Monday, November 18, 2013

The SBA and sclertotic

sclerotic
skluh-ROT-ik
1. Hard, rigid, slow to adapt or respond.
2. Relating to or affected with sclerosis, an abnormal hardening of a tissue or part.
3. Of or relating to the sclera, the white fibrous outer layer of the eyeball.
From Greek skleros (hard).
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TIP OF THE WEEK 
The Small Business Administration is shedding its sclerotic ways with sweeping changes for its guaranteed loan programs reflected  its new Standard Operating Procedures SOP 50-10-5(F).

The cure for SBA sclerosis can be found here: www.sbapro.com
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Indices:
PRIME RATE= 3.25%
SBA LIBOR Base Rate November 2013 = 3.17%
SBA Fixed Base Rate November 2013 = 5.31%
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SBA 504 Loan Debenture Rate for November 

The debenture rate is only 3.38% but note rate is 3.44% and the effective yield is 5.459%
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AHEAD OF THE YIELD CURVE 
Is the bond market being sclerotic?

Last week’s auction of 30 year Treasury bonds drew a yield of 3.81 percent.  The yield at the last offering of long bonds, on October 10, was 3.758 percent.  The $16 billion sale of the debt drew lower-than-average demand. The bid-to-cover ratio, which gauges demand by comparing the amount bid with the amount offered, was 2.16, versus an average of 2.48 at the past 10 auctions. 

One of the Fed’s favorite gauges of the economy is the capacity utilization rate which measures how much plants and factories are being used.  The Federal Reserve watches capacity utilization rates to see if production constraints are threatening to cause inflationary pressures. Bottlenecks or shortages often lead to inflationary pressures that would drive prices even higher.   Several analysts have pointed to a rate between 81% and 82% as a tipping point over which inflation is spurred.  The Federal Reserve typically won’t initiate increases in interest rates until then.

Last week the Fed reported that capacity utilization for total industry declined 0.2 percentage point in October to 78.1 percent.

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

What does all this mean?

I don’t know.

While capacity utilization up 11.1 percentage points from the record low set in June 2009 and 1.1 percentage points above its level of a year earlier, it is still 2.1 percentage points below its long-run (1972-2012) average.  There is no inflationary pressure whatsoever in the economy.

Don’t be sclerotic in your thinking about where interest rates are going.

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OFF BASE
To the dismay of sclerotic traditionalists, the holiday season seems to shift earlier every year, with retailers selling Christmas decorations well before Halloween.  But this year, the season will get a legitimate jump-start of sorts.

In a rare convergence of the calendar, Thanksgiving and the first day of Hanukkah, which typically commences close to Christmas, fall on the same date in 2013: November 28.  This is only the second time since Thanksgiving was declared a national holiday by President Abraham Lincoln. The last time was 1888, and the next time will be in the year 79,811.

Hanukkah however is not a Jewish Christmas.   Hanukkah actually commemorates a Jewish military victory over Greek forces in the second century B.C. and the miracle of a day's worth of lamp oil lasting for eight.

Don’t however get too excited about having a kosher Turkey.  Kosher is about killing quickly and humanely as possible but also as cleanly as possible which means eradicating the blood.  To achieve that, before the turkey is plucked it is dipped in cold water but this doesn’t make de-feathering as easy as the scalding dip commercial processors use today.  The cold water closes up the follicles in the skin and makes feather removal very difficult.  You might need a pair of needle-nose pliers at the table.

On the extreme opposite end of the Thanksgiving spectrum is the bacon wrapped Turkey.  Yes, there is such a thing:  


It really doesn't matter what you eat, just be Thankful.

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