3rd Quarter 2011 Chartbook

LPL FINANCIAL RESEARCH

M arket Insight
Quarterly Chart Book
Third Quarter 2011

Member FINRA/SIPC


The Quarterly M arket Insight Chart Book is intended to provide unbiased
context to the markets and economy. The Chart Book provides a factual
framew ork 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 grow th in the United States and
abroad, job grow th, 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 tw o 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 w ill vary from quarter-to-quarter.

LPL Financial Member FINRA/SIPC 2


Table of Content
4 Gross Domestic Products (GDP) Grow th Rate 23 High-Yield Bond Spreads & Default Rate
5 Emerging M arket Gross Domestic Product (GDP) Grow th 24 10-Year Treasury Yield & 10-Year Treasury Yield M inus Core CPI
6 Budget Deficit Percent of Gross Domestic Product (GDP) 25 Investment-Grade Corporate Spread & Yield
7 Unemployment Rate 26 Emerging M arket Debt (EM D) Spread & Average Yield
8 Non-farm Job Grow th 27 30-Year M unicipal Yields as a Percentage of Treasuries
9 Wages and/or Personal Income/Personal Spending 28 Trade Weighted Dollar
10 Home Sales 29 Leading Economic Indicators
11 Home Prices 30 Treasury & M uni Yield Curves
12 Vehicle Sales
13 Current Conditions Index (CCI)
14 Current Conditions Index (CCI) Components Third Quarter Key Themes
15 Consumer Price Index (CPI) 32 A Recession of Confidence: Economic & Policy Uncertainty
16 Commodity Price Index 33 Outlook M ay Be Brightening for Long-Term Investors
17 Institute for Supply M anagement (ISM ) Index 34 Bonds M ay Offer Poor Returns for Investors
18 Consumer Sentiment 35 A Recession of Confidence: Consumer Confidence & LEI
19 Federal Funds Rate w ith Futures Implied Going Out One Year 36 The Federal Reserves Next Steps
20 Federal Reserve (Fed) Balance Sheet 37 Greece Fire
21 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



Gross 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 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 w ithin a defined territory.

Tracking# 734362 Exp. (7/13)


China: 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 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 w ithin a defined territory.

Tracking# 734366 Exp. (7/13)


Budget 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

Gross Domestic Product (GDP) is the monetary value of all the finished goods and services produced w ithin 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 w ithin a defined territory.

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Unemployment 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

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)


Non-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

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)



Wages 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

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)


Home 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


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.



Home 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

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 arm's-length
transactions. The index is named for its creators, Karl Chase and Robert Shiller.

Tracking# 734373 Exp. (7/13)


Vehicle 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

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)


Current 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.



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 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.



Consumer 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

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)


Commodity 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

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 investor's holdings.
Tracking# 734380 Exp. (07/13)


Institute 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

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.

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Consumer 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

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)


Federal 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

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)


Federal 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

The Federal Reserve Balance Sheet is the breakdow n of the assets and liabilities held by the Federal
Reserve.

Tracking# 734388 Exp. (07/13)



S&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 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)



Historical S&P 500 PE Ratio Trailing & Forw ard

S&P 500 Forward PE Ratio S&P 500 Trailing PE Ratio
35 35
30 30
25 25
20 20
15 15
10 10
5 5
0 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)



High 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)


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

5.25
3.00

4.50
2.25
3.75
1.50
3.00

0.75
2.25

0.00 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

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)



Investment-Grade Corporate Spread & Yield

BAML Corporate Master Index to Treasury Master Index
Yield to Maturity Spread % BofAML Merrill Lynch Corporate Master: Yield to Maturity
8 10

6 8

4 6

2 4

0 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.

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Emerging 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

2011
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.

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30-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

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.
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 & Poor's. The obligor's capacity to meet its financial commitment on the
obligation is extremely strong.

Tracking# 734394 Exp. (7/13)


Trade 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

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)


Leading Economic Indicators

ECRI Weekly Leading Index
1992=100
160 160

140 140

120 120

100 100

80 80
90 95 00 05 10

ECRI's 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 WLI's
predictive pow er.

Tracking# 734396 Exp. (7/13)



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 3.00
Yield

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 & Poor's. The obligor's 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)



A Recession of Confidence

Elevated 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)



Outlook 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


Bonds M ay Offer Poor Returns to Investors

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



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)



(left scale)
(right scale)

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)


Greece Fire:
Likelihood of Default and Impact is Very Different

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.
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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

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.

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Classic 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 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 w hich 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 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 and
makes no representation w ith respect to such entity.
Tracking# 742279 | Exp. (7/13)


3rd Quarter 2011 Chartbook

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