The SBA and PROpinquity

 propinquity

pro-PING-kwi-tee

Nearness in space, time, or relationship.

 From Latin propinquitas (nearness), from prope (near).

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TIP OF THE WEEK

 

Nothing propinks like propinquity as  U.S. hotel performance came in higher than any other Thanksgiving week on record.

 According to STR‘s latest data through November 27 occupancy came in at 53% which was 4.6% higher than 2019 while RevPAR (Revenue per available room) at $68 was up over 19%.

 Due to the steep, pandemic-driven performance declines of 2020, STR is measuring recovery against comparable time periods from 2019.

 This was the first week with an increase over the same week in 2019.

 Hotels and motels account for a significant piece of all SBA loan activity.

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 Indices:

PRIME RATE= 3.25%

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SBA 504 Loan Debenture Rate for December      

For 20 year debentures, the debenture rate is only 1.65% but note rate is 1.68% and the effective yield is 2.88%.

For 25 year debentures, the debenture rate is only 1.85% but note rate is 1.876% and the effective yield is 3.026%.

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AHEAD OF THE YIELD CURVE

 

The propinquity of prodigious inflation proliferates.   Or does it?

 The Consumer Price Index increased 6.8 percent over the last 12 months.   This is the largest gain since June of 1982.

 Of course it did because prices had dropped during the depths of the  procellous pandemic proditomania.

 Keep in mind that the CPI is based on prices of food, clothing, shelter, fuels, transportation, doctors’ and dentists’ services, drugs, and other goods and services that people buy for day-to-day living.   The index measures price change from a designed reference date. The reference base is 1982-84 and equals 100.

 Now the index level is at 277.948.   That essentially implies that the grocery cart full of stuff that would have cost you $100 in 1984 would now cost you $278. 

 In November of 2019 that index was at 257.208.   We are now at 277.948.  That’s just over a 8% increase in total prices over the last TWO years.

 While that is an average of 4% annually, keep in mind the 0.8% increase in November was a slowdown from the 0.9% increase in October.

 The long term treasury bond market does not seem overly concerned about inflationary threats.   Inflation running hot, in theory, should push up yields for longer dated bonds because rising pricing pressures can erode government debts fixed value.

 At last week’s auction of 30 year treasury bonds the high yield was awarded at 1.895 percent,  down 4.5 basis points from last month's auction rate and the lowest awarded since January.

 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.

 Keeps your eyes and ears open for this week’s report on industrial production and capacity utilization.

 

Here is what capacity utilization has been doing and this week's interesting little table of data:

 

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

2019- 77

2020- 74.5

2021- 76.4

 

What does all this mean?

 

I don’t know.

 Normally the Fed does not feel there are inflationary pressures until the capacity utilization rate is about 82%.

 At their last meeting on monetary policy, the Federal Reserve changed their description of inflation from “Inflation is elevated, largely reflecting transitory factors” to “Inflation is elevated, largely reflecting factors that are expected to be transitory”.

 So inflation is no longer just transitory, but EXPECTED to be transitory?   The word expect comes from the Latin word expectare which means "await, or look out for”

 In other words, we will just have to wait and see.   We will also have to wait and see what happens at this week’s meeting on monetary policy with the Federal Reserve.

 Prognostications proliferate over the protean slope of the yield curve.

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OFF BASE

 

Nothing propinks like propinquity was Chapter 21 in the James Bond novel Diamonds Are Forever by Ian Fleming.

 

Nothing propinks like propinquity was also called the Ball Rule of Power as American diplomat George Ball often said it.  It means that the more direct access one has to someone powerful, the greater one's power regardless of title.

 

The propinquity effect is the tendency for people to form friendships or romantic relationships with those whom they encounter often, forming a bond between subject and friend.

 

Nothing propinks like propinquity.