July 19, 2010
John Taylor is his usual painfully forthright, objective and candid self in this must read Capital.de interview in which he analyzes the prospects before Europe (not good), and compares the Euro to a “chicken, with a severed head running across the yard before it dies.” Taylor believes that so long as Europe continues to exist in its make believe monetary never-never land, any efforts to bring some form of fiscal rationality in the form of austerity, will be underminded by the continuing lies on the monetary and financial stability fronts. This fits in with Roubini’s recent admonition that Obama should finally start treating Americans as adults. Yet in light of recent evidence that Obama has taken more vacation time and golf breaks than even his predecessor, any chance for him to be taken seriously may be long gone. Furthermore, Taylor notes that instead of the ECB demonizing FX traders like himself, the bureaucrats should be thanking him, as he is one of the few voices of reason, and just like in the Asian crisis of 1997, those who listen to him ultimately prevent major capital losses (kinda like what ZH suggested to those invested in Greek bonds some time ago, to the utimate chagrin of an overly defensive RBS). Yet the most notable observation to us at least, is that Taylor confirms our previous statement that Goldman is lying about the contribution of prop trading to its top line. Of Godman’s revenue, Taylor says: “80 percent of the revenues which now come from proprietary trading of the bank. No matter what happens, Goldman Sachs always profits.” Compare this to our statement from December 2009: “Goldman’s head of PR claims the Goldman’s prop trading accounts for only 12% of net revenue. Zero Hedge disagrees, and we would like to pose a question to Mr. van Praag which we hope Goldman will answer for us in order to refute our observation that Goldman may be disingenuous in its public statements.” Goldman’s subsequent response to us did nothing to refute our allegation: “We’ve said publicly that prop trading represents approximately 10% of this year’s reported net revenue. We generate the vast majority of our revenue in FICC by facilitating trading activity for our clients and nearly all our revenues in FICC are “due to capital at risk” (your phrase).” Shortly after this exchange, finally bringing due attention to Goldman’s prop trading operations, the Volcker Rule appeared, and all else equal, will likely impose major restrictions on Goldman’s top line, which could be as big as an 80% cut.
If Zero Hedge and Taylor are correct, look for Goldman’s EPS to plummet once the firm is unable to take advantage of all the embedded benefits prop affords it. Full interview with John Taylor below: we apoligze for the quality – it is google translated as the interview has not appeared in Engish anywhere, although it is self-explanatory. (interview in the original German can be found here).
“The euro is Exitus”
John Taylor, chief of world’s biggest currency hedge-fund explained why his guild is important for the recovery of markets, why he keeps losing to Greece and wants to reclaim the D-Mark – and why German pensioners would be grateful to him.
Mr Taylor, Oliver Stone has called and will star in his next film offered?
John Taylor : Of which I know nothing. Why should he?
Because currently associated with hedge funds such as from your plot, and even conspiracy is mentioned. Speculators such as George Soros, John Paulson, and you should have secretly agreed to be in the knee to force the euro – the perfect Hollywood material.
Taylor: In view of 1.2 trillion U.S. dollars, the euro traded transactions on a daily basis, it is unlikely that a group of fund managers might try to hedge, to manipulate the currency of the world’s second largest.
If “hedgie” as you do not have the necessary financial leverage, into the abyss to tear the Euro, you could still try it even rhetorically. Your comparison with a “chicken, with the severed head still while running across the yard one before it died,” many felt in Germany as scandalous.
Taylor: (laughs) I’m in the country grew up on Long Iceland, there was something of everyday life. But seriously, we try to hedge fund managers to see the world as it is and not as we would like. This is the foundation of our business. And if we sometimes use dramatic metaphors to make attention to injustices, which in the end maybe its good.
They earn hundreds of millions – and stick at the same time the title of “particular value to educational. Is not that a bit tasteless?
Taylor: Should we contribute to the highly indebted countries in the euro-zone game finally tackle their problems, that would be very positive. Ireland make just before an outstanding manner, as it goes. The Irishmen have cut welfare benefits and sharply reduced wages. Or take Estonia: After the brutal fall of the former boom country is now in the process to redevelop with a painful austerity program, and manages it, in 2011 a member of the euro club to be. Tallinn takes on new debt of only 2.4 percent of GDP, total debt at beginning of year just 7.2 percent.
In Greece there are about 115 percent? …
Taylor: And that is why it is an illusion to believe that could relieve the downward spiral of Hellas. The Greeks have announced the austerity measures only, because otherwise the much-needed loans from the countries of the Euro-zone and the IMF would not get it. How the public reacts to this was to watch, yes.
Is there iron Save impossible?
Taylor: If it attempts is deselected. The Greek government will do it if the first tangible savings for the general population. This represents not just their mentality.
After all, they seem to be yes IMF chief Dominique Strauss-Kahn is on their side. The warning against an overly rapid reduction of the deficits. If all the savings at the same time, they would kill growth in the euro zone this.
Taylor: The optimistic scenario is that Europe’s economy recovered quickly and it manages the ECB, the excess money as promised to reverse some, collected by government bonds sold. Ich bin da nicht sehr hoffnungsfroh. I am not very hopeful.
Was it a mistake, Greece 2001, the euro-zone to be incorporated into?
Taylor: Yes, of course, that was it even an economics student in the first semester could calculate, and would come to the conclusion: It never, never can work. I myself have conducted over many years at the Università della Svizzera italiana in Lugano, a seminar on “European Integration”. As early as 1998, I represented the thesis that the euro is put together properly. The students there were of course shocked and have insulted me as a right-wing idiot from America. For all the introduction at that time was an inviolable and sacred matter.
When you get revenge today rhetorical guns out the order to put pressure on the euro.
Taylor: Nonsense! It’s rather unusual that someone from my industry so publicly articulated. Most of my colleagues prefer to operate in secret. What brings me? Well, from Germany, I’ve even got a death threat – and this not from any madman, but a person to be taken seriously.
Why then go to the public?
Taylor: Because we must educate the people. I manage investment funds for about one quarter of all German retirees. What do you think of what to expect from me? The fact that I make stupid decisions? When I manage money for pension funds during the Asian crisis of San Diego has …
… and the forced release of the Thai baht exchange rate in a chain reaction of the currencies and stock prices fell by …
Taylor: I was invited to a panel discussion on television. A few people in the audience at that time I have cursed violently if I would have no scruples, what would I do to these countries.
What have you responded?
Taylor: That one must not forget that I am the timely payment of pensions of many ordinary people in San Diego for’m engaged! For years I had invested in Thailand, because I had bet on the success of the country. It but no one could seriously expect me to run there with open eyes in the disaster, raised him as a dark cloud.
Such forward-looking portfolio shifts Chancellor Angela Merkel has certainly not meant, as they fund industry has criticized the hedge.
Moment of speculators a focused, concerted war of aggression against the euro-zone will be conducted in that. And that you and your colleagues will make every effort to accelerate the downward trend.
Taylor: Do you believe that all serious? It is for all of us about better and faster than the other – what meaning would there arise a consultation? It is this accusation does show that politicians of the economy have no idea and want to distract from their own mistakes. Of course, a “Short” is currently in Greece for many a worthwhile investment. But because the country’s development is unsustainable. Dafür ist nicht die Spekulation verantwortlich! That is not speculation is responsible!
In its policy statement Merkel called the currency crisis an “existential threat”. And the public agrees with her. Who else but the policy is to make it to the seemingly outer edge and out of markets to recapture?
Taylor: The markets are functioning yet. It is the construct of the Euro, which does not work. Switching off the speculators, would extend the death throes of the single currency a little longer – but is, death. It is inevitable. And more people will come to harm than they would in a bankruptcy case of Greece – a country bankrupt three times as large as Argentina, but still comparatively small.
However, a disaster for German and French banks. You have to almost triple-digit billions lent to Greece.
Taylor: You know what the European Central Bank currently makes – and a quiet and discreet way that we would be unthinkable in America? She buys heavily on Greek government bonds, even after the adoption of the giant rescue package. And most of all French banks use cheerfully the opportunity to sell their bonds Greece and clean so their balance sheets of scrap paper. The ECB should stop this at last! Only that would send a strong signal in the direction of Spain, Portugal and other countries Debt: Get your act kindly on the belt, because you can not ever count on us you remove your junk bonds!
Support and emergency funds are currently the only means to disintegrate the community to prevent a political one.
Taylor: The opposite is true. The tone between the states has become rough because of the shifted billions. The Greeks go to Brussels on the road, in Germany, the anger grows on the sloppy management of the Mediterranean countries, Sarkozy played from Merkel and so on. I can remember the late 50’s, when Europe was still a very different continent than it is today. When I first visited Paris, just smolder of the Algerian conflict, and all tanks and soldiers with machine guns on the streets.
Fear again similar conditions, if the euro collapses?
Taylor, if we wait until the euro breaks disorganized, it could very well amount to.
In your opinion who is best, which is fastest out of the Euro adopted as. And you recommended Germany to be the fastest. It benefits the exportlastige German economy than almost any other of the euro.
Taylor countered: Goods Mercedes-Benz and BMW, not even before the introduction of the euro well-established, highly profitable company? Or take a look at Sweden and Switzerland: The single currency also come without prima clear.
But a political integration in Europe without the euro is hard to imagine.
Taylor: Of course it is das. Do not get me wrong: Even as a student I had this blue € stickers on the bumper of my car pasted one. I love Europe. But the admission of Greece into the euro zone was really a step too much.
Greece is, after all the cradle of democracy. The one can not simply keep out of Europe.
Taylor: Not out of Europe, but in an artificial common currency. And in too rosy colors you should not paint the country is now really, just think of the military dictatorship in the 70s, when many people were imprisoned for their political ideology and tortured. They have simply not there, the environment and the mentality to be prostituted monetary terms with the Northern and Central European countries.
What would happen if the Germans adopt the euro zone?
Taylor: If Germany would now say, “we want to get out of the euro,” says the Dutch would join immediately. And the Danes probably. And you could design structures, as is the whole thing could handle fiscally reasonable.
A country that instigated wars and so sorry about the continent has taken two infinite, can not simply make off, to say: Thank you very much, we have enough of the experiment.
Taylor: Of course this is politically a hard nut to crack. But there is no alternative. And a war is already being held back – not on the battlefield but in the economy. We can say with good reason that Germany is currently at war with the parliaments of the southern Euro-countries. When the Federal Government decided some time ago that the debt may be a year from 2016 only 0.35 percent of GDP, or nearly ten billion euros, they have the southern states to virtually condemned to poverty. Merkel, would really help to Greece to say, must be: We want a lower rather than higher a national debt!
With a return of the D-Mark, you were “bullish”?
Taylor: Of course I would be the D-Mark would be dollar das. look old!
The U.S. is so indebted, that most European countries such as choir boy look about it. Why do not you shoot one on the dollar?
Taylor: Because America has the opportunity, the printing press Inty. Greece can not.
Also, highly indebted states like California have opportunity not to devalue its currency.
Taylor: California is not comparable to Greece. The U.S. is in more than 200 years together to become a state. The EU, however, is not a state. The monetary union remains a contract matter between sovereign states. The EU lacks a central government in particular, so is the comparison of California and Greece, despite similar debt problems to the detriment of Greece. A lot of money that is spent in California, comes from Washington. A similar protection of Greece, the EU does not exist. Even in the event of insolvency the money continues to flow from Washington to California. I have lived here in New York when the city was virtually bankrupt. Not a good situation, believe me. But the system is not broken. In Europe, it will break.
One thing you must leave it: You talk straight. From the perspective of the foreign exchange dealer is the turmoil of the euro but a dream, right?
Taylor: We do not complain.(Laughs) But since there is still a lot to make up: the introduction of the euro has added to our industry pretty – there was simply less available currency pairs. We have therefore looked in the meantime the new countries of Eastern Europe. And in Asia. But the dream for currency traders can quickly become a nightmare. I suspect that European governments will soon agree on a ban on all short sales of euro government bonds. And that would be a disaster!
But probably only for the speculators?
Taylor: No, because it is getting worse all. The problem is not the financial markets, but the economies. If Germany exported goods en masse to Greece and Greece in return does not deliver to Germany, both countries can be tied together impossible. This is simply the reality. The Greeks have to stop buying German cars, refrigerators and armaments. Only a couple of pretty islands have not enough in the long run. How many German will be traveling to Greece this year? Not very many. Someone must prove but the hotel room, so the Greeks can make money for all the great German products. On this logic, nothing will change if they ban speculators. A ban on short selling is not the salvation, as long as the basic constellation is economically untenable.
An allegation is that hedge funds and bankers for the economic playground more subtle methods gamers see it as. Decide in times of techno capitalism computer, whether Greece should continue as before?
Taylor: No, ultimately, people are still sitting at the controls.
May this year different from when Dow Jones to 1000 points within minutes of the crash.
Taylor: Indeed, an absurdity – to answer the still in the Bush administration, which has deregulated exaggerated. As it is now about nanoseconds, which someone is faster than other market participants. If we wanted to play this game, we would have on the opposite side of the road as JP Morgan, an office lease and set up our computers there – only more so our cable connection is a few feet shorter than our competitors a couple of city blocks. Das ist verrückt, und deshalb machen wir das nicht. This is crazy, so we do not.
Take action at FX Concepts with unsecured credit default policies for euro countries, the infamous credit default swaps?
Taylor: No, although we have looked at the time. The reason may surprise you: It is almost impossible to legally define exactly when an insured event occurs.(Laughs) I’d have to employ thousands of lawyers. Some well-known American universities have recently engaged with the topic and found out that Greece would have no problems, get out of the euro, would not that only one of these credit default swaps to bear.
For Greece and the Euro-zone, you see black. Where controls in your scenario for the economy down?
Taylor: I think we are recession in 2008 next year in a much deeper and more prolonged down-turn will get drawn after. This one or the other state is directly controlled in the bankruptcy.
And where € is the end of the year, if he will ever even exist?
Taylor: We see the end of the year tie to the dollar.
Since we can be happy, yes, that China is growing strongly again, and supports the global economy?
Taylor: The renminbi artificially kept too low in the long run is a scandal. Even senior managers of Chinese companies now call for a revaluation of their domestic currency. China’s government has, in my opinion, maybe ten years before it flies to the shop around the ears. This fits, moreover, to one observed by us associated with the organization of Olympic Games.
Since we are looking forward to but the details.
Taylor: In the 1980 Games in Moscow took place, almost ten years later the Iron Curtain fell. 2004, met the “Youth of the World ‘in Athens – today the country is in the middle in the financial mess. Two years ago, the Beijing Games – ergo crashes in China at the end of the decade, a huge crisis.
Your computer spits out such scenarios?
Taylor: Yes, there seems to be a link between investment in massive infrastructure that no one needs later, and the later arrival of a crisis.
No good prospects for South Africa.
Taylor: (laughs) We actually had the past few months, a position in South African rand spent. With the start of the World Cup, we have sold.
Oliver Stone presents his latest film “Wall Street: Money Never Sleeps” a little sympathetic picture of Wall Street and hedge-fund managers? …
Taylor: … My brother knows him well. (Laughs again) When I see Oliver the next time, I will myself to task.
But you surely know those types, as portrayed Stone?
Taylor: Yes, absolutely. How can such a Lloyd Blankfein of Goldman Sachs put before the public and say that he and his peers to act on behalf of God?
Apart from this hubris Blankfein but makes a good job, do not you?
Taylor: Not at all. For my taste, Goldman Sachs is often found on both sides of deals. Full, 80 percent of the revenues which now come from proprietary trading of the bank. No matter what happens, Goldman Sachs profits ever. They are already highly dubious businesses.
Many people consider it morally also highly doubtful that people then you just as much money when the crisis strikes particularly hard and many people is just about to climb onto the window sill.
Taylor: Do not forget: In most cases, I also earn money for those who are there just about to jump.
This article was posted: Monday, July 19, 2010 at 4:02 am