Monday, September 18, 2017

The SBA and crespuscular


1. Relating to or resembling twilight: dim.
2. Active or occurring in twilight, as certain animals.
From Latin crepusculum (twilight), from creper (dusky, obscure).


The SBA has become crepuscular as its fiscal year comes to an end.

Effective September 20th , there will be changes to the conditions that an eligible passive company must satisfy to permit SBA loan proceeds to be used to finance a change of ownership between existing owners of the eligible passive company, along with a clarification of the use of eligible proceeds when an operating company is a co-borrower on the loan.

Effective October 1st, the $0 guaranty fee on 7(a) loans applies only to loans of $125,000 and less

Also effective October 1st are changes to the secondary market pools of the guaranteed portions of SBA 7(a) loans.  Premiums are expected to enervate as a result.


SBA LIBOR Base Rate September 2017 =4.23%
SBA Fixed Base Rate September 2017 = 6.19%
SBA 504 Loan Debenture Rate for September   
The debenture rate is only 2.59% but note rate is 2.635% and the effective yield is 4.376%.

The Federal Reserve meets later this week.  

While they probably won’t raise rates this time, expectations for a rate increase have shifted to more probable than less. The market is currently pricing in a better than 50% chance of a rate increase before the end of 2017, compared with around 30% last week, according to Eurodollar futures  and Fed funds futures.

Inflation has been a key focus for bond investors, because stubbornly low inflation has threatened to stay the Fed’s hand at lifting rates. Rising inflation can chip away a bond’s fixed value, which in turn can spur selling in government paper, pushing yields higher.  At last week’s auction of 30 year Treasury bonds,  results were soft for the monthly 30-year bond auction, where coverage, at 2.21 was the second weakest of the year and the bidding on the sloppy side, taking the high yield up to 2.790 percent.  The awarded 2.790 percent high yield was 12.8 basis points lower than last month's rate and 38 basis points below the two and a half year auction peak for the bond reached in March. Short-term money market rates have risen by roughly 50 basis points since then, reflecting two 25 basis point hikes in the Fed funds rate, but declining price inflation and inflation expectations amid low wage growth during the period have driven down the yields of longer-dated Treasury maturities, flattening the Treasury yield curve in the process.

One of the Fed’s leading indicators on inflation is capacity utilization which measures the amount of a plant that is in use at factories, mines and utilities. 

The Federal Reserve recently reported last week that capacity utilization for August sank to 76.1% in August from 76.9% in the prior month.  This is the biggest decline since May 2009 when the economy was in recession. The Federal Reserve reported that the fall was driven by shrinking output in petroleum refining, mining and plastics, all areas that ostensibly play a big role in Texas’ economy.   Texas of course was nailed by hurricane Harvey.

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
2015- 76.5
2016- 75.4
2017- 76.1

What does all this mean?

I don’t know.

Capacity utilization at 76.1 % is 3.8% below the average from 1972 to 2016 and below the pre-recession level of 80.8% in December 2007.  Several analysts have pointed to a rate between 81% and 82% as a tipping point over which inflation is spurred. 

Industry still has plenty of room for improvement more than eight years into an economic expansion

The long end of the yield curve as reflected in 30 year Treasury bond appear to be enervating any splenetic presentiment of a bigly recrudescence in interest rates by being quiescent and Eurodollar futures imply a quiescent Federal Reserve will not estivate.

Have you noticed that the crepuscular part of the day is coming earlier and earlier?  

There are currently 12 more minutes of daytime than nighttime but that will all come to an end on the first day of autumn-which is Friday, September 22nd.  

The autumnal equinox is when night and day are roughly equal length.   The equinox happens when the equator passes the centre of the sun. This is when the north and south poles of the Earth are not tilted towards or away from the sun, as at other times, but are aligned so as to give, theoretically, the same amount of daylight in both of the Earth's hemispheres.

After that, the days are shorter than the night.