Outlook: A rally that looks robust but after the war is anyone's guess

Matalan fisticuffs; Marconi pay plan;Auf weidersehn

It's been one of the most remarkable rallies in stock market history. The buy signal was the moment everyone collectively realised that the dithering before the United Nations was over and the long threatened war was finally about to get under way. The bet is that the war will be swift and successful, and assuming all goes well in the first week of the campaign, it's clear that the rally has got further to run.

It's been one of the most remarkable rallies in stock market history. The buy signal was the moment everyone collectively realised that the dithering before the United Nations was over and the long threatened war was finally about to get under way. The bet is that the war will be swift and successful, and assuming all goes well in the first week of the campaign, it's clear that the rally has got further to run.

What happens once the euphoria of victory has worn off is a much more difficult question. Both the US and European economies face huge balance sheet problems – rising budget deficits, poor corporate profitability and investment and a running scared consumer sector. An early return to decent levels of growth has long seemed to me quite unlikely, whatever the outcome of the war.

The stock market has had its three years of trauma, but for all kinds of reasons, the consequences of one of the worst business downturns in living memory have yet to be properly felt in the real economy. That may be coming.

Matalan fisticuffs

To lose one chief executive is a misfortune. To lose two looks like carelessness. OK, so it's a terrible old cliche, but there really is no other way of looking at Paul Mason's abrupt departure as chief executive of Matalan, the second CEO to get his marching orders in two years.

The man doing the dispatching is the discount clothing retailer's real boss, John Hargreaves. He only works three days a week and takes lots of holidays, but he is also the founder and the executive chairman, and most important of all, he still owns more than 50 per cent of the shares.

So when one of Mr Mason's team fell out so badly with one of Mr Hargreaves' offspring that the latter walked out and refused to come back until the offending party had been removed, there wasn't much doubt about the outcome. If the effect on the share price – down more than a quarter yesterday – wasn't so serious, the whole thing would have been almost farcical.

Since he arrived, Mr Mason has built up a sort of Asda in exile round at Matalan, recruiting liberally from his old employer into key positions. The City seemed generally happy with the resulting upgrade in management and IT systems, even if it was less than pleased about the ever shrinking share price. It began to look as if Matalan would make that difficult leap from family run fiefdom to model publicly quoted company. Perhaps inevitably, it was not to be.

Mr Hargreaves is plainly a brilliant entrepreneur, but is he the right man to carry the company forward to greater heights? Those that bought shares from him when the price was still riding high are beginning to doubt it.

Not that there is anything they can do about it. The board is about as un-Higgs correct as it is possible to be, but Mr Hargreaves doesn't have to either comply or explain. He and his family have more than 50 per cent of the shares, and within reason, they can do what they like. Some minority shareholders will no doubt begin lobbying for his departure, but just remember, imposing the laws of strict corporate governance doesn't always deliver the desired result. Just look at what's happened to the easyJet share price since Stelios was forced off the board.

Marconi pay plan

As everyone knows, key executives have to be incentivised, otherwise they won't struggle into work each morning, let alone try when they get there, and then where would we all be? But whether it was really necessary for Marconi to rub its impoverished shareholders' noses in it quite as blatantly as it did yesterday is open to question.

Just to recap, under the terms of the restructuring agreed with bankers and bondholders, Marconi's "old" shareholders – those, that is, who haven't already written off their Marconi misadventure and sold out – are diluted down to just 0.5 per cent of the equity. Meanwhile Marconi's 60 top managers are to be given free shares totalling anything up to 9 per cent of the enlarged capital, assuming they reach certain targets.

The first tranche of shares vests on repayment of 30 per cent of the short term debt, which from the outside looks dead easy. To get the turbo charged returns managers have to repay all the short term debt and achieve a share price in excess of 150p. With the shares at just 1.9p, there's a long way to go, and at this point in the cycle is looks well nigh impossible.

That's also what Sir Martin Sorrell said about his incentive plan after a similar debt for equity swap at WPP, but in the end he strolled it. In any case, the package is potentially worth £26m to Mike Parton, the chief executive, alone. Mr Parton can hardly be held directly responsible for the corporate decisions that caused the Marconi meltdown, but he was on the board at the time it happened.

John Devaney, Marconi's chairman (he'll be worth £4.5m if all goes according to plan) has little sympathy for any whingeing by "old" Marconi shareholders. Given the wipeout the company suffered, they were lucky to get 0.5 per cent, he points out, and as far as the "new" shareholders, made up of Marconi's bankers and bondholders, are concerned, they are all perfectly happy with the arrangements. It's all part of the destruction and renewal of the capitalist system he would suggest. To old shareholders who say they would like a bit more of the renewal, thankyou very much, he says if not quite let them eat cake, why don't they buy the shares again and participate in the upside?

"Old" shareholders are not entitled to vote on the restructuring, but they can still turn up to annual general meetings where they will no doubt express their views on this brutally unsentimental assessment of their predicament.

Auf weidersehn

Auf weidersehn easyJet. After weighing up its options for the last 10 months, the low-cost airline has decided not to follow Ryanair into Germany by taking Deutsche BA off Rod Eddington's hands. It is not hard to see why. With the red ink flowing like the Rhine in full flood, British Airways determined that the best way of lancing the wound was to give to offload it onto easyJet. The market hated the deal from day one and sent easyJet's share price into a tailspin. Now Ray Webster, easyJet's chief executive, has concluded likewise and found some handy excuses to bail out.

The German airline market may be the biggest in Europe but for that very reason the national carrier Lufthansa seems intent on defending it to the death.

Lufthansa's fares on those domestic routes where low cost carriers have had the temerity to challenge it are aggressive to the point of predatory. When you can fly from Munich to Dusseldorf for less than it costs to park the car at the airport, then something is seriously wrong. Fortunately, Lufthansa is blessed with a lapdog instead of a watchdog as a competition authority and so far, it has largely got away with it.

Ryanair has been pursued through the courts by Lufthansa for having the nerve to set up in Germany, even though the two carriers only compete at the margins. Easyjet, already stretched by the task of assimilating Go and introducing a mixed fleet of jets, would have faced a much sterner test of Teutonic displeasure.

Even then, easyJet might have been prepared to take the risk had it been able to strike a flexible employment deal with Deutsche BA's pilots. The unions hid behind Germany's rigid labour laws and said no, sensing that where Deutsche BA led, Lufthansa itself would no doubt follow. Lufthansa will no doubt see it as a victory if Deutsche BA falls from the sky, but it will be Germany's loss.

jeremy.warner@independent.co.uk