Fickle FX Concepts’ John Taylor Expects U.S. Recession, Bullish About Turkish Lira

The world’s largest currency hedge fund manager was on CNBC this morning. John Taylor has $8 Billion under management and returned nearly 13% in 2010. He predicted the U.S. economy to slow gradually and start contracting by the end of this year. He thinks the end of QE2, budget cuts, and the increase in energy prices will cause the U.S. recession. He also thinks that Europe is heading into a recession as well and that this won’t help the U.S. economy.

John Taylor expects Turkey to increase interest rates. “There are lots of positive things about Turkey. It’s a growing economy, and it’s outside of the eurozone and it’s the leader of Middle East,” Taylor said.

iShares Dow Jones US Home Const. (ETF) (NYSEARCA:ITB)

We aren’t aware of any Turkish Lira ETFs investors can buy. Usually if the Turkish lira does well, the Turkish stock market goes up as well. So investors can try iShares Turkey ETF (TUR) or Turkish Investment Fund (TKF). There are also two large cap Turkish stocks (ADRs) they can buy: Garanti Bankasi (TKGBF.PK) and Turkcell (TKC).

John Taylor doesn’t think euro is overvalued against the U.S. dollar because they are raising their interest rates. The other currencies he is bullish about are the Australian dollar, and New Zealand and Asian currencies. Investors can buy CurrencyShares Australian Dollar (FXA) or Elements Australian Dollar (ADE), New Zealand Dollar ETF (BNZ), Market Vectors Chinese Renminbi (CNY) or Chinese Yuan ETF (CYB), Indian Rupee ETF (INR) or WisdomTree Indian Rupee ETF (ICN).

Insider Monkey, your source for free insider trading data, generally imitates insiders and hedge fund managers. However, we don’t think John Taylor’s public comments are worth anything. Just three months ago John Taylor predicted that the euro will depreciate to $1 in 2011. Three months later the euro stands at a 52-week high and Taylor says it is fairly priced. This is unbelievable. We wrote an article about Taylor’s prediction and stated that he is wrong about the euro. In the same article we predicted that Turkish lira and Indian rupee will appreciate against the U.S. dollar. We don’t manage $8 Billion in currencies but we seem to be more accurate about currencies than John Taylor has been since the beginning of this year.

Two months ago we penned another article stating that declines in India and Turkey are a long-term opportunity. After that article we bought India ETF (PIN) at $22 per share and a bunch of Turkish stocks that are trading in the Turkish Stock Exchange. We are especially bullish about India over the long-term. The Indian rupee will appreciate dramatically against the U.S. dollar over the next 10-20 years. Currently you can hire a maid for $75 a month in India. You can hire a maid only for half a day for the same amount here in the United States.

We are bullish about emerging market currencies but we don’t think John Taylor’s current predictions make any sense. If the U.S. and European economies start to decline, the rest of the world will follow. The U.S. dollar will appreciate and Turkish lira and Indian rupee will depreciate because of temporary currency flows. That’s what happened in 2008.

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