Monday, September 10, 2018

The SBA and PROcumbent

procumbent
pro-KUM-buhnt
1. Lying face down; prone; prostrate.
2. Of a plant: Growing along the ground without putting new roots.

From Latin procumbent- (bending forward), present participle of procumbere (to lean forward), from pro- (forward) + cumbere (to lie down).

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TIP OF THE WEEK

SBA borrowers wishing to borrow smaller amounts might become procumbent when they realize that they now have to pay a guarantee fee.  With the start of a new fiscal year on October 1st, new guarantee fees for SBA 7(a) loans will go into effect.  The biggest change will be that the waiver on fees for loans of $125,000 and less is gone.

For loans of $150,000 or less the guarantee fee will be 2% of the guaranteed portion.  SBA guarantees 85% for loans of $150,000 or less.  For loans greater than that, the guaranteed portion is 75%.

For loans of $150,001 to $700,000, the guarantee fee will be 3% of the guaranteed portion.  For loans of $700,001 to $5,000,000 the guarantee fee is 3.5% of the guaranteed portion up to $1,000,000, plus 3.75% of the guaranteed portion over $1,000,000.

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Indices:
PRIME RATE= 5.00%

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SBA 504 Loan Debenture Rate for August

For 20 year debentures, the debenture rate is only 3.58% but note rate is 3.638% and the effective yield is 5.301%.

For 25 year debentures, the debenture rate is only 3.71% but note rate is  3.754% and the effective yield is 5.351%.

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AHEAD OF THE YIELD CURVE

Minutes from the Federal Reserve’s meeting on monetary policy revealed a heresy on yield curve thinking that soon spread like procumbent pearlwort.

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, and yield curve inversions have predicted each of the last seven recessions

Bloviating over the possible implications of a flattening yield curve, several participants cited statistical evidence that inversions of the yield curve have often preceded recessions.  But other board members emphasized that inferring economic causality from statistical correlations was not appropriate.  Other things might be keeping longer term rates low such as central bank asset purchase programs and strong worldwide demand for safe assets.  The exact wording in the minutes was “In such an environment, an inversion of the yield curve might not have the significance that the historical record would suggest; the signal to be taken from the yield curve needed to be considered in the context of other economic and financial indicators.”

The splenetic presentiment from the Federal Reserve Bank of San Francisco was almost immediate.  They published a FRBSF Economic Letter titled “Information in Yield Curve about Future Recessions”.  The conclusion was to not get caught up in cause and effect but instead accept that the yield curve has been a reliable predictor of recessions.

The Federal Reserve Bank of Cleveland in their monthly assessment of the yield curve and predicted GDP growth said that despite a flatter yield curve expectations of growth are about the same.  Using past values of the spread and GDP growth suggests that real GDP will grow at about a 1.6 percent rate over the next year.  So the yield curve is still optimistic about the recovery continuing, even if it is somewhat pessimistic with regard to the pace of growth over the next year.

Treasury yields rose on Friday after August jobs data offered nascent signs that a tight labor market is accelerating wage growth—a phenomenon many see as the missing ingredient for higher inflation.  The August jobs report showed the U.S. economy added 201,000 jobs, leaving the unemployment rate at 3.9%. Yet investors mostly keyed into the sharp climb in the average hourly earnings number, a key measure of worker’s wages, which rose 0.4%, pushing the yearly growth rate to 2.9%, the fastest since 2009.  The economy has produced an average of 207,000 new jobs a month so far this year — faster than the pace of hiring in both 2017 and 2016.

The 30 year Treasury bond ended the week at 3.10%.

Keep your eyes and ears open for Thursday’s auction of 30 year Treasury bonds.

Here is what the 30 year Treasury bond has been doing and this week’s interesting little table:
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
2015- 2.91
2016- 2.32
2017- 3.16

What does all this mean?

I don’t know.

At last month’s auction the sale of $18 billion in 30 year Treasury bonds ended the day at 3.09% not far off from where the long bond is currently.

The frangible long end of the yield curve as reflected by probative measures of the 30 year Treasury bond appear to be enervating a bigly recrudescence in interest rates

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OFF BASE

If you go procumbent on the green to figure out how to mess up your putt, you might notice a softer mossy patch.  It looks like grass but it isn’t.  It’s procumbent pearlwort.  The bane of putting greens and lawns around the world, procumbent pearlwort is a difficult weed to spot until it reveals itself with tiny white flowers.  It also grows in the cracks of sidewalks.  It is difficult to eradicate as it is resistant to most herbicides.  Don’t despair however if you see it in your lawn.  Trying to mow your lawn closely does not help as it leads to a weak sward in the grass and allows the pearlwort to establish itself.  It also flourishes in very wet soil.  So evidently to kill it you have to stop mowing and watering your lawn.  Resistance is futile.

This is a legendary plant in the British Isles as it was commonly believed if a young village maiden had a piece of procumbent pearlwort in her mouth when she kissed someone, he was bound to her for ever.  Resistance is futile.

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