City Eye: He talked a great game but did the City listen?

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The Independent Online

It's still apostasy to dispute Margaret Thatcher's dictum that you can't buck the markets. So it's amusing that private-equity players should be among those keenest to modify this free-market mantra.

The private-equity lobby argues that publicly quoted companies are subject to the vagaries of presentation. So much of a company's share price, it is said, depends on the presentational skills of the chief executive and the finance director in pandering to the whims of the analysts and the sceptical enquiries of the press. So maybe the market isn't that great after all – much better to take everything private, get on with the job and worry about cash flow and order books, not PR and market perception.

There's a lot to be said for this argument. But last week offered us the perception that proves the rule. Trading near 600p a month ago, Marks & Spencer shares had been marked down by a nervous market to 500p at the start of the week. Then came Wednesday's announcement of the Christmas trading figures and the stock briefly dipped below 400p – the price offered by Sir Philip Green and deemed unacceptable by the M&S board.

And all this despite some of the finest pieces of presentation (on Radio 4 and in an analysts' conference call) that I've heard from a chief executive.

Stuart Rose, knighted in the New Year Honours list, not only marshals his arguments well – he presents them beautifully. During the trading session, to cap it all off, he actually shelled out £1m from his own pocket when the shares were trading around 410p. But beautiful rhetoric backed by such high-profile money came to nought.

There was a reason for this: the hedge funds were in the M&S market, driving the stock price down. Never has the term "January sales" seemed so appropriate. Critics of hedge fund managers will argue they created a "false" market. Not at all: it's just a little mischief, an accentuation of downward pressure. I believe Mr Rose's arguments are pretty solid (tough times ahead, but a well-positioned company with a strong balance sheet will do relatively well), and in the long run he'll make money on those shares acquired at 410p.

In the short term, he and fellow shareholders will be sympathetic to just about every private-equity heresy going.



The young enrich the old

There's a generation game going on. We all try to transfer wealth to our children, and it's not difficult. The inheritance tax that so many bleat about requires no more than a short visit to a third-rate lawyer for it to be easily avoided (and I should know: I used to be a third-rate lawyer).

But now the tables are being turned. A mix of high house prices and low inflation means today's whippersnappers are struggling to get a foot on the ladder. Older folk selling their big homes and moving to a smaller place take a large pot of cash as they downsize. Meanwhile, the young buyers take on a massive mortgage and the money they are borrowing goes to those sellers. So the transfer of wealth is the wrong way round: the young are giving to the old.

Eventually, there will be a cultural shift that will emancipate the young. We'll either have a bloody revolution or, more probably, inflation will come back into fashion. Inflation will work magic for house prices and loan-to-value ratios. Meanwhile, pensioners and those on investment incomes, especially if fixed, will suffer. In this way, the old will transfer their wealth to the young. How we do this without causing distress to all concerned, I'm not sure. But the pressures are there, and I'm sure it will happen one way or another, if only because ultimately it must.

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