Jerome Schneider Discusses the Ins and Outs of Fixed Income

the fixed income market works. It's absolutely fascinating. If you are remotely considering any sort of fixed income investing, working on a bond desk, being a portfolio manager of any sort, then this is a conversation you have to listen to. It's absolutely um fascinating. With no further ado, my conversation with pimco's Jerome Schneider. My special guest today is Jerome Schneider. He is the head of short term portfolio Management and Funding at PIMCO, which manages about one point seven five

trillion dollars as of the end of seventeen. Prior to joining Pimco in two thousand and eight, he was a senior managing director at bear Sterns, specializing in credit and mortgage related funding transactions. He held a number of various positions on the municipal and fixed income trading desks at Bear. Morning Star named him the fixed income Fund Manager of the Year for fifteen. He manages three separate funds, one over fourteen billion dollars, the other over eight billion, the

smallest a mere two point two billion dollars. Jerome Schneider, Welcome to Bloomberg. Thanks very much, very it's great to be here. Um, this is the perfect time to be speaking with you, given everything that's going on in with the FED, with rising rates, with yield curve. But let me start with a little bit of backgrounds. How did you first get interested in finance? Uh, pretty easily on.

I had a great uncle who was always sort of fascinated with the stock market at that point in time, and had bought me a handful of shares, you know, like everybody does. And from that fascination you quickly realized that you know the power of capital. And I think the at the age of eleven, I had I had asked my dad, you know, this stock market thing is pretty interesting, let's read about it. Let's read about in

the Wall Street drawal. And for my twelfth birthday he actually took me to the Stock Exchange on the floor. And for a young chap from Oklahoma, Oklahoma City, that is that's a pretty pretty empowering thing to you know,

see your dream location come true. So for me, it was a trip to the Stock Exchange and to see the Yankees, who I loved at that point in time, and uh and and really put together in your mind how you actually get to that point from being twelve to being a young professional and the steps it takes. So that was a that was a magical moment my in my formative years. And that was back in the day when you could both a get on the floor of the Stock Exchange. You can't do that really today.

And b it's not just the front for a television studio. That was where stocks were actually traded back there. Yeah, and and amazing and thinking about it, you know, I was I was probably hardly five feet tall at that point in time. You know, it was a scrum and this is the mid early eighties. And I look back

at the photos who took in. The funniest thing obviously is the people and how they're dressed and and and the second of all it was it was a functioning, uh entity and a physical sense not just a literal sense and of a spiritual sense as it as it as it is now along with computers, but it's a physical, breathing entity. And today obviously it's changed in m Y s c IS and all the stock exchanges have changed

their their functioning perspective to co adapt to technology. Um. But I think more importantly, and this is the thing that I would say, is that as a young person, having the ability to have that experience and learning from people what it took takes to get there, and then putting those stepping stones in place, seeing the right people understanding what they took to get there, even though they might be forty years or senior, that's a very powerful thing.

And I think one of the one of the key things for people who whether they're interested in finance or otherwise, is to find people that will serve as mentors, rabbis, whatever it is to help empower them to achieve their goals in that kind of way. And I was just fortunate to have a ton of people around me. Sounds like that was a formative experience for you. Yeah, it was.

It was great, and I think you know, people recognize that at that point in time as as odd as it might be if from a young kid in in Oklahoma City, you know, it might have been one of those things that it was a way out, so to speak. And so for me, Oklahoma is a great place to be from, and it's a great place to be going back to his family. But at the same time, I haven't lived there since high school. No interest in being a roughneck and working in the oil fields or any

of that, uh not at this point of enough. Well, I mean, that was the other formative experience in my life, actually being being exposed to the roughnecks. And when you grow up in Oklahoma and Texas and your whole family

is exposed to the oil industry. In the late seventies and early eighties, the oil the oil bust basically was an eye opening experience and and frankly that was one of the things that led me to want to understand capital markets, because you know, when you're in the oil business, you're putting together a ton of capital, a lot of it's not your money, and and so your incentives are

very different. And at the same time, when you think about the ramifications of a repricing event, in that case, it's oil and everybody when you're sitting in the oil patch, thinks oil prices only go up. But as a young kid, you see everybody going from having literally lear jets and third and fourth lake homes and multiple cars to nothing overnight.

And you look around and we had a very modest upbringing, you know, I would say that, you know, in retrospect, it was we are downside was fairly limited compared to some people. Not a lot of leverage, well not a lot of leverage so to speak, but at the same time, not a lot of the different upside. But I or learned at that point in time the strength of leverage and the danger of leverage, which probably as my professional career evolved in the fixed income that obviously became a

keystones that. So so you go to University of Pennsylvania and then you get your m b a. At n y U stern Um and what was your first job right out of school? So when I graduated pen I wanted to sort of a degree that was related to finance, but really more economics related into I had a more customized degree in international finance, economics, and international relations, and

so penn was a perfect place to do that. Unfortunately, when I was graduating and was starting interview in h My background was a series of internships for small uh from small a small shop in Oklahoma City called stephil Nicholas and then which is now not such a such a small shop, but they were really focused on muni bonds back then, which is a good and bad thing.

And the other one was running a guy's campaign for State Treasurer of Oklahoma, which was successful, but that was both both took me back to Oklahoma and and so as a result at Penn you're looking around for internships. Most of the kids from the East Coast had your connections to New York and Wall Street and things like that, and I didn't have any of those connections, so to speak. So I was really trying to find my way to get to Wall Street at that point in time, and

it took a little bit more effort. That combined with the fact that when I was graduating, wasn't the best job market in the world, and when you think about it, you had to get in on any floor whatsoever. So I interviewed. I interviewed with people who are trying to sell limited partnerships, limited people who are trying to trade

stocks and being the Operations group. And oddly coincidentally, the job I took was with bear Stearns and I joined the operations training program UH at that tender young age for a very small salary, but a great opportunity to learn. Let's talk a little bit about the Federal Reserve today and the impact they have on the fixed income market. First off, what do you think about today's Federal Reserve? Yeah, I think today's Federal Reserve is one thing is very

different than it was before. You know, they try to be as transparent as possible. Is that a good thing or a bad It's a good thing because the purpose of the Federal Reserve is to communicate effective monetary policy, and unlike federal reserves of two decades three decades ago, who used to do things in the silence and night or effect open money market operations and then you simply I saw the cash mover in or out at specific time during the day because they were adjusting the the

access reserves in the repo markets. UH. Now it actually is quite effective because what they hope to do is manage expectations over the medium term. One in terms of clearly in terms of growth of the economy. UH and also unemployment clearly, but also in terms of inflation. And that second metric is what's incredibly important to the communication uh effort, and so being communicative obviously comes to this criticism.

It comes to this criticism because people want when they people communicate, want them to be succinct and clear and precise. And if you don't have those three things, which aren't necessarily the same um, people start to offer their own criticism. Let's go over that succincts clear and precise meaning you want it short and sweet, right, you want it accurate.

Although there's a difference between precision and precision, and precision is the accountability the That's the thing about the FED, though, and people fail to realize, is that the FED wants to maintain its optionality, and that's what it's continued to do, not only during this hiking cycle but really since the financial crisis, and in doing so, they want to find themselves to basically point a direction, but they want to alter the course and speed of that direction over a

period of time. And I think one of the failures of the market, quite honestly, is understanding and comprehending that reconciliation process. Frankly, because much of the market can't imagine themselves as being that central baker in that seat. But if you were, you know, like any good parent, you wouldn't necessarily want to be painted in the corner by

your kid. You know, the kids comes home and says, you know, mom, Dad, I only eat junk food for the next year, they're gonna say, well, let's try to have a balance of it. Let's figure out I have some days that are healthy, some days that you you can go and eat potato chips all day. In this situation, the FED wants to simply be as clear as they possibly can at that point in time without being fully committed to an ingredient mix, which they can't fully bake,

you know, a masterpiece in the future. And and that's ultimately what they want to do is try to be as clear as they can at this point in time and balance it to manage the expectations of the marketplace without upsetting him. And that's what people have called the put of you know, bern Yankee, greed, spin and whatever,

yell and put. And I think that there's a there's a there's a trade off in that, and that's the insurance policy or the cost if you will of the policy measure of trying to be as open, open minded and communicative as they have been. Some people have said that the transparency of the FED and this constant communication has made the job of the balance manager easier, and others have said, no, they say one thing and it turns out not to be true, and they do another.

It's made it more challenging. Where do you fall on that continue? I honestly think that the marketplace is has has evolved in such a way that you're not simply looking at a single variable at this point in time, being the FED. In fact, there's other influences you have to look at, which is obviously the global influence. We can see that. You know, just because you have a view on US interest rates or US monetary policy doesn't mean that it's not influenced by other policies around the world.

We saw that basically two years ago at the end of two thousand and fifteen, when global financial conditions worsened, it obviously effectuated a FED policy. So as a trader, as a portfolio manager, as a as a manager of capital for our clients, the thing we want to be most mindful of is these inputs, These variables and mitigating these risks in a way that produces positive risk adjusted returns.

The bottom line is is that there's just as much forecasting that we're going to do and think about it PIMCO looking at the macroeconomics, which has clearly been the baseline of our forecasting for forty years plus at our firm, but you also have to incorporate at the evolving market dynamics and most importantly, the market perception of the market pricing meaning sometimes sometimes understanding where the market is, whether

it's overpriced, mispriced, whatnot. Is actually just as important to your portfolio positioning as anything else in the policy measures that you might observe from the FED or the data that comes every week or whatnot. So let's let's stay with the Fed, because you're really the right person to

ask this question. The work you did in the back office in the early parts of your career, UH, doing the settlements and DTC and all that other stuff, explain what the FED is actually doing mechanically when they raise or lower rates. I don't think the average person understands what this process is. Like, Yeah, it actually you know, it actually isn't as complicated now as it probably once was simply because of the magic of computers and electronic money,

so to speak. But effectively, what you're doing is effectuating monetary reserves access reserves in multiple ways. The first one basically being that you know, as we've seen over the past few years, even with the emergency monetary stimulus, that they're able to grow their balance sheet, which creates access reserves into the system and in a variety of ways.

And that means they're purchasing bonds, purchasing mortgages, purchasing treasuries, which increases the amount of monetary supply, the money available to help. I'll set, you know, I'll set the conditions that they're trying to count, meaning they take these paper um assets and bring them onto their balance sheet in

exchange for actual dollars correct. And I think this is important because that's a semi permanent way of establishing reserves, whereas what they used to do is what they referred to as open market operations, which possibly are you know,

are returning more to the cloaquial. But open market operations for decades was simply the FED coming in and purchasing bonds on short short term operations REPO operations, to buy bonds effectively versus lending out cash to the marketplace, and by doing that they would make small incremental adjustments to the effective FED funds rador the FED Funds target rate

at that point in time. And actually, because it wasn't posted on Bloomberger, wasn't set at a point in time, you for in late seventies, early eighties, you wouldn't actually know that the Fed was actually targeting or adjusting interest rates until you actually saw those processes are felt them in the marketplace occurring in the short term markets. So you said semi permanent earlier when discussing um what we

can I guess called quantitative easing. Why semi permanent because some of these asset classes have a maturity date and eventually run off, or they could always decide to unwind at a later date. What makes it permanent versus semi perament. Well, we've evolved now over the past two years into an acceptance and and actually implementation of a normalization process of

our of our monetary policy. We're moving from emergency emergency measures to one that's more normalized and going trying to go back to where we were to priest crisis mode.

So what does that mean we have to take our balance sheet from what it was and it's now grown to four point two trillion in size, and generally decrease it over time through basically um through basically letting it amortized down mortgages that the FED owns will pay down, treasuries will eventually go off the balance sheet, and then doing so, that's gonna gradually tighten monitor monetary conditions as those access reserves, as those access moneys get removed from

the marketplace, and the repurchases of and and and the FED doesn't re purchase as much of the securities as are maturing in their portfolio. So it's a passive reduction in that process. And it's very important because for the marketplace, because it is a it's it's a it's a mile marker. Effectively that we are heading towards not just higher rates, but a normalization process which is going to generally move

real rates higher over over a period of time. It's not shortly, it's gently because because it's just such a gradual it's a gradual thing. And as Jennet Yellen likes to say, hey it's in the background, nothing to see here, Just move on and an ideal world, that's what's going to happen, and I actually think it will work out that way. People at the beginning, we're very concerned that the FED was going to come in and sell all

their assets and needs to do it all overnight. But what we've learned from the FED, and this is what I think is, you know, getting back to my point about the market reacting in the market's perception that that would be fullhardy because the mark because the FED wants to always maintain their optionality, and so the reality is is that the FED wants to keep those assets on his bounce sheet, not only to not upset the market,

but also to maintain genalogy for the future. But as it's right now, they've been pretty clear about the prescription of how much they're going to increase that reduction. I guess that's an oxymoron, but increase that reduction of their balance sheet over the next few quarters by a prescribed amount, and and that has been forecasted and digested by the market, and it's not that that upsetting at all to the marketplace. As we've seen over the pastime. I was always stunned

at the the claims in the beginning of quee. Hey, you know they're gonna have to unline this and it's gonna be so disruptive, and it just didn't make any sense. All these all this paper has a maturity date. You could just let it and and they're not all the same date. There is a curve, the that duration curve. You could just let that run off naturally. Why was there such fear that, oh, you know, when the fed on wines, it's gonna be really problematic. Well, the question

is who is the incremental buyer? And that's actually a real question to pose it today, but in a different a different size and different scale. There's one thing that if you're gonna let you know, an entire four trillion dollars with the assets run off the balance sheet of access reserves very quickly, and is another thing just to have incremental supply coming to the market. One is a five five billion dollar plus question and the other is

a four trillion dollar question. But the question in both of them is who is the incremental buyer of treasuries? Is at four in central banks? Is their retail investors, is their corporate cash investors who need to buy this um? Their banks who need to buy it for regulatory purposes not so much anymore. But what about just the maturity issue? Is if hey, I'm holding twenty twenty papers around, all right,

the paper matures, it goes away, I get cash. Nothing actually hits the market unless they decide to reinvest that right that that is correct, So well, what hits the market? They have to reinvest. Their reinvesting a certain amount, but not all of their maturities. And so they're doing it in a pro rated portion across the curve. And so they're trying not to disrupt that allocation of what is

already coming to market. And and and that was the key is they're not trying to shape This is not an operation Twist, So they're not trying to reshape the yield curve here. What they are simply trying to do is reduced their overall footprint to the treasury market over time in a methodical manner. We're deep in the weeds. This is pure fixed income walkery, and there is an audience that will really appreciate that it is wonkery. But

it's important. The one takeaway for for for your listeners is that the wonkery is the magic of how people are going to think about adapting to higher rates going forward. And that is the facet which is most most of misunderstood when you get to these periods of monetary policy. Monetary policy is fascinating, but if you don't understand what's going on, it can be pretty dangerous. How many times over the past ten years have have we heard, oh,

the bullmarket and bonds is over. Is this multi decade bond bull market finally over? Well? I think it's truly to say, first of all, there's so many factors in the bond market that led to the bull conditions as as we knew it for many years, UM, the dollar, the view of the dollar, the United States, the reemergence of of other factors on the on the global forces, UM.

And I think that when we think about this, it's not a pivot point that you can simply say this is the exact pivot that we're moving back the other way. In fact, I think there's more factors today that come into that condition that we need to be brought into one. So obviously, treasury supply, we're dealing with larger fiscal stimulus at this point in time, tax cuts, things like that, they're going to impact Um, you know, the fiscal side of the equation and the need to borrow more money

in the United States. Uh, do you think that is a recipe for higher rates or or does all that supply hitting the market? Um, have other factors. It's one, it's one, it's one factor in this. The other factor is the demand side. And I think that that is the other factor, as we mentioned previously, whether it comes from foreign central banks or foreign investors or even US investors,

you know, that is an important factor in condition. And more specifically, the demographics which people and we have PIMCO

spent a lot of time thinking about. The demographic factor is actually one that is in favor of bonds over the next few years as people look to de risk and move into higher asset classes, you know, the higher rates right now, or something to incentivize people to finally reallocate potentially out of higher risk allocations and moving to the safety of bonds for that current income and current

yield that that they offer. And so there is a there's there's a variety of factors on the pro and concite, but to simply declare this as the as the pivot point of the end of the bull market is it's too early to it's too early to determine, and and more more importantly, there is a growing awareness in the in the global economy of the improving factors globally that are going into the data, not just in the United States,

the Eurozone, even Japan is starting to see that. So as we have evolved over the past thirty years from the bull market into the bull market, it's the global forces that will ultimately decide whether this was the end of the bull market or not. So you reference supply, let's go back to that a second. It seems like there has been I don't know if the word shortage is the right word, but when you look at high quality sovereign fixed income products, doesn't seem like there's been

an overwhelming supply of that, right. So the key to this is the plumbing. When people think about where have bonds gone? Where has safety gone? It's all on the plumbing. The repo markets have basically been uh detrimentally affected by regulation globally that have put constraints on bank balloties to which basically function as the grease for treasury markets and and and high quality bond markets around the world. So if you put a constraint on the amount of grease

in the system the repo markets. That affects liquidity and

that affects pricing in another wise. So that's one element ultimately, you know, when you also think about it on the on the supply side, or that is also the demand side, and the demand over the past five six seven years, as we've gone into emergency stimulus mode globally, has been the central banks buying the safe assets and so they've been buying bonds to help produce this warm blanket around risk assets globally for the past five to ten years,

and as a result, there's a dearth of high quality safe assets that people have been searching for. So they've been the number one buyer, being the central banks of

these assets over a period of time. And as they reduced that footprint, there are people who have actually needed to buy these safe assets will actually emerge as a marginal buyer and over the next few years, so it could be a nice and nice handoff, you know, if things go according to plan, although nothing ever goes smoothly, as you know Berry, so we have to be prepared for those ree pricings, and that's and that's what's as active managers at PIMCO, that's what we're poists to take

advantage of. So you mentioned that we we haven't been running giant deficits um other immediately after the financial crisis there was a huge set of deficits, but that seemed to work its way down pretty quickly over seven years or so. The new tax bill is at least a trillion and a half dollars. They're talking about a big infrastructure spends, all of which raises the question, should there be a reissuance of much longer term bonds be at

treasuries at thirty years, fifty years? Some people have talked about hundred year bonds. Should we do that? And what are the odds of that actually happened? Yeah, I mean optically people would say, take advantage of the low rates and issue up and turn out the debt. And there's obviously been a lot of countries who have done that. Mexico issued a hundred your bonds. You know, there's there's a good variety of precedent for this, but ultimately you

have to go where the demand is. And when you look at the committees, the Treasury borrowing a committee, the

TEA back um, they've actually assessed this. And while it was floated in the very beginning by the Treasury Secretary Revolution, you know, the reality is that there wasn't a good demand assessment concluded at that point in time, and so you don't want to issue and to avoid no issuer, whether corporate or sovereign, wants to issue and to avoid where there's not enough demand, because that means your execution

is not gonna be good. And more importantly, the secondary liquidity will be debt or will be it will be marginalized. And so what they're gonna do is simply add on to existing maturities and more slightsely. And this is what is important for investors at this point in time is increase allocations to the front end of the YEO curve, specifically in the T bill space. And I think what's noteworthy that happens, which happens to be my playground, and

I always love more people in my playground. But they're gonna add five hundred billion dollars worth of supply over the course of the next year, probably backloaded the second half of this year to that playground. And so what does that mean, Well, it's great for those investors looking for safety, looking for you marginal increase in yields as that new supply hits, but it doesn't do a lot

to the asset liability. The caution are the urge of people wanting to turn out the liability structure to the US. Although what is noteworthy is the fact that when you look at the overall construct, the average life of the US debt is actually not that much different than than what was previously prescribed. So you know, they've done a pretty good job about about managing that asset liability mismatch.

Let's talk a little bit about what's going on in the modern markets, and in particular on the equity side, we've seen a fair at least substantial shift away from active management towards passive management. And yet the data shows on the bond side active management actually adds alpha. What why or the bond equivalent of alpha? But what is there a different name for that or do we just call that alpha? We call it alpha? Call it alpha? Um,

why does active management generate alpha on the bond side. Well, it's not magic, and it takes a lot of work to to have that, to have that, and the data does quite clearly point to the fact that in fixed income, active management does clearly add benefits to clients portfolios, and some of it comes from offensive meaning learned to how to create better risk adjusted portfolios, i e. There's income that you can have in your portfolio and some capital

appreciation when times are good by picking the right sectors and creating a diversity portfolio. But Barry, this is the more important thing as we give it pivot into this type of the cycle when we don't have quantitative easing and the warm blanket and monetary policies global really supporting

all asset valuations. The ability to differentiate risk asset classes is incredibly powerful, and in fixed income we need to be thinking about the ways to create that diversification and steering clear of those pitfalls that might might be in portfolio construction. We saw that clearly in two thousand five, two thousand and six, and two thousand and seven, when you had the evolution of structured products, the evolution of

abundant leverage in the marketplace. Even in my own, my own lovely repo markets, you had mispriced bonds and structured products that simply weren't sound to the triple A Moniker

that many many radi agencies gave them um. But if you have the ability to discern, re underwrite, and distinguish between these different credit risks, whether it's corporate credit risk or structured credit risks, and then understand how they interplay with each other, you can actually steer clear of a lot of dangers and pitfalls that passive management would steer

right into. And the case in point I would point to is even in my own domain, the short term universe, and I call short term zero to five years, we manage on our team two hundred plus billion dollars in that sector. Right now. The vote, the vote of confidence that we have is that we had steered clear of a lot of credits that were miss priced in two

thousand five, two six, and two seven. We had steered clear of asset back commercial paper that many folks were just simply buying an additional bait because it was an additional one basis point one. That's but that's the way the market was functioning in the cash equivalent space. And when you've gotten to the crisis, people were basically underwriting liquidity risk for marginal income. They didn't understand the downside risk.

They have, and to this day I hear still people when I go visit into retail branches, which I do quite honestly because I want to hear about people's experience with managing their cash. When I hear about that, they'll say, you know what, I still have these auction rate securities in my portfolio because they're still frozen or this that the other still some are on are. But you you know, once a year somebody will come up to me with

a story. And the thing about it is, in order to understand the value and the perception of where the marketplace is going, you have to take a step back and understand what the influences are and more importantly, have

the resources to discern and understand that. And so my background while being formatively in operations and the rebo desk and the drivative desk that bear sterns and understanding structured products because we ran at that point in time a funding vehicle related to structured investment vehicles or two vehicles.

That was a magical time because it allowed me to understand and have a good array of of knowledge and build that array and arsenal knowledge that when I came to PIMCO as a portfolio manager, I understood all these different markets and underplayed and and more importantly, as we think about our team construction, the portfolio management team around me, we have people who are specialized in corporate bonds, in understanding non dollar events. We have a person who's focused

solely on funding and the beauty of this. And you mentioned this in my title on ahead of our short term portfolio management and funding. The key element to understanding liquidity management is funding. The key element to understanding short term markets, which is interest rates, is funding in liquidity.

They're all the same. And if you are an interest rate if you're an interest rate practitioner, if you're a saver, if you are thinking about ways to manage your capital for capital preservation plus an income, and you don't have an insight to where funding markets are trading, meaning the cost of capital. That's like baking a cake without any flour. So it doesn't it might look good, but it doesn't taste very good and it might fall on you. So let's let's talk a little bit about the mechanics of

of some of these processes, specifically at bear Sterns. Was it at bear Sterns you worked on repoke conduit financing companies. Correct that that sounds and we're gonna go a little bit into the weeds here, but that sounds like that is really the specific plumbing of how dollars find their way to specific assets. Describe a little bit of exactly

what that that is. So the premise of what we were trying to do was you have to have a fundamental belief and understand what a repo agreement is a repurchase agreement, and all the repurchase agreement is is a borrowing of your basically borrowing dollars or borrowing funds in exchange for collateral, and that collateral is usually bonds. But the beauty of a repo agreement is that it's overcollateralized, so you might be posting on the bonds but only

get seventy cents worth of cash away. Sound safe. So the beauty of a repo, and I still believe this to this day, and I think it's one of the most underappreciated assets in the entire world, is that repos in general are marked to market daily, so your risk is limited, and the fact is you can calibrate them the haircuts the excess margin to what you think the

risk is. And so if you're a good practitioner, your understanding of the marketplace is simply what does the value of the cloudal you hold on any given point in time, and do you have enough excess margin. The idea here is that with any experience and understand ending, you can actually back into what you think is a superb asset, even better than a treasury because you have the over collateralization.

So what we were doing in that marketplace is looking and lending through what we what we called liquid funding, which was a structured investment vehicle at that point in time, to borrow money in the in the funds market and lend it to a variety of clients and do it on over a cloud realized basis. And and it worked very well, very triffic until about, you know, until about

two thousand seven. And at that point in time, the funding markets, not the asset markets, but the funding markets did turiate to the point that the the optics and and frankly the economics didn't work out. And so we had we closed that business, you know, and all our equity holders got their capital back when did Bear close up business. So we closed it in early two thousand seven, really and you were at Bear you want to git through the entire crisis. Was I was actually there? I was.

I was there until the very end, and actually worked one day at JP Morgan and retired from JP Morgan and then went to went out to California after Uh. Two things. One my life wanted me to move out there for a family. But a gentleman by the name of Paul McCulley called me up on the phone, who guest on the show. And Paul is a great friend of mine and an avid fisherman and a great economist who who obviously you know, coined the term Minsky moment

and everything else. But to have him sitting there, you know, as my partner, sitting on the desk and welcome me, was an opportunity that I simply couldn't pass, that would not could not say no. And he's now at Cornell I think in the fall, teaching and then back in Newport piece. That is correct, he's he's teaching me to it. He's a great teacher, and more importantly, he's a great communicator. And he was a great great mentor and and and

and sponsored me at PIMCO. Uh. You only the very early years because I walked in from one storm into and obviously at PIMCO you're on the defensive at that point in time. So so before we leave Bear, I have to ask what was it like at Bear Sterns in that sort of storm, that that be just a wild experience. So I think what you when you think about Bear, Bear was a meritocracy. Pimco's a meritocracy in a way. You work hard, you try to drive, you

try to put all the pieces together. And I think people at that point in time, uh, we're We're focused on the markets and the market perception. And I'm not here to rehash history per se, but I think it's important that there is a tremendous amount of lessons to be learned from that whole experience. Unfortunately for me and actually a lot of my other expert brethren. You can look around the street now, they're everywhere, and there was such a lot of quality people there. There was a

tremendous amount of quality people. And more importantly, we all learned from each other, and we learned from the experience, and we were able to grow out of it. And and and whether it was market forces or internal issues or whatnot, I think there's a lot of experiences and a lot of history that we can go back and read from and glean information from. And and I'm actually fortunate and I I you know, Bear was a great sponsor.

My upbringing allowed me to allowed me to grow. And every time I got, you know, I got I needed some more challenge. That gave me an incremental bit, a bit of a line to go and run with and and and PIMCO is the same way we try to groom young people to do the same and that I think is a very strong parallel to the success. It looks like that the Airston's acquisition by Jamie Diamond at JP Morrigan turned out to be a really good fit.

Is that your perspective from the outside, or because I haven't heard any stories of usually there's a takeover, there's all sorts of turmult and turmoil and you hear, I haven't really heard a lot of that sort of chat. Being being the fact that I worked there for all of one day, I probably don't have that much insight

insight to that. But but but I would say that you know, for most people, um, you know, ten years on almost now, I think it's one of the things that people take it as a as a learning as a learning lesson, and and and and the market as a whole clearly has. So we've heard the expression over the years, Um, the bond market is supposed to be the smart money. What's your take on that? I would

hope so. UM. I'm not saying that's no, it's no pat on the back to myself, but I think that when you look at how capital markets function, we try to be more proactive than most in terms of allocating capital on the active management side than most. And I think that's a pretty power whole thing when you think about the smart money aspect, and a lot of that smart money is because smart money are not central banks, and some of them are very very smart and they're

very sophisticated. Um are are in that realm as well, and so they're not necessarily you know, with the exception of one or two central banks in the equity realm. Uh yet but Japan other than Japan, who else is in Sweden? I was good? Um, I'm sorry, but I would say those two, Um, those two are probabmarily you know, the ETFs and Japan are clearly the big one. But the smart money there's probably a smart a lot more smart people in that fixed income market. Now. What it

means though, is that that's institutional side. As a retail investor, you can't be complacent about how you're thinking about your fixed and commalocation, especially amongst rising rates. And so the challenge for the retail investor now is to challenge their financial advisors kick the tires, understand how their portfolios performed and upward rate environments, albeit slowly, and more importantly, where

on the interst rate curve their they're destined. Then the second element to pay attention to just because you've earned a very handsome coupon, very handsome income over the past three or four or five years in your in your portfolios, because you've reached out the curve in terms of risk. Maybe you're invested in a high yield funds something like that.

Take that into consideration now and take that in a coistration, how you've derived that income, what kind of risks are you're taking, and do some homework and maybe it's time to de risk a little and look in the yield curve shorter in the short term side and take advantage of mutual funds or et s out there that may might offer better risk adjusted returns. We haven't talked much about inflation, obviously a key factor for the Fed and for the bond market. What are your thoughts on tips

treasury and inflation protected securities. Yeah, they've moved up quite a bit over the break even, so that's the inflation expectation has moved up quite a bit over the past few weeks, and they're probably fair and value at this point in time. The key factor here is is that

what does that mean to the Fed itself? And to the Fed itself, that's actually probably a positive sign that the market is repricing in a expectation of inflation similar to their own, similar to their own views moving forward,

meaning the low periods of inflation were transitory. Now the market sort of agreeing with that, and that's a positive thing for the Fed to basically accept the fact that we're probably gonna have higher rates to come, because if the market can accept higher inflation, then that basically says the market is also accepting the notion that we're going to get higher rates to come. But the key here is is not just higher real rates meaning risk adjusted rates,

but it's higher nominal rates. And for a fixed a con investor. When they hear about higher rates, they tend to get scared. But this isn't a time to get scared because the high rates is actually a time to embrace those higher rates going forward. We have been speaking with Jerome Snyder, head of Short Term Portfolio Management and Funding. If you enjoy this conversation, be sure and check out our podcast extras. Will we keep the tape rolling and

continue discussing all things bond related. You can find that wherever finer podcasts are sold iTunes, Overcast, SoundCloud, Bloomberg dot com. Uh. We love comments, feedback and suggestions right to us at m IB podcast at Bloomberg dot net. Check out my daily column on Bloomberg View dot com. Follow me on Twitter at rid Halts. I'm Barry rid Halts. You're listening to Masters in Business on Bloomberg Radio. Welcome to the

podcast Drum. Thank you so much for doing this. This is really fascinating stuff and I love going deep into the weeds on some of these issues. I had no idea you knew Paul McCullough. You know I know Paul pretty well? Right we uh we fish in Maine every year. Although um lately he's been sort of all around the world and and and hasn't I don't think he's been

doing all that much fishing. I remember when he went from clean cut pim cut to the Jesus version of Paul McCulley had hair passed the shoulders and long beard, and then kind of came back to the clean cut version. It was kind of an interesting um transition. Well, you I think he was trying to scare the fish out of the water at that time. I think he scared everybody else. Uh, you know, a few questions I didn't

get to. We we touched upon bare Sterns. I was really fortunate that I got a little lucky and I was pretty much out of equities and heavily into bonds and shorts, so the financial crisis wasn't emotionally painful. However, I had, you know, I had friends that were getting fired everywhere. I used to send down an email list

of about two thousand people, and it was astonishing. Starting in late I want to say, late oh seven, earlyer eight, I could track the economy based on the amount of bad email bounces that out of this list of two thousand. By the time the crisis was done, was down till nine hundred that many people had either switch jobs or lost their jobs. You were right in the eye of the hurricane. What was that like? You know, I remember obviously,

I remember like it was yesterday. But I think the important factor that we all think about is is that the market we were an unpresident in times, and the playbook, so to speak, was it was one that had to be consistently evolving, and in history will try to reconstruct all the minutia that happened, you know, during the financial crisis, you know, starting with the the funds that basically we're gated at parablele in two thousand seven, and obviously the

bear Sterns bear Sterns asset management funds and things like that. But I think what we recognize as the fact that there was a structural breakage, and that structural breakage was number one, investors failed to understand risk, and that was institutional and retail investors. And number two, the central bankers themselves weren't doing anything help to weren't doing anything to provide guard rails to sufficient enough to offset the leverage points that they saw in the marketplace on a real

time basis. They were aware of them. But at the same time, so I'll interrupt you right there, because I hear from the same people depending on what's going on in the market. The FED is that, you know, this is in a free market anymore, there's too much intervention. The FED should just let the market do its thing and stop distorting it. But a few years earlier, it's like, when is the FED going to step in and fix this? It's a disaster. It seems they wanted both ways. Am

I overstating that or I think that you know? And this goes on sort of talking both sides of the coin here. From Pimcoast perspective there, we were clearly, clearly

early to the game. We were starting to see signs of the housing market in two thousand five, two thousand six, and we sort of pulled it in our our reins with regard to that, and that risk actually a bear at that same point in time, we you know, from our perspective in many of the businesses we ran, we actually were we we resisted doing transactions that we saw guoding done in the marketplace because we thought they were overlevered and simply did not make sense. The irony, the

whole thing. Even though we were prudent in many regards, we were obviously the first ones to take it a huge express the mortgages and housing that was their specialty. But at the same time, it wasn't just mortgages than housing, it was equities. It was the correlation trades and things like that that basically brought the entire market to to

where we became. And so the mark to market issues, just generally speaking, was one because of incremental leverage requires whenever there is a mark to market too, that you have to pony at additional capital and or sell assets or sell assets, and that's the digital spin. So it wasn't necessarily one asset class. It wasn't just mortgages, it was everything. And so that's the correlation that you have to understand when you get into these situations that are

that's pretty you know, it's pretty damaging to portfolio. So leverage works great assuming that you understand the cost of that leverage and you can play defense against it, which is why us understanding that cost, that capital and funding cost most importantly is incredibly important to understanding why fixed income is value the way it is today. So so that's been the criticism of a screenberg. It's not the

paper clips, which are an insignificant round ding era. It's the focus on the minutia and at the same time ignoring the giant exposure. Although really, to be fair to him, by the time oh five oh six came around, he was chairman emeritus. He wasn't really running things day to day? Was he? That? That? I mean, that's that's a great case in point. And you know, I'm not here to

point fingers, but I do think that number one. There there's a fantastic book that he wrote which is called Memos from the Chairman and in it he has a Mammos from the Chairman and you and you should pick up a copy. It's a quick read. But there is a fictional character which he called him Jankle, and him Jankle was the guy who came around and said, you know, why does anybody need things? You know tomorrow? Meaning why do you do FedEx? Why? Why do you what? You know?

When I walked into bear Stearns um in in you know, in they handed me two things I think, a firewarden hat um in a direction where to get out, how to get out of the building, and a and a and a paper bag that was probably three inches by two inches that had a box of paper clips, ten rubber bands, um and and uh some tape and they said this is all you'll need in your entire career. And literally I think I still I didn't even get

through the paper clips. But the idea behind it was is that you know, saving the money is it goes into the partner's pocket. So that's clearly and at that point in time Barrow was a public company, but it was the mentality that you are an owner, you want to protect capital. You want to protect your capital, and in doing so, you want to make sure that your business is profit motivated to generate the highest returns and

best risk adjusted returns. And that creates adverse situations as well, because people are going to try to shoot the moon at various points of time, and that's just not a bare thing. It was. It's Wall Street of absolutely. So I think that that was one one element, but it

also takes macro management and risk. We had actually very strong risk management at bear um or around the Horn, but when you put it all together in terms of thinking about how it was related to the boardroom, etcetera, there's now much more rigid input from a risk management group in every bank, in every portfolio management, in every by side shop today than there probably ever has been.

And that simply increase the stake and makes make sure that capital was allocated by and more importantly criticized those allocations by independent party. So risk management became something that was you know, from the back office or maybe not appreciated to actually pretty glamorous in the spotlighter of the past ten years. I don't know if glamorous is the right word, but certainly it's a focus on every bank. Now. Compliance and risk management are the two fastest growing departments,

to say the least. But I'll tell you this, even at PIMCO, you know when we come in and have due diligences, we have entire sectors, segments hours plus with the rich risk mans roteam that's global like the robust and and there, and they're your sophisticated and they need to understand and do stress testing for portfolios and they

want to. They're gonna offer their objective you in terms of how your report positioned what you know, what idiucing credic events you could be defensive or offensively position for. And and it's a critical element to our to our teams and PIMCO success to protect capital for our clients. So let me let me shift gears a little bit on you. We talked about the FED earlier. UM. Some people, well, let me start with this question. Some people have said

the FED is distorting the bond market. Doesn't the FED always distort the bond market? Isn't that what raising the lowing rates does? No, it's more, it's not that the FED is distorting the bondo market. It's that the they're trying to adjust the market's perceptions of the fair pricing of the bond market. And it's nuanced. But but it seems to make sense. Well, I mean, it depends if you think that the tail is wagging the dog or

the other way around. You know, the reality is when you look at how the bond market functions, irrational things happen all the time almost any market. UM as an example. UM two examples, one being you know, the pricing of dollar funding over year end. There are certain constraints that for that forbid banks from lending dollars over a year.

And as a result, if you have excess dollars, it's a great time because you're able to earn a huge excess premium to lend those dollars to foreign investors who need to borrow those dollars every year end. The same thing goes on with regard to treasuries and fixed income securities. There's a premium assigned to fixed income securities as a safe haven asset. And it used to be that treasuries were the golden child of safe haven assets, and they

still are to some extent. But when you got to a zero bound in terms of yield, when you had the tenure at you know, sub sub two percent, when you had the two year, you know, the two year note at sub one cent, those weren't really attractive safe haven assets because you couldn't necessarily squeeze anymore juice out of those And and the reality is it's hard to make, you know, when during times of stress, it's hard to make lemonade all those lemons because you already squeeze all

the juice out. We call that basically the term premium these days. And when you think about it, the marketplace right now still has a excess amount of term premium assigned to owning a treasury, meaning they're willing to pay up earn less yield by owning a treasury than they typically would otherwise. That's the key metric. And with the fedtestring to do is influence what they view to be

that term premium to be over time. Do they want to reduce that term premium, Well, they want to reduce it because they ultimately think the inflation is going higher over a period of time and shape the you O curve accordingly to those inflation expectations. So that's one element. The other element, well, wait before we move, let's talk about inflation, because we really didn't get to that as

much as I wanted. Um, it seems to be that there's not a lot of inflation, and inflation has been preternaturally low for lord knows how long are we going to see an uptick in inflation? The the best description I've heard, and I this may have started yet another thing that started with mccaully was we have we have inflation and the things we need, and deflation and the things we want. And if it's not poll it certainly

sounds like him. Um, so where are we in the process of inflation, disinflation, deflation or all of the above. The number one metric, and this gets back into my comments about optionality for the FED. But the number one metric that the FED is going to be focused on is the tightness of the job market and wage pressures on a go forward basis. So sure inflation, headline inflation

is perked up a little bit. A lot of that has to do with energy pricing over the past few months, and when you approach seventy bucks of barrel oil, there's gonna be some headline pressure, so to speak. But what they really want to see is an increase in wage pressures, an increase in growth, and we're starting to see that. Some of it's in relation to the job or to the tax tax reform. You're seeing some some of the just immediately come through in terms of bonus payments, some

some increase in wages. But they want to see on a sustained basis, and so getting some of those wage under caters, average hour, really earnings, things like that on a upward trajectory, not just flat, but upper trajectory over the next quarter or two will actually give some sustenance to the FED to actually continue to move forward, which

they likely will. But I'm saying that's really what they're focused on in terms of that wage in terms of that inflation metric into eighteen, we've seen eighteen states and I believe it's twenty two or twenty three municipalities raise their minimum wage. What does that do to quote unquote wage pressure, How it trickles up the pay scale? And how does the FED perceive that sort of legislative attempt

to drive wages higher. That's one side of it. You know, they clearly want you know, that's clearly one mandated wage pressure so to speak, so that that's that's going to play into that, But they actually want to see you know, other things go into it. You know, they're going to see UM obviously unemployment go clearly below four percent probably

this year. Yeah, and what does that And they're gonna also look at the broader employment measures, you know, which are covering you just north of eight percent UM, you know, looking to see those dips. But it's again it's simply you know, is there hidden capacity in terms of jobs in the economy. Maybe some, but we're getting to a diminished,

diminished size right now. And in fact, there's articles about about employment employers looking for employees who they probably would have never talked to UM over the past few years people with prison records. I read that same thing, and so I mean that sort of gets you scratching your head, like, you know, actually, maybe maybe my fift you know, maybe my kid this summer can actually get a job because he's not competing with someone who is you know, forced

forced earlier retirements, you know, over the summer. But you know, I think that that is that is what we're ultimately looking at. So, yes, you can legislate minimum wage, but they're also looking at the growth segment across the breath of the across the breath and the breath of the breath of the employment sector is really what they're going to be focused on. So they're pretty sophisticated in this regard.

So here's the pushback to that. It's, well, we've created all these jobs, but a lot of them are in low paying sectors without benefits or very modest benefits like hospitality and the lower end of healthcare and and the lower end of retail. Has the quality of the US labor market affected how the FED perceives wages and inflation, perhaps, But let me offer something else to that, is that if there is the man to employ people and people can't,

and those employers can't find people to employ. What what is going to happen gets back to my whole supply demand to bring some people in who have left the labor for us and theoretically HB one visas another qualified immigrants um. But eventually you start running out of bodies, right. And that's the point is that eventually, when you start running out of that supply, you're gonna have to facilitate it by getting people to move back to your arena.

And the way you do that is you increase your wages. And so that's the key what they want to and and this is we have one thing that hasn't even entered our discussion here today Verry is productivity. And I think that's something that we have to focus on. Okay, so let's talk about that because that's one of my favorite questions I have long been So some of this has to do with my particular lens in the world

of finance. Uh, I see just a huge uptick in productivity and the benefits of software and automation and the technology in my job, which you don't necessarily see in the data. So I'm forced to either say, hey, am I just in a field that happens to be unusually productive. So my view was skewed. Or is there something wrong with the measurements where we're missing a ton of these

productivity gains in broader society. Maybe you're just productive where you're more productive as you Yeah, but it's not just me. I keep coming back to it. It's not just me. Is there is there a it could be both. Is there a a productivity softness or is there a measurement there's both. I mean, let's be fair. I mean, it's just like any politics. You get it, you get evangelists on both sides of the aisle. But like you know, I think at this point we have to be rational

as we get older, life start now. Well we get a whole different discussion, uh, and perhaps a separate podcast. But the reality is is that you have to as you get older, you want to adapt to product things that ake you more productive. That's clearly one side, one

side of the equation, and it's very important. So the willingness to adapt to things that will make you more productive is actually something that we as human beings are going to have to be um, you know, open minded to over the over the next few decades, um and I think that that's one in regard, but the measurement side, the measurement side is a key element, and that's very difficult to handicap, you know, personally, I think when you look at things that um that are are are misguided

in terms of productivity, technology, things like that. We're gonna look back in twenty thirty years just as we did, you know, I remember, you know, just as we did ten twenty years ago about the impact of the Internet, impact of of robotics, impact of simply um, you know, even in portfolio management, for goodness sake, you know, we're doing more more stuff, you know, out of you know, that's that's not less with less bodies and and and

not as many fingers in the air. Um. You know, you can pull a lot of charts and and do a lot of analysis and read a lot of reams of paper. But there's some pretty interesting things we're doing, you know, with with computer power, some really smart analytics that we weren't doing three, four or five years ago, and that and that's and that makes us all that more productive. But that doesn't necessarily show up in the actual measurements. And I think that we have to, like

any piece of data. It's open to interpretation and you have to be rational. And unless you're willing to do that, then you're simply driving down the road at fifty no matter the traffic conditions. And you know what, that's a terrifying place to be. There are two questions I want to get to my favorite questions, but there are two things I didn't um come back to. I have to ask about. One is the liquidity issue with trading. The number of trading bonddesks on Wall Street and trading farms

on Wall Street has declined dramatically. What does this mean for liquidly in the bond market or is everybody just forced to trade with black Rocks bonddesk and and they've replaced Wall Street. Yeah, you're too You guys are coming up on two trillions and income. So I would say this is that it's a great thing for our clients.

And the reason is that we are able to understand and assess good opportunities and entry points into bond markets and opportunities and most importantly, earn liquidity premiums for our clients. And what I mean by that is, in the old days, everything used to be sort of locked markets liquidity. You know, liquidity was very open. You know, everybody had a bond desk, things like that. We might, we might get back there, but not to that point. I don't think. I don't

see that move going back in that surrection. But you have to admit that the regulatory winds have changed official six months and so you're not gonna get all the way back there. But the point I would make is that when you have inefficiencies and markets, it is an ideal time for fixed and comme asset managers or asset managers who can who can influence and most importantly understand

and participate in those inefficiencies. And so for clients of PIMCO, that is a great asset in and of itself because as a portfolio manage You're sure I'm telling people how to position themselves. But Barry, I'm spending sixt of my day trading. I get in the office at three thirty in the morning and I'm looking at markets in London, and I stayed until six six, seven o'clock at night looking at how Asia opens. Those are great opportunities for

global investors to really take advantage of. So for our clients over the past five to ten years, as markets, market conditions have evolved or devoulved, however you want to look at it, that's been really powerful. Uh. What's the most important thing? People don't know about your background. They don't know about my background. Uh, they clearly know I'm from Oklahoma. And and so I view that as being a view that as being a um a huge attribute.

I would say, uh, being self you know, being a self starter, understanding and understanding um, sort of how things are put together in a very simplistic term. Not to say I'm simple minded, but that upbringing was very powerful. Um, you know, I think the transition really uh. And and I guess being being being a minority in Oklahoma was one of the few Jews in Oklahoma. I think that that actually was a h an open minding experience in

a lot of ways. And you had friends from all different religions, um sort of come you know, coming forth. And it wasn't until I moved to the East Coast that I actually had a h an ability to reconcile my heritage effectively with that. And so, um, I would say that for me, you know, just sort of being that minority for many years was a positive and a negative influence and experience. Um. But it also was very very formative. That's quite interesting. UM, tell us about some

of your mentors. So you're early mentors. We know who your ladder mentor was. Yeah. Um, so there's there's a couple that come to mind here. Of course, you have, um, you know my you know, a speech and debate teacher who pulls you out of you know who, who says you probably have a good gift for gab or at least extempering and speaking. So that's when Glinda Ferguson was her name, and she sort of molded helped to mold

me at least to say something coherent in probably ninth grade. Um. But you also have other people, and there was a gentleman. There's two people that I always had jobs in my entire life, and I had owned a lawnmowing business, but the summer before my senior of high school, I had two people influenced me. The first one was a gentleman by the name of Leroy Gilmer. And Leroy was not anybody who was who who who was significant in a noteworthy way, but he was significant in my life because

he was a hard worker. He worked three jobs and we worked at a basically a sports bar is what we worked at, and he hired me on a whim because he thought I was probably from the right side of right side of the tracks, but hard enough working that I would work in the hours I wanted to. So my hours were five to two thirty in the morning, five pm to two thirty in the morning. And what he taught me was the ability to prioritize an industrial

kitchen and what to do when you get slammed. So there's nothing like a sporting event where you have fifty tickets of food sitting in front of you and you have to prioritize all those hungry, possibly drunk patrons at a very quick point in time. And for me, Leroy was the epitome of hard work and diligence and the understanding how to logically put sequencing together during times of stress. What happened during that sounds like it's applicable to future.

So one of the first things that I asked people is what is your first job? Um when they interview of them, probably laying the calibat, and if they said internship at x y Z Investment Bank is my first job, it's a very short interview, because the reality is is that you want people to have real experiences who can understand how to adapt and and that's an important thing.

And so I'm more real world than probably even most of my brethren at PIMCO in terms of the types of questions they asked, because they all wanted to try to stump people with some intellectual like quantitative thing. That's one element. But the other other person who molded my life was a joan by the name of Tom Love. And Tom Love Tom Love and so you probably don't know Tom, but Tom's worth several billion dollars and what

it's it's interesting about Tom Love. And as you you get into the gas industry, I had two people who are very close to me in that. But Tom Love had a had a had a series of truck stops called Love's Country Store, and you might see him on the interstates, and there's now tons of them, but back in the early nineties there there was a good few,

but it was more of a regional type of situation. Anyway, I had worked at a He had very few bad investments in his life, I think um but he had one investment which was in a car wash and the car wish. Business is very tough business. But I was. I worked my daytime shifts at the car wash, and I was a salesman and I did some of those cleaning the cars of course, and things like that. But it was he lost money on it, and and he

was so perturbed by this. He actually showed up every day in is um aulsomobile truck, I remember at that point in time, and here I was, and he, you know, he was very frustrated by the fact that this was a money losing operation. At that point time, he had invested a million dollars in this property and another million in the plant, and it never came to fruition. And he kept every day coming in to see what was going on and talking to the employees at the ground level.

And I made a couple of suggestions to him, but he was open minded in my suggestions. And number two, no matter how big his business became, he was actually very hands on in terms of understand ending how to learn from this failure. And so I learned two things from it. It's important to be not an absentee owner, number one. And number two learned from your failures. And and Tom Toes, you know, to this day is obviously

quite successful. Let's talk about books. This is everybody's favorite question. Tell us some books that you think you've read recently or you think are important. Yeah, there's a couple here, but um, you know, obviously you know it's funny. I still to this day ask people interviewing, have you read Liars Poker? And clearly, uh, that was sort of formative

in the in the beginning of the year. Or there's one called The Bombardiers by Paul Paul Bronson, and those are just sort of industry books, but Peul Bronson was the biggest little con value, right. Yeah, yeah, but but it's amazing to me that people who are just coming this industry have no understanding of that history and and I literally will buy it for them just to give them that sense of history. Not that it was the

right or the wrong, is just the sense of history. Um. Philosophically, you have to think about the places like ann Rand and the Fountain Head in places like that, not necessarily that you coveted, but I think it was who eye opening experience for me to read it as a young adult. Um. But I actually go back to my upbringing in the oil bust, and there was a book by by a gentleman name of Mark singer Um called Funny Money, and it was the the beginning of the end of the

savings and loan crisis. And what you don't realize actually is that the savings loan crisis. Everybody thinks of Continental of Illinoise being the pinnacle of it, but it started from literally a bank branch in the middle of a parking lot called Penn Square in Oklahoma City. Penn Square Bank did so many bad oil deals that it was out of a branch. There's probably no bigger than an average house, you know, a couple of couple of thousand square feet, but yet that was ground zero for the

savings and loan crisis. And it's often misunderstood about how things grow become misproportioned and misaligned in terms of risk, and that, as I mentioned before, it was the upbringing I had was how to react to ultimately the oil bust,

and that was very formative. But that book really gets into the detail of of how, you know, how euphoria and you know, caltivate itself, and more importantly, personalities captivate people, and that's an important factor tell us what you do outside of the office to either relax or stay fit or mentally unwind. H I love to spend time with my family, my wife. You know, that's a that's a good balance, uh, and you know, try to work out. You know, I'm pretty I've been doing cross fit for

ten years and so that's ah. They're great, They're not familiar. I've had a handful of surgeries, but not because of that. But I do it as a stress relief. There's admittedly some movements that I will clearly stare away from. But the people that you deal, that you train with and you work out with, are not in your everyday life,

and it's fascinating to hear their stories. And you know, my my goal isn't too you know, back squat five hundred pounds, but it's to stay you know, stay fit, and more importantly, you sweat a little and have a good time. And that's what I find. So if a millennial or someone just graduating college comes up to you and says they're interested in the career in fixed income, what sort of advice would you give them? Two pieces

of advice, be patient. I just had this conversation with a colleague not so long the expectation is that somebody's making more money around you, and you should make as much money around it where they've given more priority. The reality is that careers take a long time to build, and your firm is likely investing in your career in a variety of way, shape, or form. They will be

rewarded over time, and so patients is essential. Believe me, people told me that along the way at an old boss's name is Lennie Feeder, who basically helped me to get me under my way. And you know it took me places from London to double in Ireland, where I lived for a couple of years, back to New York. The reality is that patience is an incredibly powerful thing in a career. And and and I think that's someber

one and number two. If you really want to be in finance these days, UM no offense to New York because I love New York and spent many years here. Global finances a global industry. And if somebody's going to hand you an opportunity, and that could be in London or Munich or Singapore, Tokyo or Sydney or our Newport Beach,

um run with it. And you've got to be open mind enough for you and your significant other to take those opportunities when they come, because oppert tunities don't fall in your lap very often, and the most successful people are the ones who can capitalize on that and then grow beyond that. And our our final question, what is it that you know about the fixed income market today that you wish you knew twenty years ago when you

were getting started? Um? Well, one of the things that Ace Greenberg was was very mad at me about was the fact that I was actually in the fixed income market. He wanted me to be in the equity markets. He was not a bond guy, believe it. And so one of the things, and I got to be honest with you, my being in the fixed and cort was was market was a little bit by chance. Um but it's something

that I became fascinated with. I think one of the things that would have been really useful in understanding is is how leverage really plays itself into this system, and more importantly, have a better mapping tool to understand how leverage proliferate is proliferate prolifer rates throughout the entire global system at this point time. It's something that you think you know, but it's very difficult to map out in

any articulate way. And no matter what people think, that's something that's you know, more of a more of a more of an educated guest as opposed to precise measurement factor. We have been speaking with Jerome Schneider. He is the head of short term portfolio Management and Funding at PIMCO. If you enjoy this conversation, be sure and look up an inch or down an inch at any of the other hundred in G eighty or so such conversations. We love your comments, feedback and suggestions right to us at

M I B Podcast. That's M I B Podcast at Bloomberg dot net. I would be remiss if I did not thank my crack team who helps to put together these weekly conversations. Taylor Riggs is our booker. Mike Batnick is our head of research. Medina Parwanna is our audio engineer slash producer. I'm Barry Ritolts. You've been listening to Masters in Business on Bloomberg Radio. The PAK