Monday, May 7, 2018

The SBA and frangible

frangible
FRAN-juh-buhl
Readily broken; breakable.
from Latin frangere (to break) which also gave us fraction, refract, chamfer, defray, infringe, and fracture.

_____________________________________________
TIP OF THE WEEK

SBA 7(a) loan demand continues to be infrangible.   For the six month period ending 3/30/2018, SBA 7(a) loans are up 6% over the same period last year.

The pick-up in SBA 7(a) loan approvals is good news for the economy.  Just for fun I calculated the correlation coefficient between SBA 7(a) loan volume and GDP for over six years using the Microsoft CORREL function.  It came out to a statistically significant 0.86.

Interestingly there has been a significant increase in SBA 7(a) loans to new businesses.  59% of all loan requests were to new businesses so far this year.  For the last two years it had averaged closer to 36% of all approvals.  It could be that SBA considers a business acquisition to be a new business.  SBA 7(a) loans for business acquisitions have increased as a result of the new guidance allowing down payments as low as 10%.

SBA 504 loan demand on the other hand appears to be frangible.  504 loans so far this year are down 30% by dollar amount and 23% down by loan number.


__________________________________________

Indices:

PRIME RATE= 4.75%

________________________________________

SBA 504 Loan Debenture Rate for April
The debenture rate is only 3.31% but note rate is 3.36454% and the effective yield is 5.029%.

 ________________________________________________
AHEAD OF THE YIELD CURVE

The slope of the yield curve is not as frangible as you’d think.  The Federal Reserve recrudescence on monetary policy is causing some splenetic presentiment as to whether it is enervating inflation.

At their last meeting on monetary policy, Federal Reserve officials left interest rates unchanged, but changed their policy statement by adding a reference to the “symmetric” nature of their inflation target TWICE.

The first time they said “Inflation on a 12-month basis is expected to run near the committee’s symmetric 2 percent objective over the medium term”.  The other time they said “The Committee will carefully monitor actual and expected inflation developments relative to its symmetric inflation goal.”

What does symmetric even mean?  It comes from the Latin symmetria which came from the Greek symmetria meaning commensurateness.  Symmetry implies either a quantitative equality of parts ( the perfect symmetry of pairs of matched columns).  In geometry, two points(1, 1) and(−1, −1) are symmetrical with respect to(0, 0).  A set is symmetric when pairs of points have this relation with respect to the same center.

I think what they are trying to say is that some of the inflation rhetoric that has indicated a deviation of inflation to the upside will not necessarily elicit a policy response, especially in light of the prolonged period of below-target inflation.

The Federal Reserve’s statement sparked a move in the U.S. yield curve that’s been virtually absent of late.  The spread between 5- and 30-year yields widened after the announcement to 33.6 basis points, the highest since April 27. Curve steepening is a rare enough occurrence -- it’s near the flattest levels in more than a decade amid bets on continued gradual Fed rate hikes. But it’s the manner of the steepening that’s striking.  The world’s biggest bond market experiences so-called bull steepening when shorter-term Treasuries rally to a greater extent than their longer-dated counterparts. Indeed, five-year yields fell as much as 1.7 basis points and two-year yields dropped 1.2 basis points. In contrast, 10-year yields were flat and those on the long bond rose.

Concerns that the yield curve could eventually invert, with short-dated yields moving above long-dated yields, is keeping many on edge. An inverted yield curve has often preceded a recession.

In April, short rates continued to rise, but long rates could not quite keep pace, so the yield curve moved higher and continued to get flatter. The three-month (constant maturity) Treasury bill rate rose to 1.81 percent while the 10-year rate (also constant maturity) rose by 2 basis points to 2.88 percent.  These changes dropped the slope to 107 basis points, down from March’s 110 basis points and a full 20 basis points below February’s 127 basis points.   According to the Federal Reserve Bank of Cleveland, the incoming data had only a minimal impact on expectations of growth. Using past values of the spread and GDP growth suggests that real GDP will grow at about a 1.5 percent rate over the next year.

The curve is collapsing partly because the Treasury is ramping up issuance of shorter maturities to fund expanding budget deficits.

Keep your eyes and ears open for this week’s auction of 30 year Treasury bonds.  At last month’s auction of the 30 Treasury bond, the high yield, at 3.044 percent, was 6.5 basis points below March’s awarded rate.  As of Friday, the 30 year Treasury was up to 3.122%.

The Treasury Department should sell more longer-dated debt to keep its borrowing costs down.

The department will notch higher sales of two- and three-year note auctions by $1 billion per month over the quarter, compared with monthly rises over the past quarter of $2 billion. It will also boost five-, seven-, 10-, and 30-year note sales by $1 billion starting in May and lift floating rate notes by $1 billion in May.

Heavy supply coming onto the market suggests higher yields.

Eurodollar futures settle at a three- month lending rate that has averaged about 22 basis points more than the Fed's target over the past 10 years.

Here is a summary of what the market expects for Eurodollar futures based upon the pit-traded prices at the Chicago Mercantile Exchange:

DEC18- 2.66
DEC19- 2.99
DEC20- 3.05
DEC21- 3.06
DEC22- 3.09
DEC23- 3.12
DEC24- 3.16

What does all this mean?

I don’t know.

The frangible long end of the yield curve as reflected in 30 year Treasury bond appear to be enervating any splenetic presentiment of a bigly recrudescence in interest rates by being quiescent and Eurodollar futures imply a quiescent Federal Reserve will not estivate.

__________________________________________
OFF BASE

A material is said to be frangible if it tends to break up into fragments.  Common biscuits or crackers are examples of frangible materials, which is why I am not allowed to eat them on the couch.

A frangible light pole base is designed to break away when a vehicle strikes it. This lessens the risk of injury to occupants of the vehicle

A frangible bullet is one that is designed to disintegrate into tiny particles upon impact to minimize their penetration for reasons of range safety, to limit environmental impact, or to limit the danger behind the intended target.  Too bad all bullets aren’t frangible.

Monday, April 9, 2018

The SBA and rhubarb

rhubarb
(ROO-bahrb)
A heated dispute; brawl.

The origin of the plant name rhubarb is from Greek rha (perhaps from Rha, an ancient name of the river Volga on whose bank rhubarb was grown) + barbaros (foreign)

In Shakespeare’s day when a play called for a crowd scene,a group of actors was asked to repeat the word rhubarb which reverberated through the theatre like the sounds of an angry horde.

From this "rhubarb" eventually came to be theatrical slang for "commotion." Actors who did it were called "rhubarbers." This standard stage practice then became a verb "rhubarbing", eventually "rhubarb" came to mean, "fight."

_____________________________________________
TIP OF THE WEEK

A rhubarb over the new SOP has gone quiescent with a recent policy change from SBA.

SBA Notice 5000-17057 dated 4/3/2017 revises and clarifies several policies in SOP 50 10 5(J).

Under the revised guidance, lenders will now be required to consider the liquidity of owners of 20% or more of the applicant business. The Notice increased the ownership percentage for which liquidity must be considered from 10% to 20%.

As a reminder, the liquidity of the owner includes the liquid assets of the owner’s spouse and any minor children.  For those that want to start rhubarb over why a non-owner spouse must be included keep in mind that the SBA’s lending programs qualify as “Special-Purpose Credit Programs” under the Equal Credit Opportunity Act (ECOA). This regulation stipulates that information pertaining to the Applicant’s marital status, sources of personal income, alimony, child support, and spouse’s financial resources can be obtained and considered in determining program eligibility.

__________________________________________

Indices:
PRIME RATE= 4.75%
SBA LIBOR Base Rate April =N/A
SBA Fixed Base Rate April = TBA

________________________________________

SBA 504 Loan Debenture Rate for April

The debenture rate is only 3.31% but note rate is 3.36454% and the effective yield is 5.029%.

Keep in mind a rhubarb over the new 25 year debenture won’t estivate.

 ________________________________________________
AHEAD OF THE YIELD CURVE

A rhubarb about Federal Reserve recrudescence on monetary policy is causing some splenetic presentiment and if it is enervating inflation.

Huh?

At their last meeting on monetary policy the Fed decided to increase the federal funds rate target range by 0.25 percent to 1.5 to 1.75 percent.

They also slightly changed the wording in their statement.  The Fed said inflation on an annual basis is “expected to move up in coming months,” after saying “move up this year” in the January statement.

You would think that means inflation is starting to heat up, but they left their inflation forecasts unchanged at 1.9% in 2018 and 2% in 2019.

Will they penelopize and cunctate any further?

Fed funds futures showed a decline in the odds for tightening, with the probability of rates being higher after the June meeting dipping to around 72 percent from 76 percent after the report on jobs came out on Friday.

Employers added a disappointing 103,000 jobs in March as colder weather appeared to crimp hiring after solid employment gains the first two months of the year.  In February, unseasonably warm weather pulled forward hiring in industries such as construction and retail, leading to blockbuster job gains that topped 300,000.   As a result, the weak showing is being viewed as a blip rather than a sign of a weakening labor market.

After the jobs report, the 30-year Treasury bond dropped 4.1 basis points to 3.032 percent.

Keep your eyes and ears open for Thursday’s auction of 30 year Treasury bonds.

Here is what the 30 year Treasury bond has been doing and this week’s interesting little table:
2001- 5.49
2002- 5.43
2003- ND
2004- ND
2005- ND
2006- 4.91
2007- 4.84
2008- 4.18
2009- 3.89
2010- 4.61
2011- 2.89
2012- 2.77
2013- 3.25
2014- 3.97
2015- 2.91
2016- 2.32
2017- 3.16

Wait a minute, why no numbers for 2003, 2004, and 2005?

One month after the 9/11 attacks, the Treasury 30 year bond is discontinued. When the Treasury mothballed the 30-year bond in 2001, experts speculated it was trying to drive down long-term interest rates, which had remained stubbornly high while the Federal Reserve was slashing short-term interest rates to revive the economy. When the Treasury discontinued the 30-year bond in 2001, its yield fell 35 basis points in one day. Why? A shrinking supply of the 30-year Treasury bond caused increased demand to drive rates down.

What does all this mean?

I don’t know.

At last month’s auction of $13 billion of 30 year bonds bidding was tight and pulled down the high yield to 3.109 percent.  That’s 6.1 basis points below the high yield awarded in March 2017.

So long term rates have declined while short term rates continue to climb.  The $14.7 trillion Treasuries market is sending clear signals that a flatter yield curve could be back in vogue.

__________________________________________
OFF BASE

My first exposure to rhubarb came from listening to Vin Scully on the radio describe a brawl between the Dodgers and Giants.

Vinny got it from his predecessor Red Barber.  The Oxford English Dictionary has the first citation from 1943:  "Mr 'Red' Barber,.. who has been announcing the games of the Brooklyn Dodgers, has used the term 'rhubarb' to describe an argument, or a mix-up, on the field of play." (NY Herald Tribune) Red’s autobiography was titled “Rhubarb in the Catbird Seat."

My second exposure to rhubarb was at Mrs. Knott’s Chicken House.  Dinner featured cherry rhubarb, salad with French dressing, handmade biscuits, cabbage and sweet pickles, three pieces of fried chicken and mashed potatoes smothered with gravy. For dessert: a slice of boysenberry pie with vanilla ice cream.

Rhubarb, a springtime stalk most commonly used in the creation of America’s second best pie, the strawberry-rhubarb, is a very strange plant indeed. Most often used in sweet applications, it’s a sour vegetable that looks like crimson celery. And its leaves are spectacularly poisonous. Rhubarb leaves are very high in oxalic acid, which quickly causes kidney failure in humans. About 25 grams of pure oxalic acid is the average amount needed to kill a human. That said, rhubarb leaves aren’t pure oxalic acid, and it would take around 11 pounds of the leaves to secure that much. But still! I’d stay away.

America’s best pie of course is that boysenberry pie.  Boysenberry is a cross between a red raspberry, a loganberry and a blackberry. The fruit was a failed experiment of Anaheim Parks Superintendent Rudolph Boysen, who was unable to keep the vines from withering. Walter Knott tried his hand at it and after successfully turning a harvest, named it the boysenberry, whose jams and jellies became a staple at the stand, and later at the restaurant.

Monday, March 12, 2018

The SBA and casuistry

casuistry

KAZ-oo-i-stree

-Deceptive or excessively subtle reasoning, especially on moral issues.
-The use of clever but unsound reasoning, especially in relation to moral questions

From Latin casus (case, fall, chance), past participle of cadere (to fall).

The Oxford English Dictionary states that the word "often (and perhaps originally) applied to a quibbling or evasive way of dealing with difficult cases of duty."

It is often characterized as a critique of principle- or rule-based reasoning.
_____________________________________________
TIP OF THE WEEK
Why did the chicken cross the road?  Apparently to get a SBA loan.

With little casuistry, the SBA Office of the Inspector General reviewed SBA 7(a) loans to poultry farmers.  It found that all the loans were ineligible for SBA financial assistance because the contracts between large chicken companies and the growers created an affiliation issue.

If you would like to see a copy of this report, please let me know.

The new SOP 50-10-5(J) has clarified the guidance regarding affiliation.

Keep in mind that last month’s stop gap funding bill expires March 23rd.

__________________________________________

Indices:
PRIME RATE= 4.50%
SBA LIBOR Base Rate March =4.69%
SBA Fixed Base Rate March = 7.44%
________________________________________

SBA 504 Loan Debenture Rate for February The debenture rate is only 3.22% but note rate is 3.2735% and the effective yield is 4.940%.
 ________________________________________________
AHEAD OF THE YIELD CURVE

The Federal Reserve meets next week and some casuistry goes into their decision making.

After their last meeting on monetary policy, they changed their policy statement by adding the word “further” twice:

“The Committee expects that, with FURTHER gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labor market conditions will remain strong.”

“The Committee expects that economic conditions will evolve in a manner that will warrant FURTHER gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run.”

The Fed is expected to raise rates at the next meeting.  A bigger question is whether central bank officials strengthen their resolve for three quarter-point hikes this year, or leave the door open for four.

On Friday, it was reported that U.S. employers added a blockbuster 313,000 jobs in February.

Average hourly earnings rose only 2.6% compared to January’s 2.9%. The drop suggests that January’s big increase was an anomaly. It was caused by a sharp decline in average weekly hours as a result of harsh weather and a nasty flu season.  That’s just over the tepid 2.5% pace of the past couple of years.

One of the Fed’s favorite leading indicators on inflation is capacity utilization which measures the amount of a plant that is in use at factories, mines and utilities.  Several analysts have pointed to a rate between 81% and 82% as a tipping point over which inflation is spurred.

Here is what capacity utilization rates have done:
2007- 81.5
2008- 79.9
2009- 66.9
2010- 74.8
2011- 76.7
2012- 79.0
2013- 77.8
2014- 78.8
2015- 76.5
2016- 75.4
2017- 76.1

What does all this mean?

I don’t know.

Last month it was reported that capacity utilization fell 0.2 percentage point in January to 77.5 percent, a rate that is still 2.3 percentage points below its long-run (1972–2017) average.  This report is not consistent with building inflation pressures.  For the Fed, last month’s capacity utilization report does not turn up pressure for a more hawkish policy on interest rates.

Keep your eyes and ears open for Friday’s report on industrial production and capacity utilization.

On Tuesday, the Treasury will auction 30 year Treasury bonds.  At last month’s auction, the yield ended up at 3.121 percent.  The 3.121 percent high yield was a sharp 25.4 basis points above January’s auction rate and the highest awarded yield at a bond auction since March 2017.

After Friday’s jobs report, the 30 year Treasury bond advanced 3.4 basis points to 3.166%.

According to CME Group data, market participants are expecting the next rate increase by the Fed to occur next week.

The long end of the yield curve as reflected in the 30 year Treasury bond appear to be enervating any splenetic presentiment of a bigly recrudescence in interest rates.

__________________________________________
OFF BASE

If you look at the list of holidays observed by the Federal Reserve, you will note that our next holiday is not until Memorial Day:

Memorial Day May 28
Independence Day July 4
Labor Day September 3
Columbus Day October 8
Veterans Day November 11
Thanksgiving Day November 22
Christmas Day December 25

Good grief!  That is almost 2 ½ months.

With some casuistry you might be able to justify taking some of these days off:
St Patrick’s Day Eve- March 16
Opening Day Major League Baseball March 29
Good Friday March 30
Easter Monday April 2

Monday, January 8, 2018

The SBA and penelopize

To delay or gain time to put off an undesired event.

From Penelope, the wife of Odysseus and mother of Telemachus in Greek mythology. She waited 20 years for her husband’s return from the Trojan War (ten years of war, and ten years on his way home). She kept her many suitors at bay by telling them she would marry them when she had finished weaving her web, a shroud for her father-in-law. She wove the web during the day only to unravel it during the night.

_____________________________________________
TIP OF THE WEEK

The SBA did not penelopize with the release of its new Standard Operating Procedure.

Cunctation may have worked to their advantage as there are now different versions of the new SOP 50-10-5(J).

There were several technical corrections and an updated SOP was issued with the technical corrections.

Make sure you are using the new version of the SOP that incorporates these changes.  The easy way to determine if you have the correct SOP 5010 5 (J) is the first version consists of 410 pdf pages, while the updated version is 413 pdf pages.
__________________________________________

Indices:
PRIME RATE= 4.50%
SBA LIBOR Base Rate January =4.56%
SBA Fixed Base Rate January = 6.92%

________________________________________

SBA 504 Loan Debenture Rate for December
The debenture rate is only 2.78% but note rate is 2.82766% and the effective yield is 4.499%.

 ________________________________________________
AHEAD OF THE YIELD CURVE

The Federal Reserve continues to penelopize over interest rates.

Minutes from their last meeting on interest rates highlighted some division over the central bank’s forecast for three rate increases in 2018.

The current slope of the yield curve was brought up and some expressed concern that a possible future inversion of the yield curve, with short-term yields rising above those on longer-term Treasury securities, could portend an economic slowdown, noting that inversions have preceded recessions over the past several decades.

But then on Friday, the Department of Labor reported that jobs increased 148,000 for the month of December and the yield curve grew slightly steeper with the yield on the 30-year Treasury bond up 2.9 basis points at 2.815%.

Here is a summary of net payroll employment and this week’s interesting little table of data:
December     148,000
November     252,000
October      211,000
September     18,000
August       208,000
July         138,000
June         222,000
May          152,000
April       207,000
March        50,000
February    235,000
January     216,000
2016      2,160,000
2015     2,740,000
2014     3,116,000
2013     2,074,000
2012     2,193,000
2011     2,103,000
2010    1,022,000
2009    -5,052,000
2008    -3,617,000
2007    1,115,000
2006    2,071,000
2005    2,484,000
2004    2,019,000

What does all this mean?

I don’t know.

This is the 87th straight month of U.S. job growth, the longest such streak on record.

Keep your eyes and ears open for Thursday’s auction of 30 year Treasury bonds.

Here is what the 30 year Treasury bond has been doing and this week’s interesting little table:
2007- 4.84
2008- 4.18
2009- 3.89
2010- 4.61
2011- 2.89
2012- 2.77
2013- 3.25
2014- 3.97
2015- 2.91
2016- 2.32

What does all this mean?

I don’t know.

At the December auction of 30 year Treasury bonds, the flattening of the Treasury yield curve is illustrated by the 2.804 percent high yield, which in a period when short term rates rose steadily, was just 0.3 basis points above the November auction rate and 36.6 basis points below the long term high yield peak set in March, the highest since September 2014.

If you look at the Federal Reserve website, they indicate that one of their principal economic indicators is industrial production and capacity utilization.  One of the Fed’s leading indicators on inflation is capacity utilization which measures the amount of a plant that is in use at factories, mines and utilities.  Several analysts have pointed to a rate between 81% and 82% as a tipping point over which inflation is spurred.

Here is what capacity utilization rates have done:
2007- 81.5
2008- 79.9
2009- 66.9
2010- 74.8
2011- 76.7
2012- 79.0
2013- 77.8
2014- 78.8
2015- 76.5
2016- 75.4
2017- 76.1

What does all this mean?

I don’t know.

Last month it was reported that capacity utilization rose to a 2½ year high of 77.1%.   This is still 2.8% below the average from 1972 to 2015 and below the pre-recession level of 80.8% in December 2007.

The Federal Reserve will report on capacity utilization on January 17th.

The Federal Reserve next meets on interest rates on January 30-31.

According to CME Group data, market participants are expecting the next rate increase, after the Fed’s recent quarter-percentage point increase to a range between 1.25% and 1.5%, to occur in March.

The long end of the yield curve as reflected in 30 year Treasury bond appear to be enervating any splenetic presentiment of a bigly recrudescence in interest rates by being quiescent.

Keep in mind that Congress penelopized and passed a stopgap spending bill just before Christmas, averting a partial government shutdown but pushing into January showdowns on spending, immigration, health care and national security.  The stopgap extends federal funding through Jan. 19

__________________________________________
OFF BASE

Many of us might penelopize about a full work week but a three day weekend approaches.

According to the Federal Reserve, here are our holidays for 2018:

Birthday of Martin Luther King, Jr. January 15
Washington's Birthday February 19
Memorial Day May 28
Independence Day July 4
Labor Day September 3
Columbus Day October 8
Veterans Day November 11
Thanksgiving Day November 22
Christmas Day December 25

Monday, December 11, 2017

The SBA and robustious

robustious
ro-BUHS-chuhs
1. Strong and sturdy.
2. Boisterous.
3. Coarse or crude.
From Latin robur (oak, strength).

_____________________________________________
TIP OF THE WEEK 

Our robustious* President signed a spending bill to avoid a government shutdown and keep the federal government running through Dec. 22.

The president signed the two-week spending bill at the White House after the House and Senate acted to prevent a government shutdown last weekend.

The White House and congressional leaders are negotiating a longer-term agreement.

The measure funds government agencies including the SBA.  SBA loan volume should continue to be robustious**

*as in boisterous, coarse and crude
**as in strong and sturdy

__________________________________________

Indices:
PRIME RATE= 4.25%
SBA LIBOR Base Rate December =4.38%
SBA Fixed Base Rate December 2017 = 6.65%
________________________________________
SBA 504 Loan Debenture Rate for November    
The debenture rate is only 2.79% but note rate is 2.83785% and the effective yield is 4.510%.
 ________________________________________________
AHEAD OF THE YIELD CURVE 

The economy continues to be robustious.

Some 228,000 new jobs were created in November, another healthy gain that highlights the strongest U.S. labor market since the turn of the century.

After ten months of Mr. Trump's presidency, the economy has added 1,700,000 jobs.   That puts him about 383,000 behind the pace needed to hit his goal of adding 10 million jobs over the next 4 years. 

His predecessors by comparison did the following (private sector employment only):
20,966,000 - President Clinton
14,717,000 - President Reagan
11,756,000- President Obama
9,041,000- President Carter
1,510,000- President G.H.W. Bush
  396,000- President G.W Bush

Treasury yields rose across the board last week ahead of the Federal Open Market Committee’s rate-setting meeting Dec. 12-13, where an increase in the fed-funds rate is seen as a virtual certainty.

After the jobs report, the 30-year Treasury bond yield was unchanged at 2.773%, and rose only 1.1 basis point over the past five days.   The day the Fed begins their meeting on monetary policy there will be an auction of the 30 year bond.  At last month’s auction the 2.801 percent high yield was 6.9 basis points below October’s rate.  Since the start of 2017, 30-year yields have actually declined. And the culprit behind that appears to be stubbornly muted inflation.

One of the Fed’s favorite leading gauges of inflationary pressure is the capacity utilization rate.  Keep your eyes and ears open for this Friday’s report on industrial production and capacity utilization.  Last month it was reported that capacity utilization for October had nudged up to 77 percent.   Several analysts have pointed to a rate between 81% and 82% as a tipping point over which inflation is spurred. 

So what will the Fed do?  They should not be too concerned about inflation.

Eurodollar futures settle at a three- month lending rate that has averaged about 22 basis points more than the Fed's target over the past 10 years.

Here is a summary of what the market expects for Eurodollar futures based upon the pit-traded prices at the Chicago Mercantile Exchange:

DEC17- 1.60
DEC18- 2.01
DEC19- 2.26
DEC20-2.35
DEC21- 2.46
DEC22- 2.56
DEC23- 2.64

What does all this mean?

I don’t know.

The long end of the yield curve as reflected in 30 year Treasury bond appear to be enervating any splenetic presentiment of a bigly recrudescence in interest rates by being quiescent and Eurodollar futures imply a quiescent Federal Reserve will not estivate.

__________________________________________
OFF BASE
So the government might come to a crashing stop on December 22nd.  

Actually that day the world won’t look as grim as the days will start getting longer again and you can start looking forward to Spring.  So hang in there and be robustious. 


The day before, December 21st, is the winter solistice.  The winter solstice marks the shortest day of the year and the official beginning of winter.

Monday, November 6, 2017

The SBA and cunctation

cunctation
(kungk-TAY-shunn) 
Delay; procrastination; tardiness.
From Latin cunctari (to hesitate, delay)
_____________________________________________
TIP OF THE WEEK 

Without any more cunctation, the SBA has released its latest version of its Standard Operating Procedure, which will be effective January 1st , 2018.

Changes include a reduction in the minimum required equity capital injection for a business acquisition.  At least 10% must be put into the project.  A seller note can be considered part of that injection but it must then go on full standby for the life of the loan.  The buyer must contribute AT LEAST 5%.

Franchise eligibility has also changed with SBA now publishing a franchise directory.  

Some third party management agreements are now eligible as are consumer and marketing cooperatives.

A borrower is prohibited from leasing space to any business engaged in any activity that is illegal under federal, state or local law.

New SBA submission forms have also been released.

Let me know if you would like a copy of the 409 page SOP 50 10 5(J). 

If you are being cunctative about reading it, feel free to ask me a question and I will make up an answer.

__________________________________________

Indices:
PRIME RATE= 4.25%
SBA LIBOR Base Rate November =4.24%
SBA Fixed Base Rate November 2017 = 6.46%
________________________________________
SBA 504 Loan Debenture Rate for October    
The debenture rate is only 2.85% but note rate is 2.89859% and the effective yield is 4.635%.
 ________________________________________________
AHEAD OF THE YIELD CURVE 

Is the Federal Reserve being cunctative about raising interest rates?

Most of the post-WWII recessions were caused by the Fed tightening monetary policy to slow inflation. Usually, when inflation starts to become a concern, the Fed tries to engineer a "soft landing", and frequently the result is a recession.  One of the harsh lessons learned by the Federal Reserve was in the 1930’s when they misapplied monetary policy enervating to the point of splenetic impecunious presentiment.

Last week at their meeting on monetary policy, the Federal Reserve Open Market Committee policy statement changed from describing the economy from "rising moderately" to "rising at a solid rate".  Futures markets are setting expectations firmly centered on a rate hike at the next meeting in December.

On Friday, the Bureau of Labor Statistics reported that jobs increased by 261,000 in October.  Previously it was reported that in September the economy had lost 33,000 jobs  but that has now been revised to show an increase of 18,000 jobs and August was revised up from 169,000 new jobs to 208,000.  With these revisions, employment was 90,000 higher than previously reported.

Here is a summary of net payroll employment and this week’s interesting little table of data:
October                                  261,000
September                                 18,000
August                                   208,000
July                                      138,000
June                                     222,000
May                                      152,000
April                                     207,000
March                                    50,000
February                             235,000
January                               216,000
2016        2,160,000
2015     2,740,000
2014     3,116,000
2013     2,074,000
2012     2,193,000
2011      2,103,000
2010     1,022,000
2009     -5,052,000
2008     -3,617,000
2007    1,115,000
2006     2,071,000
2005     2,484,000
2004     2,019,000

What does all this mean?

I don’t know.

Also included in the jobs report was a look at wages.  Average hourly earnings for all employees on private nonfarm payrolls, at $26.53, were little changed in October (-1 cent), after rising by 12 cents in September. Over the past 12 months, average hourly earnings have increased by 63 cents, or 2.4 percent.

This lack of wage growth is enervating the cerebration on the Phillips Curve to the point it might be considered pabulum.   The Phillips curve, an economic concept named for the late economist A.W. Phillips, states that as unemployment falls inflation will ultimately rise as workers see wage increases.  Fed officials have justified its recent tightening stance on the Phillips curve. 

Cunctation may prevail with the Fed.  Their statement also said that “economic conditions will evolve in a manner that will warrant gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run.”

Keep your eyes and ears open for this Thursday’s $15 billion sale of 30 year Treasury bonds. 

At last month’s sale, the 2.870 percent high yield was 8 basis points higher than September’s rate but well below the March auction's 3.170 percent, a two and half year peak.  The Treasury just cut its borrowing estimate by almost half this quarter.  The Treasury will issue $275 billion in net marketable debt from October through December, assuming a cash balance of $205 billion at the end of the period, according to a statement released Monday in Washington. The new estimate is $226 billion lower than the previous projection made in July. 

The debt ceiling suspension is due to expire on December 8th.  Further cunctation is expected.

__________________________________________
OFF BASE
Cunctation is the Italian way.

Drawing on an intimate knowledge of their own history, they see an upside to letting problems sort themselves out, piano piano—slowly. It’s even part of the national curriculum. By age 11, almost all Italian schoolchildren learn the story of Quintus Fabius Maximus Verrucosus, the Roman general who 2,200 years ago slowly ground down Hannibal by avoiding direct battle. He was nicknamed the Cunctator—“the delayer.”  They may be on to something.  The Bloomberg Global Health Index of 163 countries ranks Italy as the healthiest on Earth, based on variables such as life expectancy and incidence of high blood pressure.


I may have to cunctate after all.

Tuesday, October 10, 2017

The SBA and allision

allision
uh-LIZH-uhn
A moving object striking against a stationary object.
From Latin allidere (to strike against), from ad- (toward) + laedere (to harm).

In maritime usage, the term allision is used for a vessel striking a fixed object, while collision is between two moving ships. Frequently, the word collision is used in both cases.

_____________________________________________
TIP OF THE WEEK

No allision with SBA 7(a) loan demand.  For the fiscal year ending September 30th, SBA 7(a) loan approvals totaled $25,447,458,000.

That is a 5 ½ % increase from the prior year.

The pick-up in SBA 7(a) loan approvals is good news for the economy.  Just for fun I calculated the correlation coefficient between SBA 7(a) loan volume and GDP for over six years using the Microsoft CORREL function.  It came out to a statistically significant 0.86.

There is also no collision with SBA 7(a) loans and Washington as the authorized level for SBA 7(a) loans for this fiscal year is almost $30 billion.

__________________________________________

Indices:
PRIME RATE= 4.25%
SBA LIBOR Base Rate October =4.23%
SBA Fixed Base Rate October 2017 = 6.38%

________________________________________

SBA 504 Loan Debenture Rate for September

The debenture rate is only 2.59% but note rate is 2.635% and the effective yield is 4.376%.

 ________________________________________________
AHEAD OF THE YIELD CURVE

There was an allision with Mother Nature and the economy.  Or was it a collision?  It would depend on whether or not you think the economy is really moving.

The number of workers on U.S. payrolls declined last month for the first time since 2010, reflecting major disruptions from hurricanes Harvey and Irma, Labor Department figures showed Friday.  Total nonfarm payroll employment declined 33,000, the U.S. Bureau of Labor Statistics reported.  The numbers reflect Harvey’s impact on Texas in late August, and Irma’s fallout in Florida in September.

A single sector -- food services and drinking places -- accounted for all the job losses and then some, with payrolls declining by an estimated 104,700 (0.9 percent) in just one month.   That means all the other sectors put together added 71,700 jobs.

Why would this one sector be so dramatically affected? Are the Houston area (where Hurricane Harvey caused massive flooding at the end of August) and the state of Florida (which Hurricane Irma rolled through on Sept. 10 and 11) especially restaurant-and-bar-heavy economies?  Florida and metropolitan Houston together accounted for almost 9 percent of national food services and drinking places employment in August.

The jobs report offered a mixed bag for traders in government bonds , but it showed the tightest labor market in 17 years was beginning to translate into higher wages. Higher salaries can stoke inflationary pressures, affirming the Fed’s adherence to the Phillips Curve, an economic theory which says lower unemployment should bubble up as inflation.  Further discourse on the Phillips Curve might be revealed when minutes from the Federal Reserve’s last meeting on interest rates are released on Wednesday.

On Friday the 30-year bond yield rose to 2.907%, helping to bookend a 5 basis week long gain.

Keep your eyes and ears open for this Thursday’s sale of 30 year Treasury bonds.

At last month’s sale, the awarded 2.790 percent high yield was 12.8 basis points lower than August’s rate and 38 basis points below the two and a half year auction peak for the bond reached in March.

Here is what the 30 year Treasury bond has been doing and this week’s interesting little table:
2006- 4.91
2007- 4.84
2008- 4.18
2009- 3.89
2010- 4.61
2011- 2.89
2012- 2.77
2013- 3.25
2014- 3.97
2015- 2.91
2016- 2.32

What does all this mean?

I don’t know.

The long end of the yield curve as reflected in the 30 year Treasury bond appear to be enervating any splenetic presentiment of a bigly recrudescence in interest rates by being quiescent.


__________________________________________
OFF BASE

Yesterday was Columbus Day.

According to the Federal Reserve, here is our remaining holidays for 2017:
Columbus Day October 9
Veterans Day November 11
Thanksgiving Day November 23
Christmas Day December 25

If anybody criticized you for taking the day off tell that this year Veterans Day falls on a Saturday.

Hopefully they won’t notice that since Veterans Day falls on a Saturday, Friday November 10th is considered a federal holiday.

Monday, September 18, 2017

The SBA and crespuscular

crepuscular
kri-PUHS-kyuh-luhr

1. Relating to or resembling twilight: dim.
2. Active or occurring in twilight, as certain animals.
From Latin crepusculum (twilight), from creper (dusky, obscure).

_____________________________________________
TIP OF THE WEEK 

The SBA has become crepuscular as its fiscal year comes to an end.

Effective September 20th , there will be changes to the conditions that an eligible passive company must satisfy to permit SBA loan proceeds to be used to finance a change of ownership between existing owners of the eligible passive company, along with a clarification of the use of eligible proceeds when an operating company is a co-borrower on the loan.

Effective October 1st, the $0 guaranty fee on 7(a) loans applies only to loans of $125,000 and less

Also effective October 1st are changes to the secondary market pools of the guaranteed portions of SBA 7(a) loans.  Premiums are expected to enervate as a result.


__________________________________________

Indices:
PRIME RATE= 4.25%
SBA LIBOR Base Rate September 2017 =4.23%
SBA Fixed Base Rate September 2017 = 6.19%
________________________________________
SBA 504 Loan Debenture Rate for September   
The debenture rate is only 2.59% but note rate is 2.635% and the effective yield is 4.376%.
 ________________________________________________
AHEAD OF THE YIELD CURVE 

The Federal Reserve meets later this week.  

While they probably won’t raise rates this time, expectations for a rate increase have shifted to more probable than less. The market is currently pricing in a better than 50% chance of a rate increase before the end of 2017, compared with around 30% last week, according to Eurodollar futures  and Fed funds futures.

Inflation has been a key focus for bond investors, because stubbornly low inflation has threatened to stay the Fed’s hand at lifting rates. Rising inflation can chip away a bond’s fixed value, which in turn can spur selling in government paper, pushing yields higher.  At last week’s auction of 30 year Treasury bonds,  results were soft for the monthly 30-year bond auction, where coverage, at 2.21 was the second weakest of the year and the bidding on the sloppy side, taking the high yield up to 2.790 percent.  The awarded 2.790 percent high yield was 12.8 basis points lower than last month's rate and 38 basis points below the two and a half year auction peak for the bond reached in March. Short-term money market rates have risen by roughly 50 basis points since then, reflecting two 25 basis point hikes in the Fed funds rate, but declining price inflation and inflation expectations amid low wage growth during the period have driven down the yields of longer-dated Treasury maturities, flattening the Treasury yield curve in the process.

One of the Fed’s leading indicators on inflation is capacity utilization which measures the amount of a plant that is in use at factories, mines and utilities. 

The Federal Reserve recently reported last week that capacity utilization for August sank to 76.1% in August from 76.9% in the prior month.  This is the biggest decline since May 2009 when the economy was in recession. The Federal Reserve reported that the fall was driven by shrinking output in petroleum refining, mining and plastics, all areas that ostensibly play a big role in Texas’ economy.   Texas of course was nailed by hurricane Harvey.

Here is what capacity utilization rates have done:
1997- 83.6
1998- 83.0
1999- 82.4
2000- 82.6
2001- 77.4
2002- 75.6
2003- 74.6
2004- 79.2
2005- 80.7
2006- 82.4
2007- 81.5
2008- 79.9
2009- 66.9
2010- 74.8
2011- 76.7
2012- 79.0
2013- 77.8
2014- 78.8
2015- 76.5
2016- 75.4
2017- 76.1

What does all this mean?

I don’t know.

Capacity utilization at 76.1 % is 3.8% below the average from 1972 to 2016 and below the pre-recession level of 80.8% in December 2007.  Several analysts have pointed to a rate between 81% and 82% as a tipping point over which inflation is spurred. 

Industry still has plenty of room for improvement more than eight years into an economic expansion

The long end of the yield curve as reflected in 30 year Treasury bond appear to be enervating any splenetic presentiment of a bigly recrudescence in interest rates by being quiescent and Eurodollar futures imply a quiescent Federal Reserve will not estivate.


__________________________________________
OFF BASE
Have you noticed that the crepuscular part of the day is coming earlier and earlier?  

There are currently 12 more minutes of daytime than nighttime but that will all come to an end on the first day of autumn-which is Friday, September 22nd.  


The autumnal equinox is when night and day are roughly equal length.   The equinox happens when the equator passes the centre of the sun. This is when the north and south poles of the Earth are not tilted towards or away from the sun, as at other times, but are aligned so as to give, theoretically, the same amount of daylight in both of the Earth's hemispheres.

After that, the days are shorter than the night.