FX Concepts' John Taylor Says Cycle Has Turned, Global Equities Headed Lower (EUR/JPY, EUR/USD)

Source: CNBC
John Taylor, chairman and CEO of $8+ billion hedge fund FX Concepts, told Bloomberg TV on June 6 that the "cycle has turned" and "global equities are on the brink of a downtrend that will last until the end of the year". Why? The U.S. and Europe are slowing down, QE2 is ending (w/ no QE3 in sight, yet) and the market will start pricing in the fiscal stimulus coming off in 2012. He thinks 2012 "is going to be a terrible year" and that the U.S could be in a recession.

The classic "risk off" trades seem to be in play again with a few wild cards. Taylor said "it is bullish for the Yen, bullish for the Dollar, bearish for commodities and bearish for the equity market." He's trying to time a U.S. Dollar reversal (EUR/USD short), but in the meantime he's short the Euro against the Japanese Yen (EUR/JPY). When mixing together the Dollar, no QE3 and an economic slowdown, Taylor said, "when the economy is really bad that means that the banks slow down lending and there's a shortage of Dollars in the world. And I don't think QE3 is coming back; that's really the wild card here is QE3 now. If the Fed comes out and makes some statements and says no we're not going to do QE3 right away, the Dollar will get very strong". What about carry trades?

S&P 500 ETF (StockCharts.com)
On CNBC on June 2, Taylor mentioned that "the more trouble we have with the debt ceiling, the stronger the bond market and Dollar will be.  It means we're going to do something, and when we do something obviously that's going to really drive the Dollar up. Because Europe can't do anything; Europe is falling apart...."

Taylor is also bearish on U.S. equities. He believes $1,000 is a "respectable" level on the S&P. SPY (S&P 500 ETF) broke the bull market uptrend from March 2009. The next support levels are $124.5 (200 day moving average) or $120 (pre-flash crash high, April 2010 support) if it keeps drifting lower. The S&P could re-test some resistance levels at some point ("Oppenheimer Technician Carter Worth Says It's Time to Buy" - CNBC 6/7/2011). Hopefully you've been hedged in some way or short during the past month. It is interesting that the VIX hasn't been moving much; read "The VIX Has Completely Changed Character" at Investing With Options. Watch the Bloomberg and CNBC videos after the jump.






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