20 | August | 2011 | wealthymatters

Bill Gross and Frogs

August 20, 2011 4 Comments

wealthymatters.com Using the metaphor of frogs Bill Gross explains Financial Repression and the ways of dealing with it.Of course he speaks of the situation in the US but there is no reason why investors in other countries whose governments are struggling with debt can’t learn from him.All said and done not for nothing he is the Bond King!

To quote him “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 degrees at which point he was cooked.”Financial repression is similar to slowly turning up the heat on poor froggy/the bond holder/saver. And the boiling point is when the nominal returns on bonds turns negative. Read more of this post

Filed under Paper Assets, Theory Tagged with Bill Gross Frog Story, bonds, cheap bonds, debt, Financial Repression, nominal return, postaday2011, RandomBlog2011, savers, transfer of wealth

Bill Gross – The New Normal

August 20, 2011 2 Comments

wealthymatters.com

Normally whenever I hear some version of why something is different this time over I become a skeptic and start tuning out the person.However I am drawn to the idea of ‘The New Normal’ propounded by the Bond King-Bill Gross of PIMCO and Mohamed El-Erian his Co CIO.This is because they are not so much telling us that economic cycles are bunk but that we are blind to the larger economic cycles.

Bill’s message is anything but easily palatable for a lot of people.It is also true that his timing has been wrong in the past. I won’t go so far as to say every minor detail of what he describes as the ‘New Normal’ will come true but I believe he has gotten the big picture right.I fear that we are in for an extended period when equities might not on an average give the high rates of returns they did in the recent past.Bonds might outperform stocks in this period and investors will have to re-examine their beliefs.Assumed rates of return on various long term savings might have to be revised. The most successful investors during this period will probably be those with common sense and importantly the powers of intuition, observation, and the willingness to accept uncertain outcomes. And all the talk of countries like India escaping the international turmoil unscathed will be wishful thinking. Read more of this post