Bill Gross, the co-founder and chief investment officer of investment giant Pimco, has been stewing over the government's monetary policy in the wake of the financial crisis. LITERALLY STEWING. He feels, he told investors today, like a frog, slowly cooking to death in a kettle of boiling water. You know how that works, right?
Put a frog in a kettle of boiling water and he’ll jump out faster and further than any of those blue ribbon winners at the Calaveras County jumping frog contest. Put him in a pot at room temperature, however, slowly turn up the temperature to boiling, and you’ll have frog legs for dinner. This latter, more unfortunate toad temporarily adapted to his external environment, which seemed like a practical thing to do, until - well, until he reached 212° at which point he was cooked. Today’s bond investors are experiencing a similar fate with nary a “ribbet” of complaint.
Until now. Bill Gross is ribbeting.
The value of Treasury bonds, he points out, have been artificially inflated by the Fed's low interest rates, and predicts that the way the stimulus has been going — or not going — they'll eventually yield investors much less. Instead of buying bonds, he says, investors should purchase distressed bonds, or, as he puts it, "make butter."
“Frogs of the world unite,” as Lenin might have said, and so here’s ... my second lesser-told frog story. There was this other frog who instead of being tossed into a pot of hot water was left to cool its heels in a pitcher of cold milk. Unable to jump out, he churned and churned those frog legs until eventually the milk turned into butter and the hardened butter allowed him the platform to leap to froggy freedom! Well, let’s get churnin’, fellow frogs. If the U.S. or the U.K. or any other government is going to attempt to boil us alive, let’s make butter!
Good thing Bill isn't in France; he should see what they do to frogs there.