Light at the end of the tunnel?

By Mark Dampier | 29 Aug, 2008 

Generally the economic news remains grim and frankly I don’t expect this to change in the near future. The housing market continues to fall and with the absence of mortgage funds this is likely to continue. Repossessions will continue to rise – in the first half of 2008 it was 18,900 properties, a 41% increase on the second half of 2007. However, this is tiny compared to the peak in the previous housing market fall in 1991 of 75,500 properties being repossessed. Remember however that this is a lagging indicator as repossession is usually a last resort, so it is highly unlikely that figures will improve.

However, for investors, there is I believe some light at the end of the tunnel. Falling property prices and a general paying back of debt are deflationary in their implication. So while the Bank of England at the moment frets about the inflation rate, which is largely out of its hands due to the fact that it is global rather than domestic, and in addition global inflation on commodities and foods is effectively a further consumer tax on us, I would suggest that at some stage in 2009 interest rates will probably fall substantially.

I think this is an excellent time for investors to start considering corporate bond funds as the yields look very attractive. This may not sound that enticing but I simply do not believe these yields and capital prospects rates will be available in a year’s time.