3 Important Takes for Investors from Federal Reserve Nominee Janet Yellen's Remarks
Dr. Janet Yellen, the nominee to replace Federal Reserve Chair Ben Bernanke, appears to be committed to Quantitative Easing III, based on the release of her prepared remarks.
Quantitative Easing III is the program announced by Federal Reserve Chair Ben Bernanke in September 2012 that entails expanding its balance sheet to acquire $85 billion monthly in Treasury securities and mortgage-backed bonds.
From that, investors should expect for dividend-paying stocks to remain in demand as quantitative easing is focused on maintaining a low interest rate environment. While investors should always focus on dividend yield due to its providing more than 40 percent of the historic total return for an equity, the absence of other investment vehicles that provide significant income will increase the appeal. "Dividend Aristocrat" stocks such as Illinois Tool Works (NYSE: ITW), Wal-Mart (NYSE: WMT), and others that have a history of increasing the dividend will be even more attractive.
The oil and natural gas sector should continue to do well.
As detailed in a previous article on this site, investors have piled into oil and natural gas securities as a result of quantitative easing measures around the world. The traditional safe haven assets of gold and silver simply do not have the depth in the markets to handle the massive amounts of paper currencies being produced. Do to that, investors have bought energy assets. As many oil and natural gas publicly traded companies also pay healthy yields, such as BP (NYSE: BP) with a dividend of nearly 5 percent, that will increase the appeal of these stocks even more.
Low interest rates are also good for housing.
But, as outlined in another article on this site, invest in stocks for that sector, not rental property. There are too many signs of a bubble in the housing market. In a recent speech, legendary real estate investor Sam Zell stated that he avoided buying foreclosed properties and turning them into rental units as the numbers did not work. The financials do work, though, for companies that profit from a healthy real estate sector such as Home Depot (NYSE: HD) and Lowe's (NYSE: LOW).
According to Yellen, the American economic recovery from The Great Recession is anemic. Therefore Quantitative Easing III will continue. So should the stock market rally, due to the low interest rates Quantitative Easing III imposes.
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