John Taylor: "The Nice Risk Rally Since The First Half Of 2009 Is Ending" And Will Be Replaced By A "Scary Descent"

Tyler Durden's picture

In the last two years, one of the most accurate predictors of both long and short-term trends has been FX Concepts' John Taylor, whose April call for a EURUSD peak of 1.4925 was almost to the dot. Which is why he is either about to cheapen his predictive record by being wrong, or the days of the rally are ending. In a statement very comparable to that from Jeremy Grantham released a few days ago, Taylor tells Bloomberg that: "the rally in higher-yielding assets is coming to an end with Europe’s sovereign debt crisis resurfacing, growth sluggish and banking systems unsteady. “This is the end of the nice slow moving risk rally that has lulled us pleasantly to sleep since the first half of 2009,” Taylor, chairman of New York-based FX Concepts LLC, said in an interview. “This warning is worthy of a brass band and bright lights as the other side of this low volatility rally will most likely be a scary descent that will have a very negative impact on markets. Our statistical models say we are about at the end of the road for risk.” Taylor gives a deadline to his prediction: "Higher-risk assets, such as equities, the euro and emerging market currencies, have either peaked or will do so by end of July." If Taylor's previous predictive record is any indication, it may get volatile soon. On the other hand, his forte is FX not stocks, and many other forecasters have been burned (or should have been) at the stake of predicting capital markets in a time of central planning.

From Bloomberg:

Higher-risk assets, such as equities, the euro and emerging market currencies, have either peaked or will do so by end of July, according to Taylor, who manages about $8.5 billion and uses statistical models to help predict future movements in assets. Global investors have tempered their optimism about the U.S. and world economies and plan to put more of their money in cash and less in commodities over the next six months, a Bloomberg survey released today found.

FX Concepts, whose returns last year were the company’s best since 2006, reaped gains in the first half of 2010 betting on a slide in the euro against the dollar and then profited by its rise the rest of the year. At present, the fund is short the common currency, which means it will profit if it declines.

Taylor, who predicted several times since 2010 that the euro will eventually fall to parity versus the dollar, boosted returns by wagering on short term swings higher in the shared European currency. FX Concepts, in a Jan. 27 note, said the euro would move higher in a medium-term trend and in April predicted the currency was poised to reach a technical target of $1.4925.

Taylor had some choice words for Europe:

There is absolutely statistically no way that Greece can survive,” said Taylor, who just returned from France. “There is a one in 10,000 chance; if the Germans give Greece their money to pay back their debt then they’ll be fine. But there is no way Germany will do that.”

Greek government bonds fell today, pushing the two-year note yield to a record high of 26.77 percent. The bonds have lost investors 11 percent this year.

“As the spread of Greek two-year debt goes absolutely crazy over German, it means that at some point we are going to have to have a crisis,” said Taylor, whose Global Currency fund gained 3.33 percent last month. “And I think it’s very soon.”

 

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oh_bama's picture

He is WAY TOO BEARISH!

hehe.

Now BTFD still RULES

 

IQ 145's picture

 with the thesis of the article; Agree. I think the stock market has already done it's top formation.

oogs66's picture

The sooner the PIGS go the sooner we can move on to real fixes in Europe

SheepDog-One's picture

PIGS are nothing compared to US debt, when does the US finally have to face facts?

LowProfile's picture

When the world quits using the dollar...  And the US proles revolt because the the gov't can no longer afford to give them beer and cable teevee.

SheepDog-One's picture

Looks like its pretty near.

Calmyourself's picture

I also hope the reset is near so children can have a chance. It is not going to happen soon, the reserve currency will take years to fall. The suffering will be longer than most think possible. Then it will be engineered into a new paradigm, the American people as a whole are woefully ignorant and easy to herd.

MrPike's picture

By real fixes you mean the abolition of the socialist mentality that causes governments to spend irresponsibly?  If so, I agree.

el Gallinazo's picture

Why do you write PIGS instead of PIIGS? Do you consider Italy outside the group, or is it just sloppy or misinformed?

MrPike's picture

It should really be PFIIGS, if you want to get technical.

Glasgow Gary's picture

I agree with Taylor, but, he's been making this call for at least 4 quarters now, yes? These guys have to start owning up more to the trailing record.

SheepDog-One's picture

Yes and why can they just do whatever they feel like Q after Q? Because the american people are pathetic.

Sophist Economicus's picture

On the other hand, his forte is FX not stocks

GG, I agree.   I like reading Taylor's perspective -- But if you invested in his FX projections read on ZH - you would have had your ass handed to you betting against the Euro

 

LowProfile's picture

I wonder...  Who wrote the insurance on that Greek debt?

SheepDog-One's picture

People who live in the 'economic only' world are missing the big picture theres a world hot war about to go down.

topcallingtroll's picture

No way, fuzzy mutt

No one wants a war, and it's not in anyone's interest.

Dangertime's picture

We need the next deflationary crash to happen before the real war gets going. 

Next up, QE2 ends and the market melts.  Position accordingly.

trav7777's picture

we said that about QE1 and it was the time to get long.

if the market melts down again, the government will lose the support of the upper middle and lower upper "trade" classes, IOW, the people with the 401ks.

The market will not be allowed to crash; it's as simple as that.

Dangertime's picture

QE3 is way too unpopular, it simply cannot be done.  We have only two ways to re-engage the money printing.

  • The market crashes (or possibly a sharp correction), producing enough popular support for another round of money injections (this is most likey since then the tea-party can be blamed for not extending the debt limit which in turn will be blamed for causing the crash).
  • We allow a serious target to get hit by the terrorists, then we can get the war on.

 

Pick one.

 

Ned Zeppelin's picture

I think you underestimate QE's popularity among Wall Street banks, and I am certain they have much more influence over this matter than you, me, Congress or anyone else.  The Fed is rogue and answers to no one in our political realm. 

I say after a "Decent Interval," QE3 is on, and QE2.0 Lite will also be busily maintaining the Fed's balance sheet at current levels in the meantime and that will represent a continual flow as well.

And then there's the issue of who will be buying the US treasury bonds we'll be issuing hand over fist? The "free market" has not been buying all this paper. We'll need a crisis, of course, to make these attractive again should the interest rates start to rise during The Decent Interval.

Mark it - this is the way this will go.

Ned Zeppelin's picture

I think you underestimate QE's popularity among Wall Street banks, and I am certain they have much more influence over this matter than you, me, Congress or anyone else.  The Fed is rogue and answers to no one in our political realm. 

I say after a "Decent Interval," QE3 is on, and QE2.0 Lite will also be busily maintaining the Fed's balance sheet at current levels in the meantime and that will represent a continual flow as well.

And then there's the issue of who will be buying the US treasury bonds we'll be issuing hand over fist? The "free market" has not been buying all this paper. We'll need a crisis, of course, to make these attractive again should the interest rates start to rise during The Decent Interval.

Mark it - this is the way this will go.

Miles Kendig's picture

I would add my pick of RRE valuations deteriorating quicker than currently expected (ohh, big shock there) and will maturate right along with your general thesis.  Besides, few hooks work as well with congress.  Heck, this hook worked for a cool few trillion last time.

GoinFawr's picture

QE2 was `way too unpopular` too. So what`s changed.

Here`s a third option: If Ben cuts down a quadrillion trees to print more fiatscos and nobody sees, does he have to make a sound?

And a fourth: Ben calls up his ol` cronies from GS now running foreign central banks the world over and instructs them to reign in the USD`s peers.

Or a combo of the same.

Game changer: For damn good reasons the USD is no longer the world`s favourite reserve currency, paint all the charts you like, it`s all short term gain for long term pain.

eg. Look at the USD/YEN action today... hasn`t the BOJ been printing like it has never printed before?

You can write any number you like on a scrap of paper, but against real assets its actual value will always be discovered in the long run, no matter how much debt you try to back it with.

Ask yourself: as a creditor would you rather be paid in a currency backed by nothing more than debt rife with counterparty risks, or a hard asset with absolutely none?

Mad Cow's picture

How is this printed money getting to the real economy when everyone's credit is maxed and the banks aren't lending? Where's the helicopter?

GoinFawr's picture

Oh the banks are lending all right, just not to the likes of you. As you`ve noticed they`ve already got you maxed out and are now in the process of capturing what is left of your nation, and/or filling their balance sheets with hard assets; where have you been?

Sorry, no helicopters for you.

Mad Cow's picture

Just helicopters with gun turrets?

GoinFawr's picture

Heh, you might see those, sure, but only for a moment just prior to being obliterated. The Jet Rangers brimming with conjured fiat are reserved for the TBTF, or the nations their alumnis at the central banks are working to capture for them.

Hushups's picture

It always cracks me up when someone states that something is statistically impossible and then provides a statistic for how impossible it is.

SheepDog-One's picture

Like for instance the formula for showing the US debt is mathematically impossible to ever repay.

NotApplicable's picture

That's because they mean statistically impossible to occur, not statiscally impossible to calculate.

Ropingdown's picture

An almost-zero probability means that the thing can happen, but that it won't. (Humorous explanation by Prof. Strang).

TheTmfreak's picture

People tend to never say what they actually mean, nor take "definitions" of words seriously.

It is "more impossible" (har har) statistically for people to get hit by lightning and yet they still do....

spartan117's picture

I recall Taylor calling for the Euro to hit 1.31 before he changed it to 1.42, as it was rising against the USD. 

SheepDog-One's picture

Yep, hard to make those calls in an economic slavery world such as ours controlled by these central bankster criminals who just do whatever they feel like because the people are such sheep and will never do anything. I've often said why dont they just seize all americans bank accounts and pensions and jack DOW to 20,000, why not, no one would do anything about it anyway.

LongSoupLine's picture

"This is a GREAT time to be buying US equities" - Fortune Magazine's Editor-in-Chief (on CNBS this morning).

 

May that MSM shill ass-pirate be hit by a magazine delivery truck

SheepDog-One's picture

Who is buying 'US equities'...the Bernank. Besides hardly anything is 'US equities' anymore, the entire DOW is basically Chinese and the S&P is now owned by Germany/UK.

youngman's picture

In todays world of instant messages..who would buy a magazine whos information is at best a week old and probably more....I do not know what to buy.....so I buy gold and silver....just to be safe..and that is the key word....its not to make a killing..its to reduce my losses in a colapse...

Muir's picture

This is surely bullish for silver!

Another great day to BTFDs!!!

SheepDog-One's picture

Yep, looks like yet another 'bite the fukin dick' day for the american people. Just hold physical silver, its not for day trading.

topcallingtroll's picture

You are funny because I know you are making fun of silver bugs.  I bet there are some who believe you are serious.

Whether you believe in the silver religion or not you have to laugh every once in a while.

IQ 145's picture

 Bought December Comex Silver at $34.25 today; we'll see how that works out.

Smartie37's picture

Actually, right now silver is the only one of the four, AG, PT, PD that IS up.....

Is this anomaly a signal about something ..?

tmosley's picture

Wut woh, wooks wike Wowotwader might be bout ta hav sum pwobwems :(

Franken_Stein's picture

 

Every continuous and differentiable linear or nonlinear function y = f(x) of a variable x can be expresed as its so-called "Taylor sum" or "Taylor series", which is an infinite sum of linear terms of a certain structure plus a residual in Cauchy- or Lagrange-form, to make it finite.

 

 

For example:

f(x) = e^x = 1 + x + x² / 2! + x^3 / 3! + ... + x^n / n! + L(n)

 

with

n! = 1*2*3*4*...*n, faculty function

 

That's how you calculate non-linear functions like sin(x), cos(x), ln(x), e^x and so on in a computer or calculator.