Monday, December 11, 2017

The SBA and robustious

1. Strong and sturdy.
2. Boisterous.
3. Coarse or crude.
From Latin robur (oak, strength).


Our robustious* President signed a spending bill to avoid a government shutdown and keep the federal government running through Dec. 22.

The president signed the two-week spending bill at the White House after the House and Senate acted to prevent a government shutdown last weekend.

The White House and congressional leaders are negotiating a longer-term agreement.

The measure funds government agencies including the SBA.  SBA loan volume should continue to be robustious**

*as in boisterous, coarse and crude
**as in strong and sturdy


SBA LIBOR Base Rate December =4.38%
SBA Fixed Base Rate December 2017 = 6.65%
SBA 504 Loan Debenture Rate for November    
The debenture rate is only 2.79% but note rate is 2.83785% and the effective yield is 4.510%.

The economy continues to be robustious.

Some 228,000 new jobs were created in November, another healthy gain that highlights the strongest U.S. labor market since the turn of the century.

After ten months of Mr. Trump's presidency, the economy has added 1,700,000 jobs.   That puts him about 383,000 behind the pace needed to hit his goal of adding 10 million jobs over the next 4 years. 

His predecessors by comparison did the following (private sector employment only):
20,966,000 - President Clinton
14,717,000 - President Reagan
11,756,000- President Obama
9,041,000- President Carter
1,510,000- President G.H.W. Bush
  396,000- President G.W Bush

Treasury yields rose across the board last week ahead of the Federal Open Market Committee’s rate-setting meeting Dec. 12-13, where an increase in the fed-funds rate is seen as a virtual certainty.

After the jobs report, the 30-year Treasury bond yield was unchanged at 2.773%, and rose only 1.1 basis point over the past five days.   The day the Fed begins their meeting on monetary policy there will be an auction of the 30 year bond.  At last month’s auction the 2.801 percent high yield was 6.9 basis points below October’s rate.  Since the start of 2017, 30-year yields have actually declined. And the culprit behind that appears to be stubbornly muted inflation.

One of the Fed’s favorite leading gauges of inflationary pressure is the capacity utilization rate.  Keep your eyes and ears open for this Friday’s report on industrial production and capacity utilization.  Last month it was reported that capacity utilization for October had nudged up to 77 percent.   Several analysts have pointed to a rate between 81% and 82% as a tipping point over which inflation is spurred. 

So what will the Fed do?  They should not be too concerned about inflation.

Eurodollar futures settle at a three- month lending rate that has averaged about 22 basis points more than the Fed's target over the past 10 years.

Here is a summary of what the market expects for Eurodollar futures based upon the pit-traded prices at the Chicago Mercantile Exchange:

DEC17- 1.60
DEC18- 2.01
DEC19- 2.26
DEC21- 2.46
DEC22- 2.56
DEC23- 2.64

What does all this mean?

I don’t know.

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.

So the government might come to a crashing stop on December 22nd.  

Actually that day the world won’t look as grim as the days will start getting longer again and you can start looking forward to Spring.  So hang in there and be robustious. 

The day before, December 21st, is the winter solistice.  The winter solstice marks the shortest day of the year and the official beginning of winter.

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