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20-Feb-09 SECRET LIFE

Deflation fears are clearly the key issue for the FOMC. The minutes of the January 27/28th meeting clearly hints that establishing a
more explicit inflation target (Inflation Targeting) is a more effective weapon in the war against deflation than the purchase of Treasuries
(part of Quantitative Easing). Although an official inflation targeting strategy is not yet set, the Committee expects inflation on the PCE
deflator on the “longer-run” (5 to 6 years) to be between 1.7 % and 2.0 %, which means a CPI between 2.2 % and 2.5 %. Given that
monetary policy works over a horizon of around two years, by providing a projection for 5-6 years ahead, the Fed has given a more
explicit signal on where it wants inflation to be. It said that the “longer-run” projections of inflation may be interpreted as the rates that are
most consistent with the dual objectives of maximum employment and price stability.
The pledge to preserve price stability is no more a commitment to fight inflation, as is typical, but a highly commitment to fight
deflation. Central banks know that the risk of depression rises exponentially as deflation accelerates. A deflationary spiral is a
dynamically unstable, self-reinforcing downward move in the overall price level that causes aggregate demand to collapse, thereby
inducing further deflation. The time horizon over which a price level target is sought is an important policy variable. The realization that
prices will stop falling and then rise for a time at an above-trend inflation rate is an important component of the Fed’s ability to boost
aggregate demand by printing money to achieve a preordained target price level.
This is why price index data have to be watched very carefully. U.S. PPI rebounded by 0.8 % MoM in January thanks largely to a
15.0 % MoM jump in gasoline prices, but -45 % YoY, with YoY index down 1.0 % vs. -0.9 %. Core PPI rose by 0.4 % MoM (+4.2 % YoY)
mainly due to rapidly rising motor vehicle prices although there were also some fairly stiff increases in the prices of civilian aircraft +1.0 %
MoM, +7.5 % YoY) and drugs (+1.1 % MoM, +7.2 % YoY) as well. Markets cheered these data when released as they pushed deflation
fears away.
Thus, today’s U.S. CPI in January (13.30 GMT) is a key data. Data are likely to reveal that for the first time since August 1955, the
annual inflation rate has turned negative. This landmark will be achieved if the monthly change in the CPI is +0.4% or less. In this regard,
much depends on the evolution of core prices, as the modest rise in gasoline prices is likely to be offset by a fall in the price of household
utilities. At the same time, there must be a chance that the recent drops in the price of raw foodstuffs result in food prices in the stores
holding steady, if not falling outright. A 0.1% monthly rise in core prices, in line with the average of the past six months, would therefore
also result in a 0.1% gain in headline prices. This would be enough to push the annual rate down to minus 0.4%.
After falling flat most of the morning, the stock market turned down at the close of trading. Stocks gave back early gains Thursday
to finish in the red, as traders wrestled with some disappointing economic data from a variety of sectors. Most of the losses came in
financials. Techs also took a hit after Hewlett-Packard (-7.89 %) lowered its sales guidance. In the last two days, the Obama
administration has signed an economic stimulus package into law and announced a $75 billion program to keep as many 9 million
American families in their homes, yet traders have scoffed. The Dow has finished just a hair above its lowest close of the last 52 weeks,
as concern over the health of the economy and the efficacy of the stimulus package weighed on equities. In energy, crude got a boost
after a decline in inventories brought a long streak of increases to a close. Oil futures for March traded up 14 % at $39.48 a barrel. Equity
price slump certainly offers buying opportunities.
WTI €/$ $/¥ 10 yr US 10 yr Euro Basic Energy Financ Health Tech Tel Indus Utilities SOX S&P NAS DOW Close

Last 38,6 1,2591 94,07 2,81 3,08 -0,84 0,38 -4,70 -0,25 -3,22 0,77 -2,29 0,34 -5,21 -1,20 -1,71 -1,19 US
Perf 1d % 10,14 -0,66 0,14 -4,35 bp 8,6 bp 2,00 1,80 -0,98 0,54 -1,96 2,52 -0,26 1,26 -2,47 0,26 -0,15 -0,08 Europe
ECONOMIC DATA with impact
Consumer Price Index – 13.30 GMT – exp 0.3%
POSITIVE IMPACTS
SAAB : General Motors is prepared to pump in $400 m to help make its Saab car unit profitable if the Swedish state guarantees a further
$600 m loan to the firm (Dagens Industri) / Saab could file as early as Today for protection from creditors to give it time to reorganise
FIAT : Italy's incentives to get drivers to scrap old cars & buy new ones could bring total 2009 sales >2 m units (country's car association)
SWISS LIFE preliminary 2008 results : Shareholder equity at SFR6.6bn / Net about SFR340m / Solvency ratio 160% / Plans profit
distribution of SFR5 /share / SFR160m impairment on MLP stake / Could reduce its stake in MLP to under 10% from 24% (W. Woche)
HYPO REAL ESTATE : The German Finance Minister gave a cool response to JC Flowers' suggestion that Berlin pay €3 per share to
buy control / Finance Minister said that €3 per share would be difficult to justify the expense to the public and taxpayers…
RBS is seeking to sell part of its U.S. business as well as all or part of the ABN Asia it bought in 2007 (Independent)
SIEMENS is planning more savings efforts (Manager Magazin quoting CEO)
ENEL : The board of ENDESA will endorse the sale of ACCIONA ’s 25% stake to two-thirds shareholder ENEL (Cinco Dias)
STEELMAKERS : China will set up 2 state funds to finance overseas acquisitions and exploration by steel makers as part of its plan to
support the domestic industry (Shanghai Securities News)
CINTRA : Vinci Park & Portugal's Emparque are interested in bidding on the parking assets of Cintra (€500m) / In addition, Bridgepoint &
CVC Capital Partners, among others, are also bidding for Cintra's Chilean highways (~€400 M) (Expansion)
PRUDENTIAL UK : New Business Sales at £3.02bn (In Line) / Total AM net inflows of £1.3bn / To Transfer Taiwan assets to China Life
Insurance / To buy 9.9% of China Life / 2008 IFRS Writedowns at £419m / Committed to current Dividend policy / 2009 challenging
FORTIS : CEO of a combined ABN Amro and Fortis group in the Netherlands wants to sell the commercial operations of Fortis' Dutch
activities to Fortis Bank Belgium (Dutch daily)
ENERGY SECTOR : The European Commission yesterday proposed extra funding for France and Italy in a multi-billion-euro energy
project package / The new plans would reduce funding for projects in Britain and Germany / The Commission last month unveiled
proposals for a €5 bn program of mostly energy and environmental projects aimed at reducing dependence on Russian gas

TSMC expects the semiconductor industry to hit bottom in the Q1 and then recover gradually (Economic Daily News)
NEGATIVE IMPACTS
SAINT GOBAIN : FY sales €43.80bn (44.14bn e) / Operating €3.65bn (3.71bn e) / Net debt €11.68bn (12.40bn e) / Cut dividend from
€2.05 to €1 / Sees "extremely challenging" 2009 with 2010 targets "obsolete" / Plans to cut 2009 costs by €1bn / Announces a €1.5bn
rights issue by creating 108 m new shares / Subscription period = from Feb. 23 to March 6 / 1 right for 3 shares held at the close
Today / 7 rights will enable their holders to subscribe to 2 new shares at €14 per new share
LAFARGE : FY sales €19.03bn (18.89bn exp) / Operating €3.54bn (3.57bn exp) / Net debt €16.88bn (17.03bn e) / Cut dividend from
€4 to €2 / Plans to launch a €1.5bn rights issue subject to greenlight of its AGM March 31st / Rights issue part of €4.5 bn action plan /
The 2 main shareholders committed to subscribe their prorata shares, which would represent €500m / Conf call 1030 UKT
ANGLO AMERICAN : FY rev $32.96bn (28.55bn exp) / FY EPS ex items $4.36 (4.89 exp) / Suspends dividend to safeguard flexibility
Cutting 19k jobs / Outlook remains poor in near term
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RIO TINTO : Independent directors are understood to have begun sounding out RIO’s 20 U.K. shareholders to gauge their support for a
multi-billion-pound rights issue (The Times)
LUFTHANSA : Austrian Airlines said it incurred a cumulative total loss equivalent to half of its issued share capital by Jan. 31, 2009 and
that its AGM scheduled for May 15 has been brought forward to April 14
AXA had its credit rating outlook revised to negative from stable by S&P, citing a possible drop in earnings at life insurance and AM units
POSTBANK’s long-term issuer default rating was downgraded to “A-” from “A” by Fitch / “Co will be hurt by the global recession”
UNIPOL : Fitch cut LT issuer default rating to BB+ from BBB- & outlook to negative from stable / Cut ST issuer default rating to B
UBS was sued by the U.S. govt in an effort to force disclosure of the “secret identities” of as many as 52K American clients ($14.8bn in
assets estimates) who allegedly hid their secret Swiss accounts from U.S. tax authorities… Switzerland on the brink of explosion…

US BANKS : Meredith Whitney recommended on CNBC selling Citigroup stock + predicted the major banks will reduce their dividends /
She said Citigroup needs more capital from the U.S. government, something she wasn't sure would happen / "Most banks will be lucky if
they break even or earn a little money this year," Whitney said … / SeparateIy, the Italian Economic Minister said that IAS & so-called
mark-to-mket asset pricing should be abolished in order to restore mket confidence
RESULTS DIVIDENDS EVENTS
Arcelor Mittal ($0.1875) / Goldman
Lafarge / Anglo American / Allied Irish Bank / Belgacom / Endesa / Gecina / Campbell
Today Sachs ($0.466667) / Johnson &
Soup / GM
Johnson ($0.46)
Monday ACS / Maroc Telecom ST Micro ($0.09)
Tuesday Akzo Nobel / Corio / Deutsche Boerse / Theolia / OZ Minerals / Heinz / Home Depot / Novartis AGM
Accor / CNP / Vallourec / Heinkel / ASM International / OMV / Telekom Austria / BHP Biliton ($0.455556) / Reckitt
Wednesday Apple AGM
Cadbury Benckiser (GBp 53,3333)
Allianz (BMO) / BASF (BMO) / Acciona / RWE / British American Tobacco / Dexia /
Thursday
Deutsche Post / Eiffage / Thales / Dell / Safeway / GAP
TRADING IDEAS
BUY BANKS as BNP / SOCGEN / DT BOERSE / CREDIT AGRICOLE on support level & bank sector recovery
BUY AIR FRANCE to play oil prices drop and business starting back on H2 thanks to stimuli plans
BUY DANONE / ROCHE / AIR LIQUIDE on double bottom possibility
BUY CARREFOUR / on reversal Head & Shoulder possibility

BROKER METEOROLOGY
PPR ..............................................RAISED TO BUY FROM HOLD ...................................................................... BY DEUTSCHE BANK
TF1 ...............................................RAISED TO HOLD FROM SELL .................................................................... BY DEUTSCHE BANK

AHOLD ........................................CUT TO UNDERWEIGHT FROM EQUALWEIGHT ..................................... BY MORGAN STANLEY

PLEASE FIND BELOW ON THE NEXT PAGE OUR MORNING ECO

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20-Feb-09 SECRET LIFE

CHART OF THE DAY
Philadelphia Fed Business outlook survey
since 1990

40
30
20
10
0
-10
-20
-30
-40
-50
-60
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09

Source : US Department of Commerce

The Philadelphia Fed Factory index dropped more than expected (-25) to a 18-years low to minus 41,3 in February after -24,3 in
January. The Philadelphia Fed Index that is negative since October, reveals that economy is still contracting. The US manufacters are
still reducing their production and cutting payrolls due to the global economic slowdown.

ECONOMIC DATA
Time Country Indicator Period GE forecasts Consensus Previous
05.00 GMT Japan Bank of Japan monthly report
07.00 GMT Japan Convenience store sales January 0 6,1% YoY
07.45 GMT France Consumer price index January -0,2%, + 0,9% YoY -0,5%,+ 0,7%YoY -0,2%,+1,0% YoY
07.45 GMT France Business confidence indicator February 74 73 73
08.30 GMT Germany PMI manufacturing ( advanced) February 32,5 32
08.30 GMT Germany PMI services ( advanced) February 45,0 45,2
08.50 GMT France PMI services ( preliminary) February 42,8 42,6
08.50 GMT France PMI manufacturing ( preliminary) February 38,2 37,9
09.00 GMT Italy Industrial orders December -3,0%,-27,6%YoY -6,3%,-26,2 YoY
09.00 GMT Italy Industrial sales December 0 -3,9%,-13,9% YoY

Inde x e s P rice % 5 D a ys Ytd Forex Price % 5 Days Ytd

DJIA 7466,0 - 5,77% - 14,93% EUR/USD 1,2589 -2,13% -9,90%
S&P 500 778,9 - 6,44% - 13,76% EUR/JPY 118,53 -0,11% -6,47%
Nas daq 1442,8 - 5,67% - 8,51% USD/JPY 94,16 -2,34% 3,71%
CA C 40 2872,6 - 3,10% - 10,73% Oil Price % 5 Days Ytd
DA X 4215,2 - 4,36% - 12,37% Brent $/b 40,8 -6,69% -2,47%
Eur os tox x 50 2114,8 - 4,52% - 13,60% Gold Price % 5 Days Ytd
DJ 600 183,4 - 3,71% - 7,55% Gold $/oz 976,9 3,65% 10,66%
FTSE 100 4018,4 - 4,10% - 9,38% Rates USA Euro Japan
Nikkei 7416,4 - 1,91% - 16,29% Central Banks* 0,25 2,00 0,10
Shanghai Comp 2253,5 - 0,93% 23,76% Overnight 0,20 1,05 0,10
Sens ex ( India) 8843,1 - 4,45% - 8,34% 3 Months 0,30 0,97 0,24
MICEX ( Rus s ia) 646,5 - 6,35% 4,36% 10 Y ears** 2,81 3,08 1,29
Bov es pa ( Bras il) 39730,3 - 1,90% 5,81% *US: Fed Funds; Jap: Overnight; Euro: Ref i
** Euro: German Bund rate So urc e : B lo o m berg
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Economic data preview

Watch in the United-States the release of the consumer price index for January due at 13.30 GMT, expected to increase since December
as oil prices stop dropping and because of the correction effect of the past down trend. But from a year ago consumer price index will
slightly decline in January. On the other hand the core consumer price index will increase since last month and from a year ago.

Watch in France the release of the consumer price index for February due at 07.45 GMT, expected to decrease from last month due to
the sales effect but which are expected to increase from a year ago. Watch as well the release of the production outlook expected to
slightly increase after a six month drop and a stabilization in January./JB

ate

ECONOMY

UNITED-STATES : PRODUCER PRICE INDEX ROSE IN JANUARY

U.S. producers prices climbed in January of 0.8% which is more than expected (forecast +0.3%). This increase is mainly due to a
correction after a continuous drop since August, and because the energy prices stopped dropping. Indeed the drop of the barrel (-70%)
since its peak at $147 this summer was leading down producer prices. If we look to the breakdown, coal, mining which increase 1.3%
since December led up producer prices. On the other hand producer prices dropped 1% from a year ago as in this time frame we can see
the effect of the drop of energy prices. If we look to the breakdown oil and gas went up 7.6% and mining services went up 5.5% from a
year ago. The producer price index core (excluding food and energy) increased of 0.4% and 4.2% from a year ago showing that the rise of
producer prices is not only explained by volatile goods. Consequently we can say that the United-States are for the moment avoiding a
deflation situation and companies have now the means to increase their prices to improve their benefits.

UNITED -STATES : INITIAL JOBLESS CLAIMS REMAINS HIGH BUT STABLE AND THE CONTINUING CLAIMS INCREASED LAST WEEK
Initial jobless claims reached 627 000 February 14 th, exactly as two weeks ago but more than expected ( 620 000) and the number of
Americans collecting unemployment benefits rose to 4.99 million February 7 th ( forecast 4.83 million). These figures are signalling that the
job market is deteriorating in the United-States. Indeed as most of the industrialized countries are facing a recession situation the global
demand is going down and domestic demand is not taking over as credit crunch is cutting household purchase power. As a consequence
companies are over pessimistic about the economic outlook and they sharply cut job deteriorating more the household demand as a
vicious circle.

UNITED -STATES : THE CONFERENCE BOARD INDICATOR DROPPED TO RECORD LOW IN JANUARY
Manufacturing in the Philadelphia region shrank in February at -41.3 its fastest pace in more than 18 years. This drop is mainly explained
by the global economic recession hitting the United-States and the most industrialized countries generating a global economic slowdown
and drop of the sales and a rise of the unemployment .This drop was much deeper than expected (forecast -25.0) and unfortunately this
trend should last in the coming months

/JB
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20-Feb-09 SECRET LIFE

VIX index : implied volatility on the S&P 500 $ Libor - 3-Month (Interbank Rate)
6
85
80 5,5
75
5
70
65 4,5
60
55 4
50
3,5
45
40 3
35
30 2,5
25
20 2
15 1,5
10
5 1
20/02/2007 20/08/2007 20/02/2008 20/08/2008 20/02/2009 20/02/2007 20/08/2007 20/02/2008 20/08/2008 20/02/2009
Source : Bloomberg Source : Bloomberg

United States : 10-year Treasury yield 10-year Treasury spread USA-Euro zone
5,5 1,2
5,25 1
5
0,8
4,75
4,5 0,6

4,25 0,4
4 0,2
3,75
0
3,5
3,25 -0,2
3 -0,4
2,75
-0,6
2,5
2,25 -0,8

2 -1
20/02/2007 20/08/2007 20/02/2008 20/08/2008 20/02/2009 20/02/2007 20/08/2007 20/02/2008 20/08/2008 20/02/2009
Source : Bloomberg Source : Bloomberg

Oil : Brent ($/b) Forex : Euro vs Dollar (EUR/USD)

150 1,65
140
1,6
130
1,55
120
110 1,5
100
1,45
90
1,4
80
70 1,35
60
1,3
50
40
1,25

30 1,2
20/02/2007 20/08/2007 20/02/2008 20/08/2008 20/02/2009 20/02/2007 20/08/2007 20/02/2008 20/08/2008 20/02/2009
Source : Bloomberg Source : Bloomberg