Our content this month are as follows:-

• Market News Roundup
• Hedge funds can beat the market - Wanna bet?
• Books We Have Read
• Quotes of the Month

The news from markets continues to be up-and-down. Falling commodity prices appear to have lightened some of the gloom in stock markets, although volatility remains and there can be no doubt there is an economic downturn. Gordon Brown must be ruing his hubris when he promised, back in 1997, that he would put an end to "boom and bust". His Chancellor, Alistair Darling, is busily redrafting Gordon's golden rule, which sought to limit public sector debt to 40% of national income; this limit is about to be breached and Gordon Brown will now appreciate how little power he, as a politician, has over the economic cycle, however he characterises it.

Worryingly, the Prime Minister is being urged by trade union leaders to increase taxes, particularly for the "rich". He is unlikely to resist the temptation to throw them some scraps, although most commentators agree that he will not increase income tax, so expect more meddling round the edges of national insurance and other marginal taxes.

It is worth remembering the words of JK Galbraith at times like this. To paraphrase he said that we are tempted to believe that in good times they will never end and to feel the same about bad times. It is also worth remembering that stock markets lead the way out of recession and that they do not send letters posting their intentions. When markets believe that the worst news is behind us they begin to recover and tend to spike very quickly; these times are usually when experts and commentators are telling us that things can only get worse because, as always, they are unable to predict the future.

Support for our World Market capitalisation weighted approach comes with the news that emerging markets now make up 30% of the world's gross domestic product but form only 2% to 3% of the average portfolio. The exposure we are proposing is much higher than the average and this approach also ensures that as economies develop it is reflected in their representation within the portfolio.

Despite all of the evidence to the contrary, hedge funds are said by some to outperform markets and to have a lack of correlation with stock markets. The studies which have been done have had to overcome opacity, survivor bias and obfuscation, but have concluded that hedge funds in general are largely correlated with markets and do not outperform after costs (which is no surprise as they are huge). In addition a number have gone bust, some in very dubious circumstances.

We now learn that the man termed "the world's most successful investor", Warren Buffett, has entered into a bet of $1 million with the manager of a fund of hedge funds (Protege Partners) as follows:-

"Over a 10-year period commencing on January 1, 2008 and ending on December 31, 2017, the S&P 500 will outperform a portfolio of funds of hedge funds, when performance is measured on a basis net of fees, costs and expenses."

It would appear that the Sage of Omaha agrees with us and we are sure that he will win his bet.

You can find the bet and others like it at www.longbets.org.

This month's recommendation is any take on risk and in particular the risks of modern life, entitled “How to Live Dangerously“ by Warwick Cairns. In truth it is a little bit of a rant against the health and safety culture of the world we live in, but it does uncover some very interesting statistics, such as the following:-

• If you have a fear of flying, as many people do, you will be reassured to know that you would have to take a flight a day, every single day, for 26,000 years to be certain of crashing - in the meantime you would have been killed 20 times over in a car crash on the way to the airport.

• Statistically, hang gliding is almost 15 times safer than giving birth (for the mother).

• Driving 300 miles in a car is as dangerous as living for five years outdoors at the site boundary of a nuclear power plant.

The book puts many of the "dangers" of living in context and its message is that we really should get out more. It is available from good bookstores and Amazon, but if you have any difficulty finding it please contact nikki@indexwm.co.uk.

"Three may keep a secret, if two of them are dead."
Benjamin Franklin

“A wise man should have money in his head but not in his heart”
Jonathan Swift