From: US GIO To: Undisclosed recipients:; Subject: J.P. Morgan Eye on the Market, September 25, 2012: Watches, milk and beer Date: Tue, 25 Sep 2012 15:16:55 +0000 Attachments: 09-25-2012_-_EOTM_-_Watches,inilk_and_beer.pdf Inline-Images: image016.png; image018.png; image021.png; image022.png; image023.png; image024.png; image025.png; image026.png; image001.png; image002.png Eye on the Market, September 25, 2012 [pdf easier to read this week, and has a table that is not included in the email version' Topics: For what it's worth, equity markets have usually been right about "weak economy" rallies; Private equity investing in Asia A lot has been written about how the recent equity rally coincided with weak growth and weak leading indicators. That's true, as shown in the first chart. Normally, equity rallies take place when the global PMI manufacturing survey is either above 50 (denoting an expansion), or at least rising. In 2012, that hasn't happened: equities rose even as leading indicators like the PMI remained weak. The second chart shows the rise in PIE multiples over the summer. Equity rallies usually coincide with high or rising leading indicators, but not In 2012, Index level 1.400 1,350 1,300 1,250 1,200 1.150 1,100 1,050 1.000 2010 2011 21;12 Source Bloomberg.. Morgan Secunlies LAC MSCI World Equity Index I- 57 se 55 14 54 13 53 52 12 51 so 11 49 10 48 47 Reduction of "tail risk" contributes to multiple expansion Forward price-to-earnings multiple 15 9 Jen-12 Feb-12 Apr-12 Jun-12 Jul-12 Sep-12 Source: Bloomberg. S&P 500 P r- ofe rewnr\tal \ r ‘f iVStAlr MSC! Europe This is not as odd as you might think; since 1960, when equity markets and leading economic indicators disagreed (i.e., rising equities, PMI below 50 and falling), markets were usually eventually "right". The data table in the attached PDF shows all the times when markets and economic data disagreed, along with the change over the next 2 year