,
• 8:50
  Speaker 1: you know, the obvious, but also diversified between east coast
• 8:53
  Speaker 1: and west coast. And so this little company called a
• 8:56
  Speaker 1: T and T, the biggest in the world, came according
• 9:00
  Speaker 1: UM Lady in the seventies and like what they saw,
• 9:04
  Speaker 1: and they heard pim go, and that really was the
• 9:08
  Speaker 1: beginning of it all. I mean, who who wouldn't open
• 9:10
  Speaker 1: the door to a person or to a company that
• 9:14
  Speaker 1: had just been hired by A T and T. But
• 9:16
  Speaker 1: this is more than just lucky timing for a couple
• 9:19
  Speaker 1: of reasons that I want to go into. We'll talk
• 9:22
  Speaker 1: a little later about some of the technical aspects that
• 9:26
  Speaker 1: pim go really figured out to generate fixed income out alpha. Well,
• 9:30
  Speaker 1: we'll circle back to that. I want to talk a
• 9:33
  Speaker 1: little bit about your investment outlooks. These were highly regarded.
• 9:38
  Speaker 1: People thought they were both insightful and well written. And
• 9:42
  Speaker 1: this is at a time when you know, we kind
• 9:44
  Speaker 1: of take it for granted today that so many people
• 9:48
  Speaker 1: write about financial investing and strategies. When you started doing
• 9:53
  Speaker 1: the investment outlooks each month. That was somewhat unusual, wasn't
• 9:57
  Speaker 1: it tell us about that? Yeah, it was unusual. And
• 10:01
  Speaker 1: I thought about it from a business context, and I said,
• 10:04
  Speaker 1: you know, if I want to be successful at Pinco,
• 10:08
  Speaker 1: if we want to grow as a company, you've gotta
• 10:11
  Speaker 1: say hello. And the best way to say hello is
• 10:13
  Speaker 1: to write these investment outlooks. I mean, I mean, there
• 10:17
  Speaker 1: were a few. Um, there was a famous guy, you know,
• 10:21
  Speaker 1: Barton Biggs from Morgan Stanley. There was a real good writer,
• 10:25
  Speaker 1: and I don't think Jim Grant had started yet, but
• 10:28
  Speaker 1: he was a excellent writer in the time. So I
• 10:31
  Speaker 1: wasn't the only one. But I I thought that if
• 10:33
  Speaker 1: I can inject some personal uh then yettes into my
• 10:38
  Speaker 1: uh forecast for the bond market, the people would read
• 10:41
  Speaker 1: it because they didn't really read these things that came
• 10:45
  Speaker 1: out of First Boston and Solomon Brothers and so on,
• 10:49
  Speaker 1: and so I, uh, I decided to take a little risk. Um.
• 10:53
  Speaker 1: You know. One of the things that I wrote at
• 10:56
  Speaker 1: the beginning of my book a quote It said, the
• 11:00
  Speaker 1: talent is helpful in writing, but guts are absolutely necessary.
• 11:05
  Speaker 1: And so I decided to have a few guts and
• 11:09
  Speaker 1: opened myself up to people and something like that, and
• 11:13
  Speaker 1: some didn't, but you know, the reputation grew well. I
• 11:17
  Speaker 1: want to point out first you were you the o
• 11:20
  Speaker 1: G the original gangster when it came to financial writing,
• 11:24
  Speaker 1: because of course there were lots of professional writers and
• 11:30
  Speaker 1: journalists writing about it, but as far as I recall,
• 11:35
  Speaker 1: you might be one of the earliest people who were
• 11:39
  Speaker 1: managing money. To describe what you were doing, I want
• 11:44
  Speaker 1: to say it was Howard Marks and you pretty much
• 11:47
  Speaker 1: you were the guys that were putting out regular commentary.
• 11:51
  Speaker 1: Before you know, anybody could could go online and find
• 11:56
  Speaker 1: letters from Warren Buffett or or things that Ray Dalio wrote,
• 11:59
  Speaker 1: or any one of thousands of other professional money managers.
• 12:04
  Speaker 1: When you began. I don't think there were many other
• 12:06
  Speaker 1: money managers putting out written commentary the way you guys were. You.
• 12:11
  Speaker 1: Buffett and Marx are kind of the three that that
• 12:14
  Speaker 1: blazed this trial. I think so. And you know, one
• 12:19
  Speaker 1: of my positive attributes is that I I wasn't afraid
• 12:24
  Speaker 1: to take risk and to take chances and so um.
• 12:29
  Speaker 1: You know, there were those that PIMCO and Marketing and
• 12:32
  Speaker 1: so on that would suggest that you can't do that
• 12:35
  Speaker 1: because people would just jump on your ideas in front run.
• 12:38
  Speaker 1: But you know, I'm I'm tearing with in a lot
• 12:41
  Speaker 1: of things. But it wasn't paring Wood, not in terms
• 12:43
  Speaker 1: of um thinking that no one really cared and so
• 12:50
  Speaker 1: so why not why not tell people what I thought?
• 12:53
  Speaker 1: And uh, I think it worked. So it's no doubt
• 12:57
  Speaker 1: it worked because the firm did well in the eighties
• 12:59
  Speaker 1: and nineties. Is at what point did you come to
• 13:02
  Speaker 1: the realization, Hey, this is kind of a one of
• 13:06
  Speaker 1: a kind company and it's going to be special. Did
• 13:09
  Speaker 1: you ever imagine you would have a trillion dollars in
• 13:12
  Speaker 1: assets under management? Well, of course not, UM at some
• 13:17
  Speaker 1: point I did when we were but um no, My
• 13:24
  Speaker 1: my objective was was to grow the company two Um
• 13:31
  Speaker 1: you know, have a fiduciary responsibility to clients in terms
• 13:35
  Speaker 1: of products and not not charging them too much or
• 13:40
  Speaker 1: inventing products that ripped them off. Um. But I also
• 13:43
  Speaker 1: want to uh or wanted to be famous. I mean
• 13:47
  Speaker 1: that's that's in my book and in the other Child's
• 13:52
  Speaker 1: book as well. And um, you know, growing into a
• 13:57
  Speaker 1: trillion and ultimately into two trillion is uh was very
• 14:02
  Speaker 1: productive in terms of being famous, and I guess ultimately infamous. So,
• 14:09
  Speaker 1: now that you look back, which is more important in hindsight,
• 14:12
  Speaker 1: money power of fame? Well, I never enjoyed my power,
• 14:18
  Speaker 1: and I've enjoyed some of the money, but after a
• 14:22
  Speaker 1: certain point, it's not that productive unless you give it away.
• 14:27
  Speaker 1: And so I think, ultimately, if those are the three choices,
• 14:31
  Speaker 1: and I did offer those to potential recruits, who, by
• 14:35
  Speaker 1: the way, would never answer the questions because they were
• 14:38
  Speaker 1: afraid that any of the answers would be view negatively.
• 14:42
  Speaker 1: And I'm certain you know I would choose fame again,
• 14:48
  Speaker 1: and I, um, I was. I was cognizant at the
• 14:52
  Speaker 1: time that fame can turn into infamy, that you could
• 14:57
  Speaker 1: fly too close to the sun, etcetera, etcetera, from objective standpoints.
• 15:02
  Speaker 1: But I must say I didn't think it could happen
• 15:05
  Speaker 1: to me because I was always on the up and up,
• 15:07
  Speaker 1: always on us, always open and and why would anybody? Uh?
• 15:12
  Speaker 1: And I think, ultimately, um, that was hige opening to me.
• 15:19
  Speaker 1: But I do it again. Really interesting. Let's talk a
• 15:25
  Speaker 1: little bit about the way PIMCO grew and generated profits
• 15:31
  Speaker 1: for clients. You describe a lot of very technical aspects
• 15:36
  Speaker 1: to bond management and trading, which all contributed to fixed
• 15:42
  Speaker 1: income alpha, which I think a lot of people reading
• 15:45
  Speaker 1: your latest book might not have realized all the ways
• 15:50
  Speaker 1: that you guys generated out performance. The question I asked is,
• 15:56
  Speaker 1: how is it possible with all this money laying around?
• 15:59
  Speaker 1: Nobody he thought of this before? Why didn't anybody else
• 16:02
  Speaker 1: try and systematize total return of fixed income portfolios? Well,
• 16:09
  Speaker 1: I think, Barry, I mean, a lot of bond managers
• 16:12
  Speaker 1: were and probably still are very conservative. That's their job
• 16:16
  Speaker 1: to protect principle, and therefore on the sales side, on
• 16:21
  Speaker 1: the wall street side, they were facing the clientele that
• 16:26
  Speaker 1: didn't really want to accept any of their suggestions whatever
• 16:31
  Speaker 1: they were. Um, yeah, it was just the other way
• 16:34
  Speaker 1: for me and for PIMCO. And you know, we were
• 16:38
  Speaker 1: very innovative from the standpoint of new products. We were
• 16:42
  Speaker 1: one of the first to buy financial futures. Uh. We
• 16:46
  Speaker 1: were one of the first to to buy mortgages. A
• 16:50
  Speaker 1: fan amame mortgage. I mean, most most bond managers didn't
• 16:54
  Speaker 1: want to go through the problem of segregating principle and
• 16:57
  Speaker 1: interest in determining performance. That took along time and a
• 17:00
  Speaker 1: separate staff, and so we did that and then of
• 17:04
  Speaker 1: course into later into global and UM tips and so on.
• 17:09
  Speaker 1: So the innovation was key. I think to Alpha generation,
• 17:15
  Speaker 1: the biggest key was the thrust of what we called
• 17:20
  Speaker 1: secular forecasting, secular outlooks. And I read a book early on,
• 17:28
  Speaker 1: just after a joint temco UM called Investing for the
• 17:33
  Speaker 1: Long Term. I forget who wrote it, but you know it.
• 17:36
  Speaker 1: It focused me on the dangers of trading for the
• 17:41
  Speaker 1: short term because fear and greed on the other side
• 17:45
  Speaker 1: get involved and you tend to make the decisions. And
• 17:48
  Speaker 1: so we approached it from the standpoint of three to
• 17:51
  Speaker 1: five years in terms of an outlook. We brought in
• 17:54
  Speaker 1: speakers that spoke to that, many of them you know,
• 17:58
  Speaker 1: feed officials or extra shoals, um, et cetera. And so
• 18:03
  Speaker 1: I think that really helped us to avoid you know,
• 18:06
  Speaker 1: the bad the bad months of the bad quarter by
• 18:10
  Speaker 1: looking at three to five years. So those were several
• 18:14
  Speaker 1: of the keys. And when you say investing for the
• 18:16
  Speaker 1: long run, you're not talking about Jeremy Seagull's stocks for
• 18:20
  Speaker 1: the long run. You're talking about something more specific. Yeah,
• 18:25
  Speaker 1: And it basically it involved forecasting interst rates, UM and
• 18:30
  Speaker 1: and to be fair, UM you know throughout the period
• 18:33
  Speaker 1: of time that the secular outlook for interest rates was down, down, down,
• 18:37
  Speaker 1: and um, you know during our annual secular forms that
• 18:42
  Speaker 1: we had where we brought in outside speakers and basically
• 18:46
  Speaker 1: set the tone for the next to all months. Um,
• 18:50
  Speaker 1: you know, for the most part, it was a bullish forecast,
• 18:54
  Speaker 1: which turned out to be true. If we uh had
• 18:57
  Speaker 1: a forecast that went the other way for the long
• 19:00
  Speaker 1: term for the next three to five years, and obviously
• 19:04
  Speaker 1: the company would have disappeared. But by focusing on that
• 19:08
  Speaker 1: forgetting about the day or the week of the months,
• 19:12
  Speaker 1: I think it became very successful in terms of positioning
• 19:16
  Speaker 1: a portfolio duration wise and volatility wise and credit wise. Huh.
• 19:23
  Speaker 1: Really intriguing. So so let's talk a little bit about
• 19:28
  Speaker 1: you know, you as a investor and trader. I'm I'm
• 19:30
  Speaker 1: kind of entranced by the way I've heard the Pimcote
• 19:35
  Speaker 1: trading floor described. Your desk was a horseshoe and the
• 19:40
  Speaker 1: traders and analysts were arranged in a really specific manner.
• 19:43
  Speaker 1: Tell us a little bit about about the thinking they're Well,
• 19:48
  Speaker 1: I thought it was pretty simple and I don't really
• 19:51
  Speaker 1: remember the horseshoe. Um, but you know, I was positioned
• 19:56
  Speaker 1: in the middle certainly, and the trade years of which
• 20:00
  Speaker 1: they eventually grew that were you know, basically positioned in pods.
• 20:07
  Speaker 1: The mortgage people, how yelped people, global people, m etcetera.
• 20:14
  Speaker 1: And uh, you know, they would work together and almost
• 20:19
  Speaker 1: independently day to day. But I would check and others
• 20:25
  Speaker 1: would check in terms of what they were doing, make
• 20:27
  Speaker 1: suggestions and so on it as we walked around the floor. So, um,
• 20:33
  Speaker 1: it made a lot of sense. It was a big
• 20:34
  Speaker 1: trading room with I don't know how many square feet,
• 20:37
  Speaker 1: but I think functionally it really worked for so who
• 20:42
  Speaker 1: got to sit close to you and who sat further away?
• 20:45
  Speaker 1: Was that a function of how accurate, how active those
• 20:49
  Speaker 1: markets were, or was it, you know, just a seniority
• 20:52
  Speaker 1: basis you know, well it was both. Um. You know,
• 20:57
  Speaker 1: I remember that Scott Simon uh sat to the left
• 21:01
  Speaker 1: of me and and build powers, and I don't think
• 21:06
  Speaker 1: christ Allen has ever sat next to me. He was
• 21:09
  Speaker 1: he was content to be on the wing, so to speak,
• 21:12
  Speaker 1: and do his own thing. But but usually it would
• 21:16
  Speaker 1: be determined as well by who would who would be
• 21:19
  Speaker 1: quiet as supposed allowed. Um, you know, I liked quiet
• 21:24
  Speaker 1: to be able to think myself and somebody would allowed
• 21:27
  Speaker 1: voice talking to brokers or calling up their spouse. Uh,
• 21:32
  Speaker 1: you know, it just wasn't working for me in terms
• 21:34
  Speaker 1: of trading to so um. You know, it's the quiet
• 21:38
  Speaker 1: and function and seniority all sort of fit in and
• 21:42
  Speaker 1: I I didn't pick, somebody else picked, and I just
• 21:46
  Speaker 1: went along with it until the noise got too loud,
• 21:49
  Speaker 1: and then they were out and somebody else was in.
• 21:53
  Speaker 1: So So you mentioned the number of your colleagues in
• 21:56
  Speaker 1: the book, which we'll talk about in a little bit.
• 21:58
  Speaker 1: You're very general risk in giving lots of credit to
• 22:02
  Speaker 1: your colleagues for being major drivers of of the firm's success.
• 22:07
  Speaker 1: Tell us about some of these colleagues and how they contributed,
• 22:11
  Speaker 1: uh to Pimco's growth. Well, they were, you know, we
• 22:14
  Speaker 1: hired some really smart pupil and really aggressive people, um,
• 22:19
  Speaker 1: obsessive people that really loved to do what they're doing.
• 22:24
  Speaker 1: Chris Dialis was one of the first. He was my
• 22:28
  Speaker 1: co portfolio manager, so to speak, from the early eighties.
• 22:32
  Speaker 1: He wanted to be a baseball player for the Angels,
• 22:34
  Speaker 1: but decided to take our dollar offer and he came
• 22:40
  Speaker 1: and he had gone to the university of Chicago and
• 22:45
  Speaker 1: you know, studied there about options and so on, and
• 22:50
  Speaker 1: ultimately became instrumental in terms of bringing financial futures to
• 22:57
  Speaker 1: to the portfolios and suggesting some very creative ideas in
• 23:02
  Speaker 1: terms of Jenny May futures, which you know, some say
• 23:07
  Speaker 1: we broke the market. But he was one. And then
• 23:10
  Speaker 1: there was another gentleman, Chang Hong Zoo um that came
• 23:16
  Speaker 1: to us from Wells Fargo in San Francisco. He ultimately
• 23:21
  Speaker 1: left after ten years to go back to China with
• 23:23
  Speaker 1: his family and head up you know, a key position
• 23:27
  Speaker 1: in the Chinese Central Bank. I think, Um, but he um,
• 23:34
  Speaker 1: you would make lots of suggestions and investment committee in
• 23:37
  Speaker 1: terms of convexity and yield curve strategies, Euro dollar futures, etcetera. Um.
• 23:43
  Speaker 1: He was perhaps the smartest guy on the floor, including me,
• 23:46
  Speaker 1: and you know so I think a lot of his
• 23:49
  Speaker 1: strategies are due to his suggestions. Um. You know, there
• 23:54
  Speaker 1: was a high yield gentleman, Ben Trotsky who was really
• 23:57
  Speaker 1: a master of that. All of our mortgage people, uh,
• 24:01
  Speaker 1: Bill Powers and John Higg and Scott Simon that I
• 24:05
  Speaker 1: mentioned were really smart and their performance and mortgages through
• 24:09
  Speaker 1: the years in terms of their own portfolios just float
• 24:12
  Speaker 1: over into the total return funds. So all of these
• 24:16
  Speaker 1: people and there are a lot other ones. Um, you know,
• 24:20
  Speaker 1: we were a team. And you know, the term bond
• 24:23
  Speaker 1: king was I guess that's more of a pr acceptance
• 24:30
  Speaker 1: than anything else. I don't think there was a king.
• 24:33
  Speaker 1: I was a leader, um, and certainly a leader of
• 24:36
  Speaker 1: the investment committee, and in terms of accepting a standard
• 24:40
  Speaker 1: portfolio for those to manage. But lots of smart people,
• 24:45
  Speaker 1: and um, I think it theired acknowledgement in my book,
• 24:50
  Speaker 1: So lots of these colleagues eventually became successful, they became
• 24:55
  Speaker 1: very wealthy, and they, you know, hit the eject button
• 24:58
  Speaker 1: and retired. You stuck around for forty three years. That's
• 25:03
  Speaker 1: a long time. What led to that longevity that's pretty
• 25:06
  Speaker 1: unusual these days. I think it was because I loved it. Uh.
• 25:12
  Speaker 1: And you know, the the standard, the standard idea that
• 25:18
  Speaker 1: you should do what you love is fine. It can't
• 25:21
  Speaker 1: really apply to the billions of people. Uh. You know
• 25:25
  Speaker 1: throughout the world. They all can't find jobs that they love.
• 25:30
  Speaker 1: They can't all paint, they can't all write music. But
• 25:34
  Speaker 1: this was an area that I loved in terms of
• 25:37
  Speaker 1: buying and selling and competing and making money and becoming famous,
• 25:42
  Speaker 1: of course. And so I think I stuck around for
• 25:46
  Speaker 1: that long until I was seventy two at PEMCO or
• 25:49
  Speaker 1: seventy one, simply because I loved coming in. Um. It
• 25:54
  Speaker 1: just it made my week. Um And you know, PEMCO,
• 25:59
  Speaker 1: we would have them in from committee until from twelve
• 26:01
  Speaker 1: to three every day, but after three, and certainly in
• 26:05
  Speaker 1: the summertime, I could just go across the street and
• 26:08
  Speaker 1: hit some balls and to play golf too. So I
• 26:10
  Speaker 1: wasn't a one way uh horse writer. I guess I
• 26:16
  Speaker 1: could do a lot of things, but managing money and
• 26:19
  Speaker 1: investing and talking about it, writing about it was something
• 26:25
  Speaker 1: I truly enjoy. So let's talk a little bit about
• 26:29
  Speaker 1: the two thousands. You guys, really, because of what you
• 26:33
  Speaker 1: were positioned, got a very early warning look at what
• 26:38
  Speaker 1: was going on in the bond market and the housing market.
• 26:41
  Speaker 1: You were pretty well positioned before, during, and after the
• 26:46
  Speaker 1: financial crisis of O eight oh nine. How did you
• 26:49
  Speaker 1: manage to to accomplish that well? I give most of
• 26:55
  Speaker 1: the credit in this case to Paul McCulley, and Paul
• 26:58
  Speaker 1: still around. He's on TV, he's got that long hair
• 27:01
  Speaker 1: in that southern drawl. Um, but at least the yes.
• 27:07
  Speaker 1: But he was an economist at heart, and he was
• 27:12
  Speaker 1: a permanent member of the Investment Committee, and he would
• 27:16
  Speaker 1: speak about Himan Minsky and his theory about stability turning
• 27:22
  Speaker 1: into instability. And then as the housing market roared and peaked,
• 27:27
  Speaker 1: we became sensitive to um the potential for instability. I
• 27:33
  Speaker 1: had a brother in law who was a mortgage banker
• 27:36
  Speaker 1: on a small scale, and we would have dinner sometimes
• 27:40
  Speaker 1: he would tell me about no docks and flyer loans
• 27:43
  Speaker 1: and so on, before anyone at the FED knew anything
• 27:47
  Speaker 1: about that. And so I decided to take ten of
• 27:51
  Speaker 1: our credit analyst and send them out throughout the country
• 27:54
  Speaker 1: and pretend that they were buying houses and to see
• 27:57
  Speaker 1: what was going on. UH. They came to h and said, Hey,
• 28:02
  Speaker 1: this this stuff is danger these subprime mortgages, etcetera, etcetera.
• 28:07
  Speaker 1: And so we were wise to this. Early on. We
• 28:11
  Speaker 1: avoided portfolios of subprime mortgages and UH yields in general,
• 28:17
  Speaker 1: anticipating crisis at some point. So I I think our
• 28:22
  Speaker 1: Investment Committee, and again Paul McCully was the leader in
• 28:27
  Speaker 1: this regard, really helped in terms of anticipating what might
• 28:32
  Speaker 1: happen at some point that did happen. Huh, to say
• 28:36
  Speaker 1: the least full disclosure. I know McAuley really well. We've
• 28:39
  Speaker 1: gone fishing together in Maine. I've had him on the
• 28:42
  Speaker 1: show before, and full credit to him for giving Minsky's
• 28:46
  Speaker 1: work a wider modern um audience. So, given that you
• 28:51
  Speaker 1: were positioned so well during the financial crisis, how did
• 28:55
  Speaker 1: the relationship with the U. S. Treasury developed? Tell us
• 28:59
  Speaker 1: a little bit about that. Well, UM, I guess it's
• 29:05
  Speaker 1: this sounds delicate, but it shouldn't be. Um. You know,
• 29:09
  Speaker 1: almost all of us don't. Weren't in touch with the Treasury.
• 29:11
  Speaker 1: I mean I talked to um Timothy Geitner once over
• 29:16
  Speaker 1: the phone on a Sunday evening when he called me
• 29:19
  Speaker 1: up after he'd had a few beers and wanted to
• 29:21
  Speaker 1: know what was happening in the economy. But that's the
• 29:24
  Speaker 1: only time I can ever remember talking to the Treasury.
• 29:28
  Speaker 1: We weren't like black Rock and Larry Fink put nothing
• 29:32
  Speaker 1: wrong with that, but we were a company on the
• 29:35
  Speaker 1: West Coast that basically did our own research and weren't
• 29:40
  Speaker 1: in touch with Treasury officials unless they were FED officials
• 29:45
  Speaker 1: that had retired, like uh, you know Bernanke and Paul
• 29:52
  Speaker 1: Volker and h and others, And so I don't really
• 29:56
  Speaker 1: know how it developed. Uh it certainly wasn't a phone call.
• 29:59
  Speaker 1: They called us and and said can we UM helped
• 30:04
  Speaker 1: manage a portfolio of mortgages for them? And we said
• 30:11
  Speaker 1: short and uh so that was basically yet. And you know,
• 30:16
  Speaker 1: there was a rumor that we badgered them into guaranteeing
• 30:22
  Speaker 1: Fanny and Freddy mortgages. Nothing could be further from the truth.
• 30:28
  Speaker 1: Nobody made a phone call to badge her or to
• 30:32
  Speaker 1: to influence in any way. What we did see is
• 30:35
  Speaker 1: that of all the mortgages, that Fannie and Freddie were
• 30:38
  Speaker 1: the highest quality, and that they were yielding astronomical yields
• 30:44
  Speaker 1: relative to treasuries and much wider spreads and had ever occurred.
• 30:50
  Speaker 1: And so that was the fascination with Fannie and Freddy.
• 30:54
  Speaker 1: We did well with mortgages, and we did well during
• 30:57
  Speaker 1: the crisis and after the crisis to Pimpto went from
• 31:01
  Speaker 1: one trillion to two trillions because we had protected their money.
• 31:06
  Speaker 1: So we mentioned earlier the new book by Married Child,
• 31:10
  Speaker 1: The Bond King is out Um and I know you
• 31:14
  Speaker 1: participated in in responding to some questions about um at
• 31:19
  Speaker 1: least validating certain things or not factually. But it's pretty
• 31:23
  Speaker 1: easy to read that book and see that she's trying
• 31:27
  Speaker 1: to make the case that PIMCO was the largest holder
• 31:31
  Speaker 1: of Fannie and Freddie bonds and that you guys bully
• 31:34
  Speaker 1: the government into guaranteeing them. Make your case rebut that
• 31:39
  Speaker 1: premise was it simply, Hey, we never spoke to anyone
• 31:42
  Speaker 1: at Treasury about Fannie and Freddie exactly. I mean, how
• 31:46
  Speaker 1: could we relay our badger if um I or um
• 31:52
  Speaker 1: I guess Mohammed didn't pick up the phone and and
• 31:57
  Speaker 1: and Badger and Billie. First of all, we were bullies
• 32:01
  Speaker 1: in the trading room, but we weren't bullies from the
• 32:04
  Speaker 1: standpoint of uh, you know, Treasuries strategy. Were you bullies
• 32:11
  Speaker 1: or were you really just the eight hundred pound guerrilla
• 32:14
  Speaker 1: in the space? Yeah? I think so. You know, we
• 32:17
  Speaker 1: had a lot of money, we bought a lot of bonds,
• 32:19
  Speaker 1: and um you know that health our performance. But you know, bullies, No,
• 32:25
  Speaker 1: you can't be a bully if you don't pick up
• 32:27
  Speaker 1: a phone. So your counter to the book The Bond
• 32:31
  Speaker 1: King is no, we we didn't force the government to
• 32:35
  Speaker 1: guarantee these. The government did that cause for their own reasons.
• 32:38
  Speaker 1: Primarily they were desperate for liquidity, and they were desperate
• 32:42
  Speaker 1: for some degree of stability, and this is how they
• 32:45
  Speaker 1: achieved it. Is that a fair counter argument to our book? Um,
• 32:51
  Speaker 1: It certainly is. And one interesting sidelight. I mean, during
• 32:54
  Speaker 1: the crisis, as Congress was voting UM, I guess for
• 32:58
  Speaker 1: their in the Ollar package bailout package, you know, Warren
• 33:05
  Speaker 1: Buffett called me up and uh and told me about
• 33:09
  Speaker 1: a plan he had to contribute a hundred million in
• 33:15
  Speaker 1: equity hundred millions, hundred hundred million and equity and to UM,
• 33:23
  Speaker 1: you know, to basically buy subprime mortgages from the banks,
• 33:28
  Speaker 1: in other words, to take a load off their shoulders obviously,
• 33:31
  Speaker 1: to buy them that are at the right price. And
• 33:34
  Speaker 1: within thirty minutes after checking with our executive committee, I said, fine,
• 33:39
  Speaker 1: we'll do it. UM. The next day, however, you know,
• 33:44
  Speaker 1: the Treasury Secretary decided to go the other way, and
• 33:47
  Speaker 1: that's when they decided to to ask banks to to
• 33:54
  Speaker 1: issue preferred stock and the bailout took another form. But
• 33:58
  Speaker 1: that's about the only potential connection we had with um
• 34:04
  Speaker 1: the Treasury, and as I say, it never came to fruition,
• 34:06
  Speaker 1: and it was just like a forty eight hour idea,
• 34:09
  Speaker 1: really intriguing. Let's talk a little bit about this book,
• 34:14
  Speaker 1: which generated a little bit of controversy. People blamed you
• 34:19
  Speaker 1: for just seeking to settle scores. Tell us about the
• 34:23
  Speaker 1: book and what motivated you to sit down and write it. Well,
• 34:27
  Speaker 1: had written a book twenty years ago, and I didn't
• 34:30
  Speaker 1: really think at the time that I had another book
• 34:33
  Speaker 1: in me, sort of like Wroting writing novels. I guess, um,
• 34:38
  Speaker 1: after the first one, it's all downhill. But I was
• 34:43
  Speaker 1: in touch with Mary Childs for five or six years,
• 34:47
  Speaker 1: certainly after I left Tempt. We were not good friends,
• 34:54
  Speaker 1: but she would interview me occasionally, and so I was
• 35:02
  Speaker 1: alerted to the factor. I read something on Apple Books
• 35:06
  Speaker 1: that a book by Mary Childs was coming, you know,
• 35:10
  Speaker 1: twelve months in the future, and it had a prospective
• 35:14
  Speaker 1: cover on it described me on the cover as ruthless
• 35:19
  Speaker 1: and you know, having lost everything. And I I said
• 35:25
  Speaker 1: to myself, that's not who I am, as the look
• 35:29
  Speaker 1: in the mirror. And and so, you know, rather than
• 35:33
  Speaker 1: thinking about a lawsuit or any of that, I said, well,
• 35:36
  Speaker 1: the best way to count that and to give your
• 35:41
  Speaker 1: impression of pimpto and it's years and your part in it,
• 35:46
  Speaker 1: I was to wreat your own version. And I had time.
• 35:49
  Speaker 1: I'm not here in the desert. I played golf in
• 35:51
  Speaker 1: the afternoon. I uh get up at six in the morning,
• 35:55
  Speaker 1: and I managed my portfolios for five or six hours.
• 36:00
  Speaker 1: And uh, I had time, and so I just started
• 36:03
  Speaker 1: writing in order to say that I'm still standing. I
• 36:08
  Speaker 1: haven't lost everything. And the ruthless part, I'm not sure
• 36:15
  Speaker 1: what she was referring to. I called her up and
• 36:18
  Speaker 1: I said, Mary, Uh, you know, I kind of get
• 36:21
  Speaker 1: the ruthless part. And I think she decided to take
• 36:25
  Speaker 1: it off the cover, right. I haven't read the book,
• 36:27
  Speaker 1: of course, because I'm too sensitive criticism, and I know
• 36:31
  Speaker 1: there's criticism in it. But the ruthless part, I I
• 36:35
  Speaker 1: just went overboard, and that's what set me off. And said,
• 36:38
  Speaker 1: write your own book, tell your own story, and hopefully
• 36:41
  Speaker 1: after five or six years, um. You know, the the
• 36:47
  Speaker 1: wounds as in time heals all wounds. UM had healed
• 36:53
  Speaker 1: pretty much and the scars, said, turned from red to white. Um.
• 36:58
  Speaker 1: And so I thought I could write in active book
• 37:01
  Speaker 1: about the pluses and the minuses each argument, Tempo's argument,
• 37:06
  Speaker 1: my argument why I left, and um why I wasn't
• 37:11
  Speaker 1: necessarily the bond kings. The company was full of bond
• 37:16
  Speaker 1: kings and bond queens for a long long time. Huh.
• 37:19
  Speaker 1: And and the book title does not have ruthless in it.
• 37:24
  Speaker 1: Um And for those people who may not be familiar
• 37:26
  Speaker 1: with Mary Child's um, she covered Pimco and the bond
• 37:31
  Speaker 1: market at Bloomberg News for a while. Before that, she
• 37:34
  Speaker 1: worked at the Financial Times, and now she's a co
• 37:37
  Speaker 1: host of Planet Money podcast at NPR. And we'll talk
• 37:42
  Speaker 1: a little later about a project she and I did together,
• 37:46
  Speaker 1: but let's talk about the book. You do not and
• 37:50
  Speaker 1: I think ruthless may not be the right word, but
• 37:54
  Speaker 1: you don't hold anything back in the book. I mean,
• 37:57
  Speaker 1: you are completely blunt and worthcoming an example, I want
• 38:02
  Speaker 1: to ask you about. You said your partner who negotiated
• 38:06
  Speaker 1: the Alliance purchase of Pimco skinned them alive. So so
• 38:12
  Speaker 1: that's a serious um line. Tell us about the Alliance
• 38:17
  Speaker 1: takeover of Pimco and how you guys managed to get
• 38:22
  Speaker 1: such a one sided deal that worked to the benefit
• 38:25
  Speaker 1: of the Pimco owners. And the company oh so much
• 38:30
  Speaker 1: so UM and Ken Covies no longer will this. But
• 38:35
  Speaker 1: he was brilliant. He was He was a leader in
• 38:38
  Speaker 1: terms of negotiating with Alliance. And by the way, all
• 38:43
  Speaker 1: ants when they bought Pimco, they um, they only bought
• 38:49
  Speaker 1: it specific mutual held onto it for you know, a
• 38:54
  Speaker 1: year or two, and they left with us the people
• 38:59
  Speaker 1: the partners UH of the profits going forward which still
• 39:04
  Speaker 1: exists and UM. And so that basically meant that what
• 39:09
  Speaker 1: they were paying for was was about a sixth of
• 39:13
  Speaker 1: PIMCO in terms of the ongoing revenue stream. But to
• 39:20
  Speaker 1: talk about proving what he did, he basically suggested to
• 39:24
  Speaker 1: them and we would suggest to him. And yes, we
• 39:26
  Speaker 1: were very ruthless from the standpoint of, UM, you know,
• 39:31
  Speaker 1: trying to strike a very good deal if we're ever
• 39:36
  Speaker 1: going to sell part of the company and UM, Poopy
• 39:41
  Speaker 1: would will always tell them and I would participate in
• 39:44
  Speaker 1: the discussions that these people needed to be incentivized. UM.
• 39:49
  Speaker 1: Not that of the profit pool wasn't incentive enough. But
• 39:54
  Speaker 1: Poopy would say, UM, you know, these partners will be
• 39:58
  Speaker 1: there twenty five now that we fifties WI, this won't
• 40:03
  Speaker 1: be enough to keep incentivizing the existing partners and to
• 40:08
  Speaker 1: bring a new partners. So he devised what he called
• 40:12
  Speaker 1: a B share UM sort of a fake equity UH
• 40:16
  Speaker 1: type of plan where partners would be given a certain
• 40:20
  Speaker 1: amount of B shares and and that the value of
• 40:22
  Speaker 1: those shares ten five, ten years forward when they could
• 40:26
  Speaker 1: be cashed in, would be based upon multiples ten twelve, fourteen,
• 40:32
  Speaker 1: sixteen time multiples of existing earnings. And basically, when I
• 40:40
  Speaker 1: say he skinned them, Alliance had no idea that what
• 40:44
  Speaker 1: they would be pain in terms of those multiples and
• 40:48
  Speaker 1: in terms of the performance of that we're anywhere close
• 40:51
  Speaker 1: to would eventually occurred. And um, it was a brilliant idea.
• 40:56
  Speaker 1: He uh pulled the wool over their eyes. They were
• 41:00
  Speaker 1: I guess star struck with you know, buying Pempco and
• 41:05
  Speaker 1: looking forward to um wonderful publicity. But it was really
• 41:11
  Speaker 1: that B share plan that made made me more money
• 41:14
  Speaker 1: and made partners more money than the existing thirties represent
• 41:18
  Speaker 1: profit pool. It was a total billions and billions of
• 41:22
  Speaker 1: dollars in terms of B share payoffs. And you you
• 41:27
  Speaker 1: don't again, you don't hold back, you say in the
• 41:30
  Speaker 1: book quote none of us were worth what we were paid.
• 41:34
  Speaker 1: Unquote explain if if you're generating billions and dollars of profits,
• 41:40
  Speaker 1: what should you have been paid. Well, there's a certain
• 41:44
  Speaker 1: logic of that. I mean, our our fees weren't excessive.
• 41:47
  Speaker 1: We were charging thirty five basis points on average. We
• 41:50
  Speaker 1: just grew and grew and grew and grew and grew.
• 41:53
  Speaker 1: And one of the beauties of working at PEMCO was
• 41:57
  Speaker 1: that it was small. We kept our expenses down and
• 41:59
  Speaker 1: our people low. You know, companies like Bank of America
• 42:03
  Speaker 1: had two hundred and fifty thousand people. We had two thousand,
• 42:06
  Speaker 1: five hundred or a hundreds of their size, with profits
• 42:10
  Speaker 1: about the same size, and so um. You know, that
• 42:14
  Speaker 1: was part of our strategic brilliance as well. I guess
• 42:19
  Speaker 1: Jim Muzzy and early on Bill Pondlock, the original partners,
• 42:24
  Speaker 1: uh you know, simply thought that we should keep expenses
• 42:28
  Speaker 1: and people low. With that we could manage without a
• 42:31
  Speaker 1: lot of people, and so you know, that generated huge
• 42:34
  Speaker 1: bonuses where we're worth it. Uh you know, I simply
• 42:39
  Speaker 1: said that I don't think anybody's worth uh that type
• 42:43
  Speaker 1: of money. Um, yeah, maybe maybe Bezos and Elon Musk
• 42:50
  Speaker 1: in terms of their creativity but it's just it was
• 42:53
  Speaker 1: too much money. You know, as as I left him go,
• 42:56
  Speaker 1: our executive secretaries were making five hundred million dollars um um.
• 43:01
  Speaker 1: Our our our head corporate lawyer, you know that the
• 43:05
  Speaker 1: ge lawyer uh was making one or two million dollars.
• 43:08
  Speaker 1: Our our lawyer was making ten to twelve million dollars.
• 43:11
  Speaker 1: It's like we didn't know we had so much money.
• 43:14
  Speaker 1: We didn't know how to get rid of it, um
• 43:16
  Speaker 1: and um. We had this egalitarian type of attitude that
• 43:20
  Speaker 1: we should spread it out as much as possible. But
• 43:23
  Speaker 1: I don't think anybody there to deserve to make what
• 43:27
  Speaker 1: they were making. So we're gonna circle back to the
• 43:31
  Speaker 1: bonus structure. But unfortunately, at this point I have to
• 43:35
  Speaker 1: insert myself into our conversation. So you get fired from
• 43:42
  Speaker 1: pimco in and I save a bunch of UM your
• 43:48
  Speaker 1: I O s from previous dates, and in the train
• 43:51
  Speaker 1: home from work, I just read a bunch just you know,
• 43:55
  Speaker 1: across a couple of years. By the time I get
• 43:58
  Speaker 1: home that night, your voice is in my head. And
• 44:01
  Speaker 1: you know, whenever they arrest a painting forger, they always
• 44:06
  Speaker 1: say the same thing. Once I had his stroke down,
• 44:09
  Speaker 1: everything I painted looked like Picasso. Well, once I had
• 44:13
  Speaker 1: your voice in my head, whatever I wrote sounded like you,
• 44:17
  Speaker 1: and so for it was then called Bloomberg View. I
• 44:20
  Speaker 1: wrote your final investment outlook in your voice, Um, purposefully
• 44:26
  Speaker 1: making it outrageous. But you know, by the time it
• 44:29
  Speaker 1: got through the editing process, it was smoothed out enough
• 44:34
  Speaker 1: that it very much sounded like your voice, so much
• 44:38
  Speaker 1: so that PIMCO called Mary Child's asking her, Hey, how
• 44:43
  Speaker 1: the hell did you guys get bills last? I? Oh,
• 44:46
  Speaker 1: this is wrong, and it's in Bloomberg View. It's an
• 44:49
  Speaker 1: opinion piece. It's a satire, it's a parody. Um. And
• 44:53
  Speaker 1: so you and I began speaking about that. But before
• 44:57
  Speaker 1: we get into the bonus discussion, how us a little
• 45:00
  Speaker 1: bit about that day. What was it like after forty
• 45:04
  Speaker 1: three years to be sent to the principal's office and
• 45:08
  Speaker 1: sent home? Well, I was traumatic. I mean I was
• 45:12
  Speaker 1: the one of the founders. I was one of the
• 45:16
  Speaker 1: leaders of the Chief Investment Officer. The performance was flat
• 45:22
  Speaker 1: for twelve months, but you know, nothing tragic. And you
• 45:27
  Speaker 1: know the executive committee which was going to fire me
• 45:33
  Speaker 1: on Friday afternoon because they thought I was unsettling in
• 45:39
  Speaker 1: terms of my pursuit of insiders talking to the press
• 45:44
  Speaker 1: in any case, UM, you know, I I decided I'm
• 45:49
  Speaker 1: not walking that plank that I deserved better than this.
• 45:53
  Speaker 1: I even asked in the last a week or two
• 45:56
  Speaker 1: when when I knew that, you know, the inevitable was
• 46:01
  Speaker 1: coming up that Friday afternoon, I said, why don't you
• 46:04
  Speaker 1: just let me manage you know, a small portfolio closed
• 46:07
  Speaker 1: in fund, just so I can stay in it. Um.
• 46:12
  Speaker 1: They said, I don't even work in another building if
• 46:14
  Speaker 1: you want, UM, and they looked at me. They said,
• 46:18
  Speaker 1: it's not going to happen. And so I at the
• 46:21
  Speaker 1: time I couldn't understand that. Now, I sort of do
• 46:24
  Speaker 1: you know, when you when you kill the king, you
• 46:27
  Speaker 1: better make sure he's dead. And uh, they didn't want
• 46:31
  Speaker 1: any presence of Bill grows in the ongoing PEMCO. I
• 46:35
  Speaker 1: objectively understand that, but UH, to turn down uh an
• 46:40
  Speaker 1: offer to let me manage a few small portfolios and
• 46:44
  Speaker 1: maybe write some investment out looks, I couldn't believe it. Um.
• 46:47
  Speaker 1: I made a quick call to the Janice with Dick Wile,
• 46:53
  Speaker 1: who was heading that up and um ce at PIMCO
• 46:58
  Speaker 1: a few years before, and UH, he said sure, come
• 47:01
  Speaker 1: over And so I I didn't want to walk the plank.
• 47:05
  Speaker 1: I didn't want to go into that committee and be fired.
• 47:08
  Speaker 1: And so I left that night, walked down the floor
• 47:14
  Speaker 1: stairs for the last time, and uh, and the next
• 47:19
  Speaker 1: morning I was off to Denver. Um. I just I
• 47:22
  Speaker 1: didn't think it was the way you should treat somebody
• 47:26
  Speaker 1: that was a founder and responsible for much of their success.
• 47:32
  Speaker 1: And there was at the time a lot of sniping
• 47:34
  Speaker 1: in the news. They had said you had become disruptive
• 47:38
  Speaker 1: and we're a problem on the training floor and was
• 47:41
  Speaker 1: affecting morale, and there was a lot of personal stuff.
• 47:45
  Speaker 1: Hey Bill is a little unstable, And they trotted out
• 47:48
  Speaker 1: that picture from you at the morning Star conference with
• 47:52
  Speaker 1: the glasses, which I think we're or two I was
• 47:55
  Speaker 1: years before. You know, what was your reaction when this
• 47:58
  Speaker 1: became so you know, personal and to be blunt, so petty,
• 48:03
  Speaker 1: on on all around. Well, it wasn't good. Um, you know,
• 48:11
  Speaker 1: I guess like in a divorce, and this was a divorce.
• 48:15
  Speaker 1: Both sides started picking at each other, you know, wore
• 48:18
  Speaker 1: the roses type of thing. Um. So of you know,
• 48:23
  Speaker 1: I didn't enjoy what they were leaking to the press.
• 48:27
  Speaker 1: I never talked to the press, by the way, but
• 48:31
  Speaker 1: I didn't enjoy that. They said the performance was bad,
• 48:34
  Speaker 1: that I was erratic, etceteratera etera. I was always somewhat
• 48:40
  Speaker 1: not erratic, but always uh quirky, somewhat of a quirky character.
• 48:45
  Speaker 1: And I don't think that had changed. But but there
• 48:49
  Speaker 1: had been you know, two or three people that our
• 48:52
  Speaker 1: lawyers eventually discovered that we're leaking, leaking information to the
• 48:57
  Speaker 1: press and favoring Muhammad supposed to me in terms of
• 49:01
  Speaker 1: why he left, and I I didn't think that was nice,
• 49:05
  Speaker 1: and so uh that ultimately, and to be fair, as
• 49:11
  Speaker 1: I wrote in my book, you know, one of the
• 49:15
  Speaker 1: main reasons I think that they fired me, what was
• 49:19
  Speaker 1: I was in favor of low fees and they were
• 49:22
  Speaker 1: in favor of high fees. You know, Dan Iverson and
• 49:26
  Speaker 1: the mortgage department had created, uh, you know, products that
• 49:32
  Speaker 1: had two and twenty hedge fund types of types of
• 49:35
  Speaker 1: seas and we're making a lot of money. I was
• 49:37
  Speaker 1: making some of it. But it just seemed to me
• 49:40
  Speaker 1: in terms of buduciary responsibility that low fees were something
• 49:46
  Speaker 1: we owed to clients and we weren't hedge fund managers.
• 49:49
  Speaker 1: And so UM. Ultimately, I think the executive committee which
• 49:55
  Speaker 1: was formed with eight people, uh three of which were
• 50:00
  Speaker 1: portfolio managers, one uh Iverson who eventually led the the
• 50:06
  Speaker 1: coup as I called it. UM. You know, they went
• 50:11
  Speaker 1: in the direction of high seas as opposed to low
• 50:14
  Speaker 1: fees E T f s and UM and so on.
• 50:18
  Speaker 1: So UM there was a fundamental reason, but there there
• 50:22
  Speaker 1: was also other personal reasons. Um. I was seventy two
• 50:25
  Speaker 1: was the time to go. Um, not in my mind,
• 50:29
  Speaker 1: but in their mind because at seventy two, as I
• 50:33
  Speaker 1: wrote in my book, if you're not as sharp as
• 50:35
  Speaker 1: you are fifty two, and certainly not as sharp as
• 50:39
  Speaker 1: you you at seventy seven as you as you were
• 50:43
  Speaker 1: at seventy two. So so maybe there was some of that,
• 50:47
  Speaker 1: and I understand some of that. I just still don't
• 50:50
  Speaker 1: understand the exit and why they had to do it
• 50:55
  Speaker 1: that way. So let's talk a little bit about that.
• 50:58
  Speaker 1: Wore the roses so I got I don't remembered as
• 51:02
  Speaker 1: the facts or an email, but a spreadsheet that was
• 51:06
  Speaker 1: you know, the long debated and wondered about bonus pool
• 51:11
  Speaker 1: at PIMCO, and it had you earning about three hundred
• 51:15
  Speaker 1: million dollars a year in bonus. Um. Muhammad Alarian about
• 51:20
  Speaker 1: two hundred and forty million dollars in bonus uh, and
• 51:23
  Speaker 1: down the run a whole run of of literally billions
• 51:28
  Speaker 1: of dollars in excess compensation. So tell us about why
• 51:33
  Speaker 1: that was released and and did that have the intended
• 51:38
  Speaker 1: effect of really rattling the senior management at PIMCO and
• 51:43
  Speaker 1: and causing turmoil uh in the C suite. Well, I
• 51:48
  Speaker 1: think it might have had an effect. That was the intense.
• 51:51
  Speaker 1: I didn't have anybody in the company that could tell me, um,
• 51:56
  Speaker 1: whether or not their esteem coming uh, you know, out
• 52:00
  Speaker 1: of the years of many of the partners. But I,
• 52:05
  Speaker 1: you know, like I say, I had been fired. Uh.
• 52:09
  Speaker 1: They were talking in the press negatively about me, and
• 52:12
  Speaker 1: I didn't want to call up the press and talking
• 52:15
  Speaker 1: negatively about them. And so what I did was, I said, uh, well,
• 52:20
  Speaker 1: I know how I can get back at them, um.
• 52:24
  Speaker 1: And it was childish in a way, but it was
• 52:27
  Speaker 1: it was a way to you know, to stop taking
• 52:31
  Speaker 1: bunches and maybe throw one of them out. And so
• 52:33
  Speaker 1: I I took last year's bonus pool and I mailed
• 52:38
  Speaker 1: into eight random of partners UH in an envelope and
• 52:44
  Speaker 1: sent it as a package to PIMCO and I as
• 52:47
  Speaker 1: soon they ultimately distributed it. Um. You know, for the
• 52:51
  Speaker 1: most part, I assumed anyway the partners knew what other
• 52:55
  Speaker 1: partners were making. You know, that happens over drinks and
• 52:58
  Speaker 1: over the water cooler. But UM, it just made me
• 53:01
  Speaker 1: feel better that I could do something to counder what
• 53:04
  Speaker 1: they were doing. So in the book you said you
• 53:07
  Speaker 1: could hear the screams from the top floor all the
• 53:10
  Speaker 1: way uh your house. But let me just shed a
• 53:14
  Speaker 1: little color about what took place when when I got
• 53:19
  Speaker 1: the document, I walked it over um to some senior
• 53:23
  Speaker 1: editors at Bloomberg who walked it through legal and we
• 53:27
  Speaker 1: brought in, of all people, married Childs, who was covering PIMCO,
• 53:31
  Speaker 1: and UM. The plan was I would write the opinion
• 53:34
  Speaker 1: piece about how outrageous this was, and Mary would cover
• 53:38
  Speaker 1: it as straight news. Uh, and that after we had
• 53:43
  Speaker 1: vetted everything. And they, you know, to Bloomberg's credit, their
• 53:46
  Speaker 1: process is just absolutely fastidious and top notch. I was
• 53:51
  Speaker 1: very comfortable that we checked every box, both from a
• 53:56
  Speaker 1: journalistic side and the legal side. And UM, what they
• 54:01
  Speaker 1: did is they waited till eight p M East Coast
• 54:03
  Speaker 1: time after the Wall Street Journal and the New York
• 54:07
  Speaker 1: Times print editions had gone to bed, and they called
• 54:11
  Speaker 1: up Pimco to get a comment on it, and um,
• 54:16
  Speaker 1: they seem to not really believe that we had what
• 54:19
  Speaker 1: we had And so the next day both pieces ran
• 54:23
  Speaker 1: and all hell broke loose. That was the most read
• 54:26
  Speaker 1: pieces on the Bloomberg terminal for like six months. I
• 54:30
  Speaker 1: don't remember the exact date, but it absolutely blew up.
• 54:34
  Speaker 1: And I know it was a parlor game. People were
• 54:36
  Speaker 1: trying to guess what Pimco's bonus pool was. So now
• 54:41
  Speaker 1: that you look back at it, did did this accomplish
• 54:44
  Speaker 1: what you hoped? And you know, do you have any
• 54:46
  Speaker 1: regrets about that? You know? Were the roses era? Oh god,
• 54:53
  Speaker 1: God no, I mean I thought then I still think
• 54:58
  Speaker 1: now that it was just a little job to counter
• 55:03
  Speaker 1: their uppercuts and so, um, they really do any damage
• 55:09
  Speaker 1: to the structure of the company in terms of compensation,
• 55:13
  Speaker 1: I don't know, um, but since they were all very
• 55:18
  Speaker 1: good in terms of the executive committee in terms of
• 55:21
  Speaker 1: smoothing things, and I assume internally that you know, they
• 55:26
  Speaker 1: gave it an after that, but not not for a
• 55:28
  Speaker 1: six month. I'll tell you a funny story that I
• 55:31
  Speaker 1: never shared with you, but I might as well as
• 55:35
  Speaker 1: long as we're coming clean. Um. So, in order to
• 55:39
  Speaker 1: protect our source, spreadsheet was to the penny. I mean
• 55:43
  Speaker 1: it was really precise. It wasn't two hundred forty million dollars.
• 55:48
  Speaker 1: It was two hundred million, eight hundred and seventy seven thousand,
• 55:52
  Speaker 1: six hundred, you know, in forty three and fifty two cents.
• 55:56
  Speaker 1: But all right, let's make it to forty and it'll
• 55:59
  Speaker 1: pre text the source a little bit. And I don't
• 56:03
  Speaker 1: remember the gentleman's name who was the head of pr
• 56:06
  Speaker 1: at Pimco at the time, but I was very annoyed
• 56:09
  Speaker 1: that he would come out and say, oh, those numbers
• 56:11
  Speaker 1: are wrong and um, and he accused me of getting it,
• 56:16
  Speaker 1: not just that they weren't precise. Oh this is wrong.
• 56:19
  Speaker 1: Results doesn't know what he's talking about. It's all wrong.
• 56:22
  Speaker 1: So I recall sending an email to him with his
• 56:26
  Speaker 1: exact salary and bonus to the penny and said, next
• 56:30
  Speaker 1: time you say something wrong, I will release the salary
• 56:33
  Speaker 1: of every person of Pimco down to the penny. So
• 56:36
  Speaker 1: your career, most of us have followed your career for decades,
• 56:40
  Speaker 1: and there's a sense that you grew up kind of hard, scrabbled,
• 56:44
  Speaker 1: you didn't come from money. I'm I'm curious do you
• 56:48
  Speaker 1: today do you think of yourself as rich? Have you
• 56:51
  Speaker 1: wrapped your head around the fact that you're a billionaire,
• 56:54
  Speaker 1: because sometimes we we see some of the things you
• 56:57
  Speaker 1: write and say and do, and it's like he still
• 57:00
  Speaker 1: thinks he's that kid from you know, fifty sixty years ago.
• 57:04
  Speaker 1: I do, Um, you know, objectively, I know I'm a billionaire.
• 57:09
  Speaker 1: I see it every morning with my uh you know,
• 57:13
  Speaker 1: financial statement and my portfolios. But um, you know, I
• 57:19
  Speaker 1: think that comes from a certain insecurity. I and and
• 57:22
  Speaker 1: to be fair, you know, I've got a plane, I've
• 57:25
  Speaker 1: got several homes, and so that's typical of billionaires. But
• 57:31
  Speaker 1: all throughout my life, in my marriages and so on,
• 57:37
  Speaker 1: I you know, I would bring home take up dinners
• 57:41
  Speaker 1: from the local Taco bell um three times a week.
• 57:47
  Speaker 1: You know, we we never lived and still don't live
• 57:51
  Speaker 1: high off the hog. We eat very simply. We go
• 57:54
  Speaker 1: to sleep but eight o'clock and and watch Netflix and
• 57:58
  Speaker 1: so on and so on. We don't out of parties,
• 58:00
  Speaker 1: we don't uh dress up a lot and and and so. Um.
• 58:07
  Speaker 1: You know my idea of living well is, yes, certainly
• 58:12
  Speaker 1: have enough money to live well, but then to to
• 58:16
  Speaker 1: live simply and to ultimately give give back. Uh not
• 58:21
  Speaker 1: in terms of time. I don't give back time like
• 58:25
  Speaker 1: Bill Gates, and we'll INDI Gates do. That's not my strength.
• 58:30
  Speaker 1: But you know I give back a lot of money. Um,
• 58:34
  Speaker 1: I've done the giving pledge. I've already given a billion
• 58:37
  Speaker 1: or so in in terms of money, I have a
• 58:40
  Speaker 1: five million dollar foundation, etcetera, etcetera, and so so you know,
• 58:46
  Speaker 1: it's a simple life, but not so simple in terms
• 58:48
  Speaker 1: of all the money that I have to to give back,
• 58:53
  Speaker 1: not just two people and um organizations. But you know,
• 58:58
  Speaker 1: certainly to the government want to check the bucket, they'll
• 59:02
  Speaker 1: they'll take it unless you give it all the way.
• 59:05
  Speaker 1: That's a good enough reason to a having a state
• 59:08
  Speaker 1: tax and B give the money away. So I have
• 59:12
  Speaker 1: to ask this question, what's the deal with Gilligan's Island.
• 59:17
  Speaker 1: You have to explain and ps. I always understood that
• 59:22
  Speaker 1: you could put whatever you want in your backyard. Nobody
• 59:24
  Speaker 1: has the right to a view across the neighbor's property. Um,
• 59:29
  Speaker 1: but tell us about Gilligan's Island. Well, our our house
• 59:33
  Speaker 1: is right across from the the bay or the entrance.
• 59:39
  Speaker 1: Um that the opening segment of Gilligan's Island takes place
• 59:46
  Speaker 1: in him a few years ago. And this is in
• 59:51
  Speaker 1: Newport Beach or in Laguna. It's a Newport Beach. It's
• 59:55
  Speaker 1: a home in Newport Beach. And um, so we watched
• 59:59
  Speaker 1: it and we said, hey, that's where this house is.
• 1:00:02
  Speaker 1: And so we we learned to love Gilligan Islands. That
• 1:00:06
  Speaker 1: the skipper and the movie star, and we would sing
• 1:00:10
  Speaker 1: it to each other. And so when we would go
• 1:00:13
  Speaker 1: down to the hole in South Vaginas, we'd just seen
• 1:00:18
  Speaker 1: Gilligan's Island, and and the whole neighbor things started with
• 1:00:22
  Speaker 1: a sculpture in the backyard that the neighbor didn't disapprove
• 1:00:27
  Speaker 1: of at a fact, he had said he liked it.
• 1:00:30
  Speaker 1: But one day there was a one storm the palm
• 1:00:34
  Speaker 1: tree fronts um broke down and broke some of the
• 1:00:39
  Speaker 1: the glass, and so we put up the net um,
• 1:00:42
  Speaker 1: you know, during inclement, whether to protect it. He didn't
• 1:00:45
  Speaker 1: like that any sued and that was the start of
• 1:00:49
  Speaker 1: the whole thing, uh, which resultimately ridiculous that that Um,
• 1:00:56
  Speaker 1: you know I spent five and a million or five
• 1:00:58
  Speaker 1: five or a million. Um you know, I spent five
• 1:01:01
  Speaker 1: and a thousand. Lawyer's face. I think he did too. Um.
• 1:01:05
  Speaker 1: I suggested we just give it all to local charities.
• 1:01:08
  Speaker 1: He didn't want to do that. I think he. I
• 1:01:11
  Speaker 1: think being a personage. Um, you know, like the bon
• 1:01:14
  Speaker 1: King was part of the problem. He wanted to take
• 1:01:18
  Speaker 1: it to the Bond King, and he did. And you
• 1:01:22
  Speaker 1: mentioned in the book he was always sort of watching
• 1:01:25
  Speaker 1: you guys, had cameras trained on your house. How much
• 1:01:29
  Speaker 1: of this is just? Gee, you know, I don't care
• 1:01:33
  Speaker 1: if I'm a billionaire Bond King. I'm entitled to have
• 1:01:36
  Speaker 1: some degree of privacy in my own backyard. Where's the
• 1:01:39
  Speaker 1: line there? Well, that's true, and that's our argument that
• 1:01:44
  Speaker 1: it didn't fly with the judge. But you know, the
• 1:01:47
  Speaker 1: city ordinance has said that the sixty decibels was as
• 1:01:51
  Speaker 1: loud as you could play the music. We had a
• 1:01:53
  Speaker 1: decibel meter that kept it at sixty year under. But
• 1:01:56
  Speaker 1: it didn't please the neighbor, especially at eight or nine
• 1:02:00
  Speaker 1: o'clock when we were in the pool, and so, um,
• 1:02:03
  Speaker 1: you know, he kept seeing and kept calling the cops.
• 1:02:05
  Speaker 1: Etcetera to tour and ultimately we wound up in court
• 1:02:08
  Speaker 1: for playing loud music. And it is sort of disheartening. Um,
• 1:02:14
  Speaker 1: not that it diminishes my career, but it's certainly what
• 1:02:19
  Speaker 1: people talk about. And you know, I guess my epitaph
• 1:02:23
  Speaker 1: will be half on King and half you know, loud music,
• 1:02:27
  Speaker 1: which is a little disturbing, but that I was part
• 1:02:30
  Speaker 1: of it. Bill, I wish you would have called me
• 1:02:33
  Speaker 1: for advice. I would have given you a very simple solution.
• 1:02:36
  Speaker 1: Asked him when he wants for the house, by it
• 1:02:38
  Speaker 1: and knock it down, and him solved he didn't have
• 1:02:43
  Speaker 1: as much money as I did. I'm going to tell
• 1:02:45
  Speaker 1: you I someone I worked for at a neighbor that
• 1:02:47
  Speaker 1: was problematic and that was their solution, Hey, what do
• 1:02:50
  Speaker 1: you want for your house? And the guy threw out
• 1:02:51
  Speaker 1: a ridiculous numberies like done. Have your lawyer called my
• 1:02:54
  Speaker 1: lawyer and we'll we'll be bulldozing this in a month. Um. So,
• 1:02:58
  Speaker 1: so you know, Harry's book is out. Your book is out.
• 1:03:02
  Speaker 1: There's been reviews of both. Your book actually got some
• 1:03:05
  Speaker 1: pretty good reviews. Also, you really let a lot of
• 1:03:08
  Speaker 1: stuff out there that most people don't any regrets about
• 1:03:13
  Speaker 1: the book. Is there anything you feel like, well, maybe
• 1:03:15
  Speaker 1: I shouldn't have gone that far here or hey, this
• 1:03:20
  Speaker 1: is who I am and you gotta take the good
• 1:03:23
  Speaker 1: with the bad. No, no regrets about the book. I
• 1:03:27
  Speaker 1: mean I read it myself about a hundred times over
• 1:03:30
  Speaker 1: and over and over again and and cut some stuff
• 1:03:33
  Speaker 1: and not um what I wanted to do. What was
• 1:03:36
  Speaker 1: to present subjectively of course from my uh classes, but uh,
• 1:03:44
  Speaker 1: what I thought was a fair arguments on either side
• 1:03:47
  Speaker 1: from pim Pill and myself and tend to explain to
• 1:03:50
  Speaker 1: what I called the you know, the Pimpco magic um
• 1:03:54
  Speaker 1: why we were so successful? And I I think that's
• 1:03:58
  Speaker 1: the heart of the book. Um, you know why it
• 1:04:01
  Speaker 1: was spent Pimco successful? What what were the people like? Um?
• 1:04:07
  Speaker 1: So it um. I think it was a good book.
• 1:04:10
  Speaker 1: It was I think it. I shouldn't say this. I
• 1:04:13
  Speaker 1: think that a great book and I think people should
• 1:04:17
  Speaker 1: read it. Not not thoroughly. You can't spend three or
• 1:04:21
  Speaker 1: four hours reading it. But there's some very interesting parts
• 1:04:25
  Speaker 1: and there's some interesting investment outlooks in the appendix h
• 1:04:30
  Speaker 1: that you know, I think are pretty humorous. Since some
• 1:04:34
  Speaker 1: of the best and so I, uh, it's only four
• 1:04:37
  Speaker 1: ninety nine, So I'd recommend, you know, going to where
• 1:04:41
  Speaker 1: you need to go, Amazon or wherever it is, and
• 1:04:45
  Speaker 1: and all the proceeds are donated to charity. Yeah, to
• 1:04:48
  Speaker 1: the to the extent that that matter as much, But
• 1:04:52
  Speaker 1: that's where where it goes. Let's talk a little bit
• 1:04:55
  Speaker 1: about the state of the market today and what's going on.
• 1:05:00
  Speaker 1: When you wrote the book, inflation was looking like it
• 1:05:04
  Speaker 1: was gonna tick all the way up to five. We're
• 1:05:07
  Speaker 1: recording this towards the end of March. The last print
• 1:05:10
  Speaker 1: we got was just about eight percent. What's your view
• 1:05:14
  Speaker 1: of inflation here? Is this transitory or is this a
• 1:05:18
  Speaker 1: kin to the nineties seventies or is this something completely different? Well,
• 1:05:23
  Speaker 1: I don't think it's transitory. Uh. In other words, going
• 1:05:26
  Speaker 1: back to two or less. Um, I think it's a result, yes,
• 1:05:34
  Speaker 1: of supply shocks, of oil prices, of the war in Ukraine. Um,
• 1:05:42
  Speaker 1: you know a lot of global considerations, but it's also, um,
• 1:05:47
  Speaker 1: you know, a Freedman Milton Freedman type of thing in
• 1:05:50
  Speaker 1: which you know, basically money supply matters. And I'll take
• 1:05:54
  Speaker 1: it back very and uh, I don't think he started then,
• 1:05:58
  Speaker 1: but you're certainly aware of Nikon went off the gold standard,
• 1:06:04
  Speaker 1: and credit was free to be created as opposed to
• 1:06:07
  Speaker 1: be tied to the gold and and back the inn
• 1:06:10
  Speaker 1: Total credit in the United States and I'm talking about mortgages,
• 1:06:14
  Speaker 1: I'm talking about government that, I'm talking about credit cards,
• 1:06:17
  Speaker 1: I'm talking about everything was one trillion dollars um. Today
• 1:06:23
  Speaker 1: that number is eighties seven trillion. And so talk about
• 1:06:27
  Speaker 1: a growth industry um one to eight seven over what
• 1:06:32
  Speaker 1: fifty one years UM. And so it's been this tremendous
• 1:06:36
  Speaker 1: creation of credit in the last few years, certainly based
• 1:06:41
  Speaker 1: upon the COVID bill out and as well as the
• 1:06:45
  Speaker 1: fiscal uh stimulation of four trillion dollars. Uh. You know,
• 1:06:50
  Speaker 1: to study the economy. So when you combine a huge
• 1:06:54
  Speaker 1: discal push with monetary creation and the FED increasing its
• 1:06:59
  Speaker 1: balanchie date brillion and like I say, credit credit credit um,
• 1:07:03
  Speaker 1: inflation is inevitable. And so if they continue to do this,
• 1:07:07
  Speaker 1: and I know the Fed's talked about reducing its balance
• 1:07:10
  Speaker 1: sheet UM, and the government isn't issuing a four trillion
• 1:07:15
  Speaker 1: dollar deficit, perhaps there's one trillion now um. Yeah, this
• 1:07:20
  Speaker 1: is certainly excessive in terms of the possibility of exceeding
• 1:07:24
  Speaker 1: too pers and inflation. So yeah, we're coming back down. Yes,
• 1:07:27
  Speaker 1: oil prices and gasoline prices will uh steady at some
• 1:07:31
  Speaker 1: point and come back down. The same thing with food
• 1:07:34
  Speaker 1: and wheat and um, all of the commodities. Um. But um.
• 1:07:41
  Speaker 1: And this is a guess, um, you know, forty five
• 1:07:44
  Speaker 1: inflation for the next several years I think is baked
• 1:07:47
  Speaker 1: in the cake. And the question becomes, now that the
• 1:07:50
  Speaker 1: FED isn't buying bonds, who wants to buy them? At
• 1:07:56
  Speaker 1: you to thirty five of the tenure and and two
• 1:08:00
  Speaker 1: for the third year, and and perhaps a flight to safety,
• 1:08:05
  Speaker 1: I can see that. But but you're certainly being out inflated.
• 1:08:12
  Speaker 1: I guess by um, you know, the the existing in
• 1:08:16
  Speaker 1: the future trail of inflation going forward, bonds are definitely
• 1:08:22
  Speaker 1: something to avoid. Huh. That's really interesting. The FED. Are
• 1:08:26
  Speaker 1: they behind the curve? And if so, by how much? Yeah,
• 1:08:29
  Speaker 1: they're way behind the curve. And I can see, uh,
• 1:08:33
  Speaker 1: you know, the COVID crisis of a year two years
• 1:08:36
  Speaker 1: back now or getting onto two years. I can see
• 1:08:40
  Speaker 1: how that would be a reason to not raise interest rates,
• 1:08:44
  Speaker 1: to not stop buying bonds. But you know, I think
• 1:08:48
  Speaker 1: Powell should have figured it out that you know, a
• 1:08:51
  Speaker 1: four trillion dollar budget deficit. In the stimulation in the
• 1:08:55
  Speaker 1: economy that that creates, as well as the credit that
• 1:09:00
  Speaker 1: is being created by his policies at near zero posent industry,
• 1:09:05
  Speaker 1: it's was was ultimately going to be very inflationary, and
• 1:09:08
  Speaker 1: that to think that he could stop it, um, And
• 1:09:12
  Speaker 1: he doesn't speak to stop in it at a time.
• 1:09:15
  Speaker 1: He says it will take time. But once you get
• 1:09:18
  Speaker 1: the momentum going like in the seventies, um, you know,
• 1:09:22
  Speaker 1: in the in the rays is you know, based upon
• 1:09:25
  Speaker 1: prices at the stores and grocery stores. Uh, you know,
• 1:09:28
  Speaker 1: it's pretty hard to stop. And in order to keep
• 1:09:32
  Speaker 1: the economy above the line, that's the important thing. To
• 1:09:35
  Speaker 1: keep it above the line in terms of fortified percent
• 1:09:39
  Speaker 1: nominal GDP, which was the standard before. Uh, you have
• 1:09:44
  Speaker 1: to keep on printing money. And ultimately that becomes destructive,
• 1:09:51
  Speaker 1: not just in terms of inflation, but in terms of savings,
• 1:09:54
  Speaker 1: and it distorts the U. S economy, and it's distorts
• 1:09:58
  Speaker 1: the global economy. So I'm going to assume you don't
• 1:10:02
  Speaker 1: think bonds are buy anytime soon. No, I don't, But
• 1:10:07
  Speaker 1: but I don't see here, you know, I think there's
• 1:10:09
  Speaker 1: a limit to the tenure. I've talked about in my
• 1:10:13
  Speaker 1: tweets in the last few weeks about you know, breaking
• 1:10:16
  Speaker 1: a long term down trendline at two fifteen for the tenure,
• 1:10:20
  Speaker 1: and now it's at two thirty five, so theoretically it's
• 1:10:23
  Speaker 1: broken the line. Um, I don't don't think the economy
• 1:10:29
  Speaker 1: can stand much more in terms of higher yields. I mean,
• 1:10:33
  Speaker 1: we have a flat Yielker, what does that mean ultimately
• 1:10:37
  Speaker 1: in terms of forward interest rates? It it basically means
• 1:10:40
  Speaker 1: that the tenure at two thirty five five years forward
• 1:10:44
  Speaker 1: is estimated to be two forty or two forty five.
• 1:10:47
  Speaker 1: So all of all of the curve going forward basically
• 1:10:53
  Speaker 1: in terms of current pricing, is suggesting that interest rates
• 1:10:58
  Speaker 1: don't go up much. And so why that be if
• 1:11:01
  Speaker 1: inflation is four it would be simply because if it
• 1:11:08
  Speaker 1: ten year goes to three or three and a half
• 1:11:11
  Speaker 1: or four um, then it'll break the economy, much like
• 1:11:17
  Speaker 1: when the said went to five and a quarter in
• 1:11:20
  Speaker 1: two thousand and six, it broke the mortgage market. You
• 1:11:24
  Speaker 1: know now are at much lower levels, but there's been
• 1:11:27
  Speaker 1: a lot more debt created. And I simply think that
• 1:11:32
  Speaker 1: uh fifty basis points higher is about as much as
• 1:11:37
  Speaker 1: as the economy can take. Otherwise we see recession. And
• 1:11:41
  Speaker 1: that's basically what the flat you care You'll curve is
• 1:11:43
  Speaker 1: telling you that that you've got to be careful. And
• 1:11:46
  Speaker 1: that's why the thirty year bond with um, you know,
• 1:11:50
  Speaker 1: a duration of of you know, close to twenty is
• 1:11:54
  Speaker 1: trading at two and a half percent. It's simply because
• 1:11:58
  Speaker 1: there are those that think, um, that it interest rates
• 1:12:02
  Speaker 1: go much higher, the economy will enter a recession. UM.
• 1:12:07
  Speaker 1: So I don't like bonds. Obviously, if you buy a
• 1:12:10
  Speaker 1: tenure at two thirty five, you're not getting paid your
• 1:12:13
  Speaker 1: money's worth relative to inflation. You should go elsewhere. But
• 1:12:18
  Speaker 1: I don't. I don't think there's the nineteen eighty one
• 1:12:23
  Speaker 1: risk anytime soon of interest rates moving much more than
• 1:12:29
  Speaker 1: a hundred risk spots higher. Huh, that's really interesting. Let
• 1:12:34
  Speaker 1: me give you a counterfactual to the issue of a
• 1:12:38
  Speaker 1: trillion dollars in credit. Fifty years ago. Hypothetically, there wasn't
• 1:12:44
  Speaker 1: this massive credit creation, uh Fanny Freddie, the government, the
• 1:12:49
  Speaker 1: private sector, of the household sector. Let's say the outstanding
• 1:12:54
  Speaker 1: credit was a couple of trillion dollars. What would that
• 1:12:59
  Speaker 1: lack of credit creation have meant for the economy. Asked differently,
• 1:13:04
  Speaker 1: how much of our wealth and success and GDP expansion
• 1:13:10
  Speaker 1: and rising in corporate profits is related to all of
• 1:13:15
  Speaker 1: this credit that's been issued. Oh, it is um and
• 1:13:20
  Speaker 1: and certainly you need to create credit, ongoing credit relative
• 1:13:25
  Speaker 1: till last year and the year before, in order to
• 1:13:29
  Speaker 1: to keep the economy going. Um. The question becomes how
• 1:13:35
  Speaker 1: much how much credit? And uh, certainly in the last
• 1:13:39
  Speaker 1: several years, it's accelerated dramatically because of the physical and
• 1:13:44
  Speaker 1: the monetary stance at zero pers and interest rates. And
• 1:13:47
  Speaker 1: no one can really judge, no one. No one can
• 1:13:49
  Speaker 1: tell you or any no one can tell me that
• 1:13:53
  Speaker 1: they know what the number is. It's just that the
• 1:13:58
  Speaker 1: global economy, than most part is hooked on more and
• 1:14:03
  Speaker 1: more credit, more and more money. And that's what you know,
• 1:14:07
  Speaker 1: the cryptos, that's what bitcoin and ethereum and so and
• 1:14:13
  Speaker 1: represent in terms of people that are fearful that the
• 1:14:18
  Speaker 1: government keeps on printing. So, so let's talk about that.
• 1:14:22
  Speaker 1: I'm gonna suggest it's not a huge coincidence that all
• 1:14:27
  Speaker 1: the credit created during the financial crisis in a eight
• 1:14:31
  Speaker 1: and oh nine and beyond coincided with the creation of
• 1:14:36
  Speaker 1: a lot of different cryptocurrencies and their rise in price.
• 1:14:40
  Speaker 1: You mentioned your own bitcoin, You're optimistic about etherorium. This
• 1:14:45
  Speaker 1: is not the typical safe bond experience. This is a
• 1:14:48
  Speaker 1: bit of a long shot. So tell us why you've
• 1:14:51
  Speaker 1: jumped aboard the cryptocurrency train. Well, it it's not a
• 1:15:00
  Speaker 1: because of its volatility and compared to the dollar. You know,
• 1:15:06
  Speaker 1: it's certainly ten times as volatile as the dollar, uh
• 1:15:10
  Speaker 1: during any particular period of time. So to use it
• 1:15:14
  Speaker 1: as a medium of exchange, which ultimately I think it
• 1:15:19
  Speaker 1: will be um and is becoming. Uh, you know, it
• 1:15:23
  Speaker 1: does a very risky proposition that depends on on the
• 1:15:28
  Speaker 1: level of bitcoing on any particular day, any particular moment.
• 1:15:32
  Speaker 1: I think it's fascinating on Saturday and Sunday at at midnight,
• 1:15:37
  Speaker 1: I can I can see trading in in bitcoin. Um.
• 1:15:42
  Speaker 1: You know, limited though it is, but UM, I think
• 1:15:45
  Speaker 1: ultimately you know the global financial system which is dollar
• 1:15:49
  Speaker 1: dependent and dollars supported. Um. You know, much like in
• 1:15:53
  Speaker 1: the seventies in which Nixon broke the code from gold. Um,
• 1:15:58
  Speaker 1: you know, things happen, and now that there is a
• 1:16:03
  Speaker 1: potential alternative in terms of bitcoin and some of the
• 1:16:08
  Speaker 1: other cryptos UM. You know, I think it offers the
• 1:16:14
  Speaker 1: opportunity to UM to avoid, to avoid a currency that
• 1:16:21
  Speaker 1: goes down, down, down, in terms of its value. UM.
• 1:16:25
  Speaker 1: You know, the bitcoin ultimately is capped, at least they
• 1:16:29
  Speaker 1: say it's kepped, you know, at a certain level, most
• 1:16:33
  Speaker 1: of which has already been mined or or supplied, and
• 1:16:36
  Speaker 1: so UM to the extent that future supply is limited,
• 1:16:40
  Speaker 1: and to the extent, and this is important, to the
• 1:16:42
  Speaker 1: extent that it becomes a medium of exchange and it's
• 1:16:47
  Speaker 1: not really a medium of exchange yet. You can't buy
• 1:16:50
  Speaker 1: a donut with bitcoin, but you can buy other things.
• 1:16:53
  Speaker 1: And there are countries that UM are are using it.
• 1:16:57
  Speaker 1: So UM, you know, it's it's up in the air.
• 1:17:01
  Speaker 1: And you know, did I get in at a good price? No,
• 1:17:05
  Speaker 1: I think I got in it through a mutual under fifty.
• 1:17:09
  Speaker 1: But I just it's just a small, it's up, small piece.
• 1:17:14
  Speaker 1: I use it mainly for observation and to remind me
• 1:17:17
  Speaker 1: that that even the dollar has a global standard, UM
• 1:17:24
  Speaker 1: is subject to future volatility and certainly to appreciation in
• 1:17:30
  Speaker 1: terms of its value relative to what it can buy.
• 1:17:35
  Speaker 1: Really interesting, let's let's talk growth stocks and technology UM.
• 1:17:40
  Speaker 1: They had a great couple of years until I don't know,
• 1:17:43
  Speaker 1: about four or five months ago, we've seen that the
• 1:17:46
  Speaker 1: complex really takes some some hits. What what are you
• 1:17:49
  Speaker 1: thought about the various tech stocks that are out there
• 1:17:53
  Speaker 1: and and some of the managers who kind of rose
• 1:17:57
  Speaker 1: to fame on on the rallying technolog ology. Well, I
• 1:18:02
  Speaker 1: think two months ago at the Pig there was a
• 1:18:06
  Speaker 1: bubble in most of these talks. Um. You know, many
• 1:18:10
  Speaker 1: of them had no earnings and really no prospect for
• 1:18:14
  Speaker 1: earnings two three or four or five years in the future. Um.
• 1:18:19
  Speaker 1: You know, they were based on hope and and yes,
• 1:18:21
  Speaker 1: on objective and subjective estimations of a changing world in
• 1:18:28
  Speaker 1: terms of technology, um, and a consumer use of that technology.
• 1:18:33
  Speaker 1: Sylum that you've pointed out in the past that quote
• 1:18:36
  Speaker 1: the new stock Queen Cathy would seems to be a
• 1:18:40
  Speaker 1: two year wonder and since then the art complex has
• 1:18:43
  Speaker 1: had some pretty serious draw downs. What are your thoughts
• 1:18:47
  Speaker 1: on managers like Woods who have you know, put together
• 1:18:50
  Speaker 1: a great track record when the big cap profitable companies
• 1:18:55
  Speaker 1: the Google's, Amazon's Apples, Tesla's Netflix and Video, when when
• 1:19:00
  Speaker 1: those have been screaming higher, Well, you know, I give
• 1:19:03
  Speaker 1: her credit. I watched she's got fifteen billion under management,
• 1:19:08
  Speaker 1: and and that's that's just how you break into this market.
• 1:19:13
  Speaker 1: You don't break in by being a junior clerk like
• 1:19:16
  Speaker 1: I was it at Pacific Mutual. You break in with
• 1:19:20
  Speaker 1: an innovative, innovative idea, and hers was that these companies
• 1:19:25
  Speaker 1: that she was buying, um, you know, we're a significant
• 1:19:28
  Speaker 1: part of our future economic future. And I think that's true.
• 1:19:33
  Speaker 1: But you know, I listened to her on CNBC all
• 1:19:35
  Speaker 1: the time, and it seems like she doesn't have an
• 1:19:39
  Speaker 1: excellent sense of value and when to buy and what
• 1:19:44
  Speaker 1: to pay. Um. She she simply thinks that at some
• 1:19:48
  Speaker 1: point down the road, on the long term road, that
• 1:19:53
  Speaker 1: her her judgment in terms of owning these securities will
• 1:19:58
  Speaker 1: be validated. And perhaps I will. But in the meantime, um,
• 1:20:02
  Speaker 1: you know, subject to the huge veil of volatility. And
• 1:20:07
  Speaker 1: I I also think, you know, much like Peter Lynch
• 1:20:10
  Speaker 1: back and not to knock Peter Lynch because uh, you know,
• 1:20:14
  Speaker 1: he was a significant part of the late eighties and
• 1:20:19
  Speaker 1: early nineties UM in terms of Magellan, but you know,
• 1:20:23
  Speaker 1: once more money started to come into was fun because
• 1:20:26
  Speaker 1: he was doing well, that money went straight into the
• 1:20:28
  Speaker 1: same stock that he was owning and buying, and uh,
• 1:20:32
  Speaker 1: you know, I went up, up, up, because the cash
• 1:20:34
  Speaker 1: flow was going straight into that. And I think the
• 1:20:37
  Speaker 1: same thing for the last several years with arc Um
• 1:20:40
  Speaker 1: and uh some of the other funds that she manages,
• 1:20:43
  Speaker 1: huge inflows would lead to more and more and more buying,
• 1:20:47
  Speaker 1: and now, uh, some of the outflows lead to lower
• 1:20:52
  Speaker 1: and lower prices. And so I think you just have
• 1:20:55
  Speaker 1: to be careful in terms of anointing someone that has
• 1:20:59
  Speaker 1: a had a good record for two years. Now it's
• 1:21:02
  Speaker 1: the last year, it's not so good. Um, you know,
• 1:21:05
  Speaker 1: let's let's see what happens five years from now. I
• 1:21:07
  Speaker 1: think it's a little early fit fair enough. And to
• 1:21:10
  Speaker 1: clarify the assets under management, I want to say that
• 1:21:14
  Speaker 1: it was about coming up on sixty billion at its peak,
• 1:21:19
  Speaker 1: and it's since fallen at least as of the beginning
• 1:21:22
  Speaker 1: of this year, to about twenty three or twenty five
• 1:21:25
  Speaker 1: billion dollars. I'm not looking at her releases, but more
• 1:21:30
  Speaker 1: or less that seems to be a ballpark number when
• 1:21:33
  Speaker 1: I'm looking at their website. So let's talk about someone
• 1:21:37
  Speaker 1: else you actually mentioned in the book. Who's another fund
• 1:21:41
  Speaker 1: manager you you talk about Jeff Gunlock, who many anointed
• 1:21:46
  Speaker 1: as the heir apparents or placed you. I don't know
• 1:21:48
  Speaker 1: if that worked out that way. What are your thoughts
• 1:21:51
  Speaker 1: about gunlocks approach to managing fixed income? Well, he's sort
• 1:21:58
  Speaker 1: of anointed himself. I mean, one of the commentators on
• 1:22:01
  Speaker 1: CNBC throughout the term once and and he ran with him.
• 1:22:06
  Speaker 1: I guess, I guess I did too. But you know,
• 1:22:10
  Speaker 1: to be a bond king, you've got to have a kingdom.
• 1:22:13
  Speaker 1: And you know, Pemco's kingdom, although ultimately grew to one
• 1:22:18
  Speaker 1: to two trillion dollars a gun Lex kingdom, in terms
• 1:22:22
  Speaker 1: of his mutual funders around fifty billion dollars and not growing,
• 1:22:26
  Speaker 1: and and his performance has been like sixtieth percentile for
• 1:22:33
  Speaker 1: three years, five years or whatever. I think he's a
• 1:22:36
  Speaker 1: smart guy. You know, when I listened to him on
• 1:22:39
  Speaker 1: c NBC, I O, yes. And he he follows markets,
• 1:22:45
  Speaker 1: you know, very assiduously. He's he's really into it. So
• 1:22:50
  Speaker 1: I respect that. But you got to put up the numbers,
• 1:22:53
  Speaker 1: and you've got to build your kingdom in order to
• 1:22:57
  Speaker 1: be the bond king or the new bond king. And
• 1:23:01
  Speaker 1: you know, I don't think anybody can be the future
• 1:23:03
  Speaker 1: bond king because central banks basically are the kings and
• 1:23:08
  Speaker 1: the queens of the market. They rule, They determine where
• 1:23:11
  Speaker 1: interest rates are going, not um you know von managers
• 1:23:15
  Speaker 1: like him too or uh you know Double Line, etcetera, etcetera.
• 1:23:21
  Speaker 1: So you know, I think the term is sort of
• 1:23:23
  Speaker 1: passe and certainly unlock doesn't tip uh you know, the
• 1:23:28
  Speaker 1: the past definition of what a bond king should be. Right,
• 1:23:32
  Speaker 1: And and as of December thirty one, Double Line had
• 1:23:36
  Speaker 1: add thirty four billion in assets under management. Totally, I
• 1:23:40
  Speaker 1: don't I'm not seeing the breakdown by fund, but you
• 1:23:44
  Speaker 1: know it's definitely a substantial amount of money, but you know,
• 1:23:48
  Speaker 1: not a trillion dollars worth. Let's you know, one of
• 1:23:51
  Speaker 1: the things we should talk about is risks to financial markets.
• 1:23:55
  Speaker 1: And you have pointed out that climate change is an
• 1:24:00
  Speaker 1: actual risk factor. Tell us what you see, um as
• 1:24:04
  Speaker 1: that risk from rising temperatures and and how do you
• 1:24:08
  Speaker 1: think about E S G investment? Well, I think the
• 1:24:13
  Speaker 1: risk is is it's sort of like the broken window syndrome.
• 1:24:17
  Speaker 1: I mean, so that sends a baseball through a window
• 1:24:23
  Speaker 1: on their brakes and you've got to replace it. Um,
• 1:24:26
  Speaker 1: that increases G D p the replacement of a window,
• 1:24:29
  Speaker 1: but it doesn't make the window any better than it
• 1:24:32
  Speaker 1: was before. And it's it's really the same thing. I
• 1:24:35
  Speaker 1: think in terms of global warming, UM does um, you know,
• 1:24:42
  Speaker 1: because it requires a huge amount of investment in order
• 1:24:45
  Speaker 1: to to stop it from going forward, and a huge
• 1:24:49
  Speaker 1: change in terms of societal behavior and and so that
• 1:24:55
  Speaker 1: investment that goes into capping carbon creation at a certain level.
• 1:25:02
  Speaker 1: You know, if if global warming wasn't taking place, then um,
• 1:25:08
  Speaker 1: then you could use that money for something more productive.
• 1:25:12
  Speaker 1: But it's it's you can't really call it productive. If
• 1:25:16
  Speaker 1: you simply stop a negative trend from happening, it it
• 1:25:21
  Speaker 1: makes things better than they would be. But it's sort
• 1:25:26
  Speaker 1: of like the broken window. And so UM, I think
• 1:25:29
  Speaker 1: in the future enormously countries and companies will be moving
• 1:25:35
  Speaker 1: in the direction of of creating a better future environment
• 1:25:42
  Speaker 1: for us and for our kids and grandkids. But but ultimately, UM,
• 1:25:48
  Speaker 1: it won't make it any better and then it is now.
• 1:25:50
  Speaker 1: It will simply not make it worse. And uh, that
• 1:25:54
  Speaker 1: costal lot of money, and I don't don't make it
• 1:25:57
  Speaker 1: worse that that's the advice at this point. Huh. Interesting,
• 1:26:01
  Speaker 1: you know we've gone this far into the conversation, and
• 1:26:04
  Speaker 1: I just haven't gotten around to ask you about your
• 1:26:08
  Speaker 1: days as a card counter playing blackjack. Tell us a
• 1:26:13
  Speaker 1: little bit, which also you mentioned in the book. Tell
• 1:26:15
  Speaker 1: us a little bit about Ed Thorpe and his books
• 1:26:19
  Speaker 1: and what led you to to head to Sin City. Well,
• 1:26:24
  Speaker 1: I'll go through it quickly. Uh. You know that the
• 1:26:27
  Speaker 1: year before I graduated from Duke in sixty I had
• 1:26:32
  Speaker 1: gone to Bahamas on the spring break and I lost
• 1:26:35
  Speaker 1: fifty on the black jack table um. And I remembered
• 1:26:40
  Speaker 1: that after I uh nearly cut off the top of
• 1:26:45
  Speaker 1: my head in a car accident and was in a
• 1:26:48
  Speaker 1: hospital for a long time, and somebody introduced me to
• 1:26:52
  Speaker 1: this new book called Beat the Dealer. Until I had
• 1:26:54
  Speaker 1: all the time in the world to sit there and
• 1:26:56
  Speaker 1: and to discover whether or not his theory about car
• 1:27:01
  Speaker 1: counting worked. I didn't have a computer, but I would
• 1:27:03
  Speaker 1: play thousands of hands of black jack back and forth,
• 1:27:07
  Speaker 1: back and forth, and I discovered it worked. And so
• 1:27:10
  Speaker 1: when I graduated from Duke in May of sixty six,
• 1:27:14
  Speaker 1: and before I was going into the Navy and ultimately
• 1:27:18
  Speaker 1: to Vietnam. Four months later, I went to Las Vegas.
• 1:27:23
  Speaker 1: I hopped on a freight train. I had two hundred
• 1:27:25
  Speaker 1: dollars that's all I could afford to put on the tables,
• 1:27:30
  Speaker 1: and took a freight chain, took seven days to Vegas,
• 1:27:34
  Speaker 1: got off at the Golden Nugget right in downtown and
• 1:27:36
  Speaker 1: U and rented a six dollar a day motel that
• 1:27:41
  Speaker 1: n cents of free nickels and a free breakfast. And
• 1:27:45
  Speaker 1: so I started playing black jack. That that basically taught me.
• 1:27:50
  Speaker 1: I ultimately turned it into ten thousand and it paid
• 1:27:54
  Speaker 1: for my graduate school. But it taught me about money management.
• 1:27:57
  Speaker 1: It basically it worked off what they all the Kelly system, UM,
• 1:28:01
  Speaker 1: the system where you can't bet more than two of
• 1:28:04
  Speaker 1: your um your your stake, even if the odds were
• 1:28:09
  Speaker 1: tremendously in your favor, because things can go wrong. And
• 1:28:12
  Speaker 1: so when I ultimately went to Pacific Mutual and Independo,
• 1:28:18
  Speaker 1: it became an instrumental part of risk management for me
• 1:28:23
  Speaker 1: because it made a lot of sense and uh and
• 1:28:27
  Speaker 1: it still does. Um but um yeah, Vegas for me
• 1:28:32
  Speaker 1: was was was the heart of my career ultimately as
• 1:28:38
  Speaker 1: as it came to pass it it it taught me
• 1:28:43
  Speaker 1: what I like to do it just to bet against
• 1:28:46
  Speaker 1: the house and to make money it um it provided
• 1:28:50
  Speaker 1: a system of money management, and ultimately I would all
• 1:28:56
  Speaker 1: to at Thorpe who eventually I met he ups out
• 1:29:00
  Speaker 1: here and yeah in Newport Beach Irvine, who was a
• 1:29:04
  Speaker 1: mathematics professor, and we came together to to fund a
• 1:29:09
  Speaker 1: stem cell research center at ten million dollars. Um you
• 1:29:13
  Speaker 1: know what you see, Irvine, And so we contact each
• 1:29:16
  Speaker 1: other once in a while. Um. Uh. He's a very
• 1:29:21
  Speaker 1: smart guy, smarter than me, but um you know, very
• 1:29:25
  Speaker 1: fun to talk to and uh and to talk about
• 1:29:28
  Speaker 1: his times in Las Vegas, which were much much larger
• 1:29:32
  Speaker 1: than my ultimate ten dollars. Did you ever run into
• 1:29:38
  Speaker 1: any of the trouble he did? The Vegas is not
• 1:29:41
  Speaker 1: fond of either people who win money from them, and
• 1:29:45
  Speaker 1: especially not fond of card counters as they're known. Did
• 1:29:50
  Speaker 1: you have the same sort of problems of getting chase
• 1:29:54
  Speaker 1: from casino to casino like he did. Yeah, I get
• 1:29:58
  Speaker 1: chased from a few and I was very proud of it.
• 1:30:00
  Speaker 1: Was like a badge of honor to be to be
• 1:30:05
  Speaker 1: kicked out. I would wear different disguises, I would wear
• 1:30:08
  Speaker 1: a hat, I would wear different clothes to the extent
• 1:30:11
  Speaker 1: of that had them, but that they could eventually track
• 1:30:16
  Speaker 1: a card counters simply by watching the size of their bets.
• 1:30:21
  Speaker 1: You know, I would bet two dollars and then ten,
• 1:30:23
  Speaker 1: and then three dollars and then fifteen, back and forth,
• 1:30:26
  Speaker 1: back and forth, and they could ultimately watch my eyes
• 1:30:31
  Speaker 1: and see me covering the table in three or four
• 1:30:34
  Speaker 1: seconds in terms of counting the cards. So, um, was
• 1:30:37
  Speaker 1: I killing the casinos with my UH ten dollar winning
• 1:30:42
  Speaker 1: to no? But they simply didn't like the trend, and
• 1:30:47
  Speaker 1: so yeah, I got booted a few times. So last
• 1:30:51
  Speaker 1: question before I get to my favorite questions that we
• 1:30:54
  Speaker 1: ask all our guests. In the book, you talk about
• 1:30:58
  Speaker 1: having a mild case of Asperger syndrome. Tell us about that.
• 1:31:03
  Speaker 1: How has this affected your life? How is it manifested?
• 1:31:08
  Speaker 1: A number of other great investors UM have either discussed
• 1:31:13
  Speaker 1: being on the spectrum or wondered if they're on the spectrum.
• 1:31:17
  Speaker 1: Tell us about your experience with Asperger syndrome. Well, I
• 1:31:23
  Speaker 1: was never aware of it until I read Michael Lewis's
• 1:31:26
  Speaker 1: book The Big Short and in one of the chapters
• 1:31:29
  Speaker 1: he talks about an individual called Michael Drury who has
• 1:31:35
  Speaker 1: still as prominent in the press. I guess with shorting
• 1:31:39
  Speaker 1: and managing money. But he um, he was either he
• 1:31:44
  Speaker 1: or his son. I forget, it's probably him, um that
• 1:31:48
  Speaker 1: had Aspergers. And he listed like ten things that alert
• 1:31:53
  Speaker 1: you to the fact that he had it and and
• 1:31:56
  Speaker 1: therefore I might have it. And and one of them
• 1:31:59
  Speaker 1: was not people in the eye or never observing the
• 1:32:04
  Speaker 1: color of their eyes. And to tell you the truth,
• 1:32:09
  Speaker 1: I am my ex wife. I didn't know she had
• 1:32:12
  Speaker 1: brown eyes until seven years into the marriage. Um. And
• 1:32:17
  Speaker 1: and so there were other things too about the characteristics.
• 1:32:21
  Speaker 1: And I I took this page out to the kitchen
• 1:32:24
  Speaker 1: to my ex wife and I said, look at this,
• 1:32:26
  Speaker 1: Look at this. I said, I think I have asked
• 1:32:28
  Speaker 1: Berger's And she goes, you do it was certainty? And
• 1:32:33
  Speaker 1: I said, how do you know? She said, well, we
• 1:32:37
  Speaker 1: were up at Bill Gates house in Seattle on an
• 1:32:40
  Speaker 1: open house about four years ago. And I was watching Gates,
• 1:32:44
  Speaker 1: and I was watching you. You're at the same table, um,
• 1:32:47
  Speaker 1: and you were doing the same thing he was doing.
• 1:32:49
  Speaker 1: He was doing the same thing. You were going looking
• 1:32:51
  Speaker 1: down at the table, not being engaging that type of thing.
• 1:32:55
  Speaker 1: And I'd heard that Gates had a mild case of Aspergers,
• 1:32:58
  Speaker 1: and and so I I went to a psychologist on
• 1:33:03
  Speaker 1: my own and described the symptoms that she said, he does,
• 1:33:07
  Speaker 1: he's an asperger. And so that's how I discovered it.
• 1:33:11
  Speaker 1: I ultimately, after my divorce, I went to a psychologist
• 1:33:15
  Speaker 1: and after the first meeting, I as my closing question,
• 1:33:19
  Speaker 1: I said, do you think I have asked Burgers? And
• 1:33:22
  Speaker 1: she said most definitely. And so that's how I became
• 1:33:28
  Speaker 1: aware of it. And what are the symptoms of characteristics
• 1:33:35
  Speaker 1: or how has it affected my life? I think what
• 1:33:37
  Speaker 1: it does is it allows me to to screen out
• 1:33:41
  Speaker 1: of you know, minuan and everything that's going on. Um
• 1:33:46
  Speaker 1: For instance, example, when I played golf with Tiger Woods
• 1:33:50
  Speaker 1: and Phil Nicholson at the A T and C. You know,
• 1:33:52
  Speaker 1: people would say, how do you do it? You know,
• 1:33:54
  Speaker 1: I'm afraid of getting my drive into the crowd. I go,
• 1:33:58
  Speaker 1: I never seen the crowd. I know they're there, but
• 1:34:00
  Speaker 1: I never see them. And and so, um, you know,
• 1:34:04
  Speaker 1: in terms of uh PIMCO, in terms of managing money,
• 1:34:08
  Speaker 1: I rarely see the minusha. I see the big picture
• 1:34:12
  Speaker 1: because of my Aspergers. That's just what aspergers that the
• 1:34:17
  Speaker 1: spectrum do. And um, so I think it's been very helpful.
• 1:34:22
  Speaker 1: I owe a lot to ask Murgers. That's interesting, and
• 1:34:26
  Speaker 1: I'm glad you brought up Tiger Woods because that could
• 1:34:29
  Speaker 1: be my favorite story in the entire book. You talk
• 1:34:33
  Speaker 1: about almost missing a golf pro am game with him.
• 1:34:39
  Speaker 1: Tell us about that story. Okay, this wasn't a setup.
• 1:34:43
  Speaker 1: This wasn't a question of paying ten tho dollars to
• 1:34:46
  Speaker 1: play with Tiger Woods. This was the A T and
• 1:34:48
  Speaker 1: T pro am. This was big time. You gotta qualify, right,
• 1:34:51
  Speaker 1: You gotta hit your way into the actual game, right.
• 1:34:55
  Speaker 1: The first three days you qualify and if you have
• 1:34:58
  Speaker 1: a certain score, you make it into Sunday. And so. Um.
• 1:35:02
  Speaker 1: When Bill Thompson and I the CEO, went up there
• 1:35:06
  Speaker 1: in two thousand and two, um, you know, the rumor
• 1:35:11
  Speaker 1: was that you needed to be nineteen under as a
• 1:35:13
  Speaker 1: team in order to qualify for Sunday. And so I
• 1:35:17
  Speaker 1: I finished my round on Saturday and Thompson came up
• 1:35:20
  Speaker 1: and he had been fourteen under and he said, what
• 1:35:23
  Speaker 1: are you? I said, sixteen under. He said, well, let's
• 1:35:26
  Speaker 1: go home because nineteen under makes the cut. And I said,
• 1:35:28
  Speaker 1: I don't know, LABI should stay and he goes, now,
• 1:35:30
  Speaker 1: let's go. So I went to the airport and we're
• 1:35:34
  Speaker 1: waiting in line, and um, this guy from my local
• 1:35:38
  Speaker 1: country club had a cell phone, and cellphones weren't said
• 1:35:42
  Speaker 1: popular back then. I certainly didn't have one. And he said, Bill,
• 1:35:46
  Speaker 1: how did you do? I said, sixteen under probably miss
• 1:35:48
  Speaker 1: a cut by two, and he goes, no, I said,
• 1:35:52
  Speaker 1: he said, I just checked. He said, sixteen under is
• 1:35:54
  Speaker 1: in a card off. I go, oh, okay, And so
• 1:35:59
  Speaker 1: I told Thompson, you better go home, and I'd better
• 1:36:02
  Speaker 1: go back to the hotel. So I went back to
• 1:36:03
  Speaker 1: the hotel and at nine o'clock my Caddy calls up
• 1:36:07
  Speaker 1: and he says, Mr Gross, we made the cut, the
• 1:36:11
  Speaker 1: card off. We made the cut. I guess who we're
• 1:36:14
  Speaker 1: playing with? At eight thirty in the morning, I go,
• 1:36:16
  Speaker 1: who because and I almost saying it. And of course
• 1:36:23
  Speaker 1: I never slept, But um, if that gentleman hadn't seen
• 1:36:28
  Speaker 1: me at the airport check in line and told me
• 1:36:32
  Speaker 1: I had a chance, I would have been sleeping Sunday
• 1:36:35
  Speaker 1: morning in Newport Beach while Tiger was waiting for me
• 1:36:40
  Speaker 1: to meet him on the first day it was. It
• 1:36:43
  Speaker 1: was incredible luck, incredible luck. That's just an amazing story.
• 1:36:51
  Speaker 1: And sometimes right place, right time is all that matters.
• 1:36:55
  Speaker 1: All right, so I've kept you for two hours, far
• 1:36:58
  Speaker 1: longer than I usual. Let me jump to my favorite
• 1:37:02
  Speaker 1: questions we ask all our guests, starting with something that
• 1:37:06
  Speaker 1: you actually mentioned earlier. Tell us what you're streaming these days?
• 1:37:10
  Speaker 1: What kept you busy during uh the lockdown on either
• 1:37:13
  Speaker 1: Amazon Prime or Netflix or or whatever you were entertained with. Well,
• 1:37:19
  Speaker 1: I get up at five thirty. I've got a bloomberg here,
• 1:37:23
  Speaker 1: and I've got a bloomberg at my other homes, and
• 1:37:26
  Speaker 1: so I get up in uh, you know, the markets here.
• 1:37:29
  Speaker 1: I've been up at six thirty, and so I've start
• 1:37:33
  Speaker 1: managing my portfolio, doing trading, mostly in stocks these days,
• 1:37:39
  Speaker 1: and stock options. But it occupies my time till market
• 1:37:44
  Speaker 1: closed at twelve thirty. Sometimes I take a nap because
• 1:37:47
  Speaker 1: I had gotten up so early. In my lovely wife
• 1:37:52
  Speaker 1: keeps me up till eleven o'clock to watch uh serial
• 1:37:57
  Speaker 1: programs and so on, so I don't get that much sleep.
• 1:38:01
  Speaker 1: But in any case, I manage money, and then here
• 1:38:05
  Speaker 1: I am out for eight months of the year. Out
• 1:38:07
  Speaker 1: at the vintage in Indian who else it's eighty five degrees.
• 1:38:10
  Speaker 1: It's almost always seventy five degrees. It's like Hawaii, and
• 1:38:15
  Speaker 1: I'm looking out at the golf course and I have
• 1:38:19
  Speaker 1: a little lunch, I top in my cart with Amy
• 1:38:22
  Speaker 1: and we go play golf in the afternoon. That's like,
• 1:38:26
  Speaker 1: what you know, this this is uh, this is paradise.
• 1:38:30
  Speaker 1: You know. Our family comes out into visit and it's
• 1:38:34
  Speaker 1: just the all around best time I could ever imagine,
• 1:38:37
  Speaker 1: doing something I love in terms of investing, and doing
• 1:38:40
  Speaker 1: something I love in terms of golf, which I do
• 1:38:43
  Speaker 1: every day. And so um, that's that's basically my day.
• 1:38:48
  Speaker 1: Tell us about some of your early mentors who helped
• 1:38:51
  Speaker 1: to shape your career. Well, to be honest and say,
• 1:38:56
  Speaker 1: I only had one UM, and that was well for Girkin,
• 1:39:00
  Speaker 1: who was the CEO and chairman of the board of
• 1:39:04
  Speaker 1: Pacific Mutual. And it was Kirkin that basically who was
• 1:39:09
  Speaker 1: a risk taker for an insurance executive. UM. It was
• 1:39:13
  Speaker 1: Girkin who basically gave the go ahead and they all
• 1:39:17
  Speaker 1: clear to to start the five million dollar bond fund.
• 1:39:26
  Speaker 1: And and and the man would take me to New
• 1:39:30
  Speaker 1: York for conferences and so on and so on, and
• 1:39:33
  Speaker 1: clearly he was supporting me for some future role. I
• 1:39:38
  Speaker 1: don't think he unnecessarily knew that Tempco was going to
• 1:39:44
  Speaker 1: be a raging success. But he was willing to take
• 1:39:46
  Speaker 1: the chance and to give me his moral and I
• 1:39:51
  Speaker 1: guess financial support, because there was a time in the
• 1:39:55
  Speaker 1: first few years of TEMPKO where we weren't making any
• 1:39:57
  Speaker 1: money and not getting very many clients. And you know,
• 1:40:01
  Speaker 1: they could have canceled us, um straight away, but he didn't.
• 1:40:07
  Speaker 1: They supported me, you know, throughout the but in fifteen
• 1:40:12
  Speaker 1: twenty years that that he was active within the industry.
• 1:40:16
  Speaker 1: And so as I say, it was Mr Gherkin who's
• 1:40:21
  Speaker 1: no longer with us. Let's talk about books. What are
• 1:40:25
  Speaker 1: some of your all time favorites and what are you
• 1:40:27
  Speaker 1: reading right now? Well, um, you know, all time favorites
• 1:40:33
  Speaker 1: is one thing, um, I guess. Um. One of my
• 1:40:41
  Speaker 1: favorite books was by a brilliant author who won the
• 1:40:46
  Speaker 1: Pulitzer Prize, Annie Dillard, who wrote a an incredible book
• 1:40:51
  Speaker 1: called Bilgrament Thinker Creek, which was about observations of life,
• 1:40:57
  Speaker 1: nature and and personal reflections on on both. And I
• 1:41:03
  Speaker 1: would encourage any of your listeners to pick up any
• 1:41:07
  Speaker 1: Dilert's Pilgrim at Tinker Creek. She also wrote a book
• 1:41:10
  Speaker 1: called American Childhood, which was much like mine. Um, she's
• 1:41:15
  Speaker 1: the same age, grew up in Pittsburgh, and her childhood
• 1:41:18
  Speaker 1: memories are quite similar to how I was, um, how
• 1:41:23
  Speaker 1: I was growing up. I also, I'm recently uh, I
• 1:41:30
  Speaker 1: recently bought recently reading a book called The Age of AI,
• 1:41:35
  Speaker 1: which is a book co authored by Henry Kissinger and
• 1:41:40
  Speaker 1: Eric Smith from Google and a third party who probably
• 1:41:44
  Speaker 1: wrote most of it. But it's very interesting about artificial
• 1:41:48
  Speaker 1: intelligence in the future that has for for all of
• 1:41:53
  Speaker 1: us going forward. And then there's another book. There's an
• 1:41:56
  Speaker 1: author called Julian Barnes who has written fifteen books. He's
• 1:42:02
  Speaker 1: a wonderful writer, very introspective, and it's called Done Nothing
• 1:42:07
  Speaker 1: to be Afraid Of It, and it's it's about death
• 1:42:10
  Speaker 1: and dying and his thoughts going forward, which is sort
• 1:42:14
  Speaker 1: of apropost I sort of say, I'm in uh, in
• 1:42:22
  Speaker 1: the death zone at because that's when people uh find
• 1:42:28
  Speaker 1: out they have prostate cancer or breast cancer or whatever.
• 1:42:31
  Speaker 1: It's it's not a good time going forward. And so
• 1:42:34
  Speaker 1: it you know, it's very introspective, and the man has
• 1:42:38
  Speaker 1: written other books that I think other people would enjoy,
• 1:42:41
  Speaker 1: Julian Barnes and Nothing to be Afraid Of So uh,
• 1:42:46
  Speaker 1: those are some of them really interesting stuff. Our final
• 1:42:50
  Speaker 1: two questions, what sort of advice would you give to
• 1:42:53
  Speaker 1: a recent college grad who was interested in a career
• 1:42:57
  Speaker 1: in either investing or fixed income? O. Um, well, I
• 1:43:04
  Speaker 1: would say this. I mean, the market is much different
• 1:43:07
  Speaker 1: now than it was then, and I had an opening
• 1:43:10
  Speaker 1: in terms of the little line that you know, even
• 1:43:14
  Speaker 1: a ten year old could have run through. I guess, um,
• 1:43:18
  Speaker 1: now it's a different story. But that I think finance
• 1:43:22
  Speaker 1: um will always be with us, whether stocks, bonds, real estate.
• 1:43:26
  Speaker 1: Um uh, you know, money is something that's always been
• 1:43:31
  Speaker 1: with us, and the making of money with money has
• 1:43:34
  Speaker 1: always been with us. I don't see that. Um, I
• 1:43:38
  Speaker 1: see it changing, but I don't. I don't see it
• 1:43:41
  Speaker 1: declining in any form or fashion. And so I would
• 1:43:45
  Speaker 1: advise those that are thinking about the industry they do
• 1:43:49
  Speaker 1: do something like yeah, like Cathy Wood did. I mean
• 1:43:52
  Speaker 1: she she innovated in terms of her ideas and there
• 1:43:56
  Speaker 1: in terms of her portfolio construction. She did take a
• 1:43:59
  Speaker 1: risk in terms of her ideas. I mentioned before that
• 1:44:02
  Speaker 1: she didn't be too much attention to price, but obviously
• 1:44:07
  Speaker 1: she created this huge wedge and opening for herself. What's
• 1:44:12
  Speaker 1: a product that no one else was thinking of, and
• 1:44:16
  Speaker 1: so one of those products I don't know. Um, I'm
• 1:44:20
  Speaker 1: past the stage of innovation, but yeah, I would say
• 1:44:26
  Speaker 1: in addition to spending your one or two years of
• 1:44:29
  Speaker 1: Goldman or whatever in terms of the background, that you know,
• 1:44:35
  Speaker 1: you kind of go out on your own and innovate
• 1:44:39
  Speaker 1: with some type of product that will it will get
• 1:44:42
  Speaker 1: you going and make you a a star and make
• 1:44:46
  Speaker 1: you some money and and lead you to hopefully to
• 1:44:52
  Speaker 1: obsessive enjoyment of of what you're doing. You you can't succeed,
• 1:44:56
  Speaker 1: I would tell them, you can't succeed unless you love
• 1:44:59
  Speaker 1: what you're doing. Really really interesting. And our final question,
• 1:45:04
  Speaker 1: what do you know about the world of finance today
• 1:45:07
  Speaker 1: that you wish you knew fifty years or so ago
• 1:45:11
  Speaker 1: when you were first getting started out. Oh? Um, you
• 1:45:19
  Speaker 1: know when I think it is Barry, I think. Um.
• 1:45:22
  Speaker 1: You know. There was an old soft from Will Rogers,
• 1:45:24
  Speaker 1: the old journalists in the thirties, and he said a
• 1:45:28
  Speaker 1: lot of funny things, sort of like Yogi berra. Um.
• 1:45:31
  Speaker 1: He was known for, um, you know, funny equips and
• 1:45:34
  Speaker 1: funny comments. And uh I remember him saying about the
• 1:45:38
  Speaker 1: stock market. He said, if you if you have a
• 1:45:42
  Speaker 1: stock that goes up, buy it and it goes If
• 1:45:46
  Speaker 1: it doesn't go up, don't buy it. Um. And I
• 1:45:50
  Speaker 1: thought that was really funny, and I didn't and I
• 1:45:53
  Speaker 1: think he thought it was funny too. I don't think
• 1:45:55
  Speaker 1: he knew what he was talking about. But it really
• 1:45:57
  Speaker 1: refers to a momentum. If you find this stoctor goes
• 1:46:02
  Speaker 1: up by it, and if it goes down, and don't
• 1:46:06
  Speaker 1: buy it. Because momentum is a very powerful force that
• 1:46:10
  Speaker 1: I learned, you know, sort of in the last ten
• 1:46:14
  Speaker 1: or fifteen years of managing money. Um. It's an alpha generator.
• 1:46:18
  Speaker 1: It's statistically proven to be an alpha generator. You can
• 1:46:22
  Speaker 1: turn against you, like in the last few months when
• 1:46:24
  Speaker 1: momentum upward momentum turns negative and it uh, it turns
• 1:46:28
  Speaker 1: into downward momentum. But momentum is something that really predocated
• 1:46:34
  Speaker 1: upon human nature. They do what has been successful before
• 1:46:39
  Speaker 1: and it continues until a dozen't And so I think
• 1:46:44
  Speaker 1: that's what I That's what I was always skeptical, skeptic, skeptical.
• 1:46:49
  Speaker 1: I was all skeptical of people that UH followed momentum
• 1:46:53
  Speaker 1: because I thought that was just joining the crowd. Well,
• 1:46:56
  Speaker 1: joining the crowd works for while until a dozens and
• 1:47:02
  Speaker 1: and how do you measure it? Well, you can measure
• 1:47:04
  Speaker 1: it with two hundred moving day averages with owns or bands,
• 1:47:07
  Speaker 1: with lots of different things. But it's it's statistically an
• 1:47:12
  Speaker 1: alpha generator in addition to several of the things that
• 1:47:17
  Speaker 1: I discovered before that. So I say I should have
• 1:47:21
  Speaker 1: been more appreciative of momentum, not that the Tempco with
• 1:47:25
  Speaker 1: its secular forecast wasn't really doing the same thing, and
• 1:47:29
  Speaker 1: and following momentum downward in terms of interest rates and
• 1:47:33
  Speaker 1: upward in terms of bond prices. But I I follow
• 1:47:37
  Speaker 1: momentum today. It's important, really really great stuff. Bill, Thank
• 1:47:43
  Speaker 1: you for being so so generous with your time. We've
• 1:47:47
  Speaker 1: been speaking with the bond king, Bill Gross, co founder
• 1:47:51
  Speaker 1: of PIMCO, the man who managed more bond money than
• 1:47:55
  Speaker 1: literally anybody else UH in the private sector has ever done.
• 1:48:00
  Speaker 1: If you enjoy this conversation, check out any of our
• 1:48:03
  Speaker 1: previous four hundred plus discussions we've held over the past
• 1:48:07
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• 1:48:15
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• 1:48:31
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• 1:48:33
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• 1:48:39
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• 1:48:48
  Speaker 1: in Business on Bloomberg Radio.