Lemley Yarling Management Co
309 W Johnson St
Madison, WI 53703
Comments on activity in client accounts
16 June 2023
We are taking the rest of the month off from posting and the next week off from being in the farmhouse office. Our kids and grandkids are all coming to the country for a very large family wedding. Next post will be July 1.
The pause that has refreshed the markets.
Fed leaves rates unchanged for first time since March 2022.
The bulls are rampant as the Fed pause (although they did say they were thinking about 2 more raises this year-to add a little spice to their announcement) suggested that the economy wouldn't suffer recession. Moreover, the current wisdom is that AI is going to change the world and commerce and everything for good- or bad- or who knows what.
Our take is that all the recent upside action is the result of the big boys and girls who were underinvested or short the market rushing to paint their portfolios before quarter end.
Why else would these folks be buying Tesla at $260 when they could have purchase it at $100 in December. Or why NVDIA at $440 when it was $100 in December; Netflix at $440 up from $170; Adobe at $500 up from $275; Oracle $128 up from $69; MSFT $350 up from $220; etc. etc. etc. By the by, most of those stocks were down 50% in 2022 and are just retracing their collapse from ridiculous valuations of 2021 on their way to ridiculous valuations this summer.
This week we finally heeded our sell in May thoughts by going to the Treasury Bill ETF (USFR) which is yielding over 5%. Our large accounts are 80% USFR and others 70% except the small ancillary accounts we hold for clients which we usually keep fully invested which makes them much more volatile.
We currently own:
Wisdom Tree Floating Rate Treasury Fund (USFR) 5% current yield and rising.
CVS Health Corp (Drug Stores, Health Insurance, Pharmacy Benefits) at $68, 7X earnings, 3.5% yield and down from $102 in December.
Zoom $69, 16x, 0% yield and down from $120 in August 2022 and a ridiculous $380 in August 2021. ZM has $18 per share in cash and de minimis debt. As of June 2023, Zoom was worth a net $15 billion with $4 billion in growing sales priced at 16X earnings. Zoom has 300 million users in meetings daily. 89% of Zoom users use it for work meetings. 73.41 million downloads of the Zoom app were recorded worldwide in the first quarter of 2022.
Our Retail package: Macy's $16, 5x, 4.1%; Nordstrom $19. 10X, 4%; The Gap $9.50, 16X, 6.2%.
Key Banks, $10, 7X, 8.2%.
This and That;
Goldman Sachs Group Inc.'s David Kostin expects the gains to continue as other sectors catch up with the searing rally for technology shares.
Morgan Stanley's Michael Wilson, meanwhile, points instead to the bear market of the 1940s, when the S&P 500 rallied 24% before returning to a new low.
The Trumpster is supposedly a billionaire yet he keeps asking for money. He's the greatest ‘Con Man' since the ‘Music Man'.
Trump's die-hard fans handed him another $6.6 million after he was indicted a second time, according to his campaign.
McKinsey Global Institute
"Generative artificial intelligence" is set to add up to $4.4 trillion of value to the global economy annually, according to a report from McKinsey Global Institute, in what is one of the rosier predictions about the economic effects of the rapidly evolving technology.
These same folks stated this about the Metaverse earlier before the idea of a metaverse crashed and burned.
McKinsey & Company
Beyond the hype, the #metaverse is shaping up to be the biggest new growth opportunity in the coming decade. Check out our new report to learn more about the current landscape and the actions leaders should consider to capture the value
Ah! The bible, the font of truths.
Southern Baptist Convention expels 2 woman-led churches
…. almost 13,000 convention participants didn't agree. The Rev. Albert Mohler Jr., president of the Southern Baptist Theological Seminary, argued, "The issue of women serving in the pastorate is an issue of fundamental Biblical authority that does violate both the doctrine and the order of the Southern Baptist Convention." The "scriptures" cited here are the most misogynistic passages from Paul's Epistles, specifically 1 Timothy 2:11, which begins with the classic, "Let a woman learn in silence with all submissiveness. I permit no woman to teach or to have authority over men; she is to keep silent;" and Titus 1, which asserts that in appointing "elders," one should appoint a man "faithful to his wife."
9 June 2023
Markets were mildly higher this week as the Super Seven continued higher while the rest of stocks basically vacillated. The FED meets next week and our surmise is that whether they raise rates one more time or pass, the markets have already digested that news. But we think that the big boys and girls want to keep stocks higher into month end which is also quarter end and year end for many institutions.
The S&P 500 remains above 4200 which has been resistance this year and last; but it is still 15% away from its all-time high in 2021 of 4800. The 500 which is at 4300 because of Institutions (to not look left behind) rushing into 12 large cap stock needs a broadening of positive action if it is going to continue higher.
Because of the recent positive action, we have recommitted funds to our favorite value stocks and plan to try and hold thru month end. Most accounts are still 50% U.S. Treasury ETF (USFR). Most accounts are up 8% to 12% this year which has been accomplished with greater than 50% Cash/Treasury holding
Musings on the news
Well, the Trumpster was indicted. The cable networks are happy because now they have their programming for the next year. Trump is happy because now he can continue raising millions from his minions. Trump is happy because he continues to receive attention 24/7. Trump is happy because the trial will be in Florida where he can count on at least one-and probably more- juror for acquittal. Trump is happy because his favorite judge is trying the caser-at least initially.
Masks! Masks! Who's telling folks to wear masks?
Hazardous air conditions on East Coast as U.S. rushes firefighters to Canada.
This was a week when Greed reminded us it's always about the money.
If the government won't let Merck rip off sick folks, they aren't going to do research.
The pharmaceutical company Merck sued the government on Tuesday over a federal law that empowers Medicare for the first time to negotiate prices directly with drugmakers.
Merck's lawsuit, filed in federal court in Washington, is the drug industry's most significant move so far to fight back against a substantial change to health policy, which will go into effect in 2026. Democrats pushed through the Medicare-negotiation program last summer as a provision of the Inflation Reduction Act, framing it as a way of lowering drug prices.
Only some drugs will be subject to negotiation with Medicare and only after they have been on the market without competition for years. But Merck, which generated $14.5 billion in profit last year, and paid only $2 billion in taxes (12% of income) claimed in a statement on Tuesday that the law would stifle the ability of it and its peers to make risky investments in new cures.
Other drug companies have suggested that they will choose to cut certain drug development programs because of the projected dent to their revenue. Several have already said they were reassessing their research plans.
Finally, a fact is recognized.
Today, trends in legal immigration have largely normalized, and the numbers of immigrant workers in the United States have more than recovered. You can see this in the labor market data: Employment levels for native-born Americans are just a touch higher than in February 2020, when the pandemic recession began (up on net by 0.3 percent); among foreign-born workers, employment has shot up by 9.3 percent…. To be clear, immigrants remain a small share of the labor market. They account for less than one-fifth of employment overall. But they are more than punching above their weight in this recovery, particularly as (disproportionately older) native-born Americans retire. Increased immigration may be helping resolve some other economic challenges, too.
I take full responsibility but you are fired! The CNN brouhaha;
"For a number of reasons, things didn't work out. And that's unfortunate. It's really unfortunate," Zaslav said. "And ultimately, that's on me. And I take full responsibility for that. But now we begin a new page."
What's the going rate to turn an American executive into a boot boy for a despotic torturer such as Crown Prince Mohammed bin Salman? Just how worn out are the knees of PGA Tour Commissioner Jay Monahan's pants legs?
The LIV Golf and PGA Tour deal is bad for the world
But let's start with this simple question first: Why would the PGA Tour join forces with a vermin-populated fourth-rate start-up such as LIV Golf, a comedic failure that can't command any ratings, headed by that king of the white mice, Greg Norman?
Bought. That's the only word for Monahan and his henchies on the PGA Tour policy board, who have made an otherwise inexplicable — and still vague — deal to work with LIV and the European tour to form a new global enterprise, funded by the Saudis. They were bought. The only question is for how many bills…….
Here was Monahan last year, talking to Jim Nantz on CBS about accepting Saudi sports-washing money. After unctuously invoking the pain of 9/11 families, he said, "I would ask any player that has left or any player that would consider leaving, ‘Have you ever had to apologize for being a member of the PGA Tour?'"
Being part of the ‘In" crowd is more important than principle.
Samantha Power, who wrote in her book "A Problem from Hell: America and the Age of Genocide" that Henry Kissinger "had bloodied Cambodia and blackened his own reputation," attended Kissinger's closed press 100th birthday party at the New York Public Library.
Primary time is hubris time.
North Dakota Gov. Doug Burgum Launches Long-Shot Bid for President
The Republican will need to overcome a massive lack of name recognition to compete against the likes of former President Donald Trump. … But-
Burgum, a 66-year-old North Dakota native, became governor in 2016 after a successful career as a software executive, selling his company to Microsoft for $1.1 billion in 2001.
Pat Robertson died. Now he knows-or doesn't-depending…
When running for President in 1992 Pat Robertson infamously declared in a 1992 fundraising letter prior to an Iowa vote on the Equal Rights Amendment that
"The feminist agenda is not about equal rights for women. It is about a socialist, anti-family political movement that encourages women to leave their husbands, kill their children, practice witchcraft, destroy capitalism and become lesbians."
And while those are all noble goals, that's really not what the ERA was about, because it was actually about unisex restrooms. Everyone knows that.
2 June 2023
Markets rallied on the debt ceiling news and we used that gain to sell our retail and bank stocks for less losses. With buying concentrated in the large cap fancy names our value stocks will probably be going nowhere for a while. We don't like taking losses but the retailers did not move higher on decent earnings and if a selloff ensues, they will continue to suffer. The big boys and girls aren't interested in earnings or dividends. Rather they are following their compatriots into Apple, Google etc. so as not to look bad at quarter end June 30 and because that is where the action is.
All told, the top seven Nasdaq 100 components (Apple (AAPL), Alphabet (GOOGL, GOOG), Microsoft (MSFT), Amazon (AMZN), Meta (META), Tesla (TSLA), and Nvidia (NVDA)) are up $3.35 trillion this year, while the bottom 93 are up only $635 billion.
Those seven stocks account for 84% of the Nasdaq 100's $4 trillion growth in market valuation in 2023. Apple and Microsoft have each gained more in value than the entire bottom 93 stocks.
AT&T, Verizon, T Mobile and Deutsch Telecom all dropped up to 10% on Friday because of a Bloomberg story that Amazon might be offering free phone service to members. If AMZN does that would be another loss leader. Someday the street may require AMZN to begin growing earnings at a rate to support their 100X earnings multiple.
We added to all four telecoms with T $15 and VZ $34 now yielding over 7%. We bought DTEGY to hold/trade and T Mobile for a trade. We have been losing money on our T and VZ trades as they dropped from $25 and $50 respectively. But in and out trading moves have greatly mitigated the damage and at their current yield levels of 7% they are worth the downside risk with a gain potential of at least 25% once the FED ends raising interest rates. The argument is being made that because the 2-year Treasuries yield 4.25 % the extra 3% (7% dividend yield) is not worth the risk. We don't agree since the upside for the stocks to a more reasonable 5% yield when interest rates begin to fall is 40%.
As of Friday, we own the 4 telecoms, Disney, Pfizer, Walgreens, The Regional Bank stock ETF (IAT) and Key Banks.
We have a 75% plus cash/Treasury ETF (USFR yielding 5%) in most accounts except our smallest. All accounts are up 6% to 10% for the year except again the smallest which tend to be more volatile.
Not that I think any of our readers know how to use Venmo- but maybe their grandchildren or great grandchildren do.
A federal consumer watchdog on Thursday warned consumers not to store money on payment apps such as Venmo, Cash App or PayPal, because that money is not automatically insured by the government and could be completely lost if the companies fail.
"Popular digital payment apps are increasingly used as substitutes for a traditional bank or credit union account but lack the same protections to ensure that funds are safe," Consumer Financial Protection Bureau Director Rohit Chopra said in a news release Thursday.
He added that his agency is closely examining payment app companies that "sidestep the safeguards" imposed on traditional banks and credit unions. … That scrutiny comes as a growing number of Americans prefer to make payments without cash and are adopting payment apps. According to an October 2022 Pew Research Center survey, 76 percent of U.S. adults have used a payment app at least once, although 34 percent of users say they're not confident payment app companies can keep their personal information safe. One in 10 users said they had fallen victim to a scam, according to the survey. Read more:
Raised in South Florida, Billionaire Ken Griffin later set up shop in Chicago, but he moved back home during the pandemic—and took his massive firm, Citadel, with him. The billionaire suggested that crime rates in Chicago motivated his move, though Florida also has no state income taxes.
2023 Compare Crime Rates:
Chicago, IL vs Miami, FL
|Violent Crime.||Chicago 49.9||Miami 48.8||U.S. 22.7|
|Property Crime||Chicago 46.3||Miami 62.7||U.S. 35.4|
The Crime Indices range from 1 (low crime) to 100 (high crime). Our crime rates are based on FBI data.
YOU SHOULD KNOW
Violent crime is composed of four offenses: murder and nonnegligent manslaughter, forcible rape, robbery, and aggravated assault.
Property crime includes the offenses of burglary, larceny-theft, motor vehicle theft, and arson. The object of the theft-type offenses is the taking of money or property, but there is no force or threat of force against the victims.
As the debt ceiling crisis is settled – for the next 2 years- it is good to remember that President Clinton, a Democrat, passed an income tax increase in 1994 for which he was roundly criticized by Repubs and Dems lost the House in 1994 because of it. That tax increase set the country on the path to eliminating the deficit by 2010 or earlier.
Then in 2001 Republican Fed Chairman Alan Greenspan spoke in favor of the Bush tax cuts so that the country would continue to have debt. Add the now panned Iraq/Afghanistan adventure coupled with Congress not allowing the 2001 tax cuts to expire after 10 years (which the original bill called for) plus the Trumpster tax cuts in 2018 and we now have a $31 trillion deficit. A Republican deficit.
The need for the Government to rescue folks and the economy during the Covid Crisis is the reason- repeatedly proven by history- that you don't cut taxes in good economic times. The Government needs the ability to run deficits when calamity strikes.
And universities are now cutting out history and economics majors because they are no longer relevant. Good luck with that.
The fact is that Republicans and Democrats won't vote to cut Defense, Medicare and Social Security since they want to get reelected. Heck they won't even vote to pause the yearly inflation adjustment now that it's over 5% (8% last year). The Repubs won't pause Defense and the Dems won't cut social programs.
The reality is that the only way to reduce the deficit is by raising taxes on individuals and corporations and by eliminating tax loopholes like carried interest and corporate giveaways like cheap lease rates to oil companies. Letting Apple and Microsoft et al park their patents in Ireland and say that's where the revenue is earned is another ridiculous avoidance scheme.
Corporations and individuals who become rich in the U.S. should pay their fair share. Folks who earn their wealth in NYC and Chicago and Silicon Valley should be willing to pay their taxes in those states. It was the infrastructure and availability of those places that enabled their good fortune. Alas, such wistful wishful ideas fall on deaf minds. The ‘I've got mine and I want to keep it even though the country and state where I live allowed me to earn it is an old foggy idea.
It's much easier to cry about the deficit and blame others.
2001: Federal Reserve Chairman Alan Greenspan yesterday endorsed the idea of a major federal tax cut as not only fiscally prudent but also necessary.
Citing the huge increases projected in federal budget surpluses, Greenspan told the Senate Budget Committee that his earlier cautions against cutting taxes are no longer valid. The looming surpluses have "reshaped the choices and opportunities before us," he said, noting that the federal debt could be paid before the end of the decade and there would still be money left over, barring a major and prolonged recession.
If the surpluses don't end when the debt does, there could be a serious economic disruption, Greenspan said. That makes large tax cuts essential, he indicated.
Greenspan declined to endorse President Bush's plan for a $1.6 trillion tax cut over 10 years, but he undercut objections to it by Democrats who have been arguing that budget surpluses won't be enough to cover both added spending sought by members of both political parties and such a large tax cut.
"If not for the Bush tax cuts and their extensions—as well as the Trump tax cuts—revenues would be on track to keep pace with spending indefinitely, and the debt ratio... would be declining," a new report finds.
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