3rd Quarter 2011 Chartbook

Member FINRA/SIPC

LPL FINANCIAL RESEARCH

Market Insight Quarterly Chart Book

Third Quarter 2011

LPL Financial Member FINRA/SIPC 2

LPL FINANCIAL RESEARCH LPL FINANCIAL RESEARCH

The Quarterly Market Insight Chart Book is intended to provide unbiased context to the markets and economy. The Chart Book provides a factual framework to discuss the issues most relevant to investing using simple to understand charts of key data. The Chart Book can be helpful in addressing key topics such as economic growth in the United States and abroad, job growth, stock market valuations, corporate profits, inflation, monetary policy, commodity prices, and bond yields. This data is intended to help investors understand performance, recognize risks, and identify opportunities.

There are two sections to the chart book. The main section features charts that w ill regularly appear in each quarterly edition. The second section features topical charts most relevant to the current environment that will vary from quarter-to-quarter.



Table of Content

4 Gross Domestic Products (GDP) Growth Rate

5 Emerging Market Gross Domestic Product (GDP) Growth

6 Budget Deficit Percent of Gross Domestic Product (GDP)

7 Unemployment Rate

8 Non-farm Job Growth

9 Wages and/or Personal Income/Personal Spending

10 Home Sales

11 Home Prices

12 Vehicle Sales

13 Current Conditions Index (CCI)

14 Current Conditions Index (CCI) Components

15 Consumer Price Index (CPI)

16 Commodity Price Index

17 Institute for Supply Management (ISM) Index

18 Consumer Sentiment

19 Federal Funds Rate with Futures Implied Going Out One Year

20 Federal Reserve (Fed) Balance Sheet

21 S&P 500 EPS Historical & Estimates for the Next Four Quarters

22 Historical S&P 500 PE Ratio Trailing & Forward

23 High-Yield Bond Spreads & Default Rate

24 10-Year Treasury Yield & 10-Year Treasury Yield Minus Core CPI

25 Investment-Grade Corporate Spread & Yield

26 Emerging Market Debt (EMD) Spread & Average Yield

27 30-Year Municipal Yields as a Percentage of Treasuries

28 Trade Weighted Dollar

29 Leading Economic Indicators

30 Treasury & Muni Yield Curves

Third Quarter Key Themes

32 A Recession of Confidence: Economic & Policy Uncertainty

33 Outlook May Be Brightening for Long-Term Investors

34 Bonds May Offer Poor Returns for Investors

35 A Recession of Confidence: Consumer Confidence & LEI

36 The Federal Reserves Next Steps

37 Greece Fire

38 What Else Can the Fed Do?

39 Classic Bubble Comparison



Gross Domestic Product (GDP) Growth Rate

(Shaded area indicates recession)

Gross Domestic Product (GDP) is the monetary value of all the finished goods and services produced within a country's

borders in a specific time period, though GDP is usually calculated on an annual basis. It includes all of private and public

consumption, government outlays, investments and exports less imports that occur within a defined territory.

Tracking# 734362 Exp. (7/13)

Real Gross Domestic Product: Quantity Index

(Percent Change From Prior Quarter, Annual Rate)

11 10 09 08 07 06 05 04 03 02 01

Source: Bureau of Economic Analysis /Haver Analytics 10/06/11

8

4

0

-4

-8

-12

8

4

0

-4

-8

-12

%



China: Gross Domestic Product (GDP) Growth

International investing involves special risks, such as currency fluctuation and political instability, and may not be suitable for all investors.

An emerging market is a nation that is progressing toward becoming advanced, as shown by some liquidity in local debt and equity markets

and the existence of some form of market exchange and regulatory body.

Gross Domestic Product (GDP) is the monetary value of all the finished goods and services produced within a country's borders in a specific

time period, though GDP is usually calculated on an annual basis. It includes all of private and public consumption, government outlays,

investments and exports less imports that occur within a defined territory.

Tracking# 734366 Exp. (7/13)

China: Gross Domestic Product at Current Prices and Exchange Rates

% Change - Year to Year Bil.US$

10 09 08 07 06 05 04 03 02 01 00 99 98 97 96

Source: China National Bureau of Statistics/Haver Analytics 10/06/11

30

25

20

15

10

5

30

25

20

15

10

5



Budget Deficit Percent of Gross Domestic Product (GDP)


Gross Domestic Product (GDP) is the monetary value of all the finished goods and services produced within a country's

borders in a specific time period, though GDP is usually calculated on an annual basis. It includes all of private and public

consumption, government outlays, investments and exports less imports that occur within a defined territory.

Tracking# 734363 Exp. (7/13)

Federal Surplus/Deficit as Percentage of GDP

Fiscal Year, %

10 05 00 95 90 85 80 75 70 65

Source: Office of Management and Budget /Haver Analytics 10/06/11

2.5

0.0

-2.5

-5.0

-7.5

-10.0

2.5

0.0

-2.5

-5.0

-7.5

-10.0



Unemployment Rate


The unemployment rate is the percentage of the total labor force that is unemployed but actively seeking

employment and willing to work.

Tracking# 734364 Exp. (7/13)

Civilian Unemployment Rate: 16 yr + Seasonally Adjusted

10 05 00 95 90 85 80 75 70 65 60 55 50 Source: Bureau of Labor Statistics /Haver Analytics 10/06/11

12

10

8

6

4

2

12

10

8

6

4

2



Non-farm Job Growth


Non-farm payroll employment is and economic indicator released by the U.S. Department of Labor. It is comprised

of goods producing, construction and manufacturing companies.

Tracking# 734365 Exp. (7/13)

Change in Total Private Employment Seasonally Adjusted, Thousands

11 10 09 08 07 06 05 04 03 02 01 Source: Bureau of Labor Statistics /Haver Analytics 10/06/11

500

250

0

-250

-500

-750

-1000

500

250

0

-250

-500

-750

-1000



Wages and/or Personal Income/Personal Spending


Personal spending is the amount of expenses an individual has accounted for during the year. It includes

mortgage payments, car payments, medical bills and shopping costs.

Tracking# 734368 Exp. (7/13)

Personal Income (right scale) % Change - Year to Year, Seasonally Adjusted Annual Rate, Bil.$

Personal Outlays (left scale) % Change - Year to Year SAAR, Bil.$

11 10 09 08 07 06 05 04 03 02 01 Sources: Bureau of Economic Analysis /Haver Analytics 10/06/11

12

8

4

0

-4

-8

8

6

4

2

0

-2

-4



Home Sales


Existing home sales is a measure of the number and price of sales of single-family homes other than new constructions. It is considered an

economic indicator of the availability and affordability of mortgages and real estate in the United States. It is also considered a lagging

indicator as it tends to react after changes in mortgage interest rates. Existing home sales tend to rise after a decline in mortgage rates and

fall when the opposite happens. The U.S. National Association of Realtors publishes existing home sales monthly.

Tracking# 734376 Exp. (7/13)

Existing 1-Family Home Sales: United States (left scale) Seasonally Adjusted Annual Rate, Thousands

New 1-Family Houses Sold: United States (right scale) Seasonally Adjusted Annual Rate, Thousands

11 10 09 08 07 06 05 04 03 02 Sources: NAR, CENSUS /Haver 10/06/11

6750

6000

5250

4500

3750

3000

1400

1200

1000

800

600

400

200



Home Prices


The S&P/Chase-Shiller U.S. National Home Price Index tracks the growth in value of real estate by following

the purchase price and resale value of homes that have undergone a minimum of two arm's-length

transactions. The index is named for its creators, Karl Chase and Robert Shiller.

Tracking# 734373 Exp. (7/13)

S&P/Case-Shiller Home Price Index: U.S. National

% Change - Year to Year, Not Seasonally Adjusted, Q1-00=100

10 05 00 95 90

Source: S&P, Fiserv, and MacroMarkets LLC /Haver Analytics 10/06/11

20

10

0

-10

-20

20

10

0

-10

-20



Vehicle Sales


Vehicle sales is the number of domestically produced units of cars, SUVs, minivans, and light trucks that are

sold. These sales are reported on the first business day of the month.

Tracking# 734374 Exp. (7/13)

Light Weight Vehicle Sales {Autos+Light Trucks}

Seasonally Adjusted Annual Rate, Mil.Units

10 05 00 95 90 Source: Bureau of Economic Analysis/Haver Analytics 10/06/11

22.5

20.0

17.5

15.0

12.5

10.0

7.5

22.5

20.0

17.5

15.0

12.5

10.0

7.5



Current Conditions Index (CCI)

Source: LPL Financial 10/12/11

The Current Conditions Index is a weekly measure of the conditions that underpin our outlook for the markets and economy. The CCI provides

real-time context and insight into the trends that shape our recommended actions to manage portfolios. This weekly index is not intended to be a

leading index or predictive of where conditions are headed, but a coincident measure of where they are right now. We want to track the

conditions in real-time to aid in investment decision making. Please see the weekly Current Conditions Index publication for specifics surrounding

the make-up of the CCI.

Tracking# 734375 Exp. (7/13)



Current Conditions Index (CCI) Components

Source: LPL Financial 10/12/11

The Current Conditions Index (CCI) components are made up of 10 indicators that provided a weekly, real-time measure of the conditions in the

economic and market environment. We standardized these components compared to their pre-crisis 10-year average, equally weighted their

standardized scores, and aligned the resulting index with zero at the start of 2009. These components capture how the conditions are evolving

from a wide range of angles. Each component is important and measures a different driver of the environment. Please see the w eekly Current

Conditions Index publication for specifics surrounding the make-up of the CCI.

Tracking# 734379 Exp. (7/13)



Consumer Price Index (CPI)


The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban

consumers for a market basket of consumer goods and services.

Tracking#734382 Exp. (07/13)

CPI-U: All Items % Change - Year to Year, Seasonally Adjusted, 1982-84=100

CPI-U: All Items Less Food and Energy % Change - Year to Year Seasonally Adjusted, 1982-84=100

10 05 00 95 90 85 80 75 70 65 Sources: Bureau of Labor Statistics /Haver Analytics 10/06/11

16

12

8

4

0

-4

16

12

8

4

0

-4



Commodity Prices


The CRB Index is an unmanaged index, which cannot be invested into directly. Past performance is no guarantee of future

results.

The Commodity Research Bureau (CRB) Index is an index that measures the overall direction of commodity sectors. The

CRB was designed to isolate and reveal the directional movement of prices in overall commodity trades.

The fast price swings in commodities and currencies will result in significant volatility in an investor's holdings.

Tracking# 734380 Exp. (07/13)

KR-CRB Spot Commodity Price Index: All Commodities 1967=100

10 05 00 95 90 Source: Commodity Research Bureau /Haver Analytics 10/06/11

600

500

400

300

200

600

500

400

300

200



Institute for Supply Management (ISM) Index


The ISM index is based on surveys of more than 300 manufacturing firms by the Institute of Supply Management. The ISM

Manufacturing Index monitors employment, production inventories, new orders, and supplier deliveries. A composite

diffusion index is created that monitors conditions in national manufacturing based on the data from these surveys.

Purchasing Managers Index (PMI) is an indicator of the economic health of the manufacturing sector. The PMI index is

based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment

environment.

Tracking# 734381 Exp. (07/13

ISM Manufacturing: PMI Composite Index Seasonally Adjusted, 50+=Increasing

10 05 00 95 90 Source: Institute for Supply Management /Haver Analytics 10/06/11

75

70

65

60

55

50

45

40

35

30

25

75

70

65

60

55

50

45

40

35

30

25



Consumer Sentiment


The University of Michigan Consumer Sentiment Index (MCSI) is a survey of consumer confidence

conducted by the University of Michigan. The Michigan Consumer Sentiment Index (MCSI) uses telephone

surveys to gather information on consumer expectations regarding the overall economy.

Tracking# 734383 Exp. (07/13)

University of Michigan: Consumer Sentiment Not Seasonally Adjusted, Q1-66=100

10 05 00 95 90 Source: University of Michigan /Haver Analytics 10/06/11

120

100

80

60

40

120

100

80

60

40



Federal Funds Rate with Futures Implied Rates Going Out One Year


The Federal Funds Rate is the interest rate at which a depository institution lends immediately available

funds (balances at the Federal Reserve) to another depository institution overnight.

Tracking# 734384 Exp. (07/13)

Federal Open Market Committee: Fed Funds Target Rate

%

10 05 00 95 90 Source: Federal Reserve Board /Haver Analytics 10/06/11

10

8

6

4

2

0

10

8

6

4

2

0



Federal Reserve (Fed) Balance Sheet


The Federal Reserve Balance Sheet is the breakdown of the assets and liabilities held by the Federal

Reserve.

Tracking# 734388 Exp. (07/13)

All Fed Res Banks: Total Assets End of Period, Bil.$

10 05 00 95 90 Source: Federal Reserve Board /Haver Analytics 10/06/11

3000

2500

2000

1500

1000

500

0

3000

2500

2000

1500

1000

500

0



S&P 500 EPS Historical & Estimates for the Next Four Quarters

Source: LPL Financial, Thomson Financial, Bloomberg data 9/30/11

The S&P 500 is an unmanaged index, which cannot be invested into directly. Past performance is no guarantee of future results.

The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic

economy through changes in the aggregate market value of 500 stocks representing all major industries.

Earnings per share (EPS) is the portion of a company's profit allocated to each outstanding share of common stock. EPS serves as an

indicator of a company's profitability. Earnings per share is generally considered to be the single most important variable in determining a

share's price. It is also a major component used to calculate the price-to-earnings valuation ratio.

Tracking# 734389 Exp. (07/13)

$0

$20

$40

$60

$80

$100

$120 1

99

0

19

92

19

94

19

96

19

98

20

00

20

02

20

04

20

06

20

08

20

10

20

12



Historical S&P 500 PE Ratio Trailing & Forward

Source: LPL Financial, Thomson Financial, Bloomberg data 9/30/11

The S&P 500 is an unmanaged index, which cannot be invested into directly. Past performance is no guarantee of future results.

The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in

the aggregate market value of 500 stocks representing all major industries.

The P/E ratio (price-to-earnings ratio) is a measure of the price paid for a share relative to the annual net income or profit earned by the firm per share. It is a financial

ratio used for valuation: a higher P/E ratio means that investors are paying more for each unit of net income, so the stock is more expensive compared to one with

lower P/E ratio.

Tracking# 734387 Exp. (07/13)

0

5

10

15

20

25

30

35

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010 0

5

10

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25

30

35

1930

1935

1940

1945

1950

1955

1960

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1970

1975

1980

1985

1990

1995

2000

2005

2010

S&P 500 Forward PE Ratio S&P 500 Trailing PE Ratio



High Yield Bond Spreads & Default Rate

Source: Barclays, Moodys, LPL Financial 9/30/11

All Indices are unmanaged and cannot be invested into directly.

High yield/junk bonds (grade BB or below) are not investment grade securities, and are subject to higher interest rate, credit, and liquidity risks than those

graded BBB and above. They generally should be part of a diversified portfolio for sophisticated investors.

Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and are subject to availability and

change in price.

High-Yield spread is the yield differential between the average yield of high-yield bonds and the average yield of comparable maturity Treasury bonds.

The Default Rate This rate can be used in reference to two main things: The rate of borrowers who fail to remain current on their loans. It is a critical piece of

information used by lenders to determine their risk exposure and economists to evaluate the health of the overall economy. And, The interest rate charged to

a borrower when payments on a revolving line of credit are overdue. This higher rate is applied to outstanding balances in arrears in addition to the regular

interest charges for the debt.

Tracking# 734390 Exp. (7/13)

1

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10

20

11

Perc

en

t

High Yield Spread and Default Rate

High-Yield Spread Default Rate



10-year Treasury yield & 10-year Treasury Yield Minus Core

Consumer Price Index (CPI)


The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer

goods and services.

Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity,

offer a fixed rate of return and fixed principal value. However, the value of a fund shares is not guaranteed and will fluctuate.

Tracking# 734391 Exp. (7/13)

10-Year Treasury Note Yield at Constant Maturity

Average,%

11 10 09 08 07 06 05 04 03 02

Source: U.S. Treasury /Haver Analytics 10/06/11

6.00

5.25

4.50

3.75

3.00

2.25

1.50

Real Yield

11 10 09 08 07 06 05 04 03 02 Source: Haver Analytics 10/06/11

3.75

3.00

2.25

1.50

0.75

0.00



Investment-Grade Corporate Spread & Yield

Source: FactSet 09/30/11

Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and are subject to availability and change in price.

Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional

risks based on the quality of issuer coupon rate, price, yield, maturity and redemption features.


Tracking# 734392 Exp. (7/13)

BAML Corporate Master Index to Treasury Master Index

Yield to Maturity Spread


8

6

4

2

0

BofAML Merrill Lynch Corporate Master: Yield to Maturity %

11 10 09 08 07 06 05 04 03 02 01 Source: Bank of America Merrill Lynch /Haver Analytics 10/06/11

10

8

6

4

2



Emerging Market Debt (EMD) Spread & Yield

Source: FactSet 09/30/11

The Barclays Global EM Bond Index is unmanaged and cannot be invested into directly. Past performance is no guarantee of future results.

International and emerging markets investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors.


Yield is the income return on an investment. This refers to the interest or dividends received from a security and is usually expressed annually as a percentage based

on the investment's cost, its current market value or its face value.

Tracking# 734393 Exp. (7/13)

5.0

7.0

9.0

11.0

13.0

15.0

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

Yie

ld (

%)

Barclays Global EM Bond Index Yield



30-year Municipal Yields as a Percentage of Treasuries


Municipal bonds are subject to availability, price, and to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rate

rise. Interest income may be subject to the alternative minimum tax. Federally tax-free but other state and local taxes may apply.

Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and are subject to availability

and change in price.



An obligation rated 'AAA' has the highest rating assigned by Standard & Poor's. The obligor's capacity to meet its financial commitment on the

obligation is extremely strong.

Tracking# 734394 Exp. (7/13)

30-year AAA Municipal Yield as a Percentage of Treasuries


225

200

175

150

125

100

75



Trade Weighted Dollar


Trade weighted dollar is a representation of the foreign currency price of the US dollar or the export value of

the US dollar.

Tracking# 734395 Exp. (7/13)

Nominal Trade-Weighted Exch Value of US$ vs Major Currencies

Mar-73=100

10 05 00 95 90 85 80 75 Source: Federal Reserve Board /Haver Analytics 10/06/11

160

140

120

100

80

60

160

140

120

100

80

60



Leading Economic Indicators


ECRI's Weekly Leading Index (WLI) is a composite index constructed of seven USA weekly economic series (M2, JOC-ECRI industrial

materials price index, initial unemployment insurance claims, mortgage applications, S&P 500, 10-yr Treasury bond yield, and bond quality

spread). The limited availability of weekly data constrains the number of variables in the composite index, but this has not hurt the WLI's

predictive power.

Tracking# 734396 Exp. (7/13)

ECRI Weekly Leading Index 1992=100

10 05 00 95 90 Source: Haver Analytics 10/06/11

160

140

120

100

80

160

140

120

100

80



Treasury & Muni Yield Curves

Source: Factset 09/30/11

An obligation rated 'AAA' has the highest rating assigned by Standard & Poor's. The obligor's capacity to meet its financial commitment on the obligation is extremely strong.

Municipal bonds are subject to availability, price, and to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rate rise. Interest income may be

subject to the alternative minimum tax. Federally tax-free but other state and local taxes may apply.

Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return

and fixed principal value. However, the value of a fund shares is not guaranteed and will fluctuate.

Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and are subject to availability and change in price.

Yield Curve is a line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity dates. The most frequently reported yield curve

compares the three-month, two-year, five-year and 30-year U.S. Treasury debt. This yield curve is used as a benchmark for other debt in the market, such as mortgage rates or

bank lending rates. The curve is also used to predict changes in economic output and growth.

Tracking# 734397 Exp. (7/13)

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

5.00

2012

2014

2016

2018

2020

2022

2024

2026

2028

2030

2032

2034

2036

2038

2040

Yie

ld

Maturity

US Treasury Yield Curve

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

5.00

2012

2014

2016

2018

2020

2022

2024

2026

2028

2030

2032

2034

2036

2038

2040

Yie

ld

Maturity

AAA Municipal GO

Second Quarter Key Themes



A Recession of Confidence

The Beige Book is a commonly used name for the Fed report called the Summary of Commentary on Current Economic Conditions by

Federal Reserve District. It is published just before the FOMC meeting on interest rates and is used to inform the members on changes in

the economy since the last meeting.

Tracking #1-011518 Exp. (10/13)

Elevated Economic and Policy Uncertainty Evident In Fed Beige Book



Outlook May Be Brightening for Long-Term Investors

Source: LPL Financial, Thomson Financial, Bloomberg 09/2/11

The S&P 500 is an unmanaged index, which cannot be invested into directly. Past performance is no guarantee of future results. The P/E ratio

(price-to-earnings ratio) is a measure of the price paid for a share relative to the annual net income or profit earned by the firm per share. It is a

financial ratio used for valuation: a higher P/E ratio means that investors are paying more for each unit of net income, so the stock is more

expensive compared to one with lower P/E ratio.

Tracking #1-011519 Exp. (07/13)



Bonds May Offer Poor Returns to Investors

Source: LPL Financial, Ibbotson Associates, Bloomberg 09/2/11



Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values and yields will decline as interest rates rise and bonds are subject

to availability and change in price.

Tracking #1-011506 Exp. (10/13)




Source: LPL Financial, Bloomberg data 9/14/11 Please note, chart represents both private and public sector jobs.

Tracking #1-011509 Exp. (10/13)

0%

1%

2%

3%

4%

5%

6%

0 6 12 18 24 30 36

2010 1991

2003

Job Recovery Since Low in 2010 in line with Past Recoveries




Source: LPL Financial, Bloomberg data 9/14/11 The index of leading economic indicators (LEI) is an economic variable, such as private-sector wages, that tends to show the

direction of future economic activity

Tracking # 1-011510 Exp. (10/13)

(left scale) (right scale)



Source: LPL Financial, Bloomberg data 9/14/11

Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values and yields will decline as interest rates rise and bonds are subject to availability and

change in price.

International and emerging markets investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors.

A Credit Default Swap (CDS) is designed to transfer the credit exposure of fixed income products between parties. The buyer of a credit swap receives credit protection,

whereas the seller of the swap guarantees the credit worthiness of the product. By doing this, the risk of default is transferred from the holder of the fixed income security to the

seller of the swap.

Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of

return and fixed principal value. However, the value of a fund shares is not guaranteed and will fluctuate. Tracking # 1-011528 Exp. (10/13)

Greece Fire: Likelihood of Default and Impact is Very Different



Quantitative Easing is a government monetary policy occasionally used to increase the money supply by buying government securities or other securities from the

market. Quantitative easing increases the money supply by flooding financial institutions with capital in an effort to promote increased lending and liquidity.

The Federal Open Market Committee action known as Operation Twist began in 1961. The intent was to flatten the yield curve in order to promote capital inflows and

strengthen the dollar. The Fed utilized open market operations to shorten the maturity of public debt in the open market. The action has subsequently been

reexamined in isolation and found to have been more effective than originally thought. As a result of this reappraisal, similar action has been suggested as an

alternative to quantitative easing by central banks.

Mortgage-Backed Securities are subject to credit, default risk, prepayment risk that acts much like call risk when you get your principal back sooner than the stated

maturity, extension risk, the opposite of prepayment risk, and interest rate risk.

Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed

rate of return and fixed principal value. However, the value of a fund shares is not guaranteed and will fluctuate.

Tracking #1-013916 Exp. (10/13)

The Federal Reserve: What Else Can The Fed Do?

What Has The Fed Already Done

• Lowered Fed Funds Rate From 5.25% To 0.25%: September 2007- December 2008

• QE1: November 2008- March 2010

• QE2: November 2010- June 2011

• Commit to keeping Fed Funds Rate Near Zero Until Mid 2013: Announced August 2011

• Operation Twist: Announced September 2011

What More Can The Fed Do?

• Increase the size of “Operation Twist”

• Lower Rate on Overnight Excess Reserves

• QE3

• Expand QE3 to assets beyond Treasuries and Agency mortgage backed securities



Classic Bubble Comparison

-200%

0%

200%

400%

600%

800%

1000%

1200%

0 1 2 3 4 5 6 7 8 9 10 11 12

NASDAQ 3/16/1990

Oil Price 6/26/1998

S&P 500 Homebuilders 6/30/1995

Gold Price 1/4/2002

Year of Bubble

Source: LPL Financial, Bloomberg Data 9/29/11

Bubble describes an economic cycle characterized by rapid expansion followed by a contraction.

The fast price swings in commodities and currencies will result in significant volatility in an investor's holdings.

Precious metal investing is subject to substantial fluctuation and potential for loss.

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Important Disclosure

The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual. To determine which investments may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.

This research material has been prepared by LPL Financial.

The LPL Financial family of affiliated companies includes LPL Financial and UVEST Financial Services Group, Inc., each of which is a member of FINRA/SIPC.

To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial is not an affiliate of and makes no representation with respect to such entity.

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3rd Quarter 2011 Chartbook

Economy & Finance

Transcript of 3rd Quarter 2011 Chartbook