What a horrible year this has been. It seems that there is nowhere safe to invest. Put your money into shares and the bottom drops out of the market. How about corporate bonds?

For a ‘safe’ asset, the 20 per cent tumble that they took in the first quarter this year was a bit of a shock. You can’t lose with bricks and mortar can you? Yeah, right.

And now even keeping your cash in the bank is losing you money. Inflation measures have moved above the official bank rate for the first time since 1981 and the interest that we’re earning is not keeping pace with day-to-day prices.

Setting the bar higher
So what to do if you are needing income, or indeed have a yield requirement from an income drawdown pension plan? Perhaps there are opportunities now in the very areas that have let people down so much in recent months.

Let’s consider some recent evidence. One of the most staggering statistics that I’ve seen this year is that the bond markets are signalling that one in five banks are going to go bust. They won’t. What are known as ‘projected default rates’ are at an unprecedented high level, suggesting that investment grade bonds are on a par in terms of security with junk bonds.

History, I suspect, will show this to be wildly inaccurate. Some of the yields available from well-managed bond funds right now, around 8 per cent, are extremely tempting for income seekers, especially if they have accumulated funds within ISAs and PEPs over the years from which their income can be earned free of tax.

Inside track
The other statistic that really caught my eye recently was this. Company directors in FTSE 100 companies are buying their own shares at rate of 13:1, which is way above the average of 2.5:1 and, significantly, even above the rate of 10:1 that signalled the bottom of the last bear market in March 2003.

What these directors are basically telling us is that things are not as bad as everyone is making out and they are seeing the chance to buy their own shares on the cheap.

Previous indications like this have come to fruition within three to six months, and seeing as these stats refer to July this year, it may be a good time to begin preparing for an uptick in fortunes.

The third sign that I find encouraging is the recent falls in commodity prices. The very inflation figures that are causing concern now are a delayed reaction to prices in fuel and foodstuffs virtually doubling last year. I think it is fairly safe to say that oil and grains won’t double again next year, so inflation itself could be due to subside in the coming months.

Time for recovery
So what will the effect of this be? Apart from lower interest rates for savers, it could trigger the beginning of a recovery in bond and stock markets. And remember, markets are anticipatory rather than reactionary, so don’t wait for something to happen before acting. It would be nice to be ahead of the pack for once.