Economic Preview: China bank lending data likely to show rapid rise

HONG KONG (MarketWatch) — Chinese banks likely extended loans in January equivalent to about one-fifth of the entire year’s lending target, following a frenzy of issuance in the first few weeks of January as borrowers sought to secure funds ahead of an anticipated credit clampdown.

Lending by the nation’s banks is estimated to tally between 1.1 trillion yuan to 1.6 trillion yuan ($161 billion to $234 billion), according to a range of analysts’ forecasts compiled by Bank of America Merrill Lynch.

The data was expected to be released from the People’s Bank of China sometime this week. No formal schedule was issued for this month’s data, although it typically comes after 3.00 p.m. local time, following the close of financial markets in Shanghai.

Despite the expected sharp jump, analysts predicted limited reaction from the government, as China’s central planners have had a pretty good idea of the pace of new lending for several weeks, and already adapted their policy framework.

“This number is already known by the government at the beginning of the month, so it’s impossible to have any policy impact in the near term,” said Bank of America Merrill Lynch economist Ting Lu.

Merrill forecasted banks extended 1.5 trillion yuan in loans during the month, or about 20% of Beijing’s likely lending target for the year, which is believed to be about 7.5 trillion yuan.

Meanwhile, a state-run publication said last week that Chinese lending for January totalled 1.6 trillion yuan. See full story on Chinese loan forecast.

This would compare with December lending of 379.8 billion yuan. See full story on China’s December lending.

Regulators ordered banks to tighten their lending at a meeting in Beijing on Jan. 18 after data showed 1.1 trillion yuan in new loans were issued during the first two weeks of the month. Regulators also raised the amount of funds that banks must set aside as deposits, and issued guidance on what sectors should receive credit.

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Beijing reportedly told banks to moderate lending to the steel and real-estate industries. Financing for the purchase of automobiles was also tightened, with a 30% down payment requirement brought back after a stimulus program in 2009 that briefly saw a zero down-payment scheme payday loans.

Merrill’s Lu believes there is a chance the lending figure could be sharply below expectations, as some of China’s biggest banks called back loans they made in the early part of the month, under orders from the nation’s banking regulator.

The consensus view, however, is for the January figures to show lending outpacing that of the three previous months combined.

However, a high lending figure for the month “should not be interpreted as a evidence that Beijing is planning to keep credit conditions very loose, with all signs suggesting that officials will continue to keep a close check on lending,” said RBC Capital Markets senior analyst Brian Jackson in a note.

China is trying to tamp down bank lending amid growing concerns over asset bubbles and signs the real estate market is overheated, but it’s not clear that a significant tightening is underway.

Inflation may be grim

Equally important for the future of Chinese policy will be Thursday’s release of consumer and producer price data.

The producer price index is expected to show a particularly sharp rise, gaining 4.2% compared with December’s rise of 1.7%, according to a Reuters survey.

Consumer price inflation, meanwhile, is expected to inch up to 2.0% from December’s 1.9%.

RBC expects an outlook for an “uncomfortably high” inflationary level for the next few months.

RBC’s Jackson said Beijing is keenly aware of the social tensions that arose during the last inflationary cycle.

“Further increases in the main headline measures will likely put greater pressure on Beijing to deliver a broader policy response than that which has already been undertaken,” Jackson said.

Offering up a contrasting view, Goldman Sachs Chief Economist Jim O’Neill told reporters in Hong Kong on Tuesday that he expects China to revert to an easing bias by summer if housing prices stabilize around current levels.

Also due out Thursday are retail sales and industrial production data.

Analysts cautioned against reading too much into the figures, which will be affected by seasonal distortions related to the Chinese New Year holiday. The week-long holiday, which is accompanied by a virtual shutdown of the nation’s industry, occurred in January last year, but will get underway this year in February.

Economic Preview: China bank lending data likely to show rapid rise

Conn. governor calls for safety review after blast

HARTFORD, Conn. – Connecticut’s governor is calling for a review of state safety codes following a deadly explosion at a power plant in Middletown.

Rell announced Monday that she is creating two panels — one to identify the cause and origin of Sunday’s explosion at the Kleen Energy Systems plant and any contributing factors, such as construction problems, worker safety issues and licensing or permitting matters.

The second panel of state agencies, local officials and experts will review the first panel’s report and determine whether changes need to be made to Connecticut laws, state or local regulations, building or fire codes.

Rell did not give a timetable but says the reviews need to be “impartial and swift.”

Five workers were killed in the blast at the nearly completed 620-megawatt plant.

THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP’s earlier story is below.

MIDDLETOWN, Conn. (AP) — Search-and-rescue crews declared a section of an exploded power plant too unstable to comb through Monday, a task that lost urgency when officials said everyone assigned to work at the plant the day of the blast had been accounted for and the death toll should stand at five.

Mayor Sebastian Guiliano sounded a note of caution Monday afternoon, however, saying rescue crews had been unable to get to all areas of the plant and he could not say for certain that no more victims would be found.

Deputy Fire Marshal Al Santostefano told The Associated Press that he didn’t know when rescue crews would be able to search the small section of the plant that was unstable but said the fact that everyone had been accounted for was good news.

“We needed something to lift spirits around here, and that definitely did it,” he said.

The blast in Middletown, about 20 miles south of Hartford, injured more than two dozen in addition to the five dead. It happened as workers were clearing gas lines of air, but the exact cause remained under investigation.

Welders and other workers were at the site Monday, preparing to make it safer for emergency workers, said Ed Reilly, president of the Greater Hartford-New Britain Building Trades Council. Piles of rubble stood 10 feet high in some places, and mounds of lay everywhere, Santostefano said.

Investigators from the town fire marshal’s office returned to the scene Monday to try to begin determining the cause. Investigators from Occupational Safety and Health Administration were also at the site, which was closed to reporters.

“I lost a couple of good friends up there,” Michael Rosario, a representative of the local Plumbers and Pipefitters union, said as he broke down crying Monday.

“We hug our families, kiss our children. … We go to work and we want to come home at the end of the day, safe,” he said. “That didn’t happen for a few people yesterday.”

The blast left huge pieces of metal that once encased the plant peeling off its sides. A large swath of the structure was blackened and surrounded by debris, but the building, its roof and its two smokestacks were still standing at the site, which is near Wesleyan University on a wooded and hilly 137-acre parcel of land overlooking the Connecticut River.

A team sent by the U.S. Chemical Safety Board, a federal agency that investigates industrial chemical accidents, arrived at the site Monday but was turned away by local police, said Daniel Horowitz, the agency’s spokesman low interest rate personal loans.

U.S. Rep. Joe Courtney, D-Conn., said he was told a judge signed a jurisdictional warrant giving the police and local fire department the right to control the property, and that members of the congressional delegation and the governor’s office were working together to “navigate the jurisdictional lines” defining who can be at the site.

“We want to make sure all critical agencies get to do their job,” said Courtney, who visited the site on Monday.

The nearly completed 620-megawatt plant is being built to produce energy primarily using natural gas, which accounts for about a fifth of the nation’s electricity. Workers for the construction company, O&G Industries Inc., a Torringon-based general contractor for the Kleen Energy project, were purging a gas line, clearing it of air, when the explosion occurred around 11:15 a.m. Sunday, Santostefano said.

The explosion occurred just outside the building, between two of the generators, Giuliano said.

Santostefano said workers were at the site Sunday because they were trying to get the plant open on time — the opening was slated for sometime in the middle of 2010 — but added: “It wasn’t like they were working in a frenzy.”

Melissa Brady, a spokeswoman for Middlesex Hospital, said it treated 26 patients, 21 of whom were released Sunday. Three were admitted to Middlesex and two with severe injuries were transferred, one to Yale-New Haven Hospital and one to Hartford Hospital. She said most had injuries characteristic of being thrown or in an explosion, such as broken bones and bruises.

They were all expected to survive, she said, and most of the injuries were to extremities.

Kleen Energy Systems LLC began construction on the plant in February 2008. It had signed a deal with Connecticut Light and Power for the electricity produced by the plant, and would be one of the biggest built in New England in the last few years.

The company is run by former City Councilman William Corvo. Messages left at Corvo’s home were not returned. Calls to Gordon Holk, general manager of Power Plant Management Services, which has a contract to manage the plant, also weren’t returned.

OSHA records show there was a planned inspection on July 28, 2009, for work being performed by O&G Industries. There was one violation, listed as “other,” relating to recordkeeping and reporting. John Chavez, an OSHA spokesman, says records show O&G settled the matter informally by paying the $1,000 fine.

“Relatively speaking, they do appear to have a pretty clean record,” Chavez said.

Energy Investors Funds, a private equity fund that indirectly owns a majority share in the power plant, said it was cooperating with authorities.

Safety board investigators have done extensive work on the issue of gas line purging since an explosion last year at a Slim Jim factory in North Carolina killed four people. They’ve identified other explosions caused by workers who were unsafely venting gas lines inside buildings.

Conn. governor calls for safety review after blast

In Utah, company aims to store energy in air

SALT LAKE CITY – A Utah company plans to dig a series of underground caverns that it hopes to one day fill with compressed air, releasing it to generate electricity by turning a turbine and solving one of the most vexing problems facing the clean-energy industry — how to store power.

Under a barren patch of Utah desert, a private-equity group is bankrolling the project to hollow out a series of energy-storage vaults from a massive salt deposit a mile underground. It promises to make a perfect repository for storing energy and, in effect, creating a giant subterranean battery.

Energy storage is catching on as a way to make wind and solar power more useful.

Without energy storage, the output of solar and wind power is so erratic — the wind doesn’t always blow; cloud cover can shut down solar cells — that utilities can take only so much of it, said Jim Ferland, senior vice president for operations for PNM Resources, the New Mexico utility.

If renewable power makes up too big a part of a utility’s energy mix, it can make the delicate act of balancing loads on a power grid difficult. The lack of storage is one of the things holding back clean energy, say scientists for Sandia National Laboratories’ energy systems group in Albuquerque, N.M.

“Storage is the key here,” said Charlie Hanley, manager of Sandia’s photovoltaic and grid integration group. “We have to find a way to overcome intermittent swings from cloud cover.”

The only commercial-scale, compressed air power plants are in McIntosh, Ala., and Bremen, Germany. Other projects are under development in Norton, Ohio, and Ankeny, Iowa.

Initially, because of market needs, Salt Lake City-based Magnum Energy LLC will store natural gas for Rocky Mountain producers, taking it from a nearby interstate pipeline, in an “energy hub” near Delta, Utah. It hopes to start dissolving the first cavern within a year.

Later, the company is looking to dig other caverns at the site for compressed air, which could store excess energy generated by a nearby wind farm and then release it later when demand is high to turn turbines and create electricity, and possibly for carbon storage, which could trap a neighboring coal-fired power plant’s emissions.

Still other caverns could be devoted to liquid petroleum; yet another pipeline for liquid fuels, passing through the same part of Utah, is close to receiving federal approval.

The company filed for federal approval in December to build its versatile “energy hub.”

A futuristic type of energy storage could involve putting the battery capacity of plug-in electric vehicles to work for the electric grid get a free credit report. It could take extra power from vehicles when needed, while ensuring a vehicle is properly charged overnight, said Daniel Laird, a researcher for Sandia’s wind energy technology group.

That will work only when plug-in cars make up a big part of the U.S. vehicle fleet, however.

For now, “we’ve got to find a way to store renewable energy for when people need it,” said Steve Michel, a former utility executive who works for Western Resources Advocates, a Boulder, Colo.-based nonprofit law firm.

Other forms of energy storage involve lumbering flywheels or banks of batteries, but they have limited capacities and can be costly.

“In terms of storing bulk energy — lots of megawatt-hours — compressed air is cheaper than anything else out there,” said Paul Denholm, lead analyst for energy storage at the U.S. Department of Energy’s National Renewable Energy Lab in Boulder, Colo.

In Utah, Magnum snapped up rights to the largest known salt deposit in the American West, a bed one mile thick by several miles wide. It has the advantage of being close to several energy producers; another company is planning a major solar farm in Utah’s west desert.

“The physical location of that salt deposit is just tremendously valuable, said Scott Jones, managing director of Houston-based Haddington Energy Partners III, which is backing the project. “It’s the only one everybody knows about or has been found. We’re excited about it.”

Each impermeable cavern will hold the volume of an Empire State Building, said Craig Broussard, another Magnum partner.

That’s billions of cubic feet of storage capacity of natural gas, liquid petroleum or compressed air.

The company would take excess energy from wind or solar farms or other energy producers, use it to pump compressed air underground and let it out to generate power during peak-use times.

The system would lose some energy to pumping, and the released air would need to be mixed with some natural gas to power air expansion turbines. Still, “this is far more efficient than a conventional power plant,” Broussard said.

“The power industry is like being in an ice-cream business without a refrigerated warehouse,” he said. “This kind of storage provides a warehouse of energy.”

In Utah, company aims to store energy in air

Smart Choices, Dumb Moves

Financial planners can advise, books can inform, worksheets can approximate. But they'll never replace the advice you can get from folks who have ventured before you into that great unknown: retirement. To help you avoid dead ends and pitfalls, we asked retirees to look back over their time outside the working world and talk about their smartest financial moves, biggest surprises, and worst mistakes.

Tim and Jackie Fehr

Park City, Utah

It was skiing, not snoozing, that Tim Fehr imagined when he thought about retirement. When the Boeing (NYSE:BA – News) engineering executive retired in 2001, at age 60, he and his wife, Jackie, knew they wanted to live in a ski community. Every Christmas for more than 10 years the family had vacationed at ski resorts. Soon after he retired they settled on Park City for its many slopes, lively town, and nearby international airport. The Fehrs consider that move one of their smartest. But the absolute smartest thing he did, says Tim, was to work with a financial planner and hire an estate planning attorney to set up trusts for his wife and two adult kids.

The financial wrinkle he considers his biggest mistake came out of consulting work. A former client hired him as chief technical officer. He was paid mostly with stock grants and had to pay income tax on the stock's value at the time of the grant. When the stock traded below $1, that didn't seem like a big deal. The problem came when the stock rose above $10. When he got grants at that price, he had to pay a lot to cover taxes. He couldn't turn around and sell the stock — he was required by the company to hold it for a year, and, as a corporate insider, had other restrictions on when he could sell. He wound up tapping retirement savings to own a stock he had to wait to sell. "Lots of cash out and a lot of paper in," he says. "The risk was much greater than I was expecting."

The most unexpected aspect of retirement for Fehr is how work-life balance is still tough. He used to tell team members at Boeing that a reasonable balance was 60% work, 30% family, and 10% giving back. When he retired, his team asked what his percentages would be. He predicted 50% family, 20% work, and 30% giving back. The reality: 40% family, 40% community, and 20% work — though the line between working and giving blurs. He works for his wife's not-for-profit, the Wildlife Protection Society. "My challenge is to make it function as a legitimate business and meet IRS and state requirements," he says. "It requires me to tap all my MBA knowledge."

Carol Daly

Minneapolis

Carol Daly, 68, doesn't like the word "retire." It stems from a French word with the bleak meaning of "withdrawing" or going into "isolation," she says. Daly prefers to tell people she "left behind paid work."

For 25 years Daly worked at the University of Minnesota helping colleges and universities in the state develop lifelong learning programs low fee payday advance. Although she and her husband never made more than a combined $100,000, they put three kids through private colleges. She planned on working until 65, but at 56 she lost a part of her work that she loved, as Minnesota state director for Elderhostel, the nonprofit for adult educational travel, when it restructured. (She worked both for the University and Elderhostel.) Three weeks later her husband died from lung cancer at 58. She continued working at the College of Continuing Education at the University of Minnesota until she could tap retirement accounts at age 59 1/2 in 2001.

What has shocked Daly is how well she's doing financially, given the economic trauma of recent years. For 25 years the University took 13.5% of her paycheck for retirement savings and she added another 2.5%. She takes out $6,200 a month from retirement savings and gets another $1,400 from Social Security. About $1,200 is set aside for taxes and another $1,500 is taken out so that she has easily tapped savings.

The best financial move Daly made was selling her home in the suburbs and buying a condo in downtown Minneapolis. The condo has become a hub of her social life. Biggest regret? Working from 2001 to 2006 in the field of adult education, including for her former employer, UMinn, without pay. She stuck around because her identity was so closely tied to her work, she says. Now she's having a blast working on a city arts commission and taking adult education classes. "I wasted some time," she says. "I was too afraid of being discarded or ignored."

Jack and Terry Forsythe

Tucson and Chicago

A cancer scare was a big reason why Jack Forsythe decided it was time to retire in 2006 at age 59. He had been chief tax officer and senior vice-president at Ecolab (NYSE:ECL – News), the cleaning and sanitation company headquartered in St. Paul, Minn., and had worked there for two decades.

Real estate is at the core of both a good move and a mistake. The Forsythes had bought their Arizona home, which is on a golf course, at the height of the housing boom. But they love the climate. They also love Chicago and their condo there. The mistake was trying to hold on to a third home in a St. Paul suburb. The hassles weren't worth it, and they sold it. "I didn't lose money, but I didn't get what I would have if I had sold at the top," Forsythe says.

The surprise is how quickly he abandoned his identity as an Ecolab executive. He left and that was it. Instead, he and Terry travel the world, attending operas and chamber music concerts and visiting kids and grandkids.

Return to the Retirement Special Report Table of Contents

Smart Choices, Dumb Moves

Bond Report: Treasurys up as jobless claims unexpectedly rise

NEW YORK (MarketWatch) — Treasury prices rose on Thursday, pushing yields lower, after the Labor Department said jobless claims unexpectedly rose last week to the highest level since mid-December, adding to concerns that the economic recovery won’t be smooth or swift.

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Bonds had been higher before the data as stocks were under pressure amid more concerns about the fiscal stability of Spain and Portugal.

Yields on 10-year notes fell 6 basis points to 3.65%. A basis point is 0.01% and yields move in the opposite direction as prices.

Yields on 2-year notes fell 5 basis points to 0.84%.

First-time unemployment claims rose 8,000 to 480,000 in the latest week. See more on jobless claims.

“The extension of folks in emergency benefits underscores the structural problem and the duration of unemployment will remain high,” said strategists at CRT Capital Group.

The report comes one day before the government’s hotly-anticipated monthly payrolls report for January, which is widely expected to show payrolls actually grew in the first month of 2010 by the most in two years.

A separate report Thursday said U.S. productivity rose 6 business card.2% in the fourth quarter, slower than in the third quarter. Unit labor costs fell for the quarter and all of 2009, easing some concerns about inflation. See more on productivity.

“These are a trio of bond-friendly reports,” CRT strategists wrote of the claims, productivity and labor costs releases.

Also, the European Central Bank and Bank of England kept interest rates steady. The BOE opted to pause its bond purchases but keep the door open to revive the program if economic conditions warrant. Read more on U.K. bond-purchase program.

For weeks, investors have become more hesitant to buy riskier assets, including stocks, as problems with Greece’s account and large fiscal deficit were in the spotlight.

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Some of the Treasury gains Thursday were attributed to “additional concern for the peripheral countries — Portugal and Spain — as equities suffered providing a firm tone for Treasurys,” said John Spinello, Treasury strategist at Jefferies & Co.

Traders will look for more answers on the outlook for the region in an ECB press conference. Read more on ECB rates.

ECB President Jean-Claude Trichet said at his monthly news conference that Greece’s budget plan is a “step in the right direction.”

Bond Report: Treasurys up as jobless claims unexpectedly rise

Volcker urges curbs on big banks risky trades

WASHINGTON (Reuters) – White House economic adviser Paul Volcker on Tuesday told Congress to curb risky investing by big banks, warning his soul would haunt lawmakers when the next banking crisis hits if they did not heed him now.

The 82-year-old former Federal Reserve chairman, whose star is rising in the Obama administration, faced tough questions from lawmakers about the White House's latest and far-reaching proposals for a crackdown on the banking industry.

Few details were forthcoming from the venerable central banker, or from U.S. Treasury Deputy Secretary Neal Wolin, who testified with Volcker to the Senate Banking Committee.

President Barack Obama stunned financial markets in late January by calling for new limits on banks' ability to do proprietary trading, or buying and selling of investments for their own accounts unrelated to customers.

Volcker, considered a sage of monetary policy and a crusader for tighter regulation, conceded such a move would not have prevented the debacles at AIG (AIG.N) and Lehman Brothers (LEHMQ.PK) at the heart of the 2008 financial crisis.

But he said that not adopting new trading limits today would lead to another crisis tomorrow.

If proprietary trading is not curbed, Volcker told the committee, "I may not live long enough to see the crisis, but my soul is going to come back and haunt you."

Banking Committee Chairman Christopher Dodd, a Democrat, told the two witnesses he supports the new Obama proposals, but complained they were coming very late to a financial regulation debate that has been going on since 2008.

As a result, Dodd said, the proposals seemed to many senators "to be transparently political and not substantive, and it's adding to the problems of trying to get a bill done."

He said the administration needs to clue him in early on anymore new proposals and be ready to answer questions. In this case, he said, "We're not getting good answers."

He said piling on too many new ideas would be a mistake. "I don't want to be in a position where we end up doing nothing because we tried to do too much," Dodd said.

LINE SEEN BLURRED

Since Obama unveiled "the Volcker rule," named for its chief proponent, analysts have speculated about exactly what sort of trading would be off-limits if Congress adds it to a sweeping package of reforms still being debated.

Some see a blurred line between proprietary trading and market-making that helps customers. But Volcker disagreed.

"Bankers know what proprietary trading is and is not. Don't let them tell you any different … I don't think it's so hard," Volcker told lawmakers pressing for a clearer idea of where the regulatory lines would be drawn.

Taken on early as an adviser after Obama's election, Volcker initially seemed to have little impact inside the administration. But that has changed since the Democrats lost a Senate seat in a special election in Massachusetts and Obama has shifted to a more aggressive stance on Wall Street.

Under the Obama proposals, banks could not establish or maintain a separate trading desk, capitalized with their own resources and unrelated to customer business, Wolin said cash advance now.

That could mean barring banks from using such trading desks to speculate on the prices of oil, gas or equity securities, he said, adding that the restrictions should apply to all banks, including U.S. operations of foreign banking firms.

The KBW Banks index (.BKX) of large bank stocks was up about 0.23 percent in broadly bullish trading on Tuesday.

Senator Richard Shelby, the panel's top Republican, said he was "quite disturbed" by Obama's proposals being "air dropped" into the financial regulation debate, which is more than a year old. But Shelby said he was willing to consider them.

Senator Bob Corker, also a Republican, questioned the need to crack down on proprietary trading at commercial banks, saying firewalls already exist within bank holding companies to protect deposit-based activities.

TAXPAYER BACKING TARGETED

Despite the firewalls, Wolin said, banks that do proprietary trading enjoy a cheaper cost of capital because of the taxpayer backing of the deposit-funded sides of their business models, which he said is unfair and should end.

In a sign of how the so-called "Volcker rule" may already be having an impact, people familiar with the matter said on Monday JPMorgan Chase (JPM.N) may be rethinking its acquisition talks involving RBS Sempra, a joint venture of Sempra Energy (SRE.N) and Royal Bank of Scotland (RBS.L).

The rethinking may be motivated by possible limits on proprietary trading, the sources said.

Volcker — whose tight-money regime broke the back of inflation when he was Fed chairman in the early 1980s under Presidents Carter and Reagan — also wants banks to sever ties to hedge funds and private equity ventures.

"What I want to get out of the system is taxpayer support for speculative activity," Volcker said.

A second hearing is set for Thursday to hear from executives of JPMorgan and Goldman Sachs (GS.N).

Banking committee members are trying to negotiate a bipartisan regulatory reform to avoid a repeat of the financial crisis that caused the worst U.S. recession in decades.

Deep divisions remain among committee members over issues such as managing systemic risk, bank supervision and consumer protection. Obama's latest proposals complicated the talks.

The House of Representatives approved a bill in December that called for the biggest regulatory changes since the Great Depression, but the "Volcker rule" was not included.

Obama also called for a new cap on banks' market share based not only on deposits, which are already capped, but also non-deposit funding.

In related news, Federal Reserve Governor Kevin Warsh said in an opinion article on the Financial Times web site on Tuesday that giving regulators more power would not prevent future crises, and warned of "grave risks" to the economy if banks come to be regulated like public utilities.

(Additional reporting by Luke Pachymuthu in Dubai and Steve Slater in London; Editing by Dan Grebler)

Volcker urges curbs on big banks’ risky trades

Advisory: Backdoor taxes to hit middle class

The story Backdoor taxes to hit middle class has been withdrawn. A replacement story will run later in the week.

<a href='http://news fast cash.yahoo.com/s/nm/20100202/bs_nm/us_budget_backdoortaxes’ rel=’nofollow’>Advisory: Backdoor taxes to hit middle class

ETF Investing: Spider ETF could get swatted in 2010

BOSTON (MarketWatch) — As January goes for the stock market, so goes the year. Or does it?

To be sure, it’s not an encouraging sign for the year when a popular exchange-traded fund tracking the Standard & Poor’s 500-stock index tumbles almost 4% in the first month. The SPDR S&P 500 ETF lost 3.6% in January, according to FactSet Research. It was the ETF’s worst month since February 2009, when it fell more than 10%.

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Bill Gross, founder and co-chief investment officer at Pimco and Barron’s Roundtable member, believes the direction of short-term interest rates, inflation and quantitive easing will be the driving market forces in 2010.

But January doesn’t always set the pace for stocks, research shows. Going back to 1945, a positive return in stocks in January “typically” results in a gain for the year, while a negative return usually has signaled a decline, said Sam Stovall, chief investment strategist at Standard & Poor’s Equity Research, in a recent report to clients.

The SPDR S&P 500 ETF, sometimes called “Spider” for short, is the largest ETF with nearly $70 billion in assets and gives investors a way to take the market’s pulse in real time. Launched in 1993, it is the oldest U.S.-listed ETF as well.

The iShares S&P 500 Index Fund also tracks the blue-chip benchmark but is smaller with about $21 billion in assets. Both exchange-traded securities have low fees with expense ratios under 0.1%.

Dubious three-peat

Including 2010’s result, the S&P 500 has now declined in three straight Januarys — that has only happened three times since 1929, according to Stovall.

Market analysts like to debate the predictive powers of January. See related story on the so-called January Barometer.

Since 1945, if the S&P 500 rose in January, the index delivered an average gain of 12.7% for the rest of the year, not including dividends, and advanced 80% of the time, according to Stovall.

The link between down Januarys and the rest of the year is less clear. More like a coin flip, actually.

“Whenever the S&P 500 fell in January, it recorded an average decline of 0.7% through the subsequent 12 months, but correctly forecast the direction of stock prices only 48% of the time,” the strategist wrote payday loan.

The January Barometer has a “questionable track record during down years,” Stovall added. Yet he noted that in 2008, it tipped investors off to the worst calendar-year performance since 1937.

In January 2008, the SPDR S&P 500 ETF lost 6% and was on its way to a decline of about 37% for the year, according to FactSet.

In 2009, the ETF got off to an even worse start, falling more than 8% in January. However, it closed the year with a gain of more than 26%.

Lost decade

The SPDR S&P 500 ETF’s long-term returns are a painful reminder of stocks’ lackluster performance over a decade that has seen two steep corrections.

The ETF’s 10-year annualized return through Jan. 28 was negative 0.5%, according to Morningstar Inc. The investment researcher thinks the fund is trading at a discount to its fair-value estimate on the S&P 500 despite the big rally in stocks since March.

“Even before the recent tumult, U.S. large-cap stocks had been fairly stagnant through the eight years since the crash of 2001. The S&P 500 in mid-January 2010 is trading at the same level it hit in 1998,” Morningstar ETF analyst John Gabriel wrote in a Jan. 26 report.

“Yet the underlying companies have grown considerably over the trailing decade and were recently producing record profits,” he said. “Even after accounting for the current slowdown and long-term costs of lower future leverage, our analysts currently believe the S&P 500 to be undervalued by about 10%.”

Although going against the grain and buying the S&P 500 in early 2009 would have led to big profits, “the margin of safety has narrowed significantly following the market’s impressive 2009 rally,” he warned.

January Barometer? — SPDR S&P 500 ETF performance over the past decade Year January return Full-year return 2009 -8.2% 26.4% 2008 -6% -36.8% 2007 1.5% 5.1% 2006 2.4% 15.8% 2005 -2.2% 4.8% 2004 2% 10.7% 2003 -2.5% 28.2% 2002 -1% -21.6% 2001 4.4% -11.8% 2000 -4.9% -9.7%

Source: FactSet Research

ETF Investing: ‘Spider’ ETF could get swatted in 2010

Economy soars 5.7 percent, fastest in 6 years

WASHINGTON (Reuters) – The economy grew at its fastest pace in more than six years in the fourth quarter, surprising economists, as businesses curbed their aggressive cut in stocks and stepped up spending.

The robust growth pointed to a sustainable recovery in a crucial period before government stimulus plans run out and was good news for an administration amid political difficulties.

Gross domestic product expanded at a 5.7 percent annual rate, the Commerce Department said on Friday in its first estimate for the quarter. It was a strong end to a year in which the economy shrank by 2.4 percent — the worst performance since 1946.

While much of the growth resulted from companies' drawing down inventories more slowly than they did earlier in the year rather than from a surge in domestic demand, economists said it was still a positive report.

"The data shows that the necessary transition from government stimulus to private sector spending is under way, which is essential to sustain the economic expansion," said Stuart Hoffman, chief economist at PNC Financial Services Group in Pittsburgh.

U.S. stocks initially rallied on the eye-catching growth number but ended down on worries about credit troubles in Europe. Stock market losses fed investors' preference for safe-haven U.S. government bonds, while the U.S. dollar rallied against major currencies.

Getting the economy on a sustainable growth track remains one of the key challenges facing President Barack Obama, who on Wednesday outlined measures to create jobs and nurture the recovery.

The government will release its closely watched employment report for January next Friday. A Reuters survey forecast payrolls grew by 5,000 jobs after an 85,000 drop in December.

The economic picture was further brightened by a jump in Midwest business activity in January to its highest level in four years, while consumer confidence hit a two-year high.

Economists said they expected the lift from inventories to fade over time, with economic growth moderating in the second half of the year.

"The economy's engine is running, but to some degree we're still in a ditch spinning our wheels. With fiscal and monetary fuel running out, we need job growth to get us firmly on the road to recovery," said Bill Cheney, chief economist at John Hancock Financial in Boston.

INVENTORIES BOOST GROWTH

The slowing rate of inventory reduction in the fourth compared to the third quarter lifted GDP by nearly 3 no fax payday loan.4 percentage points, the biggest contribution inventories have made to GDP growth since the fourth quarter of 1987.

When businesses sell off inventories, there is less of a need to step up production and it weighs on GDP. With the liquidation rate slowing, GDP was boosted.

But even with inventories stripped out, the economy expanded at an annual rate of 2.2 percent, accelerating from the 1.5 percent increase in the third quarter. That reflected relatively strong performance from other segments of the economy, particularly business investment.

Still, this measure of final demand is meager compared with most normal recoveries, implying the Federal Reserve can bide its time before raising interest rates.

Consumer spending increased at a 2 percent annual rate, contributing 1.44 percentage points to GDP. In the third quarter, consumer spending had risen at a 2.8 percent pace, supported by the government's "cash for clunkers" program.

Business investment grew at 2.9 percent rate, the first increase since the second quarter of 2008, as the drag from the troubled commercial real estate was offset by robust spending on equipment and software.

"The solid increase in investment in equipment and software, if confirmed, might indicate that a more solid recovery is under way," said Harm Bandholz, an economist at UniCredit Research in New York. Some economists said it suggested a budding confidence that could lead to hiring.

Third-quarter growth was put at 2.2 percent after an earlier estimate of 3.5 percent.

The growth of spending on new home construction braked sharply in the fourth quarter to an annual rate of 5.7 percent from an 18.9 percent pace in the third quarter.

Home building has received a lift from a popular tax credit for first-time buyers, but recent data have hinted at some weakness. Export growth outpaced imports, narrowing the U.S. trade gap and adding half a percentage point to GDP growth in the last quarter.

For graphic on GDP, see: http://link.reuters.com/suk66h

For graphic on GDP and inventories see http://link.reuters.com/pem66h

(Additional reporting by Lisa Lambert; Editing by Kenneth Barry)

Economy soars 5.7 percent, fastest in 6 years

London Markets: Banks help British stocks advance

LONDON (MarketWatch) — Banks lifted the top British share index on Thursday, although drugmaker AstraZeneca dragged after issuing a gloomy forecast for 2010.

The U.K. FTSE 100 index rose 0.2%, to 5,230.40 on Thursday. Shares trading in other European stock markets were also advancing, while U.S. stock futures were pointing to another day of gains on Wall Street. Read Europe Markets. See Indications.

U.S. stocks reversed early losses on Wednesday to close higher, after the Federal Reserve announced its rate decision and also altered the wording of its accompanying statement slightly.

“It was somewhat more upbeat on the economic outlook — in its nuanced fashion — compared with the previous meeting six weeks previously. [The Fed said] ‘Activity has continued to strengthen’ rather than just ‘pick up’,” said Davy stockbrokers economist Rossa White.

“The Federal Reserve meeting was well-timed, given the recent sell-off in risky assets. The Fed statement may well shore up the equity market by maintaining the commitment to exceptionally low short-term interest rates for the next number of months,” White added.

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Banks have lost ground lately but were higher on Thursday, with shares of Barclays up 3 instant payday loan.5% and shares of Lloyds Banking Group up 1.3% in the banking sector.

Elsewhere, Rolls-Royce shares were up 1.8%.

The aerospace group said it has won a share of an order from Jetstar Airways that is worth up to 1.2 billion pounds ($1.9 billion) to the company if all options are exercised.

The order is for V2500 engines to power up to 90 Airbus A320 aircraft and also includes a long-term engine service agreement for the engines on those aircraft as well as a further 40 already in service. Jetstar is a subsidiary of Australia’s Qantas Airways.

Clothing retailer Next shares were up 2.8% and Marks & Spencer shares were up 1.7%.

Swedish fashion chain Hennes & Mauritz — which operates in the U.K. — posted a 21% rise in fourth-quarter profit on Thursday. See full story.

However, AstraZeneca shares fell after the firm reported a 24% climb in fourth-quarter profit, helped by generic drugmakers’ inability to produce a blood pressure drug and from pandemic flu vaccines but forecast lower 2010 profits.

The firm’s quarterly profit rose to $1.55 billion, or $1.07 a share, from $1.25 billion, or 86 cents a share. Core earnings per share, which strips out one-time items, rose 14% to $1.42 a share.

The Anglo-Swedish pharmaceutical forecast a tougher 2010: it expects core EPS falling to a range of $5.75 to $6.15 versus 2009’s $6.32, with revenue falling by mid single digits at constant currencies.

London Markets: Banks help British stocks advance

Hot News: Stock futures rise on upbeat earnings reports