1. E C O N O M I C O U T L O O K D I S C U S S I O N, U C I H E A L T H C A R E C O N F E R E N C E, F E B R U A R Y 2 19, 2 0 0 8 Jim Glassman jglassman@jpmorgan.com 212-270-0778 2008 … A Year of Living Anxiously

2. E C O N O M I C O U T L O O K D I S C U S S I O N, U C I H E A L T H C A R E C O N F E R E N C E, F E B R U A R Y 2 19, 2 0 0 8 2 Recession … Inflation … Global outlook … ☺ Financial/real estate outlook … Investment opportunities … ∞

3. E C O N O M I C O U T L O O K D I S C U S S I O N, U C I H E A L T H C A R E C O N F E R E N C E, F E B R U A R Y 2 19, 2 0 0 8 3 Where we discount eternity... a view we should respect Wilshire 5000 index of all publicly traded stocks (index) Source: Bloomberg

4. E C O N O M I C O U T L O O K D I S C U S S I O N, U C I H E A L T H C A R E C O N F E R E N C E, F E B R U A R Y 2 19, 2 0 0 8 4 Real GDP growth % change over the four quarters of the year 20072008 United States2.52.6 Europe (EU-11)2.32.1 Japan2.02.0 Newly industrializing8.17.3

5. E C O N O M I C O U T L O O K D I S C U S S I O N, U C I H E A L T H C A R E C O N F E R E N C E, F E B R U A R Y 2 19, 2 0 0 8 5 Another view … the Federal Reserve’s US real GDP (percent change from four quarters earlier) Sources: Federal Reserve Board; US Department of Commerce

6. E C O N O M I C O U T L O O K D I S C U S S I O N, U C I H E A L T H C A R E C O N F E R E N C E, F E B R U A R Y 2 19, 2 0 0 8 6 Subpar, not recession, but only for a spell …

7. E C O N O M I C O U T L O O K D I S C U S S I O N, U C I H E A L T H C A R E C O N F E R E N C E, F E B R U A R Y 2 19, 2 0 0 8 7 Unemployment rise raised the worries … Unemployment rate (percent of the labor force) Sources: NBER recession bars; US Department of Labor

8. E C O N O M I C O U T L O O K D I S C U S S I O N, U C I H E A L T H C A R E C O N F E R E N C E, F E B R U A R Y 2 19, 2 0 0 8 8 … but this isn’t the markings of a recession yet Real GDP (percent change from four quarters earlier) Jobless claims (thousands per week) Sources: NBER recession bars; US Department of Labor

9. E C O N O M I C O U T L O O K D I S C U S S I O N, U C I H E A L T H C A R E C O N F E R E N C E, F E B R U A R Y 2 19, 2 0 0 8 9 Housing’s down, but …

10. E C O N O M I C O U T L O O K D I S C U S S I O N, U C I H E A L T H C A R E C O N F E R E N C E, F E B R U A R Y 2 19, 2 0 0 8 10 New home building is dragging us down, but … Contribution of residential construction to year-over-year real GDP growth (percentage points) Source: US Department of Commerce

11. E C O N O M I C O U T L O O K D I S C U S S I O N, U C I H E A L T H C A R E C O N F E R E N C E, F E B R U A R Y 2 19, 2 0 0 8 11 … there’s more to the US economy than housing … Selected GDP measures (percent change from four quarters earlier) Sources: Federal Reserve Board; US Department of Commerce

12. E C O N O M I C O U T L O O K D I S C U S S I O N, U C I H E A L T H C A R E C O N F E R E N C E, F E B R U A R Y 2 19, 2 0 0 8 12 … there’s more to the US economy than the US economy Contribution of selected components to real GDP (percentage points, q-4 basis) Source: US Department of Commerce

13. E C O N O M I C O U T L O O K D I S C U S S I O N, U C I H E A L T H C A R E C O N F E R E N C E, F E B R U A R Y 2 19, 2 0 0 8 13 Don’t rule out consumers …

14. E C O N O M I C O U T L O O K D I S C U S S I O N, U C I H E A L T H C A R E C O N F E R E N C E, F E B R U A R Y 2 19, 2 0 0 8 14 Real estate excesses have three cures: prices, income, rates Nominal income per household and house prices (ratio to 1970 Q1 level) Sources: Standard & Poor’s; US Department of Commerce

15. E C O N O M I C O U T L O O K D I S C U S S I O N, U C I H E A L T H C A R E C O N F E R E N C E, F E B R U A R Y 2 19, 2 0 0 8 15 Income—jobs—is the key to the consumer Real consumer spending and income (percent change from four quarters earlier) Source: US Department of Commerce

16. E C O N O M I C O U T L O O K D I S C U S S I O N, U C I H E A L T H C A R E C O N F E R E N C E, F E B R U A R Y 2 19, 2 0 0 8 16 We didn’t spend our housing wealth on boats only Sources and uses of household balance sheet items (change in billions over the past four quarters) Source: Federal Reserve Board

17. E C O N O M I C O U T L O O K D I S C U S S I O N, U C I H E A L T H C A R E C O N F E R E N C E, F E B R U A R Y 2 19, 2 0 0 8 17 Debt service, not debt level, is what they care about Monthly financial obligations (percent of income) Household debt (ratio to income) Source: Federal Reserve Board

18. E C O N O M I C O U T L O O K D I S C U S S I O N, U C I H E A L T H C A R E C O N F E R E N C E, F E B R U A R Y 2 19, 2 0 0 8 18 Saving (the verb) fell because savings (the noun) rose Household saving (percent of income) Net worth (ratio to income) Sources: US Department of Commerce; Federal Reserve Board

19. E C O N O M I C O U T L O O K D I S C U S S I O N, U C I H E A L T H C A R E C O N F E R E N C E, F E B R U A R Y 2 19, 2 0 0 8 19 P.S. inflation … curve the grade

20. E C O N O M I C O U T L O O K D I S C U S S I O N, U C I H E A L T H C A R E C O N F E R E N C E, F E B R U A R Y 2 19, 2 0 0 8 20 Inflation is tame, all things considered Core consumer inflation (percent change from 12 months earlier) Oil (dollars per barrel) Sources: NBER recession bars; Federal Reserve Board; US Department of Commerce

21. E C O N O M I C O U T L O O K D I S C U S S I O N, U C I H E A L T H C A R E C O N F E R E N C E, F E B R U A R Y 2 19, 2 0 0 8 21 The financial shock …

22. E C O N O M I C O U T L O O K D I S C U S S I O N, U C I H E A L T H C A R E C O N F E R E N C E, F E B R U A R Y 2 19, 2 0 0 8 22 Securitized finance—modern finance—under siege Assets held at financial intermediaries (share of all assets held at financial intermediaries) Source: Federal Reserve Board

23. E C O N O M I C O U T L O O K D I S C U S S I O N, U C I H E A L T H C A R E C O N F E R E N C E, F E B R U A R Y 2 19, 2 0 0 8 23 The policy response is changing the game …

24. E C O N O M I C O U T L O O K D I S C U S S I O N, U C I H E A L T H C A R E C O N F E R E N C E, F E B R U A R Y 2 19, 2 0 0 8 24 The policy wheels are in motion … monetary policy … Federal funds rate less 10-year Treasury yield (percentage points) Sources: NBER recession bars; Federal Reserve Board

25. E C O N O M I C O U T L O O K D I S C U S S I O N, U C I H E A L T H C A R E C O N F E R E N C E, F E B R U A R Y 2 19, 2 0 0 8 25 Kennedy-Johnson tax cut (1964)-0.5% Vietnam War (1962 - 67)-1.7 Nixon (1970)-0.6 Carter (1977)-0.5 Reagan (1981)-1.7 Clinton (1993)Minimal Bush (2001- 03) Bush (2008) Consumer rebates Business investment incentives Mortgage proposals Other (ui insurance, food stamps) -6.0 -1.6 $168 billion + -0.7 -0.4 -0.3 -0.2 Major Fiscal Initiatives Impact on High-Employment Budget as a % of GDP, Percentage Points … and fiscal

26. E C O N O M I C O U T L O O K D I S C U S S I O N, U C I H E A L T H C A R E C O N F E R E N C E, F E B R U A R Y 2 19, 2 0 0 8 26 Best global economy since the dinosaurs …

27. E C O N O M I C O U T L O O K D I S C U S S I O N, U C I H E A L T H C A R E C O N F E R E N C E, F E B R U A R Y 2 19, 2 0 0 8 27 Planet Earth awakens … Global real GDP (percent change from four quarters earlier) Source: JPMorgan Chase & Co.

28. E C O N O M I C O U T L O O K D I S C U S S I O N, U C I H E A L T H C A R E C O N F E R E N C E, F E B R U A R Y 2 19, 2 0 0 8 28 … all over the place Selected real GDP (percent change from four quarters earlier) Source: JPMorgan Chase & Co.

29. E C O N O M I C O U T L O O K D I S C U S S I O N, U C I H E A L T H C A R E C O N F E R E N C E, F E B R U A R Y 2 19, 2 0 0 8 29 The falling dollar reflects a more balanced global economy Real trade weighted dollar index (March 1973 = 100) Source: Federal Reserve Board

30. E C O N O M I C O U T L O O K D I S C U S S I O N, U C I H E A L T H C A R E C O N F E R E N C E, F E B R U A R Y 2 19, 2 0 0 8 30 Consumer aren’t the only ones benefiting Profits (percent of Gross Domestic Income) Sources: NBER recession bars; US Department of Commerce; Standard & Poor’s

31. E C O N O M I C O U T L O O K D I S C U S S I O N, U C I H E A L T H C A R E C O N F E R E N C E, F E B R U A R Y 2 19, 2 0 0 8 31 The US trade deterioration was a “pay it forward” story US current account balance (percent of GDP) Source: US Department of Commerce

32. E C O N O M I C O U T L O O K D I S C U S S I O N, U C I H E A L T H C A R E C O N F E R E N C E, F E B R U A R Y 2 19, 2 0 0 8 32 Conclusion: what makes greatness?

33. E C O N O M I C O U T L O O K D I S C U S S I O N, U C I H E A L T H C A R E C O N F E R E N C E, F E B R U A R Y 2 19, 2 0 0 8 33 Waking giants … who’s afraid of the big bad wolf? China’s real per capita GDP (percent of the US level) Source: JPMorgan Chase & Co.

34. E C O N O M I C O U T L O O K D I S C U S S I O N, U C I H E A L T H C A R E C O N F E R E N C E, F E B R U A R Y 2 19, 2 0 0 8 34 “Who Shrank the Superpower?” … right idea Share of global GDP (percent) Source: JPMorgan Chase & Co.

35. E C O N O M I C O U T L O O K D I S C U S S I O N, U C I H E A L T H C A R E C O N F E R E N C E, F E B R U A R Y 2 19, 2 0 0 8 35 It’s about idea creation, not how busy we are (GDP) Percentage of patents coming from the US versus others Source: US Patent and Trademark Office

36. E C O N O M I C O U T L O O K D I S C U S S I O N, U C I H E A L T H C A R E C O N F E R E N C E, F E B R U A R Y 2 19, 2 0 0 8 36 Analysts’ Compensation: The research analysts responsible for the preparation of this report receive compensation based upon various factors, including the quality and accuracy of research, client feedback, competitive factors and overall firm revenues. The firm’s overall revenues include revenues from its investment banking and fixed income business units. Principal Trading: JPMorgan and/or its affiliates normally make a market and trade as principal in the securities discussed in this report. Legal Entities: JPMorgan is the marketing name for JPMorgan Chase & Co. and its subsidiaries and affiliates worldwide. J.P. Morgan Securities Inc. is a member of NYSE and SIPC. JPMorgan Chase Bank, N.A. is a member of FDIC and is authorized and regulated in the UK by the Financial Services Authority. J.P. Morgan Futures Inc. is a member of the NFA. J.P. Morgan Securities Ltd. (JPMSL) is a member of the London Stock Exchange and is authorized and regulated by the Financial Services Authority. J.P. Morgan Equities Limited is a member of the Johannesburg Securities Exchange and is regulated by the FSB. J.P. Morgan Securities (Asia Pacific) Limited (CE number AAJ321) is regulated by the Hong Kong Monetary Authority. JPMorgan Chase Bank, Singapore branch is regulated by the Monetary Authority of Singapore. J.P. Morgan Securities Asia Private Limited is regulated by the MAS and the Financial Services Agency in Japan. J.P. Morgan Australia Limited (ABN 52 002 888 011/AFS License No: 238188) (JPMSAL) is a licensed securities dealer General: Information has been obtained from sources believed to be reliable but JPMorgan does not warrant its completeness or accuracy except with respect to any disclosures relative to JPMSI and/or its affiliates and the analyst’s involvement with the issuer. Opinions and estimates constitute our judgment as at the date of this material and are subject to change without notice. Past performance is not indicative of future results. The investments and strategies discussed here may not be suitable for all investors; if you have any doubts you should consult your investment advisor. The investments discussed may fluctuate in price or value. Changes in rates of exchange may have an adverse effect on the value of investments. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. JPMorgan and/or its affiliates and employees may act as placement agent, advisor or lender with respect to securities or issuers referenced in this report. Clients should contact analysts at and execute transactions through a JPMorgan entity in their home jurisdiction unless governing law permits otherwise. This report should not be distributed to others or replicated in any form without prior consent of JPMorgan. U.K. and European Economic Area (EEA): Investment research issued by JPMSL has been prepared in accordance with JPMSL’s Policies for Managing Conflicts of Interest in Connection with Investment Research. This report has been issued in the U.K. only to persons of a kind described in Article 19 (5), 38, 47 and 49 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2001 (all such persons being referred to as “relevant persons”). This document must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this document relates is only available to relevant persons and will be engaged in only with relevant persons. In other EEA countries, the report has been issued to persons regarded as professional investors (or equivalent) in their home jurisdiction. Australia: This material is issued and distributed by JPMSAL in Australia to “wholesale clients” only. JPMSAL does not issue or distribute this material to “retail clients.” The recipient of this material must not distribute it to any third party or outside Australia without the prior written consent of JPMSAL. For the purposes of this paragraph the terms “wholesale client” and “retail client” have the meanings given to them in section 761G of the Corporations Act 2001. Korea : This report may have been edited or contributed to from time to time by affiliates of J.P. Morgan Securities (Far East) Ltd, Seoul branch. Copyright 2008 JPMorgan Chase & Co. All rights reserved. Additional information available upon request.

37. E C O N O M I C O U T L O O K D I S C U S S I O N, U C I H E A L T H C A R E C O N F E R E N C E, F E B R U A R Y 2 19, 2 0 0 8 It’s not about how much GDP we produce

38. E C O N O M I C O U T L O O K D I S C U S S I O N, U C I H E A L T H C A R E C O N F E R E N C E, F E B R U A R Y 2 19, 2 0 0 8 38 This is the face of trauma … Nominal and real 10-year Treasury yield (percent) Sources: NBER recession bars; Federal Reserve Board; US Department of Commerce

39. E C O N O M I C O U T L O O K D I S C U S S I O N, U C I H E A L T H C A R E C O N F E R E N C E, F E B R U A R Y 2 19, 2 0 0 8 39 There’s more to wealth than real estate Real consumer spending and income (percent change from four quarters earlier) Source: US Department of Commerce

40. E C O N O M I C O U T L O O K D I S C U S S I O N, U C I H E A L T H C A R E C O N F E R E N C E, F E B R U A R Y 2 19, 2 0 0 8 40 Oil can’t be in equilibrium Crude petroleum (West Texas Intermediate, dollars per barrel) Source: Bloomberg

41. E C O N O M I C O U T L O O K D I S C U S S I O N, U C I H E A L T H C A R E C O N F E R E N C E, F E B R U A R Y 2 19, 2 0 0 8 41 It takes time to respond to new incentives Oil exploration rig count Source: Baker Hughes

42. E C O N O M I C O U T L O O K D I S C U S S I O N, U C I H E A L T H C A R E C O N F E R E N C E, F E B R U A R Y 2 19, 2 0 0 8 42 … and we don’t have unrealistic expectations Wilshire 5000 P/E ratio Profits ($ trillions) Sources: Bloomberg; US Department of Commerce