An up-close look at the fixed income market and what lies ahead
Interweaving compelling, and often amusing, anecdotes from author Simon Lack's distinguished thirty-year career as a professional investor with hard economic data, this engaging book skillfully reveals why Bonds Are Not Forever. Along the way, 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?"
Bonds Are Not Forever chronicles 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. Along the way, Lack describes how a financial industry meant to provide capital needed to drive productivity and economic growth became disconnected from Main Street and explores the grave economic, social, and political consequences of that disconnect.
- Provides practical solutions for avoiding the risk of falling bond markets and guaranteed negative real returns on savings
- Explains how the bursting of the real estate bubble in 2007–2008 led to massive borrowing by governments as they attempted to offset a sharp fall in economic activity
- Details how the trends of exploding debt and a financial sector that has grown much bigger than it needs to be have dramatically changed the game for savers
Offering a uniquely intimate, yet analytically thorough 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.
Simon A. Lack has worked as a trader and hedge fund investor for more than thirty years. Following twenty-three years with J.P. Morgan, he founded SL Advisors, LLC, a Registered Investment Advisor, in 2009. Much of Simon's career at J.P. Morgan was spent in North American Fixed Income Derivatives and Forward FX trading, a business that he ran successfully through several bank mergers and culminated in his overseeing fifty professionals and $300 million in annual revenues. In addition, Simon Lack sat on J.P. Morgan's investment committee, allocating over $1 billion to hedge fund managers and founded the J.P. Morgan Incubator Funds, two private equity vehicles that took an economic stake in emerging hedge fund managers. Currently, Simon chairs the Investment Committee of Wardlaw-Hartridge School in Edison, New Jersey, and also chairs the Memorial Endowment Trust Investment Committee of St. Paul's Episcopal Church in Westfield, New Jersey. He is the author of The Hedge Fund Mirage: The Illusion of Big Money and Why It's Too Good to Be True, which received high praise from the mainstream financial press, including the Economist, the Financial Times, and the Wall Street Journal. Simon makes regular appearances on cable business shows as an expert on hedge funds and investing. He is a CFA charter holder.
Chapter 1: From High School to Wall Street—The Bull Market Begins
As Bad As It Gets
Trading in Gilts
The Old Class Structure
A 19th Century Market
Finance Starts To Grow
Is Finance Good?
Investing After the Bubble
Chapter 2: A Brief History of Debt
Interest Rates in Ancient Times
The Beginnings of Modern Day Finance
Borrowing Reaches the Mass Market
Big Borrowers in History
What We Owe Now
Chapter 3: Derivatives Growth
Welcome to New York
Early Derivatives Growth
Swaps Take Off
Size Isn’t Everything
Derivatives Reach Omaha
Chapter 4: Bond Market Inefficiencies for Retail
A Simple Market Model
Stocks Are Fairer Than Bonds
Why Change Is Slow
The Internet Threatens the Swaps Oligopoly
Chapter 5 Trading Derivatives
Before Banks Were Exciting
Computers and Swaps
Should Banks Innovate?
Growth in Innovation
Bring Me Clients with a Problem
Trading by the Book
An Options Book Blows Up
Chapter 6: Politics
Government Controlled Investing
Why Should We Worry?
Who Says There Is A Problem?
Look to the Future
Monetization – A Thought Experiment
More Debt Means More Banking
Chapter 7: Managing Risk 1990-1998
Risk-Oriented Market Making
Traders and Risk
Why Traders Are Bad at Budgeting
The Growth of Global Trading
Managing Obscure Basic Risks
What’s the Social Purpose?
Wall Street Fuels the Debt Growth
Chapter 8: Inflation
A Brief History
Germany’s Defining Economic Experience
The Fed’s Huge Mistake
You Can’t Spend Quality Improvements
What Critics Say
Measuring What They Can, Not What Counts
Chapter 9: Bonds Are Not Forever
Putting it all Together
Wall Street Built It
Make Your Own Bond
High Dividend Low Beta
Hedged Dividend Capture
Master Limited Partnerships (MLPs)
Deep Value Equities
Debt is Bad
Bonds Are Not Forever
About the Author