European Peripherals More Attractive Than Euro, John Taylor Says
The krone, krona, koruna and sterling are the best alternatives for investors seeking exposure to Europe, according to John Taylor, founder of FX Concepts LLC one of the largest currency hedge funds.
“It’s fair to say I’m known for betting against the euro but that doesn’t mean I’m betting against Europe,” Taylor said at the Bloomberg FX12 Summit in New York yesterday. “I say what is going to help these 17-member countries, and the answer is a weaker euro.”
The euro has fallen 2.9 percent this year against nine developed-nation currencies tracked on the Bloomberg Correlation-Weighted Indexes. That is the second-largest loss after the 5.5 percent decline in the yen. Norway’s krone has gained 3.1 percent, Britain’s pound advanced 1.2 percent and Sweden’s krona is 0.6 percent stronger.
Taylor, a perennial euro-bear cited the structural challenges of the European Monetary Union’s makeup and the economic outperformance of the U.S. FX Concepts had about $3 billion under management as of September.
The U.S. was the only advanced economy to have its gross domestic product forecast for next year raised by the International Monetary Fund in October.
One of the roles in causing the global financial crisis of 2008 was the imbalances in exchange rates, according to Nemat Shafik, the deputy managing director of the International Monetary Fund. She cited the combination of fiscal austerity in advanced economies amid private deleveraging and global uncertainty, including the European debt crisis as the main dampers of global growth.
The euro has not properly weakened relative to the dollar because of the Federal Reserve’s bond-buying program, known as quantitative easing, according to Richard Clarida, global strategic adviser for Pacific Investment Management Co. The monetary easing adds additional dollars and may debase the currency.
“We’re in the QE world that Europe does things that would weaken the euro and then the U.S. does QE,” Clarida, who is an economics professor at Columbia University in New York, said at the conference. “In a world where everyone is doing QE or trying to avoid the consequences of QE, those factors get washed out.”
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