Hello again - I hope you haven't been flooded out where YOU are - I see that those of you based in much of England and Wales have been suffering somewhat these past few days, so you won't be madly delighted to know that not only is the sun shining here, but there's too little water in the river to bother fishing for now - although that will change rapidly enough with the next thunderstorm! I noted during the week that the cost estimates for upgrading London's flood defences were running at about £4bn this time last year, but now a 'review' is suggesting £20bn might be nearer the mark - surely the Olympics Committee must be involved in the calculations somewhere? It was a tad amusing to read a comment about London by a Professor J. Hall (who I imagine must have some kind of involvement in flood protection) - "It's an important place, so it needs protecting..." Hmm, so if you don't live in an "important place", what are YOUR chances of having decent flood defences constructed? Time to take swimming lessons?

That's probably not at all amusing if you have indeed been flooded - it happened to some friends a year or two ago and the resulting mess (and smell) took ages to clear up, not to mention the stress of dealing with an insurance company that insisted on 'salvaging' much of their (ruined) furniture - and then the less than pleasant discovery that the same insurance company refused to renew their policy.......

Anyway, time to move on to the markets, and I see that (as predicted) Jaguar and Land Rover are up for sale again - it was only a matter of time of course, given the massive problems at Ford. Maybe Blackstone (private equity group about to launch on the stockmarket) will grab them both with some of the spare cash provided by all the patsies....oops, sorry - 'fresh investors' who buy the shares in the hope of making the 'suggested' 20% annual returns. Ho hum - I believe I might have mentioned 'smart money' in the past - if YOU had turned an intial $400000 into around $88bn via your privately run investment company, why would you now seek to dispose of most of that same company via a stock market listing? I believe the game is called 'pass the parcel' and pretty shortly, more than a few people will have grabbed a few of these parcels and will be frantically running around with them held at arm's length, desperately trying to pass them on and finding no takers at any price.....see if I'm wrong.

In fact, it could be depressing to someone of a more sensitive disposition than Williams, to note just how many real patsies are buying into so much rubbish at the moment. I refer particularly to pension funds, the trustees of which (not all of them mind, but many of them - too many of them by far) are generally - amazingly - financially illiterate when it comes to the more esoteric ways to invest their prospective retirees' hard - earned funds. (And don't expect pension fund managers to know much either!)

There was an article in one of the papers recently - I forget which, so apologies for not attributing this - that went something as follows, anent the proposed Blackstone flotation: "With ageing demographics, pension funds are increasingly searching for greater long term returns than those traditionally provided on the stock market."

Now that is scary! That brings to mind an image of a wee chamois kid straying from its mother in the mountain pastures, seeking ever tastier grass, and wandering heedlessly into a gully where the local wolf family is rearing its cubs - the story won't end well for the pension fund 'kids', that is certain. My goodness, how do you try to obtain "better long term returns" without taking massive risks with money that people coming up to retirement won't have the time to replace if it all goes bad? There's a whole lot more to life than money, that's for sure, but money (or more specifically the lack of it) is a very big deal indeed to anyone seeking a comfortable retirement. If you buy a telly, a freezer, or indeed even a car and it turns out to be a bit of a wrong 'un, well, no huge harm done really, because you can recover from the experience even if it costs you, but if at age 60 (say) you see your pension fund begin to melt away like snow off a tin roof, how do you deal with that? (I realise this is a bit more of a 'rant' than usual, even by my standards, but it's just something that gets me wound up!)

My spies in the USA tell me that the current big pension fund scam (sorry - investment opportunity) that some of the bigger financial institutions are involved in, is to conduct 'presentations' for pension fund trustees, in some posh surroundings with plenty of food and drink etc etc - you know the kind of thing - timeshare anyone? - with a view to selling the idea that said pension funds should have some of their contributors' money in a 'no risk' investment that 'should' return nearly 10% per annum over its twelve year (renewable) life. "Gosh - 10% a year with no risk? I'll have some of that please - sign me up for $3bn worth!" (I'm not joking - I think it's a teachers' pension fund in one of the southern states that has just done precisely that.) Honestly, "lambs to the slaughter" doesn't even come close!

Why am I so cynical? If you have a few hours to spare, I'll explain in detail, but to simplify it all for now, let's say YOU want some of that 'no risk 10% growth' stuff. How does it work? Well, first take say $100 and from that, invest $46 (the current cost) in a US government bond that will mature at $100 in twelve years' time. Nae problem - you have covered your capital outlay. BUT from the $46 you will end up only with the same $100 that you committed in the first place - ie your $100 total commitment to this scheme will have made NO return, much less 10% per annum. But THAT, according to the sales pitch, equates to 'risk free' - because you get your $100 back, come what may. Then the other $54 comes in. The idea is that it will make around 20% a year (20% - a pension fund!!) by investing in something called a CDO (Collateralised Debt Obligation) - so taking the full $100 into account, including the $46 purchase cost of the 'safe' bit (the US Treasury bond), the overall return 'should' be around 9.7% annually on the full $100 IF all goes according to plan. Ho ho.

A CDO involves packaging up mortgages and selling them in bulk to financial institutions - I mentioned this sca...sorry...technique a few weeks ago. But the big financial institutions ain't all as green as they're cabbage - looking, so they pass part of the parcel to the pension fund patsies - ah, alliteration - I love it. Now some parts of CDOs are pretty much OK, backed as they are by good quality mortgage obligations, but other parts are 'backed' by sub prime mortgages and guess which parts allegedly will provide the better returns and are being sold on by the banks? If they WERE going to provide 'better returns' would YOU sell them if you were the banker involved? So in a nutshell, pension funds are being sold certain constituents of these CDOs, with NO idea whatever as to what they really contain (and once sold, their managers can still change what they contain anyway!) IF they perform as promoted, they will be great investments. But I'll end my rant by telling you what the very same financial institutions who are selling them, call them. The term for them in the industry is......Toxic Waste. And I am NOT kidding.

Anyway, if you're wondering why stock markets are still powering upwards, maybe there's part of the answer above. When optimism is at an all time high, reason, logic, and good old-fashioned common sense fly straight out the window. Greed is predominant and nobody wants to miss out....but someone WILL be left holding that parcel - nothing in the financial arena could be more certain than that!

Anyway, before we look at a few charts, here's an email one of you sent the other day (June 10th in fact) - it's well worth discussing. It brings to mind the words of Mr Kenny Rogers....."You (should) never count your money when you're sittin' at the table..."

"RE: Bluebay Asset Management. Hi Ian - I'm still in this trade, and initially was pretty happy to see it soar more than £500 into profit. It was painful though to see that nearly all evaporate when the price fell again a couple of days later!.....Regards, Tom." (There was more to the email but that was the gist of it and Tom's question was to do with 'just grabbing profits').

My reply was ".......it's just a normal trade and if it loses all its paper profits then that's what it does. The problem with grabbing profits without some kind of 'rule' is that you begin to grab them earlier and earlier till in time you accept almost anything and that soon leads to being wiped out." My point in saying that was that I like to see a very quick 'jump' of at least 15% of the share's price before I would class any profit as a 'windfall' that merits (perhaps) taking your money off the table - otherwise you WILL begin to deviate from your methodology and you WILL get scared by watching paper profits disappear. Honestly, you absolutely need to overcome such feelings because otherwise they WILL lead to financial losses far greater than those incurred by sitting tight and sticking to your chosen DMA!

If you have any kind of issues regarding such matters - well, you know where I am! Drop me an email and I'll do my best to help. In fact, we'll take another look today at Bluebay - it's a good example of the above, for sure - so thanks to Tom for asking the question.

Then we'll see how the posh folks' estate agent, Savills, seems to be getting a little support, and finally we'll look again at the Dow Jones and there we'll see how a potential 'bear trap' was avoided during the week.

And that's all for this weekend - please note that due to my webmaster's holiday commitments (I guess he needs to be permitted some time off by all of us who depend upon him!) there will be no WICS next weekend - the next one will be on Sunday July 1st, so best wishes and happy trading until then.

Ian.

PS - it appears that some of you with Tiscali email addresses are experiencing difficulties in contacting me - if you have an alternate address, please try again using that one. I gather Tiscali had some kind of major 'attack' on its systems the other week and is still trying to recover from that.

IW.