Government

What Mark Twain, Lenin And Frogs Have To Do With Treasury Bonds. Or Not.

A bond prince in disguise.
Wolfgang Kumm/AFP/Getty Images

Bill Gross is the co-founder of PIMCO, an investment firm that manages over $1 trillion. He writes like a crank in some Internet chat room. The juxtaposition is fun.

In his latest note, Gross mixes two frog metaphors to explain why he's betting against U.S. Treasury bonds.

First, he compares investors who own Treasury bonds to the famous frog who is slowly boiled alive without ever sensing there's a problem. (Rising heat for the frog = falling interest rates for investors.)

Then he moves on to a second, less famous frog:

All right fellow frogs, so we're being repressed and shortchanged in order to allow Uncle Sam to balance its books. Whatta we gonna do about it? "Frogs of the world unite," as Lenin might have said, and so here's where I harken back to Mark Twain and 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! Butter in this instance is what PIMCO characterizes as "cheap bonds."

Cheap bonds are, essentially, bonds that offer a better combination of risk and return than you can get from Treasury bonds. For more of the technical details, read Gross's full note.

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