Lemley Yarling Management Co
309 W Johnson St
Madison, WI 53703
Comments on activity in client accounts
Christmas Eve 2022
16 December 2022
Good news on job gains and wage gains is bad news. Good news on gas prices dropping under $3 (funny how it happened after the election) is bad news. A lowering CPI for the second month with an annualized rate on the current number of 3% is bad news. The Fed only raising rates 50 basis points instead of 75 basis points is bad news.
The gurus and talking heads have decided that recession is inevitable and woe to anyone who suggests otherwise. The constant drumbeat of good is bad and bad is really, really bad is affecting the outlook folks have (see below).
Americans Pessimistic About Prospects for the Economy in 2023, WSJ Poll Finds [WSJ]
Reflecting the pessimism about the economy, voters also remain gloomy about the nation's overall direction, with 66% saying things are headed the wrong way…. The poll shows financial pressure from inflation is stabilizing, as gasoline prices and overall inflation have eased. After rising throughout 2022, the share who say higher prices are causing major financial strains has been flat since the Journal's October survey, at about 35%.
The action this week was computer caused and computer exacerbated. The major measures gyrated over 10% ($4 trillion) this week up and down. The Computer Cloacae (cesspool) wreaked havoc on prices pushing the Major measures up 3.5% early Tuesday only to reverse course and close up less than 1%. Wednesday was mild with less than 1% up/down movement as Chairman Powell answered questions but and then Thursday the major measures dropped from the opening ending the day off 2.5 % and were down 1% on Friday.
These movements are not caused by buy and sell decisions of professional investment managers making reasoned decision. Rather they are the result of algorithm management of computer programs that then scare investors and concern professionals. Rather that say that the computer cloacae (cesspools) are wreaking havoc on markets, talking heads, gurus and news folks assign the blame to inverted yield curves, The Feds, recession and falling earnings forecasts.
Tax loss selling continues as folks sell the wonder stocks of the last few years for profits (that are much less than they would have been a year ago) and need to generate losses to offset the gains in portfolios that are down for the year but still showing realized gains for which taxes will be do.
We sold many stocks into the Tuesday morning rally and bought the stocks we sold back 10% lower on Thursday and Friday. We continue to remain mostly invested. If there is no year end rally, there normally is a rally early in the next year (2023 in this case) as tax selling abates in our issues. We own the issues mentioned two weeks ago and plan on keeping them into the new year.
The crypto ads on CNBC now advertise Harvest tax losses as a reason to own crypto. The Make a Million ads of last year now suggest that there is an advantage of owning crypto because a trader can take a loss in Bitcoin and switch to Ethereum to offset gains in stocks. Whew, sign me up!
9 December 2022
Mr. Market served humble pie again this week as stocks pulled back ahead of next week's CPI announcement and the final FED meeting of the year. Recession fears controlled market action with major bank CEO's bemoaning the economic outlook and talking heads suggesting that a soft landing is not in the cards.
We don't see recession and remain fully invested expecting a year end rally. Most accounts dropped 4% this week but many remain positive for the year. The pull back this week sets the markets up for a nice rally if the CPI number suggests cooling of inflation. If not...
We added Disney, Google, Amazon, Best Buy and the Domestic Oil ETF (XLE) to large accounts. We added Sentinel One (cybersecurity provider) to many accounts and traded around and added to issues mentioned in last week's post.
Next week will set the tone for the rest of the month. Don't miss it.
2 December 2022
Monday down 1.5%; Tuesday up .3%; Wednesday down 1%/then up 3%; Thursday down 1% and Friday down 1% then ending basically flat equals a week's trading in the computer cloacae era.
In the last two months we have been able to survive the year's volatility with almost all accounts - even the smallest -up 5% to 15% for the year. Our trading has been very active but as we note on our Info page on the website- lemleyletter.com- we decided several years ago that the computer controlled markets required active trading to mitigate the goofy moves and rapid sentiment changes that computer momentum trend following has exacerbated.
Talking heads suggest that moves in Treasury bonds and oil prices -which have been extraordinary this year- are dispositive of the economy. More likely the moves are dipositive of the amount of momentum trading occurring. This morning the major market measures dropped over 1% when the Employment report stated 263,000 job gains when 200,000 were expected. That is a difference of 63,000 in a total market of over 100 million jobs. The talking heads were aghast at the increase. These reactions remind of watching the sports talking heads making predictions of the final score before the game. Why? Daily major moves in the markets are engendered by even more esoteric reports. That's because computer momentum traders need daily news to encourage action.
With a positive feeling for the next 30 days, we are fully invested in the usual suspects with a quick finger in the trigger. A moderating CPI report will occur on December 13 and the FED will only raise 50 basis points on December 15. If not, the Christmas rally may fizzle.
We tried trading Twilio and Zoom and Fortinet again in November but were scared off for scratch losses. We did add Salesforce (loved the last 2 years at much higher prices- hated now) when it dropped 10% in one hour on a less than forecast. It, with the ARKK ETF and the Cloud ETF are now our fancy stock trades into year end.
We currently own: Verizon, AT&T, The large bank ETF (KBWB), Truist Bank, Key Banks, Medtronic (the medical device folks-a new name down 35% this year), Marvel Tech, Western Digital, Walgreens, Dentsply, Intel, GSK (Glaxo Drugs), Organon (women's health), Hain Organic, Ford, Newell, Snap, AMC Networks (not the movie theaters) Paramount plus, and Warner Bros Discovery.
Our retail package: Kohls, Macy's, Nordstrom, Abercrombie, Portillo, The Gap and Under Armour.
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