I have been thinking more about individual stocks as I gear up to publish a model portfolio in November. Since I started publishing this substack, I have been mainly focused on trying to understand why macro does not work the same way. The old rules of macro were most pure in currency markets, but do not really work anymore. As I want to talk about stocks, rather than macro I will just show one example. For me in currency markets, carry trades tended to be closely aligned with markets. One classic trade would be Short Yen, long Mexican Peso. In the old macro rules carry trade would always unwind and the Peso always devalue versus the Yen over the long term. Periods of peso strength were great short opportunities. Not this time. The peso has reversed almost all the weakness against Yen since the GFC - the longest period of strength I have eve seen. I understand Mexican peso strength from a political sense, but old school macro analysis would lose you money on this trade. See also Long Norwegian Kroner, short Mexican Peso.
I used to use currency analysis before choosing stocks to short. The idea was to maximise my chances of making money from the short book. Typically, the second thing I would look for was an industry with weakening fundamentals. What has been interesting, is that this area is working (to a degree), without changes in the currency market.
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