Monday, July 13, 2015

The SBA and groundswell



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

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


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%.   


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.  

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.

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