City: Always a bear

FROM his Tokyo hotel room, Nick Knight, chief London equity strategist for the Japanese securities house Nomura, could barely disguise his delight. He was in Japan on a business trip and a trifle out of touch. I had just told him that despite a cut in US interest rates and talk of one here in the UK, the FTSE 100-share index had failed to struggle back through the 2,500 barrier. Known as the stock market's perennial bear, Mr Knight felt redeemed. With the collapse in share prices over the last month, it's everyone else who has got it wrong after all, not Mr Knight.

In the immediate aftermath of the election Mr Knight said of the Tory victory: so what? Politics is irrelevant to the stock market. Just because the Tories get back doesn't mean an automatic economic recovery. Among market gurus, he found himself in a minority of one. As stock prices raced ahead in a frenzy of post-election euphoria he was forced to concede: 'You can't get it right all the time.' Fortunately for Mr Knight, he didn't change his view. As the market peaked at 2,737.8 on 11 May, Mr Knight stuck by his prediction that it would be at no more than 2,500 by the end of June. He was spot on.

Mr Knight is of the go by your instincts, gut reaction school of equity strategists. No doubt there is method in his analysis, but it comes across as little more than plain common sense, which is more than can be said for many of the others. Some of them were predicting that the market would be at 3,000 by the year end. Hardly anyone had it at less than 2,800. It's still possible they will be right, of course, but it's going to take a miracle.

Market pundits have been playing out their own particular version of Waiting for Godot; in this case waiting for the recovery. The stock market began celebrating the end of the recession well over a year ago. Every time such hopes proved misplaced, its attitude has been: 'Oh well, tomorrow then.' Tomorrow never comes. The world appears incapable of breaking out of its recessionary time warp, but that doesn't seem to stop the equity strategists continually attempting to talk up share prices. Even now they are still at it. Be patient, they seem to be saying. One day, recovery will eventually, inevitably come and we'll all be vindicated.

One thing looks certain, however: there's going to be a lot more pain before things get any better. One well- placed banker told me last week that unless the economy picks up shortly, around a third of high street retailing will be wiped out over the next year. He wasn't talking about the big chains, though things are bad enough for them as well. His warning applied to the little man, many of whose businesses are balanced on a knife-edge.

With real interest rates so high, you'd have to invent the equivalent of sliced bread to be starting a business in the present environment. As recovery is pushed further and further into the future, bankers are once more steeling themselves for massive bad debt provisions in the forthcoming results season. Maybe the bankers have got it wrong and the market gurus are right. After all, there is at least some good news around; next week's G7 meeting in Munich should bring concerted international action to restimulate growth. But I know where I'd put my money.

In the meantime, prospects for the pounds 2.8bn Wellcome share offer - or 'not welcome offer' as it is already being dubbed in the City - look bleak indeed. It would almost certainly have to be pulled if tomorrow was make your mind up time. As it is, sponsors have three weeks left to convince investors worldwide that it's worth subscribing to. There's nothing wrong with the company - it's a wonderful company with spendid prospects - but in these markets getting such a whopper away is the financial equivalent of climbing Everest. If they pull it off, it will be some achievement.