An Interview With Paul McCulley: Masters in Business (Audio)

League school UM as a professor. He's he's far too experienced, knowledgeable, and and a great communicator to to just retire and let those skills waste. He'll he'll find his ways to a professorship somewhere. We have a long and and really fascinating conversation about the Federal Reserve and the financial crisis, the state of the global economy, what's going on in inflation and deflation. We really talked about everything and anything, and as you'll hear, he can wax eloquent on just

about any subject intremendous depth. I can re regale you and recount some of the highlights, but I don't wanna reveal any spoilers, So rather than me doing my usual five minute babble to start the podcast, instead, I'm just gonna say, without any further ado, my conversation with Pimco's Paul McCulley. This is Masters in Business with Barry Ridholts on Bloomberg Radio. My special guest this week is Paul McCulley.

He is probably best known as the chief economist and Managing director at PIMCO, where he served from two thousand and Tenna's that about right, with a little stint afterwards, UH, sort of a return visit. Uh. Got his MBA from Columbia Business School, headed pimco's short term bond desk, led the cyclical economic forums, and was a member of the Investment committee named to the Institutional All America Fixed Income

Research Team. That I get that right, I really. I think of Paul as one of the most astute fed watchers there is. He's often on the shortlist as a potential f O m c role. McCully coined the term Minsky moment in response to the Russian uh financial crisis, and is rumored to have coined the phrase shadow banking system.

More than a rumor that you get full credit for that. Currently, he's a member of the board of the Global Interdependent Center, better known as g i C. It's a thin tank in Philly, and pretty much what are doing these days is thinking, writing, and speaking. Is that, uh, the way you like to describe it? Yeah, it is. I'm first gamefully unemployed, meaning that I'm retired, but I'm not retired

from the things that I love doing. Uh. And it really comes down to global macro and I think about it, I write about it, and I give about one lecture or speech a months. So right now that's what I'm doing. I'm getting more closely involved in the academic arena uh and may end up in the next six months as an adjunct professor at some esteemed institution, but that's still in the works. But right now I like to uh uh,

to think and write and speak. And uh. I when I speak for nonprofits and for academics, the prices zero, and occasionally I speak for a for profit and the price is a large number. So it's either zero are large number. So we could describe you as gainfully retired exactly, all right, And and you're in your fifties, you're not a really a retirement age. You're looking to do something. By the way, I forgot to say, Paul McCulley, welcome

to Bloomberg. Thanks good so so nice to have you here. UM. So let's start out talking a little bit about your background. I know you're you're a Virginia boy, right, is that where you're from. I grew up in rural Virginia outside of Stanton, Virginia, which is down in the General Valley of Virginia, about three hours southwest of UH of Washington,

d CE, A beautiful area. I grew up there as a Baptist minister's son and graduated from high school UH in nineteen and seventy five, went to Grennell College out in Iowa. So so from how green is your valley to Iowa to New York City, that's kind of a surprising, uh way to bounce around. Yeah, it is Grannelle. I'm on the board of trustees at Grannelle and have been so for a number of years. Is a special place in my life and heart. And that they recruited me

uh in nineteen seventy five as a hit from Virginia. UH. Grannelle is a small, private liberal arts college traditional liberal arts education. Learned a lot about a lot of different things and be able to use it in a variety of applications. Learn how to think, not just be an expert in a narrow space. Can we do UH an infomercial for you for Grannell? I mean, that's that's what That's what a good liberal arts education is about. UH.

And Grannell is a national college UH. And part of their endeavor in recruiting UH is that they literally buy the list from the S A T people who do of students throughout the country who do well A and B might need some financial help in order to go to Grannell. Where were they when I was in high school? So I came up on their meter on the SS A T S of a kid from rural Virginia. Put the two together, UH, and they started talking to me. And then the third factor is that I was a

runner UH in UH in high school. I was six in the state of Virginia my senior year in cross country, and the cross country coach at Grannell College sitting maybe we got a hat trick here? So how do you go from Grennell to NBA at Columbia. That was just an old fashioned sort of process, and that when I was graduating UH from Grennell with a degree in economics, I wanted to go to business school and looked at the brand name business schools, and I was intrigued by

by Columbia. I had never been to New York City before UH, and applied and for some reason I was accepted. And I say for some reason, and that I was twenty two and went straight from college to business, nothing in between, nothing in between. And I understand that that is just not done anymore. They want people to have a year or two of real world experience. Yeah. I think in my class at Columbia, ten of us were

the kids who went straight from college. So I got out of UH of Columbia twenty four, relatively young to have an m b A. And and to the world. So a couple of questions about Columbia. A couple of weeks ago, we had Leon Cooperman of Omega Advisors, and he couldn't be more effusive in praise for his Columbia experience. He still buds with some of his classmates, one in particular Mario ga Belly also Art Sandberg, formerly of Pequad.

What really stood out to you about Columbia and any people you're still tight with from back in those days. I really enjoyed my two years at Columbia because it gave me a chance to more from economics, and that's really what I was about as an undergrad UH into finance and markets. So I think my two years at Columbia really gave me the melding of economics and finance, which set me up nicely for what turned out to be the rest of my career. You're listening to Masters

in Business on Bloomberg Radio. My special guest today Paul McCulley. He was chief economist at PIMCO for UH, really fascinating period of time, the dot com collapse, throughout the two thousands, the financial crisis. One of the things I'm curious about is, so you go to Columbia to get your m b A. They're really known as a deep value shop on the equity side, yet you end up running a bond desk as well as doing the global macro How did that come about? Columbia is known as a stockhouse when you

think in terms of the famous graduates. Uh. I'm a macro economist who also loves finance and try to merge the two, which ultimately was the reason I became such a Minsky I, if you will, of macro and finance. Uh. And I learned all the appropriate equity models, which was a good thing while I was at Colombia. But actually I did not get a job immediately on Wall Street in nineteen eight one. Remember nineteen eight one was not

a really great time for Wall Street. I was a twenty four year old kid with a deep Southern accent, and I interviewed with all the major players because I did well there and didn't get a job from Morgan Stanley or Goldman Sachs or any of the major players. Uh. So I took a job from my first two years out of Columbia UH working for Concho, a division of at that time DuPont UH. And my first two years were at a speech writer for the executives of Kanaka. Really,

that's fascinating. That was the first thing I did was actually as a ghostwriter for the executives, doing ahbeds and speeches and that sort of thing. And I got my first job on Wall Street and that teen and eighty three at E. F. Hunton. Oh. Really, we've had plenty

of EF hunting people passed through here. In fact, IF Hunton seems to have been a huge feeder, obviously the spin out of Lehman Brothers, but also I know a lot of people who ended up going from IF Hunton to bear Sterns and EF Hunton to a number of other shops. So how do you go from if Hunton? Ultimately you between IF Hutton and Pimco, you find your way to UBS, which I think was Warburg at the time. Yeah, it was. It's kind of I haven't thought about my

CV in a long period of time. Got to updated. It's a little skimpy, A little skimpy. Actually. The story of of nineteen eighty three when I went to F Hutton, uh Eddie Ardini had been the chief of of EF Hutton. In fact, I had studied under Eddie when he was an adjunct professor at Columbia, and it turned out he had left and went to prove there's been a big

sort of movement at Proof for a long time. And when he left E. F. Hutton there was an economist in corporate finance there with the PhD from Hopkins named Bob Barbera. So they put him into action as the chief economist and he was looking for a number two

who understood finance because he was an energy economist. So Bob and I worked together UH for four years, great relationship between three and nine seven, and then I left for three years to go work for Columbia Savings and Loan in Beverly Hills, California for Tom Spiegel back during the milk and days. Sure. UH worked there for three years, not in junk bonds, but in running interest rate risk for the SNL and then jump bonds blew it up. And then I went to Pimco in nineteen So, so

did you first trip to California? Was that the first time? First experience at West or had you been there previously? I had traveled during my E. F. Hutton days to California, But my move to California, UH, the first time was in nineteen and eighty seven. I spent three years working with Columbia in the Drexel Hub UH, and then Bill Gross gave me a job when I was unemployed in nineteen nine. So how long will you at Pimco Ford?

In total? I was two years there between ninety and ninety two, UH, and then I got the job as chief economists for U b S and I did that for seven years until back to nine and Bill Gross called me up and said, you're coming home, and I came home. So, so let's talk a little bit about Bill, because I he we've had him on the show. I find him to be a fascinating guy. Um, what was it like working with somebody who is, you know, larger than life. Uh, he's supposed to be a tough character

to work for. I've known Bill for twenty five years, and I've known him well for twenty five years. So it's kind of hard to give you just a snapshot of Bill because my life experience with Bill is a movie from an unemployed kid in nineteen nine, uh to literally last year when I suited up one more time at his personal request as a personal friend for four months last year. So it's a very long, uh movie with me, A wonderful movie. Uh. He is a fascinating person.

Incredibly smart, uh sometimes incredibly stubborn, right I get that sense. Also a absolute huge heart, but has it exceedingly well. He told us some really interesting stories about walking around, you know, Newport Beach in the nineties and the two thousands and people asking him, Hey, Bill, what do we do with our money, and he would stop and say, look at this fun this is something that makes might make sense to you. He seems very accessible to people,

very uh, very real. You also worked with him in Muhammad Alarian. What's it like having to really smart outsized personalities and you're kind of in the middle. How is that as an experience? I know both men exceedingly well, and both men are close personal friends of mine. They're exceedingly different, and I think that's why there marriage and that's what it was lasted for as long as it

did very effectively, uh, by any measure that was. I know everybody focuses on the acrimonious divorce, but that was a tremendously successful period in pimco's history. It really really was. Mohammad came back from Harvard uh, and that was right before we went into the men Sky moment. We were prepared, UH. We had our risk management and order UH. And for the following number of years. UH, it was truly Camelot. So the one real important question I have to ask

about PIMCO. Their growth corresponded with a tremendous bond bull market, a thirty plus year bond bull market, but every other bond manager had the same wind that at their back. What did PIMCO do that allowed them to capitalize on that market so much better than just about everybody else? Thank There a lot of factors. First and foremost is the pure genius of the founders. And there were three founders,

not just Gross, but Jim Muzzy and Bill Podlick. Bill Podlick was an amazing businessman, Jim Muzzy, they're all three alive. Jim Muzzy is an amazing client man and marketing man, and Bill Gross is an amazing investor. So from the beginning of the firm, they had a division of labor is you run the business, you run the clients, and

I run the money. Uh. And so therefore there was a clear articulation of whose job was whose job, And the three men who ran the place from the beginning did an extraordinary job of doing their jobs and cooperating. So I think the part of it is the genius of the organizational structure, sure, and the three men who

were the founders. I think that's hugely important because I look at a lot of other competitors and they've never really quite grasp that it is a three part business, and that you can be really good at one part but maybe not the other two. So I think that is a key factor, another factor, And here I simply have to take my hat off to Bill Gross. Uh. He's brilliant. Uh. He is a macro thinker. Uh. And

also he is a very good marketer. So in the last minute we have, let me ask you this related question. Did it become harder and harder to keep delivering the sort of performance numbers the firm became known for as the size uh continue to grow or was that just something that had to be dealt with that everybody deals with as they grow. Bill has spoken to this, and I think you spoken the truth. By definition, it gets harder the bigger you are. You're listening to Masters in

Business on Bloomberg Radio. My special guest this week is Paul McCulley. He was chief economist and part of the investment committee at PIMCO for quite a long time. Let's talk a little bit about this global economy which seems to be a little bit influx. First question, inflation, disinflation or deflation from a global perspective of the predominant tail wind? Is disinflation if not deflation. Describe the difference between the two for listeners who may not pick up the nuances

between them. Disinflation is a slow down in the rate of inflation, so rices are still rising, but rising at a slower rate. Where deflation is actually a fall in prices. And we're experiencing deflation and a lot of commodity with everyone knowing about oil. That's deflation, whereas disinflation would be just a very very slow and slower rate of increase, slowing inflation as opposed to falling process. Perfect example, suppose you've got a three percent raise last year and this

year you've got a one percent raise. You experience disinflation. You went from a three percent raise to a one percent raise. If your boss cut your pay by three percent, you experienced deflation, actual deflation. So you you mentioned oil, let's talk about it. Oil peaked last year at a hundred and twelve dollars. It's now running in about forty three dollars. That's a six decrease. So the two questions that everyone wants to know, what are the causes of this?

I don't know if that's all that challenging of a question. With the dollar rate multi year eyes, massive supplies come online and softening of demand. The more important question is what are the implications of this failing oil price? Oil price? What does this mean to the US, What does it mean to countries like China and the global economy? And feel free to completely disagree with my causes, No, I think I agree with your causes. I would put the dollar at the low at the low end of my list.

At the highest end is the fact that at a hundred dollar plus for oil and technology, you had an incredible economic incentive to increase supply, and we did, and huge we did, and huge and so and supply outstrip demand. OPEC sucked it up, Saudi Arabia sucked it up and kept the price up there. But ultimately the sheer force of increased supply meant that if Saudi Arabia continued the game and tried to defend it at a hundred, they

would not be in the all production business anymore. Uh. So that was the underlying economics micro economics of that is that a hundred didn't work. Uh And I don't know if forty works, but clearly forty is more likely to work than a hundred. And now we have my ran coming online as well. How what's that going to do to it? It's certainly is relative to where we were going to increase supply. And global demand has been

exceedingly weak because global economic activity. Global agree demand has been weak ever since the financial crisis for two thousand and eight UM. And I think demand for oil really is more a function of growth than it is the price. Uh. And right now, the demand side is impacted negatively by weak growth. And you've got supplies out of a flood. So you put two and two together and you get

forty buck oil. There you go. And you know, when you're growing robustly, it almost doesn't matter what the price of oil is. We needed bring it in, but let's just just get it in here knowing thinks twice about it. Yeah, and walk terms uh And the short run, the demand for oil is a whole lot more income elastic than it is price elastic. So let's let's talk about So we've seen, for lack of a bit of word punk growth ever since the crisis. The US seems to be

leading in the recovery, behind US as Japan. Behind Japan is Europe. What's it gonna take to see global growth returned? To forget five percent of four percent, how about three percent in the United States and three percent in Europe. I'm not looking for a return to robust global growth for a long long time, and there are several reasons for that. First and foremost is my diagnosis of the breaking growth going back to two thousand and eight and the years prior to the financial crisis. You had a

financial sector boom. You had a private sector borrowing boom. We all know about it in the housing sector here, but also the Club Med countries in Europe had a massive private sector boom and borrowing, so you were driving growth with increased private leverage. Every since then, the private sector has been de levering, either outright or slowing its pace of debt accumulation. So you've had a negative from

the private sector because of de levering. Now, logic, good old fashioned Keynesian logic from where I live and breede, would suggest if the private sector is in force de levering, the government sector should go the other direction in order to maintain adequate aggregate demand. You're listening to Master in Business on Bloomberg Radio. My special guest this week is Paul McCulley. He served as chief economist, head of one of the bond desks, and member of the investment committee

at PIMCO for many years. Earlier, we started talking about Europe and that leads to the Federal Reserve. So let's let's hold off on Europe and Japan for that matter, and talk about the financial crisis here and the Federal reserves response. So, first question, what did the FED get right? What did they do right that a lot of people don't seem to really understand. I think the Fed has done a huge amount of things that are right every

since the financial crisis. I can argue with some of the technical details of this, that or the other, but the broad thrust of monetary policy every since the financial crisis has been spot on. So zero interests policy, quantitative easing, all of the regulation they've put in the place, stress tests for the banks. You're you like all of that. Yeah, I'm a big believer that they did a mosaic of good things. And remember, the regulatory side of things is

not just the Federal Reserve. You know, Frank, you have SEC, you have a whole bunch of other the f D, I see, there a whole bunch of other regulatory agency yeah, exactly. We now have an f sock. So therefore we have, you know, this collection of regulatory agencies and the FEDS part of that. But from pure monetary policy, I think they have been spectacular. And I want to speak to

quantitative easing UM. And quantitative easing has two impacts. One, which is what the market tends to focus on, is the sheer supply demand effect that the balance sheet balance their buying duration out the marketplace, which was you know, the uh uh, the notion that somehow they're gonna bloom their balance sheet and we're gonna have you know, hyper inflation, those ups of the dollar, hyper inflation, five thousand dollar gold, all of that nonsense. And that's the only thing I

can say politely about it. That we heard six years ago was nonsense. And those who were spouting it, oh the world and apology and they old Ben Bernankee personally, an apology. When you're in a liquidity trap, uh, you go to zero for interest rates, nothing much happens in the private sector because the private sector is delevering. So you do what's next, which is quantitative easing, which has an impact in directly pulling down UM long term interest rates.

But the bigger impact or quantitative easing is a commitment device for forward guidance. Because forward guidance is a new tool that the FED has been using. Word zero and we're gonna stay at zero for an extended period of time or until we do this quote. That was literally the language that the US so because the bond market is nothing more than a forward curve on expected Fed policy plus a risk premium. So therefore forward guidance is

reinforced by quantitative easing. And if there was ever any question about that, it was last year with the whole taper UH issue and the Fed said, well, we're thinking about tapering, and the market went crazy and said, the next thing that's gonna happen is the Fed is gonna hike short term interest rates UH, And the Fed had to do a great deal of communications work to say no, we're still at zero. Taper means tapering off the purchases

of bonds, not tapering away from zero. Right. But but the fact that we had that experience underscores the notion that the power for me anyway of que was as a commitment device. As long as we're doing que que, there is zero discussion of getting off for zero. So the moment they said we're gonna taper, que people said, well now we need to start contemplating when they're gonna get off a zero. And the FED had the massage the market psychic on the whole thing. So I think

zero is right. I think Quee was right. I think the regulatory things they did were right. Working in tandem with Treasury on TARP was right. Uh, they saved us from another great depression? Is your position? Absolutely? And I hear by the way, I hear heads exploding all over the audience listening. Um, So let me ask you two questions and see if those people can settle down that are related to this. First, we have the September meeting coming up. Should we still be at zero today? Should

we have moved off of zero? Previously hard question. I don't know what the FOMC is gonna do in September. The case for getting off of zero is not because we have an incipient inflationary problem. It is simply not. I look at getting off zero as declaring victory and getting out of the liquidity trap, or put differently, a valedictory of graduating UH. With the FED being at the top of the class getting out off of zero uh uh.

And actually I think the FED should get extraordinary applause for getting us out of a liquidity trap, because the textbook that I studied and you studied set in a liquidity trap when the private sector is delevering, you should use physical policy, uh to stimulate aggregate demand. That that was the argument that since Congress had abandoned their traditional role. You look at the two thousand two thousand one recession, there was a huge fiscal stimulus, huge task cutch, huge

spending increases. They were a wall. The FED was pretty much the only game in town, weren't they They were the only game in town, and they didn't want to be. But if you're the only game in town and you have a congressional mandate to avoid another depression, you do what you can do. It doesn't mean that you like it. I don't think Ben Bernanke liked doing some of the things that he had to do, but effectively it was the only thing that he could do consistent with his mandate.

So let's take the counter factual on that. Assume Bernanke listened to people who said the FED was going to cause hyperinflation. Collapse of the dollar and five thousand dollar gold. Assume he said they were right, and say, you know what, Taylor rule says, we should be at two and a half or three and a half percent UM fed funds rate and there's no quee. What would have happened then, Who've had a modern day depression similar to the thirties nine. I don't know if it'd be similar to the thirties.

That's why I said modern day because the dominant thing back during the thirties is we didn't have deposit insurance, so we had a total collapse of the banking system. But it would have been a modern day depression that would have been self feeding and would have had elements of what's been going on UH in the last five or seven years. And Southern Europe so are unemployment rate peaked at around ten percent or underemployment rate peaked at

around the Great Depression unemployment? What would have happened this time around UM had there been no Zerpa, no quee. And again, those of you whose heads are about to explode, I apologize again. The counter fact is really difficult. Unemployment would have been dramatically higher. No problem with that whole notion, because when we were at the depths of our recession, we were not self correcting, we were self feeding. It

took meaning it's a vicious cycle down exactly. And remember the FED went to zero uh and started que four months, five months before the stock market finally found a bottom uh in March of nine. Uh. So I mean, normally, do you think in terms of Wall Street responds quitting pretty quickly to you know, warm and fuzzies from the Central Bank. But if it takes that long for Wall Street to recognize they've been given a gift, uh, it tells you something is seriously wrong with the underlying economy.

So it's that plus the panic that was there really fed upon Yeah, it was. It was you know, it was truly a nefarious downward spare that the private sector simply did not have the ability to deal with itself. The thing that stood out to me at that time is when you have the CEOs of companies like General Electric and Walmart and Ford calling the White House saying we're not going to make payroll because our credit sources have disappeared. You got to do something that is a

pretty serious situation. Yeah, it's it's it had elements if you will, of what happened during the Great Depression UH in the money market sector, because remember one of the programs that UH the Federal Reserve did was the commercial paper Funding Facility. The commercial paper market, which is where big companies and small companies in a great deal of the shadow banking system as well, was funding itself literally shut down UH and GE is one of the biggest

issuers of commercial paper at that juncture and existence. So when you shut down the commercial paper market, you're talking about shutting down access to working capital, which is payroll, which is very similar to what happened back in the nineteen and thirties. So rather than having a run on the conventional banking system, we had a run on the shadow banking system, and the FED had to stop it or else they would have continued to self feed us

into a depression. So if you want to hear our conversation continue, be sure and check out our podcast extras on Bloomberg dot com, SoundCloud and Apple iTunes. Check out my daily column on Bloomberg View dot com and follow me on Twitter at Rid Halts. I'm Barry Ridhults. You're listening to Masters in Business on Bloomberg Radio. Welcome to our podcast extras. I'm very Holton my guest today. I say this every week, but it's really true. My special

guest this week is Paul McCulley. Paul and I um first met actually up in Maine on a fishing trip. I want to say a decade ago. Is that right? Sounds right? I don't know if you recall that particular meeting, but we were not feeling a whole lot of pain, you especially, and um, let's see if I can refresh

your recollection with this. You had mentioned you only went to a couple of conferences each year, that one in Jackson Hole, and you gave me a reason why, which had something to do with a trillion dollars worth of bonds. And my answer to you was, yeah, but it's fixed income. That stuff runs itself, and you exploded at me. I can't remember what my wives acre response was, but I'm sure I had one. It's Scott Scott Frew at Rockingham Capital. Can can probably fill in the blanks, but I've I've

known you ever since then. It's always, uh, it's always educational, it's always fun, um speaking with you. I always learned something new before the break and in the last I shouldn't say before the break. In the last section on radio, we were talking about the FED and what the FED got right and what the FED got wrong. And there are a lot of people who really are infuriated at what the FED has done. And they're promising, promising us for now, for five or six years, but it's coming.

Just because it hasn't happened yet doesn't mean it's not gonna happen. They're promising us a giant disaster. Why are they wrong? Lots of economic reasons that they're wrong. Uh, notably that monetary expansion as well as zero interest rates are not going to have a huge stimultive effect on the economy and liquidity trap. So I can give you all. And that's the same reason why there's no hyper inflation. Wages are flat to fall in commodity prices are falling.

The time to think about inflation was when the dot from oh one to oh eight. I have a chart up on the website I've I've posted this like every other year for ten years. From oh one to oh eight, the US dollar fell for coincidentally, apparently oil went from one fifty, food went through the roof milk meat. Everything went crazy in a collapsing dollar environment. Now the dollar is the cleanest shirt in the hamper. I think that was Bill's uh phrase. So, how are you going to

have hyper inflation in that environment? You simply are not forget hyperinflation. How you gonna have the FEDS struggling to get up to its two percent target? So as a as an economist, I've always been fuddled, quite frankly at those at the uh extreme and I call them the extreme. Uh I guess it's probably grounded in monitorism. You print money, there's going to be inflation without understanding the context in

which you are printing money. Uh So, it's really befuddled me as an economist that other side of the of the divide. As a money manager, it was delightful because you just knew the guy was categorically wrong. Created a lot of opportunities. Absolutely so your personal portfolio, not old gold and silver miners that we're telling me you want

a lot of physical goal, don't you? You have bars stacked away, not not any no, no programs, no, no, not a uh so uh so, actually just see I could feel the hate mail coming and we're not even live, so I so economically, I've never been able to understand that camp. But thinking in terms of human nature, some may call it, you know, behavioral economics. UM I do have a thesis, let's hear it, which is that people looked at the huge expansion in the Federal reserves balance sheet.

We also those charts with a giant hockey stick, they went from a trillion to four trillion dollars. That they look at that chart as the moral equivalent of a fat man in speedos. It's just wrong. It's just wrong. I can't tell you why it's wrong, but it's just wrong. The fat man in speedos. I resemble that remark, although although I'm quite sure you would be shot by your family if you ever showed up in speedos, and I

would too. By the way, if when you go to beaches in the Mediterranean in Europe, like at least in the United States, people where the surfer shorts over there, it's speedos and those guys apparently, UH have a FED balance sheet of her own to worry about. So so let's get back to what these guys are are getting wrong. So it's not economically defendable. We haven't seen it in the real world. Are we is that theory? Is that thesis? And I'm asking you an impossible question. Is that thesis

gonna just eventually fade away? Or are these guys consistently you know, the gold pops up every twenty years as an investment and then goes away for a while. But if you catch it right, it's a fantastic trade. Actually, I think they will be perpetually wrong in their forecast

of nefarious consequences. But I do think there's something that's important and this public discussion, if you will, which is the role of monetary policy in the mosaic of government and the role of monetary policy relative to fiscal policy see in microeconomic uh fine tuning. So so I think I think there's a lot of substance there. Uh. In fact, two of the very long ad plus page scholarly papers I wrote during my retirement years while I was at the g i C. We're on particularly this issue of

the monetary physical policy mixing a liquidity trap. So I think I do understand, uh, a sense of resentment, if you will, that this institution that is ostensibly a political was the only game in town, uh and therefore had to play the role it did. Now I actually think that if I did a wonderful job of playing the role that was foisted up on them. Uh so those who were forecasting the opposite, we were wrong. But I hate the issue of where does monetary policy fit in

the mosaic of overall government policy? Says, a legitimate source of discussion. So so let's let's talk about Lord Kens and his findings and why so many people don't seem to have learned the lessons he taught. And I look at it as a willful misunderstanding of Kings. I speak to a lot. I have a lot of conservative friends who insist the budget deficit is caused by KINSI and economics. And my answer is, well, yeah, if you only listen

to the first half of it. The second half of it says, hey, in an expansion, the government should step out of the way and let the private sector take That's when you raise taxes, lower spending, balance the budget, and get out of the way. The politicians, though, don't

want to do that. No, no they don't. But I've spent a lot of time, uh trying to figure out why Keynes is still a four letter word in a lot of circles, UH, when Keynesian policies have been precisely what ultimately have been employed to get us out of the liquidity trapping or shell being employed. And I have a thesis on this verry is that I think a lot of people, unfortunately, a lot of people in our business don't understand the difference between micro economics and macro economics.

I think a lot of people in our business look at macro economics as simply the summing up of microeconomics. Micro economics being you know, old fashioned supply demand transaction on a transaction by transaction basis, the commodity pits you know in Chicago, the ultimate you know, micro economics. They haven't been replaced by algos yet, are they still? Actually I think they were done. Maybe they are. I haven't actually been on the pit in a long long time.

But I think a lot of people think in terms of macro is simply the summing up of of micro. A whole lot more than that. And macro is not the summing up of micro. It is an entirely different, UH discipline, And macro is defined by the paradox of aggregation. And I'm getting wonky here, but this is hugely important. So listen. We have a wonky audience. If they're with us this latent to the podcast, they'll appreciate it. So explain what people don't understand about macro and explain what

Keen's got right, and white people should listen to him. Okay, you have forty five minutes begin Actually I have a three R lecture on this one. But um, the key difference between micro and macro is what is rational for the individual. If all individuals do so at the same time, is irrational for the community, such as the paradox of thrift. The paradox of thrift is the textbook one that you would explain. It's that, Um, that is quite okay for you to rationally say I need to spend less and

save more in balance my budget, etcetera, etcetera, etcetera. In fact, most of us have preached this to our children at some juncture. You know the you know the virtues of thrift. You know God and all this sort of thing. The virtues of thrift. However, it is a fact that one man spending as another man's income. So therefore, if we all decide to spend less and save more at the same time, we collectively kill our elective income, which is

the fountain from which savings flow. Another example, that's perfectly rational. Who could disagree with that? But people don't want to go to that logical conclusion because then you were saying, well, are you saying that thrift is a bad thing? Economic thrift, not virtuous thrift, not and not biblical thrift. We're talking about exactly, and and quite frequently religion and economics get

uh melded. Quite quite frequently. Economics is a religion, and it becomes a problem, absolutely absolutely, which brings us to the naked hatred of Kine's How did that come about? I don't understand it. He seems to make sense. So wait, when the economy slows down enough and aggregate demand is weak,

the government replaces private sector spending. And when the opposite happens, the government steps out of the way and allows private sector spending to do what if it wants that his reas shown us, that's a pretty reasonable model to operate under. The more the older I get, the more I accept the proposition that self evident truths are frequently not self evident to the masses. Well, write a book, but that's

that's that's absolutely true. Write a book and you're like, Okay, this is now resolved, And the biggest frustration of writing a book is now that I've settled this question, discovering that you really haven't settled that question. I've only written one book in my lifetime, and I don't think I will write another one. That was actually around the time I met you in two thousand and six, which was when I had an incredible day job, so it was quite a task to try to produce a book at

that juncture. So I don't anticipate writing another one. Now you have all the spare time in the world, you should be cranking at a book a year. Our friend John Wolden writes a book a month. You should keep up with John. I have no desire to do that whatsoever. And I think in terms of of I think the single best evangelist for right thinking in macro huh is

Paul Krugman. And Paul does an absolutely fantastic job of trying to explain the difference between micro and macro, trying to explain the I S l M model, and Paul is incredibly articulate and prolific, and he pulls his hair out trying to convert the un convertible. See we've had Paul as a guest. I don't think he pulls his hair out. I think he understands this. By the way, send your hate mail to Paul McCulley at pimco dot com. That's Paul McCulley at pimco dot com. Actually it will

be rejected. Oh no, it's Paul dot McCulley at pimco dot com. So, um, look, I mean, if Paul Krugman can't make handway in explaining the obvious, that I have to bow to the impossibility of doing it. Because there's nobody better at the pen than Paul. So so you know, we were at an event once and we were talking. I do the weekly column. I do to two personal finance columns a month for the Washington Post. He does

two columns a week for the New York Times. And I asked him how much time do you put in each column, thinking he's gonna say an hour or two, so because I eight to twelve hours, and I fell off my chair and I'm like, I got a lot of work to do. So he when the reason he his columns are as tight and well written and he really pounds away on less than a thousand words, and he's spending twelve hours on him. It's it's amazing to me. It is much more difficult to write. I apologize for

the length of the letter. I didn't have time. Yeah, it's it's absolutely case. So since we're in in the wonky phase of the show, what's the difference between Kinsianism and neo Kinsianism For people who may not understand the nuances there, including me, neo kinesian Ism, it's simply Kin's updated for new information, new techniques of analysis. There's not a whole lot of difference. I'm sure that you could

have an academic to debate. You know, Smith is the guy to fine tune this, to define tune the whole third thing is, you know what constitutes a fat man and speed us. I mean, I'm sure you could have people debate the whole issue. But you know, I kind of know when when I see one that that that is the same definition that we had of of pornography. So um, so we let's bring this back to the to the fed um or or even more interestingly, let's

let's talk about the financial crisis. Why what should have been the response from Congress, and the counter argument to saying we we didn't have a Keensian response. You had an eight hundred billion dollar TARP, you had all sorts of bailouts for different entities, You had the f D I C and the FED working over time. Can can you make the argument that we had a traditional Keensian response, you had elements of a Kensian response. Actually in the

phiscal stimulus package. TARP was not part of the piscal stimulus, so it's tart plus and and Krugman has argued that the stimulus was too low by an order of magnitude, and I certainly agree with him on that. I mean, Larry Summers used to you know, talking temporary, uh timely and targeted the three t s uh and and this was none of that. It may have been timely, but unfortunately it was temporary. I'm not sure it was particularly well targeted. Uh So it's better than nothing, just barely,

but but just barely. And then in two thousand and ten we went the other direction when the Tea Party hijacked the country. So, yeah, the sequester we had, which was you know, absurdity square, But isn't that what's going on? Today in in Europe. Aren't adity squared? That's all I can say. Man, so absolutely no since whatsoever? And that you know, it's recommending a starvation dot for an anorexic. But it makes no sense. It's working out for Greece,

isn't it is? Aren't they doing fantastic? I mean, Greece is doing well right that they're on their third bail out. They only have unemployment. It's not the worst thing in the world. And um, their GDP has been what down their GDP? This is fascinating to me. The g d HE of Greece is now worse than the GDP of the United States in the twenties and thirties, in the in the Great Depression, post crash Great Depression. Someone said that I haven't verified it, but I don't doubt it

for a second. We don't need any more data to support the thesis that austerity and all liquidity trapp is stupid. Uh, you're letting facts get in the way of a narrative. And and those people don't really care. Um, I mean, you know, maybe you know, we just have to go back to you know, Forrest Scump. You know, stupid is a stupid dues. So if you could get the e c B, if you were speaking to the e c B, what would you say to them? Actually, I had no

particular problem with the ECB doing what they're doing right now. Uh. The e c B is what about Angela Merkel? Then? Is she the one you need to chastise because people thought Bush was giving a massage, but I think he was trying to strangle her. Got no comment on that.

What I will say is that the German perspective that everybody should be just like in Germany is a paradox of aggregation, because if everybody was just like in Germany, then we would start to have to trade with Mars because Germany runs chronically a surplus on trade everybody else and double entry bookkeeping requires. If one person runs a surplus, somebody else has got to run. It's a zero sum games,

a zero sound games. So if Germany says everyone should be like us, I want to know where the other side of the trade is. Uh. Germany actually absorbs global aggregate demand as opposed to contributing to it. The theory that's been out there for a while is that the Eurozone and the euro have essentially worked to the ben benefit of Germany. Um, someone called it Berlin's revenge, and um, you know, as much as their heart on Greece, this has really been something that was constructed by and for

the Germans more than anything else. I think the better part of valor would for me, would be not to comment on that. What I will say is that the Euro is a lot weaker then would be the case if the club Med countries were not in the Euro, which euro is weaker. So, in other words, if we lose Italy, Greece, excuse me, that the Euro would be a lot stronger than it is right now. And so Germany benefits from the fact that its currency is drugged

down by its neighbors. So the exporting machine called Germany benefits in some respects because there are other people in the house, uh, that are making their currency weaker than would otherwise be the case. You know, and I think we've all played, you know, the counterfactual game in our brain. Suppose you had, you know, the weaker countries of the Euro exit and that's not a forecast. I don't think they're gonna happen period, not even Greece. No, that would

not be my base case scenario. But uh, if they were to exit and effectually the euro became the mark, how much stronger would it be in The answer is much, a lot much, and that would not be great for Germany's export business exactly, although you know that's the only thing I would say is I think they are the beneficiaries of a weaker currency than would be the case in the absence of the problems down south. So so, how does let's stay in Europe? So how does the

European problems play out? What does grease ever a cover? Is there ever gonna be The real question is is there ever gonna be a haircut for the lenders to these insolvent nations that will or a default that allows them to move You know, Argentina, South America, Mexico. You look at all the defaults we've seen over the decades. It's the first step to healing yourselves. All Right, we get rid of these debts. Now we're gonna have to pay more to borrow, but at least we're out from

under that. Let's reboot, let's start over. Is that a possibility in Greece or are they just saddled with more debt than then? I wish I could come up with a good scenario for Greece, I really do. Um, greg'sit

and the dragma, that's that's my scenario. Yeah, and I think we've all you know, run that through our brains and say, you know it's it's it's held between you know, for the next two years to get there, because you would actually take two years to re establish a currency in a banking system and all that sort of stuff will be a two year period of hell. But on the other side there may be a story of redemption. But I don't think that no, no, no one makes

it pain. And I don't think there would be quote unquote a an official type of default because that would be too much embarrassment for too many people. Um So I think it's uh more of a round about type of default. And any example, suppose when you graduated from college you had a buddy who owed you two hundred bucks. Uh, you could declare an event of default and say, hey, pal, you owe me two hundred bucks. Were graduating, we're out of here, give me my two hundred bucks. And if

you're not, I'm gonna take your car. You know, that would be declaring an event of default. I can say Harry, you know, when you got the two hundred bucks, you know, give it back to me. You know, at your thirty year reunion, Harry gives you the two hundred bucks. Now, was there a default there, Well, technically yes, but was eventually repaid it. It was worth the tenth of what it started. Yeah, exactly. So therefore Harry kept his car.

There was no embarrassment, you know, and you you know, had a loan, you know, for thirty years for turner back. The lenders had. The lenders absorbed the loss just over time, just over Yeah. But but but they save face by doing it this way. Economically, we always conclude, well, let's just you know, quit the pretense game and get here. But in the political world, pretense there's a currency. Uh. Interests is a currency. So so pretense has to be managed, exploited,

uh and practiced. Uh. And you see it there. We actually see it a little bit south of here, down in uh Washington, d C. I mean, when you see a corgnressman stand up and say about some buddy on the other side of the out my good friend, what do you think, Barry? I don't think they're really friends. That's that's my take. Um, you know, the old joke is a conservative is a liberal who got mugged. A cynic is an optimist who's been around for a while. So the same thing. So let's shift a little bit.

Let's talk about Japan. Uh, the United States have wrapped up our que program. It's now more or less running off, which is a question I keep getting from people. For you, I'm gonna say, come back to that. What so Japan after gee, it seems like decades it has been began a quee program and their economy started to tick up, their infrash inflation rate in a tiny manner, ticked up. Their stock market has moved substantially higher. What is going

on with Japan and qwee? And and what do we think the end game is gonna look like for Japan over the next few years? Is I think the end game now is no end just kwei forever could very

well be and I think that would be appropriate for Japan. Um. The irony of history here is it was only less than two decades ago that the Bank of Japan got its political independence, And conceptually, you want a independent central bank to cut off the fat tale of inflation Japan has been living in the fat tale of deflation for all of our adult lifetime, assuming our adult lifetime has started,

of course. And uh, well let's just say, yeah, the last twenty five years, uh, and the Bank of Japan for a long period of time until the current administration set not our problem, not our problem. Uh. And now you actually have a forceful Knesian type of approach whatever it takes, with monetary policy being subservient to physical policy. There. So I think they're doing the right things. Um, but I'm not sure you're gonna have you know, any sort

of you know, bell ringing positive results. Besides the equity market that was that was one of the free trades of the century when they did that on the equity market. We should never confuse equity markets with the main street. Uh, two completely different things. What speaking of which, what about that consumption text they put into effect which really seemed to derail But then but but then the next one they said, you know, we're not going to do the

next one. Uh. And so actually I think Japan has a challenge unlike the United States, Europe has a little bit of it, which is a demographic challenge. They're getting old very very fast and has a monster challenge. And the other thing is they don't have immigration at all zero Like there are very very few non Japanese in Japan.

So actually, I can, you know, put in the best macro Kansian policies possible, but if you've got a shrinking population, it's very difficult and your pass some element of that. Whereas United States doesn't have a shrinking rate of the

industrial we have a good birth rate. And also we have an open UH perspective about immigration imrants and UH is it a million legal immigrants a year or something like that, And actually, you know, on I'm not forecasting it UM as a nearby outcome, but actually I think and lightens immigration reform in the United States, where we have robust immigration not just on the historical model of family, but on the concept of skill set, is UH could

actually increase the potential growth rate of our economy. One of the biggest post non eleven mistakes that was made, and there were many, was the shutting down of the HB one viasas for really qualified UM technology grad student in people don't realize half of the C suite population in Silicon Valley are far and born and we attract we at least we used to the best and brightest of these folks to come here for for the opportunities, and it's been an enormous economic boom, enormous positive for

the United States. I mean, one of the ironies is that one of the the U S products that is universally sold around the world that is wonderful is our educational system you call it, you know, higher education, being one of our most profound exports. Even though we actually do it here, we're selling the product to the foreign customer. The foreign customer comes here exceedingly well, and then we won't let him stay and keep a job here. It makes absolutely no sense. So this is a political issue.

It's a political issue, and I do understand the political issue, which is that our immigration policy has been based historically on family connections. You can bring family members over based on economics. We are a nation of immigrants. Uh. We can all trace our you know, origins back you know, to this country or the other. You know. My dad was scotch Irish, my mom was German. Uh, So there's the that historical issue that uh, you earned the right

by birth to be in the United States. Uh. And I think enlightened immigration reform is to is to preserve that legacy, which is a treasure for us, but also recognizing that we can have immigration policy that includes UH having skilled people bring economic value to our country as well. So it's not to me it's not one or the other. It should be both. But anytime we talk about reform of immigration, it seems like the political system is, well, this is if we do this, then we have to

stop doing that. I think a blend of the two could be a very positive, uh sort of thing for the country, and probably for the first time this month, this week, this year. I may even sound like a Republican. God forgive me. So why haven't we been able to get this done? Why can't we get a rational? I mean, we all know what the answer is, but why can't we get a rational? This is something that both sides of the aisle they have an interest in. B. There's

a huge overlap. I won't I won't say they agree on, but that ven diagram has a lot of common area. We'll put Ben diagram. I don't know. I wish I knew the answer to that question, because you'd like to believe even though democracy is supposed to be in efficient so I don't complain too much about any efficiency in Washington, because that's how it was designed to be and efficient. But sometimes there's things that are so singularly obvious that should be done UH, that you would think they would

get done. And actually after nine eleven there was one, which is outsourcing UH airport protection to private companies. We said, no, why we should actually have to government function? You know what I spoke to. We had Less Gelb as a guest recently, and um, one of the things he said that was really fascinating. So he here's a guy, incredibly storied background, UM working for Senator Jacob Javitt's a traditional liberal Northeast Republican center. Right, Well, the Javits Javits is

no longer with us. That that that's completely gone, you know. But what he said was there were enough people who in the Senate that regardless of politics that he didn't say ven diagram, but that same ven diagram where you and I may degree about issue, disagree about issues one to three, four, five, but gee, we totally agree about six through ten. So let's hold one through five aside and get six through ten done and then we can see what we can figure out with one through five.

According to him, that's gone away. And that's why this Congress has become such a do nothing congress, and it's why brings it back to the FED. They became the only game in town. Nothing was done that's normally done. I'm not saying anything radical or new needed to be done. All of the traditional post crisis fiscal things that you expect that happened as recently as two thousand just did

not have been this time around. Yeah, it's um as a citizen, which I am first and foremost these days as a retired man, I I'm discouraged about the fact that Venn diagram as you speak of, she's just not really working in obvious sort of places. I don't think Congress could agree on velveta on white bread as a lunch sandwich anymore. I mean, worse it works at a debate about that, it's uh. The question is is it a self correcting mechanism? Is it gonna get so extreme?

Is it gonna get so bad that the throm the throw the bums out response is gonna give us a fresh start? I don't know people who don't think it is. Some people think that it has to get worse before it gets better. Yeah, And actually that's one where I really don't have an informed opinion. The older I get, the more I recognize there are some areas I just won't ever be able to understand. Sausages make Washington. Uh, some things I was just never understand. It is what

it is. So, speaking of being a retired man, you give a speech a month, that's retired. You're not publishing. I know that you like to bowl, What what else are you doing? I travel a fair amount. Yeah, with with with g I C. There seems to be events constantly all around the world. And and I traveled with the g I C occasionally, But in our speech a month actually involves a trip a month usually. Uh. And now that I'm retired, it's not just to go in uh and uh, give the speech and go back to

the airport for instantly. You know. Was it? Last fall? I had a speech down in Argentina and spent five days in Argentina. That's fun, that's fun. Uh. Actually, I have not been back to China since I've retired. During my active career, I went to China on business twenty six times really starting in nineteen ninete. So you've seen insane changes, and I've seen insane changes since nineteen But what I haven't seen, actually is the wall? Really? Twenty six trips never so you need it, You need a

tourist trip to change. Yeah. I heard I was shooting The Breeze with Bill Gross about it and I said, Bill, I've been to China twenty six times and yet to see the wall. And he looked at me like, how is that possible? How is that possible? And then I said, Bill, I was working for your company. Oh, now I get it, you know, in and out. So actually, the next time I get a invitation to a group that I want to speak to in China, I'm want to see that wall. So you'll you'll build in an extra week of some

tourist activities. Speaking of Bill Gross, so we talked a little bit about him professionally. But you guys are really budds. You hang out. Yeah, yeah, we do, particularly over the last Um you're eighteen months uh time at my home. You're in Newport Beach, Calibania, which, by the way, for those of you who haven't been there, I'll put your dress up on the website so people can stop by. But I found Newport Beach to be one of the I gave a speech at the Newport Beach Public Library

PIMCO series. I found Newport Beach to be one of the most beautiful places I've ever been to in my life. It's spect you know what it is. It's the Hampton's meets Fire Island. It's these big, gorgeous houses, but instead of being on two acre estates with giant hedges, it's like Fire Island there shoulder or shoulder right on the water. And what is the beach right on the other side of the body of water that's there. The there's a public park over there, something with a b bar. Balboa

Island which is also lovely. Yeah. In fact, my home is actually on Leado Island, which is off of Balboa or off of actually the Newport Harbor has uh seven islands. Uh. Balboa is a beak one that's also a tourist place with lots of commercials. Uh. Leedo is strictly residential. There's not nothing commercial on Leedo. And then there's Harbor Island. There's seven islands. Can you drive to that or doesn't take a there's a bridge so you can drive. There's

one bridge to get onto. Uh, actually both islands. Um, there is a ferry to Balboa Island that it took three minutes. There's not a ferry to Leado. Bill actually lives doesn't live in Newport Beach. He lives in Laguna Beach, which is you know, it's actually the other direction, and in a beautiful home overlooking uh the ocean. Uh. And he and actually bowled together in neither place. We bowl together and Fountain Valley, which has the best bowling alley

in the in the area. So you're telling me people walk into a bowling league and there's Bill Gross and Paul McCulley bowling, it wouldn't be a leg. But if you come by out on a Tuesday afternoon at three o'clock, you can very well run into me and Bill bowling. Yeah. Um, are you a good buller? I'm a pretty good bowler. Uh. It's one of my things I like to do. I like to fish, I like to bowl, I like to ride my bike, and I bowled a lot more in

recent years. I'm probably about a one NINETI average something like. Is he a good bowler? Bill is a very good athlete. Really, he's not bowling, has never been his particular sport. But when he started bowling with me, uh, he got progressively better. And and I wouldn't venture what he uh would roll on an average because we don't roll enough that he would because I go to or three times a week. Yeah, and not in Bill and I go occasionally. Uh. But

he's a very very good athlete. Uh. And actually uh, this goes back about five months ago. We actually went once with his wife too. We had a great time, uh when Sue went with his bowling, but once Bill just shot good an athlete, he is made the six seven ten split. I've been bowling for thirty years and I've only made it three or four times. And he as a rare bowler. I don't think he bowled, you know much. And you know, since you know his kids

were a little made the six seven ten splits. So you know, if you ever see him, just say, what did it feel like to make the six seven ten split. It's a nice feeling. Let me tell you, I'm still holding one sort of thing. I'm still I'm still it's it's kind of like a holding one. I'm still wrapping my head around the the two of you bowling. That that's that's a hard that's a hard um image to

to get on him. So that's a picture that would make Bloomberg if someone to it, absolutely would make Bloomberg. There's no doubt in my mind. It is a just Um, I'm I'm struck somewhat uh speechless. So so clearly your relationship goes way back. Would you consider to consider Bill Gross a mentor of yours? Yeah? I would, uh tell us about the early days when you said he's a guy who hired an unemployed kid? What what was that experience like? What was it like starting a job with

a guy. Even then he was fairly storied. People were starting to know who he was. This is nineteen ninety. Um, I think he engenders beer. Mm hmm. Supposed to be a tough guy if you're just a kid out of school, supposed to be a tough guy to work for. He is a tough guy to work for. He has uh low tolerance for beating around the bush. What doesn't suffer fools? Gladly,

that's another way of putting it. If he asked you a question, he wants one of two things, A detailed, complete, accurate answer or I don't know, sir, I'll be back to you tomorrow morning. If you can't give him one of those two answers but are somewhere in between, you have a problem. There's no problem saying Bill, I don't know. I will have a memo on your desk tomorrow morning with a complete answer. You better have the memo onning is ask tomorrow morning with a complete answer. That's a

fine answer. If you have the answer in detail when he asked you, that's a great thing. What's not a good thing is to try to bluff him with bull stuff. And I don't I take him as a guy who's a pretty good poker player, you probably don't want to bluff him. You don't want to bluff him. Uh. And also he has um. This is an interesting aspect of

Bill that very few people know. I mean, he's known as you know, a tough boss, and he is tough I think fair but also a very tough boss and you know, a very close but he still you know, you know, in in the latter years of my career, would go off on me sometimes and I could go off back at him. That's a big difference because we've

reached that stage of of friendship. Um. But he's still to this day, believes that all of his success is the function of the client, and he's absolutely marvelous with clients. He's not gruff. And actually he is amazingly receptive to the fact that I'm rich because I'm delivering what the client wants. And if I don't know what the client wants, I shut up and I listened. Uh. So, actually, Build is an amazingly good listener to clients uh and is

very good with clients. UH. And Uh He's different with employees who uh are trying to blow smoke up his back side, but with clients he's amazingly good. Um. Who else would you count as as mentors? Uh? Obviously I never knew either John Maynard Keynes or Hyman Minsky, but they had a profound impact on me intellectually. Uh. Bill Miller, of like Mason fame U, is a close personal friend and mentored me. Uh. And being able to fluently move back and forth between valuation in the bond market and

valuation in the equity market. So I learned a great deal from Bill Miller. I don't you ever had Bill on one of your guests short, you know what make the introduction. I would love to to have a conversation with him. He's a fascinating, fascinating guy. People. Don't you know who else I know who is tight with him is Michael Mosa mom Mobisan of Colombia and now um formerly of Credit Swiss, and or is he now Credit Swiss, formerly of like Mason, But he's someone else who worked

with Miller. Everything I've read about the guy. First of all, the streak is unpressed fifteen consecutive. He is a beating the SMB. Some people are going to insist it's just random, but I don't know that that's just there are too many fund managers for it to be one guy for fifteen years. That that's really amazing. I he obviously was on the wrong side of the Minsky moment um, but now is living a story of redemption and doing exceedingly well the fund. At least there's the you know, the

two thousd the the crisis year has hurt. His long term total track record is batting average, but the past five years has been pretty darn good for him. A. Yeah, they have. And the word mentor is a very special word for me that I would not, you know, want to burden A lot of people with are saying you've been There's been a lot of people who have been influential uh in my thought process that I know personally. Uh. And so I'm not suggesting that that that they're you know,

not others as well. I have benefited enormously over a long period of time, uh from um, from from Paul Krugman's work and Kens Krugman, Minsky, Bill Miller, Bill Gross That that's a murders row right there. That's that's that's a pretty good group of people. Let's let's talk about Minsky a little bit, because I don't think people really know, especially late people don't know who Himan Minsky was. He unfortunately passed away before his work started to be really

recognized as as seminal as it is. And I'm gonna coming up in a quick sentence, which is stability begets instability. Let's describe that discussed that because you've written more about Minsky and you've probably done more to bring Minsky to the mainstream of economics than just about anybody else out there. Thank you. I really appreciate that Minsky built upon what Kines did. Uh. In fact, I can find most of what Minsky wrote about in chapter twelve of the general theory.

That's one of my fund sort of things to ask people. What is your favorite chapter of the general theory? Uh? Mine is obviously chapter twelve. We're effectively founded behavioral economics and Minsky uh financial instability apothesis is very straightforward, which is, as you put it, stability breeds instability because it changes behavior, changes people's risk efforts, risk appetite. UH. So I would

say he's one of the founders of behavioral economics. Uh. In contrast to the Chicago school that every decision or every transaction you make is based upon a full calculus of rationality. UM, I don't know anybody of that nature. That your decisions are a function or path dependent or a function of what has happened previously, and that human beings tend to put an extraordinary amount of focus on

bad things having happened. So therefore, if nothing bad has happened for a while, life has been stable, nothing bad is happening, then they ramp up their risk. But interestingly, when they're ramping up their risk, that means they're barring more money and driving up asset prices, so that everyone says, well, that was really smart. More leverage is good, so therefore you know lad rents and repeat. Uh So, essentially a Minsky journey is essentially lather, rinse, and repeat until something

goes wrong. And when something goes wrong, it goes disaster ly wrong. And Minsky had a nice phrase for it is when essentially the guy who has become the most risk seeking has to sell book to make book. Now describe that. In other words, a person is highly leveraged and assets that are suddenly no longer going up and generates either a margin call or some other factors that leads to there were a buyer, now they're a leverage buyer, and now they're a de leveraging seller. Yeah, and I

guess around what we were talking about fire sales. But it's always love that Minsky phrase. You have to sell book to make book, satisfy your margins. In order to stay solvent, you have to start liquidating positions. And then you get into the paradox of aggregation of everybody is selling book to make book. Where's the bid? Where the bid? So? So that's it's funny because I love how different people

I speak to. It's the six blind men describe the elephant where you end up with a very very different perspective of some aspect of Wall Street. But you're really saying the same thing, So you know, Rob are not right.

So Rob Rob was one of our earliest guests, and one of the things he describes when when you're looking at a market, if you're actually if you're actually in a traditional market cap based index, what happens, courtesy of Minsky towards the end of that bull cycle is everybody is piling in and they're piling into fewer and fewer names, and so what happens in the end of that cycle is you have this use huge spasm up and then this giant collapsed down, and because you're in cap weighted equities,

you end up having a much worse down draft than you would have if that index was created not cap cap. It's a genius and I used the word on purpose genius of what Rob has done with his fundamental indexes. Oh, I forget you guys. So for those of you who haven't listened to the r No Interview, strongly recommend go

to iTunes. Pull it down. It's really fascinating. But not only does his models run a hundred plus or maybe it's closer to two plus billion dollars now based on his models, but he also was running almost a hundred billion dollars of pimco um assets. I don't know what what what that number is now. Maybe it was eighty million if I remember correctly using his math and Pimco's assetmag Actually, he's expanded his relationship with pim since I retired the second time, So I actually don't exactly the

nature of it. It's he does a lot of asset allocation as well as his fundamental indexes. Very very smart man and actually one of I've known Rob for a long long time. Uh we go back to you know, I know, twenty years or something of that nature. You know, just his fellow wants and even when he and I vehemently disagree on something, we enjoy having a discussion because we learn from each other and that's the fun part of this business. I describe him as a rational conservative.

That's a very very good way of putting it, because he's data driven. You may disagree with him about something, but you're never gonna say, ah, this guy's a wing nut.

He's just making stuff up. When I disagree with Rob about something, it forces me to go back and say, let me think about this, because if he's saying this, there's gonna be some data underneath, and there's going to be an analysis, and then you have to find either where he's off a little bit in his trajectory and that's what sent him down the wrong road, or where your belief system has a flaw in it. And not a lot of people can do that in a way that is, oh, you know, there's got to be something

to that. In fact, the longer we are in this business probably also reflected age as well. Speak for yourself, I'm not age seven all day long. Um. The more from the standpoint of debate and discussions is it's all about wanting to gather with people who help you think. It's not a matter whether or not they're right or wrong, but who challenge your intellectual horsepower. We see that with the guys we hang out with Fishing, you know, over

the years and we have vehement agreements. But part of having a disagreement is it forces you to think, did I miss something. I'll tell you something. I'll tell you two guys. Well, there's a whole run of guys up at Camp Kotalk. I mean, I'm friends with Rosie for years, and he and I are often on the opposite sides of stuff, but he forces me like it's he makes my arguments better because he forces me to go back and come up with specific responses what about this? What

about that? And he's also a walking inside. You could say, what was the non farm payrolls in October, you know, two thousand and three and he'll answer so so that becomes a real challenge to debate him because he can

pull stuff like like nobody uh. Stut Taylor of Advance is another one who I've never enjoyed disagreeing with someone more than Stu because we're often on the opposite sides of stuff, and he'll lay out an argument and it's not just you know, the global warming guys are crazy and there everything they said the assumption is built in are all factually wrong, and it's just you can you know. I love the famous quote never try and teach a pick to sing it waste your time and a noise

to pick. Hold that aside when when I disagree with stew Taylor or Dave Rosenberg or Doug cass is another one. Doug and I are almost always on the opposite sides of the equity trade. But he makes me go back and defend the position because now sometimes we're just looking at different timelines, but other times he's making an argument. Hey, here's where the sentiment is. You're you're bullish, embarish, look at this, look at that, and you have to really

go back and very carefully take those arguments apart. It's fascinating and there's no doubt my mind, rob are not absolutely. I've begotten to known over the years a little bit Cliff Fastness, who is another like raw, brilliant guy, brilliant mathematician, but also can speak English in a coherent fashion, which is relatively again the ven diagram of those two, that's a smaller overlap. He's another guy that I disagree with him.

But if Aston says something that I disagree with, man, I have to go back and say, um gee, what am I doing here that he disagrees with? What assumptions do I have? Where is the model wrong? Where is the conclusion not supported by the data? Because he doesn't just on a whim say something. There is always a massive amount of research and data underlying what what he does. But you know, that's what makes the market different people

see things from different perspectives. And the guys we really respect are the ones who make you defend yourself and make you make better arguments to agree with you wholeheartedly. Of it as intellectual fellowship. Absolute. I like the word fellowship. Uh. And that you're not having a fight, You're not having an argument, You're having an intellectual fellowship. You know it's uh. And that you know you can be fishing, you could be bowling, whatever the case may be, or you know,

I'll find meal uh. And that you enjoy each other's company. It's not about the process of you know, tip for tat, I got this one right, you've got that and wrong. It's just do we enjoy each other's fellows? Do you appreciate the qualities of their minds? And that? And that's a really UM interesting thing. Let's let's go over some of my favorite UM questions before we uh lose what's

left of our our listeners. Although I get emails all the time that people say, you know, I drive back and forth to Boston, I listened to the podcast in each direction, or I spend an hour each day on the on the treadmill, and you've made my UM life easier. But these are some of the questions UM that I ask every guest, and some of them you've asked answered. You've answered, what you did before you with PIMCO. Who your early mentors were. I think we know what philosophers

and economists affected your approach to UM economics. What investors you mentioned Bill Miller's what investors affected your investing philosophy? And I guess we can include Knes in that because he was running money, wasn't Yeah, he was running college. I think he was running money for their endowment. Yeah, I UM in that category, it wouldn't be a large group of people. And and Bill Gross would be so much in a leg He's the Sun, and there's a

bunch of other planets. There's a bunch of other planets. Uh, And you could do us and Bill Gross and and Bill's general philosophy. And I'm sure he's you know, he's been public about it. I'm not talking out of school. What's, however, is it's a bit like you know, gambling, and I simply want to win more than I lose. I don't have the objective of winning all the time, and I want to calculate the odds in real time. Uh. And also I want to avoid gambler's run. Never that a

mistake take you out of the game. Longevity matters, and that philosophy um is a humbling philosophy because you can say this one, I know I got this one, but never make a mistake that can take you about the game. And Bill Gross was the guy who fundamentally drove that into my head just in sizing of bets, of sizing in a portfolio. Uh. And no tears that if you should have made it bigger. No, you shouldn't have made it bigger because that because if you were wrong, it

had taken you out. He discussed that extensively when he was here. It was quite quite fascinating. And you wouldn't think a guy running fixed income would be really that. You know, if you're running managed futures, those guys blow up pretty regularly. You read Education of a Speculator, uh n, ninder Hoffer is blown up, you know a number of times. It's really surprising coming from the fixed income side. Well, a key issue on the fixed income side is that

you're playing for a small alpha versus the benchmark. You can't get ten baggers in fixed income very right. So Actually, it's not like you're gonna be taken out of the game because you lost all of your clients money. It's if your alpha shrinks, then in your next competition to get a client, you're not going to be as successful. And also there's a very pragmatic matter is defending your

fees as a function of the alpha. And so therefore, in fixed income, your alpha is your potential alpha is not huge to begin with, UH, and so therefore there's a lot of risks to both the growth of your business and your profit margins UH if you actually don't size your bets right. So the philosophy of gameras of gammeras run holes even though the stakes are different, because the stakes UH are idiosyncratic to that business, makes a lot of sense. Um. You mentioned the general theory. What

other books do you find to be UM influential. What are the key books that you you've that have affected you when you've read them. Peter Bernstein Against the Gods would be right at the very top of my must read list when young graduates are asking. And Peter was a dear personal friend of mine. We lost him a few years ago, UH and amazing sweet harbor Man and brilliant uh so and essentially his he had the best.

He's a wonderful writer. He also uh that book is consistently on the everybody yeah top, so I would put that that book uh in there along with Ken's general theory of theory, and obviously you know Minsky's work, which Minsky book, uh, Stabilizing the Unstable Economy. That's what I'm gonna end up doing for those of you listening to this, I'll put this up in the on the on the blog post. Then I'll have the list of all the

books you mentioned. So we have Keynes, we have Minsky, we have Berns Bernstein, and I'll give you a fourth. And it's a very recent addition to my list. It's literally in the last six nine months. And it's not about economics per se. It's former Congressman Barney Frank's autobiography. Really, it is an amazing treatise on understanding Washington, d c. Over the last thirty years of the wise and the wherefores of outcomes that have always left us scratching our head.

If you haven't read Barney's book, you gotta get it. Uh. Life in Politics from Great Society, The Same Sex Marriage no, can this just came out in March of this year that that's really quite amazing. So that's a movie and you're you're saying that it's not so much out the political battles, it's about the process in DC and how

it's changed. Yeah, I mean, I mean, you and I could write a book about you know, Wall Street for the last thirty years, because we lived it were You're a little younger than I am, but you know, not a whole lot. But you know, I work for a living. That's the difference. You're gain fully retire what what what do you like? You're four years older than me. That's

you are, So you're five years old in them. So that is a new gym that I would recommend to anybody who wants to to consider themselves informed in what makes Washington work? Wow that or not? As the case or so? Now, So the Frank book discusses what's changed in d C over the thirty years. Let let me ask you the book that you're not going to write, how has Wall Street and finance and the practice of

investing money changed over that same time period. Ah. It really the profound shame since I came to Wall Street profound. I guess that the one that's most significant when because I've thought a lot about this when I first got in the business and again I came to Wall Street in eight three. Um, being on the cell side of the street was the cats me out. Really that's a that's a huge change. And the by side were you know,

the great on washed you know. And for people who may not understand the difference between the terms, if you're on the sale side, you're a broken dealer, you're a commissioned person. The bye side are hedge funds, mutual funds, asset managers who are buying assets for clients who they're charged with running their money, versus let's say, brokers who are selling client assets either two institutions or individuals. It's a subtle but important distinction. Yeah, you know, and I

think back to you know, the mid eighties. You know, your your average sell side bond salesman what make maybe three hundred thousand dollars a year, whereas the guy that he was selling the bonds to will be making ninety five thousand dollars a year. And that's completely shifted since so so essentially it was the the guy who was selling the bonds was making the big bucks. The guy who was buying the bonds was considered to be a

necessary nuisance. That's pretty funny. So so the guy buying the bonds is Bill Gross, the guys selling the bonds is whoever covered him at Goldman Morrigan, Meryl whoever, and the salespeople were making more than the portfolio man. Whereas now actually hedge funds were you know, thirty years ago. And a hand for the joke is the hundred hedge funds that existed thirty years ago are still around. They're just the ones creating alfit today. Not a bad joke,

It has an element of truth to it. Uh. But now it's the guy on the by side who had this chance to shoot the moon financially, and the guy on the cell side has been replaced by one of those machines over there. Because remember this, Uh back thirty years ago, you actually had the you know, the direct lines,

and you didn't have electronic trading, you didn't have price discovery. Uh. It was you know, Harry, I want to buy you know, five million of you know, the A T. T s were there trading other ninty eight ninety eight and a half alright, Phil, get them done. Whereas now you know, thanks to the terminals, you don't need to talk to Harry about where the A T. T s are trading. I know, and I can hit a button and Harry doesn't make dollars a year anymore, not in business anymore.

The guys that are still in business, the commissions have come down from the fifteen cents a share now it's a penny or two, and half of them have have disappeared. That that business has has completely changed. And so so. Actually, back when we were young, that would be the question of where's the customer's yacht? Yep them anymore? That's the famous book that was written in the I want to say thirties or or forties. I'm trying to remember. And I could see the guy's name right in front of me.

So over my career, the customers got in the yacht and the broker hails a cab and and that's a huge I know that's good or bad. That's just an observation that that's a huge change, you know, the old the old. The other old joke was Wall Street is the only place where you know, millionaires talk to people. People who take rolls Royce's to work, talk to people

take subways to work, and that's a French sweat. I could not access that name that by the way, that is literally I've been on Wall Street for a hundred years. That is literally the next book in my que to read. I have never read that book, and people just in it's hilarious. In the life, I have not read anything. It's supposed to be wonderful and it it's on your list. Well, I've read the same point of you know what, kids, I've got to read and many so so you know,

Minsky was a big contributor to that book. By the way, I have a very close friends imus. Oh, I didn't know that. That's fascinating. And Minsky wrote a huge biography of Kane's. Yes he did. Is that Is that something that's on your list or is it a little too wonky? It is just read General Employment Theory. You have to be an affectionado. Okay, you can get really deep into the weeds. There's if you like really deep in the weeds. Uh,

that's fine, but I wouldn't recommend men that too. Stabilizing and Unstable Economy is would be the one book on Minsky. There was an interesting book I read some time ago. Um, is it Keen's Way to Wealth. It's something like that. It's about Keens the investor, not Keens the economist. And it turned out he's really, for his day, an extremely successful, buffet like investor who just completely turned around. I think

it's King's College. Yeah he did, Yeah he did, and he um gets back to chapter twelve of his famous book. He was a behavioral economist. He understood that markets are not always rational, and the beauty contest is a perfect is a perfect one? Uh? And uh he had the ability and he actually lost some money sometimes being a little bit early or wrong. Uh, well that's as traders know,

early is gonna be wrong. Essentially saying, you know, when bad news is fully discounted, and I hear about it from the guy who shines my shoe at the bus station, probably it's time to go the other direction makes sense. Our last two or last three favorite questions. So, given these major changes that we've seen over the past three decades, what are the next couple of changes that we're going to see? Uh? Coming up first and foremost, I think

is producaries. You know, whether it's endowments or to find benefit pension schemes or colleges? Do we want to call them define benefit schemes? Is that the rights they call them, you know, to find benefit plans? Yeah? Maybe, I just you know, PIMCO, we had to. I was around the British too often. Schemes. That's a British phrase, right, it doesn't have the same kind of right. It's a strange standard word there here it means something the farious. Yeah,

ye as absolutely um and it's likely. Remember one of the British phrase that struck me is frequently when something is good around, they would say brilliant, right. I mean here in America we've reserved brilliant for you know, special sort of things. Right now, brilliant is oh that's good. How was your I'll bring it right now. I've never described an ice t is brilliant. Oh you haven't had my ice t. It's fantastic. It's it's brilliant, it's brilliant.

So so what I think is having expectations, uh, bringing down expectations to what logically can they be expected over the next ten to twenty years on returns more modest numbers, more modest returns, Yeah, more modest returns. Uh. And the difficulty of doing that is the rear view mirror effect. And the last five or seven years have been absolutely

glorious investment spectacular. And by the way, the people who are you mentioned earlier who are on the wrong side of that, this is once in the lifetime, maybe twice in a lifetime sort of market run. And if you missed it, well, don't worry, it'll be another one coming to round in forty years or so. That this was all about having to use monetary policy alone to get out of a litquidter D trap, which means that there's a revaluation of all long D long duration assets, with

equities being the longest. Uh. And so it has been an absolute marvelous time to be in the markets because you've been revaluing assets. Now you simply have lofty asset prices. We've been revalued. What does that mean going forward? It means theoretically, and I know Rob or Not is also in this camp, theoretically lower returns over the next as is Cliff Fastness. All the quants basically are in the camp of Hey, the odds are that you're gonna see

lower than average returns. You've just had higher than average returns, at least over the past six years. I mean, I mean, suppose you buy a stock that has one dollars worth of earnings at ten times, so you pay ten bucks for the stock. That's a good that's a good event has been problems. It's actually not a bad investor. I supposed five years later it's still making one dollar, but now it's but but the markets decided it's worth a thirty multiple. Still just making one Dollar's gone from ten

dollars to thirty dollars. Are you a genius should do by more thirty? The if you're a momentum investor, you're all over, and if you're a value guy, you're probably a seller, not a buyer at that point exactly. And but it's really hard to say, I bought it at ten and now it's at thirty, so therefore it double wow. I made a potload of money over the last five years. I can't possibly sell this stock, and it's gonna go to sixty and there's gonna go to ninety. Human nature

is to extrapolate that simple. Leon Kooperman tells the story that so another value guy from Colombia that and put up tremendous, tremendous numbers. They have a target. When they hit their targets, they sell. Some of his clients come to him and say, listen, Lee, we have a need for a tax sensitive portfolio. So he structures same basic underlying thing, only when it hits his target, he doesn't sell. He lets it run because they're not looking for It's

got to be a certain length. He said. The returns on the tax sensitive portfolio are actually better then the returns on the tax insensitive portfolios because it forces you to hold things far beyond where left your own devices you might and his numbers are just ridiculous. So I know I can't keep you forever. Let me get to my favorite last two questions. Um. The first, so someone's graduating college or a millennial or whatever we want to

call this generation. What advice does Paul McCully give to those kids coming out of school right now if they're thinking about a career in finance. Let's take a long walk around the block and see if you can think of another industry. Really, Um, I remember I have my son is twenty six years old and not going into the family business. No, he's not going into finance. He uh is in the technology business. He's a gamer and a programmer. Uh. And you think this technology stuff is

going to catch on. What I do know, UH, is there's a lot of America that hasn't gotten, hasn't exploited the technology that we have where and in the area that my son's in, which I think is really a growth industry, is just taking what technology we have now and applying it to core businesses, whether it's education, the medical care system, the d MB, all sorts of areas, information management. Now sitting here in Bloomberg's building, obviously you

have the best of it all on technology. So this floor that you're standing on, I don't know if if you ever see them take the floor apart. There's nothing but fiber optic cables as thick as your leg running through here. The building was built pre wired for nothing but information technology. But this is the exception. Most industries are not this tech forward looking, and I think, I mean, I think that is a huge growth industry. The medical profession is an area that's it's it's nice, it is

right for it, government itself, transportation, lots of areas. So I think the application of technology in a general h economic sense is where their growth is. But actually know that you know the really you know wise, you know guys who can figure out, you know, what to make my my uh my smartphone do uh though I reach it reaches its limitations. I think that's a function of us being old guys. Yea. The younger kids don't, don't They don't get saturated the way. And I kind of

have a foot in each camp. Um tech oriented enough to really like all my toys and my phones, but I sort of see myself the people older than me are utterly saturated sooner, and the people younger than me are wholly immersed in it with no end in sight. It's fascinating to watch that. So you wouldn't send people into finance all that that quickly? Yeah, And if you know a kid wanted to go into finance, where I would say is over the next thirty years, Asia in

particular China. But I think the emerging markets at large, if they're going to shift to more domestic demand, are gonna have to to construct a household sector finance, uh sector that is meaningful and uh so that would be the area you think in terms of here in America, So be prepared to travel, be prepared to and also think in terms of bringing credit effectively to the growing middle class of the emerging market. She think in terms of market, it's a huge market and and it's got

to happen over the next thirty years. It's it's underserved in partmer costs of barriers to entry. But that is a frontier for a kid a thirty year a career. Uh is to be the king of consumer finance. Go to Brazil, to an emerging emerging market where, of course you mean thinking now here in America. You know, if somebody gets out of college, he's probably already got a college loan, he gets a loan or at least on a car. You know, he borrows money from his dad

for a down payment on a house. Else So we think in terms of of essentially borrowing forward income as a young person and paying it back as you get older and your income goes up. Yes, that's a concept that will get roots and the emerging markets over the next two to three decades. And there's a lot of money being to be made in that space. So Argentina, Chili, Vietnam, where would you send a kid today? You know, first

of you depend upon which language facility for language. So actually the advice let's go back four years you're in college, learn to speak Portuguese, Spanish, man's are in exactly else exactly? Uh, Latin is really cool, but I don't know very many people who transact in Latin these right. You can become a monk, you can go to the original stuff and they brew fantastic beer. So but I don't know that if that's really counts as a career in finance. Okay,

last question, all right, and this is my favorite. What do you know about investing today that you wish you knew when you began all those years ago? I love the thoughtful, pregnant pause too, your most precious asset. It's time I knew you were going to go there. Elucidate, expand on that to the con I can make more money if I need to make more money. I can't make more time. You can. You can. You can chant trade time for money, but you can't change trade money

for time. Is the James Taylor layer, exactly. And that's what I deeply appreciate now. And I you know, I'm not, you know, beating myself up on it, but I looking back, I wish I'd had a deeper appreciation for that at a younger age. Is there any rational reason that a man has been to Beijing twenty six times and not seeing the wall. I have a friend whose company. I have a friend whose company in the mid nineties was bought by Yahoo worked out really well for him, and

a conversation like this. He said something similarly. I go, do you travel all over the country, all of the world for ya who? That must be so much fun. You must see so many places? And his answer was, yeah, I could tell you what every major airport, every every major hotel, every major conference facility is like. But I have no idea what those countries are like. So when you're traveling for business, you don't get to sight. So you know, we had, um, we had somebody in here.

Oh my god, I'm drawing a blank. Uh. Byron Ween. We had Byron who's still in his eighties and still travels constantly for work, which is he's at at um black Rock, still constantly traveling for work, but he takes his wife along. He builds a week into the trip, so he goes to China and then he cites these for a week. He goes to the Philippinans and then he cites he was describing having more fun now working because he sees the world. Then you know, then he

did you know the decades of Morgan Stanley. It was the same situation. You may be in China twenty six times but never having seen the wall. Yeah, yeah, I guess you know, to use a you know, a cliche about the whole thing. Um, when you're a young person and immortal, you're immortal at those ages. Yeah. Actually you don't think in terms of, you know, the fact that you may get old, because you know that's the way

off from the future. Finite lifespan. Is that theoretical, it's not really is the the concept of work life balance is but a concept which actually financially works out well for you because all you do is work right, But with tim uh and maturity uh, you recognize that time is your most valuable asset and that I've never seen a tombstone that d I wish I had put more hours in at the office. Speaking of time, thank you Paul McCulley for being so generous with your time. This

has been absolutely fascinating. We've been speaking with Paul McCulley. He is the former chief economist at Pimco and has a long and storied history on Wall Street. If you enjoyed this conversation, and I sure no I did, look up an inch or down an inch on the Apple iTunes and you'll see our other almost five dozen uh previous Masters in Business series. I want to thank the people who helped put this interview together. My head of

research is Michael Batnick. My producer, for lack of a better word, is the head engineer uh at here at Bloomberg is Charlie Vollmer. And my recording engineer is Matt Matt Ryan. I know his name is Matt. I can't remember last names. There's a lot of work that goes into putting these together, and I'm always grateful for all the assistance that that takes to make this happy. UH. Be sure and go to Apple iTunes if you enjoy this, and review the various Masters in Business series we've done,

and catch us next week. I'm Barry Ridhults. You've been listening to Masters in Business on Bloomberg Radio.