From: Justin X Gratz

From: Justin X Gratz To: Undisclosed recipients:; Subject: Eye on the Market, June 7, 2010 Date: Mon, 07 Jun 2010 19:55:52 +0000 Attachments: 6-07-10_ EOTM - Wonderland.pdf Eye on the Market, June 7, 2010 Topics: Europe, Spain and Wonderland; California solvency; US private sector payrolls; Chinese consumption Market update: we continue to be concerned about Europe. In this week's report (attached), we look at Spain, Europe's next weakest link, and U.S. job growth, which has yet to re-ignite. I spent the last week on the West Coast, explaining our optimism on Chinese consumption, and why California is not insolvent. While profits, capital spending and manufacturing trends are positive, unresolved legacy issues from the prior boom-bust argue against riskier portfolio allocations, which has been our overriding investment theme all year long. European banks, which are 3x-4x larger than U.S. banks relative to GDP, are under pressure. CP issued by non-U.S. banks in US markets continues to fall, and is down 20% this year (branch deposits of non-US banks are also falling). In Europe, bank borrowings from the ECB are rising, as are European bank deposits as the ECB. The latter suggests that banks are hoarding cash due to fears of being unable to access more, or are unwilling to take exposure to other European banks. Either way, a sign of distress. The larger size of Europe's banks argue against using simple GDP weights to assess potential risks to global markets. Due to a buyer's strike over the last month, European banks now have 3.5x as much debt to issue than U.S. banks over the remainder of the year. Michael Cembalest Chief Investment Officer J.P. Morgan Private Banking The material contained herein is intended as a general market commentary. Opinions expressed herein are those of Michael Cembalest and may differ from those of other J.P. Morgan employees and affiliates. This information in no nay constitutes J.P. Morgan research and. hould not be treated as. uch. Further: the views expressed herein may differ from that contained in J.P. Morgan research reports. The above summary/prices/quotes/statistics have been obtained from sources deemed to be reliable, but we do not guarantee their accuracy or completeness, any yield referenced is indicative and subject to change. Past performance is not a guarantee Wiliam. results. References to the performance or character of our portfolios generally refer to our Balanced Model Portfolios constructed by J.R Morgan. It is a proxy for client performance and may not represent actual transactions or investments in client accounts. The model portfolio can be implemented across brokerage or managed accounts depending on the unique objectives of each client and is serviced through distinct legal entities licensed for spec* activities. Bank mast and investment management services are provided by1R Morgan Chase Bank NA, and its affiliates. Securities are offered through J.P. Morgan Securities Inc. (JPMSI), Member NYSE, PIMA and SIPC Securities products purchased or sold through JPMSI are not insured by the Federal Deposit Insurance Corporation rFDIC"); are not deposits or other obligations of its bank or thrift affiliates and are not guaranteed by its bank or thrift affiliates: and are subject to investment risks, including possible lass of the principal invested. Nor all investment ideas referenced are. uitable for all investors. These recommendations may not be suitable for all investors. Speak with wur JR Morgan Representative concerning your personal situation. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. Private Investments may engage in leveraging and other speculative practices that may increase the risk of investment loss. can be highly illiquid. are not required to provide periodic pricing or valuations to investors and may involve complex tax structures and delays in distributing important tax information. Typically such investment ideas can only be attired to suitable investors through a confidential offering memorandum which lidly describes all terms. conditions, and risks. IRS Circular 230 Disclosure: JPMorgan Chase & Co. and its affiliates do not provide tax advice. Accordingly, any discussion of U.S. tax matters contained herein (including any attachments) is not intended or written to be used, and cannot be used, in connection with the promotion. marketing or recommendation by anyone unaffiliated with JPMorgan Chase & Co. of any of the matters addressed herein or for the purpose of avoiding U.S. tar-related penalties. Note that J.P. Morgan is not a licensed insurance provider b 2010 JPMorgan Chase & Co EFTA00749358