Weekly Market Commentary

Rising Economic Expectations As 2010 Ends

Light trading on financial exchanges around the globe through year-end 2010 will serve as the backdrop for a number of key economic reports across the full spectrum of economic activity in the United States and abroad. Taken together, the reports will help solidify the markets’ expectation for real gross domestic product (GDP) for the fourth quarter of 2010 in the United States, and set the stage for the early part of 2011.

The reports due out over the next two weeks include:

·         New, existing and pending home sales for November.

·         New orders for, and new shipments of, business capital equipment.

·         Regional reports on manufacturing activity in Chicago, Dallas, Richmond.

·         Personal income, personal spending, and the Fed’s preferred measure of inflation - the personal consumption deflator excluding food and energy.

·         Consumer confidence and consumer sentiment for December.

·         Weekly reports on retail sales, mortgage applications and initial claims for unemployment insurance.

Reports Over the Next Two Weeks Will Highlight the Best and Worst of the Economy

Virtually every area of the economy is represented over the next few weeks, and the reports are likely to highlight the best and worst of the economy as 2010 turns into 2011.

Although housing remains the weakest part of the recovery, the housing data due out over the next two weeks is expected to show that housing improved somewhat between October and November. Unsupported by government programs, the housing market is still bouncing along the bottom, above the lows hit in early 2009, but still barely able to stand on its own. The good news here is that the labor market is improving, housing affordability is at an all-time high, and housing construction itself only accounts for around 2% of GDP. The bad news on housing is that loans are still difficult to get, foreclosures remain high, inventories of unsold existing homes are elevated, and prices are still falling in many parts of the country.

The manufacturing data due out between now and year-end is likely to be upbeat, underscoring the idea that the weaker US dollar, strong corporate balance sheets, and a robust export market are still supporting business capital spending and exports. Sure, Europe (1.4% GDP expected in 2011) and the United Kingdom (1.9%) are beset with fiscal issues, but 50% of U.S. exports head to emerging market economies, where real GDP growth in 2011 is expected to be well north of 6%. Strong readings on the regional manufacturing indices (Dallas, Richmond, Milwaukee and Chicago) will raise the bar for the Institute of Supply Management’s (ISM) report on national manufacturing for December, which is due out on Monday, January 3.

Reports on personal income, personal spending, and, most importantly, core inflation in November will help to frame the debate on the efficacy of the Federal Reserve’s (Fed) latest foray into quantitative easing. Core inflation, as measured by the core personal consumer expenditures, the Fed’s preferred measure of inflation, is expected to remain at 0.9% (year-over-year) in November, the same year-over-year reading as in October. But at 0.9% year-over-year, core inflation remains well below the lower end of the Fed’s informal target for core PCE inflation of 1.5 to 2.0%.

Fed Chairman Ben Bernanke, and the Fed itself, will likely face withering criticism from Congress in the new year, as Texas Congressman Ron Paul, a vocal critic of the Fed, will head up the committee in the House of Representatives that is responsible for oversight of the Fed. In our view, it is probably too early for the Fed (or markets) to assess the effectiveness of quantitative easing (QE2). However, by the end of the first quarter of 2011, both the Fed and the markets should have a better read on if QE2 was successful and if another round of QE will commence in June 2011, when QE2 ends. We reiterate our assessment that the while the hurdle for ending QE2 remains high, the hurdle for the Fed to begin QE3 in June 2011 is even higher.

European economic data released will be limited over the year-end holiday season, as will meetings of global central banks. The only major central bank meeting over the final two weeks of 2010 is the Bank of Japan. The next key event for U.S. monetary policy is the release of the December 14 Federal Open Market Committee (FOMC) meeting minutes on January 4, 2011. The next FOMC meeting is January 26.

The Chinese economic calendar is also quiet over the holidays, as the next batch of economic data for December is not due out until mid-January. However, a key report on the Chinese economy, the December Purchasing Managers’ Index (PMI), is set to be released on December 30, 2010, at the height of the holiday vacation season. The report may set the tone for further rate increases by Chinese monetary authorities early in 2011, and therefore will be closely watched by market participants across the globe, even if they are on vacation.

Strong Consumer Spending in November and Early December Leads to Upward Revision of 2010 Holiday Shopping Forecasts

Against the backdrop of very high expectations, 85% of last week’s batch of U.S. economic data beat expectations, 80% accelerated from the prior period, and more than 75% of the data saw upward revisions to prior period’s data. In all, it was a very strong week for economic data that had forecasters talking about 4.0% growth in real GDP in the fourth quarter. Our view is that some of the strength early in the fourth quarter (October and November) may have been borrowed from December, but that a real GDP growth rate of between 3.0 and 3.5% is likely.

As noted above, the data released last week was nearly uniformly strong on both the front end (consumer spending) and back end (business spending). The monthly retail sales data for November (and the weekly data through mid-December) suggests that the 2010 holiday shopping season is on track to exceed expectations. Indeed, the three most well-known, independent organizations that track retail sales through the holidays — ShopperTrak, the International Council of Shopping Centers and the National Retail Federation — raised their 2010 holiday shopping forecasts last week. Those estimates are now roughly in-line with where we think holiday sales may end up, although the risk remains that estimates for 2010 holiday shopping are still too pessimistic given the improving labor market, pent-up demand, and the solid performance of the U.S. equity market (+20.0% as measured by the S&P 500) from early September through mid-December. Equity market performance between September and December is one of the most accurate predictors of holiday shopping.

On the back end of the economy, the December reports on the Philadelphia Fed manufacturing index and the Empire State manufacturing index (both released last week) strongly suggest that the ISM for December will accelerate from its strong 56.6 reading in November. A reading above 50 on the ISM suggests that the manufacturing sector is expanding, and at 56.6, the ISM is consistent with a GDP growth rate of close to 5.0%. In addition, businesses continue to show confidence in the sustainability of the recovery, adding to their inventories for the tenth consecutive month in October. In all, businesses have added to inventories in 12 of 13 months since October of 2009. The restocking of depleted shelves in response to better economic growth at home, and booming economic growth in the emerging markets (where 50% of U.S. exports end up), has been a big plus for manufacturing and the overall economy since the recession ended in June 2009.

-----------------------------------------------------------------------------------

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.

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

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 0 it indicates factory-sector growth, and when below 0 indicates contraction.

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.

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.

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.

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

From Data to Debates

Last week, the markets were driven primarily by economic data as stocks and bond yields rose and the dollar fell. This week, in the absence of any high-profile economic data, markets are likely to be driven by news headlines on policy debates, which are not likely to be as favorable for investors.

The economic data from last week that was especially good for the markets included the Federal Reserve’s (Fed) Beige Book, and China’s PMI — both released on Wednesday, December 1 — and the U.S. retail sales reports on Thursday, December 2.

·         China PMI – The Purchasing Managers Index (PMI), released by the Beijing-based China Federation of Logistics and Purchasing and the National Bureau of Statistics, kicked off the better part of the week’s market rally on Wednesday morning. China’s manufacturing grew at a faster pace for a fourth straight month in November, exceeding economists’ estimates and indicating the economy can withstand higher interest rates.

·         Beige Book – Released Wednesday afternoon, the Fed’s Beige Book, a qualitative assessment of economic, financial and business conditions across the United States, suggested the economy was rebounding from the summer soft spot. Ten of the twelve regions reported improving economic conditions. The Fed’s overall assessment that the U.S. economy “continued to improve” was strikingly different than it was back in September when they noted “widespread signs of deceleration”.

·         Retail Sales – November same-store sales from retailers surprised to the upside when reported Thursday morning. Over 80% of retailers beat estimates by an average of more than 2 percentage points, for an average year-over-year increase of nearly 6% among the 25 national retailing chains that reported November sales results. This marked a strong improvement from October’s tepid growth of less than 2% with nearly 50% of retailers missing targets.

·         While these economic data points were the highlights of the week, the data has been so much better-than-expected, on balance, in recent weeks that investors dismissed the disappointing November employment report-released on Friday, December 3, as an outlier.

·         With a lack of any meaningful economic data this week here or abroad, market participants’ attention will turn to the policy headlines that are likely to be driven by:

·         The debate over extending the Bush tax cuts due to expire at year-end.

·         The ongoing fiscal and financing troubles in the eurozone, including Ireland’s vote on its 2011 budget (setting the stage for Greece’s vote on its 2011 budget the following week).

·         The effectiveness of the Fed’s second round of quantitative easing (QE2) before the next Fed meeting on December 14.

·         China may implement another rate hike ahead of its release of inflation data the following week.

None of this week’s headlines will likely result in as favorable an outcome for the markets (unless a quick deal is cut on taxes) as the data delivered last week. It is worth exploring each of these potential drivers.

Tax Cut Extensions

The debate over the tax cut extensions is likely to be contentious this week, following very partisan votes in the House this past week and the lack of public progress that has been made in the negotiation among Geithner, Lew, and the Republican and Democratic members of Congress. We look to the middle of the month as a more likely time for compromise and a vote in the Senate. On Saturday, Congress passed a continuing resolution that funds the federal government through Saturday, December 18. The end of that week leading up to the December 18 deadline is the most likely for a breakthrough agreement, with votes in both the House and Senate to immediately follow.

Fiscal and Financial Problems in the Eurozone

In the European Union (EU), the risk of a near-term liquidity crisis is being managed effectively, but the longer-term solvency problems remain almost untouched. News reports in recent days have focused on potential additional actions the EU may take to provide more demand for member nation debt (Spain and Portugal as the need for liquidity spreads from Greece and Ireland). The Greek government has so far received 29 billion euros as part of a rescue package intended to give them funding until 2013, enough time for the Greeks to fix their budget. The EU and The International Monetary Fund (IMF) approved the rescue package back in May in exchange for the Greek government agreeing to cut spending and raise taxes.

With the liquidity for their debt assured by the EU, how have the Greeks done over the past seven months addressing the solvency of their finances?  Poorly. Higher taxes were introduced to boost tax receipts by 13.7% this year. That goal was trimmed to 8.7% in October and to 6% in November. So far, income has risen just 3.7% in 2010. The yield difference, or spread, between 10-year Greek bonds and German bunds was 8.86 percentage points yesterday, compared with a record 9.73 in May, reflecting the lack of material improvement in the solvency of Greece.

The fiscal crash diet in Greece, Ireland and other troubled EU nations is highly unpopular. Local protests are taking place daily. On December 15, there is an EU-wide labor strike planned. Efforts at fiscal austerity are fading. It is likely to be longer and more expensive to get the EU over-spenders back in line with EU mandates. In addition, it may require a tougher stance from senior EU members Germany and France to ensure adequate action is taken. This raises the risk that these headlines surface this week and weigh on the markets.

Fed’s Quantitative Easing 2

The Fed implemented QE2 to keep borrowing rates low to encourage economic growth, in part, through low mortgage and other consumer borrowing rates. Since implementing the first round of QE2, rates have moved steadily higher. The national average 30-year mortgage fixed rate (tracked by Bankrate.com) rose from 4.24%, when QE2 was announced on November 3, to 4.71% this past Friday, reaching the highest level of the second half of 2010. In addition, the dollar, widely expected to decline and act as a boost to U.S. export growth, has instead moved higher.

The Fed has faced political pressure on all sides since the last meeting on November 3 to do more, to do less, and to do nothing at all. Legislation was even introduced to change the Fed’s mandate. Debate surrounding the effectiveness of the Fed’s actions and how limited future actions to aid economic growth may be could dominate the headlines this week ahead of its next meeting on December 14.

China Rate Hikes

Last week’s China PMI report showed surging input prices, reinforcing the case for the central bank to raise borrowing costs again. In October, the Chinese central bank pushed the one-year lending rate to 5.56%, its first increase since 2007. The Chinese government’s efforts to rein in the money supply also included two reserve-ratio increases for banks last month. At the same time, officials allowed the yuan to appreciate about 1.8% against the dollar in September, and since then gains have totaled another 0.3%.

These efforts are intended to contain inflation which has been rising nearly 5% year-over-year. Concern that monetary tightening in response to higher inflation will act as a drag on growth spurred a 10% sell-off in China’s Shanghai Stock Exchange Composite Index since the last inflation report that was released on November 11. As we approach the release of the next inflation data point, China may announce another rate hike, possibly sending markets lower.

-------------------------------------------------------------------------------------------

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.

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

Stock investing may involve risk including loss of principal.

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.

The Shanghai Stock Exchange Composite Index is a capitalization-weighted index. The index tracks the daily price performance of all A-shares and B-shares listed on the Shanghai Stock Exchange. The index was developed on December 19, 1990 with a base value of 100. Index trade volume on Q is scaled down by a factor of 1000.

The International Monetary Fund (IMF) is an organization of 187 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.

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 information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

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

2010 Year-End Tax Planning Basics

For 2010, year-end tax planning is particularly challenging. That's because a great deal of uncertainty remains for both 2010 and 2011. Despite this, the window of opportunity for many tax-saving moves closes on December 31. So set aside time to evaluate your tax situation now, while there's still time to affect your bottom line for the 2010 tax year,  and stay up to-date on any late-breaking  legislative changes.

Timing is everything

Year-end tax planning is as much about the 2011 tax year as it is about the 2010 tax year. There's an opportunity for tax savings when you can predict that your income tax rate will be lower in one year than in the other. If that's the case, some simple year-end moves can really pay off.  If you think your income tax rate will be lower next year, look for opportunities to defer income to 2011. For example, you may be able to defer a year-end bonus, or delay the collection of business debts, rents, and payments for services. Similarly, you may be able to accelerate deductions into 2010 by paying some deductible expenses such as medical expenses, interest, and state and local taxes before year-end.  If you think you'll be paying tax at a higher rate next year, consider taking the opposite tack--possibly accelerating income into 2010 and postponing deductible expenses until 2011.

AMT uncertainty complicates planning

If you're subject to the alternative minimum tax (AMT), traditional year-end maneuvers, like deferring income and accelerating deductions, can actually hurt you. The AMT—essentially a separate federal income tax system with its own rates and rules--effectively disallows a number of itemized deductions, making it a significant consideration when it comes to year-end  moves. For example,  if you're subject to the AMT in 2010,  prepaying 2011 state and local taxes won't help your 2010 tax situation, but could hurt your 2011 bottom line. Since 2001, a series of temporary AMT "fixes" bumped up AMT exemption amounts, forestalling a dramatic increase in the number of individuals ensnared by the tax. But the last such fix expired at the end of 2009. While it's likely that  additional  legislation will extend the fix to 2010 (and possibly 2011 as well), right now AMT exemption amounts for  2010 are at pre-2001 levels. Bottom  line? If you think you might be subject to AMT in either 2010 or 2011, talk to a tax professional and pay close attention to what Congress does between now and the end of the year.

IRA and retirement plan contributions

Traditional IRAs (assuming that you qualify to make deductible contributions) and employer-sponsored retirement plans such as 401(k) plans allow you to contribute funds pretax,  reducing your 2010 income. Contributions you make to a Roth IRA (assuming that you meet the income requirements) or a Roth 401(k) plan aren't deductible, so there's no tax benefit for 2010, but qualified Roth distributions are completely free from federal income tax--making these retirement savings vehicles very appealing. For 2010, the maximum amount that you can contribute to a 401(k) plan is $16,500, and you can contribute up to $5,000 to an  IRA. If you're age 50 or older, you can contribute up to $22,000 to a 401(k) and up to $6,000 to an IRA. The window to make 2010 contributions to your employer plan closes at the end of the year, but you can generally make 2010 contributions to your IRA until April 15, 2011.

Still time for 2010 Roth conversions

There's still time to take advantage of the special rule that applies to Roth conversions in 2010: if you convert funds in a traditional IRA or an employer plan--like a 401(k)—to a Roth in 2010,  half the income that results from the conversion can be reported on your 2011 federal income tax return and half on your 2012 return (you can instead report all of the resulting income on your 2010 return, if you choose). Whether a Roth conversion makes sense for you depends on a number of factors, including your marginal tax rate for 2010,  2011, and 2012. However, the ability to postpone tax on the resulting income to 2011 and 2012, combined with the flexibility of being able to wait until you file your 2010 federal income tax return to decide whether you want to do so, makes a Roth conversion a strategy worth considering before year-end.

"Bonus" depreciation and expensing

Good news if you're self-employed or a small-business owner: recent legislation extended special depreciation rules that were scheduled to expire at the end of last year, allowing an additional  50% first-year depreciation deduction for qualifying property purchased in 2010 for use in your business. Again, there's a short window of opportunity to take advantage of this, since, to qualify, property has to be acquired and placed in service on or before December 31, 2010.  In  lieu of depreciation, IRC Section 179 deduction rules allow for the deduction, or "expensing," of the cost of qualifying property placed in service during the year. The maximum amount that can be expensed in 2010 and 2011 under Section 179 has been increased to $500,000 (double the maximum that applied in 2009). The $500,000 limit is reduced when the total cost of qualifying property placed in service during the year exceeds $2 million.

Also worth noting

• For 2010, itemized deductions and personal and dependency exemptions are not reduced for higher-income individuals, but (at least for now) that's going to change in 2011: these deductions will once again be subject to a phase-out based on adjusted gross income. This should be taken into account if you're considering timing income and deductions as part of your year-end planning.

• A 30% tax credit for energy-efficient improvements you make to your principal residence, or the cost of certain energy-efficient equipment you install (including furnaces, water heaters, and central air conditioning units) expires at the end of 2010. There's an aggregate credit cap of $1,500 for 2009 and 2010, so if you claimed the full $1,500 in 2009, you're out of  luck for 2010. But if you haven't reached the maximum credit amount yet, consider timing qualifying expenditures to take advantage of the credit.

• When you reach age 70½, you're generally required to start taking required minimum distributions (RMDs) from any traditional IRAs or employer-sponsored retirement plans you own. RMD requirements, however, were suspended for 2009, so you may not have taken a withdrawal  last year. RMD requirements are back for 2010, though, and the penalty is steep (50%) for failing to take an RMD by the date required--the end of the year for most individuals.

______________________________________________

Disclosure Information -- Important -- Please Review

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 referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.

The tax information provided is not intended to be a substitute for specific individualized tax planning advice. We suggest that you consult with a qualified tax advisor.

Securities offered through LPL Financial, Member FINRA/SIPC

Prepared by Forefield Inc, Copyright 2010

November 03, 2010

Conversion Confusion (Roth IRAs in 2010 and beyond…)

Where we were, and where we are

For background, it is important to understand that until 2010, if an individual or couple wanted to convert all or a portion of their traditional IRA balance(s) to a Roth IRA (basically a choice between current taxation and future taxation), they had to have a Modified Adjusted Gross Income (MAGI) of under $100,000.  As part of the Tax Increase Prevention and Reconciliation Act of 2006, congress made a modification to this rule eliminating the income ceiling for conversions after 2009. This means that anyone who wants to can convert to a Roth IRA, no matter their income, age or size of the account being converted. Basically, if you want to convert in 2010, and are willing to pay the taxes now, you can.  Additionally, for conversions made in 2010, you have more than one option for paying the resulting tax liability. You can pay it all in 2010 (by the tax filing deadline) or defer and pay ½ in 2011 and ½ in 2012.

Why is congress making this change?

It would be nice to think that the members of congress have decided out of the goodness of their collective hearts to help us average working folks out a bit.  However, as with most things in life that seem too good to be true, there is a catch.  As previously noted, if you convert from a traditional IRA to a Roth IRA, you are required report 100% of the conversion amount as current ordinary income.  In other words, the government gets their much needed tax revenue now as opposed to waiting until you turn 59 ½ (or older) and begin drawing down your IRA account.   Clearly Uncle Sam is a firm believer in the old adage “A bird in the hand is worth two in the bush” (note that we refrained from inserting a George Bush joke here). What we are left to ponder (knowing full well that congress is unlikely to leave huge tax receipts on the table despite their eagerness to get their hands on this money quickly) is: Is this really a good deal for us? The answer to this question is a resounding ‘Maybe’.  To clarify, we need to take a look at the arguments for conversion.

Why would I convert?

Of course the big question is, why convert?  Why pay taxes now for the right not to pay taxes later?  If you do some research you will see there is no shortage of possible answers. The two most common reasons being thrown about are, first, that tax rates will likely be much higher in the future than they are now, and second, that you may not need to spend these funds in your lifetime so converting to a Roth IRA now could well save your heirs a substantial amount in taxes down the line. While these are both valid points, we would argue that, regarding first point, predicting future tax rates is a tricky business and it is not at all a foregone conclusion that rates will be substantially higher in the future. As to the second point, while some who are still a ways off from retirement are already

primarily concerned with effective generational asset transfer, most people we talk to consider asset transfer a secondary concern after knowing they have carefully planned and saved for their own retirement.

While we may take issue with some of the more trendy reasoning for conversion as outlined above, we believe there may be a more compelling argument for converting at least a portion of your traditional IRAs to Roth IRAs, which boils down to one thing; Flexibility.

Our recommendation

For those of you who have worked with us for any length of time, you are familiar with our mantra about the importance of diversification.   We firmly believe diversification and flexibility are the cornerstones to a healthy financial profile. Essentially, what the Roth conversion allows for is flexibility or ‘tax diversification’ as a hedge against future legislative maneuvers and tax law changes.

If you could tell us today what the tax code will look like and what tax rates will be when you start taking money from your IRAs in 5, 10, 20, or even 30+ years, this conversion question would be as easy to answer as so many have made it out to be.  The truth is, particularly in today’s political climate, it is impossible to determine what legislative changes will be made and what tax rates will be in effect in 3 months, let alone many years down the line.  That is why flexibility is so vital.

It is always our recommendation to have a good mix of non-qualified and qualified assets available at retirement so clients have more options available for their portfolio withdrawals.  By having some money available at capital gains rates (non-qualified), some available at ordinary income tax rates (qualified), and some available tax-free (Roth IRAs¹, etc.), clients are better able to manage their total tax obligation regardless of the tax-structure in effect at the time of their distributions. It may be necessary to give up a few dollars along the way to hedge your bets (in the form of taxes upon conversion), so that regardless of what the political or tax-rate structure is in the future, you will be able to take advantage.  Basically, this is another strategy for the unknown and unforeseeable future, something we think everyone should consider.

As nice as it would be, there is no one-size-fits-all solution to the issue of Roth IRA conversions. The correct answer depends on many factors and should be carefully considered from all angles prior to any action. Remember, if you want the option of deferring taxes on a 2010 Roth IRA conversion until 2011 and 2012, you will need to talk to your financial professional(s) and act soon.

------------------------------------------------------------------------------

¹The Roth IRA offers tax deferral on any earnings in the account. Withdrawals from the account may be tax free, as long as they are considered qualified. Limitations and restrictions apply. Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change.

Weekly Market Commentary

December Data Deluge

This week (November 29-December 3) is full of key economic reports in the United States, as financial market participants return from the Thanksgiving weekend. The reports will cover the status of the labor market, manufacturing, the consumer, and will help to set the tone for financial markets as the remainder of 2010 unfolds. In addition to the data deluge in the United States, financial market participants are likely to continue to fret about the ongoing sovereign debt issue in Europe, the flare-up of tensions on the Korean peninsula, and China’s actions to cool economic growth and lending. Six global central banks meet to set monetary policy this week: India, Indonesia, Thailand, Hungary, Bulgaria and the European Central Bank (ECB). None of the six banks are expected to raise rates, although both India and Thailand have already begun raising rates in this cycle. A key report on the manufacturing sector in China, the November PMI, is due out early this week, and may reignite talk of more policy shifts in China aimed at slowing growth and, more importantly, cooling inflation.

One of the key questions financial market participants will be asking themselves as they interpret this week’s data is whether or not the U.S. economy has definitively emerged from the summer soft spot that commenced in late spring 2010 and began to firm as the weather began to turn cooler. In general, most of the economic data released in the United States since early to mid-September supports the notion that the summer soft spot has ended and that the economy is reaccelerating. The pace of that reacceleration will be at the center of the debate this week.

The release of the Federal Reserve’s (Fed) Beige Book, a qualitative assessment of economic conditions in each of the 12 Federal Reserve districts will provide the broadest (and most timely) look at economic and business conditions in the U.S. economy in November. We will be looking for color on bank lending, business demand for bank loans, hiring, an early read on holiday shopping, and any change in tone following the results of the mid-term Congressional elections. This will be the first Beige Book since the onset of the Fed’s second round of quantitative easing (QE2), and we will also be combing through the report looking for early signs of the impact QE2 is having on the economy. The Beige Book is due on Wednesday, December 1.

The November Jobs Report Likely to Highlight an Improving Labor Market

Employment will be a major theme of the week’s data and, as any good holiday gift should, it comes in several varieties this week. The employment component of the November Chicago Area Purchasing Managers Index (Tuesday, November 30), the November Institute for Supply Management (ISM) report on manufacturing (Wednesday, December 1), and the Dallas Fed Index (Monday, November 29) will be the first employment related reports of the week. The results of these two surveys will be compared against the employment data already available for November—weekly initial claims, the employment readings from the Philly Fed, Richmond Fed, Kansas City Fed and Empire State manufacturing indices—all of which suggest some acceleration in hiring in the private sector between October and November.

By midweek, the focus will shift to the ADP employment report and the Challenger layoff report for November. Both reports are due out on Wednesday, December 1. The ADP employment report tracks hiring trends in the private sector based on data from the nation’s largest payroll processing firm. Over the past six months, the ADP jobs report has underestimated actual private payrolls by between 50,000 and 100,000 per month. The market is looking for a 65,000 gain in ADP employment in November, which is consistent with a private sector payroll gain of around 140,000 in November. The Challenger layoff data has been a useful indicator in recent months as market participants debated whether or not the summer soft spot would turn into a double-dip recession. Layoff announcements from U.S. corporations are at their lowest level in more than 10 years, suggesting that while companies may not be hiring as quickly as we would like them to be, they are not laying off very many workers either. The signal emanating from the Challenger layoff data is that a double-dip recession is not in the cards.

Finally, the key employment-related report of the week is due out on Friday, December 3. For the first time since early 2010, there will not be much distortion in the jobs report from the hiring of temporary government workers to conduct the 2010 Census. Thus, for the first time since the first few months of 2010, the market’s focus will be on total nonfarm payroll employment, and not just private sector employment. While it is helpful that the November jobs data is likely to be free of the Census-related distortions that have plagued the data since early 2010, the market may shift its focus from the private sector (where more than 1.1 million jobs have been created in the past 12 months) to the government sector, and especially the state and local government sector.

Typically, a reliable engine of jobs growth in good times and in bad, the state and local government sector has shed jobs in nine of the first ten months of 2010, and in 20 of the 26 months since September 2008. State and local governments have shed more than 400,000 jobs since September 2008, as the woes of the national economy and housing market hit state and local government budgets. Since most states are required by law to balance their budgets, (and labor costs account for a huge chunk of public sector costs) job cuts and funding cuts to cities, towns and municipalities are always part of the equation for legislators looking to cut costs. We continue to expect more pain on the state and local job front in the year ahead.

Over on the private sector side, the consensus is looking for a 155,000 gain in employment in November, following the surprisingly large 159,000 gain in October. If achieved (and absent any revision to prior months), the back-to-back gains in jobs in October and November would be the most robust since March and April 2010 (prior to the onset of the summer growth slowdown and double-dip fears). A gain in private sector employment close to the consensus would also mark the first time since late 2005/early 2006 that the private sector economy has generated more than 100,000 jobs in five consecutive months.

The Manufacturing and Consumer Sectors Also In Focus This Week

The manufacturing sector will also be in focus this week, highlighted by the release of the Chicago Area Purchasing Managers Index for November on November 30, and the broader, national ISM report on manufacturing on December 1. Based on the regional ISMs and regional Fed manufacturing surveys already released for November, there is a strong likelihood that the overall ISM for November will remain above 56.0 (where a reading above 50 indicates that the manufacturing sector is expanding) for the second consecutive month, after dipping to 54.4 in September. If the ISM does indeed stay above 56.0 in November, it would mark the longest stretch of time since early 2004 that the ISM has consistently been at or above 55.0. We would interpret this as yet another sign that the recovery in U.S. economy that began in June 2009 is beginning to gain some traction.

Already in focus as the 2010 holiday shopping season kicks into higher gear over the Thanksgiving weekend, the health of the U.S. consumer will again be tested as the November vehicle sales (Wednesday, December 1) and November chain store sales (Thursday, December 2) are released.

As we have been outlining in these pages throughout 2010, expectations for the consumer heading into 2010 were low. A year ago, the questions around the consumer were not about how much the consumer could spend in 2010, but how much debt they could pay down or how much money they could save. As it turns out (and as we have been pointing out all year) the consumer has been able to do all three of these things—spend a little, pay down debt, increase saving—as 2010 progressed.

Many market observers also missed the idea that “consumers” were not a single entity. The high-end consumer has seen somewhat of a resurgence, while the low- and middle-end consumers have struggled a bit more.

This week’s reports on vehicle sales and chain store sales in November are likely to continue the themes we have seen throughout 2010. Aided by a better labor market, low interest rates, and an improved financing backdrop, vehicle sales are likely to come in above the 12.0 million annualized sales pace in November for the second consecutive month. Although vehicle sales surged to a 14.2 million annualized sales pace in August 2009, as the government-sponsored “cash for clunkers” program boosted sales, vehicle sales have not been consistently above 12 million units since before the collapse of Lehman Brothers in September 2008. Vehicle sales spent most of the mid-2000s in the 16 to 17 million range, peaking at 21 million in July 2007. A return to sales consistently above the 12.5 million range would be yet another sign that the consumer is beginning to find its footing after more than two years of unsteadiness.

-----------------------------------------------------------------------------------------

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.

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.

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 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.

The Federal Reserve is the central bank of the United States. Its unique structure includes a federal government agency, the Board of Governors, in Washington, D.C., and 12 regional Reserve Banks (Atlanta, Boston, Chicago, Cleveland, Dallas, Kansas city, Minneapolis, New York, Philadelphia, Richmond, San Francisco, and St. Louis).

The NY Empire State Index is a seasonally-adjusted index that tracks the results of the Empire State Manufac­turing Survey. The survey is distributed to roughly 175 manufacturing executives and asks questions intended to gauge both the current sentiment of the executives and their six-month outlook on the sector.

Challenger, Gray & Christmas is the oldest executive outplacement firm in the United States. The firm conducts regular surveys and issues reports on the state of the economy, employment, job-seeking, layoffs, and executive compensation.

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