Lemley Yarling Management Co
309 W Johnson Street
Madison, WI 53703
Comments on activity in client accounts
24 March 2018 (Post 2- written evening 3/22)
We wrote the post below on Thursday morning (3/22) because we were heading out on a business trip for the weekend. Little did we contemplate a 700 points drop in the DJIA and a further 200 point drop overnight with whatever Friday brings.
The tariff war with China is the proximate cause of the drop coupled with the computer boys and girls playing their games but we do think the more important cause is the growing unease with the seeming cavalier decision making of the Trumpster.
We have given up – for the present -trying to guess at the overall markets moves and instead concentrating on owning quality issues selling at reasonable P/E ratios with many paying 3% or greater dividends.
We did go to cash in late January and we were too quick to renter when the markets dropped 5% but we would have been back in the market at the first 10% drop since the economy is fine and the noise is healthy in dimming the rampant bullishness of last year and early this year.
24 March 2018
We sold Apache Oil when it popped 5% on Wednesday as oil approached its yearly high of $66.66 (that's the actual number). Oil gained $1.80 to $65.40 on news of an inventory drawdown when an inventory build was expected. We have been trading oil stocks for the past four years as the oil prices dropped from $100 to $30 and rebounded to $60. With just one oil stock left- Devon- which we hold at a loss - we are about even after four years of gut wrenching movement. On the one hand we are content with breaking even in a difficult environment- on the other hand we think most of our grey hair comes from our activity in these positions.
We added to Chico's and also repurchased Rite Aid at $1.55 which we sold at $2.20 In January.
Ride aid is merging with Albertson's and here are several estimates of the projected value.
Happy spring snowstorms to all.
Jerome Powell (new Fed Chairperson) drops a major hint into the true state of the job market http://www.businessinsider.com/fed-powell-comments-wages-jobs-says-overoptimistic-on-growth-2018-3
Hain Celestial CEO: E-commerce will be a big part of our...
GM is delivering 3000 all electric Bolts a month; Tesla and its comparably priced Model 3- not so much.
GM all electric future:
As usual Trumpster tweets do not mirror Trumpster action.
The Trump administration has issued a policy change that could drive up prices of certain biologic drugs, implementing a new industry-backed measure that overturns existing regulation that promoted lower prices.
The move came after months of intense lobbying last year by pharmaceutical companies to overturn an Obama administration policy, introduced in 2015, that rewarded doctors with larger profits if they used the lowest-priced biosimilars, which are generic-like copies of brand-name biologic drugs. The rationale was that steering doctors to lower-priced products would compel drugmakers to cut prices to capture market share.
Drugmakers argued the old rule would discourage investment in biosimilars.
… Opponents of the change included the Medicare Payment Advisory Commission, an independent agency that advises Congress; AARP, the large advocacy group for older adults; and America's Health Insurance Plans, the health insurer trade group.
"Such a policy would decrease price competition between the biosimilars and result in higher spending for beneficiaries and taxpayers," MedPac wrote in a September 2017 letter to federal officials.
The change is one example of how the Trump administration's efforts to make regulations more business-friendly have benefited drugmakers. The administration made cuts to a government program requiring pharmaceutical companies to provide steep discounts to certain hospitals, and proposed limits on Medicare beneficiaries' annual out-of-pocket costs for drugs, which would make it easier for patients to afford expensive medicines.
"The Trump administration may be talking against [high] drug pricing, but every action they've taken so far has been highly supportive of the industry," said Ronny Gal, a Sanford C. Bernstein & Co. analyst.
St Patrick's Day 2018
This was a quadruple witching week. That event didn't seem to increase volatility but it did increase volume. Most of the action this week was caused by the big boys and girls and their computers. Many investing folks and institutions are sitting on their hands.
For the past two weeks we increased our GE positon in accounts.
On Tuesday last while on our daily constitutional we realized we were in our -We are right the markets are wrong mood- which is not a good place to be. With the markets at all-time highs and GE under pressure it is going to take time for the company to work through its problems. And so we drastically reduced positions in accounts selling at $14.50 shares we had recently purchased at $14.50 to $15.50. It is always humbling- especially after fifty years of doing this- to admit we were wrong trying to outmaneuver Mr. Market. But taking a loss- even on recently purchased shares- was the correct action. GE is now the same percentage holding as other stocks in most accounts.
We repurchased Newell, Under Armour, Chico's and AMD below where we sold last week and in January.
John Oliver has fun with Bitcoin
Maybe Trump quashed the Broadcom. Qualcomm deal because he thought Singapore was part of China.
Larry Kudlow, a CNBC talking head, has been given Gary Cohn's job by the Trumpster. The day after Cohn was fired, and for many more days until he got the job, Kudlow was on CNBC auditioning with his best Trump Sycophant moves.
And most folks forget/or are too young to know that Little Larry had a cocaine problem in the 1990s and resigned from Bear Stearns to entered rehab for 6 months. Forgive white folks and put black folks in jail. God bless.
Nestle, in turn, has been mentioned as a possible suitor for Hain Celestial Group Inc., a maker of tea, chips and beauty products that has long been considered a target. An accounting inquiry had cast a pall over the company, but that is largely behind it now.
Activist investor Engaged Capital announced a stake in Hain this year, and is pushing for the company to potentially explore a sale. Hain produces the kind of non-GMO and organic snacks that are trendy, but the company's diverse operations, spanning things from shampoo to kale juice and vegetable chips, could make a deal tricky, Shea said.
Hain shares gained as much as 2.3 percent to $41.59 on Tuesday after a report from Maxim Group said the company could be worth $55-$60 a share.
Toys R Us emerged from the 1974 bankruptcy of Interstate Stores. That bankruptcy was caused by, among other things, too much debt. Then in 2005 Bain Group (Mitt Romney's old haunt) took Toys private for $6 billion with most of the price being debt. And so Toys R Us has again declared bankruptcy.
… The downfall of Toys R Us calls to mind failed chains, like KB Toys, which Bain took over in 2000. It filed for bankruptcy protection twice, and closed in 2009. F.A.O. Schwarz, too, twice sought bankruptcy reorganization during the same decade. It's no wonder that Tom Hanks's character in the movie "Big," finding himself transformed into an adult, wants to get out of the toy business and go back to being a kid. In real life, where time runs in one direction and the bills have to be paid, Toys R Us bought F.A.O. Schwarz, in 2009. It shuttered the famous F.A.O. Schwarz store in Manhattan, the brand's last location, in 2015. Macy's bought the big piano from the movie and put it in its basement. The grownup kids can visit it for old times' sake. The new kids are on to the next thing.
Read the saga:
9 March 2018
Markets were volatile again this week closing on a high note as news of a potential break through with North Korea and a super employment report caused most measures to rebound over 1% higher on Friday.
Volatility remains but it looks like more folks want to be in than out- for now.
We decided to sell part of our Apache Oil and Devon Oil which were oversize positions. We eliminated the shares that we bought at current levels while holding shares bought at higher prices. With the funds we added GM and Campbell Soup and repurchased lesser amounts of Newell and Hain Celestial than we sold last week. As sometimes occurs we decided we wanted to own shares in each company after we sold. We also added Kroger when it dropped 15% Thursday and Friday on disappointing- to the big boys and girls- earnings news.
We currently own:
Merck, Walgreens Boots, Apache Oil, Devon Oil, GE, Abercrombie (reported good numbers), Macy's, GM, Newell, Campbell, Hain Celestial, and Kroger.
Don't forget to Spring ahead on Sunday.
2 March 2018
So this is the new normal. Yow!
Markets began falling on Tuesday with 1% plus drops Tuesday, Wednesday and Thursday. The selloff began on Tuesday when the new Fed chair suggested four rate increases this year instead of the three rate increases the gurus were expecting. The yield on the ten year rose to 2.90% and panic ensued. On Wednesday the markets continued their drop, and even though interest rates retraced Tuesday's rise in rates, the interest rate scare was no longer important to the big boys and girls and their computers. Thursday brought the Trumpster's out of the blue but not surprising vow to impose tariffs on steel and aluminum next week with the corresponding market sell off. Trump tweeted down on Friday on his tariff plan and Wilbur Ross, the Commerce secretary, appeared on CNBC to say that he thought Trump was serious. Seriously?
Up till now the markets have ignored the Trump soap opera/reality show. But now Trump is messing with the economy in what many (including many Repubs) perceive as negative. But Jill Stein is happy as is Bernie Sanders.
As long as Trump news deals with his family and internal White House politics the markets have ignored the noise
But his action yesterday brought home the reality of his protectionist views. What that means in the long run we don't know; but in the short run we want a bit more cash in accounts. And so we winnowed a bit more today.
We sold Ford- although it is cheap - because it is dead money with the Tesla mystique is still gathering the auto related money. We traded Macy's this week for a very small profit. Deutsch Bank has no near term catalysts and we eliminated. We owned Hain for a takeover and lost on this trade but made as much in January as we lost this month. And we sold Verizon for the cash.
That leaves us with Merck at 12 times earnings and a 3.5% yield. Walgreens Booth is also 12 times earnings with a 2.2% yield. Apache Oil and Devon Oil are trading at levels they did when Oil was $40 a barrel. General Electric is 14X earnings and has a 3.4% yield. Finally we own Abercrombie again with earnings due next week. Hopefully the markets will be in a better mood by Tuesday when Abercrombie announces. ANF yields 4%.
We have been quick to raise cash the last few months because the markets are at record levels and Trump is Trump. This current correction may be testing the February 10% downdraft and hopefully the February low will hold- but if not…. we have a nice cash cushion again.
Beware the Ides of March!!
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