EFTA01149240.pdf

From: "Weissend. Renee E" To: US "O Subject: JPM View 09.23.2011 Date: Fri, 23 Sep 2011 21:18:57 +0000 Attachments: The_WM_View_09.23.2011-pdtzip lane-Images: imagc003.png Global AssetAttocation J.P.Morgan Jpuapas Guth eaflk NA. J P Morgan rnsuritiez Lid Soo 23.2011 The J.P. Morgan View Who will win the race to recession? Jan Loe VI° • Economies— Europe is falling into recession, by our new for ream %%take, PMI's suggest serious downside to Asian forecastss. US is tracking our already weak youth forecasts • Portfolio strategy — The market reversal signals of Value. Positions. Timing. Data and Policy IC1111111 in defensive mode. Stay underweight risky assets • Fixed Income —we think a more severe Greek restructuring than agreed in irtzoglou July is inevitable, and stay cautions on the Euto alea • Fgt.( ti *s — Worsening technical: and fundamentals and the lack of clear triggers Justify a defensive stance. Seamus Mac Gorain • Credit — We stay defensive. • Foreign exchange — Yen and dollar are the worlds strongest currencies in Matthew Lehmann the face of_urging volatility • Commodities— The sharp fall in base metal prices implies a dose to SC% chance of a US recession • The global nsktiffnade moved into the phase of cross hedging and nulls- elinlillare selling Witness the 20% &op in the Mexican peso, and falls in EM YID returns through Sap 22 local bonds and gold Unfortunately. by itself this does not signal that we as %. • 41islet AA n I Woo nee the end But it doe: help clear the deck and mates relative value oppar 0uM aunties that Lave *AO: S will move to once volatility becomes less threatening A squaring of acmes:we position: and budding of defensive postures ate both US WOGS* sequins:I condition: to define a market bottom and conung reversal what we US Feed Weer need in addition that most of the 'sun news is peed in. data and events no 0kbalgetlkede longer surprise on the downside, and policy actions are taken to reverse the BSS negative fundamentals_And hen the news remains broadly negative and keeps us in defensive mode EM LceelBads" US win Tog On ialue u1 mat kets have cheapened significantly. but most :ennui well off EPIC*" woistnews levels. which we equate to a US secession here By our reckoning. Ent Fred krone we would need to see that St P s00 to have fallen by its avenge move of past US cal% recessions — to about 1.000 — to give condor that the almost-wont is priced m. Sumlaily. we would need to see HY widen another 2% and base metals fall Eli Ft another 20% to puce in a US recession Two mukets ate much closer to pricing =TR in a recession. US HO and USTs. USHG spreads, now neat 240bp over UST:. $417500 ate already wide: than all US recession:, with the exceptions of the 2003.09 WO AC Nat Criss. when they peaked over SOObp And 10-year USTs already saw mai tom lunatic lows EGG Ea However relevant the \blue signal will be to signal a bottom, it need: to eel MSG Some support from T" g We know that nsk markets typically do not rebound Sc A until the loht at the end of the recession tunnel is in sight — on average s Sex in sags Das Ras a 6.40 months before the end But any US and European fiscal tightening induced -a •n0;44 s tre0 Ca Nog Kam la eta ova recession may not even have started yet In the Pogo area. we think this tons wa ma. am no I, Oa. or iv iminw Po Ps ••tat - at recession will Stall any moment (Q4) In the US, fiscal policy will only begin tightening seriously in January. and only if the minunistraticm's Jobs Act is www.morganmarkets.com The certifying analyst is indicated by an "c See page 7 for analyst certification and important legal and regulatory' disclosures. EFTA01149240 This email is confidential and subject to important disclaimers and conditions including on offers for the purchase or sale of securities, accuracy and corn leteness of information, viruses, confidentiality, legal privilege, and legal entity disclaimers, available at EFTA01149241