Unlike the third quarter of 2013, the fourth quarter looks like it could be more volatile. The U.S. budget battle that was looming at the end of the third quarter is now in full swing. The crux of the matter seems to be the de-funding, delaying or removal of special privileges from the Affordable Care Act (ACA), otherwise known as "ObamaCare". Worse yet, even if a Continuing Resolution (CR) to fund the Government is achieved quickly, the same ACA battle may be waged with respect to increasing the debt ceiling limit during October. The debt ceiling battle has more far-reaching potential effects than the budget battle. Much of this political theater is staging for the upcoming 2014 Congressional elections, but it can have serious implications nonetheless.

The bond market got some relief in September when the Fed announced it would not taper its QE program. But we shouldn't assume all is clear. The simple truth is that interest rates are very low and the idea of them rising isn't unrealistic. One component of interest rate monitoring is inflation. The Fed tells us inflation is very low at its current 1.5% and that their target is 2 to 2.5%. I'm not sure I agree that 1.5% inflation is very low.

For investments, though I don't see a major risk of correction coming, we can't rule out the possibility. Markets do not go up in straight lines, and we've had a fairly straight run since early 2012. I am continuing with exposure to alternative investments to help protect portfolios. My equity strategy for the quarter is to increase exposure in Europe. For fixed income, I intend to reduce exposure to long bonds.