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Bonds Are Not Forever: The Crisis Facing Fixed Income Investors Hardcover – September 3, 2013
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From the Inside Flap
In his international bestseller, The Hedge Fund Mirage, Simon Lack blew the lid off of the hedge fund industry, revealing why, despite their grandiose claims of record-breaking returns, the industry's chief beneficiaries have been hedge fund managers themselves.
Now, in a book that is sure to become a finance classic, Lack shifts his focus to the fixed income markets to explain why, while fixed income may once have been a great investment, for the foreseeable future, investing in bonds could be hazardous to your financial health.
But before you can understand why bonds, long a reliable source of portfolio income, should be handled with extreme caution, it is important to know the full story of how we got here.
Interweaving compelling, often amusing anecdotes from Simon Lack's distinguished thirty-year career as a professional investor with hard economic data, Bonds Are Not Forever tells that story, identifying the forces that have shaped the financial sector over the past three decades. In the process, it provides investors with a coherent framework for understanding the future of the fixed income markets and, more importantly, answering the question, "Where should I invest tomorrow?"
A story in two parts, Bonds Are Not Forever begins by chronicling the steady decline in interest rates from their peak in the 1980s and the concurrent drop in inflation during that period. Lack explains how those two factors spurred a dramatic growth in borrowing among both governments and individuals. He relates how Clinton-era policies drove home ownership to historic levels leading to the real estate boom. And he explains how the bursting of the real estate bubble in 20072008 led to massive borrowing by governments as they attempted to offset a sharp fall in economic activity.
The other big story during this time was the explosive growth of financial services, as banks, brokers, and Wall Street, encouraged by the loosening of financial regulations, have come to claim an unprecedented portion of global GNP. Lack describes how an industry that was meant to provide the capital needed to drive productivity and economic growth became disconnected from Main Street and the grave economic, social, and political consequences of that disconnect.
Lack explains how those trendsexploding debt and a financial sector that has grown much bigger than it needs to behave dramatically changed the game for savers, engendering an environment hostile to bond investors. And he provides practical solutions for avoiding the risk of falling bond markets and guaranteed negative real returns on savings resulting from a massive transfer of real wealth to those who have borrowed too much.
Offering a uniquely intimate, yet analytically thoroughgoing look at the coming fixed income crisis, Bonds Are Not Forever is must reading for investment professionals, as well as retail investors and their advisors.
From the Back Cover
Praise for BONDS ARE NOT FOREVER
"Simon Lack, a former J.P. Morgan trader and money manager, advises investors to steer clear of U.S. Treasury bonds on the grounds that the government's indulgence in the age-old practice of inflating away debt makes a negative return likely. His book also offers an insider's account of the dramatic changes in international finance at a time when a global explosion in public and private debt was expanding the size, scope, and complexity of banking. Personal anecdotes, especially about the fast-paced trading of exotic 'derivatives,' make this book not only informative, but entertaining. It won't, however, relieve anxieties about the current fragile state of the global economy."
—George Melloan, former editor and columnist, Wall Street Journal, and author of The Great Money Binge
"This fascinating and prescient narrative of the bond market's past, present, and future will captivate both professional and personal investors. Peppered with anecdotes from Mr. Lack's four decades of experience in the financial markets, this book prepares financial stakeholders for an investing landscape that may look very different from what they have come to take for granted."
—Gabriel Hammond, founder and Portfolio Manager, Oppenheimer SteelPath Funds, and founder, Alerian
"In The Hedge Fund Mirage, Simon Lack exposed the appalling mediocrity of a hedge fund industry grown fat on investors' fees. In his latest book, he takes on the great thirty-year bond bull market, turning an insider's eye on how we got here and the risks that lurk in portfolios of supposedly safe debt."
—Dan McCrum, U.S. Investment Correspondent, Financial Times
Top Customer Reviews
|Length: 9:58 Mins|
According to Lack, a combination of long-term secular trends of the last 30 years has created too much debt to be financed. The public policy response has favored borrowers by keeping interest rates down and thus making bonds "really a return-free asset class". Inflation is the real threat: Lack believes it is a bad bet that inflation will not go up and shares thought-provoking insights regarding systemic flaws of inflation statistics.
In the video, Lack explains:
* The convergence of three big secular trends of the last 30 years that have created too much debt to be financed
* Why inflation statistics are misleading
* Inefficiencies for retail investors in the municipal bond market: Transaction costs of between 1 and 2%
* The come back of cash: With low interest rates, combination of stocks and cash is beneficial from a risk standpoint
Following 23 years with JPMorgan, Simon Lack founded SL Advisors, LLC, a Registered Investment Advisor, in 2009. Much of Simon Lack's career with JPMorgan was spent in North American Fixed Income Derivatives and Forward FX trading, a business that he ran successfully through several bank mergers ultimately overseeing 50 professionals and $300 million in annual revenues. Simon Lack sat on JPMorgan's investment committee allocating over $1 billion to hedge fund managers and founded the JPMorgan Incubator Funds, two private equity vehicles that take economic stakes in emerging hedge fund managers.Read more ›
It is refreshing to read a book that puts the investor first and gives a well thought out economic approach to the pitfalls of investing in Bonds, in the current environment.
Governments and Central Banks are keeping interest rates artificially low post the economic crisis of 2007 and 2008 and Simon gives a succinct history of how Governments have operated in these scenarios over centuries.
The text allows those not familiar with the financial world to gain an insight into how that world operates in the major financial centers, but notably New York.
This book will benefit both the individual or professional investor, in terms of thinking about changing your traditional approach to investing if you want to beat inflation.
I believe it would also benefit the political class,to better understand the ramifications for investors and their constituents by the lost art of compromise.
There are a few reasons. First, the book on hedge funds contradicted the conventional wisdom. This book confirms the conventional wisdom that interest rates have to rise.
We all have to be wary of the conventional wisdom in economics. Economics is a social science, but I mean it not in the sense that we study society, but that economists toe the line as to what is acceptable to publish. This is guarded by peer review, which ensures that no new idea that might be correct gets published. (This is true of most of the "sciences" because many "scientists" are not neutral observers -- they have axes to grind.)
This book assumes that the US will inflate its way out of this crisis. In the Great Depression, it did not work that way, though many thought it would.
The book correctly calls out all of the ways that Wall Street cheats individual bondholders, particularly structured notes, and the illiquidity of muni bonds.
He does not get how muni bond ladders are durable investments, being a good compromise on how to avoid interest rate risk. Further, he never mentions how the TRACE system of FINRA reports all trades. The system is not that opaque.
This is a good book, but not a great book. Yes, I think inflation is more likely than deflation, but I don't think inflation is a slam-dunk. We haven't had it yet amid many predictions for it.
Who would benefit from this book: It is a good book, though I doubt that the theory is certain. If you want to get the theory on why interest rates must rise, this will benefit you.
Most Recent Customer Reviews
If you have any bond or bond funds in your portfolio (or you plan to) this should be required reading. Read morePublished 19 months ago by Larry R Campbell
The premise of the book relies on high future inflation rates. Unless you want to bet your future on an uncertain premise, look for a better source of investing information. Read morePublished on February 21, 2014 by bradv