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

August 30, 2013

Model Portfolio Value As of 30 August 2013

$ 695,304


Comment on Model Portfolio activity

We repurchased Juniper and GE, and added Sprint and AT&T to accounts during the week. We also sold the short NASDAQ 100 (QID) for a wash.

We are now 25% long in the Model, more so in smaller sized accounts and less so in larger accounts.

We will continue to add to positions and initiate more as the markets pull back.
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August 23, 2013

Model Portfolio Value As of 23 August 2013

$ 699,452


Comment on Model Portfolio activity

We added Abercrombie, JC Penney and Aeropostale when all three dropped this week on disappointing sales and earnings. We also reestablished a small GM B warrants position.

Equity exposure remains under 20% and the shares we are buying are all in companies down 20% or more from their highs of the year.

The following article about Tesla, the all-electric car company that is the darling of the big boy and girl day traders is interesting. Much has been made of Solyndra- the solar company that went broke costing the government $500 million. Yet no one mentions that Tesla exists because of the low interest government loans it received.

From Wikipedia:

Tesla was founded in San Carlos, California, in Silicon Valley. Tesla opened its first retail store in West Los Angeles, Calif., in April 2008. The company opened its second retail store in Menlo Park, CA, in July 2008.[124] The company opened a display showroom in New York City's Chelsea Art District in July 2009.[125] It also opened a store in Seattle in July 2009. Tesla subsequently opened stores in Washington, DC; New York City; Chicago; Dania Beach, FL; Boulder, Colorado; Orange County, CA; San Jose, CA and Denver, CO.[26]

Tesla announced in August 2009 that it planned to move its corporate headquarters and build a powertrain development facility at 3500 Deer Creek Road, in the Stanford Research Park in Palo Alto, California. Tesla said it would finance the project in part through US$100 million of the federal low-interest loans. The new facility would occupy 369,000 sq ft (34,300 m2) on a 23-acre (93,000 m2) parcel previously occupied by Agilent Technologies. Tesla completed the headquarters move in February 2010. The powertrain facility will produce electric vehicle components for Tesla and for other automakers, including Germany's Daimler, which is using Tesla's battery packs and chargers for an upcoming electric version of its Smart city car. About 350 employees are expected to be based at the Stanford site initially, potentially increasing to 650. Stanford Research Park is also home to Facebook, Hewlett Packard, Xerox PARC and other Silicon Valley companies.[126]

Tesla Factory Using US$365 million in federal low-interest loans, Tesla had planned to build a Model S assembly plant in California with a fully ramped-up annual output of 20,000 sedans.[127] Tesla did not announce a specific location, though unconfirmed media reports had focused on Southern California.[128] In mid-2009, many speculative media reports suggested that Tesla could occupy the NUMMI assembly plant in Fremont, CA, which General Motors and Toyota had signaled they planned to vacate. Tesla stated it would develop a brownfield site on existing industrial property—a preference of the federal government in approving candidates for interest-bearing loans from the Advanced Technology Vehicle Manufacturing Program. On 20 May 2010, Tesla announced that it would partner with Toyota to produce the Model S at the former NUMMI plant.[22] The facility opened on October 27, 2010 as the Tesla Factory.[129]
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August 16, 2013

Model Portfolio Value As of 16 August 2013

$ 699,005


Comment on Model Portfolio activity

We added Sysco, the food service company, when it dropped on disappointing earnings. With a 3% yield and conservative bets we may add more lower. We also repurchased Intel at a 4% yield and added two tranches of QID (double short NASDAQ 100) during the week as a hedge for our long positions.

Sysco is the largest food-service distributor in North America, with a 17.5% share of the market; the closest competitor has only a 9% share. Distribution is a much better business when a company has scale, and Sysco has it. About 70% of the industry is made up of much smaller operators with nothing close to Sysco's scale advantages. This affords the company significant protection from competitive threats.

Sysco has grown revenue per share at nearly 7% per year over the last 10 years -- a respectable growth track for a company that already has the largest share of its market.

The company's scale and stability enable it to leverage its assets to generate a return on equity (ROE) in excess of 30% in most years. However, ROE dropped to the mid-20s in recent years due to headwinds facing the restaurant industry -- a key client -- and the high price of gasoline.

If the U.S. economy falls into another recession, Sysco would continue to under-perform. However, when the U.S. resumes normal economic growth, Sysco will likely return to a 30%+ ROE. With a current book value of $8.69 per share, the company would earn $2.61 per share on 30% ROE. At a recent price just under $35 per share, this growing company is available at just 13.4 times earnings.
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From Todd Harrison at Minyanville.com on Wednesday re: Apple’s jump in price

Yes, I-Cahn!

Ducking in and out of meetings yesterday afternoon, I blinked twice when I saw the Apple (
NASDAQ:AAPL) "news" that Carl Icahn bought a large position in the stock -- and then took to Twitter to "talk it up."

The SEC ruled that social media is an acceptable medium for company announcements in April 2013; still, yesterday’s events felt a world away from when the SEC warned Netflix (NASDAQ:NFLX) CEO Reed Hastings about posting his prognostications on Facebook (NASDAQ:FB) last December.

Is social media, and the ways in which we communicate, moving that fast?  Evidently, the answer is a resounding yes.

To be sure, other high profile investors have posited their positioning on Twitter (Bill Gross at PIMCO comes to mind), but at what point have we jumped the proverbial shark?

With HFT to the left of us, social media disclosures to the right, the investing process is morphing at warp speed.  As Josh Brown eloquently observed yesterday -- on Twitter, of course -- “Apple adds $20 billion in market cap, or Chipolte (NYSE:CMG) + Under Armor (NYSE:UA), on a pair of tweets from Carl Icahn. Baller.”

I won’t take the other side of that statement -- Carl Icahn is a baller -- but we’ve seemingly entered into a new realm of the investing landscape, a social sphere situated somewhere between “Pump & Dump” and “Post & Boast.”  Mr. Icahn’s 52,000+ Twitter followers got a gift -- or at least a first-mover advantage -- as the rest of the global financial marketplace, many of whom are not on Twitter, were left to play catch-up

And you wonder why mainstream America thinks they're at a disadvantage.

I have no horse in the Apple race; I had a level I was looking at, it never got there, and my greatest cost was one of opportunity.  If nothing else, however, yesterday’s sequence served to fortify the frustration felt by investors who feel the investing process is unnatural -- and yes, in the words of Stan Druckenmiller, “rigged.”

Read more: http://www.minyanville.com/special-features/random-thoughts/articles/Twitter-Legalizes-Front-Running-in-Stocks/8/14/2013/id/51202#ixzz2byNp93ni

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This article in Bloomberg is worth the read.

 

Dalio Patched All Weather’s Rate Risk as U.S. Bonds Fell

http://www.bloomberg.com/news/2013-08-14/dalio-patched-all-weather-s-rate-risk-as-u-s-bonds-fell.html

 

The short story is that in a falling interest rate environment portfolios with large bond positions will do well. And in a rising interest rate environment portfolios with large bond positions will not do well. That this folks said they did a study to figure that out is hogwash. They just stayed onboard to long. They ran a passively managed fund to all of a sudden decided not to be passive. The returns since 1996 are superior because interest rates were stable or falling during the entire period.

what occurred at this fund in the second quarter- and 8% loss- is going to occur in spades across the bond market when-not if – interest rates rise to more normal levels, say 4% on the short end and 8%  the long end. If the economy recovers more robustly that is the eventual interest rate level- if not higher.
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Private Capital Is Eating Public Capital

http://my.firedoglake.com/masaccio/2013/08/01/private-capital-is-eating-public-capital/

 

Americans are born into the belief that accumulation of capital is the most important part of their economic system. In their new book, The Making of Global Capitalism, Leo Panitz and Sam Glindin show how the US government has worked to create a new world order where private capital accumulation is the dominant and controlling function of governments around the world. Part of that involves covert and not so covert attacks on foreign socialist governments. But we can see it in our cities and states.

For example, for centuries US churches and communities established hospitals organized as non-profit entities. These hospitals provided medical care to contributors and non-contributors alike. Now for-profit corporations, with treasuries fattened by the profits reaped from sick people, are buying out those entities, leaving the communities dependent on the rich people who control those corporations for their medical care. The logical outcome is spiraling hospital costs, because the only goal of a corporation is to maximize returns to shareholders at any price. Including your health.

In the same way, states and cities have turned over their prisons to private companies. Again, the goal of these corporations is to maximize profits at any price, including the health and safety of prison inmates.

Since I live in Chicago, I am duty bound to mention the outrageous parking meter deal, and the stupid Indiana Toll Road deal.

In each of these situations, we as citizens bought and built things for our mutual benefit. Some rancid government types in thrall to the idea that the market should do everything decided that we shouldn’t own things as a community, and sold them to some private company. That means that instead of getting things at a reasonable price, paying for them with tax revenues and user fees, and owning important assets and services ourselves, we are getting screwed over by a bunch of rich people and their minions devoted to taking as much of our money as they can for themselves.

One big reason governments are selling public assets to the rich is to raise money to pay on government debts. Governments have debts because they borrowed from the rich instead of taxing them. That, of course, is the real scandal. But the rich want you to think it’s your fault so you should pay, or forfeit all that juicy public property.

Detroit is the poster child for the future. The rich and their minions on Wall Street are circling the city, planning to buy up the assets that belong to the community at fire sale prices. This story in the Financial Times strikes just the right note:

The state attorney-general has opined that [the Art Collection is] “held in public trust for the benefit of the city’s residents”. But some creditors and their counsel say it is ludicrous that they are recovering only a small fraction of the money they are owed while the city is sitting on such valuable items.

Among those valuable items are a wonderful collection of art works, and we know how much Wall Streeters love that art. Steve Cohen of SAC, the recently indicted hedge fund, just paid casino billionaire Stephen Wynn $155 million for Picasso’s Le Rêve, widely perceived as a poke in the eye of the wimpy SEC. There’s no telling how much the creepy Walton heirs would pay so they could move it to the bustling metropolis of Bentonville, AR for their Crystal Bridges Museum of American Art.

What else is there? The Financial Times points to Belle Island, a logical site for development by the rich as a playground carefully isolated from the misery of the city; the water and sewage system; 22 square miles of Detroit, mostly blighted; nine parking garages, two parking lots and a bunch of parking meters; and half of an aging cross-border tunnel to Windsor, Ontario. More generally, the private sector is looking for roads, bridges, airports, utilities and hospitals. So what could go wrong with private ownership?

Just think about giving a private company a monopoly on Detroit’s water supply. I’m just sure they won’t charge monopoly prices, enormous hook-up fees and so on. They’ll be satisfied with a pint of blood from every citizen of the city over the age of 10.


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August 9, 2013

Model Portfolio Value As of 9 August 2013

$ 700,807


Comment on Model Portfolio activity

We added First Solar for a trade/hold when it broke 15% on disappointing earnings. We also took a loss on our triple short S&P ETF (SPXU). We will be adding the double short NASDAQ 100 ETF (QID) to replace our short bet next week. We took the loss to offset gains in taxable accounts and want to lessen the leverage in all accounts. Moreover Google, Amazon Apple are large percent components of the QID and two of the three are on all-time highs with Apple at a six month high.
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This article by Matt Taibbi is worth the read:

http://www.rollingstone.com/politics/blogs/taibblog/new-bank-investigations-real-action-or-more-of-the-same-20130808

 

 

August 2, 2013

Model Portfolio Value As of 2 August 2013

$ 701,848


Comment on Model Portfolio activity

We bought BP when it dropped on less than earnings. With a 5% yield it is a decent own/trade.

These two columns by Henry Blodget are on the theme that the country cannot truly recover and grow unless workers become part of the team rather than cogs in the wheel.

http://www.businessinsider.com/labor-unions-wages-2013-8 http://www.businessinsider.com/business-and-the-economy-2013-7

Oops. JP Morgan is sorry and will pay a $400 million fine but no one did anything wrong:

JPMorgan Chase has agreed to pay $410 million to the nation’s energy regulator, a move that will allow the bank to settle accusations that traders in its Houston offices manipulated electricity markets in California and Michigan.

The agreement announced on Tuesday is a record settlement for the regulator, the Federal Energy Regulatory Commission, which has ramped up its policing of Wall Street trading in recent months.

While the commission fined the bank, it stopped short of penalizing individual JPMorgan executives. That decision is a reversal from earlier this year, when the agency warned JPMorgan that it might seek to sanction Blythe Masters, the influential leader of the bank’s commodities business. Initially, investigators also planned to recommend that the agency hold three of her employees “individually liable.”

read all: http://dealbook.nytimes.com/2013/07/30/jpmorgan-to-pay-410-million-in-power-market-manipulation-case/?hp
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