PLEASE SEE IMPORTANT DISCLOSURES AT THE END OF THE DOCUMENT
A G L O BA L V I E W F R O M E U R O P E
A G L O BA L V I E W F R O M E U R O P E
Special reportGlobal
Fourth quarter 2009
SellDollarBuyGovernment bondsCherry pickEquities and CommoditiesThis document is based on an extreme worst-casescenario and does not reflect SG
s central scenario.
Worst-case debt scenario
Protecting yourself against economic collapse
200520072009e2011e20012003
182326354530
Emergingeconomies
Debt/GDP (worst case)
Advancedeconomies
Debt/GDP (worstcase)
Worlddebt: x2.5in 10 years!
49%45%72%150%
Global debt in trillion dollars (Source: The Economist)
200520072009e2011e20012003
1823
2326
2635
3545
4530
Emergingeconomies
Debt/GDP (worst case)
Advancedeconomies
Debt/GDP (worstcase)
Worlddebt: x2.5in 10 years!
49%45%72%150%
Global debt in trillion dollars (Source: The Economist)
Product managerDaniel Fermon
(33) 1 42 13 58 81
daniel.fermon@sgcib.com
Global Head of Research Patrick Legland
(33) 1 42 13 97 79
patrick.legland@sgcib.com
Macro Strategy
Benoît Hubaud
(33) 1 42 13 62 04
benoit.hubaud@sgcib.com
Sector Research
Fabrice Theveneau
(33) 1 58 98 08 77
fabrice.theveneau@sgcib.com
Commodities
Frédéric Lasserre *
(33) 1 42 13 44 06
frederic.lasserre@sgcib.com
Global Asset Allocation Strategy
Alain Bokobza
(33) 1 42 13 84 38
alain.bokobza@sgcib.com
Rates & Forex Strategy
Vincent Chaigneau
00 44 207 676 7707
vincent.chaigneau@sgcib.com
EQUITYCREDITEQUITYCREDITEQUITYCREDITEQUITYCREDIT
Worst Case Debt Scenario
Fourth quarter 2009
Worst Case Debt Scenario
Fourth quarter 20093
Contents
6Debt explosion in 2009 7The current economic crisis displays compelling similarities with Japan in the 1990s 9End of market rally for equities? Look at Japan! 9Worried about inflation? Japan suggests deflation more of a risk 10Stress-testing performance by asset class under a bear scenario 12How to invest under a bear scenario
13Flashback to the origins of the economic crisis 14Governments bailing out the financial system, but at what price 15Counting on a comeback for the US consumer17Counting on governments to survive debt mountains!19The painful task of removing the excess debt 20Governments: choose the route to debt reduction 22Indebted developed economies can
26Three economic scenarios, one constraint: debt! 30Bear scenario Lengthy deleveraging, and slow recovery over five years
32Fixed Income & Credit under a Bear scenario33Investment Grade Credit under a Bear scenario 34High Yield Credit under a Bear scenario 35Equity Strategy under a Bear scenario37Oil & Gas under a Bear scenario 38Metals & Mining under a Bear scenario 39 Agricultural commodities under a Bear scenario
41 Appendix: Bottom-up approach: central and bull scenarios42Central scenario Back to potential economic growth in three years
43Currencies - Protracted dollar weakness 45Fixed Income & Credit under a Central scenario46Investment Grade Credit under a Central scenario 47High Yield Credit under a Central scenario 48Equity Strategy under a Central scenario 50Equity volatility under a Central scenario51Oil & Gas under a Central scenario 52Metals & Mining under a Central scenario 53 Agricultural commodities under a Central scenario
56Fixed Income & Credit under a Bull Scenario 57Investment Grade Credit under a Bull scenario58High Yield Credit under a Bull scenario 59Equity Strategy under a Bull scenario 61Oil & Gas under a Bull scenario 62Metals & Mining under a Bull scenario 63 Agricultural commodities under a Bull scenario
Report completed on 13 October 2009Thanks to Benjamin Sigel and Nicolas Greilsamer for their assistance in preparing this report
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Société Générale Worst Case Debt Scenario Fourth Quarter Nov 2009
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