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2008 begins as 2007 ends. Plenty of bad news around (not all in the public domain); extreme volatility, many leading indicators going haywire and central banks trying to stave off recession while inflation fears increase. Worse, things do not appear to be changing for the better. The bounce in the FTSE 100 which took it above 6000 at Friday’s close does not really fill me with confidence. As I have reminded members in the past, mining shares have a disproportionate effect on the 100 index and so the battle over resources in the shape of Rio Tinto can work like a tonic but without a lot of conviction from the other constituents of the index. The other factor which often raises froth is the hint of an increase in Mergers and Acquisition activity which has been stimulated by some recent events. Often stockmarkets get a fillip from equity investment made at the end of the financial year. Somehow I do not believe this will happen in 2008 even though there is plenty of cash out there in the hands of institutions and investors. Wait and see might still be a good motto.

In these market conditions it is the volatility that can be both friend and enemy of the canny investor. No doubt some people are making a lot of money from astute or lucky purchases. Vanco fell like a stone after a trading update Friday which worried analysts due to the increase in debt which was worse than forecast. This is a share which several members showed an interest in and the club could well have bought last year. As individuals I know some had eyed it, so hopefully no one was caught out. What that example shows to me is that there are likely to be more problems under the surface and small caps are probably more exposed than most. The mid-cap 250 index has already been down 27.5% from last year’s May peak which might suggest recovery is possible from here but I would not bet on it. Single shares like Carclo or Axon might well repay an investment for the patient.

Around the World some unusual things are occurring. In China the weather has caused traffic chaos for three weeks now. Power supplies have been affected and some mining operations suspended. These problems have sent commodities prices sky high again. In S.Africa, power supplies look likely to be rationed for some months due to lack of capacity, this has similarly hit mining operations and driven platinum to an extraordinary scarcity premium. Since that country mines enormous amounts of coal it seems ironic that they have got into such a bad predicament where lack of power prevents coal mining operations!!

In the US, the well publicised slashing of interest rates is an attempt to stave off the recession which is thought inevitable. It seems more likely to be a case of when not if. Employment has dropped for the first time in 4 ½ years and inflation is looking out of control. This, on top of the sub-prime fall-out and a house market that looks to be in free fall.

The ECB, Europe’s Central Bank is showing every sign of trying to hold inflation steady with interest rates staying high but that strategy will attract hot money leading to a strong Euro compared to the US dollar and the Yen. The UK has tried to hold the same course but looks likely to ease rates (and collective pain) this coming week. Who can doubt that further trimming of rates will occur throughout the year.

Emerging markets and the BRICS have seen some weakness, with similar volatility to main markets but some funds in these markets are looking quite enticing now. I hear that Jim Slater is writing in the Investors Chronicle this coming week (Feb1-7) and praising Brazil particularly as a place for long-term investment.

Commodities, as mentioned above, are buoyant on regional problems but oil has seemed to find a new level at $90. Recent oil company reports have caused a stir due to record profits. However production is down. Gold may well have seen the back of $899 as it recently hit $936 and many predict $1000 before the year end.

With, all this going on, I think the club position is very good. Holding plenty of cash enables us to make investments when things look a little clearer.

My personal tips are; Persimmon (at under£7, if poss), Ashtead (at 70-80p) and any of a number of commercial property companies such as British Land and Land Secs. As in the US, the cheaper money around has given Financials and Housebuilders a big boost last week and it may be that traders will place early bets on that happening here.

There is plenty around for us all to ponder but we must not miss the impending recovery whenever it occurs. To return to the 250 index (see above) which usually rises on average 2.5% each February. The rally now in progress is below the 55 ema so if it peters out at 10015 or thereabouts then some will be tempted to go short looking for a drop to 8664 which could easily lead to a further weakening to 8229. Myself I would be tempted to buy anywhere in that region because there would be undoubted value in many companies.

Amongst director’s deals last week were two which caught my eye; Air Partner where one director bought 11,379 shares at £8.78 and one director at Victoria Oil & Gas bought £1 million in shares on the 29th.

The Mobius portfolio looks pretty bare but our decision to sell JKX Oil & Gas after recent highs and repurchase a larger tranche at a much better price since the last meeting looks prescient. Hopefully this will prove a long term profitable investment.

I look forward to our next meeting but work commitments seem to be behind the absence of some of our key members. Hopefully spring and summer will see us in different circumstances. Even e-mails have been quiet, possibly due to members being left stunned by recent events albeit the weakness was expected.

Martin Longman - Acknowledgements to Daily Telegraph and FT.