Home > Main > Bond King Bill Gross uses a false story about frogs to promote a false story about bonds

Bond King Bill Gross uses a false story about frogs to promote a false story about bonds

June 2, 2011

I was unable to find a picture of a real world frog accepting its boiling fate. I had to use a picture of a plush toy to illustrate my sophisticated point about financial markets and economic reality.

You’ve probably heard about the recent missive from bond king Bill Gross, the largest bond fund manager in the world.  He compares bond investors to boiling frogs.  We’ve all heard the story of the boiling frogs, how they will just sit in a pot of gradually heating water until they perish from the heat.

Unfortunately, this well known story about Boiling Frogs is not true at all.

Here’s Paul Kedrosky at Bloomberg pointing this out:

“This is me being more than a little pedantic, but I’m picking a personal nit here. In his latestmissive, PIMCO bond guy Bill Gross tells the following well-worn story:

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.

Gross goes on to suggest that bond investors are acting the same way, that the environment is becoming more hostile and yet they wait and are steadily being boiled, so to speak. Well, Gross must be the last person on earth who still thinks that old boiled frog story is true, because it isn’t. Frogs don’t behave that way, even if it’s lovely fun to pretend they do.”

Ha!  Bill Gross is comparing the behavior bond investors to a behavior of frogs that doesn’t exist in the real world!  It’s almost like believing a story about insolvency that cannot exist!  Or believing in something we can never know!  Or denying that Debt to GDP and Bond Yields are negatively correlated!

I’d like to point out that I can hardly wait until Bill Gross is the last person on earth to believe that government deficits cause higher bond yields.  We will all be much better off.

BTW, I said a a month ago Bill Gross will be the one to push bond yields down to the post crisis lows when he has to cover his huge mistake in getting rid of Treasuries.  Mike Norman’s picked up on it.

The answer to Bill Gross’s question of “Who will buy bonds when the Fed doesn’t?” is: Bill Gross

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  1. Clonal Antibody
    June 2, 2011 at 4:13 pm

    The analogy itself is untrue! From Snopes – Boiled Beef

    Claim: A frog placed in water that is brought to a boil through gradual temperature increase will make no attempt to escape.

    Status: False.

    Like a fable, the “boiled frog” anecdote serves its purpose whether or not it’s based upon something that is literally true. But it is literally true? Not according to Dr. Victor Hutchison, a Research Professor Emeritus from the University of Oklahoma’s Department of Zoology, whose research interests include “the physiological ecology of thermal relations of amphibians and reptiles to include determinations of the factors which influence lethal temperatures, critical thermal maxima and minima, thermal selection, and thermoregulatory behavior”:

    The legend is entirely incorrect! The ‘critical thermal maxima’ of many species of frogs have been determined by several investigators. In this procedure, the water in which a frog is submerged is heated gradually at about 2 degrees Fahrenheit per minute. As the temperature of the water is gradually increased, the frog will eventually become more and more active in attempts to escape the heated water. If the container size and opening allow the frog to jump out, it will do so.

  2. TC
    June 2, 2011 at 4:16 pm

    Exactly!

    The point is that he is using a false story to promote his false version of the world. I am having a hard time entering this universe – does this double negative mean Bill Gross is actually “in paradigm” for MMT? My head hurts!

    • Clonal Antibody
      June 2, 2011 at 4:38 pm

      But of course Krugman, like most economists still claim that it is ok to use this as an analogy — while disclosing that this is not literally true. From the wikipedia

      Economist and New York Times op-ed writer Paul Krugman used the story as a metaphor in a July 2009 column, while pointing out that real frogs behave differently.[22] Journalist James Fallows has been advocating since 2006 for people to stop retelling the story, describing it as a “stupid canard” and a “myth”.[23][24] But following Krugman’s column, he declared “peace on the boiled frog front” and said that using the story is fine as long as you point out it’s not literally true.[25]

      But then all of economics should also have that declaration. This is how we model economic behavior, but this model does not reflect any reality that we know of.

      And I know that this is true, the hard way — from macroeconomics courses in my graduate school days, when knowing this difference was the separation between a C+ and an A+

  3. Peter D
    June 2, 2011 at 8:18 pm

    The answer to Bill Gross’s question of “Who will buy bonds when the Fed doesn’t?” is: Bill Gross

    Fracking Brilliant!

    • TC
      June 3, 2011 at 8:14 am

      lol 🙂

  4. Paolo
    June 4, 2011 at 5:39 pm

    rising inflation could make debt-to-gdp plunge, while yields go up. Inflation could be the cover on the frogs’ pot.

  5. Kris Smith
    June 4, 2011 at 7:21 pm

    You missed the best part of his interview where he starts talking about frogs swimming in milk and churning it into butter!

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