Leave it to Bill Gross to use the falcon and the falconer from William Butler Yeats' "The Second Coming" to describe investors and central bankers.
In his latest monthly investment outlook, Pimco's founder and chief investment officer used the first three lines of the 1919 poem to introduce how his firm's investment process works.
"Yeats describes a falcon, which in this metaphorical context should be assumed to be the investors, 'turning and turning in the widening gyre,'" in search of higher and higher returns," said Gross.
The falconer, he said, is the global central banker, "training the vulturous investors to swoop down and snatch attractively priced assets on command."
But Gross thinks the key question is whether the falcon can even hear the falconer anymore at this point. Central banks around the world, including the Federal Reserve, have been holding interest rates low for years since the financial crisis in an effort to boost lending and stimulate the economy.
"Does the investor have confidence in the word and efficacy of the falconer's artificially priced policy rate? Can the center hold?" asked Gross.
He argues that if central bankers can convince investors that their policies of holding interest rates artificially and abnormally low can stimulate the economy, then riskier assets such as stocks and bonds can have higher returns than cash.
This will be particularly important as the Fed considers tweaking its guidance. The Fed has been saying it will keep interest rates low until unemployment falls to around 6.5%. But now that threshold is about to be crossed, and officials are considering changing its guidance to be more qualitative.
While Pimco has been saying for several years that the Fed's policies will ultimately be ineffective over the long-term, Gross said that "to be specific for 2014," investors will believe the Fed. The falcon will listen to the falconer.
But he still warns investors to be mindful of longer-term consequences as the central bank unwinds its stimulus measures, including scaling back its monthly bond purchases. In fact, he said 2014 "may be the last of the years in which falconer and falcon act in capitalistic unison."
As the Fed ends its bond buying program, Gross said liquidity in the corporate bond market will be challenged. And if inflation begins to ramp up as interest rate rise from their lows, then that could create more turmoil. But for now, Gross concludes that investors should not fight the Fed.
"Another 'coming' is certainly in our future, but perhaps not just yet." Gross said. "Falcons, for now, can keep circling."
Is the bond king a dictator?
Bill Gross, co-founder of Pimco and manager of the world's biggest bond fund (PTTRX) became the subject of a scathing article on the front page of the Wall Street Journal Tuesday.
The 69-year-old billionaire investor is known for being praised by the media as one of the most influential players on Wall Street, with investors around the world listening for his views on financial markets and the economy. MOREHibah Yousuf - Feb 25, 2014 3:29 PM ET
The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney, Abbott Laboratories and AbbVie, La Monica does not own positions in any individual stocks.
Bill Gross, the so-called Bond King, is still very worried about what's going to happen to the financial markets once the Federal Reserve begins to slow down the pace of its asset buying program.
Gross, a MOREPaul R. La Monica - Sep 5, 2013 1:19 PM ET
Bond guru Bill Gross is wondering how investors will fare if the current economic recovery gets derailed.
"All of us, even the old guys like Buffett, Soros, Fuss, yeah -- me too, have cut our teeth during perhaps a most advantageous period of time, the most attractive epoch that an investor could experience," Gross, the founder and co-chief investment officer of Pimco, wrote in his monthly investor letter.
"What if a future epoch favors MOREMaureen Farrell - Apr 3, 2013 11:23 AM ET
Get used to lower returns on stocks and bonds, Pimco's founder and co-chief investment officer Bill Gross told investors in his monthly letter.
Gross, who oversees Pimco's Total Return Fund (PTTRX), said that investors are entering a period of what he calls "rational temperance." By that Gross means that investors should expect gains from stocks, and corporate and high-yield bonds to be more muted.
Corporate credit and high yield bonds are somewhat MOREMaureen Farrell - Feb 27, 2013 11:54 AM ET
Bond guru and Pimco (PTTRX) managing director Bill Gross isn't buying into the bull market. In fact, he's warning investors to be afraid, be very afraid, of how inflation and the flood of cheap money will affect all investments.
Investors should be prepared to accept "lower returns on bonds, stocks, real estate and derivative strategies," Gross wrote in his monthly letter entitled "Credit Supernova!"
Championing something of a bunker mentality, Gross MOREMaureen Farrell - Jan 31, 2013 11:38 AM ET
Everything comes at a cost, including the Fed's low rate policy and multiple rounds of monetary easing.
Not one to pass up a good musical reference, noted bond guru and Pimco managing director Bill Gross' latest missive is aptly titled "Money for Nothin' Writing checks for free" in a nod to Dire Straits. In the past, Gross has cited The Beatles and Flavor Flav in pieces.
In his first investment outlook MORECatherine Tymkiw - Jan 3, 2013 1:46 PM ET
The fiscal cliff may be the biggest short-term threat for the market, but there are even scarier problems to worry about, according to Pimco chief investment strategist Bill Gross.
In his latest letter to investors, posted online Tuesday, Gross outlines the long-term challenges facing the U.S economy and lists his "picks and pans" for investors operating in the so-called New Normal.
The New Normal, a term made famous by Pimco CEO Mohamed MOREBen Rooney - Dec 4, 2012 12:25 PM ET
What do Federal Reserve chairman Ben Bernanke and Flavor Flav have in common?
Yet, the 90s-era hype-man turned reality TV star, or at least his signature over-sized clock medallion, makes an unlikely appearance in Bill Gross's latest musings on Fed policy.
In a Thursday letter to investors, the Pimco founder conjures up a Genie "with a 10-inch diameter Flavor Flav clock hanging ceremoniously around his neck," complete with sunglasses and MOREBen Rooney - Nov 1, 2012 11:49 AM ET
The Bond King came out swinging against the most recent easing plans out of the Federal Reserve and European Central Banks on Twitter late Monday.
Gross: Central banks are where bad bonds go to die. Sell bad bonds, buy good ones. Investing sometimes can be very simple.— (@PIMCO) September 17, 2012
The comments from Bill Gross, founder of investing firm Pimco, come just days after the Fed unveiled its plan MOREHibah Yousuf - Sep 18, 2012 1:53 PM ET
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