In so doing, they've laid bare the cynicism with which the Government went about renationalising Railtrack. Nor were they ready to stand up and be counted a few months ago when the Government attempted to bounce the case out of the courts, not on its merits but by exhausting the action group's fighting fund.The chances of Mr Weir succeeding when all is said and done remain slim. New sources of demand for oil and natural resource from the fast industrialising regions of Asia have buoyed these sectors, with their relatively high weightings in the UK stock market.Any disruption to the exceptionally loose monetary conditions that have ruled for the past five years would never the less put all these asset valuations at risk. A monetary expansion of the magnitude just witnessed would normally have resulted in rampant inflation. The fact that it hasn't is largely down to the disinflationary effect of Asian industrialisation, Eastern European labour migration and corporate outsourcing. Crudely, the money has instead gone into assets - into property, bonds and now even UK equities.
All this looks a peculiarly unsafe foundation for a sustained bull market. A pause for breath is the least we can expect.Railtrack bandwagon shamefully joinedRather than pick a fight with the Government after it shunted Railtrack into administration four years ago, big institutional investors chose, in their usual pusillanimous fashion, to leave it instead to a retired engineer from Reading to take up the cudgels on behalf of aggrieved shareholders. As the opportunities to invest in safe assets with a respectable return grow ever more limited, investors reach out along the yield curve into riskier assets - longer bonds, emerging market bonds, junk bonds and equities.UK equities may be at fair value by historic standards, but they look cheap relative to gilts, and relative to US equities and Treasuries, even cheaper, hence the foreign interest in the UK stock market There are some special factors too. Put plainly, there is just too much money slopping around the system chasing a decent return. Either bonds are mispriced or there is something else happening here.One answer must lie in loose monetary policy. To the contrary, dividend cover is high, and many companies, encouraged by exceptionally low interest rates, are financially robust enough to engage in extensive buy-back programmes or other forms of capital distribution. And if that's the case, then ordinarily it would spell big trouble for equities.
The exceptionally difficult economic climate pointed to by low bond yields would cause some companies to go bust, while others might be forced to cut their dividends.Yet there is little to indicate that this is what's about to happen. Indeed, despite strongly rising equity prices we are again approaching that pivotal investment moment, last seen in the run-up to the Iraq war and prior to that not since the late 1950s, when the yield on equities is higher than that on 10-year gilts. The bond market has been climbing even more rapidly than the the FTSE 100, narrowing the yield gap to just 0.6 percentage points.What's going on here? Bond yields virtually the world over are approaching a level which points unambiguously if not to outright deflation, then certainly to a prolonged period of very low growth and subdued prices. Relative to other asset classes, however, and particularly Government bonds, UK equities still look cheap. Insurers have had the selling forced on them by more demanding solvency regulation. For private investors, meanwhile, bricks and mortar have seemed far more alluring.