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
27 March 2015
This morning on CNBC two talking heads had a discussion about whether paying the new CFO at Google $70 million to join might be a bit excessive. Yes, they seriously couldn't decide if that signing bonus was excessive.
On Wednesday Warren Buffet and a billionaire from Brazil announced that they were going to merge Kraft and Heinz to create a food company behemoth. The reason for the merger was that together the companies could realize savings of $2 billion per year. How you ask? By firing at least 5000 folks from their decent pay middle class jobs. Why two billionaires - Buffet is worth $80 billion- need to earn more dollars is beyond comprehension. Yes, Buffet is going to give all his money away when he dies but over the years his acquisitions have led to the loss of jobs for tens of thousands of individuals.
Almighty profit is the reason we are told. When we were young in the good old days- the 1940s to 1960s - company executives were conscientious stewards with profit, employee welfare and community prospering as the mutual goals. We know those days are gone but hopefully sometime in the future after the resolution they may return.
During the week we added Nvdia when it dropped on fears that Intel would no longer be buying its chips. We don't think so.
Markets remain range bound with seemingly large moves but only because the numbers are so great now (think Japanese yen values). First Quarter End approaches and in April we'll see if the big boys and girls want to stay around or lock in last year's profits.
The turmoil in Yemen and the incursions in Ukraine and possible Poland by Russia are not encouraging but hopefully they will be resolved without worldwide disruption. Wars we will always have with us, unfortunately.
Spring Equinox 2015
The first geese flocks of the season flew over on Sunday; the tom turkeys began gobbling on Monday; the blue birds arrived on Tuesday followed by the red wing blackbirds on Wednesday and the robins and killdeer on Thursday. And there are predictions of snow next week after a 60 degree day today. Spring has arrived in the land of milk and honey and we are delighted.
During the week we repurchased GM and added Caterpillar and Ralph Lauren to accounts. Both are down 20% this year. We have room to add more.
We also added shares of Sprouts Farmers Markets above where we sold last time. Apollo Mgt. which owned a ton of shares sold its final 15 million that it owned on March 10 at $35.30. That sale of shares used up a lot of near term buying power and after underwriter support was lifted the share price edged lower and we were able to pick up shares at $33.90.
The Fed removed the word patient from its Wednesday release and that was the signal for markets too rally. Don't know what would have occurred if the Fed had added the word impatient. Any result from adding that word is too horrid to contemplate.
On Friday the euro strengthened against the dollar and oil rallied and so did stocks. Markets don't want too cheap a Euro- or too expensive- they want it just right to keep the Goldilocks markets rising.
We still have a good deal of cash in larger accounts and we are sleeping well. Hope you are too.
The Ides of March 2015
We repurchased BankAmerica after the stress tests results were announced.
BAC still has to do more work and that caused the share price to pullback below
our previous sale price. We repurchased Marathon Oil $3 per share below our
last sale as oil prices again retreated below $50. We also added to Alcoa and
AT&T during the week.
Both T and AA are under pressure from short sellers because both companies
are involved in takeovers where they are using company shares in the purchase.
As a result the big boys and girls are shorting (selling) the acquiring companies
(T and AA) while going long the companies being acquired (RTI and Direct TV
respectively). Because of the small number of shares of RTI outstanding and the
collar ($35 to $38.50) on the AT&T acquisition our guess is that downside is
relatively limited unless the overall markets tank. Even then we think both
stocks are good investments/trades. T is yielding 5.5%.
Markets have been more volatile-- up and down 1% to 2% on a daily basis. The
floor isn't going to fall out until after March 31 and may not at all but the upside
remains limited unless some of the wonder stocks correct more without killing
the overall markets.
We have 50% cash position or more in our large accounts.
6 March 2015
The unemployment rate continues to fall as the latest number reflects a 5.5% rate. That good news is perversely bad news because it means the FED is nearer to raising interest rates from 0% to 0+% and the big boys and girls shudder.
Dow Jones announced that it will be replacing AT&T in the DJIA with APPLE. We have no problem with Apple being included but as a reflection of the U,S. economy AT&T is by far a better representative with over 100 million U.S. customers and most all of it revenues and expenses occurring in the US. Apple on the other hand locates most all of its production in the Far East and manages through tax legerdemain to keep hundreds of billions of dollars of taxable income located overseas so we individuals have to pay higher taxes to make up for the missed Federal and state revenue. (That is one result of corporations refusing to pay their fair share while enjoying all the protections and advantages that the U.S. provides them.)
But as we noted last week Dow Jones is paid for action in the average and a $130 share price will give more action to the average than staid old AT&T, a stock which interests only us as a trading vehicle.
During the week we took a short profit in American Eagle when it jumped on slightly better than earnings report and bought more Abercrombie when it tanked on slightly better than earnings report. Abercrombie is more profitable that American Eagle; has greater sales; but it is in the doghouse on Wall Street. We also repurchased JC Penney and added shares of Old Second Bank. And on Friday we added shares of AT&T yielding 5.5% when it dropped on the news of removal from the DJIA. AT&T is also acquiring Direct TV and the myriad trading opportunities by using options and shorting and longing various stocks must have the computer nerds in ecstasy. The collar on AT&T share price for the number of shares to be issued Direct TV in the merger of cash and stock is $34.90 on the low side to $38.50 on the high side. Our guess is that when the merger occurs this summer AT&T will be priced higher than $35. in the interim we will collect 90 cents per share in dividends.
The weather report predicts 60 degrees next week in the land of milk and honey which means mud and slop but also the ability to ditch the long johns and ear muffs. The older we get the older winter gets but the seasons are too delightful to abandon for the sameness and hurricanes of Florida or the unbearable heat of Arizona.
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