Bonds are not Forever By Simon Lack: Book Review

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Bonds are not Forever By Simon Lack: Book Review

Bonds are not Forever book review by David Merkel, CFA of Aleph Blog

This is a good book, it is not a great book like The Hedge Fund Mirage.  Why?

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.

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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.

Bonds are not Forever 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.

Quibbles

Already expressed.

Who would benefit from this book: It is a good book, though I doubt that the theory is certain.  If you want to, you can buy it here: Bonds Are Not Forever: The Crisis Facing Fixed Income Investors.

Full disclosure: The publisher sent me Bonds are not Forever after asking me if I wanted it.

If you enter Amazon through my site, and you buy anything, I get a small commission.  This is my main source of blog revenue.  I prefer this to a “tip jar” because I want you to get something you want, rather than merely giving me a tip.  Book reviews take time, particularly with the reading, which most book reviewers don’t do in full, and I typically do. (When I don’t, I mention that I scanned the book.  Also, I never use the data that the PR flacks send out.)

Most people buying at Amazon do not enter via a referring website.  Thus Amazon builds an extra 1-3% into the prices to all buyers to compensate for the commissions given to the minority that come through referring sites.  Whether you buy at Amazon directly or enter via my site, your prices don’t change.

By David Merkel, CFA of Aleph Blog

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David J. Merkel, CFA, FSA — 2010-present, I am working on setting up my own equity asset management shop, tentatively called Aleph Investments. It is possible that I might do a joint venture with someone else if we can do more together than separately. From 2008-2010, I was the Chief Economist and Director of Research of Finacorp Securities. I did a many things for Finacorp, mainly research and analysis on a wide variety of fixed income and equity securities, and trading strategies. Until 2007, I was a senior investment analyst at Hovde Capital, responsible for analysis and valuation of investment opportunities for the FIP funds, particularly of companies in the insurance industry. I also managed the internal profit sharing and charitable endowment monies of the firm. From 2003-2007, I was a leading commentator at the investment website RealMoney.com. Back in 2003, after several years of correspondence, James Cramer invited me to write for the site, and I wrote for RealMoney on equity and bond portfolio management, macroeconomics, derivatives, quantitative strategies, insurance issues, corporate governance, etc. My specialty is looking at the interlinkages in the markets in order to understand individual markets better. I no longer contribute to RealMoney; I scaled it back because my work duties have gotten larger, and I began this blog to develop a distinct voice with a wider distribution. After three-plus year of operation, I believe I have achieved that. Prior to joining Hovde in 2003, I managed corporate bonds for Dwight Asset Management. In 1998, I joined the Mount Washington Investment Group as the Mortgage Bond and Asset Liability manager after working with Provident Mutual, AIG and Pacific Standard Life. My background as a life actuary has given me a different perspective on investing. How do you earn money without taking undue risk? How do you convey ideas about investing while showing a proper level of uncertainty on the likelihood of success? How do the various markets fit together, telling us us a broader story than any single piece? These are the themes that I will deal with in this blog. I hold bachelor’s and master’s degrees from Johns Hopkins University. In my spare time, I take care of our eight children with my wonderful wife Ruth.

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