EFTA01377497.pdf

pattitqls Faro pt Pt iwa Irrrattincrit vuWC ihtts AsiceNlas paSpa.tioall fr. tr. Hve,43rovicivi Long or short, Larry Adam? Six market views from our Chief Investment Officer for Wealth Management in the Americas and Chief Investment Strategist for Deutsche AWM Americas Is Fed policy at risk from sharply increasing inflation? Are emerging-market equities looking more attractive? Core U.S. inflation is still running below the Fed's 2% stir History suggests that a Fed tightening cycle does not target. As the U.S. economic recovery firms, core inflation will necessarily disrupt bull markets in equities. However, when move up but will take some time to get back to target. Very valuations are stretched (as now) developed-market returns can stable inflation expectations will help to slow any rise, as will a be relatively modest. Even so, emerging markets may not be a strengthening U.S. dollar's impact on input prices. The rate at good alternative. These markets are likely to be more vulnerable which U.S. labor costs rise is likely to be relatively modest, too. to Fed rate hikes and increased emerging-market corporate All this will help the Fed to keep rate hikes on a well-considered indebtedness could be an additional concern. path Chinese equities - is further volatility possible? Is the ECB fully committed to quantitative easing (0E)? In Recent reversals in Chinese equities have been driven by BEM Earlier this year, when European growth showed signs of liquidity concerns rather than fundamentals. Such concerns picking up. many wondered whether the ECB would complete can be difficult to address by policy intervention: the Chinese its QE program. Recently, rather mixed economic data -and authorities had to launch a wide range of initiatives to bring Greece - has underscored the problems that the Eurozone still the situation under control. With investors unsettled, we think faces. In fact, the ECB has moved to extend the range of assets that further bouts of volatility are possible over the next few availab€e for CIE purchases to give it more firepower if needed, months, but believe that the market may start to offer buying should further threats arise from Greece or elsewhere. opportunities in the fall. U.S. high-yield over euro high-yield? Is Value at Risk (VaR) still a useful measure? ® The high weight of energy stocks in U.S. high-yield debt VaR attempts to measure the minimum potential loss must be of concern, with oil prices obstinately low. But other at a given probability in an asset class or portfolio. This is not measures of U.S. high-yield debtors are healthy. This is also a just a theoretical Issue because increases in VaR can result in much bigger market than euro high-yield, which should reduce automatic forced selling from trading books. A rise in the VaR of any future liquidity concerns. German Blinds in April, for example, triggered two subsequent waves of position adjustments by investors, taking Bund VaR to a multi-decade high. Asset classes that are fundamentally overvalued and also have low VaRs are probably most vulnerable to VaR-shock-driven sell-offs. tepteseraseipenrtiveamwer reprebefits a negative anaver Past performance is not indicative of future returns. No assurance can be given that any forecast, investment objectives and/or expected returns will be achieved. Allocations are subject to change without notice. Forecasts are based on assumptions, estimates, opinions and hypothetical models that may prove to be incorrect. CICAN or I AtrIrra, tokUrl iAugu91201!, trve..... 013 CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0074384 CONFIDENTIAL SDNY_GM_00220588 EFTA01377497