EFTA01181256.pdf

From: US GIO To: Undisclosed recipients:; Subject: WPM View 09.21.2012 Date: Fri, 21 Sep 2012 21:21:09 +0000 Attachments: WM_View_09.21.20I2-pdf.zip Milne-Images: image003.png Global Asset Allocation J.P. Morgan 21 September 2012 The J.P. Morgan View Weak economy vs. strong liquidity. Who wins? • Mere allocation — Strong liquidity. heavy supply of safe assets. high nsk Globs Asset Allocation prairie. defensive positioning by end investors. and a QE focus on reducing Jan Loeys AC downside risk are not tecluucals but are true fimdamental driven of the ask 1.:, m 834-5874 rally that trump weak economic growth. in our view. JP•Iorgin Chan Bank NA • Economics — Q3 global growth remains as soft as Q2. confirming bottoming process. but not yet a rebound. Only using clicks/inventory ratios and rallarig John Normand markets hint at rebound into Q4. we believe. We nudge up 2013 Euro area growth from a.m. to 0.3% on improved financial conditions JP Megan Stearn.* do • Fixed Income —Position on wider swap spreads in Treasuries. Bonds and LX. N tolaos Pannannoolou • Equities — Sew long value stocks in Europe. commodity sectors globally. US- housing-sensitive sectors within the US. and US against ar. JP Magi. Stoanbri 014 • Credit — Stay long credit spreads across the US HY and EM sovereigns and Seamus Mat Goraln corporates and we expect further spread compression • Currencies — New FX forecasts, with weaker dollar into year-end. J P 0.00.-J3n I:toJchts do Matthew Lehmann • Commodities — We think agriculture prices have peaked and will move lower from here. Open a short in the GSC1 agriculture it J P. Naha n•a•••••••• • Markets took a breather this week. after last week's fireworks. with equities Leo Evans and credit largely flat. and bonds yields and commodities down. It was a quiet week for data. but whit we got was on the softer side We continue to thank global growth is bottoming. but the evidence so far confirms only that pout J P Megan Secant*. PA has come down and that Q3 seems equally soft as Q2. There seems no real evidence yet *Eastbound in gout All we have is a rise in orders relative to YID i etur thc °ugh Sep 70 inventories in sash Mfrs. a rise in confidence. & surging financial asset prices. X. equthec NS mlights color SsP500 • The weak economic data of the past two wars and rising asset prices have MCI AC Waif created a conundrum to investors on what they should really follow the weak ENING fundamentals or the good -technicals"? We have argued here frequently that ELI S Com liquidity driven asset reflanco in a market with high risk prenua and defensive NSCI Etna positions trumps weak economic growth. as keg as the latter does not deteriorate IMO recession Hence. we have chosen to remain long Ink assets USH¢1Veld despite repeated downgrades to economic youth projections We like to make Gerd clear though. that these so-called tecluncale are to us very fimdanaental and are MSCI EM' not as short tern m nature as many would suspect. And this for three reasons. US H&J Grate Europe Fated Ire • For one. the relative supply and demand for financial assets is not a =re EIAF X short-term technical but is based on die first fundamental law of economics. ELI Lear Bands— Much is that of supply and demand. GOVelltaleflt supply of government debt Topa' and cash is many tunes the supply (net issuance) of corporate debt and equities. US Feet Income Hence the latter. scarcer corporate securities should rise in price against the GIONI Goy Sonde' much more abundant supply of government liabilities (high-powered money and government debt)_ This force is not a short-term techmcal impact. but in fact SSC' TR works more slowly and profoundly. Unman I i3 Source JP lloman, 8kortherg See blue Soo page 7 for analyst certification and important disclosures. km on page 2 kr dmoroern vaysv.morganmarkets.com EFTA01181256 This mad is confidential and subset to imp tam duclaimem and conditions including on dras for the putthase er sak of secutities. accincy and completeness of information. vinnes. conlklentiality. legal privilege. and legal entity di.clamxn. available at http:.'"v"vutromorgan.corntageidisclonues,kmail. EFTA01181257