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.
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.
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.
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By David Merkel, CFA of Aleph Blog