Our friends at the Daily Telegraph sent us into something of spin on Wednesday evening, when they published this:
What they didn’t mention was that the Societe Generale cross asset research study in question was published more than a month prior.
Crucially, the Telegraph failed to highlight this little caveat, which was stamped, in large print, on the front cover of said report:
A poor show, in our view.
Having now extracted a dusty old copy from the SocGen archive, what does the report actually say? Well, it’s a rollicking good read – and it may or may not be available, in full, in the usual place.
In the report, The SocGen team set out their central economic scenario: a slow recovery for the global recovery. But with government debt at an all-time high, they have taken a good hard look at the downside risks:
Much has been written about the credit crisis, the government stimulus response, the mountains of debt and the possible resulting emergence of a new world order, but as yet noone 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.
Using debt as the key variable, the report drew up two alternative economic scenarios — one to the upside and one to the downside — and then offered some advice as to strategic asset allocation. In particular, mindful of the fact that this is the bank that employs one Albert Edwards, the team focuses on what to do in the event that we are all set for a Japanese-style (non) recovery:
A Japanese-style recovery implies persistent government debt, economic anaemia, low interest rates and weak equity markets. We would not qualify expanding government debt as a bubble. 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.
Digested recommendation: sell the dollar, sell European equities, buy selected fixed income and cherry pick commodities.
The bull recommendation is more nuanced. But we won’t worry about that here. It wouldn’t bring the clicks.