It's Different This Time

It’s been just over 3 years since the March, 2009 market bottom of 666 on the S&P 500 index, following the financial crisis of ’08-’09 and the ensuing ‘Great Recession’. In that time, the market has rebounded over 100%, despite a lackluster recovery in jobs, exploding budget deficits and multiple political and financial flare-ups around the globe. And as we enter the summer season amid the latest crises du jour, and the inevitable doomsday commentary that accompanies them, it feels, as the great Yogi Berra so eloquently put it, like déjà vu all over again.

It was only last summer that we were embroiled in a crippling European debt crisis, a deadly debt ceiling debate and a slowing economic recovery that was in danger of slipping back into recession. We can’t help but think of the catastrophic nature of the headlines that were coming across our screens at the time and how similar they were to the ones we have been seeing lately. To be sure, there are serious problems in Europe, and the fiscal cliff here in the U.S. is an issue that will need to be dealt with, but are any of these problems more severe than those that existed last year or 10, 20 even 50 years ago?

It comes as no surprise that the commentary is so melodramatic. After all, sensationalism is nothing new, especially when it comes to financial news reporting.  However, the sheer volume of reporting that is available to the average investor on a day-to-day basis now is staggering. Being plugged in as we are to our computers, phones, tablets and even the old standby, T.V. (remember that?); via Twitter, Facebook, Youtube, RSS Feeds and the like, media outlets and pundits have limitless opportunity to proffer their dire messages. As a result, a person can easily see a headline like “Eurozone in Crisis” or “Growth to Stall as Fiscal Cliff Looms” 10 to 15 times or more in a single day. When you compare that to, say, 30 years ago, where a  person might read a story or two in the morning paper on one of those topics, perhaps followed by a piece on the evening news, we’re left wondering what the effect is on the average investor of all the additional exposure to so called “news”. It is also worth noting that the concept of “consider the source” has become so much more critical in this environment since the article or headline you’re seeing may have been posted and reposted or tweeted and re-tweeted many times over before landing on your screen.

For years we have read about and talked with clients about the underperformance of average investor returns versus the overall markets, and the most recent Dalbar study outlines this point once again. For the twenty years ending 12/31/2011 the S&P 500 Index averaged 7.81% a year, but the average equity fund investor earned a market return of only 3.49% (Dalbar Inc. 2012 Quantitative Analysis of Investor Behavior). This is the same 20 year period that included the bursting of the dot com bubble as well as the so called ‘Great Recession’. The root causes of such underperformance are many, and we are reluctant to pin all of the blame on the media, but there is no doubt, in our minds at least, that the constant negative discourse plays a significant role. It is clear from these numbers that investor behavior is the main driver of investor results, and the combination of negative commentary, past volatility and loss aversion can cause calamitous outcomes. In prospect theory, loss aversion refers to the tendency for people to strongly prefer avoiding losses to acquiring gains. Some studies suggest that losses are as much as twice as psychologically powerful as gains.

 It is this emotional bias that, when coupled with the onslaught of negative media commentary, is what we believe leads people to the four most dangerous words in the investor’s vocabulary: “It’s different this time”. What is so dangerous about those words is that in the short run, things are different. That is, the circumstances that exist and work together to cause a bear market or recession are different each time. Unfortunately, that only gives credence to the panic-driven investor who is prone to liquidating at the bottom. One can always find some condition in the markets or broader world that didn’t exactly exist at any other point in time, and likely a headline (or many headlines) to suggest that its existence will cause gruesome results the likes of which have never been seen before. But the truth, so well put by financial writer/advisor Nick Murray, is that “…in the long run, the market cycle is never different; it is an irregular pattern of excessive optimism followed by excessive pessimism and back again, cycling around a secularly rising trendline.”  In that context, the idea that it is different this time can become the rationale for poor, emotionally-driven investment decisions, the most likely outcome of which is vast underperformance compared to the overall markets, and the erosion of purchasing power over time.

What the most successful investors are able to do (think Warren Buffet) is block out the constant noise of those selling newspapers, ad time or their new ‘investment idea’ and think long-term, even generationally. While the market’s movements are extraordinarily difficult (some would say impossible) to predict in the short to medium term, they have historically been quite easy to gauge when you start looking at 20-, 30-, and 40-year rolling periods.  When seen from that perspective, downturns appear as buying opportunities, up-markets as a time to take profits; the whole as a systematic, even methodical cycle of up and down with an ever increasing base from which to operate. It is this perspective that, above all, provides the basis for sound financial advice.

So, as we see another summer slowly slip away, and prepare to enter a fall season full of uncertainty (who will win the election, will the Europeans fix their fiscal woes, will congress finally get together?), our advice remains the same as ever. Have a plan, stick to it through up and down, make sure to enjoy some quality time with friends and loved ones and try to avoid the hand-wringing over the latest headlines. Because, as with the weather, eventually, the issues we face will change, today’s questions will be answered and replaced with new ones, and most important, it’s not different this time.

_______________________________

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.

Dalbar’s 2012 Quantitative Analysis of Investor Behavior (QAIB) study examines real investor returns from equity, fixed income and money market mutual funds from January 1984 through December 2011. The study was originally conducted by Dalbar, Inc in 1994 a d was the first to investigate how mutual fund investors’ behavior affects the returns they actually earn.

Past performance is no guarantee of future results. Indexes cannot be invested into directly.

Nick Murray is not affiliated nor endorsed by LPL Financial or Topel & DiStasi Wealth Management.

Naming Beneficiaries of Insurance Policies and Retirement Plans

Whether you’re wealthy or earn a modest income, there is one estate planning concern that is shared by people from all walks of life—the decision of who gets what when you’re gone. While some individuals logically assume that a will is the only official forum to express such decisions, that’s not always the case. Often, an equally important issue in estate planning is who to name as beneficiary on life insurance policies, employer-sponsored retirement plan accounts and IRAs.

Life Insurance

No matter who is designated, the beneficiaries will receive the death benefit proceeds income tax free. Unlike property disposed of in a will, if the beneficiary designation form is properly completed, insurance proceeds do not go through probate.

For many married individuals, a spouse will be the most logical beneficiary. A trust may be a prudent beneficiary choice, however, if a surviving spouse would not have the ability to prudently manage a large sum of money. The trustees (often a legal entity rather than an individual) would then take charge of managing, investing and disbursing the policy proceeds for the benefit of the surviving spouse.

Be sure to name contingent or secondary beneficiaries. This means that if the primary beneficiary has died, the insurance proceeds will go to an individual or trust. If there are no surviving beneficiaries, then your beneficiary is generally the “estate of the insured,” which means the death benefits end up being probated and ultimately distributed according to the instructions of the decedent’s last will and testament. If an individual dies without a valid will (intestate), then the order of legal beneficiaries to whom assets are distributed is specified by that state’s law.

Employer-Sponsored Retirement Plans and IRAs

The law requires that a spouse be the primary beneficiary of a 401(k) or profit sharing account unless he or she waives that right in writing. A waiver may make sense in a second marriage—if a new spouse is already financially set or if children from a first marriage are more likely to need the money.

Single people can name whomever they choose as beneficiary, and nonspouse beneficiaries are now eligible for a tax-free transfer to an Individual Retirement Account. The IRS has also issued regulations that dramatically simplify the way certain distributions affect IRA owners and their beneficiaries. Consult your tax advisor on how these rule changes may affect your situation.

Naming Children May Not Be Best

Naming children as beneficiaries may cause unforeseen problems. For example, insurance companies, pension plans and retirement accounts may not pay death benefits to minors. The benefits would likely be held until they could be made to a court-approved guardian or trustee of a children’s trust. A guardian, trust or trustee should be named beneficiary to ensure competent management of the proceeds for the children. By naming a children’s trust as a beneficiary, for example, the proceeds could be invested and managed by a competent trustee (a person or institution) you choose. A revocable living trust could also be named as a beneficiary, which keeps the proceeds out of probate.

Also keep in mind that the IRS allows nonspousal beneficiaries to annuitize retirement plan distributions over the life of the beneficiary. Check with your employer to find out if this is an option under your plan prior to naming a child as a beneficiary. A competent financial professional and tax advisor can also offer guidance as to whether this action may be appropriate for you.

Keep Your Plan Up-to-Date

When completing overall estate plans and wills, it is imperative to readjust all beneficiary designations so that your estate plan accurately reflects your intentions. Remember, outdated beneficiary designations (e.g., older parents or ex-spouses) could misdirect the intended flow of an entire estate unless changed now.

Also, keep in mind that beneficiaries are paid directly as named. Thus, beneficiary designations are not governed by the wording of wills.

As is always the case with estate planning, consult with qualified professionals concerning your particular situation in order to ensure that your beneficiary designations are in tune with your goals.

When Naming Beneficiaries, Remember to Consider …

· The age of the beneficiary. Many policies and plans will not directly transfer assets to minors until a trustee or guardian is approved by a court.

· The ability of the beneficiary to manage assets. Perhaps a trust set up in the person’s name would be better than a direct transfer.

· Employer-sponsored retirement plans. Unless expressly waived by the spouse in writing, the law requires a spouse to be the primary beneficiary of the account.

· Naming contingent beneficiaries. Should something happen to your primary beneficiary, the contingent beneficiary would receive your assets.

This article was prepared by McGraw-Hill Financial Communications and is not intended to provide specific investment advice or recommendations for any individual. Consult your financial advisor or me if you have any questions.

Weekly Economic Commentary

Consumer Credit Conundrum

Worries about a "hard landing" in China have been in the headlines for months. Last week's (July 9 – 16) batch of Chinese economic data for June 2012 may help to ease those concerns, at least for now. Consistent with our long-held forecast, China's gross domestic product (GDP) report for the second quarter of 2012 points to a soft landing, not a hard landing for the Chinese economy. On an inflation-adjusted basis, China's economy grew 7.6% between Q2 2011 and Q2 2012. The reading represented a deceleration from the 8.1% year-over-year reading in Q1 2012, and it was also slightly below published expectations.

However, the report was inside the range of forecasts (+7.3% to +9.3%) and was far above the "whisper number" that had been circulating in the market. The question now for markets is: does the Q2 GDP report in China represent the low point for the year, and will policy stimulus lead to a re-acceleration of growth over the second half of 2012?

China Transitioning to Consumer-Oriented Economy

China's economy, as measured by real GDP, grew by more than 10% per year between 2002 and 2008, before slowing to a “hard landing" growth rate of just over 6% in late 2008. A sizable portion of the 10%+ growth seen between 2002 and 2008 was export oriented, and the U.S. economy pulled in nearly $2 trillion of China's exported goods during that time period. Those goods, from televisions to tablecloths, helped to fill the nearly 10 million new single family homes built in the United States in that period. China is now slowly transitioning to a more consumer-oriented versus an export-oriented economy, and Chinese authorities have made it clear that the transition is likely to occur against a backdrop of much slower economic growth, likely in the 7.5 – 8.0 % range. As China begins the transition to slower, more consumer-oriented growth, the U.S. economy continues to struggle with the high levels of personal debt left over from that earlier era (2002 – 2008).

U.S. Consumers Continuing to Struggle With Debt

Since the onset of the Great Recession, many market observers have generally taken a pessimistic view on how quickly U.S. consumers could repair the damage to their personal balance sheets incurred during the 2002 – 2008 period (and really since the mid-1990s). The good news on this front is that the process of “deleveraging,” although by no means complete, has occurred much more quickly than the most pessimistic forecasts. Although it has taken the consumer a lot less time to deleverage than was thought even a few years ago, consumer balance sheets are probably not back to “normal.” Absolute levels of personal debt remain high, and thanks to sub-par personal income growth, debt-to-income levels remain high as well, although down from recent peaks. One bright spot in the process has been the sharp reduction in the cost of servicing the debt.

Fed Actions Have Helped Ease Some of Consumers’ Debt Burden

Actions by the Federal Reserve (Fed) — lowering the Federal funds rates, two rounds of bond purchases(QE1 and QE2), and Operation Twist — along with slow domestic economic growth, low inflation, and a series of global growth worries have sharply reduced consumer interest rates. Lower rates, in turn, have made it easier for consumers to service the personal debt (pay credit cards, student loans, mortgages, etc.) that has not already been eliminated (either voluntarily or involuntarily). Mortgage rates, which were close to 7% as recently as the middle of 2008, are now well below 4.0%, and could be headed lower if the Fed decides to pursue a third round of quantitative easing (QE3) and target the mortgage market. Economy-wide, the drop in mortgage rates, along with a drop in mortgage debt outstanding, translated into $150 billion in lower mortgage payments in 2011 versus 2008. To put that dollar amount in perspective, $150 billion dollars is what Americans spent on furniture, lighting fixtures, carpets, floor coverings, and window coverings in the past 12 months.

Rates on auto and truck and personal loans have seen similar declines. In 2007, the average rate on a five-year loan for a new car or truck was around 8.0%. Today, the rate is well under 5.0%. The rate on a two-year personal bank loan in 2007 was close to 14%. Today, rates on unsecured personal loans are under 11%. Interest rates on credit cards have moved down as well. On balance, personal interest payments on non-mortgage debt have been cut in half since late 2008, while mortgage interest payments have been cut by 25%. While some of that reduction in interest represents “involuntary” reduction in principle (on mortgages, credit cards, personal loans,etc.), the drop in rates has certainly eased the cost of servicing debt, and sped up the process of consumer balance sheet repair.

The cost of servicing the debt is captured in the figure on the financial obligations ratio, or FOR. The FOR is an estimate of the ratio of financial obligations payments to disposable personal income. The FOR includes automobile lease payments, rental payments on tenant-occupied property, homeowners' insurance, and property tax payments. From a peak of near 19% in late 2008/early 2009, the FOR has fallen to 16%, the lowest in 12 years, and very close to the all-time low of 15%, hit in the early 1980s.

The drop in the FOR reflects the big drop in consumer interest rates (discussed above), along with the modest drop in overall debt levels which has come about both voluntarily (consumers consciously paying down consumer, housing, and credit card debt) and involuntarily (bankruptcy, foreclosure, etc.). The nearby figure on overall debt levels relative to personal income paints a slightly more dire picture, showing that while debt-to-income levels have moved lower since 2008, and are at the lowest level in more than 10 years, they remain well above their long-term average.

What’s Next?

The truth about consumers’ financial health lies somewhere between still-elevated debt levels, the debt-to-income ratio,and the FOR. As the economy continues to recover, consumers will continue to spend a little, save a little,and pay down debt, as they have been doing for four years now. As this process continues to unfold, the implications for the broader economy include a slower-than-normal pace of spending, and increased caution in taking on new debt. However, it does appear that most of the hard work, at least on the consumer front, may be behind us. With personal debt levels moving (slowly) in right direction and corporate debt levels well contained (a topic for a future Weekly Economy Commentary), markets and policymakers are now likely to turn their attention to government debt levels (mainly federal but state and local as well) over the remainder of 2012 and into 2013.

Prepared By:

John Canally, CFA

Economist LPL Financial

______________________________________

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.

The economic forecasts set forth in the presentation may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

Chinese Purchasing Managers Index: The PMI includes a package of indices to measure manufacturing sector performance. A reading above 50 percent indicates economic expansion, while that below 50 percent indicates contraction.

Leading indicator: An economic indicator that changes before the economy has changed. Examples of leading indicators include production workweek, building permits, unemployment insurance claims, money supply, inventory changes, and stock prices. The Fed watches many of these indicators as it decides what to do about interest rates.

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.

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

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.

Empire State Manufacturing Survey is a monthly survey of manufacturers in New York State conducted by the Federal Reserve Bank of New York. The Federal Open Market Committee action known as Operation Twist began in 1961. The intent was to flatten the yield curve in order to promote capital inflows and strengthen the dollar. The Fed utilized open market operations to shorten the maturity of public debt in the open market. The action has subsequently been reexamined in isolation and found to have been more effective than originally thought. As a result of this reappraisal, similar action has been suggested as an alternative to quantitative easing by central banks.

The Federal Open Market Committee (FOMC), a committee within the Federal Reserve System, is charged under the United States law with overseeing the nation’s open market operations (i.e., the Fed’s buying and selling of United States Treasure securities).

This research material has been prepared by LPL Financial.

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/NCUA Insured | Not Bank/Credit Union Guaranteed | May Lose Value | Not Guaranteed by any Government Agency | Not a Bank/Credit Union Deposit

Member FINRA/SIPC

Tracking #1-084092 (Exp. 07/13)

Weekly Economic Commentary

Vacation Week Fireworks?

Although many market participants are likely to be away from the office this week, they risk missing a busy week for economic data, which is sandwiched between a policy-heavy June 2012 and the unofficial start of the corporate earnings reporting season on July 9. As this publication was being prepared, markets have already digested several key economic reports, including:

·         China’s Purchasing Managers’ Index (PMI) for June 2012, which was better than expected, but still suggested that the Chinese economy continued to slow as the first half ended,

·         Japan’s Tankan Index for the second quarter 2012 also surpassed lowered expectations, but suggested little, if any growth in the Japanese manufacturing economy,

·         India’s PMI for June 2012 also surpassed lowered expectations and was stronger than the May 2012 reading. The report suggested that Asia’s third-largest economy may be responding to rate cuts engineered by India’s central bank in spring 2012,

·         Brazil’s industrial production for May 2012,

·         Eurozone PMI for June 2012,

·         Eurozone employment for May 2012, and

·         The U.S. Institute for Supply Management (ISM) report for June 2012.

With one important exception — the U.S. ISM report for June, which came in lower than expected, below the low end of the range of expectations, and below 50 (indicating that the manufacturing sector contracted in June) — this round of important data came in above sharply lowered expectations. With the Eurozone fiscal and financial woes likely to be on the back burner for a while, the pace of economic growth in Europe, the United States, and especially China will likely move to the front burner.

 China Economy Fizzling

Although several other reports on China’s economy in June 2012 are due out this week, including the service sector PMI for June 2012, the next round of data (money supply, retail sales, industrial production, new loan growth, exports and imports, etc.) on the Chinese economy is not due until next week (July 9 – 13). Our view remains that the Chinese economy will avoid a “hard landing” (5 – 6% real gross domestic product [GDP] growth), and that further fiscal and monetary policy stimulus is likely from Chinese authorities in the weeks and months ahead. Until then, fretting over the health of the Chinese economy could replace the uncertainty surrounding recent major policy events as the market’s favorite summer pastime.

Potential Oohs and Ahhs on European Monetary Front

The unexpected agreement reached late last week (June 25 – 29) at the Eurozone leaders’ summit has, for now, pushed market concerns over Europe to the back burner. That does not mean, however, that markets will not be paying attention to several key policy-related events in Europe this week. On Tuesday, July 3, the new French government under François Hollande will present its budget plan for the coming year, and this may briefly refocus the market’s attention on European fiscal woes. The markets are looking for a mix of short-term growth measures combined with a commitment to lower France’s debt level over the longer term. Later in the week, German Chancellor Angela Merkel will meet with her Italian counterpart Mario Monti. The pair has plenty to discuss aside from the latest soccer scores. Although the market is not expecting anything concrete from this meeting, market participants would welcome signs that Europe is cooperating and moving closer together.

Fiscal policy has been in the driver’s seat in Europe recently, but that may change this week, as the Bank of England (BOE) and the European Central Bank (ECB) meet to discuss monetary policy. On the heels of the political/ fiscal progress made at the Eurozone leaders’ summit in Brussels last week, the outcome of the French and Greek elections in mid-June, as well as the Fed’s decision in mid-June to extend Operation Twist to the end of 2012, both the ECB and BOE are expected to act this week. The market expects a rate cut from the ECB, and perhaps even a promise to do more. In the U.K., the market now expects another round of quantitative easing from the BOE, as the U.K. is teetering on the edge of recession amid the economic and fiscal uncertainty from the neighboring Eurozone. Central banks in Sweden, Poland, Russia, and Australia also meet this week, but markets do not expect any of these banks to act in a similar fashion as the BOE and ECB.

Grand Finale: U.S. Jobs Report

The grand finale of the week, of course, will be the release of the June employment report for the United States on Friday, July 6. As we have noted in prior Weekly Economic Commentaries, the monthly jobs report has implications for the overall economy, the Fed, and the upcoming U.S. presidential elections. We will focus on the jobs report’s impact on the overall economy and the Fed this week, but please see the Weekly Economic Commentary from May 29, 2012, for a look at how the unemployment rate has impacted the outcome of the presidential election in prior years.

A well-documented warmer-than-usual winter in 2011 – 12 led to the monthly count of private sector jobs exceeding economists’ estimates from December 2011 through February 2012. Since then, the market has overestimated the number of jobs created, as the number of private sector jobs created from March through May 2012 fell far short of expectations. As this publication was being prepared, the consensus was looking for a 100,000 gain in private sector employment in June 2012, an improvement on the 82,000 jobs created in May 2012, but still the lowest estimate for the report since economists were looking for 90,000 jobs to be created in September 2011. The most optimistic forecaster is looking for 175,000 private sector jobs to be created in June, while the low end of the range is at 45,000. The last time the low end of the range of estimates for the monthly jobs report was this low was back in August 2011. As market participants prepare for the report, they are asking: Have estimates fallen far enough? If they have not fallen enough, markets may see fireworks on both July 4 and July 6 this year.

The forecast for a 100,000 increase in private sector jobs in June 2012 pales in comparison to the weather-boosted 250,000 jobs per month created in December 2011, January 2012, and February 2012. Last fall, prior to the warmer weather, the economy was creating around 150,000 jobs per month. The true pace of underlying job growth is likely somewhere between 150,000 and 250,000.

Compared with last fall, when the level of initial claims for unemployment insurance was running over 400,000 per week, the level of initial claims filed each week in June 2012 (around 390,000 per week) suggests that hiring is a bit more robust today. Several other indicators suggest that the economy is probably creating more jobs than it was last fall (150,000 per month), but not many more:

·         The increase in consumer sentiment,

·         The near-record level of corporate profits and cash flows,

·         The increase in job openings, and

·         The number of job quitters as a percent of overall job separations.

Policymakers at the Federal Reserve (Fed) also will likely have a keen interest in the June jobs report, as they continue to mull the possibility of more monetary policy stimulus. The labor market and, in particular, the unemployment rate, will likely be a key determinate for the Fed. The Fed now expects the unemployment rate to average 8.1% in the fourth quarter of 2012. The median forecast for the June 2012 unemployment rate is 8.2%, and the economy probably needs to create around 100,000 jobs per month just to keep the unemployment rate steady.

In the press conference following the June 20 Federal Open Market Committee (FOMC) meeting, Fed Chairman Ben Bernanke said that if the Fed does not see improvement in the labor market, the Fed will take additional steps to stimulate the economy. In his April 2012 post-FOMC press conference, Bernanke said, “we’ll continue to be watching the labor market. That’s a very important consideration. If unemployment looks like it’s no longer making progress, that’ll be an important consideration in thinking about policy options.” Thus, another weak employment report in June may prompt Fed officials to think about another round of monetary stimulus (round three of quantitative easing, known as QE3), which may cause some political fireworks later this year.

Prepared by:

John Canally, CFA

Economist LPL Financial

_________________________________________________________

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.

The economic forecasts set forth in the presentation may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

Chinese Purchasing Managers Index: The PMI includes a package of indices to measure manufacturing sector performance. A reading above 50 percent indicates economic expansion, while that below 50 percent 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.

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 Bank of Japan produces a quarterly “Tankan” survey of corporations that provides insight into the current business climate in Japan. The Bank of Japan uses this survey to help determine monetary policy.

The Eurozone Purchasing Managers’ Index (PMI) assesses business conditions in the manufacturing sector.

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

Quantitative Easing is a government monetary policy occasionally used to increase the money supply by buying government securities or other securities from the market. Quantitative easing increases the money supply by flooding financial institutions with capital in an effort to promote increased lending and liquidity.

The Federal Open Market Committee action known as Operation Twist began in 1961. The intent was to flatten the yield curve in order to promote capital inflows and strengthen the dollar. The Fed utilized open market operations to shorten the maturity of public debt in the open market. The action has subsequently been reexamined in isolation and found to have been more effective than originally thought. As a result of this reappraisal, similar action has been suggested as an alternative to quantitative easing by central banks.

The Federal Open Market Committee (FOMC), a committee within the Federal Reserve System, is charged under the United States law with overseeing the nation’s open market operations (i.e., the Fed’s buying and selling of United States Treasure securities).

This research material has been prepared by LPL Financial.

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/NCUA Insured | Not Bank/Credit Union Guaranteed | May Lose Value | Not Guaranteed by any Government Agency | Not a Bank/Credit Union Deposit

Member FINRA/SIPC

Tracking #1-080674 (Exp. 07/13)