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


December 30, 2011

Model Portfolio Value As of 30 December 2011

$ 525,668


Comment on Model Portfolio activity

Happy New Year!
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Ford Motor said its U.S. vehicle sales topped 2 million this year for the first time since 2007, implying a 15 percent share in the second biggest auto market in the world. Ford's small cars sales are on pace to post an increase of more than 20 percent this year, while its utility vehicles are tracking a 30 percent gain, the company said. With gasoline prices higher than last year, customers continue to move toward smaller, more fuel-efficient vehicles, Ford said. The company sold slightly more than 1.9 million cars in 2010 in the United States.
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December 21, 2011

Model Portfolio Value As of 21 December 2011

$ 520,828


Comment on Model Portfolio activity

Last Post until December 30

Summer is on the way.
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We switched Northern Trust at a profit to Oracle which is down $3.70 per share today on an earnings miss. We switched JP Morgan at a profit to double the Dell and Alcatel-Lucent.
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Ford was initiated with a buy rating at Sterne Agee. $18 price target. Cost and revenue restructuring has positioned the company well.

General Motors was initiated with a buy rating at Sterne Agee. $36 price target. Attractive valuation.

http://www.thestreet.com/_yahoo/story/11353166/1/analysts-actions-nke-f-jpm-dow.html?cm_ven=YAHOO&cm_cat=FREE&cm_ite=NA
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When you don’t like the numbers – change them.

Revisions Fail to Undermine Recovery in Home Sales (Diane Swonk)

The National Association of Realtors (NAR) today released benchmark revisions, which shaved more than 14% from home sales and unsold housing inventories between 2007 and 2010 initial estimates. Apparently, the NAR had inadvertently double-counted ...

Beyond revisions, the data showed that we are moving into a slightly more robust recovery in home buying. Existing sales rose 4% in November and increased at a double-digit rate from a year ago...

...Pent-up demand for housing is on the rise. Exceptionally high cancellation rates, however, are pushing much of that demand into rental markets instead...
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Watch what they buy not what they say—they are all talking their book.

George Soros in September 2011 http://oilprice.com/Finance/the-markets/Soros-Europe-is-in-a-More-Dangerous-Situation-than-the-U.S.-in-2008.html

Soros believes Europe is worse off than the U.S. back in 2008 given mass uncertainty.

“It is a more dangerous situation…to the global financial system than the collapse of Lehman Brothers…” the 81-year old investor said. “Even if a catastrophe can be avoided, one thing is certain: the pressure to reduce deficits will push the euro zone into prolonged recession. This will have incalculable political consequences.”

He explained that things were different in the U.S. during the credit crisis as the U.S. Treasury Department’s preexisting authority and contingency plans helped to create and implement liquidity programs in order to stabilize and recapitalize big banks; in the process, investors gained confidence in the integrity of their deposits.

“I think that the authorities, when push comes to shove, will do whatever it takes to hold the system together, because the alternative is just too terrible to contemplate.”

Soros, typically regarded as a liberal supporter, has strongly suggested the implementation of a unified treasury for the EU to be monitored by broad European supervision.

A number of economic experts and policymakers are growing more convinced as time goes on that Greece, which has fallen behind on its fiscal goals even after two massive bailouts, will have to default.

“That may not be possible to avoid some form of reorganization…” Soros said, adding that he recommends a partial restructuring of the nation’s debt and further proposing a European bailout fund.

“It is very important from the point of the view of reassuring the markets that the possibility of default is prepared for, that in the rest of Europe arrangements are made to protect the banking system.”

Scavenging Soros December 2011: Market Speculator Buys Up $2 Billion of MF Global’s Debt

Billionaire market speculator and philanthropist George Soros bought about $2 billion worth of European bonds from now-bankrupt MF Global — the same debt that pushed the firm to collapse, according to The Wall Street Journal.

When MF Global filed for bankruptcy, the firm sold part of the bonds but still had about $4.8 billion worth of them on its books, CNBC reports.

They were turned over to KPMG, MF Global’s bankruptcy administrator in London; they were then offered to big investors by MF Global’s London clearing house, LCH Clearnet, the Journal said, quoting a KPMG spokeswoman.

When KPMG offered the bankrupts firm’s European debt to a variety of big investors, most of them passed. However, they were able to find one investor willing to buy the bonds at rock-bottom prices: George Soros.

A spokesman for Soros declined to give details about the company’s positions.

“While our firm is always in the market, we have a policy of not disclosing details of our positions,” the spokesman told the Wall Street Journal.

KPMG told the Journal that the overwhelming majority of the European sovereign debt portfolio was liquidated by LCH before the second week in November, reports CNBC.

Does this signal that Soros is confident that the eurozone will recover from its financial crisis?

If it does, it would seem odd, considering that earlier this week he said that European debt crisis is putting the global financial system in a ”self-reinforcing process of disintegration.”

Furthermore, borrowing costs for Italy and Spain recently hit record highs and interest rates on 10-year bonds of countries such as France and Belgium, which are considered more financially sound, spiked last month, reports the Huffington Post.

So what’s the angle? Why risk $2 billion in these bonds?

Keep in mind that this is not the first risky investment made by Soros. Recall the enormous profit he made by gambling on Britain’s Black Wednesday. Furthermore, Soros, who has an estimated net worth of $14.2 billion, returned an average 30.5 percent per year on his investments between 1969 and 2000, according to Seeking Alpha.

Clearly, he knows what he’s doing.

In fact, his reputation for picking winner and losers is so great, and so many investors watch and mimic his moves, that his investments have the power to adversely or positively effect the markets.

“He dumped almost all of his $800 million stake in gold in the first quarter of this year as some other hedge funds did the same,” reports the HuffPo. Of course, after this happened, “a commodities slump followed later in the year, which some blamed in part on reports that Soros was liquidating his holdings.”

Knowing that he has a tendency to take risks, and that his gambles usually pay off, one has to ask: what’s the angle? Does he really see a eurozone recovery?
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This didn’t take long- except now it will be a Shiite dictatorship:

(NYT) BAGHDAD — Prime Minister Nuri Kamal al-Maliki of Iraq threatened on Wednesday to abandon an American-backed power sharing government created a year ago,

In a nearly 90-minute news conference aired on tape-delay on state television, Mr. Maliki defied his rivals and pushed back on all fronts in Iraq’s burgeoning political crisis, threatening to release investigatory files that he claimed show his opponents have been involved in terrorism.

He told Kurdish leaders that there would be “problems” if they do not turn over Vice President Tariq al-Hashemi, who fled to the semi-autonomous Kurdish region in recent days to escape an arrest warrant on charges he ran a death squad responsible for assassinations and bombings
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December 20, 2011

Model Portfolio Value As of 20 December 2011

$ 518,300


Comment on Model Portfolio activity

Today the big boys and girls decided the glass was half full and made Turnaround Tuesday into a barn burner to the upside. Supposedly things are better in Europe - for today at least - and housing starts were strong as more apartments are being built for those who can’t afford homes. We’ll take any reason for stock to move higher.
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December 19, 2011

Model Portfolio Value As of 19 December 2011

$ 497,959


Comment on Model Portfolio activity

We switched Huntington Bank to BankAmerica at $5.04 on sale and purchase. BankAmerica is lower in price than it was in March 2009 and also lower by $2 than when Buffet made his $5 billion investment in August. Buffet’s warrants are exercisable at $7.14.

Buffett Invests $5 Billion in Bank of America (August 25 2011) http://dealbook.nytimes.com/2011/08/25/buffett-to-invest-5-billion-in-bank-of-america/

On Thursday, Berkshire Hathaway, run by Mr. Buffett, announced plans to invest $5 billion in Bank of America, a vote of confidence for the beleaguered financial firm.

While investors initially cheered the news bidding up bank stocks in trading this morning, the sector settled down in the afternoon as the market digested the deal.

Shares of Bank of America, which spiked more than 25 percent on Thursday, are currently at $7.55, up roughly 8 percent. Citigroup and Morgan Stanley, both up which jumped nearly 10 percent in the morning, gave back much of their early gains, too. JPMorgan Chase was off slightly in the afternoon.

The pullback reflects the continued trepidation about the industry, which is clouded by economic concerns, regulatory uncertainty, and legal liabilities.

Still, the Berkshire investment has helped allay concerns about Bank of America. Shares of the financial firm have been battered of late over fears the company lacks sufficient capital. The stock has fallen by nearly 30 percent since the beginning of August.

“I remain confident that we have the capital and liquidity we need to run our business,” Bank of America chief executive Brian Moynihan said in a statement. “At the same time, I also recognize that a large investment by Warren Buffett is a strong endorsement in our vision and our strategy.”

The Berkshire investment comes at a pivotal time for Bank of America. Its troubled mortgage division has racked up billions of dollars in legal bills, and the financial firm faces a nationwide investigation into its foreclosure practices. Last quarter, Bank of America reported an $8.8 billion loss, owing in large part to a settlement with mortgage investors.

Mr. Moynihan has taken steps to cut costs and improve its capital cushion. He put the European credit card operation up for sale and sold off the Canadian card division, making it clear non-core assets would be on the block.

Last week, the bank announced plans to cut 3,500 jobs. In a memo to employees, Mr. Moynihan said that “we owe it to our customers and our shareholders to remain competitive, efficient and manage our expenses carefully.”

But the embattled chief stopped short of raising capital, reiterating that the financial firm was on solid footing. The assertions did little to soothe investors.

Then on early Wednesday, Mr. Buffett called Mr. Moynihan to discuss a potential deal. At first, Bank of America’s chief was skeptical, saying the bank didn’t need a capital injection. But Mr. Buffett emphasized it would be a long-term investment, not a short-term fix. Over the course of the day and multiple calls, they hammered out the investment, finalizing the details late on Wednesday.

Under the terms of the deal, Berkshire will buy $5 billion of preferred stock that pay a 6 percent annual dividend, and receive warrants for 700 million shares that it can exercise over the next 10 years. Bank of America has the option to buy back the preferred shares at any time for a 5 percent premium.

It is the sort of move industry insiders had been expecting. In May, Morgan Stanley chief executive James Gorman told reporters at his firm’s annual meeting that a big name investor was bound to jump into financials, prompting the “the malaise to lift.”

“We think this news is clearly a positive for the entire group as Buffett’s investment injects confidence into the system and Bank of America in particular following its consistent erosion in recent trading,” Nomura analyst Glenn Schorr said in a research note, adding that it should help dampen volatility in the stock.

Mr. Buffett has played the role of savior before.

In the depths of the financial crisis, Berkshire Hathaway gave Goldman Sachs a $5 billion lifeline, which came with a hefty 10 percent dividend. The investment bank paid back the money earlier this year after getting the greenlight from regulators.

When shares of General Electric got hit, Mr. Buffett stepped in with a $3 billion investment. The deal also came with a 10 percent annual payout.

With Bank of America, Mr. Buffett is once again jumping in at a point of weakness. Since the beginning of the year, the bank’s shares have dropped to less than $7, from $15. Last year, it was trading at more than $19.

“Bank of America is a strong, well-led company, and I called Brian to tell him I wanted to invest in it,” Mr. Buffett said in a statement. “I am impressed with the profit-generating abilities of this franchise, and that they are acting aggressively to put their challenges behind them. Bank of America is focused on their customers and on serving them well. That’s what customers want, and that’s the company’s strategy.”

Mr. Buffett is a fan of financial companies that he thinks have a strong franchise and brand. He owns Wells Fargo, gradually upping his stake over the past year. In the latest quarter, he bought nearly 10 million shares of the lender.

He has also counted Bank of America among his past holdings. In the midst of the subprime crisis in 2007, Berkshire bought 8.7 million shares, quickly increasing the stake to 9.1 million shares.

But Mr. Buffett was critical of management at the time. He told Financial Crisis Inquiry Commission that Bank of America paid a “crazy price” to acquire Merrill Lynch in the midst of the disaster. Mr. Buffett sold off his remaining shares in Bank of America at the end of 2010.
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December 16, 2011

Model Portfolio Value As of 16 December 2011

$ 512,172


Comment on Model Portfolio activity

We switched Nokia to Ford, Research in Motion to Juniper and Ford warrants as we gave up on the cell phone soap opera. The securities we purchased are down as much in the last few weeks on a percentage basis and we have more confidence in our purchases than our sales. We also eliminated St Jude and Medtronic and moved the funds to the major bank ETF (KBE) and in some accounts to Juniper.
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The Jobless claims yesterday were a positive. We continue waitinggggggggggggggg for the markets to move higher.
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December 12, 2011

Model Portfolio Value As of 12 December 2011

$ 530,364


Comment on Model Portfolio activity

Intel announced that first quarter revenues are going to be lower because of the floods in Thailand (hard drive shortage) but that margins will be about the same at 65%. We need to replace a Dell computer and found that Dell won’t negotiate price as they usually do. So maybe the hard drive shortage won’t be as dire to earnings in the short run. In the long run inventory depletion this quarter will lead to inventory rebuild next quarter with corresponding revenue increase for Intel. But the markets are short term focused and we have been trading Dell for the past few years. We sold our position for a plus scratch and we are looking to reenter Nvdia with the funds at some point. We also took a short profit in anther anchovy- KBE- the large cap bank ETF.
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The glass was half empty today and markets were lower.  Tomorrow is Turnaround Tuesday - we hope.
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December 9, 2011

Model Portfolio Value As of 9 December 2011

$ 543,061


December 5, 2011

Model Portfolio Value As of 5 December 2011

$ 549,548


Comment on Model Portfolio activity

The markets were cruising along up 1.5% at 1226 resistance when S&P announced it had placed the AAA European countries on CreditWatch for possible downgrade. On the news stocks pulled back. You remember S&P - they are the folks who gave all the AAA ratings to the mortgage garbage. Why anyone listens to them after that fiasco is beyond our comprehension but with the rally of last week the markets needed a breather and S&P’s nonsense pronouncements are as good a reason as any for that to occur.
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We added Research in Motion (BlackBerry) to some accounts in small amounts as a yearend flip.
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December 2, 2011

Model Portfolio Value As of 2 December 2011

$ 535,300


Comment on Model Portfolio activity

The Employment Report was OK and stocks rallied early on only to give the gains back by the close. Financials were strong. After the pop on Wednesday some profit taking at 1226 resistance made sense - especially ahead of the weekend. After all who knows what the Germans will say in the next few days to make everyone feel as glum as they.
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We switched U.S. Steel to Saint Jude. X rallied $5 per share in the last three days and STJ dropped $2.80 this afternoon. We also sold lGN with a $1 profit and invested the funds in HPQ share for share.
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We plan on being in business for at least the next twenty years and with this in mind we are changing the frequency and content of our internet posts. We will maintain our concentration on market activity while we simplify our business day. We have been writing about the markets for 27 years - on a daily basis for 12 years - and giving investment advice for 45 years. Our guess is that while we haven’t seen and said it all we are pretty close to having exhausted any new words of wisdom we might wish to convey. Markets don’t repeat but they do rhyme. By not posting dally we will be freed up to do some summer/winter activities such as gardening/snowshoeing, riding our horses, walking the dogs and spending a bit more time with the prince and princess when they visit. And so we are going to end our lengthy daily comments but we will continue to post periodically when market events warrant and/or when there is activity in the Model Portfolio.
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Summary of Business Continuity Plan

15624 Lemley Drive, Soldiers Grove, Wi 54655 312-925-5248
The factual statements herein have been taken from sources we believe to be reliable but such statements are made without any representation as to accuracy or completeness or otherwise. From time to time the Lemley Letter, or one or more of its officers or employees, may buy and sell as agent the securities referred to herein or options relating thereto, and may have a long or short position in such securities or options. This report should not be construed as a solicitation or offer of the purchase or sale of securities. Prices shown are approximate. Past performance is no indication of future performance.