PREFACE

Three big themes have linked together to dominate bond markets over the past 30 years. Since inflation peaked in the early 1980s, we’ve experienced a secular decline in interest rates, an increasing financial services sector, and sharply growing indebtedness. By sheer coincidence, my career began at approximately the same time that these three trends emerged, although my identification of them is most definitely one of hindsight rather than foresight.

The 2008 financial crisis was borne out of these three trends, and its aftermath has many consequences. American economic history is full of successes, although not every economic development has been good. Many financiers have made fortunes through a bigger banking sector and more widespread indebtedness, yet the inflation-adjusted lot of the typical family has barely improved. An understandable public policy response to the financial excesses is developing around the belief that, in finance, big is bad and greater oversight is in the public interest. This swinging of the pendulum back in a more populist direction likely heralds change in other trends as well. The sharp increase in government debt as a result means the weight of financial obligations will be a prominent feature on the investment landscape for the foreseeable future. When there is an absolute abundance of public sector debt to be financed at all levels of government, the prudent investor should probably use commensurately more reticence in committing to securities ...

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