MUST-READ LIST rd A collection of must-read articles; week of July 23 Daniel Dickerson & Adam Crisafulli +212.622.

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Macro Themes & Political Issues Feds Williams argues in an FT interview that unless more monetary policy measures were introduced there would be little progress made on the unemployment rate. Williams thinks that if the Fed does launch another round of QE, it should buy MBS instead of Treasuries. Williams thinks the next QE program should be open-ended, whereby purchases are made depending on market conditions FT http://goo.gl/YQk5Y How Bernanke Can Get Banks Lending Again If the Fed reduces the reward for holding excess reserves, banks will have to find something else to do with their money, like making loans or putting it in the capital markets WSJ http://goo.gl/JwWRX Bank liability + LIBOR fund mgmt companies are conducting internal investigations to see if they were harmed by the LIBOR rate-setting scandal. WSJ http://goo.gl/HbL0p Super rich hiding as much as $32T worth of wealth overseas. The hidden money means governments are being robbed of $280B in tax revenue Reuters http://goo.gl/7pfbc Miami the city is expected to declare financial urgency in union dispute. The decision could allow Miami to make unilateral changes to union contracts CNBC http://goo.gl/3z9Kf Drug company headaches - a federal appeals court said payments aimed at holding back generics were anticompetitive, setting up possible review by the Supreme Court. NYT http://goo.gl/68qMv Aluminum F is making a big shift in its pickup line strategy, shifting the top-selling F150 from steel to aluminum in an effort to reduce weight and meet new fuel economy standards WSJ http://goo.gl/xwyWq Autos the improvement in the domestic housing outlook is raising hopes for automakers that pickup sales will start to revive also WSJ http://goo.gl/H0Zwt Global Currencies, Sovereign Debt, Munis, and Interest Rates

ECB president Draghi said the Eurozone was absolutely not in danger of breaking apart. He calls the euro irreversible in an interview w/Le Monde. Draghi said he doesnt expect the eurozone as a whole to all into recession and thinks the economic situation will gradually start improving by the end of 2012. Reuters http://goo.gl/3E3Uv Placed in their full context (http://goo.gl/MP0wS ), the remarks dont sound awfully groundbreaking. Draghi stared his speech Thurs by praising the substantial progress already undertaken in Europe over the last several months. He continued by emphasizing the tremendous political will present in Europe today to preserve the euro. From JPMorgans D Mackie (re Draghi): If you had just landed from planet Mars, and this was the first time that you had heard the ECB speak on this issue, you might think that it was about to fire a big bazooka at sovereign bond markets. But, having listened carefully to the central bank over the last two and a half years, we dont think that is about to happen http://goo.gl/lNM1T JPMorgan note so what might European policymakers do in coming weeks? top 12 list. #1 EFSF/ESM bond purchases; 2) reactivation of SMP; 3) decline in ECB interest rate corridor; 4) more LTROs; 5) precautionary credit line for Spain. http://goo.gl/Wf5ZG Central bank easing will pickup JPMorgans B Kasman - Our forecasts suggest that we are entering a new phase for central banks where subpar growth persists amid falling global core inflation and more modest EM credit growth. Our Taylor rule model suggests that a further 70bp of global easing is appropriate through mid-2013. For the G4 CBs, we think balance sheet expansion will continue. After expanding by 25% in 2011, G-4 central bank balance sheets are up about 6% year to date. We expect a pickup in this trend in the coming months, let by a Fed resumption of large-scale asset purchases in September, followed by further purchases by the BoJ and BoE. http://goo.gl/yOoPu What about Bundesbank opposition? Draghi would likely have enough support within the ECB's 23-member governing council to outvote Bundesbank President Jens Weidmann. But opposition from the bloc's largest economy could weaken the tonic effect on markets (WSJ http://goo.gl/Dv7A3 ) Spain remains the epicenter of Europes woes - the big underlying problem is the market perception of the federal balance sheet in Madrid, which has expanded EU100B to capitalize banks and might have to advance even further to help regional governments. Valencia became the first regional Spanish govt to formally request aid Friday but reports this weekend suggest 6 others may seek assistance also (http://goo.gl/dTC3K ). Spains economy minister is ruling out a full-scale bailout for the country but given the present level of yields, a full liquidity assistance package may be inevitable, esp. if Moodys downgrades the country (something JPMorgans P Wadhwa has written about in the past http://goo.gl/ocYXX ). Italy - The pain isnt confined to Spain. Italian 10yr BTP yields are up ~20bp, now yielding ~6.3% (they are still off the Nov highs of ~7.2%) due to Spanish contagion and worries about the stability of the Monti government (Rome denied a weekend report claiming Monti would hold early elections, possibly as soon as Nov). Regardless of when elections are held, markets fear the return of Berlusconi, who increasingly appears likely to run again for PM. Italy meanwhile is

facing its own regional government headaches the NYT this morning discusses how Sicilys fiscal problems threatens to swamp Italy (http://goo.gl/Y6fxX ) while an article in La Stampa warned that at least 10 large Italian cities were facing financial difficulties. Greece - While Spain is receiving most of the attention in Europe, followed closely by Italy, Greece isnt helping the situation any. According to reports over the weekend, the IMF is preparing to withdraw its financial support for Greece as the fund increasingly has lost confidence in the country being able to bring its debt/GDP ratio down to 120% (separately, Merkel apparently wont ask the German parliament for more Greek aid). While the Valencia aid request was the big Fri headline from Europe, lost amid the Spanish focus was the news that the ECB had again decided to halt the acceptance of Greek govt bonds as collateral (per a local Greek newspaper: we should be under no illusions; this is how a Greek eurozone exit would occurIf the ECB, for whatever reason, decides to permanently cut off Greek banks from funding, the countrys financial system will collapse and Athens will have to start printing money, drachmas in this case http://goo.gl/rWB7A ). Greek 10yr yields are up nearly 100bp this morning (to ~26%). Greece PM Samaras told former president Clinton that Greece was experiencing an economic climate similar to the US Great Depression from the 30s. http://goo.gl/61jDm Greece IMF ready to end support for Greece? According to Der Spiegel, the IMF is preparing to withdraw its support for Greece as the fund has increasingly lost confidence in the country being able to bring its debt/GDP ratio down to 120%. Greece could wind up defaulting as soon as Sept. Greece has a EU3.2B bond held by the ECB to pay when it matures on Aug 20. http://goo.gl/b3g3m And On A Lighter Note One man probably has learned a costly lesson about where he hides his cash.The unidentified father from Sydney, Australia, sold his car last weekend. The $15,000 (approximately $15,652 in U.S. dollars) in proceeds was earmarked for his mortgage payment and other bills, according to Australian media. Opting not to squirrel away the loot in a mattress or bury it in his backyard, he decided to hide it his oven, which rarely gets used. http://news.yahoo.com/blogs/sideshow/man-hides-cash-over-cash-gets-baked-accident122700396.html This material is prepared by J.P. Morgan Securities LLC ("JPMS") Institutional Equities Division for distribution to J.P. Morgan clientele. It is not a product of J.P. Morgans Research Departments. This material may include summaries and references to recently published research notes and reports by J.P. Morgans Research Departments. For complete details on the specific companies mentioned, including analyst certification, valuations, and important investment banking related disclosures, you should refer to the most recently published note or report, which is available through http://www.morganmarkets.com. You may also find a link to the complete disclosure information on all companies covered by J.P. Morgans Equity Research Department on the log-in page of our institutional client website, https://mm.jpmorgan.com/disclosures/company/. This material also may include market commentary prepared by the individual author on specific companies or instruments that J.P. Morgans Research Departments may or may not cover. Unless otherwise specifically stated, any views or opinions expressed herein are solely those of the individual author and may differ from

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