Monday, July 27, 2015

The SBA and ultracrepidarian



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.


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.


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%.   


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.


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

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