"You know what the news is-- in a minute, you're going to hear the rest of the story"- Paul Harvey

Investors are looking for income, and as a Registered Investment Advisor I scour all kinds of income vehicles in search for income. At times we come upon economic periods that warrant caution. This is one of those times.

Here are a few examples of why some fixed income investments can be very risky;

1) Interest rates are very low, and investors desperately reaching for higher yields can incur big losses.

a) Certificates of Deposit:

CD's are not paying much nowadays, but some banks are offering higher than normal market rates to attract capital. Almost weekly we hear news of another bank failure. If you reach for a higher than normal market rate on a cd make sure your deposits remain within the $100,000 insured amount of the FDIC.

It would be terrible to wake up one day, have more than $100,000 in a bank, and see that your bank has failed.

b) Municipal Bonds:

A municipal bond (or muni) is a bond issued by a city, state or other local government for the public good. Often municipal bonds are exempt from the federal income tax and from the income tax of the state in which they are issued.

The problem today is many of the bonds with AAA ratings have had those ratings downgraded due to financial difficulties surrounding the monoline insurers that insure municipal bonds. These insurers are a last line of defense, and are responsible for the timely payment of interest and principal should a municipality default.

Fortunately, in addition to insurance on a bond, many high quality municipals are backed by the full faith and credit of the issuer (aka- General obligation bonds), or are backed by a specified stream of future income (aka- Revenue bonds: utility from payments by customers), or backed by the payment of taxes (aka-Assessment bonds: property taxes).

Here again, interest rates are too low to lock in a long term muni. When you factor in the uncertainty surrounding the monoline insurers, these investments don't have much appeal.

c) Corporate Bonds:

The most of the attractive yields in the corporate bond market are bonds issued by banks. Do I need to go any further?

Corporate bonds carry a higher risk of default since they are only as good as the company issuing them. In the case of bank bonds, no one knows what bank will collapse next.

d) Preferred Stock:

Yesterday, I gave you an example of what can happen with preferred stock , even when most investors thought they had the implied backing of the US government. On the surface, investors assumed the takeover of Fannie Mae and Freddie Mac by the US government would be good news for preferred stockholders. Not so. The existing holders of FNM and FRE preferred stock were virtually wiped out yesterday.

As I comb through pages and pages of preferreds, I am amazed at all the terms and conditions of each issue. I read comments like; "the issuer has the right to suspend payments for up to 40 quarters", or "interest payments are non-cumulative". These comments don't give me that warn cozy feeling.

The bottom-line in this little exercise is don't be overly anxious to chase higher yields in this lower yield environment. One day, the economic environment will improve, and interest rates will be more attractive. Remember, lower interest rates means the economy is bad. Higher interest rates mean the economy is booming.

The Market

The drop in oil and commodity prices continued yesterday. OPEC announced they would cut production by 500,000 barrels which is added a little support to prices this morning.

At mid-morning, the Energy Information Administration's weekly inventory report revealed that supplies of crude and gasoline decreased more than expected on weaker demand.

If we would build electric and hydrogen powered vehicles, we could cut our oil imports by 75%, and tell OPEC to take a hike. Won't happen, so forget about it.

The big yesterday was fears over the 45% collapse of Lehman stock. Lehman held a press conference this morning and reported a $3.9 billion third quarter loss. The company said it will spin off $25-$30 billion of commercial real estate to stockholders, and sell a majority stake in its investment management unit.

September will continue to be a wild month, but once oil prices break below the $100 mark, and accelerate toward $85-$90/bbl, I am betting we will see a very impressive rally.