LIFE IS A ROLLERCOASTER OF EMOTIONS AND ECONOMIC OUTLOOKS, ESPECIALLY REGARDING COMMODITIES........
YESTERDAY, THE "LONG-TERM LOW INTEREST RATES SENARIO" POINTED TO COMMODITIES BEING AN 'ATTRACTIVE INVESTMENT' OPTION BUT JUST INCASE........
FROM today's edition of 'THE DAILY TELEGRAPH' - UK newspaper.
Société Générale tells clients how to prepare for potential 'global
collapse'
Société Générale has advised clients to be ready for a possible "global
economic collapse" over the next two years, mapping a strategy of defensive
investments to avoid wealth destruction.
By Ambrose Evans-Pritchard
Published: 6:12PM GMT 18 Nov 2009
Comments 44 | Comment on this article
(Embedded image moved to file: pic27027.jpg)A bullet train speeding past
Mount Fuji in Fuji city, west of Tokyo, Japan
Explosion of debt: Japan's public debt could reach as much as 270pc of GDP
in the next two years. A bullet train is pictured speeding past Mount Fuji
in Fuji city, west of Tokyo Photo: Reuters
In a report entitled "Worst-case debt scenario", the bank's asset team said
state rescue packages over the last year have merely transferred private
liabilities onto sagging sovereign shoulders, creating a fresh set of
problems.
Overall debt is still far too high in almost all rich economies as a share
of GDP (350pc in the US), whether public or private. It must be reduced by
the hard slog of "deleveraging", for years.
Related Articles
'Debt levels risk another crisis'
"As yet, nobody can say with any certainty whether we have in fact escaped
the prospect of a global economic collapse," said the 68-page report,
headed by asset chief Daniel Fermon. It is an exploration of the dangers,
not a forecast.
Under the French bank's "Bear Case" scenario (the gloomiest of three
possible outcomes), the dollar would slide further and global equities
would retest the March lows. Property prices would tumble again. Oil would
fall back to $50 in 2010.
Governments have already shot their fiscal bolts. Even without fresh
spending, public debt would explode within two years to 105pc of GDP in the
UK, 125pc in the US and the eurozone, and 270pc in Japan. Worldwide state
debt would reach $45 trillion, up two-and-a-half times in a decade.
(UK figures look low because debt started from a low base. Mr Ferman said
the UK would converge with Europe at 130pc of GDP by 2015 under the bear
case).
The underlying debt burden is greater than it was after the Second World
War, when nominal levels looked similar. Ageing populations will make it
harder to erode debt through growth. "High public debt looks entirely
unsustainable in the long run. We have almost reached a point of no return
for government debt," it said.
Inflating debt away might be seen by some governments as a lesser of evils.
If so, gold would go "up, and up, and up" as the only safe haven from fiat
paper money. Private debt is also crippling. Even if the US savings rate
stabilises at 7pc, and all of it is used to pay down debt, it will still
take nine years for households to reduce debt/income ratios to the safe
levels of the 1980s.
The bank said the current crisis displays "compelling similarities" with
Japan during its Lost Decade (or two), with a big difference: Japan was
able to stay afloat by exporting into a robust global economy and by
letting the yen fall. It is not possible for half the world to pursue this
strategy at the same time.
SocGen advises bears to sell the dollar and to "short" cyclical equities
such as technology, auto, and travel to avoid being caught in the "inherent
deflationary spiral". Emerging markets would not be spared. Paradoxically,
they are more leveraged to the US growth than Wall Street itself. Farm
commodities would hold up well, led by sugar.
Mr Fermon said junk bonds would lose 31pc of their value in 2010 alone.
However, sovereign bonds would "generate turbo-charged returns" mimicking
the secular slide in yields seen in Japan as the slump ground on. At one
point Japan's 10-year yield dropped to 0.40pc. The Fed would hold down
yields by purchasing more bonds. The European Central Bank would do less,
for political reasons.
SocGen's case for buying sovereign bonds is controversial. A number of
funds doubt whether the Japan scenario will be repeated, not least because
Tokyo itself may be on the cusp of a debt compound crisis.
Mr Fermon said his report had electrified clients on both sides of the
Atlantic. "Everybody wants to know what the impact will be. A lot of hedge
funds and bankers are worried," he said.
YESTERDAY, THE "LONG-TERM LOW INTEREST RATES SENARIO" POINTED TO COMMODITIES BEING AN 'ATTRACTIVE INVESTMENT' OPTION BUT JUST INCASE........
FROM today's edition of 'THE DAILY TELEGRAPH' - UK newspaper.
Société Générale tells clients how to prepare for potential 'global
collapse'
Société Générale has advised clients to be ready for a possible "global
economic collapse" over the next two years, mapping a strategy of defensive
investments to avoid wealth destruction.
By Ambrose Evans-Pritchard
Published: 6:12PM GMT 18 Nov 2009
Comments 44 | Comment on this article
(Embedded image moved to file: pic27027.jpg)A bullet train speeding past
Mount Fuji in Fuji city, west of Tokyo, Japan
Explosion of debt: Japan's public debt could reach as much as 270pc of GDP
in the next two years. A bullet train is pictured speeding past Mount Fuji
in Fuji city, west of Tokyo Photo: Reuters
In a report entitled "Worst-case debt scenario", the bank's asset team said
state rescue packages over the last year have merely transferred private
liabilities onto sagging sovereign shoulders, creating a fresh set of
problems.
Overall debt is still far too high in almost all rich economies as a share
of GDP (350pc in the US), whether public or private. It must be reduced by
the hard slog of "deleveraging", for years.
Related Articles
'Debt levels risk another crisis'
"As yet, nobody can say with any certainty whether we have in fact escaped
the prospect of a global economic collapse," said the 68-page report,
headed by asset chief Daniel Fermon. It is an exploration of the dangers,
not a forecast.
Under the French bank's "Bear Case" scenario (the gloomiest of three
possible outcomes), the dollar would slide further and global equities
would retest the March lows. Property prices would tumble again. Oil would
fall back to $50 in 2010.
Governments have already shot their fiscal bolts. Even without fresh
spending, public debt would explode within two years to 105pc of GDP in the
UK, 125pc in the US and the eurozone, and 270pc in Japan. Worldwide state
debt would reach $45 trillion, up two-and-a-half times in a decade.
(UK figures look low because debt started from a low base. Mr Ferman said
the UK would converge with Europe at 130pc of GDP by 2015 under the bear
case).
The underlying debt burden is greater than it was after the Second World
War, when nominal levels looked similar. Ageing populations will make it
harder to erode debt through growth. "High public debt looks entirely
unsustainable in the long run. We have almost reached a point of no return
for government debt," it said.
Inflating debt away might be seen by some governments as a lesser of evils.
If so, gold would go "up, and up, and up" as the only safe haven from fiat
paper money. Private debt is also crippling. Even if the US savings rate
stabilises at 7pc, and all of it is used to pay down debt, it will still
take nine years for households to reduce debt/income ratios to the safe
levels of the 1980s.
The bank said the current crisis displays "compelling similarities" with
Japan during its Lost Decade (or two), with a big difference: Japan was
able to stay afloat by exporting into a robust global economy and by
letting the yen fall. It is not possible for half the world to pursue this
strategy at the same time.
SocGen advises bears to sell the dollar and to "short" cyclical equities
such as technology, auto, and travel to avoid being caught in the "inherent
deflationary spiral". Emerging markets would not be spared. Paradoxically,
they are more leveraged to the US growth than Wall Street itself. Farm
commodities would hold up well, led by sugar.
Mr Fermon said junk bonds would lose 31pc of their value in 2010 alone.
However, sovereign bonds would "generate turbo-charged returns" mimicking
the secular slide in yields seen in Japan as the slump ground on. At one
point Japan's 10-year yield dropped to 0.40pc. The Fed would hold down
yields by purchasing more bonds. The European Central Bank would do less,
for political reasons.
SocGen's case for buying sovereign bonds is controversial. A number of
funds doubt whether the Japan scenario will be repeated, not least because
Tokyo itself may be on the cusp of a debt compound crisis.
Mr Fermon said his report had electrified clients on both sides of the
Atlantic. "Everybody wants to know what the impact will be. A lot of hedge
funds and bankers are worried," he said.
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