Bud's Poem Page
  Katie's Coast2Coast Blog
  Katie's West Coast Blog
  Katie's East Coast Blog
Lemley Yarling Management Co
309 W Johnson Street
Apt 544
Madison, WI 53703
Bud: 312-925-5248       Kathy: 630-323-8422

Comments on activity in client accounts

29 January 2016

Computers continue to dominate market action. Monday markets moved down all day to end off 200; Tuesday markets were up all day ending 250 higher; Wednesday was great for the big boys and girls with the DJIA down 150, then rallying 350 points to up 200, then dropping the same amount before rallying 100 to close down 222: Thursday the DJIA opened up 125 points then dropped 200 points, then rallied 335 points...you get the idea. With a Friday up day stocks ended the week higher by a little but the DJIA and S&P 500 ended the month down about 6%.

Our accounts have not fared as well with most down 15% to 20% for the month. We haven't experienced this kind of negative action since 2009. The underperformance is because of the higher beta of the stocks we own. (Price movement greater than the markets as a whole. If a stock moves up/down as the overall markets it has a beta of 1.) The issues we own have betas greater than 1 and so they tend to move up/down a greater percentage than the markets as a whole. The major market measures contain many low beta issues (they move less than 1). Our issues should outperform on the upside when this correction runs its course.

During the week we switched 3D (negative scratch) to Micron. Both are down about the same for the year and Micron improves quality.

Our guess is that the corrections have to run through March into second quarter earnings but...we plan on maintaining positions switching to improve quality/potential return as conditions warrant.


Morgan Stanley likes Micron:

Shares of Micron Technology, Inc. have dipped 65.33 percent over the past year, dropping to a low of $10.05 on Wednesday.

Morgan Stanley's Joseph Moore has maintained an Overweight rating on the company, with a price target of $18.

At the current valuation, Moore believes that the stock has downside protection as long as the company is able to effectively manage balance sheet risks, although there could be upside with even a modest market improvement.

Analyst Joseph Moore pointed out that the stock valuation was approaching the lows seen in 2012 on various metrics and that "there was too much optimism in that sentiment the last two years."

Discussions with investors suggest that there are expectations of the share price falling to $6, the level at which it bottomed out in 2012.

However, Moore pointed out that the stock was approaching the same valuation already, "on P/B, EV/S, trailing P/E, and replacement value, given Micron's substantial acquisitions of incremental capacity."

Moore believes that the fundamentals are likely to continue to be difficult in the first half of 2016, although there could be a recovery in the second half.

"We think that recent spot market stability in DRAM shows that there isn't panic in the market, but we do expect further weakness to evolve short term," Moore explained.

Apart from a modest recovery in 2H, Moore expects Micron Technology's cost structure to improve significantly from the May quarter.

Latest Ratings for MU

Date Firm Action From To
Jan 2016 Deutsche Bank Maintains Buy
Dec 2015 Pacific Crest Maintains Outperform
Dec 2015 Raymond James Downgrades Strong Buy Outperform


More on Micron:

The 3 Most Important Numbers for Micron Technology Inc.

The memory chip company is facing a difficult environment, and revenue and profits are slumping. Here are a few numbers that investors should be aware of.

Memory-chip manufacturer Micron posted record profits in fiscal 2014 and 2015, but the falling prices of both DRAM and NAND chips have caused the company's revenue and profits to slump. Micron now expects to post a loss during its fiscal second quarter, and predicting when the situation will improve, or how much worse it will get, is next to impossible. Here's a look at three of the key numbers that will be important for Micron in the coming years.


The standard DRAM chips that go into PCs, smartphones, and servers are commodity products. What this means is that the price Micron gets for its DRAM chips depends almost entirely on supply and demand. When demand outpaces supply, prices go up and Micron turns a tidy profit. When supply outpaces demand, prices drop and Micron sees its margins contract.

Micron, along with other DRAM manufacturers, are always working to cut costs at least as fast as prices are declining. Sometimes the company succeeds, and profit margins remain intact despite falling DRAM selling prices. But during periods of serious oversupply, prices fall so quickly that there's nothing that Micron can do. During 2012, Micron's average selling price per bit of DRAM declined by a whopping 45%, on top of a 39% decline during 2011. This situation led Micron to post a massive $1 billion loss during fiscal 2012.

DRAM prices recovered over the next few years, leading to record profits for Micron in fiscal 2014 and 2015. But the company once again finds itself selling into a market oversupplied with DRAM. Micron's per-bit DRAM selling price dropped by 11% during 2015, and the company expects to post a loss during its fiscal second quarter. Things will eventually improve as demand catches up with supply, but investors shouldn't forget how bad things can get for the company.


The main reason DRAM prices have been weak as of late is slumping PC sales. During the fourth quarter of 2015, IDC estimates that global PC shipments slumped by 10.3% year-over-years, continuing a trend that has plagued companies that are dependent on the PC. During Micron's fiscal first quarter, the segment containing PC and server chips posted an operating margin of just 1.8%, saved from a loss by strong demand for server chips.

While the PC market is expected to show signs of stabilization this year, the smartphone market could pose another problem. Smartphone unit growth slowed down in 2015, with IDC estimating that global shipments grew by just 9.8% and the firm expects a compound annual growth rate of 7.4% through 2019. For Micron, strong demand for smartphone memory chips has partially counteracted weak demand for PCs, but that may be coming to end.

Already, Micron is seeing its mobile segment margins contract. During the fiscal first quarter, mobile revenue slumped by 13% compared with the previous quarter, and the segment operating margin fell by 11 percentage points to 16.3%. The amount of DRAM memory per device can still grow going forward, but with Gartner predicting that DRAM oversupply will expand into the mobile segment this year, Micron's mobile profitability could have much further to fall.

$5 billion

While Micron's commodity memory business fluctuates based on supply and demand, 3D XPoint, a new type of memory developed jointly with Intel, has the potential to be a major new source of revenue for Micron. 3D XPoint memory is non-volatile like the NAND memory used in solid state drives, but it offers about 1,000 times better performance. DRAM is still faster and more durable, but 3D XPoint could find applications in the data center, providing a layer of memory between DRAM and NAND.

Micron doesn't expect meaningful revenue from 3D XPoint until 2017 at the earliest, but 2018 is when the company expects things to get interesting. During Micron's summer analyst conference, CEO Mark Durcan suggested that 3D XPoint could grow into a business half the size of Micron's DRAM business in 2018. Based on fiscal 2015 numbers, this means that 3D XPoint revenue could reach about $5 billion within three years.

These estimates may be optimistic, and significant adoption of 3D XPoint is not a foregone conclusion. The pricing of DRAM and NAND will be a factor in determining whether 3D XPoint catches on; if the price of DRAM falls dramatically, it may make sense for clients to simply buy more DRAM, relegating 3D XPoint to niche status. But if Micron's new memory technology finds success, it could boost the company's annual revenue by billions of dollars.



22 January 2016

Tuesday down 250; Wednesday down 566 and closing down 225; Thursday up 255; Friday up 225; and so the DJIA went nowhere for the week while taking a 1200 point down /up journey.

The DJIA for the week opened at 16011, made a Wednesday intraday low of 15445, and closed the week at 16100.

The S&P 500 for the week - opened at 1893, made a Wednesday intraday low of 1814, and closed the week at slightly above 1900.

On December 23, 2015 when accounts were up for the year and we were anticipating a rally in the New Year we obviously didn't see what January would bring. In December oil was down 60% from its high trading at $40, the U.S. economy was moving right along, China was going grow at 6% and Iran and Saudi Arabia were still talking. And Sovereign wealth funds were not reported to be selling assets (stocks) to fill funding holes left by the precipitous drop in the prices of oil that they themselves caused. (This is the new theory for the market drop in January i.e. that Kuwait and Saudi Arabia et al are selling stocks to raise funds.)

One short month later our accounts are down 20% or more; oil is at $30 and we are adjusting the stocks own to improve quality/lessen risk while not sacrificing gain potential since along with lesser quality stocks many quality stocks have been slammed just as hard in the last three weeks.

Taking losses any time but especially in troubled markets is painful but necessary and troubled markets allow us to improve quality by taking advantage of the sell/short everything actions of investors and hedge funds.

This is not 2008-2009. In 2008-2009 the economy was tanking; folks were losing jobs and homes and GDP turned negative. January 2016 is more a normal scary correction that will reverse in time without damaging the economy. Friends of our told us the other day they just don't open their financial statements until the storm has passed. That's not bad advice and takes us back to the 1950s and 1960s when portfolios were priced once a year if that much and folks just kept lists of the stock certificates they held in their lock boxes at the local bank. It was much harder to panic back then than now when we are in the era of the instant communication and trading.

Our first job was to become comfortable with our oil positions. Not knowing where the bottom will be - but it will be in place in the first quarter of this year - we sold half our Marathon position and all our Murphy holdings and place the proceeds in the XOP Oil ETF. (At the bottom of this post we have displayed the oil companies that comprise the XOP and the percentages ownership of each company as of the 14th of January.) The XOP attempts to own equal position in 50-70 oil exploration and natural gas and refining companies. It is rebalanced every quarter. This rebalancing is necessary because of the price movements of the underlying issues.

By reducing Marathon and selling Murphy and buying the ETF with the proceeds we are guaranteeing that when oil we recovers we will participate rather than having to rely on the fortunes of one or three or four individual oil companies. We are maintaining the Marathon position because it offers a very large bang for the buck invested. The share price was $22 in December with oil at $40 and $32 in May with Oil at $50. With our Marathon position and our position in the XOP and the U.S. Oil and Gas Exploration ETF (IEO) we have a very large yet diversified position in oil/natural gas/refining that we are going to maintain.

Our reiterated belief is that the Saudis cannot withstand $30 oil for the long term and will have to cut production. Also, smaller oil companies operating on the margins will reduce production or go under and larger companies will shut down fields with higher per barrel production costs if the price of oil stays at/below the $30 level thus also reducing supply.

The Saudi reasoning seems to be that if they can drive folks out of business the price of oil will recover without their having to reduce production. But as soon as the price recovers so will those higher priced fields resume production. OPEC does not control even 50% of worldwide oil production - unlike the DeBeers diamond cartel that controls virtually all the diamond production in the world and thus can control prices by varying supply.

After resolving our oil exposure we sold half our Gap (loss) and also our Ford (plus scratch) and redeployed the funds into Urban Outfitters and Whole Foods to spread retail exposure. We sold the Ford quickly because the two retailers had dropped in price from our last sales and we own GM through the B warrants.

On Wednesday we took a large loss in Sprint. Given market conditions we decided that we could improve quality and eventually recover our losses -and more- by switching from the Sprint soap opera to Morgan Stanley and XOP- both of which are down the same percentage from their highs and magnitudes of quality greater than Sprint.

We also sold Qualcomm (relatively small loss) and bought Fifth Third Bank, Fresh Market, and Ascena with the proceeds. Qualcomm is a quality company but the markets offered us the opportunity to make the switch for greater percentage gain potential in the three issues to which we deployed the money, while maintaining quality.

Finally we took a large loss switching Deutsch Bank to Fifth Third and Symantec. Deutsch Bank is cheap but DB announced another multibillion dollar loss on Thursday with more significant losses for legal stuff to come next year. Fifth Third is down percentage wise as much as DB and just announced in line earnings.

We traded Deere (small loss) to Union Pacific (down much more) when UNP dropped $5 per share on less than revenues and earnings; UNP is half its 12 month high.

We added Hain Celestial- the natural foods company- to some accounts. It too is half its 12 month high.

We don't like looking at large paper losses or realizing large losses but the issues we bought are better situated and of better quality than those we sold and were made available at attractive prices by the same market collapse that created the losses.


Holdings of the ETFs


The Index represents the oil and gas exploration and production industry group of the S&P Total Market Index. Rebalancing occurs on the third Friday of the quarter ending month. The S&PTMI tracks all eligible U.S. common equities listed on the NYSE, NYSE Arca, NYSE MKT, NASDAQ Global Select Market, NASDAQ Select Market, and NASDAQ Capital

Market. The Index is an equal weighted market cap index. As of September 30, 2015, the Index comprised 63 stocks. The Index is sponsored by S&P Dow Jones Indices LLC (the "Index Provider"), which is not affiliated with the Fund or the Adviser. The Index Provider determines the composition of the Index, relative weightings of the securities in the

Index and publishes information regarding the market value of the Index.

XOP Holdings

As of 01/14/2016




Southwestern Energy Company



Gulfport Energy Corporation



Exxon Mobil Corporation



Antero Resources Corporation



EQT Corporation



Range Resources Corporation



Cabot Oil & Gas Corporation



Valero Energy Corporation



Chevron Corporation



Occidental Petroleum Corporation



PBF Energy Inc. Class A



Tesoro Corporation



Phillips 66



QEP Resources Inc.



Western Refining Inc.



PDC Energy Inc



Parsley Energy Inc. Class A



Chesapeake Energy Corporation



Noble Energy Inc.



Marathon Petroleum Corporation



EOG Resources Inc.



Apache Corporation






Cimarex Energy Co.



HollyFrontier Corporation



Pioneer Natural Resources Company



RSP Permian Inc.



Diamondback Energy Inc.



Concho Resources Inc.



Murphy Oil Corporation



Hess Corporation



Newfield Exploration Company



Devon Energy Corporation



Continental Resources Inc.



Rice Energy Inc.



Anadarko Petroleum Corporation



WPX Energy Inc. Class A



Energen Corporation



Carrizo Oil & Gas Inc.



Oasis Petroleum Inc.



Delek US Holdings Inc.



Memorial Resource Development Corp



Marathon Oil Corporation



SM Energy Company



Whiting Petroleum Corporation



Laredo Petroleum Inc.



Denbury Resources Inc.



Matador Resources Company



Cobalt International Energy Inc.



Callon Petroleum Company



Alon USA Energy Inc.



Green Plains Inc.



World Fuel Services Corporation



CVR Energy Inc.



Ultra Petroleum Corp.



California Resources Corp



Stone Energy Corporation



Synergy Resources Corporation



Kosmos Energy Ltd.



Clean Energy Fuels Corp.






IEO Top 25 Holdings

The investment seeks to track the investment results of the Dow Jones U.S. Select Oil Exploration & Production Index composed of U.S. equities in the oil and gas exploration and production sector. The fund generally invests at least 90% of its assets in securities of the underlying index and in depositary receipts representing securities of the underlying index. The underlying index measures the performance of the oil exploration and production sub-sector of the U.S. equity market. The fund is non-diversified.













































































16 January 2016

Wow. We sure didn't see this coming. Let's discuss bear views versus our view and why we REMAIN INVESTED with accounts down 10% to 20% in the first three weeks of the year.

The bear view is that lower oil prices are bad for the economy, sort of. We do remember when high oil prices were bad for the economy. The Saudis forcing oil prices lower along with China's markets collapsing have been the main stimulus for the rout the markets are currently experiencing.

As we've said before China is a mystery to us and we really don't factor it into our market view. Supposedly their economy will grow at over 6% this year which for them is low but for the rest of the developed world would be considered too robust.

Our view is that the Saudi desire to put many oil producers - except OPEC - out of business is foolish and this policy is being implemented by a 35 year old Saudi Prince who was elevated to a position of power one year ago when his father assumed the throne after the former king died. His idea is to impose some austerity on the Saudi people after years of profligate (our word) spending and oh- by the way- threaten Iran and start a war in Yemen on the side.


Secondly it was just announced that retail sales were down for the year. Take out gasoline and retail sales were actually up 3.7% for the year. Moreover, folks saving the money they aren't spending on gasoline is a positive. Eventually if oil prices stay low folks will spend. 2008 and 2009 occurred because folks weren't saving as they were speculating on housing with other folk's money.

Third as in all corrections margin selling is exacerbating the downturn. Many stocks — not just oils - are down 50% from their 12 month highs which cause folks to either put up money or sell out. Even some/many of the big boys and girls who are on the wrong side of trades are probably feeling this pressure.

And finally- the computer kids are having a field day with oil. They have oil futures, physical oil, oil stocks, options on oil stocks and options on physical oil, and oil ETFs and options on oil ETFs to trade and hedge and short to their algorithms content. And it looks like many/most are trading in one direction- down- until they aren't. We think the oil market is close to the aren't stage since the oil price has dropped from $130 a barrel in 2014 to $30 a barrel today.

Stocks outside of oils that are down more than 30% from their 12 month highs: APPLE, Intel, Citi Group, Caterpillar, Deere, Union Pacific, GM, Celgene, Biogen, Amgen, Expedia, IBM, Applied Materials etc.

The point is that there has been a significant correction in most stocks, led of course by the collapse in the oil stocks. Our view is that the Saudis and the rest of OPEC can't withstand $30 oil for longer than a year and that before 2016 is out they will cut production.

We don't know how much longer this correction/collapse will last but as it will pass sooner than later.

During the week we did adjusting. there is some science to this activity but it is more the art acquired in 50 years of watching markets. We sold Cisco and bought Qualcomm with the proceeds buying a more volatile tech holding with an equal dividend and down twice as much over the last 12 months. We sold Fresh Markets and bought Ascena and Alcoa increasing our positions in each while lower the p/e of the holding. We sold Urban and Joy and bought Marathon, Ascena and IEO (IShares U.S Oil and Gas). All the sales involved losses — substantial losses - but the stocks we purchased with the proceeds are down also. We also added to our Chipotle position. Finally, we bought Ford which is unloved cheap and has a 5% yield.


These comments by Leon Cooperman — one of the most successful hedge fund old timers are well worth the listen:


Thoughts from other folks:

Jeff Saut (he had been calling for a Christmas rally as had we) on the markets:


As for the "here and now," last week I began suggesting that we could be in one of these "selling stampedes" that tend to last 17 — 25 sessions, with only 1.5- to three-day pauses/throwback rallies, before they exhaust themselves on the downside. In Friday's closing verbal comments I also said that it was too soon to tell yet if this is such a stampede, but "Never on a Friday." The reference was that once the markets get into one of these weekly downside skeins, they rarely bottom on a Friday. Nope, they typically give participants over the weekend to brood about their losses and then they show up the next Monday in "sell mode" leading to Turning Tuesday. I did add that maybe last Friday's much better than expected employment report might prove my mantra wrong this time, but still "Never on a Friday" has saved me a lot of money over the years as it did once again last Friday. I will say that early this week we are set up for at least a 1.5- to three-session rally since the McClellan Oscillator is about as oversold as it ever gets; only ~23% of the stocks in the SPX are above their respective 200-day moving averages (DMAs), and just ~12% of the SPX's stocks are above their 50-DMAs. So, the markets are "spring loaded" for at least a throwback rally attempt. In that attempt it will be important to measure the market's internal metrics to determine if this is just a 1.5- to three-day affair, or something more.

Jeff's call for this week: This week should tell us if we are in a 17- to 25-session "selling stampede," or if we are making a sustainable low. I would note that in election years there is a tendency to sink a low in the January/February timeframe leading to a rally into the spring. The set-up in the eighth year of the election cycle also calls for two selling waves. That would be consistent with a 1.5- to three-session throwback rally sometime this week followed by another selling wave into the normal 17- to 25-session duration of a "selling stampede" and today would be day 8......I will leave you with two other quotes from Albert Einstein: "A person who never made a mistake never tried anything new" and "If we knew what it was we were doing, it would not be called research"



If you're selling stocks because of the negative impact the oil crash will have on the economy, the worst is probably over.

Just short of calling a bottom in oil, Deutsche Bank's Torsten Slok argued in a client note Thursday that the impact of the crash on the economy cannot get much worse than it's been over the last year.

As we recently noted, it's unlikely that anyone would give away oil for free.

And since oil is now about $70 cheaper per barrel from the top, in this strictly nominal sense, the worst of the oil crash is over, according to Slok.

But Slok goes further to say that the negative impact on the economy — which is what has some investors spooked — will probably be felt for the next two quarters. And then that will be all.

And like the price of oil, Slok doesn't see the amount of investment going into oil falling to 0% of capital spending in the economy.

Here's Slok:

The bottom line is that the US stock market is overly worried about a risk that the consensus doesn't expect (a hard landing in China) and the stock market mistakenly believes that lower energy prices is bad news for the economy. In my view, the decline we have seen in US equities over the past two weeks is a buying opportunity similar to what we saw in September [...]

Combined with the positive effects of lower energy prices on the rest of the economy I think equities, credit, and rates should be paying more attention to the fact that average nonfarm payrolls in October, November, and December was 284,000.

In other words, if all these bearish stories we are telling each other in markets about energy and the dollar and wider credit spreads and China are true, why are companies still hiring almost 300,000 workers every month?

In other words, the stock market is not the economy, and if you're selling stocks over how oil will drag down the economy the worst is probably "baked into the cake," as the old investment adage goes.

Energy's share of capital expenditure — which infers the sector's contribution to economic growth — has plunged 5% in the past 12 months, and it would be "unprecedented" that it would fall to zero, Slok wrote.

Additionally, in a note on Wednesday, Slok had argued that the other big dampener of sentiment recently — China —is projected to grow by 6.5% this year and 6.3% in 2017, which isn't exactly a so-called hard landing.

And so while certain financial market conditions might be encouraging investors to sell, and worries about the fundamental strength of the economy are probably overblown given the magnitude of the drop in financial markets we've already seen this year.


This is an excellent discussion of the variables involved in oil prices for 2016 and beyond:



Oil at $20 prediction:



From days gone by, Goldman and Morgan Stanley predicting $200 oil:

Goldman Oil Prices Forecast: From $200 To $20 In Just A Few Years



Two comments on Qualcomm:

Faced with the choice of build it or buy it, Qualcomm wisely took the middle road.

That is a surprise: Many believed the company's war chest of nearly $20 billion in net cash would fund an extension of last year's chip-sector M&A party. But Qualcomm on Wednesday announced a $3 billion joint venture with TDK. This could expand its footprint in wireless devices beyond the modem chips that form the core of its existing business.

TDK, which is best known for audio and videocassette tapes, also has a business in radio-frequency, or RF, filters. These are chips that reduce interference from crowded airwaves, as smartphones and other wireless devices are designed to operate across more networks globally. Filters also are a notable hole in Qualcomm's own portfolio, largely centered around baseband processors that connect wireless devices to networks.

Qualcomm has about two-thirds of the baseband market now. But the business has come under attack from Chinese competitors and Intel, who have been underpricing Qualcomm in an effort to build up their own share. Revenue for Qualcomm's chip business fell 8% in the fiscal year ended Sept. 27, while pretax earnings plunged 35%.


Qualcomm, TDK Forming Wireless-Components Joint Venture

Exposure to RF filters gives Qualcomm access to more chip slots in wireless devices. And unlike basebands, which are typically limited to one per phone, the market for RF chips can outpace the market for devices themselves. The dollar value of RF chips in the iPhone 6s rose by 25% versus its predecessor, estimates Ed Snyder of Charter Equity.

That also has made RF chip makers much more expensive than they used to be. Avago now sports a market value of $35 billion, partially the result of its own M&A spree. Skyworks is worth more than $12 billion, more than double its level just two years ago. Even Qorvo, down by more than half in the past six months, is still worth more than $6 billion. That is more than double Qualcomm's largest acquisition to date.

Joint ventures typically shield participating companies from downside while also limiting the upside. In this light, Qualcomm's latest move probably won't transform its business. But it should help the company rev up its smartphone offerings, while also keeping plenty of fuel in the tank for future endeavors.



Ascena Retail Group, Inc. (NASDAQ — ASNA) (the "Company") today announced consolidated comparable sales decreased 4% over the Holiday period, which represents performance from Saturday, November 21, 2015 through Sunday, January 3, 2016. The Company also reaffirmed its full year EPS guidance range of $0.75 to $0.80 for the 52-week period ending July 23, 2016.

Total Comparable Holiday Sales*

ANN Brands(1%)
Lane Bryant6%

* Figures include ecommerce on a demand basis

David Jaffe, President and CEO, commented, "The Holiday period for specialty retail was marked by soft traffic and unseasonably warm conditions, and was highly competitive. Excluding the planned decline at Justice, consolidated comparable sales were flat to last year."

Jaffe further commented, "Consistent with performance over the Black Friday week, performance was mixed across our portfolio through the holiday period. We were very pleased with the positive comp trend that we continue to see at Lane Bryant. Inventory levels were down significantly to last year across our ANN Brands and at Justice, which helped drive significant gross margin rate improvement. Justice's negative comp sales performance was in line with our expectations, and the brand is set up well for the upcoming transition to Spring. Our maurices and Catherines brands faced very strong performance last year, with compounded two-year growth up high single digits at both brands. Finally, we saw a modest improvement in trend at dressbarn, with roughly flat comp performance over a two year period."

Jaffe concluded, "We remain comfortable with our full year outlook, and are reaffirming our earnings per share guidance range of $0.75 to $0.80. We were a bit disappointed with our overall Holiday sales performance, and expect second quarter earnings per share will be below the $0.02 we had guided to at our December earnings call. We now see second quarter earnings per share between breakeven and ($0.03). However, inventories are very well controlled across ascena as we transition into the Spring season, and we are pleased with the continuing turnaround at Justice."

About ascena retail group, inc.

Ascena Retail Group, Inc. (NASDAQ: ASNA) is a leading national specialty retailer offering clothing, shoes, and accessories for missy and plus-size women under the Ann Taylor, LOFT, Lou & Grey, Lane Bryant, Cacique, maurices, dressbarn, and Catherines brands, and for tween girls under the Justice brand. ascena retail group, inc. operates, through its 100% owned subsidiaries, ecommerce operations and approximately 5,000 stores throughout the United States, Canada and Puerto Rico.


Alcoa: In an exclusive interview, Cramer kicked off earnings season by speaking with Klaus Kleinfeld, chairman and CEO of Alcoa, the aluminum producer splitting itself in two to create a commodity producer and an high-tech aluminum solutions provider.

Kleinfeld said there's been lots of volatility in the aluminum market, but Alcoa remains well positioned in all of the high growth markets including transportation, construction and aerospace. If all of those areas, he added, Alcoa is growing faster than the market.

When asked about demand for aluminum, Kleinfeld explained production cuts around the globe are working and global demand is expected to increase by 6%, meaning there will be a deficit of aluminum, which will stabilize pricing.

On the value-added side of the business, Kleinfeld said there is no shortage of innovation. Thanks to many smart acquisitions, areas like jet engines continues to see lots of innovation, as do titanium products.

With share prices stagnant, Cramer said Alcoa remains a buy.



Congress agrees to sell oil from the strategic reserve when oil is at its lowest price in 15 years rather that raising the gasoline tax- go figure—

Congressional negotiators clinched a deal on Tuesday for a five-year, roughly $300 billion transportation bill that would inject badly needed investments into the nation's deteriorated highways and other infrastructure and also reopen the Export-Import Bank.

The legislation, which relies on short-term financing to cover a continuing shortfall in the Highway Trust Fund, will be voted on later this week by the House and Senate.

Architects of the transportation bill, including Republicans and Democrats in each chamber, hailed it as a major achievement in an era that seems to be defined by small-bore governing. Since 1987, Congress has generally failed to pass long-term transportation bills, relying on short-term measures, which experts say make it difficult for states and local governments to plan crucial projects.

The Highway Trust Fund is financed largely by a federal gas tax, which was last increased in 1993 and is not indexed to inflation. That, together with greater fuel efficiency of cars, has led to shortfalls of more than $70 billion since 2008, which Congress has covered with general funds.

Instead of raising the 18.4 cents per gallon gas tax, the bill relies on a variety of short-term financing provisions, including a requirement that the federal government use private collection agencies to recoup certain outstanding taxes, a provision that would allow the government to deny new passports to individuals owing more than $50,000 in back taxes, and the sale of 66 million barrels of oil from the Strategic Petroleum Reserve.

The sale of oil is projected to generate $6.2 billion over 10 years, effectively pricing the oil at more than double the current price per barrel.


8 January 2016

Had the year ended on December 23 most of our accounts would have had a positive return for the year... but as the game is played till December 31 and we ended the year plus 1% to minus 5% in most accounts. Such are the vagaries of day to day market activity. Thank- fully 2015 is behind us and we look forward to 2016 with positive feelings for the issues that we own.

The new trading year began on a down note as the Saudis and Iran decided to sever diplomatic relations after the Sunni Saudis executed 75 ‘terrorists' including a Shiite Cleric. Shiite Iran took exception and the so far War of Words was on... Markets hate uncertainty and so the price rout began. China didn't help with its markets collapsing 7% in the first day of trading and China's markets closed on Thursday after another 7% drop set off circuit breakers. And to add to negative sentiment on Wednesday North Korea exploded some kind of nuclear device which added to the markets somber mood.

While we don't like seeing values erode, paper losses are the same as paper gains and we believe the Middle East situation will go back to the usual chaos. North Korea is an enigma and could cause problems if the leaders have a death wish. China's markets are the wild card but removing circuit breakers as authorities have should help stocks find a tradable level that investors can analyze.

Down 10% in the first week of 2016 was not what we envisioned last year. We thought the 10% correction in August had cleared the air. China has been the bugaboo the last half of this week. CNBC has been comparing something to 2008 but we aren't sure whether they are talking our market or China. Whatever, it is not 2008 in the U.S. market. Remember crashes or bull rallies bring viewers to the cable networks so they tend to exacerbate selloffs and rallies with their reporting since the cable cabal stresses bear interviews when markets are down and bull interviews when they are up.

During the week's turmoil we switched BP at a small loss to MRO for more volatility and sold Hecla flat and Symantec for a scratch plus. Because we didn't like the markets' reaction to The Gap's December sales numbers and to reduce our retail exposure we sold Abercrombie for a nice profit. ANF is up 30% from its autumn lows and has good year end numbers baked into its present price.

Saturday's Powerball is $700 million. Go for it. ☺

We own the following:

Alcoa: Alcoa Inc. produces and manages primary aluminum, fabricated aluminum, and alumina worldwide. The company operates through four segments: Alumina, Primary Metals, Global Rolled Products, and Engineered Products and Solutions. The Alumina segment is involved in mining bauxite, which is then refined into alumina. The Primary Metals segment produces primary aluminum. The Global Rolled Products segment produces and sells aluminum plates, sheets, and foils, as well as rigid container sheets for food and beverage packaging markets. The Engineered Products and Solutions segment offers titanium, super alloy investment, and aluminum castings; fasteners; aluminum wheels; integrated aluminum structural systems; architectural extrusions; and forgings and hard alloy extrusions. The company's products are primarily used in the transportation, including aerospace, automotive, truck, trailer, rail, and shipping; packaging; building and construction; oil and gas; defense; consumer electronics; brazing; power generation; and industrial applications. Alcoa Inc. was founded in 1888 and is based in New York, New York.


Ascena Retail -: Ascena Retail Group, Inc., through its subsidiaries, operates as a specialty retailer of clothing, shoes, and accessories for missy, plus-size women, and tween girls in the United States, Canada, and Puerto Rico. The company operates through five segments: Justice, Lane Bryant, maurices, dressbarn, and Catherines. It creates, designs, and develops a range of merchandise, including apparel, accessories, footwear, and intimates; lifestyle products comprising bedroom furnishings and electronics; and wear-to-work, casual sportswear, footwear, and social occasion apparel. The company also offers career wear, dressy apparel, and active wear, as well as special occasion and classic apparel. Its principal retail brands comprise Ann Taylor, LOFT, Lou & Grey, Justice, Lane Bryant, Lane Bryant Outlet, Cacique, Right Fit, maurices, dressbarn, Catherines, Catherines Plus Sizes, Maggie Barnes, Liz&Me, Serenada, Dressbar, 6th & Lane and Maurices In Motion. As of September 16, 2015, the company operated approximately 4,900 stores. It also offers its products online. The company was formerly known as Dress Barn, Inc. and changed its name to Ascena Retail Group, Inc. in January 2011. Ascena Retail Group, Inc. was founded in 1962 and is headquartered in Mahwah, New Jersey.


Chipotle Mexican Grill - down on the illness news but a favorite of our grandson: Chipotle Mexican Grill, Inc., together with its subsidiaries, develops and operates fast-casual and fresh Mexican food restaurants. As of November 10, 2015, it operated approximately 1,900 restaurants, including 17 Chipotle restaurants outside the United States and 11 ShopHouse Southeast Asian Kitchen restaurants. The company was founded in 1993 and is based in Denver, Colorado.


Deutsch Bank- the only major bank selling below book value: Deutsche Bank AG provides investment, financial, and related products and services worldwide. Its Corporate Banking & Securities division engages in selling, trading, and structuring a range of fixed income, equity, equity-linked, foreign exchange, and commodities products. This division also provides mergers and acquisitions, equity and debt financing, and general corporate finance advice, as well as various financial services to public sector. The company's Global Transaction Banking division offers commercial banking products and services, including deposit taking, domestic and cross-border payments, trade finance, supply chain finance, and securities services comprising trust, agency, depositary, custody, and related services. Its Asset & Wealth Management division provides wealth management and private banking services, including lending and discretionary portfolio management to high-net-worth and ultra-high-net worth individuals, and family offices. This division also offers equities, fixed income, real estate, infrastructure, private equity, and hedge funds. The company's Private & Business Clients division offers banking products and services, such as investment and insurance, mortgages, business products, consumer finance, payments, cards and accounts, deposits and mid-cap related products, as well as postal services and non-bank products in Postbank. As of December 31, 2014, it operated 2,814 branches in 71 countries. Deutsche Bank AG was founded in 1870 and is based in Frankfurt am Main, Germany.


Fresh Market and Sprouts Farmers Market: The Fresh Market, Inc. operates as a specialty grocery retailer in the United States. The company offers various food products that focus on perishable product categories, including meat, seafood, produce, deli, bakery, floral, sushi, and prepared foods; and on non-perishable product categories, such as traditional grocery, frozen, and dairy products, as well as bulk, coffee and candy, beer and wine, and health and beauty products. As of September 24, 2015, it operated 177 stores in 27 states. The company was founded in 1982 and is headquartered in Greensboro, North Carolina

Sprouts Farmers Market, Inc. operates as a specialty retailer of fresh, natural, and organic food in the United States. The company's stores offer fresh produce, bulk foods, vitamins and supplements, grocery products, meat and seafood products, deli and bakery products, dairy and dairy alternatives, frozen foods, beer and wine, natural health and body care products, and natural household products. As of May 7, 2015, it operated 205 stores in 12 states. Sprouts Farmers Market, Inc. was founded in 2002 and is based in Phoenix, Arizona



General Motors warrants- a call on GM common at $18.33 till 2019: General Motors Company designs, builds, and sells cars, crossovers, trucks, and automobile parts worldwide- over 3 million in 2015. It operates through GM North America, GM Europe, GM International Operations, GM South America, and GM Financial segments. The company markets its vehicles primarily under the Buick, Cadillac, Chevrolet, GMC, Opel, Holden, and Vauxhall brand names, as well as under the Alpheon, Baojun, Jiefang, and Wuling brand names. It also sells cars and trucks to dealers for consumer retail sales, as well as to fleet customers, including daily rental car companies, commercial fleet customers, leasing companies, and governments. In addition, the company offers connected safety, security and mobility solutions, and information technology services. The company, through its subsidiary, General Motors Financial Company, Inc., provides automotive financing services. General Motors Company was founded in 1897 and is based in Detroit, Michigan.


The Gap- our first big winner back in the 1980s and cheap now: The Gap, Inc. operates as an apparel retail company worldwide. It offers apparel, accessories, and personal care products for men, women, and children under the Gap, Banana Republic, Old Navy, Athleta, and Intermix brand names. The company provides apparel, handbags, shoes, jewelry, personal care products, and eyewear for men and women; and performance and lifestyle apparel for use in yoga, strength training, and running, as well as seasonal sports, including skiing and tennis. It offers its products through company-operated stores, franchise stores, Websites, e-commerce and social sites, and catalogs. The company has franchise agreements with unaffiliated franchisees to operate Gap, Banana Republic, and Old Navy stores in Asia, Australia, Europe, Latin America, the Middle East, and Africa. As of January 31, 2015, it operated 3,280 company-operated stores. The company was founded in 1969 and is headquartered in San Francisco, California.


Hecla Mining: Hecla Mining Company, together with its subsidiaries, discovers, acquires, develops, produces, and markets precious and base metal deposits worldwide. The company offers unrefined gold and silver bullion bars to precious metals traders; and lead, zinc, and bulk concentrates to custom smelters and brokers. It owns 100% interests in the Greens Creek mine located on Admiralty Island in Southeast Alaska; the Lucky Friday unit located in the Coeur d'Alene mining district in northern Idaho; and the Casa Berardi mine located in the Abitibi region of north-western Quebec, Canada. The company was founded in 1891 and is based in Coeur d'Alene, Idaho.


Joy Global: Joy Global Inc. manufactures and services mining equipment for extraction of coal, copper, iron ore, oil sands, gold, and other minerals and ores worldwide. It operates in two segments, Underground Mining Machinery and Surface Mining Equipment. The Underground Mining Machinery segment produces armored face conveyors, battery haulers, continuous chain haulage systems, continuous miners, conveyor systems, feeder breakers, flexible conveyor trains, hard rock mining products, high angle conveyors, long wall shearers, powered roof supports, road headers, roof bolters, and shuttle cars. This segment also provides equipment assemblies, service, repairs, rebuilds, parts, consumables, enhancement kits, and training. The Surface Mining Equipment segment produces blasthole drills, conveyor systems, electric mining shovels, hybrid excavators, feeder breakers, high angle conveyors, walking draglines, and wheel loaders. This segment also provides equipment assemblies, relocations, inspections, service, repairs, rebuilds, upgrades, used equipment, parts, consumables, enhancement kits, and training. Joy Global Inc. also offers life cycle management support services and project management services, as well as smart services, including equipment monitoring, predictive diagnostics, service training support, and parts management for underground and surface applications. The company sells its products and services directly to mining companies through a network of sales and marketing personnel. Joy Global Inc. was founded in 1884 and is headquartered in Milwaukee, Wisconsin.


Marathon Oil: Marathon Oil Corporation operates as an energy company. It operates in three segments: North America Exploration and Production, International Exploration and Production, and Oil Sands Mining. The North America Exploration and Production segment explores for, produces, and markets crude oil and condensate, natural gas liquids, and natural gas in North America. The International Exploration and Production segment explores for, produces, and markets crude oil and condensate, natural gas liquids, and natural gas in Equatorial Guinea, Ethiopia, Gabon, Kenya, the Kurdistan Region of Iraq, Libya, and the United Kingdom; and produces and markets products manufactured from natural gas, such as liquefied natural gas and methanol in Equatorial Guinea. The Oil Sands Mining segment mines, extracts, and transports bitumen from oil sands deposits in Alberta and Canada; and upgrades the bitumen to produce and market synthetic crude oil and vacuum gas oil. As of December 31, 2014, it had rights to participate in developed and undeveloped leases totaling approximately 33,000 net acres. The company was formerly known as USX Corporation and changed its name to Marathon Oil Corporation in July 2001. Marathon Oil Corporation was founded in 1887 and is headquartered in Houston, Texas


Murphy Oil: Murphy Oil Corporation operates as an oil and gas exploration and production company worldwide. It explores for and produces crude oil, natural gas, and natural gas liquids. The company was formerly known as Murphy Corporation and changed its name to Murphy Oil Corporation in 1964. Murphy Oil Corporation was founded in 1950 and is headquartered in El Dorado, Arkansas.


Qualcomm: QUALCOMM Incorporated develops, designs, manufactures, and markets digital communications products and services in China, South Korea, Taiwan, the United States, and internationally. The company operates through three segments: Qualcomm CDMA Technologies (QCT); Qualcomm Technology Licensing (QTL); and Qualcomm Strategic Initiatives (QSI). The QCT segment develops and supplies integrated circuits and system software based on code division multiple access (CDMA), orthogonal frequency division multiple access (OFDMA), and other technologies for use in voice and data communications, networking, application processing, multimedia, and global positioning system products. The QTL segment grants licenses or provides rights to use portions of its intellectual property portfolio, which include various patent rights useful in the manufacture and sale of certain wireless products comprising products implementing CDMA2000, WCDMA, CDMA TDD, and/or LTE standards, as well as their derivatives. The QSI segment invests in early-stage companies in various industries, including digital media, e-commerce, healthcare, and wearable devices for supporting the design and introduction of new products and services for voice and data communications, as well as holds wireless spectrum. The company also develops and offers products for implementation of small cells, as well as for data centers; mobile health products and services; software products, and content and push-to-talk enablement services to wireless operators; development, and other services and related products to the United States government agencies and their contractors; and software products that enable wireless learning for educators and students. QUALCOMM Incorporated was founded in 1985 and is headquartered in San Diego, California.


SPDR Oil Exploration ETF: The investment seeks to provide investment results that, before fees and expenses, correspond generally to the total return performance of an index derived from the oil and gas exploration and production segment of a U.S. total market composite index. In seeking to track the performance of the S&P Oil & Gas Exploration & Production Select Industry Index, the fund employs a sampling strategy. It generally invests substantially all, but at least 80%, of its total assets in the securities comprising the index. The index represents the oil and gas exploration and production industry group of the S&P Total Market Index ("S&P TMI"). The fund is non-diversified.


Sprint: Sprint Corporation, through its subsidiaries, provides various wireless and wireline communications products and services to consumers, businesses, government subscribers, and resellers in the United States, Puerto Rico, and the U.S. Virgin Islands. The company's Wireless segment offers wireless data communication services, including mobile productivity applications, such as Internet access, messaging, and email services; wireless photo and video offerings; location-based capabilities comprising asset and fleet management, dispatch services, and navigation tools; and mobile entertainment applications. It also provides wireless voice communications services that include local and long-distance wireless voice services, as well as voicemail, call waiting, three-way calling, caller identification, directory assistance, and call forwarding services; In addition, this segment offers voice and data services internationally through roaming arrangements; and customized wireless services to large companies and government agencies, as well as sells wireless devices, broadband devices, connected devices, and accessories to agents and other third-party distributors. Its Wireline segment provides wireline voice and data communications, including domestic and international data communications using various protocols, such as multiprotocol label switching technologies, Internet protocol (IP), managed network services, voice over IP, session initiated protocol, and traditional voice services to other communications companies, and targeted business and consumer subscribers, as well as for cable multiple system operators. Sprint Corporation offers its services under the Sprint, Boost Mobile, Virgin Mobile, and Assurance Wireless brands. The company was founded in 1899 and is headquartered in Overland Park, Kansas. Sprint Corporation operates as a subsidiary of Softbank Group Corp.


3D Systems: 3D Systems Corporation, through its subsidiaries, operates as a provider of 3D printing centric design-to-manufacturing solutions in the Americas, Germany, and the Asia-Pacific, as well as other European, the Middle East, and African countries. The company's 3D printers transform data input from the format generated by 3D design software, CAD software, or 3D scanning and sculpting devices to printed parts using integrated, engineered plastic, metal, nylon, rubber, wax, and composite print materials. It offers stereolithography, selective laser sintering, direct metal, multi-jet, color jet, and film transfer imaging printers, as well as plastic jet printing 3D printers. The company also blends, packages, and sells proprietary, consumable, engineered plastic, nylon, metal, and composite materials for use in printers under the Accura, DuraForm, CastForm, LaserForm, and VisiJet brand names. In addition, it provides software packages and design tools for reverse engineering, inspection, and haptic design packages; CAD and CAM software packages designed for the manufacturing industry; and 3D scanners and perceptual devices. Further, the company offers pre-sale and post-sale services comprising applications development and custom engineered production solutions; and installation, warranty, and maintenance services, as well as proprietary software printer drivers. It primarily serves manufacturers of automotive, aerospace, computer, electronic, defense, education, consumer, energy, and healthcare products, as well as original equipment manufacturers, government agencies, universities and other educational institutions, independent service bureaus, and individual consumers. The company sells its products and services through its direct sales force, sales agents, resellers, and distributors. 3D Systems Corporation was founded in 1986 and is headquartered in Rock Hill, South Carolina.


Urban Outfitters: Urban Outfitters, Inc., a lifestyle specialty retail company, engages in the retail and wholesale of general consumer products. The company operates in two segments, Retail and Wholesale. It serves its customers directly through retail stores, Websites, mobile applications, catalogs, and customer contact centers. The company operates retail stores under the Urban Outfitters, Anthropologie, Free People, Terrain, and Bhldn brands. The Urban Outfitters stores offer women's and men's fashion apparel, intimates, footwear, beauty and accessories, activewear and gear, and electronics, as well as an eclectic mix of apartment wares and gifts to young adults aged 18 to 28; and the Anthropologie stores’ product assortment includes women's casual apparel and accessories, intimates, shoes, beauty, home furnishings and a diverse array of gifts and decorative items to women aged 28 to 45. Its Free People stores offer a merchandise mix of casual women's apparel, intimates, shoes, accessories, and gifts to young women aged 25 to 30; Bhldn stores sell a collection of wedding gowns, bridesmaid frocks, party dresses, assorted jewelry, headpieces, footwear, lingerie, and decorations; and Terrain stores provide home furnishings and decorative items; garden products, including live plants and flowers; outdoor living furnishings; entertainment products; various gifts; and landscape and design services. The Terrain stores also offer a full-service restaurant and coffee bar services. As of January 31, 2015, the company operated 238 Urban Outfitters stores, 204 Anthropologie and Bhldn stores, 102 Free People stores, and 2 Terrain garden centers in North America and Europe. Urban Outfitters, Inc. also operates a wholesale business under the Free People brand that designs, develops, and markets young women's contemporary casual apparel to approximately 1,600 specialty stores and select department stores worldwide. The company was founded in 1970 and is based in Philadelphia, Pennsylvania.



Oil crash musings:

The world consumes about 100 million barrels of oil per day. The average annual price of crude from 2012 thru 2015 was $70 per barrel. With crude currently at $35 a barrel the savings versus that average to oil consumers worldwide is over $2 trillion a year.

The U.S. consumes 20 million barrels of oil per day. Current versus average four year price means that U.S. consumers are saving $700 million per day or over $225 billion a year. Even allowing for layoffs in the oil industry much of which are out of country because of contract labor, the stimulus effect on the economy is substantial.

Lower oil prices hurt OPEC and Russia and Iran and Iraq etc. and have a net positive effect in Europe and the U.S.

Given the above statistics we don't believe the price of oil can remain at this level for years. The Middle East producers are playing at war with each other and need revenue to support those activities. If Saudi Arabia dropped production by 2 million barrels a day it would have a net revenue gain (all profit) of $800 million per day or $300 billion a year assuming $60 per barrel oil. Currently the Saudis are invading their reserve investments to fund their government and welfare state for Saudi citizens.



Thoughts and news from others on stocks we own or ideas we favor:

On oil prices: Texan hedge fund manager J. Kyle Bass, founder of the $1.6 billion Dallas-based Hayman Capital, says there's a "massive opportunity in energy."

Like many investors last year, Bass had been predicting a rebound in oil prices in 2015. That didn't happen. Oil prices continued to slide, falling below $35 a barrel on December 18, making it one of Hayman's worst years in a decade.

"My views are dogmatic about the supply and demand in energy, and that's cost me," Bass said in an interview on "Wall Street Week" that aired Sunday.

He is sticking with his bet on the energy sector, however, because he thinks there's new demand for crude every year and global gross domestic product "will still be positive."

"In energy, I just believe that, first of all, the margin of safety for the globe is the smallest it's ever been in energy — so global demand is 96 million barrels per day, the highest it's ever been, and let's say incremental supply capacity, let's say swing capacity, is at the lowest point as a percentage of that, about a million and a half barrels a day," Bass said.

He pointed out that US production had shaved off about only 400,000 barrels a day, while OPEC production had continued to move higher.

He said he thought there was a surplus of 600,000 to 700,000 barrels a day.

"You have to realize that the US added a million barrels a day five years in a row, but it took $100 crude for us to do that," he said. "We were the marginal swing producer for the world. But now we're going to go down a million barrels a day, I think, in the next 12 months. So, we're going to go from a glut to all of a sudden a deficit, and the world's not ready for a deficit."

If you're going to allocate capital for the next three to five years, he recommended buying in the next six months.

Bass became known in 2007 for his big short bet on subprime housing bonds.


Abercrombie & Fitch recently appointed Fran Horowitz who was president of its Hollister brand, to the newly created position of president and chief merchandising officer for the entire company. For now, the company has suspended its search for a new CEO. Horowitz may be just the executive to turn things around. Her resume includes experience at stores such as Express, Bloomingdale's, Bergdorf Goodman, Bonita Teller and Saks Fifth Avenue.

And even before she took her new position, Abercrombie & Fitch seemed to be taking some savvy steps to deal with its slumping popularity among today's teens. Instead of using the obvious tactic of price-slashing to deal with dwindling sales, Abercrombie & Fitch -- which isn't as popular with teens as it once was -- has been reworking its brand to appeal to yesterday's teenagers. In other words, it's changing its clothing, image and shopping experience to appeal more to young adults. Part of this means toning down its once-ubiquitous logos.

If you look at peer Aeropostale which is facing similar challenges, it appears that Abercrombie & Fitch is doing a better job with its bottom line. Aeropostale had adjusted losses per share of 56 cents, 56 cents and 31 cents, respectively, in its last three quarterly reports. But Abercrombie & Fitch went from an adjusted loss per share of 53 cents, adjusted earnings per share of 12 cents, and then adjusted EPS of 48 cents.

The fashion apparel store industry is going through a metamorphosis. Sales are slumping, even as online competition and deep discounting strategies are changing the way companies operate. Compared to even a year ago, larger chunks of the core demographic are hesitant to visit fashion stores. As customer preferences change, store traffic takes a beating.

The company's Hollister brand, after suffering a decline, is now expected to climb back into the light. The worry remains with the eponymous brand of Abercrombie & Fitch. If the company fails to catch up and evolve faster, its stock could slump.

Third-quarter results show comparable-store sales declining for the Abercrombie brand but rising 3% for the Hollister brand. If new merchandising chief Horowitz can apply some of the same techniques she used at Hollister to the Abercrombie brand that could bode well for 2016.

The verdict: Abercrombie could turn itself around and resume a growth trajectory in 2016. Investors with a tolerance for risk may want to put some money into this retail stock.



The Gap shares closed Monday's trading session up 4.25% to $25.51 after Jefferies reiterated its "buy" rating and a $42 price target, citing several catalysts.

"Gap maintains an extremely strong balance sheet and has been aggressively returning cash to shareholders," analysts said. "We expect continued buybacks in the coming quarters."

The firm applauded Gap's strengthened focus on speed-to-market within sourcing strategy. Adding to this upside, the apparel maker has been expanding internationally.

More on the Gap

Owing to weak same-store sales at its retail outlets, apparel store chain Gap struggled in 2015. With revenue and profits hard to come by, Gap stock lost 41.34% of its value, underperforming both the S&P 500 index (down 0.73% in 2015) and the SPDR S&P Retail ETF (down 9.93% in 2015).

Gap stock trades at just 10 times fiscal 2016 earnings-per-share estimates of $2.40, or seven points lower than the forward P/E of the average stock in the S&P 500 index. Apply a forward P/E of 17 to the Gap's projected 2016 earnings and that translates to a stock price of around $40, which is some 61% higher than the stock's current price tag.

At the same time, the San Francisco-based retailer pays a strong 23-cent dividend that yields 3.59% annually -- or 1.59 percentage points higher than the 2% yield paid out by the average stock in the S&P 500.



3D Systems commentary:

Investors are watching 3D Systems Corporation as shares are up double-digit percentage points on the first day of 2016. In a press release issued before the market's open, the company revealed it has launched its new direct metal printer Proxy DMP 320.

3D Systems also said more details will be given on the device -- and its products -- this week at CES 2016 in Las Vegas.

The move in 3D Systems comes after a 0.11 percent loss to close last week; shares still remain a fraction of their 52-week high near $34 per share.

The high precision and direct metal printer is the company's latest addition to its line of direct metal 3D printers. The Proxy DMP 320 is a high precision, high throughput direct metal printing device which is optimized for applications that require complex, stainless steel or nickel super alloy parts that are chemically-pure titanium, according to the press release.

The company will display the device between January 6 and 9 at CES. It will also present at the annual Needham Growth Conference next Tuesday.

Read more: http://www.benzinga.com/analyst-ratings/analyst-color/16/01/6105555/3d-systems-having-huge-day-after-launch-of-new-direct-me#ixzz3wJ2PvhCP


This is why Sprint has value:

It's no secret that telecoms like Comcast Corporation are struggling to keep up as more and more customers opt to cut the cord and watch TV via streaming services.

Companies like Amazon.com, Inc. and Netflix, Inc. are typically touted as the biggest competition that telecoms are facing, but news that wireless provider T-Mobile US Inc. is moving to make streaming even more accessible suggests that there may be another firm lining up to take on the telecoms.

T-Mobile recently revealed plans that will offer customers free wireless data for video for streaming services like Netflix and Hulu. The deal will be a blow to providers like Comcast that have been struggling to keep customers engaged in traditional cable, as it further supports the shift from paying for a bundled cable package to paying for a subscription-based streaming service.

Read more: http://www.benzinga.com/trading-ideas/long-ideas/16/01/6102986/is-wireless-the-new-cable#ixzz3wJ3cRLtw


Qualcomm is a leading developer, designer, and manufacturer of digital wireless telecommunication products. Nothing went right for Qualcomm in 2015. In February, China concluded its probe into the company's licensing practices, and the result seemed like a victory. We believed the agreement would lead Chinese equipment manufacturers to become licensees, shrinking the gap between estimated global device sales and total reported device sales. Progress is being made, but at a slower pace than anyone envisioned.

Also in 2015, the chipset division was caught flat-footed when leading flagship devices moved to 64-bit processors. This misstep has been corrected, and the news flow around the revamped offering for 2016 (Snapdragon 820) appears to be largely positive. The stock trades at 11.0 times calendar year 16 estimated EPS, a significant discount to other semiconductor companies. The dividend yield is 3.9 percent and the company is returning a significant amount of cash to shareholders through stock repurchases.

Sprouts Farmers Market, whose motto is "healthy living for less," operates healthy grocery stores that offer fresh, natural, non-GMO and organic food. Sprouts sits at the ideal intersection of natural/organic, affordability and accessibility. To drive foot traffic Sprouts prices produce 20 percent to 25 percent below traditional supermarkets, and even further below Whole Foods Markets and other natural foods competitors. This price point means Sprouts is attractive to both the everyday shopper and the hardcore natural foods customer.

Sprouts' footprint is largely in the Southwest, but the company is expanding east and adding 14 percent to its total square footage every year. We believe that this rate of store growth, along with mid-single digit same-store sales growth, should translate to mid-double digit revenue and EPS growth for the foreseeable future. In addition, the company generates strong cash flow and is able to fund its store expansion internally while also returning capital to shareholders through a share buyback program. Sprouts are currently trading at 28.1 times calendar year 16 estimated EPS.


From Morgan Stanley on Sprouts:

Specialty food retailers largely traded in tandem in 2015; we believe inflation (and associated competition) concerns were the main driver. The stock price and P/E multiple correlations for Sprouts Farmers Market / Whole Foods Market / The Fresh Market were a remarkably high ~0.9x throughout 2015 (up from ~0.5x in 2014). Ultimately, 2015 was a macro-driven year, where the major story in specialty food retail was lower inflation and select category deflation. As inflation headwinds caused companies to miss consensus top line expectations largely in tandem during 1Q and 2Q, the stocks generally traded together.

We believe macro headwinds masked the very different fundamental stories behind each "FM" retailer. Fundamentally, Whole Foods faced headwinds from public perception issues, as well as implementation of initiatives that came in slower than expected; medium-term trends are likely to remain choppy here. The Fresh Market continues to be a work-in-progress story, facing significant competitive pressure and real estate headwinds; we see a long path to any potential turnaround. Sprouts, on the other hand, continues to execute on its store growth and comp / margin initiatives. With a higher produce mix at Sprouts Farmers Market, select deflation caused significant headwinds in 1H; however, there was no change to the underlying fundamental trajectory for this best in class growth story.

We expect Sprouts Farmers Market results to positively diverge from peers over the upcoming quarters (and years), driving a potential "FM" decoupling in 2016. In its two most recent quarters, Sprouts Farmers Market experienced sequential comp increases; The Fresh Market comps have decelerated every quarter since 3Q14 and Whole Foods Market comps have decelerated every quarter since 1Q15. Over the next few quarters, we expect this divergence to continue with forecast +MSD comps for SFM and forecast negative comps for Whole Foods Market & The Fresh Market. Over the upcoming years, we forecast ~20% EPS growth for Sprouts Farmers Market versus +MSD/HSD EPS growth for Whole Foods Market and The Fresh Market; differing store growth, comp, and margin outlooks drive this result. With diverging fundamental trends for these companies, we believe a stock decoupling is likely in 2016.



Shares of Joy Global Inc. have declined 72.01 percent year-to-date, falling to a low of $11.19 on December 14.

BMO Capital Markets' Joel Tiss has maintained an Outperform rating on the company, while lowering the price target from $21 to $16.

Despite the huge year-to-date decline and the stock down 85 percent from its all-time high, Tiss believes that Joy Global's equity value is almost equal to its inventory levels.

Analyst Joel Tiss mentioned that Joy Global reported its FY4Q EPS ahead of the estimate, although the FY2016 sales and EPS guidance was well below the FY2015 levels.

According to the BMO Capital report, "The company took some impairment charges, including a $1.2 billion writedown related to its past large Chinese acquisition, which was widely expected and cheered by investors."

Tough Year Ahead

Tiss expects FY2016 to another tough year for Joy Global, with the company's capital utilization close to 35 percent, or break even, entering the year and the mining industry capex expected to decline another 20 percent. Coal and copper are expected to be among the hardest hit end markets.

"The main source of good news is that Joy Global's management is amongst the best across the Machinery sector. The company is positioned to generate some $150 million of free cash flow in FY2016 following a much-anticipated dividend cut to $0.01 per quarter for a cash flow savings of ~$75 million," the report stated.

The EPS estimates for FY2016 and FY2017 have been reduced from $1.05 and $0.85 to $0.35 and $0.60, respectively.

Read more: http://www.benzinga.com/analyst-ratings/analyst-color/15/12/6080915/bmo-defends-joy-global-despite-75-decline-in-2015#ixzz3wZZ2n91d


The news on Chipotle Mexican Grill (CMG) seems to get worse every day. Yesterday, the company announced that sales are down 30% nationwide, and that it has been subpoenaed as part of an investigation into a norovirus outbreak at one of its California locations. Chipotle has been dogged by a string of health-related incidents since October of last year.

Ten years ago this month, Chipotle, then a subsidiary of MacDonald's (MCD), went public. In those 10 years, the stock has never been as deeply oversold (green) as it is now, according to Chipotle's relative strength index (RSI). The two oversold signals that occurred in 2014 (A, B) provided opportunities to buy the stock below $500. One year later, the stock traded at $750.

In addition, Chipotle has just filled a large gap from October of 2013 (circled).

However, despite the oversold reading, there is no way I'd consider taking on a full position in Chipotle right now. This stock has been a falling knife, and this week's bout of market volatility cannot be ignored. It's a questionable time to open any long position, much less one in a stock that is being sold with such vigor.

On the other hand, Chipotle is already down 43% from its all-time closing high of $757, set in August of last year. While the news on the stock could get worse, it's possible that the bad news is already out.

Here's the game plan: I'll buy one-half of a normal-sized position in Chipotle if the stock falls to its next support level, which lies at $350. I'll add the other half at a major support level from 2012, which stands near $240. Hopefully, that second entry will never occur.

Things may seem bleak for Chipotle right now, but it is not the first company to experience a public relations disaster. In January of 2012, the Costa Concordia, a cruise ship operated by a subsidiary of Carnival Corp. (CCL), wrecked off the coast of Italy, resulting in the loss of 33 lives. In response, shares of Carnival plunged below $30.

In late 2013, a data breach at Target (TGT) put the personal information of over 70 million clients at risk. It was a public relations nightmare. Within a month, shares of the retail giant had fallen to $55.

Yesterday, Carnival closed at $53.54, and Target closed above $74. Investors who bought these stocks on bad news were handsomely rewarded. That doesn't necessarily mean that it's time to go all in on Chipotle, but it might be time to consider taking at least a small bite.





This site contains copyrighted material the use of which has not always been specifically authorized by the copyright owner. We are making such material available in our efforts to advance understanding of environmental, political, human rights, economic, democracy, scientific, and social justice issues, etc. We believe this constitutes a 'fair use' of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. For more information go to: http://www.law.cornell.edu/uscode/17/107.shtml. If you wish to use copyrighted material from this site for purposes of your own that go beyond 'fair use', you must obtain permission from the copyright owner.

Website Information

For Information on RBC LLC SIPC and Excess SIPC protection http://www.rbcadvisorservices.com/partner/testimonials/cid-161786.html.

For those clients of LY& Co and other interested persons the Quarterly Report on the routing of customer orders under SEC Rule11Ac1-6.
For Quarter Ending 09/30/2002 For Quarter Ending 12/31/2002 For Quarter Ending 03/31/2003
For Quarter Ending 06/30/2003 For Quarter Ending 09/30/2003 For Quarter Ending 12/31/2003
For Quarter Ending 03/31/2004

All SEC Rule11Ac1-6 Quarterly reports up to March 2, 2012 may be found by visiting the diclosures at LY& Co Clearing Broker Mesirow Financial at: http://www.tta.thomson.com/reports/1-6/msro/.

From March 2, 2012 forward all SEC Rule11Ac1-6 Quarterly reports may be found by visiting the website http://www.rbccorrespondentservices.com/cid-112218.html.

Annual offer to present clients of Lemley Yarling Management Co. Under Rule 204-3 of the SEC Advisors Act, we are pleased to offer to send to you our updated Form ADV, Part II for your perusal. If any present client would like a copy, please don't hesitate to write, e-mail, or call us.

A list of all recommendations made by Lemley Yarling Management Co. for the preceding one-year period is available upon request.

Business Continuity Plan


309 W Johnson Street Apt 544 Madison, WI 53703 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.