Lemley Yarling Management Co
309 W Johnson St
Madison, WI 53703
Comments on activity in client accounts
24 September 2021
On Monday the DJIA dropped almost 1000 points out of the gate and finished the day down 700 points. The Monday drop was caused -according to the gurus – because a very large real estate firm In China -Evergrande-was almost bankrupt and no one knew what Chinese authorities would do. The wildest suggestion was that the bankruptcy- if it occurred- could set off a Lehman type situation in China. Given that China is a controlled economy, that idea was farfetched but the markets were looking for a reason to sell off and the expected bankruptcy and unknown result from it provided that opportunity. There had also been much guru talk that the period from Sept 17 to October 9 is usually a negative one for the markets; and the Chinese situation plus a Fed Meeting on Wednesday provided reasons to exacerbate the mild pullback that had begun the week before while we were sojourning in the land of milk and honey. Tuesday the DJIA was up and down over 1000 points final ending down 40 points. On Wednesday and Thursday, the DJIA regained the early week losses and Friday markets were mixed with the fancy no earnings stocks taking a hit while value, recovery stocks were higher.
We used the selloff on Monday and Tuesday to reestablish holdings in many issues that we have traded over the year with the idea that the 10% intraday moves (added together) and the almost 5% actual correction had washed away some of the exuberance.
Moreover, many of the companies we bought are well over 20% down from their 12-month highs and priced at 12 times and less earnings projections for the year. We still have a 20% and more cash in accounts and, yes, P/E ratios still matter- to us.
We currently own in modest individual amounts and which we plan on holding/adding to thru year end.
IBM: 5% yield, 12 X earnings, and number 3 or 4 in cloud computing for which it gets no credit. Down 10% from it's yearly high and 40% from its all-time high.
Nucor: the best steel company in the U.S priced at 7 times current year earnings and yields 1.5% and- when we purchased -down 25% from last month
GE: no real earnings yet but a good play on wind power (50% of turbines) and the eventual recovery of the airplane industry.
Merck: 13 times and 3.5% yield. A premier drug company with the most widely used drug for breast and lung cancer.
Pfizer: 10 times earnings, on the forefront of Covid vaccines with a 3.5% yield
Walgreen Boots: premier drug chain with 4% yield and priced at 10 times earnings. Price is being held back by fear of Amazon mail drug competition and British store results.
Western Digital: commodity chip and storage maker priced at 10 times which we have been trading with mixed results.
Verizon: for stability, 4.5% dividend priced at 10 times earnings. We have been trading 5% moves up and buying the retracement.
Campbell Soup: 15 times and 3.8% yield. Down 20% from its yearly high and 40% from all-time high.
AT&T: 10 times and 6% yield. We have trade profitably for the past few years. Time Warner spinoff is still months away.
Intel: 11 times and 2.5%. Out of favor chip maker which has lost its premier position according to the gurus
AMC Networks: Not the movie chain. 6 times earnings. The provider of Acorn, AMC +. Will eventually be acquired for its content library.
Viacom CBS:10 times and 2.3% yield. Both VIAC and AMCX will be under selling pressure for the next few months because of the goofy runup in the share prices of both earlier this year.
Abercrombie, American Eagle, Bed Bath (under extra selling pressure because it was a meme stock), Nordstrom, Urban Outfitters, The Gap, Macy's and The Container Store: Our retail package which has most of the shares down 30% and more from their highs although still well-up from their panic lows of last year. Most have same store sales up 20%+ from 2020 and above 2019 and many are priced at 12 times and less. Our surmise is that Covid is not going to significantly affect their Christmas sales as all have on line presences and most folks are treating Covid (to the unvaccinated detriment) as the seasonal flu.
Uber, Zoom, XLK ETF(Apple and Microsoft 42% of holdings) and ARKK (the Kathy Woods fancy stocks ETF): bought in small amounts in larger accounts for a little fancy stock exposure.
Canadian Solar: 20 times earnings, down 40% from 12 month high, is our exposure to solar. We have had negative results trading CSIQ because our positions have been too large. Now own in reasonable amounts for longer hold.
Carpenter Steel, Cleveland Cliffs and U.S. Steel are speculative recovery plays. Carpenter is still unprofitable (it is in specialty steel provider to oil drillers and aircraft makers) and CLF and X are priced at 3 and 2 times earnings respectively.
Hewlett Packard and Huntington Banks are trading favorites with 3.5% and 4.5% yields respectively and both priced at 10-time earnings.
Ford is a hold for eventual realization that it is the cheapest best auto maker and will be a significant producer of electric vehicles beginning next year.
Rite Aid is a conundrum with huge sales and the inability to consistently turn a profit.
Stuff happens in the new twitter world.
The news release went out at 9:30 a.m. Monday, just as the U.S. stock market opened. It claimed to be from Walmart and had some big news for the cryptocurrency industry: The nation's largest retailer would soon begin accepting payment in Litecoin, a digital currency.
The announcement appeared real enough that several media outlets wrote it up. Even the Twitter account for the Litecoin Foundation, which promotes the use of the currency, touted the release in a post. The value of Litecoin jumped more than 30 percent before Walmart put out a statement saying the news was false.
The newest thing in finance had apparently fallen prey to one of the oldest investor hoaxes around — a classic pump-and-dump scheme. Someone issued a false news release, likely taking advantage of the general hoopla around cryptocurrency to stoke enthusiasm for Litecoin, which is far less popular than Bitcoin and other digital currencies. Litecoin's price jumped to about $230 from around $175 right after the news, then fell back and traded at around $180 after Walmart refuted the release. The perpetrators of the hoax most likely made money in that time.
Securities lawyers said there was little doubt the phony release would lead to an investigation by the Securities and Exchange Commission and possible charges against the fraudsters, whose identity was unknown.
Spider-Man's First Comic Brings $3.6 Million, Likely a Record.
The Amazing Fantasy No. 15 from 1962 leaps past Superman to sell for what is believed to be the highest price for a comic book.
Bitcoin, for the uninitiated, is a technology that purports to solve a host of problems with old-fashioned national currencies. It is designed to safeguard wealth against the depredations of inflation, public authorities and financial intermediaries.
Unfortunately, it doesn't work. Some products become popular because they're useful. Bitcoin is popular despite being mostly useless. Its success rests on the simple fact that the value of a Bitcoin has increased dramatically since its introduction in 2009, making some people rich and inspiring others to hope they can ride the rocket, too.
It's not really a virtual currency at all. It's virtual gold, a vehicle for speculative investment made possible by some interesting technical innovations. It's the absurd apotheosis of our financialized economy, an asset unmoored from any productive purpose. In the beginning were bonds and then synthetic bonds and then Bitcoin.
Shades of the 1960s
Uranium prices are rising, enriching a handful of hedge funds that have been betting a market laid low by a nuclear disaster a decade ago would rebound.
The price of uranium hit an eight-year high of $44 a pound this week, according to the price tracker UxC LLC. The surge follows the recent launch of an exchange-traded trust by Sprott Asset Management LP, which has bought large stockpiles of uranium after raising money from shareholders and emerged as a favored trading vehicle in its own right, traders said.
For the uranium mania in the 1950s and 1960s see: https://www.uen.org/utah_history_encyclopedia/u/URANIUM_MINING.shtml
10 September 2021
We are heading to the land of milk and honey next week for our monthly 5-day sojourn so the next post will be September 24.
The major indices were slightly lower this week and the September'/October pullback talk became more prominent. Several brokerages lowered their forecasts and suggested caution and coupled with Jewish holy days and the Labor Day week end hangover it wasn't surprising to see the lack of enthusiasm.
We reduced some positions this week taking losses; did a little profitable trading and raised a bunch of cash. If we can keep our finger off the trigger for a while we hope to sit back and see what happens over the next six weeks.
We currently own the utility NiSource which we have been trading for 50 cents and more gains all year. We own Sprouts for a trade/hold, Ford for a hold and Urban Outfitters, Nordstrom, Bed Bath, The Gap and Macy's for holds/adds.
We also have been trading Western Digital (finally ahead for the year), Abercrombie and American Eagle Outfitters and will continue to do so. The retailers we own and are trading are all reasonably priced and have been doing well this year and we expect them to continue doing well- Covid notwithstanding. The Gap, Abercrombie and Urban are all at less than ten times earnings; Macy's is less than 5 times earnings. In comparison Lululemon is a retail stock trading at 66 times earnings. All the big boys and girls have to own it as they do Chipotle at 75-times earnings and of course wonder stocks priced at 50 times sales with no earnings.
The same mania occurred in the late 1990s and lasted longer than we expected but reality eventually arrived to the detriment of more than a few money managers who are again Masters of the Universe. We were reminded of the late 1990 wonder years by and obituary that occurred in the NYT this morning.
Why we worry>
$72,000 for Elvis' hair
Rare Honus Wagner baseball card sells for record $6.6 million at auction
And, of course, Bitcoin. Liquidating just $24 billion (1%) of Bitcoin $2 trillion-dollar total market value) caused it to drop 17% in an hour. That's called illiquidity in any market.
Bitcoin fell as much as 17% on El Salvador's first day of making the cryptocurrency legal tender.
The sudden drop triggered over $3 billion in liquidations in 24 hours and spilled over to altcoins.
Insider asked 4 crypto experts about what's behind the crash and altcoins worth buying on the dip.
Bitcoin picked just the day to show its extraordinary volatility.
As the cryptocurrency was officially adopted as a national currency in El Salvador on Tuesday, it tumbled as low as $43,000 after breaking above $52,000 for the first time in three months.
While some traders saw the sudden crash as a "buy the rumor, sell the news" event, others point out that there are bigger forces at play. Most evidently, the cascading liquidations of leveraged futures are partly to blame.
The price slump "appears to be mostly coming from highly leveraged traders trend following" as too many people anticipated new all-time highs,
January 2021: Affirm Holdings, a U.S. provider of installment loans to online shoppers, said on Wednesday it sold shares in its initial public offering (IPO) at $49 apiece, above its target range, to raise $1.2 billion.
Affirm Holdings stock is soaring even after the company reported earnings that missed analyst forecasts for net income.
Affirm reported a fourth-quarter loss of 48 cents a share, missing forecasts for 29 cents, on sales of $261.8M. Revenue beat expectations for $226.39M. The buy-now-pay-later company also said it expects fiscal first-quarter revenue of $240 million to $250 million, above forecasts for $234 million.
Affirm says it's gaining traction in smaller-dollar items, signing up more merchants, and expanding with new services, including a "virtual" Visa card that consumers can use through its app with any merchant. The company reported 29 million active merchants on its network, up from 5.7 million a year earlier.
Sales are accelerating in categories like fashion and beauty, along with "reopening" categories like travel, which hit 14% of gross merchandise volume.
The company's GAAP loss would have been narrower without accounting for stock-based compensation and non-cash items. The company posted adjusted operating income of $14 million compared to a GAAP loss of $128 million.
Investors apparently put more weight on the revenue guidance than the earnings as Affirm stock jumped 19% in after-hours trading.
The shares have been on a tear since the company announced that it had struck a deal with Amazon to offer its BNPL service at checkout on Amazon's site, aiming to roll it out over the next few months. Affirm said its deal with Amazon is "non-exclusive," however, indicating that other BNPL services will also be available on the e-commerce site.
Jim Cramer of CNBC is a very smart guy and an entertaining market commentator. And so, we were flummoxed when on Friday Cramer said that Affirmed Holdings is taking on Credit Card Companies that charge high interest rates on credit card balances. We wondered how AFRM could make money if it didn't charge high interest rates. Well, like old Sears buy on time plans (before credit cards) AFRM includes the interest charge in the monthly payments. This is not the new way to slice bread it is the old way to slice bread. We would guess that many of the folks using AFRM have maxed their credit cards and so use this as way to expand their credit purchases. And AFRM is packaging and selling this time plans to the public. What can go wrong.
Billionaire hedge fund manager James Simons, GOP megadonor Robert Mercer, and other insiders at hedge fund Renaissance Technologies will pay the Internal Revenue Service (IRS) up to $7 billion to settle one of the largest federal tax disputes in history, the WSJ reported Thursday.
The sum will account for back taxes, interest, and penalties. Simons, who founded Renaissance and is considered a pioneer for his quantitative approach to investing, will pay an extra $670 million, per the WSJ.
Renaissance, one of the best performing funds in history (now minus $7 billion) announced the settlement in a letter to investors that said it resolved the "longstanding dispute" with the IRS over the firm's tax treatment of some transactions that occurred from 2005-2015. Those transactions were under its Medallion fund, which The Journal reported manages $15 billion and only includes the money of employees and some family and friends.
"Renaissance's board eventually concluded that the interests of our investors from the relevant period would be best served by agreeing to this resolution with the IRS, rather than risking a worse outcome," the letter said. The letter also specified that the board of directors of Renaissance during the relevant years, in addition to some other investors, would owe payments in the settlement.
To emphasize how scummy The Renaissance folks were/are we repost the following.
Renaissance Technologies' famed Medallion fund, available only to current and former partners, had one of its best years ever, surging 76 percent, according to one of its investors. But it was a different story for outsiders who are only able to invest in other RenTec funds — two of which had their worst years ever.
The Renaissance Institutional Equities Fund, which launched in July of 2005, lost 22.62 percent through December 25, according to HSBC's weekly scoreboard of hedge fund performance. A newer fund, Renaissance Institutional Diversified Alpha, fell even more: It fell 33.58 percent through the same time period, HSBC reported.
It's the heads we win tails you lose thinking that permeates Wall Street. Goldman, Morgan Stanley et al work for themselves. Their welfare and survival come before their clients, just ask their clients who are stuck with Viacom and AMC Networks at $70- now trading at $45.
One of the funny things about the stock market is that every time one person buys, another sells, and both think they are astute
3 September 2021
Markets rallied through August as our accounts marked time given our caution and large cash holdings. Our age has something to do with our caution and also 50 years of market watching. Million-dollar baseball cards, Emperor's no clothes Bitcoin, stocks priced times sales rather than earnings and the Robin Hood crowd greedily chasing Reddit suggested stocks, all caution us.
We currently own Verizon, AT&T, Pfizer, Wells Fargo and Ford. We also have a substantial holding in retailers which have pulled back 20% and more from recent highs. Retailers have trimmed outlets, renegotiated leases lower and priced correctly to report great earnings. Revenue report misses on some such as Nordstrom and American Eagle may arise more from not needing inventory clearing sales. Nordstrom also suffers from the fact that its New York flagship store was aimed at the tourist trade and opened just as Covid hit. The Covid crisis caused retailers to pull back and adjust and our take is that the ones we own and have been trading for years will benefit greatly from the recovery as well as from creating excellent on-line sales abilities.
We own Macy's, Abercrombie, Urban Outfitter, Nordstrom, American Eagle and Bed Bath. All are priced at historically low P/Es.
Happy Labor Day and Welcome Autumn.
Why the government should add to the IRS budget.
Current and former executives of hedge fund Renaissance Technologies LLC will personally pay as much as $7 billion in back taxes, interest and penalties to settle a long-running dispute with the Internal Revenue Service, the firm said, a tax settlement that may be the largest in history.
James Simons —the quantitative-investing pioneer who started Renaissance before retiring as the firm's chairman on Jan. 1—will make an additional "settlement payment" of $670 million, according to the firm. Mr. Simons will also pay back taxes related to his gains.
The dispute relates to moves the firm's key Medallion fund took between 2005 and 2015 to convert short-term trading gains into long-term profits. It has been closely followed in the worlds of finance and politics because of the enormous amounts involved and because Renaissance's leaders are among the largest political donors in the U.S.
"Every gun that is made, every warship launched, every rocket fired signifies in the final sense, a theft from those who hunger and are not fed, those who are cold and are not clothed. This world in arms is not spending money alone. It is spending the sweat of its laborers, the genius of its scientists, the hopes of its children. This is not a way of life at all in any true sense. Under the clouds of war, it is humanity hanging on a cross of iron."
― Dwight D. Eisenhower
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