Third article that made me noodle on the ski slopes while reading my iphone on the chairlifts was a Bill Gross interview where he claims that equities are dead.
Of course he could be talking up his book as Gross is a founder of PIMCO one of the biggest bond investors on the planet but I do think he has a point.
Equities is a small part of capital structures. Banks for example had 40x debt to equity ratios. Debt is usually big and senior. If assets get so impaired, typically in a deflationary environment, then the company is bankrupt and will be liquidated by debt holder. Equity goes to zero. If dividends go to zero (which is happening left and right) and cash only barely services debt then discounted cash flow analysis says the company is worth zero. Financial services accounted for 40% of the SP500 profits.
For equities to be worth something they have to return more than risk free securities. The 'over the long run' mentality has evaporated. Over the long run, data says that equities were a crappy investment now that the debt bubble has exploded. All those gain since 1985 were but a monetary mirage piled onto linear growth. Interestingly bonds still carry an exponential growth.
Then why take the risk?