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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

Mesirow Financial has merged its clearing operations with RBC Clearing Corp. RBC is a wholly owned subsidiary of Royal Bank of Canada, the fifth largest bank in North America. http://www.rbccorrespondentservices.com/index.htm  As a result all of Lemley Yarling Co trades will be cleared through RBC beginning March 2. Clients should have received a package of forms from RBC that need to be completed and signed and returned in the return envelope to Kathy at our Hinsdale Office. If clients have any questions they should call Kathy at 1-800 793-3665 – 8AM to 3PM CT Monday through Friday. The change should be seamless except for the need to set up a new account/password to view accounts online at a new website called Investor Select. There will be a 15 to 25 day lag for the online accounts to be viewable and that should be the only interruption.

March 30, 2012

Model Portfolio Value As of 30 March 2012

$ 608,008

Comment on Model Portfolio activity

Again this week there was no activity. Today marks Quarter end and after the investments of 2nd quarter funds by the big boys and girls on Monday and Tuesday the markets may provide a better picture of the coming quarter. We have felt that the U.S. economy is recovering - that is why we were invested until February. But the markets are ahead of themselves and need a correction or at least a rest.


March 23, 2012

Model Portfolio Value As of 23 March 2012

$ 607,948

Comment on Model Portfolio activity

There was no activity this week as we remain in cash awaiting a 10% correction from whatever level.

Bulls 48%; Bears 23%.

We have company in our correction outlook:

In his latest weekly note, fund manager John Hussman is... bearish on the market. This has been his stance for a couple years now, and this week he looks at a technical indicator showing signs of excessive optimism:

As of Friday, the S&P 500 was within 1% of its upper Bollinger band at virtually every horizon, including daily, weekly and monthly bands. The last time the S&P 500 reached a similar extreme was Friday April 29, 2011, when I titled the following Monday's comment Extreme Conditions and Typical Outcomes. I observed when the market has previously been overbought to this extent, coupled with more general features of an "overvalued, overbought, overbullish, rising yields syndrome", the average outcome has been particularly hostile:

"Examining this set of instances, it's clear that overvalued, overbought, overbullish, rising-yields syndromes as extreme as we observe today are even more important for their extended implications than they are for market prospects over say, 3-6 months. Read more: http://www.businessinsider.com/

Raymond James' Jeff Saut -- who's been bullish for over two years -- is saying the same thing.

The call for this week: Study the enclosed chart from the good folks at Zero Hedge. There is a remarkable similarity to the divergence that took place between stock prices and U.S. Economic Data Trends in April 2011 right before the SPX shed 8%. Take that in concert with what happened to interest rates last week, a dearth of internal energy for the equity markets, a S&P 500 that is 2 standard deviations above its 50-day moving average, rumors Operation Twist is over, Chinese consternations, regulators gone wild, rising gasoline prices, massive corporate insider selling, and my sense that in the short run all of the good news is on the table, and it appears as if the easy money has been made. That said, I still would not get too bearish because I do expect stocks to be higher by year end.
Read more:

Doug Kass has a reputation for being spot on with his stock market calls.  He called the March 2009 bottom and he also said the S&P 500 would end 2011 flat, which is exactly what it did. So, people listen when he makes calls on stocks. This morning, Kass announced that he cut his valuation on the S&P 500 to 1335 from 1345.

From his commentary in Real Money Pro:

Technically, ever-rising share prices sow their own seeds of potential destruction. For example, I would beware the VIX, which is the best measure I know of measuring complacency in a market that has had no pause but contains a number of technical flaws.

Importantly, I depart from some of the (newly) converted bulls in that I do not expect that P/E multiples will reach their historical multiplier (of about 15x) experienced over the last five decades, as the new normal of slower and below-trend economic growth and other factors weigh on valuations. (Implicit in my melded fair market value of 1335 for the S&P 500 is a 13x P/E multiple.)…..

Read more: http://www.businessinsider.com/doug-kass-cut-target-sp-500-2012-3#ixzz1pZWaTnAn

Barclays U.S. equities strategists Barry Knapp and Eric Slover in a note out late last week write that this could easily be a "heads I win, tails you lose, scenario." If past rounds of easing are any indication, then the coming end of the Federal Reserve's "Operation Twist" will launch a pullback in equities:

Barclays Capital

The only way an end to Operation Twist doesn't cause such a reaction is if economic data deteriorate and the Fed decides that more easing—likely in the form of sterilized QE—is necessary. This, too, has a downside risk for equities, since it means the economy is not as strong as investors expected it to be.

Knapp and Slover explain this Catch-22:

We believe that a sustainable period of equity market multiple expansion is unlikely …..

Read more: http://www.businessinsider.com/barclays-theres-no-real-way-to-avoid-an-equities-pullback-2012-3#ixzz1pak18oAt

On the contrary side Goldman sells sell bonds and buy stocks. GS makes the argument that stocks are at a generational value versus bonds. We agree. Bond prices are going to drop in value as interest rates rise with the recovering economy and as the Fed ceases holding short term interest rates at artificially low levels. Barclays makes the same argument above but Barclays suggest that the losses in bonds will spook all investors.

Goldman portfolio strategists Peter Oppenheimer and Matthieu Walterspiler are out with a doozy of report, basically presenting a big bullish case for stocks, relative to bonds.

Undoubtedly this is going to be the story of the day, and will be discussed quite heavily.

The report is titled The Long Good Buy; the Case for Equities, and it essentially makes an equity-risk premium argument that stocks are just impossibly cheap relative to bonds, and that the scenario currently being priced into the markets is just unrealistically negative... even with the bug runup in stocks since early 2009.

Read more: http://www.businessinsider.com/goldman-the-long-good-buy-the-case-for-equities-2012-3#ixzz1pl1VNqTj

This fellow is much more bearish than we are.

David Tice, the former chief portfolio strategist for bear markets at Federated Investors, is bearish.His 18-month target for the S&P 500 is 1,000, and he thinks gold is headed to $2,500 within the next two to three years.Tice appeared on Fox Business News this afternoon."We feel just like we did in 1999 and 2007," said Tice "[During] both of those periods, people were positive about credit being created, the central banks were easy, everybody was complacent, and we ended up having a big accident."

Read more: http://www.businessinsider.com/david-tice-gold-2500-sp-500-1000-2012-3#ixzz1pl3HFDYQ

And uber-bears with the premise we are still in a secular bear market that began in 1998 are Comstock Partners:

http://www.businessinsider.com/comstock-partners-we-are-in-a-secular-bear-marker-2012-3 .


March 16, 2012

Model Portfolio Value As of 16 March 2012

$ 608,068

Comment on Model Portfolio activity

Markets continued to rally this week as good economic news emboldens investors to move from the sidelines. We remain in cash awaiting the correction from whatever level.

Bloomberg reports that the Treasury has recovered 80% of the money extended by the TARP program in 2008-2009. http://www.bloomberg.com/news/2012-03-15/aig-said-to-boost-u-s-tarp-recovery-to-80-with-payment.html . With the potential recovery from remaining investments in AIG, Ally Bank and General Motors it is likely that close to 100% of the funds will be recovered. So much for the naysayers.

Folks standing inline overnight to buy the Apple iPad and applauding the first buyers is thought provoking- or ????. By the way don’t these folks have jobs?

From Todd Harrison at Minyanville.com we learn that Apple has a market cap for $550 million which is greater than the combined market cap of Intel, Google and General Electric combined.


March 9, 2012

Model Portfolio Value As of 9 March 2012

$ 607,842

Comment on Model Portfolio activity

There was no activity in accounts this week as we await a correction greater than the 3% pullback experienced from Monday a week ago to Tuesday this week. The 30% gain since October can be digested by range trading for a while or a one third to one half retracements (8% to 12% pullback) of the move. We shall see. We remain 100% cash.

The Payroll number was encouraging with 227,000 new jobs in February and upward revisions of 60,000 jobs for the prior two months. And the Greek bond swap was accomplished with over 95% of holders tendering. Of course the old trader’s saw is: How the markets react to the news is more important than the news.

One sobering thought: the Nikkei broke through 10,000 to the upside this week. In 1989 the Nikkei was at 40,000.

This is a utility. Crazy:

Compensation for the chief executive of Wisconsin's largest electric and natural gas utility totaled more than $11 million in 2011. Gale Klappa was paid about 10 percent more than the previous year as chairman of Wisconsin Energy Corp. His base pay was about $1.2 million, but his total compensation includes incentive pay and stock awards.

The markets are either going to form duel double tops—should the S&P remain under 1380 and if the NDX is capped by 2650—which would be a bearish sign, or the tape, emboldened by the Greek debt accord and empowered by constructive economic data (note the .2% up-tick in the labor participation rate), will break out to fresh cycle highs (which would stop out the last batch of those dancing bears).

Random Thought:

The ISDA—International Swaps and Derivatives Association—is meeting as we speak to determine if the Greek debt restructuring constitutes a “credit event.”

If it does—and in my opinion, it should—that will trigger credit default swaps on Greece, where the unknown risk will surround who wrote these contracts, and how that reverberates up and down the financial food chain. If they don’t trigger, there will likely be unintended consequences of a different breed as holders of these insurance contracts may no longer trust their ability to perform as anticipated when they were positioned.

In technical terms, this is “sort of a big deal” so keep your eye on the outcome and understand that either way, there will be ramifications under the financial hood.

Read more:


March 5, 2012

Comment on Model Portfolio activity

The accounts of Lemley Yarling & Co were moved this past weekend from Mesirow to RBC. You may view your account at www.investor-connect.com .

If you have problems logging in or registering please call Kathy at 800-793-8665. She will be out of the office Wednesday through Friday of this week.

Our accounts remain in cash and we await an 8% correction from whatever level before recommitting any funds.


March 2, 2012

Model Portfolio Value As of 2 March 2012

$ 607,662




















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Website Information

For those folks who have accounts with us, you may now go to: https://eview.mesirowfinancial.com and fill out the account information and view your accounts online. If you have trouble filling out the form, or in getting online, call and we will help you with the process. NASD regulations require the eview site to be secure. Thus your password must be changed every ninety days. You will be prompted to make this change when needed.

For information on Mesirow SIPC and Excess SIPC protection SIPCmesirow.pdf.

For those clients of LY& Co and other interested persons the Quarterly Report on the routing of customer orders under SEC Rule11Ac1-6.
For Quarter Ending 09/30/2002 For Quarter Ending 12/31/2002 For Quarter Ending 03/31/2003
For Quarter Ending 06/30/2003 For Quarter Ending 09/30/2003 For Quarter Ending 12/31/2003
For Quarter Ending 03/31/2004

All future SEC Rule11Ac1-6 Quarterly reports may be found by visiting the diclosures at LY& Co Clearing Broker Mesirow Financial at: http://www.tta.thomson.com/reports/1-6/msro/.

Annual offer to present clients of Lemley Yarling Management Co. Under Rule 204-3 of the SEC Advisors Act, we are pleased to offer to send to you our updated Form ADV, Part II for your perusal. If any present client would like a copy, please don't hesitate to write, e-mail, or call us.

A list of all recommendations made by Lemley Yarling Management Co. for the preceding one-year period is available upon request.

Summary of Business Continuity Plan

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.