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Lemley Yarling Management Co
309 W Johnson St
Apt 544
Madison, WI 53703
Bud: 312-925-5248

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18 August 2023

We are taking the rest of August off. The next post will be September 8. We'll be back at work the Tuesday after Labor Day. As always, we'll be watching and trading if advisable.

We raised cash taking small losses and scratch profits because we won't be back till September. Our largest accounts are 70% and more cash; Most others are 60% and more cash. Our small subsidiary accounts are as usual mostly invested.

We currently own: GM 1% yield 4X earn and Ford 5%-5X (both too cheap vs Tesla); Truist Bank 7.2%-7X, Fifth Third Bank 5%-8X, and Key Banks 7.5%-9X; Nordstrom 4%-9X, Macy's 4.5%-5X, The Gap 5.7%-17X and Under Armour 0=14X%; and AMC Entertainment 0%-2X and Hain Celestial 24X-0%. Our cash substitute Wisdom Tree 7-day Floating Rate Treasury ETF yielding over 5%.


Markets seemed to be in a late summer doldrum this past week. The Super Seven paused and our Bank stocks floundered as Fitch said they were reviewing all bank stocks because of their downgrade of U.S. debt on July 31 to AA+ from AAA. (But on Tuesday, Fitch Ratings cut the U.S. debt by one notch, from AAA to AA+, partly in response to how the federal government handled the debt crisis two months ago. That move mirrored a similar downgrade by S&P in 2011, also following a debt ceiling standoff in Congress.)

We would understand downgrading U.S. debt when the Trumpster was President- or because he's leading in the polls. But to downgrade because the usual Republican shenanigans occurred with the debt ceiling is ridiculous- especially because McCarthy caved. We guess they think he won't cave on the budget negotiations. Whatever!

Fitch is reviewing Bank ratings because if they lowered the U.S debt to AA+ they think they have to lower Banks because, just because. And of course, Moody' and S&P have joined the chorus because, just because.

Apples, oranges and grapefruit are not alike.

These three rating agencies missed the boat in 2006-8 with Mortgage-Backed Securities, S&P in 2011 and they are missing the other way this time trying to get ahead of problems that don't exist. Funny how they only downgrade when a Dem is president but missed the big one in 2007. And of course, they missed the First Republic and Severing Bank blowups in March.

Examples of closing the barn door too late:

Moody's has been criticized recently for giving SVB an A rating until the evening of the bank's collapse in March 2023, which was reminiscent of what happened during the subprime mortgage crisis in 2008.

15 Mar 2023: Fitch Ratings has downgraded First Republic Bank's (FRC) Long-Term Issuer Default Rating (IDR) to 'BB' from 'A-' – then to junk


4 August 2023

We have another family wedding next week and so the next post will be August 18.

The US economy created 187,000 new jobs in July while the unemployment rate fell to 3.5%, the Bureau of Labor Statistics said Friday. Economists had expected job gains to total 200,000 with the unemployment remaining unchanged at 3.6%.

Job gains in July were the least since December 2020. Over the last year, job gains have now averaged 312,000 per month.

Wages, a closely watched indicator of how much leverage workers are exerting in the labor market, rose more than expected last month, rising 0.4% on a monthly basis and 4.4% over last year (Hooray for workers). Economists expected wages to rise 0.3% over last month and 4.2% over last year.

Jobs report: US economy creates 187,000 new jobs in July as labor slowdown continues (yahoo.com)

On Wednesday debt rating agency Fitch downgraded the U.S. long-term foreign currency issuer default rating to AA+ from AAA. Fitch said it had noted a "steady deterioration" in governance over the last 20 years.

Jim Cramer, CNBC "That makes as little sense as the Standard & Poor's downgrade back in August 2011 over the same concerns of an incapable government".

US Treasury Secretary Janet Yellen called the downgrade "arbitrary"….

Mohamed El-Erian, a market guru posted on the Threads social media platform. "This announcement is more likely to be dismissed than have a lasting disruptive impact on the US economy and markets,"

Bud Lemley said "Say What!".

The Fitch downgrade coincided/instigated a pullback in stocks with the Super Seven and friends dropping 2% and the DJIA and S&P 500 tagging along. That pullback lasted one day as Amazon reported better than on Thursday eve and the Super Six resumed their crawl higher. The seventh, Apple, retreated on a less than stellar report but the drop was muted given the Era of Good Feeling in markets continuing. (The "Era of Good Feeling" refers to a period in U.S. history from about 1815 until about 1825, characterized by a sense of optimism and positivity. The era is closely associated with the presidency of James Monroe, who served two terms from 1817 to 1825.)

Treasury yields rose this week with the all-important 10-year yield moving back above 4%. Since most loan rates are set off the 10-year Treasury yield, banks and other lenders may have more leeway in their lending rates. Gasoline prices are also at yearly highs as the continuing heat wave in the south supposedly hurts refinery yields.

We used the pullback to reestablish half positions in VF Corp (North Face, Timberland, Vans), Key Bank, The Gap, Hain Celestial, and United Natural Foods. We traded out of Raytheon and Disney on Tuesday for scratch profit and flipped AMC Networks for a 10% 2-day gain. Disney reports earnings August 9 and we'll probably wait for the reaction.


Spending creates the deficit but so do companies not paying their fair share because – lobbyists- control Congress -by making what are really penny anti contributions to various politicians.

Americans pay the highest prices in the world for lifesaving medicines — roughly triple what people in the world's other big economies pay for the same name-brand, on-patent drugs. The cost of producing a medicine generally doesn't vary much — so it stands to reason that the US's big pharmaceutical companies should therefore earn far more in the US than they earn elsewhere. Simple math.

But take a look at the corporate disclosures of America's largest pharmaceutical companies, and a puzzling hole opens. The six major US pharmaceutical firms that provide fairly detailed data reported making $215 billion worth of sales in the US for 2022. Given America's systematically higher prices, their sales abroad were logically more modest — totaling $170 billion. Despite this discrepancy, the companies reported earning very, very little in profits — in some cases, absolutely nothing — in the US. Of their $100 billion combined profit, the companies said $90 billion was made abroad, while a paltry $10 billion came from their US operations. That comes out to a profit margin of 5% in the US and a margin of over 50% abroad. What's going on?

To get a sense of just how much money these pharmaceutical companies are moving around, it's useful to look at a case study. Take AbbVie, the producer of the blockbuster immunosuppressive drug Humira, which is used to treat a variety of conditions, including arthritis and Crohn's disease. An investigation by Democratic Sen. Ron Wyden of Oregon found the company booked 99% of its profit abroad in 2020, despite generating only three-quarters of its sales overseas. More recently, AbbVie claimed it's actually losing money in America: The company reported a $5 billion loss on its US operations in 2022, while generating a $18 billion profit outside the US. Rather remarkably, AbbVie reported only $12 billion in non-US sales, meaning its reported profit outside the US exceeded its revenue.

Read more at: https://www.businessinsider.com/big-pharma-companies-taxes-american-billion-dollar-profits-drugs-healthcare-2023-8

Penny wise and dollar foolish as Repubs in Wisconsin continue to cut funds for Wisconsin's once great University system. Repubs can only do this because they gerrymandered themselves to a 2/3rds majority in the State Senate and happily for veto sustaining only a 60% majority in the Assembly. Wisconsin Dems have won (been the majority party) in statewide elections for the last 8 years.

Moreover- regarding Oshkosh and other universities in the system having funds cut- the State has a $6 billion surplus on hand.

UW-Oshkosh will lay off staff, furlough others and consider ending some programs as it seeks to close a projected $18 million deficit by the end of fiscal 2024.

Chancellor Andrew Leavitt announced the measures in an email to staff Thursday morning, citing declining enrollment, the state's aging population and decisions by state legislators over the last decade to freeze enrollment and reduce state support.

"With data in hand, it's time to act aggressively," Leavitt wrote. "UWO's future depends on it."

The announcement comes following a $32 million cut given to the University of Wisconsin System in the state's last month as Republicans sought to punish it for having diversity, equity and inclusion staff on its payrolls.

Furloughs are expected to start in September, with the number of days each employee needing to take being based on their salaries. Any employee who voluntarily retires between September and January would be exempt from those furloughs, Leavitt's email states.




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