From: US GIG To: Undisclosed recipients:; Subject: JPM Eye on the Market, July 17, 2012 Date: Tue, 17 Jul 2012 15:14:57 +0000 Attachments: 07-17-2012 - EOTM _ - The Big Screen.pdf _ _ _ Inline-Images: image001.png; image002.png; image004.jpg; image006.jpg; image008.png; image01 1 .png; image013.png; image015jpg; image017.png; image018.png; image003.png; image005.png Eye on the Market, July 17, 2012 (attached PDF file is much easier to read this week, particularly the last 2 charts) Topics: US equity markets holding in despite poor economic data; which fiscal cliff is worse; European Credit Divorce; will China respond to economic CPR; After 50 The Big Screen. Given all the monetary and fiscal stimulus thrown around, recent data has been weak in the US (low readings on retail sales, payrolls, small business surveys and GDP), China (declining manufacturing surveys and imports) and Europe (recessionary conditions in all places between the Po River, the Aegean Sea and the Strait of Gibraltar). Nevertheless, equity markets have held up better than they otherwise might have. US equities are up 7%, Asia ex-Japan is up 5% and Europe is flat (heroic given the circumstances). It's difficult to know for sure, but in addition to low valuations, this might reflect the fact that institutional and individual investors, now well-versed in the macroeconomic train wrecks of the day, have reduced equity positions to those they are comfortable holding from here. It's like staying in the theater watching a bad movie since there's nothing better playing anywhere else. In that context, here's what we're watching this summer to see if we should shift portfolio risk more towards elation or despair; right now, we are in the middle. The Lion in if (1968) and the sluggish response of the US economy to monetary and fiscal stimulus Despite all the stimulus, this is the weakest US post-war recovery on record. A couple of years ago, some argued that the deeper the recessi