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31 July 2007 Daily Comments

Lemley Yarling Management Co
15624 Lemley Drive
Soldiers Grove, Wi 54655

Dear Clients   July 2, 2007

After 25 years at 208 S LaSalle in Chicago, we are moving our downtown office to 42 South Washington Street in Hinsdale, Illinois.

We must take this action because the folks who now own 208 La Salle are converting the first 12 floors to hotel rooms and office space our size is unavailable.

In the future, all checks for deposit to accounts will need to be sent directly to Mesirow Financial, the folks who hold your accounts. We have envelopes to facilitate this activity and will be happy to supply them or the address.

Mesirow Financial
350 North Clark Street
Attention: Cash Management
Chicago, Illinois 60610

Two of our toll free phone numbers will remain the same:

Bud: 312-925-5248

Kathy: 630-323-8422

Our local 312 numbers will disappear as will the 800-654-9865 number and so we ask you to use the toll free numbers above in the future.

The move will be made early in August. Therefore, beginning on August 1st, please mail all communications to the Hinsdale address.

There will be no interruption of service and you may use our toll free numbers to reach us. Our branch office at the farm in Wisconsin will remain.

Since we communicate mostly by phone, e-mail “and snail mail”, we hope this move will be seamless for our clients.

Please call if you have any questions.

 

Bud Lemley

Kathy Cannova

 

 

30 July 2007 Daily Comments

We’ll be traveling tomorrow and Wednesday on business and so the next post will be Thursday August 2.

Thoughts

Asian indexes were higher overnight and Shanghai was up over 2%. European bourse indexes are mixed at midday and gold is flat while oil is lower but still has a $76 handle. Treasuries are also flat.
*****

Last week the DJIA, S&P 500, and NAZZ all dropped over 4% and the Russell 2000 ended the week negative for the year after being up over 8% two weeks ago.
*****

Numbers sometimes do lie. From 1:50pm to 2:10pm on Friday entering the important and usually predicative final hour of trading the DJIA looked like it was rallying when actually it was dropping. Dow Jones news service was reporting the wrong number during that time period. (According to market guru Jim Cramer).

During the phantom rally we decided to take a few positions for trades into this week because it looked like the major measures would hold their support and rally into the close.

Friday’s DJIA reporting error may cost us some money because we wouldn’t have purchased if we had known the DJIA was going down instead of up as was reported. We have been watching markets for a long time and we should have realized that the stocks we were buying down were telling us the opposite of what the DJIA was saying but we didn’t. We are hoping to unwind the positions today.
*****

We sold on the higher opening this morning. We were fooled on Friday and wanted to eliminate the stocks we bought to trade on the phantom DJIA rally. We sold them and we are also sold the remaining stocks in most of our accounts. This involves taking losses including a significant loss in Whole Foods. Over the years we have done well following our instincts and we don’t own enough stocks to profit by any sustained rally while a sell off would hurt the remaining positions. And if we don’t want to hold stocks in which we have a profit we see no reason to hold stocks in which we have a loss.

As we listen to the young guys and gals on CNBC give their market views we remember how fearless we were when we were that age. If we were 35 again we would probably be long stocks on margin. But we aren’t and our main focus now is to preserve capital. Our trading has been a mish mash lately and we will await a better opportunity in the fall to get back in the markets.

As we said above our main focus is on the overall value of the portfolios. As we often say, our clients see all our good moves and all our mistakes. When a person owns a mutual fund the only thing a person has to watch is the daily value. The mutual fund shareholder has no idea what trades the fund is making to obtain that result. With us the client sees everything.
*****

The Model Portfolio will be updated later tonight to reflect the all cash position. At the close the value of the Model Portfolio was $633,189 and it is up 4.7% for the year. Many of our larger/aggressive accounts are up 3% to 4% which is less than the Model because of the difficult trading atmosphere. Small accounts are up 3% to 5%.
*****

Thursday's volume on the New York Stock Exchange was the highest it's been since July 24, 2002.
*****

Goldman Sachs has raised $20 billion to buy lower quality debt. The fox is entering the henhouse.
*****

As the major measures rallied this afternoon Treasuries sold off. The two-year ended at 4.58% and the ten-year backed up to 4.81%.

Gold was up $4 and Oil lost 26 pennies to $76.83.

European bourse indexes closed mixed while Mexico and Brazil were both up over 2%.
*****

The DJIA gained 90 points to end at 13355. The S&P 500 rose 15 points to 1474 and the NAZZ gained 20 points to 2582.

Breadth was 3/2 positive and volume was active.

There were 428 new lows on the NYSE and 23 new highs.

The bulls won the day.
*****

 

27 July 2007 Daily Comments

Thoughts

Asian indexes played catch up overnight and many were down 2% or more and even Shanghai was down 0.3%. European bourse indexes are trading lower. Early this morning the S&P 500 was trading lower but it is now positive. Treasuries continued their strong rally overnight but have backed off some of their gains as preliminary GDP data was benign and as the major stock measures have pared their losses.
*****

CNBC is trotting out a bunch of talking heads to clam the markets. He White House is getting in on the claming game although with their track record on other matters they might want to re-think their strategy.
*****

The U.S. economy rebounded in the second quarter as the drag from the housing sector lessened, businesses built inventories and exports grew, the Commerce Department said. Gross domestic product rose at a 3.4% annual rate, resurging from its downwardly revised 0.6% advance during the first quarter. But consumer spending, the biggest component of GDP, slowed sharply. The personal consumption expenditure index -- a key inflation gauge -- jumped 4.3% in the quarter. Excluding food and energy, however, the core PCE rose 1.4%.
*****

1490 on the S&P 500 is the line in the sand the upside today. Bulls need to get the S&P above that level by the end of the day. After an hour and one half of trading the S&P 500 is at 1480 and has attempted the 1490 level several times but failed making higher highs each time. That last item is a positive for trading bulls.

If the S&P touches 1460 and holds and then closes above 1490, Monday will be a big up day.  If, on the other hand, the markets move down through S&P 1460 and don’t recover then Monday will be a downer. Each if is a big one and the markets very seldom are so neat.
*****

$1.3 trillion of global market value disappeared yesterday in the worldwide sell off. Easy come easy go.
*****

We purchased National City in larger accounts at $29.85. At that price it yields 5.5%. In the coulda shoulda market we shoulda waited till now to buy the stock in many accounts but on the reality side were are happy we took our $2 loss in it several weeks ago at $32.25.

We also purchased Citigroup at $47.777 in these accounts for a trade. Our guess is that when the rally or dead cat bounce occurs that the beaten down bank stocks with 4% or better yields will be the stuff that the institutions want to grab.

C is down 10% in the last week and 20% in the last two months from its high.

In many accounts we took a position in GM at $31.26. It is down from $38 in the last week and we like for a trade and/or to own.

As with Kraft we are buying these stocks for a pop on any rally next week. Our guess is that volatility is here for a while until a major downturn in September/October. Markets never crash off the top. The top was just two weeks ago so time is needed.

We didn’t buy the March or June setbacks (we are back to the levels the DJIA retreated to in June) and we are tepidly trading this one. Hopefully the third time will be the princess and not the frog.
*****

Oil ended up $2.03 at $76.98. Gold finished down $3 and $660 in NYC. Treasuries were flat at the close with the two-year at 4.54% and the ten-year at 4.78%

European bourse indexes tempered their losses today after the U.S. markets semi-stabilized. Mexico and Brazil managed to gain.
*****

The DJIA closed down 208 points at 13265. The S&P 500 finished down 23.71 points at 1458 and the NAZZ dropped 37 points to 2562. That was not the way we thought the week would finish. Whatever.

Breadth was 2/1 negative which was an improvement over yesterday’s 10/1 number and volume was active.

There were 380 new lows on the NYSE which is half of yesterday’s figure and 18 new highs.

The bears won the day and the week.
*****

 

26 July 2007 Daily Comments

Thoughts

Treasuries are rallying big-time as stocks are tanking in the early going Thursday. Today is an important day because if the bears win the day then tomorrow will be a tough day for the bulls to turn the markets.

The major measures opened the day down over 1% and have rallied off their lows as dip buyers entered the fray but an hour into the trading day the major measures look like they are going to test their opening lows again.

Breadth was 10/1 to the downside early on and new lows are approaching 700 on the NYSE which is usually a place where a rally or at the least a dead cat bounce occurs.
*****

Asia was lower overnight except Shanghai which was fractionally higher. That may qualify as a down day for that on fire market. European bourse indexes are all down over 1% following the U.S. markets. Gold is off $3 and Oil is up and touching the $76 level.
*****

Apple reported gang buster earnings and is higher on the day. In a turn of events, those earnings and the good action in Apple’s share price which is up $7 haven’t been able to overcome the negative action in the large banks and brokers.

Ford reported positive earnings for the quarter. or the second quarter, Ford earned $750 million, or 31 cents a share, a swing of more than $1 billion from the loss of $317 million, or 17 cents a share, in the period a year earlier. Revenue rose 6 percent, to $44.2 billion, as improvements in currency exchange rates, sales mix and net pricing overcame a decrease in overall sales. Excluding special items like a gain from the sale of the British luxury sports car brand Aston Martin, Ford earned $258 million, or 13 cents a share. Analysts had expected a loss of 37 cents, although the company no longer provides financial guidance. Ford posted a profit in all regions except North America, where it lost $279 million; that number is an improvement from a $789 million loss in the second quarter of 2006. The company has said it will not be profitable in North America until at least 2009. Revenue declined in North America, to $18.8 billion from $19.1 billion, as sales of trucks and sport-utility vehicles declined amid high gasoline prices. For the full year, CEO Mulally said Ford will lose money but less than the $3.1 billion it lost last year, excluding special items. In April, the company had said this year’s pre-tax loss from continuing operations would be worse. Over all, Ford lost $12.6 billion in 2006. Through the first six months of 2007, it has earned $458 million. The company said it expects to spend $15 billion to $16 billion in cash between 2007 and 2009, down from its early forecast of $17 billion.
*****

New home sales were down 6.8% in June with double digit drops in sales in New England the Midwest and the West. Year-over-year, sales of new homes were down 22%.
*****

There was no obvious reason for the market sell off before the open this morning. The rise in the price of oil and the sub-prime and prime mortgage woes have been know to the markets for weeks. And so the unknown reason for the sell off is the reason to take the down turn more seriously.
*****

We would reiterate that there hasn’t been a serious down market without the up-tick on short sale rule since the 1930s and so the computer programs really have no data to program for that new reality. Moreover, hedge funds are just that and so when they perceive momentum on the downside is working better than momentum on the upside we would guess that they will jump on the wagon crashing down the hill.

We think the financials are a prime area for this shorting. Institutions that own the shares of financials are more than willing to lend those shares to short sellers because they receive a fee for doing so. The fee is minor in comparison to the damage done to the price of the company shares which they lend but in the la la land that is institutional investing one has to remember that relative not absolute performance is the measure.
*****

Three hours into the trading session the major measures are testing new lows on the day with the S&P 500 down almost 2% at under 1490.
*****

The ABX is a "credit default swaps index" created last year to allow investors to hedge or bet against defaults on sub-prime mortgages. It consists of five sub-indexes that range from AAA to BBB minus. Each sub-index references 20 bonds backed by sub-prime mortgages. The table lists the July 24 index readings for credit default swaps backed by sub-prime loans made in 2006. Each index had traded at or near 100 in January.

Index

Price

High

Low

ABX-HE-AAA 07-1

95.05

100.09

95.05

ABX-HE-AA 07-1

88.36

100.09

88.11

ABX-HE-A 07-1

65.5

100.01

65.5

ABX-HE-BBB 07-1

44.55

98.35

44.55

ABX-HE-BBB- 07-1

41.79

97.47

41.79

ABX-HE-AAA 06-2

96.45

100.12

95.67

ABX-HE-AA 06-2

92.79

100.12

90.04

ABX-HE-A 06-2

74.45

100.12

73.54

ABX-HE-BBB 06-2

53.57

100.59

53.57

ABX-HE-BBB- 06-2

46.75

100.94

46.75

The sub-prime loans that are souring the fastest are mainly those made in late 2005, 2006, and early 2007. Loans made in 2004 and earlier are weathering the storm better because lending standards then were tighter, and because homeowners who bought houses when prices were surging have equity built into their homes.

By the by, folks and funds are trading the indexes but the pricing of the underlying assets in the indexes is an art since there is no listed market for the CDOs. With spreads of 6 points between the bid and the ask on some loans the whole exercise of trading the index suggests it is just Las Vegas dressed up as a financial trading vehicle for gamblers.
*****

A man charged with dialing 911 to chat with dispatchers nearly 300 times in the last month remained in jail Wednesday. Cheveon Alonzo Ford, 21, was arrested Tuesday night and charged with making obscene and harassing telephone calls. He told authorities he began calling 911 because "I have no minutes on my phone and 911 is a free call," the Escambia County Sheriff's Office said in a news release.
*****

We are taking a position in Ford again at $8.23. We sold a few weeks ago at $9.08. It is not a large position and we are not buying yet in our small accounts.  Ford sales were much better than expected and Ford had earnings when a loss was expected. We would guess that there is some financial jiggling of the numbers occurring but with the major measures down 4% in the last week from the all time high Ford is selling at a twenty year low. We want to buy something into the sell off and with Ford shares higher today Ford is good for a trade or an investment. We don’t’ know which. We have plenty of buying power to buy lower if the opportunity arises.
*****

European bourse indexes closed 2% or more lower in reaction to the drop in U.S. markets. It will be interesting to see what Shanghai does overnight.
*****

Four hours into the trading day and the S&P 500 is trading at 1480. Next support is 1460 which, if pierced, is not good.
*****

Sprint announced a partnership with Google to provide Web search, interactive communications and social networking services on devices for the new high-speed wireless network the carrier is building. The move is a boost for Sprint's nascent broadband technology, known as WiMax, and a breakthrough for Google in the U.S. wireless market, where it has sometimes faced difficulty offering new products through operators.
*****

The selling in big names like Exxon and Kraft suggest some fund or funds are in trouble and raising cash.
*****

The summer downturn in 1990 comes to mind with today’s market action. The invasion of Kuwait by Iraq precipitated the sell off which didn’t end until the allies began their counter offensive in January 1991. We began buying as stocks dropped and were way too early. We eventually had a very good 1991 but 1990 was the only large down year (negative 10%) that we have experienced as money managers.
*****

The DJIA registered down over 400 points in the contra hour which is the hour before the last trading hour of the day. It is also the hour when margin calls have to be met by providing more cash or selling stock and that is the reason on days like today there is often a bounce back in the final hour of trading as the margin selling abates. We shall see.
*****

Oil ended down $1.05 at $74.83 and Gold dropped $12 to $661 in NYC trading. Treasuries were higher with the two-year ending at 4.61% and the ten-year at 4.82%.
*****

At the end of the day we are buying a few shares of KFT for a trade in our largest accounts. Buffet has been buying the stock and also Peltz and Icahn have positions. We think that the $1.50 drop in the price today is just a fund or two raising cash and the share price will pop back up in any rally over the next few days.
*****

The 150 points rally in the DJIA in the last hour prevented the washout that may have set a low. It is a signal that the dip buyers are still feeling positive.

The DJIA closed down 306 points at 13480. The S&P 500 dropped 33 points to 1484 and the NAZZ surrendered 48 points to 2600. There was probably a total movement of 1000 points up and down in the DJIA today.

Breadth was over 10/1 negative as was down volume over up volume and volume was very active.

There were 720 new lows on the NYSE and 38 new highs. In past markets that kind of new low figure coupled with the extreme breadth figure is always significant. But the gunslingers control this market as no group has ever controlled markets in the past. So maybe it all means nothing.

The bears won the day.
*****

 

25 July 2007 Daily Comments

Thoughts

Amazon is reprising its roll of 1999-2000 again this morning as 6 analysts raise their recommendations and the share price is up $20 in the early going. AMZN beat estimates and was positive going forward. With 20% of the float short as of last night the stock jumped on short covering and momentum buyers jumping on the wagon.

With Boeing also announcing good earnings and sales the major indexes have bounced off yesterday’s collapse but after an hour of trading they are off their highs of the day (the DJIA was up over 100 points) and it looks as if traders are having second thoughts about the rally.

Asia was lower overnight except Shanghai which added 2% and European bourses are lower. Gold is down $9 at $675 and Oil is moving up to the $74 level. Treasuries have a bid.
*****

Existing home sales slipped 3.8% to 5.75 million units in June, while the median price rose 0.3% to $230,100. Inventory fell 4.2% from May.
*****

The WSJ has a story this morning about the difficulty the buyers of Chrysler are having in convincing investors to fund the buyout debt: Chrysler's bankers -- including J.P. Morgan Chase & Co., Goldman Sachs Group Inc., Citigroup Inc., Bear Stearns Cos. and Morgan Stanley -- have spent the past month trying to convince investors to buy $12 billion in loans for Chrysler's auto business and $8 billion in loans for its financial arm.

The underwriters of the debt sale were yesterday discussing plans to take a half or more of a $10 billion piece of the Chrysler auto loan, people familiar with the matter said.

The debt to be held by the banks would bear the first losses if Chrysler has problems repaying. Investors who own the rest of the loan would be given priority over Chrysler's assets if the company ends up in default. Another $2 billion piece of the Chrysler auto loan is likely to be offered at a higher interest rate.

The $8 billion loan sale for Chrysler Financial, meanwhile, is still on track to be completed this week, though the company has had to increase the amount of interest it would pay on the debt.

It also needs to raise $42 billion, much of it to compensate Daimler for existing Chrysler debt it still holds. That sale isn't expected to be as difficult, because much of it will be backed by healthy Chrysler auto loans.

The mood of the debt market could also influence Ford's asset sales, including its effort to eliminate the Jaguar and Land Rover brands from its portfolio. Ford tapped the debt markets for $23 billion last year, but is still looking to raise cash. Parts suppliers, such as Delphi Corp., are also in the process of being sold.

In a written commentary this week, Bill Gross, managing director of Pacific Investment Management Co. pointed to the Chrysler deal as a landmark for the debt markets, saying it was a sign to investors "their world has suddenly changed."
*****

The S&P 500 dropped into negative territory several hours into the session and now is attempting to reverse the reverse from the rally.
*****

Bloomberg is reporting that Kohlberg Kravis Roberts & Co.'s banks, led by Deutsche Bank AG, failed to sell 5 billion pounds ($10 billion) of senior loans to fund the leveraged buyout of Alliance Boots Plc, two people with direct knowledge of the deal said.

KKR's eight underwriters will offer higher interest rates to sell 1.75 billion pounds of junior loans, said the people who declined to be identified because the discussions are private. The banks will keep the senior loans on their balance sheets, the people said.
*****

According to minyanville.com:
Merrill Lynch is launching a two-year euro-denominated certificate that pays a return based on the average temperature in Rome, Italy as measured over the course of a year from mid-September. If the average temperature is over 16.38 degrees Celsius, the certificate will pay interest of up to 16 percent, with the full payout achieved if the average reaches 17.38 degrees, according to Reuters. Data for the current season, from mid-September 2006 to the present and then forecast through to mid-September this year, show an average temperature of 17.2 degrees Celsius. If over the course of the two years, the average temperature does not rise above 16.38 degrees, then investors do not receive a coupon payment, but receive 101 percent of their principal at maturity, the article explained. This deal brings the product to a new audience, including smaller and retail clients, who have not been able to access the market before, Jens Boening, head of EMEA weather derivatives structuring at Merrill said.
*****

1484 is the line in the sand for the S&P 500. It is currently at 1504 at noon thirty. And the major measures are all in negative territory again.
*****

A pipeline exploded and so Oil closed up $2.27 at $75.83. Gold dropped $10 to $674 and Treasuries were firm with the two-year at 4.74% and the ten-year at 4.91%.

European bourse indexes closed lower as did Mexico and Brazil.
*****

Entering the final hour the major measures are now higher as traders are attempting to take stocks up into the close.
*****

The DJIA closed up 65 points at 13790. The S&P 500 gained 7 points to 1517. The NAZZ was up 8 points at 2648.

Breadth was 5/4 negative on the day and volume was active.

There were 650 new lows and 140 new highs.

Today was a win for the bulls. Apple’s earnings and sales come after the close and will set the tone for tomorrow’s trading.
*****

 

24 July 2007 Daily Comments

Thoughts

We are aback a day early and it is good to be back in the land of milk and honey and humidity after two weeks in the deserts of the southwest. The Grand Canyon is as grand as ever and Flagstaff is a very nice pace to visit. But home is home.
*****

While we were away the markets popped higher and drooped lower and are about unchanged for the time period.

General Electric is treating its sub prime mortgage subsidiary as a for sale operation and thus will not have to include its losses in future earnings from continuing operations. The analysts like that move and so the stock moved higher as it announced earnings. GE will not restate earnings for the last few years from that subsidiary but that is par for the course.
*****

For the last three weeks Treasuries have rallied on Monday and Tuesday and sold off on Wednesday and Thursday while stabilizing on Friday. We used the pop last Friday and yesterday to take a 1% profit by selling our four year Treasuries in many accounts and will look for a re entry point at a lower price.
*****

Asia was higher overnight except Shanghai. But Shanghai has had a nifty run since we left with its index now above 4200. Europe is lower at midday.

Stocks are going to open lower on disappointing earnings news and continuing sub prime rumbles. Also Apple’s iPhone sales the first two days it was available were disappointing. We presume the markets will soon be trading on hourly iPhone sales.
*****

Hershey announced disappointing earnings for the third quarter in a row and the shares are now trading under $48.
*****

Oil closed down $1.35 in NYC and Gold was up $3 at $684. Treasuries finished firm on the stocks markets drop with the two-year at 4.75% and the ten-year at 4.92%.

European bourses were lower across the continent as were Brazil and Mexico.
*****

The major measures were lower all day and totally surrendered to the bears in the last hour.

The DJIA closed down 215 points at 13730. The S&P 500 broke support at 1521 to close down 30 points at 1511 and the NAZZ dropped 50 points to 2640.

Breadth was 8/1 negative and volume was brisk.

There were 585 new lows and 160 new highs.

The bears won the day.
*****

 

This will be our last post until July 25.
*****

Thoughts

Asian markets except for Shanghai were lower overnight as they caught up with the sell off in the U.S. European bourses are also lower again today continuing the late day sell off yesterday and U.S. markets move lower.

Gold is up $2 at $666 and Oil is down pennies with a $72 handle. Treasuries had a good bid early in trading but profit taking after yesterday’ large move has moved them back to unchanged.
*****

It looks like the sub prime stuff is going to keep in the news for the next few months. National City sold its sub prime business last year but had to keep $1 billion of the worst loans. Unfortunately we thought the sub prime problem was behind them but they are going to have to take a write-down this quarter on that portfolio. Since they had to keep the worst loans the write-down will probably be substantial. With the market near highs but bank stocks taking it on the chin we sold NCC. We will receive the dividend but the loss is still over $1 per share.

GE reports on Friday and will report a $200 loss on the sale of $3 billion in sub prime loans. But GE has a heck of a lot more stuff on the books and so we are going to sell it also. GE just hasn’t been able to mount a charge above the $39 level in the rallies of the last few weeks and that is probably because of the large sub prime portfolio they hold. GE usually sells a business to offset losses but the losses on their portfolio may eventually be larger than can be offset. As we said a week ago when we were being a bit too flip about the sub prime problem GE does have some control over its auditors but if the banks and brokers are ever forced to mark their loans to market GE’s auditors may get cold feet and force GE to also do so. And so we are selling GE for a 50 pennies loss. We also received the most recent dividend.

Finally we are going to sell Pfizer. We just don’t want to own it here.
*****

The group acquiring Sallie Mae for $25 billion is warning that they may not be able to close the deal because of pending legislation before Congress that would lower the rates they can charge on student loans guaranteed by the government. SLM disagrees. Maybe funding is harder to come by. There are a lot of other proposed deals that still need to be funded. See http://www.bloomberg.com/
*****

The moves in Treasuries this week are the same as they were last week. The Treasury ten-year rallied to 4.99% overnight and then sold off today to 5.09%.
*****

An SEC market regulation official said that Bear Stearns will be able to liquidate the portfolios of the two in trouble sub prime hedge funds in an orderly manner. We wrote last week that the SEC learned from the Long Term Capital debacle in 1998 and wouldn’t let the same occur again. The next collapse will be from an unforeseen occurrence.
*****

Oil ended down 25 pennies at $72.51. Gold was down $2 at $662 and Treasuries surrendered yesterday’s gains with the two-year at 4.89% and the ten-year at 5.09%.

European bourses closed above their midday lows but still down on the day. Mexico and Brazil were higher.
*****

The long term bull market began on Friday the 13th of August 1982. We remember that day well since it was one of the most interesting of our investment career.

And so when any Friday the 13th comes along we always wonder if it will mark the end. This Friday is also the 13th.
*****

The DJIA closed up 75 points at 13575. The S&P 500 gained 8 points to 1518 and the NAZZ rose 12 points to 2651.

Breadth was positive and volume was moderate.

In a reverse there were 230 new lows and 226 new highs.

With the new lows exceeding new highs we will call the day a draw between the bulls and bears.
*****

 

10 July 2007 Daily Comments

Thoughts

For all who are worried that our daughter in moving to a furnace in Arizona we are pleased to say that Lemleys are smarter than that. The temperature in Flagstaff, which is at 7000 feet elevation above sea level, is usually in the 80s during the summer with lows at night in the 50s. Humidity is low. So we will survive the trip.

Flagstaff’s weather:

WEDNESDAY
A stray afternoon t-storm
Hi: 81º
Low: 54º
THURSDAY
A p.m. thunderstorm
Hi: 85º
Low: 53º
FRIDAY
Partly sunny
Hi: 83º
Low: 53º
SATURDAY
Very warm with some sun
Hi: 85º
Low: 54º

*****

Asian markets were fractionally mixed overnight with Shanghai down 0.7%. European bourses are higher at midday. Gold is flat and Oil is off a few pennies but still above $72.

Treasuries are well bid with the ten-year back at 5.07% as both Sears and Home Depot announced disappointing negative same store sales comparisons that are negative. Sears will miss earnings by 50% (oops!) and is off 5% and Home Depot is unchanged because it has a $22 billion Dutch auction in progress. Just yesterday Goldman Sachs upgraded Home Depot although it was lower on the day.

Uncle Ben speaks today and the bond folks are hoping he says inflation is under control. Alcoa was the first DJIA Company to announce earnings last night and they were less than expected. The bond bulls are hoping for an intimation of a rate cut from Bernanke if the economy continues to falter.
*****

China has tripled its oil imports in the last five years. The Chinese use 2 barrels of oil per year per person. The U.S. uses 25 barrels of oil per year per person.
*****

After an hour of trading breadth on the NYSE is 4/1 negative. But the DJIA is holding its own at down 50 points and looking like it doesn’t want to surrender.
*****

Charles Prince, the CEO of Citigroup on the LBO and sub prime stuff:

"When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you've got to get up and dance. We're still dancing …

The depth of the pools of liquidity is so much larger than it used to be that a disruptive event now needs to be much more disruptive than it used to be…

At some point, the disruptive event will be so significant that instead of liquidity filling in, the liquidity will go the other way. I don't think we're at that point."
*****

The U.S. dollar is at a record low against the euro and a 26 year low against the yen.
*****

Oil gained 51 pennies to close at $72.70. Gold gained $2 to $664. Treasuries closed on strong with the two-year at 4.85% and the ten-year at 5.03%.

Most European indexes were down 1% on the day after the U.S. markets turned south. Mexico and Brazil were also lower by over 1%.
*****

Uncle Ben didn’t help today but we aren’t sure he hurt. Our guess is that the Sears and Home Depot and Alcoa news set a sour tone and with the indexes at highs profit taking was an easy decision for some.

The DJIA lost 150 points to close at 13500. The S&P 500 dropped 20 points to 1510 and the NAZZ gave up 30 points to 2640.

Breadth was 3/1 negative and volume was moderate.

There were 270 new highs and 205 new lows.

The bears won the day.
*****

 

9 July 2007 Daily Comments

Thoughts

The stock markets were higher last week even as the Treasury market gave back its risk premium.

Gold is trading with a $72 handle and Gold is up $3 in the early going in NYC.

Uncle Ben gives a speech tomorrow and that maybe the highlight of the economic news for the week. There will be a question and answer session after the speech at 12 noon and the subject is inflation.
*****

Asian indexes were higher overnight with Shanghai up 2.6% and Hong Kong up 1.2%. European indexes are fractionally higher at midday.
*****

Two brokerages are suggesting that losses on sub prime loans could top $100 billion. But Credit Suisse is saying that the losses will only be about $50 billion.

Also $ 2.8 billion in California real estate was auctioned in May because of foreclosure. $2.6 billion failed to get the minimum bid and is now owned by the banks that foreclosed.

Also some folks are questioning the BLS employment statistics on construction. According to the BLS, residential construction jobs have dropped by 3.5% in the last twelve months. If we may be permitted to mix metaphors that low per cent drop seems to fly in the face of the fall off the cliff in new residential housing construction. The reported numbers don’t jibe with usual practices in the construction industry where laying off workers is a custom not an oddity.
*****

The WSJ has an article about foreclosures in Atlanta. These sentences were thought provoking:

For example, a three-bedroom house near Turner Field, where the Atlanta Braves baseball team plays, fetched a high bid late last month of $134,000 at an auction by the bank that took possession of it. Almost three years ago, the new home was bought for $330,000.

Though Atlanta has added jobs in recent years, they pay less than the jobs the region lost after the technology boom of the late 1990s ended. The median household income was only 7.6 percent higher in 2005 than in 2000, according to the Census Bureau. That is about half the rate of inflation during that period, and it mirrors what has occurred nationally.
*****

First Solar, FSLR, has a market cap of $8 billion with $200 million in revenues and 733 employees. It is a favorite momentum play and short squeeze stock which has traded over 8 million shares today and is up $21 today to $117. The company has 72 million shares out. This morning FSLR announced it had received a billion dollar contract over five years from two companies of which we have never heard.  Free cash flow is negative. When we go back and look at the prices at which some of the internet stocks sold in 1999 and 2000 we wonder how anyone could have paid that price. And so to will it be with this company sometime down the road.
*****

The no up tick needed on short sales rule change became effective today. Since there is not market price history with this rule since 1934 it will be interesting to see how the computer jocks and jockettes do with this new twist in the next major correction.
*****

Europe closed mostly higher and Mexico was down while Brazil was up on the day.
*****

Gold jumped $8 to $662 and Oil was off 62 pennies to $72.25. Treasuries had a slight bid with the two-year at 4.97% and the ten-year at 5.15%.
*****

The DJIA closed up 40 points at 13650. The S&P 500 rose 1 point to 1531 and the NAZZ was up 3 points to 2670.

Breadth was slightly to the good on the NYSE and flat on the NAZZ and volume was moderate for a summer Monday.

There were 555 new highs and 115 new lows.

The bulls scratched out a win on the day.
*****

 

5 July 2007 Daily Comments

We are going to be in and out this month since the grandkids are here. Next Thursday July 12 we are going to Arizona to help our daughter move and to take the grandkids to see the Grand Canyon. We will be traveling but available by cell phone from July 12 to July 24. The phones will be forwarded to our cell phone and so we will be reachable. The posts this week and next will be sparse as we are already in the vacation/holiday mode.

Thoughts

The Employment Report said the 132,000 jobs were created in June and that was more than expected and placed a further damper on Treasuries. The problem for stocks is that if the ten-year Treasury revisits the 5.25% level (it is at 5.16% this morning) the stock markets may react negatively.

Oil has a $72 handle this morning in early trading and Gold is down $1.

Asia was mixed overnight and Shanghai recovered 4.5% of its 7.5% loss this week. Hong Kong was also higher. We don’t know if the moves in those two indexes were related to the news that another highs official in the equivalent of the Chinese Food and Drug Administration was sentenced to death for corruption.
*****

The WSJ reports that UBS is removing 49-year-old Chief Executive Peter Wuffli; Marcel Rohner, the 42-year-old deputy CEO, is expected to take his place. UBS Chairman Marcel Ospel, 57, plans to extend his term in that job by three years. The Swiss financial giant has been buffeted by a series of setbacks recently, including a costly blow-up of an internal hedge fund, and the shuffle appears aimed at heading off any move to break up the firm. This action shows that there is some accountability in this country although UBS is controlled by Europeans and so that may be the reason for the dismissal. We presume Wuffli is glad he is not in China.
*****

Oil ended at $72.69 up 88 pennies. Gold was up $4 at $654. Treasuries rose in yield again today with the two-year at 4.99% and the ten-year at 5.19%.

Europe closed higher as did Mexico and Brazil.
*****

The DJIA gained 50 points to close at 13615. The S&P 500 was up 6 points to 1531 and the NAZZ jumped 10 points to 2666.

Breadth was 2/1 positive and volume was active fro a summer holiday week Friday.

There were 455 new highs and 110 new lows.

The bulls won the day and the week.
*****

 

5 July 2007 Daily Comments

Thoughts

China only matters when it matters and in this month’s market scenario China doesn’t yet matter. Shanghai was down 2% on July 4th and over 5% last night. The rest of Asia was mixed and European bourses are fractionally lower at midday. Treasuries are under pressure with the ten-year back above 5.10% after trading under 5% three days ago. Gold is up $2 in the early going in NYC and oil is also higher with a $71 handle.
*****

Two of Blackstone’s funds are going to buy Hilton Hotels for $46 per share ($28 billion including debt). Six years ago HLT sold for under $7. The Blackstone guys are smart and will surely make money on this deal for their ‘other people’s money’ funds. And of course they will make money for themselves with the 2% plus 20% fees and the ability to place whatever value increase on a yearly basis they want on the private company. But wouldn’t it have been smarter for all these LBO folks to be buying these companies when they were much lower and everyone was afraid to buy stocks.
*****

GM’s sales were down 21% in May and Ford’s were down 8%. Toyota was up 10% and Nissan was up 25%. The GM and F sales were down because they have cut out fleet sales. So who is getting the fleet sales?
*****

Investors’ Intelligence finds bulls at 49% down from 53% but bears also lower at 18% from 20%. The correction camp has absorbed the difference. The correction folks are those that will be correct whichever way the market go as in, “I was looking for a correction but the rally doesn’t surprise me.”
*****

The Bank of England raised its key rate to 5.75% over the 4th.
*****

The value of the British pound is at a 26 year high versus the dollar.
*****

This is an interesting article on LBO debt at Bloomberg. http://www.bloomberg.com/apps/news
*****

Crude oil and gasoline inventories were above expectations in the latest week. That has taken the pop out of oil today and it is down 50 pennies with a $79 handle after trading over $72.
*****

Whole Foods can’t purchase Wild Oats for a measly $500 million and control less than 10% of the organic foods market but Coke is unchallenged by the FTC as it throws billions of dollars around to buy up beverage makers.
*****

Oil ended up 40 pennies at $71.85 in NYC trading and Gold was down $4 at $652 Treasuries dropped in price with the yield on the two-year rising to 4.98% and the ten-year to 5.15%. Tuesday the yield was 4.99% on the ten-year.
*****

Shares declined Thursday in Europe, hemmed in as the European Central Bank's president hinted at further interest-rate hikes and England raised its interest rates. Mexico and Brazil were also lower.
*****

The DJIA closed down 12 points at 13565. The S&P 500 gained 1 point to 1525 and the NAZZ rose 12 to 2656.

Breadth was negative o the NYSE and flat on the NAZZ and volume was light.

There were 425 new highs and 140 new lows.

Today was a draw for the bulls and the bears.
*****

 

3 July 2007 Daily Comments

Thoughts

The National Association of Realtors said its index of pending home sales was down 3.5 percent in May to 97.7, its lowest level since September 2001. The forecast had been that the May index would instead rise, by 0.2 percent. The Commerce Department reported that new factory orders eased 0.5 percent in May which was less than had been forecast.
*****

Asian indexes were higher overnight with Hong Kong up 1.7% and Shanghai up 1.6%. European bourse indexes are also higher at midday and gold and Treasures are unchanged while oil has a $70 handle.
*****

The markets close at noon today.
*****

From wonkette.com: Think about the kind of world we’d live in today had the Iraq War not happened. That’s exactly the kind of world that madman Joe Wilson envisioned for America. Scooter Libby just wanted to ruin Wilson’s wife’s life as a very small payback. Is that so wrong?
*****

Folks have to make a living and it is a great living collecting 2% management fees even if you can’t collect the 20% carried interest: From Reuters: United Capital Asset Management said on Tuesday it will continue operating its Horizon Strategy group hedge funds that invested in sub prime-mortgage bonds after temporarily halting payments to investors. The company said it received an unusually high number of redemption requests from investors, including one from an investor who put up nearly one quarter of the funds' money, due to volatility in the structured finance market in June. The funds hold most of the firm's assets under management, which stood at about $619 million as of March.

Also see this story on Bloomberg: http://www.bloomberg.com/
*****

Gold ended a shortened trading day in NYC down $4 at $655. Oil was down 14 pennies at $70.96. Treasuries were lower in price higher in yield with the two-year at 4.90% and the ten-year at 5.05%.

European markets closed higher and Mexico and Brazil were also up.
*****

The DJIA gained 41 points to close at 13578. The S&P 500 rose 5 points to 1525 and the NAZZ gained 12 points to 2645.

Breadth was 2/1 positive on the NYSE and 5/4 to the good on the NAZZ and volume was light.

There were 425 new highs and 100 new lows.

The bulls won the day and are ahead for the week.

The next post will be Thursday July 5, 2007.
*****

 

2 July 2007 Daily Comments

We are going to be in and out this month since the grandkids are here. Next Thursday July 12 we are going to Arizona to help our daughter move and to take the grandkids to see the Grand Canyon. We will be traveling but available by cell phone from July 12 to July 24. The phones will be forwarded to our cell phone and so we will be reachable. The posts this week and next will be sparse as we are already in the vacation/holiday mode.

Thoughts

Asia was mixed overnight with the Shanghai index small fraction higher after a 7% loss the previous two days. European indexes are small fractions lower and Treasuries are flat. Gold is up $2 and Oil continues to hold the $70 level.
*****

The word is that Apple sold over 500,000 iPhones since Friday. That is twice analysts’ estimates but both AAPL and AT&T are lower in early trading.
*****

The ISM Manufacturing Index was 56 for June versus 55 for May.
*****

AT&T is buying wireless company Dobson communications for $2.8 billion. Dobson has 1.7 million wireless subscribers. At that price Sprint would be worth $ 80 billion. It is currently valued (including debt) at that price in the marketplace.
*****

The bulls are back with a vengeance today and usually when the markets are thin as they are this week the big boys and girls can have their fun. Treasuries are also strong today as the terror stuff helps the bid. Observing Treasuries move higher as stocks move higher also does not make economic sense but then we haven’t understood the bullish sentiment for a while. We are taking the markets day by day and our first half performance of up 4.7% was satisfying.
*****

Gold closed up $8 at $659 and Oil was up 41 pennies at $71.10. We guess that the hedge funds have weathered the sub prime crisis for now and are getting back in. there is also first of the quarter buying and this is a new year for many non profits and so they are moving money that was raised last week and will be invested this week. European bourse indexes were lower as the terror stuff is closer to home over there. Mexico and Brazil closed higher.

Treasuries were strong all day with the two-year at 4.85% and the ten-year breaking under 5% to close at 4.99%.
*****

The DJIA rose 125 points to end at 13536. The S&P 500 gained 16 points to 1520 and the NAZZ jumped 30 points to 2632.

Breadth was 3/1 positive and volume was moderate.

There were 399 new highs and 129 new lows.

The bulls won the day.
*****

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



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