John Taylor: "The Euro Is In A Death Struggle"

FX Concepts' John Taylor has not had a good year. A month ago, talking to Bloomberg he admitted that "What’s really frustrating is that we’re supposed to do well in a lousy world market,” said John Taylor, the founder of New York-based FX Concepts LLC, the world’s largest currency hedge fund. Taylor said in an Oct. 19 interview in London that he has lost 12 percent this year and assets under management fell to $5 billion from as much as $8 billion. "We’re doing very badly." Naturally that is to be expected: after his banner year last year, and doing what is logical in 2011, it is not surprising that he did not anticipate the level of central bank involvement, and the resulting surge of the EURUSD in the past month. Either way, he very bearish stance on the EUR will soon be vindicated. In a brand news interview with Bloomberg he says that the the Euro has entered a "death struggle" and that it is "really worse than I could have dreamed it being." Logically, to every seller there is a buyer. To wit: "What’s stupid is that the ECB is holding it up.  Why are they holding up the euro? One of the problems, besides the ECB, is the banks are shrinking, and the banks are selling all of their offshore assets and bringing them back to Europe.  That means in fact there is a persistent buyer of euros and it’s their own financial institutions." All this, and more in the full interview below with transcript.

Transcript:

Taylor on the outlook for the euro:

“It is absolutely incredible. It’s a death struggle for this currency. It is really worse than I could have dreamed it being.  And unfortunately it has a bleak outlook ahead.”

On whether there will be a breakup of the euro:

“Probably. Some parts of the euro will have to be out.  There is no way Greece or Portugal can stand it.”

On why the euro is not back down to $1.20 given its bleak outlook:

“What’s stupid is that the ECB is holding it up.  Why are they holding up the euro? One of the problems, besides the ECB, is the banks are shrinking, and the banks are selling all of their offshore assets and bringing them back to Europe.  That means in fact there is a persistent buyer of euros and it’s their own financial institutions.”

On why the euro spiked in October and went back down in November:

“It is really hard. For me the outlook is bleak, but there is always the hope that the bleaker it gets the more the governments are going to wake up and do something.  It gets to be this bipolar situation. The worse it is, then by God something will happen.  That is what happened yesterday. We had articles coming out over the weekend saying that Europe had 10 days to live.  The next thing you know, boom, the euro is way up.  If it is that bad, [Angela] Merkel has to wake up and do something.”

On the yen: 

“The market does not know what the hell to do with Japan.  Things are very quiet in Japan.  The economy is not growing very much. We have gotten over the earthquake thing.  Toyota made the comment yesterday they will have to move business offshore.  It looks to me like the dollar yen is going to rally slightly.  On the other hand, if Europe collapses, then money will move back into the yen because it is safer than Europe.  Then people are scared of the United States because God knows what Bernanke is going to do.  Of the four currencies, you’ve got Europe and England is very close.  The U.S. has Bernanke to worry about.  Japan is just sitting there.  It’s like a rock. It is not growing or shrinking, it is just there. It is safe in a way.”