Monday, January 14, 2019

The SBA and PROlegomenon

pro-li-GOM-uh-non, -nuhn
A critical, introductory discussion, especially an introduction to a text.

From Greek prolegómenon, from prolegein (to say beforehand), from pro- (before) + legein (to say)


This prolegomenon came from SBA:

Funding for portions of the federal government, including funding for most SBA operations, is set to expire at midnight Friday, December 21, 2018.

During a lapse in appropriations, new loan making under the 7(a) and 504 loan programs will be suspended until government funding is made available. This means no new loans will be processed.

The IRS had this to say:

While the IRS remains closed during the partial government shutdown, on January 7, 2019, it will begin processing requests for transcript information made through Income Verification Express Service (IVES) program.

Loan guarantees are available from the State of California Infrastructure and Development Bank.




SBA 504 Loan Debenture Rate for December

For 20 year debentures, the debenture rate is only 3.54% but note rate is 3.587% and the effective yield is 4.926%.

For 25 year debentures, the debenture rate is only 3.67% but note rate is 3.714% and the effective yield is 4.990%.


There was a recent prolegomenon from the Federal Reserve that an inverted yield curve was not just an indicator of a recession, but an actual cause of a recession.

It is widely accepted that that an inverted yield curve creates splenetic presentiment of a recession.  The slope of the yield curve—the difference between the yields on short- and long-term maturity bonds—is 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.

The Federal Reserve Bank of Saint Louis thinks an inverted yield curve can potentially harm U.S. economic growth and even cause a recession by pinching bank-lending margins and causing a contraction in loan activity.  That’s because banks tend to make money from short-term borrowing at lower rates which they lend at higher rates for longer periods of time. An inverted yield curve can make that business much less attractive.

The yield curve has not inverted yet.  On an annual basis, the 30-year bond yield advanced nearly 28 basis points, marking its biggest yearly rise since 2013. The 2-year note yield, sensitive to the Federal Reserve’s rate increases, more than doubled the rise of its longer-dated counterparts, climbing around 61 basis points.

Last week’s auction of $16 billion of 30 year Treasury bonds was lackluster.  The increase in auction sizes since last February have contributed to messier debt sales, which some say could push yields higher as investors struggle to make room for incoming supply.  On Friday, the 30-year bond yield rose 2.6 basis points to 3.051%, logging its fifth straight session of yield gains.

Minutes from the Federal Reserve’s last meeting on monetary policy said that they could be patient about increasing interest rates because of “muted inflation pressures.”  On Friday, it was reported that the Consumer Price Index declined 0.1%.   One of the Fed’s favorite leading indicators on inflation is capacity utilization which measures the amount of a plant that is in use at factories, mines and utilities.  Several analysts have pointed to a rate between 81% and 82% as a tipping point over which inflation is spurred.

Keep your eyes and ears open for Friday's report on Industrial Production and Capacity Utilization.

Here is what capacity utilization rates have done:
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- 76.2
2018- 78.5

What does all this mean?

I don’t know.

Last month capacity utilization rose 0.4 percentage points to 78.5 percent.  Inflationary pressure would appear to be as the Fed would say “muted.”

The Fed’s next meeting on monetary policy concludes on January 30th.

There appears to be splenetic presentiment among the Federal Reserve Open Market Committee over an enervation of prodigiously recrudescent interest rates.


The Federal Reserve has promulgated that these are our holidays for 2019:
Birthday of Martin Luther King, Jr. January 21
Washington's Birthday February 18
Memorial Day May 27
Independence Day July 4
Labor Day September 2
Columbus Day October 14
Veterans Day November 11
Thanksgiving Day November 28
Christmas Day December 25

A three day weekend is coming!

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