In a Bloomberg exclusive, the world’s largest currency hedge fund manager John Taylor of FX Concepts LLC said the risk rally in emerging market currencies, equities and commodities that began in March 2009 is coming to an end.
“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 $8.5 billion New York-based FX Concepts LLC, told Bloomberg. “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, dubbed the new ‘Doctor Doom’ for his dire assessment for the possibility of today’s global monetary system surviving anywhere near its present construct, carries significant weight among professions within a tight circle of institutional Forex management firms.
Maxime Tessier, vice president of French investment firm Caisse de Depot et Placement du Quebec, told Bloomberg in August 2008 following the collapse of Bear Stearns in March 2008, “Taylor is up there with George Soros. He’s a beautiful example of how someone can be a successful investor in the foreign exchange market.”
Not unlike George Soros, Jim Rogers and, more recently, GMO’s Jeremy Grantham, Taylor believes the U.S. dollar and the EU euro are destined to failure. But in the shorter term, Taylor expects a reversal of the relatively strong euro against the dollar as the eurozone enters phase II of the financial crisis. Ditto for equities, he said, though Taylor expertise lies in currencies and not equities markets—which have been supported by multi-billion dollar injections of fresh capital through the U.S. Fed’s Permanent Open Market Operations (POMO).
“Higher-risk assets, such as equities, the euro and emerging market currencies, have either peaked or will do so by end of July,” Taylor told Bloomberg.
“There is absolutely statistically no way that Greece can survive,” Taylor added. “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.”
That, he said, will trigger the next leg in the three-year long financial crisis.
Investors appear to agree with Taylor, too, as the market appetite for the poster child of risk, Greek sovereign debt, presently shows two-year’s notes yielding a record 26.77%, according to Bloomberg.
“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 2%-and-20% hedge fund gained more than 3.3% last month. “And I think it’s very soon.”