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Lemley Yarling Management Co
15624 Lemley Drive
Soldiers Grove, Wi 54655
Bud: 312-925-5248       Kathy: 630-323-8422

30 April 2009

We are taking tomorrow off. Tomorrow is May Day and most of Europe is closed for a workers’ holiday. We are sure Glen Beck and Rush and friends will suggest that Obama is going to make it a national holiday in the U.S. when he completes the turning of the country into a socialist regime. All power to the people!!!! Workers of the World unite!!!!!!!

Next post Monday May 4
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Thoughts

Model Portfolio Value As of 30 April 2009

$ 569,793

Asian, European and U.S. markets are 1% and more higher this morning as the glass is three quarters full on the day Chrysler files bankruptcy, Eastman Kodak throws in the towel and GM limps into financial oblivion. The times they are a changing.

U.S. futures have recovered all of the last hour losses of yesterday plus some as the talking heads on CNBC are ecstatic about the fledgling signs of recovery. Obama’s press conference last night was another reaffirmation that an adult in now in charge and the Jobless Report was 631,000 jobs lost last week which is a slight improvement from the four week average.

Markets anticipate and our thought is that the stabilization of the economic downtrend and maybe the suggestion of movement to the better is the reason the markets have rallied off the lows. We do wish we had waited two days to make our final push to cash but we also realize that our trading moves in March allowed us to profit from the- in retrospect - seemingly easy part of the move.

The S&P 500 is 10 points above 875 which yesterday was resistance and will become support if the S&P 500 can close above that level. Today we will see how much fear the bulls have placed in the shorts and whether sideline cash may begin to move into stocks which up until now have been the province of traders and hedge funds.

With accounts in good shape and heavy with cash we are continue to look for trading opportunities only.
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We repurchased KBE. We also doubled our small (taking a look) Ford position because of the Chrysler bankruptcy.
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J Crew is up on short covering and may go higher but we are selling at $17 for a nice trading gain in accounts this year. We also took a 20% five day trading profit in NCR that we bought when the stock tanked from this level last week on its quarterly report.
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Obama is speaking on the Chrysler bankruptcy on TV at 11AM. They have all the folks involved standing behind him including Larry Summers. They probably have them standing so Summers doesn’t fall asleep again.
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We bought XLF for a trade but when the S&P 500 broke back under support we sold for a 20 pennies loss. We have financial exposure with the KBE purchased earlier today.
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Market mavens are caterwauling that GM bondholder’s are getting the short end of the stick because the Obamaites are forcing the bondholders to take less equity in the company for the debt than the unionized workforce is receiving as part of their health care and retirement give-up. The bondholders say that in the good old days the bondholders got the company.

That may be true but then GM is worthless without its work force and in the good old days the government did not provide the funds to keep the company going before and while in bankruptcy. Banks used to do that before the capitalists running the banks made all those terrible decisions that led to losses and required the government to rescue them too.

Small facts—
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Gold lost $8 to 891 and Oil was $51.08 at its NYC close. European stocks surrendered some gains as the U.S. market pulled back but still closed 1% and higher on the day.
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We sold DT at $10.89 which is an 80 pennies loss in most accounts. But since we will receive a $1.05 dividend on May 12 the loss turns into a scratch profit. We would rather have the cash available for a more volatile stock if the markets sell off.
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The DJIA lost 17 points to 8168. The S&P 500 dropped 1 to 873 and the NAZZ rose 5 to 1717.

Breadth was 3/2 positive and volume was active.

The bulls won the month.
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29 April 2009

Thoughts

Model Portfolio Value As of 29 April 2009

$ 569,780

Asian and European markets recovered their losses of the previous day in overnight trading and the U .S. futures are indicating the same in our markets. Gold is up $2 And Oil has a $50 handle as the trading day begins.
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The first number on first quarter GDP called Advance GDP was down 6.1%. But Personal Consumption was up 2.2%. Traders are focusing on the consumption number as the glass is half full today.
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From Diane Swonk, Chief Economist at Mesirow Financial

GDP Better Than It Appears

Real GDP dropped at a rate of 6.1% in the first quarter, more than the 5 - 5.5% most economists were expecting.

The composition of that decline, however, was much more encouraging than we saw in the fourth quarter:

  • Consumer spending actually increased a bit from the sharp declines we saw in the second half of 2008, which suggests that the money we are receiving - initially through tax refunds, lower energy prices and higher social security payments - is being spent.
  • Inventories continued to decline, which, when combined with the increase in consumer spending, suggests manufacturing activity is close to a bottom. 
  • And, in a shock of accounting, government spending contracted, which will either be revised or reversed in the second quarter as the tax cuts embedded in the fiscal stimulus package begin to kick in.

On net, it looks as though we have finally pulled the cord, seen the parachute open, are still falling, but not as fast as we were before. We have yet to land and find our way clear of this plane crash. But, at least it appears that we have effectively ejected from the falling plane.
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Investors Intelligence had bulls 36% versus 37% last week and bears 37% versus 34%.
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The S&P 500 is at 875 resistances at 10AM and with internals 4/1 to the good it looks like it wants to move through. The level has proven tough to get through three times in April.
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We get mail:

Hi.  Have you ever heard the saying "The trouble with socialism is socialism.  The trouble with capitalism is capitalists"?  I think this was said by one of the people who were involved with William Buckley Jr. in organizing the American conservative movement in the 50s.

There's an interesting article by Jonah Goldberg in the 6 April issue of National Review.  I don't think Obama et al. are trying to rescue capitalism.  I think they are trying to turn the US into a European-style social democracy.  And I think there's an awfully good chance that they will succeed.  

We respond:

We agree that is what he is doing. We are happy he is.

The capitalists are the ones who presented OBAMA with the opportunity to do this by screwing up as badly just as they did for Roosevelt in 1932.

Obama is doing what he said he would do.
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Entering the final hour of trading the S&P 500 has moved up through the 875 level to 878.
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Gold was up 47 at $900. Oil gained $1.10 to $51.02. European bourse indexes closed 2% higher.
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The S&P 500 could not hold the 875 level into the close. The DJIA was up 240 at its best and closed up 170 on the day at 8185. The S&P 500 gained 18 to 873 which was close but no cigar and the NAZZ jumped 38 to 1711.

Breadth remained 4/1 to the good at the close and volume was active. New lows outnumber new highs by 20 and both were under 100.

The bears are still prowling as they were able to engineer a last hour sell off of 100 points but the bulls won the day.
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28 April 2009

Thoughts

Model Portfolio Value As of 28 April 2009

$ 565,344

Markets around the world are down 2% as Turnaround or maybe Turndown Tuesday begins for us as it ends in Asia. Gold is lower and Oil is down pennies as the trading day begins. The WSJ is reporting that BankAmerica and Citi are going to have to come up with more capital to make regulators happy.

We had planned to sell in May go away. We are going to 75% cash today to beat the rush. We have survived the year to this point and we have been pressing our luck for the last two weeks with desultory results. Our gut is telling us not to press it any more.

We sold AT&T, XLF, KBE, SMH, XLI, MRK, VOD, DWA, Rowan Drilling, and Kraft in the first hour of trading. That leaves us with J Crew, NCR, Deutsche Telecom, Old Second, Ford, and Honeywell and 70% and more cash in most accounts.
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We want to make it clear that we are not selling because of the Swine Flu outbreak. 50,000 Americans die every year from the flu and its complications. 30 million to 90 million Americans contract some form of flu every year. It is comforting to know that the Government is taking steps to prevent and control any serious outbreak. It is good to know that we now have adults running our major government agencies. But the endless chatter and media hype overshadows other rap problems. We are much more worried about the banks, insurance companies and on the world scene-- Pakistan. Moreover the natural ebb and flow of stocks and yearly patterns stock market movements suggest controlling our greed and satisfying our fear.
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Robert Marcin at realmoney.com wrote the following today:

Recent government actions have terminated the capitalist system as we knew it. Super massive market interventions, forced bondholder debt for equity swaps, controlling interest in many public companies, directed mergers under duress, bailouts of any and everything, etc. The rule of law has been usurped by rule of government decree, all on the name of saving us from a natural economic delevering process.

Dougie Kass has it correct, massive government interference into the private sector is a significant unconventional headwind. It frightens me to see the explosive debt/money creation as well as monumental government interference in the economy and the lack of respect for rule of law.

Color me conservatively positioned after a not unexpected rally. Consider me frightened for economic freedom, my children's economic future and the massive hike in marginal tax rates I forecast.

We have been reading and listening to Pavlovian gibberish like this for the past few months. These observers fail to mention that the champions of capitalism created the problems that government now has to solve to ensure the welfare of most of its citizens who are the engines but not the drivers of capitalism.

The masters of the universe were unfettered and given free rein by a truly laissez faire and uninterested Fed under the control of (who knew they were so stupid?) Alan Greenspan. When the Bush/Cheney groups took over the executive branch and were able to work in tandem with the Republican Congress and the free market Fed all limits on fair prices and reasonable investment decision making were removed. And make no mistake that is why we are suffering the worst economic collapse in our memory. If capitalism is dead, it was destroyed by the titans of the corporate world. Don’t blame the folks who are trying to rescue capitalism.
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Most of our accounts are up 5% to flat on the year. The Model is now up 10% for the year. As we often say, we manage The Model a bit more aggressively than other accounts. Many of our smaller under $100,000 accounts are up as much as the Model and more. They were down more than the Model last year. While being unchanged for the year is no great deal we and many accounts were down 30% for the year early in March and to be even and up now is comforting. Also, we outperformed the S&P 500 by 20% last year, 15% this year and The Model and many of our accounts have doubled or more since 12/31/98 while the S&P 500 is unchanged. We are taking most of our money to the sidelines. Hopefully the SEC will re-impose the old uptick rule. At that time we might be interested in venturing back in on a more fully invested basis. Until then we are going to gingerly pick trading spots.
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European markets closed 1% and more lower.
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Gold was down $15 at $894. Oil dropped 50 pennies to $49.63.
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The DJIA lost 10 to 8017. The S&P 500 dropped 2 to 855 and the NAZZ was down 6 at 1673.

Breadth was flat and volume was light.

Today was Tied Tuesday as the bulls and bears stymied each other.
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27 April 2009

Thoughts

Model Portfolio Value As of 27 April 2009

$ 569,160

Swine Flu, GM cram downs, Pakistan and the Taliban, profit taking, technical resistance and China are all combining to present a half empty glass this morning just as other cares and worries did last Monday.

Asian and European markets were lower overnight and markets here opened lower. Oil is down $3 and Gold is higher as the trading day and week begin.
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We repurchased KBE.
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Gold closed down $6 at $908. Oil lost $2 to $4955. European bourse indexes closed lower.
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A grand total of 50 people in the U.S. have the swine flu. None have died from it. It is a story the media loves.

Today and every day forever 200 folks will die from lung cancer, the great majority the result of smoking. Today 150 folks will die in car crashes with half of those involving drunk drivers.
*****

The DJIA dropped 50 to 8025. The S&P 500 lost 8 to 856 and the NAZZ was down 15 at 1680.

Breadth was 2/1 negative and volume was light.

The bears held serve.
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24 April 2009

Thoughts

Model Portfolio Value As of 24 April 2009

$ 576,270

Ford and Microsoft had lousy numbers and in Ford’s case a huge loss, but the numbers were better than and in the current market environment that is all that is needed to place a positive tone on early morning trading.

Asian markets were mixed and European bourse indexes are mostly 1% higher. Gold is up $3 and Oil has a $50 handle as the trading day begins.
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We repurchased the SPDR Bank KBE and SPDR Financial XLF in accounts that own SMH. The bank stress test parameters are to be released today and the result on May 5 and on May 5 the SEC is also going to discuss the uptick rule proposals.

Honeywell is down on earnings and we bought a trading position in accounts that own Molex as well as a trading/investment position in Vodafone in accounts that own DreamWorks. We bought Ford in accounts in small amounts. We sold the Petroleum & Resources because it is too thin to trade. We made $1 on the trade.
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One of our strategies for trading the present market is to buy good quality stocks that are off on the day because of negative reactions to an earnings report. In this uptrend as opposed to last month the stocks usually reverse higher the next few days after the sell off and we then trade out. We sold Molex today for a 7% two day gain.
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People's United Financial is a bank that raised its dividend this week. The shares are near their yearly low and we bought for a trade in a few accounts. It is a tough trader and so we didn’t buy much.
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European shares advanced strongly (+3%), with banks and oil producers fronting the gains at the end of a busy week for corporate earnings.
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As the market rallied in the afternoon with the S&P 500 approaching resistance at 870-875 (after pulling back in the contra hour) we sold KBE for a 55 pennies (3%) profit. If we could do that every day we’d be rich. KBE has been good to us this year with profits in accounts exceeding $1.75 million in the last month.
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Oil closed up $1.95 at $51.50. Gold gained $8 to $915.
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American Express is up $4 today at $25 and Morgan Stanley is unchanged at $22 where it was a month ago when the Goldman Sachs analyst suggested shorting AXP and buying Morgan Stanley in a paired trade. AXP was trading at $12 at the time. Oops.
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The DJIA was up 160 points with 10 minutes left in the trading day and then the big boys and girls reversed yesterday’s program buying on the close with program selling on the close. As a result the DJIA dropped 80 in 5 minutes but then reversed again in the last few minutes to close up 120 at 8075. The S&P 500 gained 15 to close right below resistance at 8670. The NAZZ jumped 42 to 1694.

Breadth was 3/1 positive and volume was active. The only negative is new highs which can’t seem to get going and are around 25 on a daily basis with new lows under 100.

The bulls remain on a roll.
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23 April 2009

Thoughts

Model Portfolio Value As of 23 April 2009

$ 570,476

Asian markets were higher as are European markets at midday. Gold is up a few dollars and Oil has a $49 handle.

U.S futures indicate a slightly higher opening as the trading day begins.

The strength in the NAZZ yesterday kept the day from being a bust for the bulls. EBay and Apple had good reports last night and PNC Financial is helping the bank stocks this morning as PNC reported that is acquisition of National City is already adding to earnings and helped it to beat estimates. Today should be interesting.
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Jobless claims were 640,000 up from 613,000.
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NCR dropped 15% ($1.50) this morning on a larger than expected loss and we added shares to most accounts. The company makes and services ATMs and cash registers and the like and is trading at 25% of revenues and 10 times depressed earnings.

We also sold our BP positions for a $1 profit. We initiated a holding in Rowan Drilling which is a stock we haven’t owned for 10 years. Back then we bought it around this price of $15. We also bought additional MRK, T, KFT, SMH, and DWA for select accounts.
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Oil closed at $49.56 up 65 pennies. Gold was up $14 at $910. Europe closed lower.
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In contrast to the last six months the big boys and girls played program games to the upside in the last 15 minutes of trading today.

As a result the DJIA gained 72 to 7960.TheS&P 500 was up 8 to 852 and the NAZZ moved up 6 to 1652.

Breadth was 5/4 positive on the NYSE and the reverse on the NAZZ and volume was moderate.

The bulls won by not losing.
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22 April 2009

Thoughts

Model Portfolio Value As of 22 April 2009

$ 571,021

Asia was lower overnight as is Europe at midday. U.S. markets are going to open lower. The bulls are hoping that stocks close higher on the day and a sell off this morning may set the stage. Then again it may not.

Investors’ Intelligence had 39% bulls down from 43% the week before and 34% bears which is the same as the prior week.
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The CFO of Freddie Mac was found dead, an apparent suicide. Morgan Stanley missed earnings and revenues by a wide margin and is trading 10% lower in the early going. Wells Fargo met expectations.
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We sold Urban for a scratch to $2 per share profit. We sold the KBE and BRCM we bought yesterday for 10% one day profits. We doubled our holdings in the SPDR Industrial (XLI) and Semi-Conductor HLDR (SMH) and added Merck to accounts plus initiated a position in Molex which is off 10% today on a large than loss.
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Oil was up 50 pennies at $48.90 and Gold gained $8 to $890. Europe closed higher on the day.
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We traded out of XLF in the last hour for a 6% one day gain when the market gains looked like they wouldn’t hold.
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The major measures gave up the ghost in the last 45 minutes of the trading day and that action breaks the pattern.

At the bell the DJIA was down 83 at 7886. The S&P 500 lost 6 to 843 and the NAZZ rose 2 to 1654.

Breadth was flat and volume was active.

The bears are trying to regain control.
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21 April 2009

Thoughts

Model Portfolio Value As of 21 April 2009

$ 571,370

It was nice to have a large cash cushion yesterday as stocks tanked. Following our instincts paid off. The rapidity of the correction in bank stocks is confusing. We tried to trade the FAS in a few large aggressive accounts yesterday and were handed our lunch. We sold our final position this morning pre-opening for a further loss. Had we bought this morning when we sold we would be genius. Timing is often everything in these rapidly changing markets.

Yesterday morning we were masters of the universe and we let hubris cloud our judgment. It was an expensive lesson we have to continually re-learn.
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Asian stocks were lower overnight and European bourse indexes are fractionally lower at midday. Gold and Oil are flat as the trading day begins and U.S., stocks look to open slightly lower.
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Today is Turnaround Tuesday and the last few weeks, large selloffs have been met by buying the next day. We’ll see if that holds true today. If not and the sell off continues a break in the trend will be confirmed.
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For the last five weeks the sell offs have been one day plus the next morning affairs. Since the same pattern occurred yesterday and this morning we are going with the flow and buying back the XLF, Merck, a much lesser amount of KBE all 10% lower than we sold yesterday and Friday. We also initiated a position in the Semiconductor Holder ETF (SMH) for tech exposure.

Caterpillar has disappointing earnings and dropped $2 on the opening. With the rally after the initial downturn CAT is now higher on the day. We don’t want to own individual stocks in the industrial sector right now and so we bought the SPDR Industrial (XLI) on the strength shown in Caterpillar.

Broadcom dropped $2 on earnings and news that they are making a bid for Emulex a data storage company. The bid is all cash and 40% of the cash needed is in the company bid for. BRCM will probably have to raise the bid a bit. We took an initial position in BRCM.
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European bourse indexes closed mildly higher on the day after the U.S markets recovered before the European close.
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Oil closed at $46.51 up 55 pennies and Gold was $881 down $7.
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The DJIA closed up 127 at 7968. The S&P 500 regained 850 up 18 and the NAZZ jumped 35 to 1643.

Breathe was 3/1 positive and volume was active.

The bulls won the day.
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20 April 2009

Thoughts

Model Portfolio Value As of 20 April 2009

$ 565,994

Friday we decided to raise cash even though we had been buying all week. Our thesis that the rally would continue through options expiration on Friday suggested to us that it was time to take money off the table. Our accounts were up 40% to 70 % in the last month. That kind of an up move is something we have never experienced (as the move down had been when we committed to being fully invested under 700 on the S&P 500). Our instincts tell us that we are not that smart and that the gift horse we have been given should be accepted.

And so we sold enough to get to 70% cash in most accounts and we are going to sell Pfizer and Merck this morning to raise a bit more. Most of the shares we sold are in companies we think will sell substantially higher in the coming years but the volatility in the markets has drained our ability –if we ever had it- to live with 10% daily up and down moves. Actually we like the up 10% moves a lot it’s the down 10% daily moves that we don’t like.

875 on the S&P 500 is a resistance/ support level and if and when that measure pops through that level convincingly then a move to 1000 may be expected. But the move of the last five weeks was enough to get most accounts back to up for 2008 and we are happy to have recovered a good deal of ours and our clients fortunes.

With the Model up 14% for the year and most accounts up 5% to 20% (smaller accounts) we are content to move to the sidelines. Be assured that we don’t think the country is in a depression but we do think the economy is undergoing a needed correction and pruning of greed and speculation. That type of correction does not end in six months. Even if we are in a bear market rally an eventual move to 1000 on the S+&P 500 in the next few months would not be out of order.
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Asian markets were higher overnight while Europe is lower. BankAmerica reported better than earnings but the shares are down 10% in early trading as traders are viewing the banks ‘glass as half empty today which is the opposite of last week’s half full view.

Gold is up $4 and Oil is down $2 with a $48 handle as the trading day begins.
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On Friday we initiated a position in the Natural Gas ETF (UNG) which is an investment that attempts to mirror the price of natural gas. We don’t’ plan on making it a large position in accounts but we it is an interesting hedge on their winter heating bills. UNG is down from $65 to $15 as the price of natural gas has plummeted. If natural gas maintains a low price the UNG ETF will go nowhere. But then heating bills will also be low. If the price of natural gas rises and heating bills do the same then the ETF will also rise offsetting to a degree the rise in monthly heating bills.
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Oracle is buying Sun for $9.50 in cash. IBM had been considering purchase. These bargain shopping takeovers are a positive for the markets.
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We sold Merck, Pfizer, Bristol Myers and Hershey this morning. Three were scratch profits and one a scratch loss. We added British Petroleum to accounts.
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The 20 DMA on the S&P is 831 and with an hour of trading to go the S&P is at 833. That level needs to hold or traders are going to abandon ship.
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Oil lost $4.56 to $45.76. Gold gained $20 to $887. European bourse indexes ended 3% lower.
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We pushed our luck trading BAC (BankAmerica) and FAS (Triple Long Financials) in The Model and a few large accounts. Both were down 20% on the day when we purchased. FAS ended down 30%. We sold the BAC but kept part of the FAS in case tomorrow is Turnaround Tuesday.
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The DJIA lost 290 to 7841. The S&P 500 was down 37 at 832 and the NAZZ lost 65 to 1610.

Breadth was 6/1 negative and volume was active.

The bears are back.
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17 April 2009

Model Portfolio Update

Model Portfolio Value As of 17 April 2009

$ 583,170

16 April 2009

We will be traveling tomorrow and so our next post will be Monday April 20.

Thoughts

Model Portfolio Value As of 16 April 2009

$ 584,567

Stocks are going to open slightly higher this morning on the back of yesterday’s gain, JPM meeting expectations on earnings, and a lower than expected first time jobless claims number of 610,000 which was down 50,000 from last week. Continuing claims are over 6 million for the first time in history.
*****

Asian markets were mixed overnight and European bourse indexes are higher at midday. Oil has a $49 handle and Gold is $890.

Nokia reported lousy numbers as did Illinois Tool Works and Harley Davidson but all three are higher in pre-opening trading. That is a bullish sign.
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We switched BAC with a one day $1 gain to XLF. We also bought some Starbucks 10% higher from where last we sold. Of course the markets are up 20% from that time and SBUX is still 75% below its high.
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The retailers are on fire today. Our guess is that the fail to deliver short sellers are having some heat put on them by the SEC.
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Oil closed at $50.03 and Gold was $875 down $18.

The DJIAI was up 95 at 8125. The S&P 500 rose 13 to 865 and the NAZZ gained 41 to 1667.

Breadth was 3/1 positive and volume was active.

The bulls held the day.
*****

 

15 April 2009

Tax Day 2009 Thoughts

Model Portfolio Value As of 15 April 2009

$ 568,170

The one positive thought of the day is that many folk’s tax bills are lower since 2008 was a year of losses in the market. Hopefully next year the tax bill will be onerous.
*****

Asian markets were lower overnight as are European bourse indexes at midday and U.S. futures. March CPI was down on a year over year basis for the first time since 1955. Investors’ Intelligence had 43% bulls versus 36% the prior week and 34% bears versus 37%.
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Intel’s earnings were down 55% but the CEO said he thought the PC drought was ending.
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Intel sold off on the news and we bought shares in larger accounts. And we bought BankAmerica in accounts from which we sold Citi yesterday going from the worst large bank to the second worse.
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Deutsche Bank analyst Mark Wilde upgraded the shares of International Paper to "Buy" from "Hold" in a client note after the market closed Tuesday. Wilde said International Paper's costs are declining and it should be able to generate about $1 billion in free cash flow this year, which is roughly a third of the company's market capitalization. "We are finally seeing hints of a cyclical bottom," he wrote. "Pulp demand is again strong in China, and the rate of decline in box demand may be easing." Despite the upgrade, Wilde kept his target price at $11 and warned that first-quarter results could be modest.
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European markets fell, dragged down by weakness in the financial sector after UBS said that it will post another quarterly loss.
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Oil closed at $40.25 and Gold was $893.
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Richard Burr is a senator whom we hope is not on the Finance Committee. By the way, our ATM only allows $500 per day withdrawals so this guy must not yet have taken lessons from Senator Stevens and friends.

From http://briefingroom.thehill.com/2009/04/14/burr-told-family-to-withdraw-everything-from-bank/

Sen. Richard Burr (R-N.C.) says when the financial crisis began he encouraged his wife to withdraw all the cash she possibly could from their local bank.

During a speech on the economy last night, Burr related his immediate reaction the week the crisis began. After hearing Treasury Secretary Hank Paulson relay a story about a major company having trouble transferring money between banks, Burr became worried about the solvency of his own bank.

“On Friday night, I called my wife and I said, ‘Brooke, I am not coming home this weekend. I will call you on Monday. Tonight, I want you to go to the ATM machine, and I want you to draw out everything it will let you take," Burr said, according to the Hendersonville Times-News. "And I want you to tomorrow, and I want you to go Sunday.’ I was convinced on Friday night that if you put a plastic card in an ATM machine the last thing you were going to get was cash.”
*****

The DJIA gained 1150to 8030. The S&P 500 rose 11 to 852 and the NAZZ was up 1 to 1626.

Breadth was 2/1 positive and volume was moderate.

The bulls are back.
*****

 

14 April 2009

Thoughts

Model Portfolio Value As of 14 April 2009

$ 555,860

Stocks are going to open flat this morning and will probably come under some selling pressure as retail sales were down 1% in March when down 0.3% was expected. Of course that meaningless number is just an excuse to take profits after a huge run. As we said yesterday the Model Portfolio is up 60% in a month and up 10% for the year. And most of our managed accounts are up for the year with the smaller ones up as much or more than the Model.

The bank stocks are giving some ground this morning. We left a bit of money on the table with our early sale of KBE yesterday. But the sale raised a good deal of cash and we are going to deploy some of that cash into less volatile issues on the pullback.

We feel better than we did a month ago but we and the markets are certainly not out of the woods.
*****

Asian markets were up overnight with Hong Kong gaining 4%. European bourse indexes are higher with Germany, France and England up fractionally while a few other countries are up 3%. Gold is $889 and Oil has a $51 handle.
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We sold Citi at $4.30 for a 50% one week profit. According to one of our gurus the upside action in the shares is due to arbitrage action that will eventually dissipate. We also switched GE at a $2 per share profit to the SPDR Financial (XLF) to spread the financial risk from one issue to many. And we initiated a small position in Deutsch Telecom which owns T Mobile in the U.S. with 33 million wireless subscribers. DT is within $1 of its ten year low and will pay a 77 pennies dividend in May. We cut our Urban Outfitters holding in half.
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If Goldman is so profitable why does it have to sell $5 billion in shares at one half of the high it hit last year in order to pay off the TARP loan?” and Goldman received $8 billion from AIG for Credit Default Swaps. Are they going to pay that back since the U.S. taxpayers provided the $8 billion? And how good would their earnings have been without the $8 billion?

And finally, isn’t it amazing that Goldman share price was up $10 yesterday to $130 and that they priced the shares they sold before the market opened this morning at $122 and now the shares are trading at $118. Maybe the guys and gals at AIG who moved on after putting the American taxpayer on the hook for the $40 billion plus in credit default losses are now at firms where they could help their friends at Goldman again by buying shares this morning.
*****

Bank stocks led European markets higher Tuesday, although gloomy U.S. economic data pulled shares off early highs.
*****

Oil ended at $49.26. Gold closed at $90 down $5.
*****

The DJIA dropped 135 to 7920. The S&P 500 was off 17 at 840 and the NAZZ dropped 26 to 1626.

Breadth was 2/1 negative and volume was active.

The bears are back or maybe the bulls were just tired after 7 days of running rampant.
*****

 

13 April 2009

Thoughts

Model Portfolio Value As of 13 April 2009

$ 569,094

A couple of more weeks like the last and as the old song say “all our troubles Lord, soon be over.” Many folks are expecting a pullback or at least consolidation this week from last week’s strong up move. Our guess is that options expiration on Friday will keep a bid in the market as folks who have been following a buy/write strategy will want to repurchase their underlying shares.

A buy/write is a technique by which a person buys a stock, for example Boeing at $42 ($4200 for 100 shares in February, and then sells a call option (giving another person the right to buy the 100 shares from him by April 17 at $45 ($1500)). For this he receives $200.

Brokers love to suggest buy/writes to customers because they receive two commissions on the trade. We consider buy/writes to be dumb transactions because an investor who does the buy/write has all the downside risk on the stock purchased and limits upside potential by agreeing to sell at a price a few dollars or less above where it was purchased.

In our example the investor owns Boeing at $42 and if everything goes peachy he will make $5 per share or $500 ($300 when stock is called at $45 (he paid $4200 for 100 shares plus the $200 for the call option on 100 shares that he sold. If the share price goes to $30 he loses $1000 and if the share price goes to $60 he makes $500 since his stock will be called at $45.

Investors hate to have stocks that are rising called from them and so they will go into the market and buy the option back to prevent the call of the underlying shares. And that buying of options creates demand for stock in the marketplace.

And that is an underlying demand that we think exists in the market this week.
*****

Asian markets were mixed overnight. U .S futures are predicting a lower opening.
*****

Shares of Boeing tumbled 6 percent Monday morning after BA said after the bell on Thursday that first-quarter profit would be slashed by lower-than-expected airplane prices and production cuts on its lucrative wide-body planes. Also hitting sentiment, the U.S. Treasury Department is directing General Motors to lay the groundwork for a bankruptcy filing by June 1, The New York Times reported on Sunday, citing people with knowledge of the plans.
*****

American Express traded at $20 after a positive Barron’s article over the weekend. We sold at $20.15 on the pop for a nice two week or less profit. We invested part of the profit in Citi by buying an equal number of shares.

People used to place great faith in analysts. Even now, analysts from Goldman Sachs and JP Morgan can move markets. Back on March 11 an analyst from Goldman recommended doing a paired trade i.e. shorting American Express at $12 and buying Morgan Stanley at $23. The reasoning was: to profit from a recovery in investment banking, while avoiding worsening conditions in consumer credit as the country braces for what figures to be a prolonged recession. “Capital market activity is a relative bright spot in conversations, while consumer credit appears to be deteriorating by the day," analysts led by Richard Ramsden wrote in a research note Wednesday after meeting with the management teams of several banks.

And then on March 25 with AXP at $15 which until last month was a 14 year low in the share price, a J.P. Morgan Securities analyst resumed coverage of American Express Co. with an "Underweight" rating and a $10.50 target price target. In a research note to clients, analyst Andrew Wessel said he expects charge offs, or loans written off as unpaid, to increase well into next year as card members battle ongoing economic challenges. While Wessel believes the credit card lender will remain profitable through the period, significant earnings growth is not likely until sometime in 2011, he said. “We view American Express as overvalued given the revenue and credit pressures it is facing," wrote Wessel. He added that Capital One Financial Corp. seems to be better positioned, with fewer charge offs and a more diversified banking model.
*****

European stocks traded higher, as bank shares rose. Germany's DAX climbed 3.1% and the U.K.'s FTSE gained 1.5%.
*****

We decided to take more money off the table even though we think stocks will be up for the week, (the story about pigs). The Model Portfolio is up 12.9% for the year and up 60% from its low one month ago and we aren’t that smart.

We sold our entire position in the Large Cap Bank ETF (KBE) for a 15% to 25% profit. And we reduced our J Crew position in larger accounts.
*****

Last week TPG (a partnership LBO firm) sold their entire 2.8 million shares of J Crew for $14 a share in a private transaction. That limited partnership was the largest holder of J Crew. We don’t know who bought the shares be we presume the transactions moved the shares from strong hands to stronger hands. Texas Pacific has a few bad deals on its books right now and probably needed a profit as an offset plus the cash.
*****

Oil lost $2 to $49.37.

Stocks closed mixed but near their best levels of the day.

The DJIA was down 26 to 8056. The S&P 500 was up 2 at 858 and the NAZZ gained 1 to 1655.

Breadth was positive and volume was decent at 8 billion on the NYSE.

The bulls remain in control.
*****

 

8 April 2009

This is our last post until Monday April 13.

Thoughts

Model Portfolio Value As of 8 April 2009

$ 492,285

Stocks are going to open unchanged this morning even though Alcoa disappointed and Ryder Trucks issued a sour report and is trading 10% lower. Centex and Pulte Homes are going to merge.

Asian market were down 2% to 3% in a catch down move to yesterday’s downer in the U.S. and European bourse indexes are fractionally lower at midday. Oil is back down to $47.50 after trading above $52 last week and Gold has climbed back up to $890.
*****

The news that the Treasury will extend TARP funds to certain life insurers has created a bid in those depressed stocks.
*****

Jim Cramer comments on professors and the uptick rule:

"It's really being done because there's this perception that there are bear raiders, or people pushing the price around, and there is concern that there are short-sellers doing that, " says Charles M. Jones, a professor of Columbia Business School, in this morning's Washington Post. "Call them manipulative or abusive. But we haven't been able to find them in the data."

Of course you can't, professor. They don't have to identify themselves as short-sellers anymore. They can do whatever they heck they want because there's no enforcement of the naked short rule. So you don't have to mark your positions short. Further, you have to incorporate all of the ETFs that allow shorting on a double or triple basis. When I sat down with specialists on these numbers, they showed me proprietary data that indicated 40% to 50% of the volume during the big bank raids were short.

Furthermore, the professor, who perhaps never traded, doesn't know what it is like and what you can do to a stock without the uptick rule vs. being forced to operate with it. Before the government banned married puts, where you could buy puts and common the same time and then blast out of the common -- and I qualify again, IT WAS LEGAL, because people always misinterpret what was done in the old regimes -- you could cause hellacious damage to a stock. Did the professor understand life before the rule, and after, since the market dropped 47%?

Most important, unless you have traded, and you know about collusion and mindset selling, you would not know the power of destruction that the shorts can unleash if done simultaneously. I am sure the good professor could say, "Well, prosecute the raids," but the government has shown no inclination whatsoever to go after these ne'er-do-wells.

Put simply, the idea that the uptick rule doesn't matter, which is really the province only of the academics, is precisely what I hate about nonprofessionals opining on our business. They simply don't have any real understanding of how dirty it is, how the numbers don't tell the truth unless you dig down as I did, and how psychology works.

The professors, who seem uniform about this rule, just can't be trusted. They are too far away from the fray and they have helped create mass destruction with their seemingly harmless studies.
*****

We added shares of BankAmerica and more DOW and American Express to accounts. Plus we have been adding various industrial stocks to our large accounts over the last month including Cummins, Boeing, Deere, Caterpillar, Cummins Engine, Ingersoll Rand, Emerson Electric, DuPont, Honeywell, and also shares of British Petroleum, Petroleum Corp, Kraft, Walgreen, AT&T, Merck and Pfizer.
*****

Gold gained $1 to $884. Oil ended up 70 pennies at $49.65. European bourses were lower at their close.
*****

The DJIA gained 48 to 7838. The S&P 500 was up 10 at 825 and the NAZZ rose 30 to 1590.

Breadth was 2/1 positive and volume was moderate and will be lighter tomorrow on Passover. The markets are closed Friday.

Today was a draw.
*****

 

7 April 2009

Thoughts

Model Portfolio Value As of 7 April 2009

$ 486,689

Asian markets were mildly lower and European bourse indexes closed down 1% and more on the day. Oil lost $2 to $49 and Gold was higher at $883.
*****

We worked on accounts all day getting them invested to our satisfaction.
*****

The gurus are predicting a 10% correction and we won’t argue but we think what we hold will weather well and do well in the next up move.
*****

Unlike yesterday stocks went out on their lows after half hearted rally attempt with one half hour of trading remaining.

The DJIA closed down 190 at 7786. The S&P 500 lost 20 to 815 and the NAZZ dropped 45 to 1560.

Breadth was 3/1 negative at the close and volume was light. There were less than 75 combined new lows.

The bears are trying to regain control.
*****

 

6 April 2009

Thoughts

Model Portfolio Value As of 6 April 2009

$ 504,189

This is a thin trading week with Passover on Thursday and the markets closed for Good Friday. We will not post on Thursday or Friday since our computer honcho is again taking a few days off.
*****

While Asian and Europe were higher overnight stocks in the U.S. opened lower on bank downgrades by an analyst who predicted large losses at banks. Duh?

After the run stocks have had over the past few weeks a pause is to be expected but, with the thinness of trading this week and the fact that many were left at the gate by the latest rally, anything is possible.
*****

IBM and Sun Micro called off their merger, maybe.
*****

In keeping with the pullback theme we raised some cash by selling the SPDR Industrial. We also sold Ford which is up today on what we think is technical short covering related to a successful bond tender offer. And we sold Whole Foods, The Gap and some shares of J Crew. We sold half our CBS which leaves us with 30% lower cost shares than the shares we sold today for a scratch.
*****

Gold was down $25 to $$870. Oil lost $1.40 to $51.25. European bourse indexes closed lower.
*****

Maria the Money Honey had Meredith the Bank Basher on her final hour show on CNBC today. Meredith offered a note of caution to bank short sellers in Meredith’s commentary.
*****

Stocks rallied mildly into the close after being down over 2% in the early going.

At the bell the DJIA was down 45 at 7975. The S&P 500 dropped 7 to 835 and the NAZZ was off 15 at 1605.

Breadth improved to 2/1 negative on the day at the close and volume was light.

The bulls held their ground today.
*****

 

3 April 2009

Thoughts

Model Portfolio Value As of 3 April 2009

$ 512,378

Asian markets were mixed overnight as are European bourse indexes at midday. Gold is down another $5 in the early going and Oil has a $52 handle.
*****

The Employment Report was as bad as expected but not worse and there were only small revisions to prior months. With 663,000 job losses the unemployment rate is now 8.5%.
*****

Research in Motion aka Blackberry had much better than numbers and is up 20% in pre-opening trade. That is the bright spot in today’s market with other stocks flat-lining.
*****

Goldman Sachs is back to $117 after visiting $50 a few months ago. And Warren Buffet’s $115 per share warrants are once again profitable. All the while he has been collecting 10% on his $5 billion preferred shares purchase.
*****

European bourses finished lower on the day but higher on the week. Oil ended at $52.25 and Gold was down $14 at $894.
*****

The major measures meandered all day in light trading.

At the bell the DJIA was up 40 at 8017. The S&P 500 gained 8 to 842 and the NAZZ rose 20 to 1620.

Breadth was 2/1 positive and volume was light.

New lows were under 75.

The bulls won the week. And the Bears got Jay Cutler.
*****

 

2 April 2009

Thoughts

Model Portfolio Value As of 2 April 2009

$ 494,898

Stocks are going to open 2% higher this morning as the glass is half full for now. Asian markets were up big-time overnight as are European markets at midday. Hong Kong gained 7% and most of Europe is up 4%. Gold is down $10 and Oil is up $2 with a $50 handle.
*****

Dow Chemical is selling Morton International for 1.6 billion as it begins its delevering one day after buying Rohm & Haas.
*****

From Bloomberg: The Financial Accounting Standards Board, pressured by U.S. lawmakers and financial companies, voted to relax fair-value rules.

The changes approved today to fair-value, also known as mark-to-market, allow companies to use “significant” judgment in valuing assets to reduce write-down’s on certain investments, including mortgage-backed securities. Accounting analysts say the measure, which can be applied to first-quarter results, may boost banks’ net income by 20 percent or more. FASB approved the changes during a meeting in Norwalk, Connecticut.
*****

Germany closed up 6%; France was up 5%; and London was up 4%.
*****

We added to our Large Bank ETF and also added shares of Citi as a spec to accounts that won Ford as a spec. we also bought more DOW on the Morton news and did some buying and selling in individual accounts.
*****

Oil closed up $4 at $52.15. Gold lost $22 to $905.
*****

The DJIA was up 300 a couple of times today but profit taking in the last ten minutes resulted in a gain of 255 for the day with the DJIA closing at 7975. The S&P 500 was up 23 at 833 and the NAZZ jumped 50 to 1600.

Breadth was 4/1 to the good at the closes and volume was the most active in a while at 9 billion.

The bulls won the day. The Employment Report is on tap for morning and the bears are counting on a lousy number to help. The bulls expect a lousy number but the markets have run and the bulls are up against resistance at 840 and 860 on the S&P 500.
*****

 

1 April 2009

April Fool Day 2009 Thoughts

Model Portfolio Value As of 1 April 2009

$ 471,661

Stocks opened lower this morning with the DJIA down 125 in the early going. An hour after trading better than expected home sales and other economic news helped stocks to rally which brought the DJIA to up 50 at 10AM.

Asian markets were mixed overnight and European stocks are higher at midday. Oil is down $1.50 with a $47 handle and Gold is up $3 in the early going.
*****

We repurchased American Express in many accounts. We also added Goodyear, more Urban and Dell, International Paper and The Hartford to our larger accounts.
*****

Three weeks ago yesterday afternoon’s reversal and sell off would have caused the major measures to close 200 points lower instead of 75 points to the good. Today’s morning sell off would have been down 300 with a rally back to down 100 instead of the down 125 rally to up 50. The nature of the markets is ever changing. The bulls are not raging but they are using downdrafts to add to positions and the bears seem to have less ammo than a month ago.

The FASB action on mark to market tomorrow and the Employment Report on Friday are the major sticking points for traders in the next two days.
*****

This story form Rolling Stone is a must read:

http://www.rollingstone.com/politics/story/26793903/the_big_takeover
*****

From Tony Crescenzi at realmoney:

Sales of domestically produced U.S. vehicles ran at a 7.0 million pace in March, according to Market News. That's 500,000 more than expected and the best since December. A year ago the pace was 11.0 million, which underscores the idea that while the direction of sales has changed, the magnitude of the change is small. Still, the change in direction from down to up is important, and it will help feed the idea that a trough is developing for the current downturn.

I have emphasized often over the past two months that the TALF would underpin the sale of goods, including automobiles, and it appears that the first disbursement of the TALF in late March may have helped sales. I noted earlier, for example, that Ford issued $3 billion of TALF-eligible securities and Nissan issued $1.4 billion, amounts that support the sale of many tens thousands of vehicles.

If the sales gains are sustained, a variety of economic data will begin to look better. It is inevitable. Note, for example, that the production of automobiles ran at a skimpy 3.83 million pace in January and 4.73 million in February -- well below sales. Eventually, low levels of production relative to sales will force manufacturers to raise output, lest manufacturers risk losing market share. With it, a variety of manufacturing-related data will turn, boosting investor sentiment in the same way that it was boosted today on reports of better sales data.

Notable is the fact that riskier assets fared better today even though ADP reported a big decrease in jobs for March. The day's events illustrate how investors will turn their backs on employment data when more forward-looking data indicate improvement, as today's car sales data did.
*****

Europe closed mildly higher on the day. Oil was $48.40 down $1.25 and Gold gained to $926.
*****

The DJIA closed up 140 at 7750. The S&P 500 gained 12 to 810 and the NAZZ was up 22 to 1450.

Breadth was 3/1 positive and volume was brisk.

The bulls were in control but tomorrow may be dicey.
*****

 

 

 

 

 

 

 

 

 

 

 

 



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