Welcome - to the very last WICS of this "Summer of Madness"! 'Tis that time of year again, when temperatures start to fall, especially at night, and the lush greenery of summer is slowly giving way to the russets of autumn. After such a gloriously warm and sunny July and August here in the mountains, the coming colour change is going to be particularly spectacular this year (something "biochemical" to do with the amount of sugar accumulated in the leaves it seems) - excellent news indeed!

On the other hand, the coming colour change in the markets (from "black" to "red") may well be spectacular too - but may not be such "excellent news" for an awful lot of people - far too many people in fact. Don't say you haven't been well warned! And given that I'm heading off on a wee fishing trip and that there will be no WICS next weekend, you may be reasonably confident that "something" will happen in the markets before mid September - "things" ALWAYS seem to "happen" whenever IW takes his eye off the ball for a few days.........

Anyway, there's really not a huge amount to add to last weekend's ramblings - things are "wearing away" (in the words of my Scary Granny) and setting themselves up very nicely indeed for a big drop in the not too distant future. "Bullishness" is at a new extreme - it's even more pronounced among the sheep than at the October 2007 top, by all the usual measurements that are frequently mentioned here, such as the Daily Sentiment Index (try the WICS search engine), not to mention pundit pontifications from the likes of Bloomberg - for example, "Deflation is not a threat at all" was one of their recent silly comments. Wherever you care to look, "economists" - especially those in the pockets of government - are calling the end of the recession and as above, bullish extremes can be found just about everywhere now. Nothing could represent a better signal that the "market top" is getting mighty close! In the UK, the chartered accountants' Institute says "The recession is over" and the Office for National Statistics (ONS) claimed last week that "The UK economy is shrinking less that expected." Output fell by 0.7% rather than the predicted 0.8%. Wow - that's GOOD news?! (Try "Titanic" in the search engine...) But the markets liked it - why? Because as so often mentioned in these ramblings, people (aka sheep) WANT to believe "things are going to be fine". Listen, IW too would love for "things to be fine" - I'm no great fan of Schadenfreude, of that you may be sure. But as a REALIST, I need to listen to reality and trust both my analysis AND my instincts. And YOU should do exactly the same! Market peaks are always - and I mean ALWAYS - accompanied by peaks in investor optimism. The sheep ALWAYS pile in right at the top, and dump their holdings just before a major bottom. People have an inbuilt "flocking" instinct and they really, really don't want to "do anything different to everyone else". It was ever thus, and until human nature undergoes a profound change, it will always be so. (Just remember previous comments about "scale" and "timescale" however - nothing in markets follows a straight line for very long and I'm not saying that "everybody" is now piling in to buy. "Everybody" has been buying like mad since March, and it's only when "absolutely everybody" has spent ALL their dosh on stocks, that the big fall will begin.....soon!)

Just to be sure you understand the hype surrounding the current euphoria - note please that those who would sell you "stuff" like mutual funds (unit trusts), or insurance bonds, or whatever "investment" is being touted, are trying to sell you something in order to earn their living. Now I'm hardly against the idea that people need to earn a living - but right now it's pretty unlikely that such people are suggesting you hang on to your cash and wait for a better buying opportunity. And a real bugbear for this guy, is the appalling ignorance displayed by most such salespeople. They actually believe what their (equally ignorant) training departments shove down their throats for them to regurgitate to "sales patsies"...oops, slip of the finger there..."prospects". A question for all such salespeople - do you actually know and understand the differences between unit trusts, investment trusts, and insurance bonds? And do you actually know anything about simple economics? ....hmm, thought not! (And please don't email me if you do - there are always honourable exceptions to every contentious IW remark!)

Anyway, there's no point in highlighting any more of the bullish statements - they are absolutely everywhere to be found. But think about these wee factoids - in the USA, corporate tax receipts are down 53% year on year, according to USA Today. American unemployment is around 9.7% according to official figures, but when you add in all those who are no longer entitled to benefit, and those who have simply stopped looking for a job, the figure is over 15%.(Washington Post). Towns and cities across America are "retiring" (a great way to put it!) up to 40% of their street lighting in order to save money, and the electricity companies are seeing a 4.4% demand reduction, year on year, according to the Wall Street Journal. State employees are being sacked in droves - and that includes the fire service, the police, and teachers. Does that all sound like a country "coming out of recession" to you? Hmmm - a difficult question Williams - as always!

Back in Blighty, the Broon one has resurfaced after an unusually - but welcome - quiet spell, to "demand" that British businesses hire more young people. That'll be why British Telecom has scrapped its graduate recruitment scheme then. And according to a Downing Street spokesman, "Next week will have an economic focus." Gosh - a whole week, no less. The economy must be really important then. I wonder what the focus will be for the following week? Banning banker bonuses? Anyway - onward - and according to the ONS, business investment in the UK has fallen by "the biggest amount in 24 years" - down 10% in the second quarter of 2009, and down 18% year on year. Out of recession? Absolutely!.........and into depression......Network Rail is to cut 1800 maintenance jobs - that merits a "Hmm" from IW methinks - given the state of Britain's railways, do you think that's confirmation that the economy is heading back to sustained growth?

Onward to good news! ("That's a change", I hear you mutter...) It was great to hear that a consortium including Scottish Power, Norway's national oil company Statoil, and Diageo (huge drinks company) is to develop a new electricity supply for the island of Islay off the west coast of Scotland, using only tidal power. Not a windmill in sight to destroy the view, and a reliable supply for 3500 people and 8 distilleries/maltings. Absolutely brilliant - and it just shows what CAN be done about renewable energy without wrecking the environment with ghastly wind turbines - nor coal fired power stations for that matter. Well done! (Shame about the Isle of Lewis' wind turbine alternative plan however...)

Moving along - lest you begin to think IW is getting soft in his dotage - a prediction for all you Down Under subscribers, direct from my Really Scary Granny's crystal ball... (that's my RSG mind, not my Scary Granny. She was scary but you didn't want to meet the RSG version...) Anyway, Australia has enjoyed a bit of a commodities - led boom as you'll know, and a lot of people based there seem to reckon that the Southern Hemisphere will be spared the coming crash. The RSG crystal ball says "Nae chance" - remember the Nevil Shute novel "On the Beach"? - and a fair old fall is on the horizon - which inter alia, will see the overheated Oz property market take a real hammering. Just so you can't say you weren't warned!

Oh - and before I forget - an email from my correspondent "AZ" who lives a long way east of here, and my response thereto. It's not strictly TTEW - it's more forex - related really, but it may assist some of you newer subscribers (welcome to you!) with the "bigger picture"

"Hello Ian !
Could you help me to find the answer to the question re US dollar?
The world economy is declining and as there are so many dollars issued they shall be cheaper and the exchange rate needs to be lower and lower. But meanwhile USD is strengthening against other major currencies.
Moreover in the CIS, governments are advising people to get rid of "bucks" - is this the reason to buy them now ?"

My reply was as follows:

"A.Z. - what is happening is that most of the world's bad debt (CDOs, hedge fund problems, toxic waste as per WICS) is denominated in USD. As that bad debt gets written down/written off, these dollars disappear. There are fewer and fewer of them left, & thus those that ARE left, are becoming more valuable due to relative scarcity. That will continue for a couple of years till eventually the money printing machine (the Fed)
can catch up and flood the market with "new" USD - & that will lead to destruction of their value, aka inflation.
Ian."

Finally before we take a look at some charts, another "bigger picture" RSG prediction, is that UK gilts, Australian and American T Bonds, German Bunds etc (these are government IOUs - and all governments issue them) will rise in price - possibly quite substantially - as stock markets begin their big fall. Why? Because people will perceive these as "safe havens" in times of adversity, and will accept lower and lower interest rates in return for that perceived safety. Please type "gilts" into the search engine for more information - it's important you understand what's being said here! In due course, when it's perceived that many governments might possibly default on these instruments, people will want a higher rate of return - ie more interest - to compensate for the higher risk. At that point, government securities will fall in value. Once that situation gains traction, overall interest rates will rise - ie bank base rates will increase. And that will be the "first clue" that deflation is about to end, and inflation is about to take over. It's THEN - and not until then - that the "great buying opportunities" currently being touted by the twits WILL arrive. Nae worries - the RSG crystal ball will keep us well informed as to when it may be time to start a buying spree!

OK - time for a chart or two -and first we'll take a look at BAE - thanks to "Steve" for the question. Steve was wondering if a wedge had formed, but it doesn't look like that to me..... Then we'll examine Rotork to see if there might be some horizontal resistance (and a triangle?) worth looking at. Finally there's a wee update of the German DAX index, last featured on August 12th in video clip 2655. A nice enough wedge now?

That's all for now - I'll be answering mentoring emails till around 08:00hrs GMT (09:00 in the UK) on Monday, and then I'll probably resurface on Tuesday 8th September, when you can expect the next video updates. Please note too that a password change is looming, so keep an eye open for the relevant email over the coming few weeks. Indeed it might be an idea (especially for all of you who rely on webmail - eg hotmail etc etc) to have a good read of my webmaster's excellent words about email management, to try to cut down on the inevitable bouncebacks that are always suffered here, when the password is changed. It's just too tedious to keep sending emails to "rejected" addresses! Anyway, time for an early autumn break to get away from the screen for a while, and I'll be back some time on September 8th, hopefully with a wee fishie or three for the freezer. All the best till 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'.