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Volatility reigns supreme. Often one looks at exchange indexes and sees an enormous move in one direction or another, sometimes the opposite of ones expectation. One week the markets are up more than a percent or so and the following they are down but often by a larger proportion. These are all worrying signs associated with bear conditions. As I pointed out earlier in the year the FTSE 100 failed to surmount it’s all-time high during this summer after many months of a steady climb. That failure said more about the market and it’s prospects than any amount of newsprint comment. Cracks are appearing and darlings of the emerging markets and even some of the BRIC exchanges are falling substantially. Shanghai has certainly been caned in the last two months after nearly two years of blistering growth. Commodity prices in general are much weaker and along with lower oil costs set to benefit company profits sometime in the future. However, before that benefit comes through, the medium term scenario looks much grimmer for company profits. Profits and the cost of obtaining those profits look much more precious for the next major reporting season. An example might be the housebuilders who are apparently having to spend more in a weakening market with customers much less likely to purchase without a haggle and perhaps more to the point less likely to be able to obtain the mortgage they thought would be a formality.

Problems in Western economies are being tackled forcefully by reductions in interest rates. However this strategy is fraught with danger particularly the danger of awakened inflation. The US has moved swiftly to defuse their problems while here in the UK we await our first reduction in the current cycle. The MPC and other financial experts around the country are at odds over the amount and timing of reductions. There are even some who think that an initial sharp fall might be followed by measure of rising rates later in 2008. Well, again we shall see what unfolds. The effect on companies might be quite dramatic and certainly the response of the stockmarket might be continued volatility if a decision is unexpected.

A certain amount of Merger & Acquisition activity has given markets a bit of impetus in the last couple of weeks. The agreed takeover of Kelda (aka Yorkshire Water) was swiftly sanctioned and another of my shares (Notton Sobs too) Broker Network Holdings went the same week but both had been expected for some time. Others like Rank and Standard Chartered are distinct possibilities which will probably keep investors looking for the rare opportunity to make a killing in a dodgy market.

Mobius Club has received a morale booster from Mourad’s contribution to the World Money Show. The event was extremely well attended according to early reports and Proshare should be pleased that clubs themselves did so much to ensure it’s success. Presumably it will become a feature of the calendar and perhaps we might see it held at a venue north of the Wash one year, especially with Mourads influence.

The club has been forced to sell down it’s portfolio rather sharply and has only a handful of shares left. We finally had to bite the bullet with Creston and the SP is still down at a low level after some solid results were issued last week. The Chief Executive said he would change strategy going forward by halting buy and build expansion and expected to achieve full year figures. Another share, Vitec, is also close to it’s S/L.. Generally speaking small cap firms have been hit hardest. Our strong cash position is still expected to be a powerful impetus for the portfolios next year.

In a recent news item I noticed that large company pension schemes have been given a financial boost even to the extent of wiping out their deficits because of the downturn in credit markets. It’s an ill wind!. Just examining the FTSE 100 company pensions showed a deficit of £37 billion in November 2006 but liabilities are currently flat to assets. Some turnaround!

I wish the club members and any other readers a Merry Christmas and a prosperous New Year.

Martin Longman - Acknowledgements to Daily Telegraph and FT.