Optimus Advisory Group

As the Federal Reserve inches closer to raising interest rates, many fixed income investors are becoming increasingly worried about an expected negative impact on their portfolios. With cash rates at zero and the stock market looking tenuous at best, conservative investors have no place to go other than to look for the areas of the bond market that might survive a series of Fed rate hikes.

Why is the Fed still hesitating to raise rates? Here are some possible answers

The Bureau of Labor Statistics (BLS) official unemployment report, also known to economic wonks as U-3, has historically been used to give a fairly accurate depiction of the overall employment situation in our country. Not anymore. This "depiction" of the jobs/employment environment is now meaningless.

As interest rates fell over the past 30 years, bond investors enjoyed substantial gains due to the subsequent rise in bond prices.

The word "divergence" has crept back into the market vocabulary lately, so let's take a closer look to see what all the fuss is about. The chart below shows the percentage of stocks above their 200-day moving average peaked in the summer of 2013 and has been rolling over ever since.

Ever wonder why rises in the Consumer Price Index ("CPI") seem low compared to your own personal experiences? Or why social security annual cost of living increases seem to get smaller and smaller? Or why inflation-adjusted pensions can't seem to keep up with general price increases? Or why the American worker gets such meager annual raises (if at all) that they seem to fall further behind year after year?

Ever wonder why rises in the Consumer Price Index ("CPI") seem low compared to your own personal experiences? Or why social security annual cost of living increases seem to get smaller and smaller? Or why inflation-adjusted pensions can't seem to keep up with general price increases? Or why the American worker gets such meager annual raises (if at all) that they seem to fall further behind year after year?

During the past five years, following the worst financial crisis since The Great Depression, the financial media has been talking about the deleveraging process happening worldwide. We've all heard the stories of how banks to consumers to corporations have deleveraged and continue to do so. It's as if all the global financial bailouts were all orchestrated just to buy us enough time so that we could get our financial houses in order. Then, miraculously, after someone blows the "all clear" alarm we can all go back to living our normal lives once again.

Over the years, most of us have grown accustomed to the tried and true method of permanently holding bond funds within client accounts. These investment vehicles have come through for us time and time again, providing a cushion to those nasty stock market drops that happen every several years. After all, if we could get high single-digit returns from an asset class that never dropped more than high single-digits, why not buy and hold? As a local mortgage companys commercial says, "Its the biggest no-brainer in the history of mankind."

The "real" unemployment rate is hardly mentioned in the media. With the headline unemployment rate standing at 7.6% (single-digit unemployment rates always seem somewhat tolerable) after tagging 10% in 2009, is it any wonder that the employment picture seems to be decent?

According to the OECD ("Organisation for Economic Co-operation and Development"), the US economy managed to stage a leading indicator "rally" into the most favorable northeast quadrant. The red six month lagging tail on the graph clearly shows the economic leading indicators moving from expansion to slowdown, only to move back to the expansion quadrant in late 2012.