3rd Quarter 2011 Chartbook

959 views
904 views

Published on

Published in: Economy & Finance, Business
0 Comments
1 Like
Statistics
Notes
  • Be the first to comment

No Downloads
Views
Total views
959
On SlideShare
0
From Embeds
0
Number of Embeds
1
Actions
Shares
0
Downloads
8
Comments
0
Likes
1
Embeds 0
No embeds

No notes for slide

3rd Quarter 2011 Chartbook

  1. 1. LPL FINANCIAL RESEARCH M arket Insight Quarterly Chart BookThird Quarter 2011 Member FINRA/SIPC
  2. 2. LPL FINANCIAL RESEARCHThe Quarterly M arket Insight Chart Book is intended to provide unbiasedcontext to the markets and economy. The Chart Book provides a factualframew ork to discuss the issues most relevant to investing using simpleto understand charts of key data. The Chart Book can be helpful inaddressing key topics such as economic grow th in the United States andabroad, job grow th, stock market valuations, corporate profits, inflation,monetary policy, commodity prices, and bond yields. This data is intendedto help investors understand performance, recognize risks, and identifyopportunities.There are tw o sections to the chart book. The main section featurescharts that w ill regularly appear in each quarterly edition. The secondsection features topical charts most relevant to the current environmentthat w ill vary from quarter-to-quarter. LPL Financial Member FINRA/SIPC 2
  3. 3. LPL FINANCIAL RESEARCH Table of Content4 Gross Domestic Products (GDP) Grow th Rate 23 High-Yield Bond Spreads & Default Rate5 Emerging M arket Gross Domestic Product (GDP) Grow th 24 10-Year Treasury Yield & 10-Year Treasury Yield M inus Core CPI6 Budget Deficit Percent of Gross Domestic Product (GDP) 25 Investment-Grade Corporate Spread & Yield7 Unemployment Rate 26 Emerging M arket Debt (EM D) Spread & Average Yield8 Non-farm Job Grow th 27 30-Year M unicipal Yields as a Percentage of Treasuries9 Wages and/or Personal Income/Personal Spending 28 Trade Weighted Dollar10 Home Sales 29 Leading Economic Indicators11 Home Prices 30 Treasury & M uni Yield Curves12 Vehicle Sales13 Current Conditions Index (CCI)14 Current Conditions Index (CCI) Components Third Quarter Key Themes15 Consumer Price Index (CPI) 32 A Recession of Confidence: Economic & Policy Uncertainty16 Commodity Price Index 33 Outlook M ay Be Brightening for Long-Term Investors17 Institute for Supply M anagement (ISM ) Index 34 Bonds M ay Offer Poor Returns for Investors18 Consumer Sentiment 35 A Recession of Confidence: Consumer Confidence & LEI19 Federal Funds Rate w ith Futures Implied Going Out One Year 36 The Federal Reserves Next Steps20 Federal Reserve (Fed) Balance Sheet 37 Greece Fire21 S&P 500 EPS Historical & Estimates for the Next Four Quarters 38 What Else Can the Fed Do?22 Historical S&P 500 PE Ratio Trailing & Forw ard 39 Classic Bubble Comparison LPL Financial Member FINRA/SIPC 3
  4. 4. LPL FINANCIAL RESEARCHGross Domestic Product (GDP) Grow th Rate Real Gross Domestic Product: Quantity Index (Percent Change From Prior Quarter, Annual Rate) % 8 8 4 4 0 0 -4 -4 -8 -8 -12 -12 01 02 03 04 05 06 07 08 09 10 11 Source: Bureau of Economic Analysis /Haver Analytics 10/06/11 (Shaded area indicates recession) Gross Domestic Product (GDP) is the monetary value of all the finished goods and services produced w ithin a countrys 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 w ithin a defined territory. Tracking# 734362 Exp. (7/13) LPL Financial Member FINRA/SIPC 4
  5. 5. LPL FINANCIAL RESEARCHChina: Gross Domestic Product (GDP) Grow th China: Gross Domestic Product at Current Prices and Exchange Rates % Change - Year to Year Bil.US$ 30 30 25 25 20 20 15 15 10 10 5 5 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 Source: China National Bureau of Statistics/Haver Analytics 10/06/11 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 tow ard becoming advanced, as show n 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 w ithin a countrys 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 w ithin a defined territory. Tracking# 734366 Exp. (7/13) LPL Financial Member FINRA/SIPC 5
  6. 6. LPL FINANCIAL RESEARCHBudget Deficit Percent of Gross Domestic Product (GDP) Federal Surplus/Deficit as Percentage of GDP Fiscal Year, % 2.5 2.5 0.0 0.0 -2.5 -2.5 -5.0 -5.0 -7.5 -7.5 -10.0 -10.0 65 70 75 80 85 90 95 00 05 10 Source: Office of Management and Budget /Haver Analytics 10/06/11 (Shaded area indicates recession) Gross Domestic Product (GDP) is the monetary value of all the finished goods and services produced w ithin a countrys 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 w ithin a defined territory. Tracking# 734363 Exp. (7/13) LPL Financial Member FINRA/SIPC 6
  7. 7. LPL FINANCIAL RESEARCHUnemployment Rate Civilian Unemployment Rate: 16 yr + Seasonally Adjusted 12 12 10 10 8 8 6 6 4 4 2 2 50 55 60 65 70 75 80 85 90 95 00 05 10 Source: Bureau of Labor Statistics /Haver Analytics 10/06/11 (Shaded area indicates recession) The unemployment rate is the percentage of the total labor force that is unemployed but actively seeking employment and w illing to w ork. Tracking# 734364 Exp. (7/13) LPL Financial Member FINRA/SIPC 7
  8. 8. LPL FINANCIAL RESEARCHNon-farm Job Grow th Change in Total Private Employment Seasonally Adjusted, Thousands 500 500 250 250 0 0 -250 -250 -500 -500 -750 -750 -1000 -1000 01 02 03 04 05 06 07 08 09 10 11 Source: Bureau of Labor Statistics /Haver Analytics 10/06/11 (Shaded area indicates recession) 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) LPL Financial Member FINRA/SIPC 8
  9. 9. LPL FINANCIAL RESEARCHWages and/or Personal Income/Personal Spending Personal Income (right scale) % Change - Year to Year, Seasonally Adjusted Annual Rate, Bil.$ Personal Outlays (left scale) % Change - Year to Year SAAR, Bil.$ 12 8 6 8 4 4 2 0 0 -4 -2 -8 -4 01 02 03 04 05 06 07 08 09 10 11 Sources: Bureau of Economic Analysis /Haver Analytics 10/06/11 (Shaded area indicates recession) 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) LPL Financial Member FINRA/SIPC 9
  10. 10. LPL FINANCIAL RESEARCHHome Sales 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 6750 1400 1200 6000 1000 5250 800 4500 600 3750 400 3000 200 02 03 04 05 06 07 08 09 10 11 Sources: NAR, CENSUS /Haver 10/06/11 (Shaded area indicates recession) 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 w hen the opposite happens. The U.S. National Association of Realtors publishes existing home sales monthly. Tracking# 734376 Exp. (7/13) LPL Financial Member FINRA/SIPC 10
  11. 11. LPL FINANCIAL RESEARCHHome Prices S&P/Case-Shiller Home Price Index: U.S. National % Change - Year to Year, Not Seasonally Adjusted, Q1-00=100 20 20 10 10 0 0 -10 -10 -20 -20 90 95 00 05 10 Source: S&P, Fiserv, and MacroMarkets LLC /Haver Analytics 10/06/11 (Shaded area indicates recession) The S&P/Chase-Shiller U.S. National Home Price Index tracks the grow th in value of real estate by follow ing the purchase price and resale value of homes that have undergone a minimum of tw o arms-length transactions. The index is named for its creators, Karl Chase and Robert Shiller. Tracking# 734373 Exp. (7/13) LPL Financial Member FINRA/SIPC 11
  12. 12. LPL FINANCIAL RESEARCHVehicle Sales Light Weight Vehicle Sales {Autos+Light Trucks} Seasonally Adjusted Annual Rate, Mil.Units 22.5 22.5 20.0 20.0 17.5 17.5 15.0 15.0 12.5 12.5 10.0 10.0 7.5 7.5 90 95 00 05 10 Source: Bureau of Economic Analysis/Haver Analytics 10/06/11 (Shaded area indicates recession) 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) LPL Financial Member FINRA/SIPC 12
  13. 13. LPL FINANCIAL RESEARCHCurrent Conditions Index (CCI) Source: LPL Financial 10/12/11 The Current Conditions Index is a w eekly 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 w eekly index is not intended to be a leading index or predictive of w here conditions are headed, but a coincident measure of w here they are right now . We w ant to track the conditions in real-time to aid in investment decision making. Please see the w eekly Current Conditions Index publication for specifics surrounding the make-up of the CCI. Tracking# 734375 Exp. (7/13) LPL Financial Member FINRA/SIPC 13
  14. 14. LPL FINANCIAL RESEARCHCurrent 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 w eekly, 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 w eighted their standardized scores, and aligned the resulting index w ith zero at the start of 2009. These components capture how the conditions are evolving from a w ide 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) LPL Financial Member FINRA/SIPC 14
  15. 15. LPL FINANCIAL RESEARCHConsumer Price Index (CPI) 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 16 16 12 12 8 8 4 4 0 0 -4 -4 65 70 75 80 85 90 95 00 05 10 Sources: Bureau of Labor Statistics /Haver Analytics 10/06/11 (Shaded area indicates recession) 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) LPL Financial Member FINRA/SIPC 15
  16. 16. LPL FINANCIAL RESEARCHCommodity Prices KR-CRB Spot Commodity Price Index: All Commodities 1967=100 600 600 500 500 400 400 300 300 200 200 90 95 00 05 10 Source: Commodity Research Bureau /Haver Analytics 10/06/11 (Shaded area indicates recession) The CRB Index is an unmanaged index, w hich 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 w as designed to isolate and reveal the directional movement of prices in overall commodity trades. The fast price sw ings in commodities and currencies w ill result in significant volatility in an investors holdings. Tracking# 734380 Exp. (07/13) LPL Financial Member FINRA/SIPC 16
  17. 17. LPL FINANCIAL RESEARCHInstitute for Supply M anagement (ISM ) Index ISM Manufacturing: PMI Composite Index Seasonally Adjusted, 50+=Increasing 75 75 70 70 65 65 60 60 55 55 50 50 45 45 40 40 35 35 30 30 25 25 90 95 00 05 10 Source: Institute for Supply Management /Haver Analytics 10/06/11 (Shaded area indicates recession) The ISM index is based on surveys of more than 300 manufacturing firms by the Institute of Supply M anagement. The ISM M anufacturing 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 M anagers Index (PM I) is an indicator of the economic health of the manufacturing sector. The PM I index is based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment. Tracking# 734381 Exp. (07/13 LPL Financial Member FINRA/SIPC 17
  18. 18. LPL FINANCIAL RESEARCHConsumer Sentiment University of Michigan: Consumer Sentiment Not Seasonally Adjusted, Q1-66=100 120 120 100 100 80 80 60 60 40 40 90 95 00 05 10 Source: University of Michigan /Haver Analytics 10/06/11 (Shaded area indicates recession) The University of M ichigan Consumer Sentiment Index (M CSI) is a survey of consumer confidence conducted by the University of M ichigan. The M ichigan Consumer Sentiment Index (M CSI) uses telephone surveys to gather information on consumer expectations regarding the overall economy. Tracking# 734383 Exp. (07/13) LPL Financial Member FINRA/SIPC 18
  19. 19. LPL FINANCIAL RESEARCHFederal Funds Rate w ith Futures Implied Rates Going Out One Year Federal Open Market Committee: Fed Funds Target Rate % 10 10 8 8 6 6 4 4 2 2 0 0 90 95 00 05 10 Source: Federal Reserve Board /Haver Analytics 10/06/11 (Shaded area indicates recession) The Federal Funds Rate is the interest rate at w hich a depository institution lends immediately available funds (balances at the Federal Reserve) to another depository institution overnight. Tracking# 734384 Exp. (07/13) LPL Financial Member FINRA/SIPC 19
  20. 20. LPL FINANCIAL RESEARCHFederal Reserve (Fed) Balance Sheet All Fed Res Banks: Total Assets End of Period, Bil.$ 3000 3000 2500 2500 2000 2000 1500 1500 1000 1000 500 500 0 0 90 95 00 05 10 Source: Federal Reserve Board /Haver Analytics 10/06/11 (Shaded area indicates recession) The Federal Reserve Balance Sheet is the breakdow n of the assets and liabilities held by the Federal Reserve. Tracking# 734388 Exp. (07/13) LPL Financial Member FINRA/SIPC 20
  21. 21. LPL FINANCIAL RESEARCHS&P 500 EPS Historical & Estimates for the Next Four Quarters $120 $100 $80 $60 $40 $20 $0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 Source: LPL Financial, Thomson Financial, Bloomberg data 9/30/11 The S&P 500 is an unmanaged index, w hich cannot be invested into directly. Past performance is no guarantee of future results. The Standard & Poor’s 500 Index is a capitalization-w eighted 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 companys profit allocated to each outstanding share of common stock. EPS serves as an indicator of a companys profitability. Earnings per share is generally considered to be the single most important variable in determining a shares price. It is also a major component used to calculate the price-to-earnings valuation ratio. Tracking# 734389 Exp. (07/13) LPL Financial Member FINRA/SIPC 21
  22. 22. LPL FINANCIAL RESEARCH Historical S&P 500 PE Ratio Trailing & Forw ard S&P 500 Forward PE Ratio S&P 500 Trailing PE Ratio35 3530 3025 2520 2015 1510 105 50 0 1990 1978 1980 1982 1984 1986 1988 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 1935 1930 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 Source: LPL Financial, Thomson Financial, Bloomberg data 9/30/11 The S&P 500 is an unmanaged index, w hich cannot be invested into directly. Past performance is no guarantee of future results. The Standard & Poor’s 500 Index is a capitalization-w eighted 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 w ith low er P/E ratio. Tracking# 734387 Exp. (07/13) LPL Financial Member FINRA/SIPC 22
  23. 23. LPL FINANCIAL RESEARCHHigh Yield Bond Spreads & Default Rate High Yield Spread and Default Rate High-Yield Spread Default Rate 21 19 17 15 Percent 13 11 9 7 5 3 1 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: Barclays, M oodys, 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 w ill decline as interest rates rise and are subject to availability and change in price. High-Yield spread is the yield differential betw een 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 tw o main things: The rate of borrow ers w ho fail to remain current on t heir 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 borrow er w hen 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) LPL Financial Member FINRA/SIPC 23
  24. 24. LPL FINANCIAL RESEARCH 10-year Treasury yield & 10-year Treasury Yield M inus Core Consumer Price Index (CPI) 10-Year Treasury Note Yield at Constant Maturity Real Yield Average,%3.75 6.00 5.253.00 4.502.25 3.751.50 3.000.75 2.250.00 1.50 02 03 04 05 06 07 08 09 10 11 02 03 04 05 06 07 08 09 10 11 Source: Haver Analytics 10/06/11 Source: U.S. Treasury /Haver Analytics 10/06/11 (Shaded area indicates recession) 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. How ever, the value of a fund shares is not guaranteed and w ill fluctuate. Tracking# 734391 Exp. (7/13) LPL Financial Member FINRA/SIPC 24
  25. 25. LPL FINANCIAL RESEARCH Investment-Grade Corporate Spread & Yield BAML Corporate Master Index to Treasury Master Index Yield to Maturity Spread % BofAML Merrill Lynch Corporate Master: Yield to Maturity8 106 84 62 40 2 01 02 03 04 05 06 07 08 09 10 11 00 01 02 03 04 05 06 07 08 09 Source: Bank of America Merrill Lynch /Haver Analytics 10/06/11 Source: Haver Analytics 10/06/11 Source: FactSet 09/30/11 Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values w ill 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 w ell as additional risks based on the quality of issuer coupon rate, price, yield, maturity and redemption features. High-Yield spread is the yield differential betw een the average yield of high-yield bonds and the average yield of comparable maturity Treasury bonds. Tracking# 734392 Exp. (7/13) LPL Financial Member FINRA/SIPC 25
  26. 26. LPL FINANCIAL RESEARCHEmerging M arket Debt (EM D) Spread & Yield Barclays Global EM Bond Index Yield 15.0 13.0 Yield (%) 11.0 9.0 7.0 5.0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011Source: FactSet 09/30/11The 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.High-Yield spread is the yield differential betw een the average yield of high-yield bonds and the average yield of comparable maturity Treasury bonds.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 basedon the investments cost, its current market value or its face value.Tracking# 734393 Exp. (7/13) LPL Financial Member FINRA/SIPC 26
  27. 27. LPL FINANCIAL RESEARCH30-year M unicipal Yields as a Percentage of Treasuries 30-year AAA Municipal Yield as a Percentage of Treasuries 225 200 175 150 125 100 75 02 03 04 05 06 07 08 09 10 11 Source: Haver Analytics 10/06/11 (Shaded area indicates recession) M unicipal bonds are subject to availability, price, and to market and interest rate risk if sold prior to maturity. Bond values w ill 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 w ill decline as interest rates rise and are subject to availability and change in price. 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. How ever, the value of a fund shares is not guaranteed and w ill fluctuate. An obligation rated AAA has the highest rating assigned by Standard & Poors. The obligors capacity to meet its financial commitment on the obligation is extremely strong. Tracking# 734394 Exp. (7/13) LPL Financial Member FINRA/SIPC 27
  28. 28. LPL FINANCIAL RESEARCHTrade Weighted Dollar Nominal Trade-Weighted Exch Value of US$ vs Major Currencies Mar-73=100 160 160 140 140 120 120 100 100 80 80 60 60 75 80 85 90 95 00 05 10 Source: Federal Reserve Board /Haver Analytics 10/06/11 (Shaded area indicates recession) Trade w eighted 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) LPL Financial Member FINRA/SIPC 28
  29. 29. LPL FINANCIAL RESEARCHLeading Economic Indicators ECRI Weekly Leading Index 1992=100 160 160 140 140 120 120 100 100 80 80 90 95 00 05 10 Source: Haver Analytics 10/06/11 (Shaded area indicates recession) ECRIs Weekly Leading Index (WLI) is a composite index constructed of seven USA w eekly economic series (M 2, 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 w eekly data constrains the number of variables in the composite index, but this has not hurt the WLIs predictive pow er. Tracking# 734396 Exp. (7/13) LPL Financial Member FINRA/SIPC 29
  30. 30. LPL FINANCIAL RESEARCH Treasury & M uni Yield Curves US Treasury Yield Curve AAA M unicipal GO 5.00 5.00 4.50 4.50 4.00 4.00 3.50 3.50 3.00 3.00Yield Yield 2.50 2.50 2.00 2.00 1.50 1.50 1.00 1.00 0.50 0.50 0.00 0.00 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 M aturity M aturity Source: Factset 09/30/11 An obligation rated AAA has the highest rating assigned by Standard & Poors. The obligors capacity to meet its financial commitment on the obligation is extremely strong. M unicipal bonds are subject to availability, price, and to market and interest rate risk if sold prior to maturity. Bond values w ill 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. How ever, the value of a fund shares is not guaranteed and w ill fluctuate. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values w ill 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, tw o-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 grow th. Tracking# 734397 Exp. (7/13) LPL Financial Member FINRA/SIPC 30
  31. 31. Second Quarter Key Themes
  32. 32. LPL FINANCIAL RESEARCHA Recession of ConfidenceElevated Economic and Policy Uncertainty Evident In Fed Beige Book 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 FOM C 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) LPL Financial Member FINRA/SIPC 32
  33. 33. LPL FINANCIAL RESEARCHOutlook M ay 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) LPL Financial Member FINRA/SIPC 33
  34. 34. LPL FINANCIAL RESEARCHBonds M ay Offer Poor Returns to Investors Source: LPL Financial, Ibbotson Associates, Bloomberg 09/2/11 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 and yields will decline as interest rates rise and bonds are subject to availability and change in price. Tracking #1-011506 Exp. (10/13) LPL Financial Member FINRA/SIPC 34
  35. 35. LPL FINANCIAL RESEARCHA Recession of Confidence Job Recovery Since Low in 2010 in line with Past Recoveries 6% 5% 4% 3% 2003 2% 2010 1991 1% 0% 0 6 12 18 24 30 36 Source: LPL Financial, Bloomberg data 9/14/11 Please note, chart represents both private and public sector jobs. Tracking #1-011509 Exp. (10/13) LPL Financial Member FINRA/SIPC 35
  36. 36. LPL FINANCIAL RESEARCHA Recession of Confidence (left scale) (right scale) Source: LPL Financial, Bloomberg data 9/14/11 The index of leading economic indicators (LEI) is an economic variable, such as private-sector w ages, that tends to show the direction of future economic activity Tracking # 1-011510 Exp. (10/13) LPL Financial Member FINRA/SIPC 36
  37. 37. LPL FINANCIAL RESEARCHGreece Fire:Likelihood of Default and Impact is Very DifferentSource: LPL Financial, Bloomberg data 9/14/11Bonds 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 andchange 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 theseller 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 ofreturn and fixed principal value. However, the value of a fund shares is not guaranteed and will fluctuate.Tracking # 1-011528 Exp. (10/13) LPL Financial Member FINRA/SIPC 37
  38. 38. LPL FINANCIAL RESEARCHThe 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 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 w ith capital in an effort to promot e increased lending and liquidity. The Federal Open M arket Committee action know n as Operation Tw ist began in 1961. The intent w as to flatten the yield curve in order to promote capital inflow s 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. M ortgage-Backed Securities are subject to credit, default risk, prepayment risk that acts much like call risk w hen 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. How ever, the value of a fund shares is not guaranteed and w ill fluctuate. Tracking #1-013916 Exp. (10/13) LPL Financial Member FINRA/SIPC 38
  39. 39. LPL FINANCIAL RESEARCHClassic Bubble Comparison 1200% NASDAQ 3/16/1990 1000% Oil Price 6/26/1998 800% S&P 500 Homebuilders 6/30/1995 Gold Price 1/4/2002 600% 400% 200% 0% -200% 0 1 2 3 4 5 6 7 8 9 10 11 12 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 investors holdings. Precious metal investing is subject to substantial fluctuation and potential for loss. Tracking #742393 Exp. (07/13) LPL Financial Member FINRA/SIPC 39
  40. 40. LPL FINANCIAL RESEARCHImportant DisclosureThe opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice orrecommendations for any individual. To determine w hich investments may be appropriate for you, consult your financial advisor prior to investing. All performancereferenced 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 w hich 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 andmakes no representation w ith respect to such entity.Tracking# 742279 | Exp. (7/13) LPL Financial Member FINRA/SIPC 40

×