John Taylor, founder and CEO of the world's largest FX hedge fund, spoke with Bloomberg TV this morning and was his typically clarifying - if not sanguine - self when it comes to prospects in Europe and the US. Stating that he'll "probably always be a bear on the Euro", Taylor added that it is "hard to look at the European situation and see a cloudy sky become clear," and while there has been noisy swings in the movements of currencies of late, "the reason the euro is up is because the dollar is down - two guys have done this: Draghi and Bernanke." Ranging from FX to volatility, Taylor opines on the time-varying correlation of the weak euro with a strong US equity market and notes, however, that "the equity market is not showing any legs."
Taylor on the euro:
“I will probably always be a bear on the euro. It is hard to look at the European situation and see a cloudy sky become clear. Much more likely that cloudy sky will start to rain on you.”
“The fact of the matter is although we’ve been short the euro that whole time, we kind of were long on everything around the euro to make it even. Owning Sweden, Norway, Turkey, the Czech Republic, all kinds of things. Everything around Europe except for Switzerland, which has locked itself to the euro. So, the reason the euro is up is because the dollar is down. Two guys have done this: Draghi and Bernanke. Draghi made the speech on July 24 and followed up with actions in September. Bernanke made the speech on August 30 and followed with actions in September. Both of those things were aimless to strengthen the euro and weaken the dollar and they worked.”
On whether the Swedish Krona has more room to gain:
“Yes. It depends a little bit. It depends on the equity market here, it depends on electronics. The Swedish situation looks very good. Obviously it is doing something, but I would argue that it still has some to go. I still own it.”
On FX volatility being the lowest it has been since 2007 and whether that makes it more difficult for currency traders:
“It absolutely does make it harder to make money. I can see it from both sides. It’s harder to make money. On the other hand, would I want to go out and make a big bet? No, I am afraid of the central banks jumping down my back. The fact of the matter is if you look at our leverage is as low as it has been in a generation. We are trying to say gee whiz, how can you make any money with such a low leverage? We can say, oh, we’re having a decent year compared to our peers, up 2, up 3. What good is that? You will not sell anyone anything if you are saying you are going to make 2 or 3%. It’s not enough.”
On whether he agrees with those why say that Bernanke signaled last month that Fed actions are tied to equity markets and what that means for those buying and selling currencies:
“Normally equities correlate very highly with risk on and risk on correlates very highly with dollar weakness. So wanting to strengthen the equity market means you want to weaken the dollar, so therefore for those kinds of things go along with each other. Each time a QE or an Operation Twist comes along, it has less power than before. One of the interesting things right now is that we do believe the dollar will be weak and we have a target date of October 27 for the beginning of a reversal where the dollar might start to show strength. But I have to say the last week has shaken my conviction in that point of view. The equity market is not showing any legs. Being below 1440 which is where we started and everyone out on the street has signaled this as a big level and a big deal, and we’re trading 1432 right now, I do not know where we will wind up. Maybe the people will come out of the wall and as you say, it’s cheap now, they should be in and buying, they have their chance. Where are they? I am waiting. Show up. We’ll see.”