Hennion & Walsh

The S&P 500 200 Day Moving Average Revisited

2010-07-01T08:11:00.000-07:00

In terms of the potential for a near-term pullback in the equities market, our research suggests that the probability of occurrence may be increasing.

As you will recall from an earlier Portfolio Strategy News post on June 4, 2009, we contend that the S&P 500 200 Day Moving Average, with a 5% margin of safety, can be utilized, in conjunction with other market data, as a fairly reliable overall market timing statistic. It is our opinion, at Hennion & Walsh, that merely crossing through the 200 Day Moving Average is not a sufficient signal alone. When markets are moving quickly in the midst of seemingly trendless volatility, the average could be crossed in both directions on multiple occasions without presenting any clear market signals. As a result, we utilize a 5% margin of safety for our own internal assessments.

Applying this indicator to the price of 1041.24 that the S&P 500 index closed at on June 29^th would suggest that the S&P 500 index has now crossed through this potentially, momentum turning technical level and that a short-term pullback may now be in the cards.

Source: Bloomberg, June 29, 2010

However, this one statistic does not necessarily mean that now is not the time to be in the equity markets or that another downturn is inevitable. As the landmark “Determinants of Portfolio Performance” study conducted in 1991 by Brinson, Singer & Beebower, as published in the Financial Analysts Journal, concluded, it is asset allocation that is responsible for more than 91% of portfolio performance – many times greater than the selection of individual securities or market timing. As a result, we believe that this particular market timing observation should serve as just another reminder that all investors should revisit their asset allocation strategies, if that haven’t already this year, and look to incorporate a wide breadth of asset classes and sectors to help ensure that they have the diversification in place to not only weather volatile markets but to also help in advancing towards their own, unique short and long term financial goals.

Please note: Past performance is not an indication of future results. The S&P 500 Index is a broad based unmanaged index of 500 stocks, which is widely recognized as representative of the equity market in general. You cannot invest directly in an index.

Consumers Losing Confidence

2010-07-01T08:09:00.000-07:00

It should not be surprising to see that consumer confidence is waning and yet the market appears to have been caught off-guard by the magnitude of the recent decline in consumer confidence. While reports showing that growth in China is beginning to slow down may have contributed to the turnaround in the equity markets, the major culprit appears to have been the Conference Board’s consumer confidence reading for June which showed the index dropping from 62.7 to 52.9 - close to a 16% month over month decline! The drop even caught the experts by surprise as economists were expecting a reading of 62.8.

We, at Hennion & Walsh, can fully appreciate the consumer’s lack of confidence in a U.S. economy that is desperately trying to find its legs again. With a U-3 unemployment rate of 9.7% and a mounting concern that the existing U.S. economy will not be able to provide the amount of jobs necessary to get our country back to a point of full employment (which generally is viewed as a U-3 employment rate between 3-4%) for many years, it is hard not to join the growing camp of pessimists.

A poor consumer confidence number, in and of itself, is not a cause for great distress. However, consumer confidence is often viewed as a leading indicator of retail sales, which are driven by consumer spending. This is critical because consumer spending accounts for over 70% of U.S. economic growth, as represented by Gross Domestic Product (GDP). If consumers are not spending, retail sales are not increasing and the economy, as a result, cannot grow in any meaningful fashion.

While we view the likelihood of the U.S. heading toward a double-dip recession scenario as low at present, we do see many challenges ahead for not only the economy but also for the equity markets as the latter tries to find the catalyst for the next leg of this bull market. In fact, we still contend that volatility will likely stay at elevated levels for the balance of 2010 and we could see a series of starts and stops (i.e. pullbacks) throughout the remaining two quarters of the year due to consistent, conflicting economic data points and macro-political uncertainties.

The Long and Short of It

2010-06-23T09:35:00.001-07:00

Exchange-traded products (ETPs) that allow an investor to short a particular asset class or sector represented by an underlying index have grown in popularity as the market has grown more volatile since the great global credit crisis of 2008. These short or “inverse” ETPs, flat and leveraged, have also been the subject of a lot of debate these days as market participants and regulators have attempted to address the topic with respect to suitability and adequate disclosure for individual investors.

We, at Hennion & Walsh, believe that all of the confusion and concern stems from a basic need for the industry, as a whole, to do a better job of educating the investing public about the rapidly evolving marketplace of ETPs, which are made up of both exchange-traded funds (ETFs) and exchange-traded notes (ETNs). For example, the inverse products themselves may or may not be appropriate for long term investors because of their daily valuation mechanism. Inverse products essentially reset every day which is why buy-and-hold type investors are often dismayed when the returns of a given inverse ETP varies so much from the returns of the underlying index.

Let’s look at one inverse ETP, the ProShares Short S&P 500 ETF (Ticker: SH), as an example.

Source: MSN Money, June 2010.

According to the ProShares website, SH “seeks daily investment results, before fees and expenses, which correspond to the inverse (opposite) of the daily performance of the S&P500^® Index.” According to Bloomberg, the S&P 500 index, for the 2-year period ending March 31, 2010 has a total return of -13.86%. Interestingly, SH has a total return of -7.28% over the same time period. Not exactly, the mirror opposite of the return of the S&P 500 Index that a longer term investor might be expecting. However, a long term hedge is not what the product is trying to achieve. This difference gets further amplified for the 2x leverage inverse products and even further for the newer 3x leverage Direxion products.

On the flip side, a closer look at the underlying daily performances of the S&P 500 and SH over the course of a given month (March 2010 was selected for example purposes) shows that the product is performing relatively consistently with respect to its stated objective – again, on a daily basis.

Date	S&P 500 Index Daily Closing Price	S&P 500 Index Daily % Return	SH Daily Closing Price	SH Daily % Return
3/31/2010	1169.43	-0.20%	49.51	-0.04%
3/30/2010	1173.27	-0.04%	49.34	0.06%
3/29/2010	1173.22	0.47%	49.38	-0.14%
3/26/2010	1166.59	-0.08%	49.65	0.18%
3/25/2010	1165.73	-0.37%	49.67	0.87%
3/24/2010	1167.72	-0.42%	49.58	0.12%
3/23/2010	1174.17	0.66%	49.33	-0.58%
3/22/2010	1165.81	0.74%	49.75	-1.03%
3/19/2010	1159.9	-0.58%	49.99	0.87%
3/18/2010	1165.83	-0.03%	49.72	0.08%
3/17/2010	1166.21	0.54%	49.68	-0.32%
3/16/2010	1159.46	0.75%	49.98	-0.54%
3/15/2010	1150.51	0.17%	50.41	-0.20%
3/12/2010	1149.99	-0.15%	50.42	0.46%
3/11/2010	1150.24	0.55%	50.44	-0.63%
3/10/2010	1145.61	0.47%	50.62	-0.43%
3/9/2010	1140.45	0.25%	50.85	-0.53%
3/8/2010	1138.5	0.01%	50.94	0.00%
3/5/2010	1138.7	1.21%	50.94	-0.84%
3/4/2010	1122.97	0.34%	51.7	-0.23%
3/3/2010	1118.79	-0.05%	51.88	0.21%
3/2/2010	1118.31	0.12%	51.94	0.19%
3/1/2010	1115.71	0.94%	52.08	-0.61%

Source: Thomson Reuters, June 2010

Hence, for investors looking for short-term hedges against a certain index, these short products may provide for an appropriate solution. On the other hand, investors looking for a longer term hedge against a certain index may want to look beyond these inverse products or, perhaps, consider shorting the actual long ETF for the respective index in question. As I understand it, there is discussion that some product sponsors may be considering coming out with longer term inverse strategies in the future as well.

Either way this should serve as just another reminder to investors, and advisors for that matter, to fully educate themselves on the many nuances associated with the multitude of different investment strategies now available in the ETP marketplace.

The Tale of the Chinese Yuan

2010-06-23T09:25:00.001-07:00

The markets stormed out of the gates this morning on news that the Chinese government planned to lift the 2 + year old artificial peg of its Yuan, or Renminbi, currency to the U.S. Dollar. While only minor increases in the value of the currency are expected initially, market professionals are taking a positive, long term view to this announcement.

It should be noted that this topic, and this stance, by the Chinese government is nothing new. As we commented on in our March 12, 2010 posting called “Removing the Peg from the Chinese Yuan,” we, at Hennion & Walsh, believe such changes will likely result in a gradual strengthening of the Chinese currency which could help U.S. multi-national companies who export their products into the ever expanding China marketplace.

The rationale behind our belief is that with a stronger currency, Chinese consumers would have increased purchasing power, and given the current strength of their own economy, make them more likely to increase their spending on domestic and non-domestic goods and services.

China, with over 1.3 billion captive consumers, represents a very attractive target market for many international companies. In fact, according to About.com: Geography, China and India alone account for approximately 40% of the world’s population! Yet, many economists have argued that China still predominantly lower class and, thus, not able to possess significant relevant purchasing capabilities. However, according to Bruce Upbin’s Forbes.com article on June 9^,2010 entitled How to Think About the Chinese Consumer, “China's middle class is defined as urban professionals and entrepreneurs between 25 and 45 years old who have college degrees and earn between $10,000 and $60,000 a year.” This equates to 300 million people, “…larger than the total U.S. population” and “…Chinese middle class consumption will surpass that of the United States over the next few years.”

Hence, the case for the global economic recovery capabilities of the Chinese consumer when coupled with a vibrant economy and strengthening currency is a strong one. We just don’t believe that the case will be made overnight as the Chinese government will likely control the pace of the lifting of the peg and its associated implications.

Hennion and Walsh on CNBC: Tax Free Municipal Bonds

2009-08-04T11:41:00.000-07:00

Hennion and Walsh President, Bill Walsh, tells CNBC viewers that while tax free municipal bonds may not be a sexy investment, they can be an appropriate investment, along with the reasons why.

Parsippany, NJ – Hennion and Walsh Asset Management President Bill Walsh spoke with CNBC host Mark Haines and his viewers about the benefits tax free municipal bonds can offer the individual investor looking for a steady income stream. Walsh joined Haines as part of CNBC’s Financial Advisor Network with information on what to look for when thinking about tax free municipal bonds, especially when there is so much bad economic news about city and state government tax revenues being off.

“I think you have to take a look at what the underlying security is before buying tax free municipal bonds. Grouping all tax free municipal bonds into one class is not advisable. You have to look at what you’re buying and what’s paying it. Normally, there are two or three types of bonds that are more secure than possibly others and looking at the underlying security helps to determine their safety,” says Bill Walsh, President and co-founder of Hennion and Walsh, a passionate advocate for individual investors.

Walsh goes on to explain the three types of tax free municipal bonds that can offer the most safety. The full segment can be viewed on the Hennion and Walsh blog, Portfolio Strategies News, at http://www.portfoliostrategynews.com/?p=424 .

Hennion and Walsh, a full service brokerage firm specializing in municipal bonds, was founded in 1990 by Richard Hennion and Bill Walsh. Their mission is to be the individual investor’s fiercest and most passionate advocate. Investment guides, webinars, seminars and online content are just some of the ways they help investors become better informed and make better investment decisions. The firm has built its reputation on developing strong, mutually beneficial relationships designed to last a lifetime, serving over 15,000 clients with brokerage accounts and managed portfolios. They are committed to providing individual investors with the institutional-quality service and guidance they believe they are entitled to.

The firm also developed and manages the SmartGrowth Mutual Funds, three risk-target-based mutual funds. All three funds have been named to the Category Kings list in October 2008 and January 2009 in the all cap core category as reported in the Wall Street Journal (October 2, 2008 and January 5, 2009 editions). Hennion & Walsh’s Chief Investment Officer, Kevin Mahn, manages the portfolios of SmartGrowth Mutual funds which utilize ETFs (Exchange Traded Funds) as a core part of their investing strategy. For more information, read the ETF Insights Newsletter (link) or visit http://www.smartgrowthfunds.com.

Mutual fund investing involves risk, including loss of principal. There is no guarantee that a Fund will meet its objective.

Please carefully consider a Fund's investment objectives, risk factors, charges and expenses before investing. This and other information can be found in the Fund's prospectus, which may be obtained by calling 1-888-465-5722. Read carefully before investing.

Hennion & Walsh, Inc.  2001 Route 46, Waterview Plaza  Parsippany, New Jersey 07054   800-836-8240 Toll Free  Fax: (973) 299-0692

Media Contact: Carol Graumann
JCPR, Inc.
1055 Parsippany Boulevard
Suite 304
Parsippany, NJ 07054
973-732-3521 - Office

2009-08-04T11:05:00.000-07:00

2008-11-06T11:25:00.000-08:00

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Hennion & Walsh

2008-10-17T12:11:00.000-07:00

About Hennion and Walsh
Phone: (800) 836-8240
Fax: (973) 299-0692

Hennion & Walsh was founded in 1990 with a single goal in mind: to become the nation’s premier provider of investment services to and advocate for individual investors. As such, our disciplined, personalized approach has helped thousands of individuals grow and protect their investments. Hennion & Walsh’s heritage is being one of the nation’s leading independent specialists in municipal bonds for individual investors, but we offer a full suite of equity and fixed-income products and services including wealth management.

Philosophy

At Hennion & Walsh , we believe it is both our responsibility and our privilege to help our clients prepare for a secure financial future. We are constantly building and strengthening long-term client relationships through our integrity, trustworthiness, and personal service. Our goal is to be the nation’s premier investment advisor to and advocate for individual investors, providing every investor the institutional-quality care to which we believe they’re entitled.

Founder’s Note

We tend to consider wealth not as an end in itself, but as a means to an end: freedom; the reward for years of hard work; the power to embrace life’s full potential. All too often, however, wealth becomes not a thing to be enjoyed but a burden to be worried over. People fear losing what they have worked so hard to build, but they lack the specialized knowledge, resources, and most importantly, the time to properly manage it.

It’s no wonder that many people turn to professionals to help guide, manage, defend, and grow their investments. The question is to whom they should give this responsibility.

At Hennion & Walsh, we believe that the management of wealth should be taken as personally as its accumulation. We recognize the commitment our clients have made to building and maintaining their investments. And knowing this, how could we not manage and protect those investments as carefully – and as personally – as we can?

When this company was founded, we recognized that individual investors didn’t always experience the same benefits, the same access to resources, and the same level of service that institutional investors enjoyed at other firms. We set out to change that. And over the many years since its inception, Hennion & Walsh has always been its clients’ fiercest champion and most passionate advocate. We promise that you will experience nothing less.

This section outlines our unique approach to investing, the strategies and philosophy behind it, and the reasons we believe your investment will have a prosperous home with Hennion & Walsh.

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Hennion & Walsh on the Web:

Hennion & Walsh’s Website

Hennion & Walsh on AboutUs

Hennion & Walsh on Blogger

Hennion & Walsh on BigSight

Hennion & Walsh on Fastcompany

Hennion & Walsh on Ikarma

Hennion & Walsh on Mashable

Hennion & Walsh on Naymz

Hennion & Walsh on Xing

Hennion & Walsh on Care2

Hennion & Walsh on Viadeo