In response to Bubbles Ben to be Replaced by Calamity Janet, reader "Robert" responded via email "Try thinking of the Fed not as headed by inept persons, but as run by persons whose deliberate intention is to bring about the sort of destruction it is in fact bringing about."

I replied "Don't buy it. I am not a believer in such conspiracy theories. But I am a big fan of Occam's Razor: The simplest workable theory is most likely to be correct. In this case, the simple theory is: They are economic idiots."

Breathing Room for Emerging Markets

Some people think the Fed's actions are purposeful, but in a favorable sense. For example, please consider Bernanke Buys Time for Brazil to India as Rupee Leads Rally

The Federal Reserve's surprise decision to refrain from scaling back monetary stimulus provided a respite to investors in emerging markets, where currencies are in the midst of their worst rout in two years.

"It gives everyone some breathing time," Denise Simon, an emerging-market fixed income manager at Lazard Asset Management, which oversees $147 billion, said by phone from New York. "It certainly takes some of the immediate pressure off the more vulnerable countries. Emerging markets will continue to correct on the upside as the result."

The rupee strengthened 2.6 percent against the dollar at 12:18 p.m. in Hong Kong and Thailand's baht appreciated 2.1 percent, heading for the biggest gain in six years. The Malaysian ringgit increased 2.3 percent and one-month non-deliverable forwards on the rupiah rose 2.2 percent. The Jakarta Composite index jumped 4.4 percent and India's S&P BSE Sensex Index added 2.9 percent.

The Brazilian real and Turkish lira jumped more than 2 percent yesterday, while the Indian rupee led gains in Asia today, after the Fed said it will keep buying $85 billion of debt a month. Indonesia's Jakarta Composite Index advanced the most since October 2011 and JPMorgan Chase & Co.'s index for dollar-denominated bonds in developing nations posted the biggest rally in almost three months.

Fed Chairman Ben S. Bernanke held back from paring monetary stimulus to support economic growth, soothing investors who had dumped emerging-market assets since May as higher U.S. interest rates sparked capital flight. A group of the 20 most traded emerging-market currencies lost 7.4 percent between May and August, the most in two years.

The decision came at a time when economic data from China to Brazil are showing signs of improvement and helps countries most dependent on foreign financing such as Brazil and India, said Simon.

Real, Rand Strengthen

The rupee strengthened 2.6 percent against the dollar at 12:18 p.m. in Hong Kong and Thailand's baht appreciated 2.1 percent, heading for the biggest gain in six years. The Malaysian ringgit increased 2.3 percent and one-month non-deliverable forwards on the rupiah rose 2.2 percent. The Jakarta Composite index jumped 4.4 percent and India's S&P BSE Sensex Index added 2.9 percent.

The real led the rally in developing-nation currencies yesterday, gaining 3.2 percent to 2.1860 per dollar.

Strategists at Citigroup Inc. yesterday advised clients to buy the Mexican peso and bet 10-year interest-rate swaps will fall, saying the Fed's decision boosts investor risk appetite.

"This has created a much better environment for risky assets," Paul Denoon, who oversees $25 billion as the head of emerging-market debt at AllianceBernstein Holding LP (AB), said in a phone interview from New York. "It's important because one of the concerns for the market is the large external financing needs for developing countries. This creates stability."

Ridiculous Comment of the Day

The ridiculous comment of the day goes to Paul Denoon who says "This creates stability."

Really? The Fed buying $85 billion in assets a month creates stability? Denoon must live in Bizarro World along with Ben Bernanke and the rest of the Fed.

In Fed Bizarro World; One-Sided Risk Assessment; The $64 Trillion Question I asked "How in the hell is the Fed going to normalize interest rates with a recovery in full bloom, with interest rates three or four full percentages points below normal?"

Some people prefer short-term stability even when the outcome is long-term disaster.

The Sooner the Better

A more sensible comment comes from Brazilian state development bank president Luciano Coutinho who expects currency volatility to increase because the Fed didn't start tapering.

"For us, the sooner it starts and ends, the better. I would rather see it start today and have some date to finish because then we will feel the whole impact. The worst thing is the uncertainty."

Let's see how long this rally in emerging market currencies lasts. I suspect not long.

Common Sense Comment of the Day

Looking for non-conspiratorial common sense? Then please consider this statement I received by email from Pater Tenebrarum at the Acting Man Blog:

"I am deeply convinced that they really have no friggin idea what they are doing. And eventually we will all find out they had no idea."

Bingo.