Monday, January 11, 2021

The SBA and PROtract

protract

pro-trakt

1: to prolong in time or space : CONTINUE

2: to extend forward or outward

 

From Latin protractus, past participle of protrahere, literally, to draw forward, from pro- forward + trahere to draw

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TIP OF THE WEEK

 

The Paycheck Protection Program (PPP) has been has been protracted in protean ways.  This propugnaculum for small business will re-open the week of January 11 for new borrowers and certain existing PPP borrowers.


There is also a propitious promulgation that all borrowers with qualifying loans approved by the SBA prior to the CARES Act will receive an additional three months of P&I, starting in February 2021. Going forward, those payments will be capped at $9,000 per borrower per month.  After the three-month period described above, borrowers considered to be hardest-hit by the pandemic will receive an additional five months of P&I payments, also capped at $9,000 per borrower per month.

 

SBA payments of P&I on the first 6 months of newly approved loans will resume for all loans approved between February 1 and September 30, 2021, also capped at $9,000 per month.

 

Lender and borrower fees for both the 7(a) and 504 loan programs through September 30, 2021 are waived.  For 7(a) this includes the up-front guaranty fee and the ongoing fee.

 

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Indices:

PRIME RATE= 3.25%

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SBA 504 Loan Debenture Rate for January

For 20 year debentures, the debenture rate is only 1.18% but note rate is 1.207% and the effective yield is 2.496%.

For 25 year debentures, the debenture rate is only 1.28% but note rate is 1.299% and the effective yield is 2.540%.

_______________________________________________

AHEAD OF THE YIELD CURVE

 

Protracted profligacy continues as in December the year-over-year change in employment was a negative 9.37 million jobs.

 

Total combined jobs created in 2017, 2018 and 2019 totaled 6.9 million.

 

The overall picture, however, was uneven, as private-sector job losses were concentrated in service.  For the month of December there was a 498,000 drop in leisure and hospitality.

 

Employment in goods-producing sectors, on the other hand, was up 93,000, including a 38,000 gain in manufacturing.

 

Keep your eyes and ears open for this week’s report on Industrial Production and Capacity Utilization from the Federal Reserve.

 

Here is what capacity utilization has been doing and this week’s interesting little table of data:

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- 76.2

2018- 78.5

2019- 77

2020- 72.7

 

What does all this mean?

 

I don’t know.

 

In November capacity utilization crawled up to 73.3 percent.  Back in April it was at an all-time low of 64.9 percent.

 

If this pace doesn't improve, it will be well into next year if not longer before the industrial economy will finally make up Covid's destruction.

 

The long end of the yield curve implies that the pace may indeed improve.   Also keep your eyes and ears open for this week’s auction of the 30 year Treasury bond.

 

At last month’s auction of $24 billion in 30 year Treasury bonds, the high yield was 1.665%.  The yield is now up to 1.877%.


The yield curve is getting steeper.

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OFF BASE

 

As the calendar turns to a new year, a three day weekend already approaches!

The Federal Reserve has promulgated that these are our holidays for 2021:

Birthday of Martin Luther King, Jr. January 18 

Washington's Birthday February 15 

Memorial Day May 31 

Independence Day July 4 

Labor Day September 6 

Columbus Day October 11 

Veterans Day November 11 

Thanksgiving Day November 25 

Christmas Day December 25

 

Monday, December 14, 2020

The SBA and PROpugnaculum

 propugnaculum

praw-puhg-NAK-yuh-luhm

A fortress; defense; protection.

From Latin propugnaculum (bulwark), from propugnare (to fight in defense of something), from pro- (toward) + pugnare (to fight), from pugnus (fist).

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TIP OF THE WEEK

 

Propugnaculums proliferate in protean ways with SBA 7(a) loans.  Almost $400,000,000 in SBA 7(a) loans were approved in just the one week period ending December 4th.    About half those loans were to existing businesses and about 22 percent were for business acquisitions.   The rest were to new businesses.

 

Don’t go procumbent however with the not so propitious promulgation regarding the tax issues for payments made by the SBA for existing 7(a) borrowers that prompted procellous proditomania.   Lenders are required to issue forms 1099-MISC.

 

In addition, The U.S. Treasury Department and Internal Revenue Service had also released guidance on the Paycheck Propugnaculum Program (PPP) that since businesses are not taxed on the proceeds of a forgiven PPP loan, the expenses are not deductible.

 

If a business reasonably believes that a PPP loan will be forgiven in the future, expenses related to the loan are not deductible, whether the business has filed for forgiveness or not.

 

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Indices:

PRIME RATE= 3.25%

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SBA 504 Loan Debenture Rate for December For 20 year debentures, the debenture rate is only 1.11% but note rate is 1.13% and the effective yield is 2.427%.

For 25 year debentures, the debenture rate is only 1.21% but note rate is 1.228% and the effective yield is 2.471%.

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AHEAD OF THE YIELD CURVE

 

The prodigious and promethean propugnaculums attempted by the government may have been profligate.

 

Initial jobless claims soared with a 137,000 increase, reaching 853,000 in the week ended December 5.

 

No larger increase had been recorded since the week ended March 28, when the impact of the pandemic on claims was at its highest.

 

There was a clear slowdown in hiring activity as reflected in the jobs report for November.

 

For what it is worth, Here is a summary of net payroll employment and this week’s interesting little table of data:

November  245,000

October  610,000

September 711,000

August   1,489,000

July         1,761,000

June      4,791,000

May       2,725,000

April       -20,700,000

March     -1,400,000

February  275,000

January   214,000

2019     2,108,000

2018      2,679,000

2017      2,110,000

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.

 

Last week’s Treasury sale of 30 year bonds was very strong.

 

The incredibly spiking US national debt has soared by $3.75 trillion since March 1, powered by stimulus and bailouts, and by $4.2 trillion over the past 12 months, to $27.3 trillion.

 

Despite this, the 30 year auction saw a high yield of only 1.665% which is 1.5 basis points below last month’s auction rate.

 

It is a propitious time for prospicient borrowers.

 

 

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OFF BASE

 

What is the propugnaculum for these times?

 

We might want to remember the following from John Barry’s “The Great Influenza”:

 

“The 1918 virus, like all influenza viruses, like all viruses that form mutant swarms, mutated rapidly.  There is a mathematical concept called reversion to the mean; this states simply that an extreme event is likely to be followed by a less extreme event. This is not a law, only a probability.  The 1918 virus stood at an extreme; any mutations were more likely to make it less lethal than more lethal. In general, that is what happened.  Just as it seemed that the virus would bring civilization to its knees, as it would do what the plagues of the Middle Ages had done, would remake the world, the virus mutated toward its mean, toward  the behavior of most influenza viruses.  As time went on, it became less lethal.”

 

If the past is indeed prologue, that’s one prognosis.

 

Monday, December 21st is the darkest and longest night of the year- the Winter Solstice.   After that the days begin to get longer and the hope and promise of Spring approaches.

Monday, November 9, 2020

The SBA and PROsaic

 prosaic

pro-ZAY-ik

1. Dull; unimaginative.

2. Everyday; straightforward; ordinary.

3. Having the character of prose as compared to the feeling of poetry.

 From Latin prosa (prose), from prosa oratio (straightforward speech), from provertere (to turn forward).

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TIP OF THE WEEK

 The prosaic proliferating promulgations in the new SOP 50-10-6 (SOP is an acronym for Standard Operating Procedures) has a credit elsewhere test.

 Although a personal resources test was rescinded by CARES Act as of March 27, 2020, lenders are still required to determine that some or all of the loan is not available from the liquidity of the applicant or its owners.

 Lenders may want to use the rescinded personal resources test as a means of determining availability of liquidity.

 __________________________________________

 Indices:

PRIME RATE= 3.25%

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SBA 504 Loan Debenture Rate for November For 20 year debentures, the debenture rate is only 1.05% but note rate is 1.07% and the effective yield is 2.364%.

For 25 year debentures, the debenture rate is only 1.14% but note rate is 1.15% and the effective yield is 2.399%.

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AHEAD OF THE YIELD CURVE

 

A protean Federal Reserve released a prosaic statement on monetary policy virtually repeating the text of its September statement.

 Reflecting a procellous prolepsis they said that economic activity and employment "continued to recover", which is less upbeat perhaps versus "have picked up" in their September statement.

 Keep your eyes and ears open for this week’s auction of 30 year Treasury bonds.  At last month’s auction, results were soft with the high yield at 1.578%.

 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

2017- 3.16

2018- 3.13

2019- 2.594

2020- 1.216

 

What does all this mean?

 

I don’t know.

 The recent rise in yields has prevented indigestion associated with new issuance, but investors say Treasuries may need to cheapen further to whet the appetite of bond buyers ahead of rising federal budget deficits.

 The auction amount has increased over 30% to $27 billion due to higher borrowing needs.  Last month’s auction was $23 billion.

 It is a propitious time for prospicient borrowers.

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OFF BASE

 Author F. Scott Fitzgerald was never prosaic.   One of his quotes is perhaps appropriate for these times:

 “The test of a first-rate intelligence is the ability to hold two opposed ideas in mind at the same time and still retain the ability to function.”

 If you are having trouble functioning right now, go ahead and take Wednesday off.  It’s a holiday.

 The Federal Reserve has promulgated that these are our remaining holidays for 2020:

Veterans Day November 11

Thanksgiving Day November 26

Christmas Day December 25

 We can’t quite yet prorogue 2020.

Monday, October 5, 2020

The SBA and PROpitious

 propitious

pruh-PISH-us

favorably disposed : benevolent

being a good omen : auspicious

tending to favor : advantageous

from the Latin word propitius, is a synonym of favorable and auspicious. All three essentially mean "pointing toward a happy outcome,"

Propitious may also apply to beginnings, but it often suggests a continuing promising condition

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TIP OF THE WEEK

The recently approved Continuing Resolution (CR) to extend current government funding levels through December 11 is propitious for SBA 7(a) loans.

This CR includes $15 million in appropriations to support $30 billion of authorization for the 7(a) program for FY2021 which should be sufficient for 7(a) volume without concern for insufficient funding or authorization.

Proliferating promulgations to PPP, Section 1112 payment extensions, and 7(a) enhancement provisions procrastinate as we approach the general election.

On October 2nd, SBA issued Notice 5000-20057, Paycheck Protection Program Loans and Changes of Ownership.  This notice provides guidance for “changes of ownership” in situations where the borrower has a PPP loan.

The notice makes clear that even after any change of ownership, the PPP borrower remains fully responsible for ALL requirements related to the PPP loan.  An escrow account controlled by the PPP Lender with funds equal to the outstanding balance of the PPP loan prohibits profligacy.

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Indices:

PRIME RATE= 3.25%

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SBA 504 Loan Debenture Rate for September For 20 year debentures, the debenture rate is only 1.05% but note rate is 1.07% and the effective yield is 2.366%.

For 25 year debentures, the debenture rate is only 1.15% but note rate is 1.167% and the effective yield is 2.410%.

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AHEAD OF THE YIELD CURVE

 

It is a propitious time for prospicient borrowers.

The probative on interest rates will be apparent with this Wednesday’s  prolegomenon from the Federal Reserve’s last meeting on monetary policy.  Procellous proditmania proliferates across the yield curve.

Also keep your eyes and ears open for this week’s auction of 30 year Treasury bonds.  At last month’s auction, results were solid with the high yield of only 1.473 percent.   The average high yield over the last year was ½ percent higher.

So what’s the prognosis on interest rates?

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:

DEC20-0.25

DEC21- 0.22

DEC22- 0.28

DEC23- 0.42

DEC24- 0.62

DEC25- 0.83

 

What does all this mean?

I don’t know.

The Federal Reserve has been very protean.

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OFF BASE

 

With everything going on, take a break next Monday.

 

The Federal Reserve has promulgated that these are our remaining holidays for 2020:

Columbus Day October 12

Veterans Day November 11

Thanksgiving Day November 26

Christmas Day December 25

 

We can’t quite yet prorogue 2020.

Monday, September 14, 2020

The SBA and PROwess

 prowess

PROU-is

Superior skill, ability, strength, etc.

From Middle French prou (valiant), from Old English prud. Earliest documented use: 1300.

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TIP OF THE WEEK

Proliferating prodigious promulgations can prompt SBA lending prowess to be profligate.

The new version of the SBA Standard Operating Procedures SOP 50-10-6 will be effective October 1st.

A change of ownership is now a new authorized purpose for International Trade Loans.  That means possibly a business acquisition loan could have a 90% guaranty from the SBA.

The SBA Office of International Trade has indicated that to qualify the BUYER must meet International Trade eligibility.   Being adversely impacted by import competition cannot be used as a basis for eligibility with an International Trade Loan for change of ownership.   A change of ownership between existing owners of the Applicant is also NOT eligible as an International Trade Loan.

Hotels and motels, NAICS Industry Subsector Code 721 (Accommodation), are also NO LONGER eligible as an International Trade Loan.

The point here is to not be too fancy with this new provision.  As John Wooden once proclaimed “If you keep too busy learning the tricks of the trade, you may never learn the trade.”

__________________________________________

 Indices:

PRIME RATE= 3.25%

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SBA 504 Loan Debenture Rate for September For 20 year debentures, the debenture rate is only 1.05% but note rate is 1.07% and the effective yield is 2.366%.

For 25 year debentures, the debenture rate is only 1.15% but note rate is 1.167% and the effective yield is 2.410%.

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AHEAD OF THE YIELD CURVE

 

Don’t mistake activity for achievement.  That’s another John Wooden pronouncement.

Last month’s apparent increase in jobs may be like Sisyphus rolling his rock up the hill only for it to roll back down when it nears the top.

About ¼ of the monthly gain in total payrolls was the hiring of temporary 2020 Census workers.  In August, the year-over-year change was negative 10.25 million jobs.

Breaking down payroll gains, manufacturing added only 29,000 jobs in August.

Keep your eyes and ears open for this week’s report on Industrial Production and Capacity Utilization from the Federal Reserve.

Here is what capacity utilization has been doing and this week’s interesting little table of data:

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- 76.2

2018- 78.5

2019- 77

2020- 72.7

 

What does all this mean?

 

I don’t know.

 

Last month capacity utilization rose 2.1 percentage points to 70.6%.  This is 9.2 percentage points below the long run average.   Back in April it was at an all-time low of 64.9 percent.

 

American manufacturing prowess had gone procumbent over a year ago.  It was already declining in 2019 as reflected in the drop in capacity utilization in the above chart.

 

It marked the worst year for manufacturing since 2015 as the trade war and lackluster global growth hurt America’s industrial economy.

 

Procellous proditmania proliferates but the past is indeed prologue.

 

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OFF BASE

 

Those John Wooden quotes were inspired by my recent reading of his “They Call Me Coach”.

 

His basketball coaching prowess may be overshadowed by some of his aphorisms such as:

 

Things turn out best for the people who make the best of the way things turn out.

 

Do not let what you cannot do interfere with what you can do.

 

It's what you learn after you know it all that counts.

 

Ability may get you to the top, but it takes character to keep you there.

 

If you’re true to yourself, you’re going to be true to everyone else.

 

That last one truly defines probity.

Monday, August 10, 2020

The SBA and PROspero

 Prospero

PROS-puh-roh

Someone who is capable of influencing others' behavior or perceptions without their being aware of it.

 

After Prospero, the deposed Duke of Milan and a magician, in Shakespeare's The Tempest.

 _____________________________________________

TIP OF THE WEEK

 

Wait, someone can influence us without us being aware of it?


The economy had gone procumbent before the pandemic panic.


Like the slope of the yield curve, SBA 7(a) loan approval volume has been prospicient about the direction of the economy.


For the fiscal year ending September 30th, 2018 SBA 7(a) loan volume declined 0.3% while for the last fiscal year ending September 30th, 2019 it was off 9%.


Through February of 2020 it was 10% lower than the similar year ago period.   Distracted by the promethean and profligate Paycheck Protection Program SBA 7(a) loan volume is now off 14% compared to a year ago.

 

Just for fun I calculated the correlation coefficient between SBA 7(a) loan volume and GDP for over nine years using the Microsoft CORREL function.  It came out to a statistically significant 0.86.

As SBA reiterated with SBA Policy Notice 5000-20011, if a potential 7(a) borrower is not operational, no disbursement on their loan can be made until they begin operating again.

According to economists at the National Bureau of Economic Research it was NOT government shutdowns and lockdowns that caused the COVID-19 pandemic panic.  Instead the public’s fear of infection is a stronger influence.

These economists conclude that repealing restrictions is not a particularly powerful tool for restarting growth so long as individuals continue to fear infection.

If you would like a copy of the NBER working paper, FEAR, LOCKDOWN, AND DIVERSION: COMPARING DRIVERS OF PANDEMIC ECNOMIC DECLINE 2020, let me know.

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Indices:

PRIME RATE= 3.25%

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SBA 504 Loan Debenture Rate for August

For 20 year debentures, the debenture rate is only 0.90% but note rate is 0.917% and the effective yield is 2.214%.

For 25 year debentures, the debenture rate is only 1.01% but note rate is 1.025% and the effective yield is 2.269%.

_______________________________________________

AHEAD OF THE YIELD CURVE

 

Another 1.763 million jobs were added back to the economy for the month of July.

 

Or were they?

 

The mild improvement in hiring was a bit weaker than it appeared. The government’s process of seasonal adjustments showed an exaggerated increase in school employment.

 

Many school workers such as bus drivers and cafeteria workers who would normally be laid off in July were sent home after schools closed early in the spring. The government’s normal process of seasonal adjustments made it look like hiring rose simply because those layoffs did not take place in July as usual.

 

The seasonal adjustment is estimated with past data. The problem is what happens when the seasonal pattern is thrown off by something like, you know, a pandemic

 

This year the seasonal adjustment factor added 1.12 million jobs in July.  These are not real jobs but just on paper.

 

The true payroll number is much, much closer to zero.

 

For what it is worth, Here is a summary of net payroll employment and this week’s interesting little table of data:

 

June      4,791,000

May       2,725,000

April   -20,700,000

March    -1,400,000

February  275,000

January   214,000

2019     2,108,000

2018     2,679,000

2017     2,110,000

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 number of employed, at 143.5 million, is still 15.3 million below February in what will be a widely cited assessment of this report and the general status of recovery for the labor market.

 

The U.S. shed more than 22 million jobs during the height of the pandemic. So far it’s only restored about 9.3 million, leaving more than half of the Americans who lost their jobs in the lurch.

 

What’s more, an even larger 31 million people were collecting unemployment benefits in mid-July based on the most recent numbers available.

 

Keep your eyes and ears open for this week’s auction of 30 year treasury bonds.

 

The auction amount has increased over 30% to $26 billion due to higher borrowing needs.  At last month’s auction, the high yield was awarded at 1.330 percent, down 12 basis points from last month's auction rate and just a basis point above the record low set in March.

 

Procellous proditmania proliferates.

 

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OFF BASE

 

While Prospero is the main character in Shakespeare’s The Tempest, the play’s most famous quote is from his scheming brother Antonio when he states: "What's past is prologue".

 

What’s past is prologue is the idea that history sets the context for the present. The quotation is engraved on the National Archives Building in Washington, DC.

 

Past is indeed prologue as pandemics and plagues have raged throughout history.  Shakespeare’s greatest works happened as the plagues decimated London, Thucydides wrote the Peloponnesian War during the Athenian Plague and Hemingway while quarantined during the Great Influenza wrote The Sun Also Rises.

Monday, July 6, 2020

The SBA and PROsopography


Prosopography
pros-uh-PAH-gruh-fee
A study of people in a group, identifying patterns, connections, etc.: a collective biography.

From German Prosopographie, from Latin prosopographia, from Greek prosopon (face, mask), from pros- (facing) + ops (eye) + -graphy (writing).


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TIP OF THE WEEK

The prosopography of SBA borrowers and lenders proliferates with protean promulgations.

A Promethean $342,277,999,103 in round 1 of the Payroll Protection Program disappeared seemingly overnight with a profligate lack of being prospicient.

Proditomania with round 2 of PPP caused an extension of the covered period from 8 weeks to 24 weeks and an extension of PPP availability until August 8th.

Last week it was also announced that the California Infrastructure and Economic Development Bank is providing a Disaster Relief Loan Guarantee Program even if a small business borrower had previously obtained a PPP loan or a SBA Economic Injury loan.

__________________________________________

Indices:
PRIME RATE= 3.25%
________________________________________
SBA 504 Loan Debenture Rate for June
For 20 year debentures, the debenture rate is only 1.21% but note rate is 1.23325% and the effective yield is 2.528%.
For 25 year debentures, the debenture rate is only 1.34% but note rate is 1.35995% and the effective yield is 2.602%.
_______________________________________________
AHEAD OF THE YIELD CURVE

The prosopography of the Federal Reserve Board is protean.

Take for example its recent discussion on adopting a yield curve control policy as reflected in its minutes from its last meeting on monetary policy.

Combining a yield-curve-control policy with large-scale asset purchases is not without precedent.

In early 1942, shortly after the United States declared war, the Fed effectively abdicated its responsibility for monetary policy despite its concern about inflation and focused instead on helping the Treasury finance the conflict.

The Fed would maintain a yield curve that was both low and relatively steep. The low rates kept the Treasury’s borrowing costs down, while a firmly harnessed term structure convinced investors that waiting for higher yields was pointless and that the risk of capital loss from holding longer-term securities was small.

The policy was successful in terms of managing the yield curve, and that’s certainly good news for central banks today.  The Fed’s wartime operations, however, proved dangerously difficult to reverse once the war had passed. Yield-curve control gave the Treasury substantial influence over monetary policy and highlighted the major effect that monetary policies had on the cost of financing the government’s huge debts.

Keep your eyes and ears open for this Thursday's $19 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
2017- 3.16
2018- 3.13
2019- 2.594
2020- 1.216

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, results were soft causing the yield to rise to 1.450%.  This was 10.8 basis points higher than May's auction and 12.2 basis points above the record low posted in March.

A little proditomania is prompting the Federal Reserve to be protean.


__________________________________________
OFF BASE

Dr. Anthony Fauci used our word "protean" in a news conference on June 26, 2020.

For those of you that don't remember what protean means, it means assuming many forms: variable.   If this is starting to come back to you it was our word for the month back in October.

Dr. Fauci’s actual comment was "I have never seen anything that is so protean in its ability to make people sick or not" as coronavirus.

Let me know if you hear him mention prosopography or proxemics.

Monday, June 8, 2020

The SBA and PROxemics


Proxemics
prok-SEE-miks
The study of physical proximity between people, for example, typical space between two friends.
From proximity (nearness), from Latin proximus (nearest)

_____________________________________________
TIP OF THE WEEK

Proxemics prognosticates profligacy.

A proxemic look at a small business model should coincide with an analysis of small business EBITDA on BC DC PC basis.

BC is Before Covid, DC is During Covid and PC is Post Covid.   The DC period is currently the months of April and May.

Equally weighting BC and DC EBITDA and then regressing to the mean would be prospicient of PC prospects.

A SBA 7(a) could make sense as borrower payments of principal and interest are paid by SBA for the next six months assuming that the loan closes prior to September 27, 2020.

Keep in mind that while the PPP Flexibility Act extends the “covered period” to December 31, 2020 SBA will not be able to approve any new PPP loans after June 30, 2020.

__________________________________________

Indices:
PRIME RATE= 3.25%
________________________________________
SBA 504 Loan Debenture Rate for May
For 20 year debentures, the debenture rate is only 1.37% but note rate is 1.396% and the effective yield is 2.688%.
For 25 year debentures, the debenture rate is only 1.50% but note rate is 1.521% and the effective yield is 2.761%.
_______________________________________________
AHEAD OF THE YIELD CURVE

As proxemic promulgations proliferated, $342,277,999,103 in round 1 of the Payroll Protection Program trickled down to only 2.5 million jobs being added back to the economy for the month of May.

The math does not add up as average hourly earnings was $29.75 with the average work week being 34.7 hours.  For 2.5 million jobs that would mean about $10 billion in monthly payroll.  That’s a long ways off from the hundreds of billions with PPP.

What the employment results do for the economic outlook are uncertain as they were not at all signaled by initial jobless claims which have been continuing to rise by the millions each week.   Initial jobless claims remain enormously high though they do continue to slow, to 1.877 million in the May 30 week. Since mid-March when virus effects first started to hit the labor market, nearly 43 million Americans have filed initial claims.

It will be interesting to hear what the Federal Reserve will have to say.  Keep your eyes and ears open for their announcement after their two day meeting on monetary policy ends on Wednesday.

So what’s the prognosis on interest rates?

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:
DEC20-0.335
DEC21- 0.315
DEC22- 0.480
DEC23- 0.705
DEC24- 0.93
DEC25- 1.155

What does all this mean?

I don’t know.

The yield curve is getting steeper.  Last week the 30 year Treasury bond hit a 21/2 month high.  On Thursday the Treasury will auction $19 billion in 30 year Treasury bonds.

May’s 30 year auction had a high yield of 1.342 percent, which was 1.7 basis points above last month's rate and 2.2 basis points higher than the record low posted in the March auction.

A wider gap, or steeper yield curve, can reflect when investors are anticipating economic growth and inflationary pressures.

At the same time, the yield-curve steepening could reflect growing expectations that the Federal Reserve will enact some type of yield-targeting policies like those seen in Japan. Such measures can steepen the yield curve by fixing short-term rates at a low level through bond purchases.

A little proditomania is prompting the Federal Reserve to be protean.


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OFF BASE

In 1963, Edward T. Hall coined the term “proxemics” to describe the perception of the physical space around us.

Often referred to as personal space, proxemics is the amount of distance that people are comfortable putting between themselves and others.

Examples of proxemics are all around us: The armrest that separates us from the person sitting next to us at the theater; park benches that face the same direction and let us sit like birds on a wire; coffee shops with furniture arranged in intimate settings. The list goes on.

Many businesses are aware of proxemics and the science of space, and they use this knowledge to create spaces that sell product.

Now proxemics comes into play for more than just selling products.

Monday, May 11, 2020

The SBA and PROsopagnosia


PROsopagnosia
pros-uh-pag-NO-see-uh
Inability to recognize familiar faces.
From Greek prosopon (face, mask), from pros- (near) + opon (face), from ops (eye) + agnosia (ignorance).

Prosopagnosia is also known as face blindness.  People suffering from it cannot recognize familiar faces, even their own. A book on this and related topics is neurologist Oliver Sacks's "The Man Who Mistook His Wife for a Hat.”
Prosopagnosiacs' motto: We don't take people at face value.

_____________________________________________
TIP OF THE WEEK

Selective prosopagnosia may proliferate among borrowers and their lenders over the profligate Paycheck Protection Program (PPP).

Initial profligacy is now prompting subsequent probity with many borrowers wondering what they got into.   The barrage of interim final rule notifications from SBA totaled 10 at last count along with 43 Frequently Asked Questions.

FAQ 43 indicates that SBA is extending the repayment date for a safe harbor to May 14, 2020 for a possible mis-certification on the Borrower Application Form.

The most recent interim final rule that came out on May 10th indicates that SBA will still provide the safe harbor until May 14th.

This most recent interim final rule also extends the lender 1502 reporting date for PPP loans to May 22, 2020.  PPP loans will have a specific 1502 report for lenders.

Lost in the fine print is the borrower certification that loan proceeds will be used ONLY to retain workers and maintain payroll or make mortgage interest payments, lease payments, and utility payments, as specified under the Paycheck Protection Program Rule; if the funds are knowingly used for unauthorized purposes, the federal government could hold him legally liable, such as for charges of fraud.

Does that mean if a borrower used a portion of the proceeds for a past due invoice on a payable or inventory purchase, that’s unauthorized and fraudulent in the eyes of the SBA?

The Office of the Inspector General in their Flash Report 20-14 released last Friday has determined that  “tens of thousands of borrowers” who participated in the first round of funding will not be eligible for loan forgiveness.

Other alternatives still include the SBA 7(a) loan for borrowers that were viable prior to the COVID-19 disaster declaration.   In addition, the state of California has a disaster relief loan guarantee program that provides lenders up to a 95% guaranty.

__________________________________________

Indices:
PRIME RATE= 3.25%
________________________________________
SBA 504 Loan Debenture Rate for May

For 20 year debentures, the debenture rate is only 1.37% but note rate is 1.39% and the effective yield is 2.68%.
For 25 year debentures, the debenture rate is only 1.50% but note rate is 1.52% and the effective yield is 2.761%.
_______________________________________________
AHEAD OF THE YIELD CURVE

The coronavirus pandemic destroyed 20.5 million U.S. jobs in April, and  GDP, the official scorecard for economic growth, shrank at a 4.8% annualized pace in the first quarter.

Watch out for the “annualization” of data, which ordinarily serves a useful purpose when analyzing numbers. Annualizing a monthly or quarterly number tells you what the real annual change would be if it changed at that monthly or quarterly pace all year long.

The formula for calculating an annual rate from quarterly numbers involves dividing the current quarter’s GDP by the previous quarter’s, taking the result to the fourth power and subtracting by one.   Got that?

You can approximate the result pretty well by multiplying the quarterly percentage change by four.

But that is not precisely right.  If you were to increase by 5 percent for four quarters in a row, the annualized number would be 21.6 percent, not 20 percent.

Suppose that the shutdown causes output to be 15 percent lower in the second quarter than in the first.  In annualized terms- that would mean that GDP fell at an astounding 47.8 percent rate.

But that does not mean that nearly half the economy has vanished.

So far on just a pure quarter to quarter change the decline was 0.89%.  Real GDP is 1.2% below the pre-recession peak.

Keep your eyes and ears open for Friday’s report on Industrial Production and Capacity Utilization from the Federal Reserve.

Here is what capacity utilization has been doing and this week’s interesting little table of data:

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- 76.2
2018- 78.5
2019- 77
2020- 72.7

What does all this mean?

I don’t know.

Capacity utilization for the industrial sector decreased 4.3 percentage points to 72.7 percent in March as many factories were forced to suspend operations late in the month.  The drop that will be reported on Friday will reflect a full month of interruption to some factories.

On Wednesday, the government will sell $22 billion in 30-year bonds.  So far the Treasury Department has had little problem selling the deluge of debt. For an auction of $17 billion in 30-year bonds in early April, the Treasury saw twice as much in bids as it had debt to sell. At the other end of the yield curve, $60 billion in three-month bills sold last week attracted three times as much in bids.

The Fed is easing the burden somewhat, having bought roughly $1.3 trillion of Treasuries since mid-March.

Prognostication right now with procellous proditmania proliferating can be profligate.


__________________________________________
OFF BASE

Prosopagnosia probably is proliferating right now with the promulgation on Procrustean mask wearing.   Or in my case, the growing of a quarantine beard.

Any proroguing on masks is not prospicient and should prompt some inner probity.

It is also nothing new.   During the Influenza pandemic 100 years ago San Francisco required that people wear masks anytime out in public.   People complained and even an Anti-Mask League was formed.

The word quarantine comes from quarantena, meaning "forty days", designating the period that all ships were required to be isolated before passengers and crew could go ashore during the Black Death plague epidemic in 14th Century Italy.

History has a way of repeating itself.  You might want add to your reading list The Great Influenza by John M. Barry.

Monday, April 6, 2020

The SBA and PROcrastinate


PROcrastinate
pro·cras·ti·nate

to put off intentionally and habitually
to put off intentionally the doing of something that should be done 

from Latin procrastinat- ‘deferred till the morning’, from the verb procrastinare, from pro- ‘forward’ + crastinus ‘belonging to tomorrow’ (from cras ‘tomorrow’).

Procrastination is not simply the act of deferral or postponement. It implies an intentional avoidance of important tasks, putting off unpleasant responsibilities that one knows should be taken care of right away and setting them on the back burner for another day.

_____________________________________________
TIP OF THE WEEK

Borrowers and lenders may want to procrastinate with the Promethean Paycheck Protection Program (PPP).

Borrower profligacy prompts lender probity.  Prospicient prodnosing proliferates after a not so prodigious promulgating prolegomenon.

The loan, based upon 2.5 times average monthly payroll prior to February 15, 2020, requires that the loan proceeds be used to support at least eight weeks of that payroll (75% of the loan amount).  If not the loan will NOT be forgiven.

If the loan is not forgiven, the borrower has a 1% interest rate for two years.  The loan accrues interest during an initial six month deferral period.  Payments can be deferred for one year.

Most small businesses will probably not seek or qualify for the loan forgiveness.  If they eventually default on the loan, even with no collateral or personal guarantee, they will be ineligible for future SBA financial assistance.

Lenders should be concerned about how they can participate in this critically important program when their cost of funds is higher than the proposed maximum interest rate.

The SBA Economic Disaster Injury Loan (EIDL) provides the opportunity for a $10,000 advance.  This is a direct loan from the SBA.

To apply for the Advance, you must submit a new application even if you previously submitted an EIDL application. Applying for the Advance will not impact the status or slow your existing application.
New Economic Injury Disaster Loan Applicants using the new streamlined online application may request the $10,000 Loan Advance in the application.


__________________________________________

Indices:
PRIME RATE= 3.25%
________________________________________
SBA 504 Loan Debenture Rate for March
For 20 year debentures, the debenture rate is only 1.49% but note rate is 1.518% and the effective yield is 2.808%.
For 25 year debentures, the debenture rate is only 1.62% but note rate is 1.643% and the effective yield is 2.881%.
_______________________________________________
AHEAD OF THE YIELD CURVE

The Federal Reserve did not procrastinate on monetary policy.

In an extraordinary move, the Federal Reserve dropped its benchmark interest rate to zero in response to the growing threat from the coronavirus outbreak.

That was on a Sunday March 15th just two weeks after having previously reduced rates by ½ percent after another unscheduled emergency meeting.

The last time the Fed cut interest rates on an emergency basis between its regular policy meetings was on October 8, 2008.

Keep your eyes and ears open for Wednesday’s release of the minutes from that Federal Reserve meeting.  It should make for some very interesting reading.

Employers also did not procrastinate.

The economy lost 710,000 jobs in March according to Friday’s report from the Department of Labor.  This however was based upon information completed in the second week of March, just before the COVID-19 pandemic began to devastate the economy.

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

March     -710,000
February  275,000
January   214,000
2019     2,108,000
2018      2,679,000
2017      2,110,000
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.

__________________________________________
OFF BASE
Why did Italy procrastinate?

A couple of weeks ago, Italy was much like us, with 107 deaths on March 4. But things were already rapidly getting worse and now Italy is currently the epicenter of coronavirus fatalities in the world.

Italy has been devastated by the virus because it procrastinated.

Procrastination is the Italian way.

Another word for procrastination is cunctation from the Latin cunctari (to hesitate, delay).

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.”

That’s their excuse.

Behavioral economist George Akerlof wrote a paper “Procrastination and Obedience” lamenting his own procrastination arguing that procrastination might be more than just a bad habit. It revealed something important about the limits of rational thinking.

Monday, March 9, 2020

The SBA and PROgnosticate


prognosticate
prahg-NAHSS-tuh-kayt

-to foretell from signs and symptoms : predict

-to give an indication of in advance : foreshadow


from Greek pro- ‘before’ + gignĊskein ‘know’.

_____________________________________________
TIP OF THE WEEK

The prognostication from SBA is that the SOP 50-10-6 will include the new Interim Final Rule guidance effective March 11, 2020.

That means SBA loan applicants will be subject to a personal resources test as follows:


-If the total financing project is $350,000 or less, each 20 percent owner must inject any liquid assets that are in excess of 2 times the total financing package, or $500,000, whichever is greater

-If the total financing project is between $350,001 and $1,000,000, each 20 percent owner must inject any liquid assets that are in excess of 1.5 times the total financing package, or $1,000,000, whichever is greater

-If the total financing project exceeds $1,000,000, each 20 percent owner of the Applicant must inject any liquid assets that are in excess of 1 times the total financing package, or $2,500,000, whichever is greater



SBA has also expanded its definition of an affiliate to include a loan applicant which derived more than 85 percent of its receipts over the previous three fiscal years from a contractual relationship with another concern.  SBA has also provided guidance for exceptions on affiliation.  If you would like a copy of their guidance of the exception, let me know.



__________________________________________

Indices:
PRIME RATE= 4.25%
________________________________________
SBA 504 Loan Debenture Rate for March

For 20 year debentures, the debenture rate is only 1.49% but note rate is 1.518% and the effective yield is 2.808%.

For 25 year debentures, the debenture rate is only 1.62% but note rate is 1.643% and the effective yield is 2.881%.
_______________________________________________
AHEAD OF THE YIELD CURVE

The fed funds futures market had prognosticated last week’s Federal Reserve cutting of the target range for the fed funds rate by 50 basis points to 1.00% to 1.25%.

The Federal Reserve did not suggest further rate cuts were forthcoming, but investors are adding to bets that the central bank will ease policy again at its March meeting on the 18th and 19th.

Even better-than-expected gains in U.S. job growth in February in Friday’s Labor Department data failed to blunt the bond-market rally that caused longer term interest rates to go procumbent.

The 30-year bond yield tumbled 35.4 basis points to 1.216%, and 44.2 basis points for the week, its biggest such drop since September 2011.

With the 30 year bond now at an all time historical low, keep your eyes and ears open for Thursday’s auction of the 30 year Treasury bond.

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
2017- 3.16
2018- 3.13
2019- 2.594
2020- 1.216

What does all this mean?

I don’t know.

Prognostication right now with procellous proditmania proliferating can be profligate.

__________________________________________
OFF BASE

Yogi Berra once proclaimed, "It's tough to make predictions, especially about the future."

One of the most famous prognostications of all time was from the soothsayer in Shakespeare’s Julius Caesar in Act I, scene 2, line 103 when he said “Beware the ides of March.”

So what the heck is an ide?

The Ides Of March refers to how the Romans kept track of the days in a month, which is quite different from how we do it. While we count the days sequentially from the first day all the way to the last day, the Romans used a different system. They counted backward from three fixed points of the month. For instance, the Nones usually fell on the 7th, the Ides on the 15th and the Kalends was the beginning of the month.

It is now known as the day Caesar was assassinated.  After being warned, Caesar took the prophecy very lightly. In fact, as he passed the seer on his way to the Theater of Pompey where he ends being stabbed to death by Brutus and 60 other Senators,  Caesar commented that “The Ides of March have come.” To that, the seer is reported to have replied, “Aye, Caesar; but they have not gone.”

Monday, February 10, 2020

The SBA and PROleptic 


proleptic
pro-LEP-tic

Of a calendar, extrapolated to dates prior to its first adoption Describes an event as having been assigned too early a date Anticipating and answering objections before they have been raised

From Greek prolepsis + ic  (see SBA and PROlepsis June 17, 2019) from prolambanein (to anticipate), from pro- (before) + lambanein (to take).
_____________________________________________
TIP OF THE WEEK

The promulgation of SOP 50-10-6 has been proleptic.

On Monday, February 10, the SBA is publishing an Interim Final Rule that will become effective in 30 days.

The rules address when the owners of a small business Applicant are required to inject excess liquid assets into the project;

amend certain regulations setting forth the affiliation principles applicable to SBA financial assistance programs;

and limit certain fees payable by loan Applicants to amounts deemed reasonable by SBA;

The big change on affiliation will be if a small business Applicant derived more than 85 percent of its revenue from another business over the previous three fiscal years, SBA would find that the small business Applicant is economically dependent on the other business and, therefore, that the two businesses are affiliated.

Compliance with two of the regulatory changes on fees will not be required until October 1, 2020.


__________________________________________

Indices:
PRIME RATE= 4.75%
________________________________________
SBA 504 Loan Debenture Rate for January

For 20 year debentures, the debenture rate is only 2.32% but note rate is 2.361% and the effective yield is 3.644%.

For 25 year debentures, the debenture rate is only 2.45% but note rate is 2.48% and the effective yield is 3.714%.
_______________________________________________
AHEAD OF THE YIELD CURVE

The Federal Reserve proleptically downgraded its assessment of the economy at the last meeting on monetary policy and interest rates.   The wording on inflation was changed, as policy is now consistent with "returning" inflation to the 2 percent target from running "near" the 2 percent target in the prior statement.

The Federal Reserve’s procellous proditomania might be prospicient despite the Labor Department reporting that the US created a robust 225,000 new jobs in January to get off to a good start in 2020.

Employment in manufacturing, however, fell for the third time in the past four months as another 12,000 jobs were lost.

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

Last month capacity utilization fell to 77% in December, the second lowest reading in 27 months.

Here is what capacity utilization has been doing and this week interesting little table of data:

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- 76.2
2018- 78.5
2019- 77%

What does all this mean?

I don’t know.

Last month’s report was not all doom and gloom.  Output at utilities, perhaps reflecting unseasonable weather, fell a sharp 5.6 percent, which offset a small rise for manufacturing.  The modest net gain for manufacturing is a definite positive for the economic outlook. The sector, and its vulnerability to foreign demand, is a chief concern of the Federal Reserve and a major reason behind last year's three consecutive rate cuts.  Fourth quarter GDP was dragged down by a 1.09 point negative contribution from inventories where growth slowed very sharply. Whether businesses begin accelerating their inventory build, amid what is moderate demand, is another question for the ongoing quarter.

The Federal Reserve’s prolegomenon after their last meeting on monetary policy indicated a probative approach as their interest rate projections indicate that rates will stay at current levels this year.

__________________________________________
OFF BASE
The proleptic Gregorian calendar is produced by extending the Gregorian calendar backward to dates preceding its official introduction in 1582.  The Gregorian calendar, named after Pope Gregory XIII, shortened the average year by 0.0075 days to stop the drift of the calendar with respect to the equinoxes.  That way spring would remain around March 21.  The calendar further adjusts by adding a leap year, meaning we have 29 days for February this year.

Great Britain and its possessions did not adopt the Gregorian calendar until 1752.  George Washington was originally born on February 11, 1731.    After the switch, that day became February 22, 1732, which is the date commonly given as Washington's birthday.

This year we celebrate Washington’s Birthday on February 17th to comply with the Uniform Monday Holiday Act enacted in 1968.

The point is that a three day weekend is coming!