Waiving his salary is the least Cockburn can do


How considerate of Bill Cockburn to telephone WH Smith yesterday and tell his former employer he was prepared to waive his September salary of pounds 35,000. What a fine and magnanimous gesture from a man who has comprehensively legged over the organisation for which he used to work. Not feeling guilty by any chance is he?

He certainly ought to. For a start, Mr Cockburn will not actually be doing any work for WH Smith in September. He has already left and will be enjoying a spot of gardening leave prior to throwing in his lot with BT.

Second, it is becoming increasingly clear just how big a mess he has left poor old Smith's in. It was obvious from the outset that his abrupt departure after just 18 months at the helm would cause great disruption in an already fragile business. But the fall-out will probably be greater - certainly at board level - than was originally imagined.

Take Keith Hammil, for instance. The former Forte finance director, who was one of Mr Cockburn's first appointments, was an early front runner for the top job but has now ruled himself out saying it should go to a retailer rather than a numbers man. He was putting a brave face on it yesterday, saying he was happy to stay on. But it is more likely that he will be off within six months to the next decent job offer that comes his way.

The exodus will probably not stop there. If the job goes to an outsider, the new boss will want to bring in his own team, which means ousting some of the incumbents. If it goes to one of the internal candidates, it is more than likely that one or two of those passed over will seek pastures new.

What all this adds up to is that a business that has already lost 10 directors since the group's calamitous profits warning two years ago, will lose yet more. Jeremy Hardie, WH Smith's chairman, is going to start feeling like a recruitment consultant soon.

He certainly has his work cut out. As the latest results show, this grand old name of the high street still has a long way to go before it even enters the recovery phase, let alone starts to come out of it. Weak sales growth is an old problem, but pounds 20m of unsold books, records and videos was a new one thrown in for good measure. Whoever gets Bill Cockburn's job will soon see why he left it in such a hurry.

Conflicting signals on interest rates

Are short-term interest rates high enough yet to head off an inflationary boom? The Bank of England has indicated that there will be a pause for reflection before anything further is done. Its newly formed Monetary Policy Committee will not, however, have drawn much comfort from the latest raft of economic statistics. There were further signs of the windfall- driven spending spree in the trade figures yesterday. Combine that with the record level of August car sales, reported on our front page, and there are clear signs the shortfall between exports and imports is on a deteriorating trend.

The trade gap is widening not because the effects of the strong pound on exports, which remain largely at unchanged levels, but because of stronger imports, and particularly imports of highly priced consumer goodies like cars and electrical goods. Exporters seem to have resisted the temptation to sacrifice volume to sustain margins. The pound's appreciation has been taken on the chin, with most exporters prepared to accept that their dollar and German mark selling prices be left unchanged, despite the fact they now buy fewer pounds.

Sterling's ejection from the exchange rate mechanism gave competitiveness and margins a big boost in 1992. Unusually, the effects of that devaluation have not been whittled away by higher wages and inflation. This means there has been plenty of scope for exporters to take the pain of the newly-strong pound on margins rather than market share. This in turn makes it hard to predict whether a slowdown in export growth will occur later this year. Business surveys point to a sharp drop in orders which would normally be followed by a downturn in actual shipments.

On the other hand, half of the pound's appreciation to its current level - which looks as though it might be the peak - had occurred 12 months ago, so normally the downturn in exports would already have happened. The overall impact of a rise in the exchange rate on growth might therefore turn out to be much smaller than normal.

Combined with the ever-growing evidence of the scale of the spending spree, this makes some of the gloomier economists, predicting a sharp downturn next year, look like real Eeyores. The Bank of England faces quite a conundrum.

Magellan's closure marks end of an era

The closure of Fidelity's Magellan fund to new investors marks the end of an era on Wall Street. Thanks to the stock-picking genius of its manager throughout the 1980s, Peter Lynch, the words Fidelity, Magellan and mutual fund are synonymous, for many US private investors.

Fidelity accounts for 13 per cent of the huge American mutual fund market and Magellan, its flagship, is a massive fund. It had $63bn of assets under management at the last count, bigger than the annual GDP of Ireland. It has a 10 per cent stake in more than 300 companies in its home market and at least 5 per cent in almost 900 around the world.

That is a measure of the fund's success but it is also its biggest problem. Running Magellan has been likened to steering an ocean liner in a crowded harbour. Attempting to steal a march on its smaller, nimbler rivals has required it to take bigger and bigger gambles on which sectors or asset classes would outperform. In recent years these calls have tended to be wrong.

Jeff Vinik, Magellan's manager until last summer when he was replaced by Bob Stansky, was a subscriber to the Tony Dye view of the market. As a consequence he took a big position in bonds and cash and so missed out on the earlier stages of the recent staggering rise in the Dow. He paid with his job, and Magellan with almost $10bn of withdrawn funds.

Over the last year, Mr Stansky has dumped the bonds, reduced the cash pile and bet heavily on the market continuing to rise. So far he has been proved right, the fund has started to outperform again and, as ever in this business, the punters are belatedly piling in.

Closing the fund makes good sense then, if only because the whole thing was becoming progressively unmanageable. What the move tells us about the level of the US market is less clear cut. While size is probably more of a problem in a bear market than a bull one, Fidelity's concerns about the expected flood of private investors into its funds argues persuasively that sheer weight of money will keep shares rising. He may have closed his doors, but there is no sign of Mr Stansky turning bearish. Then again, there are few better signals of the top of the market than surging mutual fund sales.

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