The 1980s were an iconic decade on Wall Street. Michael Milken and his team at Drexel were key players in sparking the wave of buyouts that were emblematic of the era.

Before all that, in the early 1970s, a young Michael Milken joined Drexel to focus on low-grade bonds. He had discovered the research of W. Braddock Hickman, which concluded low-grade bonds could generate attractive investment returns, and he became obsessed. He was ambitious, smart, and an outsider when he got to Wall Street. Within a decade, he would be at the center of it.

In this episode, we tell the origin story of the high-yield bond market—and how Michael Milken, from a backwater desk at Drexel, turns a stigmatized corner of finance into the most powerful funding engine on Wall Street.

At first Drexel focused on trading “fallen angel” bonds. Then they moved aggressively into underwriting new high-yield deals, and created a flywheel: more issuance, more buyers, more liquidity—all underpinned by a rigorous knowledge of the market that no one else could match.

Along the way, we pull out lessons that rhyme with modern cycles: why market “infrastructure” matters as much as the math, how scar tissue from the last decade warps risk-taking, and how a productive innovation can—at scale—start to fuel excess.

Chapters

(04:06) Wall Street in the 50s/60s

(07:25) Michael Milken’s background

(11:24) Intro to bonds and market structure

(12:56) Braddock Hickman research and the logic for high-yield bonds

(18:34) Michael Milken lands at Drexel

(23:42) The 1970s, stagflation and brutal markets

(30:41) Michael Milken almost leaves Drexel then he gets capital to manage and doubles it

(49:13) Expanding the market by creating new high-yield bonds from scratch

(57:48) High yield fuels the rise of leveraged buyouts and corporate raiders

References

Dangerous Dreamers: The Financial Innovators from Charles Merrill to Michael Milken by Robert Sobel (link)

The High-Yield Debt Market: 1980-1990 by Richard Jefferis, Jr. (Federal Reserve Bank of Cleveland) (link)

Junk Bonds: How High Yield Securities Restructured Corporate America by Glenn Yago (link)

Innovations in Finance, Medicine, and Education with Michael Milken, Capital Allocators Podcast by Ted Seides (link)

Sponsors

Big thanks to EQT Corporation for helping us bring you the stories of market history and how they apply today. To learn how EQT is unlocking energy to power AI, go to PoweredByEQT.com.

Note: this show is for informational purposes only and isn’t investment advice. Backtest hosts and guests may have investments in the companies discussed.

In Part 1, George Mitchell unlocked shale gas. In Part 2, Aubrey McClendon fueled the boom with a capital and land machine at Chesapeake. In Part 3, we tell the story of one of the operators who makes shale production stick. EOG Resources led by CEO Mark Papa cultivates a unique (and uniquely secretive) culture of rigorous capital allocation and constant technical experimentation.

We follow Papa and his lieutenants Bill Thomas and Gary Thomas as they see what others miss: shale’s success in natural gas will eventually create a glut that will crash prices. EOG must pivot to oil or stall. From a dramatic 2007 offsite where Mark tells his team to stop looking for natural gas, to early experiments in the Bakken, to a quietly assembled position in the Eagle Ford, EOG’s edge leads it to become a top US oil producer.

But before they can enjoy their success, the market turns again. On Thanksgiving day 2014, Saudi petroleum minister Ali Al-Naimi announces to the world that OPEC won’t cut production to balance global oil markets. Oil prices collapse by 60% over the next 12 months and the shale boom faces its first true stress test. We unpack why so many companies break—and why EOG doesn’t—ending with the playbook that helped shale survive: low cost operations, productivity gains from technology, focus on premium wells, and operating discipline built to survive boom-bust cycles.

Chapters

(04:56) Two questions: will shale oil work and can shale production be profitable?

(07:28) The operators: Mark Papa, Bill Thomas, and Gary Thomas at EOG

(08:16) The history of EOG

(11:32) The 1990s oil & gas market

(13:34) Two forces converge at Enron in the 1990s

(20:03) Being the low cost operator in commodity businesses

(21:55) Four things that define EOG

(29:32) The commodity supercycle of the 2000s

(33:03) EOG pivots from natural gas to oil

(45:55) EOG announces the Eagle Ford discovery

(55:25) The commodity supercycle and the zero interest rate environment

(57:21) OPEC surprise on thanksgiving 2014

(1:08:04) Lessons learned

References

Saudi America: The Truth About Fracking and How It’s Changing the World by Bethany McLean (Link)

Crude Volatility: The History and the Future of Boom-Bust Oil Prices by Robert McNally (Link)

The Accidental Oilman by Lawrence Strauss, Barron’s, October 2011 (Link)

The Frackers: The Outrageous Inside Story of The New Billionaire Wildcatters by Gregory Zuckerman (Link)

Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages by Carlota Perez (Link)

At the end of Part 1, Devon had just bought Mitchell Energy for $3.5B and locked in the technological innovation behind the shale revolution. But the real boom in drilling, debt, and production doesn’t kick off until a worldclass landman and dealmaker from Oklahoma City—Aubrey McClendon—decides to bet his career and wealth on natural gas being the defining fuel of the 21st century.

In this episode, we tell Aubrey’s story: from deep family roots in oil & gas to hustling as an independent landman in the brutal 1980s bust, to co-founding Chesapeake, taking it public in 1993, and doubling production year after year even as gas prices went nowhere. We follow the moment he and partner Tom Ward fly to San Jose to sit across the table from Calpine executives and realize just how much gas-fired power demand is coming—and why that meeting gives Aubrey the conviction to pivot Chesapeake almost entirely to gas in the late 1990s, just before Alan Greenspan warns Congress about tight natural gas supplies in the US.

We walk through how he uses every financing tool available—bank lines, high-yield bonds, converts, joint ventures, volumetric production payments, and massive midstream commitments—to plug billions in capital needs and amass premier shale positions in the Barnett, Marcellus, Permian and beyond.

We draw lessons on effective fundraising, capital cycles, commodity cycles and technological revolutions—and why going to the source for real market signals is still the best way to build conviction.

Chapters

(02:35) Alan Greenspan on natural gas as a headwind for US growth

(04:05) Aubrey McClendon’s early life

(07:02) Aubrey graduates from Duke and joins Jaytex

(09:48) Setting out on his own as a landman

(16:07) Chesapeake goes public in 1993

(22:55) 1998 natural gas inflection point for Chesapeake

(26:30) Chesapeake gets into shale

(32:55) How big capex gets financed

(44:38) Aubrey loses substantially all of his Chesapeake stock from a margin call

(49:29) Aubrey gets pushed out of Chesapeake & starts AEP

(52:47) Lessons learned

References

The Frackers: The Outrageous Inside Story of The New Billionaire Wildcatters by Gregory Zuckerman (Link)

Saudi America: The Truth About Fracking and How It’s Changing the World by Bethany McLean (Link)

Chesapeake’s 1993 Annual Report (Link)