Tuesday, April 22, 2014

The SBA and scrutate

To investigate.
From Latin scrutari (to examine).


Scrutation of the Code of Federal Regulations reveals that Section 120.102 was eliminated on April 21, 2014.  

That means the personal resources test is gone.  Owners are no longer required to inject personal liquid assets to reduce the amount of SBA guaranteed funds that would otherwise be needed.  


SBA LIBOR Base Rate April 2014 = 3.15%
SBA Fixed Base Rate April 2014 = 5.51%

SBA 504 Loan Debenture Rate for April
The debenture rate is only 3.11% but note rate is 3.16% and the effective yield is 5.192%.

Is inflation beginning to rear its ugly head?

Not if you scrutate the data.

Last week the Bureau of Labor Statistics reported the Consumer Price Index rose 0.2% (2.4% annualized rate) in March.   Prices rose 1.5% for the 12 months ending in March. That is up from February’s year-over-year reading of 1.1%.  This jump from February to March is because a 0.2% drop in consumer prices in March 2012 dropped out of the calculation.

Really driving up the CPI was a 0.3% increase in shelter costs. On an annual basis, shelter costs were up 2.7%, the fastest pace in six years.

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.

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- 79.2

What does all this mean?

I don’t know.

Last week the Fed reported that capacity utilization for total industry moved up 0.1 percentage point to 79.2 percent.  That’s up 12.3 percentage points from the record low set in June 2009 and 1.2 percentage points higher than a year prior.   Capacity utilization at 79.2% is still 0.9 percentage points below its average from 1972 to 2012 and below the pre-recession level of 80.8% in December 2007.

The 30-year Treasury bond yield serves as somewhat of a long-term outlook on economic growth and inflation expectations. But the security has at times been an early indicator for movements in other Treasury maturities.  

April’s $13 billion auction of 30 year Treasury bonds sold at a yield of 3.525%.  In March the auction drew a yield of 3.630% compared to February’s yield of 3.69%.  January’s auction sold at a yield of 3.899% compared to December’s 3.90%.  

The yield curve is starting to flatten out a bit.  The slope of the yield curve—the difference between the yields on short- and long-term maturity bonds—has achieved some notoriety as a simple forecaster of economic growth.  A flat curve indicates weak growth, and conversely, a steep curve indicates strong growth.

Traders are betting the Federal Reserve won’t raise interest rates any time soon.

Scrutating the calendar meant yesterday was a holiday.
The third Monday in April is Patriot's Day commemorating the battles of Lexington and Concord, the first military engagements of the American Revolutionary War.
The day after the battle, John Adams left his home to ride along the battlefields. He declared that "the Die was cast, the Rubicon crossed."
“Crossing the Rubicon" is a metaphor for deliberately proceeding past a point of no return. The phrase originates with Julius Caesar's seizure of power in the Roman Republic in 49 BC. Roman generals were strictly forbidden from bringing their troops into the home territory of the Republic in Italy.  Caesar led his army across the Rubicon River, crossing from Gaul into Italy. After this, if he did not triumph, he would be executed. Therefore the term "the Rubicon" is used as a synonym to the "point of no return".

"Alea iacta est" ("The die is cast"), which is reportedly what Caesar said at the crossing of the Rubicon. This metaphor comes from gambling with dice: once the die or dice have been thrown, all bets are irrevocable, even before the dice have come to rest.

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