The document discusses a worst case "bear" scenario where high government debt levels constrain economic growth over the long term, similar to Japan's "lost decade". Key points:
- Global debt has doubled over the past decade and is at all-time highs as a percentage of GDP.
- A Japanese-style recovery of persistent debt, weak growth, low rates could occur if debt is not reduced.
- The US fiscal situation in particular looks dire, with debt projected to exceed 100% of GDP by 2010.
- Recommendations focus on defensive assets that perform well in risk-averse, low-growth environments.
The document summarizes Wall Street predictions for 2012 stock market performance and the actual outcomes. Most predictions were overwhelmingly negative, forecasting lackluster returns due to economic troubles. However, the US stock market returned 16% for the year, outperforming the predictions. The eurozone and European markets also defied predictions by not collapsing and some posting returns over 20%. The summary concludes that predictions are unreliable and investors are better off focusing on long-term strategies rather than trying to time markets based on uncertain forecasts.
The document provides an economic update and outlook for December 2011. It discusses the ongoing debt crisis in the Eurozone and whether the Euro will survive. It notes the ideological differences between Germany and other countries in their approaches to dealing with the crisis. Domestically, it comments on the reversal in stance by the Indian opposition on retail FDI and the potential impact on economic momentum. Inflation is expected to fall by the end of the fiscal year. The outlook is cautiously positive on long-term debt as interest rates may fall over the next 2-3 years.
The document summarizes the IMF's projections for global economic growth in 2013 and 2014 from its January 2013 World Economic Outlook update. It finds that:
1) Global growth is projected to gradually increase in 2013 as factors slowing growth in recent years ease, but the recovery will be more gradual than previously expected.
2) While policy actions have reduced crisis risks in Europe and the US, growth remains weak in Europe and may be weaker than projected, with downside risks remaining significant.
3) Growth is forecast to increase modestly in the US and pick up in emerging markets, but contract further in Japan and remain weak in Europe overall.
The WESP mid-2011 update highlights that the recovery of the global economy remains intact but uneven, with strong output growth in developing countries and a weaker economic performance in developed countries. At the same time, new headwinds have emerged, such as upward pressure on inflation rates due to higher energy and food prices and continued appreciation pressure on emerging market currencies.
The document summarizes the performance of Greenlight Capital investment funds in Q4 2011 and for the full year 2011. The main funds returned between 8.5-9.7% in Q4 and 1.9-2.9% for the full year. The letter discusses challenges in the market environment and outlines the firm's investment strategy and positions.
The Global Economy No. 9 - December 20, 2011Swedbank
The Global Economy No. 9 - December 20, 2011: Although 2011 was the year of the debt crisis, challenges still remain in 2012 – not least for the euro zone
Volkan emre financial system development in ld csVolkan Emre
The document analyzes potential ways the IMF could have influenced Turkey to prevent the 2001 currency crisis. It finds weaknesses in the IMF program's preparation, timing, and implementation. Specifically:
1) The program was designed too quickly in under 5 months, without enough consideration of structural issues like state banks' bad debts.
2) Inflation targets and exchange rate pegs were based on unrealistic estimates and neglected price stickiness issues.
3) Regulatory weaknesses in Turkey's banking system, like maturity mismatches, were not adequately addressed before the crisis.
Addressing these issues through more preparation time, realistic estimates, and earlier regulatory reforms could have strengthened the program and potentially prevented the currency crisis.
The document summarizes Wall Street predictions for 2012 stock market performance and the actual outcomes. Most predictions were overwhelmingly negative, forecasting lackluster returns due to economic troubles. However, the US stock market returned 16% for the year, outperforming the predictions. The eurozone and European markets also defied predictions by not collapsing and some posting returns over 20%. The summary concludes that predictions are unreliable and investors are better off focusing on long-term strategies rather than trying to time markets based on uncertain forecasts.
The document provides an economic update and outlook for December 2011. It discusses the ongoing debt crisis in the Eurozone and whether the Euro will survive. It notes the ideological differences between Germany and other countries in their approaches to dealing with the crisis. Domestically, it comments on the reversal in stance by the Indian opposition on retail FDI and the potential impact on economic momentum. Inflation is expected to fall by the end of the fiscal year. The outlook is cautiously positive on long-term debt as interest rates may fall over the next 2-3 years.
The document summarizes the IMF's projections for global economic growth in 2013 and 2014 from its January 2013 World Economic Outlook update. It finds that:
1) Global growth is projected to gradually increase in 2013 as factors slowing growth in recent years ease, but the recovery will be more gradual than previously expected.
2) While policy actions have reduced crisis risks in Europe and the US, growth remains weak in Europe and may be weaker than projected, with downside risks remaining significant.
3) Growth is forecast to increase modestly in the US and pick up in emerging markets, but contract further in Japan and remain weak in Europe overall.
The WESP mid-2011 update highlights that the recovery of the global economy remains intact but uneven, with strong output growth in developing countries and a weaker economic performance in developed countries. At the same time, new headwinds have emerged, such as upward pressure on inflation rates due to higher energy and food prices and continued appreciation pressure on emerging market currencies.
The document summarizes the performance of Greenlight Capital investment funds in Q4 2011 and for the full year 2011. The main funds returned between 8.5-9.7% in Q4 and 1.9-2.9% for the full year. The letter discusses challenges in the market environment and outlines the firm's investment strategy and positions.
The Global Economy No. 9 - December 20, 2011Swedbank
The Global Economy No. 9 - December 20, 2011: Although 2011 was the year of the debt crisis, challenges still remain in 2012 – not least for the euro zone
Volkan emre financial system development in ld csVolkan Emre
The document analyzes potential ways the IMF could have influenced Turkey to prevent the 2001 currency crisis. It finds weaknesses in the IMF program's preparation, timing, and implementation. Specifically:
1) The program was designed too quickly in under 5 months, without enough consideration of structural issues like state banks' bad debts.
2) Inflation targets and exchange rate pegs were based on unrealistic estimates and neglected price stickiness issues.
3) Regulatory weaknesses in Turkey's banking system, like maturity mismatches, were not adequately addressed before the crisis.
Addressing these issues through more preparation time, realistic estimates, and earlier regulatory reforms could have strengthened the program and potentially prevented the currency crisis.
Global growth prospects have dimmed and risks have escalated. The euro area crisis has entered a new perilous phase, with the euro area economy expected to enter recession in 2012. Growth is also slowing in emerging markets due to weaker external demand. Immediate policy priorities are restoring confidence in the euro area, sustaining growth while implementing fiscal adjustments, and providing liquidity. Other advanced economies must address fiscal imbalances and repair financial systems while sustaining recoveries. Emerging markets need to respond to moderating domestic growth and slowing external demand from advanced economies. Global growth is projected to slow to 3.3% in 2012, a downward revision of 0.7 percentage points from previous forecasts.
The document discusses the economic outlook for South Florida and the implications for local businesses from 2011-2012. It notes that while the US and global economies are expected to see moderate growth, the recovery will be slow and below potential levels. The document identifies several industries and business opportunities in South Florida that may see growth during this "new normal" period of slower economic activity, such as exports, trade financing, and professional services.
QNB’s expects global outlook to be gloomier than the OECDQNB Group
QNB expects a gloomier global economic outlook than the OECD forecasts. The OECD forecasts modest global growth of 3.4% in 2012, led by the US at 2.4%, but QNB sees downside risks from a potential Greek exit from the Eurozone and weak recent economic data. A Greek exit could increase fears about other troubled Eurozone countries like Spain. Additionally, recent data shows weakness in the US, China, India and other global economies. QNB believes the Eurozone crisis and its impact on the world economy will continue intensifying unless governments take significant policy actions to stimulate growth and stabilize the situation.
The full report presents a post-crisis world economy still struggling with continued weakening growth of 2.2 per cent in 2012. It projects disappointing global growth of 2.4 per cent in 2013 and 3.2 per cent in 2014 in the face of major uncertainties and downside risks and it also foresees a much slower pace of poverty reduction in many developing countries and narrowing fiscal space for investments in the many critical areas needed for achieving the Millennium Development Goals. The report calls for more forceful and concerted policy action at the global level, identifying fiscal and employment policies, financial market stability, development assistance and green growth as key challenges.
For more information: http://bit.ly/WESP
The Greek election resulted in a victory for the pro-bailout New Democracy party, reducing the risk of Greece exiting the euro. While this eased financial market concerns, major challenges still remain as the new government will have difficulties maintaining austerity targets and enacting reforms. The threat of contagion also persists for other eurozone countries like Spain and Italy, requiring European leaders to take further steps toward fiscal and banking integration.
Financial crises often begin with structural budget deficits that are exacerbated by economic downturns, causing countries to default on loans and investments amid panic. The document discusses several crises: the 1994 Mexican peso crisis after joining the OECD; the 1997-98 Asian financial crisis that began in Thailand and spread to other countries; the 1998 Russian crisis delayed from Asia and caused by oil prices and dollar-denominated bonds; and Argentina's 1999-2002 crisis involving inflation, currency devaluations, and capital flight leading to recession. It also outlines the formation and membership of the G8 and G20 economic groups, and some of their responses to the current global financial crisis through stimulus measures and financial market reforms.
The document appears to be a log of reviews and stories posted on the Tiny Review app on February 14. It includes 14 short reviews ranging from 3 to 5 words each with a photo. The reviews cover topics like a restaurant dish, a marriage proposal, and saying hello. It also includes statistics on the growth of the app in users and reviews over time.
This technical report summarizes research on understanding the psychology of scam victims. It examines various scams documented on the TV show "The Real Hustle" to extract general principles about recurring victim behaviors. The report argues that security engineers should understand these "human factors" vulnerabilities rather than blaming users, to design stronger, more resilient systems. Understanding how con artists exploit users can help engineers protect systems while accounting for human behaviors.
Podcast Your Passion: 12 Steps to MasteryLen Edgerly
The document provides 12 steps for recovering from ordinary hours by starting a podcast based on one's passion. It recommends starting before being fully ready, choosing a consistent format, deciding what to learn, improving audio quality, avoiding podcast creep, responding to listeners, sticking to topics, using Skype for interviews, inviting guests, podcasting weekly, engaging with other podcasters, and providing great show notes. The overall message is to not quit the podcast until an unexpected door opens that leads to something more important.
Introduction to the OpenMI. OpenMI is an open standard which allows dynamic linking of numerical models, such as river models rainfall-runoff models and so on. See also:
http://www.lictek.com
A presentation I originally gave at the 5th Girl Geek Dinner Milano October 24th, 2008 with the contribution of Bruna Gardella. An introduction to Open Source, the world of women and Open Source, and the Girl Geek and Open Source.
* What is Open Source (OS)
* Why Open Source
* Open Source in the world
* The Girl Geek and the Open Source World
* How to Contribute
* Appendix A: Some Open Source Alternatives for Proprietary Software
El documento discute los desafíos de la asociatividad en Chile. Señala que más del 50% de los trabajadores están en empleos informales y ganan sólo el salario mínimo. Propone que la asociatividad puede mejorar las condiciones laborales y de vida. También destaca la importancia de fortalecer las capacidades empresariales, la gestión de calidad y la internacionalización para aprovechar las oportunidades comerciales.
Este documento presenta una herramienta multimedia para estimulación sensorial y motriz que incluye fotos repetidas de la familia del niño, profesionales de su centro y del propio niño, para ayudar a reconocer caras y desarrollar habilidades motrices al interactuar con las imágenes.
Shape 2013 developing multi targeting windows store and windows phone appsJose Luis Latorre Millas
This document provides an agenda for a presentation on developing multi-targeting Windows 8 and Windows Phone 8 apps. The agenda includes discussing the importance of multi-targeting, an ABC on multi-targeting, modeling apps using MVVM, and creating a sample multi-targeting app to demonstrate sharing code across platforms using portable class libraries, applying MVVM, and creating platform-specific views. The presentation aims to provide best practices for multi-targeting apps across Windows 8 and Windows Phone 8 through code sharing and proper design patterns like MVVM.
How to succeeed as Club Seargeant-at-Arms Frances Kazan
This document outlines the role and responsibilities of the Sergeant at Arms for Toastmasters clubs. It begins by defining the role of Sergeant at Arms and then discusses their key responsibilities both during club meetings and outside of meetings. Specifically, it details the tasks the Sergeant at Arms is responsible for before, during, and after club meetings. It also discusses fulfilling responsibilities as part of the executive committee. The document provides resources for Sergeant at Arms on the Toastmasters website to help them effectively perform their role.
Future World Giving - Recognising the potential of middle class givingIDIS
Apresentação realizada por Adam Pickering, International Policy Manager da Charities Aid Foundation (CAF), por ocasião da realização da primeira edição de 2014 dos módulos nacionais da CAF Foundation School, iniciativa no Brasil desenvolvida pelo IDIS.
Global growth prospects have dimmed and risks have escalated. The euro area crisis has entered a new perilous phase, with the euro area economy expected to enter recession in 2012. Growth is also slowing in emerging markets due to weaker external demand. Immediate policy priorities are restoring confidence in the euro area, sustaining growth while implementing fiscal adjustments, and providing liquidity. Other advanced economies must address fiscal imbalances and repair financial systems while sustaining recoveries. Emerging markets need to respond to moderating domestic growth and slowing external demand from advanced economies. Global growth is projected to slow to 3.3% in 2012, a downward revision of 0.7 percentage points from previous forecasts.
The document discusses the economic outlook for South Florida and the implications for local businesses from 2011-2012. It notes that while the US and global economies are expected to see moderate growth, the recovery will be slow and below potential levels. The document identifies several industries and business opportunities in South Florida that may see growth during this "new normal" period of slower economic activity, such as exports, trade financing, and professional services.
QNB’s expects global outlook to be gloomier than the OECDQNB Group
QNB expects a gloomier global economic outlook than the OECD forecasts. The OECD forecasts modest global growth of 3.4% in 2012, led by the US at 2.4%, but QNB sees downside risks from a potential Greek exit from the Eurozone and weak recent economic data. A Greek exit could increase fears about other troubled Eurozone countries like Spain. Additionally, recent data shows weakness in the US, China, India and other global economies. QNB believes the Eurozone crisis and its impact on the world economy will continue intensifying unless governments take significant policy actions to stimulate growth and stabilize the situation.
The full report presents a post-crisis world economy still struggling with continued weakening growth of 2.2 per cent in 2012. It projects disappointing global growth of 2.4 per cent in 2013 and 3.2 per cent in 2014 in the face of major uncertainties and downside risks and it also foresees a much slower pace of poverty reduction in many developing countries and narrowing fiscal space for investments in the many critical areas needed for achieving the Millennium Development Goals. The report calls for more forceful and concerted policy action at the global level, identifying fiscal and employment policies, financial market stability, development assistance and green growth as key challenges.
For more information: http://bit.ly/WESP
The Greek election resulted in a victory for the pro-bailout New Democracy party, reducing the risk of Greece exiting the euro. While this eased financial market concerns, major challenges still remain as the new government will have difficulties maintaining austerity targets and enacting reforms. The threat of contagion also persists for other eurozone countries like Spain and Italy, requiring European leaders to take further steps toward fiscal and banking integration.
Financial crises often begin with structural budget deficits that are exacerbated by economic downturns, causing countries to default on loans and investments amid panic. The document discusses several crises: the 1994 Mexican peso crisis after joining the OECD; the 1997-98 Asian financial crisis that began in Thailand and spread to other countries; the 1998 Russian crisis delayed from Asia and caused by oil prices and dollar-denominated bonds; and Argentina's 1999-2002 crisis involving inflation, currency devaluations, and capital flight leading to recession. It also outlines the formation and membership of the G8 and G20 economic groups, and some of their responses to the current global financial crisis through stimulus measures and financial market reforms.
The document appears to be a log of reviews and stories posted on the Tiny Review app on February 14. It includes 14 short reviews ranging from 3 to 5 words each with a photo. The reviews cover topics like a restaurant dish, a marriage proposal, and saying hello. It also includes statistics on the growth of the app in users and reviews over time.
This technical report summarizes research on understanding the psychology of scam victims. It examines various scams documented on the TV show "The Real Hustle" to extract general principles about recurring victim behaviors. The report argues that security engineers should understand these "human factors" vulnerabilities rather than blaming users, to design stronger, more resilient systems. Understanding how con artists exploit users can help engineers protect systems while accounting for human behaviors.
Podcast Your Passion: 12 Steps to MasteryLen Edgerly
The document provides 12 steps for recovering from ordinary hours by starting a podcast based on one's passion. It recommends starting before being fully ready, choosing a consistent format, deciding what to learn, improving audio quality, avoiding podcast creep, responding to listeners, sticking to topics, using Skype for interviews, inviting guests, podcasting weekly, engaging with other podcasters, and providing great show notes. The overall message is to not quit the podcast until an unexpected door opens that leads to something more important.
Introduction to the OpenMI. OpenMI is an open standard which allows dynamic linking of numerical models, such as river models rainfall-runoff models and so on. See also:
http://www.lictek.com
A presentation I originally gave at the 5th Girl Geek Dinner Milano October 24th, 2008 with the contribution of Bruna Gardella. An introduction to Open Source, the world of women and Open Source, and the Girl Geek and Open Source.
* What is Open Source (OS)
* Why Open Source
* Open Source in the world
* The Girl Geek and the Open Source World
* How to Contribute
* Appendix A: Some Open Source Alternatives for Proprietary Software
El documento discute los desafíos de la asociatividad en Chile. Señala que más del 50% de los trabajadores están en empleos informales y ganan sólo el salario mínimo. Propone que la asociatividad puede mejorar las condiciones laborales y de vida. También destaca la importancia de fortalecer las capacidades empresariales, la gestión de calidad y la internacionalización para aprovechar las oportunidades comerciales.
Este documento presenta una herramienta multimedia para estimulación sensorial y motriz que incluye fotos repetidas de la familia del niño, profesionales de su centro y del propio niño, para ayudar a reconocer caras y desarrollar habilidades motrices al interactuar con las imágenes.
Shape 2013 developing multi targeting windows store and windows phone appsJose Luis Latorre Millas
This document provides an agenda for a presentation on developing multi-targeting Windows 8 and Windows Phone 8 apps. The agenda includes discussing the importance of multi-targeting, an ABC on multi-targeting, modeling apps using MVVM, and creating a sample multi-targeting app to demonstrate sharing code across platforms using portable class libraries, applying MVVM, and creating platform-specific views. The presentation aims to provide best practices for multi-targeting apps across Windows 8 and Windows Phone 8 through code sharing and proper design patterns like MVVM.
How to succeeed as Club Seargeant-at-Arms Frances Kazan
This document outlines the role and responsibilities of the Sergeant at Arms for Toastmasters clubs. It begins by defining the role of Sergeant at Arms and then discusses their key responsibilities both during club meetings and outside of meetings. Specifically, it details the tasks the Sergeant at Arms is responsible for before, during, and after club meetings. It also discusses fulfilling responsibilities as part of the executive committee. The document provides resources for Sergeant at Arms on the Toastmasters website to help them effectively perform their role.
Future World Giving - Recognising the potential of middle class givingIDIS
Apresentação realizada por Adam Pickering, International Policy Manager da Charities Aid Foundation (CAF), por ocasião da realização da primeira edição de 2014 dos módulos nacionais da CAF Foundation School, iniciativa no Brasil desenvolvida pelo IDIS.
Responsible Tourism by Nicolás and Marcosvivislide
Respect local cultures and people, participate in local activities to build relationships and understanding between tourists and locals, and ensure locals feel comfortable during tourist visits through good behavior, friendly interactions, and sharing of customs to promote responsible, non-discriminatory tourism.
The ant and the corporation - Talent Management Gone Wrong ...Frances Kazan
The document tells a fable about an ant who worked hard without supervision. A lion in charge was surprised by her productivity and recruited others to supervise her, including a cockroach, spider, and fly. This led to increased paperwork and meetings that reduced the ant's productivity. More supervisors were added, including a cicada. An audit found the department was now overstaffed and less productive than before, so the ant was fired for lack of motivation.
The document provides an overview of preparing for and conducting negotiations. It discusses the importance of preparation, including determining goals, objectives, and targets. It also outlines key steps in preparation such as defining goals and objectives with your team, scouting for relevant information and data, selecting and evaluating pertinent information, and engaging with other negotiating teams to define the negotiation process and timeline. The overall message is that thorough preparation is essential to be an effective negotiator.
This document outlines the role and responsibilities of a Vice President of Public Relations for a Toastmasters club. It discusses promoting the club through various channels like websites, newsletters, and social media. It also describes the VPPR's duties at club meetings, which include distributing promotional materials and reporting on public relations efforts. The document provides resources for VPPRs to help them fulfill their responsibilities and succeed in their role.
The document provides an overview and analysis of global risks for 2009 as identified by the World Economic Forum's Global Risk Network. It finds that risks related to deteriorating fiscal positions, a sudden slowdown in China's economy, further declines in asset prices, resource challenges exacerbated by climate change, and gaps in global governance pose significant threats. The financial crisis has demonstrated the interconnected nature of the global economy and amplified many pre-existing risks. Going forward, leadership and coordinated international cooperation will be needed to balance responses to the immediate economic situation with efforts to mitigate longer-term risks.
WESCO reported first quarter 2009 results with sales down 16% and net income of $23.3 million. Cost reduction efforts are estimated to save $100 million in 2009 and liquidity remains strong at $365 million. Guidance forecasts 2009 revenues to decline 15-20% but expense reductions, a lower tax rate, and continued cash flow are expected to partially offset revenue declines. Capital expenditures are forecast at $16 million for 2009.
Merrill Lynch Global Power and Gas Conferencefinance14
This document summarizes Merrill Lynch's presentation at the 2008 Power & Gas Leaders Conference in New York on September 23, 2008. Some key points:
- Exelon is well positioned financially, with strong operations, a robust hedging program, and ample liquidity.
- Exelon's 2009 operating EPS is expected to be flat compared to 2008, as higher earnings from ComEd offset lower earnings from Exelon Generation.
- Exelon is uniquely positioned for sustainable value through its large nuclear fleet, competitive markets, and opportunities for growth.
This report outlines the global macroeconomic trends that are expected to impact businesses over the next five years. Valuable insight includes the challenges of the post-recession recovery, as well as the risks and opportunities facing businesses in established and emerging regional economies.
The document provides an update on the Equity Income Portfolio strategy for year-end 2008. It discusses how 2008 was an extraordinarily difficult year for financial markets, with most major indexes experiencing declines of 30-40%. While the portfolio fared better than indexes with a decline of 18%, it was still the portfolio's first negative year since inception in 2000. The outlook provided expects a long and difficult economic downturn, with stock market valuations not bottoming until 2015-2020 when price-to-earnings ratios reach single digits. The update reviews the portfolio holdings and dividend payments received in 2008.
Regional outlook forum 2013 10 january 2013Chin-Huat Wong
Presentation by Azrul Azwer, Chief Economist of Bank Islam which caused his suspension for predicting an opposition victory in the coming Malaysian elections.
Objective Capital Global Mining Investment Conference
30 Sep 2009
Mining financing through the cycle in frontier countries
by Sacha BackesDepartment for Oil, Gas, Mining and Chemicals
International Finance CorporationWorld Bank Group
Are we there yet? Searching for the bottom of the recession of 2007theonlyelina
This document discusses the state of the US and global economies in September 2009 and whether the recession of 2007 may have reached its bottom. It provides an overview of recent economic indicators and forecasts, including declines in GDP, employment, consumer spending. It also examines issues in industries like finance, housing, and automobiles. The document reviews the performance of the economies in countries around the world and provides projections on the expected pace of recovery.
This document discusses how companies are navigating uncertainty in the Eurozone. It outlines scenarios for how the Eurozone crisis could evolve. It also discusses approaches companies are taking to assess exposures, minimize risks, and develop contingency plans across key business functions like finance, legal, IT and supply chain. Specific actions mentioned include de-risking currency holdings, managing supplier exposure, increasing cash reserves, and preparing for volatility. Regulatory challenges are also noted.
The Cyprus crisis is one of the most complex in the Eurozone -although in absolute terms it is a minor crisis. An analysis of the ongoing developments from different perspectives leads to the conclusion that we are witnessing a «perfect crisis» at the confluence of sovereign debt and banking crisis together with debt overhang of business and households and a severe decline of competitiveness. As a result CY has amassed a large external debt that can not be repaid, no matter what fraction of the country’s real domestic economic output is appropriated through austerity measures. Hence, fiscal austerity leads to deflationary stagnation and alone does not work. We advocate a policy response that addresses multiple dimensions of the problem with policy options of (1) austerity deleveraging, (2) structural reforms, (3) financial innovations, (4) partial privatizations and (5) debt restructuring. These options are drawn from lessons of what worked well, and what not, in crises of other countries and these lessons are summarized in lieu of conclusions
SuperReturn 2010: Bumpy road ahead for Private Equity investorsValue Partners
The document discusses the outlook for private equity investors based on insights from the SuperReturns 2010 conference. It notes that (1) future returns will rely less on financial engineering and more on operational improvements, sector expertise, and growing portfolio company EBITDA. It also finds that (2) the large amount of uninvested capital and challenging macroeconomic conditions in Western markets will make it difficult for private equity firms to achieve past returns in the short to medium term. However, (3) private equity has historically rebounded after downturns, and future high returns may be possible later in the decade if firms adapt their strategies and markets in emerging countries are tapped.
This document discusses the outlook for private household financial assets in different regions and scenarios. It provides an overview of historical development of financial assets internationally from 1996-2008. Household financial assets significantly declined in 2008 globally due to stock market and housing crashes. The document then outlines four potential scenarios for financial asset growth through 2020: a basic scenario assuming gradual economic recovery; an "additional savings" scenario with higher savings rates; a pessimistic scenario with continued recession; and a positive scenario with strong growth.
The major reasons for the recession that hit worldwide especially the US and Eurozone.
The subprime Crises, US housing Crisis with Facts and Figures and The Fix.
The document discusses global headwinds for the Black Sea region. It notes that the global outlook has darkened, especially in Europe, with high recession risks. This poses downside risks for the Black Sea region in the near term and could undermine long-term growth prospects by putting pressure on currencies and banks and exacerbating any domestic vulnerabilities. However, policy space in the Black Sea region remains constrained to respond to these challenges.
The CEO of Generali Group presented at the UBS Italian Financial Services Conference in Milan on January 22, 2010. In his presentation, he discussed:
1) The uncertain but gradual global economic recovery and challenges from stricter capital requirements for insurers.
2) Mixed recovery in insurance markets, with opportunities in life insurance but challenges in property and casualty.
3) Generali's positive results in 2009, with growth in gross written premiums, net result, and shareholders' equity from 2008 to the first three quarters of 2009.
This study uses a macro-micro framework to evaluate the impact of the global economic crisis on poverty in Pakistan. The results suggest that between 2007-2009, poverty increased by almost 80% from 22% to 40% due to food and fuel price increases preceding the crisis. A 25% decline in foreign savings led to a 1.2% drop in investment, currency depreciation, and rising consumer prices. This increased poverty by 4% and reduced food consumption by 1.3%. Lower-income households substituted staples for more expensive foods.
A financial crisis can have wide-ranging effects. It begins when the value of assets like stocks, housing, or currencies suddenly decreases. This can lead to a recession if economic activity declines. Financial crises occur for reasons like risky lending, herd behavior, and regulatory failures. They can cause unemployment to rise as demand falls, leading to less production and spending in a recessionary spiral.
The document is a presentation by Mark Stromberg from Gartner that discusses the economic outlook for 2009 and the semiconductor industry. It provides forecasts showing steep declines in GDP, electronics spending, semiconductor revenue, and other metrics in 2009 due to the recession. It also discusses signs that would indicate recovery, such as a return to GDP growth in the US in the third quarter of 2009. The presentation outlines waves of recovery expected across different device application sectors from 2009 to 2011 if GDP growth returns in the third quarter of 2009.
Credit Suisse Group faced challenges in Q3/2001 from weak market conditions, which impacted investment banking income and insurance investment portfolios. The Group reported a net loss of CHF 299 million for Q3/2001, down from a profit of CHF 1.6 billion in Q3/2000. Total assets under management fell 7% from December 2000 to CHF 1,290.4 billion due to market declines. Cost reduction programs were initiated across all business units to adapt to the difficult market environment.
The majority down. 62% of our 72-stock universe suffered lower
sequential quarterly net profits, with 24% surprising on the downside.
The combined 1Q09 net profit of our research universe fell by just 3.5%
QoQ. But stripping out 5 large gainers, net profits fell a larger 13.6%
QoQ. Consumers and glove manufacturers’ defied gravity, but net
profits of virtually all stocks in nine sectors fell quarter-on-quarter.
A surprising combined result, but the devil is in the details. The
combined net profit of our research universe declined just 3.5% QoQ
despite an overwhelming 62% of companies reporting a sequential
quarterly decline. But excluding five companies, combined net profit fell
13.6% QoQ, an acceleration from previous quarters. A broad-based
earnings decline is being masked by a few companies, including some
monopolies.
Declines in nine sectors, but consumer sector unscathed. Every
stock in nine sectors, excluding monopolies Petronas Gas and KLCCP,
experienced a drop in quarterly sequential earnings. The sectors are
gaming, oil & gas, property, REITs, construction, building materials,
semi-conductors, plantations and toll roads. Consumer stocks and
glove manufacturers showed particular resilience.
An ‘energy dividend’ took effect; monopolies fared well. Lower oil
prices benefited heavy fuel users AirAsia and Tenaga. Their gains were
only partially offset by lower earnings at the oil & gas services
companies. Net profits of Telekom, Tenaga and Petronas Gas, all
effectively monopolies, improved on a quarterly basis although only
Petronas Gas raised prices in 1Q09.
The biggest disappointment and downgrade: 1Q GDP. First quarter
2009 GDP fell 6.2% YoY, against consensus expectations of a 3-4%
drop. We have revised our GDP forecasts to -3.8% in 2009 and +4.0%
YoY in 2010 (previously -1.3% and +3.5% respectively). The
government, to be ahead in the expectations game, is projecting 2009
GDP growth of -4% to -5%. The silver lining is the government is now
under greater pressure to implement its fiscal stimulus plans quickly.
A reversal of fortune ahead for construction, building materials.
Despite uniformly lower earnings this 1Q, we believe the construction
and building materials sectors are only 2-3 quarters away from
improved revenues. Share prices of stocks in these sectors will likely
be driven by newsflow from the fiscal stimulus rather than earnings.
Part 2 Deep Dive: Navigating the 2024 Slowdownjeffkluth1
Introduction
The global retail industry has weathered numerous storms, with the financial crisis of 2008 serving as a poignant reminder of the sector's resilience and adaptability. However, as we navigate the complex landscape of 2024, retailers face a unique set of challenges that demand innovative strategies and a fundamental shift in mindset. This white paper contrasts the impact of the 2008 recession on the retail sector with the current headwinds retailers are grappling with, while offering a comprehensive roadmap for success in this new paradigm.
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The Steadfast and Reliable Bull: Taurus Zodiac Sign
Sg Worst Case Debt Scenario
1. Special report
Global
Fourth quarter 2009
EQUITY
CREDIT
VIEW
OBAL
A GL EUROPE
FROM
Worst-case debt scenario
Protecting yourself against economic collapse
Advanced
economies
World debt: x2.5 Debt/GDP (worst case)
in 10 years! 45 150%
35
30
72% Emerging
economies
26 Debt/GDP (worst case)
49%
23 45%
18
2001 2003 2005 2007 2009e 2011e
Global debt in trillion dollars (Source: The Economist)
Product manager
Daniel Fermon
(33) 1 42 13 58 81
daniel.fermon@sgcib.com Sell Dollar
Global Head of Research
Patrick Legland
(33) 1 42 13 97 79
patrick.legland@sgcib.com
Buy Government bonds
Macro Strategy
Benoît Hubaud
(33) 1 42 13 62 04
Cherry pick Equities and Commodities
benoit.hubaud@sgcib.com
Sector Research
Fabrice Theveneau
(33) 1 58 98 08 77
fabrice.theveneau@sgcib.com
Commodities
This document is based on an extreme worst-case
Frédéric Lasserre
(33) 1 42 13 44 06
scenario and does not reflect SG’s central scenario.
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
PLEASE SEE IMPORTANT DISCLOSURES AT THE END OF THE DOCUMENT
3. Worst Case Debt Scenario
Contents
4 The worst case debt scenario
4 Hope for the best, be prepared for the worst
5 How to position for our bear scenario
6 Analogies with Japan’s lost decade & investment ideas
6 Debt explosion in 2009
7 The current economic crisis displays compelling similarities with Japan in the 1990s
9 End of market rally for equities? Look at Japan!
9 Worried about inflation? Japan suggests deflation more of a risk
10 Stress-testing performance by asset class under a bear scenario
12 How to invest under a bear scenario
13 Focusing on roots to forecast consequences
13 Flashback to the origins of the economic crisis
14 Governments bailing out the financial system, but at what price
15 Counting on a comeback for the US consumer
17 Counting on governments to survive debt mountains!
19 The painful task of removing the excess debt
20 Governments: choose the route to debt reduction
22 Indebted developed economies can’t compete with debt “free” emerging markets
26 Three economic scenarios, one constraint: debt!
30 Bear scenario Lengthy deleveraging, and slow recovery over five years
32 Fixed Income & Credit under a Bear scenario
33 Investment Grade Credit under a Bear scenario
34 High Yield Credit under a Bear scenario
35 Equity Strategy under a Bear scenario
37 Oil & Gas under a Bear scenario
38 Metals & Mining under a Bear scenario
39 Agricultural commodities under a Bear scenario
41 Appendix: Bottom-up approach: central and bull scenarios
42 Central scenario Back to potential economic growth in three years
43 Currencies - Protracted dollar weakness
45 Fixed Income & Credit under a Central scenario
46 Investment Grade Credit under a Central scenario
47 High Yield Credit under a Central scenario
48 Equity Strategy under a Central scenario
50 Equity volatility under a Central scenario
51 Oil & Gas under a Central scenario
52 Metals & Mining under a Central scenario
53 Agricultural commodities under a Central scenario
55 Bull scenario Strong boom one year out
56 Fixed Income & Credit under a Bull Scenario
57 Investment Grade Credit under a Bull scenario
58 High Yield Credit under a Bull scenario
59 Equity Strategy under a Bull scenario
61 Oil & Gas under a Bull scenario
62 Metals & Mining under a Bull scenario
63 Agricultural commodities under a Bull scenario
Report completed on 13 October 2009
Thanks to Benjamin Sigel and Nicolas Greilsamer for their assistance in preparing this report
Fourth quarter 2009 3
4. Worst Case Debt Scenario
The worst case debt scenario
Hope for the best, be prepared for the worst
SG’s central scenario is for a slow Much has been written about the credit crisis, the government stimulus response, the
global recovery…
mountains of debt and the possible resulting emergence of a new world order, but as yet no-
one can say with any certainty whether we have in fact yet escaped the prospect of a global
economic collapse. Perhaps ‘global economic collapse’ is too strong a term. There are
degrees of collapse, from severe interruptions in the pace of progress to a scenario more like
a global economic meltdown, with unthinkable consequences. Happily we are more sanguine.
But while we believe the greatest danger is past, we also recognise that the price of our
salvation has yet to be paid in full.
Our central economic scenario assumes a slow recovery for the global economy, but with
government debt at all-time highs, in this report we spend some time taking a hard look at the
downside risks. Using debt as the key variable we also draw up two alternative economic
scenarios (bull and bear) and consider the implications for strategic asset recommendations.
In particular we focus on strategies for those who believe we may be set for a Japanese-style
(non) recovery.
…but we think it wise to consider A Japanese-style recovery implies persistent government debt, economic anaemia, low interest
the risks of a Japanese-style (non)
rates and weak equity markets. We would not qualify expanding government debt as a bubble.
recovery as well
But we do believe it represents a threat to future economic growth, constraining governments’
freedom to spend and potentially requiring tax increases, which could in turn hold back
consumption. The inevitable – and lengthy – period of deleveraging which lies ahead could lead
to weak or even negative GDP growth, substantially affecting asset class performance. This is
the thesis underpinning the bear scenario on debt discussed in this report.
Under this bear scenario (worst case), we combine a quantitative and qualitative screening
approach, crossing top-down fundamental analysis with the results given by our econometric
model, to draw up a series of recommendations, as summarised in the table below.
Key recommendations under a bear (worst case) debt scenario
Asset class Bear debt Bear scenario comments
scenario
(12 m)
Currencies Dollar - Future dollar worries stemming from US debt funding imbalance
Fixed income Government bonds (10Y) + 10 YR bonds should perform well as long-term rates decline
Investment Grade (5-7Y) = Lower government yields should offset wider credit spreads
High Yield (3-5Y) - Stay away from high-yield cyclicals as high risk aversion will heavily penalise these bonds
Equities Indices - Risk of a double bottom for equity markets as observed during past crisis
Penalised by the weakness of the economy but benefiting from US corporates’ global
US -
positioning
Europe - Very fragile recovery. European companies penalised by a strong euro
Emerging markets = Difficult trade conditions should subdue any increase in domestic consumption
Commodities
Oil - Short-term demand to fall, bringing Brent down to $50 per barrel
Mining = Mainly dependent on Chinese growth, with discrepancies between mining stocks
Agricultural + Good trend in some agricultural products given lack of supply. Looks defensive
Source: SG Research
4 Fourth quarter 2009
5. Worst Case Debt Scenario
How to position for our bear scenario
Sell the dollar as a declining dollar could provide a means to reduce global imbalances.
Positive on fixed income as rates would fall in a Japanese-style recovery. Prefer defensive
corporates (telecom, utilities) which have the lowest risk of transitioning into high-yield and
should perform well in a more risk averse environment.
Sell European equities as markets have already priced an economic recovery in 2010e.
Under a bear scenario, this optimism could be dashed once restocking is over and fiscal
stimulus (especially for the auto sector) has dried up.
Cherry pick commodities given the diverse nature of this asset class. Agricultural
commodities would probably fare best, but are difficult to forecast given high exposure to
weather conditions. Mining commodities (particularly gold) are also a hedge against a
softening dollar and could be favoured by persistently strong demand from emerging markets,
particularly China.
3 scenarios, 1 constraint…
Worst case Bull economic scenario
Bear economic scenario
Rapid rise in public Reducing deficit but
deficit still high
No GDP growth High GDP growth
Deflation
Central scenario High inflation
Low interest rates (SG MAP*) Higher interest rates
Public deficit rises
Limited GDP growth
Limited inflation, no deflation
Slow increase in interest rates
Overweight
Commodities
Equities
Underweight
Government bonds
Yen
10-Year Government Bonds Oil, Mining
Gold, Agricultural Emerging equities
commodities High-Yield
Equities
High Yield Dollar Government bonds
Source: SG Cross Asset Research, SG Global Asset Allocation * SG MAP = SG Multi Asset Portfolio
Fourth quarter 2009 5
6. Worst Case Debt Scenario
Analogies with Japan’s lost decade &
investment ideas
Debt explosion in 2009
With US government debt approaching 100% of GDP by 2010e, signs of a constrained
recovery are becoming apparent as the $787bn stimulus package takes effect. Government
receipts are falling, while expenditure is at an all-time high
US debt explosion (US$bn)
Debt is a key issue for the US:
with population ageing burdening Even the estimates provided by the US
a smaller workforce, government Congressional Budget Office predict further
spending is set to increase
increases in public expenditure out to 2011
considerably
source: Congressional Budget Office, SG Cross Asset Research
Further transfer of debt from the private sector to the state and rising healthcare costs,
particularly for ageing baby boomers, are among the factors behind soaring US public debt.
These poor demographics and the complexity of the current crisis serve as reminders that we
may not have escaped the prospects of a ‘lost decade’, implying years of sub-par economic
growth ahead. The US is not the only country facing such a gloomy outlook for public
finances. In Europe also, public debt to GDP should exceed 100% within a few years.
Public debt as % of GDP
250% 140%
120%
Italy
200%
100%
Japan Public
Debt Germany
150% 80%
60% UK
100%
40%
US Public Debt
50% 20% France
Debt has increased dramatically- 0%
0% how long will this continue
1981 1985 1989 1993 1997 2001 2005 2009
1990 1994 1998 2002 2006 2010 2014
UK Italy Germany France
Japan Public Debt US Public Debt
Source: SG Cross Asset Research, FMI
6 Fourth quarter 2009
7. Worst Case Debt Scenario
The problem facing governments is that if they cut off the fiscal stimulus too soon, we could
fall back into recession, but if the gap is not closed rapidly, there would be a risk of high
inflation and high interest rates by 2011. Taking an extreme view, US debt could result in a
collapse in the dollar as large US debt holders reduce their exposure and inflation rises as a
result. We do not see this as a likely scenario over the next 12 months as debt is currently an
issue in practically all developed countries, so no other currency could realistically replace the
dollar at the moment.
The current economic crisis displays compelling similarities
with Japan in the 1990s
A return to recession would bring echoes of Japan’s ‘lost decade’. As highlighted in the
following chart, there are striking similarities between that period and the decade starting with
the dotcom crisis in 2000/2001 and ending with the current crisis seen in the US from 2007.
Counting the similarities
Taking a different perspective, we
can see that the current crisis has
its roots in the dotcom crisis at
the beginning of this decade.
Combining these two crises, as
shown in the chart on our right,
brings back memories of Japan…
Source: SG Cross Asset Research
In the following chart we shift forward Japan’s rate hikes and debt deployment trends by
10 years to compare these with the US experience, underlining the huge risks ahead if the US
continues to make full use of unconventional measures to support the economy.
Fourth quarter 2009 7
8. Worst Case Debt Scenario
Shifting forward Japan’s interest rates and debt by 10 years suggests a similar story
7 7
4
Rate hike discrepancy
6 6 2 JP FISCAL DEFICIT
Japan BOJ rate 0
5 5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
-2
4 4
-4
US Fed Reserve rate
-6 US FISCAL
3 3
DEFICIT
-8
2 2
-10
1 1
-12
0 0 Japan Fiscal Deficit %GDP (Starting in 1990)
1 713 25 37 49 61 73 85 97 03115127139151163175187199211223235
19 31 43 55 67 79 91 1 109121133145157169181193205217229 US Fiscal Deficit %GDP (Starting in 2000)
Japan BOJ (Starting in 1990) US Fed Reserve (Starting in 2000)
Source: SG Cross Asset Research
In a normal downturn, debt would naturally be reduced by higher receipts, stemming from a
return to normal GDP growth. Looking at Japan, we can see that when debt started to narrow
in 2006, GDP was slow to increase as consumption was impaired by lower government
spending. The boom at that time in western economies was the only factor which alleviated
some of the pressure on the Japanese economy.
In our bear scenario, much like Japan, debt is the main constraint on US GDP growth. And as
shown below, reducing the excessive debt burden is likely to stall economic activity under that
scenario. Thus, given the hefty public debt constraint, our pessimistic scenario would see a
repeat of Japan’s ‘lost decade’, this time with the US experiencing zero growth and fighting a
battle against deflation, with debt continuing to weigh on the economy.
Debt’s toll on GDP during Japan’s ‘lost decade’… And the US is heading in the same direction!
14% 20.0%
12%
Debt to GDP % yoy 15.0%
10%
Debt to GDP % yoy
8% 10.0%
6%
5.0%
4% GDP growth yoy%
GDP Growth % yoy
2% 0.0%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
0%
-5.0%
2003
2005
2006
2007
2008
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2004
-2%
-10.0%
-4%
Debt and GDP during the ‘lost decade’ show a high negative correlation
-6% -15.0%
Japanese Debt to GDP % yoy Japanese GDP Growth % yoy US Debt to GDP yoy% GDP growth yoy%
Source: OECD, SG Cross Asset Research Source: SG Cross Asset Research, IMF International Statistics
8 Fourth quarter 2009
9. Worst Case Debt Scenario
End of market rally for equities? Look at Japan!
If we accept the idea of a two-stage crisis (taking as our starting points 2000/01 + 2007/08),
we have probably reached a situation similar to that of Japan in the 1990s. This analogy would
suggest that we are now exiting a bear market rally, which was fuelled by restocking and fiscal
stimulus. If the fiscal incentives boosting auto consumption are reduced, “normal” consumer
spending will be unable to pick up the running so long as unemployment remains depressed.
Comparing the S&P today to the Nikkei in Japan’s lost decade
7
Japanese Real Estate
6 and Valuation Crisis
5
Bear market rally
4
3
2 US Valuation
Crisis
1
Nikkei 225 (starting in 1980) S&P 500 (starting in 1990)
0
241
361
1
16
31
46
76
91
136
151
166
181
196
211
226
256
271
286
301
316
331
346
61
106
121
Duration (Months)
Source: Datastream, SG Cross Asset Research
Worried about inflation? Japan suggests deflation more of a risk
With unemployment peaking, it seems illusory to expect inflation in the coming 12 months and
hence a higher risk of increasing bond yields. The bond market suggests the real risk is one of
deflation, again calling to mind the Japanese scenario.
Comparing Japanese and US 10YR bond yields
9
8
Japan (1990-2009) US (2000-2009)
7 Bond yields on a continuing
downward trend …
6
5 Short lived recovery
4 from Japan’s ‘lost
decade’ …maybe in 3
3 years time in the US
2
1
0
1 368 735 1102 1469 1836 2203 2570 2937 3304 3671 4038 4405 4772
Source: Datastream, SG Cross Asset Research
Fourth quarter 2009 9
10. Worst Case Debt Scenario
Stress-testing performance by asset class under a bear scenario
We have developed a quantitative approach to assess the return for different asset classes on
the assumption of zero US GDP growth for the next two years due to high debt. Our model
provides clear guidelines for investment under the bear scenario, with fixed income naturally
benefiting, followed by some commodities, whereas equity markets and the dollar suffer.
Estimated correlation with US GDP by asset class
EUROPE Oil
S&P 500 7.4
Emerging
JAPAN DOW JONES 6.4
FTSE 100 5.4
Gold, government bonds and the
Linear correlation
Metals
yen are the best placed assets in 4.4
the bear scenario
3.4
2.4
Global HIGH YIELD
Agro
1.4
USD/JPY 0.4
-0.2 -0.1 -0.1 0.0 0.0 0.1
-0.6
US Investment Grade
-1.6
10Y US Gold
Estimated average return for 0% US GDP growth
Source: SG Cross Asset Research, Datastream, MSCI Inc.
With equities proving highly correlated to US GDP, the indices expected to suffer most under
our zero GDP growth model are those with the greatest GDP correlation. The emerging market
indices (the Indian Sensex and Asia’s Hang Seng and Shenzen) have historically outperformed
US GDP. This suggests that the emerging market indices have a high linear correlation to US
GDP. Surprisingly, it is the Dow Jones and the FTSE that are the Western indices least
sensitive to US GDP. However, despite their previous high correlation, we find the emerging
markets have recently decoupled from the US and going forward we expect this to continue.
Estimated correlation with US GDP among equity indices
CAC 40 DAX 30
8.9
DJ STOXX 600 8.4
7.9
Linear correlation
Emerging
7.4
HANG SENG
6.9
WORLD
S&P 500
6.4
DOW JONES 5.9
NIKKEI
5.4
FTSE 100
4.9
-18.5 -13.5 CHINA -8.5 -3.5 1.5
Estimated average return for 0% US GDP growth
Source: SG Cross Asset Research, Datastream, MSCI Inc.
10 Fourth quarter 2009
11. Worst Case Debt Scenario
Seeking refuge in the largest government bond issues has historically proved beneficial during
periods of market stress. Investment grade bonds would also be expected to perform well
under the scenario, although there is a slight risk of some bonds transitioning to lower class
ratings. High yield bonds, however, would be hard hit under our model, with default rates
peaking.
Estimated correlation with US GDP within fixed income & credit
R 2 = 0.6029 JP 5 Y BD 10 Y JP 10 Y
BD 2 Y JP 7 Y
0.0 2.0 3.0 4.0 5.0
-0.3 1.0
BD 5 Y
JP 2 Y BD 7 Y
-0.5
Linear correlation
UK 2 Y UK 5 Y UK 10 Y
-0.7
US 2 Y
UK 7 Y
-0.9
-1.1
-1.3 US 5 Y US 7 Y
-1.5 US 10 Y
Estimated average return for 0% US GDP growth
Source: SG Cross Asset Research, Datastream
Commodities are less sensitive to GDP. Opportunities could still arise, with gold and
agricultural commodities likely to prove resilient if attractively priced.
Estimated correlation with US GDP within commodities
Nickel 8.0
6.0 Lead
LMEX
Copper
4.0 Oil-Brent
Aluminium
Linear correlation
Silver Gas Oil
2.0
CRB Wheat
0.0
-7.5 -3.5 0.5 4.5 8.5 12.5 16.5 20.5 24.5
-2.0 Raw Sugar
Soyabeans Gold
-4.0 Corn
Cocoa
-6.0
Estimated average return for 0% US GDP growth
Source: SG Cross Asset Research, Datastream, MSCI Inc
Fourth quarter 2009 11
12. Worst Case Debt Scenario
How to invest under a bear scenario
Having considered the similarities and differences between the current situation in the US and
Japan’s lost decade, we summarise below the investment implications of a bear scenario for
debt, showing 12-month recommendations by asset class and sub sector under market stress
conditions. This list was obtained using a quantitative and qualitative screening approach,
which combines top-down fundamental analysis crossed with the results given by our
econometric model. We also indicate the investment recommendations under SG’s central
scenario (SG Global Asset Allocation Research, Multi Asset Portfolio).
Key recommendations under a bear debt scenario and under SG’s central scenario
Asset class Bear debt SG MAP Comments under a bear scenario
scenario
(12m)
Currencies Dollar - N Future dollar worries stemming from US debt funding imbalance
Fixed income Government bonds (10Y) + UW 10 YR bonds should perform well as long-term rates decline
Investment grade (5-7Y) = N Lower government yields should offset wider credit spreads
High yield (3-5Y) - NA Stay away from high-yield cyclicals as high risk aversion will heavily penalise these bonds
Equities Indices - OW Risk of a double bottom for equity markets as observed during past crisis
Penalised by the weakness of the economy but benefiting from US corporates’ global
US - N
positioning
Europe - N Very fragile recovery. European companies penalised by a strong euro
Emerging markets = UW Difficult trade conditions should subdue any increase in domestic consumption
Commodities OW
Oil - Short-term demand to fall, bringing Brent down to $50 per barrel
Mining = Mainly dependent on Chinese growth, with discrepancies between mining stocks
Agricultural + Good trend in some agricultural products given lack of supply. Looks defensive
Source: SG Cross Asset Research, SG Global Asset Allocation Research and MAP Multi Asset Portfolio (UW = Underweight, N + Neutral, OW = Overweight)
12 Fourth quarter 2009
13. Worst Case Debt Scenario
Focusing on roots to forecast consequences
If we truly are in a bear market rally, albeit a long one, with equities diverging from the
underlying factors, then understanding the fundamentals will help us avoid disappointing
outcomes when markets converge with economic reality.
Flashback to the origins of the economic crisis
The global recession which started in 2008 stemmed directly from US financials and
households being excessively leveraged on loss generating underlying property assets.
Demonstrating the severity of the global crisis, in April 2009 the IMF estimated the total cost of
the global crisis at slightly over 4 trillion dollars in nominal terms.
The depth of the economic crisis has been attributed to a number of factors:
The crisis spread from sub-prime Complex debt securitisation mixing toxic assets with healthy assets, with credit ratings
to prime households and from
which downplayed the risks of such products.
toxic to healthy assets
A massive increase in defaults by sub-prime households led to a global decrease in house
prices and therefore bank collateral, prompting a deterioration in bank balance sheets and a
necessary deleveraging by these institutions to contain the damage.
Forced deleveraging amplified drops in real estate and securitised asset prices, with a
confidence crisis leading to a liquidity crisis.
The crisis spread from sub-prime to prime households and from toxic to healthy assets.
The liquidity and confidence crises started to contaminate the rest of the US economy and
spread to other economies due to globalisation and the interconnectedness of financial
institutions in global markets.
A three-step crisis: markets, banks, real economy
Increase in default rates for sub- prime loans
prime loans
Increase in real - estate prices
Drop in default rates for sub
Drop in real estate prices
-
Accelerators
Accelerators Markets
Rating agencies Markets
Rating agencies Tension on structured products Tension on onSIVs
Tensions SIVs Tension on monetary funds
Tension on structured products (Structured investment vehicles)
(Structured investment vehicles)
Valuation Valuation Liquidity
Liquidity
Monolines
Monolines Banks
Depreciation Income statement channel Balance sheet channel: reintermediation
Balance sheet channel:
Depreciation of market value value Depreciations
Depreciation of market Income statement channel
Risk of derating
Risk of derating Value adjustment Return of off off
balance
Return of - balance Freezing of current
Value adjustment sheet assets
sheet assets equity syndication
equity syndication
PRESSUREPRESSURE ON BANKS CAPITAL
ON BANKS’ CAPITAL
Real Economy Pressure on Real estate
CreditCredit restrictions
restrictions
Negative wealth effect
Source: SG Cross Asset Research, Banque de France
Fourth quarter 2009 13
14. Worst Case Debt Scenario
Governments bailing out the financial system, but at what price
At the end of 2008, the ratio of total debt to GDP had risen to over 350% in the US and should
only stabilise in 2009. We have now reached a point where the developed economies,
particularly the US, appear to have no option but to deleverage.
Historical and projected breakdown of US debt by category
400%
Household Business Financials Government
350%
300%
250%
200%
150%
100%
50%
0%
1939
1944
1949
1954
1964
1969
1974
1979
1984
1989
1994
1999
2004
2009
2014
1959
1934
1929
Source: SG Global Strategy, Bloomberg , US Federal Reserve
Central bank and government intervention has shifted the debt burden from financial
institutions to governments in a drive to quell the financial crisis and revive an ailing global
economy, provoking an explosion in public debt. The resulting huge liquidity injections left the
markets with little alternative but to rally!
Rapid central bank and government intervention to revive the economy
The depth of the crisis stemmed A typical economic cycle shows that slowdowns come after a rise in interest rates. An
from a bubble created by an
“appropriate” decrease in interest rates brings mechanical support for consumption and future
extended period of low interest
rates, and followed by an corporate investments and economic development. In the current crisis, central banks have
unprecedented increase in cooperated to implement a broad range of measures to stimulate the global economy and
interest rates!
avoid a collapse in the financial system.
Unprecedented decrease in interest rates by the main central banks
12 12
US UK Europe Japan China
10 10
8 8
6 6
4 4
2 2
0 0
May-94 Feb-97 Oct-99 Jul-02 Apr-05 Jan-08
Source: SG Economic Research, SG Cross Asset and Hedge Fund Research, DataStream
14 Fourth quarter 2009
15. Worst Case Debt Scenario
In theory, the unorthodox monetary policy unveiled during the crisis is not without risk, as
quantitative easing should be inflationary – except that for the moment the printing of money
by western economies has been used only to replace the credit destroyed. The continued fall
in corporate borrowing reflects a net repayment of debt, as demand continues to be very
weak.
With bank lending still in decline, It has now been a year since the implementation of quantitative easing. Going forward, we see
QE and stimulus are essential to
central banks gradually cutting back on these measures, although it is still too early to
sustain a recovery, but at a
considerable cost… eliminate quantitative easing entirely.
Along with the sharp cut in interest rates, governments launched stimulus packages to replace
forgone private expenditure. This global stimulus package was vital to revive an ailing
economy and compensate for a decrease in corporate and household spending, acting as an
automatic stabiliser.
Stimulus plan
Country US$bn As % of national GDP
US 787 6
China 586 15
Europe 298 2
Japan 154 3
Latin America 149 4
Emerging Asia 52 2
CEE 23 2
Russia 20 1
Total 3% of global GDP
Source: SG Cross Asset Research, FactSet
Total stimulus, which represents 3% of global GDP, is set to generate excessive public debt
levels, implying a need for deleveraging for years to come (see SG Economic Research report
4
dated 21 September 2009).
Counting on a comeback for the US consumer
While the transfer of debt from financials and households to governments did not solve all our
economic woes, it probably saved the economic system, rescuing the financial system from
the possible domino effect of one bank’s bankruptcy leading to another.
Consumers hesitating between saving and spending
The household deleveraging needed after years of excessive consumption is seeing previously
overvalued properties find their equilibrium as spending and borrowing move towards
normalised levels. Finding a new equilibrium for output is also necessary, as we believe that
production could further cut excesses as we seek a new balance for supply and demand.
Reducing the output gap, therefore, is not necessarily a good sign or an objective, as previous
output was largely the product of a consumption bubble.
Total US consumer debt now stands at about 130% of disposable income (105% of GDP).
Paying down debt will be a Prior to the 20-some year long credit boom, it averaged 60%-70%. In order to get back to
lengthy process, accentuated by
those levels – assuming they reflect some sort of equilibrium – consumers would have to pay
an unemployment rate set to
surpass 10% in 2010 down an amount of debt equal to 65% of disposable income. To achieve that in just two years
would require a jump in the savings rate above 30%. That is close to impossible. What if the
savings rate stabilises at 7%, which is near current levels? Assuming that all the savings are
Fourth quarter 2009 15
16. Worst Case Debt Scenario
used to pay down debt, and that nominal income remains stagnant, it would take over nine
years to reduce debt/income ratios to the levels seen in the 1980s.
Household debt to GDP
120% Target savings rate
100% Household savings to disposable Income
Household debt to GDP All time peak in 2007
80%
“Normal” savings rate level
60%
40%
20%
0%
1941
1944
1947
1959
1962
1965
1968
1971
1974
1977
1980
1983
1986
1989
1992
1995
1998
2001
2004
2007
2010
1950
1953
1956
1929
1932
1935
1938
-20%
Source: SG Economic Research, Bureau of Economic Analysis
In the US, although higher than a year ago, the saving rate is well below 10% – the average
observed in developed countries – with Japan and Italy peaking at 15% of disposable income.
Although low interest rates should normally increase the demand for credit, this has not been
the case up to now and demand for credit is unlikely to rise as long as unemployment remains
With credit reducing and low
so high (currently 9.7% in the US, expected to rise above 10% by next year). Household debt
interest rates forcing consumers
to deleverage, we believe gives less cause for concern once property markets stabilise, as the collateral put up against
stabilisation has started to occur house values stops eroding in value. Stabilising prices is the first step needed before we see a
as consumers pay down their
reduction in foreclosures, as homeowners tend to become more delinquent as house prices
debt.
fall. We therefore do not see household debt as a problem as long as rates remain low and
real estate valuations stop falling.
If US consumers increase the savings rate to 8%, the average observed in the past 50 years,
this would severely impact consumption and hence the global economy.
US personal savings rate could rise to 8% to reach an equilibrium level
Equilibrium US personal savings rate
16
14
12
10
8
6
4
2
0
57 61 65 69 73 78 82 86 90 94 98 02 06 10
Source: SG Cross Asset Research, Datastream
16 Fourth quarter 2009
17. Worst Case Debt Scenario
Better news for the US property market
Confirmation of a bottoming in the US housing market could support a further improvement in
consumer confidence and could, in the medium term, help to relax lending policies which
have damaged liquidity in the real estate sector throughout the recession.
US home price indices
Source: SG Economic Research, Global Insight
Supply is still increasing, eliminating the boost from new home sales. We can also expect that
once there is a rise in home prices, homeowners who have held off selling their homes at
depressed prices could flood the market with further supply, pushing prices down.
The US government’s tax incentives for first time homebuyers have helped boost lower-priced
property sales. The non-refundable tax credit worth $8,000 is set to expire in November 2009,
though prolonging it and making it more widely available could stimulate recovery in a market
with tainted fundamentals linked to excess debt.
Counting on governments to survive debt mountains!
Mechanically, the fiscal stimulus
As we can see in the chart below, apart from during World War II, when debt shot up in
measures and depressed countries such as the UK to 250% of GDP, the developed world has never before experienced
economic environment take deficits such high public debt. These unprecedented levels of government debt also coincide with
to unprecedented levels
high liabilities linked to demographic transition due to population ageing. The consequence is
that government spending in developed economies cannot last forever and high public debt
looks entirely unsustainable in the long run.
Fourth quarter 2009 17
18. Worst Case Debt Scenario
Public debt/GDP - 1900/2015e
300% 300%
US
UK
Japan
250% 250%
200% 200%
150% 150%
100% 100%
50% 50%
0% 0%
1900 1905 1910 1915 1920 1925 1930 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010e 2015e
Source: SG Cross Asset Research, IMF
Contrary to developed countries where stimulus plans only brought a halt to the economic
meltdown, emerging markets’ stimulus plans, specifically China’s, are working very well. Debt
is not a problem for emerging markets as debt/GDP is below 50% in most countries (apart
from India where it stands at 80%). The most visible success of these plans has been in China
which returned to an 8% growth estimate for 2009, and is driving the recovery in commodity
prices. But, emerging market economies may no longer be prepared to finance the western
world’s exponential debt, particularly that of the US, as borne out by recent declarations from
Chinese officials.
Developed countries’ governments We have almost reached a point of no return for federal debt, where a beginning to the end of
face unprecedented public debt
the crisis now looks crucial to give governments a chance to cut back their debt load.
levels and this will determine their
future fiscal policies. Depending on the scenario used, we could expect public debt to GDP to reach historical
records in most western countries, well above the 60% Maastricht rule (see chart below).
Historical and projected breakdown of debt
180 180
160 US 160
140 EU 12 140
UK
120 Maastricht (60% GDP) 120
100 Japan 100
80 80
60 60
40 40
20 20
Mar-71 Apr-75 May-79 Jul-83 Aug-87 Sep-91 Oct-95 Dec-99 Jan-04 Feb-08 Apr
Apr-12e
Source: SG Cross Asset Research, Datastream
18 Fourth quarter 2009
19. Worst Case Debt Scenario
In 2009, public debt has been ballooning out of proportion as EU member states reach the
90% public debt to GDP level. The issue with excessive public debt levels as we exit the
recession is the deterioration of sovereign risk, and its adverse affect on debt servicing, as
debt could spiral once concerns over sustainability are factored in. Debt targeting needs to be
a fundamental approach for governments as we come out of the recession, and should be in
line with monetary and fiscal policy. But cutting all public costs at once in an attempt to
reduce debt to an unattainable level of 60% could have serious implications, jeopardising
growth and the recovery. The exit plan being discussed now in the US has already highlighted
the priority of debt reduction.
Once the economy rebounds, however, the estimates of capital destroyed are likely to be
revised, as less risk averse investors rush back into undervalued assets. The capital injected
into the money supply and the assets added to the Fed’s balance sheet must be drained off
by the government in order to avoid inflation.
We conclude that while the deleveraging process appears to be under way for households
and financials – and corporates, specific cases apart, are relatively untouched – it is clearly the
governments who are at risk of not being able to continue their support for the economy. For
now the level of debt is not a major concern, so long as rates remain low and emerging
markets continue to buy developed countries’ debt. But the key question is: will emerging
markets continue to buy developed countries debt? This raises the question whether the
dollar is safe as a reserve currency.
The painful task of removing the excess debt
Even a bull scenario points to debt to GDP of around 90% for Europe and 85% for the US in
2011, as it would take 4-5 years to reduce debt adequately. However, in each of the three
economic scenarios, public debt is far above the 60% target set by the Maastricht treaty,
raising concerns on the effectiveness of EU legislation.
Public debt forecasts under three different scenarios
Source: SG Economic Research
In order to deal with the excessive levels of debt, governments will have to implement new
fiscal policies. However implementing these too early could aggravate the recovering
economy, and too late could lead to a sovereign debt crisis and affect growth prospects. So
timing is key.
Fourth quarter 2009 19
20. Worst Case Debt Scenario
Governments: choose the route to debt reduction
Past history shows a number of roads to debt reduction, including innovation and growth in
the 1945-50 post-war period, inflation in the 1970s and economic reform in the 1980s UK
setting. Low interest rates can help the process, easing the debt servicing burden. The higher
the debt burden, the more interest rates have to come down – but considering the current low
interest rates, debt servicing could not be eased much further!
Debt reduction options
Inflation Innovation & growth
Currency volatility could lead to devaluation and New technologies often lead investors out of a
consequently inflation. downturn, but there i a risk of overvaluation as
investors seeking inexistent profits create new
bubbles
US 1970s Yuan revaluation 2010/11e? Green investing, Technologies and SRI 2010e?
US, UK, Spain
Europe 1970s Property 2002-2007
Japan 1970s
Argentina 2002 US TMT 1998-2001
UK 1949 US 1950
2010e will see unsustainable debt levels and could lead
Reducing the level of state
to government defaults
employment
Canada 1996
California 2010e?
UK 1980
Russia 1998
Eastern Europe 2010e?
Default Economic reform
Source: SG Cross Asset Research
Innovation and growth is the golden ticket
Past history clearly suggests that innovating for growth could be the best way to get out of the
crisis. But it would need a new technology driver – perhaps as in the green revolution (see our
The main interest in future SRI team’s March 2009 reports on green development and new energies).
4
innovation is through green
technologies. This booming Energy efficiency should be the biggest beneficiary of the €3 trillion per year green market
industry is a prime source of which is expected to double in the next decade. Global energy needs are expected to grow
growth according to our SRI
experts.
50% by 2030. Energy efficiency allows us to use current capacity more efficiently with up to
€3 in cost savings for every €1 invested – with all of the technologies and processes available
today. And far from being over-exploited, we have yet to really begin reaping the “lowest
hanging fruit”.
20 Fourth quarter 2009