Raging Bull

An eye on equity market trends

February 6, 2008

Jeffrey Buchbinder, CFA Assistant Vice President Equity Strategy LPL Financial John Canally, CFA Vice President LPL Financial Jeffrey Kleintop, CFA Chief Market Strategist LPL Financial Dave Reilly, CFA Assistant Vice President Equity Strategy LPL Financial

Mixed Consumer Discretionary Outlook Hinges on Consumer Spending
• We have a Market Weight Recommendation on this sector. • Among the industry groups, we prefer Media and Consumer Services and are more cautious on the Consumer Durable & Apparel and Automobile & Components groups. • Consumer spending has been impacted by the soft housing market and higher food and energy prices, however these headwinds may be peaking. • Consumer spending tracks income growth, which remains healthy with mid single digit growth rates. • Interest rate cuts by the Federal Reserve and the potential for a government stimulus package should support the consumer in 2008. • At the sector level valuations have come down, however the sector is still more expensive then the broader S&P 500 and we believe that some risks remain.

Consumer Discretionary Sector Has Lagged in the Market
Indexed Price 2-Feb-2007 to 5-Feb-2008 (Daily) 02-Feb-2007=100; Local

S&P 500 / Consumer Discretionary - SEC (SP285) 80.7 S&P 500 (SP50) 93.7 105 100 95

IMPORTANT DISCLOSURE INFORMATION: Please refer to the last two pages for important disclosures.

90 85 80 75 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan

Source: Prices/Exshare

02/06/2008 Member FINRA/SIPC Page 1 of 6

...despite the diversity within this sector, there remains a close relationship between the health of the consumer and the performance of the broad sector.

Below is a snapshot of our recommendations on the industry groups that make up the Consumer Discretionary sector, which represents 8.5% of the S&P 500 Index. A detailed rationale for our industry recommendations below are relative to the sector. A close look at sector components and drivers The Consumer Discretionary sector is comprised of a broad range of industries, which include media, cable operators, retailers, restaurants, hotels and home building related companies. However, despite the diversity within this sector, there remains a close relationship between the health of the consumer and the performance of the broad sector. While not a perfect relationship, you can see in the nearby chart that consumer wages and salaries closely track the performance of the Consumer Discretionary sector. To be sure, there have been and continue to be other factors that have been at play here, such as a change in the industry dynamics for media, newspaper and cable companies, margin and sales pressures from competition in the discount retail space and consolidation within hotel industry. Nonetheless, a solid, albeit slower pace of consumer spending - supported by aggressive fiscal and monetary stimulus as well as moderating energy prices – supports our view that the sector will keep pace with the broader market, as measured by the S&P 500.

Wage and Salary Disbursements
% Change Year to Year SAAR, Bil.$

S&P 500: Consumer Discretionary
% Change Year to Year Dec-30-94 = 100

12 10 8 6

60 40 20 0

4 2 0 -20 -40 85 90 95 00 05

Source:BEA, S&P / Haver


As consumer spending slowed from the nominal 6-7% range to the 4-5% growth range, the Consumer Discretionary sector was the worst performing sector in the S&P 500.

Industry recap over last few years As shown in the next chart, income growth and personal consumption expenditures peaked out in the fall of 2005 along with the housing market and have slowed since then. As consumer spending slowed from the nominal 6-7% range to the 4-5% growth range, the Consumer Discretionary sector was the worst performing sector in the S&P 500. From October 1, 2005 to January 31, 2008 the total return of the S&P Consumer Discretionary sector returned 2.85% while the S&P 500 Index rose 17.2%. During this period, much of the weakness occurred within the consumer durables and apparel industry, which is dominated by housing related stocks like homebuilders. In addition, specialty retailers, which include home improvement stocks also exhibited relative weakness. Separately, the domestic automakers remained challenged, saddled by a high cost structure compared to their foreign competitors. Finally, media companies were faced with their own challenges, as ad spending continued its
Weighting in Health Care sector (%) 6.3 11.9 16.5 32.2 33.0 Recommendation Neutral to Negative Negative Neutral to Positive Positive Neutral

Weighting in S&P 500 (%) Automobiles & Components 0.5 Consumer Durables & Apparel 1.0 Consumer Services 1.6 Media 2.8 Retailing 2.6
Source: FactSet and LPL Financial Research

Industry group

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Raging Bull | February 6, 2008 | Page 2 of 6

move away from print media to the Internet. Also, cable operators faced pricing and margin pressure from satellite providers and telcos’ entrance into the cable TV market. With a shrinking discretionary budget, consumers have been forced to allocate their dollars to pay for higher food and fuel prices. This trend coincided with the mortgage meltdown, which meant consumers were less able to tap their home equity to make discretionary purchases.
Personal Consumption Expenditures
% Change Year to Year SAAR, Bil.$ % Change Year to Year SAAR, Bil.$

We believe there are several factors supporting the resilience of the U.S. consumer, however we are not ready to call the all clear just yet.

we believe that worst of those headwinds are now behind the consumer. Certainly, there can be regional pockets of continued housing price declines, but in aggregate housing affordability of housing has never been so good given solid income growth, falling home prices, and very low interest rates. Valuations are not compelling Reported earnings and estimate revisions for the group have been resilient despite challenges. However, valuations for this sector are still a premium relative to the S&P 500 Index and above historic averages. While we believe that the consumer will remain resilient, valuations for this sector would need to be lower for us to believe that investors are properly compensated for the current risk to consumer spending.
Consumer Discretionary Sector Relative Valuations
1.8 1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07

Wage and Salary Disbursements 12 10 8 6 4 2 12 10 8 6 4 2 0 85 90 95 00 05

Source: Bureau of Economic Analytics / Haver


12 Month Forward Relative PE Ratio Consumer Discretionary

...valuations for this sector are still a premium relative to the S&P 500 Index and above historic averages.

Sector Outlook, Hinging on Consumer We believe there are several factors supporting the resilience of the U.S. consumer, however we are not ready to call the all clear just yet. Our view is that the U.S. economy is not going into a recession, but rather is experiencing a mid-cycle slow down. In addition, income growth, a stimulative monetary policy and the potential for a stimulative fiscal policy, favor strength in consumer spending growth consistent with a mid cycle economic slow down rather than a recession. Importantly, the employment situation remains stable. On the other hand, some risks do remain. If employment weakens consumer incomes will erode. Other risks to the sector include another down-leg in the housing market and a resurgence in energy prices. However,

Source: IEBS / LPL Financial Research


Industry Group Views Our view on the broad sector is a Market Weight recommendation. However, a detailed look at the industry groups below served to support this recommendation. Retailing – We are Neutral on the retailers. Despite our expectation of a resilient consumer and reasonable valuations, this group may continue to face margin pressures. Retailers are also exposed to many different risks, such as a fickle consumer, inventory

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challenges with fashion and weather related changes. Furthermore, there are housing related retailers that are included in this group and these companies may continue to face weak sales trends. Media – We are Positive on this industry for several reasons. First, the companies in this industry tend to have diversified revenue mix driven by both business and consumer spending. As such this group tends to be less sensitive to consumer spending and therefore, slightly defensive. We also believe that the group should benefit from ad spending related to the elections and to the Olympics. Lastly, current valuations for this group are attractive compared to both historical measures and the broader S&P 500 Index. Consumer Services – We are Neutral to Positive on this industry group, which is largely made up of fast food restaurants and hotels. With a broad geographical footprint and a favorable revenue mix driven by both businesses and consumers, we believe this group is well positioned to potentially outpace the sector and the broad market. The performance of these stocks has been one of the bright spots in the sector over the last couple of years. As such, valuations are above average causing our somewhat guarded Neutral to Positive view on the group.

Consumer Durables & Apparel – We are Negative on this industry group due to the fact that it is very sensitive to consumer spending, particularly on housing. Should a recovery in the housing market, which we expect later in the year, be delayed this group would likely remain under pressure. Despite the fact that this group could move higher in advance of a turnaround in housing, risks to the consumer cause us to be more cautious on this group. In light of the recent rally in homebuilding stocks, current valuations are less attractive. Automobiles & Components – We are Neutral to Negative on this group. This group is comprised of the U.S. auto manufacturers, which continue to face stiff competition from foreign automakers. They are also saddled with higher cost structures than their competition, which is not represented in this sector. Furthermore, risks to consumer spending, especially for big-ticket items, don’t favor vehicle manufactures. The one bright spot in this industry are the component companies, which have both business and geographical diversification, as they sell to all automakers and other industrial companies, domestic and foreign

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IMPORTANT DISCLOSURES Investing in alternative investments may not be suitable for all investors and involve special risks such as risks associated with leveraging the investment, potential adverse market forces, regulatory changes, potential illiquidity. There is no assurance that the investment objective will be attained. Investing in real estate/REITs involves special risks such as potential illiquidity and may not be suitable for all investors. There is no assurance that the investment objectives of this program will be attained. Small-cap stocks may be subject to a higher degree of risk than more established companies’ securities. The illiquidity of the small-cap market may adversely affect the value of these investments. Investing in mutual funds involve risk, including possible loss of principal. Investments in specialized industry sectors have additional risks, which are outlined in the prospectus. International investing involves special risks such as currency flucuation and political instability and may not be suitable for all investors. REQUIRED DISCLOSURES The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual. To determine which investments may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly. Past performance is not indicative of future results. The information set forth above has been obtained from third party sources believed to be reliable, but LPL Financial does not represent or warrant its accuracy or completeness and is not responsible for losses or damages arising out of errors, omissions or changes to market factors. This material does not purport to contain all of the information that an interested party may desire and in fact, may provide only a limited view of a particular market. Alpha: Incremental return due to non-market factors. A positive alpha indicates that the portfolio has produced returns above the expected level at that level of risk. Alpha measures a fund’s risk-adjusted performance. It represents actual returns less the fund’s risk adjusted performance as measured by beta, and is expressed as an annualized percentage. P/E Multiple – A tool for comparing the prices of different common stocks by assessing how much the market is willing to pay for a share of each corporation’s earnings. It is calculated by dividing the current market price of a stock by the earnings per share. P/B Multiple - Determined by dividing current stock price by shareholders equity for the most recent quarter.PTB - Stock price divided by shareholders equity per share. Book Value - A company total assets minus intangible assets and liabilities, such as debt. A company’s book value might be higher or lower its market value. Foward P/E- Price/earnings ratio, using earnings estimates for the next four quarters. The prices of small company stocks are generally more volatile then those of large company stocks.

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DESCRIPTION OF INDICES Indices are unmanaged and cannot be invested into directly. Dow Jones Average 30 Industrial Prepared and published by Dow Jones & Co. It’s one of the oldest and most-widely quoted of all the market indicators. The Dow Jones Industrial Average is comprised of 30 stocks that are major factors in their industries, and widely held by individuals and institutional investors. These 30 stocks represent about a fifth of the $8 trillion-plus market value of all U.S. stocks and about a fourth of the value of stocks listed on the New York Stock Exchange. It is not possible to invest directly in an index. NASDAQ Composite Index The Nasdaq Composite Index measures all Nasdaq domestic and non-U.S. based common stocks listed on The Nasdaq Stock Market. The Index is marketvalue weighted. This means that each company’s security affects the Index in proportion to its market value. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index. It is not possible to invest directly in an index. S&P 500 Index The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The index was developed with a base level of 10 for the 1941-43 base period. It is not possible to invest directly in an index. Past performance is not a guarantee of future results. Russell 2000 Growth Index The Russell 2000 Growth Index is an unmanaged index comprised of those Russell 2000 companies with higher price-to-book ratios and higher forecasted growth values. Russell 2000 Value Index measures the performance of those Russell 2000 companies with lower priceto-book ratios and lower forecasted growth values.

This research material has been prepared by LPL Financial.
The LPL Financial family of affiliated companies includes LPL Financial, UVEST Financial Services Group, Inc., IFMG Securities, Inc., Mutual Service Corporation, Waterstone Financial Group, Inc., and Associated Securities Corp., each of which is a member of FINRA/SIPC.

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