How Bill Gross Built a Bond Empire And Then Lost It All

Tracy Alloway (0:09)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Tracy Alloway. My co-host, Joe Weisenthal, is away. However, I have a replacement co-host for this very special episode.

We're gonna be joined by Matt Levine. He is, of course, a columnist over at Bloomberg Opinion. Matt, welcome to the show.

Matt Levine (0:28)

Thanks for having me.

Tracy Alloway (0:30)

So, I have been covering bond markets for many, many years now. And when you're covering bond markets, it feels like at one point in time, there was no escape from a certain bond investor. And that was a guy called Bill Gross. If you were covering bond markets, at one point or another, your path would cross with Bill Gross in some way. It was either something he was doing or something that he had said that you would inevitably have to write up. And I don't know if you feel the same way, Matt.

Matt Levine (1:06)

Oh yeah, I mean, in particular, he would write these monthly investment outlooks that were always both widely covered because they were the outlook of an important bond investor about the bond market, but also because he began them with embarrassing personal anecdotes.

And you'd read them and be like, did this professional investor really just say that? And every month, he would top himself.

Tracy Alloway (1:28)

This guy in charge of billions of dollars worth of people's money, did he actually just write several hundred words about his cat and things like that?

Matt Levine (1:36)

His cat watching him in the shower, I think, was the classic.

Tracy Alloway (1:39)

Yeah, okay, so Bill Gross loomed large in financial journalists' imaginations and over the bond market. And then, of course, we all remember in 2014 when he actually left the company that he had founded, which is Pimco, and that just exploded into the headlines. You remember that?

Matt Levine (1:58)

Oh yeah, he went to Janus, which I think to this day remains a joke on financial Twitter, when anyone leaves a job, we say that they went to Janus.

Tracy Alloway (2:06)

That's, sorry. That's exactly right.

Okay, so when Bill Gross left Pimco, there were all these questions swirling around, both the man and the strategy and the company. And I remember writing at the time that there were still all these unanswered questions around who Bill Gross was, what he was actually doing at Pimco.

And I guess someone stepped up to try to answer all those questions. And I am very, very pleased to say that today we are going to be speaking with Mary Childs. She is, of course, the co-host of NPR's Planet Money podcast and also the author of a new book. It's called The Bond King, How One Man Made a Market, Built an Empire and Lost It All. And it's been many years in the making and I'm thrilled to have her on the show. So Mary, welcome to Odd Lots.

Mary Childs (3:00)

Thank you so much for having me. I'm excited to be here.

Tracy Alloway (3:03)

So one of the things that always struck me about Bill Gross, and maybe this is why you sort of took an interest in the story, but when people think about bond investing, they normally think about, well, you buy a bond and you hold it to maturity and it's really, really boring. But the thing about Bill Gross, and you go into this in some detail in your book, is that he was doing really complex things in the fixed-income world. His funds were full of derivatives, full of futures, swaps, lots of repo transactions, things that you wouldn't necessarily think of when you think about traditional plain vanilla bond investing.

Mary Childs (3:43)

Definitely, and you're exactly right that that's one of the main reasons why I got interested in this in the first place. I feel like there is this misconception that, oh, my bond fund is managed by some dork in Boston who doesn't do banana stuff.

And that's just kind of not the case. So many of our retirement dollars do go to Pimco and end up doing very exciting things. And yeah, there's so much room to look into what Bill did and the extremely complicated trades that he put on and the trade structures that I just find it really kind of, it's interesting both because of that misconception, but also just by virtue of being really elaborate and smart and fun trades.

Matt Levine (4:25)

So one of the most fun trades, and I feel like we could spend the whole Odd Lots on this because it's very Odd Lots-y. In the mid-80s, he did this trade on Ginny May Futures that basically broke that market forever. Can you describe that in enormous detail for the Odd Lots listeners?