From: To: Subject: Date: Attachments: Inline-Images: US GIO Undisclosed recipients:; The J.P. Morgan View : On to real asset inflation Fri, 14 Sep 2012 20:50:03 +0000 JPM The J.P. Morgan_View_2012-09-14_941927.pdf att.bin; att(1).bin; att(2).bin; att(3).bin; att(4).bin; att(5).bin; att(6).bin; att(7).bin; att(8).bin; att(9).bin; att(10).bin; att(11).bin; att(12).bin; att(13).bin; att(14).bin; att(15).bin; att(16).bin; att(17).bin; att(18).bin; att(19).bin; att(20).bin; att(21).bin; att(22).bin; att(23).bin; att(24).bin; att(25).bin; att(26).bin; att(27).bin; att(28).bin; att(29).bin; att(30).bin Global Asset Allocation The J.P. Morgan View: On to real asset inflation Click here for the full Note and disclaimers. • Asset allocation — The market appears to be testing the Fed's tolerance for rising inflation expectations following its open ended QE3. We believe demand for US inflation hedges is set to rise, supporting commodity futures, stocks and currencies; depressing the dollar and government debt; and boosting real assets generally, including equities. • Economics — Q3 growth is lowered to 1.7% due to China and Japan. 2012.13 global growth is lowered by 0.1% each to 2.4% and 2.6%. • Fixed Income — Remain overweight MBS, after the Fed's aggressive shift in stance. • Equities — Value continues to outperform growth in Europe, helped by bat. Stay OW. • Credit — QE3 should support spread products. Stay long and focus on lower quality credits. • Currencies — Open ended QE is very bearish the dollar. • Commodities — Rising tensions in the Middle East keep us long energy as a hedge against a supply shock that would hurt our long risk portfolio. • Equities moved to new highs this week following the Fed's ratcheting up of its asset purchases program to a new level. But unlike previous easing measures, this one produced a big sell off in bonds and a rise in inflation expectations. Real assets are rallying while nominal ones are being left