From: US GIO

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 J.P. Morgan The J.P. Morgan View Weak economy vs. strong liquidity. Who wins? • Mere allocation — Strong liquidity. heavy supply of safe assets. high nsk prairie. defensive positioning by end investors. and a QE focus on reducing downside risk are not tecluucals but are true fimdamental driven of the ask rally that trump weak economic growth. in our view. • Economics — Q3 global growth remains as soft as Q2. confirming bottoming process. but not yet a rebound. Only using clicks/inventory ratios and rallarig 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 • Fixed Income —Position on wider swap spreads in Treasuries. Bonds and LX. • Equities — Sew long value stocks in Europe. commodity sectors globally. US- housing-sensitive sectors within the US. and US against ar. • Credit — Stay long credit spreads across the US HY and EM sovereigns and corporates and we expect further spread compression • Currencies — New FX forecasts, with weaker dollar into year-end. • Commodities — We think agriculture prices have peaked and will move lower from here. Open a short in the GSC1 agriculture it • Markets took a breather this week. after last week's fireworks. with equities 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 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 inventories in sash Mfrs. a rise in confidence. & surging financial asset prices. • The weak economic data of the past two wars and rising asset prices have created a conundrum to investors on what they should really follow the weak fundamentals or the good -technicals"? We have argued here frequently that liquidity driven asset reflanco in a market with high risk prenua and defensive positions trumps weak economic growth. as keg as the latter does not deteriorate IMO recession Hence. we have chosen to remain long Ink assets despite repeated downgrades to economic youth projections We like to make clear though. that these so-called tecluncale are to us very fimdanaental and are not as short tern m nature as many would suspect. And this for three reasons. • For one. the relative supply and demand for financial assets is not a =re short-term technical but is based on die first fundamental law of economics. Much is that of supply and demand. GOVelltaleflt supply of government debt and cash is many tunes the supply (net issuance) of corporate debt and equities. Hence the latter. scarcer corporate securities should rise in price against the 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 works more slowly and profoundly. Soo page 7 for analyst certification and important disclosures. Global Asset Allocation 21 September 2012 Globs Asset Allocation Jan Loeys AC 1.:, m 834-5874 JP•Iorgin Chan Bank NA John Normand JP Megan Stearn.* do N tolaos Pannannoolou JP Magi. Stoanbri 014 Seamus Mat Goraln J P 0.00.-J3n I:toJchts do Matthew Lehmann J P. Naha n•a•••••••• Leo Evans J P Megan Secant*. PA YID i etur thc °ugh Sep 70 X. equthec NS mlights color SsP500 MCI AC Waif ENING ELI S Com NSCI Etna USH¢1Veld Gerd MSCI EM' US H&J Grate Europe Fated Ire EIAF X ELI Lear Bands— Topa' US Feet Income GIONI Goy Sonde' SSC' TR Unman I i3 Source JP lloman, 8kortherg See blue 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