tv The David Rubenstein Show Peer to Peer Conversations Bloomberg March 31, 2019 1:30am-2:01am EDT
♪ erik: they called him the bond market king. bill gross had one of the most successful track records of all time and he played the starring role in pimco's rise. but the last chapter of his career was a letdown, and now almost 50 years after starting, he is retiring. it is for anyone who knew him, worked with him, or try to beat him, the end of an era. i am erik schatzker and i visited bill gross in california for years ago, just as he was starting his second act at janus henderson. i did not know what to expect this time. gross, always provocative, never dull, was full of surprises. ♪
erik: is this really it for bill gross? bill: well, depends on your definition of it, i guess. it is it from the standpoint of managing institutional money. i have a large amount of family office funds, quote unquote. i have foundation funds of my own, lots to do in terms of investing. but in terms of earnings fees, managing institutions, yeah. it's it. erik: you really are calling it quits after almost 50 years of professional investing for others. bill: well, yes. and the question might be why? that's what you are implying. or begging -- erik: we can get to that answer as slowly as you like. [bill laughs] bill: i just thought it was
time. for me, it was a situation where you just wanted to be able to relax a little. aside from the unproductive trades in the last few years, i would check germany and japan twice a night, usually at 12:30 a.m., sometimes at 3:30 a.m. and then up again at 5:30. it was like a drug, sort of like an endorphin after you work out. that when you come in and you are doing well, you feel great. the problem being that when you don't do well, you feel depressed. but that is the part of any portfolio manager's job. it just got to be a relatively heavy weight upon my shoulders at 74.
erik: i'm sure you remember the conversation we had here in newport beach almost four years ago. after what i might describe as a bruising battle with pimco, i asked you why you had not retired then, instead of starting a second act at janus. i don't know if you remember what you told me then, but you said you needed to prove something to yourself. that "i still got it." what changed your mind? bill: well, it is four years down the road. to be fair, the public numbers, in terms of unconstrained funds, were not spectacular. as a matter of fact, that is an overstatement. they were not good, although positive. i think, just in my defense, i managed a few total return accounts, just like the pimco total return, not public, institutional.
i beat the index by a hundred basis points year, just like i did over there. so, in that case, i proved it. the follow-up question might be so why didn't you prove it in the unconstrained universe? i think there is an explanation for that that i could give you, if you would like to hear it. erik: sure, let's hear it. bill: [laughter] that's why you am here. unconstrained is different than total return. it sort of implies a freer universe, and to some extent, more risk-taking. some clients assume it is a hedgey type of portfolio, and some think just the reverse. that it is more of a money market return. but it got to the point where interest rates were so low, and if you were not managing it with a significant duration or a relatively high amount of risk
, it was a 1% or 2% type of return. erik: and that was not enough? bill: in my mind, that was not enough. i thought my clients wanted more. i became a little less constrained. in looking back, and self criticism, there was probably always something at pimco that was very much of a positive to be constrained. erik: to have those guardrails. bill: to be a measured risk taker that i was. i became a risk taker, but not necessarily measured, and ran afoul of my old blackjack maxim that says you can never bet more than 2% of your stake, meaning, in this case, every trade should be 2% of the portfolio.
i wanted more, i stretched and i made a mistake there. erik: for better or worse, bill, we have all read or heard things about your personal life. were you able to compartmentalize that? or did it distract from your focus? bill: i think so, but you never know. my personality -- not to get personal, but i am an asperger. aspergers can compartmentalize in different universes with other universes not affecting them as much. i had a nasty divorce and still have feelings about pimco. i think it did really well in compartmentalizing, not that i did not wake up in the night and
start damning on one or the other, but when i came to work from it was all business. i don't think it affected me that much, but it is hard to know. you are not your best witness when it comes to trying to figure out whether something is affecting you or not. that is a possibility feud -- a possibility. erik: i did not know you had asperger's. is that what you meant in february of 2016? in one of your outlooks, you wrote about michael lewis' book and the movie "the big short," and you said you shared an affliction with one of the heroes of that book, and it wasn't his glass eye. bill: if you've got a minute and a half, it is a fascinating story. i read that book, and lewis is a great writer.
within that chapter, he listed 10 things that aspergers have that michael had as well. some of them were not being able to look somebody in the eye, which i'm not doing very well at the moment. singular hobbies like stamp collecting, etc. i go, "that's me." i took the book to my ex-wife and i said read this. she read it. i think i have asperger's, and she said, you do. not "you do?" but she said you do. i said, how would you know that? she said, you know, when we were having dinner with bill gates and melinda, like five years before, at a duke reunion fundraiser.
she said, we were sitting at the table, i looked at you, and i looked at gates, and i looked at you. you were doing exactly the same thing at the same time. your mannerisms were all the same. i heard that he had asperger's in a mild form. i went to a psychologist and described it and he said you have asperger's. i said, why didn't you tell me? she said because i thought it might hurt your feelings. erik: you did not know this about yourself? bill: not until i read it in that book. erik: until you were in your early 70's? bill: yeah, but it explained a lot. i am sort of proud of it, or i would not be telling you. because it explains a lot about me. all aspergers are not geniuses, the intelligence thing is not necessarily a big part of it.
but my personal behavior and my ability to relate to people, my singular hobbies, stamp collecting, and this, i said, hey, so maybe i do. so i did go to a psychiatrist in the first meeting i said, do you think i have asperger's? she said, oh, yeah. erik: when our conversation with bill gross returns. how he used asperger's the his advantage and what he thinks has changed most in financial markets. ♪
there is a line of thinking, i'm sure you are familiar with it, that says people with that condition, i would not call it an affliction, do better as investors. do you think that is true? bill: i think so. erik: why? bill: as i have understood it, in my experience, it has allowed me to stay at 30,000 feet, as opposed on the ground. the condition is one in which i am sort of up here and other people will know that when i come into a room and they say bill, i'll be up here. that is not necessarily good in terms of one to one. people think you are angry or an a-hole, but it allows you to focus on longer-term things.
without getting next up in the details. i think it was very important, because it allowed me to take what we call the secular approach at pimco, the long-term view. it was a good view to take. if i was a quantitative trader, a hedge fund manager, not so good. erik: interesting. do you think it helped you identify patterns better? bill: probably, but i never thought about it in those terms. but probably from the standpoint of 30,000 feet. yeah, it allows me to just forget about minutia and to focus on one big thing. whatever it is at the moment, as opposed to five different
things. erik: do you think think finding that out, recognizing it, and perhaps coming to terms with it on a personal level helped or hurt? bill: i think it helped personally. it explained a lot. you know, i am introverted, basically. i'm pretty good here, but i have always had problems with going up to somebody and saying hello. i expect them to say hello to me, not because i am a heel but because i am an aspberger. like you say, it is a mild condition of autism, right on the border. nothing to be ashamed of. like i said, i'm proud of it it
because it explained why, in part, why i was who i was. i am not going to negate my upgrading -- my upbringing my family, my background, will come -- we will all come out of the oven with a personality. and you as a parent to know, you have two, they're different. erik: they certainly are. bill: so there is all of that, and i think it helped a lot. and it was a burden for me, it said hey, it's not necessarily my fault. i'm trying to compete with the extroverts. like it would be nice to be able to do. erik: as someone who now knows about it and can look back at your career and identify what it did and did not do for you, what would you say to other people, younger people, who find themselves with the same condition who are entering the
financial markets as you once did? is there any benefit of experience that you would offer them? bill: if it was the same condition as mine, i assume everyone is different. gates is substantially different than me, if indeed he is and as asperger, i don't know. i would say it is a positive that can be used in terms of careers to be able to look forward and not get dragged down in the day today, to have a plan to succeed, and if you are down, you can get back up. i would also say markets are substantially different today than they were when i started. it is more day-to-day, it is more robotic, more machine
dominated. it's not a negative, but probably not as much of a positive because it gives you time to work given market conditions. i think today it is coddled, unlike when i started. bill: that is not an understatement. financial markets have changed a lot. what would you say has changed the most in financial markets in the past 10 years? bill: the presence of the central banks and their attitude toward money and credit. the obvious, qe and quantitative easing effect. many banks still have negative interest rates, etc.
it is a world in which economists writing textbooks 20 to 30 years ago could not have imagined. erik: securities trading at negative yields. bill: who would give your money to lose money? and there is an understanding as to why now, but back then, it would have been ridiculous. i think central banks have changed the nature of the game. whether they continue to do that or can continue i think is a big question of the day. erik: stay with us for more surprises from bill gross, including this one. who could be the next bond market king? ♪
at the age of 74, having had the successes you have had, having made the money you have made, but at the same time, having been very public about your concerns over inequality, what it does to the social fabric, the challenges it presents to government. what are your politics? bill: increasingly liberal. i am a registered republican, and i say that over at the country club, if you're not a registered republican, you're out of there. [laughter] bill: but increasingly, i recognized the inequality of the rich versus the middle class or versus the poor. we don't talk about the poor anymore, it is always the middle class.
the implications of that down the road, some of the things that -- populism is becoming more violent or more enthusiastic in other parts of the world like france and so on. if this continues, if this gilded age continues, there will be implications. erik: of what sort? bill: i'm not talking revolution, but maybe revolution at the ballot box. maybe the next time, the next election, there would be a "socialist" in the white house. that is what the republicans would call them. i would just call them liberal democrats. i think the wealthiest have been
advantaged for a long time. certainly the last few years with the tax cuts. but the middle class, certainly the gap has increased. the relative gap is important. erik: do i dare ask you if you sympathize with the democratic-socialists, the likes of alexandria ocasio-cortez? bill: i think she is a fresh face and i like her courage. it obviously is at the edge, and i'm more inclined to think about health care from the standpoint of increasing the the universe of population to receive it, either through medicaid or medicare, whatever.
i think a commonsensical observer would have to note that you don't go socialist from the standpoint of health care overnight, it takes a long time. but yeah, i think health care has to be a critical question. it is something where the disadvantaged relative to the advantaged begin to understand that they are getting the short stick. and they will make that known at the ballot box. erik: so you admire her courage. do you admire her ideas about health care or beyond? do you agree that, for example, taxes on the wealthy need to be higher so the government can act as more of a redistributionary actor? bill: it is a necessary evil, if you want to call that.
capitalism has proven to be most successful system in the world, it is just a question of the balance. what should the tax rate be? erik: what should it be? bill: it should be higher than it is. it should not be aware it was in the kennedy era -- erik: even if nobody pays that rate. 70% at the margin? bill: no, i'm not in that category, but i do think trump took it too far. we need some balance. erik: will there ever be another bond market king? bill: if i said no, that is very presumptuous. probably not in the same way, because to be a king, you have to have a kingdom. i don't know if that is possible anymore, other than index bonds, if you are the king, you're just a puppet.
the markets are making the decision. so probably not, but there are still experts in the bond market. i especially like scott minard. erik: at guggenheim. bill: right. i think that in the right environment, 20 years ago, he could've been a bond king. he has got a great long-term perspective, but i don't think he's got the market for, or maybe the willingness to be a king. remember that song, who would want to be king? who would? i guess i did. but in retrospect, it carries a certain burden. the crown is heavy. erik: think of it as the bill gross you did not know. the former bond king still has a lot to say. we will miss him in retirement. you have been watching "a conversation with bill gross."
scarlet: this is "bloomberg etf iq," where we focus on the access, risk, and rewards of etf funds. ♪ scarlet: a big shift at the big board, doug jones joins us to discuss a move on etf's and the foreign exchange. when you invest in cannabis companies, is it better to be passive or active? and ready, set, ipo. with lyft and uber warming up for their debut as a publicly traded