Description
Book SynopsisAn 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, socia
Table of Contents
Preface xi
Acknowledgments xiii
Chapter 1 From High School to Wall Street—The Bull Market Begins 1
Inflation Memories
As Bad as It Gets 4
Trading in Gilts 5
The Old Class Structure 8
A Nineteenth-Century Market 11
Finance Starts to Grow 12
Is Finance Good? 16
Investing after the Bubble 20
Chapter 2 A Brief History of Debt 23
Interest Rates in Ancient Times 23
Medieval Credit 26
The Beginnings of Modern-Day Finance 28
Borrowing Reaches the Mass Market 31
Student Debt 39
Big Borrowers in History 43
What We Owe Now 45
Chapter 3 Derivatives Growth 51
Welcome to New York 52
Early Derivatives Growth 56
Swaps Take Off 61
Size Isn’t Everything 65
Derivatives Reach Omaha 67
Norwegian Wood 69
Chapter 4 Bond Market Inefficiencies for Retail 73
A Simple Market Model
Stocks Are Fairer than Bonds 76
Why Change Is Slow 79
Structured Notes 81
The Internet Threatens the Swaps Oligopoly 84
Municipal Bonds 87
Chapter 5 Trading Derivatives 93
Before Banks Were Exciting
Computers and Swaps 96
Should Banks Innovate? 97
Growth in Innovation 99
Volcker’s Problem 102
Bring Me Clients with a Problem 103
Derivatives Missteps 105
Trading by the Book 107
An Options Book Blows Up 110
Chapter 6 Politics 115
Government-Controlled Investing
Why Should We Worry? 116
Who Says There Is a Problem? 120
Look to the Future 128
Looking Ahead 129
Monetization—A Thought Experiment 133
Imperial Overstretch 136
More Debt Means More Banking 141
Chapter 7 Managing Risk 1990–1998 143
Risk-Oriented Market Making
Traders and Risk 145
Why Traders Are Bad at Budgeting 147
The Growth of Global Trading 149
Managing Obscure Basic Risks 152
What’s the Social Purpose? 155
Wall Street Fuels the Debt Growth 156
Chapter 8 Inflation 165
A Brief History
Germany’s Defining Economic Experience 167
Inflation Today 170
The Fed’s Huge Mistake 174
You Can’t Spend Quality Improvements 177
What Critics Say 181
Measuring What They Can, Not What Counts 183
Chapter 9 Bonds Are Not Forever 189
Putting It All Together
Wall Street Built It 192
Make Your Own Bond 195
High Dividend, Low Beta 198
Hedged Dividend Capture 201
Master Limited Partnerships (MLPs) 202
Deep Value Equities 205
Debt Is Bad 205
Bonds Are Not Forever 207
References 209
Glossary 215
About the Author 219
Index 221
