Content provided by J.J. Schenkelberg, CFA, CLS Senior Portfolio Manager

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I think we have all experienced this at some point: We go to the store, proceed to the checkout counter, and face the daunting choice of which line to enter. We pick one and stand there waiting in uncertainty. Every movement begs the question: Should I switch to the other line? We scope out which individuals look the most efficient and have the fewest items. In my experience, I am typically plagued with the knowledge that whatever line I choose, it will inevitably be the one that summons the manager when it’s too late to switch, despite the fact that I specifically chose the over-21 cashier to avoid these situations.

This feeling of uncertainty is very similar to the market’s anticipation of a hike in the federal funds rate. Current federal funds futures point to the first rate rise in October, up from December, following strong nonfarm payroll data. During ECB discussions this week regarding Greece’s debt, Christine Lagarde, current managing director of the International Monetary Fund, pleaded to the Federal Reserve to wait until 2016 before proceeding with the first rate hike.

Every news event from the U.S. to Greece seems to tie to expectations of this event, and the market is currently reacting to each one. Which line should we be in? September, October, December, January??? The fact is we don’t know how quickly it will come, but eventually the Federal Reserve will institute the first rate hike. Being prepared for all market conditions regardless of when this occurs is what a globally diversified portfolio aims to accomplish. We will reach the cashier eventually, and then the uncertainty accompanying the anticipation will be forgotten. But until then, we’ll still be looking for the best line.

 

The views expressed herein are exclusively those of CLS Investments, LLC, and are not meant as investment advice and are subject to change. No part of this report may be reproduced in any manner without the express written permission of CLS Investments, LLC. Information contained herein is derived from sources we believe to be reliable, however, we do not represent that this information is complete or accurate and it should not be relied upon as such. All opinions expressed herein are subject to change without notice. This information is prepared for general information only. It does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. You should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. You should note that security values may fluctuate and that each security’s price or value may rise or fall. Accordingly, investors may receive back less than originally invested. Past performance is not a guide to future performance. Investing in any security involves certain systematic risks including, but not limited to, market risk, interest-rate risk, inflation risk, and event risk. These risks are in addition to any unsystematic risks associated with particular investment styles or strategies.
1829-CLS-6/12/2015