Investors in almost every asset class are likely to be worse off in a deflationary environment, according to Graham Secker, equities strategist at Morgan Stanley. “Deflation is not good news for equities markets generally,” he says. “It is a signal that the economy is very, very weak and that sales and profits are going backwards.”

However, for companies that remain profitable, there will be pressure to maintain dividends, he says. While many companies have a dividend policy of maintaining a pay-out in real terms – ensuring that rises at least keep pace with inflation – they will be under pressure not to reverse themselves in a deflationary environment.

During some of the UK’s most torrid periods of inflation in the 1980s, corporate profits rose strongly because producers could put prices up. In a deflationary environment, the reverse pressures will be in force.

Investors in corporate bonds may find themselves somewhat better off. Interest payments are generally fixed – and even when floating are at a premium to some other interest rates, providing hard cash at a time when prices are falling. However, in a deflationary environment, the companies that issued these bonds are much more likely to default and investors may not get all their principal back.

There are real risks for investors in other asset classes, too. Commercial property, often seen as a risk halfway between equities and bonds, is rapidly falling in value. In the UK, virtually all gains since 2002 have been wiped out, and values are falling in continental Europe and in the US. Those who purchased it for the rental income are feeling the pinch, too; insolvent occupiers cannot pay rents.

Are we facing a U or L downturn ???

MIT’s latest solar race car might look  futuristic but don’t laugh. It’ll do 90 mph and is packed with technology that may end up in the hybrids and EVs the rest of us will soon be driving.

The university’s Solar Electric Vehicle Team, the oldest such team in US, unveiled the $243,000 carbon-fiber racer dubbed Eleanor last Friday and is shaking the car down to prepare for its inaugural race later this year.

“It drives beautifully,” said George Hansel, a freshman physics major at the Massachusetts Institute of Technology and a member of the team. “It’s fun to drive and quite a spectacle.”

European Union officials are concerned that the pound’s slide to a record low against the euro could destabilize the British economy, according to a document prepared last month by European Commission and EU finance ministry officials.

The pound’s “very rapid” drop “raises questions about the financial stability of the British economy,” said the document, which was prepared ahead of the Feb. 14 Group of Seven meeting in Rome. The currency’s weakness “is a source of concern for the euro area.”

The one-page document, titled “Recent exchange rate developments – G7 preparation,” was circulated at a meeting of EU officials before the G-7 gathering in Rome. The document also outlined the EU’s position on the U.S. dollar, the yuan and the yen before discussing the pound.

The document signals concern among euro-area policy makers that the pound’s slump could push their 16-nation economy deeper into a recession by undermining exports to its biggest trading partner.