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

Comments on activity in client accounts

28 June 2019

As we wrote last week, we have moved to a large cash position to regroup from our dismal performance this quarter. We are still up for the year in our larger accounts but down substantially from our first quarter highs. We are on the sidelines for now.

During the week we sold Walgreens. It's a great company but the gurus don't like it so we decided to take our losses and revisit it later in the year. We now own Marathon Oil and Abercrombie and also The Gap and United Natural Foods. Early in the year we realized a nice profit in our trade in UNFI but we have given that profit back in the recent decline in the share price. With earnings of $2 and the Goldman lawsuit (see below) we are comfortable with our oversized position.

In the large accounts we added the Wisdom Tree Reset Treasury ETF which currently yields 2%. The following website explains the ETF.



Marathon Oil




United Natural Foods:

A small footnote in Amazon's annual report shows the kind of financial commitment the company is making to the grocery business, beyond the $13 billion it spent last year on Whole Foods.

Amazon's "unconditional purchase obligations," a required disclosure for future payment agreements, ballooned to $24.2 billion in 2017, according to its 10-K filing last month. Amazon had just $1.6 billion of such obligations prior to the Whole Foods deal, and never had more than $2 billion in company history.

After acquiring Whole Foods, Amazon took on an additional $22 billion in contractually obligated future purchases. The balance, which also showed up in Whole Foods' filings for the first time in November, is almost entirely tied to the grocery chain's prior contract with its largest supplier United Natural Foods (UNFI), based on CNBC estimates and prior filings.

Big multi-year supplier contracts are rare for the e-commerce giant, which is known for signing short-term agreements that put constant pricing pressure on its suppliers. The grocery business is new territory for Amazon, and the disclosure reflects its long-term plan to turn Whole Foods into a major revenue driver.

"It is definitely a clear signal of Amazon's commitment and confidence to make the Whole Foods deal work," said Patrick Badolato, an accounting professor at the University of Texas who has followed Amazon for years in his class. "There's a huge commitment to keeping many of the core Whole Foods products there."

Badolato said Amazon's disclosure is particularly significant because it extends until 2025. Most big-box retailers don't commit to such specific, multi-year purchasing agreements, he said. For example, almost all of Costco's future purchase obligations are accounted for this year, while fewer than half of Kroger's obligations go beyond its current fiscal year.

"It's meaningfully different," Badola

another benefit to Amazon maintaining a close relationship with UNFI: access to health and personal care products.

Through its Select Nutrition subsidiary, UNFI says it sells "more than 14,000 health and beauty aids, vitamins, minerals and supplements." Hansen speculates that Amazon is trying to get better access to those types of products and expand the rapidly growing health and personal care category.

Amazon's health and wellness sales grew 30 percent last year, bringing the total segment to $2.5 billion. https://www.cnbc.com/2018/03/07/amazon-purchase-obligations-to-unfi-show-confidence-whole-foods.html

And UNFI is also suing Goldman Sachs asking $400 million. Eventually Goldman will settle for $?? million.

Goldman Sachs Group Inc. put its own interests ahead of that of a corporate client in advising on a wholesale-food company acquisition last year, a new lawsuit alleges.

The suit, filed by United Natural Foods Inc., UNFI -3.51% accuses Goldman of improperly extracting more than $200 million in advising the Providence, R.I., food distributor on its $3 billion acquisition of grocery chain Supervalu Inc.

At issue is a roughly $2 billion financing loan Goldman arranged for United Natural Foods on the deal. The company alleges that Goldman arranged the financing in a way that hurt United Natural Foods but benefited the financial firm and its hedge-fund clients that had placed bets in the credit-default swap market against Supervalu. The company also accuses Goldman of taking advantage of the deal's provisions to extract more money from United Natural Foods.

A Goldman spokeswoman said the firm "believes that these claims are entirely without merit. We intend to vigorously defend ourselves against these accusations."

The suit mirrors questions raised by Congress and others after the financial crisis about Goldman's duty to clients. Goldman, which paid a $550 million penalty over a specific deal called Abacus, says it has since changed its operations and disclosures. The suit also raises fresh concerns about the potential for manipulation in the $10 trillion market for credit-default swaps, which are contracts designed to reduce the risk of losses when an entity defaults on its debt.

Continue reading: https://www.wsj.com/articles/goldman-feasts-at-expense-of-food-company-client-suit-claims-11548884825


The Pot and the Kettle

From the WSJ: WASHINGTON—President Trump said the Federal Reserve "doesn't know what it is doing" and compared the U.S. central bank to a "stubborn child" in a pair of tweets on Monday, after the bank opted not to cut interest rates during its two-day meeting last week.

"Think of what it could have been if the Fed had gotten it right," Mr. Trump wrote. "Now they stick, like a stubborn child, when we need rates cuts, & easing, to make up for what countries are doing against us. Blew it!"


It's always something:



Summer Solstice 2019

We have been out of sync with the markets for the last few months after being 'masters of the universe' over the New Year into February. When this occurs and since we are into the summer doldrum months it seems correct to raise cash and watch. We raised cash last month but greed led us to reinvest and Mr./Mrs. market punished our hubris.

And so, we sold a group of issues and reduced positions in others to build a comfortable cash position and head to the sidelines. We sold Ascena for a too large loss, took scratch profits in Ford, Devon Newell, and reduced The Gap and Walgreens Boots. We did add to United Natural Foods in the last week as it made new all-time lows. UNFI is now priced at 5 times earnings.

We now own Walgreens Boots cheap and down from $80 to $50 at 9X earnings with 3.3% yield; Marathon Oil (obvious); Abercrombie and The Gap, both with 5% yields and both down 40% from recent highs and United Natural Foods down from $50 to $9 in the last year as the gurus express dismay at their acquiring of Super Valu .

Today is a quadruple witching day, we may or not be at war with Iran by the time the weekend is over, and the China tariff situation will be the story of next week.


2006-2008 Redux ?


After Losing the Trust of Users to Protect Their Data, Facebook Pivots to Just Asking for Their Money Up Front


Crazy Days




United Natural Foods lawsuit against Goldman Sachs



Flag Day 2019

Our webhosting site dropped webhosting last week and it took several days for another hosting site to pick us up. We are back!!!

During the week we added Devon Oil, Newell Co and Abercrombie to accounts. All were repurchased at prices lower than the prices at which we last sold.

Abercrombie and Devon and Newell all reported better than but they are in industries that are particularly unloved in the present market.

And so, while Beyond Meat (losses), Uber (losing $1billion a quarter) Roku (no earnings), Crowdstrike (100-time sales) and other concept stocks and IPOs move higher, value stocks lag. The period from 1996 to 2000 was difficult for us as tech with no earnings zoomed and value wallowed. That time may be rhyming with the present.

Ascena Retail continues to move lower and is causing accounts and our psyche great pain. We have reviewed our reasons for owning it and with $6 billion in sales and an equity value of less than $200 million we can't sell to relieve our pain. It is just too cheap. The company and insiders are not buying shares at these levels (see Abercrombie below) and that is a worry. Our hope -and it is only that -is that there is no insider buying because the company will be making further moves like selling (for a modest sum- Jaffe resigned as Chairman and CEO) dressbarn to the Jaffe family or selling Lane Bryant or Justice to pay down more debt. Our fear is that the board or others will make a $1.50 bid to take the company private. Ann Taylor Loft and Justice are profitable and selling Lane Brant and or Justice would raise enough money to pay down all Ascena's debt and own Ann and Loft debt free with $2 billion plus in sales. Time will tell.

Summer is on the way.


This may be why Gap is spinning off Old Navy



Abercrombie buying shares:


Another questionable threat:



7 June 2019

Markets stabilized this week as the Trumpster left the U.S. to visit the Queen and play golf in Ireland. He also stopped for a moment to remember D Day.

Our accounts suffered as our retail value 5% yield stocks dropped further. We purchased a few more shares but hopefully we have learned that we can't beat the computer jocks when they decide to short stocks without regard to the value of the companies. The computers are much more interested in the whether the charts suggest selling pressure or buying pressure. The computers digest trends in micro seconds and execute sell or buy orders that swamp investors.

We traded AT&T this week of a $1 profit which is two quarters dividends. We placed those fund in Ford which yields the same as AT&T and is a trading bet on the Mexico tariffs not being added.

During the week United Natural Foods had a decent report but they are still digesting the Super Valu purchase with write offs and adjustments obfuscating underlying good results.


We currently own; Walgreens Boots, Marathon Oil, Ford, Bristol Myers, United Natural Foods, Abercrombie, The Gap and Ascena and CASH.



1 June 2019

We were watching CNBC this Friday morning and the three commentators were discussing The Trumpster threatening to impose tariffs on Mexico to stop immigration on the southern border (say what!) as if Trump made a rational well thought out decision. When will the thoughtful treatment of harebrained tweets cease?

It is unnerving the way the tv and print mavens – and now the markets- confer rationality to Trumps tweets and decisions. But it is what it is, and we have reacted to the Village idiot's latest tweets by raising a good deal of cash and eliminating our trading positions- at a loss.

This is the third year in a row that our accounts have rallied into February only to give back all those gains by May. One would think that we would have learned our lesson but old trading habits are difficult to break. Moreover, we expected/hoped some rationality in the tariff wars to the detriment of our accounts' values.

We are flummoxed by the incompetency of the president. We knew he was all hat but we did think his fellow Repubs would exert some influence. Instead they are scared to death of getting primaried by Trump followers if they oppose the Trumpster and so the deafening silence from the Senate.

The financial commentators are afraid to confront the stupidity of Trumps tariff tweets because most of Wall Street and of the Pooh Bah who run the networks are interested in what's in it for them. And the tax cuts and carried interest exemption coupled with the real estate write offs that mean never having to pay any taxes are their payment for silence and acquiescence.

The country has survived world wars and earthquakes and floods and tornadoes and hurricanes and so the thinking is that the country can survive Trump. The problem with that thinking is that Trump is an idiot and has really not encountered any major international incident and let's pray/hope it stays that way. With the departure of the generals and the amateur hour replacements in the cabinet we truly worry what will occur if there is a real or supposed Tonkin Gulf incident.

And now the markets are demanding interest rate cuts by the Fed to offset the ill-considered Trump tariffs. The markets are afraid of Trump and are hoping The Fed will save the day. Cutting interest rates to mitigate stupid policy is in itself stupid. The Fed should hold fast and let Trumps stupidity do what it will to the economy. Folks have to stop treating Trump as sane and, until his actions hit their pocketbooks in a big way, we don't think they will.

To raise cash and reposition we switched our failed trade in CVS to Walgreens Boots. We have followed WBA for years and years and years and it is a well-run company priced at 7 times earnings and with a 3.8% yield. We are much more comfortable holding it as a longer-term investment than we are in holding a trade that didn't work.

We also sold AT&T over $32 since that has been its high print over the past year. We plan on reentering at some point. T is down today on rumors that Amazon is going to buy Boost, Sprints prepaid no frills cell service and become a fourth competitor in the cell phone business.

We took a trading profit in Cognizant and losses in Rite Aid, 3D, Hewlett Packard, and Baker Hughes GE. We scratched+/- in Bristol Myers and Intel.

We did add Abercrombie when it dropped 30% in one day and 40% over the last week on what the Street considered bad earnings- we didn't; and also repurchased Apache $4 lower than we sold last week to replace the XOP that we sold at a loss. Apache has a higher beta and with oil down 25% from its recent high we have also been adding to or Marathon Oil position.



Abercrombie (4.5% yield) U. S. same store sales both at Abercrombie and Hollister were up 4% in the quarter and overall same sales were up 1%. That doesn't merit a 40% retrenchment:


We also added a few shares of the Gap (5.2% yield) on a drop from $30 to $18 over the last month.



A tornado ripped through Dayton, Ohio, on the night on May 27, but that wasn't the only storm Dayton residents faced. Fox 45 weatherman Jamie Simpson launched into an excoriation of his viewers during a live tornado bulletin when people started to complain on social media that the warning had interrupted show The Bachelorette. [...]

In video shared widely on social media, Simpson said: "Just checking social media. We have folks complaining already, 'just go back to the show.' No, we're not going back to the show, folks. This is a dangerous situation, okay?


He has no shame: Eddie Lampert Sues Sears Estate, Demands Trial and $130 Million




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