Yellen's Policies Will Boost Overseas Economies

NEW YORK ( TheStreet) -- An important piece of news seems to have been overlooked, or even ignored, in the past month, thanks to our nation's debt ceiling debacle and Affordable Care Act bickering.

We all know that Janet Yellen has been nominated to succeed Ben Bernanke as the next Federal Reserve chairperson. Yellen is notoriously dovish, meaning she has supported Bernanke's stance on short-term interest rates and is likely to remain highly accommodative into 2014. This isn't news either, but digging a little deeper, we can see that the continuation of Bernanke's policies may have farther-reaching effects than it appears at first glance.

Why is this so important?

We all saw the stock, bond and housing markets' reaction to the perceived threat of rising rates during the month of June. After all, on May 21 Bernanke reminded us to "drink like gentlemen," because the bar will inevitably run dry at some point. We saw the Dow and S&P 500 take a quick 6% dip and the bond market crater as yields climbed from 1.94% to 2.54% on the 10-year Treasury Note over that five-week stretch. Over that period, any asset class characterized as a "dividend" or "yield" instrument was somewhat indiscriminately bludgeoned:

Surveying the damage pictured above:
(-7.53%) - Utilities, IDU
(-7.63%) - Long-term U.S. Treasury Bonds, TLT
(-9.25%) - Master Limited Partnerships, AMJ
(-15.96%) - REITs, VNQ

The FOMC Spin Cycle

Investors feared that sharply rising rates would make the investment options above less attractive in comparison to "risk free" assets like U.S. Treasury bonds. After the initial rout, we saw a remarkable snap-back recovery in all four asset classes displayed above (with the exception of Treasury bonds) as Big Ben pacified the markets with rhetoric and rates eased.

Then in July, as speculation centered around Larry Summers as most likely to succeed Bernanke, the 10-year spiked to 3.00% and our dividend-payers fell once more. The key ingredient for these asset classes isn't as simple as "low rates good, rising rates bad." Truly, it's the spread between the yields being kicked off by these investments, taken in comparison with those of the risk-free Treasury.

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