I'm adding to my convertible preferred holdings such as Bunge (BG), Freeport McMoran (FCX), and Archer Daniels Midland (ADM). I've also continued building positions in foreign ETFs tied to natural resources, commodities, and China. Australia (EWA), Canada (EWC), Brazil (EWZ), and Taiwan (EWT)  -- with their hefty yields and recent pullbacks -- are good examples of where I'm looking.

In the fixed-income arena, rising inflation risk validates the basis of my retirement-income investing strategies. It requires diversifying over a wide range of sectors, making different types of investments that perform well during varying economic circumstances.

For the income-oriented investor, there's no bigger foe than inflation. However, in recent months, credit risks have become as worrisome as defaults, since bankruptcies and rising interest-rate risks have created loss of principal in fixed-income portfolios.

For example, Treasuries have registered their worst performance since 1978, falling more than 6.5% this year -- clearly signaling the end of the long-term bull market in Treasuries. On April 29, 30-year fixed-rate mortgage matched a record low of 4.78% as the Fed continued to hold the Fed funds rate at zero. I believe the Obama government, particularly in the face of rising mortgage rates, will provide whatever liquidity and fiscal stimulus necessary, regardless of the impact on the deficit or inflationary pressures.

As a result, I'm focusing on diversification among the highest rated corporate bonds and the strongest sectors with the essential service sectors.

For example, the highest rated companies in pipelines, unit trusts, master limited partnerships (MLP), and Canadian Royalty Trusts have held their yield payouts through the oil price turmoil even as their share prices have presented opportunities for entry.

Even with the House narrowly passing the American Clean Energy and Security Act, the likelihood of passage in the Senate without significant compromise seems highly unlikely. While the ultimate cost burden will fall to the consumer, there will be few big losers in the electric utility space. Even the heaviest coal burners, such as American Electric Power (AEP) -- the top CO2 producer in the US -- began making adjustments long ago, and will have time to move closer to new forms of energy-generation (e.g. "clean coal” technologies strip out CO2 and mercury emissions, which cause acid rain).

The winners under any scenario remain the nuclear and renewable energy leaders, such as FPL Group (FPL) and Exelon (EXC). These remain solid core holdings with solid dividends, and have provided better entry points as the debate -- and the misinformation -- surrounding the bill continues.

As the third quarter begins, the leap-of-faith rally since the March lows will need to be substantiated if the outlook and commentary on the upcoming earnings season is to support it. The real test will be the corporate guidance issued as we enter the second half of the year. Fundamental indicators -- including employment, manufacturing, and consumer sentiment -- and the continued accommodation of the Federal Reserve will be key to the continuation and sustainability of any attempted rally.