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Lemley Yarling Management Co
309 W Johnson St
Apt 544
Madison, WI 53703
Bud: 312-925-5248

Comments on activity in client accounts

15 July 2022

The family is coming to Madison for our annual summer fest so our next epistle will be on August 5.

Markets were mixed this week but closed Friday up over 1% and up for the half month after a not so happy June. We've been adjusting portfolios and have been concentrated on rational positions in more than the usual number of issues. As the S&P 500 bounced off 3750 for the fifth time in the past few months we reduced cash in accounts to 30% plus in our largest accounts. As we commented last week the large cap market leaders have corrected enough while the fancy stocks -which rallied this week- still could suffer more price erosion over time. September and early October still loom on the horizon so we are not ready to declare an end to the correction.

We currently own Morgan Stanley (4%), Citicorp (4%), Wells Fargo (2.4%), BankAmerica (2.5%), and Huntington Banks (5%) in our finance issues. We took our lumps on the KBWB (Bank ETF) and moved back to individual issues since they have greater percentage upside from current levels. Among Dow stocks we own Disney (0%), Dow (5.6%), Cisco (3.5%), Walgreen's (5%) and Intel (3.8%). We are back in a2 oil issues that have corrected 30% as Oil has also dropped as much. We traded BP for a loss and now own Shell Oil (4%) and Apache Oil (1.5%).

Among trading/hold stocks we own Hewlett Packard Enterprises (3.9%) Energizer Holding (4%), Carpenter Steel (3%), AMC Networks (0%), Paramount Plus (3.8%) and old favorite Hain Organics (0%) down from $43 to $22. Finally, we took a plus profit in Ford and kept GM (0%).

Our retail portfolio has expanded to Starbucks (2.5%), Kohl's (5.8%), Urban Outfitters (0%), Foot Locker (6.3%), Nordstrom (3.8%), American Eagle (6.1%) Macy's (3.8%) Abercrombie (0%) The Gap (7.2%), Under Armour (0%), and Bed Bath (0%). Some of the dividends are threatened but with prices as low as they are we are willing to assume the risk. These companies will have decent earnings this year and are currently at the mercy of very negative guru/analyst opinions and increased put and downward forcing option positions with short sellers piling on. We own reasonable positions in the many issues as opposed to our usual large positions in a few.


Krugman on Wonking Out: Rockets, Feathers and Prices at the Pump

The reaction to his remark was, however, savage. Most notably, Jeff Bezos in a tweet assailed Biden for "a deep misunderstanding of market dynamics."

Hmmm. Did Bezos check out what we know about the market dynamics of gasoline prices (or order an underling to do it)? Because if he had, he would have learned that there are some peculiar things about those dynamics — things that suggest at least some justification for Biden's appeal. Serious research offers a lot more support for the idea that market power has played a role in recent inflation than you'd imagine from the ridicule heaped on that notion, including from Democratic-leaning economists.

Monopoly power isn't the principal cause of inflation, which has been driven by an overheated economy plus external shocks like Russia's invasion of Ukraine. But there's a reasonable case that monopoly power is a cause of inflation — and blanket attacks on the mere possibility reflect, well, a deep misunderstanding of market dynamics.

So, about those gas prices. As economists at the St. Louis Fed recently pointed out, there's a longstanding phenomenon in the fuel market known as asymmetric pass-through or, more colorfully, rockets and feathers. When oil prices shoot up, prices at the pump shoot up right along with them (the rocket). And when oil prices plunge, prices at the pump eventually fall, but much more gradually (the feather).

Why this asymmetry? There have been a number of economic papers trying to understand it, pretty much all of which stress the market power of companies that face limited competition (something Bezos surely knows a lot about.) The clearest explanation I've seen is in a relatively old paper by Severin Borenstein, Richard Gilbert and A. Colin Campbell. I'd summarize their argument as follows: When oil prices shoot up, owners of gas stations feel empowered not just to pass on the cost but also to raise their markups, because consumers can't easily tell whether they're being gouged when prices are going up everywhere. And gas stations may hang on to these extra markups for a while even when oil prices fall. Read more:



This small slice of the night sky contains 48,741 Galaxies Each of these 48,741 dots represents a galaxy.

Each galaxy is a collection of billions of stars. The stars themselves trap untold planets, asteroids, and possibly even life in their gravitational clutches.


8 July 2022

Labor market still showing strength after a better-than-expected nonfarm payroll report for June with 372,000 jobs added versus 250,000 expected, offset by negative 74,000 revisions for April and May.

Average hourly earnings June was a tick higher than expected at 5.1% year over year, but a hair lower from the prior month's increase.

Labor force participation rate at 62.2%, down from 62.3% in May.

The 10-Year Treasury yield rose in response to the strong report, back above 3%.

From Cranmer's daily email Friday


Markets were high for the week and Treasuries moved back above the 3% level on Friday as the Employment report and average hourly wages exceeded expectations. Those reports suggested to market prognosticators that the Fed will remain on course to raise rates at least several more times this year. The collapse in commodity prices -with oil dropping 20% in the last month as the remaining holdout- suggests that inflation numbers will retreat. Housing prices and sales have softened as mortgage rates have doubled, but rent increases continue. We presume the apartment construction we observe in Madison is occurring across the country. That should lead to a surplus in rentals within the next two years and a corresponding moderation in rent increases.

The markets actions remain volatile but as long as the S&P 500 remains above 3750 (it has bounced off that number 4 times in the last few months) we will remain positive but wary. Down 20% on the S&P and 30% on the Nasdaq with the fancy stocks down 50% and more is a significant correction. The large tech stocks-Apple Google, Amazon, Microsoft, Netflix, Facebook, Salesforces et al have corrected substantially and since they comprise a major portion of the S&P because of their market value any further substantial correction is not in the cards barring an unseeable catastrophe. The fancy 100 times sales stocks are now at 50 times revenues still with no earnings on the horizon so the probably have further to drop ala 2001- 2005

We remain 40% cash and greater in most accounts and cautious but wanting some stock exposure..


Brent crude dropped below $100 a barrel on Wednesday for the first time since April, leaving it 29 per cent below its recent peak. Other markets have also faced severe falls, with the broad S&P GSCI agricultural prices index down 28 per cent since its all-time high in mid-May and a London Metal Exchange benchmark tracking half a dozen industrial metals losing a third of its value since peaking in March…. That marks a sharp turnround from fierce rallies in commodities markets earlier in 2022, when raw material prices were pushed higher by a post-pandemic bounce back, lack of investment in new energy and mining assets, and supply constraints exacerbated by Russia's invasion of Ukraine.




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309 W Johnson Street Apt 544 Madison, WI 53703 312-925-5248
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