There was something about Terry Higgins that made Rupert Whitaker fall for him immediately they met in a disco in 1981. “He was very much my taste – he had a big moustache and short hair. Some may even favour sticking it under the mattress.But things aren’t really that bad Are they?. For the ultra-cautious, you could do worse than putting your money in a high interest building society account, which could pay around 4 per cent a year. “If we get something bad that pushed us below that, people will start to talk about a prolonged bear market and pondering how much lower it can go,” he said.Where do the experts suggest smaller investors put their money? Not in residential housing, they say The market is overheated. Any profit warnings or overly negative guidance on the outlook could trigger a fresh slide in markets.Mr Hatherly at M&G points out that the key psychological level of the FTSE 100 could be the 4,433-points close of 21 September, when markets hit their post-terrorist attacks low. “I would have said that the pendulum has swung too far from over-optimism to over-pessimism and will start to go the other way now,” he said.However, he predicts that once equities start to outperform bonds again, the pendulum will swing back once more.The next few weeks could prove crucial.

“In a real bear market,” Mr Hatherly says, “everything goes down.”Mr Hatherly’s view is that the US consumer economy is quite robust, adding that the Federal Reserve is “very aware” of the importance of the stock market and that “there is a chance that it will cut rates later this year”.Bob Semple at Deutsche Bank is also more sanguine after a bearish stance last autumn. “You hear the word ‘capitulation’ with the depth of pessimism forcing people to give up and throw in the towel. But when people start to talk about death of the cult of equities I would take that as a very strong ‘buy’ signal,” he said.He points to strong areas of the market such as the tobacco sector, which is up 28 per cent on the year with real estate up 10 per cent Some individual stocks have done particularly well. These things take time, but they don’t mean that the basic laws of investment have been destroyed.”John Hatherly, head of research at the fund management group M&G, also believes that history is on equities’ side. My view is that these are simply medium-term swings in sentiment, and that, in due course, equities will reach a level of valuation that will ensure their revival as a preferred asset class….

There was, perhaps, more justification for that view then, since we had a government that was overly hostile to business, and price controls. Our view is that equity markets will hit new lows in the next three to four months and then start to rebound but only to lower levels of return.”It is not surprising that Alastair Ross Goobey, now a consultant at Morgan Stanley Dean Witter, disagrees. He says: “You could go back to the 1970s and find that people were making the same prediction about the death of the cult of the equity. “Normally the current yield gap would be a strong buy signal but we believe it will only underpin equity valuations around current low levels. “The cult of the equity has died and we are probably getting closer to the period where the excessive hopes are priced out of the market,” he says. This hardly fills other investors with optimism.Predicting the death of the cult of equities might seem an extreme position But the view does have its supporters One is Steve Russell, equity strategist at HSBC. Indeed bonds now account for 14 per cent of UK pension fund holdings compared with just 4 per cent in 1990.

SG Securities forecasts this will rise to 20 per cent in the next three to five years as pension funds seek a more reliable method of meeting their liabilities.The bank also points out that in the US the number of directors selling shares outweighs the number buying them by four to one. This indicates that investment managers do not believe that the high yield available on shares is worth the risk given the recent accounting scandals and the lack of visibility about future earnings.They are piling into the safety of bonds instead. Equities fell 8.4 per cent in June alone, the worst month since September 2001.The yield gap, which is the yield on equities minus the yield on bonds, also tells a story. It now stands at minus 1.92 per cent, the lowest for 35 years.