"My general view would be revenues are OK, but capex spending is still below long-term averages," he said, unable to reconcile the enthusiasm for investment with what companies are telling the market, outside of a few exceptions. He also argues depressed levels of merger and acquisition activity challenge the widely held view that business confidence is at pre-GFC levels. Mr Ross points to the age of assets on balance sheet, which is derived from his analysis of annual depreciation charges and accumulated depreciation. "That has gone up every year since the financial crisis and it didn't go down this year," he said. "In 2007 the average industrial company in the market had assets that were 6.5 years old and now they're nine years old. In the space of nine years, the asset base has aged 2.5 years. 'Stuff gets old'

"The thing is, you can stop spending money and if you've got spare capacity you can do that, but the harsh reality of the world is stuff gets old and it starts to break down." He argues that the impulse to run businesses lean, which has supported earnings growth in the past few years in the absence of revenue growth, will catch up with companies if trading conditions suddenly improve. "We've had better profits on the way down – firing, mothballing, selling assets. As things start to normalise, you have to spend money and there are plenty of businesses where costs could grow faster than revenues," the strategist warns. "There's enough anecdotal evidence to show there has been a fairly significant under-investment in corporate Australia. "If revenues increase, your cost base is going to go with those revenues. This is what will catch people out if we do have a period when economic growth starts to go really great. You don't get the operating leverage."

Goldman Sachs also finds that the share of cash spend allocated towards M&A and capex is falling. "Some of that is because equity valuations are high, but we tend to find M&A cycles go with market cycles," Mr Ross said. Typically the ASX 200 has invested – either through M&A or capex – 71 per cent of all cash spending, allocating 29 per cent for capital return, mostly through dividends. In 2016-17 the split was 62-38. 'Defensive capex'

"I don't buy the line that there's been any big shift towards capex spending, that's not apparent to me at least," the strategist said. "Most of the capex that's been spent, it's defensive capex. The RoE (return on equity) of the market is 15 per cent, are those assets going to get that level of return? I don't think so." Mr Ross suggested deal activity could be low because share prices are high. Notable capital plans in the 2016-17 reporting season came from Telstra, which reduced its payout ratio to invest in "transformation" as it faces lower margins and increased competition; CSL, which dumped its buyback to upgrade its investment budget to $1 billion; and Magellan, which could spend nearly $100 million backing a new retail-targeted investment product. One of Mr Ross' broader observations of the results season is that the "tailwinds" of the past few years have faded, such as lower tax rates and interest costs. At the same time, "the good things in the economy, wage growth and rising commodity prices, have found their way negatively into the P&L of all of these businesses".

He also notes that writedowns have fallen sharply, so earnings cannot be fuelled by impairments (where returns on assets in subsequent periods appears higher as a consequence). "Probably everything that's been kitchen-sinked has happened now."