A Teeny-Weeny Bit Of Taper, And Look What Happened

Wolf Richter www.testosteronepit.com   www.amazon.com/author/wolfrichter

All heck broke loose in equities, after an already iffy start of the year, and Friday’s hair-raising plunge across the board left the Dow down 3.7% for the week. They got clobbered worldwide: in Asia, except China, in Europe – with German’s DAX down 3.6% for the week and Spain’s IBEX 35 down 5.7%.

And emerging markets, oh my! Equities plummeted. And outright bloodletting took over the currency markets. The Turkish lira dove, though the central bank tried to prop it up. Argentina, which is desperately lacking dollar reserves and might not be able to service its dollar bonds, simply threw in the towel and let the peso devalue, rather than blow more dollars that it didn’t have on slowing down the fall. BOOM – 13% of whatever wealth was tied up in the peso has evaporated.

“Global emerging markets are now trading in full-blown panic mode,” explained Benoit Anne, global head of emerging-market strategy at Société Générale in London.

A teeny-weeny bit of taper, and look what happened.

Now Wall Street is lining up at the Fed, whining! And the media are diligently reporting that “the jittery financial markets” might or would or at least should cause the Fed to revert to the halcyon days of full-blown no-room-for-doubt QE Infinity. They want the Fed to get on it, and pronto, and do so with redoubled efforts.

Doesn’t the Fed get it?

“Given how poorly equity and currency markets have traded this week, Janet Yellen has the ‘perfect excuse’ to delay tapering at next week’s Fed meeting,” the Wall Street Journaldutifully quoted Tom di Galoma, co-head of fixed-income rates trading at ED&F Man Capital. “She is very careful about disruptions.”

These “disruptions” being losses of any kind.

Mega gains based on printing money out of nothing have become the norm. Everybody has gotten used to them. Wall Street players have gotten immensely rich off them. No one can imagine a different scenario. Nothing else is apparently allowed to happen.

Forget the corporate revenue and earnings debacle. Forget the employment quagmire, the lack of corporate investment in anything other than their own shares, the lousy shopping season, the layoffs in retail and tech. Forget the sky-high stock prices, the IPO bubble, the distortions and mal-investments. So long as the Fed prints enough money, asset prices will go up. And that’s the only bet left, apparently.

Good grief, how far as a nation, as investors, as traders, as risk-takers have we fallen, under the Fed’s noble tutelage that consists of doling out free money? Now these “risk-takers” cling to the Fed’s sullied apron like little children and beg for their livelihood.

Statistically speaking, the Fed’s heroic actions conquered the Great Recession years ago. The economy has been growing at a measurable clip, statistically speaking, with the unemployment rate inching lower over the years, though again, that’s just statistically speaking. But most Americans, struggling to make ends meet in the real economy far from the hoopla, hype, and buzz of Wall Street or Silicon Valley, have a more accurate answer. Read…. A Very Unfinished Recession, For Most Americans