The Volatility Is The Message - JP Morgan - Jan2011

Global Commodities Research
JPMorgan Chase Bank, NA

January 23, 2011
Commodity Markets Outlook and Strategy

The volatility is the message:
How commodities protect 51 country benchmark portfolios from inflation
Contents
• Overview: On January 14, we shifted our tactical posture on several prompt Commodity Strategy 2
commodity markets (precious metals, softs, steel inputs) from bullish to bearish Commodity Correlations with Equities 11
for four main reasons: (1) an expected slackening in physical demand with the Imputed Volatility Distributions 13
start of the Chinese New Year holiday on February 3, (2) overextended price Risks Scorecard 17
momentum, (3) universally bullish sentiment, and (4) approaching expiry for the Implications for Valuation and Risk 21
Jan-11 and Mar-11 contracts, where many of our recommended trades were Price Forecasts and Sector Outlooks 24
positioned. Since our call, declines in spot markets have been –6.3% in silver, Appendix - Asset Returns by Country 37
–3.3% in gold, and –5.4% in zinc. We expect this soft patch to last for another 4-
to-8 weeks and view it as a normal correction. A more important theme for strategic
Colin P. Fenton
risk management in the commodity space is the rising likelihood that volatility (1-212) 834-5648
will increase and cross-asset correlations will weaken from their current cyclical colin.p.fenton@jpmorgan.com
extremes, enhancing the value of commodity allocations as hedges in financial Lawrence E. Eagles
portfolios over the next few years. This outlook spotlights the importance of the (1-212) 834-8107
expected variances and catalysts that underlie our average price forecasts. lawrence.e.eagles@jpmorgan.com
Michael J. Jansen
In this issue, we plot the impact of a 10% allocation to commodities in balanced (44-20) 7325-5882
portfolios for 51 countries, variously testing the S&P GSCI, S&P GSCI Enhanced, michael.j.jansen@jpmorgan.com
DJ-UBS, and JPMCC Total Return Indices over the last five years, tracking the Scott C. Speaker
effect on both month-to-month and cumulative returns. We also provide charts (1-212) 834-3878
scott.c.speaker@jpmorgan.com
showing where volatility stands relative to normal for 24 commodities and the
rolling path of correlations for the S&P GSCI against 8 regional equity price Jeff G. Brown
indices. A table of European producer prices for vegetables shows that food (65) 6882-2215
jeff.g.brown@jpmorgan.com
price inflation is slackening on the margin, for now.
David G. Martin
(44-20) 7777-0211
• Risks: Risk managers and policymakers have grown complacent about volatil- david.g.martin@jpmorgan.com
ity, which has been depressed across asset classes by the application of trillions
Peter K. Nance
of dollars of monetary stimulus. Implied volatility is below normal in 23 of 36
(1-713) 236-3337
markets in the JPMCCI. Yet, challenges to these easy policies are building in Asia peter.k.nance@jpmorgan.com
and Europe, as fears about inflation mount. We believe the risk of policy mistakes
Lewis A. Hagedorn
(fiscal, regulatory, monetary, and trade) is rising worldwide. Other geopolitical (1-212) 834-8046
uncertainties are also building. The past few weeks have brought a revolution in lewis.a.hagedorn@jpmorgan.com
Tunisia and food riots in Algeria—disturbances which hold low-probability, but Jonah D. Waxman, CFA
high-impact potential for contagion effects in energy through supply disruptions (1-212) 834-2203
in Africa and the Middle East. At the same time, this week’s high-level discus- jonah.d.waxman@jpmorgan.com
sions between Beijing and Washington on a number of strategic partnerships Tobin Gorey
could contribute to cooling food price inflation and lower global LNG prices, (44-20) 7777-3103
while lifting North American gas prices through increased Chinese investment in tobin.x.gorey@jpmorgan.com
US export liquefaction capacity. Sung K. Yoo
(1-212) 834-7045
• Strategy: Tactical risk managers should have already started moving to harvest sung.k.yoo@jpmorgan.com
gains and preserve capital, especially precious metals producers. Strategic Ryan F. Sullivan
investors and hedgers should use the evolving weakness to initiate or add to (1-212) 834-3935
ryan.f.sullivan@jpmorgan.com
positions. We expect S&P GSCI energy total returns to be 22% over the next 12
months. Petroleum will likely lead all other commodity sectors, offering the best Shikha Chaturvedi
(1-212) 834-3245
overall hedge to inflation. As such, oil-dominated commodity indices will likely
shikha.x.chaturvedi@jpmorgan.com
beat indices with a lighter energy focus.
Elizabeth M. Volynsky
(1-212) 834-4021
elizabeth.m.volynsky@jpmorgan.com
See back page for important disclosures, including investment banking
relationships. www.morganmarkets.com
JPMorgan Chase Bank, NA Global Commodities Research
Colin P. Fenton (212) 834-5648 Commodity Markets Outlook and Strategy
colin.p.fenton@jpmorgan.com January 23, 2011
The volatility is the message Exhibit 1: Commodity total return forecast table
Percent
Forecast
• The bullish strategic outlook for commodities remains 2008 2009 2010 2011YTD Next 12 Months
intact. Financial returns, especially in bond markets, are at S&P GSCI -46.5 13.5 9.0 0.3 17.0
rising risk of disappointment as the business cycle enters
S&P GSCI Enhanced -41.1 21.6 12.2 1.3 19.0
its next phase. We continue to forecast 19% 12-month total
DJ-UBS -35.7 18.9 16.8 -0.3 13.0
returns for the JPMCCI and 22% for the S&P GSCI Energy
subindex. JPMCCI -35.0 20.5 13.8 0.4 19.0
Source: S&P, J.P. Morgan Commodities Research. Note: total returns are gross returns before fees. Data as of
• Ten days ago, we turned cautious on the 2M horizon, close on January 21, 2011.
especially in precious metals (gold, silver, palladium) and
steel inputs (nickel, zinc), on overextended price momentum Exhibit 2: Commodity subindex total return forecast table
and the approaching Chinese New Year festivities (February Percent
3). Oil, corn, and copper will likely traverse the soft patch Forecast
2008 2009 2010 2011YTD Next 12 Months
better. S&P GSCI -46.5 13.5 9.0 0.3 17.0
• Our analysis of how strategic commodity allocations in 51 Energy

Non-Energy
-52.38
-31.11
11.2
16.9
1.9
26.3
0.1
0.8
22.0
7.1
countries fared in 2006-10 concludes that the asset class Industrial Metals -49.02 82.4 16.7 -1.7 9.0
provided significant benefits in protecting investment Precious Metals 0.48 25.1 34.5 -6.5 4.1
performance exactly when it was needed most (2007-09), at a Agriculture -28.88 3.8 34.2 3.4 10.0
Livestock -27.42 -14.1 10.5 0.7 -5.2
low long-run cost for the insurance. Commodities worked.
• Despite perceptions of strong commodity price moves, Source: S&P, J.P. Morgan Commodities Research. Note: total returns are gross returns before fees. Data as of
close on January 21, 2011.
implied volatility is below normal in 23 of 36 JPMCCI
commodities. This cannot last. Exhibit 3: Total returns paths
Indexed to 100 on 31-Dec-09
• In the US West, oil and gas producers are underestimating
their F/X and credit risk; oil and gas consumers are 125 S&P 500
120 DJUBS
overestimating commodity supply reliability. JPMCCI
115 S&P GSCI Enhanced
• Expect equity/commodity correlations (now +0.68 between S&P GSCI
110
the S&P 500 and S&P GSCI price indices) to weaken from
105
here over the course of the rest of the cycle, reaching -0.25
within 4-to-6 years. 100
95
90
An eminent biologist in the prime of his life was diagnosed with 85
an extremely rare and aggressive form of cancer. Told by his 80
physicians that his expected lifespan was brief, the scientist
31-Dec-09
28-Jan-10
20-May-10
17-Jun-10
4-Nov-10
2-Dec-10
15-Jul-10
7-Oct-10
30-Dec-10
25-Feb-10
25-Mar-10
22-Apr-10
12-Aug-10
9-Sep-10
began furiously researching his condition. He learned that the

average survival rate from time of diagnosis was eight months.
Armed with this brutal empirical fact, he felt despair. Source: Bloomberg, S&P, J.P. Morgan Commodities Research. Data as of close on January 21, 2011.
However, his depression soon lifted, when he realized that the life expectancy. He called it: The median isn't the message
reported average was the median survival rate, meaning that (http://people.umass.edu/biep540w/pdf/Stephen%20Jay%20Gould.pdf ).
half the population with his condition lived longer than eight He lived for another 20 years, ultimately dying from an unre-
months. Moreover, he suddenly understood—and confirmed lated cancer. His framing of the initial illness echoes his most
upon further research—that the odds of survival were not nor- famous scientific contribution: the concept that evolution of
mally distributed and in fact had a long right tail, meaning that species is not a smooth process of change, but rather one punc-
some people (the youngest and healthiest at time of diagnosis) tuated by long pauses and sudden periods of advance and
could live for years. The young scientist was moved by relief decline.
and a sense of duty to explain to other cancer patients what he
had experienced and learned. He penned a famous essay to We have been thinking about this true story as we have watched
encourage others not to give up when told the odds of average commodity markets over the past few months. Like the scientist's
2
sources, conventional commodity analysis is focused on aver- by the policies to combat deflation. And maybe we are wrong:
ages: average prices, average demand and supply, average maybe this chart is a roadmap where nominal asset prices may
trade flows. And yet, as the scientist so poignantly learned, it ultimately go, if USD debasement follows the path that some
is the dispersion around the average, not the average itself, inflation super-hawks fear.
which is more important for risk managers today. After two
years of zero interest rate policy, the volatility is the message. Recently, a wide range of data has supported the view of rising
inflation risks. The central bankers' intentional reflation—
Volatility across asset classes is unsustainably low. The driver supplemented by powerful, weather-driven price spikes in agri-
of the very low vol within commodities and across asset classes cultural markets—is already showing up in measures of core
is not much in dispute: it is the consequence of trillions of inflation in Europe, where recent readings have exceeded the
dollars of stimulus by fiscal and monetary authorities. The upper boundary of targeted bands in the UK and Eurozone.
stimulus has been reflating all asset prices at more or less a Since November, fears about food price inflation have been
consistent pace, while also broadly reducing fears about the mounting, prompting a number of countermeasures in Asia. The
big macro factors that could go wrong. inflation in Asia is in turn generating consternation about
whether the ECB should or will follow with rate hikes, and if
To help frame just how powerful the latent inflationary pres- they do, whether the Fed will be forced to follow earlier than it
sures of these maneuvers may be, we present a novel way of might otherwise have, especially if the US unemployment rate
showing the impact of the Fed's balance sheet acrobatics on declines at the rate of, say, 0.1%-points per month.
the money supply (Exhibit 4). Rather than looking at a conven-
tional measure of y/y growth in M2, this exhibit plots the value We too have shared some of these concerns. However, our
of various equity and commodity benchmark valuations as a research finds that over the past three weeks, data for European
percentage of the Fed's total liabilities. If one were to accept producer prices for 17 cash vegetable markets show that all but
the pre-crisis regime in this chart as a reasonable portrait of two markets (onions and potatoes) have slackened sharply (Ex-
baseline valuation, then in the current regime moves of more hibit 5). While prices for lettuce, peppers, fennel, and spinach
than 200% would be needed to get back to pre-crisis levels in are all more than 40% higher than a year ago, the lettuce price
equities and 66% in commodities. Now, we do not believe that has dropped by 22% this month. This evidence of a downshift
the Fed would tolerate this scale of reflation in commodities in non-exchange-traded ingredient prices is comforting from an
within a short period of time, nor do we think the prior level is inflation-management perspective and reinforces our convic-
really the objective. Stability around the new baseline is the tion that consumer pricing pressures are still better thought of,
objective. But the chart does provide a useful way of quantify- even in EM, as beneficial reflationary signals rather than sus-
ing and contextualizing the asset price deflation of 2008-09 and tained inflationary threats. By this statement, we mean that the
the potential inflationary pressures that have been unleashed inflation that is entering and propagating through the global
price network is indeed powerful but it still looks to be well
Exhibit 4: Open interest of 43 listed commodity futures markets and controlled and centered in upstream producer price channels,
various index market capitalizations against Federal Reserve Liabilities not yet aggregate final prices.
Percent
70
Recall that garlic was one of the ingredient markets that drove
the inflation scare in China in November. Our European data set
60 confirms meaningful price inflation in this cash commodity mar-
ket: garlic prices are still about 9% higher than at the end of
50
November, 21% higher since the Fed's Jackson Hole conference
40 at the end of August, and 68% higher than a year ago. However,
the European data also show that garlic prices have dropped by
30 about 3% ytd. Zucchini prices have been falling since Septem-
ber and, at € 0.68 per kg, are now reported to be 34% below a
20
17.27 year ago. Even in the vegetable markets where prices are rising,
10 7.89
the trend is decelerating price appreciation. Moreover, in fruit
4.94
0.42
and nut markets, the surges that occurred in the harvest season
0
of September and October 2010 have generally leveled out at
2004 2005 2006 2007 2008 2009 2010 2011
Listed Commodity Futures Markets S&P 500 NYSE BBG World Equity Index those higher levels. This looks to us more like weather-related
pricing rather than a monetary effect.
Source: Bloomberg, S&P, J.P. Morgan Commodities Research. Data as of January 14, 2011.
3
Exhibit 5: Tracking food price inflation in non-exchange traded ingredients

Producer prices, Italy
Price change (%) since end of month in:
Current Price
(EUR/KG) Dec Nov Oct Sep Aug Year Ago
Fruits
Apricot 0.78 0.0% 0.0% 0.0% 0.0% 0.0% -37.6%
Apple 0.59 1.7% 3.5% 7.3% 7.3% 0.0% 28.3%
Granny Smith Apple 0.57 1.8% 1.8% 1.8% 78.1% 32.6% 103.6%
Cherries 2.72 0.0% 0.0% 0.0% 0.0% 5.8% 47.0%
Grapes 0.40 0.0% 0.0% 29.0% -14.9% -24.5% -20.0%
Kiwi 0.85 -3.4% 4.9% 34.9% 3.7% 3.7% 32.8%
Lemon 0.34 -2.9% -2.9% -35.8% -46.9% -29.2% 6.3%
Melon 0.80 0.0% 0.0% 0.0% 0.0% 166.7% 233.3%
Nectarine 0.46 0.0% 0.0% 0.0% 0.0% 12.2% 58.6%
Orange 0.24 -7.7% -17.2% -20.0% 9.1% 9.1% 0.0%
Pear 0.96 1.1% 3.2% 11.6% 23.1% 57.4% 31.5%
Nuts
Almonds 3.14 -0.3% 1.6% 1.6% 1.6% 23.1% 26.1%
Hazlenuts 1.98 0.5% 1.5% 8.2% 8.8% -8.3% 2.1%
Vegetables
Aubergine 0.50 -47.9% -26.5% -43.2% 194.1% 194.1% -2.0%
Carrots 0.14 -12.5% 55.6% 55.6% 40.0% -44.0% -17.6%
Celery 0.26 -21.2% 13.0% -3.7% -35.0% -18.8% -10.3%
Cucumber 0.65 -38.1% 8.3% 85.7% 261.1% 261.1% 71.1%
Endive 0.32 -5.9% 18.5% 23.1% 23.1% -15.8% 28.0%
Fennel 0.40 0.0% 53.8% 8.1% -25.9% -7.0% 42.9%
Garlic 3.11 -2.8% 8.7% 2.3% 14.3% 21.0% 68.1%
Green Beans 1.10 0.0% 0.0% 64.2% 42.9% 0.0% -26.7%
Lettuce 0.46 -22.0% 35.3% 70.4% 70.4% 39.4% 43.8%
Onion 0.38 11.8% 11.8% 18.8% 46.2% 35.7% 22.6%
Peppers 0.70 -39.1% 14.8% -4.1% 180.0% 180.0% 40.0%
Potato 0.37 2.8% 8.8% 12.1% 15.6% 37.0% 54.2%
Radicchio 0.54 -5.3% 63.6% 74.2% 42.1% -6.9% -11.5%
Spinach 0.88 -3.3% 79.6% 76.0% 125.6% 125.6% 46.7%
Tomato 0.61 -41.9% 17.3% 27.1% 144.0% 190.5% -12.9%
Cherry Tomato 1.30 -42.2% 51.2% 88.4% 154.9% 170.8% 47.7%
Zucchini 0.68 -39.8% -8.1% -1.4% 78.9% 78.9% -34.0%
Source: ISMEA, J.P. Morgan Commodities Research
4
Perhaps a better signal to track in monitoring Chinese food Exhibit 6: China PPI - hogs
price inflation risk—and whether Beijing's administrative mea- Y/Y percentage change, quarterly
sures are appropriately or excessively curbing price momen- 80
tum—is the price of pork. Pork is widely consumed in Asia, as
it is elsewhere. The relatively short life cycle of pigs and the 60
relatively low capital investment per pig allow pork production 40
to adjust swiftly to market prices, making it a useful indicator
for analysis. 20
0
Pork prices in China poked their head above zero annual growth
-20
in 3Q2010 for the first time in two years (Exhibit 6), and US pork
prices are also back to trend (Exhibit 7). This price appreciation -40
in China and the US return to trend is important because of 2003 2004 2005 2006 2007 2008 2009 2010
pork's relatively high weights in CPI measures. The apprecia- Source: National Bureau of Statistics, J.P. Morgan Commodities Research
tion in meat prices is clearly helping guide China's food CPI into
its third period of inflation in the past 10 years (Exhibit 8). This Exhibit 7: US CPI - pork
trend will need to be monitored closely. Our JP Morgan col- Index: 1982-84 = 100
leagues on our sales and trading desks report anecdotally they 250
have been seeing a pickup in inquiries about livestock futures
contracts and livestock index swaps from institutional inves-
tors around the world. This anecdotal seems to be a valid 200
indicator of rising inflation expectations and a well-reasoned
attempt to hedge this risk.
150
Yet, consensus expectations about volatility remain very com-
placent, even among those who say they are worried about
inflation. The NYM natural gas market, normally second only 100
to non-storable electricity as the most volatile commodity, has 00 01 02 03 04 05 06 07 08 09 10
been behaving as if there are no limits to North America's stor-
age and pipeline capacities. We understand that the term struc- Source: Bureau of Labor Statistics, J.P. Morgan Commodities Research
ture for NYM gas implied volatility this week does not have a
level above 40% along the entire length of the curve: CY2011 Exhibit 8: China CPI - meat and food
averages about 34%, CY2012 averages is valued at about 21%. Y/Y percentage change
60
In oil, even as the market has moved into a global deficit, draw- 50
ing inventories and lifting Brent by $15/bbl to nearly $100/bbl 40
in the space of about two months, average implied volatility is 30
only at about two-thirds of the normal saddle of the vol smile, a 20
measure of neutral (Exhibit 9). Petroleum products' prompt im- 10
plied volatilities are about 15 vols below their normal of 37%-to- 0
39%. In aluminum, the largest base metal market by quantity, -10
prompt implied vol is about 21.7%, or 6 vols lower than normal. -20
In copper, the base metal most tied to Chinese import demand 99 00 01 02 03 04 05 06 07 08 09 10
and power capex, prompt implied vol is about 28.4%, or about 8 China CPI - Meat China CPI - Food
vols lower than normal. In the few markets that are showing
elevated vol—mostly commodities in the agricultural space—it Source: CEIN, J.P. Morgan Commodities Research
is weather driven and far above normal. Prompt sugar implied

vol is at about 55% versus 34% normally (1.6X); cotton is near
50% versus 27% normally (1.8X).
5
Exhibit 9: Daily price volatility, prompt NYM WTI crude oil (CL1) low-key partnering strategy that will ultimately work in meeting
Percent China's objectives of securing more energy supplies and more
50 energy-related technologies. We see parallels with the strate-
40
gic route taken by the Japanese automakers in the 1980s and
24.06 1990s, when they finally successfully penetrated the North
30 American car market through investments in manufacturing
20 plants in Kentucky and Tennessee (not Michigan) that em-
10 18.39 ployed American workers. One Japanese automaker soon
climbed to the top ranks in US public satisfaction surveys and
0
stayed there unchallenged for more than a decade, until a con-
Dec-09
Jan-10
May-10
Jun-10
Jul-10
Oct-10
Nov-10
Dec-10
Aug-10
Sep-10
Feb-10
Mar-10
Apr-10
troversy over brakes emerged over the past couple of years.
Implied Actual Beijing has a similar opportunity to recycle its vast paper trove
Source: NYMEX, J.P. Morgan Commodities Research. Data as of 21-Jan-2011. of US Treasuries into more productive junior ownership shares
in hard asset liquefaction and export infrastructure, helping
We can tease out what is likely on the minds of investors by resolve some of the more contentious disputes with Washing-
using Google's Trends tool, which plots a search volume index ton and other sovereign allies about trade flow and currency
and a news reference volume index for any keyword. We ran six valuations. We acknowledge that the knee-jerk response of the
queries to try to get a sense of global consensus impressions US public may be to protest the export of domestic US gas to
about three themes: (1) Chinese investment in North America, China; however, this supply channel makes enormous economic
(2) sovereign debt risk around the world, and (3) pressure points sense. A sizable Chinese investment in the Port of New Or-
in inflation (Exhibits 10-15). leans, marketed with an emphasis on the sheer number of jobs
that would be created in helping revitalize that great world city,
The results were illuminating, offering some empirical evidence would likely quickly gain traction on the US Gulf Coast and
to back up our views. Our first test was “CNOOC and Unocal”. even more closely integrate these two great economies, to the
More than five years ago, CNOOC’s unsuccessful attempt to net benefit of all countries, in our view.
acquire California-based Unocal (now a subsidiary of Chevron)
generated much political noise and huge headlines, which is Somewhat contrary to the subtlety of this China investment
readily evident in the spike in search and news volume in 2005. theme, F/X is increasingly a front-and-center issue. The search
However, CNOOC’s more recent strategic partnership with an- volume index for “RMB” shows a broadly rising trend since
other North American energy producer has gone virtually un- 2005, with recent observations nearly matching the intensity of
noticed by the general public and even by the mainstream me- interest in mid-2005. News references show a similar pattern.
dia. There are almost no fluctuations in the search and news This result reinforces our conviction that China, Canada, and
reference data at all, even though this publicly-announced the US will in time come to understand that structuring long-
CNOOC venture allows for shale gas technology transfer and run gas supply contracts (of several bcf per day) is in their
may very well evolve into one, among many, channels to export mutual interest and will help alleviate a number of their indi-
US gas to China in coming decades. We notice, for example, vidual challenges. If this happens as we envisage, then Aus-
that over the past three months several energy companies have tralia-origin and Qatari-origin LNG prices will likely fall and US
applied to the US government for licenses to export natural gas Henry Hub gas prices will likely rise, from current levels.
in the form of LNG, with a special interest on processing Mid-
continent shales and floating the cargoes out of Louisiana ports. Turning to our second theme (sovereign debt risk around the
As we have pointed out before, in the past year the US (with its world), public interest in “quantitative easing” surged in
20% world production share) has overtaken Russia as the larg- 4Q2010, with the search volume index surpassing 25.0 against a
est gas producer in the world, but the US still exports only 4% late 2008/early 2009 peak of about 8.0. However, the Google
of its production. The inevitable increase in this export volume data now show that QE2 is no longer the focus it was just a few
will have titanic implications for commodities, currencies, and months ago: the news reference volume index has returned to
rates markets. its baseline, while the 4Q2010 spike in search volume has now
been nearly erased. Similarly, the Google search data for “credit
The data suggest to us that the Chinese energy industry learned default swaps”, a term that one could not escape in late 2008,
an important lesson in the Unocal experience. Chinese invest- now imply no special interest from the general public or even
ment into North America is now successfully pursuing a more the media. A flurry of stories related to Greece and the EU/IMF
6
Exhibit 10: Google Trends (“CNOOC” and “UNOCAL”) Exhibit 13: Google Trends (“RMB”)
Source: Google, J.P. Morgan Commodities Research Source: Google, J.P. Morgan Commodities Research
Exhibit 11: Google Trends (“Quantitative Easing”) Exhibit 14: Google Trends (“Credit Default Swaps”)
Exhibit 12: Google Trends (“Inflation”) Exhibit 15: Google Trends (“Food Inflation”)
7
bailout pushed up the news volume index last spring, but the Did commodities work as strategic
latest reading in that index is presently back to its long-run portfolio hedges during the 2007-to-2009
baseline even with the recent incremental concerns about Ire- collapse in asset prices?
land and Spain. We suspect these results would likely surprise As inflation expectations begin to increase, it is a good time to
most investment professionals. revisit whether commodity index strategies worked as advertised
in the 2008 financial crisis and the early stages of the economic
Finally, we also ran Google trend tests on “inflation” and “food recovery. Examining the empirical evidence across 49 countries
inflation”. The charts that resulted reveal two main facts: (1) in local currencies and 51 countries in US dollars, testing against
journalists are more worried about consumer price inflation than four benchmark commodity indices, we find that commodities
the general public: news reference volume has been increasing did in fact protect portfolios when they needed it most. The
since the end of 3Q2010 and appears poised to challenge the summary tables on the following pages (Exhibits 16 and 17)
2008 highs, while search volumes are substantially below the show returns and volatility for all of the country portfolios
average from 2004 to 2008, (2) interest in food price inflation has during three intervals: pre-crisis (Jan-06 through Jun-07), crisis
surged in both searches and news reports, scaling to new highs (Jul-07 through Feb-09), and post-crisis (Mar-09 through Dec-
above the 2008 levels. The data confirm in stark relief what 10). The numbers in blue indicate that a 10% allocation to one
many portfolio managers and analysts (including us) seem to of the commodity indices either outperformed the balanced
believe: there is presently a differentiated focus on food price portfolio and/or lowered the overall volatility. We also present
inflation, rather than overall inflation. Should the former con- a visual summary of the month-on-month effects and cumulative
cern continue to lift the latter concern, as measured by this impacts through time, by country and commodity index product,
data, then we would expect other measures of inflation expecta- in the Appendix on pages 37-86.
tions to rise, putting pressure on policymakers to raise interest
rates. Rising US interest rates will in turn likely help drive A number of lessons came out of the analysis:
deterioration in the presently very high correlations between
equity and commodity prices. • Between January 2006 and October 2008, 31 of the 51 country
portfolios (in US dollars) with a 10% allocation to the S&P
Looking forward, the timing of increases in commodity price GSCI total return index outperformed the balanced portfolio
volatility and consumer price inflation is debatable. But the with a median benefit of more than 200bp. An even greater
primary risk for portfolio returns is clear: it is inflation. Ibbotson number of countries benefited from allocations to the S&P
data for US large-cap equities back to 1926 reveal that the turn GSCI enhanced total return index (49 of 51) as well as the
from falling CPI inflation to rising CPI inflation significantly JPMCCI total return index (47 of 51), while 32 of 51 country
curbs expected equity total returns. When CPI inflation moves portfolios gained from an allocation to the DJ-UBS total return
to above trend and rising, which is likely not imminent, ex- index (Table 1). The benefits were also evident in local
pected annualized blue chip equity total returns fall close to currency terms over the same interval, as 90% of country
zero. If commodity index investments are to be a tool to manage portfolios with an allocation to the JPMCCI total return index
food price inflation specifically and the portfolio damage caused and 96% with an allocation to the S&P GSCI enhanced total
by consumer price inflation more generally, it is important to return index outperformed the balanced portfolio (Table 2).
ask whether they can be expected to work.
Table 1: Impact of commodity allocations on country portfolios, USD
Quantifying monthly portfolio benefits from Jan-06 through Oct-08, percent
S&P GSCI
S&P GSCI total DJ-UBS total JPMCCI total
enhanced
return index return index return index
return index
% COUNTRIES HELPED 61% 96% 63% 92%
QUANTIFYING THE BENEFIT, IF ONE EXISTED

MEDIAN 2.1% 2.5% 1.6% 2.2%
MAX 17.2% 18.1% 16.8% 18.0%
MIN 0.2% 0.1% 0.1% 0.2%
QUANTIFYING THE COST, IF ONE EXISTED

MEDIAN -1.1% -0.9% -0.6% -0.3%
MAX -0.1% -0.6% -0.1% 0.0%
MIN -3.4% -1.2% -2.5% -1.1%
Source: S&P, Dow Jones, J.P. Morgan Commodities Research. Note: Results are monthly median
benefits not cumulative over the interval..
8
Exhibit 16: Impact of adding commodity allocations to country benchmark portfolios, USD
Pre-Crisis (Jan-06 through Jun-07) Crisis (Jul-07 through Feb-09) Post-Crisis (Mar-09 through Dec-10)
Original Portfolio with 10% allocation to: Original Portfolio with 10% allocation to: Original Portfolio with 10% allocation to:
Country 60/40 S&P GSCI S&P GSCI En DJ-UBS JPMCCI 60/40 S&P GSCI S&P GSCI En DJ-UBS JPMCCI 60/40 S&P GSCI S&P GSCI En DJ-UBS JPMCCI
Return 2.2% 1.9% 2.7% 2.0% 2.4% -78.7% -74.3% -73.3% -73.0% -72.9% 60.8% 56.3% 56.5% 56.6% 56.6%
Argentina
Volatility 9.9% 8.0% 8.1% 8.4% 8.2% 58.6% 55.5% 55.4% 54.2% 54.7% 24.0% 22.9% 22.7% 22.4% 22.5%
Return 22.1% 19.2% 20.5% 20.3% 20.8% -35.1% -35.5% -34.5% -34.5% -34.3% 36.1% 33.9% 34.1% 34.2% 34.1%
Australia
Volatility 7.8% 7.9% 8.0% 7.8% 7.9% 28.5% 29.1% 28.9% 28.1% 28.4% 18.1% 17.8% 17.7% 17.4% 17.5%
Return 19.0% 16.5% 17.7% 17.6% 18.0% -59.2% -57.2% -56.1% -56.0% -55.9% 33.9% 32.0% 32.2% 32.3% 32.2%
Austria
Volatility 8.4% 7.9% 8.1% 7.9% 8.0% 38.6% 38.1% 38.1% 37.0% 37.4% 22.5% 21.6% 21.4% 21.2% 21.3%
Return 21.4% 18.6% 19.9% 19.7% 20.1% -54.6% -52.9% -51.9% -51.8% -51.7% 27.7% 26.4% 26.6% 26.7% 26.7%
Belgium
Volatility 6.3% 6.0% 6.2% 6.0% 6.2% 37.1% 36.4% 36.4% 35.4% 35.8% 17.5% 16.8% 16.7% 16.6% 16.7%
Return 39.4% 35.4% 36.2% 35.5% 35.9% -23.4% -25.0% -24.0% -23.9% -23.8% 33.6% 31.7% 31.9% 32.0% 31.9%
Brazil
Volatility 8.5% 7.2% 7.4% 7.4% 7.4% 34.8% 34.9% 34.8% 33.9% 34.2% 18.9% 18.5% 18.3% 18.2% 18.2%
Return 21.2% 21.2% 21.9% 20.1% 21.3% -64.5% -61.9% -60.8% -60.7% -60.6% 16.8% 16.6% 16.8% 16.9% 16.9%
Bulgaria
Volatility 9.3% 8.9% 8.9% 8.8% 8.8% 45.2% 44.2% 44.0% 43.0% 43.3% 20.0% 18.9% 18.8% 18.7% 18.8%
Return 15.3% 13.1% 14.3% 14.2% 14.6% -24.9% -26.4% -25.4% -25.4% -25.2% 29.0% 27.5% 27.7% 27.8% 27.8%
Canada
Volatility 7.7% 8.0% 8.0% 7.8% 8.1% 23.4% 24.8% 24.7% 23.8% 24.1% 15.4% 15.3% 15.2% 15.0% 15.1%
Return 30.7% 27.5% 28.3% 27.6% 28.0% -16.9% -18.9% -17.9% -18.0% -17.8% 35.9% 33.7% 33.9% 34.0% 34.0%
Chile
Volatility 7.3% 6.4% 6.5% 6.4% 6.6% 23.0% 23.2% 23.2% 22.4% 22.8% 10.8% 11.1% 10.9% 10.7% 10.8%
Return 33.6% 29.6% 30.9% 30.7% 31.2% -20.5% -22.1% -21.1% -21.1% -20.9% 25.5% 24.4% 24.6% 24.7% 24.6%
China
Volatility 9.9% 9.3% 9.4% 9.1% 9.2% 31.2% 30.5% 30.4% 29.8% 30.0% 13.7% 14.0% 13.8% 13.5% 13.6%
Return 22.6% 20.3% 21.1% 20.4% 20.8% -19.4% -21.1% -20.1% -20.1% -20.0% 41.5% 38.9% 39.1% 39.2% 39.2%
Colombia
Volatility 13.4% 11.4% 11.7% 11.5% 11.5% 29.2% 28.9% 28.8% 28.0% 28.3% 17.5% 16.4% 16.3% 16.4% 16.3%
Return 19.9% 17.2% 18.5% 18.3% 18.8% -30.1% -31.1% -30.0% -30.0% -29.8% 28.1% 26.8% 27.0% 27.1% 27.1%
Czech Republic
Volatility 11.4% 10.9% 11.1% 10.8% 10.9% 32.0% 32.4% 32.3% 31.3% 31.7% 19.7% 18.8% 18.7% 18.5% 18.6%
Return 21.5% 18.7% 20.0% 19.8% 20.2% -34.4% -34.9% -33.9% -33.8% -33.7% 30.8% 29.2% 29.4% 29.5% 29.4%
Denmark
Volatility 7.7% 7.2% 7.3% 7.4% 7.4% 28.1% 28.6% 28.5% 27.5% 27.9% 16.9% 16.5% 16.3% 16.1% 16.2%
Return 18.4% 16.4% 17.2% 16.5% 16.9% -29.5% -30.5% -29.5% -29.4% -29.3% 25.4% 24.4% 24.6% 24.7% 24.7%
Egypt
Volatility 9.4% 8.6% 8.9% 8.5% 8.7% 29.6% 30.1% 30.0% 29.1% 29.4% 17.3% 16.3% 16.3% 15.9% 16.1%
Return 27.5% 24.8% 25.7% 24.9% 25.3% -68.4% -65.4% -64.4% -64.3% -64.1% 38.2% 36.1% 36.3% 36.4% 36.3%
Estonia
Volatility 20.0% 17.3% 17.2% 17.4% 17.2% 40.3% 39.6% 39.5% 38.5% 38.9% 27.3% 25.3% 25.2% 25.0% 25.1%
Return 22.3% 19.4% 20.7% 20.5% 21.0% -42.6% -42.1% -41.1% -41.1% -40.9% 28.8% 27.4% 27.6% 27.7% 27.7%
Finland
Volatility 8.8% 8.3% 8.4% 8.3% 8.5% 26.9% 27.0% 26.9% 26.2% 26.4% 21.3% 20.1% 20.0% 19.9% 19.9%
Return 19.1% 16.5% 17.8% 17.6% 18.1% -35.0% -35.3% -34.3% -34.3% -34.1% 24.1% 23.1% 23.4% 23.4% 23.4%
France
Volatility 6.2% 6.2% 6.3% 6.0% 6.3% 24.4% 24.9% 24.8% 23.9% 24.2% 19.2% 18.5% 18.4% 18.3% 18.3%
Return 23.3% 20.4% 21.6% 21.4% 21.9% -37.1% -37.2% -36.2% -36.2% -36.0% 29.2% 27.8% 28.0% 28.1% 28.0%
Germany
Volatility 7.0% 6.7% 6.9% 6.7% 6.9% 27.5% 27.8% 27.7% 26.8% 27.1% 17.7% 17.3% 17.1% 17.0% 17.1%
Return 20.9% 18.2% 19.5% 19.3% 19.7% -52.3% -51.0% -49.9% -49.8% -49.7% 2.9% 4.2% 4.4% 4.6% 4.5%
Greece
Volatility 9.3% 8.3% 8.5% 8.5% 8.5% 35.9% 35.5% 35.4% 34.3% 34.7% 30.3% 28.5% 28.3% 28.1% 28.2%
Return 18.1% 15.6% 16.9% 16.7% 17.2% -23.1% -24.5% -23.5% -23.6% -23.4% 32.6% 30.7% 30.9% 31.0% 31.0%
Hong Kong
Volatility 5.7% 5.5% 5.6% 5.4% 5.5% 25.8% 26.1% 26.1% 25.2% 25.5% 15.2% 15.1% 15.0% 14.8% 14.8%
Return 33.0% 29.7% 30.4% 29.8% 30.1% -65.0% -62.3% -61.2% -61.1% -61.0% 34.5% 32.6% 32.8% 33.0% 32.9%
Hungary
Volatility 13.1% 11.9% 12.1% 11.5% 11.8% 44.0% 42.9% 42.7% 41.6% 42.1% 28.4% 26.7% 26.7% 26.4% 26.5%
Return 42.5% 40.4% 41.1% 39.3% 40.5% -103.6% -96.0% -95.0% -94.5% -94.5% 32.8% 31.0% 31.2% 31.3% 31.3%
Iceland
Volatility 8.5% 7.4% 7.6% 8.1% 7.9% 72.4% 67.3% 67.2% 65.8% 66.3% 19.8% 19.2% 19.0% 18.7% 18.8%
Return 21.9% 19.7% 20.5% 19.8% 20.2% -35.4% -35.5% -34.5% -34.4% -34.2% 39.2% 36.7% 36.9% 37.0% 37.0%
India
Volatility 13.4% 11.6% 11.6% 11.9% 11.9% 36.9% 35.8% 35.7% 34.9% 35.2% 19.6% 19.1% 18.9% 18.7% 18.8%
Return 20.2% 18.1% 18.9% 18.2% 18.6% -48.6% -47.5% -46.5% -46.3% -46.2% 52.8% 49.1% 49.3% 49.4% 49.4%
Indonesia
Volatility 10.4% 9.0% 9.3% 9.2% 9.3% 50.3% 48.5% 48.4% 47.4% 47.8% 21.1% 19.9% 19.9% 19.7% 19.8%
Return 17.1% 14.8% 16.0% 15.8% 16.3% -64.8% -62.2% -61.2% -61.2% -61.0% 24.9% 23.9% 24.1% 24.2% 24.1%
Ireland
Volatility 8.7% 7.7% 8.0% 7.9% 8.0% 27.5% 27.9% 27.9% 27.0% 27.3% 19.5% 18.6% 18.5% 18.3% 18.4%
Return 16.7% 14.4% 15.6% 15.5% 15.9% -42.5% -42.1% -41.1% -41.1% -40.9% 19.6% 19.2% 19.4% 19.5% 19.4%
Italy
Volatility 6.3% 6.1% 6.2% 6.2% 6.3% 25.7% 26.2% 26.1% 25.2% 25.5% 22.5% 21.4% 21.3% 21.2% 21.2%
Return 4.7% 3.5% 4.8% 4.6% 5.1% -23.7% -25.1% -24.1% -24.2% -24.0% 20.5% 19.8% 20.0% 20.2% 20.1%
Japan
Volatility 5.9% 5.9% 6.0% 5.8% 5.9% 17.7% 18.6% 18.6% 17.9% 18.1% 9.3% 9.8% 9.6% 9.2% 9.4%
Return 18.6% 16.6% 17.4% 16.7% 17.1% -53.0% -51.4% -50.3% -50.3% -50.1% 25.0% 24.2% 24.4% 24.5% 24.4%
Latvia
Volatility 9.0% 8.1% 8.0% 7.9% 8.0% 32.9% 31.9% 31.7% 31.1% 31.3% 23.5% 21.5% 21.5% 21.3% 21.4%
Return 18.7% 16.7% 17.5% 16.8% 17.2% -57.8% -56.0% -55.0% -54.8% -54.7% 37.9% 35.7% 35.9% 36.0% 35.9%
Lithuania
Volatility 8.4% 7.2% 7.2% 7.0% 7.0% 41.0% 40.3% 40.3% 39.3% 39.6% 20.4% 19.1% 18.9% 18.9% 18.9%
Return 52.1% 46.9% 47.6% 47.0% 47.3% -21.1% -22.7% -21.7% -21.7% -21.6% 41.0% 38.4% 38.6% 38.7% 38.6%
Malaysia
Volatility 15.9% 14.9% 14.9% 14.5% 14.8% 38.5% 37.5% 37.4% 36.6% 36.9% 15.4% 14.9% 14.8% 14.7% 14.8%
Return 27.2% 24.4% 25.2% 24.5% 24.9% -33.8% -34.3% -33.3% -33.3% -33.1% 35.2% 33.1% 33.3% 33.4% 33.3%
Mexico
Volatility 10.7% 9.1% 9.2% 9.4% 9.3% 27.3% 27.8% 27.7% 26.8% 27.1% 13.6% 13.8% 13.6% 13.4% 13.5%
Return 20.3% 17.7% 18.9% 18.7% 19.2% -36.2% -36.4% -35.4% -35.4% -35.3% 27.9% 26.6% 26.8% 26.9% 26.8%
Netherlands
Volatility 6.8% 6.3% 6.5% 6.3% 6.5% 28.4% 28.6% 28.5% 27.6% 27.9% 17.8% 17.3% 17.2% 17.0% 17.1%
Return 18.0% 15.6% 16.9% 16.7% 17.1% -37.6% -37.6% -36.6% -36.6% -36.4% 30.3% 28.7% 28.9% 29.0% 28.9%
New Zealand
Volatility 7.9% 7.2% 7.2% 7.4% 7.4% 22.1% 22.7% 22.6% 21.8% 22.1% 15.6% 15.6% 15.5% 15.2% 15.3%
Return 24.6% 21.4% 22.7% 22.5% 23.0% -47.7% -46.8% -45.8% -45.7% -45.6% 35.6% 33.5% 33.7% 33.8% 33.7%
Norway
Volatility 10.5% 10.5% 10.5% 10.3% 10.5% 39.5% 38.8% 38.8% 37.8% 38.1% 21.5% 20.8% 20.7% 20.4% 20.5%
Return 54.0% 48.5% 49.3% 48.7% 49.0% -22.3% -23.8% -22.8% -22.8% -22.6% 42.2% 39.5% 39.7% 39.7% 39.7%
Peru
Volatility 16.0% 14.9% 15.0% 14.6% 14.9% 39.9% 38.8% 38.7% 37.9% 38.2% 16.4% 15.8% 15.7% 15.6% 15.7%
Return 36.4% 32.7% 33.5% 32.8% 33.2% -27.4% -28.3% -27.3% -27.4% -27.2% 39.5% 37.0% 37.2% 37.3% 37.3%
Philippines
Volatility 8.3% 6.4% 6.4% 6.9% 6.5% 24.1% 24.1% 24.0% 23.2% 23.5% 14.5% 14.4% 14.3% 14.1% 14.2%
Return 29.2% 26.1% 26.9% 26.2% 26.6% -52.7% -51.3% -50.2% -50.1% -50.0% 34.2% 32.3% 32.5% 32.6% 32.6%
Poland
Volatility 10.2% 9.6% 9.5% 9.3% 9.6% 33.2% 33.1% 32.8% 31.9% 32.3% 22.1% 20.8% 20.8% 20.6% 20.7%
Return 26.1% 22.9% 24.1% 24.0% 24.4% -37.8% -37.8% -36.8% -36.8% -36.6% 19.0% 18.6% 18.8% 18.9% 18.8%
Portugal
Volatility 6.9% 6.3% 6.5% 6.3% 6.4% 27.6% 27.6% 27.6% 26.7% 27.0% 19.5% 18.6% 18.4% 18.4% 18.4%
Return 19.4% 19.6% 20.3% 18.6% 19.8% -98.1% -91.6% -90.4% -90.3% -90.2% 40.4% 38.0% 38.2% 38.3% 38.3%
Romania
Volatility 16.6% 15.4% 15.3% 14.8% 15.1% 51.5% 48.7% 48.3% 47.6% 47.9% 28.5% 26.8% 26.7% 26.4% 26.6%
Return 0.2% 0.0% 0.8% 0.2% 0.5% -51.3% -50.2% -49.1% -49.0% -48.9% 38.6% 36.3% 36.5% 36.6% 36.5%
Russia
Volatility 10.6% 10.0% 10.1% 9.3% 9.7% 37.4% 37.5% 37.3% 36.2% 36.6% 22.1% 21.1% 20.9% 20.8% 20.8%
Return 26.3% 23.0% 24.3% 24.1% 24.6% -34.6% -35.0% -34.0% -34.0% -33.8% 37.8% 35.4% 35.6% 35.7% 35.7%
Singapore
Volatility 7.6% 6.9% 7.1% 7.0% 7.1% 29.5% 29.8% 29.7% 28.8% 29.1% 16.6% 16.5% 16.3% 16.1% 16.2%
Return 2.3% 1.9% 2.7% 2.0% 2.4% -17.1% -19.1% -18.1% -18.1% -18.0% 9.8% 10.5% 10.7% 10.9% 10.8%
Slovakia
Volatility 9.6% 9.3% 9.4% 8.8% 9.1% 39.7% 38.7% 38.6% 37.8% 38.1% 25.1% 22.9% 22.8% 22.5% 22.7%
Return 18.4% 16.5% 17.3% 16.6% 17.0% -26.7% -27.7% -26.7% -26.8% -26.6% 35.7% 33.6% 33.8% 33.9% 33.8%
South Africa
Volatility 9.8% 8.5% 8.8% 8.7% 8.9% 29.6% 29.4% 29.4% 28.6% 28.9% 14.7% 14.6% 14.5% 14.3% 14.4%
Return 16.4% 14.1% 15.4% 15.2% 15.7% -40.0% -39.8% -38.8% -38.7% -38.6% 38.3% 36.0% 36.2% 36.3% 36.2%
South Korea
Volatility 10.1% 9.8% 9.8% 9.5% 9.7% 31.1% 30.9% 30.9% 30.0% 30.3% 19.3% 18.4% 18.4% 18.2% 18.3%
Return 22.1% 19.2% 20.5% 20.3% 20.8% -30.9% -31.6% -30.6% -30.6% -30.4% 18.2% 17.9% 18.1% 18.2% 18.1%
Spain
Volatility 6.6% 5.8% 6.0% 6.2% 6.2% 26.8% 27.0% 26.9% 26.1% 26.4% 24.1% 22.8% 22.7% 22.6% 22.6%
Return 21.8% 19.0% 20.3% 20.1% 20.5% -42.4% -42.0% -41.0% -41.0% -40.8% 39.5% 37.0% 37.2% 37.4% 37.3%
Sweden
Volatility 9.8% 8.9% 9.1% 9.0% 9.1% 28.6% 28.8% 28.7% 27.8% 28.1% 19.3% 18.7% 18.5% 18.3% 18.4%
Return 14.7% 12.6% 13.9% 13.7% 14.1% -24.9% -26.2% -25.2% -25.3% -25.1% 27.8% 26.5% 26.7% 26.8% 26.7%
Switzerland
Volatility 6.8% 6.6% 6.7% 6.6% 6.8% 18.0% 19.0% 19.0% 18.2% 18.5% 13.5% 13.4% 13.2% 13.0% 13.1%
Return 15.3% 13.6% 14.4% 13.7% 14.1% -27.9% -28.9% -27.9% -27.9% -27.7% 35.3% 33.3% 33.5% 33.6% 33.5%
Taiwan
Volatility 8.2% 7.7% 7.7% 7.1% 7.3% 25.0% 25.3% 25.2% 24.5% 24.8% 17.8% 17.3% 17.2% 17.1% 17.1%
Return 13.7% 12.1% 12.9% 12.2% 12.6% -26.2% -27.4% -26.4% -26.4% -26.2% 43.9% 41.1% 41.3% 41.3% 41.3%
Thailand
Volatility 12.2% 11.9% 11.7% 11.6% 11.8% 33.8% 33.6% 33.5% 32.7% 33.0% 13.9% 13.5% 13.4% 13.3% 13.3%
Return 36.0% 32.3% 33.1% 32.4% 32.8% -41.0% -40.5% -39.4% -39.3% -39.2% 42.6% 40.0% 40.2% 40.3% 40.2%
Turkey
Volatility 6.6% 5.5% 5.5% 5.9% 5.8% 42.9% 41.2% 41.2% 40.3% 40.6% 22.5% 21.1% 21.1% 20.9% 21.0%
Return 16.8% 14.5% 15.8% 15.6% 16.0% -34.9% -35.3% -34.3% -34.3% -34.1% 27.9% 26.5% 26.7% 26.8% 26.8%
United Kingdom
Volatility 5.4% 5.6% 5.7% 5.5% 5.7% 20.8% 22.1% 22.0% 21.1% 21.4% 14.9% 14.9% 14.7% 14.5% 14.6%
Return 10.3% 8.6% 9.9% 9.7% 10.1% -23.3% -24.7% -23.7% -23.8% -23.6% 22.7% 21.9% 22.1% 22.2% 22.1%
United States
Volatility 4.4% 4.4% 4.5% 4.5% 4.6% 15.2% 16.7% 16.5% 15.6% 16.0% 11.6% 11.8% 11.7% 11.5% 11.6%
Source: S&P, Dow Jones, J.P. Morgan Commodities Research. Note: return is the average annualized return based on monthly observations. Volatility is the annualized standard deviation of the monthly returns.
9
Exhibit 17: Impact of adding commodity allocations to country benchmark portfolios, local currency
Pre-Crisis (Jan-06 through Jun-07) Crisis (Jul-07 through Feb-09) Post-Crisis (Mar-09 through Dec-10)
Original Portfolio with 10% allocation to: Original Portfolio with 10% allocation to: Original Portfolio with 10% allocation to:
Country 60/40 S&P GSCI S&P GSCI En DJ-UBS JPMCCI 60/40 S&P GSCI S&P GSCI En DJ-UBS JPMCCI 60/40 S&P GSCI S&P GSCI En DJ-UBS JPMCCI
Return 2.9% 2.5% 3.3% 2.6% 3.0% -70.7% -67.2% -66.2% -66.0% -65.9% 64.2% 59.4% 59.6% 59.7% 59.7%
Argentina
Volatility 10.1% 8.2% 8.2% 8.6% 8.3% 52.1% 49.7% 49.7% 48.6% 49.0% 23.5% 22.5% 22.3% 22.0% 22.1%
Return 16.6% 14.3% 15.5% 15.3% 15.8% -22.2% -23.7% -22.7% -22.8% -22.6% 22.0% 21.2% 21.4% 21.5% 21.5%
Australia
Volatility 5.2% 5.0% 5.1% 5.0% 5.1% 16.5% 17.7% 17.6% 16.7% 17.0% 10.5% 10.6% 10.5% 10.4% 10.4%
Return 13.7% 11.7% 13.0% 12.8% 13.2% -55.0% -53.4% -52.4% -52.3% -52.2% 33.3% 31.5% 31.7% 31.8% 31.7%
Austria
Volatility 8.2% 7.2% 7.4% 7.3% 7.4% 31.6% 31.7% 31.6% 30.6% 31.0% 16.1% 15.6% 15.5% 15.3% 15.4%
Return 16.1% 13.9% 15.1% 14.9% 15.4% -50.6% -49.3% -48.3% -48.2% -48.1% 26.8% 25.6% 25.8% 25.9% 25.8%
Belgium
Volatility 6.4% 5.3% 5.6% 5.5% 5.6% 30.3% 30.0% 30.0% 29.1% 29.4% 11.6% 11.2% 11.1% 11.1% 11.1%
Return 15.6% 16.1% 16.9% 15.1% 16.3% -59.2% -57.3% -56.2% -56.1% -56.0% 15.7% 15.7% 15.9% 16.0% 16.0%
Bulgaria
Volatility 8.7% 8.3% 8.2% 8.1% 8.1% 36.8% 36.6% 36.5% 35.5% 35.8% 15.8% 14.6% 14.6% 14.5% 14.6%
Return 11.7% 9.8% 11.1% 10.9% 11.4% -17.1% -19.2% -18.2% -18.3% -18.1% 21.9% 21.1% 21.3% 21.4% 21.3%
Canada
Volatility 6.2% 6.7% 6.7% 6.5% 6.7% 15.5% 17.5% 17.4% 16.6% 16.9% 9.6% 10.1% 10.0% 9.8% 9.9%
Return 30.7% 27.5% 28.3% 27.6% 28.0% -10.5% -13.1% -12.1% -12.2% -12.0% 28.3% 27.0% 27.2% 27.2% 27.2%
Chile
Volatility 6.8% 5.7% 5.7% 5.8% 5.8% 10.6% 12.3% 12.2% 11.3% 11.7% 9.4% 9.5% 9.3% 9.3% 9.2%
Return 6.0% 5.3% 6.1% 5.5% 5.8% -7.9% -10.7% -9.8% -9.8% -9.6% 33.3% 31.5% 31.7% 31.8% 31.7%
Colombia
Volatility 12.6% 11.0% 11.1% 10.7% 10.8% 21.1% 21.3% 21.3% 20.5% 20.8% 11.5% 11.1% 11.0% 11.0% 11.0%
Return 14.2% 12.1% 13.4% 13.2% 13.7% -26.9% -28.0% -27.0% -27.0% -26.9% 23.8% 22.9% 23.1% 23.2% 23.1%
Czech Republic
Volatility 10.5% 9.7% 9.8% 9.6% 9.7% 25.0% 25.7% 25.6% 24.7% 25.0% 12.9% 12.3% 12.3% 12.1% 12.2%
Return 16.1% 13.9% 15.1% 14.9% 15.4% -30.9% -31.6% -30.6% -30.6% -30.4% 29.7% 28.3% 28.4% 28.5% 28.5%
Denmark
Volatility 7.5% 6.4% 6.5% 6.7% 6.7% 22.4% 23.2% 23.1% 22.1% 22.5% 11.8% 1 1.5% 11.4% 11.2% 11.3%
Return 17.9% 16.0% 16.7% 16.1% 16.4% -29.9% -30.8% -29.8% -29.8% -29.6% 26.8% 25.7% 25.9% 26.0% 25.9%
Egypt
Volatility 9.5% 8.7% 9.0% 8.7% 8.8% 27.8% 28.5% 28.4% 27.5% 27.8% 16.8% 15.9% 15.8% 15.5% 15.7%
Return 25.3% 22.9% 23.7% 23.0% 23.4% -63.8% -61.2% -60.2% -60.2% -60.0% 37.3% 35.3% 35.5% 35.6% 35.5%
Estonia
Volatility 21.8% 18.8% 18.7% 19.0% 18.8% 32.8% 32.7% 32.7% 31.8% 32.1% 23.8% 21.7% 21.7% 21.6% 21.7%
Return 17.0% 14.7% 15.9% 15.8% 16.2% -36.8% -36.8% -35.8% -35.8% -35.6% 27.9% 26.6% 26.8% 26.9% 26.9%
Finland
Volatility 8.8% 7.9% 8.0% 7.9% 8.0% 21.2% 21.4% 21.4% 20.7% 20.9% 16.4% 15.3% 15.3% 15.2% 15.2%
Return 13.8% 11.8% 13.1% 12.9% 13.3% -30.9% -31.5% -30.5% -30.6% -30.4% 23.3% 22.4% 22.6% 22.7% 22.6%
France
Volatility 5.5% 4.9% 5.1% 4.9% 5.0% 17.9% 18.7% 18.6% 17.7% 18.0% 13.1% 12.7% 12.6% 12.6% 12.6%
Return 18.0% 15.6% 16.9% 16.7% 17.1% -33.4% -33.8% -32.8% -32.8% -32.6% 28.2% 26.9% 27.1% 27.2% 27.1%
Germany
Volatility 6.8% 5.9% 6.0% 6.0% 6.0% 20.4% 21.1% 21.1% 20.2% 20.5% 12.5% 12.1% 12.0% 12.0% 12.0%
Return 15.5% 13.4% 14.6% 14.4% 14.9% -51.3% -50.0% -49.0% -48.9% -48.8% 2.6% 3.9% 4.1% 4.2% 4.2%
Greece
Volatility 9.9% 8.4% 8.6% 8.7% 8.6% 28.8% 29.0% 28.9% 27.8% 28.2% 24.6% 23.2% 23.1% 22.9% 22.9%
Return 18.4% 15.9% 17.2% 17.0% 17.5% -23.4% -24.8% -23.8% -23.8% -23.7% 32.6% 30.7% 31.0% 31.1% 31.0%
Hong Kong
Volatility 5.7% 5.4% 5.5% 5.4% 5.5% 25.9% 26.2% 26.2% 25.4% 25.6% 15.0% 15.0% 14.9% 14.6% 14.7%
Return 27.1% 24.3% 25.1% 24.5% 24.8% -51.0% -49.8% -48.8% -48.7% -48.6% 32.5% 30.8% 31.0% 31.1% 31.0%
Hungary
Volatility 10.3% 9.0% 9.2% 8.9% 9.0% 30.7% 30.8% 30.7% 29.7% 30.0% 18.9% 18.0% 17.9% 17.6% 17.8%
Return 28.5% 27.8% 28.5% 26.7% 27.9% -86.7% -81.1% -80.0% -79.6% -79.6% 32.6% 30.8% 31.0% 31.1% 31.1%
Iceland
Volatility 4.1% 3.7% 3.9% 4.2% 4.1% 67.9% 63.3% 63.1% 61.7% 62.2% 16.1% 15.9% 15.6% 15.3% 15.4%
Return 12.7% 11.4% 12.2% 11.5% 11.8% -25.6% -26.7% -25.7% -25.7% -25.5% 35.5% 33.4% 33.6% 33.7% 33.6%
India
Volatility 10.5% 8.9% 8.9% 9.2% 9.1% 32.6% 31.9% 31.8% 31.0% 31.2% 16.7% 16.2% 16.1% 16.0% 16.0%
Return 18.9% 16.9% 17.7% 17.0% 17.4% -33.8% -34.3% -33.3% -33.3% -33.1% 44.6% 41.6% 41.8% 41.9% 41.9%
Indonesia
Volatility 8.2% 7.3% 7.5% 7.2% 7.5% 38.6% 38.0% 38.0% 37.0% 37.4% 17.5% 16.7% 16.6% 16.5% 16.5%
Return 11.7% 10.0% 11.2% 11.0% 11.5% -63.5% -60.9% -59.8% -59.9% -59.7% 23.8% 23.0% 23.2% 23.3% 23.2%
Ireland
Volatility 8.7% 7.2% 7.5% 7.6% 7.5% 21.8% 22.5% 22.4% 21.6% 21.9% 14.9% 14.0% 13.9% 13.8% 13.9%
Return 11.4% 9.6% 10.9% 10.7% 11.2% -42.2% -41.7% -40.7% -40.7% -40.6% 19.0% 18.6% 18.8% 18.9% 18.8%
Italy
Volatility 5.5% 4.6% 4.8% 4.9% 4.9% 19.7% 20.5% 20.4% 19.5% 19.8% 16.5% 15.7% 15.6% 15.6% 15.5%
Return 6.4% 5.1% 6.4% 6.2% 6.7% -32.8% -33.3% -32.3% -32.3% -32.2% 14.2% 14.2% 14.4% 14.5% 14.5%
Japan
Volatility 7.1% 6.6% 6.6% 6.4% 6.5% 20.5% 21.5% 21.4% 20.6% 20.9% 11.7% 11.8% 11.7% 11.2% 11.4%
Return 16.5% 14.7% 15.6% 14.9% 15.2% -48.8% -47.5% -46.5% -46.5% -46.3% 23.8% 23.2% 23.4% 23.5% 23.4%
Latvia
Volatility 8.2% 7.3% 7.0% 7.1% 7.0% 28.5% 27.6% 27.4% 26.8% 27.1% 20.6% 18.3% 18.4% 18.2% 18.3%
Return 16.7% 15.0% 15.8% 15.1% 15.5% -53.4% -51.9% -50.9% -50.8% -50.7% 36.7% 34.7% 34.9% 35.0% 34.9%
Lithuania
Volatility 9.3% 7.8% 7.7% 7.7% 7.6% 34.0% 34.0% 33.9% 33.0% 33.3% 17.1% 15.5% 15.4% 15.4% 15.4%
Return 27.4% 24.5% 25.3% 24.6% 25.0% -13.5% -15.8% -14.9% -15.0% -14.8% 24.2% 23.3% 23.5% 23.6% 23.5%
Malaysia
Volatility 5.6% 5.3% 5.2% 5.4% 5.5% 17.1% 18.2% 18.2% 17.6% 17.8% 8.2% 8.3% 8.3% 8.0% 8.1%
Return 25.5% 22.8% 23.6% 22.9% 23.3% -20.0% -21.7% -20.7% -20.8% -20.6% 29.2% 27.7% 27.9% 28.0% 27.9%
Mexico
Volatility 8.5% 7.1% 7.1% 7.4% 7.3% 19.7% 20.4% 20.4% 19.6% 19.9% 10.2% 10.4% 10.3% 10.2% 10.2%
Return 16.0% 13.8% 15.1% 14.9% 15.3% -30.7% -31.3% -30.4% -30.4% -30.2% 31.2% 29.6% 29.8% 29.9% 29.8%
Netherlands
Volatility 9.4% 7.8% 8.0% 8.1% 8.1% 21.3% 21.6% 21.6% 20.8% 21.1% 12.9% 12.6% 12.6% 12.3% 12.4%
Return 13.1% 11.2% 12.5% 12.3% 12.7% -20.2% -21.8% -20.8% -20.9% -20.7% 16.9% 16.7% 16.9% 17.0% 16.9%
New Zealand
Volatility 6.8% 6.1% 6.1% 6.3% 6.3% 13.6% 14.2% 14.2% 13.5% 13.7% 7.8% 8.2% 8.1% 7.9% 8.0%
Return 19.4% 16.8% 18.1% 17.9% 18.4% -38.2% -38.3% -37.3% -37.2% -37.1% 30.7% 29.1% 29.3% 29.4% 29.3%
Norway
Volatility 8.5% 8.1% 8.1% 8.0% 8.1% 29.8% 29.9% 29.9% 29.0% 29.3% 14.2% 14.2% 14.1% 13.8% 13.9%
Return 52.3% 47.0% 47.8% 47.2% 47.5% -20.2% -22.0% -21.0% -21.0% -20.8% 37.7% 35.4% 35.6% 35.7% 35.6%
Peru
Volatility 15.7% 14.7% 14.8% 14.3% 14.7% 36.3% 35.6% 35.6% 34.8% 35.1% 15.4% 15.0% 14.9% 14.8% 14.8%
Return 29.3% 26.3% 27.1% 26.4% 26.8% -24.8% -26.0% -25.0% -25.0% -24.9% 36.4% 34.2% 34.4% 34.5% 34.4%
Philippines
Volatility 7.7% 6.0% 5.9% 6.4% 6.0% 21.1% 21.3% 21.3% 20.4% 20.7% 12.4% 12.3% 12.3% 12.1% 12.2%
Return 25.8% 23.2% 24.0% 23.3% 23.6% -39.4% -39.2% -38.2% -38.2% -38.0% 28.7% 27.4% 27.5% 27.6% 27.6%
Poland
Volatility 9.8% 8.9% 8.6% 8.8% 8.8% 21.3% 21.9% 21.8% 20.9% 21.2% 12.9% 12.2% 12.2% 12.1% 12.2%
Return 20.7% 18.1% 19.4% 19.2% 19.6% -33.9% -34.2% -33.2% -33.2% -33.0% 18.1% 17.8% 18.0% 18.1% 18.1%
Portugal
Volatility 7.9% 6.6% 6.7% 6.7% 6.7% 21.7% 21.8% 21.8% 20.9% 21.2% 13.6% 12.9% 12.8% 12.9% 12.8%
Return 2.0% 3.9% 4.7% 2.9% 4.1% -79.2% -74.8% -73.7% -73.7% -73.5% 39.9% 37.5% 37.7% 37.8% 37.8%
Romania
Volatility 13.5% 12.7% 12.6% 12.1% 12.3% 40.9% 39.3% 39.0% 38.3% 38.6% 21.1% 20.0% 20.0% 19.7% 19.8%
Return -1.6% -1.6% -0.8% -1.5% -1.1% -37.8% -38.0% -36.9% -36.8% -36.7% 34.3% 32.4% 32.6% 32.7% 32.6%
Russia
Volatility 9.9% 9.2% 9.3% 8.6% 8.9% 33.6% 33.7% 33.7% 32.6% 33.0% 17.7% 16.9% 16.8% 16.7% 16.7%
Return 23.0% 20.1% 21.4% 21.2% 21.7% -33.4% -33.9% -32.9% -32.9% -32.8% 32.2% 30.4% 30.6% 30.7% 30.6%
Singapore
Volatility 7.2% 6.4% 6.5% 6.5% 6.5% 26.2% 26.7% 26.7% 25.7% 26.1% 15.0% 1 4.9% 14.8% 14.6% 14.6%
Return -5.3% -5.0% -4.2% -4.9% -4.5% -16.0% -18.1% -17.1% -17.2% -17.0% 8.3% 9.3% 9.5% 9.6% 9.5%
Slovakia
Volatility 4.4% 4.7% 4.7% 4.3% 4.5% 30.2% 29.9% 29.9% 29.1% 29.4% 23.7% 21.2% 21.1% 20.9% 21.0%
Return 16.8% 15.0% 15.8% 15.1% 15.5% -11.1% -13.7% -12.7% -12.8% -12.6% 23.0% 22.1% 22.3% 22.4% 22.4%
South Africa
Volatility 8.0% 6.8% 7.1% 7.2% 7.2% 17.3% 18.2% 18.2% 17.6% 17.8% 9.2% 9.8% 9.6% 9.4% 9.5%
Return 13.0% 11.0% 12.3% 12.1% 12.6% -19.2% -21.1% -20.1% -20.1% -19.9% 29.7% 28.2% 28.4% 28.5% 28.5%
South Korea
Volatility 8.6% 8.3% 8.4% 8.1% 8.3% 23.0% 23.6% 23.6% 22.6% 22.9% 12.9% 12.4% 12.4% 12.3% 12.3%
Return 16.7% 14.4% 15.7% 15.5% 15.9% -34.2% -34.5% -33.4% -33.5% -33.3% 17.7% 17.4% 17.6% 17.7% 17.7%
Spain
Volatility 7.6% 6.1% 6.3% 6.7% 6.5% 21.7% 22.1% 21.9% 21.2% 21.4% 17.3% 16.5% 16.5% 16.4% 16.4%
Return 16.0% 13.8% 15.1% 14.9% 15.3% -30.7% -31.3% -30.4% -30.4% -30.2% 31.2% 29.6% 29.8% 29.9% 29.8%
Sweden
Volatility 9.4% 7.8% 8.0% 8.1% 8.1% 21.3% 21.6% 21.6% 20.8% 21.1% 12.9% 12.6% 12.6% 12.3% 12.4%
Return 11.8% 10.0% 11.3% 11.1% 11.6% -26.4% -27.4% -26.4% -26.5% -26.3% 21.3% 20.6% 20.8% 20.9% 20.8%
Switzerland
Volatility 6.9% 5.9% 6.0% 6.1% 6.2% 14.5% 15.7% 15.6% 14.7% 15.0% 9.9% 9.9% 9.8% 9.7% 9.7%
Return 16.3% 14.1% 15.3% 15.1% 15.6% -25.3% -26.5% -25.5% -25.5% -25.3% 29.9% 28.4% 28.6% 28.7% 28.6%
Taiwan
Volatility 8.1% 7.6% 7.6% 7.5% 7.5% 23.2% 23.5% 23.4% 22.7% 22.9% 15.7% 15.4% 15.3% 15.2% 15.2%
Return 9.8% 8.6% 9.4% 8.8% 9.1% -23.7% -25.2% -24.2% -24.2% -24.0% 38.3% 36.0% 36.2% 36.3% 36.2%
Thailand
Volatility 11.3% 11.2% 11.1% 10.8% 11.1% 30.9% 31.0% 31.0% 30.1% 30.4% 12.7% 12.4% 12.2% 12.1% 12.2%
Return 25.4% 22.7% 23.5% 22.8% 23.2% -27.1% -28.0% -27.0% -27.0% -26.8% 40.5% 38.0% 38.2% 38.3% 38.2%
Turkey
Volatility 5.0% 4.1% 4.1% 4.6% 4.5% 30.2% 29.4% 29.3% 28.6% 28.8% 16.9% 16.0% 16.0% 15.8% 15.9%
Return 10.7% 9.0% 10.3% 10.1% 10.5% -21.8% -23.3% -22.3% -22.4% -22.2% 25.3% 24.2% 24.4% 24.5% 24.5%
United Kingdom
Volatility 5.0% 4.6% 4.8% 4.6% 4.7% 17.5% 18.4% 18.4% 17.6% 17.9% 11.7% 11.6% 11.5% 11.4% 11.4%
Return 10.3% 8.6% 9.9% 9.7% 10.1% -23.3% -24.7% -23.7% -23.8% -23.6% 22.7% 21.9% 22.1% 22.2% 22.1%
United States
Volatility 4.4% 4.4% 4.5% 4.5% 4.6% 15.2% 16.7% 16.5% 15.6% 16.0% 11.6% 11.8% 11.7% 11.5% 11.6%
Source: S&P, Dow Jones, J.P. Morgan Commodities Research. Note: return is the average annualized return based on monthly observations. Volatility is the annualized standard deviation of the monthly returns.
10
Table 2: Impact of commodity allocations on country portfolios, local Commodity correlations with equities have
Quantifying monthly portfolio benefits from Jan-06 through Oct-08, percent finally started breaking down
S&P GSCI
S&P GSCI total
enhanced
DJ-UBS total JPMCCI total Thanks to the extraordinary stimulus provided by monetary
return index return index return index
return index and fiscal authorities over the past three years, correlations of
% COUNTRIES HELPED 57% 96% 63% 90%
changes in asset prices are at an exceptionally high level
QUANTIFYING THE BENEFIT, IF ONE EXISTED (Exhibits 18-25). We calculate that the rolling quarterly
MEDIAN 2.1% 2.4% 1.5% 2.3% correlations between the S&P GSCI spot price index and the
MAX 13.8% 14.7% 13.4% 14.6%
MIN 0.1% 0.3% 0.0% 0.2% MSCI AC World price index and the S&P 500, respectively, are
0.65 and 0.68. These figures are down from recent highs above
QUANTIFYING THE COST, IF ONE EXISTED
MEDIAN -1.0% -0.4% -0.5% -0.2% 0.70—levels never before seen since the S&P GSCI was created
MAX -0.2% -0.2% -0.2% -0.1% twenty years ago.
MIN -2.4% -0.5% -2.1% -1.1%
Source: S&P, Dow Jones, J.P. Morgan Commodities Research. Note: Results are monthly median
However, this unsustainable sympathy finally appears to be
benefits not cumulative over the interval. deteriorating, which ultimately is good for investors. A falling
correlation is good because it implies that the recovery is finding
• The cumulative benefits of commodity allocations from
firmer footing and greater differentiation is appearing between
January 2006 through December 2010 have gone into negative
the time horizons priced by asset classes.
territory in a number of countries after the strong rally in
equities. However, even now the cumulative five-year cost
The shift in correlations is already more advanced in Europe,
of this insurance might be -200bp to -400bp in a given
where the correlation of S&P GSCI and the MSCI European
country—which is a cost of only 40bp to 50bp per year.
Union price index is now at 0.44, down from above 0.75 in recent
Moreover, now is a good time to enter commodity positions,
months. In Eastern Europe, the correlation is at 0.55 and falling.
as the cumulative curves are flattening.
Emerging markets, specifically Latin America and Asia, appear
to be following. The MSCI Emerging Markets Index is at 0.59
• Commodities provided significant benefits in 2008—as much
against the S&P GSCI and the MSCI Latin America Index is at
as 100bp or more in returns per month in several countries—
0.60.
when portfolios needed the most protection. Among the
country portfolios that benefited during this time frame were
An interesting result that turned up in this analysis is both
Australia (page 38), Canada (page 43), China (page 42), the
China (a major commodity consumer) and Australia (a major
Netherlands (page 66), Switzerland (page 81), and the US
commodity producer) show comparably weaker, but still very
(page 86).
positive, levels of correlation with the S&P GSCI, at 0.46 and
0.43 respectively. Two main factors are driving this result: (1)
• Cumulatively over the past five years, the country portfolios
China managed the recession better than most, and pulled
with an allocation to the JPMCCI total return index fared the
Australia along with it, (2) Australia's shipments to China include
best relative to the other commodity indices. However, we
a heavy emphasis on iron ore and coking coal, two commodities
note that in the contango-dominated markets of recent years,
lacking liquid futures markets and thus not found in traded
the S&P GSCI total return index has struggled—but
commodity indices. But even in these countries' charts, the
backwardation is likely to become once again a dominant
general pattern of a sharp increase in correlation during the
factor in commodity returns later this cycle.
recession (to previously unobserved levels since 1995), followed
by a nascent rollover, is still evident. This suggests that even
• Allocations to commodities over the past five years also
with its enormous endowment of natural resources, Australian
lowered portfolio volatility. On average, approximately 73%
portfolios would do well to add commodities into their asset
of local country portfolios had lower volatility while 88% of
mix. Similarly, the data show that the negative correlation of
country portfolios in US dollars exhibited lower vol. For
MSCI China price changes with the S&P GSCI can be –0.25 or
these country portfolios, the average benefit was 60bp in the
lower for long periods of time, making commodities a useful
local currency portfolios and 90bp in the US dollar
portfolio hedge when shares are not performing as well as they
denominated portfolios.
recently have been.
11
Extreme correlations likely to revert toward the mean

Exhibit 18: Rolling quarterly correlation between S&P GSCI and MSCI Exhibit 19: Rolling quarterly correlation between S&P GSCI and S&P
AC World price returns 500 price returns
1.00 Heart of the financial 21-Jan-11 1.00 Heart of the financial 21-Jan-11
crisis in gray 0.65 crisis in gray 0.68
0.50 0.50 ?
?
0.00 0.00
-0.50 -0.50
-1.00 -1.00
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
Source: S&P, MSCI, J.P. Morgan Commodities Research Source: S&P, J.P. Morgan Commodities Research
Exhibit 20: Rolling quarterly correlation between S&P GSCI and MSCI Exhibit 21: Rolling quarterly correlation between S&P GSCI and MSCI
European Union price returns Emerging Europe price returns
0.50 0.50
? ?
0.00 0.00
-0.50 -0.50
-1.00 -1.00
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
Source: S&P, MSCI, J.P. Morgan Commodities Research Source: S&P, MSCI, J.P. Morgan Commodities Research
Emerging Markets price returns Latin America price returns
0.50 0.50
? ?
0.00 0.00
-0.50 -0.50
-1.00 -1.00
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
China price returns Australia price returns
0.50 0.50
? ?
0.00 0.00
-0.50 -0.50
-1.00 -1.00
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
12
Imputed volatility distributions since 15- are “normal” relative to demand and this helps account for the
Dec-09 likely understate actual risk observed volatility level. But even if this is true, the global
Prompt implied volatilities in most commodities are low relative petroleum balance has moved decidedly into deficit and those
to their long-run averages. Our sense has been that the very stocks are drawing. Moreover, the mere existence of crude
depressed level of asset price volatility generally has not only stocks somewhere on the planet does not guarantee that they
reduced expectations about the value of the mean for implied are suitable for a particular refinery configuration or that they
volatility in most commodities, but more critically has also are available for sale anywhere near current prices. The truly
demolished expectations about the dispersion of potential available inventory for refinery acquisition is not the same thing
outcomes around the new mean. In plain English, we surmise: as a count of the world's crude stores, an important economic
(a) because zero interest rate policy and quantitative easing fact in a rising interest rate environment. We amplify on this
have helped significantly depress realized and implied vols for concept of “friction” in Commodity Markets Outlook and
two years, consensus has come to expect a lower mean vol in Strategy: Freedom and Friction (Nov 8, 2010).
most commodities, (b) observed implied vols are lower than
even those reduced expected means, and (c) tail risk is once The implied vol curves in softs have shifted sharply to the
again vastly underestimated because of (a) and (b). The right, with both imputed means and current values coming in
volatility is the message. well above the long-run normal on severe, weather-driven supply
shocks. Volatility in precious metals has been guided higher by
To test our hypothesis, we compiled histograms of historical fears about escalating sovereign debt, doubts about the value
prompt implied volatility for 24 commodity markets, spanning of fiat currencies, and rising inflation risks. Both softs and
energy, agriculture, and metals. Most of these data sets go precious metals have broadly entered corrections, as we
back nearly 18 years, incorporating a range of idiosyncratic forecasted two weeks ago, and implied vols are coming down
events and market regimes. We then calculated the imputed as flat prices become more directional to the downside. Notably,
normal distribution of prompt implied vol for the same 24 markets implied vols in energy are still very light, and we see this as the
using only the period from 15-Dec-09 through today and next big factor to change in the commodity vol theme. Spot
superimposed those narrow-interval distributions over the more- Brent and WTI crude oil prices are trading close to our 1Q2011
meaty histograms (Exhibits 26-49). We selected this starting forecasts on both an average price and settlement price basis.
point because it marks the one-year anniversary of ZIRP and We expect the strong upward momentum in oil prices of the
roughly the nine-month mark of the equity rally. In the charts, past two months now to moderate as the heart of the Northern
the red vertical lines indicate current values. Hemisphere winter passes (reducing demand for middle distillate
heating fuels) and refinery maintenance begins (reducing the
What immediately becomes apparent in running this exercise is call on crude throughput). The Brent-WTI spread, in particular,
that if a commodity risk analysis is giving substantial weight to is presently wide and looks vulnerable to retracement. However,
the unusual market environment of the ZIRP world, it is likely we expect the pause in energy momentum to be brief, with any
grossly underestimating the range of potential outcomes soft patch in pricing (perhaps on a surprise OPEC production
(especially the right tail of risk) that will increasingly become announcement) quickly followed by a resurgent market tone
more apparent when monetary supports are removed, a US rate this summer, as global economic activity continues to gather
hike cycle begins, and the macro environment inevitably moves pace. This path will likely be a catalyst for rising implied volatility
back to some form of normalcy. Given the current low levels of priced into options.
industrial commodity vol relative to even the recent distribution,
let alone the more realistic portrait of risk revealed in the Timing is difficult. Attempts to capture a risk reversal through
histograms, the transformation in consensus opinion over the owning straddles, for example, face being early and chopped
next 12-to-24 months could be bruising. up on time decay. Tactical traders should be cautious about the
potential for the vol story to be gradual in its evolution. However,
The potential underestimation of volatility risk looks to be most whether vol increases quickly or slowly, index investors and
severe in petroleum markets. Implied vols in truly risky oil other stewards of patient capital are being offered excellent
markets routinely surpass 50% on an annualized basis: the opportunities to initiate or extend exposures at attractive levels
imputed distribution we calculate based on observed prices in in price terms and very low levels in vol terms. This suggests
the recent market suggests a nearly zero percent probability for the risk in implementing a strategic program in the next couple
this outcome. There is no way this is an accurate statement of of months is unusually favorable to the buyer. We view the
the condition of risk in either a high-inventory or low-inventory window as the best entry opportunity since August 2010.
regime. Charitably, it could be said that current petroleum stocks
13
Imputed volatility distributions since 15-Dec-09 likely underestimate risk

Exhibit 26: Prompt NYM WTI crude oil Exhibit 27: Prompt ICE Brent crude oil
Freq. by implied vol (%). Histogram since 7/15/93. Line is recent distribution. Freq. by implied vol (%). Histogram since 7/14/93. Line is recent distribution.
0.10 21-Jan-11 0.10 0.10 0.10
21-Jan-11
0.08 24.06 0.08 0.08 24.15 0.08
0.06 0.06 0.06 0.06
0.04 0.04 0.04 0.04
0.02 0.02 0.02 0.02
0.00 0.00 0.00 0.00

0 10 20 30 40 50 60 70 80 90 100 110 120130 140150 0 10 20 30 40 50 60 70 80 90 100110 120130140150
Source: Exchanges, J.P. Morgan Commodities Research Source: Exchanges, J.P. Morgan Commodities Research
Exhibit 28: Prompt NYM heating oil Exhibit 29: Prompt NYM RBOB gasoline
0.10 0.10 0.10 0.10
21-Jan-11 21-Jan-11
0.08 21.25 0.08 0.08 21.82 0.08
0.06 0.06 0.06 0.06
0.04 0.04 0.04 0.04
0.02 0.02 0.02 0.02
0.00 0.00 0.00 0.00

0 10 20 30 40 50 60 70 80 90 100 110 120130 140150 0 10 20 30 40 50 60 70 80 90 100110 120130140150
Exhibit 30: Prompt ICE gas oil Exhibit 31: Prompt NYM natural gas
0.12 0.12 0.10 0.10
21-Jan-11 21-Jan-11
0.10 22.75 0.10 0.08 38.76 0.08
0.08 0.08
0.06 0.06
0.06 0.06
0.04 0.04
0.04 0.04
0.02 0.02 0.02 0.02
0.00 0.00 0.00 0.00

0 10 20 30 40 50 60 70 80 90 100 110 120130 140150 0 10 20 30 40 50 60 70 80 90 100110 120130140150
Exhibit 32: Prompt CMX copper Exhibit 33: LME 3 Month copper
0.10 0.10 0.14 0.14
21-Jan-11 21-Jan-11
0.12 0.12
0.08 19.64 0.08 27.13
0.10 0.10
0.06 0.06 0.08 0.08
0.04 0.04 0.06 0.06
0.04 0.04
0.02 0.02
0.02 0.02
0.00 0.00 0.00 0.00
0 10 20 30 40 50 60 70 80 90 100 110 120130 140150 0 10 20 30 40 50 60 70 80 90 100110 120130140150
14

Exhibit 34: Prompt LME aluminum Exhibit 35: Prompt LME lead
0.12 0.12 0.12 0.12
21-Jan-11 21-Jan-11
0.10 20.78 0.10 0.10 35.78 0.10
0.08 0.08 0.08 0.08
0.06 0.06 0.06 0.06
0.04 0.04 0.04 0.04
0.02 0.02 0.02 0.02
0.00 0.00 0.00 0.00
0 10 20 30 40 50 60 70 80 90 100 110 120 0 10 20 30 40 50 60 70 80 90 100 110 120
Exhibit 36: Prompt CMX gold Exhibit 37: Prompt CMX silver
0.20 0.20 0.10 21-Jan-11 0.10
21-Jan-11
14.36 0.08 33.77 0.08
0.15 0.15
0.06 0.06
0.10 0.10
0.04 0.04
0.05 0.05 0.02 0.02
0.00 0.00 0.00 0.00
0 10 20 30 40 50 60 70 80 90 100 110 120 0 10 20 30 40 50 60 70 80 90 100 110 120

Exhibit 38: Prompt CBT corn Exhibit 39: Prompt CBT soybean
0.10 0.10 0.12 0.12
21-Jan-11 21-Jan-11
0.08 0.08 0.10 0.10
33.84 26.64
0.08 0.08
0.06 0.06
0.06 0.06
0.04 0.04
0.04 0.04
0.02 0.02 0.02 0.02
0.00 0.00 0.00 0.00
0 10 20 30 40 50 60 70 80 90 100 110 120 0 10 20 30 40 50 60 70 80 90 100 110 120
Exhibit 40: Prompt CBT soybean meal Exhibit 41: Prompt CBT soybean oil
0.12 0.12 0.14 0.14
21-Jan-11 21-Jan-11
0.10 0.10 0.12 0.12
26.1 23.94
0.10 0.10
0.08 0.08
0.08 0.08
0.06 0.06
0.06 0.06
0.04 0.04
0.04 0.04
0.02 0.02 0.02 0.02
0.00 0.00 0.00 0.00
0 10 20 30 40 50 60 70 80 90 100 110 120 0 10 20 30 40 50 60 70 80 90 100 110 120
15

Exhibit 42: Prompt CBT wheat Exhibit 43: Prompt KBT wheat
0.10 0.10 0.10 0.10
21-Jan-11 21-Jan-11
0.08 36.75 0.08 0.08 36.95 0.08
0.06 0.06 0.06 0.06
0.04 0.04 0.04 0.04
0.02 0.02 0.02 0.02
0.00 0.00 0.00 0.00

0 10 20 30 40 50 60 70 80 90 100 110 120 0 10 20 30 40 50 60 70 80 90 100 110 120
Exhibit 44: Prompt NYB-ICE sugar Exhibit 45: Prompt NYB-ICE coffee
0.10 0.10 0.10 0.10
21-Jan-11 21-Jan-11
0.08 56.74 0.08 0.08 37.27 0.08
0.06 0.06 0.06 0.06
0.04 0.04 0.04 0.04
0.02 0.02 0.02 0.02
0.00 0.00 0.00 0.00

0 10 20 30 40 50 60 70 80 90 100 110 120 0 10 20 30 40 50 60 70 80 90 100 110 120
Exhibit 46: Prompt NYB-ICE cotton Exhibit 47: Prompt NYB-ICE cocoa
0.10 0.10 0.14 0.14
21-Jan-11 21-Jan-11
0.12 0.12
0.08 57.84 0.08 39.98
0.10 0.10
0.06 0.06 0.08 0.08
0.04 0.04 0.06 0.06

0.04 0.04
0.02 0.02 0.02 0.02
0.00 0.00 0.00 0.00
0 10 20 30 40 50 60 70 80 90 100 110 120 0 10 20 30 40 50 60 70 80 90 100 110 120
Exhibit 48: Prompt CME lean hog Exhibit 49: Prompt CME live cattle
0.10 0.10 0.20 0.20
21-Jan-11 21-Jan-11
0.08 18.56 0.08 15.7
0.15 0.15
0.06 0.06
0.10 0.10
0.04 0.04
0.05 0.05
0.02 0.02
0.00 0.00 0.00 0.00

0 10 20 30 40 50 60 70 80 90 100 110 120 0 10 20 30 40 50 60 70 80 90 100 110 120
16
What are we most worried about? 3. Policy mistakes: In 1971, President Richard Nixon of the
Thematic risks and catalysts United States imposed food price controls that were
supposed to last 90 days. When they were finally removed
For more than two years, the extraordinary efforts of central in 1973 (after he had been reelected president), US food
banks have created beneficial tides that have lifted all boats. It consumer price inflation exploded to the upside (Exhibit 50).
is not reasonable to expect this support to last indefinitely. At Most economists will agree the attempt to engineer a food
this stage of the cycle, risk managers should be getting more price by fiat in this way was a mistake and ultimately
focused on what could go wrong in their forecasts. Below is our contributed to even higher food prices and price volatility
list of the top 10 things we are worried about. than would have occurred had the market been allowed to
clear real supply and demand, instead of policy-supported
Risk Scorecard demand. Looking around the world, we see a number of
policymakers leaning toward a similar path: deciding
1. Start of US rate hike cycle: The JPM View is that the FOMC
subjectively that a given price is too high, introducing a fiat
will remain on hold throughout all of 2011. As in any
policy to cap the supposedly too high price, and then
forecast of a complicated market factor, there is a meaningful
experiencing a burst of higher prices as the market is forced
chance this view is wrong. Options markets currently imply
to clear the reality of supply and demand in suboptimal
a 16.9% cumulative probability of a rate hike to 50bp by
ways.
December 13, 2011. For the sake of argument, let us assert
that there is a 20 percent chance that inflationary surprises 4. Competitive devaluations and export barriers: The phrase
will force the FOMC, rightly or wrongly, to act sooner than “currency wars” has been used repeatedly in the past few
we expect, say with two 25bp hikes in Fed Funds in 2H2011. months. The term has probably been overblown. However,
These hikes would still leave the target rate below 1 percent. should export barriers be erected and competitive
By how much would credit channels amplify these increases devaluation policies pursued, history suggests the outcome
by the time they reached the financing costs of the weakest on economic growth could be very bad.
credits? Would even this low level be discovered to be
burdensome, a tight policy, in the current context? If not, 5. A failed state: In recent years, energy markets have tended
what is the threshold rate level for meaningful credit strains to train their geopolitical focus on the probability of military
to begin radiating through commodity producer and conflict involving Israel and Iran. While this risk certainly
consumer balance sheets? merits consideration, we think the risk of deterioration in the
internal workings of a major commodity producing state or
2 "The US West" has a budgetary or commodity deliverability populous consumer is a greater risk. We note that cyber
crisis: California faces a recurrent annual deficit of about attacks on Iranian nuclear facility computers by unknown
$20Bn on a budget of about $100Bn. The US natural gas parties last summer have reportedly significantly set back
balance is only facing surplus supply if Canada is counted Iran's nuclear program, in an example of soft-power
as part of the United States: without Canadian pipeline projection that did not enflame the popular passions that a
imports of about 9 bcf per day, the US gas balance is in a 15% military strike on the same facilities likely would have. More
deficit, even after accounting for all shale production growth. worrisome to us from a commodity supply reliability and
These are two important facts to know because many volatility perspective is the recent assassination of a
producers and consumers in the West do not believe they provincial governor in Pakistan and the revolution in Tunisia
have much F/X risk or credit risk. We are concerned about and the potential for any of a number of large oil producing
the potential for a repeat of a local financial crisis, like the states to undergo unexpected political turbulence. While
one experienced by Orange County, CA in 1994. Especially the events in Pakistan and Tunisia have so far not produced
following the Enbridge oil pipeline disruptions in 3Q2010, contagion effects, these are the kinds of largely unexpected
which reduced oil flow from Canada to the US, gas consumers events that tend to reveal long-simmering tensions and
in the Western basis markets seem to be overestimating the produce three-standard-deviation events in oil prices.
availability and reliability of spot gas supplies this summer
at the prices they have grown accustomed to. If there were 6. Technological disruption: Cyber warfare has not only been
to be a major distressed corporate event in the next 12 directed at military facilities. US and Brazilian power plants
months in the commodity space, we fear it would involve a have reported repeated attempts by hackers to breach their
North American E&P company and/or utility working in the computer systems’ security and take partial control of a
Western United States. generator or even shut one down. In another form of
17
potential disruption, last summer genomics scientists closures. These factors hold the potential to raise the
reported they had successfully created the first self- marginal costs embedded in the long-dated oil curve above
replicating, synthetic bacteria cell. The press focused on where we presently mark them, which would further open up
the supposed Frankenstein dimension of creating life. Lost potential oil price volatility on the longer-dated horizons.
in this portrait was the question of why the scientists did
it: their objective is to engineer garbage-eating, methane- 10. Riots over availability of food: Concerns about food price
eating bacteria that could be placed in confined waste riots are rising. While isolated incidents of riots have
receptacles and produce baseload power while also reducing occurred in Algeria and Mozambique, larger disturbances
landfill deposits. The coal, gas, or oil producer who ignores have generally not manifested. It seems to us that one
disruptive experiments like these is likely underestimating unexpected reason why is that many of the focal countries
risk on the margin. for food price inflation in 2008 have subsequently been so
beset by natural disasters (Haiti, Pakistan, Bangladesh)
7. Infrastructure failure: In September, a natural gas pipeline that factors other than prices have so far been more pressing.
explosion in San Bruno, CA destroyed 30 homes and killed This could change if wheat prices move substantially
8 people, refocusing attention on the agedness-of- higher, as we expect them to do this summer.
infrastructure theme. The previous year, Venezuela's Guri
power complex, the third largest hydroelectric dam in the
Exhibit 50: US food CPI-Urban
world, nearly reached catastrophically low levels of water Percentage change Y/Y, SA
flow through its turbines, triggering a country-wide power
crisis, on a combination of a severe drought, 25
US food CPI surges to
underinvestment in alternative capacity, and poor strategic 20%y/y within two years
20
planning. Not so long before that, the Minneapolis bridge
failure had spotlighted previously under-recognized risks 15 15-Aug-71
in US transportation systems. We are concerned that the President Nixon announces food
potential for both commonplace problems (pipeline breaks) 10 price and wage controls
and more rare events (geomagnetic storms disrupting power
grids, as happened in Quebec in 1989) are being ignored. 5
8. Leverage: Consensus is aware of the serious risks in the 0

debt and deleveraging still to be resolved in European 1970 1970 1971 1971 1972 1972 1973 1973 1974 1974 1975 1975
sovereign balance sheets, US state and municipal budgets,
Source: BLS, J.P. Morgan Commodities Research
and Chinese property markets. Any of these factors could
derail our views. However, it is the long-run US entitlement Exhibit 51: Timeline of release dates for the annual Old Age and
math that most continues to worry us, especially the Survivors Disability Insurance trustee report
probability that the Social Security trust fund debate
reemerges ahead of the 2012 US presidential campaign.
This debate holds the potential to cast serious doubt about
the long-run fiscal health of the entitlement programs and
even the federal budget itself, as acknowledged in a Financial
Times op ed three days ago by Peter Orszag, a health
economics expert who resigned last year as President
Obama's handpicked director of the Office of Management
and Budget (OMB). Last summer's annual trustee reports
for the Old Age and Survivors Disability Insurance (OASDI)
funds, which include the official projections for the long-
run financing of the Social Security program, were submitted
later in the year than any of their predecessors in the 70-year
history of the program (Exhibit 51).
9. Rising debt lifts cost curves: Spain has recently rescinded Source: OASDI, J.P. Morgan Commodities Research
intended subsidies to its solar power sector, while US solar
companies have recently announced layoffs and plant
18
Exhibit 52: Current geometry of the world rate cycle
Latest Change Trough Rate Real GDP

Name of Rate Move Date Level Date Target Rate 2010E (US$bn) 2011F YoY
TURKEY 1-WEEK REPO RATE љ (0.25) 20-Jan-11 6.25 CURRENT 6.25 733 4.5%
POLAND 7-DAY INTERVENTION RATE ј 0.25 20-Jan-11 3.50 25-Jun-09 3.75 570 4.0%
BRAZIL SELEC OVERNIGHT RATE ј 0.50 19-Jan-11 8.75 22-Jul-09 11.25 2,155 4.5%
SOUTH KOREA BASE RATE ј 0.25 13-Jan-11 2.00 12-Feb-09 2.75 1,030 4.2%
THAILAND 1-DAY REPO RATE ј 0.25 12-Jan-11 1.15 24-Dec-09 2.25 313 5.0%
PERU REFERENCE RATE ј 0.25 6-Jan-11 1.25 31-Aug-09 3.25 152 6.5%
TAIWAN OFFICIAL DISCOUNT RATE ј 0.13 30-Dec-10 1.25 18-Feb-09 1.63 443 5.0%
CHINA 1-YEAR WORKING CAPITAL ј 0.25 26-Dec-10 5.31 22-Dec-08 5.81 5,739 9.1%
RUSSIA 1-WEEK DEPOSIT RATE ј 0.25 24-Dec-10 2.75 31-May-10 3.00 1,507 4.4%
SWEDEN REPO RATE ј 0.25 22-Dec-10 0.25 8-Jul-09 1.25 438 4.3%
HUNGARY 2-WEEK DEPOSIT RATE ј 0.25 20-Dec-10 5.25 26-Apr-10 5.75 166 2.8%
CHILE DISCOUNT RATE ј 0.25 16-Dec-10 0.50 9-Jul-09 3.25 197 6.0%
SOUTH AFRICA REPO RATE љ (0.50) 18-Nov-10 5.50 CURRENT 5.50 358 3.3%
INDIA REPO RATE ј 0.25 2-Nov-10 4.75 21-Apr-09 6.25 1,746 8.8%
AUSTRALIA CASH RATE ј 0.25 2-Nov-10 3.00 8-Apr-09 4.75 1,204 3.3%
ISRAEL BASE RATE ј 0.25 27-Sep-10 0.50 26-Mar-09 2.00 201 4.5%
CANADA OVERNIGHT FUNDING RATE ј 0.25 8-Sep-10 0.25 21-Apr-09 1.00 1,588 2.0%
NEW ZEALAND CASH RATE ј 0.25 29-Jul-10 2.50 30-Apr-09 3.00 104 2.0%
MALAYSIA OVERNIGHT POLICY RATE ј 0.25 8-Jul-10 2.00 24-Feb-09 2.75 240 4.2%
CZECH REPUBLIC 2-WEEK REPO RATE љ (0.25) 6-May-10 0.75 CURRENT 0.75 247 3.0%
NORWAY DEPOSIT RATE ј 0.25 5-May-10 1.25 16-Jun-09 2.00 432 3.1%
ROMANIA BASE RATE љ (0.25) 4-May-10 6.25 CURRENT 6.25 168 1.5%
COLOMBIA REPO RATE љ (0.50) 30-Apr-10 3.00 CURRENT 3.00 277 4.5%
INDONESIA BI RATE љ (0.25) 5-Aug-09 6.50 CURRENT 6.50 661 5.4%
MEXICO REPO RATE љ (0.25) 17-Jul-09 4.50 CURRENT 4.50 1,048 4.5%
PHILIPPINES REVERSE REPO RATE љ (0.25) 9-Jul-09 4.00 CURRENT 4.00 178 4.5%
EUROPEAN UNION ECB MAIN REFI RATE љ (0.25) 7-May-09 1.00 CURRENT 1.00 12,280 1.7%
SWITZERLAND 3-MONTH SWISS LIBOR љ (0.25) 12-Mar-09 0.25 CURRENT 0.25 527 2.0%
UNITED KINGDOM REPO RATE љ (0.50) 5-Mar-09 0.50 CURRENT 0.50 2,269 2.5%
JAPAN OVERNIGHT CALL RATE љ (0.20) 19-Dec-08 0.10 CURRENT 0.10 5,531 1.5%
UNITED STATES FEDERAL FUNDS RATE љ (0.75) 16-Dec-08 0.25 CURRENT 0.25 14,624 3.3%
REAL GDP WEIGHTED AVERAGES 2.24 3.7%
Source: Central Banks, Bloomberg, J.P. Morgan Economic and Commodities Research. Data as of 20-Jan-2011.
• Seventeen of 31 major economies have raised benchmark • The JPM View does not presently incorporate a US rate hike
interest rates since the so-called “Flash Crash” in May 2010. in 2011. Options markets agree that the balance of risk favors
Eleven of these economies have raised rates since Dec 16, no action, assigning less than a 17% chance of an increase to
2010--the second anniversary of ZIRP (Exhibit 52). 0.5% by Dec 13, 2011. However, this view may prove wrong.
• Rates in thirteen of the 14 countries that have not raised • An earlier-than-expected US rate hike would not necessarily
rates since the Flash Crash are still at their cyclical trough, require any significant shift in our commodity forecasts but
emphasizing the world's two-track path of growth and it would force us to reexamine all of the assumptions in our
recovery. EM continues to significantly outperform DM. forecasts. We do not feel that we have good visibility on the
level at which Fed Funds would begin to transmit significant
• The rate-hiking countries include many of the world's key stresses to commodity producers and consumers with weak
commodity consumers and metals producers. The notable credit.
exception is the US, which last changed the Fed Funds target
rate with a 75bp cut in Dec 2008. The inevitable start of a US
rate hike cycle will be an important event for all global markets.
19
Scorecard of specific factors that would 7. Copper: Our modeling assumes relatively inflexible
force changes in our forecasts substitution demand from the Chinese power transmission
sector and a capability to tolerate prices above $10,000/mt
As the current environment moves further and further away from for a sustained period of time. Evidence of violation of
the trough in the economic cycle, risks associated with the either of these beliefs would not only force a rethink of our
downside and upside cases become more symmetric. Given this copper forecast, but would also turn us more bearish base
reality, we believe it is useful and important to identify specific metals more broadly in 2011 and maybe even in 2012.
factors that would cause us to change our views:
8. Corn: Realization of Argentine production above 24 mmt
1. Growth: Global real GDP growth below 3.0% in 2011 would (our current forecast is 20 mmt) would change our
raise concern; growth below 2.2% would change our expectations about the US benefiting from interrupted
fundamental balances materially. trade flows. US production is tied to planted area and yield:
we believe corn plantings will struggle to exceed 92 mil
2 Inflation: Any US interest rate hike in 2011 would change
acres which, even with trend yield, would leave stocks
our assessment of the risk of a meaningful credit event
unchanged from the tight level seen this year. Plantings are
occurring at the corporate or sovereign level this year.
reported March 31. US acreage above 93 mil acres would
3. Natural Gas: The natural gas rig count (now 906) would be taken as bearish and signal our assessment of farmer
have to fall below 850 in order to shift our balances to a economics has been incorrect. US production will also
bullish tone from the supply side alone. hinge on yields (weather) and will become clearer during
2H2011. A US yield above 165 bu/acre (probability: less
4. Oil: Watch Saudi Arabia, Kuwait, and UAE for any sign that than 20%) would violate our current expectations.
OPEC is abandoning the implied use of inventory levels as
a barometer of market tightness. For Non-OPEC supply 9. Soybeans: Argentine production above 52 mmt would violate
growth, we are assuming ongoing high decline rates will our assumption of 45 mmt and ease (though not eliminate)
challenge producers to increase supply by the 4 million the marginal call on US exports and inventories. If spot
b/d needed to meet our demand forecasts. If non-OPEC soybean prices continue to outpace corn, larger-than-
supply, including natural gas liquids (NGLs), starts to grow expected US soy plantings (reported March 31) could push
as fast as demand, sentiment will question the assumptions prices markedly lower. US plantings above 78 mil acres
of the peak oil thesis and elevate the probability assigned would be considered bearish; our estimate is 76.5. US
to a 1980s-style output expansion. A price bullish supply soybean yields are also a risk: a yield above 45.5 bu/acre
risk comes from US shale oil and liquids, where we were would be a record high. We assign only a 5% probability to
expecting US output to increase by around 140 kbpd in this bearish outcome. Our central forecast is 44 bu/acre.
4Q2010. Though output is expanding rapidly in the Bakken
10. Wheat: 2011 production is vulnerable across the US, FSU,
and elsewhere, actual output growth came in closer to 122
and North Africa. A US HRW crop above 1 bil bu (our
kbpd, with December only +70 kbpd against the year-ago
forecast: 830 mil bu) would violate our current weather-
level.
based modeling and improve global supplies. We currently
5. LNG: The opening of presently off-limits acreage on the expect Russian production to remain low (following last
Outer Continental Shelf (OCS) for purposes of drilling year’s sharp decline) and for the government to extend its
could significantly crush our estimated cost curve for export ban for the entire year. That ban is presently scheduled
North American gas, in turn changing the timing, to expire mid-year. Russian exports in 2011 above 3 mmt
magnitude, and pricing of our US LNG export expectations. would significantly change our views about trade flows, US
demand, and prices. India is on track to produce a large crop
6. Power: While we expect a return to more normal summer (on top of comfortable stocks). We consider it unlikely (less
heat and reduced loads relative to year-ago levels, part of than 20% chance) that the Indian government allows
this anticipated reduction may be offset by a smaller real meaningful exports this year.
increase from economic growth. If 2010 weakness in the
primary metals and automotive segments persists, then US 11. Gold: Our sense is that holders of gold are targeting $1,600/
industrial demand growth will likely be weaker than we oz to $1,800/oz as an average exit price over the next 2 years,
anticipate, clipping our power demand forecast. with some bulls looking for spot touches above $2,000/oz.
A rapid move to $1,600/oz or above would likely signal that
we are underestimating inflationary pressures and/or debt
20
and currency risk. A move below $1,200/oz would be a value in a combination of index swaps and longer-dated
stronger correction than we anticipate and would force us options. The current correction appears to be an excellent
to reevaluate our EM growth assumptions. time to initiate strategic positions. In our view, the next two
months will provide the best entry point since August 2010.
12. Livestock: Pork product prices hold significant weights in
measures of consumer price inflation around the world. In • Rising US interest rates will boost index swap total returns
a divergence from the correction that we expect in the near through collateral yield. One consequence of the coming
term in other income-sensitive markets, lean hog prices rise in US interest rates is a boost to the collateral yield in fully
appear poised for breakout. Should prices against year-ago collateralized OTC commodity investments. Though it will
levels exceed 10% by July 2011, this could suggest that likely be a while before the historical average of about 4.4%
inflationary pressures have become more untethered than per annum is achieved, any increase in yield will be an
our economists or the FOMC believe to be the case, which improvement on the 0.25% per annum of the past two years
would force us to reevaluate our opinions on optimal (Exhibit 53).
policies as well as the risk of policy mistakes. We believe
• The current La Niña is powerful and unpredictable. Last
pork is the key signal to watch for incremental guidance on
month’s floods in Queensland, Australia are the latest
food price inflation risks.
manifestation of the most powerful La Niña weather event in
at least 35 years. While media attention has focused primarily
Implications for valuation on disruptions in the flow of the bulk commodities that feed
and risk into steelmaking, the supply chains in iron ore and coking
coal are relatively long and production disruptions are
Our analysis leads us to several core conclusions on valuation
beginning to resolve. The more subtle story centers on
and risk:
wheat, where the Western Australia crop (an important
• Smooth price momentum is not likely to last. Higher volatility source of exports as a large portion of wheat shipping
will make the path of commodity returns more jumpy. This will infrastructure is located on the west coast) already suffered
not feel good to price momentum-driven strategies as pronounced drought stresses for most of the year and may
opposed to more vol-oriented models. Palladium, for example, be as much as 50% smaller than year-ago levels. In the east,
has trended well since August, but is now 43% above its the sudden onset of rains and temperature stress very late
long-run support. Cotton and sugar are 51% and 44% above in the season resulted in severe quality losses even as
their respective 200-day moving averages. Options-based volumes remained close to expectations. Altogether, we
overlays may be attractive for index swap holders, especially estimate as much as 10 million metric tonnes (mmt) of an
given the low price of vol in energy. approximately 22 mmt harvest will not meet milling grade
(versus only several mmt normally), further exacerbating the
• Rising vol and tightening curve structure increase global shortfall in high protein wheat. Total exports of milling
commodity total return prospects and create significant and feed wheat are now unlikely to exceed 12-to-13 mmt, with
risks for other asset returns through price inflation the balance of feed wheat supplies remaining in the country
channels, likely shifting momentum in cross-asset class for use over the next one-to-two seasons. This large reduction
correlations from their presently high levels to a sustained, in Australia’s exportable wheat suitable for breadmaking is
multi-year deterioration. But timing the pick-up in volatility likely to lift Asian and world wheat and food prices; however,
is difficult and excessive tactical positioning could we are first expecting a sideways movement through March,
unnecessarily increase trading costs. This suggests strategic
Exhibit 53: Two-year returns from 31-Dec-08 through 31-Dec-10
Percent
Column A Column B Column C A B-A C-B
Spot Price Excess Return Total Return Price Roll Collateral
Index Index Index Appreciation Yield Yield
S&P GSCI Gold 60.7% 57.7% 58.2% 60.7% -3.1% 0.5%
S&P GSCI Brent Crude Oil 93.9% 43.6% 44.0% 93.9% -50.3% 0.4%
JPMCCI 65.2% 36.7% 37.1% 65.2% -28.5% 0.4%
Source: S&P, J.P. Morgan Commodities Research.
21
before the start of an advance that will probably take CME

wheat above $10/bu from about $8/bu today.
• Food price inflation: These cross-sector developments are
coming at a time when many commodity prices have already
surpassed the last cycle’s highs. The pass-through of
agriculture prices will be most felt throughout the EM, where
food makes up a larger share of the commodity basket and
resource utilization is tight. As highlighted by our economists,
base effects alone from the already sharp rise in agriculture
prices hold the potential to add as much as a full percentage-
point to headline inflation rates for the EM as a whole.
Consequently, as the impact of the Australian floods ripple
out, central banks in EM Asia and parts of Latin America will
likely come under even more pressure to contain prices,
increasing the odds of a commodity-related policy mistake.
One aspect that we did not anticipate: some of the countries
most threatened by food prices in 2008 have subsequently
experienced horrific natural disasters that have destroyed
infrastructure, upended lives, and reoriented perspectives.
The impoverished in Haiti, Pakistan, Bangladesh, Venezuela,
China, India, the Philippines, and other nations are not
rioting because they are facing even greater travails as a
result of earthquakes, floods, fires, and droughts. These
tragedies suggest that, as challenging as higher food prices
will be, there are now other, perhaps more pressing obstacles
to overcome, including threats to social stability.
22
Hedging and trading recommendations

Producers Consumers Index Investors Tactical Traders
Spot prices have reached our near-term forecasts Rising middle distillate cracks have surprised
Product demand should continue to tighten the The recent and (we believe) still-to-come breakouts
on both an average price and settlement basis. consensus, as the reality of strong diesel demand
global petroleum balance in 2011, favoring higher in crude are a strong additive positive for most
Crude spreads are extended. Producers should in EMEA and Asia dominates weak consumer
margins. The middle part of the barrel will likely commodity indices, given oil's typically hefty weight
Petroleum increase hedge ratios, as winter weather this week
passes the seasonal hump in the Northern
continue to outperform other fractions. Crude price in those products. Given current cheapness in
activity in the United States. Remain long Brent
crude oil but lighten up on exposure in
risk is more symmetric than a month ago. Buy near- volatility, options-based overlays may be attractive
Hemisphere and refinery maintenance season acknowledgement of larger downside risks in the
term softness. at this point.
approaches. near term.
We believe long-dated prices have significant We believe natural gas consumers should prepare Gas was the worst performer in the S&P GSCI last
Aggressive producer hedging has driven implied
potential (45% probability) to move far higher than to be nimble over the next 3-to-6 months in layering year, losing more than 40% in total returns. We are
vols this week below 40% at every point on the term
Natural Gas and consensus presently believes. At the same time,
we agree that a price collapse scenario (30%) is
in long-dated hedges. Spot prices in the future will
likely not average close to the prices currently
friendly to a contrarian but modest overweight this
year relative to the benchmark weight. But bearish
vol curve. This unusual result is a contrarian
Power also elevated due to the relentless development of embedded in the NG forward curve, especially in factors are sticky and timing is risky. A higher
indicator, suggesting elevated potential for a bullish
surprise in vol and flat price despite the heavy near-
low-cost shales. The binary nature of risk suggests the 2012-2017 timeframe. Straddles and call allocation to crude is a better choice for most
term balance.
high-cost producers should be layering in hedges. spreads thus look attractive. passive index investors.
We believe metals buyers should also be increasing

Interest rates have already begun to rise in the Manufacturing surveys around the world have
forward hedge ratios today. Signs of real demand
largest metals-consuming and metals-producing generally beaten consensus expectations for the
improvement continue to suggest that a double-dip
countries. It is inevitable that the OECD economies Overweight copper and lead relative to zinc and past five months. Against a backdrop of trimmed
recession will be avoided and the expansion will
will eventually transition from zero interest rate nickel. Curve structure in copper is a strong production flows, industrial metal prices have
Industrial Metals policies and follow. However, timing is uncertain
extend, then the lagged effects of ZIRP will
increasingly lift spot prices, while rising inflation
confirmation that this metal will likely outperform posted strong advances. LME 3-month copper set
and rates are rising from a very low base. Cash-and- most other commodities in 2011. a new all-time high on Jan. 12. In 2011, the global
expectations and actual rate hikes will lift forward
carry inventory management strategies will likely be refined copper balance is likely to post a 600kmt
prices. Consumers should review the lessons of
increasingly profitable and popular. deficit. Remain long.
2001 and 1994.
Commodity price indices, such as the CRB Wheat is trading sideways but we think protein In corn, production, global trade, and regulatory
Renewable fuel mandates claim more US corn than
Foodstuffs Index, have surpassed 2008 peaks to scarcity will prompt an upside breakout by March risks imply significant upside for prices in 2011
is likely to be available. Meanwhile, corn and wheat
Grains and make new nominal highs. We see significant
potential for further price gains. As a result, we
harvests have been devastated by severe weather
2011. A basket of wheat, corn, and soybeans will
provide a good hedge against food price inflation,
while the US corn yield has significantly
disappointed. In wheat, potential for serious supply
around the world. Corn is also likely to follow the
Oilseeds recommend that producers not be too aggressive in
sugar breakout via ethanol arbitrage channels.
though we would also supplement with livestock constraints amid production and export risks
preselling harvests. Instead, we see elevated value exposure, as pork tends to have a reasonably high suggests prices will remain vulnerable to spikes
Increase hedge ratios in corn, wheat, and veg oils.
in holding on-farm stocks. weight in many consumer price indices. through mid-2011.
Prompt cotton and sugar continue to trade at On Jan 14, we moved our long-standing,
elevated levels, driven by exceptional scarcity of unqualified recommendation to own softs to a more After reaching a new nominal high in late
Sugar and cotton prices have moved far above
physical inventory where it is needed most. Both of cautious outlook. Though we maintained our December, SBH1 has retraced by approximately
most producers' expectations. There is significant
these prices could move much higher on a tactical recommendation to own sugar (with its back- 11%. With low inventory levels and a global
Softs business risk that the higher prices, higher volatility,
and backwardated structures will alienate
combination of supply losses and macro inflationary wardated curve and good potential for a spot price balance that we expect will continue to be tight, we
pressures. Consumers short of inventory will likely above 40 c/lb), we introduced a stop. We are still see further upside to 40c/lb, albeit on high
customers. Do not overextend on commitments.
have difficulty securing physical supply. We temporarily neutral. Coffee may hold up better than volatility.
recommend consumers hedge immediately. sugar or cotton.
Trading Recommendations
Change since
Date of recommendation Cost* Last closing price recommendation
Long May-11 ICE Sugar CMOS, 8-Nov-2010 29.29 29.98 2.4%
Set stop at 27.3 c/lb 14-Jan-2011
Long May-11 CBT Corn CMOS, 8-Nov-2010 608.50 667.00 9.6%
Long Jul-11 LME Copper 14-Jan-2011 9585.00 9410.00 -1.8%

Set stop at $8915/mt
Short Jul-11 LME Zinc 14-Jan-2011 2481.00 2330.00 6.5%
Long Feb-11 ICE Gasoil 11-Jan-2011 800.50 814.00 1.7%

Long Jul-11 ICE Brent Crude CMOS, 8-Nov-2010 89.93 97.90 8.9%
Long S&P GSCI Total Return CMOS, 30-Sep-2010 4303.80 4959.90 15.2%
Long S&P GSCI Enhanced TR CMOS, 30-Sep-2010 621.52 721.16 16.0%
Long JPM Commodity Curve TR CMOS, 30-Sep-2010 443.75 510.11 15.0%
*Unit cost is the official close on the day before the date of publication.
Source: Exchanges, J.P. Morgan Commodities Research
23
Price Forecasts
US$, quarterly averages
Current 2010 2011

Price 1Q 2Q 3Q 4Q 1QE 2QF 3QF 4QF
Energy
WTI Crude 89.11 78.88 78.05 76.21 85.24 93.00 93.00 88.00 98.00
forward price 89.11 91.91 94.21 95.16
Brent Crude 97.60 77.37 79.41 76.96 87.45 95.00 95.00 90.00 100.00
forward price 97.60 97.69 97.94 98.07
Natural Gas 4.74 4.99 4.35 4.23 3.98 4.25 3.95 4.40 4.75
forward price 4.74 4.75 4.85 5.05
Precious Metals
Gold 1341 1110 1197 1227 1370 1425 1475 1450 1500
forward price 1341 1344 1346 1349
Silver 27.42 16.93 18.36 18.98 26.52 32.00 32.00 29.00 29.00
forward price 27.42 27.45 27.47 27.49
Platinum 1819 1564 1634 1556 1701 1800 1850 1900 1950
forward price 1819 1822 1825 1827
Palladium 817 442 496 496 679 800 825 850 875
forward price 816 818 818 819
Base Metals
Aluminum 2392 2173 2097 2094 2344 2450 2400 2400 2450
forward price 2407 2425 2443 2457
Copper 9372 7253 7017 7265 8631 9650 9450 9750 10000
forward price 9458 9432 9394 9336
Nickel 25760 20109 22377 21238 23577 25000 23000 22000 22000
forward price 26159 26147 26030 25807
Zinc 2319 2287 2025 2020 2317 2450 2200 2250 2300
forward price 2310 2323 2334 2338
Lead 2446 2216 1950 2044 2391 2575 2325 2375 2425
forward price 2438 2420 2402 2380
Tin 27019 17218 17817 20551 25912 28000 27500 30000 35000
forward price 27795 27709 27578 27425
Agriculture
Corn 6.57 3.70 3.55 4.22 5.62 6.00 5.90 5.70 5.60
forward price 6.57 6.67 6.47 5.87
CME Wheat 8.25 4.96 4.67 6.53 7.07 7.50 7.35 6.75 6.60
forward price 8.25 8.50 8.74 8.96
Soybeans 14.12 9.55 9.57 10.35 12.45 12.50 12.15 11.90 11.75
forward price 14.12 14.23 14.04 13.48
Sugar 32.33 24.39 15.53 20.17 29.01 31.00 28.00 25.00 20.00
forward price 32.33 29.98 27.39 25.62
Data as of close on January 21, 2011. Note: Forward prices are the average of the contracts in the quarter.
Source: Bloomberg, Exchanges, J.P. Morgan Commodities Research
24
Lawrence
Colin Eagles(212)
P. Fenton (1-212) 834-8107
834-5648 Scott Speaker (1-212) 834-3878 Commodity Markets Outlook and Strategy
lawrence.e.eagles@jpmorgan.com
colin.p.fenton@jpmorgan.com scott.c.speaker@jpmorgan.com January 23, 2011
Peter K Nance (1-713) 236-3337
peter.k.nance@jpmorgan.com
Outlook
Energy Outlook
30-Day History Recent Trend 1-to-3 Month View 6-to-12 Month View
Flat: Near-term supply disruptions in the Bullish: While global oil demand growth is
Crude Cautiously Bullish: EM demand strength due to moderate to around 1.5 mbpd in 2011,
Norwegian sector of the North Sea, as well
continues to drive oil, accentuated by China's signs of accelerating growth in 2012 create
as the ongoing outage of the TAPS pipeline
policy moves that have led to a surge in diesel upside risk to our price forecast. Upside
in Alaska, are supportive of crude prices, but
demand. Stronger demand in the US and core clearly remains to our EM growth
9 2 .03
are really background noise to a market
9 1 .03
Europe has started to emerge. Tightening expectations (China growth of 400 kbpd in
9 0.03
driven higher by strong winter demand and
inventories imply a tighter balance before 2011 is less than half of 2010 growth), while
reluctance by OPEC to add more oil. With
8 9 .03
spring. While we see a significant supply

8 8 .03
8 7 .03
crude stocks outside of the pipeline-con- supply-side growth may disappoint from a
1 3 5 7 9 1 1 1 3 1 5 1 7 1 9 2 1 2 3 2 5
deficit, the risks of OPEC additions increase biofuel and OPEC NGL perspective.
strained regions in the US and Canada at low
at $100/bbl. We have therefore been recom- Geopolitical issues add further upside risk to
levels and winter far from over, the trend
mending reducing long exposure to Brent. tightening fundamentals.
seems set to continue.
Brent-WTI Up: Brent has seen its premium to WTI and

Bullish spikes: The structural shift of Brent
Gulf Coast crudes increase sharply. The Use seasonal dips as buying pricing to a premium to WTI occurred last
supply-side disruption in Norway pushed opportunities: While Brent tightness remains summer, and will likely remain in place.
the 2nd to 3rd month Brent spread into and WTI is facing Padd II refinery maintenance,
9 7 .7 4
While price will find a way to clear the
backwardation of 15¢/bbl, the highest level it seems prudent to sell the spread here and
9 5 .7 4
Midwest surplus, the market will remain
since May 2008. The prompt Brent-WTI look to reinstate on a dip. Key risks continue
9 3 .7 4
vulnerable to capacity issues, which create

spread has also moved to its highest level to be the Keystone pipeline and the timing of the likelihood of spikes in Brent-WTI,
9 1 .7 4
since February 2009 due to logistical factors Canadian flows.

1 3 5 7 9 1 1 1 3 1 5 1 7 1 9 2 1 2 3 2 5
particularly from February through April.

in the US Midwest crude market.
Up: Asian jet cracks are near two-year highs

and gasoline cracks have weakened as Bearish: Product markets appear to be well
Products Neutral: Ongoing overcapacity in the refining
supplied, with resulting pressure on cracks and
(321 Crack Spread) refiners run flat out. Refining margins in
refining margins. Weather-related demand sector should cap refining margins. While
Northwest Europe have remained relatively
pressure and inventory build ahead of planned robust growth prospects suggest that markets
steady, albeit on a modest downward trend.
should stay relatively firm, there remains a
1 6 .3 8
In the US, apparent product strength is maintenance could delay any potential drop in
risk that refiners ramp up capacity too quickly
1 4 .3 8
runs. We expect distillate demand to remain

1 2 .3 8
exaggerated by weakness in WTI, and Gulf
strong and gasoil cracks to stay wide to support and over-supply the market.
1 0.3 8
Coast refining margins are weak enough to
weakness in the rest of the refined barrel.
prompt some run cuts.
1 3 5 7 9 1 1 1 3 1 5 1 7 1 9 2 1 2 3 2 5
Neutral: This period will likely be strongly Bearish: The lack of a material E&P response
Natural Gas Neutral: The recent rally on the front has to the currently low price environment and
dictated by weather and storage trajectory, a
5.5 6 been mainly due to bouts of below-normal function of the level of coal-fired generation our expectation for heavy spring inventories
5.06
temperatures. Producer selling continues in displacement and new pipeline infrastructure. have even the weak 2011 pricing appearing
4.5 6
4.06
the intermediate and deferred tenors, making Periodic weather-driven spikes will likely dear. Given our assumptions regarding the
3.5 6 these price spikes weak and short-lived (but continue to be met with more selling when less-than-comfortable producer hedge levels,
3.06
likely ongoing). end-of-season storage levels emerge. Drilling we expect supportive moves to be met with
producer selling.
1 3 5 7 9 11 13 15 17 19 21 23 25
trajectory is the key risk factor.
Moderately Bearish: January 2011 will likely

PJM West On-Pk Power Neutral: Early December PJM West was Neutral: Long-term PJM West prices are
be higher on cold and negative AO, resulting in
higher, peaked in mid-December, and stayed governed by the size of the supply surplus and
below-normal temps from PJM into SERC.
relatively strong until late in the month. We regional macro-growth. The current forward
ERCOT temps may be colder than expected.
$
$$1
1 442
10...0 00
$
$ 113
3 9
6
7
8
4 ...0
0
0
$ 1
1 3
3 5 0
00
view January as broadly range-bound, but curve is a reasonable outlook for prices absent
$ 2
3
1 0
$$1
$
1
112
2
235
9
60....0
7
8
4
00
00
0
$
$$1
112
123
2 2
90...0
1 00
0
For February, prices will likely trend sideways,

$ 1
$ 1 1
1 1 7
8
4 ...0
1 3
5
6 00
00
0
$
$$ 2
$11
1
1106
09
110...0
07
08 0
00
0
higher overall: buyer basis sub-$3.70/MMBtu

$ 04
05 .00
above-trend (+2.5%) growth. This view could

$$1
$$ 903
19
102
9 ...0
01
00. 0
00
0
$ 9 7
8
4
5
6
$$9
$ 8 20....0
991
3
9
00
00
0
awaiting better clarity for end of season inventory.

$ 8 7
8 .00
$ 8
$$8 5
6
881
3
4
20..0 .00
.00
0
$
$ 7 7
8
9
5 ...00 0
Henry Hub gas, neutral mid-$4.20 range HH,

$ 7
7 4
6 000
be at downside risk from the strengthening

$
$$772
3
10. .0 0
$ 6
$ 6 6
7 ..0
8
9
5 000
$ 6
$$5 2
3
4
10....0
669 0
000
0
A strong La Niña continues with NW Hydro

$ 7
8
$ 5
$ 5 4
5 ..0
6
2
3 000
$
$$4
5
457
1
80....0
0 0
and seller basis $4.50 HH. January demand

$ 9
5
6 000
winter La Niña and is subject to upside risk from

$ 4
$$3 3
4
10....0
449
2 0
000
0
$
$ 3 8
5
6
7
$ 3
$ 3 ...0
3 2
4
1
0
000
0
remains strong with the system well supplied. surplus higher and continuing above-normal
growth above expectations.
1 2 34 5 6 7 89 1101 2
1 3
114 5
1 6
1 7
1 8
1 2
92 01
2 2 3
2 4
2252
6 7
2 8
2 93
3 3
0
1 2
3 3
temps.
PJM West Imp Ht Rate Neutral: PJM West IHRs for December Neutral: In PJM West, winter weather has Neutral: PJM West IHRs will likely be higher
were very volatile, but up 20%y/y on
been stronger than initial expectations. Industrial than expected, with lower gas prices.
average. IHRs are likely to be volatile in demand continues to positively impact IHRs; Congestion-driven moves are possible, but
January due to expected cold shots down
1 3 ,6 8 5
1 1 ,6 8 5
the issue is whether growth is sustainable. are unlikely to be sustained and will possibly
9 ,6 8 5 the East Coast, with HDDs remaining slightly FMA IHRs are expected higher than 2009, but be affected by additional retirement
7 ,6 8 5
above average, but below 2009 levels.
are at risk due to La Niña uncertainty. JF announcements. Solid 2010 summer results
Demand is moderating into SERC on below-
5 ,6 8 5
3 ,6 8 5
ISONE IHRs are expected to be volatile, with may not be repeated in 2011 since we expect
1 4 7 1 0 1 3 1 6 1 9 2 2 2 5 2 8 3 1
normal temps, mid-to-late month western
SERC IHRs stronger on above-normal cold. a return to more normal CDDs.
demand weak on above-normal temps.
25
Michael
Colin P. Jansen (44-20)
Fenton (212) 7325-5882
834-5648 Commodity Markets Outlook and Strategy
michael.j.jansen@jpmorgan.com
Base Metals Outlook
Flat: Accommodative monetary policy Neutral: With the market on track to post its Neutral/Bearish: Record inventory levels
Aluminum has underpinned metals prices across fifth consecutive year in surplus and stocks- contrast with strong demand. Chinese
the board. Spot prices looked at $2,500/ to-use at comfortable levels, we anticipate power policies remain critical for price setting
mt on January 6 before retreating toward prices will average $2,450/mt in 1Q2011. in the short term, but ought to fade into 2011,
2 4 8 7 .00
2 4 6 7 .00
$2,400/mt. The ratio of US aluminum Fundamentally, the market remains well allowing the market to remain in surplus.
2 4 4 7 .00
2 4 2 7 .00
2 4 07 .00
2 3 8 7 .00 and non-ferrous inventories to shipments supplied, but the impact of inventory will Looking forward, it is unlikely that the
2 3 6 7 .00
1 3 5 7 9 1 1 1 3 1 5 1 7 1 9 2 1 2 3 2 5
has fallen to the lowest level since likely be mitigated by low carrying rates aluminum market starts to materially tighten
1992. and warehouse consolidation. until 2013.
Copper Positive: Low inventory levels and an Bullish: Our forecast is for prices to exceed
Modestly up: Prices edged higher by 2.5% expected, impending global deficit will likely $10,000/mt by year-end 2011. The global
9 6 3 4 .00
over the past four weeks. Signs of a continue to provide price support. Prices market deficit is likely significant enough to
9 5 3 4 .00
continuing emerging markets-led economic will likely remain volatile due to near-term enforce demand rationing. This deficit will
recovery have supported a tightening global risks from the potential spread of the European likely be in the order of 600K or more. The
9 4 3 4 .00
9 3 3 4 .00
9 2 3 4 .00 balance. The wider trend is still higher. sovereign debt crisis and inflationary most acute periods for inventory drawdown
pressures. will probably be during 1H2011.
1 3 5 7 9 1 1 1 3 1 5 1 7 1 9 2 1 2 3 2 5
Nickel Neutral: Nickel will likely move from a Bearish: Given the magnitude of the 2010
Up: This was quite a volatile month, but
deficit to surplus market in 2011 as many of deficit, it will likely take until mid-2011 for the
overall prices increased by 6.7%. Near-
the medium-term headwinds, such as market to reach surplus. However, once
2 6 06 8 .00
2 5 5 6 8 .00
zero interest rate policies in the developed
substitution and additional high-quality the market does move into surplus, we
world have mitigated the cost of carrying
2 5 06 8 .00
supply, remain in place. Potential supply expect it to remain in place for 2-to-3 years.
2 4 5 6 8 .00
2 4 06 8 .00
stock, supporting prices despite comfortable
disruptions are the most bullish factors for We would look to sell rallies in the $25,000/
inventory levels.
2 3 5 6 8 .00
this market over this time horizon. mt to $26,000/mt area.

1 3 5 7 9 1 1 1 3 1 5 1 7 1 9 2 1 2 3 2 5
Lead Flat: Chinese demand for lead in 2010

Neutral: The lead market will likely be in Neutral/Bearish: The approach of a tighter
increased by approximately 10%, while the
surplus for a fourth consecutive year in 2011. market in 2012 will likely be reflected in pricing
fact that production increased by 15% and
However, the market seems to put greater by late 2011. Demand for lead in 2011 is
2682.00
2632.00
import levels were low imply a steady build
2582.00 weight on the view that lead's global balance expected to increase by 6%, led by China's e-
in inventory. Prices moved toward $2,700/
2532.00
moves into deficit in the medium term than bike sector as the operational capacity of e-
2482.00
mt in the middle of the month before
on near-term surplus. bikes is leading to increased battery weight.
retracing to $2,440/mt.
2432.00
1 3 5 7 9 11 13 15 17 19 21 23 25
Zinc Up: Zinc increased by 1.2% over the past Bearish: Zinc will likely post its fourth
Neutral: The zinc market will depend on the
month. The market is in a massive surplus consecutive year of surplus in 2011. Although
timing of scheduled mine closures and new
and inventories are at multi-decade highs. Chinese zinc consumption is expected to
2428.1 5
operations. If the pending closure of Brunswick
Recent price strength is likely due to a longer- increase by 12%, risks remain from weaker
2378.1 5
(2012) and Century (2014) occur before new
term outlook of a pending supply shortfall, demand in the US and other developed
2328.1 5
operations are in place, the market could slide
reflecting a lack of new mine capacity. Lead markets due in large part to ongoing weakness
2278.1 5
into deficit, resulting in higher prices.
1 3 5 7 9 11 1 3 15 17 19 21 23 25
continued to outperform relative to zinc. in construction.
26
Colin P. Jansen
Michael Fenton (212) 834-5648
(44-20) 7325-5882 Commodity Markets Outlook and Strategy
colin.p.fenton@jpmorgan.com
michael.j.jansen@jpmorgan.com January 23, 2011
Precious Metals Outlook
Correction: Volatile price action during the

Gold month. Initial post-QE2 de-risking due to Bullish: Chinese demand and broad market
1 4 2 0.00 sovereign debt initially weighed on gold, Bearish: Gold remains a key beneficiary of volatility will likely continue to support gold.
1 4 00.00
but value hunters provided price support. near-zero interest rate policies as well as We note that the first Chinese-based fund to
1 3 8 0.00
New all-time high on January 3 has been inflationary pressures, especially in emerging invest in gold-backed ETFs launched with
1 3 6 0.00
followed by a correction since the middle of markets. US$483mn this month. We anticipate spot
the month. We expect the correction to last prices will average $1,500/oz in 4Q2011.
1 3 4 0.00
1 3 5 7 9 1 1 1 3 1 5 1 7 1 9 2 1 2 3 2 5
for 4-to-8 weeks.
Bearish: There is a significant lack of

Silver Neutral: Although we are neutral, the risks
liquidity in the silver market relative to gold,
especially in the scrap and official sector. on this horizon are to the upside. Demand
3 1 .4 2
Down: Silver posted its highest close ever from investors, China, and India could
Expect high volatility to persist, though the
in nominal terms on the first trading day of provide additional momentum. If the market
3 0.4 2
volatility story is more advanced in this

2 9 .4 2
2 8 .4 2
2011, before retracing by 11.8% since then. gets tight due to lack of physical stock for
2 7 .4 2
market than others. The current correction
refiners, $35/oz-to-$40/oz is possible, as
may result in a more stable, directional move
2 6 .4 2
refiners increase their bids.

1 3 5 7 9 1 1 1 3 1 5 1 7 1 9 2 1 2 3 2 5
to the downside that lowers vol in the medium
Platinum Neutral: Rising input costs combined with Bullish: Platinum continues to be driven
Up: Platinum prices have increased by a strengthening South African rand will likely by its ability to be both a store of value and
1 8 2 9 .7 0
1 8 09 .7 0
more than 6.0% over the past month, provide price support. Levels of investor a BRIC-leveraged commodity. Supply-side
1 7 8 9 .7 0
reaching a near-term high of $1818.60/oz flows remain a key risk factor. Although the issues remain a key upside risk to prices.
on January 13. Overall investor sentiment underlying demand fundamentals are not as Overall, we see limited downside and
1 7 6 9 .7 0
1 7 4 9 .7 0
is favorable. robust as palladium, the auto catalyst sector expect $2,000/oz to be tested, either late in
1 7 2 9 .7 0
1 7 09 .7 0
1 3 5 7 9 1 1 1 3 1 5 1 7 1 9 2 1 2 3 2 5
overall is hanging in there. 2011 or in 2012.
Palladium Bullish: Risk continues to be skewed to

the upside as palladium participates in macro
Up: Strongly bullish price momentum again
Neutral: Sell-offs create buying opportunities. uncertainty as a store of value and in a
as prices traded a new high of $808.50/oz
801.7 5
This is a well-consolidated long market with global industrial recovery. At the same time,
on January 13. Investor interest continues
781.7 5
solid fundamental drivers. supply-side issues remain a key factor. We
761.7 5 to build across all platforms. expect prices to move toward $1,000/oz
741.7 5
1 3 5 7 9 11 13 15 17 19 21 23 25
over the next 12-to-24 months.
27
Lewis Hagedorn
Colin P. (1-212)
Fenton (212) 834-8046
lewis.a.hagedorn@jpmorgan.com
Grains and Oilseeds Outlook
Bullish: A significantly lower final US yield

Corn Neutral/Bullish: January 12 USDA reports leaves ending stocks close to pipeline
Up: Following strong performance in
largely confirmed our bullish expectations levels; positive ethanol margins and the
December, when CH1 rose from
and the need for demand rationing has prospect of stronger export demand argue
6 5 4 .00
approximately $5.65/bu to over $6.30/bu,
6 4 4 .00
moved to the forefront of market focus. for significantly higher prices. Most
6 3 4 .00
prices corrected in early January amid
Fundamentals point to continued price gains, importantly, the "acreage competition" theme
sector-wide risk reduction. USDA reports
6 2 4 .00
but another slow news period until March

6 1 4 .00
6 04 .00
on January 12 were uniformly bullish and will continue as CZ1 has so far failed to
may occasion some reduction of long-biased
5 9 4 .00
1 3 5 7 9 1 1 1 3 1 5 1 7 1 9 2 1 2 3 2 5
led to a spike in prices. send the signal necessary to increase

risk. acreage in 2011.
Hard Red Winter Wheat Up: The wheat market struggled to keep Neutral/Bullish: Smaller than expected
pace with the rest of the grains and oilseeds 2011 US HRW acreage, combined with Bullish: Supply concerns, including a
(KCBT) smaller Australian crop, the export ban in
complex during late 2010, with KWH1 trading increasingly poor yield prospects, argues
in a wide range between $8.00/bu and for the addition of risk premium later in Russia, and declining exportable supplies in
Europe, suggest increasing pressure in mid-
$8.50/bu. Recent USDA reports offered little 1Q2011. Remaining supplies of higher-protein
2011. Modeling of HRW yields also suggests
8 8 5 .00
news for wheat, and prices remain near HRW will also come under greater constraint
meaningful risks to US supply, which would
8 6 5 .00
8 4 5 .00 $8.55/bu at the front of the curve. Regardless, in the next few months. However, the wait add further pressure to an already tight higher-
8 2 5 .00 KCBT has continued to add premium to CME for confirmation of bullish risks is likely to protein market. Spike risks remain
futures amid larger risks facing HRW first keep prices in consolidation through
1 3 5 7 9 1 1 1 3 1 5 1 7 1 9 2 1 2 3 2 5
pronounced through mid-year.

production this year. January.
Neutral/Bullish: January 12 offered little of Bullish: The prospects of 2011 supply

Soft Red Winter Wheat
Up: As with KCBT wheat, CME futures specific note for SRW wheat. Although our losses in the US and FSU remain a serious
(CME) concern despite lingering complacency
remained largely rangebound in December bullish wheat thesis is focused primarily on
8 1 8 .5 0
and failed to participate in the rally following higher protein subclasses, CME futures will occasioned by what appear to be
8 08 .5 0
the January 12 release of USDA data. likely follow on any significant upside price "comfortable" near-term global stocks.
Nearby futures (WH1) remain near $7.70/
7 9 8 .5 0
7 8 8 .5 0
move. We expect continued consolidation in Although SRW wheat faces the least
7 7 8 .5 0
7 6 8 .5 0
bu, with longer-dated expiries in steep January-February before (bullish) market immediate constraint, prices could revisit
7 5 8 .5 0
1 3 5 7 9 1 1 1 3 1 5 1 7 1 9 2 1 2 3 2 5
contango. focus returns to 2011 US production prospects- 2008 record highs in the event of a global
and risks. "wheat" problem in protein availability.
Neutral/Bullish: Soybean prices are likely Bullish: Near-term demand rationing is

Soybeans Up: Following significant price gains during needed amid tight supplies, but deferred
to rise in order to curtail both export and
the month of December (during which SH1 domestic crush demand. Meanwhile, contracts should also be well supported as
1414.2 5
rose more than $1/bu), soybean prices Argentine production prospects remain the market attempts to prevent a decline in
1394.2 5
entered a period of risk reduction during early unfavorable, adding further bullish support. 2011 US plantings. The US balance will
January. The confirmation of tight US The market now faces a long wait until the remain tight in 2011/12 amid ever-increasing
1374.2 5
1354.2 5
1334.2 5
inventories by the USDA on January 12 left release of 2011 US planting data at the end of Chinese demand. Still, smaller Argentine
1314.2 5 prices sharply higher, above $14/bu. March; risk reduction following recent gains supplies could trigger a return to record-high
is likely.
1 3 5 7 9 11 13 15 17 19 21 23 2 5
prices this spring.

Up: Amid concerns about moisture stress
Soybean Oil Neutral/Bullish: Soybean oil prices are likely Bullish: The risk of smaller soybean (and
in Argentina, BOH1 trended upward
to take direction from soybeans in the near therefore, soy oil) supplies in South America
throughout December, reaching a high of
59.5 c/lb in early January. This was term; although we see compelling and bullish as a result of weather conditions, as well
57.3 8
followed by sideways movement fundamental stressors developing later in the as increasing biodiesel mandates, will limit
56.8 8
56.3 8 throughout the first two weeks of January, season amid US/South American biodiesel soy oil export competition. The US will need
55.8 8
until the USDA reports were released on demand and declining exportable supplies of to fill the remainder of global demand growth,
55.3 8
54.8 8 January 12, revealing lower soybean edible oil, it will take time to draw down while also facing large 2011 domestic
1 3 5 7 9 11 13 15 17 19 21 23 25
production and pushing prices back above currently-large oil stocks. biodiesel mandates.
59 c/lb.
Neutral/Bullish: Meal demand trends in Neutral/Bearish: Higher crush rates
Up: Spot futures (SMH1) rallied throughout
Soybean Meal the near term remain constructive, with the globally (in order to obtain soybean oil) seem
most of December in light of poor South
US likely to benefit from a delayed South destined to result in a surplus of meal. Amid
American growing conditions. A slight
American soybean harvest. Meal has grain-related pressures on feed profitability-
correction brought prices down to $361/
3805
. 0
closely followed corn over the last several and feed substitution by ethanol by-products-
short ton on January 11, the day before the
3705
. 0
months, which should offer additional support. this surplus (of a commodity not typically
3605
. 0
WASDE release. On January 12, soybean
Intrinsically, we continue to see meal as the stored for long periods) is unlikely to be
3505
. 0
meal followed corn higher, reaching
1 3 5 7 9 11 13 15 1 7 19 21 23 25
weak leg of the complex and a compelling fully absorbed by the global market during
approximately $383/short ton.
short (in a spread against oil). 2H2011.
28
JonahP.
Colin D.Fenton
Waxman, CFA
(212) (1-212) 834-2203
jonah.d.waxman@jpmorgan.com
Softs Outlook
Sugar Down: After closing at a new nominal high of Bearish: Production concerns in India and Bearish/Neutral: While low inventories
3 5 .2 4 34.39c/lb on December 28, spot prices have Brazil continue to dominate the near-term (where they are needed most) will likely
3 4 .2 4
3 3 .2 4
retraced by 6%. News of Indian sugar sales outlook. We remain doubtful that India will provide price support above the marginal
3 2 .2 4
provided further support to the view that export significant volumes of sugar in the next cost of production, prices will likely retrace
supplies are tighter than what is currently from current levels. Volatility will likely remain
3 1 .2 4
3 0.2 4 three months, but any Indian export quantity

considered available. will likely negatively impact spot prices. highly elevated.
2 9 .2 4
1 3 5 7 9 1 1 1 3 1 5 1 7 1 9 2 1 2 3 2 5
Coffee Neutral/Bullish: Risk remains to the upside,

Up: Coffee set a new nominal high of 240.60c/ Bullish: La Niña is expected to continue to
especially if Brazil's 2010/11 output falls flat
lb on January 12. The coffee harvest in alter "normal" production patterns, and the
2 3 8 .6 5
relative to expectations given low global
Colombia has been impacted by disease, fundamental balance will likely remain tight,
2 3 3 .6 5
inventories and that Brazil will enter its off-

likely further delaying the return to normal with low inventory levels leaving little room
2 2 8 .6 5
cycle year in 2011/12. We expect prices will

harvest levels. for flexibility.
2 2 3 .6 5
1 3 5 7 9 1 1 1 3 1 5 1 7 1 9 2 1 2 3 2 5
remain elevated.
Cocoa Neutral: Prices are skewed to the downside

Up: With a global production increase as the global balance recovers from a larger- Neutral: An easing global balance following
3 1 2 9 .0 0 expected to be in the 6%-to-8% range, prices than-expected deficit in the 2009/10 crop year. global deficits in three of the last four years
3 02 9 .00 have traded relatively flat over the past month. La Niña could continue to disrupt normal shift price risk to neutral. Low inventories
2 9 2 9 .0 0 Some volatility stemming from turmoil in the production levels in Latin America and will likely increase volatility from any supply-
2 8 2 9 .0 0 Ivory Coast has provided temporary support. Indonesia, creating supply-side risks on the side disruptions.
1 3 5 7 9 1 1 1 3 1 5 1 7 1 9 2 1 2 3 2 5
margin.
Flat: Cotton reached a nominal high of $1.59/ Neutral/Bearish: Price controls in China
Cotton lb on December 21, and has since retraced Bearish: Uncertainty surrounding quantities designed to curb inflationary pressures, the
159.4 3
toward $1.57/lb in the prompt contract. of near-term exports from India, continued possibility of sovereign debt contagion in the
154.4 3
Approximately 100,000 metric tonnes have demand strength in China combined with Eurozone, and resistance to current prices
149.4 3
been lost due to floods in Australia, which lower-than-expected output, and already-low from clothiers have the potential to slow
144.4 3 has created some price support, while global inventory levels will likely continue to demand enough to allow supply to catch up.
139.4 3 China's decision to raise its reserve support the market. Spot prices will likely average lower than
1 3 5 7 9 11 13 15 17 19 21 23 25
requirements again has dampened prices. the recent highs.
29
Colin P. Fenton
Lawrence (212)(1-212)
E. Eagles 834-5648
lawrence.e.eagles@jpmorgan.com January 23, 2011
Jeff G. Brown (65) 6882-2215 David G. Martin (44-20) 7777-0211
jeff.g.brown@jpmorgan.com david.g.martin@jpmorgan.com
Sung K. Yoo (1-212) 834-7045 Ryan F. Sullivan (212) 834-3935
sung.k.yoo@jpmorgan.com ryan.f.sullivan@jpmorgan.com
Oil
OPEC production will need to approach

Global demand fully recovered and set to grow pre-recession high
mbpd mbpd
Source: J.P. Morgan Energy Strategy Source: J.P. Morgan Energy Strategy
Non-OECD product demand (year-on-year change) OECD product demand (year-on-year change)
mbpd mbpd
3 Light Ends Mid dle Distillate Fuel Oil
2 Light Ends Middle Distilla te Fuel Oil
0
1
0
-2
-1
-2 -4
Jan-09 Jul-09 Jan-10 Jul- 10 Jan-11 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11
Source: J.P. Morgan Energy Strategy Source: IEA, JODI, J.P. Morgan Energy Strategy
Emerging Asia crude supply-demand balance slides into Crude oil market balance 2008-2011
deeper deficit mbpd mbpd
75 3
1Q2008
2Q2008
3Q2008
4Q2008
1Q2009
2Q2009
3Q2009
4Q2009
1Q2010
2Q2010
3Q2010
4Q2010
1Q2012
2Q2012
3Q2012
4Q2012
1Q2011
2Q2011
3Q2011
4Q2011
mbpd 74 2
(6.0)
73 1
(7.0)
72 -
(8.0)
(9.0) 71 -1
(10.0) 70 -2
(11.0) 69 -3
(12.0) 68 -4
(13.0) Jan-08 J ul-08 J an- 09 J ul- 09 J an-10 Jul-10 J an-11
(14.0) S to c k Chang e (rhs) Crud e D em and Crud e S up p ly
Source: J.P. Morgan Energy Strategy Source: IEA, J.P. Morgan Energy Strategy
30
Colin
Scott P.
C. Fenton
Speaker(212)
(1-212)
834-5648
scott.c.speaker@jpmorgan.com January 23, 2011
Shikha Chaturvedi (1-212) 834-3245
Natural Gas
US rig count by type of rig drilling Natural gas storage changes versus degree days
2500 % Horiz Directional 60% 1997-present, storage in Bcf (y-axis), degree days (x-axis)
Horizontal Vertical 200

50% 150
2000 Total January 7, 2011
100
40% 50
1500
0
30% -50
1000 -100
20%
-150
500 -200 2
R = 0.9457
10%
-250
-300
0 0%
00
00 01
01 02 03
03 04 05 06 07 08
08 09 10
10 25 75 125 175 225 275
Source: EIA, J.P. Morgan Energy Strategy Source: EIA, J.P. Morgan Energy Strategy
Total US natural gas storage (volume in bcf) Natural gas price versus storage deviation
Fiv e-Year Range Fiv e-Year Av erage 2008-10 Ny mex NG ($/MMBtu) Storage Dev iation from Av erage (Bcf)
16 650
3600
14 450
3100 12 250
2600 10
50
2100 8
-150
6
1600 -350
4
1100 2 -550
600 0 -750
Feb May Aug Dec Mar Jun Sep Jan 2005 2006 2007 2008 2009 2010 2011
Source: EIA, J.P. Morgan Energy Strategy Source: EIA, J.P. Morgan Energy Strategy
Henry Hub cash spread to Nymex natural gas futures NBP day ahead versus Henry Hub spot
US$/MMBtu US$/MMBtu
1 14
14
12
12
0 NBP
10
10 Henry Hub
88
-1
66
-2 44
22
-3 00
May-09
May-09 Aug-09
Aug-09 Nov-09
Nov-09 Feb-10
Feb-10 May-10
May-10 Aug-10
Aug-10 Nov-10
Nov-10 Nov-07
Nov-07 May-08
M ay-08 Nov-08
Nov-08 May-09
M ay-09 Nov-09
Nov-09 May-10
M ay-10 Nov-10
Nov-10
Source: EIA, NOAA, J.P. Morgan Energy Strategy. Note: Degree days are date-adjusted. Source: NYMEX, Bloomberg, J.P. Morgan Energy Strategy
31
Colin P.
Peter K. Fenton
Nance (212) 834-5648
peter.k.nance@jpmorgan.com January 23, 2011
Power
Natural gas burn in SERC ERCOT generation by fuel type
Bcf/day, monthly Percent
100%
8.00
2010
80%
6.00
60%
4.00 2009
2008 40%
2.00
2010 v s 2009 Y/Y
20%
0.00 Change Bcf/D
0%
(2.00) Month 2007 2008 2009 2010
1 2 3 4 5 6 7 8 9 10 11 12 Nuclear Coal NGTotal NGComCy cle
Note: Includes NGCombTurb Other Hy dro Wind
Source: EIA, J.P. Morgan Commodities Research Source: J.P. Morgan Commodities Research
2010 ERCOT MCPE prices ERCOT Nodal Prices — Dec. 10 - Jan. 11

USD/MWh USD/MWh
$2,300
$1,300.00 No te: A pproximately 60% of vo lumes are
$2,000 RT settled, 40% DA settled.
$1,100.00
$1,700 $900.00
$1,400 $700.00
$500.00
$1,100 $300.00
USD/MWh USD/MWh
$800 Min ($32.30) Max $2,200.01

$100.00
1% ($24.71) 99% $ 253.09
-$100.00
$500 5% ($ 5.01) 95% $ 63.53
1-Dec-10
8-Dec-10
15-Dec-10
22-Dec-10
29-Dec-10
5-Jan-11
12-Jan-11
15% $13.68 85% $ 45.29
$200
($100)
1% 5% 15% 50% 85% 95% 99%
ERCOT West SPP Real Time ERCOT West SPP Day Ahead
Source: J.P. Morgan Research, http://www.pge.com/about/environment/pge/electricvehicles/index.shtml Source: J.P. Morgan Commodities Research
Effect of WCI on forward power prices - SP26 PJM Western Hub implied heat rates
US$ US$/MWh
$90.00 12.31.10 Curve $180.00
$80.00 2010 High $160.00
$70.00 $140.00
$60.00 $120.00
$50.00 $100.00
$80.00 PJM Western Hub On-Peak
$40.00
$30.00 2010 A verage $60.00
2010 Lo w $40.00
$20.00
$20.00 USD/MWh Historical Forward
PJM Western Hub Off-Peak
$10.00
$0.00
$0.00
1/1/2008
7/1/2008
1/1/2009
7/1/2009
1/1/2010
7/1/2010
1/1/2011
7/1/2011
1/1/2012
7/1/2012
1/1/2013
7/1/2013
1/1/2014
7/1/2014
Feb-11
Aug-11
Feb-12
Aug-12
Feb-13
Aug-13
Feb-14
Aug-14
Source: J.P. Morgan Commodities Research Source: Platts, ISOs, J.P. Morgan Commodities Research
32
JPMorgan Chase
Securities
Bank,
Ltd.
NA Global Commodities Research
Colin
Michael
P. J.
Fenton
Jansen
(212)
(44-20)
834-5648
Base Metals
China’s demand for refined copper has been ex- China’s copper consumption is underpinned by real
tremely robust estate fixed asset investment
Production of key copper containing products, January 2001=100 Real estate investment expenditure China’s copper demand
900 (RMB billion) (MT)
Vehicles A/Cs
800 800 800,000
TV's Refrigerators
Real Estate Investment Expenditure (RMB billion)
700 Copper Products 700
Copper Apparent demand in China (mt) 700,000
600 600
500 600,000
500
400
400 500,000
300
300
200 400,000
200
100
300,000
100
0
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jul-01
Jul-02
Jul-03
Jul-04
Jul-05
Jul-06
Jul-07
Jul-08
Jul-09
Jul-10
0 200,000
Jan-0 5
Jan-0 6
Jan-0 7
Jan-0 8
Jan-0 9
Jan-1 0
Jul-05
Jul-06
Jul-07
Jul-08
Jul-09
Jul-10
Apr-05
O ct-05
Apr-06
O ct-06
Apr-07
O ct-07
Apr-08
O ct-08
Apr-09
O ct-09
Apr-10
O ct-10
Source: China Automotive Information Net, CEIN, CGA, J.P. Morgan Commodities Research
Source: CGA, J.P. Morgan Commodities Research
Copper scrap is relatively cheap in China Copper reflects changing views of inflation expectations
Discount of barebright scrap in China to Shanghai domestic physical price, percent Spread between 10-yr. nominal US Treasury 3-month copper price
securities and 10-yr. inflation-protected securities (US$/mt)
14.00% Highest discount since late 3.0 10 Year Inflation Breakevens 3 Month Copper Price 9000
2008 when demand collapsed
12.00%
courtesy of global recession 2.5 8000
10.00%
7000
2.0
8.00%
6000
6.00% 1.5
5000
4.00% 1.0
Average since 2006 4000
2.00%
0.5 3000
0.00%
0.0 2000
5-M ay -0 9
5-M ay -1 0
5-Ja n-09
5 -M a r-09
5 -N o v-09
5-Ja n-10
5 -M a r-10
5 -N o v-10
5 -Ju l-0 9
5 -Ju l-1 0
5 -Se p-09
5 -Se p-10
May-06
May-07
May-08
May-09
May-10
Nov-06
Nov-07
Nov-08
Nov-09
Aug-06
Aug-07
Aug-08
Aug-09
Aug-10
Feb-07
Feb-08
Feb-09
Feb-10
Source: Industry sources, JPMorgan Commodities Research Source: Bloomberg, LME, J.P. Morgan Commodities Research
China continues to show price sensitivity Global IP and global copper demand are showing signs
Premium of spot copper to nearby copper futures, RMB/metric tonne of easing the near-term but remain long-term constructive
5000 Percent
Copper 20 Global Copper Demand Growth Global IP - Annual Growth
4000
Ally
15
3000 Zinc
10
2000
5
1000
0
0
-5
-1000
-10
-2000
-15
-3000
May-08
May-09
May-10
-20
Jan-08
Jan-09
Jan-10
Sep-08
Sep-09
Sep-10
Jan-96
Jan-97
Jan-98
Jan-99
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Source: LME, J.P. Morgan Commodities Research Source: LME, J.P. Morgan Commodities Research
33
JPMorgan Chase Bank,
Securities NA
Ltd. Global Commodities Research
Colin P. J.
Michael Fenton (212)
Jansen 834-5648
Precious Metals
Platinum investor demand is approximately 15% of 2010 Palladium investor demand is approximately 33% of
mine supply 2010 mine supply
Platinum ounces in Swiss and London vaults allocated to ETFs Palladium ounces in Swiss and London vaults allocated to ETFs
1,200,000 2,000,000
ETFS USA ETFS USA
1,800,000
1,000,000 ZKB ZKB
1,600,000
ETFS Europe ETFS Europe
1,400,000
800,000
1,200,000
600,000 1,000,000
800,000
400,000
600,000
400,000
200,000
200,000
0 0
Jun-07
Jun-08
Jun-09
Jun-10
Aug-07
Aug-08
Aug-09
Aug-10
Apr-07
O ct-07
Dec-07
Feb-08
Apr-08
O ct-08
Dec-08
Feb-09
Apr-09
O ct-09
Dec-09
Feb-10
Apr-10
O ct-10
Jun-09
Jun-10
Jun-07
Jun-08
Au g-0 9
Au g-1 0
Au g-0 7
Au g-0 8
O ct-10
O ct-07
O ct-08
Feb -09
O ct-09
Apr-09
De c-09
Feb -10
Apr-10
Apr-07
De c-07
Feb -08
Apr-08
De c-08
Source: ETF Providers, J.P. Morgan Commodities Research Source: ETF Providers, J.P. Morgan Commodities Research
ETF and physical holdings have yet to deliver tightness

in the physical market PGM demand is underpinned by China’s new car sales
Implied 3-month lease rates for precious metals, percent New car sales (millions, annualized per month) Annual percentage change
1.20 80 40%
Platinum Palladium Gold Silver Global Car Sales Annual % Change China annualised car sales
1.00 70 30%
0.80
60
20%
0.60
50
0.40 10%
40
0.20
0%
0.00 30
-10%
-0.20 20
-0.40 10 -20%
-0.60 0 -30%
May-10
Jan-10
Mar-10
Jun-10
No v-10
Jul-10
Aug-10
Feb -10
Apr-10
Sep -10
O ct-10
Jan -06
Jan -07
Jan -08
Jan -09
Jan -10
Ju l-06
Ju l-07
Ju l-08
Ju l-09
Ju l-10
Ap r-0 6
O ct-0 6
Ap r-0 7
O ct-0 7
Ap r-0 8
O ct-0 8
Ap r-0 9
O ct-0 9
Ap r-1 0
O ct-1 0
Source: J.P. Morgan Commodities Research Source: China Automotive Information Net, J.P. Morgan Commodities Research
US Mint coin sales continue to highlight underlying Negative real yields provide support for gold
investment demand Real 2-year bond yields deflated
’000 oz; 12-month running average Annual change in the price of gold by headline CPI (shown inverted)
3000 140 60 -4
Annual Change in Gold Prices
Silver (Left Hand Axis) 50 -3
120 Real 2 Year Yields (RHS)
2500 Gold (Right Hand Axis)
40 -2
100
2000 30 -1
80 20 0
1500
60 10 1
1000 0 2
40
-10 3
500 20 -20 4
0 0 -30 5
Jan -98
Jan -01
Jan -04
Jan -07
Jan -10
Jul-99
Jul-02
Jul-05
Jul-08
Jan -06
Jan -07
Jan -08
Jan -09
Jan -10
O ct-98
Ap r-00
O ct-01
Ap r-03
O ct-04
Ap r-06
O ct-07
Ap r-09
O ct-10
Jul-06
Jul-07
Jul-08
Jul-09
Jul-10
Ap r-06
O ct-06
Ap r-07
O ct-07
Ap r-08
O ct-08
Ap r-09
O ct-09
Ap r-10
O ct-10
Source: US Mint, J.P. Morgan Commodities Research Source: J.P. Morgan Commodities Research
34
Colin
Lewis P.
A. Fenton
Hagedorn
(212)
(212)
834-5648
lewis.a.hagedorn@jpmorgan.com January 23, 2011
Elizabeth M. Volynsky (212) 834-4021
elizabeth.m.volynsky@jpmorgan.com
Grains and Oilseeds

Export sales pace occasioning near-term complacency Ethanol production profitability remains positive
’000 bu cents/bu
'000 bu
200,000 % of USDA 100% 2.5 Total Costs
Upside risks for the (right ax is)
Operating Costs Only
second half of the 80% 2.0
150,000
marketing y ear 1.5
60%
1.0
100,000 0.83
40% 0.5
Implied Weekly Sales to
0.18
50,000 Meet USDA Est 0.0
20%
-0.5
0 0% -1.0
9/2 11/11 1/20 3/31 6/9 8/18 Sep 08 Jan 09 May 09 Sep 09 Jan 10 May 10 Sep 10
Source: USDA, J.P. Morgan Agricultural Commodity Research Source: Industry Sources, J.P. Morgan Agricultural Commodity Research
US soybean demand needs to slow in order to ease Soybean oil faces 2011 compliance deadline for
supply stress biodiesel mandates
'000 bu 5-Yr Range '000
170,000 Implied by USDA Forecast 600,000 600000
170
Once-Refined Implied production to meet
5-Yr Average Crude
160,000 2010/11Actual 160
500,000 RFS2 in 2011 500000
Production Reqd for Mandate

150,000 150
400,000 400000
Loss of tax credit

140,000 140
300,000 300000
130,000 130
200,000 200000
120,000 120
100,000 100000
110,000 110
0 0
Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Jan 07 Jan 08 Jan 09 Jan 10 Jan 11 Jan 12
Source: USDA, J.P. Morgan Agricultural Commodity Research Source: USDA, Census Bureau, J.P. Morgan Agricultural Commodity Research
Wheat market complacency returns . . . Another 2010-style crop in 2011 would be problematic
(Chart shows global data ex China and India)
cents/bu mmt Production mmt
550 August 2010, recognition of 550 Food Consumption 2010 redux 150
Trade (right ax is)
global w heat supply losses 500 scenario
450 Ending Stocks (right ax is) 130
450
350 400 110
250 350 90
300
150 70
W1C1Spread 250
50 200 50
Mar 08 Sep 08 Mar 09 Sep 09 Mar 10 Sep 10 1999 2001 2003 2005 2007 2009 2011
Source: CBT, J.P. Morgan Agricultural Commodity Research Source: USDA, J.P. Morgan Agricultural Commodities Research
35
Colin P.
Jonah D.Fenton (212)
Waxman, CFA834-5648
(1-212 834-2203) Commodity Markets Outlook and Strategy
jonah.d.waxman@jpmorgan.com January 23, 2011
Softs
China’s food controls not likely to derail the trend China’s raising reserve reqs have not alleviated price
Rolling prompt ZCE white sugar, CNY per mt Rolling prompt ZCE No. 1 cotton, CNY per mt
8000 35000
22-Oct-10 10-Nov-10
7000 30000 China raises lenders' reserve requirements
China auctions 210 kmt of sugar as CPI
6000 by 50bp. The requirement will increase by
increased to 4.4%, a two-year high 25000
5000 another 50bp effective 20-Jan-11
20000
4000
15000 1-Dec-10
3000 17-Nov-10
2000 China announces it will auction 200 kmt of 10000 India announces cap on
sugar on Nov 22 at a base price of 4000 RMB 5000 cotton yarn exports
1000
0 0
Jan-07
May-07
Jan-08
May-08
Jan-09
May-09
Jan-10
May-10
Jan-11
Sep-07
Sep-08
Sep-09
Sep-10
Jan-07
May-07
Jan-08
May-08
Jan-09
May-09
Jan-10
May-10
Jan-11
Sep-07
Sep-08
Sep-09
Sep-10
Source: ZCE, J.P. Morgan Commodities Research Source: ZCE, J.P. Morgan Commodities Research
Sugar inventories are scarce where needed most Cotton stocks-to-use levels are near 15-year lows
Stocks-to-use (days) in the world's top 3 sugar consumers Stocks-to-use (days) in the world's top three cotton consumers
300 600
250 500
200 400
150 300
100 200
50 100
0 0
1996/97
1997/98
1998/99
1999/00
2000/01
2001/02
2002/03
2003/04
2004/05
2005/06
2006/07
2007/08
2008/09
2009/10
1996/97
1997/98
1998/99
1999/00
2000/01
2001/02
2002/03
2003/04
2004/05
2005/06
2006/07
2007/08
2008/09
2009/10
2010/11F
2010/11F
China India United States World China India Pakistan World
Source: USDA, J.P. Morgan Commodities Research Source: USDA, J.P. Morgan Commodities Research
Volatility in sugar likely to move higher Vol in cotton reached a new decade high on Nov-9
Implied volatility, rolling prompt ICE world raw sugar #11 Implied volatility, rolling prompt ICE cotton #2 (percent)
180 120
160
100
140
120 80
100
60
80
60 40
40
20
20
0 0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Source: ICE, J.P. Morgan Commodities Research Source: ICE, J.P. Morgan Commodities Research
36
Colin P. Fenton (1-212) 834-5648 Commodity Markets Outlook and Strategy
Argentina - local currency Argentina - USD

Impact of adding S&P GSCI total return index (bp) Impact of adding S&P GSCI total return index (bp)
Bar is m/m (LHS), line is cumulative (RHS). Number is cumulative impact. Bar is m/m (LHS), line is cumulative (RHS). Number is cumulative impact.
400 2000 400 2000
-326.5 -86.0
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
Source: S&P, Dow Jones, J.P. Morgan Commodities Research Source: S&P, Dow Jones, J.P. Morgan Commodities Research
Impact of adding S&P GSCI enhanced return index (bp) Impact of adding S&P GSCI enhanced return index (bp)
400 2000 400 2000
-69.9 131.2
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
Impact of adding DJ-UBS total return index (bp) Impact of adding DJ-UBS total return index (bp)
400 2000 400 2000
-55.0 154.4
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
Impact of adding JPMCCI total return index (bp) Impact of adding JPMCCI total return index (bp)
400 2000 400 2000
-27.1 173.4
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
37
Australia - local currency Australia - USD

400 2000 400 2000
-937.1 -1290.1
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-734.3
300 -445.0 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-473.2 -738.1
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-356.8 -620.3
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
38
Austria - local currency Austria - USD

400 2000 400 2000
-321.6 -353.9
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
29.4 6.2
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
31.6 19.9
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
106.1 90.4
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
39
Belgium - local currency Belgium - USD

400 2000 400 2000
-289.9 -340.3
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
56.1 17.4
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
48.9 21.4
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
127.0 96.2
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
40
Bulgaria - local currency Bulgaria - USD

400 2000 400 2000
189.7 205.3
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
324.0 336.6
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
301.0 321.1
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
337.2 353.2
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
41
Brazil - USD China - USD

400 2000 400 2000
-1297.6 -1906.1
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-931.6 -1237.0
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-943.8 472.5 -1254.4
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-892.4 443.4 -1097.3
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
42
Canada - local currency Canada - USD

400 2000 400 2000
-998.4 -1154.3
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-499.9 -629.2
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-527.5 -641.0
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-412.2 -526.9
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
43
Chile - local currency Chile - USD

400 2000 400 2000
-1395.0 -1519.8
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-1009.8 -1124.4
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-1076.3 -1171.8
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-1001.8 -1104.0
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
44
Colombia - local currency Colombia - USD

400 2000 400 2000
-1357.3 -1515.6
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-978.5 -1113.6
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-1029.5 -1159.8
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-959.6 -1088.8
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
45
Czech Republic - local currency Czech Republic - USD

400 2000 400 2000
-781.5 -1042.5
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-325.2 -533.4
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-335.9 -528.3
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-232.4 -423.5
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
46
Denmark - local currency Denmark - USD

400 2000 400 2000
-911.7 -1034.0
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-424.8 -527.1
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-442.8 -532.1
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-330.4 -422.4
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
47
Egypt - local currency Egypt - USD

400 2000 400 2000
-517.5 -495.4
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-250.5 -231.7
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-268.4 -246.2
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-227.4 -207.1
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
48
Estonia - local currency Estonia - USD

400 2000 400 2000
-62.1 -29.5
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
138.8 165.7
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
125.0 162.3
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
156.3 188.1
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
49
Finland - local currency Finland - USD

400 2000 400 2000
-643.4 -669.7
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-203.2 -225.9
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-232.3 -244.1
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-126.0 -143.7
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
50
France - local currency France - USD

400 2000 400 2000
-610.4 -682.0
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-183.4 -241.8
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-208.2 -255.9
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-106.9 -158.0
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
51
Germany - local currency Germany - USD

400 2000 400 2000
-824.0 -923.0
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-351.9 1500 -433.0
300 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-376.8 -445.5
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-336.9
300 -265.1 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
52
Greece - local currency Greece - USD

400 2000 400 2000
77.0 37.5
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
310.1 286.1
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
310.5 294.8
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
361.2 344.9
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
53
Hong Kong - local currency Hong Kong - USD

400 2000 400 2000
-1469.1 -1469.5
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-879.7 -880.1
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-896.1 -896.5
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-760.0 -760.4
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
54
Hungary - local currency Hungary - USD

400 2000 400 2000
-243.8 -73.9
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-17.2 129.9
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-24.5 142.4
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
6.3 160.8
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
55
Iceland - local currency Iceland - USD

400 2000 400 2000
282.8 336.7
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
412.7 442.9
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
420.8 451.6
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
442.8 469.9
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
56
India - local currency India - USD

400 2000 400 2000
-838.8 -750.0
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-519.2 -440.0
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-544.9 -457.3 1500
300 1500 300
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-490.8 -407.6
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
57
Indonesia - local currency Indonesia - USD

400 2000 400 2000
-1016.6 -790.6
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-681.7 -475.4
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-693.5 -464.1
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-645.9 -428.3
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
58
Ireland - local currency Ireland - USD

400 2000 400 2000
8.6 -59.6
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
267.3 217.4
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
255.1 212.1
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
315.2 272.6
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
59
Italy - local currency Italy - USD

400 2000 400 2000
-210.8 -320.3
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
118.3 34.9
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
97.4 22.4
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
176.2 102.6
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
60
Japan - local currency Japan - USD

400 2000 400 2000
-224.3 -518.5
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
100.6 -118.0
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
89.3 -143.0
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
163.0 -47.1
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
61
Latvia - local currency Latvia - USD

400 2000 400 2000
-7.1 8.0
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
188.6 198.6
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
165.0 181.3
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
196.7 209.6
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
62
Lithuania - local currency Lithuania - USD

400 2000 400 2000
-207.6 -172.3
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
14.3 43.6
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
0.2 40.1
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
34.5 68.9
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
63
Malaysia - local currency Malaysia - USD

400 2000 400 2000
-1037.6
300 1500 300 1500
200 1000 200 -2012.0 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-701.1 -1554.6
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-755.7 -1581.9
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-691.1 -1519.2
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
64
Mexico - local currency Mexico - USD

400 2000 400 2000
-969.4 -774.9
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-638.5 -469.0
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-689.3 -492.6
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-628.4 -447.2
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
65
Netherlands - local currency Netherlands - USD

400 2000 400 2000
-942.5 -807.7
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-443.9 -343.0
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-470.8 -350.5
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-352.3 -248.7
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
66
New Zealand - local currency New Zealand - USD

400 2000 400 2000
-683.9 -777.8
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-238.8 -315.5
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-276.3 -338.9
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-165.0 -230.8
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
67
Norway - local currency Norway - USD

400 2000 400 2000
-831.5 -863.6
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-366.9 1500 -390.3
300 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-368.0 -367.4
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-267.7 1500 -277.0
300 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
68
Peru - local currency Peru - USD

400 2000 400 2000
-1857.7 -2051.7
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-1422.0 -1590.8
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-1454.9 -1616.5
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-1390.9 -1553.0
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
69
Philippines - local currency Philippines - USD

400 2000 400 2000
-1128.5 -1281.7
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-773.6 -908.1
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-818.9 -952.9
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-755.6 -886.2
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
70
Poland - local currency Poland - USD

400 2000 400 2000
-369.3 -258.5
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-120.4 -23.0
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-150.5 -31.2
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-108.1 -1.4
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
71
Portugal - local currency Portugal - USD

400 2000 400 2000
-524.2 -598.7
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-114.7 -175.6
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-138.9 -188.8
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-39.1 -92.2
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
72
Romania - local currency Romania - USD

400 2000 400 2000
206.4 297.5
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
354.4 423.3
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
328.0 408.3
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
367.0 436.9
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
73
Russia - local currency Russia - USD

400 2000 400 2000
-372.5 -224.4
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-129.9 -2.1
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-132.3 6.6
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-101.0 29.0
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
74
Singapore - local currency Singapore - USD

400 2000 400 2000
-1187.5 -1562.8
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-650.7 -958.4
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-662.5 -964.1
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-540.1 -830.0
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
75
Slovakia - local currency Slovakia - USD

400 2000 400 2000
-133.0 -201.8
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
80.7 24.8
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
60.6 18.5
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
94.1 47.1
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
76
South Africa - local currency South Africa - USD

400 2000 400 2000
-936.9 -907.8
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-614.1 -585.9
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-666.2 -615.0
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-604.8 -562.4
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
77
South Korea - local currency South Korea - USD

400 2000 400 2000
-1271.9 -935.8
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-718.1 -443.6
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-733.3 -444.7
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-607.0 -337.6
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
78
Spain - local currency Spain - USD

400 2000 400 2000
-427.1 -667.8
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-36.7 -226.9
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-62.8 -243.2
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
31.3 -142.1
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
79
Sweden - local currency Sweden - USD

400 2000 400 2000
-942.5 -1082.4
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-443.9 -558.9
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-470.8 1500 -565.8
300 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-352.3 -452.6
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
80
Switzerland - local currency Switzerland - USD

400 2000 400 2000
-625.8 -1018.8
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-195.5 -509.3
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-225.5 -539.3
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-121.7 -420.8
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
81
Taiwan - local currency Taiwan - USD

400 2000 400 2000
-1145.9 -813.9
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-609.4 -501.6
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-635.7 -534.6
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-509.7 -482.5
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
82
Thailand - local currency Thailand - USD

400 2000 400 2000
-1037.0 -1242.9
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-699.7 -877.7
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-725.6 -903.4
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-672.8 -847.0
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
83
Turkey - local currency Turkey - USD

400 2000 400 2000
-1132.8 -820.5
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-772.3 -492.7
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-809.8 -501.9
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-745.3 -452.8
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
84
United Kingdom - local currency United Kingdom - USD

400 2000 400 2000
-887.0 -772.2
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
300 -403.9 -319.3
1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-436.4 1500 -332.9
300 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
400 2000 400 2000
-319.6 -231.9
300 1500 300 1500
200 1000 200 1000
100 500 100 500
0 0 0 0
-100 -500 -100 -500
-200 -1000 -200 -1000
-300 -1500 -300 -1500
-400 -2000 -400 -2000
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
85
United States - local currency (USD)

Impact of adding S&P GSCI total return index (bp)
Bar is m/m (LHS), line is cumulative (RHS). Number is cumulative impact.
400 2000
-748.0
300 1500
200 1000
100 500
0 0
-100 -500
-200 -1000
-300 -1500
-400 -2000
2006 2007 2008 2009 2010
Source: S&P, Dow Jones, J.P. Morgan Commodities Research
Impact of adding S&P GSCI enhanced return index (bp)

400 2000
-293.6
300 1500
200 1000
100 500
0 0
-100 -500
-200 -1000
-300 -1500
-400 -2000
2006 2007 2008 2009 2010
Impact of adding DJ-UBS total return index (bp)

400 2000
-321.8
300 1500
200 1000
100 500
0 0
-100 -500
-200 -1000
-300 -1500
-400 -2000
2006 2007 2008 2009 2010
Impact of adding JPMCCI total return index (bp)

400 2000
300 -215.4 1500
200 1000
100 500
0 0
-100 -500
-200 -1000
-300 -1500
-400 -2000
2006 2007 2008 2009 2010
86
Colin P. Fenton, Head of Global Commodities Research and Strategy

(1-212) 834-5648
Oil Metals
Lawrence E. Eagles Michael J. Jansen
lawrence.e.eagles@jpmorgan.com michael.j.jansen@jpmorgan.com
(1-212) 834-8107 (44-20) 7325-5882
Jeff G. Brown Power

jeff.g.brown@jpmorgan.com
(65) 6882-215 Peter K. Nance
peter.k.nance@jpmorgan.com
David G. Martin (1-713) 236-3337
david.g.martin@jpmorgan.com
(44-20) 7777-0211 Agriculture
Sung K. Yoo Lewis A. Hagedorn

sung.k.yoo@jpmorgan.com lewis.a.hagedorn@jpmorgan.com
(1-212) 834-7045 (1-212) 834-8046
Metals Research
Ryan F. Sullivan Tobin Gorey
ryan.f.sullivan@jpmorgan.com tobin.x.gorey@jpmorgan.com
(1-212) 834-3935 (44-20) 7777-3107
Elizabeth M. Volynsky
Natural Gas elizabeth.m.volynsky@jpmorgan.com
Scott C. Speaker (1-212) 834-4021
scott.c.speaker@jpmorgan.com
(1-212) 834-3878
Strategy
Shikha Chaturvedi
Jonah D. Waxman, CFA
jonah.d.waxman@jpmorgan.com
(1-212) 834-3245
(1-212) 834-2203
87
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law permits otherwise.
“Other Disclosures” last revised January 8, 2011.

Copyright 2011 JPMorgan Chase & Co. All rights reserved. This report or any portion hereof may not be reprinted, sold or
redistributed without the written consent of J.P. Morgan.
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The Volatility Is The Message - JP Morgan - Jan2011

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Global Commodities Research

JPMorgan Chase Bank, NA

Commodity Markets Outlook and Strategy

• Our analysis of how strategic commodity allocations in 51 Energy

began furiously researching his condition. He learned that the

Exhibit 5: Tracking food price inflation in non-exchange traded ingredients

is weather driven and far above normal. Prompt sugar implied

troversy over brakes emerged over the past couple of years.

QUANTIFYING THE BENEFIT, IF ONE EXISTED

QUANTIFYING THE COST, IF ONE EXISTED

Extreme correlations likely to revert toward the mean

Imputed volatility distributions since 15-Dec-09 likely underestimate risk

0.06 0.06 0.06 0.06

0.04 0.04 0.04 0.04

0.02 0.02 0.02 0.02

0.00 0.00 0.00 0.00

0.06 0.06 0.06 0.06

0.04 0.04 0.04 0.04

0.02 0.02 0.02 0.02

0.00 0.00 0.00 0.00

0.02 0.02 0.02 0.02

0.00 0.00 0.00 0.00

Imputed volatility distributions since 15-Dec-09 likely underestimate risk

0.05 0.05 0.02 0.02

0.00 0.00 0.00 0.00

0 10 20 30 40 50 60 70 80 90 100 110 120 0 10 20 30 40 50 60 70 80 90 100 110 120

Imputed volatility distributions since 15-Dec-09 likely underestimate risk

0.06 0.06 0.06 0.06

0.04 0.04 0.04 0.04

0.02 0.02 0.02 0.02

0.00 0.00 0.00 0.00

0.06 0.06 0.06 0.06

0.04 0.04 0.04 0.04

0.02 0.02 0.02 0.02

0.00 0.00 0.00 0.00

0.04 0.04 0.06 0.06

0.00 0.00 0.00 0.00

8. Leverage: Consensus is aware of the serious risks in the 0

Exhibit 52: Current geometry of the world rate cycle

Latest Change Trough Rate Real GDP

REAL GDP WEIGHTED AVERAGES 2.24 3.7%

before the start of an advance that will probably take CME

Hedging and trading recommendations

We believe metals buyers should also be increasing

Long May-11 CBT Corn CMOS, 8-Nov-2010 608.50 667.00 9.6%

Long Jul-11 LME Copper 14-Jan-2011 9585.00 9410.00 -1.8%

Long Feb-11 ICE Gasoil 11-Jan-2011 800.50 814.00 1.7%

Current 2010 2011

spring. While we see a significant supply

Brent-WTI Up: Brent has seen its premium to WTI and

vulnerable to capacity issues, which create

since February 2009 due to logistical factors Canadian flows.

particularly from February through April.

Up: Asian jet cracks are near two-year highs

runs. We expect distillate demand to remain

trajectory is the key risk factor.

Moderately Bearish: January 2011 will likely

For February, prices will likely trend sideways,

higher overall: buyer basis sub-$3.70/MMBtu

above-trend (+2.5%) growth. This view could

awaiting better clarity for end of season inventory.

Henry Hub gas, neutral mid-$4.20 range HH,