Well, that was certainly an interesting week! And for once, "stuff" happened while Williams was actually paying some kind of attention - usually you can rely on "really interesting" happening only while I'm roughing it somewhere deep in the boondocks on some fishing jolly or other. Anyway, there has been such a mass of comment/analysis/pronouncement from the talking heads, that you hardly need to bother with this guy's take on it all, so I'll just wish you well and we'll speak again next weekend............

Only kidding - how could IW possibly pass up such an opportunity to add his tuppence - worth?

Serious stuff for sure - Russia shut down its stock market. Mexico did likewise. Iceland probably just simply shut down, full stop. And not to be outdone, Venezuela shut down McDonalds. Hugo Chavez has his priorities right.

Not to worry - the grumpy Broon one is back in his element, singlehandedly rescuing the world economy from the ravages caused by that dreadful chap he sees every morning in the shaving mirror......Ho Ho. The markets certainly gave their verdict anent all the current intervention as the week progressed. Anyway, some of the talking heads are beginning to think that in the words of Mick Jagger et al "It's all over now". Hmmm - that rather depends upon what is meant by "it". Some say "it" is the worst of the meltdown. Others say "it" is the entire world economy. In both cases, IW refers to a sentence in Footballers' Wives (by Amy McDonald, the braw wee Scottish chanteuse) - "I don't think so...."

Of course the meltdown is not over - almost all these credit derivatives/default swaps referred to in the media, are still out there, lurking like funnel web spiders and waiting to chew up a whole load of alleged "assets". (Try "toxic waste" in the search engine and follow the whole mess from there.) And of course neither is it going to cause "the end" of western - style economies. Once market forces have finally run their course and all the pundits are telling you that "nobody in their right minds would even think of getting involved in anything other than cash under the bed", far from "the end", we'll be witnessing "the beginning" of the next turn of the economic cart wheel. Indeed, generally speaking, "things" turn back up at least six months - and sometimes a lot longer than that - BEFORE we read anything much about it anywhere. Aren't YOU lucky? YOU will read about it here in good time! (IW stated with not a little arrogance - but don't get at me - it's my Really Scary Granny's crystal ball we all need to thank.)

One of you - thanks Chris - asked for an explanation of "counterparty risk" regarding "default swaps" as mentioned above, so here's an extremely truncated version that might or might not provide a wee bit of clarity - it has to be said that "clarity" is what has always been totally missing from such instruments, but any "explanation" by necessity has to be pretty brief. No doubt somebody one day will write the definitive version of what they were, how they were totally abused, and why they went wrong - but this guy simply couldn't be bothered quite frankly. "Work" is the curse of the fishing and skiing classes....

So what then is "counterparty risk"? That bit is easy enough, thankfully - it simply means the risk that your "opposite number" in a transaction might default in some way. For example, if you have bought car insurance from XYZ Insurance Plc, you expect and believe that any valid claim will be paid out by XYZ. XYZ in turn expects that YOU will pay your premium and will not make fraudulent claims. It probably never enters your head to believe XYZ would ever default on its liabilities - but that's the counterparty risk you run. Clearly, in most developed economies, that particular risk is indeed minimal and a compensation fund exists "just in case". The risk is pretty transparent to both parties - actuaries can work out how big a risk YOU might pose to the insurer, and the insurer's business is hopefully well enough set up for claims to be settled no problem. Now in the case of insuring a car, that is fine. But in the "credit default swap" world, things are far, far murkier and it is still pretty much impossible to work out who owes whom and how much. Basically, "credit default insurance" should be simple enough. The problem is that it has never been regulated, and it's not only insurance companies that provided it. The idea is straightforward - a bank lends to a business, but as a condition of the loan, the business has to buy default insurance, so that if it can't repay the loan, the insurer coughs up to the bank. The same applies to municipal bonds, where you lend cash to (say) New York City and get interest payments in return. New York buys an insurance just in case it might default on your loan, to provide you with the necessary comfort that encouraged you to buy the bond in the first place. Nobody really expects New York to be in default, so their premium is pretty low. Maybe the premium for providing cover to the likes of Ford Motor Company would be a tad higher? But then the "financial whizz kids" got a hold of the whole thing, and started up the "business" of swapping insurance policies - buying, selling, and "trading in" - "I'll give you some GM corporate bond insurance, plus $10m in cash (that I've borrowed in Yen from Lehmans - who doubtless borrowed it from somewhere else in the first place....), for a slice of your California State debt cover...." etc etc.The big banks like Lehman et al were/are massively involved and exposed - and when a bank/car maker/ state government/whatever fails, that's when the default cover is supposed to kick in. Trouble is, what if the counterparty insurer is another bust bank? Or a hedge fund that suddenly finds that it's due to cough up $400m it doesn't actually have because it never expected the likes of Lehman to default? I know it's tedious and complex - and nobody yet knows who owes what, nor to whom, to any satisfactory degree. That's to say, nobody really knows who the counterparties are in any given situation. And when you consider that the total outstanding debt in these swaps, could be $50 TRILLION, you might understand that all the current politically - motivated "bailout" cash is simply pocket change. There's a fairly good general explanation (and prescient words) here, from March this year: http://www.time.com/time/business/article/0,8599,1723152,00.html

OK, onward before I fall asleep! Onward to speak about probably the best "short seller" meantime on the planet.....Who might that be? Why, none other than the UK's current chancellor, Wee Allie Eyebrows himself! What an absolute star. Think about it. First, he allows Northern Rock to go bust, implying that there will be no "rescue packages" for shareholders in failing banks. That causes fear, and all bank share prices start to fall sharply. Eventually Bradford & Bingley is also allowed to go down the pan, so other banks more or less collapse, driven by shareholder fear. Then who steps in with an offer to buy? Ho ho ho. Nae bad, Allie - must be great to be above the law! Anyway, he'll still botch the job, because "preference shares" give no voting rights, so bankers are pretty unlikely to be forced into changing their behaviour - and as for the proposals to "curb" their salaries....yeah, right. Once the current mess has been forgotten (and it's scary to think just how quickly it WILL be forgotten by those who should know better) banks will go back to "business as usual" - because politicians are ALL in their pockets, one way or another.

So where next for the markets then? Almost certainly a bit lower to go, then a pretty major rally (possibly) before the next meltdown phase. More meltdown, Williams? Surely not? Surely we must be near the bottom? Hmm, what was that default swap figure mentioned above? $50? Or $50 with a whole load of zeros after it??

Anyway, on to even sillier stuff.

On Tuesday a spokesman for the IMF said "The world economy is showing signs of a marked downturn in growth.." The next day, another IMF person suggested that "The risk of a Great Depression is nearly nil.." Maybe in that case he'll sell me a really cheap default policy then?

Hank Paulson (US Treasury Secretary) says "More US banks will fail" - another statement of the glaringly obvious from that intellectual colossus. George W says "We'll come through this together." George - we probably will do just that, but some of us may be in better shape than others - and your total lack of grey matter will probably be offset by the amount in your bank account.

On that subject (politicians and gravy trains, just in case you didn't get the link) it seems Mandelson will be getting £1m from the taxpayer in return for having "served" for 4 years in Brussels. These guys should be serving time all right - and more than 4 years would be preferable.

Oh yes, another one from George W, speaking about the proposed bailout: "It's going to take a while to get in place a programme that's one - effective, and two - doesn't waste taxpayers' money." In the latter case, methinks the words " a while" could be replaced by "never in anyone's dreams".

And some talking heads are now banging on about inflation being the next threat. That's a few years away, folks - better worry about more immediate problems.

Starbucks seemingly pours 23m litres of water down the drain every working day - sounds like politicians with taxpayers' cash eh? And equally irresponsible for sure.

And no cheap shots from IW about "Iceland's difficulties" and "frozen accounts" - oops, sorry. The Broon one certainly over - reacted there, invoking anti terrorist legislation. What an absolute bully - and it just shows how politicians really do believe they are superior beings.

Anyway, one final thing during the week, that really appealed to this fella - there 's a huge radio telescope located in the Ukraine, and there's a project going on to beam messages into space from it, directed at a (possibly Earth - like) planet about 20 light years away. Seemingly a website (Bebo I think) gathered loads of ideas as to what messages to transmit. I can just imagine the message proposed by the Broon one....."Please send cash."

On that note, on to tonight's charts - and with the "contagion" mentioned in video clip 1739 spreading rapidly, "buy" trades are few and far between, if indeed any exist at all at present. These are exceptional times - in more normal conditions, the "big money" gets moved into so - called "defensive stocks" like utilities and so on when market conditions seem a bit iffy - but right now, confidence is evaporating so fast that cash is king, and will be for a fair while to come. So are there "sells" to be found? Certainly - but with a substantial bear market rally almost certainly just round the corner....patience is always a great idea when trading! Anyway, we'll take a look at a couple of charts to see where a potential trade might be on the cards. First there's SOCO International - why? Because almost everything else fell sharply on Friday, but look what happened to the SOCO price! It's always worth watching stuff that behaves more or less totally differently to everything else. Is it shaping up as a (very rare!) "buy"? Too early to tell, but should you maybe keep an eye on it? That's entirely up to you of course. Then we'll look at very long term horizontal resistance and support on the chart of Provident Financial - where will its price head if that support gets broken? Finally there's a not so pretty picture of the state of the UK's retail sector, on the FTSE350 "general retailers" chart. Once the Christmas selling season is over, I suspect a largish number of retailers are going to get their debts called in and methinks there will be a fair increase in bankruptcy filings during January 09.

By the way - I realise that those of you who subscribe from Oz etc, may not be able to get much benefit from the Sharescope programme I use here - but there is in fact a link to a suitable Australian package on my website. And the TTEW principles still apply, whatever stocks you're looking at - obviously too, "indices are indices" wherever you may be based.

Anyway, that's all for this weekend - it's going to be interesting to see how the coming week unfolds, that's for sure. By the way - thanks to those who pointed out my typo from last weekend - Irish citizens are potentially "in" for €100000 each, not €100m each! Apologies for that.

All the best until next weekend

Ian.

'IMPORTANT NOTICE: These WICS charts are for EDUCATIONAL PURPOSES ONLY. They represent only MY understanding of what is happening in the market for any particular share, stock, commodity or index. In NO circumstances should they be construed as recommendations to trade. If I choose to trade what I see, that is MY decision. YOU must, in turn, come to YOUR OWN conclusions about what action, if any, YOU might choose to take'.