EMAIL DETAILS

Interesting piece

John Taylor’s FX Concepts Has Best Returns Since Before Crisis
Share Business ExchangeTwitterFacebook| Email | Print | A A A
By Liz Capo McCormick

Jan. 5 (Bloomberg) -- 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 firm’s global currency fund gained last year after sliding 17.90
percent in 2009. The annualized return since March 2001 is 10.46
percent, according to the firm’swebsite.

Taylor, who has been trading currencies for more than three decades,
said 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.

Euro Versus Dollar

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 euro will depreciate to $1 this year, according to Taylor, who
said the firm is positioned to profit from such a drop. “A good trade
is short the euro and long the Australian dollar,” Taylor said. A
short is a bet that an asset will drop.

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 traded at 80.231 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.

To contact the reporter on this story: Liz Capo McCormick in New York atemccormick7@bloomberg.net

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

Last Updated: January 5, 2011 09:53 EST