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Comments on activity in client accounts

29 January 2021

We have moved to cash with our only holdings Verizon, AT&T and a small holding in Old Second Bank in Aurora, Illinois. The present market action is creating dangerous conditions for investors and for financial firms that have to settle the voluminous trading occurring.

For example:

About 24 billion shares changed hands in the U.S. equities market on Wednesday, a record, data from Rosenblatt Securities show. Volume in the options market also hit a record of 59 million contracts, Trade Alert data show.

For example:

Robinhood, in Need of Cash, Raises $1 Billion From Its Investors.

Robinhood, one of the largest online brokerages, has grappled with an extraordinarily high volume of trading this week as individual investors have piled into stocks like GameStop. That activity has put a strain on Robinhood, which has to pay customers who are owed money from trades while posting additional cash to its clearing facility to insulate its trading partners from potential losses.

For example:

High-speed trading firms that execute orders for individual investors faced technical hiccups this week because of exploding volume in GameStop Corp. GME +73.06% , AMC Entertainment Holdings Inc. AMC +61.28% and other popular stocks.

Brokers that route investors' orders to Susquehanna International Group LLP and Wolverine Trading LLC had difficulty connecting to the firms on Wednesday and routed their trades elsewhere, people familiar with the matter said.


For historic example:

Hunts in 1980, 1987 Crash, Texas banks crisis 1980s, Real Estate limited partnership kaput 1980s, Long Term Capital 1998, Dot Com 2000, Lehman 2009.








What occurred this week in the markets is not healthy. Most of the movement in the shorted stocks that are being ganged on is occurring from options trading. It is important to understand- something politicians and website gurus don't- that for every person who makes $100 or $1000 or $1,000,000 in an option trade there is a counterparty that may be losing money unless that party has hedged by buying (call seller) or selling (put seller). Robinhood clears its own trades and needs capital to do that and computer power to know its positions. Moreover, firms that pay Robinhood for order flow are probably also the folks who are taking the opposite side of Robinhood's customers buying /selling puts and calls. In normal trading times that is a very profitable business (printing dollars). But when volume becomes frantic the computers are not set to handle the volume and when the volume is one sided i.e., more option buying, the system had a more difficult time printing dollars for the market makers. The Street does not like to lose money and when it does it changes the rules. See the Hunts in 1980 as a prime example.


22 January 2021

Markets meandered during the week and we made a few profitable trades. We are quick to act these days since markets remain overheated but there is no sign that the game is ending. All the issues we own are anchovies and we won't hesitate to raise cash if we become uncomfortable. And we are maintaining a 50% and more cash position.

Today we own IBM, Exxon, Murphy Oil, Verizon, AT&T, NISOURCE, Macy's, Hewlett Packard Enterprises, GE and Old Second Bank.

BitCoin continues its emperor's clothes routine rising and falling 10% this week. It makes no sense for BitCoin to be considered a store of value or substitute for money but as a wild speculation for folks who are tired of betting sports or horse racing it truly fits the bill.

This is a true 'where are the customers' yachts story.

Last year was one of the best hedge funds in history's best years ever. Renaissance Technologies' Medallion Fund, (which Is only owned by the firm's employees with no outside investors) enjoyed what appears to be its third-strongest year since inception in 2020, which is saying something for a fund that's got an annualized return of 39.1% since 1988. But last year it did almost twice that, rising 76%.

The funds Renaissance Technologies' runs for those not employed at the firm? Not so much.

The Renaissance Institutional Equities Fund, which launched in July of 2005, lost 22.62 percent through December 25, according to HSBC's weekly scoreboard of hedge fund performance. A newer fund, Renaissance Institutional Diversified Alpha, fell even more: It fell 33.58 percent through the same time period, HSBC reported…. Renaissance launched RIDA in February of 2012, and 2020 was its worst year since then, the report said. Read more:


Renaissance manages $60 billion.


15 January 2021

Fancy stocks remain overpriced. Value stocks are now pricing in a 2021 recovery and many are selling higher that they did in January of last year. Gurus expect earnings to rise significantly this year. What they don't mention is that even large percent earnings gains will be less than actual 2019 earnings. Current markets are being driven by greed and folks who only know up markets or quick recoveries.

We remain sidelined owning six issues. Verizon and AT&T and Gilead and HP enterprises all yield 4% or more and priced at 10 X earnings or less. We have been trading GE and Ford thinking that their time in the sun may arrive. And we have a bunch of cash.


There are more troops in Washington than Iraq. Our guess is that the rioters while stupid are not stupid enough to reprise their action of last week. But there are 50 state capitols to protect and we won't be surprised by bad stuff occurring elsewhere in the U.S. these are difficult times that markets are happily ignoring. We are not.


This week a Mickey Mantle Rookie baseball card sold for $5.2 million up from $2.5 million in 2018 and $260,000 in the early aughts. Bitcoin Hits $42,000 Monday then trades at $32,000 a day later closing the week at $35,000.


And then:

Applications for unemployment claims, a proxy for layoffs, rose by 181,000 to 965,000 last week, the Labor Department said Thursday. That marked the biggest weekly increase since March 2020 and put initial jobless claims at their highest level since mid-August. It also put weekly claims well above the roughly 800,000 a week they have averaged in recent months.


Heads they win tails they win- Wall Street always takes care of its own before the client.

SPAC Mania Gives Early Investors Steady Returns with Little Risk

Hedge funds score gains when blank-check companies rise after announcing deals to take startups public

Sudden excitement about the flurry of startups going public through so-called blank-check companies is enriching some of the biggest players in finance, particularly hedge funds.

The gains come through the unique rights given to early investors in special-purpose acquisition companies, or SPACs, which look to acquire promising startups and take them public. As the vehicles become more popular, the hedge funds that invest in them early on, such as Magnetar Capital, Glazer Capital and Israel Englander's Millennium Management, can earn lofty returns without much risk.

Here is how the trade typically works: Hedge funds give the SPAC money for up to two years while it looks for a merger target. In return, they get a unique right to withdraw their investment before a deal goes through that minimizes any loss on the trade. At the same time, the potential return for early investors is huge if the SPAC shares rise because they also initially receive shares and warrants giving them.

Read More: https://www.wsj.com/articles/spac-mania-gives-early-investors-steady-returns-with-little-risk-11610533800?mod=hp_lead_pos1


8 January 2021

Markets fiddled while the Capitol burned. The invasion of our Capitol building was a desecration of an American temple. Folks trashing the Senate and House chambers are now a nasty scar on U.S. history. On a hopefully positive note, many but certainly not all folks have reached the point where the contretemps may be toned down

Our solution is the Nixon solution- Trump should resign and Pence become President and then Pence pardon Trump and his kids. This would solve the problem and also create windfall for apparel makers and collectors as Pence would become #46 and Biden #47. Biden #46 hats would become collector items which in the current Bitcoin mania might become worth thousands of dollars and two whole new set of #46 and #47 hats and T-shirts would be available for purchase. Everyone wins.


We moved to 80% cash and plan to maintain that level while trading the remaining 20%. Biden and the Democrats will be able to pass some stimulus and infrastructure bills through Budget Reconciliation. But the markets have priced in Nirvana. For the last 4 years market participants have prospered while the majority of folks not so much. The next 4 years may be the opposite.

We know of no reason for markets to collapse- we didn't last February either. But Bitcoin, Tesla et al suggest extreme risk ignoring euphoria.


The U.S. economy lost 140,000 jobs in December, while economists had expected a gain of 50,000.

Why it matters: The job market recovery that had been underway for the past seven months ended last month, buckling from the pressure of the coronavirus pandemic.

Details: The leisure and hospitality sector shed nearly 500,000 jobs, reflecting the enormous stress the sector faces as coronavirus cases surge and states impose economic restrictions — leading to worker layoffs.

Three quarters of these losses (372,000) were in restaurants and bars. Cold weather prevented them from taking advantage of the outdoor dining that helped keep business afloat in earlier months.

The bottom line: Economists are looking ahead to the latest coronavirus relief package (plus possibly more relief during the incoming Biden administration) and the vaccine rollout — which could stem the labor market bleeding.

Yes, but: "We can't say, ‘don't worry, everything is fine, and it's all growth from here,'" James Knightley, an economist at ING Financial, told Axios ahead of the jobs report.

"I think that you could get the more pain in the jobs market in the next few months."



Bitcoin is the perfect emperor's clothes speculation. (The Emperor's New Clothes - Wikipedia) With a valuation approaching $1 trillion Bitcoin is an accident waiting to wipe out a lot of speculators. Its value is determined by the greater fool. Even tulip bulbs had more intrinsic value. (Tulip mania - Wikipedia) Does anyone remember Long Term Capital? ( Long-Term Capital Management - Wikipedia) Led by Economic Nobel Prize winners LTCM had the answer to risk- until they didn't. With major investment banks and hedge funds now trading Bitcoin and providing it to customers the table is set for big trouble.


In the same vein, Dow Jones is going to have to add Tesla to the DJIA if it wants to keep up with the S&P 500 and the NASDAQ 100.

The Index/averages game is all about enhancing the performance- fundamentals be damned. (the index and average folks are paid for the use of their measures.)

Tesla at an $800 billion -soon to be $1 trillion-market cap is now valued at more than all the other automakers in the world. Tesla sold 500,000 cars this year and will earn $2 billion of which $1,6 billion will be from selling EV credits to other auto companies- not selling cars. All the other auto companies in the world sold 80 million vehicles and earned over $250 billion.

(Excluding items, Tesla posted a profit of 76 cents per share. It reported net income of $331 million, or $874 million excluding stock-based compensation awards given to Musk. Revenue from the sale of regulatory credits made up $397 million. Without that revenue, Tesla would not have achieved a profitable quarter. So far this year, regulatory credits account for $1.18 billion, or 7% of total automotive revenue.)


We get email:

Happy New Year Bud!

Happy to wake up to a little saner world this AM!! And more optimistic about the future so…….

I am back looking at my university retirement portfolio. As we discussed, I currently have approx. 60% in cash reserves, 30% in Contrafund, and 10% in Bond. Writing to ask for any thoughts, guidance, opinions with an understanding that I am not expecting a recommendation, only more information to consider 😊

Considering the Fidelity Hypothetical Portfolio model, my university (RIT) favored funds, the idea to diversity across different funds, my age (61), and my own research on individual funds (also looking at managers, balancing companies between funds, etc.…), I sketched out the following target investments:

*funds I currently have investments
25% - *FCNKX – RIT (LG)
5% - MEIKX (LV)
5% - FSPHX – (Health G)
5% - *FSPTX – (Tech G)
20% - FIVFX – (Int'l G)
5% - *FISMX – (Int'l S/M B)
5% - *FLPSX - (MV)
Small cap
5% - LSSNX – RIT (SG)
5% - NDVVX – RIT (SV)
10% - *PTRQX – RIT (Bond)
10% - *VBTIX – RIT (Bond)

Thanks in advance for your perspective!

Best, Susan


I would get out of the bond fund. With us (U.S.) having Biden and Congress (YEA) spending on infrastructure and stimulus checks has a better but not certain chance. interest rates are at all-time lows and will move up hurting bond prices (price moves opposite to rates with bonds).

30% in Contra is fine. I would hold rest in a money fund. after market corrects 10% (from whatever level) put 10% of money in contra and then 5% every 5% down. Contra gives you all the diversification you need.

Contra was up 30% in 2019 and 25% in 2020. think you had more in in 2019 than 2020. in March you were probably glad you had less in- at year end 2020 the wish was probably more. I always wish I had more client money invested when markets are higher and always wish I had less invested when markets drop. That's human nature.

We and most everyone survived and lucked out in 2020 and everyone is now a genius and also greedy. I'm on the sidelines.

Sorry to be so simple but over the years simple is good.


We continue to trade GE profitably as JPMorgan analyst Tusa continues to be negative on GE which is one reason it is a trade for us.

From Barron's: It's a new year, with vaccines offering a possible return to a slightly more normal existence and soon a new administration. One thing that isn't changing, however: J.P. Morgan analyst Stephen Tusa's negative view of General Electric stock.

He panned shares again in a Thursday research report: "It's 2021, do you know what you own? GE (ticker: GE) stock has decoupled from long-term fundamentals." For Tusa, it's still about free cash flow and how much of that GE can generate when things get back to normal. Read more:




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