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

September 30, 2010

Model Portfolio Value As of 30 September 2010

$ 616,707


Thoughts

Asia was mixed with Shanghai higher and Japan down 1.7%. European bourses are lower at midday with Ireland the focus of the boo boys and girls. Oil has a $78 handle and the gurus are saying that Gold needs a rest after topping $1300 a few days ago.
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Today is Quarter end. We have been informed that the Employment Report won’t come until next Friday.
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Tony Curtis died and last week it was Eddie Fisher. Our kids and grandkids don’t even know who they were. We are getting on in years.
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Quarter GDP in its 3rd revision (we think there are four- the better for the boys and girls to trade) was revised to up 1.7% from up 1.6%. Jobless claims were lower at 453,000. Those numbers have induced a small rally in the major market measures from negative to positive in pre-opening trading.
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Chicago PMI was 60 versus 56 in August and that rallied the DJIA to up 100 fifteen minutes into the trading day. We are making an opposite bet by trading SDS, the double short S&P 500, in some larger accounts.
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Diane Swonk, Chief Economist Mesirow Financial
Surviving Subpar Growth

Initial unemployment claims fell to 453,000 during the most recent week and after being revised up on what was already a disappointing figure last week. Claims remain extremely elevated, especially in light of last week's news that the recovery is "officially" more than a year old - according to the National Bureau for Economic Research, the group that decides these things. Moreover, continuing claims abated slightly, and were revised down instead of up last week, which is good news. Everything is relative, however, so the news on claims will not be enough to make anyone feel better about the labor market. (Claims should be well below the 400,000 threshold by now, if the recovery had any real momentum to it.)

Indeed, payroll employment, which is scheduled to be released on October 8, probably contracted again in September. Another loss in government payrolls will be the primary reason, especially now that emergency stimulus funds are running out. Private sector payrolls likely increased slightly during the month, but not enough to stop the unemployment rate from rising further.

Separately, real GDP for the second quarter was revised for a third time (we won't know what really happened for another several years, when final benchmark revisions are completed). The economy grew at a 1.7% rate, close to the estimate that we saw last month. That, however, is less important than the fact that we will see two (maybe three) quarters of less than 2% growth, which means an even higher unemployment rate before the year is over. Why does anyone want to run, let alone win, an election in November? 
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We sold the SDS for a 40 pennies profit.
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At 10 AM the major market measures are negative with the 1% move evaporated.
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(Bloomberg) The Mystery of Disappearing Proprietary Traders

Commentary by Michael Lewis

Sept. 30 (Bloomberg) -- In the run-up to the vote on the financial overhaul bill, the big Wall Street banks squashed an attempt by Senator Carl Levin to pass a simple ban on any form of proprietary trading.

A Senate staffer close to the process told me the amendment was one of Wall Street’s highest priorities, spreading money around to exert as much pressure as possible.

It worked: Levin’s amendment never reached the Senate floor for a vote. The final version of the bill restricts proprietary trading but allows big Wall Street firms to invest as much as 3 percent of their capital in their own internal hedge funds. How exactly the new rules are enforced is left to regulators inside the Federal Reserve, but it’s not hard to see how a wholly owned hedge fund might become a proprietary trading group, with a different name.

The 3 percent loophole amounted to an invitation for the big banks to keep on doing at least some of what they had been doing -- which is why Levin felt compelled to remove it, and the banks fought so hard to keep it.

Yet in just the past few weeks news has leaked that Morgan Stanley, JPMorgan and Goldman Sachs all intend either to close their proprietary trading units or to sell their interests in the hedge funds they control.

Obviously, something is wrong with this picture. Why fight for a right, and win, only to proceed as if you have lost? Why take prisoners only to surrender to them? Having preserved their loophole the big American banks now appear to be freely abandoning any attempt to exploit it. (Credit Suisse, on the other hand, just bought a stake in a hedge fund.)

For the answer go to:
http://noir.bloomberg.com/apps/news?pid=newsarchive&sid=ajB_V60ULVkk
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European stock markets edged lower as investors digested details of the Irish banking bailout and Moody's downgrade of Spain. Oil ended at $79.90 up $2 and Gold was $1306. Several hedge funds must have large Oil positions.
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The HFT folks are smiling tonight as they count there pennies that add up to millions every day. With the DJIA up 100 then down 70 and finally closing down 0.5% the computer jocks and jockettes made all the money to today. Breadth was flat and volume light as September ended with a whimper.
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September 29, 2010

Model Portfolio Value As of 29 September 2010

$ 615,878


Thoughts

Asia was mostly lower overnight. Hewlett Packard raised earnings estimates and is trading 1% higher. Investors Intelligence has 43% bulls (41% last week) and 27% Bears (29%). It is a market truism that as prices rise folks become more bullish and as prices fall they become more bearish. That is known as buy high sell low and analysts are the greatest practitioners of this strategy.
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Bill Gross: Say Good-Bye To Double Digit Returns (CNBC)

In his investment outlook, Gross wrote that future investment returns will be “far lower” than the historical averages and a less levered hedge fund community, faced with lower yielding assets, will likely resign itself to “a high single-digit future…Some characterize it in biblical terms – seven fat years to be followed by seven years of lean,” he wrote.

http://www.businessweek.com/news/2010-09-28/druckenmiller-exit-marks-old-normal-end-gross-says.html
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Interesting take on tax cut extension:
While The Hill titles the article Dems, Obama Divided Over Locking In Bush Tax Cuts, the real news out of this article for me is the emergence of honest to goodness deficit hawks in the Senate (as opposed to the phony ones you see on Sunday talk shows. From the article:<

Several senators, including Democratic Policy Committee Chairman Byron Dorgan (N.D.), are hesitant about giving up an estimated $1.5 trillion in revenue over the next decade, when the federal deficit is unsustainable and there are no obvious spending cuts to fix it. They say it would be smarter to pass a short-term extension of the expiring Bush tax cuts for families earning less than $250,000, then re-evaluate tax policy in a year or two when the economy is stronger.

“I think a far better approach is to extend the middle-income tax cuts for two years and then make a judgment,” said Dorgan. “I don’t think we should get locked into any specifics. It locks us in to say this is going to be permanent,” added Sen. Tom Udall (N.M.). [. . .] Sen. Dianne Feinstein (Calif.), an influential member of the Senate Democratic Conference, said a temporary extension is “worth talking about.” [. . .] Sen. Sheldon Whitehouse (D-R.I.) said he would support a short-term extension of the middle-class cuts. “I think that’s a good idea,” he said. “As long as we get them extended now, so we get past the early part of next year with the economy still in extremis in a lot of states like my own.

(Emphasis supplied.) I think that President Obama has played the issue shrewdly - demanding permanent tax cuts for the middle class and vehemently opposing tax cuts for the rich. Real deficit hawks now have a position they can flock to - temporary middle class tax cuts and NO tax cuts for the rich. This can work. http://www.talkleft.com/
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Counterfeit Court Summons:
With each passing day, the revelations in mortgage-gate, which has for now implicated GMAC and JPMorgan in foreclosing on mortgages without titles, and will likely soon proceed through the entire mortgage origination industry like wildfire as more and more of those foreclosed upon begin to challenge the process (we wonder just what the statute on limitations for retroactive challenges is), are getting increasingly more bizarre. Today, courtesy of Alan Grayson's office we discover that not only are servicers foreclosing on mortgages to which nobody apparently owns the title, but that servicers, representing such reputable firms as Deutsche Bank National Trust Company, are willing to counterfeit court summons in their pursuit of a clean and efficient foreclosure mill. As Grayson's office points out: "Apparently what’s happening is that private process servicer companies may not be serving people with summons, and are simply counterfeiting the documents so they can keep the fees without doing the work. For the whole story http://www.zerohedge.com/article/mortgage-gate-just-got-wierder-counterfeit-court-summons
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Apple is taking over the world. Go to http://www.zerohedge.com/sites/default/files/29sep.pdf and scroll down to the heading on Apple.
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Quarter end is tomorrow and the markets seem to be marking time until that event. On Friday the Employment Report for September will be issued.
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Volume light, breadth flat, Gold $1310, Oil $77.35 and Europe lower as were U.S. market measures.
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September 28, 2010

Model Portfolio Value As of 28 September 2010

$ 615,878


Thoughts

Asian market were lower overnight and Europe is mixed at midday. Oil has a $75 handle as the trading day begins.
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Consumer Confidence came in at 48 versus 53 expected.
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(WSJ) Most European stock markets finished marginally lower Tuesday, as euro-zone sovereign-debt concerns and dismal economic data out of the U.S. stoked nervousness about the global economic outlook.
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Gold ended at $1308 up $10 and its first close over $1300.
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The DJIA was down 70; up 50; flat; and up 50 into the close. S&P 500 closed at 1148, right below 1150 resistance. Breadth was flat, financials mixed and volume light.
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September 27, 2010

Model Portfolio Value As of 27 September 2010

$ 615,878


Thoughts

Segwaying to the next life

Multi-millionaire Jimi Heselden, the owner of Segway Inc. since December 2009, has died after reportedly driving a Segway scooter off a cliff and into a river. http://www.huffingtonpost.com/2010/09/27/jimi-heselden-segway-boss_n_739983.html
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Asia was higher overnight playing catch up to Friday’s move in the states.
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From the Chicago Fed: Index shows economic activity weakened in August

Led by declines in production- and employment-related indicators, the Chicago Fed National Activity Index decreased to –0.53 in August from –0.11 in July. None of the four broad categories of indicators that make up the index made a positive contribution in August.

The index’s three-month moving average, CFNAI-MA3, declined to –0.42 in August from –0.27 in July. August’s CFNAI-MA3 suggests that growth in national economic activity was below its historical trend. With regard to inflation, the amount of economic slack reflected in the CFNAI-MA3 suggests subdued inflationary pressure from economic activity over the coming year.

http://www.calculatedriskblog.com/
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Stocks in Europe finished lower as fresh worries over the region's banking system overshadowed the day's relatively upbeat corporate news.
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The major measures closed mildly lower in light trading. Breadth was flat.
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September 24, 2010

Model Portfolio Value As of 24 September 2010

$ 615,858


Thoughts

Last night the markets were doom and gloom and this morning they are filed with frabjous joy as durable goods orders were better than and Ireland didn’t collapse into the ocean last night. Also CNBC interviewed a well known hedge fund manager who has been hot the last ten years as a guest this AM and he is bulllllllllllllllllllllllllllllllllish. Asian markets were mildly lower overnight as are European markets at midday. U.S. market measures will open 1% higher based on premarket futures trading. Gold hit $1300 per once overnight and Oil has a $75 handle as the trading day begins.
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It’s interesting how North Dakota, the state of rugged individualists who don’t want more government turn to that same wicked government for financial help when disaster strikes.

..... By the end of 2010, the federal government will have spent more than $1 billion to ease the threat, buying flooded property, building dikes and making other improvements. That figure does not include a $27 million floodwater-diversion channel built by the state on the west end of the lake. It also costs $330,000 a month for the electricity for pumps to take 1 inch off the lake....
http://www.huffingtonpost.com/2010/09/24/devils-lake-north-dakota-_n_737753.html
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European markets rallied as the U.S. markets did. Most bourses closed up 1% and higher.
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The major market measures gained 2% and the S&P ended right at 115 resistance. Two more days till quarter end. Volume was light.
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September 23, 2010

Model Portfolio Value As of 23 September 2010

$ 615,858


Thoughts

Many Asian markets were closed to celebrate the arrival of Autumn or Spring-depending and European markets are lower. U.S. futures are also lower as the trading day begins.
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In the week ending Sept. 18, the advance figure for seasonally adjusted initial claims was 465,000, an increase of 12,000 from the previous week's revised figure of 453,000. The 4-week moving average was 463,250, a decrease of 3,250 from the previous week's revised average of 466,500.
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Interesting anecdote http://www.talkleft.com/
The TL kid and I just got new laptops. I ordered him a Dell over Labor Day, which took two weeks to build and arrive, and when it did arrive, it had black screen death. After more than two hours on the phone with a very pleasant tech person in India, and later, his supervisor, it still shut down immediately after starting.

Most likely, it had conflicting components, and since they stopped offering the 1G video card in that model last week, I'd bet that was the problem. But whatever the cause, since a replacement would have come with an integrated video card when I paid for a 1G, I went back to Sony, who I've always had good results with. They are having a sale too, and after hours of internet shopping, where everyone offers slightly different features, the best deal turned out to be at the local Sony Style store. And I liked the one I was getting for him so much, I ended up buying one for me as well.

I'm not bashing Dell, I love their desktops, and most likely will buy my next one from them, but it was a disappointment. At least the return process was simple, and as I said, their tech people tried really hard to figure out what was wrong and were very pleasant.
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(Bloomberg) -- The index of U.S. leading indicators rose in August more than forecast, signaling the economy will keep expanding through early next year. The 0.3 percent gain in the New York-based Conference Board’s gauge of the prospects for the economy in the next three to six months follows a 0.1 percent increase in July. The index was forecast to rise 0.1 percent, according to the median estimate in a Bloomberg News survey of 56 economists. For more:
 http://noir.bloomberg.com/apps/news?pid=20601087&sid=aSUCJPO_dNf0&pos=1
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We eliminated HPQ and Intel and we are now all cash in accounts.
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What recession?

Savoir Beds, a 105-year-old luxury British company, opened its first store in New York last weekend. A cynic might wonder if the No. 1, the $50,000 mattress they were touting, was a marketing ploy, a question we put to Roger Ericson, the company’s London-based creative director. http://www.nytimes.com/2010/09/23/garden/23roadtest.html
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(WSJ) European stocks slumped as data showed Ireland's economy contracted again in the second quarter of the year, reigniting fears over the health of the euro-zone economy.
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The S&P 500 opened lower then rallied into positive territory but in the last hour the HFT computers took stocks down and the S&P 500 lower to 1124 off 10 points. The other major measures also closed lower. We expect the major measures to hold up into month end (which is also quarter end). Oil ended at $74.81 and Gold was unchanged at $1293. Volume was light and Breadth ended 2/1 negative.
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September 22, 2010

Model Portfolio Value As of 22 September 2010

$ 615,505


Thoughts

http://weblogs.marylandweather.com/2010/09/celestial_threefer_harvest_moo.html

(Baltimore Sun)  Wednesday night will be the night of the full Harvest Moon. The moon won't be perfectly full until 6:18 a.m. Thursday morning. But no one will be able to tell the difference. It's still, officially, the night of the Harvest Moon. So enjoy.

The Harvest Moon, by the way, is defined as the full moon closest in time to the autumnal equinox. That, as it happens, occurs 10:23 p.m. CDT on Wednesday evening, so it would be hard to get a much more definitive Harvest Moon.

Also appearing on this busy evening is the planet Jupiter, which many skywatchers have been admiring for weeks (see posts below) as it gleams brightly in the eastern sky after sunset. Jupiter was at opposition early this morning, directly opposite the sun as seen from Earth.

The Earth reaches opposition with Jupiter once a year, as both planets orbit to the same side of the solar system. That also makes it their closest approach of the year. 

And it takes Jupiter 12 years to circle the sun once. So once on each of Jupiter's orbits of the sun, it passes perihelion - the point in that slightly lopsided orbit that is closest to the sun and therefore also to the inner planets, including Earth.

This year, opposition and Jupiter's perihelion are occurring at nearly the same time. That makes this the nearest Earth and Jupiter will be until 2022. Amateur astrophotographers are having a field day with Jupiter. There's a gallery of their images here.

So if you have a pair of binoculars, or a small telescope take a few minutes to get a look at Jupiter. Even in binoculars, Jupiter appears as a round disk, not a point of light. And if you hold the glasses steady enough, you should be able to pick out as many as four of the planet's Galilean moons, strung out like tiny beads on either side of the planet.

Even if you just step outside this evening, or Wednesday evening, and look with only your eyes, you're sure to be impressed by Jupiter's brilliance in the evening sky, and the moon's. Jupiter remains in the sky all night this month, rising from the east to its highest point at midnight, before moving toward the western horizon before dawn.

Which brings us to the third event of the night of Sept. 22/23. Soon after the Harvest Moon begins climbing into the eastern sky, look for Jupiter to rise close behind it. The two brightest objects in the sky this month will be in "conjunction" on this evening, separated by about the width of your hand held at arm's length.
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Blockbuster files bankruptcy. Netflix is king.
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Asia was mixed and Europe is lower. Adobe had better than earnings but was moderate in its forecast going forward and the pooh bahs have decided the stock is a sell and it is down 20% in early trade. We may pick up a few shares for an anchovy trade.
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(Yahoo/Finance) Adobe Systems Incorporated operates as a diversified software company in the Americas, Europe, the Middle East, Africa, and Asia. It offers a line of creative, business, Web, and mobile software and services used by creative professionals, knowledge workers, consumers, original equipment manufacturers, developers, and enterprises. The company’s Creative Solutions segment focuses on solutions for professional publishing, Web design and development, professional photography, video production, animation and motion graphic production, and printing visually rich information. Its Business Productivity Solutions segment provides applications and services to share information and collaborate; and server-based enterprise interaction solutions that automate people-centric processes. The company’s Platform segment offers developer solutions and technologies, including Adobe Flash Player, Adobe AIR, and Flash Builder, which are used to build rich application experiences in addition to solutions that create experiences through rich content, user interfaces, and data services on mobile and non-PC devices, such as cellular phones and consumer devices. Its Print and Publishing segment includes products and services that address market opportunities ranging from the diverse publishing needs of technical and business publishing, and OEM printing businesses. The company’s Omniture segment provides Web analytics and online business optimization products and services to manage online, offline, and multi-channel business initiatives. Its software runs on personal computers with Microsoft Windows, Apple Mac OS, Linux, UNIX, and various non-PC platforms. The company distributes its products through a network of distributors, value-added resellers, systems integrators, independent software vendors, and OEMs directly to end users and through its Website adobe.com. It has a strategic alliance with Conviva, Inc. The company was founded in 1982 and is headquartered in San Jose, California.
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Like Lemmings Off A Cliff

Abode Systems downgraded at Credit Suisse to Neutral from Outperform on lack of near term catalysts and expecting revenue to decline next 4 quarters. Price target $32.50.
Adobe Systems downgraded at ThinkEquity from Buy to Hold. $30 price target. Weaker demand could extend into the new year.
Adobe Systems downgraded at UBS from Buy to Neutral. $30 price target. Earnings momentum has slowed down, which could cut into the company's multiple.
Adobe Systems downgraded at Baird from Outperform to Neutral. $36 price target. Company gave disappointing guidance and the stock lacks near-term catalysts.
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Inventors’ Intelligence has Bulls 41% versus prior week’s 37% and bears 29% versus 31%.
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We sold the rest of our Nvdia. Hopefully we can buy it back lower in the next few months. We also cut our Intel position in half and reduced our HPQ. We are looking for a trade in JCG with the HPQ money but haven’t pulled the trigger yet.
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Larry Summers is leaving the White House and going back to Harvard where he made a mess too when he was President. Hopefully Summers is gone for good. He didn’t do too much as the Repubs suggest; he did too little especially on the stimulus.
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The major market measures closed mildly lower on Wednesday in light trading. Breadth was negative. European bourses also closed lower. Gold was $1292 and Oil ended at $74.70.
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September 21, 2010

Model Portfolio Value As of 21 September 2010

$ 616,539


Thoughts

The Fed meets today and will issue its mumbo jumbo comment at 1:15PM. Ireland and Spain sold debt and Europe rejoiced while Asia was lower overnight. Housing starts were up 10% in august versus a low July number. Today is Turnaround Tuesday and the Equinox approaches as does the full moon.
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Commentary on the hedge fund industry and regulation:
http://noir.bloomberg.com/apps/news?pid=newsarchive&sid=axJGGMCSBE5Y
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Matt Taibbi: http://www.rollingstone.com/politics/matt-taibbi/blogs

Billionaire Bailout Recipient to America: "Suck It In and Cope, Buddy"

Readers, I am in the middle of a deadline and therefore half-insane, but this just had to be passed along without delay. Check out billionaire vice-chair of Warren Buffet's Berkshire Hathaway, Charles Munger, telling people in economic distress that they must "suck it in and cope" and that they should "thank God" for bank bailouts.

A little background here: Buffet and B-H made a $5 billion equity investment in Goldman Sachs at the height of the financial crisis. If Goldman doesn't get $13 billion via the AIG bailout, that investment vanishes. If Goldman doesn’t get handed a federal bank charter overnight (allowing them to borrow huge amounts of cheap cash from the Fed) and doesn't get a ban on short-selling and doesn't get $10 billion from the TARP, again, B-H loses that $5 billion. Moreover Berkshire-Hathaway is the largest shareholder in Wells Fargo, which got $25 billion from the TARP and also had government help in acquiring Wachovia in a shotgun wedding for $12.7 billion (W-F balked at buying Wachovia until it was given about $25 billion in tax breaks by the government).

So that's just two of Berkshire-Hathaway's biggest investments that collectively received at least $70 billion in government aid during the bailouts, by my count (this doesn't even include the various Fed facilities and lesser-known bailout programs that helped banks like Goldman and Wells-Fargo stay afloat). And this Munger guy wants to tell us that this is no problem, but individuals who think the government should have bailed them out are whiners and malingerers. Here's how he put it at a discussion at the University of Michigan, per Bloomberg:

At the Michigan event, [one questioner] asked whether the government should have bailed out homeowners instead of Wall Street, Munger said: "You've got it exactly wrong."

There’s danger in just shoveling out money to people who say, ‘My life is a little harder than it used to be,’” Munger said at the event, which was moderated by CNBC’s Becky Quick. “At a certain place you’ve got to say to the people, ‘Suck it in and cope, buddy. Suck it in and cope.’”

I’m not sure individuals should have gotten a bailout either. But if billions of bailout dollars helped pay your Christmas bonus, then on that subject, I think, the correct move is to (just) shut up.
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The Fed said it will help the economy if the need arises. The major market measures rallied ½% on the news. Or rather the HFT computers pushed the major measures ½% higher on the news.
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The major measures gave up their gains in the last half hour of trading and closed mixed on the day. The three stocks we still own in the Model closed higher on the day. Breadth was negative and volume was light.
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September 20, 2010

Model Portfolio Value As of 20 September 2010

$ 614,365


Thoughts

Sell when you can, not when you have to.

Buy Rosh Hashanah, sell Yom Kippur

The full (harvest) moon (9/23) is in conjunction with the autumnal equinox (9/23).

We sold on Friday and today. The major market measures are up too many days in a row for our comfort. With the present market it is either feast or famine. We have had a good run and we aren’t pigs. Stocks are anchovies until the SEC reigns in the HFT traders which isn’t going to occur anytime soon.

We are holding Intel, Hewlett Packard and Nvdia.
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Diane Swonk, Mesirow Financial Chief Economist

NBER Declares the Recession "Officially Over"

The National Bureau for Economic Research (NBER), the group which is charged with officially dating business cycles, has finally declared an end to the Great Recession of 2008-2009. As expected, the economy "officially" hit a trough in June 2009, some fourteen months ago. The committee was careful to stress, however, that just because the economy hit a trough doesn't mean that conditions since then have been favorable - in case you missed how bad things have been since then. They also stressed that any subsequent downturn would now be considered a separate event, or could be called, in layman's terms, a "double dip," rather than an extension of the previous recession.

I know that this all seems like a game of semantics and in many ways it is. What it does confirm, however, is that as bad as things are, it could be worse. That isn't much to go on, but it is better than the alternative. The length of time it took to determine when the trough occurred is testimony to how weak the recovery has been given the depth of the losses we have endured. We still have a long way to go to repair the damages, some of which were more than thirty years in the making.
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(WSJ) Asian stocks posted a mixed finish, with China shares falling to their lowest level in more than five weeks over concerns Beijing will move to tighten lending in the banking sector.
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The major market measures gained 1.5% and more in light trading. Breadth was 3/1 positive. European bourses also closed higher.
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Happy anniversary to Bette and Jody - 33 years

September 17, 2010

Model Portfolio Value As of 17 September 2010

$ 613,874


September 16, 2010

Model Portfolio Value As of 16 September 2010

$ 615,357


Thoughts

We will be taking tomorrow off so the next post is Monday September 20.
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(minyanville.com) Ford Motor is boosted to Overweight from Equal Weight at Barclays Capital, its price objective also increasing to $16 from $15 which would allow for 34% potential upside from Wednesday's close. It cites Ford's "favorable product" and "stripped-down cost base" among the positives.
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(Bloomberg) -- Applications for U.S. unemployment benefits unexpectedly fell last week to the lowest level in two months, a sign the labor market is improving.

Initial jobless claims dropped by 3,000 to 450,000 in the week ended Sept. 11, Labor Department figures showed today in Washington. The median forecast was for a rise to 459,000, according to a Bloomberg News survey. The total number of people receiving unemployment insurance fell, and those getting extended payments plunged.
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Asia was lower overnight and Europe is lower at midday. U.S. futures look to open lower and Oil is $75.15.
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(TheStreet) -- Micron Technology (MU) shares took a hit Wednesday after Goldman Sachs dropped the bullish stance it took on the chip maker's stock back in June. The firm downgraded the stock to neutral from buy and cut its 6-month price target by 35% to $7.85 from $12, saying it anticipates Micron will see weakness in its main DRAM business because of booming demand for tablet computers, which typically have less memory than notebooks or netbooks. "[W]e underestimated the impact tablets would have on the PC supply chain, with tablets cannibalizing notebooks faster and to a greater degree than we had expected," Goldman said in a note to clients, adding later that it now expects to see DRAM excess capacity "beginning to materialize in 4Q10 versus our prior expectation that DRAM shortages would persist through year end."

We bought on the drop.
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Europe closed lower. U.S. stock measures closed mixed in light trading. Breadth was slightly negative. Financial and bank stocks can’t get out from their shadows and are a damper on the overall markets. Tonight and tomorrow are Witching days and also Yom Kippur is tomorrow night and so trading will probably be slow.
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September 15, 2010

Model Portfolio Value As of 15 September 2010

$ 611,451


Thoughts

Asia was mixed with Japan up 2% and Europe closed slightly lower but firm.
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We bought Micron Technology in accounts at $7. Yahoo/Finance: Micron Technology, Inc., together with its subsidiaries, engages in the manufacture and marketing of semiconductor devices worldwide. Its products include dynamic random access memory (DRAM) products that provide data storage and retrieval, which include DDR, DDR2, DDR3, and other specialty DRAM memory products, such as SDRAM, mobile DRAM, pseudo-static RAM, and reduced latency DRAM. The company also offers NAND flash memory products, which are electrically re-writeable and non-volatile semiconductor devices that retain content when power is turned off. Micron Technology’s products are used in a range of electronic applications, including personal computers, workstations, network servers, mobile phones, flash memory cards, USB storage devices, digital still cameras, MP3/4 players, and in automotive applications. It sells its products to original equipment manufacturers and retailers through internal sales force, independent sales representatives, and distributors, as well as Web-based customer direct sales channel. Micron Technology, Inc. has joint ventures with Intel Corporation, Singapore Economic Development Board, Canon Inc., and Hewlett-Packard Company, Nanya Technology Corporation, and Photronics, Inc. The company was founded in 1978 and is headquartered in Boise, Idaho.

Book value over $7 and priced at one times revenues.
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The major stock measures closed higher in light trading. Breadth was flat. Oil ended at $75.69 and Gold was 1269.
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September 14, 2010

Model Portfolio Value As of 14 September 2010

$ 611,037


Thoughts

Now they worry?

(Bloomberg) -- The U.S. Securities and Exchange Commission has spent 15 years remaking the stock market into 11 competing exchanges and hundreds of computer-driven traders. In the process it has virtually eliminated the traditional market makers who bought and sold stocks when no one else would. Now the SEC is concerned the revolution has gone too far, leaving markets vulnerable when selling starts to snowball. Chairman Mary Schapiro called on the agency last week to examine whether the loss of “old specialist obligations” has hurt investors after measures such as trading stocks in penny increments cut the number of those firms on the New York Stock Exchange to 5 from 25 in 2000. With market making now dominated by hundreds of automated traders with few rules for when they must buy and sell, the SEC will consider ways to keep the biggest from abandoning the market at the first sign of trouble. http://noir.bloomberg.com/apps/news?pid=20601010&sid=amUfMuMGP9XM
*****

Asia was mixed overnight; Europe is lower at midday; and Oil has a $76 handle.
*****

Retail sales were a bit better than expected and futures are flat ahead of the opening. With four up days and it being Turnaround Tuesday in a Witching week we would not be surprised by a down day.
*****

Open the chart.

http://gizmodo.com/5637188/is-this-the-reason-why-most-military-projects-go-over-budget
*****

Hewlett-Packard Co, on Monday, took another step toward becoming a more diverse software-based company by agreeing to buy ArcSight Inc. for about $1.5 billion in cash. Palo Alto, California-based H-P will pay ArcSight investors $43.50 a share, a 24% premium over the stock's closing price on Sept. 10. ArcSight makes security software to help companies identify suspicious activity on their corporate networks. Story continues at http://seekingalpha.com/article/225081-hp-continues-its-business-makeover-with-arcsight-acquisition?source=yahoo
*****

The media and even the president use the $250,000 figure in the tax cut debate, probably because it is simple. Actually many folks making $300,000 and more will pay no more since the tax rates apply after deductions for mortgage interest expense, state and local and real estate taxes and also donations etc.
*****

We added to our Medtronic’s holding and also to Boston Scientific. BSX is on its all time low.
*****

Reuters) - Shares in Cisco Systems rose on Tuesday after CNBC television said the company will start paying a dividend with a yield of between 1 and 2 percent beginning in 2011.
*****

The major market measures opened mildly lower, then traded higher most of the day and closed mixed with the DJIA and the S&P 500 down and the NAAZZ higher. Breadth was positive but financials couldn’t rally and that was the drag. Volume was light.
*****

 

September 13, 2010

Model Portfolio Value As of 13 September 2010

$ 607,690


Thoughts

(Bloomberg) -- Hewlett-Packard Co., the world’s biggest personal-computer maker, agreed to buy ArcSight Inc. for about $1.5 billion in cash to gain security software. With cash yielding nothing using cash on hand to expand business opportunities makes sense.
*****

Asia and Europe were higher overnight and Oil has a $77 handle. Gold is $1244.
*****

We added shares of Applied Materials to accounts that own it. It has a 2.6% yield and is Priced at less than $10 times next year’s earnings.
*****

The major market measures made it four days plus in a row with the S&P 500 up 1% and the NAZZ up 2%. Friday is Quintuple Witching so the week could be volatile. Breadth was 4/1 positive and volume was light.
*****

 

September 10, 2010

Model Portfolio Value As of 10 September 2010

$ 599,771


Thoughts

Las Vegas Midwest:

(Bloomberg) -- CBOE Holdings Inc., operator of the largest U.S. options market, asked regulators for permission to become the nation’s first to list contracts that expire in as little as one day.

The daily options would be linked to as many as 200 stocks, exchange-traded funds, exchange-traded notes and indexes, according to a filing with the Securities and Exchange Commission dated Aug. 24. The contracts may have terms of one, two, three or four days, the owner of the Chicago Board Options Exchange said. The options will “provide market participants with a tool to hedge overnight and weekend risk, as well as the risk of special events such as earnings announcements and economic reports, and pay a fraction of the premium of a standard or weekly option,” CBOE said in the filing, which was posted on the firm’s website.
*****

Asia was higher overnight. Gold $1247 and Oil has a $75 handle as the trading day begins.
*****

American Eagle Outfitters said in a regulatory filing that its Chairman Jay Schottenstein this week bought 500,000 shares at $13.58 a share.
*****

Cisco is on a 12 month low and at 15 times earnings. We added shares to accounts that own Walgreen. We also bought Applied Materials in accounts that own Medtronic and added shares of Dell to larger accounts
*****

A friend mentioned that the fool pastor in Florida who wants to burn Korans is probably receiving thousands of dollars in checks from around the country. Our friend is in direct mail and solicitations and he says that when any of these fools is on TV other fools who agree send money to show their solidarity. Only in America.
*****

The major stock measures closed mildly higher in light trading. European bourses were mixed.
*****

 

September 9, 2010

Model Portfolio Value As of 9 September 2010

$ 597,180


Thoughts

With a dearth of information the markets have rallied on a Jobless claims number that was better than expected at 451,000 job losses for the week. Asian markets were higher overnight as are European markets at midday. U.S. futures will have a slightly higher opening.
*****

Major stock measures closed higher in light trading. European bourses were higher at their close.
*****

 

September 8, 2010

Model Portfolio Value As of 8 September 2010

$ 596,925


Thoughts

Rosh Hashanah begins tonight. L'shanah tovah.
*****

Asia was lower overnight again but Europe is higher at midday and U. S. futures point to a positive opening. Oil has a $74 handle as the trading day begins.
*****

United Health Care playing games with folks again, so what else is new? http://www.latimes.com/business/la-fi-pacificare-unitedhealth-20100908,0,6380098.story
*****

DJIA Performance during the Great Depression

http://owneverystock.com/2009/03/04/dow-jones-average-during-the-great-depression.aspx
Year
Prior
Year
Closing
Price
Year
End
Closing
Price
Change
% Gain/
(Loss)
1929 248.48 164.58 -83.9 -33.77%
1930 164.58 77.9 -86.68 -52.67%
1931 77.9 60.26 -17.64 -22.64%
1932 60.26 98.67 38.41 63.74%
1933 98.67 104.04 5.37 5.44%
1934 104.04 144.13 40.09 38.53%
1935 144.13 179.9 35.77 24.82%
1936 179.9 120.85 -59.05 -32.82%
1937 120.85 154.36 33.51 27.73%
1938 154.36 149.99 -4.37 -2.83%
1939 149.99 131.13 -18.86 -12.57%
1940 131.13 110.96 -20.17 -15.38%
1941 110.96 119.4 8.44 7.61%
1942 119.4 135.89 16.49 13.81%
1943 135.89 151.93 16.04 11.80%
1944 151.93 192.91 40.98 26.97%
1945 192.91 177.2 -15.71 -8.14%
1946 177.2 181.16 3.96 2.23%
1947 181.16 177.3 -3.86 -2.13%
1948 177.3 200.52 23.22 13.10%
1949 200.52 235.42 34.9 17.40%

*****

The tech analysts at UBS this morning went into full-scale retreat mode on PC-related technology shares, as they slashed their 2010 PC unit growth forecast to 13.1%, from 18.4%, while chopping their 2011 view to 9.1% growth, from 9.4%. For further info see http://blogs.barrons.com/techtraderdaily/2010/09/08/retreat-ubs-cuts-pc-outlook-downgrades-intel-hp-others/?mod=yahoobarrons. The analysts downgraded Hewlett Packard and Intel among others to hold from buy. Intel trade at $24 this year and now is at $18. HPQ traded at $54 and now is at $39. We would suggest these folks are a little late in removing their buy recommendations.

We bought more Intel on the downgrade. With a 3.5% yield when cash yields nothing and 25% off its high we are content to take the short term risk for longer term gain. We also added more GE with a 3% yield to larger accounts
*****

(Yahoo/Finance) The Mortgage Bankers Association reported a 1.5% decline in mortgage applications for the week ending Sept. 3 versus a 2.7% increase in the prior week. The decline in the latest report was driven by a 3.1% drop in refinancing applications; however, it is worth noting that purchase applications increased 6.3%, which marks the seventh increase in the last eight weeks.
*****

HPQ is busy. They are selling $3 billion in bonds, suing Oracle and looking for a new CEO.
*****

The major measures closed higher in light trading. The NAZZ was up 1% while the DJIA gained 0.50% as it was held back by weakness in Intel and HPQ. Breadth was positive. European bourses also closed higher. Gold was flat at $1250 and Oil ended with a $74 handle.
*****

 

September 7, 2010

Model Portfolio Value As of 7 September 2010

$ 594,178


Thoughts

Today is the day the markets worry again about European bank solvency. The WSJ has an article about the way the banks accounted for the debt of countries in Europe that was held on their books. This crisis will have the life span of a butterfly but it makes for interesting trading. Markets look to open lower after the rally of the last week. Our guess is that the rally mode will continue intermittently until the November elections. After that our crystal ball is cloudier.
*****

Late Friday we switched BB&T Banks to Fifth Third Banks.
*****

Asia was lower on Tuesday as is Europe at midday after both Asia and Europe were higher on Monday. Oil has a $73 handle and Gold is at $1255.
*****

Krugman: http://www.nytimes.com/2010/09/06/opinion/06krugman.html?src=me&ref=homepage
*****

Towards the close we added more shares of Chico’s to accounts. This article gives a good rundown on the pluses:

http://seekingalpha.com/article/222728-chico-s-fas-another-chance-to-invest-in-new-management?source=yahoo
*****

Stocks were 1% lower in light post holiday trading the major measures closed down 1%. European markets also closed lower.
*****

 

September 3, 2010

We are taking the next few days off from regular posting. As in the past there may be some random posts and the Model Portfolio value will be posted daily. The markets are the markets and the big boys and girls will have their HFT fun whether we are sitting here or away. We own good stocks at good prices and have cash on the sidelines if the markets continue their black swan dive. We will return on Tuesday September 7.

Model Portfolio Value As of 3 September 2010

$ 601,006


Thoughts

The Employment Report was better than on Friday and the previous two months were revised positively and those numbers led to an early morning rally that held. The U.S. lost 54,000 nonfarm jobs in August, the Labor Department said. The decline was smaller than the 105,000 loss expected. Excluding census workers and other government employees, nonfarm payrolls expanded by 67,000 in August, higher than the 30,000 gain expected. The unemployment rate ticked higher to 9.6% in August from 9.5% in the previous month and was in line with expectations. Both June and July payroll employment were revised up. June was revised from -221,000 to -175,000, and the change for July was revised from -131,000 to -54,000. Guess the market drop when the July numbers were reported shouldn’t have been Oh well.
*****

Walgreen said comparable-store sales for August rose 2.1%. That included a 0.7% increase in non-pharmacy sales and a 2.9% gain in pharmacy sales. Total sales rose 8.6% to $5.66 billion, including contribution from its April purchase of former rival Duane Reade.
*****

We sold KBE, KRE, Alcoa, and J Crew. After the four day 5% rally we want to take a few dollars off the table. We use the bank ETFs (KBE, KRE) as market substitutes and are trading out on the rally in the markets. There are no specialists anymore (in name only) and with HFT (high frequency computer trading) controlling the markets the daily share price moves in individual companies are outsized and tradable. We will continue to trade around core positions. We did add shares of Intel to accounts. It is cheap at less than 10 times forward earnings and with a 3.5% yield
*****

 

September 2, 2010

We are taking the next few days off from regular posting. As in the past there may be some random posts and the Model Portfolio value will be posted daily. The markets are the markets and the big boys and girls will have their HFT fun whether we are sitting here or away. We own good stocks at good prices and have cash on the sidelines if the markets continue their black swan dive. We will return on Tuesday September 7.

Model Portfolio Value As of 2 September 2010

$ 594,291


Thoughts

There have been fourteen 90% down days since April and thirteen 90% up days since April including yesterday. 90% upside/downside days used to be a rare occurrence until the advent of HFT trading. A 90% Upside Day means that the NYSE Upside Volume / (NYSE Upside Volume + NYSE Downside Volume) is greater than 90% AND the Points Gained / (Points Gained + Points Lost) is greater than 90%.
*****

90% days used to signal turns in the markets. Now they just signal that the computer jockeys are controlling day to day trading.
*****

Dell and Hewlett Packard are engaged in a bidding war for 3Par which is a ‘cloud computing’ company ( http://en.wikipedia.org/wiki/Cloud_computing . The bid price has now risen to almost $3 billion. We think HPQ will win the bidding war. HPQ is down because CEO Hurd left by request and analysts think the company will suffer. We have never been enamored of CEOs being indispensable and we view the price drop as a buying opportunity with the shares trading at 10X earnings. HPQ can well afford $3 billion and since cash is earning nothing these days the cost of 3Par while high will provide HPQ with and area of storage that it is lacking.
*****

Dell made an initial $1.5 billion bid to enter a new area of computing and lessen its dependence on hardware. They too have enough cash to fund a high offer. If they lose Dell will receive a $75 million breakup fee which should pay the lawyers with some left over for candy.

At 10AM Dell said it wouldn’t raise its offer to match HPQ. Both stocks rallied.
*****

We are adding Chico’s to some accounts. This article gives a good rundown on the pluses: http://seekingalpha.com/article/222728-chico-s-fas-another-chance-to-invest-in-new-management?source=yahoo
*****

American Eagle news: http://blogs.barrons.com/stockstowatchtoday/2010/09/02/aeo-rises-as-august-sales-q3-forecast-meet-estimates/?mod=yahoobarrons .
*****

 

September 1, 2010

Model Portfolio Value As of 1 September 2010

$ 586,448


 

 

 

 

 

 

 

 

 

 

 

 

 



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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.