JOHN TAYLOR: THE EURO CRISIS HAS ONLY JUST BEGAN

Below is an intervew from John Taylor on Bloomberg TV

Taylor said the world has only seen the "second or third inning" of the
euro crisis because Europe is still only dealing with liquidity problems –
not to mention the solvency problems and the "structural issues that are
even beyond solvency" that must be addressed in order to turn things
around.

To illustrate just how twisted the economic dynamics in Europe are right
now, Taylor used an interesting analogy:

Germany has to realize that every time they sell a Mercedes to somewhere in
southern Europe, [southern Europe] is only borrowing German money in order
to do it, and they're never going to pay for that Mercedes. Either Germany
is going to have to write off the Mercedes because [southern Europe is]
never going to pay for it, or Germany shouldn't sell that Mercedes, but
they don't want to admit that. It's just the fact of life.

[Germany is] either going to write the check or they're going to go through
a very, very severe recession because nobody's going to buy Mercedes,
because they haven't got any money, because Germany's not writing a check.
So, it's just like, you can't get out of that fact.

In the past, Taylor has said that Greece should leave the euro in order to
help its own domestic economic situation. When asked whether he thought
Spain should now do the same, he replied:

Yeah, everybody's in the same spot. There are lots of ways of measuring the
deterioration of a currency. Going back all the way to 1974, whenever that
Spain became a market-based economy, you can see that currency depreciated
on a regular basis almost the same amount every year – it didn't matter
whether the euro was there or wasn't there, whether we were the snake, or
whatever – it just goes down. And so they have to devalue. And it's the
only way they're going to get their act together again.

Taylor said he likes buying the U.S. dollar against the euro – even though
he is pessimistic about U.S. economic growth and thinks the Fed is going to
launch QE3 in September – because he thinks the ECB is going to print more
than the Fed does, ultimately causing the euro to be the currency of the
pair that heads lower.

TAYLOR COMPARISON BERNANKE WITH HITLER AND WHAT PRECEDED THE SECOND WAR

Below is an article of John Taylor that was published in FT alphaville  afew months ago

After the Phoney War, Things Really Got Nasty

"Not too many traders remember ‘the phoney war,’ or the Sitzkrieg, as it happened 71 years ago. After Hitler invaded Poland on the first day of September 1939, Poland’s European allies France and England declared war on Germany, but nothing significant happened on that front until the following May when the German Army rolled through Luxembourg, the Netherlands, and Belgium and into France. Although the horror started in Poland in the fall of 1939, for a few months, the rest of Europe was spared that horror, which eventually lasted through the next five years. Strangely, this past September (2010), the US equity market rose by about 8.8%, its best return for that month, since that same September (1939). To me the parallels are ominous. What were those people thinking back in 1939? Could a coming world war have that positive an impact on the economy and on markets? They must have been crazy – of course equities gave up their gains and were cratered in May 1940 when Germany invaded the west. But, what are we thinking of now? A war has just begun.

Didn’t Bernanke and the Fed announce in late August at Jackson Hole (and multiple times since then) that the US was going to enter QE2 and debase its currency setting off a currency war. Bernanke, like Hitler seven decades ago, had been warning everyone who would listen for years. On November 21, 2002 he said that he would debase the US dollar if the American economy looked as though it would go through the same lost decades that the Japanese have recently endured. Now, it is clear that he has been true to his word and the currency war has begun.

….

Capital controls are likely to spring up in Asia and in other attractive economies during the next few months, but the really destructive war begins when tariffs appear. This should happen next year – maybe in May, mirroring 1940 – because by then the next recession should be in full force in both the US and in Europe, forcing many millions more out of work. The political pressure for raising tariffs in the US is intensifying and the new Tea Party supported Congressman will help tip the political scales in that direction. This war will not be fought for territory, but for markets and wealth, and when tariff walls are raised the destruction of livelihoods and property will be almost as dramatic as in the old fashioned shooting wars. With the loss of economic value, the global debt structure must collapse and entitlement promises will not survive."

EURUSD ANALYSIS FOR THE SECOND WEEK OF AUGUST

It seems that the euro is preparing a reversal from the original down trend. Last Friday there was a big short squeeze which lead the currency up to 1.2385 -1.24 . If euro manages to break the  1.2430 level  (55ma/trendline) then the counter trend will have been established and we will see a rally up  to 1.28-1.30. 

As a result a good strategy for next week would be to lookout for a break  of 1.24  and try to go long with  a s/l at 1.2120

G7 OUTLOOK FOR THE WEEK 05 AUGUST- 10 AUGUST 2012

CURENCIES	DAILY		WEEKLY
DAILY DATA'!A1	TREND	WAVE	TREND	WAVE
EURUSD	↓	↑	↓	↓
	-3	3	-7	-5
EURJPY	↓	↑	↓	↓
	-5	3	-7	-1
EURAUD	↓	↓	↓	↓
	-7	-1	-7	-5
EURCHF	↑	↑	↓	↑
	3	5	-3	3
USDCHF	↑	↓	↑	↑
	3	-3	5	5
GBPUSD	↑	↑	↓	↓
	3	1	-7	-3
USDJPY	↓	↓	↓	↓
	-7	-1	-7	-5
AUDUSD	↑	↑	↑	↑
	7	5	5	5
GOLD	↑	↑	↓	↑
	3	3	-3	1

G7 OUTLOOK FOR THE WEEK 29 JULY - 03 AUGUST 2012

CURENCIES	DAILY		WEEKLY
DAILY DATA'!A1	TREND	WAVE	TREND	WAVE
EURUSD	↓	↑	↓	↓
	-5	3	-7	-5
EURJPY	↓	↓	↓	↓
	-5	-3	-7	-3
EURAUD	↓	↓	↓	↓
	-7	-1	-7	-5
EURCHF	↓	↑	↓	↓
	-1	5	-3	-1
USDCHF	↑	↓	↑	↑
	5	-3	5	5
GBPUSD	↑	↑	↓	↓
	5	5	-3	-1
USDJPY	↓	↓	↓	↓
	-7	-5	-7	-5
AUDUSD	↑	↑	↑	↑
	7	5	3	5

G7 OUTLOOK FOR THE WEEK 22-28 JULY 2012

CURENCIES	DAILY		WEEKLY
DAILY DATA'!A1	TREND	WAVE	TREND	WAVE
EURUSD	↓	↓	↓	↓
	-7	-5	-7	-5
EURJPY	↓	↓	↓	↓
	-7	-5	-7	-5
EURAUD	↓	↓	↓	↓
	-7	-5	-7	-5
EURCHF	↓	↑	↓	↓
	-3	1	-3	-1
USDCHF	↑	↑	↑	↑
	7	5	5	5
GBPUSD	↑	↑	↓	↓
	1	3	-7	-5
USDJPY	↓	↓	↓	↓
	-7	-5	-5	-5
AUDUSD	↑	↑	↑	↑
	7	5	3	5
GOLD	↓	↓	↓	↓
	-3	-5	-3	-5

G7 OUTLOOK FOR THE WEEK 16-20 JULY 2012

Last week we had a general weakness of euro against all other currencies. It made new all time lows against the aud and the cad . Also eurusd has gone significant lower. Friday however we has a significant short squeeze and a rise in risk appetite.

Overall  EURUSD remains weak although this week we might see a retracement up to 1.2470. 

GBPUSD continue to consolidate. Last Friday rose strongly unexpectedly indicating that there is still demand for this currency .Since Olympics starting in a week we probably see a further rise this week

EURJPY avoided making new al time low. Not a clear picture

USDJPY still in consolidation

USDCHF is the reverse of what EURUSD does

AUDUSD still strong may rise further taking advantage of the risk on mentality, the stimulus from central banks and low rates.

CURENCIES	DAILY		WEEKLY
DAILY DATA'!A1	TREND	WAVE	TREND	WAVE
EURUSD	↓	↓	↓	↓
	-7	-5	-7	-5
EURJPY	↓	↓	↓	↓
	-7	-5	-7	-5
EURAUD	↓	↓	↓	↓
	-7	-5	-7	-5
EURCHF	↓	↓	↓	↓
	-5	-3	-5	-1
USDCHF	↑	↑	↑	↑
	7	5	5	5
GBPUSD	↓	↓	↓	↓
	-7	-5	-7	-5
USDJPY	↓	↓	↓	↓
	-1	-5	-1	-5
AUDUSD	↑	↑	↓	↑
	3	1	-1	5
GOLD	↓	↓	↓	↑
	-5	-3	-1	5