John Taylor's FX Concepts Has Best Returns Since Before Financial Crisis

John Taylor’s FX Concepts LLC, the world’s largest currency hedge fund, had its best returns in 2010 since before the global financial crisis as it bet against the euro in the first half of the year and the dollar later.

The firm focused on selling currencies of nations whose central banks and governments pumped the most cash into the financial system, Taylor, 67, chairman and founder of FX Concepts, said in a telephone interview from his New York office. The firm’s Global Currency Program, a $3.2 billion investment fund, returned 12.53 percent last year, its largest annual gain since 2006, when it rose 18.58 percent.

“Currency movements are really a function of global liquidity trends now,” said Taylor, whose firm oversees a total of $8.4 billion. “That means the dollar and what the Fed does is very, very important. Also, we have Europe still looking for money, with the euro still really, really terrible.”

The euro may fall below parity with the dollar this year, Taylor said in an interview with Carol Massar and Matt Miller on Bloomberg Television’s “Street Smart.” The Australian dollar and Brazilian real will extend their gains, according to Taylor.

The firm’s global currency fund rose last year after sliding 17.90 percent in 2009. The annualized return since March 2001 is 10.46 percent, according to the firm’s website.

Photographer: Jin Lee/Bloomberg

John Taylor, chief executive officer and chief investment officer of FX Concepts. Close

John Taylor, chief executive officer and chief investment officer of FX Concepts.

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Photographer: Jin Lee/Bloomberg

John Taylor, chief executive officer and chief investment officer of FX Concepts.

European Turmoil

Taylor, who has been trading currencies for more than three decades, said in the phone interview that FX Concepts began selling the euro against the greenback in the first quarter on speculation Greece would need to tap the European Union for aid in meeting its debt payments. In April, Greece sought a loan facility of 110 billion euros ($145 billion) from the European Union and the International Monetary Fund after being shut out of debt markets.

The euro slid 6.5 percent against the dollar in 2010, falling from the year’s high of $1.4579 on Jan. 13 to the four- year low of $1.1877 on June 7, ending the year at $1.3384.

European policy makers have yet to quell concern that more of its most indebted nations won’t be able to meet their debt obligations even after Ireland accepted an 85 billion-euro bailout on Nov. 28. Speculators are now focusing on Spain’s potential need for financing.

The dollar began a two-month decline against the currencies of major trading partners in late August, when Federal Reserve Chairman Ben S. Bernanke said the central bank would provide additional stimulus as needed during remarks to central bankers at a symposium in Jackson Hole, Wyoming. The Fed began in November a program to purchase $600 billion of Treasuries through June under a second round of quantitative easing.

‘Flood the World’

“Bernanke basically said in August that he was going to flood the world with dollars,” Taylor said. “At that point, we were positioned almost entirely long dollars, and it took us about six days to reverse our position. So much of trading is now about decisions related to dollar liquidity, and we are tuned for that environment.”

The Fed has injected about $177 billion into the banking system under the new round of quantitative easing. In the Fed’s first series of asset purchases, which ended in March, the central bank bought $1.75 trillion in securities, including $300 billion in Treasuries.

The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against currencies including the euro, yen and pound, fell 10 percent from Aug. 24 to Nov. 4, dropping from 83.559 to 75.631. It has rebounded since then and increased 1 percent to 80.221 today.

Dollar Outlook

While maintaining bets against the euro, FX Concepts is also wagering that the dollar will weaken into the second quarter and then rebound as the Fed ends debt purchases in June, according to Taylor.

“In the second quarter, when we expect to go long the dollar, it would likely be against the commodity currencies,” Taylor said. “When all of a sudden the U.S. stops printing the money, the commodity gains are going to end. We could see another commodity tumble.”

Commodity prices, including gold and copper, rose to records last year. The Thomson Reuters/Jefferies CRB index of raw materials gained 17 percent.

The dollar will get a boost if congressional Republicans cut government spending, Taylor said in the Bloomberg Television interview. Ohio’s John Boehner was selected to succeed California Democrat Nancy Pelosi as speaker of the U.S. House of Representatives today.

To contact the reporter on this story: Liz Capo McCormick in New York at emccormick7@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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