Bonds Are Not Forever: The Crisis Facing Fixed Income Investors

CHAPTER 1

FROM HIGH SCHOOL TO WALL STREET—THE BULL MARKET BEGINS

Inflation Memories

It was February 1972, and at nine years old I found playing with my toy soldiers in the flickering candlelight an exciting change from the steady illumination of incandescent bulbs. My British platoon skillfully maneuvered behind the German lines, taking advantage of the shadows to surprise and quickly overwhelm the enemy. In those days the Germans were always the competition, whether on the battlefield or the English football pitch. The change in routine caused by the loss of electricity thrilled me as a young boy, but was not so exciting for my grandparents because it was a scheduled loss of power whose timing had been announced in the daily newspaper. February in Britain is dark at the best of times. After a long winter night, a person awakes to a dull, gray sky. By the time I began my career working in London’s financial markets, the British winter, while not nearly as cold as that of New York, felt rather like two months living at the bottom of a damp, dark pit, with only an occasional glimpse of daylight through a window. However, an English evening in July, when the days are long but never humid, can be the best place in the world.

Britain in the early 1970s was at the mercy of the trade unions, and a coal miners’ strike was preventing fuel from reaching the power stations around the country. The proud people of a nation that still recalled the empire on which “the sun never set” found itself ...