Bonds Are Not Forever: The Crisis Facing Fixed Income Investors
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 Forevertells 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 Foreverbegins 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 2007–2008 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 trends—exploding debt and a financial sector that has grown much bigger than it needs to be—have 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 Foreveris must reading for investment professionals, as well as retail investors and their advisors.