John Taylor: "The Collapse Of Europe Has Begun, The Euro Will Trade Like The Lira In A Few Months"

Tyler Durden's picture

Fasten Your Seatbelt
November 11, 2010
By John R. Taylor, Jr.
Chief Investment Officer
, FX Concepts

Now that Ben Bernanke has re-introduced quantitative easing (QE2) to a mostly incredulous world and, across the ocean, the Eurozone has begun unraveling again, our thoughts should turn to the parlous state of the world and the risks ahead. These are amazing times and seem to grow more so every day. Policy errors are popping up everywhere and are likely to multiply dramatically as the political problems are serious, answers hard to find, and the decision makers are not up to the task. Bernanke has proven that he is more a college professor and less a trader, which will cost the world dearly. Sometime between June and August Bernanke lost his stomach for the “exit strategy,” probably influenced by his predecessor’s summer announcement that the US economy had ‘hit an invisible wall.” While it can be argued that QE1 has been a success due to the liquidity crisis, it did not expand the Fed’s balance sheet and came when the economy was still reeling. This new edition dramatically expands the balance sheet, actually funding the entire projected government deficit over the next few months. Although the world believes that QE2 is there to push the dollar sharply lower, Bernanke argued that his goal was something else. On the day after the Fed’s move, he wrote in a Washington Post editorial piece that QE2 would push up the equity market, bonds, and other risky securities thereby stimulating consumption and economic activity. Even Greenspan did not publicly proclaim his “put,” but now Bernanke has made it the centerpiece of US strategy. Equities are already overpriced, with profit margins at all-time highs and PE ratios far above average. Speculation is now more American than apple pie – but this is a very risky time to practice it. As one highly respected analyst noted about Bernanke’s article, “these are undoubtedly among the most ignorant remarks ever made by a central banker.” As we and many others have noted that QE has shown little or no positive impact on actual economic activity, so the Fed has taken a big gamble, and if it fails as we expect it will have nowhere else to go. With the Republican victory tainted by the Tea Party “starve the beast” mentality, austerity has come to Washington. This next year will be a terrible one for the world’s biggest economy, so we would go against Bernanke on the equity side, but buy government bonds along with him.

The Eurozone has begun its collapse a little later than we thought. My compliments to the political prowess of the euro-leaders for holding things together for so long, but this is an impossible situation and the crisis is on its way. Jean-Claude Trichet caught the spirit of the situation today in Seoul when he said that “it is absolutely necessary to change the governance of Europe” and called for moving “as far as possible in the direction of an economic and budgetary quasi-federation.” I only disagree with part of one word, ‘quasi,‘ as Europe must move to a full economic federation if the euro is to survive. With 16 countries using the euro and Estonia on the way, the odds of moving there is currently lower than infinitesimal. Things will change after the approaching horrible economic and political catastrophes that will wrack some of these economies and societies. Unfortunately nothing will happen before the current situation gets unbearable – this is the way of democratic politics. As all the leaders are still working toward the same goals, and no one has stepped forward express the inchoate fears of the European populace, this should take years. By the start of next year the Eurozone will enter a recession that will test the current leadership. The euro, which has been perceived as if it were a German mark, has already topped and will decline until it is priced like an Italian lira in the next few months. With Europe and the US in recession next year, commodity prices will drop again and global growth will suffer despite the outperformance of domestic Asian economies. With the policy stresses, and the risk of significant errors in judgment, international strife becomes more likely as well.

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Rahm's picture

How much did Soros make this time?

Arius's picture

who cares? 

as big as soros might be he is not the cause but the symptom.

UGrev's picture

I agree. He's an opportunistic parasite. 

jus_lite_reading's picture

He is doing whatever it takes to make money. Can't fault him for that.

GoinFawr's picture

" -- tragedy, you know; take a turn to mesmerism and phrenology when there's a chance; teach singing-geography school for a change; sling a lecture sometimes -- oh, I do lots of things -- most anything that comes handy, so it ain't work. What's your lay?"

-Mark Twain 

"...doing whatever it takes to make money."

So, in your opinion, as long as you are on the glorious mission of trying to make money, fraud would be ok?

outamyeffinway's picture

Uhhhh, maybe not you but I sure could. What moral handbook are you reading from?

Almost Solvent's picture

The postWWII version: Greed is good and by any means necessary.

Those who believe morals are absolute throughout time remind me why nice folks usually finish last.

thefatasswilly's picture

Hilarious that you were junked. People simply can't accept the fact that the common western system of Christian morals leads to failure, not success.

Amazing to me that hordes of American "intellectuals" have apparently never read Nietzche.

GoinFawr's picture

Yah, "I'm all right so fuck all the rest" is bound to work out for the best. Though admittedly by 'best' I mean the sociopaths with whom you are desperately trying to align yourself like some sort of 'useful idiot'. Trust me: you aren't getting a seat at the table of the Gang on Fortune Hill just because you like the cut of their jibs.

Good luck with that. You better hope you don't live in our neck of the woods, 'cuz duped loyalists will be the first to go where I am at.

Amazing to me that hordes of American 'nihilists' have apparently never read Kropotkin.

(Well, mb they have, but like the Nietzsche they've read it's painfully obvious that they failed to understand it.)

Warmiest Regards

thefatasswilly's picture

. . .

I'm aligned with myself.

I plan on killing the oligarchs. Don't make assumptions; you're obviously not intelligent enough to do so.

The_Dude's picture

Yes, you can fault him...that is what got us into theis G'damn mess. 


Whatever fraud/deceit/extortion it takes to make money!!  F'ing people need to readjust the heads before someone shows up and does it for you.

Hugh_Jorgan's picture

Nicely put, Dude.

Soros is much worse than a simple opportunist. He is a global Alinsky-ist. He is a top-down, and bottom-up meddler, the likes of which the world has never seen. He uses his money and influence to subverts elections, and stirs up social unrest "at just the right times", in order to foment the very opportunities that he profits from. All on the on the back of entire economies and regions and countries. He claims to have spent upwards of $8Billion doing this stuff in emerging countries. The man believes he is a god (his words, not mine) and so we are all his playthings. He is the ultimate representation of our insideous system of massive avrice, and power that relies on the excuse of; "it's for the greater good" to reassure ourselves that ruining people's lives is ok as long as your vision is for something better. It is Socialist circular logic, and it is Evil. The same justifications that Adolf Hitler, Joseph Stalin, and Mao Se Tung, used for the murder 10s of millions of innocent people. Everyone, needs to read some of Soros' books, you will understand WHO this guy really is...

thefatasswilly's picture

Cry more; you'd do the exact same if you were smart enough to do so.

Also, think about this: despite the fact that Mao, Hitler, and Stalin massacred tens, if not hundreds, of millions of people, humanity STILL suffers from severe overpopulation and stupidity problems.

The fact that you condemn these great men for their services to the human race reveals your simple mindedness.

TonyV's picture

I agree. He's an opportunistic parasite. 

As so is everyone else on this board for that matter

TBT or not TBT's picture

Wow!  A tingle went right up my leg...the image of two parasitic ZHers entertwined one with a paper bag over his head, the other a freshly ripped chunk of meat.

DosZap's picture


"As so is everyone else on this board for that matter"

To be a Parasite one must find a host,(to leech off of) to be labeled as such with such a BROAD blanket, is not only incorrect, but morally reprehensible,and derogatory.

As such, I suggest you speak for yourself, unless of course you know everyone ON this Board.

TonyV's picture


The original poster was comparing someone that profits from the fall of the Euro to a parasite. By that defintion, everyone that tries to profit from the fall of CSCO stock, or from the bubble in the treasuries or in PMs or anything else in between, is also a parasite.


TBT or not TBT's picture

I'm a huge parasite then, by the first argument:   Die Euro!

MeTarzanUjane's picture

Now, now. You are a big meanie.

Soros is awesome, so is his #2 guy!

Printfaster's picture

as big as soros might be he is not the cause but the symptom.

A sympton of the Rothchild banking Cartel?

Bill Lumbergh's picture

Euro is breaking down from support now...if anyone does not think this market is being propped up watch the action in IWM.

Update:  Nice one Benny, with the Euro tanking the indices somehow seem to levitate higher since apparently people cannot wait to take on more risk.

jus_lite_reading's picture

WORLD WAR III is imminent. That is the only solution.

Rocket schmocket my ass. 6, count 'em, SIX ACC's out this week, with 50+ naval ships in the M.E. and dozens in S.E Asia... ok

SheepDog-One's picture

Agreed. Thats the only outcome of all this. Millions, maybe billions dead from the coming all-out world war....and people will say 'What happened? I thought everything was OK'!

Crab Cake's picture

Sadly, he who shoots first is more likely to win given the state of technology.  So, I could definitely see the war starting "from out of nowhere".

Ripped Chunk's picture

Nice to see some agreement about the inevitable for a change. Old habits die hard.

The elite worry about the current state of unrest being displayed by the Sheeple. War (and now terrorism) has been the traditional mechanism to diver attention away from their manipulative and thieving activities. They also worry about overpopulation which is something they can not control the way they control economies and governments.

thefatasswilly's picture

Well, we do need to eliminate a couple of billion mouths and oxygen users in order for humanity to reach an equilibrium with available resources.

wake the roach's picture


Well, we do need to eliminate a couple of billion mouths and oxygen users in order for humanity to reach an equilibrium with available resources.



Fuck the poor, uneducated and hungry people of this world. They breed like rats, nothing but human trash and they brought it all upon themselves. Darwin proved it, its only through competition, survival of the fittest that we evolve. We should strike first no matter what the price. With them gone, we can consume 100 times more resources and infinitely without the need to resort to a primative and dangerous economic model of global resource equality, egality and the weakest of human traits, compassion. And no more medicins sans frontieres or world vision commercials to depress us when we get home from an honest hard days work and want to relax and enjoy a simple microwave dinner in front of the TV. With say, oh 5 billion less people on the planet, the free market and the math of the economic profit sytem of exchange would finally work the way we think it should. To hell with left wing socialist dialectics and measurement relativity, black is black and white is white. 1 is one and 0 is zero, end of story. Without competition, we all die so its not a question of racial, cultural or national superiority. Hitler was not a bad man, he was just realistic, is that really a crime or just pure honesty? I for one am not an elitist, it's just proven mathematical and scientific linear logic. At this make or break moment of choice for the future of the collective human species, we can not afford to allow radical and unproven economic theory's (more like communist ideology right?) to push us from the safe path of  natural evolution. Sometimes, natural laws forces us to make hard choices, it does not work vice versa. Should we sacrifice our evolved western way of life for the primative majority of 21st century savages??? To the educated mind it is  not even a question worth asking. It's us or them. There is no possible way for 7 billion people to live a life of true wealth. Sure, we have the technological ability right now to provide for the material wellbeing of every human being on the planet and with almost unbelievable energy and natural resource efficiency but where are we supposed to get the gold and silver to do it???

wake the roach's picture

And just in case anyone does not understand that I was taking the piss, I do not believe that the mass murder of our fellow global citizens is an acceptable option to achieve the state of consumption nirvana. Oh, and resource sustainability is a myth, no such thing folks. Just greater resource efficiency. If man is to survive into the next millenium, we will have to colonise new planets. Entropy is a tough game to play ;-)

thefatasswilly's picture

I agree with your last point; we NEED to expand into space. We are capable technologically, but political and social complications prevent it.

How do we eliminate these complications? One world government. How can that be accomplished?

Mass murder.

Who should die? The relatively intelligent, or the relatively fucking stupid?

MeTarzanUjane's picture

My sisters uncle is on sabbatical at an observatory in Alaska(I cannot say which one I hope you understand) not far from The HAARP Project. One night last week during his shift he used an ion-infrared filter on the telescope and pointed it over the area that HAARP uses and he said that his field of vision was totally blocked because of the intensity of the beam. He has never seen it so intense.

He said "they have gone full retard with that thing and they will not stop until the upper atmosphere is totally destroyed".

Something or someone is going to melt.

TeamAmerica's picture

Something has gone full retard, but it's not HAARP.

kiwidor's picture

They are not trying to destroy it, they're trying to use it as a shield.  Of course, in the process, they may destroy it.  <tee hee>

lolmao500's picture

Commodities back down... maybe. But gold and silver as a refuge will go up.

Max Hunter's picture

Eventually... expect some movement both ways prior..

Revolution_starts_now's picture

unintended consequences,


Careless Whisper's picture

that's right. dolla vs. euro currency wars? this is how it ends:


DaveyJones's picture

more blood and then the audience starts tearing into itself

Cruel Aid's picture

He said "whoever gets up first is the winner"

It fits!

Charles Mackay's picture

Sorry, but I don't 'get' how the ECB, with a firm monetary policy, will make the Euro less valuable than the dollar. 


Perhaps JT didn't notice that QE2 doesn't even launch until tomorrow.  The Euro may become valueless, but in the race to the bottom, the US dollar will win if QE2 goes as planned.

scatterbrains's picture

looks like they want to shake some weak hands out before the relentless fed buying begins.

Turd Ferguson's picture

$39fuckingB by next Thursday 12:00 EST!!!!!

Charley's picture

What is money used for?

It is used to buy stuff.

If demand for euro-output comes from dollars and not euros, what happens?

Output flows toward demand.

Tight euro policy means demand shifts from euros to dollars. Growth in the euro-zone becomes increasingly denominated in dollars. Even if the ECB wants to slow economic expansion, this economic expansion will take the form of dollars. Businesses will exploit demand from whatever source it comes -- euros or dollars. If your currency is euros, but your demand is coming from dollars, a currency crisis will arise sooner or later.

Sour Grapes's picture

The ECB's policies are not much more "firm" than anyone else's, they just use different terminology for their money printing.

The US, UK and Japan call it QE when they monetize government debt.

The ECB calls it a repo.  European banks buy the bonds of the various bankrupt EU countries, then use the bonds for collateral for a loan from the ECB.  The effect is the same as QE- the central bank has issued new currency and it ultimately owns the sovereign debt.

doomandbloom's picture

for the past 2 has been either news of dollar failing OR euro failing...none of them actually seems like a see saw game to prop the dollar for 3 months and then euro for the other 3?

xenophobe51's picture

No, they're both falling for reals.