Beware a taper tantrum…after ECB QE

Saying goodbye is one of the hardest things in life. Especially when it is to a good friend who has brought you joy, peace of mind and, yes - profits.

For investors over recent years, that friend has been easy monetary policy.

St. Louis Federal Reserve President James Bullard told CNBC on Monday that there was the potential for another "tantrum," as the U.S. central bank looks to raise its main benchmark interest rate this year.

He is the latest in a line of experts warning of the potential for market volatility.

James Bullard, president of the St. Louis Federal Reserve Bank.
Scott Eells | Bloomberg | Getty Images
James Bullard, president of the St. Louis Federal Reserve Bank.

But whenever we hear of investors fretting over an end to easy monetary policy, all we think of is the Federal Reserve's exit from its ultra-low-rate policy.

But aren't we forgetting about another central bank closer to home?

The Europeans Central Bank (ECB) is two weeks into its 1.1 trillion euro bond-buying scheme. It has already caused unprecedented distortions in bond markets.

Investors are flocking into euro zone equity and bond markets like there is no tomorrow.

Since the start of the year until mid-March, euro zone equity markets have seen inflows of $36 billion dollars, according to Bank of America Merrill Lynch Global Research - a new record.

And one third of European government bonds are now carrying a negative yield.

As investors worry about one central bank exiting its stimulus program, they are blindly following the sweet call of another for continued returns.

Read MoreFed's rate 'baby steps' could backfire: Economist

Fed's Bullard: US must beware 'asset price bubbles'
Fed's Bullard: US must beware 'asset price bubbles'   

But why is nobody questioning whether the ECB has a clear exit strategy that will allow these bond holdings in the periphery to be unwound in an orderly fashion?

I put that question to Jens Weidmann, head of Germany's Bundesbank. His response was terse: "This is a discussion that should be held within the governing council, not in public."

I have a feeling the ECB may not have much of a plan yet. Shoot first, think later?

With this in mind, is it possible to avoid yet another taper tantrum?

Read MoreUS bond market vigilantes have 'gone fishing'

To be honest, I think the answer is no. The unwinding of a large consensus position by investors practically at the same time is bound to be messy.

But some economies may fare better than others when huge capital flows are reversed. Take India, for example.

The nation's currency market was hard hit by the initial taper tantrum in May 2013, when the Fed's policy minutes sparked fears that the central bank could start tapering off its $85 billion-a-month bond purchasing program. The issue was only compounded by the country's high current account deficit.

Now, two years later, the Indian rupee is the only major currency that has appreciated against the U.S. dollar this year, driven by a lower oil price, reforms in the country's supply chain, a sharp narrowing in its current account deficit and optimism in future policies under the government.

Let this be a lesson for the periphery nations whose borrowing costs have dropped to record lows.

Goodbyes might never be easy -- but good planning can do its part in alleviating the shock.