Bernanke Tapers Anew, Emerging Market Rout Resumes

The US Federal Reserve announced a second round of “tapering” or the reduction in their asset purchasing (money printing).

From Reuters:

The Federal Reserve on Wednesday decided to trim its bond purchases by another $10 billion as it stuck to a plan to wind down its extraordinary economic stimulus despite recent turmoil in emerging markets.

The action was widely expected, although some investors had speculated that the U.S. central bank might put its plans on hold given the jitters overseas.

Fed Chairman Ben Bernanke, who hands the Fed's reins to Vice Chair Janet Yellen on Friday, managed to adjourn his last policy-setting meeting without any dissents from his colleagues. It was the first meeting without a dissent since June 2011 - a sign of how tumultuous Bernanke's tenure has been.

It is the epilogue of Bernanke reign at the Fed, so it would seem that he would like to be remembered as having the discipline to rein or reverse his lavish monetary policies. Like Pontius Pilate, he "washes his hand" via the taper

And as I warned yesterday “It's even more interesting for Emerging Markets and for Asia to pray that the US Federal Reserve, whom are meeting today, won't add to their woes by increasing the "taper"

EM and Asia's prayers were apparently not answered. And signs are that the EM nightmare will continue. 

The soothing effect by Turkish central bank’s ‘shock and awe’ seems to have been neutralized by the Fed’s “taper”.

Fun for a day. The Turkish lira’s sharp one day rally (green ellipse) has been fully erased (red arrow). Such one day tryst spread to Asia yesterday

The currency rout can also be seen in the other members of the so-called fragile five

The Brazilian real

The South African Rand

We will see how the taper will impact the Indian rupee and the Indonesian rupiah later.

Nonetheless, the Russian ruble has also been slammed.

It’s not just EM currencies. It appears that US stocks have likewise been hammered last night.

The flow of events will go from intensifying market distress to liquidity squeezes to real economic issues via crises. This is the periphery-to-the-core dynamics. The question is will EM and developed economy policymakers be able to prevent the cycle from materializing? And will policymakers be able to forestall a contagion? Will a Black Swan event occur in 2014? By the way, it’s just the end of January and progression of events appear to be headed in the direction of the Black Swan.

Don’t we live in interesting times?