John Taylor: Bank Run Starting in Spain, Portugal and Italy

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John Taylor: Bank Run Starting in Spain, Portugal and Italy

John Taylor, founder of the world’s largest currency hedge fund FX Concepts, spoke with Bloomberg Television’s Sara Eisen and Erik Schatzker this morning and said that the euro is poised to rebound ahead of Greek elections next month before resuming its decline against the dollar.
Taylor said, “We are way oversold in the euro…the euro will come up until the first of June or maybe the fourth.  Then the reality of the Greek election will set in and we’ll start going down again.  I don’t expect to see the euro get hammered in the next five or six days.”

Taylor on the euro:

“I think we’re way oversold in the euro. I think we will go through a week of calm.  That is, a week of attempting to force all the people who were happy, like me, to be unhappy. I think the euro will come up until the first of June. Then the reality of the Greek election will set in and we’ll start going down again…I do not expect to see the euro get hammered in the next five or six days.”


On whether it’s only Greece that will leave the euro:


“I’m trying to be very optimistic and say that.  It’s very important–I have been emphasizing lately that the Greek situation get behind the euro. I have been writing the Germans should throw the Greeks out—the Greeks should ask to get out. It is the only way they can save themselves, to get this Greek thing behind them…Portugal looks bad.”


On whether Spain will go back to the peseta:


“It is very hard to say that something that big will happen. There will be a lot of turmoil, and they will be forced to change things. They will have to insure deposits across the euro. They will have to go through for a eurobond. All of the things that Germany has said they will not do they will have to do.”


On whether there’s any reason for investors to get bullish over the next few weeks:


“I do not think there is any reason to get bullish, even though I think it’s possible that the reasonable parties in Germany will win on June 17th. That will only delay things a month or two because new democracy cannot go in and say ‘oh everything is fine. We’re going to go through this austerity.’ They haven’t got their voters thinking that.”


On whether reserve currency managers at the world central banks are reducing their exposure to the euro:


“I think there might be a tiny bit of that, but really only the past two weeks. It has just recently started. If it does develop and Asia starts to move out of the euro, that would really kill it.”


On the U.S. dollar:


“I think it’s somewhere safe to hide. In March or so it was little bit of bet that the U.S. economy is better than the rest of the world, but I think more and more it’s a place to hide.”
On whether he likes the dollar against the euro and others:


“Yeah, against the euro, almost everything. It is hard to say. We own a lot of dollars, but you own them because you like them?  No, you own them because you don’t like the others.”


On whether the love for the dollar has to do with the fact that people are coming to the conclusion that the euro has no nope of replacing the dollar as a reserve currency:


“I think that is true momentarily. I think the way the world has to move is we have multiple reserve currencies and it is not just the dollar. Partly because it is a benefit and a strain on the U.S., and the strain part is getting to be more and more important. When the Fed stimulates the U.S. economy, that tends to go to Asia. If Citibank is looking at two loans they can make, one to an American company and one to an Asian company, they pick the Asian company and the dollar goes down.”


On how a bank run on Greece and other peripheral countries affects the currency:


“I think it is happening right now. You don’t think they’re reporting as carefully as they can how much money is leaving. Two years ago I had Greek ship owners tell me that all of their money was in Hamburg.  They were out of Greece. Now I think the man on the street is stuffing money in the mattress or sending it in the mail to their cousin working in Germany or something to get it out of the country.”


On whether this is happening elsewhere in Europe:

“Yes, the numbers show it is happening in Spain, Portugal and Italy.”

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