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.

Monday, August 28, 2017

The SBA and kaput

kaput or kaputt
kuh-PUT, -POOT, kah-) 
Broken; ruined; finished.
From German kaputt (broken, ruined),

_____________________________________________
TIP OF THE WEEK 

LIBOR is kaput.

Libor, the nearly 50-year-old global borrowing benchmark that became a byword for corruption, is headed for the trash heap of history. 

The U.K. Financial Conduct Authority will phase out the key interest-rate indicator by the end of 2021 after it became clear there wasn’t enough meaningful data to sustain the benchmark that underpins more than $350 trillion in securities.  The benchmark was set up by the British Bankers Association in 1986 as a way to price syndicated loans and interest-rate swaps, but its use soon ballooned. Submitted by a panel of lenders each morning, Libor is the average rate a group of 20 banks estimate they’d be able to borrow funds from each other in five different currencies across seven time periods.


__________________________________________

Indices:
PRIME RATE= 4.25%
SBA LIBOR Base Rate August 2017 =4.23%
SBA Fixed Base Rate August 2017 = 6.39%
________________________________________
SBA 504 Loan Debenture Rate for August  
The debenture rate is only 2.75% but note rate is 2.797% and the effective yield is 4.537%.
 ________________________________________________
AHEAD OF THE YIELD CURVE 

Is the Phillip’s curve kaput?

Recently released minutes from the last Federal Reserve meeting on monetary policy showed central bank officials saw some likelihood that inflation might remain below 2 percent for longer than they expected.   That explains the change in their policy statement wording saying inflation was "running below 2%" instead of "running somewhat below 2%."

This lack of inflationary expectations 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.   But inflation is falling below the Fed’s 2% target range despite unemployment falling.

The second half of the year opened on a strong note as nonfarm payrolls rose 209,000 in July.  Keep your eyes and ears open for this Friday’s report on jobs for the month of August.  

The momentum should continue as data showed second-quarter gross domestic product grew at a 2.6% annual pace more than double the revised 1.2% pace seen in the first quarter.  Yet despite that, signals of inflation rearing its ugly head are quiescent.  One of the Fed’s leading indicators on inflation is capacity utilization.   Several analysts have pointed to a rate between 81% and 82% as a tipping point over which inflation is spurred. Capacity utilization was unchanged in July at 76.7 percent

The 30 year Treasury bond which is very sensitive to inflation saw strong demand at its last auction.  The 2.818 percent high yield for the $15 billion issue was 11.8 basis points below the rate awarded the month before and 35.2 basis points below the March rate - the highest yield since September 2014.

So where are interest rates headed?

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- 1.43
DEC18- 1.66
DEC19- 1.84
DEC20-2.01
DEC22- 2.36
DEC23- 2.51

What does all this mean?

I don’t know.

Eurodollar futures imply a quiescent Federal Reserve will estivate.


__________________________________________
OFF BASE
A lot of people think summer is kaput once Labor Day rolls around.

According to the Federal Reserve, here are our remaining holidays for 2017:
Labor Day September 4
Columbus Day October 9
Veterans Day November 11
Thanksgiving Day November 23
Christmas Day December 25


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).

_____________________________________________
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.

__________________________________________

Indices:
PRIME RATE= 4.25%
SBA LIBOR Base Rate July 2017 =4.23%
SBA Fixed Base Rate June 2017 = 6.39%
________________________________________
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%.
 ________________________________________________
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.

__________________________________________
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).