This is an interim note. In summary, as you know we have been cautious for some time, though last month we identified possible reasons to be more optimistic about the potential in the short term. Events of recent days have blurred the possibility of short term optimism to such an extent that we are reverting to our previous stance – be cautious, and emphasise capital preservation.

Looking at the detail, on Sunday evening it was announced by the EU/ECB and Irish government that a solution had been agreed for the unfolding Irish debt crisis. At first on Monday morning it appeared to be well received, even if it was only another sticking plaster to buy time. But the markets quickly turned around and down, equities and bonds, in a huge vote of no confidence in the EU, the euro, and the ability of some nations to avoid default.

By way of background we refer you back to the last TopFunds Guide and “web of debt” graphic on page 14. The problem isn’t just Ireland or Greece, but the volume of, in this case, Irish debt held by German, French, and British banks. Essentially EU and Irish political leaders are saying that although these non-Irish banks (and other institutions) made a mistake in buying Irish debt, and played a pivotal role inflating the Irish property bubble, the price of these bankers mistakes should be met by Irish taxpayers – the Irish taxpayers will pay the huge interest rate bill on the loans at the heart of the rescue package which is, effectively, being used to bail out German, French, and British banks.

There are all sorts of reasons why the markets are unconvinced that this deal will work, or even if it will survive an Irish general election early in 2011. And even if the European banks and other institutions that hold Irish debt could cope with the losses resulting from an Irish default, the problem is that no one knows where it would stop. Think of that “web of debt” again – what if Spain defaults? Can Italian politicians be believed? Will German voters continue to allow their Government to bail out the European fringe?

Back to the point. As a result of the sharp falls in markets on Monday, the UK stock market appears to have broken the positive trend which, in our last monthly note, we suggested gave us some upside potential in the short term (though with clear downside risks after that).

To conclude, be cautious, and emphasise capital preservation.

PS due to heavy snow falls, we are not fully manned, so any instructions to adjust portfolios are best sent by email, remembering that the trading cut-off is 11.00am, and orders will be dealt with in order of receipt up to 11.00am. Or you can go online and trade if you are registered to do so.