Bond king Bill Gross is reduced to making headlines for harassing his neighbors with irritating music. But in his pomp, Gross ruled the bond market, moving global prices with his forecasts and the billions of dollars at his disposal.
As the founder of Pacific Insurance Management Company, or Pimco, Gross popularized the then-new concept of bond trading in the 1970s. He oversaw the growth of his fund for decades, outperforming competitors for years, before to launch itself into the teeth of the mortgage crisis of 2007 and through the unprecedented government interventions that ended it.
All of this and more is chronicled in The Bond King, the new biography of financial journalist Mary Childs. It begins with Gross arriving at a sleepy California insurance company right out of business school and realizing there was a profit to be made by trading the low-yielding bonds in the vault. -strong against loans with more lucrative returns.
At the time, high inflation and rising interest rates made holding bonds a losing proposition, creating an incentive for active trading. It makes you wonder what Gross could do in today’s volatile bond market, which is arguably facing its worst year since 1842. But for most of Gross’s career, rates have fallen – a bull market for bonds.
His winning strategy began with bold bets on the market, but he found ways to outperform benchmark funds by accepting additional risk and pushing the limits of government rules on in-house asset trading.
How Bill Gross shook hands with the government
For Childs, Gross’ significance beyond the bond market came from his role in the 2007 financial crisis, which reshaped the relationship between financial markets and governments. Unprecedented efforts to protect the real economy from crashing by bailing out the financial system have had the troubling side effect of making bankers and investors rich.
Gross and company saw the mortgage crash coming with their deep knowledge of the market, and even called it too soon, to their detriment. But amid the collapse, Pimco became indispensable to the government, just as it had been to pension funds and other investors, by helping the Federal Reserve value and buy private debt. Then he ran the government, grabbing other bonds considered vital to the economy – issued by banks, homeowners or automakers – and profiting when the federal authorities stepped in to guarantee or support that debt. .
“Gross and Pimco understood that government needs markets to work, wants the stock market to go up, wants companies not to fail,” Childs writes. “So people can fight for base points safe that things will never be allowed to go too far. And even if they go down, for a professional fund manager, it’s almost never their problem. There are many people to thank for this, but Gross is chief among them.
An investor eclipsed by his escapades
Still, the substance of Gross’ career isn’t what makes it so memorable. Gross was – is? – not to mince words, a legendary asshole. Or at least a good chunk of his colleagues thought so, citing his raging criticism of small mistakes, his insistence on silence during working hours, his habit of conveniently forgetting his own mistakes, and his harsh turns on his former proteges.
Gross’s behavior ultimately led to his 2014 ousting from the company he built. Gross realized late (watching the movie the big short, apparently) that he had Asperger’s Syndrome. This may explain, if not exactly excuse, some of his behaviors.
Gross reminds me of other trailblazing tycoons (Steve Jobs, Elon Musk) whose ugly treatment of others somehow seems central to their success. Some of his investor letters, which talked about his golf game, compared bad investments to prostitutes, and examined his weight loss efforts and his fears of cameras in self-flushing toilets, remind me of tweets from Musk.
Do you have to be an eccentric or a moron to create a new market or build a conglomerate straddling the world? I asked Childs what she thought, and she told me she saw a connection between jerkiness and commercial success, noting “that ability to ignore everyone’s view of reality, an ability to override empathy, at least, to make decisions that are bad for the heart but good for business, an intense focus that others might find off-putting.
That could change in an age of rising worker power and rising expectations that executives affect some empathy or be the subject of a derogatory prestige TV series. Or maybe the causality is reversed: maybe the power and money garnered by these men is the problem, with research suggesting that will warp your social intelligence.
“If a tremor was a pre-existing condition [of business success]it’s almost certainly a consequence as well,” suggests Childs.