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

January 31, 2011

Model Portfolio Value As of 31 January 2011

$ 611,878


Thoughts

Asian and European markets and of course Middle Eastern markets were lower this weekend and on Monday as the Egyptian imbroglio continued. U.S. futures suggest a higher opening in our markets. The bulls aren’t so sure the run is over. Gold is down $15 and Oil has an $89 handle, the same as Friday’s close.
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The major measures are higher after an hour of trading with strength in Oils, Cyclicals and Finance. Traders seem to have a wait and see attitude towards Egypt in the early going.
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We began rebuilding our position in Talbots with a small purchase in some tax free accounts. We also sold AT&T to have cash for more Ford lower while keeping a less than 10% total market exposure in larger accounts.
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Europe closed mixed. Oil gained 2.81 to $92.15. Gold was down at $1332.
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The no worries market proved itself again today with the major stock measures trading higher all day and closing at their best levels with the S&P 500 gaining back half of Fridays’ loss. Volume was light and Breadth positive.
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January 28, 2011

Model Portfolio Value As of 28 January 2011

$ 613,773


Thoughts

Interesting events occurred with Ford and the markets today and with the crisis in Egypt we stayed rather than taking the day off.

Chaos Grips Egypt:

http://www.talkingpointsmemo.com/live/egypt_wire/egypt_wire.html?ref=fpa
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Egypt may be the catalyst for unrest in the Middle East and in the markets.

(WSJ) Egyptian security officials say police have put Nobel Peace laureate Mohamed ElBaradei under house arrest, the Associated Press reports. Police stationed outside his suburban Cairo home told him he cannot leave the house after he joined tens of thousands of protesters in the capital Friday. Egyptian antigovernment protesters are clashing with police in Cairo, who are firing rubber bullets, tear gas and water cannons to disperse them. Authorities cracked down on Internet and other ways for protesters to communicate.
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(WSJ) on Friday it was reported that U.S. economic growth (GDP) accelerated as Americans spent more, rising at an inflation-adjusted annual rate of 3.2% in the last three months of 2010 compared to a 2.6% increase in the third quarter. Consumer spending, accounting for about 70% of demand in the U.S. economy, rose at a 4.4% rate in the fourth quarter. The U.S. economy has been slow to recover from the deep recession that ended in June 2009, but the holiday season at the end of last year saw some shoppers return, lured by continued low prices and a small improvement in the jobs market.
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Ford dropped on earnings news on Friday after running up before earnings on great expectations. Oops. We added warrants on the sell the news downturn. We sold Merck - which is part of the DJIA and will be affected by Index activity as well as fundamentals- at a loss- to free up funds for the purchase Ford common while increasing cash position at same time.
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(Reuters) - Ford Motor Co posted disappointing fourth-quarter earnings after a charge for debt payments, higher costs to launch new vehicles and a loss in its European operations, sending its shares down 6.3 percent. Excluding one-time items, Ford posted an operating profit of 30 cents per share for the fourth quarter, well below the 48 cents per share analysts had forecast on that basis.

"People now are going to expect Ford to come out with great earnings," said Bernie McGinn, chief investment officer at McGinn Investment Management, who owns Ford shares.

"They expect Ford to come out with great cars and be able to sell these cars," he added. "Anything that comes out that's a tad disappointing, even if it's a tad disappointing inside a great story, is going to be punished."

Ford Chief Financial Officer Lewis Booth said that analysts appeared to have underestimated the additional cost of launching new vehicles like the Explorer SUV and a new model year of F-Series trucks.

In addition, Ford's European operations, which had been expected to be profitable in the fourth quarter, posted an operating loss of $51 million as Ford's market share in the region dropped to just below 8 percent from nearly 9 percent.

But Booth said the steps Ford had taken to pay down debt in 2010 moved the company toward its goal of returning to an investment grade credit rating.

"We're going to continue to work on the balance sheet," Booth told reporters. "I think the test -- or the question -- is when we get to investment grade," he said.

Separately, Ford raised its forecast for North American production in the current quarter and its outlook for full-year industry sales in 2011.

Fourth-quarter net income totaled $190 million, or 5 cents per share, including a $960 million charge to pay down debt. That compares with a year-earlier profit of $886 million, or 25 cents per share.

Full-year net income was $6.6 billion or $1.66 per share, an increase of $3.8 billion from 2009, and the biggest net profit since 1999.

Ford mortgaged most of its assets to borrow $23.5 billion in 2006, a move that allowed it to finance new product development while not having to accept the life-saving government bailouts taken by its U.S. rivals GM and Chrysler Group.

The automaker said it had reduced its debt by $14.5 billion in 2010, reducing its annual interest costs by over $1 billion.
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(MarketWatch) — Amazon.com Inc. said Thursday that its fourth-quarter earnings rose by 8%, thanks to strong holiday sales, though the company’s operating margins for the period came in below Wall Street’s projections. Shares of Amazon slid nearly 9% in after-hours trading following the results. The stock has run up nearly 50% in the past 12 months, having added more than 4% during Thursday’s regular session.
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Consumer Sentiment unchanged.
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Diane Swonk, Chief Economist Mesirow Financial
The Economy Begins to Reaccelerate

Real Gross Domestic Product (GDP) rose 3.2%, up 0.6% from the 2.6% pace of the third quarter, confirming our view that the economy is in fact reaccelerating after nearly stalling last spring and summer. Final sales, in particular, rose 7.1% after rising only 0.9% the prior quarter. This reinforces the notion that the private sector is finally moving on its own without support from the public sector. Indeed, government spending actually contracted during the quarter as fiscal stimulus played out, and earlier cuts to state and local budgets finally hit.

The bulk of the gains can be traced to a narrowing of the trade deficit. Imports actually fell after surging over the summer, something that cannot be sustained, while exports continued to rise at a respectable 8.5% pace.  Business investment continued to bolster growth, although it was weaker than it could have been, given the cash sitting on corporate balance sheets. Consumer spending popped on strong gains in vehicles sales. Everything from pent-up demand (vehicles were scrapped faster than they were bought since the start of the recession), easier financing (the automakers are offering subprime loans again), to aggressive pricing helped to push spending on durable goods up at a 21.6% annualized rate during the last three months of the year. Holiday spending was more mixed, while the housing market added only incrementally to growth. The biggest drag on growth outside of the public sector: inventories, which were drained after getting a bit bloated over the summer. 

Separately, prices paid moved up from the third quarter, mostly because of oil. Core measures of inflation were more muted, especially when measured on a year-to-year basis, which is where the Federal Reserve's attention is focused.

Bottom Line: The economy is showing signs of getting back on track, but unevenly. The decline in imports, in particular, cannot continue. We will need to see much stronger growth elsewhere in the economy to compensate for that in 2011.
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Hedge Fund Managers Less Than Thrilled With Goldman Sachs President’s Interpretation Of Who Caused The Financial Crisis, Why Banks Don’t Need Increased Regulation

http://dealbreaker.com/2011/01/hedge-fund-managers

At a panel yesterday in Davos, Goldman Sachs president Gary Cohn, perhaps testing out a few new jokes he’s hoping to use at the Laugh Factory’s open mic night next week, made several interesting statements. The first was his reason for why banks shouldn’t be subject to greater regulation.

Mr. Cohn warned that greater regulation of banks would push risky activities into the “shadow banking sector” which he said was “less regulated” and “opaque.”

Mind you, we have no reason to assume Gary was saying any of this out of self-interest. He’ll have you know Goldman Sachs LOVES regulation. The more the better. He’s just doesn’t want

Goldman and the other banks to be selfish and take more than they need when there are others who could really benefit from increased supervision, like the “unregulated” businesses that apparently caused the last financial crisis and might cause another, if we’re not careful.

“What I most worry about,” said Mr Cohn, “is that in the next cycle, as the regulatory pendulum swings, we are going to have to use taxpayer money to bail out unregulated businesses that, unlike the banks in the last crisis, may not be able to repay them.”

Thinking he was making sense, Gar went on.

“The most recent financial crisis was caused by institutions that didn’t know how to adequately manage risk and were overleveraged. And I worry that if there is another crisis, it will be because the same institutions have failed to learn from the mistakes of the past,” he added.

Unfortunately, some people were less than amused, like the hedge fund managers who didn’t like what Cohn was driving at.

One large hedge fund – a client of Goldman – said Mr Cohn’s comments were “ill-judged and ill-informed”. Another accused Mr Cohn of behaving “cynically” to try to distract regulatory attention. “Until 18 months ago, Goldman Sachs was the biggest hedge fund in the world,” this person said, referring to the bank’s sizeable proprietary trading activities, which allowed the bank to speculate with its own capital. “These statements are just false. Hedge funds are regulated. We didn’t cause the financial crisis. We didn’t take bail-out money,” Richard Baker, the president and chief executive of the Managed Funds Association, the industry’s main trade association, told the Financial Times.
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Trader pleads guilty to felony tax fraud: Claimed he was single in London, was married in New York

Read more:

http://www.nydailynews.com/news/ny_crime/2011/01/26/2011-01-26_trader_pleads_guilty
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Small Gold Trader Makes Big Splash

Daniel Shak's Aggressive Bet Grabbed Sizable Chunk of Contracts, But Prices Fell and Wager Went Bad

A huge trade by a tiny hedge fund has sent shudders through the gold market.

Thanks to the nature of futures trading, Daniel Shak's $10 million hedge fund held gold contracts valued at more than $850 million, more than 10% of the main U.S. futures market, and the equivalent of South Africa's annual gold production.

But as gold prices started falling this year, the trade, which was a combination of being long and short gold contracts—bets that prices will both rise and fall—started going bad. Monday, he liquidated his position, and is returning money to clients.

As a result, the number of gold contracts on CME Group Inc.'s Comex division plunged more than 81,000, to about 500,000, the biggest single reduction ever. While his trade didn't account for all of the contracts, an average daily move is about 3,000 to 5,000 contracts.

For more:

http://professional.wsj.com/article/SB10001424052748703399204576108463818702014.html
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Who's doing Mubarak's bidding in Washington?

http://www.salon.com/news/washington_dc/index.html 
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Get ready for war with Iran:

http://tpmmuckraker.talkingpointsmemo.com/2011/01/big_time_dems_join_gopers
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With the unrest in the Middle East it seems obvious the markets will close lower today. Whether this is the beginning of the correction we won’t know until….  .We are heading out to do what we were going to this morning. As we leave at 1PM the major market measures are all down over 1.5% in active trading. Breadth is 5/1 negative and probably more if all the index ETFs are excluded. Oil is up $3 at $89.04, Treasuries have a bid and Gold is $1338. Our accounts will be down a bit today because of the drop in Ford but we are glad that we have been able to buy more shares and warrants and will add more at lower levels if the selloff in the market continues.
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January 27, 2011

Model Portfolio Value As of 27 January 2011

$ 618,996


Thoughts

We will be traveling tomorrow. The next post will be January 31.
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Jobless claims were up at 454,000 in the latest week and that number has caused the major market measures to go slightly negative in pre-opening trading. Asian and European markets were mixed overnight and Gold is at $1334 with Oil having an $87 handle as the trading day begins.
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We bought Ford warrants yesterday afternoon. We bought to own. Ford earnings come tomorrow morning. The warrants give us a greater percentage gain/loss potential but we think the upside is at least $10 per warrant over the next two years and the downside in the short term is $2 which is a good relative risk. We paid a 2% premium for the greater leverage.
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What else is news?

Goldman Sachs Got Billions From AIG For Its Own Account, Crisis Panel Finds

http://www.huffingtonpost.com/2011/01/26/goldman-sachs-aig-backdoor-bailout_n_814589.html
*****

Diane Swonk, Chief Economist Mesirow Financial

 

Disappointing Headline Figures but Outlook Remains Positive

Durable goods orders dropped 2.5%, the fourth drop in five months, leaving many disappointed in the headline figure. Much of the decline, however, can be attributed to a drop in aircraft orders, which have been correcting after a surge in September. A closer look at the data is slightly more encouraging, with orders excluding transportation up 0.5%.

More telling is the underlying trend, which is still decidedly positive, especially in orders for nondefense capital equipment, which is a major component of business investment and is up a whopping 22% from a year ago. Shipments in the same category are up 6.8% from a year ago, while order backlogs are building.

Separately, jobless claims jumped by 51,000 to 454,000 in the most recent week, the highest since late October. Again, the headline was much worse than the underlying trend, which shows that jobless claims have moved down quite substantially since last summer. Indeed, much of the increase in claims could be attributed to a bout of bad weather which created a backlog to be processed when government offices reopened. The continuing claims data also suggests that we are still catching up on claims that lapsed and were extended in late December.

Bottom Line: The recovery continues but at a subpar pace, which helps explain why the voices of dissent were more subdued than many expected when the Federal Reserve yesterday voted to unanimously to extend its $600 billion asset purchase program.
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AT&T disappointed and the shares are lower. We added to accounts to own. We think the iPhone switching is overdone and our guess is that Verizon will have the same connect problems with its iPhone voice as AT&T is having because the problem is in the phone not the networks. T an VZ have almost the same number of wireless subscribers and T is selling at a 20% discount to VZ in market value if the fact that Vodaphone owns 49% of Verizon Wireless is factored..

The news:

(Barrons) Shares of AT&T (T) are down 74 cents, or 2.6%, at $27.99 after it reported Q4 revenue rose 2% to $31.4 billion, missing analysts’ average $31.47 billion.

EPS of 55 cents, excluding some costs, was a penny better than expected.

AT&T said it added 2.8 million subscribers on a net basis, for a total of 95.5 million. That puts the company above Verizon Communications (VZ), which added just 955,000 subs, it said Monday, to end up with 94 million. The company said it was its best quarter ever for net subscriber additions.

AT&T said it expects revenue growth in 2011 and improved wireline and wireless operating profit margins. The company expects to increase earnings per share by the mid-single digits on a percentage basis, it said.

AT&T said it activated 4.1 million of Apple’s (AAPL) iPhone.

The Street has been modeling AT&T to increase revenue roughly 1.3%, to $125.9 billion, and to increase earnings per share by 8%.

Sanford Bernstein analyst Craig Moffett this morning writes that the quarter was the “Twilight of Monogamy,” by which, of course, he’s referring to the end of exclusivity on the iPhone. The company’s EPS forecast points to $2.33 per share this year, below the consensus $2.49. Not only was there a glaring miss in the results of the wireline business, he observes, but wireless metrics were poor even with one last quarter of iPhone to itself: The company only added 400,000 post-paid subscribers, he notes, with the Street having been looking for 541,000.
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S&P 500 tops 1300 as DJIA tops 12,000 and all is well in LaLa Land.
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Proctor and Gamble was a drag on the DJIA today dropping over $2 on a negative forecast. The major measure s fluctuated above and below even for most of the day but closed higher. Breadth was positive and volume light.
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January 26, 2011

Model Portfolio Value As of 26 January 2011

$ 618,540


Thoughts

Obama likes business according to the talking heads- at least he suggested he does in the State of the Union address last night. The major market measures are going to open higher in that news and the seemingly new found realization that Obama is not a communist although Beck and Limbaugh and the lady from Minnesota might beg to differ.

Asian market were higher overnight as is Europe at midday Gold is flat and Oil has an $86 handle as the trading day begins.
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Yesterday we posted that the major market measures closed lower when actually the S&P 500 and NAZZ squeezed out a small gain in the last ten minutes of trading. Obviously we snuck out early and were exposed by Mr. Market and his/her HFT friends.
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China to create largest mega city in the world with 42 million people

http://www.telegraph.co.uk/news/worldnews/asia/china/8278315/China-to-create-largest-mega-city-in-the-world-with-42-million-people.html
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Diane Swonk, Mesirow Financial Chief Economist

New Home Sales Deliver a December Surprise

Last month, new home sales surged at a double-digit pace to an annualized rate of 329,000 units, capping off what was otherwise an extremely dismal year. New home sales hit a record low in 2010, despite extensions to tax credits and high levels of affordability. Indeed, much of the recent strength in new home sales can be traced to builders' efforts to chase first-time buyers who are better able to qualify for new mortgages than existing home owners, who are reluctant to take losses on sales of current homes.

Inventories also plummeted, as builders have not been able to secure financing for new projects. This helped to push up prices for new homes quite substantially and marks a sharp contrast to the drop we have seen in existing home prices recently. Distressed sales and foreclosures forced down home values in nine cities, including Chicago, Detroit and Las Vegas to new, post-2006 lows. A few cities like New York and Washington D.C. are seeing prices in the existing market firm - in New York because salaries have increased and bonuses have returned, while in Washington, increasingly highly-paid lobbyists are helping drive the real estate market; during the height of the recession, we actually saw a surge in lobbyist payouts, which kept hotel room rates from falling.

Separately, the Conference Board's measure of Consumer Confidence rebounded in January, following the lead of Thomson Reuters/University of Michigan's Survey of

Consumer Sentiment. People are feeling better about current economic conditions generally, no doubt because of the extension of tax cuts and unemployment benefits late last year. As we have already seen in our own back yard of Illinois, however, euphoria over federal tax cuts can be extremely fleeting and quickly offset by tax increases at the state and local levels. Confidence in the U.S. economy has rebounded to levels last seen in May of 2010, when Europe's sovereign debt crisis peaked and the stock market suffered its infamous "flash-crash."

Bottom Line: The data on housing provide a ray of hope in an otherwise dismal outlook for this battered sector of the economy. Gains are expected to remain extremely uneven and insufficient to lift all boats, especially for the majority of Americans who still consider their homes (rather than their 401(k) accounts) their largest assets. Most importantly, we will need to see more construction to really see jobs generated in this struggling sector.
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Bulls 55%; Bears 19%.
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European bourses closed higher.
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We are heading out early today to go snow shoeing. The major market measures are higher with positive breadth on low volume as we leave at noon.
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January 25, 2011

Model Portfolio Value As of 25 January 2011

$ 618,595


Thoughts

Asian markets were mixed as is Europe at midday. Oil is down another dollar with an $86 handle and Gold continues to slip lower with it trading at $1326 in the early going.
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NYT article on how the new gilded age business and other VIP folks party http://dealbook.nytimes.com/2011/01/24/a-hefty-price-for-entry-to-davos/?hp and for fun http://gawker.com/5742643/even-the-toilet-paper-in-davos-is-huge on the taxpayers dime since most of the staff is a ‘bidness’ expense.
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Obama the socialist???

Wall Street's takeover of the Obama administration is now complete. The mega-banks and their corporate allies control every economic policy position of consequence. Mr. Obama has moved rapidly since the November debacle to install business people where it counts most. Mr. William Daley from JP Morgan Chase (was named) as White House Chief of Staff. Mr. Gene Sperling from the Goldman Sachs payroll (was appointed) to be director of the National Economic Council. Eileen Rominger from Goldman Sachs named director of the SEC's Investment Management division. Even the National Security Advisor, Thomas Donilon, was executive vice president for law and policy at the disgraced Fannie Mae after serving as a corporate lobbyist with O'Melveny & Roberts. The keystone of the business friendly team was put in place on Friday. General Electric Chairman and CEO Jeffrey Immelt will serve as chair of the president's Council on Jobs and Competitiveness. That is the spot, under a different council name, previously held by Paul Volcker. Both he and his post now will be airbrushed out of Obama administration history to align the past with the inglorious future.

http://www.huffingtonpost.com/michael-brenner/barack-obama-out-of-the-c_b_813027.html
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Britain's economy suffered a shock 0.5 percent contraction in the last three months of 2010 after December's heavy snow took a far harsher toll than economists had forecast, official data showed on Tuesday. http://www.cnbc.com/id/41246952
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Consumer Confidence rose to 60.4 from 53.3 in December. That news gave a pop to stocks for about two minutes.
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Tellabs is down 20% today to a two year low on disappointing revenues and a loss. We have traded TLAB over the years and we are buying a small position in accounts.

Here is the bad news:

(Bloomberg) Tellabs Inc., a telecommunications equipment maker for AT&T Inc. and Verizon Wireless, fell the most in more than nine years after forecasting first-quarter sales that missed analysts’ estimates.

Revenue will decline to $315 million to $335 million, the Naperville, Illinois-based company said in a statement today. That missed the $402 million average of analysts’ estimates compiled by Bloomberg.

It is the second consecutive quarter Tellabs’ revenue forecast has trailed estimates. AT&T’s migration toward cheaper Ethernet products made by Cisco Systems Inc. and other competitors is leading to revenue and gross margin losses, Ehud Gelblum, an analyst at Morgan Stanley, wrote in a note today.

Tellabs tumbled $1.37, or 19 percent, to $5.67 at 10:01 a.m. New York time on the Nasdaq Stock Market, after falling as much as 20 percent, the biggest drop since June 20, 2001. The shares declined 19 percent last year.

Fourth-quarter profit excluding some items was 2 cents a share, missing the average analyst estimate of 8 cents. The company reported a net loss of $11 million compared with net income of $62 million a year earlier.

Revenue rose 5 percent to $410 million from $389 million a year ago. The average analyst estimate was $418 million. Gross margin of 38 percent was seven percentage points lower than a year ago and missed the company’s projection.
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E-mails Suggest Bear Stearns Cheated Clients Out of Billions

Former Bear Stearns mortgage executives who now run mortgage divisions of Goldman Sachs, Bank of America, and Ally Financial have been accused of cheating and defrauding investors through the mortgage securities they created and sold while at Bear. According to e-mails and internal audits, JPMorgan had known about this fraud since the spring of 2008, but hid it from the public eye through legal maneuvering…. The traders were essentially double-dipping -- getting paid twice on the deal. How was this possible? Once the security was sold, they didn't have a legal claim to get cash back from the bad loans -- that claim belonged to bond investors -- but they did so anyway and kept the money. Thus, Bear was cheating the investors they promised to have sold a safe product out of their cash. According to former Bear Stearns and EMC traders and analysts who spoke with The Atlantic, Nierenberg and Verschleiser were the decision-makers for the double dipping scheme, and thus, are named as individual defendants in the suit.

http://www.theatlantic.com/business/archive/2011/01/e-mails-show-bear-stearns-cheated-clients-out-of-billions/70128/
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Europe closed lower with Spain and Portugal down over 1%. Gold closed at $1329 and Oil at $86.25.
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The major market measures closed mildly lower in light trading and with negative breadth losing less than half of yesterday’s gains.
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January 24, 2011

Model Portfolio Value As of 24 January 2011

$ 618,693


Thoughts

Asian markets were mixed overnight as are European bourses at midday. Gold is at $1346 in the early going and Oil has an $88 handle as the trading day begins. McDonalds’s missed mildly and is slightly lower.
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Krugman:

Furthermore, while America is running a trade deficit, this deficit is smaller than it was before the Great Recession began. It would help if we could make it smaller still. But ultimately, we’re in a mess because we had a financial crisis, not because American companies have lost their ability to compete with foreign rivals.

But isn’t it at least somewhat useful to think of our nation as if it were America Inc., competing in the global marketplace? No.

Consider: A corporate leader who increases profits by slashing his work force is thought to be successful. Well, that’s more or less what has happened in America recently: employment is way down, but profits are hitting new records. Who, exactly, considers this economic success?

Still, you might say that talk of competitiveness helps Mr. Obama quiet claims that he’s anti-business. That’s fine, as long as he realizes that the interests of nominally “American” corporations and the interests of the nation, which were never the same, are now less aligned than ever before.

Take the case of General Electric, whose chief executive, Jeffrey Immelt, has just been appointed to head that renamed advisory board. I have nothing against either G.E. or Mr. Immelt. But with fewer than half its workers based in the United States and less than half its revenues coming from U.S. operations, G.E.’s fortunes have very little to do with U.S. prosperity.

By the way, some have praised Mr. Immelt’s appointment on the grounds that at least he represents a company that actually makes things, rather than being yet another financial wheeler-dealer. Sorry to burst this bubble, but these days G.E. derives more revenue from its financial operations than it does from manufacturing — indeed, GE Capital, which received a government guarantee for its debt, was a major beneficiary of the Wall Street bailout.

…The financial crisis of 2008 was a teachable moment, an object lesson in what can go wrong if you trust a market economy to regulate itself. Nor should we forget that highly regulated economies, like Germany, did a much better job than we did at sustaining employment after the crisis hit. For whatever reason, however, the teachable moment came and went with nothing learned.

Mr. Obama himself may do all right: his approval rating is up, the economy is showing signs of life, and his chances of re-election look pretty good. But the ideology that brought economic disaster in 2008 is back on top — and seems likely to stay there until it brings disaster again.

For whole essay:
http://www.nytimes.com/2011/01/24/opinion/24krugman.html?_r=1&hp 
*****

Jeff Saut, Raymond James Financial:

The call for this week: Sometimes me sits and thinks and sometimes me just sits. Currently, me just sits, believing the evidence for a pullback is mounting. In addition to the aforementioned warning flags, since September 1, 2010, every time the Russell 2000 (RUT) has closed below its 20-day moving average, buyers have showed up the very next day. Not so last week. In fact, last week was the first down week for the SPX in eight weeks as the divergences in the stock market continue to grow (the DJIA was the only major index to register a new high on Friday; most of the other averages peaked on Tuesday). As legendary Dow Theorist Robert Rhea observed, mounting divergences suggest stocks are being distributed (read: sold) by smart money. In conclusion, it is worth considering that my notes indicate there is a tendency for the equity markets to “top” coincident with the State of the Union address (Tuesday night). Consistent with these thoughts, I'm currently “just sitting;” or as Warren Buffett is fond of saying, “In this game the market has to keep pitching, but you don’t have to swing. You can stand there with the bat on your shoulder for six months until you get a fat pitch."
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Over the week end we did some thinking about our current market outlook. Our guess is that the major measures move lower by 10% to 15% before they go much higher. We felt the same last May when we moved to an all cash position and we were correct- and not correct. The major measures dropped 10% into July and then moved down another 10% into September before rallying 25% into year end.

We read a commentary last week about the selloff in late 2008 that ended in the bottom of March 2009. We had forgotten that the maximum number of new lows in that market crash was reached in mid-October 2008, while the numerical lows for the market measures were made in March 2009.  the new lows number in October after a 20% drop in the major market measures from the October 2007 highs was the was the inducement for us to begin investing the 100% cash position at that we held in accounts at the end of September 2008.

It then dawned on us that High Frequency trading was the wild card exacerbating market moves. Since HFT follows and enhances trends we would guess that a 10% correction can easily turn into a 20% correction ala the 25 drop in the summer of 2010 and the 50% drop into March 2009.
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(WSJ) European stocks finished mostly higher, tracking gains on Wall Street, while Russian shares extended losses on news of an explosion at Moscow's busiest commercial airport. Oil ended down $1/21 at $87.73 and Gold closed at $1333.
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The major stock measures closed higher with the DJIA and NAZZ up almost 1% and the S&P 500 up 0.5%. Breadth was 2/1 to the good and volume light. Financials were weak.
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January 21, 2011

Model Portfolio Value As of 21 January 2011

$ 618,746


Thoughts

Stocks are going to open higher. China was higher but the rest of Asia lower and European markets were higher overnight. Google beat; GE reported better than earnings and revenues and is up 4% in early trade. BankAmerica missed (posting a loss) and is lower.

Gold is down at $1340 and Oil has an $89 handle as trading begins.
*****

Path Is Sought for States to Escape Debt Burdens
http://www.nytimes.com/2011/01/21/business/economy/21bankruptcy.html
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Europe closed higher.
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We are heading out early again today. As we leave at 2PM the major measures are mixed (NAZZ down S&P and DJIA up) in moderate trading.
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January 20, 2011

Model Portfolio Value As of 20 January 2011

$ 618,805


Thoughts

Asian and European markets war lower overnight. China’s economy grew at 10% in the last quarter and tightening is expected. Brazil is also tightening. Oil is at $91 and gold at $1362. The major measures were lower in early trade until Jobless Claims which came in at 404,000 down 37,000 from last week. That news supplied a bid to the markets but they are still lower pre-opening.
*****

Diane Swonk, Chief Economist, Mesirow Financial
Jobless Claims Plummet

First-time jobless claims dropped to 404,000 from 441,000 in the most recent week, while continuing claims fell to the lowest level since October of 2008. The more reliable, four-week moving average also declined, to 411,750.

Everything from a slowdown in layoffs to seasonal factors contributed to the decline. Retailers, in particular, didn't staff up during the holiday season (which was obvious to anyone who was trying to get their purchases rung up) and, as a result, laid off fewer people when the holidays were over. We also saw some likely distortions in the South, as heavy winter storms wreaked havoc on transportation.

Bottom Line: The labor market is beginning to show signs of healing, as layoffs are abating. The process, however, remains extremely slow. A major concern for 2011 is what happens to the long-term unemployed. If they can't find jobs, they will begin to give up and could disappear from many of our statistics, including the unemployment rate; that statistical vacuum would conceal the fact that their situations are worsening.

A Ray of Hope in Housing

Existing home sales jumped at a double-digit pace to an annualized rate of 5.28 million units in December after being revised up for the month of November. Deals were the driving force, with distressed sales moving up slightly in the share of homes sold, to 33% from 32% over the month.

Investors bought 20% of the houses sold last month, trying to cash in on the growing discrepancy between rents (which are rising and now exceed the marginal cost of ownership in many markets) and home values (which continue to fall). We also saw an increase in first-time buyers taking advantage of bargains and the fact that they have an easier time qualifying for mortgages than trade-up buyers, who often need to sell a house at a loss.

The number of all-cash buyers remains at an unusually high level, especial in the luxury market where jumbo mortgages are even more difficult to get than standard mortgages. This reflects a larger trend in retail, where wealthy buyers have returned and are spending conspicuously again.

Significantly, the inventory of unsold homes fell, which could provide support for prices down the road. I wouldn't count too much on that trend in the first half of 2011, however, because many sellers have been holding off on listing their homes until some of the foreclosures are sold. Inventories will rise again, once they decide to list.

Bottom Line: The housing market has been a weak spot for the economy and remains so, despite today's somewhat better news. Our forecast for a moderate bounce in housing activity in 2011 holds. We will be lucky, however, if home prices actually hit a bottom in the year ahead.
*****

JPMorgan Chase has admitted to overcharging military families on their mortgages, and illegally foreclosing on 14 families, NBC News reports. NBC's report (see video below) focuses on one military family's five-year battle with the mortgage giant, who overcharged them by as much as $900 a month. While Marine Captain Jonathan Rowles was away on active duty, his wife Julia got calls demanding $15,000 they didn't owe. "It's been a nightmare, it's been my living nightmare," Julia Rowles told NBC News. To protect them from financial stress, the Servicemembers Civil Relief Act ensures soldiers on active duty have their mortgage interest rates dropped to 6 percent and shield them from foreclosure. Rowles, who is currently in Beaufort, South Carolina, said she hadn't missed a single mortgage payment, but had calculated payments with the 6 percent interest rate she and her husband were entitled to. Chase instead charged the Rowles family, and thousands of others, up to 10 percent. Chase admitted that 14 military families lost their homes thanks to the mistake, and 4,000 active service members have been wrongly overcharged. In a statement, JP Morgan Chase said they would be refunding around $2 million to families who had overpaid. The families who have been thrown out of their own homes will be allowed to move back.
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(WSJ) European stocks ended rather unevenly, with market attention focused on a meeting of euro zone finance ministers to discuss the sovereign-debt crisis. The Stoxx Europe 600 index edged up 0.1%. Oil dropped $2 to an $88 handle on reports of a weekly inventory rise and Gold dropped $18 to $1281.
*****

The major measures were lower for the first four hours of trading but th4e DJIA rallied to higher in the contra hour before losing steam and closing mildly lower on the day with the NAZZ and S&P 500. Breadth improved from 3/1 negative early on to 2/1 negative at the close. Volume was moderate.
*****

 

January 19, 2011

Model Portfolio Value As of 19 January 2011

$ 618,774


Thoughts

“Break mirrors. Yes, indeed. Shatter the glass. In our society that is so self-absorbed, begin to look less at yourself and more at each other. Learn more about the face of your neighbor and less about your own.” R Sargent Shriver to graduating students at Yale in 1994.

http://www.nytimes.com/2011/01/19/us/politics/19shriver.html?hpw
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Asian markets were higher overnight while Europe was lower at midday. U.S. market measures opened lower even through IBM and Apple beat and are higher. Goldman Sacks was in line and is trading lower.
*****

We received a new computer and we are setting it up so today’s post will be short.
*****

Bulls 56%: Bears 20%.
*****

We are leaving early. At 2PM the major market measures are lower with the S&P 500 and NAZZ down over 1%. The DJIA is off but only a small percent since IBM is sporting a $4 per share gain. Apple is just about to move negative and Goldman Sachs is down $7.
*****

 

January 18, 2011

Model Portfolio Value As of 18 January 2011

$ 618,820


Thoughts

The reaction to the news is more important than the news.
*****

Apple Inc. Chief Executive Officer Steve Jobs took a leave of absence as a rare form of cancer he’s been battling since 2004 and a more recent liver transplant worsened his health, a person with knowledge of the matter said. Jobs has been unable to keep on weight as he undergoes treatment, said the person, who requested anonymity because the matter is private.

Currently Apple is trading down 5% in the pre-market. That really is not a major sell off and if the drop stays in the 5% range we would guess that bullish traders would be content.
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Article in NYT on Apple/AT&T/ Verizon:
http://www.nytimes.com/2011/01/15/business/15nocera.html?_r=1&partner=yahoofinance%C2%A0
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Why Apple doesn’t need Jobs anymore: http://www.slate.com/id/2281453/
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Oil has a $91 handle and Gold is at $1371 as the trading day begins. Asia was higher and Europe is up at midday.
*****

Citi missed on revenues and earnings and is down 4% in early trade.
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Merck dropped 10% in price last Thursday on news that a drug trial had been stopped. With a 4.5% yield we bought for a trade/hold. The drug on which the trial was stopped was expected to contribute 2% of revenues in 2014.
http://seekingalpha.com/article/246765-merck-discontinues-study-of-experimental-anticlotting-drug-biotech-s-latest-troubles?source=yahoo
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(NYT) The Boeing Company said on Tuesday that it had delayed the delivery of the first 787 Dreamliner aircraft until the third quarter instead of the first, because of an electrical fire on a test flight in November. Boeing is $2 per share higher on the news??????
*****

Apple mitigated its losses to close down 2%; Google rallied; and the major marten measures closed higher on the day. Breadth was positive and volume light.
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These inmates are still running the asylum:

(Bloomberg) -- Citigroup Inc. executives, on the brink of a bank run in 2008 that U.S. officials believed could imperil the global economy, griped that terms of a taxpayer bailout would be too costly for the company. “Many people” at Citigroup opposed the proposal, even after the bank’s stock price plunged below $5, companies started pulling deposits and trading partners demanded collateral, according to the top U.S. bailout watchdog. Federal Deposit Insurance Corp. Chairman Sheila Bair worried the bank wouldn’t be able to open on Monday, Nov. 24, the next business day. For complete story--
http://noir.bloomberg.com/apps/news?pid=newsarchive&sid=azBIZHfn0VX0
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Hedge funds scooped up shares of credit-card companies like big spenders on a shopping spree, making Visa Inc. and MasterCard Inc. among the most popular hedge-fund trades. The bets paid off for a while. But when bad news hit in May, many funds—including 10 hedge funds run by investors connected to the well-known Tiger Management LLC—rushed for the exits, together. Shares plunged.  Hedge funds are crowding into more of the same trades these days, amplifying market swings during crises and unnerving investors. Such trading has stoked market jitters in recent months and helped to diminish the impact of corporate fundamentals on stock-market movements. Droves of small investors have reacted by pulling money from the market, questioning its stability and whether fast-moving traders are distorting prices.

For more
http://online.wsj.com/article/SB10001424052748704361504575552462233274960.html
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Fox shoots man and escapes;
http://www.reuters.com/article/idUSTRE70C5Q620110113
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(WSJ) Goldman Sachs decided to exclude U.S. clients from the private offering of as much as $1.5 billion in shares of social-networking company Facebook, citing “intense media attention.” In a statement provided to The Wall Street Journal, Goldman said the move came after officials at the New York securities firm "concluded the level of media attention might not be consistent with the proper completion of a U.S. private placement under U.S. law."
*****

 

January 14, 2011

Model Portfolio Value As of 14 January 2011

$ 618,820


January 13, 2011

Model Portfolio Value As of 13 January 2011

$ 619,003


Thoughts

Tomorrow is Katie’s @* consecutive 39th birthday and we are taking the day off. Next post will be Tuesday January 18th since the markets are closed on Monday for the MLK Observance Holiday.
*****

Asian and European markets were mixed overnight. Oil has a $91 handle and Gold is $1380 in the early going. Initial Claims for Unemployment were 445,000 which may be catch-up from the holiday weeks. Continuing claims dropped to 3.9 million as folk’s eligibility expired.
*****

Intel’s earnings come tonight and JP Morgan’s tomorrow morning. The Markets are expecting good earnings news this quarter from most major companies -thus the run up in stock process over the last month- and so the reaction to the news over the next few weeks will set the tone for further advance or subsequent decline.
*****

European bourses closed mostly higher. Gold finished at $1387 and Oil was $91.40 in NYC.
*****

The major market measures closed lower in light trading. Breadth was negative at the bell.
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January 12, 2011

Model Portfolio Value As of 12 January 2011

$ 618,906


Thoughts

It’s painful to admit we are not more powerful than the markets but the reality is we aren’t. With that in mind we eliminated our retail positions (American Eagle, Talbots and Coldwater) for larger than we like losses and hold only the Talbots warrants in accounts as an underwater speculation. We expect the markets to correct 10% to 15% in the near future. The 24% run up off the May to September 2010 drop qualifies as a pretty good bull run that requires at least some pullback to consolidate. Of course we have cried wolf twice in the last few months and were wrong but as with the fable maybe the third time ----.
*****

Asia higher; Europe higher; Gold at $1381 and Oil has a $90 handle as the trading day begins.
*****

Bulls 57%, Bears 19%. Another reason we are cash.
*****

During the week of January 10, 2000 the DJIA hit a high of 11750. Today ten years later during the week of January 10, 2011 the DJIA is again at 11750.
*****

European bourses closed higher with Spain and Greece both rising more than 5% after Portugal successfully sold bonds.
*****

Hundreds of homebuyers brawl over apartments with developer

http://www.chinadaily.com.cn/china/2011-01/10/content_11815534.htm

 SHANGHAI - Hundreds of hopeful homebuyers brawled in Zhejiang's provincial capital of Hangzhou on Saturday over suspicions a property developer had unfairly distributed numbers determining the order of apartments' selection and purchase.

The opening of Deyi Konggang International Garden residential compound, located near the Hangzhou Xiaoshan International Airport, attracted hundreds of hopeful purchasers, who confronted the developer, Dandy Holding Group Co, and demanded the numbers be redistributed.

One man was rushed to the hospital after he was beaten into a coma during the conflict, which occurred at a European-style house where the transactions were made, the Hangzhou-based Youth Times reported on Sunday.

Local police told China Daily the physical violence had ended by the time law enforcement arrived and that police are investigating the matter.

The developer declined to comment on Sunday.

The incident highlighted the home-buying frenzy that has been accelerating as property prices continue soaring nationwide. Similar but smaller conflicts have been taking place across the country.

The Hangzhou project attracted a large number of prospective buyers, because it offered a limited number of relatively inexpensive apartments in the city, where housing prices are among the country's highest.

A total of 448 apartments in four buildings went on sale on Saturday at an average price of 8,000 yuan ($1,200) a square meter.

A buyer surnamed Ma told the local newspaper he and other potential purchasers were told on Thursday to pick up their numbers at the sales office. The numbers allowed them to select their preferred apartments.

The developer arranged for 22 buses to park outside the sales office on Saturday to shelter buyers from cold weather. Potential purchasers were seated according to their numbers.

But they became suspicious the developer had leaked information to some hopeful homebuyers who lined up for their numbers on Wednesday night. They also believed the developer had issued more numbers than there were apartments.

"There are only 448 apartments, so it's impossible for the people assigned to buses after the 15th to buy an apartment, given that every bus has at least 30 seats," the Youth Times quoted a buyer as saying on Sunday.

"So I spent 5,500 yuan for a spot on the 6th bus."

Another buyer surnamed Cui said she rushed to the sales office immediately after receiving the developer's text message, but the first 14 buses had already been booked.
*****

The major market measures closed higher in light trading. Breadth was 2/1 positive.
*****

 

January 11, 2011

Model Portfolio Value As of 11 January 2011

$ 619,920


Thoughts

Overseas markets were firmer overnight as are U.S. futures pre-opening. Oil has a $90 handle and Gold is up $5.
*****

Well, our accounts are getting the correction even if no one else is. In the coulda shoulda world, we coulda sold Talbots instead of Ford, and then we woulda felt a lot better than we do this morning as Talbots lowered expectations and is off 20% in the early going. But since we live in the real world we will have to live with our decisions and soldier on.
*****

(BUSINESS WIRE)-- The Talbots, Inc. today provided an update (downdate) on its outlook for the fourth quarter and fiscal year ending January 29, 2011.

Although the Company experienced solid selling trends from Thanksgiving through Cyber Monday, trends deteriorated in the last two weeks of December into January, despite our enhanced promotional posture. The Company believes this is due to a combination of factors, including a weaker than anticipated customer response to our current merchandise assortment, high levels of competitive promotional activity in the market and weather-related issues. As a result, quarter-to-date top line sales are down approximately 7% versus the fourth quarter of last year, which compares to the Company’s previously announced expectation for fourth quarter top-line sales in the range of flat to down low-single digits. Quarter-to-date comparable store sales are down approximately 6%.

Based on current sales levels, the Company expects fourth quarter adjusted loss per share from continuing operations, excluding special items, to be in the range of $0.15 to $0.19 per share. This compares to last year’s adjusted earnings per share from continuing operations, excluding special items, of $0.13 and is a decrease from its previously announced range of an adjusted loss from continuing operations, excluding special items, of $0.05 per share to adjusted earnings from continuing operations of $0.03 per share.

Full year adjusted earnings per share from continuing operations, excluding special items, are expected to be in the range of $0.56 to $0.60 per share. This compares to last year’s adjusted loss per share from continuing operations, excluding special items, of $0.10 and is a decrease from its previously announced range of $0.70 to $0.78 per share.

Trudy F. Sullivan, Talbots President and Chief Executive Officer, said, “While we are disappointed with our fourth quarter performance, we have accomplished a great deal this fiscal year and are a stronger, leaner and more profitable Company. Our balance sheet position is healthy and our debt level has been significantly reduced. With a solid financial foundation, we have the flexibility to invest as required to further enhance our operating platform and refresh our brand.”

“We will continue to evolve our strategic approach to achieve our long term objectives and remain keenly focused on merchandise initiatives to improve our assortment as well as branding and marketing strategies that will accelerate the pace of attracting new and reactivating lapsed customers, while continuing to please our core customer. We believe that this, coupled with our productivity initiatives, will drive improved results across our business and increase shareholder value,” concluded Ms. Sullivan.

The Company plans to report its fourth quarter and full fiscal year 2010 results on March 24, 2011 and will comment on its outlook for fiscal 2011 at that time.

The above outlook is based on the Company’s internal assumptions and estimates, is subject to its accompanying forward-looking statement and is not a guarantee of future performance.

The Talbots, Inc. is a leading specialty retailer and direct marketer of women’s apparel, shoes and accessories. At the end of the third quarter 2010, the Company operated 584 Talbots stores in 46 states, the District of Columbia, and Canada. Talbots brand on-line shopping site is located at www.talbots.com.

With Talbots lousy forecast we switched Chico’s at a $1 loss to the same number of shares of Talbots (down $1.45) and cut our Coldwater position. We also sold a bit more American Eagle. We did add a chunk of Talbots warrants at 61 pennies since our cost on what we hold is twice that number. The warrants are in effect a four year call on the stock at $14.85 which we thought-and still think- is a more than likely event.
*****

From Fortune by way of Americablog:

"Bankers are like 5-year-olds," said Barry Ritholtz, a New York money manager who writes the Big Picture economics blog. "If you leave them unsupervised with a bowl of candy, they will eat it all and throw up all over everyone. Volcker got that."

But having proposed a tough rule -- shares in Goldman Sachs (GS) and other big banks got walloped the day of the announcement -- the administration then stood aside as the language got watered down in Congress.

Though this is hardly unusual in itself, it meant Obama punted on what now looks like his last chance to reform the big banks. After all the damage bankers did with their bonus-boosting high-stakes gambling, this doesn't exactly register as a profile in courage.
*****


Rep. Peter King, a Republican from New York, is planning to introduce legislation that would make it illegal to bring a gun within 1,000 feet of a government official, according to a person familiar with the congressman's intentions.

Like Health Care—take care of the politicians and the rest of us are on our own.
*****

How Coke Lied About Vitaminwater & Felt No Shame

Read more:
http://jezebel.com/5730613/the-audacity-of-coke-and-the-trouble-with-vitaminwater
*****

The major stock measures closed mildly higher in light trading on positive breadth.
*****

 

January 10, 2011

Model Portfolio Value As of 10 January 2011

$ 626,232


Thoughts

Asian markets were lower overnight and Europe is lower at midday. The euro is weaker as Portugal, Spain and Italy are going to borrow $44 billion.
*****

http://www.zerohedge.com/article/94-sp-500s-performance-2010-was-gains-just-first-trading-day-each-month

One has to really wonder about a stock market (talking about the S&P 500 here) in which 134 points of the 143 points that were racked up in 2010 occurred in the first trading day of each month (see The Trader on page M3 of Barron’s). That is truly remarkable ? 94% of the entire year boiled down to 12 sessions. And what do you know? 2011 started with a 1.1% pop and has sputtered since.

It is truly the nuttiest thing? the best days last year were the first day of each month (save for June and July) and then after that there were practically no crumbs to nibble on: These are the point changes for the first trading day of each month in 2010, which totals 134 points (as we mentioned above): December +26 points; November +1 point; October + 5 points; September +31 points; August +24 points; July –3 points; June -19 points; May +16 points; April + 9 points; March +11 points; February +15 points; and January +18 points.

Now look at 2011? +14 points to kick off the month and year, to close at 1,271.87, and here we are today, after a supposedly ripping ISM and ADP set of numbers, and as of January 7, the S&P 500 is sitting at 1,271.50. Hope you didn’t decide to get in on the second day.
*****

Oil ended at $89.39 and Gold was $1374.
*****

The major market measures were mixed most of the day and closed that way. Breadth was flat and volume light.
*****

 

January 7, 2011

Model Portfolio Value As of 7 January 2011

$ 626,322


Thoughts

The Employment Report said there were 103,000 new jobs in December which was less than expected but last November’s report was revised higher by the December miss. The reaction of the market is muted. Overseas markets were mixed overnight and gold is down another $13 at $1358 with Oil at $89.
*****

(Reuters)The economy created far fewer jobs that expected in December, suggesting the Federal Reserve will complete its asset buying program, but the unemployment rate dropped to its lowest in more than 1-1/2 years.

Non-farm payrolls increased 103,000, the Labor Department said on Friday, below economists' expectations for 175,000. Private hiring rose 113,000, while government employment fell 10,000.

However, overall employment for October and November was revised to show 70,000 more job gains than previously reported. The unemployment rate fell to 9.4 percent, the lowest since May 2009, from 9.8 percent in November.
*****

We raised cash today ahead of the coming correction.

Yesterday American Eagle opened down 80 pennies at $13.72 on lousy December same store sales, then jumped to $15.30 on nebulous buyout rumors that surfaced because AEO had cancelled an appearance at a retail conference. We sold a chunk of stock at $15.20 which with the 61 pennies dividend received last month resulted in a scratch profit. AEO was our largest position and we reduced while still maintaining a sizable position in the retailer.

We also sold a group of anchovies: Nvdia is up 30% this week and we sold at $19.50 for a nice profit; HPQ for a couple of points profit; Ford for plus almost 10%; GE, Cisco, and Nokia for a better than plus scratch; FITB, Dell, and Best Buy for a plus scratch; and HBAN and DreamWorks for a scratch.
*****

Europe closed lower on negative Portugal news.
*****

The major market measures were lower in light trading with negative breadth.
*****

 

January 6, 2011

Model Portfolio Value As of 6 January 2011

$ 630,638


Thoughts

We have to leave this morning for lunch with a client so the post will be short.
*****

(Yahoo/Finance) Stock futures are up modestly this morning, but they aren't yet in line with the prior session's high. (There is) renewed strength abroad, especially in Europe, where the latest dose of data varied. However, China's Commerce Ministry stated that it is increasing its holdings of eurozone debt. Overnight action in Asia was more mixed.
*****

American Eagle missed on its same store sales and is down 10% in early trade. Ouch. We own a lot and so we will see where it settles before buying more.
*****

Nvidia challenges Intel with PC central processors

LAS VEGAS, Jan 5 (Reuters) - Graphics chip designer Nvidia Corp said it will begin designing central processors for personal computers, pushing back against growing pressure from Intel Corp. The company, which is developing the product under the code name "Project Denver," said it obtained the rights to develop the central processor, or CPU, using ARM Holdings <ARM.L processing architecture. It said the processors will be integrated on the same chip as its graphic processor and will be aimed at everything from workstations to supercomputers. "We are designing a high-performing ARM CPU core in combination with our massively parallel GPU cores to create a new class of processor," said Jen-Hsun Huang, chief executive of Nvidia, at the Consumer Electronics Show in Las Vegas. Building central processors will be seen as a direct attack by Nvidia against Intel, whose chips are the brains in 80 percent of the world's PCs. "Denver frees PCs, workstations and servers from the hegemony and inefficiency of the x86 (Intel) architecture," top Nvidia scientist Bill Dally said in a blogpost. Also at the CES trade show on Wednesday, Microsoft Corp (MSFT.O) said it will introduce a version of its Windows operating system compatible with chips designed by ARM Holdings. Microsoft has long built its Windows operating systems around Intel chips and its move toward ARM suggests a shift from its alliance with Intel. "If you have the ability to have your own processor architecture and the support of operating-system vendors like Microsoft, then that becomes a formidable dynamic that Intel will have to contend with," said Hans Mosesmann, an analyst at Raymond James. "You and I five years from now might look back at this ... and say this was the turning point in the industry," he said.
*****

Another big California health insurer has stunned individual policyholders with huge rate increases — this time it's Blue Shield of California seeking cumulative hikes of as much as 59% for tens of thousands of customers March 1.

Blue Shield's action comes less than a year after Anthem Blue Cross tried and failed to raise rates as much as 39% for about 700,000 California customers.

San Francisco-based Blue Shield said the increases were the result of fast-rising healthcare costs and other expenses resulting from new healthcare laws.

"We raise rates only when absolutely necessary to pay the accelerating cost of medical care for our members," the nonprofit insurer told customers last month.

In all, Blue Shield said, 193,000 policyholders would see increases averaging 30% to 35%, the result of three separate rate hikes since October.

Nearly 1 in 4 of the affected customers will see cumulative increases of more than 50% over five months.

For the whole story: http://www.latimes.com/health/healthcare/la-fi-insure-rates-20110106,0,1904183,print.story
*****

Why Are Taxpayers Subsidizing Facebook, and the Next Bubble?
By SIMON JOHNSON

Simon Johnson, the former chief economist at the International Monetary Fund, is the co-author of “13 Bankers.”

Goldman Sachs is investing $450 million of its own money in Facebook, at a valuation that implies the social-networking company is now worth $50 billion. Goldman is also creating a fund that will offer its high-net-worth clients an opportunity to invest in Facebook.

On the face of it, this might seem just like what the financial sector is supposed to be doing – channeling money into productive enterprise. The Securities and Exchange Commission is reportedly looking at the way private investors will be involved, but there are more deeply unsettling factors at work here.

Remember that Goldman Sachs is now a bank-holding company – a status it received in September 2008, at the height of the financial crisis, in order to avoid collapse (see Andrew Ross Sorkin’s blow-by-blow account in “Too Big to Fail” for the details.)

This means that it has essentially unfettered access to the Federal Reserve’s discount window – that is, it can borrow against all kinds of assets in its portfolio, effectively ensuring it has government-provided liquidity at any time.

Any financial institution with such access to such government support is likely to take on excessive risk – this is the heart of what is commonly referred to as the problem of “moral hazard.” If you are fully insured against adverse events, you will be less careful.

Goldman Sachs is undoubtedly too big to fail – in the sense that if it were on the brink of failure now or in the near future, it would receive extraordinary government support and its creditors (at the very least) would be fully protected.

To read entire article: http://economix.blogs.nytimes.com/2011/01/06/why-are-taxpayers-subsidizing-facebook-and-the-next-bubble/
*****

 

 

January 5, 2011

Model Portfolio Value As of 5 January 2011

$ 627,771


Thoughts

“I am not an advocate for frequent changes in laws and constitutions, but laws and institutions must go hand in hand with the progress of the human mind. As that becomes more developed, more enlightened, as new discoveries are made, new truths discovered and manners and opinions change, with the change of circumstances, institutions must advance also to keep pace with the times. We might as well require a man to wear still the coat which fitted him when a boy as civilized society to remain ever under the regimen of their barbarous ancestors.” – Thomas Jefferson (engraved on one wall of the Jefferson Memorial.)
*****

(Bloomberg) -- Service industries expanded in December at the fastest pace since May 2006, showing the U.S. recovery is broadening. The Institute for Supply Management’s non-manufacturing index, which covers about 90 percent of the economy, rose to 57.1 from 55 in November. A reading greater than 50 signals growth. The median forecast of 67 economists surveyed by Bloomberg News projected the index would rise to 55.7. Estimates ranged from 54 to 58.5. A report today from ADP Employer Services showed companies boosted payrolls in December by the most since records began in 2001. Employment increased by 297,000, almost three times the 100,000 median estimates of economists surveyed.
*****

Investors Intelligence has 55% Bulls and 20% Bears. That suggests a correction is in the cards.
*****

Asia was lower overnight and Europe is mixed at midday. Gold is $1368 and Oil is $88.50.
*****

Major marker measures moved mildly higher in light trading. Breadth was positive.
*****

 

January 4, 2011

Model Portfolio Value As of 4 January 2011

$ 625,049


Thoughts

We had many great thought written for this first post of the New Year and then our computer chose to crash and die and with it our great thoughts disappeared into eternity.

Be that as it may we will forge ahead. Last year the Model Portfolio returned 6% while the DJIA was up 11% and the S&P 500 was up 13%. Most accounts were up 4% to 10% with the larger accounts having the lesser performance. Given that we were cautious all year and no more than 50% invested at any time we are pleased with the results. As always we outperform the market indicators when stocks are down and underperform when they are higher. Such is the nature of our cautious timing approach.
*****

While we were away we bought and sold Barnes & Noble for a scratch profit; sold KBE (Large Bank ETF) and XLF (Financial ETF); and bought or added shares of Intel, Huntington Bank, Fifth Third, Chico’s, Talbots warrants, Best Buy, DreamWorks, American Eagle, Nvdia and Nokia.
*****

No surprise: http://www.huffingtonpost.com/2011/01/04/goldman-sachs-facebook-deal_n_804040.html

Is Goldman Sachs' Facebook deal worthy of SEC scrutiny? The New Yorker's John Cassidy yesterday reacted to the news of the deal paging SEC chief Mary Shapiro: "once again the boys and girls at Goldman Sachs appear to be making a mockery of you and your colleagues."

Yesterday, news broke that Goldman Sachs set up a "special purpose vehicle" to allow its wealthy clients to invest in Facebook, despite the fact that Facebook is not yet a publicly traded company. Dealbook outlines the arrangement, which values Facebook at $50 billion, like so:

While the S.E.C. requires companies with more than 499 investors to disclose their financial results to the public, Goldman's proposed special purpose vehicle may be able get around such a rule because it would be managed by Goldman and considered just one investor, even though it could conceivably be pooling investments from thousands of clients.

Bloomberg, for its part, spoke to James Angel, a finance professor at Georgetown University's business school in Washington, who said that if the special purpose vehicle could be ruled illegal if it designed to get around the SEC rules.

Dealbook notes, Goldman's involvement puts the company in a strong position to take Facebook public, in "what is likely to be a lucrative and prominent deal." For, Facebook CEO and founder Mark Zuckerberg, who is said to own roughly one quarter of the company, the move is not only a financial windfall, but a way to retain full control of the company.

Goldman Sachs clients are apparently jockeying to get into the arrangement. To even be considered, they reportedly have to have a net-worth of at least $10 million. Additionally, CNBC reports that would-be investors will have to pay steep fees up to 5 percent up front and more on profits earned. Goldman will reportedly invest $450 million, and is expected to raise up to $1.5 billion from investors.

Last week, the Times reported that the SEC was looking into the "red-hot" trading market developing in the shares of privately held social networking sites.
*****

$50 billion??
*****

GM said its U.S. light-vehicle sales rose 8% in December, while Ford's sales increased 3.5% and Chrysler's climbed 16%.
*****

The major market measures closed mixed on Tuesday. With the run up of the past three months a rest would be positive. Breadth was negative and volume light.
*****

 

January 3, 2011

Model Portfolio Value As of 3 January 2011

$ 627,581


January 1, 2011

Happy New Year



Kelle Lemley, Tyler Bud Bezold, Dave Bezold, Abby Bezold, Lisa Lemley Bezold, Luna, Bud Lemley, Clementine, Katie Lemley - 2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



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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.