John Taylor: "November Will See The Flash Point That Begins The Market's Reversal"

Tyler Durden's picture

John Taylor, who has not made any friends at the administration with his recent comparison of Ben Bernanke to Hitler, has released his latest letter whose purpose is to disabuse what Traxis flip flopper extraordinaire Barton Biggs (or rather is praying, due to his high single digit negative YTD P&L), as well as many others believe, will be a 10% boom in stocks prices following November 3. Wrong. As this whole rally has been liquidity driven, all that will take to reverse it, is for someone to step between the Chairman and his favorite Hewlett Packard. That someone: anti-Fed crusader Ron Paul, who will see this as his last mandate (and chance) to leave a memorable mark on the Fed's modus operandi: "After the Republican victory things will change. The Fed will be
hamstrung, as Ron Paul, a conservative standard-bearer and harsh critic
of the Fed, will head the sub-committee overseeing its actions.
Liquidity expansion or new programs will probably drop sharply under his
watch.
Paul would argue that the Fed’s unfettered ability to “debase” the currency is about to come to an end" Which is why all those who believe "more of the same" will continue indefinitely, may be wise to hedge their bets. Taylor also looks at the game theory between the Fed and the ECB: "As the US authorities turn to a tighter monetary and fiscal policy,
driving the country into a recession, causing the US and its banking
system to withdraw liquidity forcing the dollar higher, the ECB will be
forced to be more accommodative. Our analysis argues that the month of
November will see the flash point that begins to reverse the markets’
optimistic course."

A Major Risk Reversal Is Coming Soon
October 28, 2010
By John R. Taylor, Jr.
Chief Investment Officer

Two important elections occur during this next month, one in Greece and one in the US. In both we should see a swing to the right and this move, if large enough, could just be the event that kicks off the next global recession. Although the newswires have hardly mentioned Greece during the past four months, the situation in Athens remains difficult. Even though most of the drastic measures have yet to be implemented the PASOK government is being roasted in the opinion polls, where 67% say that it is doing a bad job. Municipal elections occur in two weeks and it seems clear that the Socialists will lose in all parts of the country, defeated both by the right and in some cases by splinter groups of all types.

Although one could pass this off as nothing more than an unimportant popularity contest, Prime Minister Papandreou stated this week, ”the citizens will give a clear signal where they want the country to go.” If his party loses this support, he would call a general election as a referendum on the “Memorandum” with the EU, ECB, and IMF. Despite what the opposition calls his “blackmail,” the PASOK will lose next weekend and the Greek crisis will pop onto our radar again. If Papandreou does call a general election, the risks will be enormous as the entire program will be placed under the looking glass once again – and the government will probably be defeated at the conclusion of the debate.

Across the ocean, the American mid-term elections will not unseat Obama, but will further limit his very limited freedom of action. The House of Representatives should be comfortably controlled by the Republicans while the Senate should be split within one or two votes of 50–50. In the US this means certain gridlock at a time when fiscal tightening is already programmed into the next few years. If any fiscal stimulus is applied, it will be through tax relief rather than through targeted government programs. The euro has been strong and dollar has been weak for the past two months, but these two elections should have a big impact, most likely reversing these trends. Currently, the US Fed has anticipated the economic slowdown resulting from the withdrawal of the fiscal stimulus by trumpeting its new round of quantitative easing. The expectation of this dollar-creating process is resulting in a very weak dollar.

After the Republican victory things will change. The Fed will be hamstrung, as Ron Paul, a conservative standard-bearer and harsh critic of the Fed, will head the sub-committee overseeing its actions. Liquidity expansion or new programs will probably drop sharply under his watch. Paul would argue that the Fed’s unfettered ability to “debase” the currency is about to come to an end. The leading indicators call for a US recession next year – and Bernanke is acting as though he believes this – but with the Republican dominance, fiscal and monetary support will not be quickly supplied, which implies a stronger dollar. Fiscal stimulus is being withdrawn dramatically in Europe and the Eurozone is on its ways to a recession as well. Although the mean GDP for the Eurozone has been impressive lately, arguing that Europe is doing well is like arguing that Dallas, Texas has a balmy Mediterranean climate as the yearly mean temperature is 19oC, but in the summer the mean high is 36oC and in the winter the low is 2oC. The average obscures a lot if information and never more so than in Europe: Germany is in the summer while Ireland and the other PIIGS, roughly 30% of the populace, are in the winter. Although the Euro-authorities will be reluctant to act until a crisis rattles them, Greece could do it again. As the fiscal austerity begins to bite, the ECB will eventually be forced to further inject liquidity into the banking systems and support them too. As the US authorities turn to a tighter monetary and fiscal policy, driving the country into a recession, causing the US and its banking system to withdraw liquidity forcing the dollar higher, the ECB will be forced to be more accommodative. Our analysis argues that the month of November will see the flash point that begins to reverse the markets’ optimistic course.

Also, here is Taylor's recent, and just slightly less pessimistic interview with Erik Schatzker. 

 

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Al Gorerhythm's picture

RP should have his heart checked by an independent GP.

skohiu's picture

+1  Another scenario is "suicide".....

Just_Crash_Already's picture

If they wanted him dead, it would have been done already.

Much easier to try and discredit him. No one wants to make him a martyr.

I say he gets elected in 2012, the dollar finally collapses, and they blame austrians for all our ills. The ultimate irony.

LowProfile's picture

Hardly.

It will be clear he had nothing to do with it, and Paul will easily make the point that the Fed's money creation was at the root.

He would be elected to rebuild on the smoldering ashes.

BigJim's picture

I think the only reason he's still alive is because hardly anyone listens to him. He speaks the truth 99% of the time, and what's the result? 95% of the population think he's a nut.

I fear that if his ideas really start gaining traction, he could wind up very dead very quickly :-(

I am not really a religious man, but even so, I pray RP has an angel watching over him. 

TuesdayBen's picture

Rand Paul'll do it for free.  Senator Rand Paul, that is.

StychoKiller's picture

It's my understanding that Rand Paul is an Opthamologist, so all he could do is check Ron Paul's eyesight, which seems all to clear to me already!

kato's picture

well, anyone who compares just about anyone to hitler is hard to take at all seriously. i mean, we are talking hitler... stupid analogy. couldn't he have just used stalin...? 

and i am no fan of ben and the fed.

 

 

SheepDog-One's picture

Why is Hitler considered off limits to be used as a reference to, and Stalin acceptable? Technically, Stalin killed FAR more people than Hitler ever did.

Nassim's picture

Mao killed 50+ million but we are lucky that the Chinese don't run Hollywood

http://en.wikipedia.org/wiki/Mao_Zedong#cite_note-1

MeTarzanUjane's picture

Replace `run Hollywood` with "run the country". Ty.

Dirtt's picture

George Bush killed 50+ billion.  You must have missed that movie.

DosZap's picture

Where do you get your Weed?.

Must REALLY be some good chit'  mon.

Queep.

 

jomama's picture

it's more about WHO he killed, shouldn't matter, but it does.  i guess some people believe they are more equal than others.

Monday1929's picture

You have small Dick, no? Want to blame others?

zaknick's picture

He's a daggone furrener!

Walter_Sobchak's picture

it's a classical logical fallacy - the argument ad hitlerum.  we're entering a world of pain

Wyndtunnel's picture

No no no. It's the MOUSTACHE. People just don't understand! Men are not evil!! Their facial hair is.  That's why Geitner with crazy hair and no facial hair is only somewhat evil..in fact he's more dumb than anything else and yet Bernanke, no hair and lots of facial hair is WAY evil..

I wrote a song about it...

http://wyndtunnel.wordpress.com/2010/05/05/song-of-the-week-hitlers-mous...

 

StychoKiller's picture

Well, that theory would go a long way in explaining my dark fantasies...

kato's picture

it was a facetious comment.

Wyndtunnel's picture

You sure you weren't being fascist?  ;-)

Al Gorerhythm's picture

With a qualification? Bullshit.

The commentator compared Ben to Hitler with a question laced with incredulity, that anyone could compare the two. He didn't base his question on the warnings that the two issued about their plans, and the answer from Taylor followed in the same vein.

The article states that Hitler warned of his plans for war. Bernanke has issued his. The theme: Is anbody listening?

The war is here (currency), no one took any notice.

Well, some did.

(:>)

CH1's picture

Two reasons:

1. Hitler was more flamboyant.

2. The lefties had first position at the publicity machine for a long time, and didn't like a commie being the poster-boy of evil.

trav7777's picture

no it really has everything to do with Hitler's having killed lots of jews

New_Meat's picture

"Why is Hitler considered off limits to be used as a reference to,..."

Yo, Dog.

ya gotta go way back into the uunet "flame wars" to find an answer to this question. -- Answer: "anyone who invokes either Hitler or the Nazis" has already lost the argument.

So: off limits.

Stalin killed as many (maybe more) but not as publicly and besides, he was Roosevelt's ally.

Go figure.

- Ned

macholatte's picture

in the interview he said he used Hitler to get attention and he did.

next: mass murderers (top 5)

1 = Mao        70 million

2 = Stalin      20 million

3 = Hitler      11 million ?

4 = Tojo         8 Million

5 =  Pol Pot    1.5 Million

 

http://thepirata.com/top-mass-murderers-in-history/

 

Get your facts first, then you can distort them as you please.
Mark Twain

 

ict558's picture

I have only 500,000 subjects. It is just not fair, I will never attain an international rating.

Surely we should be rated by the number murdered as a percentage of potential murderees.

nmewn's picture

I see a pattern here.

1 = Mao = communist                                70 million

2 = Stalin = communist                              20 million

3 = Hitler = fascist/socialist                        11 million ?

4 = Tojo = prime minister under a monarch 8 Million

5 =  Pol Pot = communist                          1.5 Million

DosZap's picture

"Stalin killed as many (maybe more) but not as publicly and besides, he was Roosevelt's ally.

Go figure.

- Ned"

Because they thought alike, and had the same belief systems.

FDR, along with Wilson, where the TOP 2 Dogs in bringing us where we are today.


Assetman's picture

+3.14 (I like pie)

And just for the record, the best analogy in my mind would be Mussolini.

dehdhed's picture

he didn't say bernanke was like hitler

he said bernanke has been telegraphing his intentions for years just like hitler did, but no one took them seriously

seems like an acceptable analogy to me

 

BrosMacManus's picture

cue the anti-semites in 3...2...1...btw, where Chumba?

99er's picture

Weekend Charts

http://www.zerohedge.com/forum/99er-charts

Have a great one, folks!

Cdad's picture

Selling the mo mo winners into the close....hard.

 

MeTarzanUjane's picture

That is exactly why I do not believe much of what this author commits to disk.

"Our analysis argues that the month of November will see the flash point that begins to reverse the markets’ optimistic course."

There are 6 hedge funds in the Reston Va. area with direct funding from the FED tasked with saving America with unlimited free FED dollars and powerful trading algorithms.

Does this guy think the Reston 6 are going on Holiday?

midtowng's picture

You are assuming that the Republicans will actually live up to their rhetoric. That's a very big "if".

However, we are probably already in recession, and its going to get worse.

jus_lite_reading's picture

"However, we are probably already in recession, and its going to get worse."

Today is Friday, October 29th, 2010. Are you copy and pasting that line from 2007? We are in a DEPRESSION and it's going to get worse.

 

frankTHE COIN's picture

1 if by land. 2 if by sea.

NotApplicable's picture

Do the Repubs have to give the chair to their ranking member, or can they pick a junior member?

Ragnarok's picture

They can pick whomever, but ranking members expect to be picked.  A bunch of left overs from the Bush years, I want fresh unspoiled blood.

Uncle Remus's picture

I'm thinking that just about the whole lot needs to get the chair.