Monday, November 6, 2017

The SBA and cunctation

Delay; procrastination; tardiness.
From Latin cunctari (to hesitate, delay)

Without any more cunctation, the SBA has released its latest version of its Standard Operating Procedure, which will be effective January 1st , 2018.

Changes include a reduction in the minimum required equity capital injection for a business acquisition.  At least 10% must be put into the project.  A seller note can be considered part of that injection but it must then go on full standby for the life of the loan.  The buyer must contribute AT LEAST 5%.

Franchise eligibility has also changed with SBA now publishing a franchise directory.  

Some third party management agreements are now eligible as are consumer and marketing cooperatives.

A borrower is prohibited from leasing space to any business engaged in any activity that is illegal under federal, state or local law.

New SBA submission forms have also been released.

Let me know if you would like a copy of the 409 page SOP 50 10 5(J). 

If you are being cunctative about reading it, feel free to ask me a question and I will make up an answer.


SBA LIBOR Base Rate November =4.24%
SBA Fixed Base Rate November 2017 = 6.46%
SBA 504 Loan Debenture Rate for October    
The debenture rate is only 2.85% but note rate is 2.89859% and the effective yield is 4.635%.

Is the Federal Reserve being cunctative about raising interest rates?

Most of the post-WWII recessions were caused by the Fed tightening monetary policy to slow inflation. Usually, when inflation starts to become a concern, the Fed tries to engineer a "soft landing", and frequently the result is a recession.  One of the harsh lessons learned by the Federal Reserve was in the 1930’s when they misapplied monetary policy enervating to the point of splenetic impecunious presentiment.

Last week at their meeting on monetary policy, the Federal Reserve Open Market Committee policy statement changed from describing the economy from "rising moderately" to "rising at a solid rate".  Futures markets are setting expectations firmly centered on a rate hike at the next meeting in December.

On Friday, the Bureau of Labor Statistics reported that jobs increased by 261,000 in October.  Previously it was reported that in September the economy had lost 33,000 jobs  but that has now been revised to show an increase of 18,000 jobs and August was revised up from 169,000 new jobs to 208,000.  With these revisions, employment was 90,000 higher than previously reported.

Here is a summary of net payroll employment and this week’s interesting little table of data:
October                                  261,000
September                                 18,000
August                                   208,000
July                                      138,000
June                                     222,000
May                                      152,000
April                                     207,000
March                                    50,000
February                             235,000
January                               216,000
2016        2,160,000
2015     2,740,000
2014     3,116,000
2013     2,074,000
2012     2,193,000
2011      2,103,000
2010     1,022,000
2009     -5,052,000
2008     -3,617,000
2007    1,115,000
2006     2,071,000
2005     2,484,000
2004     2,019,000

What does all this mean?

I don’t know.

Also included in the jobs report was a look at wages.  Average hourly earnings for all employees on private nonfarm payrolls, at $26.53, were little changed in October (-1 cent), after rising by 12 cents in September. Over the past 12 months, average hourly earnings have increased by 63 cents, or 2.4 percent.

This lack of wage growth is enervating the cerebration on the Phillips Curve to the point it might be considered pabulum.   The Phillips curve, an economic concept named for the late economist A.W. Phillips, states that as unemployment falls inflation will ultimately rise as workers see wage increases.  Fed officials have justified its recent tightening stance on the Phillips curve. 

Cunctation may prevail with the Fed.  Their statement also said that “economic conditions will evolve in a manner that will warrant gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run.”

Keep your eyes and ears open for this Thursday’s $15 billion sale of 30 year Treasury bonds. 

At last month’s sale, the 2.870 percent high yield was 8 basis points higher than September’s rate but well below the March auction's 3.170 percent, a two and half year peak.  The Treasury just cut its borrowing estimate by almost half this quarter.  The Treasury will issue $275 billion in net marketable debt from October through December, assuming a cash balance of $205 billion at the end of the period, according to a statement released Monday in Washington. The new estimate is $226 billion lower than the previous projection made in July. 

The debt ceiling suspension is due to expire on December 8th.  Further cunctation is expected.

Cunctation is the Italian way.

Drawing on an intimate knowledge of their own history, they see an upside to letting problems sort themselves out, piano piano—slowly. It’s even part of the national curriculum. By age 11, almost all Italian schoolchildren learn the story of Quintus Fabius Maximus Verrucosus, the Roman general who 2,200 years ago slowly ground down Hannibal by avoiding direct battle. He was nicknamed the Cunctator—“the delayer.”  They may be on to something.  The Bloomberg Global Health Index of 163 countries ranks Italy as the healthiest on Earth, based on variables such as life expectancy and incidence of high blood pressure.

I may have to cunctate after all.