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
25 September 2015
The pope visits; Yellen faints; Xi talks; Boehner resigns; and by the way the markets rise and drop 1% on a seemingly daily basis.
Volkswagen admitted it's been cheating on emission tests and is subject to billions in fines. Since VW is a huge part of the German economy European markets suffered.
Caterpillar announced 10,000 layoffs to go with Hewlett Packard's 30,000 of last week. In the good old days (1950s and 1960s) companies would hunker down and make it through the slow times by making less profit. But in today's world where profit is everything, (Cat had $9 billion in profit last year and will save $2 billion a year laying folks off) layoffs are the way to go. And when it comes time to hire new again it won't be in the U.S.
Volatility enhanced by 24 hour news cycles are the new market norm. Corrections need bad news and fear and the markets have it now. Even perpetual bull Jim Cramer is sour on the markets. This is how bottoms are made but… and it is the buts and uncertainty that test our beliefs.
The Caterpillar news seemed to surprise the markets and caused us to sell our Joy position as too big a loss. Caterpillar's news suggests that in this turmoil Joy will be lower till year end at least. With the Joy money we purchased BankAmerica which is a more likely short term gain candidate.
We currently own GM which is doing fine (the company not the share price) and pays a 4% dividend. GE also pays over 3% and has been reinventing itself for the last 10 years.
Whole Foods and Sprouts are on 24 month lows and while Kroger and Walmart and Target are expanding into the fancy food area, we believe that WFM and SFM are 'the Starbucks' of the grocery store category and will eventual recover their pizzazz with the market gurus.
Abercrombie, Urban, and Ascena are our retail plays. Abercrombie is on a five year low. Urban had good numbers last quarter and its Free People sub is doing great. Ascena paid up for Ann Taylor but did not overpay. The debt it took on leveraged the company but the tax savings will help pay down the debt. We are in it for a trade on the eventual analyst upgrades
Symantec, Intel Cisco and Yahoo give us tech exposure. All are well below their yearly highs and will participate in the next market up move while providing downside comfort that other high flying techs don't'.
We've raised our bank exposure because the interest spread remains very favorable for earnings and our thought that the Street will buy them in the next rally higher. Deutsch Bank, BankAmerica, Fifth Third, Huntington and Old Second give us exposere in large, medium and small cap banks.
We have been trading Exelon and AT&T in larger accounts for dividend and trading moves. The AT&T has been a loser/wash while we have done better on Exc.
We own the Oil SPDR, Devon, and Marathon for oil exposure.
Alcoa is reinventing itself and we expect a double from this level. US Steel is an enigma wrapped in a loss. The shares could trade at $10 or $50 and neither price would surprise us. Cheap steel imports and union problems are the main drag right now.
We own Hecla (oldest silver mine) and Iridium (satellite telephone) as speculative plays.
Most of the issues we own will be subject to tax and window dressing selling until the end of October at least when mutual fund year end occurs.
Only 90 days till Christmas.
18 September 2015
The last few weeks have been interesting to say the least. We have continued to purchase new holdings and add to and refine current holdings as well as take short profits in tow utility stocks and an overnight loss in larger accounts when we changed our mind. The old saying is that Hope is not an investment philosophy and with the markets in turmoil that aphorism is a good mantra.
In the last two weeks we added Cisco, U.S.Steel, Joy Mfg., Devon Energy, DreamWorks, and Old Second Bank. We also added to the Oil SPDRs and Sprouts Farmers Markets.
We lost money on an Apaches Oil trade in a one day mistake but placed the funds in the Oil SPDR for eventual recovery of the loss and future profit.
The markets were rolling higher this past week until the Fed decide not to raise rates on Thursday citing weak foreign economies as one reason. Our guess is that the markets would have tumbled on Friday even is the Fed had raised rates since a pause in the rally from the lows was needed and is not a bad thing.
We continue to expect turmoil for the next few weeks but are firm in our belief of a year end rally in the stocks we own.
10 September 2015
We are posting early because we are taking a few days off.
During he week we purchased U.S. Steel and Joy Manufacturing. Both are down 60% from their highs and deep in the doghouse.
The up 2% Tuesday down 1.5% Wednesday action is part of a process. We think the low has been made but volatility will remain for the next month.
It's never easy.
4 September 2015
The down Monday and down Tuesday days were positive. It would not have been good if markets had roared higher after last week's recovery. A correction needs to spend some time correcting or it's not a correction. That seems obvious but when market values of accounts are rising and falling by five percent on a weekly basis the concept of patience is sorely tested.Wednesday and Thursday were up days. A reason given for this action was the fact that the Chinese markets were closed in celebration of the end of WW II. But then Friday a good Employment Report brought out the "Oh my God the Fed is going to raise the Fed funds rate to 0.25% and the world is going to end" folks. Also since U.S. markets will be closed for Labor Day (may have to rename it Independent Contractor Day soon) the computer jocks decided to get a selling jump on the Chinese markets. Or maybe not. Whatever
We are fully invested for the first time in a long while but since we expected this action we have used the pull back to create positions in stocks that have pulled back much more than the markets yet offer the kind of value we are comfortable holding.
During the week we switched out of PG, DuPont, Caterpillar and Union Pacific for scratches to move to stocks with better percentage gain potential. As long as we are going to go through the pain we want the chance for better gain.
We added Cisco, and added to Ascena, Intel, Fifth Third, Marathon, and Symantec. We flipped VMware and bought EMC; and we sold Fresh Markets for a plus when it popped so that now we are down to Sprouts and Whole Foods in the grocery business.
we currently own: ANF, AA, ASNA, CSCO, DB, EMC, FITB, GM, GE, HL, INTC, MRO, XOP, SFM, SYMC, TWTR, URBN, WFM and YHOO.
The U.S economy is fine, Europe is recovering and while China is an enigma. it has been an enigma for a long time. U.S companies doing business in china are there for the long term and any dislocations will be short term in nature. Also the gurus maintain that China is growing at 5% which in any other country would be considered too fast not too slow.
Time is necessary as is patience.
If you think the markets are confusing:
The International Business Times is reporting that the Administration is monitoring reports of Russian military operations targeting ISIS in Syria (h/t Raw Story). The Russians have been backing the Assad government because the latter has provided the former with a warm water port on the Mediterranean. In late 2013 and early 2014 reports started to dribble out from Syria that between 1,000 and 2,000 hardened Chechen fighters had joined ISIS. It is these fighters, radicalized in their ongoing dispute with the Russians and their proxy strongman in Chechnya that have always been one of my greatest concerns with ISIS. Not only because of their ability to influence the events in the Levant, but because as Eastern Europeans they can blend in while traveling throughout Europe, as well as the US.* That concern aside their influence was quickly seen within ISIS as they first started issuing threats agains the Hashemite monarch in Jordan and then against Vladimir Putin — their arch enemy and nemesis. According to the IB Times report a group of Chechen fighters, aligned with ISIS, attacked a Russian military base in Dagestan in the Northern Caucasus. Given that Chechen fighters have taken up both sides of the fight in the breakaway eastern provinces of the Ukraine, these reports of Russian actions in Syria bear watching. The Syrian Civil War, the rise of ISIS, and ISIS's ability to take and hold significant portions of Syria and Iraq are responsible for potentially creating some strange bedfellows. The US, Iran, and Russia are all opposing ISIS in Syria and Iraq while at the same time the US and Russia are in opposition over Ukraine and the US and Iran still, formally have not normalized relations and do not agree on much of anything. While it is hard to find silver linings in civil wars and the suffering that they create, let alone in the rise of ISIS and its horrific and heinous activities, the creation of a common interest, through common enemies, between the US, Russia, and Iran may be one of them. Especially if this common interest can be extended to each state's clients. Events in Syria should be watched very carefully over the next few days to see what develops.
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