Mary Childs (02:32):
There’s just so much more ability to kind of have your hands on the levers. And I know Bill Ackmen might disagree with me on that, but difference of opinion. And I think that, that disparity between the kind of public awareness and the actual influence of the bond market for a journalist, that’s exactly where I should sit, right? I need to kind of be the person translating and saying, “Hey, look over here. There’s this thing that people kind of have an interest in you not paying attention to in you not understanding.” And as a financial journalist, my role is to enlighten, elucidate, bring that world to life and make people aware, but also interested and realize that they’re fun and exciting and not boring and complicated, although they’re also complicated.

Trey Lockerbie (03:10):
They can get complicated. But to your point about focusing on the stock market, it’s kind of interesting, right? Because the bond market is something like $120 trillion right now. It’s so much bigger than the stock market.

Mary Childs (03:23):
That’s true.

Trey Lockerbie (03:23):
That’s funny that it doesn’t get the same amount of attention you would think it would. And it might, sometimes soon, let’s preface that.

Mary Childs (03:29):
Right. Now, as we speak, I didn’t mean to write such a timely book exactly.

Trey Lockerbie (03:33):
It is a very timely book, but to your point about them being complicated, I love this analogy by Howard Raikov in the book, who’s talking about how bonds are like LA traffic, which I could relate to because I’m in LA, but talk to us about what he meant by that.

Mary Childs (03:47):
So basically, yeah, Howard Raikov was one of the kind of evangelists of active bond trading back in the day when that really wasn’t a thing. And he likened it to sitting in traffic in LA, that’s the buy and hold. That’s the way that people had been trading bonds, was just sitting in that one lane of traffic, traveling forward, clipping your coupon, minding your own business, and going home. But what he thought was…

Mary Childs (04:07):
This revolutionary thought that he had was, “Why don’t I change lanes and trade this bond for that? Buy a new bond that suits my needs better, that I think will go up in price for whatever reason, and better my situation? I’m no longer just in this lane taking what I’ve been given. I’m now changing lanes. I’m passing the person on the left, on the right. I’m doing all these different things that allow me to get home faster.”

Mary Childs (04:28):
So, the get home faster to him was price appreciation, which was here too for not really a thing in the bond market. So I like this one because you understand everyone thinks they’re a good driver, especially in LA traffic where you’re like, “I’m going to just outsmart this next person.” Doesn’t always work, which is also true in bond trading. But you think you have an edge. You think you’re going to be able to kind of maneuver your way home a little bit faster than just sitting in that one lane.

Trey Lockerbie (04:49):
And the book really covers in depth how these guys pioneered the bond market. And we’re going to talk a little bit about that, but Bill Gross is sort of at the helm of this story, and I want to talk about the first experience you had meeting Bill.

Mary Childs (05:03):
Yes.

Trey Lockerbie (05:03):
And did your interest in bonds begin there, or sometime before that?

Mary Childs (05:09):
My interest in bonds began before that. I had actually been covering bonds by that time for about three years full-time, I think, at Bloomberg News. So, that was a very intense team, a very smart team, and I learned so much being on that team. And that conversation with Bill was definitely like I’d already written a story that I had made a mistake in this story that was so… Did not reflect that I had been covering credit for three years. I just made a very… When you’re fact checking your story at nine o’clock at night and you’ve been working on it for months, you just miss the forest for trees or-

Trey Lockerbie (05:38):
Did you really mess up? Because I remember you called Bill and he was like, “Well, you have your numbers, I have mine,” right? It was-.

Mary Childs (05:44):
So what happened was, I had cited the price return, not total return of the total return funds performance. And that’s like, I just looked at the wrong column when I wrote down the thing, which is very silly and embarrassing. And it’s a little embarrassing to put that in my opening. I’m like, “Neither of us are quite reliable narrators,” right? But I do think that was an interesting interaction with Bill Gross because he’s on Bloomberg Radio after that story comes out and he’s like, “Mary Childs needs to get her facts straight,” which is just absolutely devastating.

Mary Childs (06:11):
I was just freaking out and then tried to replicate the numbers that he said. He said that total return was beating the benchmark by 75 basis points. And I had worked at Bloomberg for three years. Four years at that time, I knew how to check these things. I was typing it in over and over and over and I couldn’t get 75 basis points. And I was like, “I’m losing my mind here.” So finally he calls me and I’m just like, “Sorry about the mistake. I apologize. But can you help me get this number?” And he’s like, “You have your numbers. I have mine.” I’m just like, “Did you just say that? Did you tell me that? I’m a reporter? Should I write that down?” And I guess I did write it down. It took me a long time.

Trey Lockerbie (06:42):
Very revealing as we’ll kind of get into this story a little bit more, but yeah, these guys at the top is so fascinating.

Mary Childs (06:48):
Yeah.

Trey Lockerbie (06:48):
Let’s talk about Bill’s early days. He was really influenced by Ed Thorpe. And Ed’s actually been, I guess, on our show, he’s a legend. And Bill essentially uses the Ed Thorpe method of counting cards to pay his way through college, right? He kind of teaches himself in a way, starts gambling, I think gets up to $10,000 to pay through school, and they’ve become actually friendly in life, which is great to read as well. But that said, in your opinion, how did his early days of gambling contribute to his strategies in the bond market, given that you focused on it in the book?

Mary Childs (07:22):
Yeah, I think it’s really relevant, right? he learned in Vegas not to bet all of his chips on one thing. Not to kind of wantingly and recklessly bet. He learned to use Ed Thorpe’s strategies to very carefully and cautiously figure out where he was in the deck. When the dealer is shuffling out the cards, if you count cards, you can figure out, with some degree of accuracy, what’s going to happen next. So not total accuracy, of course. No one is psychic here. But I think that just knowing that there was a way to beat the system, gave him confidence in his own ability to find a way to beat the system.

Mary Childs (07:54):
To find market inefficiencies and exploit them before other people found them. And then it also helped him learn basically risk management, where he was using the Kelly Criterion in this strategy, in the card counting strategy to not vet too much. To say, “Okay, I think I have this amount of edge, therefore, I will bet this amount. If I have a little tiny bit of edge, maybe I won’t bet that much.” And that I think served him pretty well throughout his career where he had a sense.

Mary Childs (08:17):
I’m not sure if other card counters would agree with this, but I did card counting. I learned how to card count for this book. And I was in Vegas with a hedge fund manager teaching me, which was so fun, but it was also… It helped me realize that it’s such a more visceral and almost emotional… It’s like a living thing feeling that risk and the way the table changes and heats up and cools down. And I think that is really applicable in markets and bringing that sensibility and that ability to feel the ebbs and flows of risk and of your edge was super informative for him.

Trey Lockerbie (08:48):
Yeah. That’s what I loved about how you described it in the book of this intuition he seems to have gotten from it. Yeah. And knowing when to go in strong or cool off, I think that there’s a pattern recognition of sorts there that you kind of pick up at the tables, it would seem, from his experience as well.

Mary Childs (09:02):
Yeah. And it’s mathematical, but it’s intuition. Like you’re saying, you can do the math or you can learn to feel it or both. And I think in Bill’s case, it was both, where he both got the pattern recognition from the mathematical perspective, but then having that mathematical underpinning helps you learn the intuition, helps you feel it.

Trey Lockerbie (09:19):
It’s kind of like when you’re a Jedi, right? And you kind of [crosstalk].

Mary Childs (09:21):
It’s just like that. Exactly, right.

Trey Lockerbie (09:23):
So let’s talk about Bill’s early days and founding PIMCO. He gets his first job out of college at Pacific Mutual. And one day he’s sitting around clipping coupons in the old days, trying to get those yields mailed back to them, and they come up with this idea of that bonds should be traded in a liquid market. So walk us through how Bill stood up PIMCO, which later became the leading powerhouse in the industry?

Mary Childs (09:48):
Absolutely. So basically what went down is Bill Gross is at Pacific Mutual doing this kind of boring job, as you say, clipping coupons, and also kind of analyzing credits. Corporations as they came in saying, “I want to borrow money,” and they would evaluate, and Bill Gross was the person who did that evaluation. And at the time, inflation was really high. So I think the argument was, “Hey, why are you letting these bonds in the basement just erode in value? They’re just sitting there decaying because of inflation when I could be trading them?

Mary Childs (10:16):
Why don’t we try this? This radical new idea. It’s a little bananas, it’s a little out there for an insurance company that likes to just kind of clip coupons and do what it has been doing for so long.” Insurance companies are not necessarily known for embracing risk and innovative strategies, no offense to them, but he made this pitch to his boss and his boss was like, “Okay, here’s $5 million. Have fun.”

Mary Childs (10:34):
And so for five years, it kind of didn’t make sense. And the higher up that Pacific Mutual were like, “What are you doing? Like, can you please make this business work yet or we’re going to shut you down?” And eventually, they managed to establish this track. I think the recession in the early ’80s, they were right on that. And from there that kicked off an enormous rally in bonds for decades, and Bill Gross and his team were kind of at the forefront of that.

Trey Lockerbie (10:57):
Yeah. I was curious why it took so long, five years. The $5 million, the small dollar amount, was it just kind of going up drumming up interest in this brand new thing and trying to educate people on how to even participate in it?

Mary Childs (11:08):
That was a lot of it. That was a lot of it. And I think too, Jim Muzzy started out a portfolio manager. He didn’t love it. So some of it was just everybody getting situated and getting their roles right. And I think also like the market was not as directional and I think they were just getting their footing. The market was so nascent. And it took until, I think, really the mid 80s before they had their firm footing in the contracts that they really, really… Where they really excelled, like mortgages and futures and derivatives, that world of basically extreme complexity. We’re kind of out on the spectrum of complexity there. And that’s, I think, where they were able to do the best work, especially in those early days, and also catching that wind of the market being in their favor.

Trey Lockerbie (11:48):
All right. So they come up with this thing called The Total Return Fund, as you mentioned earlier. What made thing so special? You talk in the book about how they were unable to take the secret sauce of derivatives over to their ETF later on in the book, but what types of strategies would these derivatives made the fund so successful?

Mary Childs (12:06):
So a lot of Bill’s strategies over the years have centered around this idea that he was a psych major at Duke. So I think a lot of these are psychological where he identifies that other people are, for example, less comfortable with risk and he’s just more comfortable. So one of the things that he would do would be sell strangles. Kind of identify a range in which he thinks that a market will trade and sell options around that. Just kind of ring fencing that range and saying, “I don’t think it’s going to trade outside of this.”

Mary Childs (12:32):
Other people are more than happy to buy that insurance from him and say, “Great, I’m offsetting my risk here. I feel better about this,” and he collects that premium. And he can just do that over and over and over. And the effect of that is, he’s collecting all this money and he was pretty good at delineating these ranges and predicting these ranges. So on net, this was a beneficial and profitable strategy for him. The trade works and is so robust and kind of persistent because people want to offset their risk.

Mary Childs (12:58):
That’s a reasonable thing that I probably would be doing. I’m like, ” want to hedge this. I don’t want to be stressed about it.” And Bill was like, “I’m happy to be stressed, bring it on. Let me take your money for that.” And options were really the way that he was able to express that. There’s a very complicated trade from 1983, the Ginnie Mae CDR Trade, which is a futures contract which no longer exists because it basically got broken by PIMCO’s trading. It’s a fun story. It’s a lurk.

Trey Lockerbie (13:19):
So just to cover that strategy a little bit more in depth, the strangle, right? You’re selling a call or a put either above or below the price range that you think it’s going to trade in. And you basically profit off of that premium that you got from selling it, and you’re just letting it die out probably right? The duration of the contract just flows out. As long as it’s stayed in that range, you make some money.

Mary Childs (13:39):
Yes, yes, exactly. You just cross your fingers for the duration of the contract.

Trey Lockerbie (13:43):
It’s really impressive. And it’s hard to do, especially in early days of a bond market. It’s fascinating. But to your point there about the complex trade and how complex it got, I’d like to talk about this because it seems like their first big home run. And the way you lay it out in the book, it feels like a movie in which at one point it’s like a bank robbery because they end up showing up at these banks, walking out with suitcases full of contracts because they’ve cornered the market. So walk us through this story. It’s amazing.

Mary Childs (14:09):
It was a new contract. It was called a Ginnie Mae CDR Collateralized Depository Receipt. And basically, it’s not dissimilar to regular mortgage pools where you just slice it up by risk. But in this one, the flaw was that they had kind of too many different levers and too many options. It’s really two trades that I’ve kind of made sequential, but it’s actually like, it had one problem where it had a perpetual, you could convert it to a perpetual security. So that’s one thing. And that was your downside.

Mary Childs (14:34):
If rates are falling and you want to just stop, you want an 8% forever. Congratulations, you’ve got it. And on the other side, there were… Basically the market hadn’t realized that because of negative convexly and the fact that rates were turning right then, the number of the cheapest to deliver bonds that would actually help settle this trade if you wanted physical delivery were very finite. And actually they were no longer making this cheapest to deliver. And I think people hadn’t really realized that.

Mary Childs (14:58):
And you can go along happily down a path for a long time if no one tells you that the underlying assumptions are all wrong. And I think when rates start to go up, you reveal a lot of these assumptions, right? Suddenly, we’re all going to learn about a lot of assumptions that we didn’t know that we’re making throughout the financial market right now. So exciting times, but basically because of negative convexity, the lower coupon Ginnie Maes are worth way more. And so the highest coupon I think was like 17% and those were the cheapest to deliver.

Mary Childs (15:24):
So PIMCO realizes that there aren’t enough of the cheapest to deliver. And they actually end up going out to all of their clients and being like, “Do you want to trade futures in your pension? Do you mind? Just because it’s a really good idea. We have this great trade. Is this hilarious?” And these like very conservative pensions are like, well, “All right, let’s go for it. Why not? Let’s try it.” It was a good trade, so it worked out, but it has definitely opened the door for this kind of liberal embrace of derivatives and options that started here.

Mary Childs (15:49):
So they decide to basically amass an enormous position in these contracts and then force physical settlement. And so then they go around to each of their counterparties and say, “Hi, hi, excuse me, sorry. So we’ve got this contract and we’d like to settle physically. We’d like physical delivery.” And the counterparty would be like, “Oh, I only have a couple of these cheapest to delivers. Oh, no, I actually hadn’t accounted for this,” because they’d amassed such a big position. It basically out sized the existing inventory of…

Mary Childs (16:14):
The existing everything of these Ginnie Maes. So yeah, they went around with duffle bags and picked up all these Ginnie Maes that were lower and lower coupons as these counterparties realized that they couldn’t settle with the cheapest to deliver. They’d run out. So PIMCO just collected and collected on that, and then on the perpetual. And Bill Gross, I will say only Bill remembers this, but he also said it in his own memoir, so he very much remembers this moment.

Mary Childs (16:38):
He says that he met up with Solomon brothers at an LA airport guest room to negotiate an exit without having to face regulators about a squeeze. So the eventual exit was that regulators were kind of like [Clears throat], and like the Chicago board was… There were a lot of people looking at this being like, “Was that strictly speaking legal? Was that okay? What just happened? What just happened?” And so bill says they settled in an airport hotel guest room, which is yes, I love the movie version of this. It’s so beautiful.

Trey Lockerbie (17:05):
It’s perfect for that. Another masterful stroke by Gross was profiting handsomely off of the global financial crisis when the housing market crashed. Surprisingly, he wasn’t featured in the movie The Big Short. I guess it’s because he didn’t technically short sub primes. And I think Gross has a bit of a chip on his shoulder for not being featured in that, it would seem, but that’s besides the-

Mary Childs (17:28):
Well, about that is, he did pitch himself to Michael Lewis. I think Michael Lewis did… They are a little bit in the movie I’m told. I haven’t re-watched that movie for like 10 years so I don’t remember, but I do think that he has pitched their story to Michael Lewis, at least once, maybe twice.

Trey Lockerbie (17:41):
That makes sense. Because of that movie, it’s easy for most to understand how PIMCO could see things coming and position itself to make a profit, but what’s not often told or examined is just how much they were able to front run the Fed ultimately, and partner with the government. Talk to us about these inner workings of the partnership that developed between PIMCO and the government.

Mary Childs (18:03):
Yeah. There were formal relationships where the government needed to value or trade securities that it really had previously not done. So at least in this degree, at this scale. So in multiple different markets, they ended up literally partnering with asset managers, including PIMCO. And PIMCO was a kind of a big one of those. And they also had this informal thing where PIMCO is at the center of this market, of the mortgage market. And the crisis was obviously very much in the mortgage market.

Mary Childs (18:32):
So it had the effect of PIMCO’s trading and PIMCO’s view being so central to what the government needed to do. So the government had this enormous problem in the form of Freddie & Fannie, which at that time directly or indirectly backed $5 trillion worth of debt, which is absolutely ridiculous. And a lot of that debt was underwater or people were defaulting. People were unable to make their payments. And PIMCO is basically like, “Yeah, I know. That’s rough, isn’t it? That’s a real bummer.

Mary Childs (19:01):
You’re going to have to make explicit that government guarantee,” because to that point, it hadn’t really been clear how much the government… They were government sponsored, but how much? And so this moment in time, PIMCO is just like, “Go ahead. Say that you’re going to just back them.” And eventually, that’s indeed what the government ended up doing. So to me, that’s the moment where they’re the most powerful. Where they are at the epicenter of this crucial moment and wielding such influence in this enormous market that affects really literally all of us.

Mary Childs (19:28):
We all live in a house. We all either rent or own or we want to do one of those things. It affects everyone. The price of housing affects everyone. And not only that. As taxpayers, there’s this moment where the US government sort of ends up, maybe by accident, ranking PIMCO total return clients over taxpayers. They get more or less the kind of bailout or the aid, and then taxpayers are more or less kind of paying into that, which is bananas. And again, I’m not sure if that was super structurally intentional, but it is the kind of outcome.

Mary Childs (20:01):
The other major trade that I think you mentioned this partnering with the government is the umbrella trade where PIMCO decided in the aftermath of the crisis, and I think they saw this more clearly than a lot of people, than probably most people, that whatever the government thought would be too big to fail, thought would be systemically significant important, that that would get bailed out, that they would find some way to fix the problem. And so PIMCO just was like, “All right, let’s pick out who that is, and just buy those securities.

Mary Childs (20:26):
And then if the government wants to bail those out or buy those securities from us, we’re so happy to do that.” And there are multiple examples of this. There were bank prefers, there was this kind of infamous example with GMAC, the general motors, it ended up converting into a bank holding company. So I think the idea there is, there are multiple ways in which PIMCO partnered with, or basically front ran the government to its great benefit, to PIMCO total returns great benefit.

Trey Lockerbie (20:49):
Yeah. It used its power to basically play check in with the government., It seems. And you mentioned that last point about them making money every which way from the collapse of our economy. How are we supposed to feel about these corners of capitalism when it looks a little ethically gray?

Mary Childs (21:06):
Yeah. It’s like we really have built so many structures just accidentally. And I think I say in the intro that what we delineate as relevant to financial analysis and relevant to corporate earnings, it’s a little nonsensical. We just picked kind of randomly. And the people who picked a lot of these things are like, “No, yeah, that was random. We did not, actually… This should not be any…”

Mary Childs (21:25):
The guy who created GDP is like, “Don’t use this, don’t use this measure.” The people who helped delineate corporate earnings are like, “Eh, this is a little imperfect. Hope you all iterate. We just don’t.” There’s community adjusted EBITDA, and that’s the last innovation I’m aware of. But I think that there’s this accidental agreement that we’ve made. I am saying accidental out of hope that this is okay, that we want what we call free markets. I don’t know.

Mary Childs (21:47):
I’ve recently come to the opinion that there’s literally no such thing as free markets, and we should all stop saying that because it doesn’t make any sense. And if there is literally a free market somewhere in the world, let me know. I’d be happy to see it. I’m so interested, but there’s always government interference in some way, shape or form. I am unaware of any… I don’t know. Can you think of one like barterin?g I don’t know. There’s a social contract, no matter what.

Trey Lockerbie (22:11):
Yeah. It’s interesting. I always go back and forth on this point because it’s like the grass is always greener a little bit sometimes, where everyone today is like, “We need free and open markets.” And we’re like, well, “We used to have that, and things weren’t so good.”

Mary Childs (22:22):
Not so good.

Trey Lockerbie (22:23):
We saw these so major volatility, and lots of bank [inaudible 00:22:27], all kinds of stuff that just would not be really good for most people financially, which is why… So it’s the road to ruin is paid with good intentions, right?

Mary Childs (22:34):
Completely.

Trey Lockerbie (22:34):
So here we are.

Mary Childs (22:37):
Or just not looking closely at these agreements. And that’s the thing that I think there was so much going on in the crisis that we did a bunch of slap dash things. And I feel like we were like, “We’ll come back to this. We’ll look at this again later.” Time marches on. We got new crises, we didn’t have a chance to look back. And I think that that’s dangerous. All of these things have persisted. And in large part, that’s why you see a lot of this social unrest, like you’re saying, these free and open markets hurt people.

Mary Childs (23:00):
There’s real pain still from the crisis where people, their savings were totally wiped out. And you see this cropping up with Occupy, you see this cropping up with the populous movements around the world too. So I think there is this… I kind of wish we were better than we are, that we had some better balance or be achieved some sort of aha moment and like figured out something that was more effective than just simply replicating all our societal problems and amplifying them. To me, this has all just served… The financial system that we have today really just serves to amplify. And is that what we wanted? Maybe it is.

Trey Lockerbie (23:35):
It’s almost like we need a decentralized monetary network.

Mary Childs (23:38):
Yeah. And walk right into that. Doesn’t matter. Right into it.

Trey Lockerbie (23:41):
We won’t go there. But I am curious about this point you made about this big bull market that happened post the 80s when the interest rates really were at the 18.-

Mary Childs (23:51):
So high, yeah, yeah.

Trey Lockerbie (23:52):
The highest at peak was 18.63. And so we just covered a couple of Bill Gross’s masterful strokes of genius, but I’m kind of curious, right? Because a lot of this seems like timing.

Mary Childs (24:04):
I know what’s coming. Yeah.

Trey Lockerbie (24:06):
I mean the interest rates proceeded to fall for 40 years straight.

Mary Childs (24:10):
Yeah.

Trey Lockerbie (24:10):
So not to discredit his success obviously, but how much of this tailwind factored in in your opinion?

Mary Childs (24:18):
He was massively lucky in terms of timing. And that is the biggest reason for his success. And I see that, I get that, and he would own that too. He absolutely has owned that over the years. He’s like, “I was a beneficiary of this massive run in bonds,” and yeah, for sure. But so were a bajillion other people and none of them are Bill Gross but Bill Gross. So I do think that he did have insights. He did have true insights into… He identified these factors that were persistent and robust across time. That is a real thing. And I think that the timing question is…

Mary Childs (24:49):
I don’t know. Everyone was playing in the same field. So it seems like there’s no counter factual. There is a little bit where he went to Janus, but it’s not an AB test. It’s not a clean control because he had so many other factors that were I think, changing his investment strategy, like his emotional situation from the [inaudible 00:25:07]. So at Janus he did not perform as he had at PIMCO over many decades. And it was this kind of sad last chapter where I think it threw a lot of his investing prowess into question, where rates did rise over his time at Janus.

Mary Childs (25:19):
And I think you can’t really… You can compare them, but I think it’s messy. So both can be true. He was the great beneficiary of an enormous run in rates. Yes, absolutely enormous bond rally, but also, he did have these insights. He did manage to generate alpha. He did identify these market inefficiencies and these kind of, what he calls, structural alpha, these trades that did generate out performance over time.

Trey Lockerbie (25:44):
Well put. Let’s talk a little bit more about bill the man, right? So Bill, he becomes very wealthy early on, especially once the total return fund becomes wildly successful, but makes it a point to be the face in the media. And he had this quote, “To win forever.”

Mary Childs (26:00):
I love that one.

Trey Lockerbie (26:01):
What is the driving force behind Bill’s desire, both for success, but also the fame?

Mary Childs (26:09):
Yeah. So this is actually one of the things that I think people have responded the strongest to from the book, this idea that when bill used to interview potential employees for PIMCO, he would ask them, “What do you want? Fame, money or power?” He liked this question because it made people uncomfortable. It made them kind of think what he wanted them to answer. It opened up a little vulnerability, no matter which way you answer it. But for him, the answer was always fame. He always wanted to be famous and he would tell anybody that, and it was true from the get go, and he knew it.

Mary Childs (26:34):
And in conversations over many years, he’s told me and others, I’m kind of sometimes just the vehicle or the vessel, but he’s told people that it’s basically this idea that he had these cold Canadian parents, his parents weren’t huggers and they weren’t affectionate. And he has kind of limited memories of joyous affectionate moments with them. And he says that this is what motivated him to be famous, to want to be famous because he equated fame with love, which I think is just so poignant and what clarity, what mental clarity to be able to see that this is what’s making you…

Mary Childs (27:08):
This is the fundamental engine behind everything. And I think that’s unusual for a bond manager, but that also explains, like you’re saying, he was the face of the firm for so long. He was Mr. Bond market for basically decades, right? The bond king. So I think it filled that. It did what he wanted it to, but as we all know, it’s a very ephemeral thing. It slips through your fingers the minute you get it. So it’s like, you’re onto the next headline. You’re constantly chasing this thing. And I think that did not serve him in the end.

Trey Lockerbie (27:36):
He was almost like the buffet of the bond market. And there’s some similarities there as well because-

Mary Childs (27:39):
Definitely.

Trey Lockerbie (27:39):
… in the media, he comes across as very folksy.

Mary Childs (27:42):
Yeah.

Trey Lockerbie (27:42):
So self-effacing sometimes and-

Mary Childs (27:44):
Quite.

Trey Lockerbie (27:44):
… Bill behind closed doors though at PIMCO seems to be a different story. Talk to us about the dichotomy happening there.

Mary Childs (27:53):
Yeah. So this actually starts to verge on… I think you’re right, that there is this interesting dichotomy between the public perception and the kind of lived reality, if you will, of everyone who works at PIMCO and everyone in Bill’s orbit. He was this folksy, eccentric, accessible guy, very normal guy, always sharing these embarrassing moments in his monthly investment outlooks. And that was his charm. People really responded very strongly to that. But then on the PIMCO trade floor, he was intensely focused. He did not like to be disturbed interrupted.

Mary Childs (28:23):
He had kind of rigid rules about when he did what, and he didn’t want to be pulled into client meetings. He would do them, but he didn’t want to. And he was very hard on people in investment committee. So there was this distance between what people perceive, what people saw on TV, and then the people who actually interacted with him, what they got. And I’ve been thinking a lot about this and Bill was diagnosed late in life with Asperger’s and I think that’s really relevant here. If you think about other public figures, you think about David Burn, for example, he has talked widely about being autistic.

Mary Childs (28:52):
I’m not a psychologist. I’m not like licensed to talk about this in any way, but I think there is this distance that’s comfortable, where if you get on a stage, you’re wearing a mask, you’re performing, but no one’s interacting with you. You’re interacting at them basically. And I think that’s relevant for Bill gross, where he was able to be this self effacing folk, the accessible kind of adorable guy on TV. And then he would get off screen and act normal. And that difference for him is not dissonant. And those live together, right?

Mary Childs (29:19):
There’s this performance Bill, and then there’s life Bill. And life Bill, I think a lot of those behaviors that people objected to, that people thought were mean or aggressive or too intense or all these different adjectives that I’ve heard over the many, many years, I think a lot of those are sort of not quite appreciating that they’re dealing with someone who’s neuro divergent, where he doesn’t want to make eye contact. Not because he doesn’t like you, but because he doesn’t want to make eye contact. And he’s allowed to do that. But there’s also this interesting thing where, because he was so powerful and so important, especially within PIMCO, right?

Mary Childs (29:50):
Everything lived or died by what Bill thought of it. And that includes the employees. They’re just searching for Bill’s approval. They’re trying to make a connection with him, and he does not want to do that. So it’s super relevant to the way that he was perceived and the way that he showed up in the world. And I think he was underappreciated for a really long time. So, that’s what I’ve been thinking about.

Mary Childs (30:07):
Exactly that dissonance. I think that ended up being a big problem for him. When the stories came out about his behavior behind those closed doors, I think people were like, “Oh, my God. That cute eccentric guy that I’ve been reading about for decades, he’s actually kind of harsh and intense?” But I think I have this theory that it is related to his neuro divergence to his diagnosis, that he had this kind of stage persona, if you will.

Trey Lockerbie (30:27):
I’m actually really glad you brought that up because I had a similar thesis there. And he comes out later in life, much later in life, announcing his diagnosis, and he’s very proud of it. He really owns it. And it’s kind of because he sees a lot of similarities. Elon Musk on SNL announced he had Asperger’s, he talks about how Gates might have a mild case of it as well. And all those people, and you could probably name more, have this reputation of being, “Hard to work for.”

Mary Childs (30:53):
Right, right.

Trey Lockerbie (30:54):
And maybe it’s just an interesting thought that now that we’re kind of… It’s getting more and more into these zeitgeist of sorts of people recognizing these diagnoses earlier and earlier, I wonder if that will stay the same or if there’ll be a new appreciation there. So, interesting point. Let’s talk about some other characters that come up in the book. So Neil Kashkari who at one point was the CEO of the Fed of Minneapolis joins PIMCO, and he at one point was in charge of the TARP program, right? After the global financial crisis. You write about him as being this character who is obviously extremely bright, but he sort of stumbles his way into these very important roles and not to discredit him, but it’s just interesting.

Mary Childs (31:30):
It is, yeah.

Trey Lockerbie (31:30):
Talk to us a little bit about his storyline and how he plays into the story with Bill.

Mary Childs (31:36):
Yeah. It is really interesting. So he had been just a regular, regular investment banker at Goldman Sachs and when Hank Paulson was going to treasury, he just emailed him and was like, “Hey, can I come with you?” And Hank was like, “Yes.” And all of that is so improbable, but he went and he had this kind of, it’s called break the glass plan, emergency plan for bank re-capitalization. And then that emergency kind of joke draft. I guess joke is a little harsh, but like they wrote it being like, “Blah, blah, yada, yada. I mean, maybe. Who knows?” And then it was the real plan and they were like, “Oh, okay.”

Mary Childs (32:08):
And he’s talked openly about, “Oh, that’s $700 billion number that we ask Congress for that was pulled out of thin air. We were just like, what’s the biggest number we can get away with?” What do you think people? It’s not $800. That’ll free people right out. $700 is pretty good. So anyway, yes. So he goes from basically this prestigious and really critical role in crisis management and fixing the crisis in the government to working at PIMCO. And obviously people had a lot of opinions at the time about the revolving door. He had kind of a… It was a prestigious and important job, but it was also kind of doomed because he was in charge of new strategic initiatives included, but not limited to equities.

Mary Childs (32:47):
And equities at PIMCO have always been cursed for some reason. It’s a bond shop, the DNA is bond, the stance is bond. Everything about it is bond, and I think this was kind of crystallized for me when a source from the equity side told me that folks on the bond side would be like, “You need to negotiate down this bid ask.” And they’re like, “That’s a commission. That’s not how this works.” It’s just a different language. And I think that they kind of never bothered to appreciate that in some ways, not that Neil… I’m sure many people bothered a great deal, but somehow it just never really got in there.

Mary Childs (33:17):
So yeah. So Neil had this relatively doomed assignment of just do new things at PIMCO, especially, and including stocks, which became a very important push and a very important reason. It became this schism. It became this crack in the relationship between Bill and some of the others that PIMCO for a lot of reasons. Yeah, I think another way in which Neil kind of didn’t fit in is this one anecdote really stuck with me. A source told me that he was approaching the PIMCO office one day, coming back from lunch or whatever.

Mary Childs (33:44):
And Neil’s a little bit behind him. So he holds the door for Neil, which is normal. At PIMCO, there’s this like kind of hierarchical feeling, and you hold the door, and the person doesn’t acknowledge you, they just walk right in. They don’t make eye contact, and then you’re in an elevator together. It’s really awkward. You don’t talk. It’s just okay. But that’s life. But Neil looks him in the eye and says, thanks.

Mary Childs (34:01):
And the guy’s like, “This guy’s never going to make it here.” So yes, Neil Kashkari has done a phenomenal job getting these amazing jobs. And I don’t know, I think he’s very charismatic and I think he’s brilliant and that’s probably a lot of it, but it is also the one at PIMCO was not. He was not set up for success.

Trey Lockerbie (34:17):
A few people in the book are described similarly. Separately, I was really excited to see a nod to our good friend, Colin Roche who’s a recurring guest on this show. And I don’t know how well known this story is between Colin and Bill. Colin’s touch on it here and there. But talk to us about the debate that happened between Colin and Bill and what impact that ultimately had.

Mary Childs (34:37):
Yeah. Okay. So Colin had this blog post in 2011, where Bill Gross had just made this enormous call, this very, very big call in his portfolio. And then publicly saying, “I hold no treasuries. I have sold 100% of total returns treasuries. I think the treasury market is doomed. The supportive measures from the Fed are being wound down and that’s going to leave a Fed shaped hole in the market.” And Colin wrote, “He’s been talking about some form of a bear market in bonds for over 10 years now, and in between those calls, he has consistently maintained a very healthy holding in fixed income and us treasury correlated assets.”

Mary Childs (35:15):
So yeah, Colin was super right because Bill’s 1997 book, Everything You Know About Investing is Wrong, also was like, “Oh, this is kind of the end of the bond market.” Bill’s been calling the end of the bond market since the beginning of the bond market. So there is some hilarious irony there speaking someone who’s benefited so much from that lack of ending, but yeah, this was kind of a turning point, I think. This is a weird call. This was kind of an enormous and very risky call.

Mary Childs (35:42):
You’re benchmarked against the things that hold a lot of treasuries. So this is a very bold call, but also was wrong. It was just extremely off, the market treasuries rallied. And I think that this is one of the moments where Bill Gross’s armor gets dented. At PIMCO financial services is a bit large, but especially at PIMCO, you’re only as good as your last trade, and how your performance is doing.

Mary Childs (36:03):
And in this case, Bill was spectacularly wrong. Apologized for it publicly to his credit. But also, I think that’s got a bit of a mixed messaging internally and within financial services where you’re kind of trained to hunt the week. And he’s just like, “Yeah, I was wrong.” But in a lot of the tellings that I came across and I think it’s true, this was kind of the beginning of the end. So Colin, I guess, called it.

Trey Lockerbie (36:26):
Yeah. It seems to be his first big blemish on his track record and made his reputation a little unsteady. And you’re right, it did seem like the beginning of the end. And another point in time that felt like the beginning of the end was a ride around when Mohamed El-Erian joined PIMCO. Another character who was not really set up for success, it would seem, but he leaves. And when he leaves, it creates these major headlines. And I believe that’s what roped you into all this to begin with.

Mary Childs (36:52):
That’s correct.

Trey Lockerbie (36:53):
I love that his lawyers, by the way, made sure to denote that he just left for personal reasons and sure there’s some agreement-

Mary Childs (36:58):
I never disparaged publicly on social media or otherwise.

Trey Lockerbie (37:01):
Yeah, I’m sure there’s some agreement there, but anyway, it seems like this open secret that he and Bill’s relationship soured, but to what extent in your opinion, from what you gathered in the research you did?

Mary Childs (37:11):
It’s a number of things. I think at the beginning of Mohamed’s second term at PIMCO, because he was previously in emerging market. He was on the EM desk and did great. Went to Harvard, came back to PIMCO as co-CEO and co-CIO in 2007. And that co-CEO and co-CIO is bananas at PIMCO. They had long touted this three-legged stool, this kind of clear division of labor as a big selling point that they had this structure that worked really well, where the business guy is the business guy and Bill Gross is the investment guy and those things [inaudible 00:37:39]. But Muhammad was both of those.

Mary Childs (37:41):
And I talk about in the book how he kind of made a request for that at the very last minute before he started at PIMCO and Bill Thompson, the outgoing CEO who was not yet outgoing at the time, and Bill Gross were like, “Oh, okay, uncomfortable,” but Bill Gross was excited, and Bill Thompson was like, “Okay, let’s see how this goes.” And this is a little bit… I’m speculating a little bit here, but this was a deviation from what they had done in the past. And this was not really what they’d meant to do. And I think that was kind of the beginning of the end of that relationship.

Mary Childs (38:09):
I don’t know if they ever could have overcome that kind of structural problem because of the way it came about, but also because of the deviation from how PIMCO had operated. And then there’s also just the fact of their persona. I feel like both of them are just complete opposites. Bill Gross is in the weeds and he wants to really understand the complexity and really get in the details and he’s really intense and he does not really care for niceties and he’s just going to do what he needs to do. And Mohamed is super polished and like academic seeming and polite and very…

Mary Childs (38:37):
I don’t know, has all these like great big macro economic thoughts. And fundamentally you have an economist and an investor and they butted heads a lot. And there were also a lot of kind of managerial issues where Bill was not overly consistent in part, because I think he cared not at all for kind of the managerial stuff and the minutia of business decisions. His stance was his stance. And he just kind of was like, “All right, whatever y’all are doing, it’s probably fine, but it’s annoying to me when you hire people,” et cetera.

Mary Childs (39:00):
And Muhammad would just have to kind of work around that all the time, and do this like really annoying dance of trying to front run Bill’s feelings and accommodate for them and then try to fix it when he made a mess and then try to… Just constantly managing the world around bill gross. And I think either he didn’t appreciate that that was part of the job or he didn’t like that that was part of the job. I’m not sure exactly what went down because he somewhat famously declined to talk to me for this book, but it was sort of oil and water in my opinion, where they just were never going to necessarily see eye to eye, and that really came to head in 2013 and ’14.

Trey Lockerbie (39:32):
Also, what happened in 2014 is, Bill goes and speaks at this morning star conference. And he goes on stage and he’s talking, and then all of a sudden, he starts to get on a tangent a little bit. He brings up the movie, The Manchurian Candidate and ends up walking through the entire plot. So this seems like again, the beginning of the end of the career, but people started really questioning his cognitive state of mind at this point. Did you see that when you were dealing with Bill throughout the book and was there something there or was this sort of a looked… Were people reading too much into that?

Mary Childs (40:05):
It’s a good question. And the way I have read it is, it was kind of a cry for help, I think, or a flare. He was sending up a flare of all’s not well. While he was trying to say, “All is well. There’s never been a happier kingdom.” It’s obvious that he’s flailing around trying to regain control, to tighten his grip in some way on the reigns of this enormous company that is no longer truly his at this point. So I think that’s what you’re seeing is that, he’s just kind of flailing around trying to reassert and trying to get his footing, and in a very ineffective way.

Mary Childs (40:34):
I will note that what followed that sort of meandering explanation of the man candidate plot and also random references to Justin Bieber and Kim Kardashian, it was a good speech. If you go watch it, it’s actually like quite enlightening and like very helpful, but no one listened to any of that. Because like you’re saying, everyone was turning to each other being like, “Wait, is my money safe at PIMCO? This guy’s not okay.”

Mary Childs (40:54):
So I certainly can’t speak to the degree to which he is not okay, or I can’t diagnose anything, but I do think that within PIMCO, that was certainly a subject of much speculation, “Is he losing it?” Yeah, I think that it was also such an emotional time that you just have so much going on for him that he’s responding to super emotionally. And I think that also complicates… It’s when you’re going through a horrible breakup and you’re really going through it, you’re not okay. It would be hard for anyone to take a diagnosis at that point.

Trey Lockerbie (41:25):
Yeah. I was just kind of curious, going back to his demeanor in the media being very folksy and what we were talking about at work, you spent a lot of time with Bill. So I don’t know if we’ve really quite covered that, but you spent years interacting with Bill. I’m kind of curious. Did you see different sides of him over time?

Mary Childs (41:41):
Oh, yeah.

Trey Lockerbie (41:41):
Or was he-

Mary Childs (41:41):
Yeah.

Trey Lockerbie (41:41):
And what did that kind of look like to you?

Mary Childs (41:44):
The thing about him and I think some of my sources, but not all, would agree with this. He always makes some sense. He has rules. There are very real, almost tangible rules for him and for the way his world operates, and he’s completely 100% fine if you write an article. He’s so open about his failings, his mistakes, he apologized for a bad treat. Who does that? But if you break his rules, if you’ve outside the bounds of what he has delineated as fair, he gets mad. So I think it’s different from how a lot of other billionaires that I’ve covered act. If I choose an adjective wrong in some story about another billionaire, oh my God, I’ve gotten calls where they’re like, “I’m just disappointed.”

Mary Childs (42:28):
And there’s just all this kind of intense and unearned desire to weigh in on what I do and to his great credit, I think, bill understands media and leaves that distance. So yes, he’s definitely been mad at me. He’s definitely disliked some of my stories. I’ve experienced the negative side as well, but I think that I have come to understand… And I should also note like his rules are not irrational or they’re not unreasonable in my experience.

Mary Childs (42:53):
And I’m sure other people’s mileage may vary like maybe his next door neighbor in Laguna, but I think he just wants to be treated fairly. And if he thinks that you’re treating him fairly, he’s like, “Okay, that’s it, that’s fine. All’s fair.” I don’t know. I really respect that because I’ve experienced a lot of other approaches and I enjoy them far less. So yes, he is multifaceted and yes, he certainly has this intensity and this ferocity in a way. But I think a lot of people have that ferocity and I think that he is pretty judicious about how he dolls it out and why.

Trey Lockerbie (43:25):
He appears to be very amenable to your work. As you were writing this book and he was contributing to your questions that you were asking, but then he kind of diverges again and he goes off and writes his own autobiography that just so happens to be released right about the time yours is. So I’m kind of curious what your first reaction was learning about his new book.

Mary Childs (43:45):
So at first I was a little incredulous just because it came out of nowhere. It had been seven years basically. I guess he put it an investment outlook that he was writing his own book in January 2022. And I’d been talking to him since literally 2014 and I guess ’13 actually and had never heard about this, but it’s also like I had been in edit mode, deep in edit mode for years at this point. So I’m not emailing him on a daily basis or even monthly. I’m trying to not bother him that much. He’s literally a busy person. He has given me the kindness of sitting down for all these interviews, but he doesn’t owe me all that time.

Mary Childs (44:18):
And he was super helpful. In fact checking all this stuff. So I’m trying not to bug him, but I think when he saw the questions from the fact checker, I think he was like, “Oh, this is stacking up in a way that I don’t really like. This isn’t the book I wish it had been,” and which I totally understand, but I think that was kind of the impetus for him to write his own narrative. And he’s completely entitled to that. And frankly, I think it helped me. He’s been out there doing all this publicity and that doesn’t not help me. we both have a book about Bill Gross out right now.

Mary Childs (44:45):
So I think people thought I’d be mad or sad or something, or maybe that it would take the weight out of my sales. But I think the opposite is true. It’s also journalistically super interesting, because you can read my book and kind of align his account next to my book in a way that’s really interesting and very rare. There’s so many reported works of nonfiction that are so deeply investigated and you never know what thread is what.

Mary Childs (45:08):
Where the journalists… Where they’re drawing stuff from, which is of course part of the adventure. You’re trusting the journalist to have done all this work, but it’s so interesting, I think. Obviously I think Bill Gross is interesting. I wrote a whole book about him, but I think if you read his account and see where it lines up with mine and where it diverges and you… I don’t know. I think it’s really interesting kind of experiment.

Trey Lockerbie (45:27):
Well, your book, even though it’s nonfiction, it really feels like a novel, the way it’s written. It’s very well done.

Mary Childs (45:32):
Thank you.

Trey Lockerbie (45:33):
Bill certainly comes across in the book as sort of restless and you mentioned he went to Janus from PIMCO, a major move that disrupted the markets, even people are really… That’s how much of a Titan he was. He goes to Janus and has somewhat of an underwhelming experience there, and ultimately retired recently. I’m kind of curious in your opinion and your experience with him, is he capable of finding peace? Do you think he’s found peace in retirement or you think the restless nature still lives on?

Mary Childs (46:00):
I think it’s a case again of both are true. I can’t imagine a world in which Bill Gross is like, “Okay, I did it. I’m done now. I relax.” He’s still trading. He traded game stop. I think once he lets go of all of that, I think he’ll have to be dead. I’m not him. I can’t imagine. But I think that he just needs to… He just does stuff. He’s not a relaxer.

Mary Childs (46:21):
His hobby was collecting stamps and charting the price of various stamps against the various benchmarks. That’s his hobby. So yeah. So the first one is yeah, he can achieve happiness. He says that he’s happy now. And I’m so glad for that. But I also think the restlessness is just sort of part of his nature. And whether that’s going to manifest as messing with his neighbors or perfecting his golf game, I think is the real question.

Trey Lockerbie (46:45):
So maybe there’ll be a sequel if he keeps up his activity. Speaking of which, it took quite a long time to finish this book, as you kind of mentioned-

Mary Childs (46:51):
It really did.

Trey Lockerbie (46:51):
Because he’s still active, he’s still out there doing stuff, creating headlines. So what was that like, trying to close out the book and when was the moment you said, “Okay, here’s a good spot to end on.”

Mary Childs (47:02):
Stopping point, right now would be when I’ve stopped. At first I tried to end the narrative in 2014 because it seemed like that’s when the narrative ended, right? He goes to Janus, yada, yada, whatever. But then it took me so long, as you say, but also, I don’t know, that Coda at Janus just kept kind of rolling for, “He sued PIMCO, and then they settled and then he…” Things kept happening. And I remember going to a dinner party in 2018 or ’19 and I was sitting next to a friend and they were like, “Oh, what’s your book about? And blah, blah, blah,” just chatting with these folks. And they were like, oh, is that the guy who’s leaving dead fish in his ex-wife’s house? And I was like, “Oh, is that how he’s known now? Is that Bill Gross, the guy who-”

Trey Lockerbie (47:41):
Wait a second. You’ve got to walk us through this. Tell us what’s happening here.

Mary Childs (47:45):
I assume you would too have followed Bill Gross for seven years or more, yeah. So in November 2016, Sue gross filed for divorce. This is his wife of 30 years or so. And this was very shocking. I did not see this coming at all. I think Bill did not really see it coming. And it was very unfortunately extremely acrimonious. It became this kind of very upsetting to watch one upmanship and game of pettiness and he hired Empire Intelligence to follow her and her family and keep track of her, which I think she did not appreciate it.

Mary Childs (48:15):
It manifested as a real estate war. The real culmination was when she won the house, there long time shared residence in the divorce. And I think Bill loved his house, loved the neighborhood. He’d lived there for a long time. He likes his routines. And when he is leaving the house, he got these bottles of vomit spray, sprays that will smell like these things and literal dead fish, and he sprays the sprays all around and he leaves the fish in the air vents and leaves balls of human hair in drawers. All this stuff that you’re like, “Oh, like this is intense.”

Mary Childs (48:47):
And the New York Post absolutely welled on this story. And so this ends up being this enormous part of his, I don’t know, persona public brand, legacy. And so I was sitting at this dinner party 2017 or ’18. And my friend’s friend is like, “Oh, is that the guy with the dead fish in his ex-wife’s house?” And I’m like, “I’ve got to keep editing the book. I can’t ignore this at this point.” I try to avoid people’s personal lives for obvious reasons. It’s just like, that’s not what the book was supposed to be about. It is not actually a full biography, so I was going to avoid it, but then I just couldn’t. It ended up being too large.

Trey Lockerbie (49:23):
Well, understandably so. And I imagine that doesn’t show up in his autobiography. So it’s interesting to have the side by side as you put it, just the accounts and the readers can make up their own minds, right?

Mary Childs (49:32):
Yeah.

Trey Lockerbie (49:32):
So Mary, congratulations on this book.

Mary Childs (49:35):
Thank you.

Trey Lockerbie (49:35):
It’s such a triumph. I really enjoyed it and I’ve really enjoyed talking with you today. Before I let you go, where can the audience learn more about you and your podcast and your book and any other resources you want to share?

Mary Childs (49:49):
Yeah, I’m on Planet Money, which is a twice weekly economics podcast from NPR, and I’m on Twitter @MDC. And I have a very periodic substack that’s offtherun.substack.com. Yeah, I think that’s… I’m on LinkedIn.

Trey Lockerbie (50:05):
Fantastic. Well, thank you so much again, Mary I’ve really enjoyed it and-

Mary Childs (50:08):
Thank you.

Trey Lockerbie (50:09):
… congrats.

Mary Childs (50:11):
This has been really fun. Thank you.

Trey Lockerbie (50:13):
All right, everybody. I hope you enjoyed this one. That’s all we have for you this week. If you’re loving the show, please don’t forget to follow us on your favorite podcast app and maybe even leave us a review. You can also find me on Twitter at Trey Lockerbie, and be sure to check out all of the resources and other shows we have for you on TIP. And with that, we’ll see you again next time.

Outro (50:32):
Thank you for listening to TIP. Make sure to subscribe to Millennial Investing by The Investor’s Podcast Network and learn how to achieve financial independence. To access our show notes, transcripts or courses, go to theinvestorspodcast.com. This show is for entertainment purposes only. Before making any decision consult a professional. This show is copyrighted by The Investor’s Podcast Network. Written permission must be granted before syndication or rebroadcast.