There's an Eagles song called "Frail Grasp on the Big Picture" - a great summing - up of the words that emanated from the recent G7 meeting in Tokyo perhaps? "Economic fundamentals are solid but downside risks remain" just doesn't have the same ring to it. Seemingly the view in Tokyo was that the credit crunch fallout could "cost the world economy $400bn." Listen up, finance ministers everywhere - the monoline insurers in the USA are in for a lot more than $400bn on their own! And with the likes of UBS (a huge Swiss bank) having just admitted to losses double those it wrote off late last year, do finance ministers actually believe the nonsense they spout? I seem to recall mentioning a while back that the "bad news" would be leaked out slowly and that there was more to come.....and that is still the case. (If you look back at WICS of 5th August 2007, there is a mention therein of "bad news" being "leaked out in dribs and drabs.")
As regards the reference above to "monoline insurers", those of you who receive the twice weekly video updates will have seen the chart of Ambac, one of the biggest of these dinosaurs - they are all heading for pretty rapid extinction methinks. You'll see the Ambac chart below - it is racking along sideways for now, because Warren Buffet (type the name into Google if you don't know who he is) recently made an offer for their "municipal bond" business - the only profitable part of that particular house of cards. The media jumped on the Buffet move and suggested it would "save" these companies - so the sheep are beginning to consider buying in at such a "low" price. It was ever thus.

A brief outline for you - monolines were set up to insure bonds issued by local governments - in other words, if (say) the city of Chicago needed to borrow money, it issued bonds that the public, and the likes of pension funds, could buy. By so doing, the public was lending money to Chicago for a set length of time in return for high-ish (as compared with bank deposits) interest payments and also with a perceived certainty that their money was safe. If Chicago could not repay, the monoline insurers were obliged to do so - in return of course for charging a hefty premium to the city over the term of the bond. Not really a risky business model at all (provided each bond is properly assessed and costed) - and Mr Buffet would be quite happy to take it on. But that's ALL he has offered for, and it makes up only about 5% of monoline business - their only profit centre too these days. Over the years the monolines expanded into insuring mortgage - backed debt (type "CDO" into the WICS search engine - also "toxic waste" - no inverted commas of course) and now they find their exposure thereto is far greater than their capital base. Result? Imminent Chapter 11 bankruptcy protection, probably. And the next domino to topple will be that once the likes of Ambac loses its own AAA rating (the highest - implying total financial safety) then even the top quality municipal bonds that it insures, will lose THEIR AAA rating. And THAT will mean that the likes of pension funds (many - if not most - of which have an awful lot of their investors' money in municipal bonds) will be forced to dispose of these because their terms of trusteeship don't let them invest below AAA grade.......you get the drift. Oh yes, and once the CDO (mortgage bond) "insurance" is seen to be effectively non existent, the big banks will at long last be forced to put a proper valuation on their (still massive) holdings thereof. That valuation will be.......not a lot. And so it goes on. Politicians of course were adamant last year that the problem was restricted to a relatively small amount of poor quality mortgages in the USA. Probably (being politicians) they were completely clueless as to just how bad it really was (and is). As per the first words above - "a frail grasp on the big picture" for sure!

Oh yes - before moving on - "Monoline meets Monorail derailment" - sorry - couldn't resist that! I can just see it appearing somewhere as a headline in due course, in Las Vegas of all places. "What is Williams banging on about now?", I hear you ask. The City of Las Vegas borrowed about $600m a few years ago, to fund the building of a monorail system. Of that, around $450m is insured via monoline cover. However, very few people have been using the rail service - about half the projected numbers. Result? Probable bankruptcy and the monoline insurer will have to cough up - just to make the point that even municipal bond issues can go wrong.

Anyway, moving along, and another ex minister seems to be taking a leaf out of St Tony's book - Jack Cunningham seemingly gets £36000 a year from the City of London Corporation (ie from your council tax if you live there?) for three hours' "work" a week, giving "political advice". Nice one, Jack!

And I see Marks & Sparks is handing out 800000 discount vouchers to staff, almost certainly in lieu of bonus payments. A brilliant way to offload surplus underwear - but a very bad sign overall. Will Next Plc be next? The much - vaunted "recovery" is well and truly over, that is certain. But Stuart Rose got his knighthood so that's OK then. I often wonder what I need to do to be offered one? (A knighthood that is, not a Markies discount voucher - although maybe if you collect enough of those you can exchange them for a Sirhood?)

Next, Bradford & Bingley's big drop came as no surprise of course to all you Northern Wreck watchers and several recent emails from those whose "below 240" sell orders were triggered around 17th - 22nd January asked me "Is it a windfall?" "Yes" of course was the answer, because the price had moved in your favour by at least 15% over two or three days - which is my own definition of a windfall. Type "windfall" (no inverted commas) or the plural thereof into the search engine for more about possible management of these. The 5% dividend increase offered by B&B along with the huge bad debt figures, was a blatant bribe to try to stop investors selling, and when the FSA suggested "There is an issue of management credibility here" they were being extremely kind. The B&B chief exec is still adamant however that their (much bigger than average) exposure to the "buy to let" mortgage market will make them loadsamoney. Hmm.

And speaking of Northern Wreck, Gordon (sorry, Alistair) has told bidders to "increase their offer or else". Or else what, Gordon? Tremble, tremble. "stop press - NR has just been nationalised as predicted here a fair while ago....."

And as regards all these new homes mentioned here last weekend, it seems the ABI (Association of British Insurers) is somewhat concerned to note that around a million of them are to be built on flood plains and would be uninsurable. Absolutely - and only a complete numpty would even think of buying one. It's unlikely that Gordon or his wee glove puppet Allie will have their names down for one, that's for sure.

Finally, before we look at a chart or two, I see that a "compulsive gambler" is planning to sue William Hill for allowing him to bet. Words fail me - and THAT is not a frequent occurrence!

Today's charts are as follows: a triangle formation on both the S&P500 and the DJIA (Dow Jones Index) after a trend line break, then a possible "flight to quality" at Smith & Nephew, followed by a look at moving one's stop loss positions on the chart of Euromoney. And finally a wee look at Ambac as promised above.

OK - another sunny afternoon beckons, so it's time to head off to the slopes for an hour or two, and I'll speak to you again next weekend as usual - best wishes until then.

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'.