Hate ETFs? Quants Say They Found Anomaly to Profit on Their Flows

During my doctoral studies I was told “no published trading strategy produces excess risk-adjusted returns.” Notice the two highlighted words: “published” and “risk-adjusted.” The first thought that came to mind when reading this article was “if this ‘strategy’ is so great, why are they telling me? Why aren’t they just printing money in private?”

As I read the article, I did not see any mention of risk. Another consideration is the time frame of ‘strategy’ profitability. A strategy that was profitable the past 10 years, then published, is not guaranteed to be profitable the next 10 years.

Keep these three things in mind when someone tells you about a “can’t lose” or “market beating” strategy:

(1) Why are you telling me this and not making money on your own in private? You should lever up and execute this strategy from your yacht in the Caribbean instead of wasting time and money talking to me.

(2) What about risk-adjusted returns?

(3) How do you know this strategy will work in the future? /How do you know the future?

Be aware.

Hate ETFs? Quants Say They Found Anomaly to Profit on Their Flows
https://www.bloomberg.com/news/articles/2018-07-19/hate-etfs-quants-say-they-found-anomaly-to-trade-against-flows

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Nike Finally Thwarts Adidas Threat in U.S. With Shares Hitting a Record – Bloomberg

An interesting sub-plot is what Nike (and other corporations) are really doing with their tax break. Let me quote the article:

“Profit, meanwhile, got a boost from the corporate tax cuts passed last year in the U.S.. The company’s rate fell to 6.4 percent — half of its rate a year ago — and it shaved $82 million off its tax bill. The company also announced a $15 billion share buyback program, which will begin when its current $12 billion program concludes in the current fiscal year.”

The tax cuts were sold to the American public as a way to boost growth and investment in America. What the public wasn’t told was that the intended set of people who benefit from that growth: shareholders.  In other words, the tax cuts were to promote growth, growth in the wealth of a few.

I would argue one must be delusional to think Nike is going to use any of that $82 million tax savings to build a shoe factory here in the U.S.. What did Nike do instead? Nike increased their already high share buyback program ($12 billion of buybacks concludes this year) to start buying back $15 billion more when the current program complete.

Also, note the impact on employment:

“Nike has responded to its troubles in North America by reducing the number of retailers it sells to in the region, while also pushing more purchases through its own stores and websites. This was done to improve margins, by cutting out the middle man, and maintaining better control of how the brand is displayed.”

Reduce the number of retailers, push purchase online, cut out the middle man. I bet they outsource the development of their online website as well.

Allow me to be cynical for a moment: I didn’t vote for the tax cuts that lead to layoffs, continued outsourcing, and stock repurchases. I suppose I should not complain. Nike is part of the S&P 500 index fund that I own thus I make money as all of this transpires. Meanwhile, those who voted for this administration, e.g. laid off Harley-Davidson employees (followed by another stock buyback), suffer the consequences of their own vote. Yes, HOG (Harley Davidson) is part of that S&P500 index fund as well.

-Dr. Moore

https://www.bloomberg.com/news/articles/2018-06-29/nike-finally-thwarts-adidas-threat-in-u-s-as-shares-hit-record

Nike Finally Thwarts Adidas Threat in U.S. With Shares Hitting a Record

Matthew TownsendJune 29, 2018, 7:35 AM PDT
Photographer: Jason Alden/Bloomberg

business

By

  • Sportswear giant reverses three quarters of U.S. contraction
  • Rival Adidas had been grabbing market share in North America

After several quarters on the bench, Nike Inc. has finally healed the damage inflicted by Adidas AG.

Nike increased sales in North America for the first time in a year, after its smaller European rival had been outmaneuvering the sneaker giant on its home turf. Nike’s improved performance, sparked by new products and a smartphone shopping app, unleashed a slew of praise from Wall Street analysts. The stock surged as much as 13 percent to a record high in Friday trading.

“A key part of Nike’s story has fallen into place with the strong return to growth of its largest market,” said Chris Svezia, an analyst for Wedbush Securities Inc. “Nike product is making a clear comeback.”

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For more than a year, the Beaverton, Oregon-based company has been promising investors that slowing growth and revenue declines in its largest market were only a short-term trend. Nike said the lion’s share of the blame fell on U.S. retail partners, which have been closing stores amid a broader industry retrenchment. But it also faced a rejuvenated Adidas, which has regained its cachet with consumers and been posting growth rates in North America of about 20 percent.

Even as Nike was caught off guard in the U.S., the company restored the confidence of investors and analysts over the past year with its international performance. Its rapid growth overseas, where it generates more than half its revenue, continued last quarter with sales surging 35 percent in China and 24 percent in the region that includes Europe, the Middle East and Africa.

Regional Response

Nike has responded to its troubles in North America by reducing the number of retailers it sells to in the region, while also pushing more purchases through its own stores and websites. This was done to improve margins, by cutting out the middle man, and maintaining better control of how the brand is displayed.

The improvement in North America prompted the company to nudge up its outlook for the current fiscal year. Nike is now forecasting annual sales growth in the high single digits, as opposed to a previous estimate for growth in the mid- to high single-digits.

Last quarter’s results also came when the company responded to a misconduct scandal by pushing out a handful of high-ranking executives after an internal review. The offending behavior skewed toward bullying and unfair treatment of women. Most of the Wall Street analysts covering Nike who addressed the incident said the loss of talent and bad press would have little impact on the company’s performance, and last quarter backed that up.

Related: Nike’s Executive Exodus Shows Bullies Don’t Make Good Bosses

Profit, meanwhile, got a boost from the corporate tax cuts passed last year in the U.S.. The company’s rate fell to 6.4 percent — half of its rate a year ago — and it shaved $82 million off its tax bill. The company also announced a $15 billion share buyback program, which will begin when its current $12 billion program concludes in the current fiscal year.

Overall sales were $9.8 billion, surpassing analysts’ average estimate of $9.4 billion.

“Everything is pointing in the right direction,” said Chen Grazutis, an analyst for Bloomberg Intelligence. “The top line is clicking again, and they are gaining traction with new products.”

Amazon Makes Big Foray Into Health Care With PillPack Purchase

The robots keep coming! I frequently post articles highlighting the need to get familiar with building using and replacing robots and programs or get replaced by automation. This is another example although the automation angle is subtle. The company Amazon acquired automates many of the functions pharmacists carry out. Amazon, with their vast computing resources, can expand the functions that are automated.

So to those in pharmacy school now or working in a pharmacy: get familiar building / using / maintaining the software and systems that automate your work. If you do not, you may get replaced by those systems.

-Dr. Moore

Amazon Makes Big Foray Into Health Care With PillPack Purchase
https://www.bloomberg.com/news/articles/2018-06-28/amazon-makes-big-foray-into-health-care-with-pillpack-purchase

The Future of Tesla Hinges on This Gigantic Tent

As a follow up to my earlier post on the ability to mass produce electric cars profitability, now we consider quality. The article ends with a quote from someone experienced with automobile manufacture:

“I pity any customer taking delivery of one of these cars. The quality will be shocking.”

I don’t think he is implying high quality.

Enjoy the read,

-Dr. Moore

The Future of Tesla Hinges on This Gigantic Tent
https://www.bloomberg.com/news/articles/2018-06-25/the-future-of-tesla-hinges-on-this-gigantic-tent

Carmakers Risk Wasting Billions on Electric, Autonomous Vehicles

Sometime ago I posted an article on the “greenness” of electric cars. That post pointed out the greenness of an electric car depends on the greenness of the electrical grid used to charge the vehicle. Charge your Tesla or Leaf during peak hours in a region using coal-fired power plants and you are no more green, and perhaps less green, than a standard gasoline powered car.

Turning away from the environmental perspective and towards the producer perspective, the article linked below raises concern about profitability of electric car manufacture. Profitable production of price-competitive electric vehicles is not a task that can be presumed a slam dunk. Time will tell.

-Dr. Moore

Carmakers Risk Wasting Billions on Electric, Autonomous Vehicles
https://www.bloomberg.com/news/articles/2018-06-20/carmakers-seen-wasting-billions-on-electric-autonomous-vehicles