EFTA01179128.pdf

From: US GIG To: Undisclosed recipients:; Subject: JPM View 07.20.2012 Date: Fri, 20 Jul 2012 22:37:16 -W000 Attachments: JPM_View_07.20.2012-pdfzip Inline-Images: image003.png EFTA01179128  J.P. Morgan Global Asset Allocation 20 July 2012 i 'it J.P. Morgan View Stay short cash • Asset Allocation — Stay short cash. Cash pays near zero. the world is long: Global Asset Allocation central banks are only printing more and are moving towards negative rates. • - Asset price inflation rules. Cash is the one asset you should mderweight. • Economics US growth lowered again to 1 4% in Q2 and 1.5°. m Q3. • Fixed Income — Meager return on cash favors catty trades. • Equities —Next week's flash PMIs will be crucial in assessing ow Cyclical vs. Defensive equity sector call. Stay LW for the moment • Credit —Greater policy room-to-maneuver keeps EM credit IttfICIIV0 • Foreign exchange — ELM remains the better funding currency • Commodities — Supply concerns are pushing up oil prices while demand for base metals remains subdued. Stay OW energy vs base metals. • Equities are up on the week, but so are most all asset classes in beating cash despite weak economic activity data. We lowered Q3 growth for the US to 1.5% and world GDP to I.6% in Q2. Sofia data are boosting hopes for more monetary stimulus across the world. reinforcing the asset price reflation force that we have been relying on for matt of our strategy. • Being underweight cash and investing in better-yielding assets remains the best investment strategy. End investors and corporates remain quite long cash. while continued monetary and easing. through rate cuts and QE. will only add to the world s stock of cash. Clearly cash pays close to nothing m most markets and we now find that some central banks are moving towards paying negative VI 0 returns Ihuough Jul 19 interest rates on reserves. Ow economists expect the ECB to make this switch \_ agates an in beer color. by October (see today's GDR), but do not see this Fed moving this far Efrain • The overall theme behind our stratevremans below-trend economic growth S6p500 pushing inflation lower. rest-anima profit growth. and inducing further policy anew easing through QE type actions in DM. and rate cuts in EM This is a great US I4SsYttld enviracuent for fixed Some. and especially for better yielding bond markets LISCI AC Wake such as EM and credit. Equities benefit from asses reflation also. but in a much US HOG.** less reliable and more volatile fashion We thus focus ow long risk exposures IISM Ewa versus cash in EM aid credit bond and DC We have almost no country preferences. EM teal Saar Europe Freed lac • Being outright long spread product versus cash has been the best trade in MSG EM recent weeks, but was into the argument that 1.:ST and HG yields have again Tope' reached new historic lows The half life of mean reversion to nonunal yields has US Feted Ircorre to be measured in decades. though (than p. 2). More anecdotally. the lead Gaul Gor Bawls" author of this piece has seen new lows in UST yields at least once every three years in his 25 years at lItthlorgan and has learned painfully to pay more EMFX attention to momentum than me= reversion in assessing future bond reruns GSCI TR Economic conditions remain good for well-yielding bond markets Stay long. Geld USCSIIN IS See page 7 for analyst certification and important disclosures. tan' J o W•la• Oxislies Stella bos net lo dextral www.morganmarkets.com This email ix confidential and ndsject to imponant disclaimers and conditions including on offers for the purchase or sale of %Callillei. accuracy and completenenc of information. viruses. conlidenllalib•. legal privilege. and legal emitydisclaimers. available at http:I.Www.jpmorgan.compagesdisclosurt%'email. EFTA01179129