Fool me once, shame on you. Fool me twice, shame on me. Fool me eleven times and shame on everyone.
That's how I feel about today's "trade deal sooner than you think" comments by President Trump when the market looked shaky because of the impeachment chatter and a lack of any sign of a trade deal whatsoever.
But as soon as the words were uttered the stock market sprang up as if by magic and eternal hope came out to fool everyone again.
Sure, maybe this is the time, maybe this is the moment that we get a deal to end all deals and the world economy snaps back into shape. Maybe even behind the scenes as Speaker Nancy Pelosi begins the long process of impeaching the president she is working behind the scenes arduously to get a trade deal done with Canada and Mexico.
And perhaps, just perhaps, the tooth fairy is ready to shove some bitcoin under the pillow of all the kids that Juul doesn't want hooked on vaping but are anyway.
It's times like these that I look for totems, for things to hang my cynical, not nihilist, but cynical hat on so I can go about the process of picking stocks without being hostage to the on-again off-again nature of the Godot-like talks. I have to do this because I keep thinking of how the Chinese lobbed a bomb at our trade team when it hastily cancelled a huge trip to Montana, causing the stock market to be instantly savaged, only to find out that our team kyboshed the trip. Things are so disorganized that we thought an official government spokesperson was furious at the cancellation when we later learned that the disseminator of that fake news was a low level, non-government ag industry spokesperson.
Don't worry, the president seemed to think the Chinese did the cancelling until Treasury Secretary Steven Mnuchin had to brief the president in public about how his team broke the deal.
So, what do you do to immunize yourself from this craziness?
I have come up with a new paradigm by working backwards. I have been trying to find stocks of companies that have nothing to do with trade and hope that their stocks aren't hurt that badly when we find out that they do have something to do with world commerce.
Wrong.
What you need to do is create the worst possible scenario for trade and see who has managed to tame the beast.
Turns out you don't have far to look. Or at least to look down.
The situation is Nike (NKE) .
We know that, because of the trade tensions, this might be the worst possible moment to sell into China. We know that tariffs for goods made in China are hurting margins. We know that the consumer worldwide is more strapped than the year before.
Who can possibly navigate that gauntlet? Last night we learned that a company that should be among the most vulnerable of all companies to these issues is actually the most in control of its own destiny, which is why the stock managed to have a very good run today.
Let's go right to the call. Mark Parker, the CEO of this amazing company notes: "As I've said before Nike is the brand of China for China and the results continue to prove it out. We've driven double-digit growth in greater China every quarter for more than five years." He goes on to say, "This quarter we continued that momentum with an outstanding 27% revenue growth on a currency-neutral basis."
Tariffs? Handled with aplomb. This current quarter, Andrew Campion, Executive Vice President and CFO, pointed out, will be the peak tariff impact and after that because of all the levers Nike can pull, things will get better each quarter. So, you have things quantified and dealt with.
A stingier consumer than last year should produce lower average prices and more markdown.
Not with Nike. The opposite. The company had significant gross margin increases as well as much lower markdowns. How do you do that?
Now you have to get into the core of what makes Nike insulated by the off-again portion of the on-again off-again trade talks.
First, innovation. There's the Joyride running shoe designed to "encourage more everyday athletes to get moving." New basketball shoes Zoom Freak and AlphaDunk, the Air Max 200, with a layered upper and a new visible air sole unit.
But it's also freshening up an old favorite like the Jordan Brand which, incredibly, accelerated in sales, with a record-breaking year and healthy double-digit growth in all geographies including mid-teens growth in North America.
Matt Boss, the thoughtful J.P. Morgan analyst. points out that Nike has best-in-class digital, marketing, scale and segmentation.
Every one of those qualities came out in the call. Nike is killing it in digital, up 42%. It's making more money selling direct to the consumer than it does to the wholesaler and it is scaling back on wholesalers where the profits aren't that hot. The inventories are lean with just enough for the upcoming 11/11 Singles Day. The biggest issue with inventories? They don't have enough markdowns to fill their factory stores.
When it comes to customer care and customer knowledge Nike bought a company, Celect, that it mentioned several times, which seems to anticipate what the consumer will want. As Campion points out: "Celect's team and proprietary digital demand sensing tools will help us more effectively predict demand, plan supply and sharpen our pricing and markdown cadence." We've come a long way from the day when my father had to watch the now defunct Gimbels department store close his wing of the floor for a day so he could count the number of gabardine trousers.
There's so many other good things about this quarter that I can't list them all. However, Campion puts it all pretty much in context when he says about the environment: "Despite increasingly dynamic and somewhat unpredictable macro and geopolitical factors, consumer sentiment and affinity for the Nike brand remains strong and consistent." Campion goes on to say: "Nike's growth continues to outpace GDP growth and broader retail growth in our major markets around the world and Nike continues to be the number 1 favorite brand in our 12 key global cities."
So let's get what's happening here. So many companies are hand-wringing and pleading and making excuses for all of the obstacles that confront them. Other companies see their stocks buffeted daily by the notion that we may or may not have a trade deal on the horizon.
But the real ones? Ones like Nike?
They thrive on it. They just do it.
