Lemley Yarling Management Co
309 W Johnson Street
Madison, WI 53703
Bud: 312-925-5248 Kathy: 630-323-8422
Comments on activity in client accounts
31 July 2015
During the week we decided to go back to plan 1 of waiting till September/October to maybe reenter the markets. As a result we took loses in INFI, CAT, and FSLR and switched our GM warrants to common stock when the premium exceeded $2 on the warrants. We did repurchase Whole Foods (which we sold a few weeks ago) when it dropped another 15% on what analysts considered disappointing results for the quarter. We purchased more Sprouts with the UNFI money. We also trade the oil exploration ETF for a scratch profit.
As a result of these actions our cash position has increased. We believe that the social media stocks remain overpriced and that a 10% or better correction would be healthy.
Following are a few articles of interest.
"Leveraged Loan" Time Bomb Goes Off
And Millennium's owners who paid themselves a $1.3 billion dividend, among other goodies? Turns out, the "reach for yield" is one of the most efficient wealth transfer mechanisms known to mankind. They knew exactly how to use it, even while the company was under investigation, and they got their money out a year before the debilitating settlement.
UBS's Puerto Rico Bond Funds Implode, "Collateral Value" Drops to Zero, Investors Screwed
http://wolfstreet.com/2015/07/24/ubss-puerto-rico-bond-funds-implode-collateral-value-drops-to-zero-investors-screwed/ "We believe that the probability of default is approaching 100 percent, and that losses given default are substantial," Moody's wrote on Wednesday about Puerto Rico's $72 billion in bonds that were stuffed into numerous conservative-sounding bond funds spread across America's retirement portfolios.
"Bondholder recoveries will be lowest on securities lacking explicit contractual or other legal protections," the report went on, according to Bloomberg. About $26 billion in bonds fall into this category, issued by entities such as the Government Development Bank, Highways and Transportation Authority, Infrastructure Finance Authority, and Municipal Finance Authority. Investors in these bonds might recover only 35 cents on the dollar.
Capitalism: Billionaire hedge fund managers to Puerto Rico: Close schools to pay us back, http://www.businessinsider.com/billionaire-hedge-fund-managers-to-puerto-rico-close-schools-to-pay-us-back-2015-7#ixzz3hCI35Gpl
No More Free Cheese Sticks for Kraft Employees in Cost Crackdown
Kraft was taken private by Heinz. Now they will fire folks even though the company was/is profitable. A profit before jobs is the new mantra. These jobs are not going overseas they are being eliminated because slimming companies and doing without makes more profits for the owners. It really is too bad that companies are priced on profits through job elimination rather than revenue growth and jobs created.
The days of free Jell-O and cheese sticks are over for employees at Kraft's headquarters.
After merging this month with Heinz, the combined company rolled out policies aimed at curbing expenses such as travel, electricity and office supplies, according to the contents of a memo reviewed by Bloomberg News.
The foodmaker has also begun cutting jobs -- and even yanked the free snacks, according to people familiar with the matter who asked not to be identified because the decisions are private. Refrigerators that used to be stocked with Kraft treats were removed this month from the headquarters outside Chicago, the people said.
The belt-tightening and job cuts helped Heinz produce some of the best margins among large U.S. food companies. They also created a windfall for Berkshire and 3G, which are banking on a similar result from the combination with Kraft.
Hees has plans to take $1.5 billion of annual costs out of the business by the end of 2017. To help achieve that goal, he announced a new senior management team on June 29 and the departures of several top Kraft executives, including Chief Financial Officer James Kehoe. Additional cuts are under way at more junior levels of management, one of the people familiar with the matter said.
24 July 2015
The markets love Amazon which earned a few dollars and Google which is earning a lot of dollars. Other than those two the attitude is sanguine. The DJIA is again lower for the year as are many of our accounts- although not by much.
We are maintaining a large cash position for what we believe will be a significant correction in the September/October period. In the past that has been the usual correction time in markets that are overextended.
That the economy is doing well is a given with jobless claims in the last week at a 40 year low. Surely many folks are not earning what they would like to but that is usually the case especially in the super consumer economy that currently exists.
During the week we sold NVDIA ahead of earnings since many techy stocks that recently reported better than still were hit and chased lower. We repurchased Verizon lower than our sale and also bought Caterpillar when it dropped on a lousy forecast. We repurchased Ralph Lauren which we have been trading for the past few months.
From the Motley Fool below is a discussion of Alcoa. We will be going back into the shares sometime in the next few months.
Robert Reich: Goldman Sachs and Wall Street "masterful" at exploiting Greece
The Greek debt crisis offers another illustration of Wall Street's powers of persuasion and predation
17 July 2015
We traded Ralph Lauren for a small profit this week and sold Verizon with the dividend for a 40 pennies profit. Last Friday we also added NVidia to accounts after it dropped on a bad forecast from AMD which is NVidia's main competition in the chip business.
Greece seems to be settled for the next week or so and the DJIA and S&P 500 continue moving sideways while the NADAQ makes new highs on the ramps higher in Amazon, Google, Netflix et al.
Interestingly- at least to us- the 5000 level is where the NASDAQ stalled 15 years ago. Multiply by 10 and the 50,000 level is where the Nikkei topped in 1989 never to return to even half that level. And the Shanghai Composite Index topped at 5100 on June 11 before dropping 20 %. Just saying- and remember numbers can tell you anything you want them too.
In that same vein we note that in March 2009 the absolute mid-day bottom on the S&P 500 was 666- yes, the sign of the devil. Just saying.
We continue to maintain a very large cash position licking our wounds on a few larger than necessary losses but convinced for the next week at least that the go to stocks are overvalues.
It seems that every day CNBC announces another social internet stock - for dating, or buying apples, or shaving cream - has reached the billion dollar valuation level. It really is 1998 to 2000 redux. Google and Apple seem fairly valued but eventually traders will decide the emperor's clothes stocks are overvalued and expose them. When remains the unanswerable question, until it occurs.
Keep the faith.
10 July 2015
On vacation. Market vacillating; we enjoying. Bought a few issues - First Solar, Cree, Ralph Lauren - in small amounts in larger accounts. We traded FRST and RL profitably this year and lost on CREE last year at higher levels. Maintaining large cash position because of overpriced wonder stocks as in we wonder why any stock is worth 100 times earnings.
We'll have more next week.
2 July 2015
The following is a letter we wrote to clients at the end of June.
We write to let you know about a change we have made to improve the efficiency of our business. We closed our Hinsdale office and moved the office for regulatory purposes to the Wisconsin farm office. That means that we will only be audited by Wisconsin instead of Wisconsin and Illinois and that will make our life a bit simpler. Also Kathy is doing a bit more traveling between Florida and other places — always taking her computer with her- and so the Hinsdale office has become superfluous and for convenience sake she has replaced the Hinsdale office by building one in her home.
Telephone numbers and email addresses remain the same as does the mailing address on the heading and with this change we are ready to continue conscientiously serving you for the foreseeable future.
We have enclosed billing for the second quarter of 2015. Your account has been debited for this amount. For the past 25 years we have debited accounts and noted such debits on monthly staements but in accordance with rules of our new master -the State of Wisconsin - we are now required to send you a quarterly billing of the amount debited.
That new requirement gives us a chance to comment on account activity and the markets. Most of our accounts are flat to slightly better for the first two quarters while the DJIA is flat; the S&P 500 is up about 2%; and most bond measures are flat to negative. We do think there will be an opportunity to make a few dollars sometime during the year but as always principal preservation remains our primary goal. The value stocks we like to trade are not in favor and may not be until a decent correction occurs. We will continue to trade earnings misses in quality stocks but are more comfortable on the sidelines at this time.
The economy remains stable and gradually improving and markets are overvalued but not looking like they want to correct yet. The high flying stocks are severely overpriced. But such overvaluations can last for a long time. There hasn't been a 10% correction in the S&P 500 for over 5 years. We recently moved to a mostly cash position because of these factors.
We would remind that we post weekly at lemleyletter.com discussing activity in accounts and presenting our current views on market conditions.
Bud and Kathy.
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