EFTA02696364.pdf

TOP OPPORTUNISTIC INVESTMENT THEMES FOR 1Q 2012 Global Investment Opportunities Group J.P. Morgan Private Bank w O LL z O This presentation is intended for your personal use only and should not be circulated to any other person without our permission and any use, distribution or duplication by anyone other than the addressee is prohibited. We believe the information contained in this material to be reliable but do not warrant its accuracy or completeness. The investment products and services described herein may not be suitable for all clients. Opinions. estimates and investment strategies and views expressed in this document constitute our judgment based on current market conditions and are subject to change without notice. This material should not be regarded as research or a J.P. Morgan research report nor as including sufficient information to support an investment decision and is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The investment strategies and views expressed herein may differ from the opinions expressed by other areas of J.P. a cr, Morgan. including research. Past performance is not reliable indicator of future results. Please read the Important Information at the end of this document. J.P. Morgan EFTA_R1_02049742 EFTA02696364  Macro Global Growth At A Turning Point Global Purchasing Manager Indices 70 —Japan —US — Europe —China — Brazil 65 60 55 TOP OPPORTUNISTIC INVESTMENT THEMES FOR 1O '7012 50 45 40 35 - 30 Jan-08 Dec-08 Dec-09 Dec-10 Dec-11 Source: Bloomberg Source: Bloomberg As of: 1/12111 As of: 1/9/12 J.P.Morg,an EFTA_R1_02049743 EFTA02696365  Macro TOP OPPORTUNISTIC INVESTMENT THEMES FOR 1O 2012 Markets Are Pricing In A Lot Of Bad News Source: Facisel, Bloomberg. As of 12/30/11 Source: Bloomberg, As of 12/30/11 2 J.P. M organ EFTA_R1_02049744 EFTA02696366  Macro Markets Are Pricing In A Lot Of Bad News (con't)... Source: DataQuery, As of 12/3011 Source: Bloomberg, As of 12/30/11 3 J.P.Morgan EFTA_R1_02049745 EFTA02696367  Macro ...But This Is Not 2008 U.S. Households Deleveraging %GDP % Disposable Household Debt (LHS) Income 130% —Debt Service (RHS) 15% 120% 14% 110% 100% 13% 90% 12% 80% 11% 70% 60% 10% 0 1980 1985 1990 1995 2000 2005 2010 0 Source: Bloomberg Source: Federal Reserve, Bureau of Economic Analysis, As of 12/30/11 Note: Debt Service is Debt payments as % of disposed° personal income CO z z z cc cc O a. O. a Sources: FRB, BEA, ECB, Eurostat, BoE, Office for National Statistics. BoJ. Cabinet Source: Federal Reserve Bank, ECB Office. Data as of O4 2011. a. 0 4 J.P.Morgan EFTA_R1_02049746 EFTA02696368  GIO: Approach to Absolute Return Investing We are asset class agnostic A Global Yield Curve Global Equity Valuations JPM Strategy Market Anomalies Market Dislocations Trade Journals TOP OPPORTUNISTIC INVESTMENT THEMES FOR 1O 2012 z Liquidity Driven cc Transparency JPM IB Research t cc In-house asset class experts 3rd party investment Breaking News professionals Catalyst Drhren Firm Specific Macro view Client expertise > TIME 5 J.P.Morgan EFTA_R1_02049747 EFTA02696369 TOP OPPORTUNISTIC INVESTMENT THEMES FOR 1O 2012 Investment Opportunities J.P.Morgan EFTA_R1_02049748 EFTA02696370  Fundamentals Globalization of Natural Gas 2010 Natural Gas Deficit / Surplus (billion cubic metres) World Natural Gas Consumption 150 bcm 100 bcm 50 bcm 0 bcm -50 bcm 111 Power 33% Buildings (Heating) 25% Transport 3% -100 bcm -150 bcm Industrial Asia Europe & S. & North Middle Africa 39% a Pacific Eurasia Cent. America East America Source: BP Statistical Review lEA Gas Scenario Source: International Energy Outlook. EIA, Sept 2011 CC Note: North America includes US Domestic Supply Stored CO Natural Gas Production (billion cubic feet) 2 •Asia Pacific •Africa • Middle East 3,500bcm • Europe & Eurasia • S. & Cent. America • North Arnerica z 3,000bcm 2,500bcm tu tu 2,000bcm 1,500bcm Co 1,000bcm z CC 500bcm CC 0 o. Obcm Ct. 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010 0 a Source: BP Statistical Review 2011 7 J.P.Morgan EFTA_R1_02049749 EFTA02696371  Fundamentals Globalization of Natural Gas High North American vs. International Natural Gas Prices Current Gas Prices Supportive of LNG Transport —Henry Hub --- UK •Japan $ cost per mm BTU 18 Japan LNG Cost 16 1 14 1 - $8 12 Regasification 10 charge 8 SO 30 Shipping Cost $2.00 6 0 4-i 4 $1.75 Liquefaction O 2- 2 Henry Hub cc Natural Gas $3.50 0 LL 0 0 Sep-07 Oct-08 Oct-09 Nov-10 Dec-11 LNG Costs - 121 1=1MIP -- Liquefaction E&C firms focused on global energy projects Longer Term 07 Pipelines MLPs (1) Exploration & Production LNG sites/investments or shale investments near liquefaction sites End Users Fertilizer and Chemical Companies 0- Source: JPMorgan, Alliance Bernstein, Guggenheim Research. 8 J.P.Morgan Cheniere Energy. Data as of: 12/30/11 EFTA_R1_02049750 EFTA02696372  Dislocation Dislocation: Searching for Cheap Income Criteria ■ S&P 500 Sectors that declined in 2011 ■ Stocks that declined in 2011 ■ Dividend Yield above the S&P 500 ■ Payout Ratio < 50% ■ Market Cap > $10b ■ PIE Ratio < Sector Average Rotation in Sector Valuations C. PIE C 18 —Traditional High Dividend Sectors 6 17 - —2011 Worst Performance Sectors 16 L, 15 Utilities, Healthcare, Telecom 14 13 12 11 I 10 - Payout Ratios are at Historic Lows z 9 cc Financials, Materials, Industrials O, 8 a Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Source: Bloomberg, As of 1/4/12 O • 9 J.P.Morgan EFTA_R1_02049751 EFTA02696373  Tactical Opportunities Tactical Trading Opportunities Buy Technological Game Changers Buy MXN Peso 650 - 16 - —Mexican Peso —Dow Jones Tech Titans Index 15 • 600 14 550 13 - 500 12 <NI 450 11 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 0 Sell Calls on 10yr Treasuries Buy Calls on Asia Equity Upside CO 4.5% - Forward P/E —Hang Seng Index 14; —10yr US Treasury 4.0% 25x z 3.5% 1- 3.0% - z 2.5% - z CC 2.0% • 1.5% - %IC 0 1.0% • 5x 0 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-06 Jan-08 Jan-10 Jan-12 0. 0 Source: Bloomberg, J.P. Morgan 10 .ERMorgan EFTA_R1_02049752 EFTA02696374  Tactical Opportunities Tactical Trading Opportunities Buy South American Oil Company Buy Flood Control Companies -South American Oil Company Yield —S&P Midcap Construction & Engineering Index O 14% 0 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Nov-10 May-11 Nov-11 0 Buy Private Label MBS Buy Private vs. Public Credit (YTM) co) L. 100 - L. 12.8% 90 11.8% 80 9.0% 8.6% 70 6.7% w 60 0 50 - Prime Fixed Rate z — Alt A 40 - — Option ARM Cc C 30 - a a Jan-09 Aug-09 Mar-10 Oct-10 May-11 Dec-11 Leveraged Global HY US Single B European US 0 Loans Bonds HY Mezzanine Mezzanine a 0 Source: Bloomberg, JPMorgan, SW LCD. LCD European Mezzanine Review, 11 J.PMorgan Highbridge Principal Strategies. As of 1/4/12 EFTA R1_02049753 EFTA02696375  Protection Ideas Wildcard: Middle East RUSSIA , -a 279 bps UKRAINE KAZAKHSTAN 308 bps garia 314 bps TURKEY 6592 bp ENT THEMES FOR 1O 2012 GREECE IRAN PAK. 129 bps 990 by SAUDI INDIA ARABIA 391 bps T E 650 miles TOP OPPORTUNISTICN 1,250 miles Source: Bloomberg. Data as of 1/6/12 12 J.P.N.lorgan EFTA_R1_02049754 EFTA02696376  Protection Ideas Protection Ideas Gold VIX 2,000 Gold 50 —VIX 1,900 1.800 1,700 1,600 1,500 1,400 TOP OPPORTUNISTIC INVESTMENT THEMES FOR 'O 1,300 10 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 EUR / German 10yr Rates Long AUD Rates EUR/USD (LHS) 1.50 Germany 10yr Yield (RHS) - 4% 6.0% -AUD 30yr Swap Rates 1.45 5.5% - 3% 1.40 5.0% 1.35 2% 4.5% 1.30 1.25 1% 4.0% Jan-11 May-11 Sep-11 Jan-12 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Source: All data from Bloomberg, As of 1/9/12 13 J.P. M org,an EFTA_R1_02049755 EFTA02696377  Definition of Indices S&P 500 Index - The S&P 500 is a capitalization-weighted index of 500 stocks from a broad range of industries. The component stocks are weighted according to the total market value of their outstanding shares. The impact of a component's price change is proportional to the issue's total market value, which is the share price times the number of shares outstanding. "S&P 500" is a trademark of Standard and Poor's Corporation. Hang Seng - The Hang Seng Index is a free-float capitalization-weighted index of a selection of companies from the Stock Exchange of Hong Kong. EuroStoxx 50 - The Euro Stoxx 50 Index is a free-float market capitalization-weighted index of 50 European blue-chip stocks from those countries participating in the EMU. European Itraxx - Itraxx Europe index comprises 125 equally weighted CDS on investment grade European corporate entities. Barclays Aggregate Bond Fund - The Barclays Aggregate Bond Fund is a market capitalization-weighted index, of U.S. traded investment grade bonds including Treasury securities. Government agency bonds, Mortgage-backed bonds. Corporate bonds, and C a small amount of foreign bonds traded in the U.S. CC London Interbank Offered Rate - daily reference rate at which banks borrow unsecured funds from banks in the London wholesale money market. It is set daily by the British Bankers' Association. L. Commercial Paper — money market security with a fixed maturity of 270 days or less. It is sold by banks and corporations for short term financing needs. JPMorgan Domestic High Yield Bond Index — index tracking U.S. high yield bond securities selected by J.P.Morgan. JPMorgan US Liquid Index (JULI) — index tracking U.S. high grade bond securities selected by J.P.Morgan. z z IX 0 a C 14 J.P.Morgan EFTA_R1_02049756 EFTA02696378  Important Information IRS Circular 230 Disclosure: JPMorgan Chase & Co. and its affiliates do not provide tax This material should not be regarded as research or a J.P. Morgan research report. Opinions advice. Accordingly, any discussion of U.S. tax matters contained herein (including any expressed herein may differ from the opinions expressed by other areas of J.P. Morgan, including attachments) is not intended or written to be used, and cannot be used. in connection with research. The investment strategies and views stated here may differ from those expressed for the promotion. marketing or recommendation by anyone unaffiliated with JPMorgan Chase & other purposes or in other contexts by other J.P. Morgan market strategists. 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Opinions, estimates. and investment strategies and views Past performance is not a reliable indicator of comparable future returns and investors may get z expressed in this document constitute our judgment based on current market conditions and back less than the amount invested. are subject to change without notice. Additional information is available upon request. K 2011 JPMorgan Chase & Co. 0 O. a a. 0 15 J.P.Morgan EFTA_R1_02049757 EFTA02696379  Market Snap-Shot Global YTD Returns (As of 12130111) Gold US Municipals 10Yr EMBIG US High Grade Bonds US Bonds Global Gov Bonds" JPM Global HY 2.0% Jan-11 Mar-11 May-11 Jul-11 Oct-11 Dec-11 EM Local Bonds" Brent S&P 500 Sector Performance C. EM $ Corp Utilities 14.8% iBoxx Euro Corps Consumer Staples 10.5% CC S&P500 Health Care 10.2% 0, US Cash Consumer Discretionary 4.4% 2 FTSE 100 -4% • Energy 2.8% EM FX -4% • Information Technology 1.3% MSCI Europe -11% Telecommunication Services 0.8% z Hang Seng -15% S&P 500 0.0% Topix -15% rrrrr - Industrials -2.9% MSCI EM $ -16% rrrrr - Materials -11.6% z Financials -18.4% Brazil Bovespa -17% Corn -20% S&P 500 YTD Market Return Distribution -40% -20% 0% 20% 40% CC Source: J.P. Morgan, Bloomberg. Returns in USD. "Hedged into a USD. Euro Fixed Income is lboxx Overall Index. US HG, HY, EMBIG a C and EM $ Corp are JPM indices. EM FX is ELMI+ in $. a Source: Bloomberg, through 12/30/11 16 J.PMorgan EFTA_R1_02049758 EFTA02696380 Loan Loss Provisions and Unit Labor Costs Italy Spain France Ireland C CC C cf; L. L. v. LL 0 a C a Source: European Banking Authority, US 10-Ks. Data as of Dec '10 Source: OECD, Note: index, 1O00, sa C a 17 J.P.Morgan EFTA_R1_02049759 EFTA02696381