SocGen's proposed portfolio for a global economic collapse

SocGen says that under the bear-case scenario, the dollar would continue to decline and global equities would retest the March lows. Property prices would slide again and oil prices would fall back to $50 in 2010. Public debt would explode within two years, with worldwide state debt reaching $45 trillion. Further, the aging population will make it harder to erode debt through growth. As for the U.S., it could take nine years to reduce debt/income ratios to the safe levels of the 1980s.

To recall, SocGen isn't the only one worried about the mounting U.S. debt. And it's not only the many "doom" economists. President Obama too warned Wednesday that too much debt could fuel a double-dip recession.

So what to do?

Remember which commodity has been setting one record after another lately? That's right, gold. And gold would continue to go up, SocGen says, offering a safe haven from paper money and equities. SocGen also advises to sell the dollar. As for stocks, it suggests to short cyclicals such as technology, auto, and travel to avoid what it calls "a deflationary spiral." Emerging markets would not be spared due to their strong reliance on U.S. growth and Wall Street. But farm commodities would hold up well, led by sugar.

The more controversial advice from the bank is regarding bonds, which was arrived at by looking at the Japanese model. While the bank recommends to stay away from junk bonds, it suggests sovereign bonds could generate strong returns. The U.S. Federal Reserve, and to a lesser extent the European Central Bank, would purchase more bonds to hold down yields. But not many agree on this recommendation, saying the Japanese model may not necessarily apply.

Regardless, according to SocGen's asset chief Daniel Fermon, "A lot of hedge funds and bankers are worried."