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Lemley Yarling Management Co
309 W Johnson Street
Apt 544
Madison, WI 53703
Bud: 312-925-5248       Kathy: 630-323-8422

August 29, 2014

Model Portfolio Value As of 29 August 2014

$ 755,852

Comment on Model Portfolio activity
Travelin' out west, back in two weeks.



August 22, 2014

Model Portfolio Value As of 22 August 2014

$ 752,893

Comment on Model Portfolio activity

Late last Friday we added JC Penney, Sprouts Farmers Markets and Verizon to accounts and sold GM common maintaining our position in the warrants.

We have trade Spouts profitable this year and purchased after the shares dropped 10% on news of a placement of 10 million shares being sold by an institutional insider. The company had just reported strong earnings and sales. The insider’s investment firm still has large position.

We bought Verizon for the yield/trade as we have done several times over the past few years and took a flyer on Penney after a more positive quarterly report.

We added a few shares of Old Second Bank to accounts this week. We have followed the bank for years and traded it a few times. OSBC almost went under in the 2009 to 2011 banks blowups but seems to have managed to survive. Right before the 2009 collapse the bank purchased a bank that had a bunch of terrible real estate loans on its books- only obvious after the purchase- and has suffered for years trying to work those loans off the books.

In April the bank sold 15 million shares of stock to raise money to pay off preferred shares issued to the FDIC to maintain solvency. Insiders purchased shares at that time and recently purchased more shares. Insiders now have an 18% interest in the bank. There has been consolidation in the Chicago area for years and if OSBC continues to improve we are guessing that a larger Bancorp may decide to acquire them to get exposure in Aurora.

The next major market move probably won’t be occurring until after Labor Day- if then.



August 15, 2014

Model Portfolio Value As of 15 August 2014

$ 752,585

Comment on Model Portfolio activity

We took trading profits in Walgreen, GM, and Deere and scratched on Sprint. We remain nervous traders of event and earnings news with an eye towards a significant correction soon. Not always right but…..



August 8, 2014

Model Portfolio Value As of 8 August 2014

$ 751,362

Comment on Model Portfolio activity

Walgreens and Sprint were on sale this week after both dropped 25% in price on negative news. Walgreens dropped because it decided not to do an inversion which would have save it $4 billion in taxes over the next number of years. Of course U.S. taxpayers would have had to make up the difference and since U.S. taxpayers are Walgreen customers the folks at WAG decide that the inversion wouldn’t have been such good business practice.

Sprint dropped because its merger with T Mobile was called off and the arbitrageurs had to unwind positions. Moreover talk of Sprint not being able to compete again surfaced. Softbank, the Japanese conglomerate owns 70% of Sprint and the Japanese take the long view so not to worry.

We have traded both stocks over the past few years having good success with WAG but not so much with Sprint.

We also repurchased AT&T and Cisco both slightly lower than our last sales and Deere and GM both down 15% from our last sales.

Even with these purchase most accounts remain 70% or more cash.

The markets are keying on Putin and the Ukraine. If he invades the 20% correction will occur. If not, the correction may be put off till the fall.



August 1, 2014

Model Portfolio Value As of 1 August 2014

$ 752,263

Comment on Model Portfolio activity

We headed to the sidelines before the big drop on Thursday taking scratch profits. We are holding onto the GM Warrants but that is all. We don’t know when but we do know Mr. Market likes to frustrate everyone. July was the first down month in a while – though the down was insignificant and we continue to look for earnings disappointment trades. August brings retail and a few tech earnings reports.

Two articles we found interesting for your reading enjoyment:

 The Huffington Post July 29:

'Patriotic' Big Banks Profit Helping U.S. Companies Dodge Taxes

The Huffington Post  | By Mark Gongloff

After wrecking the U.S. economy and sucking hundreds of billions of dollars from American taxpayers for their own survival, what can our patriotic big banks do for an encore? Why, help American companies flee the U.S. to avoid taxes, of course. For America!

Andrew Ross Sorkin had a must-read New York Times column on Tuesday about how some of our biggest bailout recipients also have the biggest share of the nearly $1 billion banks have made in the past few years helping U.S. companies do "inversions." That's when an American company buys a company in an foreign country that has a lower tax rate and then moves its headquarters to that country to shave a few points from its tax bill, possibly costing the U.S. government $19 billion over the next decade. For America.

And you'll never guess which bank has made the most money on this patriotic activity! OK, you'll probably guess: It is Goldman Sachs: Yes, the Vampire Squid has made more than $200 million advising companies on 10 different inversion deals since 2011, according to the NYT's crunching of Thomson Reuters data. The second-busiest inversion handmaiden is Morgan Stanley, with 8 deals at nearly $98 million. JPMorgan Chase has made more than $184 million on 6 such deals, and JPMorgan CEO Jamie Dimon has taken the extra step of publicly defending the practice, Sorkin noted.

“We have a flawed corporate tax code that is driving U.S. companies overseas,” Dimon recently said on a conference call. “Even if you stop and say, ‘Don’t invert,’ capital will move away.”

And then Dimon added this hilarious kicker: "I'm just as patriotic as anyone." Which is a little like the "some of my best friends are black" racism defense.

I dare say that Jamie Dimon might not be exactly as patriotic as anyone, like, say, a soldier holding it down at a forward operating base in Afghanistan or, I don't know, maybe the CEO of a company that decides against doing an inversion for reasons of actual patriotism.

But Jamie Dimon is not the first person in a Sorkin column to declare their undying love of country while doing the opposite thing. In a recent column titled "Reluctantly, Patriot Flees Homeland for Greener Tax Pastures," Heather Bresch, the CEO of drug maker Mylan, called herself a patriot as she reluctantly packed her bags to reluctantly move her company forever to the Netherlands, in order to reluctantly cut her company's tax bill from 25 percent to the "high teens."

Dimon and other defenders of inversions claim they keep U.S. companies competitive and so are truly patriotic. If only the U.S. would cut corporate tax rates, they say, then these companies would stop running away. But most of these companies already pay far less than the statutory tax rate of 35 percent. And one tax professor told Sorkin that the U.S. would have to cut its corporate tax rate to less than 10 percent to have any real effect.

Unlike Dimon and Bresch, many bankers involved in inversions apparently have normal human shame responses and thus declined to comment to Sorkin on the record about inversions. One told Sorkin, anonymously:

“This is going to sound cynical, but as much as I may hate these deals and the ramifications for our country, if I don’t do the deal, my competitor across the street will be happy to do it."

Pro tip: If you ever hear an investment banker start a sentence off with "This is going to sound cynical," you'd better brace yourself for a blast of weapons-grade cynicism right in the face.

President Obama has called for Congress to stop inversions, so of course they will probably go on forever. But if even Andrew Ross Sorkin, who usually struggles to find reasons to criticize Wall Street, is angry about them, then maybe the chances are a little better than we thought.

Jeff Saut wrote on July 24

"The biggest seller on the NYSE today has been NoDoz!?"

-Art Cashin, Director of Floor Operations at UBS Securities

I have spent many a night with Art Cashin at Bobby Van's directly across from the NYSE. Artie should actually write a book because there are not many of us left!

The stories he tells are unrivaled in stock market folklore, and it will be sad if those tales are not recorded for future generations. The same experience happened to me in a limo ride a few months ago with legendary investor Ron Baron, eponymous captain of Baron Capital. Ron founded Baron Capital with $10 million in 1982 and his assets have grown to over $27 billion since then.

During that limo ride Ron said to me, "There are not many of us left!"

Of course, the "us" in question is me! Indeed, in the next 25 years, there will be very few of us who experienced the "crash" of 1987; so, Art, write a book! I was actually in Barron's magazine in September of 1987 suggesting that there was going to be a "waterfall decline." Of interest is that said "crash" commenced 64 months into the recovery in stock prices. Also of interest is that the 1929 recovery rally peaked at 64 months, the Nikkei 225 (INDEXNIKKEI:NI225) peak took 65 months, and the NASDAQ 100 (INDEXNASDAQ:NDX) peaked at 64 months; so, the 64/65 month timing point historically seems significant, at least to me, although I am not expecting anything like a crash here. Yet, this month is month 64 from the "nominal bottom" of March 2009 and next month is month 65.

Yesterday, however, I received this note from one disgruntled advisor. "I read your weekly strategy reports almost every week. I found this morning's annoying. You said, 'a few weeks ago I turned more cautious on a near-term basis.'  Nonsense! You have been calling for a 10 to 12% pullback for at least 7 of 8 months. Have I been misinterpreting your comments for the last 7 or 8 months?"

My response was, "I have repeatedly said that coming into the year we were due for a 5 - 7% pullback in the first 3 months of the year based on the historical odds. And, that those same odds suggest we are due for a 10 - 12% drawn-down sometime this year. Whether we started it 3 weeks ago when we traveled into the 1950 - 1975 target zone, triggered by the April 15, 2014 upside reversal session at SPX (INDEXSP:.INX) 1816, is unknowable. So it is true, I have said there should be a 10 - 12% pullback sometime this year, but I have not been calling for it for the past 8 months and I do have the documentation to prove that."

Today is a big day for stocks given the consecutive "inside days" trading range. With the
Ukraine rebels handing over the "black box," a breach of Monday's high or low price could foster a trading surge
































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