Lemley Yarling Management Co
309 W Johnson St
Madison, WI 53703
Comments on activity in client accounts
26 February 2022
Putin's travesty of the invasion of Ukraine dominated the news and markets this week.
We were able to successfully trade the volatility and ended the week at our high for the year in most accounts. At one point the NASDAQ 100 was down 20% for the year but with the rallies on Thursday and Friday it managed to end the week down 12%. The S&P and DJIA both remain over 5% lower. Happily, we are positive.
Given market conditions we have been doing quite a bit of trading/timing this year but hope to move more to the sidelines as the Ides of March approach. The Ides also coincide with the next FED meeting which the markets anxiously await for decisions on interest rates and bond purchasing.
We have used the pullback in the NASDAQ as an opportunity to add 3 ETFs that approximate the NASDAQ 100. The major stocks which comprise 50% of the Index in the NASDAQ 100 are:
The Invesco QQQ Trust (QQQ) mirrors the NADAQ 100; the Direxion NASDAQ Equal Weighted Index (QQQE) invests an equal amount in each of the top 100 stocks in the NASDAQ 100; the Invesco Exchange Traded NASDAQ 100 ETF (QQQM) owns 100 of the largest domestic and international nonfinancial companies listed on Nasdaq. All rebalance quarterly and annually. We also have invested in 2 different cloud computing ETFs-Fidelity Cloud (FDLK) and Global X Cloud (CLOU) as well as the ARKK Financial ETF (ARKF).
Our move to tech ETFs for less than 30% of our portfolios allows accounts to have exposure to stocks of which we have little expertise but which have been the main market engines of the past 8 years. The 20% pull back in the NASDAQ gave us an opportunity to embrace this strategy. This is a new area for us and our diversified approach should mitigate the risk and hopefully reward clients. We'll see how it goes.
We have maintained and continue to trade our retail package. Macy's announced earnings this week and they were super. The share price popped 10% and we sold and then dropped 25% as the markets crashed the next day and we repurchased. And so, it goes. Our Macy's trading remains nicely profitable over the last 2 years.
We realized substantial profit trading Bed Bath last year. This year our trading has -so far-produced minor losses but we plan to continue to trade it. We also hope to maintain and trade our American Eagle, The Gap, Urban Outfitter, Abercrombie, Nordstrom, Rite Aid and Container store holdings. All are priced at 10 times or less earnings. The Covid crisis forced all of them to rethink strategies and store sizes, counts and exposure and led to the closing of unprofitable satire, renegotiating leases and expanding on line sales. We don't think markets are recognizing the long term benefits of the short term pain. Retail sales reports begin this week and we expect the reports to be positive.
We also continue to trade Wells Fargo, Huntington Bank, Pinnacle West, Verizon, Hewlett Packard Enterprises, IBM, AT&T, Western Digital, Carpenter Tech, AMC Networks, Intel, Goodyear and Paramount Global for mostly short term profit.
We have also added Dell, HAIN, and Foot Locker, all three of which reacted down 10% to 30% on less than expected earnings/revenues announcements.
Finally, as the war in Ukraine leads to absolutely and sinfully unnecessary death and destruction, we present the antiwar poem that we have presented at times of needless conflict. It is not our poem. We first read it in the late 1960s when the Viet Nam War was raging. This poem especially applies to eastern Europe which has seen senseless conflict initiated by dictators and kings for centuries.
a poem by Adam Hanft
It is always the same way,
that after the armies have
settled into their homes and
the borders are shifted their
one lame mile
that talking rises that they
have found the little girl.
It is so, they have found her in a
tongue-tied corner of the woods,
and they have learned from
the palsied woman who lives with
her son by the bridge how in a
tantrum of strength she rose
to the window and saw
when the soldiers came they
killed the Mayor's little girl.
And so it starts, how the child
was gathering sunshine in her
rainbow creased dress when she
in another town, by another bridge
the girl was sleeping in the grass
when they came and that her
smile stuck to her lips while the sky
clanged and beat around her.
And now all the schoolchildren, so
scrubbed and solemn in rows are
standing as the Mayor, with
his one good arm,
drapes a few flowers on the brick and
wooded monument that stands next to
the bridge and a
Hundred years from the window of the
old woman who first saw the
glinting helmets and heard the
halfhearted scream roll
into the grass.
18 February 2022
Markets worried all week about the Fed and Ukraine. Mr. Market abhors uncertainty but given events it seems that we will know what is to occur in Ukraine by next Friday. Then Mr. Market will digest the action and respond- our guess positively.
It is a shame that the lives of many are going to be affected and probably destroyed because of Putin and his ego.
We have committed cash this week that we raised the last two weeks to recommit as the Ukraine crisis comes to a head. Unfortunately, the resolution may very well cause an unnecessary loss of life and freedom for the Ukrainians. But as the U. S. has painfully learned over the last 50 years interfering militarily in country squabbles no longer works. And history knows this kind of imbroglio in Europe and Russia has been occurring on for millenniums.
We have been trading to maintain our gains and position for profiting when the Ukraine imbroglio resolves. We have been in and out of several issues to replenish cash when we find issues that we think are better value. For example, we bought Gilead on Thursday since it is on its low and has a decent dividend and has been a profitable trade at higher prices several times over the past year. But then on Friday Intel dropped 7% on an analyst downgrade and since we would rather own INTC than GILD at comparative levels, we sold the GILD for a scratch and purchased more INTC. We didn't want to commit any more cash to the market given the uncertain week ahead.
Most accounts remain higher for the year up 4% to 10% with the major measures down 7% to 14%. Our trading has been working as it usually does in down markets. Our cash portion in larger accounts is over 50% and over 30% in most others.
Evercore ISI upgrades Macy's to outperform from in line
Evercore said in its upgrade of the retail department store that the stock is not for the "faint of heart," but it sees a positive risk/reward.
"In a downside scenario (slowing demand, rising inventories, etc.), it's not hard to imagine Macy's returning to its pre-pandemic depressed EPS of $2.50 and staying stuck at a 6x P/E multiple, which equates to a $15 stock price, or ~40% downside from current levels. However, we think the risk-reward is asymmetric, and the company could generate $15-20 of EPS long-term and trade at a 10x P/E multiple."
Bank of America downgrades ViacomCBS -now called Paramount + (PARA)-to neutral from buy. We bought at $29 the downgrade when the share price dropped 20%. We have already traded it profitably twice this year selling at $35 and above both times. We also bought and sold AMC Networks this week for the third time when it dropped in sympathy and then popped.
Bank of America downgraded ViacomCBS due to a lack of certainty over industry consolidation. The company is changing its name to Paramount Global, starting on Wednesday.
"Our prior bullish thesis, was largely predicated on VIAC being a potential attractive target amid a wave of industry consolidation. Our views on this have not changed, however it does not appear a potential sale is imminent given VIAC's near term streaming aspirations." (We obviously don't agree. We think the selling was from folks who were expecting PARA to be acquired and were disappointed by the Explanation of how PARA management plans to proceed.)
NFTs aren't art — they're just the Cult of Crypto's latest scam
As the saying goes, you cannot make this stuff up. The Guardian reports that thousands of baptisms performed in the diocese of Phoenix, AZ have been invalidated because the priest used the wrong words during the ceremony.
Father Andres Arango resigned from the St Gregory parish church in Phoenix earlier this month after diocese leaders discovered he had mistakenly used the phrase "we baptize you" instead of "I baptize you" for years.
His error means that countless baptisms – an irrevocable requirement for salvation in Catholic theology – will have to be performed again. And some churchgoers could find their marriages are not recognized.
Imagine the scene, with St. Peter at the Pearly Gates:
So, what do we have here? Hmm, this looks good. All the sacraments, holy communion every Sunday, good father and husband, charity work, pillar of the community, straight as an arrow.
Outstanding! This is what we want to see.
Oh wait, what's this? Looks like your baptism was invalid, the "We" instead of "I" thing. Uh oh. This invalidates all your sacraments, marriage included, which means you have been living in sin all these years.
Never mind. It's eternal damnation for you. Circle of the luxurious. Off you go!
O my! you have been a naughty boy, haven't you? Theft, perjury, fornication, looks like you broke all the commandments. Even murder! Man, that's really bad. Well, at least your baptism was valid, so there is that.
But wait, looks like you repented on your death bed, called a priest, confessed and got the last rites. How about that?
Well, come right in to the garden of milk and honey!
God really works in mysterious ways
R.I.P. PJ who passed over this week.
"The Democrats are the party that says government will make you smarter, taller, richer, and remove the crabgrass on your lawn. The Republicans are the party that says government doesn't work and then they get elected and prove it." - P. J. O'Rourke.
11 February 2022
Markets are moving daily on Fed governors' comments, talking heads daily guessing of how many and how much the Fed will raise interest rates this year and, of course, Putin's shenanigans vis a vis the Ukraine.
We were going to wait till March to go mainly to cash but with accounts up 6% to 10% this year versus the DJIA down 4% and the NASDAQ down 10% we decided that now was a good time to make the move.
Large accounts are now 75% and greater cash or cash substitutes while smaller accounts are around 50% cash.
We have eliminated many positions. We cut the size of our holdings in our Retail group which will begin to report earnings on February 22 and March 1. And we also reduced our positions in Ford and GM. We did repurchase Huntington Bank for exposure in the banking sector which should benefit from higher interest rates.
We currently own GM, Ford, Huntington Bank, Urban Outfitters, Macy's, American Eagle, Nordstrom, the Gap, Rite Aid, and lots and lots of cash.
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