Keeping It Interesting

A few lines from a movie never leave your mind, I do not always remember the context, but I remember the dialog. "The Big Chill" is one of the few movies that I own (VHS). At dinner, William Hurt, Jeff Goldbloom and Tom Berenger discuss their past as dogs growl for a turkey leg on Thanksgiving. JoBeth Williams brings peace by chastising of men, and that Hurt replied with a grin, "Just try to keep the conversation. Lively" It's one of those "had to be there" moments.

Tire Dealers "keep the conversation lively." Have you noticed that long-term rates fell, while short-term rates have risen? Low long-term interest rates is the housing asset (a positive, perhaps), with the implicit suggestion of a slowing economy (a decrease in long-term loans by corporations suggests a slowdown in the economy). All this happens when the Federal Reserve rates higher torques!

An interest rate anomaly occurs when short-term rates is near than long-term rates. This is known as an "inverted yield curve". Inverted yield curve preceded the last five recessions. "There's something strange going on in the bond market," writes ES Browning (Wall Street Journal, May 31, 2005). Markets have long-term trends right, usually .

Low interest rates encourage positive stock returns, but market volatility seems to defy such optimism. One day stocks are up and the next down. Someone said: "When interest rates are low to grow share." Many market analysts get hit-happy moments with low interest rates. Optimism not move markets, pessimism does. Browning wisely observes' ... the prevailing view in the stock market is one of the celebrations ... "When it should be feared. (WSJ, May 31, 2005)

Some economists expect deteriorating economic conditions. "In the past 35 years, the skeptics say, have Fed rate increases tend to end up with the problems." (WSJ, May 31, 2005) Most recently, the chewing gum market plunged in 2000 left stocks looking like bubble gum pink on the cheeks of a child.

No simple resolution keeps investors against the dangers of an inverted yield curve. Each analyst, economist and expert has an opinion. What matters is the reaction of the bond market, and the current short and long term profits are "keep it interesting."

My point? There is no way to each asset class movement (up or down) to predict. Broad diversification within the bond universe provides overall benefit to your portfolio. This does not mean owning all possible binding, it means integrating bond management consistently to achieve within the context of your risk tolerance, your goals.

* These are the main bond (fixed income) asset classes U.S. government

* International Fixed Income

* Municipals (tax-efficient accounts)

* High Yield

* Emerging Market Debt

"If there is one thing is no longer a subject of controversy, it is no longer an issue of importance." - William Hazlitt, English essayist (1778 - 1830)

Ray Randall serves clients as a registered investment advisor with his firm, Ethos Advisory Services, Essex, Massachusetts. He has extensive experience in financial services, writes a weekly newsletter for Ethos Advisory Services, and coordinates the developments at Echievements . Ray has a Masters Degree from Gordon-Conwell Theological Seminary, Hamilton, MA. You can e-mail him or call