G-Fin™: FAA Approves Wrong Amazon Drone; Dow Drops 100 Points on Strong Data

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U.S. Markets closed in the red Tuesday after giving up small gains in midday trading.

The Dow Jones Industrial dropped 100 points as investors weighed stronger-than-expected economic reports and a slight rebound in the U.S. dollar.

Crude oil settled slightly higher, gaining $0.06 at $47.51 a barrel.

Despite the modest rise in oil prices, Chevron (CVX) was still the worst performing blue chip in the session.

But Chesapeake Energy (CHK) managed to gain on activist investor Carl Icahn adding his stake in the company to nearly 11% from around 10%.

Twitter (TWTR) shares soared more than 6% on heavy volume.

The social micro-blogging site is testing video feeds that play automatically.

Amazon (AMZN) says the FAA approved the wrong drone last week to test-fly in the U.S.

The e-commerce giant argued the government is too slow when it finally gave permission to a delivery aircraft that was already obsolete.

U.S. Stock Market Starts the Week with a Small Loss

The Gilmer Free Press

NEW YORK — A late turn pulled the stock market to a loss on Monday, as major indexes wavered following a strong run last week.

Kansas City Southern slumped 8%, the biggest fall in the Standard & Poor’s 500 index, after the railroad operator trimmed its revenue estimates, pointing to falling fuel prices and the strengthening dollar. Its stock lost $9.21 to $106.48.

Major indexes started higher in morning trading, settled into an afternoon lull, then dipped down in the last 10 minutes of trading.

The S&P 500 fell 3.68 points, or 0.2%, to close at 2,104.42.

The Dow Jones industrial average lost 11.61 points, or 0.1%, to 18,116.04 while the Nasdaq composite slipped 15.44 points, or 0.3%, to 5,010.97.

Traders kept tabs on a meeting in Europe between the leaders of Greece and Germany for signs of progress in Greece’s debt negotiations. Greece faces a cash crunch in the coming weeks and is in talks with its European lenders on what steps it must take to receive more loans. Greece’s Prime Minister, Alexis Tsipras, committed to keeping a dialogue open on reforms that would qualify Greece for urgently-needed rescue loans.

Brad McMillan, chief investment officer at Commonwealth Financial, said he expects the market to head higher over the coming months because there appears to be nothing on the horizon capable of knocking it off course. Investors have pushed the S&P 500 to all-time highs despite concerns over Europe’s sluggish economy and slumping oil prices.

“Greece hasn’t pulled it down, deflation hasn’t pulled it down,” McMillan said. “Unless the Federal Reserve says it’s going to raise interest rates in June, I just can’t see what’s going to pull it down.”

Last week, the S&P 500 jumped nearly 3%, its biggest weekly gain since early February. Investors cheered Wednesday when the Federal Reserve said that it was in no hurry to raise interest rates with inflation low.

Among other companies making moves, Gilead Sciences dropped following reports that the pharmaceutical company told physicians that nine patients taking its hepatitis C treatments developed slow heartbeats and that one died. Gilead slid $2.03, or 2%, to $100.26.

Tenet Healthcare surged 5% following news that the health care services company plans to launch a new hospital venture with a private equity firm. The company’s stock gained $2.45, or 5%, to $52.07.

Major markets in Europe ended mixed. Germany’s DAX lost 1.2% and France’s CAC 40 shed 0.7%. Britain’s FTSE 100 picked up 0.2%.

Tokyo’s Nikkei 225 finished with a gain of 1%. In China, the Shanghai Composite Index surged 2%, while Hong Kong’s Hang Seng added 0.5%.

Back in the U.S., bond prices inched up, sending yields down. The yield on the 10-year Treasury note slipped to 1.91% from 1.93% late Friday.

In commodity trading, prices for precious and industrial metals climbed higher. Gold rose $3.10 to settle at $1,187.70 an ounce, while silver picked up a penny to $16.89 an ounce. Copper added 3 cents to $2.79.

The price of oil edged up amid signs that the growth in U.S. supply may be slowing. Benchmark U.S. crude rose 88 cents to close at $47.45 a barrel in New York. Brent crude, a benchmark for international oils used by many U.S. refineries, added 60 cents to close at $55.92 in London.

In other futures trading on the New York Mercantile Exchange:

— Wholesale gasoline rose 0.6 cent to close at $1.804 a gallon.

— Heating oil fell 0.3 cent to close at $1.731 a gallon.

— Natural gas fell 5.3 cents to close at $2.733 per 1,000 cubic feet.

Federal Reserve Pays Treasury a Record $96.9 Billion

The Gilmer Free Press

The Federal Reserve paid the U.S. Treasury a record $96.9 billion of its profits in 2014, documents released by the central bank said Friday.

The jump in its annual remittances to the Treasury was due in part to interest income earned on bonds the Fed purchased in recent years in an effort to help rebound the U.S. economy.

The Fed paid the Treasury $79.6 billion in 2013.

That number is expected to go down in the coming years as the Federal Reserve lets its bond program gradually shrink and looks to increase interest rates. Buoyed by the strengthening economy, the central bank announced an end to the bond-buying program in October.

The Fed’s total assets at the end of 2014 were $4.5 trillion, up by $500 billion from the previous year.

G-Fin™: The Federal Reserve Just Lowered Its Long-Term Unemployment Rate

The Gilmer Free Press

The Federal Reserve just lowered its long-term unemployment rate and that’s good news for working people

The Federal Reserve is getting closer to liftoff. That is, it has held the main interest rate it controls at about zero since late 2009 and as the economy improves, each month brings us closer to the meeting when it announces a (probably small) rate hike. To make sure everyone knew that day is getting closer, the Fed committee took the word “patient” out of Wednesday’s statement, but Chairwoman Janet Yellen was quick to remind Fed watchers that “just because we removed the word patient from the statement doesn’t mean we’re going to be impatient.”

This is all expected…biz as usual, and pretty much what the Fed has been signaling.

But there was something else that one could argue was really new and important in the report: the Fed lowered its long-run unemployment rate.

Why is that such a big deal? Because it means that a majority of Fed governors believe the unemployment rate can fall further than they previously thought, and it can do so without generating inflationary pressures. Even while the shift looks small — the Fed only lowered it from 5.35% to 5.1% –in this world, that’s a big deal and as such, it’s a positive development for people who depend on paychecks.

This long-run unemployment rate as the FEUR (full-employment-unemployment-rate): the lowest jobless rate consistent with stable inflation. Thus, you’d expect as the unemployment rate approached the FEUR, price and wage growth would begin to accelerate. In fact, neither prices nor wages were speeding up as the actual rate of unemployment fell to the Fed’s FEUR.

conclution: “the Fed needs to either update its FEUR to match reality or clarify why these variables are not behaving the way they should be if their FEUR is correct.”

And so the Fed has updated. The figure above shows the unemployment rate, last seen at 5.5%, the core inflation rate (without volatile food and energy prices), average wage growth, and the Fed’s old and new FEUR’s drawn in as well.

As noted, there’s not a huge difference between them, and we’ll need to keep a close eye on the extent to which the tightening job market shows up in wages and prices, especially given that much of the Fed’s commentary from Wednesday was actually pretty dovish. That is, it noted U.S. growth has “moderated somewhat,” the strong dollar is both holding back inflation and widening the trade deficit, and slow growth abroad remains a constraint.

It’s confusing in the sense that part of the message is growth is speeding up such that we’ll need to hit the brakes soon, and the other part is…um…maybe not so much. The Fed is less patient in terms of keeping rates highly accommodative, but not impatient to raise. Based on the observed lack of wage or price pressures, it has lowered its FEUR, also suggesting a later liftoff.

You may also well wonder why we need a FEUR at all. It’s a pretty problematic number in that it’s a) very hard to nail down with any degree of accuracy, and yet b) there’s a lot riding on it. Thankfully, the Yellen Fed appears to be watching wage and price growth more closely than unemployment, but the FEUR is still highly influential, more so than it should be given our uncertainty about it.

Yet with all of these caveats, this is good news. The fact that the Fed marked down the FEUR a bit suggests it is less anxious to fight what is still the phantom menace of rising inflation and in so doing, risk prematurely slowing a recovery in the labor market that finally appears to be gaining traction.

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