President Obama signs H.R. 2499 into law using autopen

President Obama signed H.R. 2499  into law this morning effective immediately. The Office of Management & Budget (OMB) has apportioned the additional authority to SBA and the 7(a) program should be back up and running very shortly. 

Because he is out of the country, the President had to authorize the use of the autopen -- for only the sixth time during his presidency. The autopen is used only when legislation must be urgently signed into law. The reopening of the SBA 7(a) loan program is now among an elite few pieces of legislation that qualified for autopenning, including the extension of The Patriot Act provisions; to fund the federal government under a Continuing Resolution; the American Taxpayer Relief Act to avoid the fiscal cliff, and two others. 

The SBA and ultracrepidarian

ultracrepidarian

uhl-truh-krep-i-DAYR-ee-uhn

adjective: Giving opinions beyond one’s area of expertise.

noun: One who gives opinions beyond one’s area of expertise.

From Latin ultra (beyond) + crepidarius (shoemaker), from crepida (sandal). Earliest documented use: 1819.

The story goes that in ancient Greece there was a renowned painter named Apelles who used to display his paintings and hide behind them to listen to the comments. Once a cobbler pointed out that the sole of the shoe was not painted correctly. Apelles fixed it and encouraged by this the cobbler began offering comments about other parts of the painting. At this point the painter cut him off with “Ne sutor ultra crepidam” meaning “Shoemaker, not above the sandal” or one should stick to one’s area of expertise.

_____________________________________________
TIP OF THE WEEK 

The ultracrepidarian cries of the SBA running out of money are just that- the cries of ultracrepidarians.  NAGGL has successfully lobbied Congress for an increase in its authorized lending levels.

_____________________________________
Indices:

PRIME RATE= 3.25%

SBA LIBOR Base Rate July 2015 = 3.19%

SBA Fixed Base Rate July 2015 = 5.37%

________________________________________

SBA 504 Loan Debenture Rate for July  

The debenture rate is only 2.88% but note rate is 2.93% and the effective yield is 4.96%.   

 ________________________________________________
AHEAD OF THE YIELD CURVE 

Ultracrepidarians are crying out that interest rates are going up.

The Federal Reserve meets this week and short-term interest rate markets imply a zero probability that the committee will raise policy rates, but show a high likelihood of at least one hike before the end of the year.

Treasury yields finished lower for a second week on Friday, recording the largest two-week decline since March 27.  The yield on the 30-year bond declined 12.1 basis points over the week to end at only 2.96%.

A flattening yield curve has been another theme throughout the week, with long maturities leading the move, as 30-year yields crossed below 2.960%—the lowest point since early June.

When the yield curve flattens, it means that the spread, or yield differential, between long-term and short-term Treasury bonds is decreasing.

It might also might a little bit more.

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. The rule of thumb is that an inverted yield curve (short rates above long rates) indicates a recession in about a year.  More generally, a flat curve indicates weak growth and conversely, a steep curve indicates strong growth.

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 Federal Reserve reported that capacity utilization had increased 0.2 percentage point in June to 78.4 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

2014- 78.8

What does this mean?

I don’t know.

Weaker capacity utilization might be interpreted as a sign that the Federal Reserve’s 2% inflation target is still out of reach and interest rates may not be going up anytime soon.

__________________________________________
OFF BASE

I guess the only way I can keep from being an ultracrepidarian is by keeping my mouth shut.

SBA 504 Loan Debenture Rate

SBA 504 Loan Debenture Rate for July         

The debenture rate is only 2.88% but note rate is 2.93% and the effective yield is 4.96%.

The SBA and groundswell

groundswell

GROUND-swell

1. A surge of opinion or feeling about someone or something.

2. A broad deep swell of the ocean, caused by a distant storm or an earthquake.

Groundswell was the term sailors used for a swelling of the ocean. Why ground? Originally, ground referred to the bottom of anything, especially an ocean

_____________________________________________
TIP OF THE WEEK 

The groundswell continues with SBA 7(a) loans as $16,201,582 in loans have been approved as of July 4^th, 2015.

This is the most ever for the SBA 7(a) loan program.

Now a groundswell of support is needed from Congress to make sure the SBA loan program is fully funded.

_____________________________________
Indices:

PRIME RATE= 3.25%

SBA LIBOR Base Rate July 2015 = 3.19%

SBA Fixed Base Rate July 2015 = 5.37%

________________________________________
SBA 504 Loan Debenture Rate for June

The debenture rate is only 2.98% but note rate is 3.03% and the effective yield is 5.062%.   

 ________________________________________________
AHEAD OF THE YIELD CURVE 

Interest rates are going up.  At least that seems to be the groundswell of opinion.

Minutes from the Federal Open Market Committee’s last meeting on interest rates released last week indicated that most participants judged that the conditions for policy firming had not yet been achieved and  a number of them cautioned against a premature decision.  All members but one “indicated that they would need to see more evidence that economic growth was sufficiently strong.” 

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. The rule of thumb is that an inverted yield curve (short rates above long rates) indicates a recession in about a year.  More generally, a flat curve indicates weak growth and conversely, a steep curve indicates strong growth.

Last week’s $13 billion of 30 year Treasury bonds sold at a yield of 3.084 percent.  This compares to last month’s auction yield of 3.138%.

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

What does all this mean?

I don’t know.

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

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 month the Federal Reserve reported that capacity utilization had actually decreased 0.2 percentage points in May to 78.1 percent.  

__________________________________________
OFF BASE

Groundswells in a nautical or surfing sense are typically dangerous.

The same is true of most other groundswells.

Extraordinary Popular Delusions and the Madness of Crowds is a history of popular folly by Scottish journalist Charles Mackay, first published in 1841

Among the bubbles or financial manias described by Mackay is the Dutch tulip mania of the early seventeenth century. According to Mackay, during this bubble, speculators from all walks of life bought and sold tulip bulbs and even futures contracts on them. Allegedly some tulip bulb varieties briefly became the most expensive objects in the world during 1637.

The groundswell continues.

Leading up to 1929, it was a well-known fact that stocks were a great place to put your money.  In the 1950s, it became common knowledge that if a nuclear bomb went off in your city that you’d be safe if you simply learned to “duck and cover.”  Up until 2007, it was a well-known fact that real estate was a great investment where you would never lose money.  Today’s movies give most young people the idea that anyone can jump from a car going 30 mph, roll a few times, and be fine.

So much for the wisdom of crowds.

SBA 7(a) Loan Rate Update

Indices:

PRIME RATE= 3.25%
SBA LIBOR Base Rate July 2015 = 3.19%
SBA Fixed Base Rate July 2015 = 5.37%

Lenders can charge up to 2.75% over these indices.