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Where a big-picture investor is placing his bets now

Former currency trader is a top-down investor looking to capitalize on trends in the global economy.

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D.H. Taylor

Occupation

Investment writer and private investor

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The portfolio

Includes stocks, real estate investment trusts (REITs) and options on currencies

The investor

Before becoming a writer for investing websites such as macroaxis.com and seekingalpha.com, D.H. Taylor worked in the financial sector for over two decades – much of the time as a currency trader. He has a background in economics and mathematics.

How he invests

Mr. Taylor takes a "big-picture" approach to investing. He evaluates economic data to form a view on the direction of interest rates, currencies, commodities and stocks. Then he takes positions in stocks, bonds and options to capitalize on the trends.

Mr. Taylor believes the United States is finally coming out of deflation and heading toward higher levels of economic activity and inflation. With the consumer responsible for 70 per cent of spending in the United States, one sure sign is the upward trend in the year-over-year growth rate in consumer incomes and spending (recently recorded at 2.1 per cent and 2.8 per cent, respectively).

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In this environment, cyclical stocks, commodities and real estate will have a tailwind. Bond yields will also climb as inflation expectations revive; the U.S. Federal Reserve will keep raising its discount interest rate to head off overheating in the economy. Since the United States is further ahead in the business cycle, increases in U.S. rates will outrun those in other countries, attracting capital inflows that strengthen the U.S. dollar.

Mr. Taylor is currently betting on U.S. bond prices falling (the flip-side of rising interest rates). Another bet is on crude oil prices climbing as the economy ratchets upward and drives demand for fuel. He is also bullish on banks, homebuilders and REITs.

Best investment

His best investment was made during the financial crisis of 2008, when huge shifts in money flows between countries produced dramatic currency movements. This led, within relatively short time frames, to his option trades on currencies gaining as much as 2,000 per cent, "an absolute monstrous move in the currency markets."

Worst investment

It was the investment he never made. Back in the 1990s, his economics professor advised the class to set aside a percentage of their income every month, then invest it in the stock market and never touch it. "Compounding all those deposits over the years with the average of 6 per cent in stock-market returns, there would have been a sizable chunk for retirement today," Mr. Taylor says.

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Advice

"Figure out your strategy and stick with it," he recommends. "Don't switch in the middle of the game."

Want to be in Me and My Money? Contact Larry MacDonald at mccolumn@yahoo.com.

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