Weekly Market Commentary

Bernanke Battles Back

In the days leading up to “Black Friday”, the traditional kick-off to the holiday shopping season, markets will digest news on inflation, manufacturing and home sales for October, as well as the minutes of the Fed’s November 3 FOMC meeting. Overseas, Europe’s rescue of Ireland’s finances is likely to dominate the headlines, although the refrain “who’s next” is already being heard in and around Europe. Around the globe, it is a quiet week for economic data in China, and the central bank meetings scheduled this week are limited to Israel, Poland, Georgia, Mexico, and India. Of that group, only Israel and India have been tightening policy recently, and many global central banks may begin to slow their policy tightening altogether in the coming months to offset the Fed’s actions to lower the value of the dollar.

A quick look at the reports due out this week in the United States finds that housing and manufacturing will be in focus. The October data on new and existing home sales is likely to be quite sluggish, and this week’s data is likely to lend support to the need for the full course of quantitative easing (QE2) ($600 billion by June 2011). On the manufacturing side, a weaker dollar (the dollar is down by more than 10% since mid-June 2010) has already begun to work its magic in the manufacturing sector, suggesting that durable goods shipments and orders for October should be solid. The November Richmond Fed Index will help financial markets further refine estimates for the November ISM report, due on December 1. The first two readings on the manufacturing sector in November were polar opposites: the Philly Fed Index was strong but the Empire State Manufacturing Index was weak.

The release of the October data on core inflation (known as the personal consumption expenditure (PCE) deflator excluding food and energy) will likely underscore the need for the full run of QE2 from the Fed in order to turn around the direction of prices. This measure of core inflation is preferred by the Fed and is likely to show that core inflation was running at just 1.3% year-over-year in October, one of the lowest readings in 45 years, and below the Fed’s unofficial comfort zone of 1.5 to 2.0% on core inflation.

Finally, the minutes of the November 3 FOMC meeting will be published on Tuesday, November 23. In addition to providing some additional “color” as to why the FOMC decided to embark on another round of QE, the minutes will also shed more light on the well-publicized internal dissention within the FOMC around the need for more QE and how to execute it. The FOMC will also publish its quarterly economic forecast alongside the minutes. The forecast will likely show a significant downgrade of the economic and employment outlook (versus the prior forecast made in June 2010) and reveal a downshifting of inflation forecasts as well. In our view, the FOMC will press on with QE 2 (despite the criticism) until its forecasts show inflation moving higher and the unemployment rate moving noticeably lower. There are two more forecasts (late January 2011 and April 2011) prior to the scheduled end of QE2.

The Battle Over QE2

As we wrote in last week’s Weekly Economic Commentary, “Answering the Critics”, the week after November 3 the Fed announced that it was planning to embark on QE2, the Fed, Fed Chairman Ben Bernanke, and QE2 itself came under withering criticism from politicians, pundits, central bankers, and lawmakers both at home and abroad. It did not get much easier for the Fed or Bernanke in week two (last week). The latest critics include a group of U.S. Senators (essentially Bernanke’s bosses) and a member of the U.S. House of Representatives who called for the end of the full employment portion of the Fed’s dual mandate (promoting price stability and full employment). In addition, a group of prominent economists, policymakers, and academics who wrote an open letter to Bernanke in the Wall Street Journal that was quite critical of QE2.

Last week, Bernanke pushed back with help from Warren Buffett and several members of the FOMC, as well as the head of the United States Chamber of Commerce. Late in the week, Bernanke himself delivered a passionate defense of QE2 at a conference in Europe, saying:

“…on its current economic trajectory the United States runs the risk of seeing millions of workers unemployed or underemployed for many years. As a society, we should find that outcome unacceptable. Monetary policy is working in support of both economic recovery and price stability, but there are limits to what can be achieved by the central bank alone. The Federal Reserve is nonpartisan and does not make recommendations regarding specific tax and spending programs. However, in general terms, a fiscal program that combines near-term measures to enhance growth with strong, confidence-inducing steps to reduce longer-term structural deficits would be an important complement to the policies of the Federal Reserve.”

Most of the criticism of QE2 and the Fed’s policies focuses on the impact of QE2 on inflation and inflation expectations. The critics believe that the Fed is throwing fuel on the inflationary fire by doing another round of QE. The Fed sees it differently, and believes that the current and near-term outlook for inflation is muted and that it can rein in QE2 before inflation and inflation expectations begin to accelerate. Some criticize the Fed for engendering another “asset bubble,” citing the abnormally low Fed funds rate in the early 2000s that was followed by the residential real estate boom (2002-2007) and subsequent bust (2007-present).

Of the two arguments against QE2, we find a bit more credence in the “asset bubble” argument than the “runaway inflation” argument against QE2. Given the huge overhang of unsold homes, strict lending standards, and regulators’ hyper-vigilance around the banking system, the risk of another residential real estate bubble is low. However, bubbles are always forming somewhere in the world and the Fed embarking on another round of quantitative easing may indeed be creating a bubble somewhere. However, the Fed has judged that the rewards of trying to revive economic growth in the United States in the near-term outweigh the longer-term risk of engendering another asset bubble.

Our long-held view is that while there are a few similarities between the economic and policy backdrop today and the run up to the 1970s/80s era inflation, the backdrop is much less inflationary today. This leads us to conclude that when inflation does return, it will not be anything close to the sharp increase in prices seen in the 1970s and early 1980s, when headline inflation was in the 10% to 14% per year range and core inflation was between 8% and 12% per year.

Inflation remained low throughout most of the early to mid-1960s, but began to creep up in the mid-to-late-1960s before exploding higher in the mid-1970s through the early 1980s. Some attribute the rise in inflation to the heavy spending on the Vietnam War and President Lyndon Johnson’s Great Society programs. We certainly can draw parallels to today, where government spending as a share of GDP has risen from 18.5% at the end of the 1990s to nearly 25% by 2009, the highest since World War II.

However, some of the other factors that likely contributed to the surge in inflation in the 1970s and early 1980s are not present today. Some of those include:

·         Union membership had a potent impact on wage growth during the 1960s and 1970s. As a percent of the workforce, membership has fallen from close to 25% in the late-1960s to under 10% today.

·         In the 1960s and early 1970s, wages were often tied to inflation rates via cost of living adjustments (COLAs), which created a “wage price spiral”. COLAs are far less prevalent in today’s labor market.

·         The United States left the gold standard in 1971, and allowed the US dollar to float, which boosted inflation expectations in the early 1970s

·         Today, the Fed has built up 30 years of inflation fighting credibility. It had virtually no inflation fighting credentials in the 1960s and 1970s.

·         Explicit inflation targets exist today in some countries, and are being seriously discussed by the Fed. Explicit inflation targets were nonexistent in the United States and very rare elsewhere in the late 1960s and early 1970s.

·         Long-term inflation expectations in the United States are low and have been relatively stable over the past 15 to 20 years; in the late 1960s, inflation expectations were higher than today, and rising.

·         High inflation often leads to even higher inflation as it reinforces expectations. Over the past five years, core inflation has averaged 1.9% and has been decelerating for more than 25 years; in the late 1906s, core inflation averaged close to 4.0% and was already accelerating.

·         Productivity has been quite strong in the past 15 years. In contrast, productivity was much weaker through the inflationary period from the mid-1960s through the early-1980s.

A key reason why we do not think a severe bout of 1970s-style inflation is in the cards for the U.S. economy in the years to come is excess capacity of both labor and capital in the global economy. The emergence of China as an economic power has been a big factor in the creation of excess capacity. In addition, the dynamics and composition of the U.S. and global economies today are vastly different, and far less inflation friendly, than they were in the late 1960s and early 1970s. In short, the starting point for inflation matters, and in that regard, we are at a much better starting point today than in the late 1960s.

Some examples include:

·         Capacity utilization (which measures the percentage of U.S. factories’ production capabilities being utilized) hit a new all-time low in June 2009 at 65%, and has only recovered to 72.7% today. The global recession has dampened utilization, but even over the past five years, capacity utilization averaged about 75%. By comparison, during the late 1960s, capacity utilization averaged 88% resulting increasingly in being met by higher prices rather than additional output.

·         The economy is much more global today than it was in the late 1960s. Capital and labor flow much more freely over international borders than they did in the late 1960s and early 1970s, which helps to eliminate the bottlenecks that can lead to inflation pressures. For example, before the global recession hit in mid- 2008, trade (exports plus imports) accounted for about one-third of U.S. GDP, more than three times as high as it was in the late 1960s.

·         Wages account for about 70% of business costs. In the latest 12 months, wage growth is running at a 2.0% pace. In the late 1960s, wage growth was running at over 6%, and was accelerating.

Evidence That Economy is Reaccelerating is Mounting, but is it Sustainable?

We have been on “reacceleration” watch for more than a month now, and last week’s serving of data was supportive of the premise that the U.S. economy’s summer soft spot has faded, and supports our long-held view that a double-dip recession in the United States was not likely. The data however, does not suggest that the economy is growing fast enough to push the unemployment rate lower or the inflation rate higher (the Fed’s goals for QE2) and, therefore, it is unlikely right now that the FOMC would end its QE2 program early.

The following reports all pointed to an economy that had shifted into a higher gear as the fourth quarter began:

·         Retail sales for October

·         Manufacturing industrial production for October

·         Business shipments and inventories for October

·         Leading indicators for October

·         Philadelphia Fed manufacturing index for November

·         Weekly initial claims for unemployment insurance for the week ending November 13

·         Banks loans to businesses for the week ending November 13

Some data, including the very weak Empire State Manufacturing Index for November, the near-disastrous readings on housing starts and building permits in October, along with week-over-week declines in the readings on mortgage applications and weekly retail sales, continue to suggest an economy that is still near stall speed, and in need of more aid from the Fed.

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

Investing in international and emerging markets may entail additional risks such as currency fluctuation and political instability. Investing in small-cap stocks includes specific risks such as greater volatility and potentially less liquidity.

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.

Philadelphia Federal Index is a regional federal-reserve-bank index measuring changes in business growth. The index is constructed from a survey of participants who voluntarily answer questions regarding the direction of change in their overall business activities. The survey is a measure of regional manufacturing growth. When the index is above zero it indicates factory-sector growth, and when below zero indicates contraction.

The NY Empire State Index is a regional economic indicator published by the Federal Reserve Bank of New York and released around the middle of the month. It is considered an indicator of economic conditions in one of the most populated states in the U.S.

The Richmond Fed Index is a survey of manufacturing conditions in the fifth federal reserve district. It covers the Mid-Atlantic States of Maryland, North and South Carolina, Virginia and West Virginia.

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.

Not FDIC or NCUA/NCUSIF Insured | No Bank or Credit Union Guarantee | May Lose Value | Not Guaranteed by any Government Agency | Not a Bank/Credit Union Deposit

Weekly Market Commentary

Answering the Critics

This week is a busy week for economic data as the market may begin to judge the effectiveness and wisdom of quantitative easing (QE). The latest flare-up in the European fiscal saga will compete for attention this week with a cornucopia of U.S. economic data for October and November. The data, which includes reports on retail sales, industrial production, consumer and producer price inflation, housing starts and leading indicators for October, as well as the Empire State and Philadelphia Fed manufacturing surveys for November, may help answer several questions market participants, policymakers and pundits have been asking in recent weeks:

·         Is the economic soft spot really over?

·         Is QE working yet to push inflation higher and the unemployment rate lower?

·         Was QE necessary in the first place?

The Federal Reserve’s (Fed) second round of quantitative easing (QE2), large-scale purchases by the Fed of Treasury notes, begins this week. QE2 is aimed at keeping interest rates lower for a longer time to allow both consumers and businesses to refinance and pay down debt thereby, in theory, boosting economic activity, lowering the unemployment rate and pushing up the inflation rate. Last week, the Fed, Fed Chairman Bernanke, and QE2 itself came under withering criticism from politicians, pundits, central bankers, and lawmakers both at home and abroad, leaving the market wondering how much more pressure the Fed can take.

Our view is that the Fed can manage the criticism in the short and medium term, but longer term, the severity of the QE2 “backlash” may prompt an early retreat from QE2, perhaps earlier than is necessary to foster an environment supporting sustainable economic growth. Congress has the ultimate authority over the Fed’s dual mandate of full employment and price stability. Thus, Chairman Ben Bernanke’s regular visits to Capitol Hill, especially when the new Congress is seated in January, will take on increased significance for markets. Although Bernanke is not scheduled to speak, a confirmation hearing this week in the Senate of one of President Obama’s appointees to the Federal Reserve Board of Governors (Peter Diamond) may provide some members of Congress with the platform to criticize QE2.

Some of the impact of the anticipation of QE2 will likely be on display in this week’s data. A weaker dollar is an indirect consequence of QE2. The dollar has declined by more than 7% since Bernanke first hinted that QE2 was a realistic possibility at a late-August speech in Jackson Hole, Wyoming (according to the Federal Reserve Major Currencies Index). More dollars in the system means that each dollar is worth less. In turn, a cheaper US dollar makes U.S. exports less expensive to foreigners. The October Industrial Production report, due out on Tuesday, November 16 is one gauge of how exporters have benefitted from QE2.

Similarly, housing is a direct beneficiary of QE2. The October housing starts report and the National Association of Homebuilders sentiment survey for November are due out this week. The Fed’s goal is to keep rates lower for a longer time, encouraging property owners (residential or commercial) to refinance at lower rates, and use the money saved on more spending, hiring or debt pay down. Housing affordability is at an all-time high and lending standards are easing, but it is probably too soon to tell if QE2 has affected the housing market yet.

Finally, retail sales for October will be scrutinized for clues about the upcoming holiday shopping season, but the effect of QE2 can be seen in this data set as well. At +1.2% month-over-months, October retail sales were stronger than expectations (+0.7% month-over-month) and stronger than September's +0.6% month-over-month reading. In addition, the September reading was revised upward. Some of the October strength in the consumer was overstated, given that building material store sales surged in October and those sales feed into gross domestic product (GDP) as business capital spending, and not consumer spending.

On balance, the October retail sales report supports the idea that the U.S. economy continued to reaccelerate in October, but that consumers remain cautious ahead of the crucial holiday shopping season. The October retail sales data is consistent with recent data points for October and November, which suggests the economy was reaccelerating out of the soft spot that began this spring. QE2 affects consumer spending via higher equity prices (boosting wealth), lower interest rates (more affordable to finance purchases), and more bank lending to both businesses (fostering job creation) and consumers (enabling more consumer loans).

Budget Battle Begins, but it is not Likely to End for a While

Last week, the National Commission on Fiscal Responsibility and Reform laid out a path to fiscal responsibility. The co-chairs of the President's bi-partisan National Commission on Fiscal Responsibility and Reform, Democrat Erskine Bowles and Republican Alan Simpson, announced their recommendations to reduce the deficit and debt. The report of the full commission will release its findings on December 1, but keep in mind that Congress chose to make these recommendations of the Commission non-binding. Thus, the plan put forth last week — as well as the one due out in a few weeks — should be viewed as the starting point for Congress to address this very important issue over the coming years.

As we discussed in last week’s Weekly Economic Commentary, it is not sustainable over the long run to have Federal spending running nearly twice as fast as tax receipts. As a result, over the longer term, our view is that both sides of the issue (revenues and spending) will need to be addressed. In addition, indeed, that is what the deficit commission report did. The report essentially put everything on the table, and provided a bi-partisan and fair assessment of the work that needs to be done to put the nation’s fiscal house in order:

·         Tax increases

·         Spending cuts

·         Gasoline tax increases

·         Cutting government waste and “pork barrel” spending

·         Culling through farm subsidies

·         Modifications to both social security and Medicare

·         Curbing defense spending

Our best guess is that, despite the momentum this document provides, serious actions to address reducing the deficit and debt will not occur until after the 2012 Presidential elections.

Economy Appears to Be Reaccelerating, But at What Speed?

Although limited in scope and volume, last week’s batch of economic data in the United States continued to paint a picture of an economy that was reaccelerating out of the summer soft spot. Ironically, the soft spot began when Greek’s fiscal woes made headlines during the European fiscal flare-up up in March and April of 2010. Last week the issue flared again, but this time Ireland, not Greece, was the epicenter. Our view continues to be that deficit and debt issues in peripheral Europe will flare up from time to time (as they did last week in Ireland). However, because the market expects little or no growth out of Europe in 2011, (the consensus is calling for 1.3% growth in real GDP in the Eurozone in 2011) the main issue for markets will be the so-called “contagion effect” (i.e. will the sovereign debt issues in peripheral Europe spread to the banking sector in other parts of Europe and the United States). Thus far, the issue in Ireland has had little impact on the banking sector in the United States or the more fiscally sound European nations like Germany and France.

Turning back to the data in the United States last week, the following reports all pointed to an economy that had shifted into a higher gear as the weather turned cooler:

·         Weekly retail sales for the week ending November 6

·         Consumer sentiment for the first half of November

·         Initial claims for unemployment insurance for the week ending November 6

·         Banks loans for the week ending November 3

·         Wholesale trade for September

·         The National Federation of Small Business sentiment for October

·         The Fed’s Senior Loan Officer Survey for Q4 2010

However, while the financial media’s favorite summertime refrain — double-dip — has faded along with the fall colors as we approach winter, the economy is by no means booming. Growth, as measured by real GDP, may have accelerated a bit early in the fourth quarter, but probably only pulled the economy out of stall speed and into a slightly more rapid trajectory.

The most notable of these reports was probably the weekly report on new claims for unemployment insurance for the week ending November 6. Initial filings for unemployment insurance fell sharply (24,000) in the latest week and have declined in eight of the past 12 weeks. Aside from a single week this past summer, claims have not been this low (446,500 per week) since the summer of 2008. Claims probably need to drop into the 350,000 per week range to convince markets that the labor market is capable of generating enough jobs (roughly 150,000 to 250,000 per month) in order to push the unemployment rate lower. In embarking on QE2, the Fed specifically noted that the unemployment rate (at 9.6%) was unacceptably high, so it is clear that the Fed is also watching the weekly initial claims data very closely.

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

Investing in international and emerging markets may entail additional risks such as currency fluctuation and political instability.

Stock investing involves risk including loss of principal Past performance is not a guarantee of future results.

The Federal Reserve Major Currencies Index is a weighted average of the foreign exchange values of the US dollar against a subset of currencies in the broad index that circulate widely outside the country of issue. The weights are derived from those in the broad index. Countries whose currencies are included in the MAJOR CUR­RENCIES INDEX are the Euro Area, Canada, Japan, United Kingdom, Switzerland, Australia, and Sweden. The Euro Area includes Germany, France, Italy, Netherlands, Belgium/Luxembourg, Ireland, Spain, Austria, Finland, Portugal, and Greece.

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.

The Producer Price Index (PPI) program measures the average change over time in the selling prices received by domestic producers for their output. The prices included in the PPI are from the first commercial transaction for many products and some services.

The Empire State Manufacturing Survey is a monthly survey of manufacturers in New York State conducted by the Federal Reserve Bank of New York.

The Philadelphia Fed Survey is a business outlook survey used to construct an index that tracks manufacturing conditions in the Philadelphia Federal Reserve district. The Philadelphia Fed survey is an indicator of trends in the manufacturing sector, and is correlated with the Institute for Supply Management (ISM) manufacturing index, as well as the industrial production index.

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.

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.

Not FDIC or NCUA/NCUSIF Insured | No Bank or Credit Union Guarantee | May Lose Value | Not Guaranteed by any Government Agency | Not a Bank/Credit Union Deposit

Weekly Market Commentary

The Calm After the Storm

The midterm elections, the decision by the Federal Reserve to embark on another round of quantitative easing (QE 2), and a better-than-expected jobs report for October made last week one for the history books. Market historians may not remember the upcoming week as clearly, however, given the lack of economic and policy events due out.

The U.S. economic calendar is typically quiet the week after the monthly jobs report is released. This week’s docket is even more muted due to the Veteran’s Day holiday on Thursday, November 11, when the bond market, as well as the federal government’s data mill is closed.

Aside from the regular weekly data on weekly chain store sales, mortgage applications, and initial claims for unemployment insurance, there is only a handful of data reports due out in the United States this week. The reports include the merchandise trade report for September, consumer sentiment for the first half of November, and the federal budget data for the first month of fiscal year (FY) 2011 (October 2010).

Market participants will still have plenty to mull over this week as they continue to digest last week’s monumental events. This week, Chinese authorities will release the full slate of October economic data in China, which will refocus attention on the ever-widening trade gap between the United States and China, even as markets brace for the upcoming Group of 20 (G-20) meeting in Korea on November 11–13. There are no major central banks meetings this week, although the central banks in India, Turkey, and Malaysia are set to meet. No rate increases are expected, but both Malaysia and India have been tightening policy by raising domestic interest rates to cool domestic inflation since late 2009/early 2010. On balance, with a lack of any key U.S. economic data, fiscal, monetary and currency policy will be in focus ahead of the G-20.

Budget Battle?

The budget data for October 2010 — the first month of fiscal 2011 — is due out on Wednesday, November 10. The market is looking for a $148 billion budget deficit in October 2010.

Financial markets almost never react to the monthly budget data, and have not reacted much to the reality that the United States has now racked up two consecutive years of trillion-dollar plus budget deficits, and is well on its way to a third in FY 2011. This is generally because the dollar is the world’s “reserve” currency (i.e. much of world trade is conducted in dollars) interestcosts on the debt are low and falling, and the United States has never defaulted on its debt.

As a reminder, the U. S. government ended FY 2010 with $1.29 trillion deficit, equal to 8.9%of gross domestic product (GDP), a modest improvement over the $1.42 trillion gap that made up 10% of GDP in fiscal year 2009. Looking ahead, the non-partisan Congressional Budget Office (CBO) projects that under current law (assuming, among other things, that all the Bush era tax cuts expire at the end of calendar year 2010), the annual budget deficit will “improve” to $1.066 trillion in FY 2011, which ends on September 30, 2011.

However, the CBO forecasts that if the Bush tax cuts are extended, and more realistic economic assumptions are used, the deficit in the current fiscal year (FY 2011) will approach $1.4 trillion. Longer term, the United States needs to spend less, take in more revenue and save more.

The “debt ceiling” (the nation’s credit card spending limit) is likely to come up for a vote in early 2011. This may prompt some talk about the deficit, but despite the change in control of the House of Representatives in last week’s midterm elections, the best guess is that policy makers will not sit down to make the difficult choices about what to cut and by how much until there is a true crisis.

Is the Economy Reaccelerating?

The better-than-expected October jobs report raises the odds of a reacceleration in the economy, but it is still too soon to tell. The October jobs report corroborates the data we saw last week, for October (ISM, Service Sector ISM, vehicle sales, factory orders), all of which beat expectations, were better than the prior month, and saw upward revision to prior month's data.

The October employment report was an upside surprise, but suggests that there is more work to do on the labor market. The private sector economy added 159,000 jobs in October, well ahead of expectations of a gain of 80,000, and even well above the upper end of the range of economists' estimates (+20,000 to +135,000) for the report. The October data was relatively free of distortions and, on balance, the data suggest that the "soft spot" the economy endured during the late spring and summer months may have dissipated as fall began. The October jobs report did have its weak spots however, as 14.8 million people remain unemployed, another

7,000 state and local government workers lost their jobs in October, and the overall unemployment rate remained stubbornly high at 9.6%.

While the private sector economy has now added more than 100,000 jobs in each of the past four months, Congress, the Obama administration, and most importantly, the Fed, would like to see job growth in the 200,000 to 300,000 per month range. Why? With the labor force increasing by around 150,000 per month, it will take at least that many jobs (about 150,000 per month) just to keep the unemployment rate steady. Although the private sector has added back 1.1 million jobs (in the 12 months ending in October 2010), nearly 8.5 million jobs were lost during the Great Recession and its immediate aftermath. At the level of monthly job growth seen over the course of the past 12 months, it would take another six and a half years to get back to pre-recession levels on the job front.

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

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 Group of Twenty (G-20) Finance Ministers and Central Bank Governors is the premier forum for our interna­tional economic development that promotes open and constructive discussion between industrial and emerging-market countries on key issues related to global economic stability. By contributing to the strengthening of the international financial architecture and providing opportunities for dialogue on national policies, international co-operation, and international financial institutions, the G-20 helps to support growth and development across the globe.

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.

Not FDIC or NCUA/NCUSIF Insured | No Bank or Credit Union Guarantee | May Lose Value | Not Guaranteed by any Government Agency | Not a Bank/Credit Union Deposit