Weekly Market Commentary

Your weekly update on risks and opportunities in the financial markets.

February 19, 2008

Who Are The Buyers?
Jeffrey Kleintop, CFA Chief Market Strategist, LPL Financial
• We believe stocks will post solid gains in the coming months and that the buying power will not come from individual U.S. investors – history suggests these investors usually miss the market bottom. We see three potential sources of buying power: foreigners, corporations and private equity funds. • Foreigners have been increasing their net purchases of U.S stocks at a pace of $200 billion over the past year. Emerging economies now possess enormous foreign currency reserves funding sovereign wealth funds with $3.5 trillion in assets. These newly formed investment vehicles are seeking equity investments in the United States. • Buyback announcements and increases to buyback authorizations have continued in the fourth and first quarters, suggesting that corporations are likely to be aggressive buyers at these low share prices. • Private equity funds are sitting on an estimated $300 billion in untapped commitments.

In an equity market roiled by fears of recession, the subprime debt crisis, and $90+ oil, who will step up and buy equities? We recommended investors do just that a few weeks ago, when we raised our recommended weighting to stocks by five percentage points. History suggests that investors usually miss the market bottom. History suggests that investors usually miss the market bottom. Individual investors were net sellers for years after the October 1974 equity market trough, and equity mutual funds experienced outflows for 15 months after the October 1987 stock market crash. In addition, during the 1990-91 Gulf War, the stock market reached a low in October 1990, but equity mutual fund inflows failed to gain momentum until February 1991. Following the collapse of the internet bubble in the early 2000s, the stock market bottomed in October of 2002, yet equity mutual funds continued to see outflows for six months before beginning to rebound. We note that equity mutual funds have consistently seen net outflows each month for nearly a year now. So in the absence of the individual investor, where are the sources of new money likely to come from that can drive the market higher? Or in other words, who are the buyers likely to be? We see three candidates: • Foreigners • Corporations • Private equity

So in the absence of the individual investor, where are the sources of new money likely to come from that can drive the market higher? Or in other words, who are the buyers likely to be?

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Foreigners
We believe that foreign investors may continue to step up their purchases of U.S. stocks. The U.S. remains the number one source of foreign investment in the world – with foreign investment here exceeding U.S. investment abroad by a margin of 2-to-1. Foreigners have been increasing their net purchases of U.S stocks at a pace of $200 billion over the past year. With the value of the dollar stabilizing so far this year, we may see this pace of accumulation increase.

Foreign Appetite for U.S. Stocks is Strong
Net Foreign Purchases of U.S. Corporate Stocks, 12 Month Change in $ Billions
300 250 200 150 100 50 0 -50 1988

1991

1994

1997

2000

2003

2006

Source: U.S. Treasury, LPL Financial

We believe sovereign wealth funds are a rising force in the investment world.

We believe sovereign wealth funds are a rising force in the investment world. During the past 10 years, the fortunes of the emerging economies have experienced a stunning reversal from the destitution of the debt crises that began with the Mexican peso crisis in 1994, continued with the Asian currency crises of 1997 and the default by Russia in 1998, and ended with the largest sovereign default ever to take place: in Argentina in 2001. No longer able to borrow, many of these nations turned from borrowers to savers and through exporting now possess enormous foreign currency reserves funding sovereign wealth funds. These funds have reached an estimated $3.5 trillion in assets. These newly formed investment vehicles are seeking equity investments in the United States. Fund
Abu Dhabi Investment Authority The Government Pension Fund of Norway Government of Singapore Investment Corporation Various Saudi Arabian funds Kuwait Investment Authority China Investment Corporation Temasek Holdings (Singapore) Stabilization Fund of the Russian Federation CPP Investment Board (Canada) Australian Government Future Fund Qatar Investment Authority Alaska Permanent Fund (United States) Libya Brunei Investment Agency Korea Investment Corporation Khazanah Nasional (Malaysia) Kazakhstan National Fund National Stabilisation Fund (Taiwan) Oil Stabilisation Fund (Iran)
Source: Various general news publications, LPL Financial

These newly formed investment vehicles are seeking equity investments in the United States.

Estimated Assets in $ Billions
$1,300 $350 $330 $300 $250 $200 $159 $158 $119 $61 $50 $40 $40 $30 $20 $18 $18 $15 $13

LPL Financial Member FINRA/SIPC

Weekly Market Commentary | February 19, 2008 | Page 2 of 4

Corporations
Companies have been big buyers of stocks in recent years. Companies have been big buyers of stocks in recent years. In fact, over the past three years, the total amount of stock buybacks by S&P 500 companies ($1,318 billion) has eclipsed Capital Expenditures ($1,276 billion), Research & Development ($376 billion), and common stock dividends ($605 billion).

Corporate Spending on Share Buybacks has Soared
S&P 500 Share Buybacks in $ Billions
200 180 160 140 120 100 80 60 40 20 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Source: Standard & Poors

Buyback announcements and increases to buyback authorizations have continued in the fourth and first quarters, suggesting that corporations are likely to be aggressive buyers at these low share prices.

Despite stock market volatility in the third quarter of 2007 (the last quarter for which data has been tabulated), S&P 500 companies bought back a record breaking $172 billion of shares. This is a big number. Over the four quarters ended September 2007, S&P 500 companies spent more on buybacks ($552.6 billion) than the United States government spent on Medicare in 2007. Many S&P 500 companies continue to have sizeable cash balances available to be deployed for buybacks or acquisitions that would further increase the demand for stocks. Buyback announcements and increases to buyback authorizations have continued in the fourth and first quarters, suggesting that corporations are likely to be aggressive buyers at these low share prices.

Private Equity
Private equity funds are sitting on an estimated $300 billion in untapped commitments... Private equity funds are sitting on an estimated $300 billion in untapped commitments – and they are unlikely to return that money to investors in the face of the best buying opportunities in years. With the earnings growth for non-financial companies expected to remain in the double-digits in 2008, there remain very attractive buying opportunities for private equity funds. Although many individual investors are likely to remain gun-shy until after stock prices recover, foreigners, corporations and private equity funds may fill the buying power void as they often have in the past.

LPL Financial Member FINRA/SIPC

Weekly Market Commentary | February 19, 2008 | Page 3 of 4

This report has been prepared by LPL Financial from sources believed to be reliable but no guarantee can be made as to its accuracy or completeness. The opinions expressed herein are for general information only, are subject to change without notice, and are not intended to provide specific advice or recommendations for any individuals. Please contact your advisor with any questions regarding this report. Investing in Mutual Funds involve risk, including possible loss of principal. Investments in specialized industry sectors have additional risks, which are outlines in the prospectus. 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. Indices are unmanaged and cannot be invested into directly. High yield/ junk bonds are not investment grade securities, involve substantial risks, and generally should be part of the diversified portfolio of sophisticated investors.

REQUIRED DISCLOSURES
Neither LPL Financial nor any of its affiliates engage in investment banking services nor has LPL Financial or its affiliates or the analyst(s) been compensated during the previous 12 months by any company mentioned in this Report for any non-investment banking securitiesrelated services and non-securities services nor has any company mentioned been a client of LPL Financial or its affiliates within the past 12 months.

INDEX DESCRIPTIONS
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.

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 market-value 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

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.

Russell 3000 Index
Russell 3000® Index measures the performance of the 3,000 largest U.S. companies based on total market capitalization, which represents approximately 98% of the investable U.S. equity market. As of the latest reconstitution, the average market capitalization was approximately $4.8 billion; the median market capitalization was approximately $944.7 million. The index had a total market capitalization range of approximately $386.9 billion to $182.6 million.

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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Member FINRA/SIPC Weekly Market Commentary | February 19, 2008 | Page 4 of 4 Tracking #425153 (Exp. 12/08)