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Financial news I consider important, with my opinion, which is worth as much as you paid for it.
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Friday, July 31, 2009

Walking away from your mortgage

Blogger Mish as written a series on the ethics of walking away from underwater homes. I completely agree with Mish's view, that if you owe more than the home is worth, walk away. In any event, I found his most recent post excellent, you can read the full post on Mish's blog by clicking here:

Below is a snippet I found most to the point. The quote below starts off with a reader talking about his own underwater home, and struggle to come to terms with what to do next.

Eh writes
.......I’m now in a position where I’ve cut back on groceries (significantly), eliminated cable tv and eliminated external activities unless they’re free and close to home. I know there are others who are in worse shape. I’ve struggled with a decision to call ‘You Walk Away;’ I accept my role in this mess and that’s what is preventing me from acting.

Quite frankly, I don’t know what I’m going to do with my financial situation just yet. I may decide to walk away knowing that a similar sized unit can be rented for half of what I pay in combined mortgage payments and condo association fees (an opportunity that did not exist when I bought); if you do the math, renting will allow me to pay back my other bills and return to a better financial condition in a much, much shorter time. Then again, I may decide to fight my way through. Perhaps, I could find a part-time job to help make ends meet. Either way, it will be my decision and I will deal with the consequences.

There are so many wrongs in this situation. It was wrong for investors, speculators and buyers to have driven prices so high. It was wrong for Realtors and agents to have advised their clients to proceed with the lofty purchase prices. It was wrong for lenders to approve the values of these properties. It was wrong for the government not to act to help stem the wild ride in the housing market. It was wrong for me to believe that owning property is always to be viewed as an investment. And, it was wrong for me to have followed the bad investment available in the media and not to have been aware of the economic advice that warned of a changing financial climate.

If I stay and struggle through my situation, I will not do so quietly. Overall, we (Americans) still lack accountability. We continue to blame those at the end of the chain instead of those who initiated and contributed the greatest to the demise. If I stay, I will lead the local voice in demanding that those in a position of power and control be held accountable for their actions. I have questions that need to be answered. Why do we continue to allow the likes of Ken Lewis to remain in power at the heart of the financial system? Why do we not demand that the executives and managers at each of the offending financial institutions, investment firms and insurance firms return their pay increases and bonuses from the past 8 years? Why do we not demand that the banks, investment firms and insurance companies not only reimburse the TARP money but all of the profits they made over the past 8 years (along with the pay and bonuses)? Yes, I realize they money is gone, but they need to reimburse us for all the wealth they took. And finally, why do we not demand that the Federal Reserve be abolished or greatly reduced in function? Somebody, please do something other than maintain the status quo and allow the Sheriffs of Nottingham to continue to pillage this country.

Take care,

EH (Earl of Huntingdon)
Thanks for sharing "EH".

My personal advice to "EH" is to run, not simply walk, away from this mess.

That said, my take is that whatever "EH" does is correct. He is the one who has to live with his decision. Clearly "EH" made some bad choices and he and his family are suffering for it. No one should be judging "EH" for what he does in his situation at this point going forward.

History as to how and why "EH" is in this mess does not really matter. Being underwater in a mortgage is a sunken cost, and sunken costs are irrelevant in deciding how to proceed. The term "Don't throw good money after bad applies."

However, if ethics prevent "EH" from walking away, who am I to judge? If "EH" does walk away, who is "HH" to judge? The problem is one of us is judging (on the basis of ethics) and one of us is not judging at all (for the simple reason ethics has no bearing).

At the heart of this issue are two irrefutable facts:

1) "Mortgages are not ethical documents, they are legal contracts." Those contracts stipulate the penalties for breakage. Both parties signed and agreed to the penalties for breakage. If one side did not set the penalty high enough, that party and that party alone is responsible for the consequences.

2) In a free market system, failed institutions should be resolved in bankruptcy court not via taxpayer bailouts mandated by government bureaucrats. Furthermore, there is no legal or moral justification for the Fed, Congress, or the Treasury to be picking winners and losers at taxpayer expense. Repetitive propping up of private institutions is not only a moral hazard that invites more reckless behavior, it is theft perpetrated against US citizens via cheapening of the US dollar (or tax hikes), for the sole benefit of those hand-picked private institutions.

Those like "HH", blaming people like "EH" have their fingers pointed in the wrong direction. The fingers ought to be pointed at the Fed, Congress, the Treasury, President Bush, and President Obama.

Good luck to you "EH", whatever you decide. Just make sure the decision you make is based on how you feel, not how someone else thinks you should feel.

Mike "Mish" Shedlock

Thursday, July 30, 2009

Recipe to ensure a stock market collapse

I previously blogged, how China had a steady waterfall market collapse into the fall of last year. In China, it is illegal to "short" a stock. In effect everyone must place bets by either buying a stock because they believe it will go up, or sell and put their cash into a bank or some other financial instrument.

Without shorting, you don't create an environment where people WANT to buy stock when the market collapses. Instead you create a one way panic, everyone run for the door when the herd believes that stocks won't appreciate,

When you have shorting, people who shorted a stock will buy it back, at some point. Many shorters get so abused (like now), that as soon as they eek out a profit they are quick to cover (buy) to close the short position. Without people short the market, when the herd decides it is time to run for the door, there is little resistance to stop it.

When the US stock market is functioning in a healthy way, the market rises, market falls, but the market tends to return to the mean. At extreme over-buying, shorters and people selling long positions return the market downward. When the market falls a little too far, people short cover positions and bulls buy stock.

What was witnessed today was outright, illegal, market manipulation. Karl of the Market ticker has a video explaining what occurred (Click).

This market has rallied almost 3 consecutive weeks straight up, and in 20 weeks up about 50%. This sort of a rally crushes people trying to short into an "overbought" market. That's fine, if the market is going up on fundamentals. People making bad investments should get punished.

But if the investors short are right (and they are right currently), and the market needs to retreat to find realistic valuations, but manipulation prevents this from occurring, the effect you have is one of breaking the shorter's back.

If you have ever played a game where the house, casino, or other players, where cheating, don't you just give up playing the game? What if, not only they cheated, but took large chunks of your savings? It would be time to stop playing the rigged game and walk away.

IF (I say IF, since I don't have statistics), that is what the market is doing to people shorting, then the market will become unbalanced, have people buying with minimal short positions. People who don't understand free markets will say "great, the market is up, and I'm glad people taking positions it will go down got burned".

When the market turns, I can only hope the people who start losing money, double down, triple down, mortgage to the hilt to buy more stock, to fill in for the shorter's who are no longer there to cover their positions. Otherwise, the US market will repeat China's graph below.
From WebSurfinMurf's Financial Blog

Gold Miner Positions

As stated in previous post "Cash is King" I am walking away from Gold/precious metal miners that have served me well since October 2008. I reserve the right to run right back. At this time, I'll try to avoid GDX and precious metal miners until gold goes below 700 or above 1100.

I still think resources are one of the safest plays for a 5 to 20 year time horizon.

Cash is King

It has been a roller coaster these last 12 months in the stock market, quite a ride. In August 2008, best investment was riding Oil to 180 a barrel, then flipping short to catch the markets crash. At that time, I warned against gold in a deflationary spiral, and didn't own any resources or resource based stocks. Sometime in Oct, I became a gold bug, and since then I have been of the believe that resources are the safest investment over the next 2 to 5 years, with a preference on precious metals, in the event of a fiat currency collapse or panic run.

At that time, I thought China was stronger than it really was, and was of the belief resource demand may be relatively safe. While investing in resource based stocks I still think is a safer play than most other stocks over the long haul, I am now flipping my previous opinion for the next downleg of the market. (I reserve the right to flip again) :).

As previously blogged, China is an outright fiscal disaster, the US may be better off than them, which is hard to imagine, as previously blogged. And natural resources? Over the 10 year haul I still think its a winner, but I am pulling the reigns in hardcore.

Time to run for the hills and go pure cash. Invest in short term US treasuries or something as safe. Avoid corporate debt of any highly leveraged company, especially buying debt of financial companies for your life savings. I have been a gold bug since Oct 08, so this is a major change for me.

Today, I sold many gold miners, either directly or selling calls to offset my losses. I have some gold miners that I will keep as a hedge if there is a "oh shit" moment where panic arrives and gold becomes king. I would hate to be 100% out and still be right about gold. I will adjust my stock plays accordingly.

We are about to face a very deep, very long, recession/depression that may last upwards of 5 to 20 years. Everything is risk.

If/when Gold goes over 1100 an ounce, or below 650, buy buy buy all you can. Until then, the risk is too great for me to stomach in the next 1 to 6 months. However, the one thing about investing in natural resources is if there is a panic on fiat currencies. I am of the belief however that won't happen until AFTER a deflationary collapse occurs.

I leave you with a quote from a founding father of the United States, Thomas Jefferson. Keep in mind the significant USA inflation occurred under George Bush, and the US is now experiencing deflation.

"If the American people ever allow private banks to control the issue of their money, first by inflation and then by deflation, the banks and corporations that will grow up around them, will deprive the people of their property until their children will wake up homeless on the continent their fathers conquered."
-- Thomas Jefferson, Letter 1802 to Secretary of the Treasury, Albert Gallatin

Wednesday, July 29, 2009

Commercial Mortgage Backed Securities (CMBS)

By now, most Americans who read a newspaper or watch a real news program know the term "MBS" or "Mortgage backed Securities". When these are referred to, it typically represents home loans repacked into a bond/security. These things have been discussed on this blog before. The main problem is, they are not based on market value, but on fictitious valuations through computer models, and where and many still are rated AAA.

Enter a new term for me, CMBS, or "Commercial Mortgage Backed Securities". These read to be the same as MBS but the commercial sector is the basis for the securities. I don't fully understand the profile of these instruments, but my gut tells me they would have been championed as even more trustworthy than mere MBS.

Enter a company called Realpoint. Realpoint is a nationally recognized credit-rating agency that proclaims it's goal is to increase market transparency and provide investors with the highest quality ratings and analysis by offering a wide array of securities research, surveillance services, data, and technology solutions.

This company provides a market research report, publicly, on the state of CMBS, and is available here (click). It's latest report on over 800 Billion CMBS it reviews is not good. A full report can be found by clicking here for July 09.

From WebSurfinMurf's Financial Blog

Realpoint projects 6% to possibly 8% default rate on the 800 Billion CMBS it reviews by Dec 2009. That is about a double from the June rate! The June 2009 default is 700% (7 times) increase from one year ago. (as shown in graph above). The total US CMBS securities is at 1.2 trillion dollars, and total in world (including USA) is 1.6 trillion. Assuming the total CMBS of 1.2 Trillion experiences the default rate of 7%, total in default will be 84 Billion. If same trajectory is kept, which I hope it won't be, 2010 will be a debacle. CMBS is 1.2 trillion, and this doesn't include other commercial mortgages not secure-itized. I doubt CMBS will be a major factor in financial losses. However it is yet another indicator that the economy is sick.

Tuesday, July 28, 2009

Food for Thought

The question is, do you believe the economy is on-track to top excessive spending in 2005-2007? Considering 500K jobs lost per month and a financial system still on the brink of significant more failures? Fixed "guaranteed" income is NOT a dirty word for those over the age of 50, and should consider safe fixed income (for now) over roller coaster stocks.
From WebSurfinMurf's Financial Blog


The US economy and the world is in deep trouble, and until root causes are fixed, the stock market is destined to go much, much lower. The problem is, "knowing" reality has nothing to do with the market direction. Banks being seized every weekend? Ha! Who cares! Goldman Sachs accused of manipulating the market! Hey, if they manipulate up, its all good. Earnings horrible? Well they could be worse! Unemployment crossing 10%? So what, that's been talked about for a year, its old news.

Point is, as an engineer type, I continually fall into the true reality vs market reality trap. And since this bear trap started, I have been probably doing a disservice to all the readers and myself, by letting knowledge get into the way of trading. When such soul searching en mass for "bulls or bears" occurs in trading, it is called "Capitulation". In the stock market, capitulation is associated with "giving up" any previous gains/losses in stocks as investors close positions in an effort to get out of the market and into less risky investments. True capitulation involves extremely high volume and sharp price changes. It usually is indicated by panic buying or selling.

So let's go over the capitulation that is going on right now shall we?

First we have myself and John Chinnock, both tortured on the positions on what to do next.
The Market Ticker, Karl has walked away from trading and blog updates, to return TBD.
Tim Knight of The Hope of Slope has reflected this past weekend, finding solace in an old prediction of SPX going to 1150, and has decided he was wrong to hold.
BullzAndBearz Blog has done soul searching, and is looking for SXP close above 985 "to confirm" a longer term rally is occurring.
Hussman Fund manager, John P. Hussman, defended the position of remaining defensive, in what seems to be a missed opportunity for the bull run.

Atilla at xtrends isn't capitulating as much as drawing a line in the sand, right here right now at SPX 980.

Capitulation usually marks a turning point in the market. The problem is, the overall shorting positions are down because of the market rally. People are too scared to short. The market won't go down for the heck of it, it needs more sellers than buyers. So the market could go to SPX 1150. I for one have decided to cut more % off of my positions if SPX closes above 986, why? Because Atilla and another blogger (click) make a good argument from a chart perspective, it is just too dangerous to keep full positions above that level.

Now is the time where the men stand the line, and know when to run for cover if being over-run. This week will be interesting to say the least.

Monday, July 27, 2009

Market Comments

If you haven't done so, please read Sundays post (click)

Good charts on where the market stands, and how over-the-top critical this week will be:

Some other items to read, blog entry on retracement levels

Some good news is , more systematic corruption is entering the mainstream, as US Senator Charles Schumer wants to change laws to prevent market manipulation by using computers housed "right next to" market trading systems to front run/trader with computers with high speed access.

The more of this type of corruption is exposed and corrected, the more optimistic I will become with US economic future. So far, these types of discussions are helpful, but not until they are instituted and enforced will I gain optimism. Cleaning up wall street trading practices, FASB rule changes previously mention, and CDS exchange traded contracts, would be a great start.

Sunday, July 26, 2009

Happy John Guest Post

I asked a friend of mine, John Chinnock to be a guest blogger. John Chinnock has been a stock day-trader for over a decade, and has done very well over the years. John Chinnock from my perspective is neither a bull nor a bear, but is a market trader. He happens to be bearish, as you can see by reading below.

Hey everyone, this is John Chinnock (Happy John). This is my first guest post on Murf's blog. This post is intended to be an update, as well as a roadmap and guideline for those attempting to follow along with that plays that Murf and I are making. I must warn that I won't write often, but when I do it probably will be long.

Obviously these last two weeks were terrible for those short the market (i.e. me and Murf, and practically nobody else!). Unfortunately, most market tops end with a wild euphoric burst which marks the absolute very top, so just when things are breaking out and look great to the world (and horrible for me), the top could be very close at hand. Unfortunately, nobody rings a bell at the top, and stocks also always look amazing at the exact top.

Before I get into the short-term, I will humbly say that over the long-term, things are going exactly as Murf and I predicted. Everyone knows by now that we both called the "Great Crash" well in advance. Then, we both got bullish early on this year (a little too early), and were able to carve out some nice profits on the long side. Unfortunately, since we both believe that we'll see the market take out its March lows at some point, we were quicker than most to take our longside profits. However, at the time, we distinctly said to each other that this rally will go so extremely far as to actually force us to question our own bearish thesis. We said back then that at the top of this rally, the world will be proclaiming that the bear market is over, and that the economy is saved. Well, I must humbly say, that this has played out exactly as we foresaw (quick note of humility: Mike and I won't always get everything right, so we might dwell and gloat a little extra when our boldest calls come true!).

So I will say that our long-term forecast is so far playing out exactly according to plan, and nothing has changed in that regard. For those who aren't certain of our stance, I will repeat: Murf and I expect an eventual target of new lows for the market within the next twelve months if not sooner. However, now I will look at the near-term forecast. Mike and I shorted the market around mid-May, and until the last two weeks, we were doing just fine. We joked that the rally would become fierce enough at some point to have us question our own short positions, and unfortunately, exactly that is happening right now.

Short-term forecasting is not my specialty, but I will make some amateur attempts. We broke out of a huge consolidation on Thursday. Despite the market being very overbought, I see it as very crucial for the market to quickly give back this breakout early next week. As the risk of looking foolish over the short-term (which short-term forecasters usually wind up doing), I see next week as crucial for the near-term bearish case. If we continue to consolidate above the breakout zone (approximately Dow 8900 and SPX 855), we could easily have another large leg higher. I personally will be forced to at least lighten, as once the bulls begin to stampede, logic quickly transforms into euphoria, and rallies can last much longer than expected (do the bulls ever even use logic?). My fear isn't that the market won't eventually fail, it's that we'll go above Dow 10K+ before it does. At some point, as traders, we realize that it is better to make and/or save money than be right.

Again, If we do not have a big downmove on either Monday or Tuesday, I'm going to be lightening some of my shorts (not covering everything, but definitely lightening). I was lucky to make a very good chunk long from March to May, so in my mind, I'm ok with giving most of that back waiting for a market top, but I have to cut my losses somewhere. If I do lighten, I'll probably add back on a solid break below 950, of course risking a giant whipsaw by doing so.

Granted, nothing is certain, and of course anything can happen. Charts only attempt to predict probabilities. It is just my humble charting opinion that we really need to have a big down day on either Monday or Tuesday at the latest. And again, Murf and I are still 100% convinced that the market is eventually doomed to new lows. It's just all a matter of when. If this opinion ever of ours ever changes, he'll be sure to post it multiple times.

I will also point out a few things in the bears favor. These are all technical chart-based points. (for fundamental reasons, see Murf's most recent post, or basically any blog post!)

1 - We are almost tied timewise with the rally after the 1929 crash. In fact, no bear market in history has had a major rally last longer than 5 months or so, and that would end in early August. So timewise, we could/should fail anytime now.

2 - We've also rallied 50% without any major retracement. This is nearly tied with historical bear market records.

3 - The VIX (measure of volatility and fear) has returned all the way to the old levels of a "no fear" environment. This is very bearish for the market going foward.

3 - Many stocks are moving lower from earnings. MSFT and AMZN, two Nasdaq leaders, both got destroyed on Friday. Restaurants and retailers are also for the most part moving lower from earnings. BAC and WFC (two large banks) look like they want to melt, and just the overall market strength is keeping them afloat. The same goes for GE, and many other large caps.

4 - Weird charting fact: every time the 30dma crosses the 50dma to the downside since the top of the market, new lows have followed fairly quickly. If we have even one decent down day on Monday or Tuesday, the 30dma will again cross down over the 50dma. This cause and effect relationship can't last forever, so far it has held 100% during the bear market.

On a final note, for the casual non-trading readers, here is my final advice in plain English: get out of stocks! Please, sell them all. This rally has been a gift for you to recover your losses. The market has just rallied 50%! This is a gift to sell! If losing half of your retirement money was painful, imagine losing half if not more yet again from these levels! If you are over 55 years old, there is no "holding for the long-run" anymore. Now is the time to be cashing in on a lifetime of laboring, not watching it disintegrate. Yes, you might miss a little more upside, but you've already seen a 50% rally! The most giant debt bubble that the world has ever known has popped, and the crazy spending times of years past are not coming back for decades, if not generations.

At some point I'd like to do a post on how I feel that things will unfold culturally over the next few years, but I'll save that for another time.

Good luck to everyone out there.

John Chinnock

Added graph to illustrate Johns point for long term investor (horizon in next 10-20 years)
From WebSurfinMurf's Financial Blog

Saturday, July 25, 2009

Federal Reserve, US Treasury, and secrecy

The US no longer follows the US constitution, and it is obvious the US citizens do not care. If they did, congress would be swamped with demands for transparency. This demand will unfortunately happen only after the house of cards falls hard.

Eliott Spitzer: Federal reserve is a PONZI scheme
(Thanks to Greg for link)

Friday, July 24, 2009

Finally, an attempt to fix root cause

The Financial Accounting Standards Board is positioning to recommend to the US government to change accounting rules to follow HONEST accounting!
Hurray! The accountants have decided the rules being followed are not honest! A little late, like 8 years late!

If these changes are adopted two things will happen.
1) Bankruptcy on many companies, including financial companies, with stock market plunging to new lows.
2) The US will heal quicker, and my vision of a 5 to 10 year recession depression may turn into a 3 to 5 year one!

These accounting rules will change several MAJOR flaws I have been griping about for some time. First, all debts will be valued at MARK to MARKET! woot!
Second, Debts won't be treated like assets...they will be treated as ..... debt! What a novel concept!

Do I think this will pass! Hell NO! Not until the market is SPX 600. As long as companies think they can get away with fiction, and politians think they can create reality, let the party continue. But the day this does pass, is the day I start looking to cover all shorts, and go long for the next 5 years. Lets hope that it's sooner rather than later so America can move on.

Thursday, July 23, 2009

Short ideas, and sell gold miners

Well, you should know my short plays, as bad as some of them are right now. Click here.

Other better short ideas right now (click for charts)

OIH ( personally I am too chicken to even consider this one)


BTW, I am stating now, to sell SOME of gold miners. In a downswing, it won't be pretty. I am selling 100% of FCX.

Was Thursday a top

Why a market top was today or is close.

1) Too far, too fast
The market has risen from SPX 666 on 3/6/09 to to SPX 959 on 7/23/09, about 44% up over 20 weeks. Think about that kind of move. If you bought a stock that was up 44% over 20 weeks, would you sell some (if not all) to CAPTURE those gains? I would hope so. From the looong term view, it took the market from 1996 to TODAY to be up 44%, over 13 years! And the market just ran it up in 20 weeks!. OK, lets just look at from after the 2001 bust, just recent history, from the bottom in March in 2003 up 44% took 10 months, and to reach a sustained level 19 months!

The stock market Thursday had a parabolic blow-off today. Friday may open up big, but I expect it to fail into Friday EOD. Whatever the market is at Friday, it is time to sell longs, across the board. Gold Miners I am on the fence on, I suggest stops to push you out as needed.
From WebSurfinMurf's Financial Blog

2) Government must ensure interest rates remain low
Also, the US Government has announced for the next week selling 250 BILLION dollars of US Treasury notes! Yes, the government is planning to sell what used to be the typical annual budget debt for the US in one week. The US interest rates could rise to sell these notes......unless the market falls creating fear, driving people into US bonds to keep interest rates low. Interest rates are rising rather quickly during this rally. adding 250 billion dollar in debt sales in such a short period of time will make rates rise significantly.....unless the market has a downturn.
From WebSurfinMurf's Financial Blog

3) Earnings reports problems.
Specifically MSFT, AMZN, AXP should cause damage in the general market place.

These companies reported, after hours change in stock price
MSFT - DOWN over 6%
AMZN - DOWN about 6%
AXP - DOWN about 5%
DECK - DOWN about 10% (not a market mover, but one of my short plays)
CAKE - DOWN about 3.5%

4) The basic problems HAVE NOT BEEN FIXED
Has banks and other financial companies been forced to have proper valuations? NO
Are mortgages defaults and unemployment been improving significantly? NO
Has consumer spending been improving, since 70% of the US economy is consumer? NO

5) Today was a parabolic blow-off
The move Thursday was a significant rally for one day, following a 10+ day rally.
From WebSurfinMurf's Financial Blog
6) Market tops are characterized by the opposite side panicking.
In this case, I am investing for market to go lower, and yesterday I finally cracked and started to panic.

Timing the market is near impossible, as I have proven since 5/10/09. :) I was a victim of my own 2009 prediction, caught in a bear market trap. If you own stocks long here, you are really gambling by keeping positions. My original flip from BULL market cheerleader to BEAR market was back on 5/10/09 when SPX hit 930, today SPX hit 976, basically within 5% of the 930 call (assuming Thursday was the top), but MONTHS later. :)

My opinion is the same since 5/10/09, this level of the market is high, and will retrace significantly.

UPDATE 7/27/09, same sentiment, but the market did go higher, see chart below food for thought.
From WebSurfinMurf's Financial Blog

Wednesday, July 22, 2009

Reflections on the market

What can I say, it is Wednesday and the markets haven't moved lower. Therefore it is time to re-evaluate. I am maintaining my short positions, but being protective of out-of-control positions.

Gold miners are doing good, DRI, BBY, BWLD, EAT, DIN, and CAKE are doing good as shorts in a short term bull market.
BAP, AAPL, DECK, WYNN, TZA, FAZ, and to a lesser degree SRS are all debacles.
I am tending these positions by lightening positions when seems appropriate, but I want to keep them for a pullback on such a short term rally that we had last week.

Problem is, this is now a position of weakness, not strength, and "hoping" for a pullback is not exactly a great position to be in. I have one thing going for the short arguement. Everyone is now on board the bull bandwagon, that the markets will rise. The big money makes it's profits by doing the opposite of the herd. But timing that is impossible. Best play since October 2008 has been and will remain gold miners.
From WebSurfinMurf's Financial Blog

From WebSurfinMurf's Financial Blog

Tuesday, July 21, 2009

Taxpayer cost for bailouts and stimulus may top 23.7 Trillion

Special inspector general for the Treasury’s Troubled Asset Relief Program, Neil Barofsky, said US Taxpayer cost for bailout and stimulus programs would be 24 trillion dollars. Granted this maybe a bit pessimistic view, but the main issue is there is NO transparency int he US government. When there isn't transparency, abuse is sure to follow. Without transparency, I fully believe 24 trillion may become a reality.

Lets do some simple math. 300 million US citizens (about), 24 trillion, that is $80,000 per citizen. WOW. Considering the total outstanding debt of the US was 5.5 trillion in 2000, that is startling. And this doesn't include Social Security/medicare benefits.

In any event, it is no wonder the White house is avoiding releasing updated budget information. I'll let the secret out: there is no "budget", just an open ended spending spree.

Lawrence Summers, director of the White House’s National Economic Council, said the U.S. economy’s growth pace next year is “very much in doubt.

And government jobs such as USPS are having financial issues, "Top executives are now saying that the USPS will default on a $5.4 billion payment to prefund future retiree health benefits on September 30, 2009. And its government affairs representatives are now telling Congressional staff that the Postal Service may not be able to make payroll in October and will be forced to issue IOUs instead."

Commercial real-estate prices fell 7.6% in May, according to Moody's Investors Service, as both dollar volume and transaction count reached record lows in the nine-year history of the firm's Commercial Property Price Indices. The indexes are down 29% from a year ago and 35% from their October 2007 peak.

Who cares about the real economy! Stock market is in BULL mode

Frankly, there is no end in sight to this bull market. And therefore that usually indicates a top in the near future. However, I am selling/covering positions to avoid being margined out. The higher the market goes, the harder it will fall, unfortunately. Since the market did not pull back to 810 as I had hoped, when it does turn, I fear the worst.

Monday, July 20, 2009

Gold and Gold Miners

I wrote Thursday about gold/gold miners are at a critical level.

Today it is looking like GDX may break above the critical line I was watching, expecting it to break down. GDX could be bought today with a "sell" if it breaks below 39. This is why my primary trading is based upon the long trend, and over the next decade natural resources should do great. The entry point into any long term play is difficult. When GDX was 17, to many at the time it looked like next stop was 8.

I remain CAUTIOUS, and want to see GDX close above 39 for a few days, if you buy GDX or gold miners, I still advise caution if it closes below 38.

From WebSurfinMurf's Financial Blog

From WebSurfinMurf's Financial Blog

Sunday, July 19, 2009

Welcome new reader

This blog entry will be updated as needed, to revise my view of the US economy and the world economy. You will see text colored (blue). Click on these words to see a blog post or other material to provide detail of the basis of my view. This blog entry will be linked at the top of my blog for future new readers. If you are new to my blog, this post will help get you up to speed to better follow my current entries.

Welcome to my blog, my name is Mike Murphy, a Computer Consultant/Programmer turned arm-chair financial blogger, with help from other bloggers and friends (John Chinnock). The goal of this blog is to serve two purposes, one is to help me continually focus and articulate current thoughts of the Financial Market & US economy for my own trading. A second is to hopefully help those who know me to safeguard their savings from buy and hold mentality in this historic economic problems the US faces.

Recommended Economic Primers

My View of Economic forces

I am writing a series of articles on Monetary and Economic terms and views, click here to read this series to gain my perspective of economic concepts, starting with "What is Money?".

Video of various economic forces the world faces
This video series gives a great synopsis of many global and US economic issues. It is a MUST for anyone new to this blog. This video was created by Chris Martenson, a pay-for-blogger. CLICK HERE TO WATCH THIS GREAT VIDEO SERIES.

Short take

The US Stock market and the US economy will see substantial pressure from a massive deflationary collapse that will not end until the US government enforces honest accounting and loses by US banks are realized. Current target for S&P500 and DJIA for a "bottom" is 550/5000 respectively or lower. The US economy will be in a recession/depression that will span 5 to 10 years from the initial downturn in Dec 2007.

During the economic turmoil storage of wealth in stocks, bonds, cash, real estate, or natural resources (gold) all involve risk. In my opinion, physical gold/silver or natural resource based companies such as gold/silver miners are "safer" investments than most others in the time frame between 2009-2012+. A MUST read for new users is this blog entry (click) on buy and hold as a bad strategy.

Therefore I strongly advise against keeping money in general stock funds, better off in US short term treasury notes (cash), and/or natural resource based investments. There will come a time where US cash will have turmoil (devaluation). However this is likely to happen after 2010, but it could be triggered at any moment due to US government actions. Please read the next section, my verbose view, to better support this view.

7/26/09 - Please read this entry from friend "John Chinnock"

Verbose View

My journey
In August 2006, while talking to a friend, John Chinnock (AKA Happy John), I came to realize the world was facing a financial collapse of historic proportions. At that time I bought 1 stock a year, and my 401K was in who the heck knows funds. I tried to warn others, and to personally get more involved in my own investing. In January 2008, and I emailed friends/family on a rather accurate long term market investment indicator that screamed "get out of the stock market". In August 2008, I started this blog to "shout from the rooftops" of what seemed to be a pending market collapse, using this blog for friends/family communication. Starting in November 2008, I shifted away from shorting financial companies into heavier concentration into natural resource companies, specifically gold/silver miners. My new goal is wealth preservation (gold/silver miner plays) with secondary investments in higher risk items, such as my series on stock plays, and lottery tickets. The primary (but not all) of my stock plays can be found by clicking on a link on the right WebSurfinMurfs Stock plays.

7/26/09 - Please read this entry from friend John Chinnock

Where US (and the world) went wrong
What we are witnessing unfold before our eyes is the deleveraging of INSANE amount of money/investment leverage that was allowed during the last 10+ years.
The leveraging was done at all levels, citizen, corporations, states, and the US with debt represented as an asset. (Click for good video on current leveraging as of 7/18/09)
Much of the over-leveraging was "pulling forward" demand (demand today, pay tomorrow) for profit taking today.
Over leveraging accelerated with the repeal of Glass-Steagall act from 1930, designed specifically to prevent banks from taking part in high risk investments. Unfortunately, America created a new "investment vehicle" called Mortgage Backed Securities. Normal investments are valued at what others pay for it, called Mark to Market accounting. For example, a 2 year old Honda Element car may be valued at $9,500 because that is what people will pay to purchase it. Mortgage Backed Securities are NOT valued by what they are worth on the open market. They are valued by a "computer model". Basically, the banks can state their worth without proving it. This worked until the MBS where losing money instead of gaining, uncovering the reality behind the curtain. To this day (7/18/09) the US and the world refuses to value MBS and other securities according to their true value.
This has created distrust and prevents normal lending. The problem ISN'T banks won't lend as much as they used to back in 2007. The problem is that banks can't tell WHO is fiscally sound to lend to or they actually now have some standards (where they didn't before). Politicians are trying to force the banks to lend, which will only repeat the act of debt faulting and causing more banks to fail. This fraudulent accounting was expanded, in April 2009 existing FASB rules on Mark to Market accounting where SUSPENDED, expanding the fiscal fantasy beyond MBS to the entire banking system, creating a second equity bubble starting immediately.

A secondary problem is "Credit Default Swaps". Credit Default swaps is basically Company A "insuring" Company B for potential risk (fiscal loss) for a premium. This is an INSURANCE POLICY. But banks have worked with politicians to classify CDS as NOT insurance polices. By doing so, CDS contracts can be written with NO regulation on risk taken, or even the ability to PAY if the policy becomes activated! This is what AIG faced, large losses from CDS contracts they wrote that required payment. Also, many companies still write HUGE CDS contracts "assuming" they won't fail, so they can take the premiums today as profit. If they are wrong, AIG is small time stuff compared to a CDS market collapse. The Bank for International Settlements estimates outstanding derivatives total $592 trillion, about 10 times global gross domestic product!

Both the above issues, combine with the issue that the US does not follow international accounting standards and is falsely representing valuations of corporations by not valuing "debt" properly. (level 3 assets) Until the US achieves honest accounting and proper valuation for debt, and enforces CDS contracts to follow similar risk-management as insurance policies, the world economy cannot return to normalcy.

Is the US in a Depression?
Click here for detailed article, but in a nutshell, the US economy has been in a downturn since 2000.

Housing and Real Estate
The housing market was pumped up through outright fraud through bank lending practices. The hyper-lending atmosphere where someone could get a $600,000 no money down loan, WITHOUT proving employment fueled the bubble. Unfortunately, fraudulent lending of mortgages continues in 2009, preventing housing from attaining a normal value, and further perpetuating the financial problems. Unfortunately, the news focused on sub-prime, and stated it would be contained, but they lied. The next wave, prime mortgages, is shaping up to be worse than subprime starting in 2009. The housing market will continue to decline for years, and should flat line in 3 years or so from now.

US Banks
Many large US Banks are taking losses from MBS investments, CDS, residential, and soon commercial real estate investments. Hundreds of US banks will
fail in 2009/2010, as of 7/16/09, about 120 US banks have imploded since 2007. ONLY 22 banks failed between 2001-2006!
Unfortunately, the FDIC does not have the money to cover bank accounts. However I believe the US government will cover "at any expense" personal accounts, so I am not panicking about safety of US bank accounts (under 250K per couple per bank). Further, banks refuse to sell foreclosed houses, since the price they would get would trigger write-offs. Therefore many banks are solvent on paper, but insolvent based on true value of assets.

MORE to come
This entry will take me days/weeks to complete all my thoughts. Other topics I will cover:
China/US and long term view (10+ year)
Natural Resources as an investment (wait for lower prices)
Risk of US dollar collapsing, due to US government monetizing of debt.
Buy and hold for stock market investing does not work!
Unemployment is much worse than reported, over 10 million out of work.
Blogs to read, Overall large market view (50+ year)
Inflation in terms of gold valuation vs stock market
General advice where to invest and risks associated.
What blogs to read for your own opinions to form.
What needs to be done to rectify the US financial problems.
Explanation of links on my blog located at the right of the page.
And I am sure a few more topics. :)

NOTE: I will post on my blog when this entry post is "done", to allow regular readers to check back. Please feel free to add your own comments to help improve this page.

Goldman Sachs Web

I am NOT a Glenn Beck fan, he seems to me to be another talking head serving an agenda. However this video points out soooo many conflicts of interest that Goldman Sachs has. I have complained about various actions many times here. Explains how the US has become an Oligarchy.
Well worth the watch, entertaining and educational.

More Goldman Sachs bashing

Saturday, July 18, 2009

Karl Denninger gets pissed

Out of all the bloggers, you got to love Karl Denninger. He calls it like it is, and does it without fear, as a proud patriotic American.

Great rant, I always enjoy Karl's rants. This video is from Wednesday (click).

Clip from daily show of Lenny Dykstra, financial guru according to Jim Cramer
The Daily Show With Jon StewartMon - Thurs 11p / 10c
Lenny Dykstra's Financial Career
Daily Show
Full Episodes
Political HumorJoke of the Day

Friday, July 17, 2009

Another 2009 Prediction came true

I covered half way through the year results of 2009 predictions. There was a few with "Jury still out", I quote:
  • In Q2, the market will pull back, sucking the bears in for the short of a lifetime. They will be disappointed as the market rallies back in Q2/Q3 and hurts the bears.
    Oh god, I hope I was wrong! Because I am the sucker I predicted!
  • After the rally of Q2/Q3, the market will finally collapse to new lows in Q3/Q4.
    This one I still agree, Q4 lower than now. Time will tell
Well, unfortunately I was right, there was a major bear trap, the head and shoulders I was talking about is a MAJOR bear market pattern. This pattern typically precedes a market fall. I repeatedly pointed out unless the SPX closes below 870, the pattern wasn't confirmed in my book. Well, it closed around 880 for 3 days then took off starting Monday. I took my positions when SPX first hit around 930 back months ago. Today SPX closed at 940.

I got severely hurt this week, as I am sure anyone who is trying to short. The SPX ran up about 7% in FOUR DAYS! A normal bull market rises slowly, as it did in 2005, 7% in about 1 year!

Below is 2005, and last four days. Below that, chart showing the BEAR market trap. In my opinion, I will call this past week satisfying my prediction back on 1/1/2009 there would be a bear market trap, "short of a lifetime". What is now still pending is my prediction of a market DUMP now, in Q3 into Q4.

Sometimes it is very painful to be right, I'll comment on my poor trading on this event below these 3 graphs.
From WebSurfinMurf's Financial Blog

From WebSurfinMurf's Financial Blog

From WebSurfinMurf's Financial Blog
So, if I am so frigging smart, why didn't I cover all my shorts a week ago? Worst case Monday on the open when I realized the trap was set? (click)

Well there are a few reasons. First, and foremost, Greed. I "believe" we are headed down, in the near term, and much much lower % wise than % higher. So risk to reward is down. And due to all the volatility, I am afraid over-night the market will fall hard. I would then be in a position trying to chase/establish positions. Since it is quite obvious I can't predict exact dates (no one can, except Goldman Sachs), I must place my bets on the next major move.

I did realize that this market is violent, and as I stated many times, 2009 is going to SUCK for trading. The cat is out of the bag, and we all know the economy is sick. Volatility is the price to avoid a market cascade straight down, everyone has to be kept second guessing the next move.

And finally, NOTHING that pays well is EASY. My saying on this blog is "There is no such thing as a free bailout". Also, there is no such thing as FREE MONEY. The angst of the market is the PRICE for the reward that must be paid. Trading is work, not just in reading, and understanding, but in execution. The pain is 3x now because politics is now manipulating the markets. If you want to short in a less painful way, wait until the DOW is at 4,000 flat lined, you may short wait 3 months and gain 2% profit.

In this environment, (assuming I am right), when this bear turns, expect 2x + profit.

In any event, my timing could be waaaay off still. One of the services I pay for is calling for SPX 1050 "This waved C-up move should be very strong, taking the Industrials up to the 9,700ish area and the S&P 500 to the 1,050ish area. " Pay for the service at: https://www.technicalindicatorindex.com

If Tuesday by noon we haven't turned, you are probably best off not reading my blog again and protecting your remaining cash. If the market does turn, it just means reality is starting to come back to the markets, it isn't a miracle.

Thanks to John Chinnock for being my emotional counselor through this. :)

Thursday, July 16, 2009

Time to sell Gold Miners and natural resources

I am a huge proponent on natural resource stocks over the next 5+ years, especially precious metals. However, the overall market I believe is nearing a dump. Why? Lets take a look at two charts. First is GDX, the ETF representing Gold miners. This ETF could not break above the bull trend line. The market has been over-the-top strong the last 4 days (up 7%) and the miners could not break above the bull trend line.

GDX may be headed to 26 or worse in short order if the markets turn, as I expect.

I will probably keep my gold miners for one reason, they are the ultimate "oh SH*T" play in the event something horrendous happens. Precious metals could rise significantly overnight, for this reason I will probably keep all my mining positions as a hedge.

HOWEVER, I will mark in my blog that GDX at 38 is a recommended sell, TBD when it is time to buy back. I recommend selling 1/2, but if you have a low tolerance for risk, maybe sell all.

The second chart is TNX, us 10 year treasuries. Gold typically moves with higher interest rates. I have covered before that the US government wants lower rates to finance debt. Well this chart does not look good for interest rates, the government will "support" a market decline to scare people back into treasuries.
From WebSurfinMurf's Financial Blog

From WebSurfinMurf's Financial Blog

List of Gold miner prices as of 7/16/09. NOTE: I am keeping my positions for the long term.

Third hand, dealer gets four kings, a player goes bankrupt

(Note to self, don't do blog post at 12:30 am)

The market rallied above the upper right hand shoulder of the head and shoulder pattern. The upside is now potentially to new highs for the year in SPX. The question is, will it?

Well there are rumblings of some pretty bad news.

CIT group (NOT citibank, thanks McGrath) news is out that CIT Group may go bankrupt.

Russia's economy contracts 10% in the first half of the year. So who cares, the US is doing great right? Well one of the theories a year ago is America would have problems, but the world trade would help. Apparently as I said before, only silver lining is the US is "just as screwed up" as everyone else.

Container traffic through the port of Long beach June represented a 28.7% decline compared to June of 2008. This is a clear indicator that the economy is contracting, not expanding.

Michigan unemployment rate jumps again to 15.2 percent in June. That is a Great Depression type print.

Bank of America Credit-Card Charge-Offs Reach 13.86%. My spin is this is just the beginning, not the end, with 600K per month layoffs happening.

The number of homeowners delinquent on mortgages owned or backed by Fannie Mae and Freddie Mac climbed 6.5 percent in April.

So whats my final spin? The market is acting irrational, this is a ramp up to the next major fall. That could come Thurday, Friday, or Monday . I am hanging in there by a thread as I watch my entire screen bleed, but I will hang on.

Interest rates are rising fast, and Gold miners are hitting the upper limit. Selling gold miners here is not a bad idea, buy it back if it closes above 39. I am holding my gold miners.

With interest rates rising, the government will be forced to have the stock markets fall again. Question is when, and if my bank account can take the pain being dished out.

NOTE* My best guess is market starts to fall Thursday, with huge fall Friday into options expiration.

From WebSurfinMurf's Financial Blog

From WebSurfinMurf's Financial Blog

From WebSurfinMurf's Financial Blog

Wednesday, July 15, 2009

Second hand, house flops a two pair

The market has rallied higher Tuesday, and I fully expect a gap up Wednesday. At this point I see the market hitting close to the "upper right shoulder" of the market pattern. The real fight will be Thursday, when Google reports after hours. Friday may be the parabolic blowoff I stated I am looking for to buy puts for the next month.

The VIX is pushing lower, making long term puts even more attractive. The next downswing, whenever it happens, will be more severe with all this game playing.

Let's take a look at the chart. I said it Monday, this week will be no fun. I am bleeding from every short right now. If you read this blog and have only a little short, Friday may be the great risk to reward to add to positions. However it IS possible (although I think unlikely) the market rallies hard to much higher levels.

How? Well Obama is pushing for a bill to automatically have employers deduct from employee's payroll to invest in the market through IRA's in smaller companies. If this passes it could be the market moves to a much higher level than the head and shoulders pattern.

In any event, my favorite pastime the last few months, lets look at the charts. If SPX closes above 915, I will start getting very concerned that I am dead wrong about this move.
From WebSurfinMurf's Financial Blog

From WebSurfinMurf's Financial Blog

Tuesday, July 14, 2009

First hand, house gets pocket aces

On Monday the market rallied against the head and shoulders pattern. As I stated Monday, the very large ominous pattern must be weighing on the big money. All those who tried to jump ahead, just got rolled.

Tuesday morning I expect a power pump with Gold Man Sachs. Like I said yesterday, this week will NOT be a fun trade or to watch your positions get pushed around. I will not play, as I stated Monday, but I will modify that statement. There is a decent chance Tuesday will be the high and we roll down. But I won't play this game as I said Monday, I don't like to bet against the house, especially when it has it's own private money printing press.

If on Friday we manage to rally higher than the close Monday, I will buy puts. Specifically buy next month options for the move down. I would expect some disaster news this weekend so the markets can gap down. It is a cheating way for the market makers to take from everyone. The market closes Friday, options expire or are exercised. People will wake up Monday with options settled, and the market makers, if "by chance and lucky enough" to have the market open lower Monday, the market makers will be able to settle the trades cheaper than they where Friday....basically pocket the money.

I am NOT stating that this will occur!

What I am saying is, I will break my rule I stated Monday and trade this week IF Friday EOD the market hasn't retreated from the close of Monday. The reasoning is, I think the chances are higher for a open down big next Monday.

Today, chalk up to the big money fighting the pressures of the market.

And just watch, Goldman Sachs earnings may be good, but their executives have sold 700 Million in stock. Once again, I would rather bet with the executives private investment changes than with the rhetoric they give on their own company. When it comes down to it, trust what the executives do with their personal investing.

But there is blood in the water, when CNBC is actually reporting something negative on Goldman Sachs....two videos

Monday, July 13, 2009

High stakes poker week

The market is on a ridiculously high stakes point this week. Some items:
  1. A very large head and shoulders pattern is formed. if the market breaks below 880 with conviction on a closing basis, 810 seems very likely, and possibly much lower once margin calls start to occur on stock trading accounts.
  2. Other stock market indexes, not just they USA have formed very large head and shoulders patterns. If these confirm, the target for other markets outside of America is apocalyptic. Market valuations of ZERO. Granted, I don't believe that is possible, but the chartists see this pattern and are concerned.
  3. This week is options expiration. Typically very large moves occur near the expiration date, this Saturday. Also huge swings in different directions each day this week is very likely. This will not be a fun week for stock trading.
  4. US Treasury interest rates are moving lower. This relieves the pressure from the US Government to want the market to go lower, to create fear, to lower interest rates. Therefore the US government can "handle" a significant market rally, if that was to occur. This is a concern since, if interest rates where rising, I would have significant faith in the market declining this week.
  5. Gold, Gold miners, Oil, and other natural resources are all breaking downwards. In the case of gold, the bottom could be much lower. Looking for signal of where the decline stops.
  6. The chartists see a "Fibonacci trend reversal point" this week. This could swing in either direction.
  7. Goldman Sachs reports earnings Tuesday. Since Goldman is accused of front running billions in dollars of stock trades, and acting a market manipulator for the US government, it is extremely possible they beat earning giving the market fuel to rocket higher. A disappoint is sure to tank the market.
This week frankly, I am dreading. From a trading perspective, we could close below 870 Monday and then swing right back up Tuesday. The very large head and shoulders pattern is obvious to any stock charter. Therefore the US Government and other large money groups will try extremely hard to push the market up in all likely hood. In any event, I expect there will be no free money this week. Meaning trading will be gut-wrenching. Since I have had my positions for months, I am willing to let it ride and get out at a loss if I am wrong.

If the market breaks higher, a panic covering by people short may drive the market significantly higher, once the head and shoulders proves wrong.

There is no way in hell I trade this week, except to close positions if I panic. I refuse to play in this environment. And I will try hard to not chase any big market moves. Don't forget the stocks I am playing can be found on the right of this blog or click here.

Below I included a wide variety of charts, with my spin, for your digestion. I recommend if you like these types of charts, pay for a professional. I recommend for market stocks in general technicalindicatorindex.com. For specific stock traded, BullzandBearz.com.

It is weeks like these I wish I was 100% cash, and avoid the pain.

From WebSurfinMurf's Financial Blog

From WebSurfinMurf's Financial Blog

From WebSurfinMurf's Financial Blog

From WebSurfinMurf's Financial Blog

Sunday, July 12, 2009

Open Town Hall - A Sham

The Obama open town hall was a big promotion by Obama.
Interesting debate between News media and Obama press secretary.

I was particularly disturbed that such a long standing member of the media, Helen Thomas, is disturbed by Obama administration "selecting" questions.

Who is Helen Thomas? Decent video

America doesn't want to compete

It is quite clear that American's don't want to compete. It isn't about being effective workers, having winners or losers, its about having fun playing the game.

American's decided for kids, teaching them to not keep score of games, but just have fun, has infected the adult world of the US.

Having difficulty finding a private bank to refinance your home? Solution is to have the US government back housing loans 125% of the value of the house.

Can't pay for a mortgage because you are jobless? Time for the US government to pay for your mortgage for you.

Own an international company that made bad bets? Time for the US government to give upwards of 182 billion dollars for your international gambling habit. To reaffirm your not a loser, give out millions of bonuses before paying your creditors (USA).

People not buying stocks? Bonds? We can't have people in the finance industry lose, so lets create an automatic deduction system for all US workers to force money back into the USA financial ponzi scheme. After all, we don't want people choosing not to spend in financial markets, they would lose.

Running a hedge fund but people want their money back? Can't have that, the hedge fund will lose, so keep private investor money legally by just denying investors can have their money back. After all, we can't have a hedge fund lose.

People want to sell their homes, but can't find buyers? Don't enforce the law, allow massive fraud in new mortgages in the face of the largest mortgage collapse in the history of the world. We can't have real estate agents not selling, and people not able to sell their homes. After all, no one loses when the failed mortgages fall on the taxpayers, we all "win" for the house sale.

Can't pay your mortgage? No problem! Just live there for free! The banks don't want to sell the house, since it would force them to recognize the house value, and then force them to adjust their balance sheets. If the banks had real balance sheets, some banks may go under. No one wants that. That would require the bank to be "judged" in the game of capitalism, to COMPETE as a business. Better off to not keep score, so we can all win.

In life, when you try to create a fake world that no one loses, in reality, we all lose. A world of no losers is called COMMUNISM. The world of CAPITALISM has winners and losers. The USA is no longer a capitalist society in my opinion in world finance down to personal finance level.

Please see my previous entry similar to this topic, where American's focus on the grade, not the child's education.