JP Morgan - Guide to the Markets - 3Q 2012

7/30/2019 JP Morgan - Guide to the Markets - 3Q 2012

1/69

As of June 30, 2012

i h M rk


2/69

Table of Contents

EQUITIES

ECONOMY

41733

INTERNATIONAL

ASSET CLASS

334154

U.S. Market Strategy Team

Dr. David P. Kelly, CFA [email protected]

Andrew D. Goldberg [email protected]

. , . . .

Andrs Garcia-Amaya [email protected]

Brandon D. Odenath [email protected]

David M. Lebovitz [email protected]

Anthony M. Wile [email protected]

2

www.jpmorganfunds.com/mi

Past performance is no guarantee of com parable future results.


3/69

Page Reference

4. Returns by Style

5. Returns by Sector

6. U.S. Equity Indexes

35. Fixed Income Yields and Returns

36. The Fed and the Money Supply

37. Credit Conditions

38. High Yield Bonds

39. Municipal Finance

Equities

7. S&P 500 Index at Inflection Points

8. Equity Scenarios: Bull, Bear and In-between

9. Stock Valuation Measures: S&P 500 Index

10. Earnings Estimates and Valuations by Style

11. Earnings per Share: Margins and Revenues

12. Sources of Corporate Profitability

13. De lo in Cor orate Cash

40. Emerging Market Debt

41. Global Equity Markets: Returns and Composition

42. Global Economic Growth

43. Global Monetary Policy

44. The Im ortance of Ex orts

International

14. Broad Market Lagged Price to Earnings Ratio

15. P/E Ratios and Equity Returns

16. Equity Correlations and Volatility

17. Economic Growth and the Composition of GDP

45. The Impact of Global Consumers

46. European Crisis: Fiscal Challenges

47. European Crisis: Financial System Risks

48. European Crisis: Structural Headwinds

49. Chinese Growth and Economic Policy50. Global Equity Valuations Developed Markets

Economy

.

19. Consumer Finances

20. Federal Finances: Outlays and Revenues

21. Federal Finances: Deficits and Debt

22. Taxes Rates and the Distribution of Income and Taxes

23. U.S. Political Perspectives

24. The Aftermath of the Housing Bubble

.

52. International Economic and Demographic Data

53. Current Account Deficit and U.S. Dollar

54. Asset Class Returns

55. Risk On / Risk Off Correlations

Asset Class

.

26. Employment and Income by Educational Attainment

27. Employment Gains and Losses

28. Consumer Price Index

29. Returns in Different Inflation Environments 40 years

30. Oil and the Economy

31. Global Oil Supply

.

57. Dividend Income: Domestic and Global

58. Global Commodities

59. Gold

60. Historical Returns by Holding Period

61. Diversification and the Average Investor

62. Annual Returns and Intra-year Declines

3

32. Consumer Confidence and the Stock Market

33. Fixed Income Sector Returns

34. Interest Rates and Inflation

63. Alternative Investment Returns

64. Cash Accounts65. Corporate DB Plans and Endowments

66. The Dow J ones Industrial Average Since 1900

Fixed Income


4/69

Returns by Style

1,450

S&P 500 Index2Q 2012 2012 YTD

Charts reflect index levels (price change only). All returns and annotations reflect total return, including dividends.

Value Blend Growth Value Blend Growth

1,300

1,325

1,3501,375

1,400

1,425

Equ

ities 2Q12:

-2.8%Large

-2.2% -2.8% -4.0%Large

8.7% 9.5% 10.1%

Mid -3.3% -4.4% -5.6% M

id 7.8% 8.0% 8.1%

Dec-11 Feb-12 Mar-12 Apr-12 May-12 J un-121,225

1,250

1,275

S&P 500 Index

2012: +9.5%

Since Market Low (March 2009)Since Market Peak (October 2007)

Value Blend Growth Value Blend Growth

Small

-3.0% -3.5% -3.9%Small

8.2% 8.5% 8.8%

1,000

1,200

1,400

,

-3.4%

Since 3/9/09

Large

-12.6% -3.4% 7.6%Large

118.0% 115.9% 119.5%

M

id

0.0% 2.6% 4.2% Mid

155.4% 147.6% 140.9%

Dec-06 Feb-08 Mar-09 Apr-10 May-11 J un-12600

800

Source: Russell Investment Group, Standard & Poors, FactSet, J .P. Morgan Asset Management.

Low: +115.9%

Small

-3.1% 0.9% 4.6%Small

139.5% 143.4% 146.8%

4

, .

6/30/12, illustrating market returns since the most recent S&P 500 Index high on 10/9/07. Since Market Low represents period 3/9/09 6/30/12, illustrating market returns since the S&P 500 Index low on 3/9/09. Returns are cumulative returns, not annualized. For all timeperiods, total return is based on Russell-style indexes with the exception of the large blend category, which is reflected by the S&P 500 Index.Past performance is not indicative of future returns.

Data are as of 6/30/12.


5/69


6/69

U.S. Equity Indexes

Russell1000

Russell Indexes

Russell1000

RussellTop 200

S&P Indexes

S&P 500 Industrials

Growth (572)

Russell1000

Industrials (30)

Dow Jones

Russell2000

Russell

Russell3000

S&P1500

S&P MidCap 400

S&P SmallCap 600

Value (690)Equ

ities

Mid Cap (800)

Index W td Avg Total Top 10 Bottom 100 Large Mid Small Div Yld Fwd P/ ES&P 500 110.5 bn 12 303 bn 21.0% 2.9% 90.8% 8.5% 0.7% 2.2% 12.3x

Size (Lipper*) Valuationeightarket Cap

Russell1000 97.9 13,886 18.4 0.9 81.3 14.2 4.5 2.2 12.9

DowJones 144.9 3,922 55.7 44.3 99.5 0.5 0.0 2.5 12.1

Russell1000Value 88.0 7,010 27.9 0.9 79.8 14.5 5.7 2.8 11.3

Russell1000Growth 107.8 6,876 27.3 0.8 82.9 13.9 3.2 1.7 14.9

S&PMidCap400 3.8 1,116 7.4 10.7 1.9 51.3 46.9 1.5 14.3

Large

idRussellMidCap 8.2 4,092 4.3 3.0 36.6 48.2 15.2 1.8 14.3

Sm Russell2000 1.2 1,150 2.4 0.5 0.0 0.5 99.5 1.6 17.2

All Russell3000 90.5 15,036 17.0 0.0 75.1 13.1 11.7 2.2 13.1

M

Market Cap is a bottom-up weighted average based on share information from Compustat and price information from FactSet's pricing database as provided by Standard &Poor's and Russell Investment Group, respectively. Dividend Yield is calculated based on the trailing 12 months of dividends and is provided by FactSets pricing database for

6

S&P and Dow Indexes and Russell for the Russell Indexes. Forward P/E is a bottom-up calculation based on the most recent S&P 500 price, divided by consensus estimates forearnings in the next 12 months (NTM), and is provided by FactSet Market Aggregates. Top 10 represents summed benchmark weight of 10 largest stocks in respective index.Bottom 100 represents summed benchmark weight of 100 smallest stocks in respective index. *Lipper mutual fund size parameters are used forillustrative purposes only and are hypothetical distributions based on Lipper mutual fund categories. As of May 2012, Lipper defines large asmarket cap over $11.4 billion, small as less than $4.0 billion and mid as all values in between. The number of holdings as of 6/30/12 are Russell 1000: 991; Russell Mid Cap: 800; Russell 2000: 2,002; Russell 3000: 2,993.Data are as of 6/30/12.


7/69

S&P 500 Index at Inflection Points

1,600Index level 1,527 1,565 1,362P/E ratio (fwd.) 25.6x 15.2x 12.3x

S&P 500 Index

Mar. 24, 2000P/E (fwd.) = 25.6x

Oct. 9, 2007P/E (fwd.) = 15.2x

1,565

Characteristic Mar-2000 Oct-2007 Jun-2012

1,400

v en ye . . .10-yr. Treasury 6.2% 4.7% 1.7%

Equ

ities ,

Jun. 30, 2012P/E (fwd.) = 12.3x

1,362

+101%

1,200

-49%

-57%

+106%

800

,

Oct. 9, 2002Dec. 31, 1996

+

'97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12

600

Source: Standard & Poors, First Call, Compustat, FactSet, J .P. Morgan Asset Management.

Dividend yield is calculated as the annualized dividend rate divided by price, as provided by Compustat. Forward Price to Earnings Ratio is a bottom-up calculation based

P/E (fwd.) = 14.1x

777

P/E (fwd.) = 16.0x

741

ar. ,P/E (fwd.) = 10.3x

677

7

on the most recent S&P 500 Index price, divided by consensus estimates for earnings in the next 12 months (NTM), and is provided by FactSet Market Aggregates.

Returns are cumulative and based on S&P 500 Index price movement only, and do not include the reinvestment of dividends. Past performance is not indicative of futureresults.



8/69

Equity Scenarios: Bull, Bear and In-between

Bear Market Cycles vs. Subsequent Bull Runs

Market

Peak

Market

Low

Bear

MarketLength of

DeclineBull Run

Length

of Run

Yrs to

Reach Old

S&P 500 Index: Return Needed to Reach 2007 PeakAnalysis as of Jun. 30, 2012. Index has risen 101.2% since low of 677.

e urn ea

5/29/46 5/19/47 -28.6% 12 257.6% 122 3.1 yrs

7/15/57 10/22/57 -20.7% 3 86.4% 50 0.9 yrs

.

9.2%

6.7%

rs

2 Yrs

3 Yrs

Equ

ities .

19.2%

21.6%- . . .

2/9/66 10/7/66 -22.2% 8 48.0% 26 0.6 yrs

11/29/68 5/26/70 -36.1% 18 74.2% 31 1.8 yrs

5.5%

4.8%

4 Yrs

5 Yrs

10/9/07 Peak 1,56524.0%

26.5% 6/30/12 Level 1,362

3/9/09 Trough 677

1/5/73 10/3/74 -48.4% 21 125.6% 74 5.8 yrs

11/28/80 8/12/82 -27.1% 20 228.8% 60 0.2 yrs

8/25/87 12/4/87 -33.5% 3 582.1% 148 1.6 yrs

4.3%

4.0%

3.8%

6 Yrs

7 Yrs

8 Yrs

Distance Left to Peak 203

29.1%

31.6%

34.3%

Recovery So Far 685

3/24/00 10/9/02 -49.1% 31 101.5% 60 4.6 yrs

10/9/07 3/9/09 -56.8% 17 101.2% 40*

Average: -35.0% 14 mo's 176.0% 68 mo's 2.2 yrs

3.6%

3.4%

9 Yrs

10 Yrs

Implied avg. annualized total return

Implied cumulative total returnX%

X%

36.9%

39.7%

8

Source: Standard & Poors, FactSet, J .P. Morgan Asset Management.(Left) Data assume 2.0% annualized dividend yield. Implied values reflect the average geometric total returns required for the S&P 500 to reach its10/9/07 peak of 1,565 over each stated time period. Chart is for illustrative purposes only. Past performance does not guarantee future results.(Right) A bear market is defined as a peak-to-trough decline in the S&P 500 Index (price only) of 20% or more. The bull run data reflect the marketexpansion from the bear market low to the subsequent market peak. All returns are S&P 500 Index returns and do not include dividends. *Currentbull run from 3/9/09 through 6/30/12. Data are as of 6/30/12.


9/69

Stock Valuation Measures: S&P 500 Index

S&P 500 Index: Valuation Measures Historical Averages

Valuation

Measure DescriptionLatest

1-year

ago

3-year

avg.

5-year

avg.

10-year

avg.

15-year

avg.

P/E Price to Earnings 12.3x 12.4x 12.9x 13.0x 14.4x 16.8x

P/B Price to Book 2.2 2.3 2.1 2.2 2.5 3.1

P/CF Price to Cash Flow 8.5 8.4 8.4 8.5 9.8 11.1P/S Price to Sales 1.2 1.2 1.2 1.2 1.3 1.5

PEG Price/Earnings to Growth 1.5 0.8 1.0 1.2 1.2 1.2

Equ

ities

Div. Yield Dividend Yield 2.3% 2.1% 2.2% 2.3% 2.1% 1.9%

50x9%

10%

S&P 500 Shiller Cyclically Adjusted P/EAdjusted using trailing 10-yr. avg. inflation adjusted earnings

S&P 500 Earnings Yield vs. Baa Bond Yield

S&P 500 Earnings Yield:(Inverse of fwd. P/E) 8.1%

20x

30x

40x

5%

6%

7%

8%

2Q12:20.0x

Average: 19.0x

'55 '60 '65 '70 '75 '80 '85 '90 '95 '00 '05 '100x

10x

'94 '96 '98 '00 '02 '04 '06 '08 '10 '123%

4% Moodys Baa Yield: 5.1%

Source: (Top) Standard & Poors, FactSet, Robert ShillerData, J .P. Morgan Asset Management.Price to Earnings is price divided by consensus analyst estimates of earnings per share for the next 12 months. Price to Book is price divided by book value per share. Data

-

9

.

months. Price to Sales is calculated as price divided by consensus analyst estimates of sales per share for the next 12 months. PEG Ratio is calculated as NTM P/E divided byNTM earnings growth. Dividend Yield is calculated as consensus analyst estimates of dividends for the next 12 months divided by price. All consensus analyst estimates areprovided by FactSet.(Bottom left) Cyclically adjusted P/E uses as reported earnings throughout.(Bottom right) Standard & Poors, Moodys, FactSet, J .P. Morgan Asset Management.Data are as of 6/30/12.


10/69

Earnings Estimates and Valuations by Style

28x

S&P 500 Index: Forward P/E Ratio Current P/E vs. 20-year avg. P/E

11.3 12.5 13.8

Value Blend Growth

e

16x

20x

Average: 16.2xEqu

ities

14.0 16.7 21.0

12.5 14.0 15.6

14.0 16.3 21.8

Lar

Mid

'94 '96 '98 '00 '02 '04 '06 '08 '10 '128x

12x

S&P 500 Operating Earnings Estimates

Jun. 2012: 12.3x

Current P/E as % of 20-year avg. P/EE. .: Lar e Ca Blend stocks are 25.4%

12.9 14.4 16.1

14.2 17.1 21.3Small

Value Blend Growth

Large

80.7% 74.6% 65.7%

$80

$100

$1202Q12: $110.91

Consensus estimates of the next twelve months rolling earnings cheaper than their his torical average.

Mid 89.6% 85.6% 71.5%

Small

90.5% 84.2% 75.4%

0

$20

$40

$60

10

'02 '03 '04 '05 '06 '07 '08 '09 '10 '11

Source: (Top and bottom left) Standard & Poors, FactSet, J .P. Morgan Asset Management. (Right) Russell Investment Group, IBES, FactSet.Earnings estimates are for calendar years and taken at quarter end dates throughout the year. Forward Price to Earnings is price divided byconsensus analyst estimates of earnings per share for the next 12 months. P/E ratios are calculated and provided by Russell based on IBESconsensus estimates of earnings over the next 12 months.Data are as of 6/30/12.


11/69

Earnings per Share: Margins and Revenues

$26

S&P 500 Earnings Per ShareOperating basis, quarterly

Most recent:$24.24

2Q07: $24.06

S&P 500 Year-Over-Year EPS GrowthGrowth broken into revenue growth and margin expansion, quarterly60%

$20

$23

Equ

ities

Margin Share of EPS Growth

Revenue Share of EPS Growth

50%

$14

$17

44.0%

30%

40%

$5

$8

6.5%

7.3%

20.0%

29.8%20%

-$1

$2

'12'10'08'06'04'02

6.6%7.9%10.8%11.6%

8.3%7.8%6.8%7.3%

0.9%0.3%

.

0%

10%

1Q124Q113Q112Q111Q114Q103Q102Q10

11

Source: Standard & Poors, Compustat,, J .P. Morgan Asset Management.EPS levels are based on operating earnings per share. Most recently available data is 1Q12.Past performance is not indicative of future returns.



12/69

Sources of Corporate Profitability

DuPont Breakdown of Profitability for S&P 500

Return on Equity: Profit Margin:

=Asset Efficiency: Financial Leverage:

Return on Equity: Net Income

EquityEqu

ities

16%

20%

Most Recent 14.5%

4%

8%

12%

Profit Margin: Net IncomeSales Financial Leverage:Assets EquityAsset Efficiency: SalesAssets

'94 '96 '98 '00 '02 '04 '06 '08 '10 '12

45%

48%

51%

600%

640%

8%

10%

8.5%

33%

36%

39%

42%

480%

520%

560%

2%

4%

6%

36.4%

12

Source: Standard & Poors, Compustat, FactSet, J .P. Morgan Asset Management.

Return on equity for S&P 500 companies calculated as the product of aggregate net income/sales, aggregate sales/assets and aggregateassets/equity for these 500 companies. Most recent data are from 4Q11 reflecting the last fully completed reporting period. Data are as of 6/30/12.

'94 '96 '98 '00 '02 '04 '06 '08 '10 '1230% '94 '96 '98 '00 '02 '04 '06 '08 '10 '12440%

'94 '96 '98 '00 '02 '04 '06 '08 '10 '120%

.


13/69

Deploying Corporate Cash

1,600$1,300

Corporate Cash as a % of Current AssetsS&P 500 companies cash and cash equivalents, quarterly30%

Corporate Growth

Capital Expenditures M&A Activity

Nonfarm nonfinancial capex in billions USD, quarterly deal volume

600

800

1,000

1,200

,

$900

$1,000

$1,100

,

Equ

ities

20%

22%

24%

26%

0

200

400

$600

$700

'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12

Cash Returned to ShareholdersDividend Payout Ratio

'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11

14%

16%

18%

$120

$140

$160

$24

$27

$30

50%

60%

S&P 500 companies, rolling 4-quarter averages, billions USDS&P 500 companies, LTM

Dividends per Share

$40

$60

$80

$18

$21

30%

40%

Share Buybacks

13

'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11Source: Standard & Poors, FRB, Bloomberg, FactSet, J .P. Morgan Securities, J .P. Morgan Asset Management.

(Top left) Standard & Poors, FactSet, J .P. Morgan Asset Management. (Top right) M&A activity is quarterly number of deals of any value andcapital expenditures are for nonfarm nonfinancial corporate business. (Bottom left) Standard & Poors, FactSet, J .P. Morgan AssetManagement. (Bottom right) Standard & Poors, Compustat, FactSet, J .P. Morgan Asset Management. Data are most recent as of 6/30/12.


14/69

Broad Market Lagged Price to Earnings Ratio

35x

Lagged P/E Ratio All U.S. CorporationsRatio of market value of all U.S. corporations to adjusted after-tax corporate profits for prior four quarters

25x

30x

Avg. During Recessions 12.6x

Avg. During Expansions 13.9x

P/E Ratios

Equ

ities

20x

J une 30, 2012 12.1x

10x

15xAverage: 13.7x

Jun. 30, 2012*: 12.1x

0x

5x

' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' '

14

Source: BEA, Federal Reserve Board, Wilshire Associates, J .P. Morgan Asset Management.

*The J une 30, 2012 price is a J .P. Morgan Asset Management estimated based on the daily value of the Wilshire Total Market Index.



15/69

P/E Ratios and Equity Returns

60%60%

P/E and Total Return Over 5-yr. Annualized PeriodsP/E and Total Return Over 1-yr. PeriodsQuarterly, 1Q 1952 to 1Q 2007Quarterly, 1Q 1952 to 1Q 2011

Current P/E: 12.1 Current P/E: 12.1

40%40%Equ

ities

20%20%

0%5x 10x 15x 20x 25x 30x

0%5x 10x 15x 20x 25x 30x

-40%

-20%

-40%

-20%

15

Source: BEA, FRB, J .P. Morgan Asset Management. Prices are based on the market value of all U.S. corporations and include quarterlydividends. Valuation based on long-term PE ratio.

Note: Orange line denote results of linear regression with R-squared of 0.15 for 1-yr. returns (LHS) and 0.35 for 5-yr. returns (RHS).



16/69

Equity Correlations and Volatility

70%

Large Cap StocksCorrelations Among Stocks

Sovereign DebtCrisis

LehmanGreat Depression /

30%

40%

50%

Equ

ities

Tech Bust & 9/11

1987 Crash

OPEC Oil

Crisis

Cuban Missile Crisis

0%

10%

20%

'26 '32 '38 '44 '50 '56 '62 '68 '74 '80 '86 '92 '98 '04 '10

Average: 26.7% Jun. 2012: 40.5%

2.5%

3.0%

3.5%

60

75

90Volatility Measure 08 Peak Average LatestDJ IA (LHS) 3.30% 0.72% 0.71%VIX (RHS) 80.9 20.5 17.1

DJIA vol. shownin 3-month

moving average

0.5%

1.0%

1.5%

.

15

30

45

16

'30 '35 '40 '45 '50 '55 '60 '65 '70 '75 '80 '85 '90 '95 '00 '05 '100.0% 0

Source: (Top) Empirical Research Partners LLC, Standard & Poors, J .P. Morgan Asset Management. Capitalization weighted correlation of top750 stocks by market capitalization, daily returns, 1926 J un. 28, 2012. (Bottom) CBOE, Dow J ones, J .P. Morgan Asset Management. DJ IAvolatility are represented as three-month moving averages of the daily absolute percentage change in the Dow Jones Industrial Average.

Charts shown for illustrative purposes only. Data are as of 6/30/12.


17/69

Economic Growth and the Composition of GDP

$18,00010%

Real GDP% chg at annual rate

20-yr avg. 1Q12

Components of GDP1Q12 nominal GDP, billions, USD

$14,000

$16,000

4%

6%

8%

y

Real GDP: 2.6% 1.9%

10.9% Investment ex-housing

19.5%

2.3% Housing

$685 bn ofout ut lost

$8,000

$10,000

,

0%

2%

Econo

71.2%

ov pen ng

$2,000

$4,000

$6,000

-6%

-4%

-Consumption

n ooutput

recovered

-$2,000

$0

'04 '06 '08 '10 '12-10%

-8%

Source: BEA, FactSet, J .P. Morgan Asset Management.

- 3.9% Net Exports

17

va ues s own n egen are c ange vs. pror quar er annua ze an re ec revse .



18/69

Cyclical Sectors

24

Millions, seasonally adjusted annual rateLight Vehicle Sales

46

47

Manufacturing and Trade InventoriesDays of sales, seasonally adjusted

Apr. 2012: 38.3

14

16

18

20

y Average: 15.1

May 2012:13.7

41

4243

44

45

'94 '96 '98 '00 '02 '04 '06 '08 '10 '128

10

12

Econo

Real Capital Goods Orders

Housing Starts

'94 '96 '98 '00 '02 '04 '06 '08 '10 '1237

38

39

60

65

70

75

1,600

2,000

2,400

- . , ,ousan s, seasona y a us e annua rae

Average: 57.5Avera e: 1 442

'98 '00 '02 '04 '06 '08 '10 '1240

45

50

55

'75 '80 '85 '90 '95 '00 '05 '100

400

800

,

May 2012: 708May 2012:

57.3

18

Source: (Top left) BEA, FactSet, J .P. Morgan Asset Management. (Top right) Census Bureau, FactSet, J .P. Morgan Asset Management. (Bottom left) Census Bureau,FactSet, J .P. Morgan Asset Management. (Bottom right) Census Bureau, FactSet, J .P. Morgan Asset Management.Capital goods orders deflated using the producer price index for capital goods.



19/69

Consumer Finances

$80

Personal Savings Rate

12%

Annual, % of disposable incomeConsumer Balance SheetTrillions of dollars outstanding, not seasonally adjusted

2Q-07 Peak: $81.5tn

$60

$70

4%

6%

8%

10%.

Homes: 24%

y

YTD 2012:3.7%

1Q-09 Low: 65.2tn

$40

$50'60 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10

0%

2%

Household Debt Service RatioDebt payments as % of disposable personal income, seasonally adjusted

Deposits: 11%

Other tangible: 7%

Econo

13%

14%

15%

$20

$30

u :

Revolving (e.g.: credit cards): 6%Non-revolving: 12%Other Liabilities: 9%

3Q07:14.1%

10%

11%

12%

'80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12$0

$10

Total Liabilities: $13.4 tn

assets: 39%

Mortgages: 72%

1Q80:11.1%

2Q12*:10.8%

19

Source: Le t FRB, J .P. Morgan Asset Management. Data ncu es ouse o s an nonpro t organzatons. R g t BEA, FRB, J .P. Morgan Asset

Management. Personal savings rate is calculated as personal savings (after-tax income personal outlays) divided by after-tax income. Employer andemployee contributions to retirement funds are included in after-tax income but not in personal outlays, and thus are implicitly included in personalsavings. Savings rate data as of May 2012. *2Q12 Household Debt Service Ratio is a J .P. Morgan Asset Management estimate. All other data are asof 1Q12.Data are as of 6/30/12.


20/69

Federal Finances: Outlays and Revenues

26%$4.0

The 2012 Federal BudgetCBO Baseline forecast, trillions USD

Federal Outlays and Receipts1960 2012, % of GDP

24%

$3.0

$3.5

y

.

Other

$504bn (14%)

Net Int.: $224bn (6%)Borrowing:

$1,171bn (32%) 2012*:23.4%

20%$2.0

$2.5

Econo

Defense:$673bn (19%)

-Discretionary:$630bn (17%)

Average: 20.5%

18%

$1.0

$1.5

Social Security:$769bn (21%)

Revenues:$2,456bn (68%) Average: 17.9%

2012*:

15.7%

14%

1960 1970 1980 1990 2000 2010$0.0

$0.5

Total Government Spending Sources of Financing

Medicare & Medicaid:$827bn (23%)

RevenuesOutlays

20

Source: U.S. Treasury, BEA, CBO, .P. Morgan Asset Management.

2012 Federal Budget is based on the CBOs March 2012 Baseline Scenario. *2012 revenues and outlays are forecasts from the Congressional Budget Office (CBO).Note: Years shown are fiscal years (Oct. 1 through Sep. 30).



21/69

Federal Finances: Deficits and Debt

100%4%

Federal Budget Surplus/Deficit Federal Debt (Accumulated Deficits)% of GDP, 1990 2022 % of GDP, 1990 2022

ForecastForecast

80%

0%

2%

y 2011 actual: 67.7%

2022*: 80.0%

60%

-4%

-2%

Econo

CBO BaselineAlternative 2022*: 61.3%

20%

-8%

-6%ase ne

Alternative

Alt.

2011 Actual -8.7% -8.7%

CBO Baseline Alt.

2011 Actual 67.7% 67.7%

CBO Baseline

0%1990 1994 1998 2002 2006 2010 2014 2018 2022

-12%

-10%

1990 1994 1998 2002 2006 2010 2014 2018 2022

Source: U.S. Treasury, BEA, CBO, J .P. Morgan Asset Management.

2012 Est . -7.6% -7.6%

2013 Proj. -3.8% -6.6%

2012 Est. 73.2% 73.2%

2013 Proj. 75.8% 78.8%

21

2011 numbers are actuals. 2012 Federal Budget is based on the CBOs March 2012 Baseline Scenario. *Alternative scenario based on CBO Alternative

Scenario for spending and President Obamas budget for revenues.

Note: Years shown are fiscal years (Oct. 1 through Sep. 30). Chart on the left displays federal surplus/deficit (revenues outlays).



22/69

Tax Rates and the Distribution of Income & Taxes

80%

100%

Historical Average Maximum Tax Rates by Decade Share of Income and Taxes by Income LevelBased on adjusted gross income and federal taxes, 2009

Dividends

Income

40%

60%

Top 5%31.7%

5% to 25%

34.1%Wage Income

Capital Gainsy

0%1930's 1940's 1950's 1960's 1970's 1980's 1990's 2000's Current

Bottom 75%34.2%

Potential Tax Rate ChangesCurrent and scheduled 2013 maximum federal tax rates under current law Taxes

Econo

37.9%35.0%

43.4%

23.8%

43.4%

55.0%

30%

40%

50%

Top 5%

58.7%

5% to 25%28.6%

Scheduled 20132012

15.0% 15.0%10.4% 12.4%

0%

10%

20%

Wage income Capital Gains* Dividends* Payroll Tax** Estate Tax***

Bottom 75%12.7%

22

, . . . . ,Foundation, J .P. Morgan Asset Management. Tax rates based on maximum U.S. individual income tax. Wage income tax rates include employer and employee contributions tothe Medicare tax. *Includes recently enacted healthcare tax of 3.8%. **In 2011 and 2012, the payroll tax cut reduced the employees share of Social Security taxes by 2%.Rates shown include both employer and employee contributions to the payroll tax. ***In 2013, the estate tax exemption amount was expectedto fall to $1 million from $5.12 million in 2012. (Right) IRS, J .P. Morgan Asset Management. Taxes paid are based on federal individualincome taxes, which are responsible for about 25% of the nation's taxes paid.Data are as of 6/30/12.


23/69

U.S. Political Perspectives

80%

90%

Congressional & Presidential Approval RatingsPolitical Polarization% of Representatives voting with the majority of their party*

Senate

100%

40%

50%

60%

70%

y

House

80%

85%

90%

10%

20%

1941 1951 1961 1971 1981 1991 2001 2011Econo

Stock Market Returns by Political Party ControlPolitical Party Dominance

Presidential

Congressional

70%

75%

1901 1919 1937 1955 1973 1991 2009

70%

80%

,

DemocraticPresident

Senate

House

17.2%

13.4%12%

16%

20%

40%

50%

9.5%

7.6%

5.7%

0%

4%

8%

23

Source: U.S. House of Representatives, U.S. Senate, Gallup Inc., FactSet, J .P. Morgan Asset Management.

*In roll call votes where the majority in one party voted the opposite way to the majority in the other. Data compiled by Professors Keith T. Pooleand Howard Rosenthal available at www.voteview.com. Stock market returns are price only and calculated from election date to election datefrom11/5/40 to 11/4/08.



24/69

The Aftermath of the Housing Bubble

$1,100170

Monthly Rent vs. Monthly Mortgage PaymentVacant propertiesIndexed to 100, seasonally adjusted

Home Prices

-

$500

$650

$800

$950

150

160

y

2Q12*:$719

*

MortgagePayment

FHFA Purchase Only

Average Existing Home

$200

$350

'88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12

130

140

Econo

Home Inventories

Monthly Rent

3.5

4.0

4.5

110

120

ons, annua rae, seasona y a us e

'94 '96 '98 '00 '02 '04 '06 '08 '10 '121.5

2.0

2.5

.

'02 '03 '04 '05 '06 '07 '08 '09 '10 '1190

100

May 2012: 2.6

24

Sources: (Left) National Association of Realtors, Standard & Poors, FHFA, FactSet, J .P. Morgan Asset Management. (Top right) Census Bureau, J .P. Morgan Asset Management.Monthly mortgage payment assumes a 20% down payment at prevailing 30-year fixed-rate mortgage rates; analysis based on median asking rent and median mortgage paymentbased on asking price. (Bottom right) Census Bureau, National Association of Realtors, J .P. Morgan Asset Management. *2Q12 rent and mortgagepayment values are J .P. Morgan Asset Management estimates.



25/69

Employment

60012%

Civilian Unemployment Rate Employment Total Private Payroll

Seasonally adjusted Total job gain/loss (thousands)

200

400

10%

11%

y 8.9mm jobs lost

-200

0

7%

8%

9%

Econo

May 2012: 8.2%4.3mm

jobsgained

-600

-400

5%

6%

50-yr. avg.: 6.1%

'02 '03 '04 '05 '06 '07 '08 '09 '10 '11-1,000

-800

'70 '80 '90 '00 '103%

4%

25

, , . . .


, , . . .


26/69

Employment and Income by Educational Attainment

Average Annual Earnings by Highest Degree EarnedFull-time workers aged 25 and older, 2009, USD

$87,194$90,00018%

Unemployment Rate by Education Level

y$70,000

$80,000

+31K14%

16%

May 2012:

Less than High School Degree

High School No College

Some CollegeCollege or Greater

Econo $56,665

$50,000

$60,000

+26K8%

10%

May 2012:8.1%

.

$30,627

$20,000

$30,000

,

4%

6%

May 2012:

May 2012:7.9%

$0

$10,000

High School Graduate Bachelor's Degree Advanced Degree

0%

2%

'92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12

3.9%

26

, . . ., , . . .

Unemployment rates shown are for civilians aged 25 and older.



27/69

Employment Gains and Losses

20 Years Net Job CreationNet change in millions of payroll jobs, sa

Job Gains and Losses May 2011 to April 2012Millions of jobs

40

50

y

Other Separations: 3.9mm

Total Separations: 49.1mmo a res: . mm

6.8

6.9

Health Care

Fin. & Bus. Services

30Econo

Quits:24.3mm

3.3

4.0

.

Trade & Retailing

Education

20

Layoffs and

1.1

1.1

Mining & Construction

Other Services

0

10 Discharges:20.9mm

-4.9

.

-6.0 -4.0 -2.0 0.0 2.0 4.0 6.0 8.0

Manufacturing

27

, , . . ., , . . .



28/69

Consumer Price Index

15%

CPI and Core CPI50-yr. Avg. May. 2012

Headline CPI: 4.2% 1.7%

% change vs. prior year, seasonally adjustedCPI

Components

Weight in

CPI

12-month

Change

Food & Bev. 15.3% 2.7%

12%

y

Core CPI: 4.1% 2.3%Housing 41.0% 1.6%

Apparel 3.6% 4.4%

Transportation 16.9% 0.2%

6%

9%

Econo Medical Care 7.1% 3.6%

Recreation 6.0% 0.9%

Educ. & Comm. 6.8% 2.2%

Other 3 4% 1 9%

0%

3%

. .

Headline CPI 100.0% 1.7%

Less:

Energy 9.7% -3.7%

'65 '70 '75 '80 '85 '90 '95 '00 '05 '10-3%

Source: BLS, FactSet, J .P. Morgan Asset Management.

Food 13.7% 2.8%

Core CPI 76.6% 2.3%

28

CP I values shown are % change vs. 1 year ago and reflect May 2012 CP I data. CPI component weights are as of

December 2011 and 12-month change reflects non-seasonally adjusted data through May 2012. Core CP I is definedas CPI excluding food and energy prices.



29/69

Returns in Different Inflation Environments 40 years

High and Rising Inflation

High and Falling Inflation

Falling inflation scenariosRising inflation scenarios

y

ccurre mes snce

median

5%2%

7%

13%

5%

10%

15%

20%

25%

18%

23%

8%

5%

10%

15%

20%

25%

Econo

Abov

MedianInflation:

3.3%

-15%

-10%

-5%

Bonds Equities Cash Commodities

-15%-15%

-10%

-5%

0%


Occurred 7 times since 1972

Occurred 13 times since 1972 B

elow

me

di6%

20%17%

10%

15%

20%

25%

8%

12%

4%

6%10%

15%

20%

25%

an

-15%

-10%

-5%

0%

5%


-15%

-10%

-5%

0%


29

, , , , , , , . . .

High or low inflation distinction is relative to median CPI-U inflation for the period 1971 to 2011. Rising or falling inflation distinction is relative toprevious year CPI-U inflation rate. Bond returns are based on the Barclays U.S. Aggregate index since its inception in 1976 and a composite bondindex prior to that. Equity returns based on S&P 500 price return and annual dividend yield. Cash returns are based on the Barclays 1-3 Month T-Billindex since its inception in 1992 and 3-month T-Bill rates prior to that. Commodities returns based on GSCI.

For illustrative purposes only. Past performance is not indicative of comparable future returns.



30/69

Oil and the Economy

$160$4.50

4%

WTI Crude Oil & Retail Gasoline Prices

OilGas 12/31/00 6/30/12Oil $26.72 $84.96

Economic Drag From Oil PricesU.S. petroleum imports as a % of GDP 2Q12*: 3.0%

3Q08: 3.8%

$120

$140

$3.50

$4.00

2%

3%

y

. .

$80

$100

$2.50

$3.00

'70 '75 '80 '85 '90 '95 '00 '05 '100%

1%

Econo

Lowest 20% 2nd Middle 20% 4th Top 20%

Natural Gas 2.4% 1.4% 0.9% 0.7% 0.5%$40

$60

$1.50

$2.00

Energy Spending by Income Level% of after-tax income

Electricity 9.5% 4.6% 3.1% 2.2% 1.2%

Fuel Oil & Other Fuels 0.9% 0.4% 0.3% 0.2% 0.2%

Gasoline & Motor Oil 10.1% 5.9% 4.8% 3.7% 2.2%

Total Ener 22.9% 12.3% 9.1% 6.8% 4.0%0

$20

0.50

$1.00

30

'94 '96 '98 '00 '02 '04 '06 '08 '10 '12

Source: U.S. Department of Energy, FactSet, J .P. Morgan Asset Management. Price ofgas based on U.S. retail national average of all formulations and WTI for crude.


Source: (Top) BEA, FactSet, J .P. Morgan Asset Management.(Bottom) BLS, J .P. Morgan Asset Management.*2Q12 drag on growth is a J .P. MorganAsset Management estimate.


31/69

Global Oil Supply

250

Kuwait

Middle East Energy Production & Chokepoints

Percent of global liquid fuel production, 2010

U.S. Commercial & Strategic Oil StocksDays of net imports

May 2012:228 days

100

150

200

Iran4.9%

Iraq2.8%

2.9%yr a

0.5%Suez Canal

2.1%

U.S. Commercial Oil Stocksy

Oct. 2005:129 days

0

50

'94 '96 '98 '00 '02 '04 '06 '08 '10 '12

Libya2.1%

Egypt0.8% Saudi Arabia

11.7%

Strait ofHormuz OPEC Sur lus Production Ca acit

U.S. Strategic Petroleum Reserve

Econo

4

5

6

u an0.6%

UAE3.3%

.

Bab el-Mandeb

Millions of barrels per day

EIAforecast

1

2

33.7% Average: 2.6mm bbl/day

Major Producers Major Consum ers

Percent of global total, 2010 Percent of global total, 2010

Saudi Arabia 12% China 5% United States 22% India 4%

31

0

'01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13Source: EIA, J .P. Morgan Asset Management.

Forecast from the J une EIA Short Term Energy Outlook.


United States 11% Canada 4% Japan 5% Saudi Arabia 3%


32/69

Consumer Confidence and the Stock Market

130

Consumer Sentiment Index University of Michigan

Average 12-month S&P 500 index return

110

120

y

Jan. 2000

-2.0%

Jan. 2004+4.4%

. . .

90

100

Average: 85.3

Econo

.+13.5%

May 1977+1.2%

.-6.2%

Jan. 2007-4.2%

60

70

Oct. 1990

Mar. 2003+32.8% Oct. 2005

+14.2%

' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' '40

50

Feb. 1975+22.2%

May 1980+19.2%

+29.1%

Nov. 2008+22.3%

Aug. 2011?

32

Source: University of Michigan, FactSet, J .P. Morgan Asset Management.

Peak is defined as the highest index value before a series of lower lows, while a trough is defined as the lowest index value before a seriesof higher highs. Subsequent 12-month S&P 500 returns are price returns only, which excludes dividends.



33/69

Fixed Income Sector Returns

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 YTD 2Q12 Cum. Ann.

TIPS High Yield EMD EMD High Yield TIPS Treas. High Yield High Yield TIPS High Yield TIPS EMD EMD

10-yrs '02 - '11

16.7% 29.0% 11.9% 12.3% 11.8% 11.6% 13.7% 58.2% 15.1% 13.6% 7.3% 3.2% 185.6% 11.1%

EMD EMD High YieldAsset

Alloc.EMD Treas. MBS EMD EMD Muni EMD Treas. High Yield High Yield

12.2% 26.9% 11.1% 3.6% 10.0% 9.0% 8.3% 34.2% 12.8% 10.7% 7.0% 2.8% 133.6% 8.9%

Treas. TIPS TIPS Muni MBSBarclays

Agg

Barclays

AggCorp. Corp. Treas. Corp. Corp. TIPS TIPS

. . . . . . . . . . . . . .

Barclays

Agg

Asset

Alloc.

Asset

Alloc.TIPS

Asset

Alloc.MBS

Asset

Alloc.

Asset

Alloc.

Asset

Alloc.

Asset

Alloc.TIPS

Asset

Alloc.

Asset

Alloc.

Asset

Alloc.

10.3% 10.0% 6.0% 2.8% 5.1% 6.9% -1.4% 15.8% 7.6% 8.9% 4.0% 2.2% 96.0% 7.0%

Corp. Corp. Corp. Treas. Muni

Asset

Alloc. TIPS Muni

Barclays

Agg Corp.

Asset

Alloc.

Barclays

Agg Corp. Corp.

10.1% 8.2% 5.4% 2.8% 4.8% 6.2% -2.4% 12.9% 6.5% 8.2% 3.9% 2.1% 85.2% 6.4%com

e

Asset

Alloc.Muni MBS High Yield

Barclays

AggEMD Muni TIPS TIPS

Barclays

AggMuni Muni

Barclays

Agg

Barclays

Agg

10.0% 5.3% 4.7% 2.7% 4.3% 5.2% -2.5% 11.4% 6.3% 7.8% 3.7% 1.9% 75.4% 5.8%

MuniBarclays

AggMuni MBS Corp. Corp. Corp.

Barclays

AggTreas. EMD

Barclays

AggHigh Yield Treas. Treas.

9.6% 4.1% 4.5% 2.6% 4.3% 4.6% -4.9% 5.9% 5.9% 7.0% 2.4% 1.8% 74.3% 5.7%

FixedI

MBS MBS

Agg

AggTreas. Muni EMD MBS MBS MBS MBS EMD MBS MBS

8.7% 3.1% 4.3% 2.4% 3.1% 3.4% -14.7% 5.9% 5.4% 6.2% 1.7% 1.4% 73.9% 5.7%

High Yield Treas. Treas. Corp. TIPS High Yield High Yield Treas. Muni High Yield Treas. MBS Muni Muni

-1.4% 2.2% 3.5% 1.7% 0.4% 1.9% -26.2% -3.6% 2.4% 5.0% 1.5% 1.1% 68.8% 5.4%

Source: Barclays Capital, FactSet, J .P. Morgan Asset Management.

33

Past performance is not indicative of future returns. Fixed income sectors shown above are provided by Barclays Capital and are represented by: Barclays Capital U.S. Aggregate

Index; MBS: Fixed Rate MBS Index; Corporate: U.S. Corporates; Municipals: Muni Bond Index; Emerging Debt: Emerging Markets Index; High Yield: Corporate High Yield Index;Treasuries: Barclays Capital U.S. Treasury; TIPS: Barclays Capital TIPS. The Asset Allocation portfolio assumes the following weights:10% in MBS, 20% in Corporate, 15% in Municipals, 10% in Emerging Debt, 10% in High Yield, 25% in Treasuries, 10% in TIPS.Asset allocation portfolio assumes annual rebalancing.



34/69

Interest Rates and Inflation

20%

Nominal and Real 10-year Treasury Yields

15%

Sep. 30, 1981: 15.84%

Average 6/30/12

Nominal Yields 6.48% 1.67%Real Yields 2.59% -0.44%

5%

10%

com

e

Jun. 30, 2012: 1.67%

Nominal 10-yearTreasury Yield

0%FixedI

Jun. 30, 2012: -0.44%

-

-5% Real 10-yearTreasury Yield

34

'60 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10

Source: Federal Reserve, BLS, J .P. Morgan Asset Management.

Real 10-year Treasury yields are calculated as the daily Treasury yield less year-over-year core inflation for that month except for J une 2012, wherereal yields are calculated by subtracting out May 2012 year-over-year core inflation.



35/69

Fixed Income Yields and Returns

U.S. Treasuries # of issues Mkt. Value Avg. Maturity 6/30/2011 6/30/2012 2012 YTD 2Q12

Yield Return

Source: U.S. Treasury, BarclaysCapital, FactSet, J .P. Morgan AssetManagement.

Fixed income sectors shown above areprovided by Barclays Capital and are

2-Year 2 years 0.45% 0.33% 0.04% 0.12%

5-Year 5 1.76 0.72 1.46 1.95

10-Year 10 3.18 1.67 3.40 5.78

30-Year 30 4.38 2.76 3.95 12.64

Sector

represented by Broad Market: U.S.Barclays Capital Index; MBS: FixedRate MBS Index; Corporate: U.S.Corporates; Municipals: Muni BondIndex; Emerging Debt: EmergingMarkets Index; High Yield: CorporateHigh Yield Index. TIPS: TreasuryInflation Protection Securities (TIPS).

#of issues: 159

Total value: $4.903 tn

Broad Market 7,921 $16,524 bn 7.1 years 2.83% 1.98% 2.37% 2.06%

MBS 916 5,064 4.9 3.53 2.44 1.66 1.08

Corporates 4,194 3,401 10.6 3.83 3.27 4.65 2.52

Municipals 46,716 1,330 13.6 3.49 2.45 3.66 1.88

com

e

Treasury securities data for #of issuesand market value based on U.S.Treasury benchmarks from BarclaysCapital. Yield and return informationbased on Bellwethers for Treasury

securities.

Change in bond price is calculated. . . . .

High Yield 1,915 1,009 6.7 7.32 7.35 7.27 1.83

TIPS 33 796 9.3 2.66 1.50 4.04 3.15

FixedI using both duration and convexity

according to the following formula:New Price =(Price +(Price * -Duration *Change in Interest Rates))+(0.5 * Price* Convexity * (Change in InterestRates) 2)

*Calculation assumes 2-year Treasury

Price Impact of a 1% Rise/Fall in Interest Rates +1%

19.9%25% interest rate falls 0.33% to 0.00% andthe 5-year Treasury falls 0.72% to0.00%, as interest rates can only fall to0.00%.

Chart is for illustrative purposes only.Past performance is not indicative ofcom arable future results.

-

-2.0%-

-3.2% -4.1% - -

0.7%3.5%

9.0%

3.2% 4.1%5.0% 5.1% 6.6%

7.0% 7.5%

-5%

0%

5%

10%

15%

20%

35


.

-9.0%

-19.8%

. . - . -7.0% -7.5%

-25%

-20%-15%

-

2-Year 5-Year 10-Year 30-Year Sector MBS High Yield TIPS Broad Mkt EMD Corp. Munis


36/69

The Fed and the Money Supply

5.0%

Federal Funds Rate

9%

10%

FOMC Projected Pace of Policy FirmingTarget federal funds rate at year-end

FOMC member Fed Funds Rate

2.0%

3.0%

4.0%

3%

4%

5%

6%

7% Jun. 30, 2012:0-0.25%

projection as of June 20, 2012

0.0%

1.0%

Excess Reserves, Monetary Base and Multiplier

com

e

Money Supply Growth

'86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '120%

1%

2%

2012 2013 2014 Longer run

7x

8x

9x

10x

$2.0

$2.5

$3.0

r ons

FixedI

8%

10%

12%

14%

Year-over-year growth in M2

May 2012: 9.5%

Monetary Base

M2 Money MultiplierMonetary Base & Reserves

'03 '04 '05 '06 '07 '08 '09 '10 '112x

3x

4x

5x

x

$0.0

$0.5

$1.0

.

'85 '90 '95 '00 '05 '100%

2%

4%

6%Excess Reserves

36

Source: Federal Reserve, FactSet, J .P. Morgan Asset Management.

Monetary base is defined as the total amount of a currency that is either circulated in the hands of the public or in the commercial bank deposits held inthe central bank's reserves. Money multiplier defined as M2 divided by the monetary base.



37/69

Credit Conditions

100%

Lending StandardsNet percent of banks reporting tighter lending standards

Commercial and Industrial Loans 84%60%

Consumer & Industrial Loan DemandNet percent of banks reporting stronger demand

20%

40%

60%

80%

-7%

Consumer Loans 67%

-

-20%

0%

20%

40%

22%

'98 '00 '02 '04 '06 '08 '10 '12-40%

-20%

Delinquency Rates

com

e

-8%

Common Equity as a % of Total Assets

'94 '96 '98 '00 '02 '04 '06 '08 '10 '12-80%

-60%

-

Large & Medium Firms

Small Firms

10%

12%

14%

8%

10%

12%

Consumer Loans

Residential Mortgages

an s, seasona y a use

FixedI

Commercial and Industrial Loans

9.9%

,

2011:11.1%

4%

6%

8%

' ' ' ' ' ' ' ' ' ' ' ''92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12

2%

4%

6%

1.5%

2.9%

Average: 7.6%

37

Source: (Top left) Federal Reserve, FactSet, J .P. Morgan Asset Management. (Top right) Federal Reserve, FactSet, J .P. Morgan Asset Management. (Bottom left): FederalReserve, FactSet, J .P. Morgan Asset Management. (Bottom right) FDIC, J .P. Morgan Asset Management.

All data reflect most recently available releases. 2Q11 2Q12 estimates of lending standards on consumer loans are J .P. Morgan Asset Management

estimates.



38/69

High Yield Bonds

20%Average Latest

HY Spreads 5.9% 6.6%HY Defaults 4.2% 2.2%

High Yield Spreads and Defaults

5%

10%

prea s

Default Rates

0%'88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12

com

e

Historical High Yield Recovery RatesHigh yield bonds, cents on the dollar

Annual High Yield Bond IssuanceBillions USD

40

50

60

70

FixedI

Average: 39.2$200

$250

$300

$350

0

10

20

30

'88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10$0

$50

$100

$150

'86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12

38

Source (Top chart): U.S. Treasury, J .P. Morgan, J .P. Morgan Asset Management. Default rates are defined as the par value percentage of the total market trading at or below

50% of par value and include any Chapter 11 filing, prepackaged filing or missed interest payments. (Bottom left): J .P Morgan, Moodys, J .P. Morgan Asset Management.(Bottom right): J .P. Morgan Asset Management. Yield to worst is defined as the lowest potential yield that can be received on a bond without theissuer actually defaulting and reflects the possibility of the bond being called at an unfavorable time for the holder. Spreads indicated are benchmarkyield to worst less comparable maturity Treasury yields. Past performance is not indicative of comparable future results. 2011 recovery ratesare as of March 30, 2012, and 2012 issuance is as of J une 29, 2012.Data are as of 6/30/12.


39/69

Municipal Finance

8%

State & Local Government Debt ServicePercent of current expenditures

Muni/Treasury RatioRatio of Barclays 10-year Municipal Bond yield to 10-year Treasury240%

6%

7%

200%

220%

1Q12: 5.6%

4%'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12

com

e

Municipal Bond Issuance*Billions USD revenue and GO issues

160%

180%

Jun. 30, 2012:135%

FixedI

100%

120%

$300

$400

$500

'98 '00 '02 '04 '06 '08 '10 '1260%

80%

$0

$100

$200

'96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12

39

Source (Left chart): Barclays Capital, U.S. Treasury, FactSet, J .P. Morgan Asset Management. (Top right) BEA, J .P. Morgan Asset Management. (Bottom right) SIFMA,J .P. Morgan Asset Management.

*Excludes maturities of 13 months or less and private placements. 2012 issuance data is as of May 2012.



40/69

Emerging Market Debt

12%

Emerging Markets Debt SpreadsSpread to Treasuries of USD denominated debt, percent

Index Breakdown USD Denominated EMDMiddle East &

Africa 7%Middle East &

Africa 11%100%

IndexAverage Spread

4%

6%

8%

Europe 31%

Europe 15%

Latin America44%

Latin America39%

40%

60%

80% Spread (6/30/12)

EMBIG 3.9% 3.7%

CEMBI 3.2% 4.2%

0%

2%

'01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11

com

e

Local Emerging Market Bond YieldsSoverei n issues, local currenc -denominated bonds

Emerging Market Debt Credit RatingEMBIG average monthly credit rating, inverse scale

Asia 18%

Asia 35%

0%EMBIG CEMBI

7%

8%

9%

FixedI

Average: 6.8%

May 2012: BBB-

BB+

BBB-

BB

BB-

5%

6%

'01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11'93 '95 '97 '99 '01 '03 '05 '07 '09 '11

Jun. 30, 2012: 6.0%B-

B

B+

40

Source: J .P. Morgan, IMF, MorganMarkets, FactSet, J .P. Morgan Asset Management.

Spreads measure the credit risk premium over comparable maturity U.S. Treasury bonds. The J .P. Morgan EMBI Global (EMBIG) Index is a USD-denominated external debtindex tracking bonds issued by sovereigns and quasi-sovereigns in developing nations. The J .P. Morgan Corporate Emerging Bond Index (CEMBI)is a USD-denominated external debt index tracking bonds issued by corporations. The J .P. Morgan GBI-EM index is a localcurrency-denominated index tracking bonds issued by emerging market governments. Past performance is not indicative of comparable future results.Data are as of 6/30/12.


41/69

Global Equity Markets: Returns and Composition

Weights in MSCI All Country World Index% global market capitalization

Europe ex-Country / Region

2Q12 YTD 2012

Local USD Local USD

UnitedStates48%

U.K.15%

U.K. 8%

EmergingMarkets

Regions / Broad Indexes

USA (S&P 500) - -2.8 - 9.5EAFE -5.1 -6.9 4.7 3.4

Share of Global GDP

13%

Japan8%

- . . - . - . . .

Pacific ex-J apan -4.1 -4.9 5.5 5.9

Emerging Markets -5.1 -8.8 5.1 4.1

MSCI: Selected Countries

Canada 2%

o

nal

Emer in

UnitedStates19%

United Kingdom -2.2 -4.0 2.4 3.4

France -3.6 -8.2 5.5 3.1

Germany -7.4 -11.7 9.3 6.8

a an -10.1 -7.3 7.1 3.2

Internati Markets

50%

Japan 6% OtherDeveloped

5%Europe ex-U.K.17%

China -5.3 -5.3 4.0 4.1

India -0.9 -9.5 14.2 8.6

Brazil -10.1 -18.8 0.1 -7.5

41

Source: Standard & Poors, MSCI, IMF, FactSet, J .P. Morgan Asset Management.

All return values are MSCI Gross Index (official) data. Share of global GDP based on purchasing power parity (PPP)as calculated by the IMF for 2012. Definition of emerging markets is based on MSCI and IMF data sources, respectively.Percentages may not sum to 100% due to rounding.Data as of 6/30/12.

U.K. 3%- . - . . .


42/69

Global Economic Growth

Year-over-year % chg. forecasts from JPMSIEmerging Market Country Real GDP Growth

2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12

Historical

1Q13

JPMSI Forecast

10%

0%

2%

4%

6%

Developed Market Country Real GDP Growth

-4%

-2%

Emerging Markets China India Russia Mexico Korea South Africa Brazil

Year-over-year % chg. forecasts from JPMSI

o

nal

2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12

1Q13

4%

6%

8%

10%

Internati

-4%

-2%

0%

2%

DevelopedCountries

J apan U.S. Canada Germany U.K. France Italy

42

Source: J .P. Morgan Global Economic Research, J .P. Morgan Asset Management.

Forecast and aggregate data come from J .P. Morgan Global Economic Research.



43/69

Global Monetary Policy

Central Bank Assets Percent of Nominal GDP Real Policy Rates Monthly

3%

4%

30%

35%

European Central Bank

Bank of Japan

-1%

0%

1%

2%

10%

15%

20%

25%

Developed Markets

Country Level Monetary Policy and Inflation

Emerging Markets

U.S. Federal Reserve

-3%

-2%

'02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '120%

5%

'99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12

0.0%

3.5%

7.0%

10.5%

14.0%

o

nal

-7.0%

-3.5%

HongKong

U.K.

U.S.

Euroarea

Canada

Japan

Australia

SouthAfrica

Thailand

Korea

Mexico

Taiwan

Poland

India

Turkey

Russia

Colombia

Indonesia

China

Brazil

Internati

43

Source: J .P. Morgan Global Economics Research, J .P. Morgan Asset Management.(Top charts) Emerging and Developed Economy GDP growth and real policy rates represent GDP weighted aggregates estimated by J .P. MorganGlobal Economics Research. (Bottom chart) Target policy rates are the short-term target interest rates set by central banks. Inflation rates shownrepresent year-over-year quarterly rates for 1Q12. Real policy rates are short-term target interest rates set by central banks minus year-over-yearinflation.Data are as of 6/30/12.

eveope ar ets mergng ar ets


44/69

The Importance of Exports

Goods exports onlyExports as a % of GDP 2011

0.8%

4.5%

2.0%

.

9.5%

4.4%

3.1%

.

2.1%

1.7%

2.3%

.

14.4%

15.5%

10.2%

.

26.8%

26.1%

17.6%

.

Russia

China

India

2.2% 1.7%

1.5%

4.0%

1.4%

6.2%

6.9%

14.0%

9.8%

J apan

U.S.

o

nal

1.4%

1.1%

1.9%

12.4%

12.7%

10.0%

2.0%

1.5%

1.3%

7.6%

5.8%

4.8%

23.4%

21.1%

18.0%

Italy

France

U.K.

Internati

2.2%

19.2%

21.8%

2.5%

4.2%

1.6%

10.7%

2.8%

38.9%

26.0%

0% 5% 10% 15% 20% 25% 30% 35% 40%

Germany

Canada

44

ource: , . . organ sse anagemen .

Numbers represent exports of goods only and would be higher if services were included.Data are as of 6/30/12.


45/69

The Impact of Global Consumers

35%40%

Share of Global Nominal Consumption Foreign Sales, % of Total Sales

30%35%Mega Cap (Russell 200)

20%

25%

25%

30%

Large Cap (Russell 1000)

15%20%

o

nal U.S. Consumption % of Global

EM Consumption % of Global

10%'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10

15%1990 1994 1998 2002 2006 2010

Source: FactSet, Compustat, Russell, J .P. Morgan Global Economics Research, J .P. Morgan Asset Management.Estimates of global consumption for 2010 and 2011 provided by J .P. Morgan Global Economics Research.Foreign sales as a percentage of total sales is calculated as an unweighted average of individual index constituent companies reported sales figures

Internati

45

and does not capture all index members due to differences in reporting practices.



46/69

European Crisis: Fiscal Challenges

Example of Fiscal Redistribution in the U.S.GDP Growth, Debt to GDP and Borrowing Costs

Bubble size = 10-yeargovernment bond yield

8%

13)

= 5%

= 10%

EM

4%

6%

The E.U. Lacks a Similar Fiscal Mechanismrowt

h(201120

France

Germany

IrelandE.U.

U.S.

2%

o

nal R

ealGDPG

Greece

Italy

Portugal

Spain

-2%

0%

Internati

-6%

-4%

20% 40% 60% 80% 100% 120% 140% 160%

46

Source: IMF, BLS, J .P. Morgan Asset Management.Maps are for illustrative purposes only and are intended to show the current sources of stress in each region. The U.S. state colors are based on levelof unemployment rate. European country colors are based on levels of sovereign stress, including but not exclusively the measure shown in theabove chart on the left. Growth and debt data based on the April 2012 World Economic Outlook. Bond yields as of 6/30/12.


Net Debt-to-GDP Ratio (2012 est.)


47/69

European Crisis: Financial System Risks

20%

European Sovereign Funding Costs10-year benchmark bond yields, daily Introduction

of the Euro

6/30/12Portugal 8.80%Ireland 6.74%Spain 6.34%

8%

12%

16% Italy 5.79%France 2.69%Germany 1.59%

'84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '120%

4%

Euro ean Bank Ex osure Euro ean Central Bank Balance Sheet

$200

$300

2.5

3.0

Derivative claims

Sovereign debt claimsand bank claims

o

nal

Trillions of EUR May 2012: 3.0tnBillions USD

$0

$100

Greek Portugese Irish Spanish Italian U.S. banksexposure to

2.0

Internati

47

1.5

J an-10 J ul-10 J an-11 J ul-11 J an-12

xposure o a uropean an s o eac coun ry spublic sector, banking sector and derivative claims

Source: FactSet, BIS, ECB, J .P. Morgan Asset Management.



48/69

European Crisis: Structural Headwinds

150

Current Account Balance% of GDP OECD seasonally adjusted (indexed base year = 2005)

Manufacturing Unit Labor Costs

9%

140

Spain

Italy

reece

PortugalGermany

Austria-3%

1%

5%

120

130

Primary Fiscal Budget Deficit/Surplus% of GDP

-11%

-

Germany Austria Italy Spain Portugal Greece

100

110

o

nal

-4%

-2%

%

2%

902005 2006 2007 2008 2009 2010 2011

Source: IMF, OECD, World Bank, FactSet, J .P. Morgan Asset Management.

Internati

-8%

-6%

Italy Germany Portugal Austria Greece Spain

48

All data is as of 2011. Primary budget deficits for Portugal and Greece are IMF estimates for 2011.



49/69

Chinese Growth and Economic Policy

30%10%40%

Share of year-over-year change in nominal global GDPChina and U.S. Contribution to Global GDP Growth Chinese Inflation and the Money Supply

Year-over-year % change

China Most Recent

20%

25%

2%

4%

6%

8%

15%

20%

25%

30%

n e a es .

M2 (RHS) 13.2%

10%

15%

-2%

0%

'00 '02 '04 '06 '08 '10 '120%

5%

10%

'81 '84 '87 '90 '93 '96 '99 '02 '05 '08 '11 '14

China Export Growth

*

Mortgage Debt

15%

25%

35%

45%

71%

73%

75%

77%

14%

16%

18%

o

nal

- - -

May 2012:9.7%

1Q12: 14.0%United States (RHS)

-25%

-15%

-5%

5%

- - - - - - - -61%

63%

65%

67%

69%

8%

10%

12%

' ' ' ' ' ' ' '

Internati

1Q12: 62.9%

China (LHS)

49

Source: (Top left) IMF, J .P. Morgan Asset Management. (Top right) National Bureau of Statistics, J .P. Morgan Economics, J .P. Morgan Asset Management. (Bottom left) IMF, J .P.

Morgan Asset Management. (Bottom right) Barclays Capital, Federal Reserve, J .P. Morgan Asset Management.*In 2009, global growth was negligible, while Chinese growth was robust, which resulted in China contributing more than 1200% to global growth.Calculations based on PPP exchange rates and 2012 2016 growth forecasts are from the IMF.



50/69

Global Equity Valuations Developed Markets

Developed Market Countries

verage Expensive

relative toworld

Example

+5 Std Dev

+4 Std Dev

+6 Std Dev

dDevfrom

Global

Expensiverelative to own

history

Cheap relative toown history

Average

Current

+ ev

+2 Std Dev

+1 Std Dev

Average

-1 Std Dev

-2 Std Dev

-3 Std Dev

World(ACWI)

EAFEIndex

France Germany Australia U.K. J apan Canada Switzerland UnitedStates

CurrentComposite

Current 10-year avg.

St

relative toworld

-4 Std Dev

-5 Std Dev

. . . . . .

World (ACWI) -1.32 11.2 1.6 6.1 2.9% 13.5 2.1 7.1 2.5%EAFE Index -2.28 10.5 1.3 5.0 3.9% 13.0 1.7 6.3 3.3%

France -2.80 9.5 1.1 4.5 4.3% 11.6 1.6 5.9 3.7%

Germany -2.35 9.0 1.2 6.2 4.0% 11.9 1.5 4.6 3.3%

Australia -2.14 11.1 1.6 5.5 5.2% 13.5 2.2 8.3 4.4%

o

nal

. . - . . . . . . . . .

Japan -1.81 12.1 1.0 4.1 2.6% 18.1 1.4 6.3 1.8%

Canada -1.46 11.9 1.7 5.1 3.0% 13.8 2.2 7.3 2.4%

Switzerland 0.00 11.8 1.9 11.8 3.7% 13.6 2.4 9.8 2.8%

United States 0.08 12.4 2.1 7.2 2.1% 14.5 2.4 8.5 2.0%Source: MSCI, FactSet, J .P. Morgan Asset Management.

Internati

50

Note: Each valuation index shows an equally weighted composite of four metrics: price to forward earnings (Fwd. P/E), price to current book

(P/B), price to last 12 months cash flow (P/CF) and price to last 12 months dividends. Results are then normalized using means and averagevariability over the last 10 years. The grey bars represent valuation index variability relative to that of the All Country World Index (ACWI). Seedisclosures page at the end for metric definitions.



51/69

Global Equity Valuations Emerging Markets

Emerging Market Countries

erage

+5 Std Dev

+4 Std Dev

+6 Std DevExpensiverelative to

Example

Devfrom

GlobalA+3 Std Dev

+2 Std Dev

+1 Std Dev

Average-1 Std Dev

-2 Std Dev

-3Std Dev

Expensiverelative to own

history

Cheap relative toown history

Average

Current

Chea

Current

CompositeCurrent 10-year avg.

World(ACWI)

EMIndex

Russia China Brazil Taiwan SouthAfrica

Korea Mexico India

Std

-4 Std Dev

-5 Std Dev

relative to

world

Fwd. P/E P/B P/CF Div. Yld. Fwd. P/E P/B P/CF Div. Yld.

World (ACWI) -1.32 11.2 1.6 6.1 2.9% 13.5 2.1 7.1 2.5%

EM Index -1.89 9.6 1.5 5.5 3.1% 10.9 1.9 5.7 2.8%

Russia -4.10 4.8 0.7 2.8 3.8% 7.9 1.3 5.0 2.1%

China -2.65 8.3 1.5 4.0 3.5% 12.3 2.1 4.2 2.7%

Brazil -2.44 9.4 1.3 5.7 4.4% 9.5 1.9 5.5 3.6%

Index

o

nal

Taiwan -1.08 13.7 1.7 6.5 3.7% 14.7 1.9 6.6 3.5%

South Africa -0.90 10.8 2.2 8.0 3.7% 10.9 2.3 7.4 3.3%Korea -0.39 8.1 1.2 5.4 1.3% 9.3 1.5 5.0 1.8%

Mexico 1.64 16.2 2.8 6.5 1.6% 13.2 2.6 5.6 2.1%

India 2.24 13.1 2.4 12.6 1.6% 15.0 3.2 12.1 1.5%

Source: MSCI FactSet .P. Mor an Asset Mana ement.

Internati

51

Note: Each valuation index shows an equally weighted composite of four metrics: price to forward earnings (Fwd. P/E), price to current book(P/B), price to last 12 months cash flow (P/CF) and price to last 12 months dividends. Results are then normalized using means and averagevariability over the last 10 years. The grey bars represent valuation index variability relative to that of the All Country World Index (ACWI). Seedisclosures page at the end for metric definitions.



52/69

International Economic and Demographic Data

Economics Demographics

GDP USD(B$s)

GDP Per

Capita

GDP

Growth

Unempl.

Rate

Inflation(CPI)

C.A.(%GDP)

PopulationPopulation

Growth

Median

Age

Migration

per 1000

Developed

U.S. $15,094 $48,387 1.9% 8.2% 1.7% -3.5% 314 mm 0.9% 36.9 yrs +3.6

Canada 1,737 50,436 2.0 7.3 1.3 -2.4 34 0.8 41.0 +5.7

U.K. 2,418 38,592 -1.3 8.2 3.0 -2.4 63 0.6 40.0 +2.6

, , . . . . - . . .

France 2,776 44,008 -1.0 10.0 2.0 -1.8 66 0.5 39.9 +1.1

Japan 5,869 45,920 1.6 4.6 0.2 1.5 127 -0.1 44.8 -

Italy 2,199 36,267 -2.5 9.8 3.3 -2.2 61 0.4 43.5 +4.7

Emerging

o

nal

Russia 1,850 12,993 -2.0 5.4 3.6 5.4 138 -0.5 38.7 +0.3

Mexico 1,155 10,153 2.1 4.8 3.9 -0.5 115 1.1 27.1 -3.1

Brazil 2,493 12,789 4.1 5.8 5.0 -2.1 206 1.1 29.3 -0.1

China 7,298 5,414 6.6 4.1 3.0 2.8 1,343 0.5 35.5 -0.3

Source: FactSet, Eurostat, CIA, J .P. Morgan Securities, J .P. Morgan Asset Management.

GDP levels represent 2011 data and are from the April 2012 World Economic Outlook published by the IMF, except for the U.S. levels, which come directly from the BEA. AllGDP Growth data are from J .P. Morgan Economics and expressed as % change versus prior quarter annualized. All GDP growth data are for 2Q12. India unemployment isfrom CIA estimates and is as of 2011. CPI Inflation is shown as % change versus a year ago and all data are for May 2012, except for India and J apan, which are as of April2012. Unemployment rate for developed countries comes from FactSet Economics, Eurostat and Statistics Canada and represent the most recently available data.Demographic data provided by CIA World Factbook at CIA.gov.

Internati

, , . . . - . , . . - .

52

Current Account (C.A.) represents each countrys current account balance as of 3/30/12. Russia, China, and Brazils current accounts are as of 12/31/11.



53/69

Current Account Deficit and U.S. Dollar

115-8%

Current Account Balance, % of GDP U.S. Dollar IndexNominal trade-weighted exchange index: major currencies

105

110

-6%

4Q05:-6.5%

90

95-4%

1Q12:-3.6%

80

85

-2%

o

nal

.84.0

Jun. 2012:75.0

'94 '96 '98 '00 '02 '04 '06 '08 '10 '1265

70

'94 '96 '98 '00 '02 '04 '06 '08 '10 '12

0%

Internati

Mar. 2008: 70.3

53

Source: BEA, FactSet, J .P. Morgan Asset Management.Data are as of 6/30/12 and are reported quarterly.

Source: Federal Reserve, FactSet, J .P. Morgan Asset Management.Data are as of 6/30/12.


54/69


55/69


56/69

Mutual Fund Flows

Billions, USD AUM YTD 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998

Fund Flows

Domestic Equity ,

World Equity 1,378 19 5 58 28 (80) 139 149 106 71 24 (3) (22) 53 11 8

Taxable Bond 2,595 113 136 230 311 22 97 45 26 5 40 125 76 (36) 8 59

Tax-exempt Bond 540 24 (12) 11 69 8 11 15 5 (15) (7) 17 11 (14) (12) 15

Hybrid 882 27 31 24 10 (26) 42 18 37 49 38 9 9 (36) (14) 10

$1,400 $40

Difference Between Flows Into Stock and Bond FundsBillions, USD, U.S. and international funds, monthly

Bond flows exceeded equity flows

Cumulative Flows into Stock & Bond FundsIncludes both mutual funds and ETFs, $ billions

May 12: $1,207 billion into bond funds

Money Market 2,560 (132) (124) (525) (539) 637 654 245 62 (157) (263) (46) 375 159 194 235

$800

$1,000

$1,200

$0

$20

y on n ay

$0

$200

$400

-$60

-$40

-

' ' ' ' ' ' ' ' 'setClass

Bonds

Stocks

into stock funds andequity ETFs since 06

56

Source: Investment Company Institute, J .P. Morgan Asset Management.Data include flows through May 2012 and exclude ETFs. ICI data are subject to periodic revisions. World equity flows are inclusive of emergingmarket, global equity and regional equity flows. Hybrid flows include asset allocation, balanced fund, flexible portfolio and mixed income flows.Data are as of 6/30/12.

As


57/69

Dividend Income: Domestic and Global

S&P 500 Total Return: Dividends vs. Capital AppreciationAverage annualized returns Capital appreciation

Dividends20%

4.7% 5.4% 6.0% 5.1% 3.3% 4.2% 4.4% 2.5%1.8%

4.1%

13.9%

3.0%

13.6%

4.4%1.6%

12.6% 15.3%

-2.7%

5.5%

0%

5%

10%

Equity Dividend YieldsREIT Dividend Yields

- .

-10%

-5%

1926 - 1929 1930's 1940's 1950's 1960's 1970's 1980's 1990's 2000's 1926 to 2011

6.0% 5.9% 5.7%

5.2% 5.0%

4.2% 4.1%

4%

5%

6%

7%

5.1%

4.3%3.9%

3.7%

3.1%

4%

5%

6%

10-year governmentbond yield

10-year governmentbond yield

.

1%

2%

3% 2.2%

.2.6%

1%

2%

3%

setClass

57

U.S. Singapore France Australia Canada J apan Global U.K. U.S. Australia France U.K. Switzerland Canada ACWI J apan

Source: (Top chart) Standard & Poors, Ibbotson, J .P. Morgan Asset Management. (Bottom left) FactSet, NAREIT, J .P. Morgan Asset Management.Yields shown are that of the appropriate FTSE NAREIT REIT index, which excludes property development companies. (Bottom right) FactSet, MSCI,J .P. Morgan Asset Management. Yields shown are that of the appropriate MSCI index.


As


58/69

Global Commodities

600

Commodity PricesWeekly index prices rebased to 100

Oil Demand: Emerging Markets ShareEmerging markets as % of total global oil consumption40%

500

Precious metals

34%

36%

38%

300

400

EnergyCommodit Prices and Inflation

30%

32%

'96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11

2004%

6%

8%

40%

60%

80%

Year-over-year % chg.

DJ-UBS Commodity Index (Y/Y % chg.)

100

setClass

Livestock -4%

-2%

0%

-40%

-20%

0%

Headline CPI (Y/Y % chg.)

58

'03 '04 '05 '06 '07 '08 '09 '10 '110

Source: Dow J ones/UBS, FactSet, J .P. Morgan Asset Management.

Commodity prices represented by the appropriate DJ /UBS Commodity sub-index.


Source: (Top) USDA, BP Statistical Review of WorldEnergy, J .P. Morgan Asset Management. (Bottom) BLS,DJ /UBS, FactSet, J .P. Morgan Asset Management


As

'94 '96 '98 '00 '02 '04 '06 '08 '10 '12-6% -60%


59/69

Gold

$3,000

Gold Prices$ / oz Year Troy Ounces Total Value

2000 83.3 mm $23 bn

World Gold Production

$2,500

Jan. 1980:$2,480.36

Gold, Inflation Adjusted

Gold2001 83.6 mm $23 bn

2002 82.0 mm $25 bn

$1,500

$2,000

Jun. 2012:$1,598.50

2003 81.7 mm $30 bn

2004 77.8 mm $32 bn

2005 79.4 mm $35 bn

$1,000Jan. 1980:

$850.00

2006 76.2 mm $46 bn

2007 75.9 mm $53 bn

$0

$500

setClass

2008 73.6 mm $64 bn

2009 78.8 mm $86 bn

2010 80.4 mm $113 bn

59

Source: (Left chart) EcoWin, BLS, U.S. Department of Energy, FactSet, J .P. Morgan Asset Management. (Right table) U.S. Geological Survey, WorldGold Council, J .P. Morgan Asset Management. CP I adjusted gold values are calculated using month averages of gold spot prices divided by the CP Ivalue for that month. CPI is rebased to 100 at the end of the chart.


As


60/69

Historical Returns by Holding Period

Annual total returns, 1950 2011Range of Stock, Bond and Blended Total Returns

Annual Avg. Growth of $100,00060%

50/50 Portfolio 8.9% $552,853

Bonds 6.3% $337,713

Stocks 10.8% $771,337

o a e urn over 20 years

51%

43%40%

50%

32%

28%

23%21% 19%

16% 17%18%

12%14%10%

20%

Stocks

-8%

-15%

-2% -2% 1%-1% 1%

2%

6%

1%

5%

-10%

0%

setClass 50/50 Portfolio

Bonds

-37%

-40%

-30%

-20%

60

As

Sources: Barclays Capital, FactSet, Robert Shiller, Strategas/Ibbotson, Federal Reserve, J .P. Morgan Asset Management.

Returns shown are based on calendar year returns from 1950 to 2011.


1-yr. 5-yr. rolling 10-yr. rolling 20-yr. rolling


61/69

Diversification and the Average Investor

Equity Mkt. Neutral

(Top) Indexes and weights of thetraditional portfolio are as follows:U.S. stocks: 55% S&P 500, U.S.bonds: 30% Barclays CapitalAggregate. International stocks:15% MSCI EAFE. Portfolio with 25%

Traditional Portfolio More Diversified Portfolio

Maximizing the Power of Diversification (1994 2011)

8%8%

8%

4%

26%REIT

S&P 500Russell 2000

in alternatives is as follows: U.S.stocks: 22.2% S&P 500, 8.8%Russell 2000; International Stocks:4.4% MSCI EM, 13.2% MSCI EAFE;

U.S. Bonds: 26.5% Barclays CapitalAggregate; Alternatives: 8.3%CS/Tremont Equity Market Neutral,8.3% DJ /UBS Commodities, 8.3%NAREIT E uit REIT Index Return

55%

30% S&P 500

MSCI EAFE

Barclays Agg.

9%

MSCI EM

Barclays Agg.

.and standard deviation calculatedusing Morningstar Direct.

Charts are shown for illustrativepurposes only. Past returns are noguarantee of future results.Diversification does not guarantee

investment returns and does noteliminate risk of loss. Data are as of

Return: 6.75%Standard Deviation: 10.94% Return: 7.09%Standard Deviation: 9.97%

20-year Annualized Returns by Asset Class (1992 2011)

6/30/12.

(Bottom) Indexes used are asfollows: REITS: NAREIT Equity REITIndex, EAFE: MSCI EAFE, Oil: WTIIndex, Bonds: Barclays Capital U.S.Aggregate Index, Homes: mediansale price of existing single-familyhomes, Gold: USD/troy oz, Inflation:

10.9%

8.6%

10%

12%

.investor return is based on ananalysis by Dalbar Inc., which utilizesthe net of aggregate mutual fundsales, redemptions and exchangeseach month as a measure of investorbehavior. Returns are annualized(and total return where applicable)and represent the 20-year periods

etClass

. .

6.5%

4.0%

2.5% 2.5%2.1%

4%

6%

8%

61

ending 12/31/11 to match Dalbarsmost recent analysis.A

s

0%

2%

REITs Oil S&P 500 Gold Bonds EAFE Inflation Homes AverageInvestor


62/69

Annual Returns and Intra-year Declines

50%

S&P 500 Intra-year Declines vs. Calendar Year ReturnsDespite average intra-year drops of 14.5%, annual returns positive in 25 of 32 years

26

1517

26

15

2726

34

20

31

27

20

26 23

20%

35%

-10

1 2

12

-74

7 -2 -10 -13 -23

9

3 4-38

13

0

--3

5%

-17 -17-14

-7

-12

-8-9

-8 -8

-20

- --9 -8

-11

-19

-12

-17

-26

-14

-8 -7 -8-10

-28

-16-19

-25%

-

-34 -

-47-55%

-40%

'80 '81 '82 '83 '84 '85 '86 '87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11setClass

62

Source: Standard & Poors, FactSet, J .P. Morgan Asset Management.

Returns are based on price index only and do not include dividends. Intra-year drops refers to the largest market drops over periods of 6 months orless. For illustrative purposes only. Returns shown are calendar year returns from 1980 to 2011.


As


63/69

Alternative Investment Returns

Hedge Funds (as of 3/31/12) 1 year 3 year 5 year 10 year

CSFB/Tremont HF Index -0.8% 9.8% 3.3% 6.8%

Multi-Strategy 2.3% 11.9% 3.3% 7.0%

Distressed -1.2% 11.0% 2.2% 7.8%

Convertible Arbitrage 1.5% 17.2% 3.9% 5.4%

Equity Market Neutral* 2.4% 4.2% 3.3% 5.6%Risk Arbitrage** 0.6% 5.0% 4.0% 4.5%

Fixed Income Arbitrage** 5.3% 14.4% 2.2% 4.0%

Global Macro 7.4% 10.1% 8.3% 10.5%

Real Estate (as of 3/31/12) 1 year 3 year 5 year 10 year

NCREIF Property Index 13.4% 6.0% 2.9% 8.2%

Apartment 14.8% 8.2% 3.0% 8.1%. . . .

Office 12.8% 4.6% 2.4% 7.3%

Retail 12.9% 7.0% 4.4% 10.8%

Private Equity (as of 12/31/11) 1 year 3 year 5 year 10 year

setClass

Source: Cambridge Associates LLC, NCREIF, CS/Tremont, J .P. Morgan Asset Management. Cambridge PE and VC data provided atno charge. Other indexes shown are unmanaged and are for illustrative purposes only. Past performance is no guarantee of futureresults. Returns for all periods are as of 3/31/12 with the exception of Private Equity and Venture Capital returns, which are as of12/31/11. All returns are annualized for periods greater than 1 year. Investing in alternative assets involves higher risks than traditionalinvestments and is suitable only for the long term. They may not be tax efficient and have higher fees than traditional investments. They

. . . . . .U.S. Private Equity Index 10.9% 15.0% 7.2% 12.0%

63

As

,gain.

*Market Neutral returns include estimates found in disclosures.

**Arbitrage is the simultaneous purchase and sale of an asset in order to profit from a difference in the price.



64/69

Cash Accounts

$8,000

$10,000

Annual Income Generated by $100,000 Investment in a 6-month CD

$ Billions

Weight in

Money

Supply

Money Supply

Component

$2,000

$4,000

$6,000

2011:$419

,

M2-M1 7,637 76.4%

Retail MMMFs 633 6.3%

$01986 1990 1994 1998 2002 2006 2010

6-month CD rate vs. Core CPICash AccountsCash as a % of Total Household Financial Assets28%

Savings deposits 6,298 63.0%

Small time deposits 706 7.1%

16%

20%

24% Oct. 02 S&P 500 low

.

Institutional MMMFs 1,733 17.3%

628 6.3%Cash in IRA & Keogh

accounts

setClass

Source: Federal Reserve, St. Louis Fed, Bankrate.com, J .P. Morgan Asset Management. All cash measures obtained from the Federal Reserve areseasonally adjusted monthly numbers. All numbers are in billions of U.S. dollars.

'98 '00 '02 '04 '06 '08 '10 '12

12% Total 9,998 100.0%

64

As ma - enomna on me epos s are ose ssue n amoun s o ess an , . an eog accoun a ances a commerc a an s

and thrift institutions are subtracted from small time deposits.

Annual income is for illustrative purposes and is calculated based on the 6-month CD yield on average during each year and $100,000 invested.

IRA and Keogh account balances at money market mutual funds are subtracted from retail money funds.

Past performance is not indicative of comparable future results.



65/69

Corporate DB Plans and Endowments

underfunded

Defined Benefit Plans Funded Status: S&P 500 companies

overfunded

Asset Allocation: Corporate DB Plans vs. Endowments

Endowments

45.3%

13.0%

32.0%

Fixed Income

Equities

92%78

22%

2.7%

35.5%

21.9%Hedge Funds

Pension Return Assumptions: S&P 500 companies

20101999

3.1%

4.7%

6.1%

.

Real Estate

Private Equity

anies

27%29%

20%

33%

27%

20%

30%

40%

2010: Average 7.4%

1999: Average 9.2%

4.7%

4.1%

4.0%

12.2%

Cash

Other

%

ofcomp

setClass

% of total

2% 1%

5%

9%7%8%

0% 0% 0%

0%

10%

10%

65

0% 10% 20% 30% 40% 50%

return assumptionSource: NACUBO (National Association of College and University Business Officers), Towers W

JP Morgan - Guide to the Markets - 3Q 2012

Documents

Transcript of JP Morgan - Guide to the Markets - 3Q 2012