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Lemley Yarling Management Co
309 W Johnson Street
Apt 544
Madison, WI 53703
Bud: 312-925-5248       Kathy: 630-323-8422

July 26, 2013

Model Portfolio Value As of 26 July 2013

$ 701,601

Comment on Model Portfolio activity

Our view remains that a correction is needed and will occur. But timing is everything and as spot on as our timing was last year it has been spot off this year. We thought the markets needed a correction entering this year and since we maintain the same view we expect a larger correction to occur. The economy is recovering but the Sequester of $85 billion of government spending has hurt. Last year the east coast hurricane resulted in a one-time appropriation of $50 billion in infrastructure and repair/replacement spending which has somewhat offset the Sequester but unless there is an even large hurricane or natural disaster this year the full impact of the overall reduction in spending will have more of an effect next years the $85 billion per year Sequester continues. ($85 billion per year is being removed from the budget- not a one-time $85 billion.)

We added a few stocks that tanked on missed earnings this quarter and will add more for trades/holds as earnings season continues. We are trading around our small- now smaller with a sale of half the position in the ultra-short S&P 500 (SPXU). Our short position now matches our equity exposure in most accounts for a relatively neutral position. (Donít ask just trust.) We have difficulty being short the market or any security since we are bulls at heart but we do think we will at least break even on this trade and have reduces it to a sleepable level in accounts.

Bullís remain at 52% and Bear at 19% in the latest survey.

Our 2% gain for the year pales in comparison to last yearís gain but there is a lot of time left in the year. And the 2% return still exceeds that of the ten year Treasury which is in minus territory for the year.

Headline: Amazon misses on earnings.

Say what? Amazon doesnít have earnings Ė only sales- as it tries to put every retailer in America out of business.



Different Rules?


Don't Mean To Be Dense, But How Is This Huge Yahoo Stock Deal Not Insider Trading?

Henry Blodget

Some startling news from Yahoo this morning...

The company is buying $1.1 billion worth of its stock from its largest investor, Third Point, and three of the company's most important directors--including Third Point's Dan Loeb--are quitting the board.

This is big news for Yahoo! from a fundamental perspective. The three board members who are resigning, activist investor Dan Loeb, media consultant Michael Wolf, and turnaround expert Harry Wilson, have made a major contribution to Yahoo's turnaround and stock price resurrection over the past two years.

This also seems like big news from another perspective:

It seems like the very definition of insider trading.


Well, sometime prior to the open of the stock market this morning, three of Yahoo's most important board members decided to resign.

And, sometime prior to the open of the stock this morning--before the board-member resignations were made public--Yahoo's largest shareholder, which knew about the resignations, dumped $1.1 billion of stock.

The information that three important board members are quitting is highly material information--information that almost any reasonable investor would want to know when considering a Yahoo trade. Trading while in possession of material non-public information, meanwhile, is insider trading.

Given that Yahoo's three most important board members just quit, it's not surprising to see Yahoo's stock down 5% this morning. It's actually surprising to me that it's not down more than that.

Third Point and Yahoo obviously knew that three of Yahoo's board members were about to quit when they agreed to the terms of the deal in which Yahoo will buy 40 million shares of its stock from Third Point.

Third Point and Yahoo, however, did not wait to agree on a price for this trade until after the news about the board member resignations had been made public. 

Third Point and Yahoo did not, for example, wait until the close of trading today, when Yahoo's stock price will presumably reflect the market's assessment of the news that Yahoo's three most important board members have just quit.

Instead, Yahoo and Third Point priced their transaction based on Yahoo's closing price on Friday--before the news about the directors quitting was made public.

So Third Point is getting the pre-resignation price for its stock, while knowing about the upcoming board member resignations. And the rest of us Joe Schmo Yahoo shareholders, who didn't know about the resignations, are now getting the post-resignation price.

Again, the definition of "insider trading" is trading while in possession of material non-public information.

It would be extremely hard to argue that the sudden and unexpected resignation of three of Yahoo's most important directors is not material non-public information.

And it would be impossible to argue that Third Point and Yahoo did not trade while in possession of this information.

So, how is this not insider trading?

I don't mean to be dense or rude here.  And I'm also not a lawyer. So maybe there's some exception to insider trading laws that allows insider deals like this to happen.

To be clear, I'm also not objecting to big private block trades. Those happen all the time. (In most cases, though, they happen at a discount to the prevailing market price, to account for the likely impact of that amount of stock changing hands on the market price. This one, I note, did not happen at a discount.)

And, very importantly, these big private block trades also do not happen when both parties--and no one else--are in possession of highly material non-public information, such as the resignation of three key directors.

I am sure that this deal was lawyered out the wazoo. So I'm sure there's some innocent explanation.

But until I hear that explanation, I will be scratching my head.

A source familiar with Third Point's view of this trade says that it was legal because the stock was sold to Yahoo, not the public. Yahoo was in possession of the same information as Third Point, the source says, so there was no information on one side that was not known to the other side.

And I certainly see that.

As a Yahoo shareholder, I'm a bit annoyed that Yahoo didn't insist on getting a modest discount to the trading price in exchange for buying such a big block of stock, as I would have expected in this scenario. But I'm not arguing that Yahoo got shafted by being sold stock while not being in possession of the information on the other side of the trade.

The folks I'm frustrated on behalf of are Yahoo's other shareholders, who didn't sell, and who didn't know about this material non-public information that both Yahoo and Third Point knew about when they traded at that juicy $29+ price on Friday.

A Yahoo shareholder who was/is thinking of selling his stock, for example, I can tell you that I sure would have liked to have known on Friday afternoon that Yahoo's three most important board members were about to announce that they were quitting. That information might have made a difference to me when I was considering selling my stock (which, as it happened, I actually was doing on Friday afternoon. I didn't sell.) And I certainly feel like a bit of a sucker this morning, now that I have learned that Yahoo's smartest shareholder, Dan Loeb, unloaded $1.1 billion of his stock on Friday, while knowing what I was I blissfully clueless about all weekend.

UPDATE: Bloomberg's Jonathan Weil offers one explanation about why this trade technically is not insider trading: It does not involve the theft or misappropriation of inside information. (Personally, I don't understand how Third Point would be legally entitled to trade while in possession of information acquired by a board member just because they happened to employ the board member. Dan Loeb obviously did not misappropriate the information that he and two other board members were quitting. But Third Point is not Dan Loeb. And it is Third Point that sold the stock...while knowing something that other investors did not--that Loeb and the other board members were quitting.)

DISCLAIMER: I am absurdly conflicted here. First, I'm a Yahoo shareholder. For better and worse, I've owned the stock since 1998. (I have been thinking of selling it recently, in part because I'm sick of having to explain that I'm a Yahoo shareholder when I write or talk about the company. It looks like Friday might have been a good time to sell.) Second, I work for Yahoo: I'm a host of a Yahoo Finance video show called Daily Ticker. Third, I have friends and acquaintances at several companies involved in this transaction and many more companies that might have been involved. Basically, I have so many conflicts and potential conflicts with respect to this story that I could spend the rest of the day describing them....

Read more:



Follow the money:


A Legal Bane of Wall Street Switches Sides (DealBook)

When he left his role as Wall Streetís top federal enforcer, Robert S. Khuzami began a long courtship with a whoís who of the legal world. Ö Six months later, lawyers briefed on the matter say, Mr. Khuzami has accepted a job that pays more than $5 million a year at Kirkland & Ellis, one of the nationís biggest corporate law firms. In doing so, he is following the quintessential Washington script: an influential government insider becoming a paid advocate for industries he once policed.




July 19, 2013

Model Portfolio Value As of 19 July 2013

$ 701,051

Comment on Model Portfolio activity

We remain in cash with a small S&P 500 short position with SPXU ETF in many accounts... Bulls are now 52% and Bears 19%. Itís getting lonely on the negative side of the markets.



July 12, 2013

Model Portfolio Value As of 12 July 2013

$ 702,026

Comment on Model Portfolio activity

We sold our remaining stock positions this week for profits end made a losing round trip in the NASDAQ 100 ETF and a partial position of the triple Short S&P (SPXU.) A nice profit in Walgreen helped offset the realized losses in those short ETFs.

Bernanke says the economy remains weak and so QE2 will remain in place and the markets rallied. Two weeks ago when Bernanke said the economy was doing better and so QE2 would be tapered the markets weakened. Go Figure.

Bulls rose to 48% and Bears dropped to 20% according to Investors Intelligence. As markets rise so does bullish sentiment. Go figure.

We await the correction.



July 5, 2013

Model Portfolio Value As of 5 July 2013

$ 701,865

Comment on Model Portfolio activity

We have been trading around our bearish bias for the past two weeks realizing some very slim gains- but gains none the less. The Employment Report on Friday was bullish for the thin holiday markets and we repurchased the triple bearish SPXU and double bearish NASDQ 100 after selling them on Wednesday. We plan to continue to trade this bias for a while. We will also trade quality stocks that disappoint during earnings season this month as with the repurchase of Walgreens this week when sales disappointed. We are looking for bunt singles and walks given our expectations of a correction.
























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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.