Jeremy Warner's Outlook: Rose's hat is in ring but will M&S go for it?

Equity markets

The King is dead, long live the.... There is no obvious successor to Luc Vandevelde, whose fast track departure from M&S became inevitable the moment he gave up his executive duties to become part time non executive chairman in September last year. For the time being it is a good sight easier to say who definitely won't be taking up the mantle than who will.

I think, for instance, that we can safely rule out Hans Snook, the marketing genius behind the success of the mobile phone company, Orange. As an impresario and creator of businesses, he's hard to beat, but he's too much of an iconoclast to be thought right by the City for the chairmanship of M&S.

Archie Norman, who made his name turning around Asda, has already turned the job down once - he was first choice when Luc Vandevelde was appointed - and he's making it known that he really wouldn't be interested unless paid the sort of package that would have politically correct investors breathing fire and brimstone. Besides, as things stand he would be deemed guilty of exactly the same charges as sunk Mr Vandevelde - too many other interests. When he's not busy being an MP, he's running Energis, which although proving a tougher turnaround than anyone anticipated, stands to make him a huge amount of money if he's eventually successful.

The same might be said of the City professionals the bookies are running odds on - Sir Derek Higgs and Paul Myners. Both are up their necks in other interests and as things stand wouldn't be any less of an absentee chairman than Mr Vandevelde. Even if they could be prevailed apon to give up their other distractions, are they really capable of the leadership needed to return M&S to full operational health? Neither of them are retailers and they would have to rely substantially on the judgement of others to know what's right for the business.

Which brings us to Stuart Rose. Unlike all the others, he's available, his other interests are not yet so weighty as to preclude him, and perhaps most important of all, he's genuinely keen to do the job. M&S may have fallen on hard times, but for any life long retailer, running this one time doyen of the high street would be the pinnacle of their career. On the face of it, he's eminently well qualified for the post as well. Mr Rose's 17 years with M&S coincided with some of the best in the company's history. Since leaving the Burton Group, he's clocked up a remarkably impressive record of value creation, first at Argos, then Booker and most recently at Arcadia. OK, so he was lucky in his timing, but you largely make your own luck and it has certainly won him plenty of friends in the City.

Only one problem. M&S insiders are staunchly against him. Mr Rose would find it hard to be anything other than a hands on, executive chairman, whatever his contract said. It is not altogether impossible to imagine Mr Rose getting along with the present chief executive, Roger Holmes - instinctive retailer and committed management consultant may not be a bad combination - but Mr Holmes would have to learn to live with his strategy being constantly second guessed by a boss who would always believe he knows better what's right for the business than Mr Holmes.

If the City wants a chairman who will quickly ease Mr Holmes out and bring in a new team to manage the turnaround, then Mr Rose is probably their man. Yet the strong likelihood with M&S is that there are no magic wands or quick fixes. Any turnaround is bound to be an awfully long haul. Quite apart from getting the fashion and value mix right again, there's the problem faced by virtually all the older generation of high street retailers of a big legacy network of stores, many of which are too small and in the wrong place.

Whoever gets the job will struggle to come to grips with this cocktail of problems. M&S's recovery has stalled, but few of its competitors are doing brilliantly either. Even Philip Green, the retail financier, admits that conditions are grim. He'd still dearly love to add M&S to his collection of retail assets, but things will have to deteriorate a great deal further before the City would let him.

Did Mr Vandevelde jump or was he pushed? A bit of both is the truth of the matter. In the end, Mr Vandevelde was persuaded that his other interests, and in particular a commitment he made to the Halley family to look after their interests in the French supermarkets group, Carrefour, where more important to him than M&S. Others will dismiss the explanation as little more than a fig leaf, but I believe it to be true, at least in part. M&S requires full on support and attention. Mr Vandevelde was incapable of giving it. One thing is certainly true. When he gave up the job as chief executive, Mr Vandevelde believed the task of salvaging M&S was complete. As is now all too clear, in fact it had only just begun.

Bizarrely, Sir Christopher Gent, former chief executive of Vodafone, wasn't even considered for the job as chairman of ITV, despite the fact that he broadcast his interest in it. The headhunters should make amends and approach him fast. Should Mr Holmes be given longer to prove himself, or does M&S need yet another revolution. Sir Christopher can be trusted to make the right judgement.

Equity markets

I've changed my view of equities. They were a no-brainer of a buy just before the invasion of Iraq, but the rally was swift and steep and regular readers will know I lost my nerve once the FTSE 100 broke back through the 4,200 level. The world looks a turbulent and risky place right now, so this may not seem like the best of times for a change of mind, yet fortune favours the brave, and for those prepared to take the long view, equities once again look great value.

Admittedly, this is in part because of the lack of alternatives. With interest rates on the rise again, and the jury still out on where they might stop, nobody in their right mind would opt for bonds - nobody, that is, other than the Financial Services Authority, whose solvency requirements are still forcing the big life assurers to "de-risk" themselves by selling the upside potential of their equity holdings for the downside of bonds.

Domestic property too is surely past its zenith, even if you believe there won't be a housing crash. With rising interest rates, cash offers some short term advantage, the more so now that geo-political tensions are rising again. One of the reasons for yesterday's near 5 per cent fall in the Nikkei 225 index was renewed fears of a terrorist atrocity in Tokyo. Yet cash is quickly devalued by inflation, and at best the real rates of return are going to be marginal.

Corporations too are damaged by rising interest rates, which is why stock markets have been falling ever since the US Federal Reserve changed its "accommodative" stance last week. Nearly four years of easy money are drawing to a close, with the markets pricing in at least three quarter point rises in the US Fed funds rate during the remainder of this year. That's quite a change on previous expectations that there would be no change before November's presidential election. Rising oil prices will have an equally damaging effect on growth.

Yet the reason why interest rates are rising earlier and more quickly than expected, and to some extent the oil price too, is because of the strength of the rebound in the world economy. After the cost cutting and productivity gains of recent years, that's proving highly beneficial for corporate profits. Even in Britain, where corporate profits have gone nowhere in the seven years Labour has been in power, in part because of the effect of a strong pound on overseas earnings, profits are at last rising again, and quite steeply according to the latest figures from the Office for National Statistics.

It is still too early to say we are unambiguously in a renewed bear market, but the underlying fundamentals, particularly for the undervalued UK market, look better now than they have in ages.

jeremy.warner@independent.co.uk