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 i 'it J.P. Morgan View Stay short cash • Asset Allocation — Stay short cash. Cash pays near zero. the world is long: 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 interest rates on reserves. Ow economists expect the ECB to make this switch by October (see today's GDR), but do not see this Fed moving this far • The overall theme behind our stratevremans below-trend economic growth pushing inflation lower. rest-anima profit growth. and inducing further policy easing through QE type actions in DM. and rate cuts in EM This is a great enviracuent for fixed Some. and especially for better yielding bond markets such as EM and credit. Equities benefit from asses reflation also. but in a much less reliable and more volatile fashion We thus focus ow long risk exposures versus cash in EM aid credit bond and DC We have almost no country preferences. • Being outright long spread product versus cash has been the best trade in recent weeks, but was into the argument that 1.:ST and HG yields have again reached new historic lows The half life of mean reversion to nonunal yields has to be measured in decades. though (than p. 2). More anecdotally. the lead 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 attention to momentum than me= reversion in assessing future bond reruns Economic conditions remain good for well-yielding bond markets Stay long. See page 7 for analyst certification and important disclosures. Global Asset Allocation 20 July 2012 Global Asset Allocation VI 0 returns Ihuough Jul 19 \_ agates an in beer color. Efrain S6p500 anew US I4SsYttld LISCI AC Wake US HOG.** IISM Ewa EM teal Saar Europe Freed lac MSG EM Tope' US Feted Ircorre Gaul Gor Bawls" EMFX GSCI TR Geld USCSIIN IS 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