COMMENT: Market takes a pause on the wall of worry

`For every black cloud worrying a British investor there is a silver lining to console his optimistic colleague on Wall Street'

Those who believe in the old adage that bull markets have to climb a wall of worry must conclude that London has yet to reach the top. Yesterday the Footsie shrugged off Friday night's Wall Street wobble, the biggest one day fall in Tokyo this year and a rash of stocks going ex-dividend to retain its composure..

There are plenty of doomsters around to keep the climb going starting with Merrill Lynch whose latest survey shows institutional investors worrying about interest rates still heading upwards, economic activity declining in a year's time and world stock markets falling over the next three months.

As a result, they are shunning equities, putting more cash aside than at any time since 1991 and heading into the perceived safe haven of gilts. For the contrarian investor, it is as good a reason for the bull market to continue its stampede as Alan Greenspan's famously mis-timed "irrational exuberance" remarks when the Dow languished, in relative terms, at 6,000.

For every black cloud worrying a British investor, however, there is a silver lining to console his optimistic colleague on Wall Street. Over there, despite Friday's jitters, professional investors have bought into the dangerous belief that there's been what stock market analysts call a paradigm shift - in other words that this time things will be different.

It rarely is, and the fact that mutual funds' cash piles are at their lowest level for 20 years, that everyone is saying the economic cycle is dead and are running scared of being out of the market while it powers ahead is the strongest sign yet that it's going to end in tears on Wall Street.

The bond market knows it and has been heading the wrong way for some time now. It would be surprising if retail sales figures on Wednesday did not confirm all the recent data pointing to a strengthening economy and, if so, it is a racing certainty that the Fed's Open Market Committee will nudge interest rates higher either at its meeting next week or at the end of September.

So where should the smart money be heading? In Europe profits growth looks set to accelerate, especially from the export sector benefiting from its unaccustomed competitiveness, interest rates look likely to remain low and no-one thinks the stock markets are going anywhere. It is hard to think of a more propitious backdrop.

Not a pretty Pitcher at United Utilities

The chart at the bottom of this page shows why Sir Desmond Pitcher's time is up at United Utilities. When things are going right, the City can be the most wonderfully tolerant of places, blind to even the most extravagant examples of empire building by domineering executive chairmen. When things are going wrong, as they are in the North West, then share price underperformance of the sort Sir Des has presided over, is more than enough excuse to don the black cap.

The group's recently-departed chief executive, Brian Staples, recognised this and resolved that if United Utilities was to restore its stock market rating then it had better get rid of Sir Des. Unfortunately for the Staples camp, Sir Des got his retaliation in first, ousting his opponent while the balance of power on the United Utilities board still rested in his favour.

As so often happens, however, Sir Des emerged victorious from the struggle only to discover that he too had been fatally wounded. Far from clearing the air, the departure of yet another chief executive has merely heightened the atmosphere of crisis surrounding the boardroom.

Were Sir Des the sort who goes quietly then he would be picking up the watch, the vote of thanks and gold medal for utility services at today's unscheduled board meeting in Warrington. His determination to stand firm in the face of overwhelmingly opposition from institutional shareholders makes a more ignominious departure inevitably, if not today then certainly this side of Christmas.

If the group has any sense it will revert to a combination of non-executive chairman and chief executive. The chairman will have to come from the outside since the only two credible internal candidates - Sir Peter Middleton and Sir Dick Evans - have full time jobs at BZW and British Aerospace respectively.

Even then, the company will not be out of the woods. The chief executive's job also presents a problem since, in the rush to get rid of Mr Staples, the best replacement Sir Des could come up with at short notice was someone who only intends to serve out another two years himself.

It is not a happy picture. Mixing water and electricity was always asking for trouble as Sir Des's vision of the multi-utility has shown. His legacy could prove just as awkward.

Cockburn's port of call ...

Bill Cockburn is a canny Scotsman but there is a just an outside danger that he could find himself in between a rock and a hard place. If the British Telecom-MCI merger does not go ahead then the job that he is quitting W H Smith to take up also disappears into the ether.

The job in question, managing director of BT's domestic telephone business, will only exist if Concert - the name given to the grand transatlantic telecoms merger with MCI - proceeds and gives Sir Peter Bonfield a wider international role to play.

Michael Hepher, who used to have the managing director's job at BT, soon found that the organisation was not big enough to accommodate him after Sir Peter arrived as chief executive.

Without Concert, where do Mr Cockburn and, for that matter, BT go? Well, Mr Cockburn has almost certainly burnt his boats at W H Smith even though he remains there until the end of September while the search for a new chief executive trundles along. Mr Cockburn's management style did not make him many friends at the bookseller and there will be few tears shed at his departure.

As four internal candidates at WH Smith jockey for the top job the talk now is of a break-up with the US business, Waterstone's and the Virgin Our Price chain split off from the core high street chain.

If Concert does not proceed - and we are told there are some institutions who do not not want it at any price - then BT has some serious thinking to do. Should it too do the splits and demerge into a transmission network on the one hand and a trading business on the other? Or should it use its cash to buy direct into the local US telecoms market, which is where everyone says the real money is?

BT is under intense pressure to amend the terms of the MCI merger. MCI is sticking to its line that their agreement prevents renegotiation. Perhaps Mr Cockburn should try and help out. Otherwise he could become the first managing director of BT to receive a pay-off before he even started the job.

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