Post on 16-May-2015
transcript
Member FINRA/SIPC
LPL FINANCIAL RESEARCH
Market Insight Quarterly Chart Book
Third Quarter 2011
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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.
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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
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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
%
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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
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Budget Deficit Percent of Gross Domestic Product (GDP)
(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# 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
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Unemployment Rate
(Shaded area indicates recession)
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
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Non-farm Job Growth
(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)
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
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Wages and/or Personal Income/Personal Spending
(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)
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
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Home Sales
(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 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
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Home Prices
(Shaded area indicates recession)
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
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Vehicle Sales
(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)
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
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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)
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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)
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Consumer Price Index (CPI)
(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)
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
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Commodity Prices
(Shaded area indicates recession)
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
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Institute for Supply Management (ISM) Index
(Shaded area indicates recession)
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
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Consumer Sentiment
(Shaded area indicates recession)
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
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Federal Funds Rate with Futures Implied Rates Going Out One Year
(Shaded area indicates recession)
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
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Federal Reserve (Fed) Balance Sheet
(Shaded area indicates recession)
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
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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
LPL Financial Member FINRA/SIPC 22
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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
15
20
25
30
35
1930
1935
1940
1945
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
S&P 500 Forward PE Ratio S&P 500 Trailing PE Ratio
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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
3
5
7
9
11
13
15
17
19
21
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
Perc
en
t
High Yield Spread and Default Rate
High-Yield Spread Default Rate
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10-year Treasury yield & 10-year Treasury Yield Minus Core
Consumer Price Index (CPI)
(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. 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
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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.
High-Yield spread is the yield differential between the average yield of high-yield bonds and the average yield of comparable maturity Treasury bonds.
Tracking# 734392 Exp. (7/13)
BAML Corporate Master Index to Treasury Master Index
Yield to Maturity Spread
09 08 07 06 05 04 03 02 01 00 Source: Haver Analytics 10/06/11
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
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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.
High-Yield spread is the yield differential between 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 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
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30-year Municipal Yields as a Percentage of Treasuries
(Shaded area indicates recession)
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.
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.
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
11 10 09 08 07 06 05 04 03 02 Source: Haver Analytics 10/06/11
225
200
175
150
125
100
75
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Trade Weighted Dollar
(Shaded area indicates recession)
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
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Leading Economic Indicators
(Shaded area indicates recession)
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
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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
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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
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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.
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Bonds May 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.
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A Recession of Confidence
Source: LPL Financial, Bloomberg data 9/14/11 Please note, chart represents both private and public sector jobs.
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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
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A Recession of Confidence
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
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(left scale) (right scale)
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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
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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.
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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
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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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