Tomorrow marks the turning over of the calendar page, and that means a new investment outlook column from Pimco [profile] chief Bill Gross.

In a break from form, this month Gross opens his column not with a literary allusion, but with a 1996 quote from Alan Greenspan: But how do we know when irrational exuberance has unduly escalated asset values? Though this may not carry the punch of past opening quoutes like T.S. Eliot's The Hollow Men or Herman Melville's Moby Dick, Gross uses it to discuss the Fed in both 1996 and now:

Into this academic but high-staked market fog has stepped another Fed official, this time not a Chairman but a relatively new yet similarly quizzical Governor. Jeremy Stein’s February 2013 speech has not gained the attention that Chairman Greenspan’s did, but it is remarkably similar in its intent and initial question: Governor Stein asks, “What factors lead to overheating episodes in credit markets?... Why is it that sometimes, things get out of balance?” Without mimicking Chairman Greenspan’s phrase, Governor Stein renews the quest, asking nearly a decade and a half later, “How do we know when irrational exuberance has unduly escalated asset values?”

I suppose it’s fair to criticize both queries on two grounds: 1) Although asked by Chairman Greenspan, it was never really answered in the 1996 speech. 2) If the Fed’s so smart, why are some of us still poor? Why did our 401(k)s become 201(k)s in 2009 before recovering to near peak levels currently? If they’re so smart, why the roller coaster ride, the 30% decline in home prices since 2006, and our current 7.9% unemployment rate?

For more of Gross' thoughts and some of his graphs, check out the original article here.  

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