THERE is now little getting away from the fact that the good times are gone.

For months a stronghold of bulls held out, insisting that everything was just fine, that the American economy was endlessly resilient and that the massive falls in equity markets from their highs of last year represented nothing more than the best buying opportunity ever.

There are a couple of these uber-optimists left – US stock guru Ken Fisher, one of the loudest of them, was on Bloomberg on Wednesday night insisting America was not in recession and that we should all be piling into financials and retailers. Buy Citibank and Wal-Mart he says.

He might be right of course – there’s no telling with markets – but it doesn’t seem very likely. Just look at the numbers.

American payrolls shrank in February with more than 100,000 jobs going in the private sector; the housing market is in freefall with the percentage of total loans in foreclosure (something lenders do their best to avoid) at a record 2% in the last quarter of 2007 and still rising; and the dollar seems to hit a new low against the euro everyday.

These are the signs of an economy in recession, which given the ongoing nature of the credit crunch – the banks still aren’t lending to each other – shouldn’t come as a surprise.

Then look at the response of the Federal Reserve and at the market’s reaction to it.

The Fed has organised yet another bail-out operation – this time in effect making $200 billion (£98 billion) available to the banks in exchange for a huge range of collateral.

This is a big deal; it’s an innovative approach and a vast amount of money, both things that make it clear just how worried the Fed is about the markets and about the economy.

So it’s a shame that it hasn’t really worked: sure the S&P 500 had its best day for five years, but it still ended Wednesday at roughly the same place it had ended the previous Wednesday and remains 17% off its highs. The FTSE 100 is still down 16% and Germany’s DAX off 20%.

Given this particularly unpleasant environment, you might be considering giving the Isa season a miss this year. I wouldn’t.

Isas are far from perfect. They are always described as a tax-free saving vehicle, but in truth there isn’t that much tax-free about them. You get no income tax rebate on the measly £7,000 annual allowance (as you would if you put it into, say, a self-in-vested personal pension instead) and lower-rate tax payers don’t get a break on dividends either: tax is taken at 10%, which is what they would have paid anyway.

It also irritates me that the allowance is so small; Alistair Darling may have proudly reannounced that next year’s Isa allowance is to rise to £7,200, but an extra £200 is small beer given that had the allowance increased in line even with the government’s measure of inflation it would now be well over £8,000.

However, there are good things about Isas. Higher-rate taxpayers get a nice tax break on dividends. Instead of paying the 32.5% they normally would, they pay just 10%. And the second – the protection from capital-gains tax – is for everyone: no gains made within an Isa portfolio will be eligible at any point for CGT.

You might think that with the capital-gains allowance already at £9,200 a year, this doesn’t matter too much – after all, you’d have to be doing pretty well to make £9,200 worth of returns on £7,000 right? Not over time. Imagine your Isa portfolio rises at an average of 7% a year. It will still take it only 10 years to double in value and less than 12 to be in profit to the tune of more than £9,000. Now imagine you put £7,000 into your Isa every year for a decade. Those gains are (hopefully) going to add up.

And if you decide to liquidate them all in one go – say to finance your retirement – you’ll be very glad of the protection from Darling’s new 18% flat rate of capital-gains tax.

So you should get an Isa. But what should you put in it? You could cop out and just get a cash Isa – from next year you’ll be able to move the £3,000 into equities anyway. Or you could just open an equity Isa and keep the money in cash for a while.

I still think that I’m going to fully invest my allowance this year. It is an absurdly clichéd thing to say, but the wonderful thing about stock markets is that not everything falls at once. Something is always going up.

I’ve written a lot about gold and about commodities in general, and I still think that a good range of exchange-traded funds (ETF) is a good bet for your Isa.

If you just get the ETFS PM Basket ETF, which tracks precious metals, and the ETFS Grains ETF which tracks prices of a basket of grains, I don’t imagine you’ll end the decade badly.

For investors who believe in the commodity supercycle (that demand is so strong there are 10 or more years of price rises to come), there is the City Natural Resources High Yield Trust.

It invests heavily in precious metals (33% of the portfolio), but is also in various other minerals and oil, as well as in soft commodity-related stocks such as top holding New Britain Palm Oil.

This has been a good bet – the palm-oil price has more than doubled in the last year.

The trust itself has risen over 40% in the past 12 months and it should make an excellent bear-market Isa holding.

Merryn Somerset Webb is a former stockbroker and now editor of Money Week. Her views are personal and investors should always seek professional advice

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