You've read my concerns about the inverted yield curve (that's when short-term interest rates are higher than long-term rates) and how an inverted yield curve has threatened the economy and stocks in the past. Today, I want to touch on an event that will occur in the next couple of months that few analysts and economists are talking about--even though it could have severe ramifications for investors.

An increase in the U.S. Federal Funds Rate in July to 5% from the current rate of 4.75% is almost a sure thing bet. The Fed itself has told us it's not finished raising interest rates yet. The number of analysts predicting the Fed's central bank rate will go to 5.25% by the end of the summer continues to increase.

Here's the big problem: The bellwether 10-year Treasury Note is yielding only 4.94% as of this morning. If the Fed raises its central bank rate to 5.25%, the Federal Funds Rate itself will be higher than the 10-year Treasury Note yield. In past history, 80% of the time, when this rare inverted yield has happened, the U.S. has fallen into a recession. Most recently, this phenomena (the Federal Funds Rate above the 10-year T-note yield) happened in the spring of 2000--less than one year later the U.S. was in recession.

Fed Chairman Bernanke is playing down the relationship between the Fed rate and the yield on 10-year Treasury Notes. Bernanke says the inverted relationship does not mean a slowdown in the economy lies ahead, instead he says the event means inflation is in check.

With jobs being created and economic growth humming along, I can't find one analyst that's predicting a recession ahead. The spiraling U.S. deficit, the ballooning trade deficit, rising gold and oil prices, fifteen interest rate hikes in a row, a cooling U.S. housing market and a U.S. dollar only supported by higher interest rates--am I the only one worried about these items? Am I the only one who believes they are recipe for future economic disaster? I guess so.

My dear reader, don't let inexperienced analysts and economists (many today who have never really lived through a bear market) convince you the economy is fine, because it's not. Inverted yield curves happen for a reason. This is an opportune time to start protecting your investment portfolio against a market and economy that could swing quickly (and unexpectedly by most) in the wrong direction.