Monday, July 10, 2017

The SBA and peripatetic

peripatetic
per-uh-puh-TET-ik
1. Moving or traveling from place to place.
2. Of or related to walking, moving, or traveling.
From Latin peripateticus, from Greek peripatetikos, from peripatein (to walk about, to discourse while pacing as did Aristotle), from peri- (around) + patein (to walk).

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TIP OF THE WEEK 

It sounds like we will be peripatetic.  This summer, Americans will spend a total of $101.1 billion on vacations this year, representing a 12.5% increase from 2016, according to projections from the Vacation Confidence Index released Wednesday by insurance company Allianz Global Assistance. This is the first time in the index’s eight-year history that spending has exceeded $100 billion.

That will be welcomed by the hospitality industry.  The U.S. hotel industry reported mixed year-over-year results.  In comparison with the week of 19-25 June 2016, the industry recorded that during the week of 18-24 June, occupancy fell 1.2% to 75.8%, ADR rose 1.1% to $129.73 and RevPAR was mostly flat (-0.1% to $98.31).

Maybe people are eating out instead of staying out.  Driven by improvements in the current situation indicators, the National Restaurant Association’s Restaurant Performance Index (RPI) registered a moderate increase in May.   The National Restaurant Association’s Restaurant Performance Index is a statistical barometer that measures the overall health of the U.S. Restaurant Industry. This monthly composite index is based on the responses to the National Restaurant Association’s monthly Restaurant Industry Tracking Survey, which is fielded among restaurant operators nationwide on a variety of indicators including sales, traffic, labor and capital expenditures.  Although restaurant operators continued to report mixed same-store sales and customer traffic, the results were an improvement over April’s levels.

If you segregate the number of SBA loans by NAICS codes, restaurants are the leading beneficiaries of SBA guaranteed financial assistance.

Please let me know if you would like a copy of the most recent report from the National Restaurant Association on their Restaurant Performance Index.

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Indices:
PRIME RATE= 4.25%
SBA LIBOR Base Rate July 2017 =4.23%
SBA Fixed Base Rate June 2017 = 6.39%
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SBA 504 Loan Debenture Rate for June
The debenture rate is only 2.81% but note rate is 2.858% and the effective yield is 4.596%.
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AHEAD OF THE YIELD CURVE 

If you're reading this on a treadmill or while taking a walk, you may know about the peripatetic, or walking, philosopher Aristotle, who talked and taught while strolling around.

Perhaps the Federal Reserve should adopt a peripatetic approach at their meetings.  

A divided Federal Reserve policy committee couldn’t reach an agreement in June on the timing of when to begin shrinking its massive balance sheet.  Inflation has remained almost continuously below the central bank’s 2 percent target for more than five years.  On the other side of the Fed’s dual mandate, the jobless rate is at a 16-year low and beneath most Fed officials’ estimate of the maximum use of labor resources.

Minutes from the central bank’s June confab underscored growing doubts about the efficacy of the Phillips curve, an economic concept named for the late economist A.W. Phillips, which 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.   But inflation is falling below the Fed’s 2% target range despite unemployment falling.

The jobs picture continues to improve.  

Here is a summary of net payroll employment and this week’s interesting little table of data:
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.

The better-than-expected jobs report offers support to the Federal Reserve’s plan to raise interest rates and begin shrinking its bloated balance sheet as early as September.  Bond investors are paying attention to the timing of reductions to the Fed’s bond holdings, as the prospect of a large buyer of Treasuries leaving the market could lift yields for U.S. government paper, further tightening policy.

Not too much should be read into one month’s report.  June has been the strongest month for job growth over the three previous years, followed by July and November.  This is the 4th consecutive solid job gain in June:  304 thousand in June 2014, 206 in June 2015, 297 thousand in June 2016, and now 222 thousand in June 2017. 

Instead keep your eyes and ears open for this Thursday’s sale of 30 year Treasury bonds.  At last month’s sale, the 2.870 percent high yield was 18 basis points below the awarded yield at April’s auction and 30 basis points below the March peak at 3.170 percent, which was the highest yield since September 2014. The flattening of the U.S. Treasury yield curve continues, with long term yields trending lower despite short term yields steadily rising along with hikes in the Fed Funds rate. 

The day after last month’s bond sale, the Federal Reserve raised its benchmark short-term rate by a quarter percentage point.  On the heels of the Fed’s move was the release of capacity utilization data.    Capacity utilization for the industrial sector edged down 0.1 percentage point in May to 76.6 percent.  This 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.   The next release on capacity utilization comes out on Friday.  The Federal Reserve then meets again two weeks later.

The yield on the 30-year bond saw a weekly jump of more than 10 basis points, marking its largest single-day gain in more than two months on Thursday after the Federal Reserve minutes were released.  On Friday the 30-year Treasury bond’s yield rose 2.2 basis points to 2.925%.

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.

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OFF BASE
I don’t know if our former President was peripatetic but his name sure sounded like it.  Obambulate (o-BAM-byuh-layt) means to walk about.  It is from Latin ob- (to) + ambulare (to walk).

I won’t take the bait and mention the word trumpery.  It means something showy but worthless; nonsense or rubbish; or deceit; fraud; trickery.  It is from the French tromper (to deceive).


That was a paralipsis (par-uh-LIP-sis) which means to draw attention to something while claiming to be passing over it.  That is from the Latin paralipsis, from Greek paraleipsis (an omission), from paraleipein (to leave on one side), from para- (side) + leipein (to leave).

Monday, June 12, 2017

The SBA and boycott

boycott
boi-kot
to combine in abstaining from, or preventing dealings with, as a means of intimidation or coercion
Eponym for Charles Boycott an Irish land agent.  After Boycott refused to reduce Irish farmer’s land rents, they refused to harvest the crops.  

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TIP OF THE WEEK 

No travel boycotts.  The US hotel industry reported positive results during the week of May 21 through the 27th.

Occupancy increased ½ percent while average daily rate and revenues per available room also increased 2.5 and 3 percent respectively compared to the same period a year ago.

Hotels and motels are the single biggest recipients of SBA 7(a) loans based upon total dollars.

Lenders and borrowers are also enthusiastically embracing SBA 7(a) loans as SBA 7(a) loan volume heading into the Memorial Day weekend was up about 8 percent from last year.


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Indices:
PRIME RATE= 4.00%
SBA LIBOR Base Rate June 2017 =4.08%
SBA Fixed Base Rate June 2017 = 6.08%
________________________________________
SBA 504 Loan Debenture Rate for May
The debenture rate is only 2.84% but note rate is 2.888% and the effective yield is 4.625%.
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AHEAD OF THE YIELD CURVE 

China is no longer boycotting US Treasury bonds.  

It appears that China is prepared to increase its holdings of U.S. Treasuries after cutting them by about $200 billion over the course of last year.  Signs of renewed appetite from the biggest foreign owner of Treasuries after Japan may help cushion the $14 trillion Treasuries market as the Federal Reserve debates unwinding its massive bond portfolio and gradually increasing the federal funds rate.

Just before the Federal Reserve meets this week on interest rates, the Treasury Department will auction off more than $84 billion of U.S. government paper, which could drive yields higher.  The new supply would need to be discounted to match the higher-returns of bonds issued after the widely anticipated rate hike.  The proximity of Treasury auctions to the Federal Reserve’s policy meeting on June 13 and June 14, where a rate increase is expected, could encourage a selloff of U.S. government paper.

Keep your eyes and ears open for this week’s $12 billion 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

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 30 year Treasury bonds, the high yield was 3.050 percent.  Since then the 30 year Treasury bond has drifted down to around 2.85 percent, the lowest since President Donald Trump’s election victory on Nov. 8.   The real 30-year yield -- which subtracts the level of inflation based on the core Consumer Price Index -- is hovering near the lowest level since 1980.

The 30 year Treasury auction is Tuesday.  The Federal Reserve meets the next day.

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.

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OFF BASE
A boycott grew to become the American Revolution.

During the French-Indian war, Britain decided that the way to recover its losses was to impose taxes on the colonies with the Stamp Act. This act required the colonists to pay a tax, represented by a stamp on legal documents.  The colonies didn’t like that idea, and were especially offended by their lack of representation during the decision making, leading to the slogan "no taxation without representation."  They fought back by initially boycotting British goods.  The boycotts escalated to rebels terrorizing British stamp agents into resigning. This desire for autonomy led to further revolts, and eventually the American Revolution.


We now celebrate that initial American boycott on the 4th of July which will be here in just a few weeks.  It is on a Tuesday so you may need to boycott work on Monday, July 3rd.

Monday, May 15, 2017

The SBA and pabulum

pabulum
PAB-yuh-luhm
Bland intellectual fare: insipid or simplistic ideas, entertainment, writing, etc.
From Latin pabulum (food, fuel, fodder), from pascere (to feed).

Originally pabulum was something that nourished. During the 1920s, three Canadian pediatricians developed a bland, soft infant formula that was later marketed under the brand name Pablum and eventually the words pabulum/pablum came to refer to things simplistic or banal.


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TIP OF THE WEEK 

The Federal Reserve is reporting a rapid deceleration in the growth of bank loans, a principal source of credit, and thereby fuel for the economy.

Total loans at commercial banks in 2015 and 2016 grew on a year-over-year basis each month by around 8%. But starting at the end of last year, the growth rate has steadily dropped. The latest reading showed that total loans at commercial banks expanded at a rate of only 4.1% in March.

After growing over 23% in fiscal year 2015, SBA 7(a) loan volume stalled in fiscal year 2016 growing only 2.3% from the year before. 

Defying the general overall trend with other loans, SBA 7(a) loan approvals have since grown by about 10%.

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.


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Indices:
PRIME RATE= 4.00%
SBA LIBOR Base Rate May 2017 =3.99%
SBA Fixed Base Rate May 2017 = 6.11%
________________________________________
SBA 504 Loan Debenture Rate for May
The debenture rate is only 2.84% but note rate is 2.888% and the effective yield is 4.625%.
 ________________________________________________
AHEAD OF THE YIELD CURVE 

There is a lot of pabulum out there on what’s going on in the economy.

For a moment it looked like the economy was starting to stall.  The Commerce Department reported that the nation’s gross domestic product – the value of all goods and services produced in the U.S. -- increased at a seasonally adjusted annual rate of only 0.7%, well below the tepid 2.1% pace clocked both in the fourth quarter and as an average throughout the nearly eight-year-old recovery.  This is the slowest pace in three years.

The Federal Reserve then met and decided to leave the fed-funds rate at 0.75% to 1%.   Their policy statement said, “The FOMC views the slowing in growth during the first quarter as likely to be transitory."

Likely to be transitory?

As if on cue, the labor market bounced back in April as employers added 211,000 jobs, providing evidence that weakness the prior month was a blip.  March was even weaker than believed after a downgrade to 79,000 from 98,000.

There does not appear to be any splenetic presentiment over a bigly recrudescence of interest rates.

At Thursday’s auction of 30 year Treasury bonds, the 3.050 percent high yield was 11.2 basis points above the April auction rate but 12 basis points short of the March auction, where the 3.17 percent high yield was the richest since September 2014.

In one sign of investor complacency, the real U.S. 30-year yield -- which subtracts the level of inflation based on the core Consumer Price Index -- is hovering near the lowest level since 1980.

One measure of inflation, the core consumer-price index, which excludes energy and food prices, notched 1.9% growth year on year, up 0.2% for April, and hovering close to the Federal Reserve’s 2% target.

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 that capacity utilization for April edged up to 76%.

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

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

What does all this mean?

I don’t know.

Capacity utilization at 76% 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. 

The Chemical Activity Barometer (CAB), a leading economic indicator created by the American Chemistry Council (ACC), marked the second quarter by posting a robust 5.6 percent year-over-year gain, suggesting continued growth through year-end 2017.  CAB has increased solidly over the last several months, and this suggests an increase in Industrial Production in 2017 as it appears to be a leading indicator for industrial production.

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.

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OFF BASE
Enough of this pabulum.

A three day weekend soon approaches!

According to the Federal Reserve, here is our remaining holidays for 2017:
Memorial Day May 29
Independence Day July 4
Labor Day September 4
Columbus Day October 9
Veterans Day November 11
Thanksgiving Day November 23

Christmas Day December 25

Tuesday, April 11, 2017

The SBA and malingerer

malingerer
(muh-LING-gehr-uhr) 
One who feigns illness in order to avoid work.
From French malingre (sickly).

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TIP OF THE WEEK 

Malingerers thinking they can buy a business should note that the prices of businesses sold as a multiple of either EBITDA or SDE (seller’s discretionary earnings) continue to improve.

According to both the quarterly Pratt’s Stats Private Deal Update and the quarterly IBBA and M&A Source Pulse Survey deal multiples remained at or above 2015 and 2014 levels.

Multiples however do not come close to the 2006 peaks.

If you would like a copy of either the quarterly Pratt’s Stats Private Deal Update or the quarterly IBBA and M&A Source Pulse Survey please let me know.

SBA loans are well suited for business acquisition financing.

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Indices:
PRIME RATE= 4.00%
SBA LIBOR Base Rate April 2017 =3.98%
SBA Fixed Base Rate April 2017 = 6.13%
________________________________________
SBA 504 Loan Debenture Rate for March
The debenture rate is only 3.04% but note rate is 3.09% and the effective yield is 4.827%.
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AHEAD OF THE YIELD CURVE 

Not a lot of malingerers in the economy as the employment rate continued to fall and the employment participation rate held steady for the month of March.

U.S. payroll gains appeared to slow in March according to the Labor Department on Friday.  Only 98,000 new jobs were created last month.  The change in total nonfarm payroll employment for January was revised down from +238,000 to +216,000, and the change for February was revised down from +235,000 to +219,000. With these revisions, employment gains in January and February combined were 38,000 less than previously reported.

The apparent drop in March was because it was too cold outside.  Hiring tends to show large swings around weather disturbances, and the March report has two such issues to contend with: a storm during the payrolls survey week that dumped 10 to 20 inches over a large swath of the Northeast, and more-seasonal temperatures after an unusually warm February.

Right after the jobs report came out, yields for the 30-year Treasury bond fell 3.2 basis points to 2.958%.

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

What does all this mean?

I don’t know.

Last month’s auction of the 30 year Treasury bond ended up with a 3.170 percent high yield that was the highest awarded at auction since September 2014 and 16.5 basis points above the previous month's 30-year bond auction rate.

Minutes from the Federal Reserve Open Market Committee indicated after their last meeting that most participants anticipated that gradual increases in the federal funds rate would continue.

The long end of the yield curve as reflected in the 30 year Treasury bond appear to be enervating such splenetic presentiment by being quiescent.

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OFF BASE
You don’t have to be a malingerer to take this Friday off.
It is Good Friday.  I don’t why the Federal Reserve does not recognize Good Friday as a bank holiday.
It should as its existence can be tied in some ways to Good Friday itself.  
While Good Friday isn't a federal holiday, it is a stock market and bond market holiday.  After being usually closed on Good Friday, 1907 was the final year in which the exchange was open on Good Friday.
That last one was the same year as the infamous Panic of 1907, when the total value of all Big Board stocks plunged by more than a third.   
Traders took it as a sign from God that he didn’t want the exchange open.
By November 1907, the aggregate value of all shares on the NYSE had plunged 37 percent, and at least 25 banks and 17 trust companies collapsed
The crisis ultimately prompted the creation of the Federal Reserve system.

So what is Good Friday?
The day marks the crucifixion and death of Jesus Christ.  How could that possibly be considered good?  
Many believe this name simply evolved—as language does. Originally it was called "God's Friday."
This seems a reasonable conjecture, given that "goodbye" evolved from "God be with you."

Goodbye.