The law of gravity, suspended for so long, returns to the markets in force
CHRISTOPHER YILDES
L, us greet the unseen with a cheer and look on the bright side. The Dow Jones index, Wall Street's barometer, need only fall by another couple of thousand points to be back where it was when Alan Greenspan warned of the dangers of irrational exuberance. The Federal Reserve's ageless chairman coined the phrase at a pre-Christmas dinner five years ago and quite spoiled his hearers' appetites. His words, so the Financial Tunes reported, hit global markets like a thunderbolt. Soon enough, though, they picked themselves up and set off on the next stage of their dauntless climb. Those who took his warning to heart (as, I may admit, I was inclined to do) missed their chance. Their investments would have become worth half as much again, and more, if they had been content to buy the boring old shares in the boring old index and then sit on them. They would have done better still if they had put their faith in the new economy and invested in its innovators, like the telephone companies and their suppliers and, of course, the evanescent dotcoms. Into markets like these were drawn new punters, happily trading from hour to hour, and new professionals, highly paid young things who had never heard of shares that might go down and stay down. To them, the biggest risk was to miss the chance of making money. It was as though they were racing each other up a rockface without allowing for the risk of falling off. Now the law of gravity, suspended for so long, is back in force.
Over the edge
SELLERS were back in the market long before Osama bin Laden's futures trader joined in. The dotcom bubble went pop eighteen months ago, just as Gordon Brown was stuffing the telecoms companies with wireless licences, in exchange for the cash which they now need so badly. His timing was perfect. Nasdaq and Techmark, the marketplaces of the new economy, went on to lose four-fifths of their value, and Germany's Neuer Markt has fared worse still. Fortunes had been misspent, capital squandered, and a world that was meant to be spinning faster down the ringing grooves of change now seemed to be slowing down. Two months ago IP, Morgan's economists thought that we were skating close to a worldwide recession but would not go over the edge. 'If nothing worse happens,' I said at the time, 'I dare say that we shall have got off lightly.' Then something far worse happened, close to Morgan's home on Wall Street, and its advice came through gritted teeth: 'Position for global recession.'
Flying on money
THIS week began with a welcome reminder that shares can go up as well as down, but my instinct is still to stick close to cash. Others may run out of it, and that is normally fatal. Marconi's bankers may find that they have turned into shareholders, and lesser companies may not get that far. There will be some empty saddles in the old corral and some famous names unseated before the last reel comes up. Airlines, as we have been reminded, fly on money. They need earnings but do not need assets. They can lease everything except the pilot's cap-badge — but when the earnings dry up, what is left? Leasing companies have a place of their own in my Bad Investment Guide. They can lose their customers, their assets, and their money, all at a blow. Some assets will have to be turned into cash at a discount: boys' toys like bankers' houses in the West London Fertile Crescent. Keep your patience — or, if you prefer, lose your temper — when pundits tell you that markets dislike uncertainty. Without uncertainty, there would be no markets, which exist to put a price on it. Eighteen months ago they did it badly, imagining the rewards and ignoring the risks. They know better now.
Missed Marks
I AM one of Marks & Spencer's basement shoppers. I make my way downstairs and join the throng around the fishcakes. Upstairs, where the clothes droop on rails, all is calm, as it has been for two or three years. This week M&S hopes to wake things up with a new range called Per Una, designed by George Davies — not per me, of course, and unlucky in its timing, but perhaps it will be the reviver that M&S needs. The story of how Britain's most admired business lost friends and forgot how to influence people is vividly told by Judi Bevan in The Rise and Fall of Marks & Spencer (Profile. £.16.99). She shows how M&S became a prisoner of its history and then a parody of it. At the top, Sir Rick Greenbury was an autocratic retailer, but the company had always been run by autocrats. The great Simon Marks, who died of fury in the office, enraged by a substandard blouse, was once told by his chief accountant that what he was planning might damage the business. 'Well, if it does, you won't be around to see it,' said Marks, and fired him.
This way up
THE autocrats knew their suppliers in detail, believed that they knew what their customers wanted and saw no need for marketing. Good goods, said Simon Marks, will sell arse upwards. They were still arranged that way, upstairs, when they were no longer reliably good. Substandard blouses began to get through, and M&S looked flat-footed against competitors who knew that their fashion-led customers now changed their minds once a fortnight. The board could neither cope with Sir Rick nor organise the succession, which came down to Hobson's choice: a flop. Now a new team at the top must try their luck with Per Una, but may no longer be in the right business. They should think about moving the basement customers up to the ground floor and turning all those upper storeys into flats. The future is fishcakes.
Monty's double
I TRY to imagine Montagu Norman appearing on Breakfast with Frost: 'Would it be fair to say, Governor, that the dogs barked and the caravan moved on?"Yes, David, but I don't have reasons, I have instincts.' Nowadays this is part of the job at the Bank of England, and Sir Edward George does it manfully. No doubt he takes his line from another Governor, Leslie O'Brien, long schooled in crisis management. 'A major duty of every central banker.' O'Brien recalled, 'is to learn how to exude confidence without actually lying.'
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