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The bull has still got us by the horns or so it seems. However looking in detail at the markets the S&P 500 in the US has actually fallen between 6 January and 3 February while FTSE100, Eurofirst 300 and Nikkei 225 (ignoring the hiatus from Livedoor) have risen, many to multi-year highs. Given the influence usually wielded by US markets the S&P fall may be a worrying trend.

Probing beneath the headlines, US unemployment is at a 4 ½ year low but with an annual rate of earnings up 3.3% inflation worries persist. A further US rate rise will doubtless be necessary to keep inflation under control. The European rate was held but March it is thought will bring a rise. Oil steadies now at a lower level which will assist economies while metals are strong with gold particularly showing little weakness. In fact the Daily Reckoning article today casts doubt on the amount of gold actually in vaults, saying published figures are way too high!! Perhaps that will bring more price rises. It all smacks of the downgrading of Kuwaiti and Saudi oil reserves recently, which does not fill one with confidence even if Bush is starting to try and persuade Americans to use less oil. Some hopes!

The crystal ball is still cloudy but the money going from institutions and individuals into UK stocks many for ‘last call’ ISA purposes may well be stoking our stock exchange. Watch out in late March early April. Quoting an economist from HSBC, ‘the underlying US earnings growth trend is downwards although Eps might not be hit’. He says he is ‘bearish on short term outlook for equities and computer predictions are for a correction of 5-10 % over 6-9 months. He recommends, ‘that may present a buying opportunity’.

Buyer beware, stocks should be chosen carefully. The sectors have changed order since the end of 2005. Buoyant ones in January are Industrial Metals +25.42%, Oil Eqmnt & Services +18.92%, Leisure Goods +18.77%. Former darlings of 2005, like Basic Materials and Mining are still up strongly but only around 10%!!! so far. The laggards are the three telecom sectors Mobile, Fixed Line and Telecoms general, each down about 6%. Many individual shares of interest to club members have hit new highs this week. Running through a list brings up Persimmon, Ashtead and Hamworthy. In addition several banks, utilities and housebuilders are storming forward for now. On the wrong side of things was C&W which issued a profit warning and got hammered.

Where does all this activity leave our portfolio. Great to see the unit value nicely ahead at 105.09. What a star that Merrill Lynch World Mining? Along with BHP and Mitie it is currently making our assets look much healthier. On the downside there is NO good news from Langbar and Synergy is demonstrating a bit of weakness just now. Two of our members have the pleasure of showing four-figure gains since founding the club. They both deserve it. Hope they don’t have to finance building works by selling units, for we are a heavily committed at present.

Since last months newsletter has only just been placed on the website I will not bore you with much more speculation or ranting. However I think excitement should be tempered, especially when bankruptcies are heading towards levels last seen in the 90’s recession and the housing market is much more subdued. Lending is still somewhat stratospheric which I find uncomfortable. Good investing to all

ML February 4th 2006

Acknowledgements to Daily Telegraph and FT.