From: US GIO

From: US GIO To: Undisclosed recipients:; Subject: Eye on the Market, January 18, 2011 Date: Tue, 18 Jan 2011 19:58:33 +0000 Attachments: 01-18-11_-_EOTM_-_0_futuro_e_agora_Brazil_.pdf I nline-Images: image001.png Eye on the Market, January 18, 2011 Topics: Market update; Brazil and related opportunities in Private Equity Market update. Developments in early January show a continuation of the 3 regional trends highlighted in our 2011 Market and Portfolio Outlook. In the US, manufacturing and service sector surveys point to expansion (strongest service sector activity in 4 years), consumer spending is solid, federal and state tax receipts are improving, and banks may reinstate dividends and stock repurchases in the second quarter. In the emerging world, rising currencies, higher interest rates and increased bank reserve requirements (particularly in China) are being used to stave off inflation. Food prices have risen sharply, which has a lot to do with it; more on that and the world's strange weather patterns next week. In Europe, even as Germany posts another round of positive economic data, financing costs for sovereigns and banks in the periphery are reaching new highs. As shown in the second chart, several European countries are growing well below the cost of financing their government debt, which is not a sustainable equilibrium. The largest concentration of 2011 European bank debt maturities lay in April; Europe may need a more comprehensive solution well before then. Recent events reinforce the rationale behind the US being the largest regional equity allocation in our portfolios. World food prices UnitedNa6COSFoodandAgricultureworldtoodpriceindex 220 200 180 160 140 120 - 100 - Peripheral Europe: an unsustainable dynamic Percent 10% 8% 6% 4% 2% 0% -2% -4% -6% -8% fil Ing In glingLMS1 if.1§62 RPM E2 8 slemp211=g0,15 3npliPot-eZ nolig ea ot a ti z _er.u.o. p r =0 1990 1992 1994 1996 1998 2000 2032 2004 2006 2008 2010 133$ o E 2 X 8 0) Source:Food and Agri we Oroanizationof e United Nation. Source: InternatimallionetacyFund, Bloomberg. Gaveld. GOPgowth minus cost of government debt 0 futuro d agora. In the emerging world, equity markets tend to be dominated by manufacturing, financial, energy and utility stocks. This persists despite the growth of thousands of companies servicing a new class of emerging markets consumers. In China, consumer stocks servicing its middle class (now estimated at 300 million people) represent less than 10% of the market cap of the Shanghai Composite Index. Providing growth equity capital to such companies (typically at levels well below public market PIE multiples) has been one of our investment objectives. Like China, Brazil also migrated away from its 1970's centrally-planned economic model (before a pit-stop at inflation- financed growth in the I 980s). Brazil's success over the last decade has resulted in the emergence of 50 million new consumers, and the companies that service them. This week, we look at Brazil's transformation, its ongoing challenges, and the opportunity in private equity. While Brazil still grapples with legacies of its fiscal and monetary history, by the end of this decade, it will likely overtake Britain and France to become the world's 5th largest economy. For the first time in decades, the future is now (o fusion é agora), which is the topic of this week's Eye on the Market investment review (attached). Michael Cembalest Chief Investment Officer The material contained herein Is intended at a general market commentary Opinions expressed herein are those of Michael Cembalest and may differ from those of other. Motgan employees and affiliates. This information in no wayconstitutes. Alt:omen research and should not be treated as. uch. Furthen the views expressed herein may differ EFTA01156314 from that contained in. Morgan research reports. The above summaolprices/quotes/stafittics have been obtained from sources deemed to be reliable, but are do not guarantee their accuracy or completeness. any yield referenced Le indicative and. ubject to change. Pasigerformance is not a guarantee of future results. References to the performance or character of our portfolios generally refer to our Balanced Model Portfolios constructed by. Morgan. It is a proxy for client performance and may not represent actual transactions or investments in client accounts. The model portfolio can be implemented across brokerage or managed accounts depending on the unique objectives of each client and is serviced through distinct legal entities licensed for specific activities. Bank. trust and investment management services are provided by. Morgan Chase Bank` and its affiliates. Securities are offered through. Morgan Securities LW (JAMS), Member NYSE. FINRA and SIPC. Securities products purchased or sold through JP,IIS are not insured by the Federal Deposit Insurance Corporation ("FDIC"): are not deposits or other obligations of its bank or thrift affiliates and are not guaranteed by its bank or thrift affiliates; and are subject to instalments-Mkt including possible loss of tkiwincipal invested. Not all investment ideas referenced are suitable for all investors. These recommendations may not be suitable for all investors. Speak with your Morgan Representative concerning your personal situation. This material is not intended at an offer or solicitation for the purchase or sale of any financial instrument. Private Investments may engage in leveraging and other speculative practices that may increase the risk of investment lass, can be highly illiquid. are not required to provide periodic pricing or valuation to investors and may involve complex tax structures and degas in distributing important tax information. Typically such investment ideas can only be offirced to suitable investors through a confidential offering memorandum which fully describes all terms, conditions. and risks. IRS Circular BO Disclosure: ifiliforgan Chase & Co. and its affiliates do not provide tat advice. Accordingly: any discussion of U.S tat matters contained herein (including any attachments) is not intended or straiten to be used. and cannot be used, in connection with the promotion. marketing or recommendation by anyone unaffiliated with JPIIIorgan Chase & Co. of any of the matters addressed herein or for the purpose of avoiding V.S. tat-related penalties. Note that. Morgan is not a licensed insurance provider: 2011 !Morgan Chase & Co This email is confidential and subject to important disclaimers and conditions including on offers for the purchase or sale of securities, accuracy and con leteness of information, viruses confidentiality, legal privilege, and legal entity disclaimers, available at EFTA01156315