Before the snow set in, there was a brief moment of economic enthusiasm (but certainly nothing that could be considered anything near euphoria). This was a result of the retailers rushing out their sales estimates for the run up to Christmas. Spending was apparently better and therefore everyone was encouraged, and then with some industrial production figures in the showing some improvement, suddenly there was a brief flush of optimism.

However, within twenty four hours the snows set in again and the blanket of financial worries returned to cover the economy with a pall of gloom. In just a single day sentiment turned, with forward retail sentiment turning down and the consumer confidence figures coming out showing greater weakness and nervousness on the part of spenders.

These concerns primarily related to the increasing cost of taxation both directly by way of National Insurance and Income Tax, and indirectly with the rise in VAT back to 17.5%. Not surprising really - especially given the dour commentaries from all the politicians who seem to have started practising their party lines for their forthcoming hustings.

For the UK, I wonder if our markets may be the inverse of what happened last year. Just twelve months ago we were just recovering from the fright of near Armageddon and the first few months were nervous and torrid; yet following an evaluation of all the government economic stimulation around the world and the S&P 500 reaching a satanic nadir of 666, everything turned around. From there we had a wonderful market and economic recovery (albeit the UK has yet to prove that it has turned positive). This year I wonder if we will see a potential reverse when optimism is shaken by some aftershocks and our investment markets lurch down again in 10.

This year we will hope and plan for the best but be prepared for the worst.The recovery from last Spring should come as little surprise given the amount of cash pumped in to stimulate the economy. Investors have been seeking anything that may give some improvement from the meagre deposit rates a dash from cash to just about anything, even including some trash. Nevertheless we need to beware, as such an environment can and will change swiftly.

Remember stock markets do not carry on going up in a straight line. However, at some stage the injection of government stimulants will stop and the question will be what happens to both the economy and the markets when we come off the steroids? Such action is likely to occur possibly in the second half and not far off the General Election. The result and the subsequent Budget from whoever wins will, in my view, inevitably see government expenditure cuts, and that means job losses, and taxes rising either stealthily or more directly by VAT at 20% for example. Any base rate rise could act as a brake on the UK's delicate recovery.

Thus our focus for returns and growth may well be outside the UK. Our domestic economic growth, whether dipping back down or not, is likely to be both anaemic and insipid however, more encouragingly elsewhere around the world growth will still be there and this will provide support for those overseas areas of our stock markets and especially in the FTSE 100 which is so dominated by miners and oil companies.

These will benefit from not just overseas growth but also the weakness of Sterling especially against some of the stronger developing nation currencies.So first half domestically better; second half domestically weaker but overseas demand stronger. Thus we may have a game of two halves guvnor which if we are not careful could have us ending up feeling as sick as a parrot.

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With Pimcos comments last week about the increasing risk to the UK retaining its debt credit rating, I took a look at the Pre-Budget Report projections for the amount we as a nation will be paying in interest. For 2009, the figure quoted was £31bn but rising to some £44bn this year. These may be large numbers but of course somewhat meaningless to most, possibly until you bring it down to the daily cost of servicing our national debt which would be approximately £120 million each day.

Perhaps if such figures were more effectively broadcast to the nation, many would realise that we cannot afford to continue to live beyond our means. Thus unless we have what is recognised as a credible repayment plan (the key word here is credible, not bland intentions and targets) then we will lose our debt credit rating and the cost of our debt will only rise further.Whilst some have rather patronisingly commented on the dire straits of Ireland, Iceland and Greece, perhaps we should look to our own shortcomings first before criticising others too vehemently. I have mentioned before the brave actions of the Irish government to address their huge difficulties, and perhaps our vote-desperate politicians should remember this as they try to entice us with many of their unreliable promises. Streuth - we have probably got another five months of them flapping around until we can finally get an election result.

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Just one other thing to note from last week; the Bank of International Settlements (BIS) which is sort of the central bankers central banker has put a shot across the bow of the banks about a resurgence of excessive risk taking that sparked the financial conflagration. You may recall that it was the BIS that twice warned about risk and exposure by the banks before the crisis exploded and no-one took any notice not bankers, not regulators and not politicians. So yes they were warned and they have been warned again. The banking crisis cannot be considered as being resolved until action is taken to control them either as being too big to fail, too big to effectively regulate or too big to manage risk and that is apart from still not having enough capital support. Watch out with all the government issuance going on as those finance ministers wondering what to do with it will suddenly realise that they can ensure that their banks can be required to hold greater proportions of the government paper a good wheeze for building false demand for dodgy paper.

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And finally........ Food rage returns - Police were called to a McDonalds restaurant in Toledo, Ohio where a woman apparently punched through a McDonald's drive-through window because there weren't any Chicken McNuggets left. I had never realised that such delectation could instil such a reaction. Police say that the 24-year-old was treated for injuries, and then jailed. Mind you if she had thrown the McNuggets one wonders what damage they could have done instead?

Have a good week.

Justin A. Urquhart Stewart

Director

Seven Investment Management Limited