The SBA and PROCURATOR

Procurator

 

proc·u·ra·tor

 

a person who acts or does business for another

 

Latin procurator ‘administrator, finance agent’, from procurat- ‘taken care of’, from the verb procurare  ‘take care of, manage’, from pro- ‘on behalf of’ + curare ‘see to’.

 

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TIP OF THE WEEK

 

With its new Risk Mitigation Framework, SBA has now become the procurator for all SBA 7(a) lenders, even PLP lenders.

 

As a result SBA, not lenders, determine whether an applicant meets primary eligibility requirements.

 

SBA Applicants who obtained an EIDL loan or PPP loan will often be flagged for potential fraud creating an ETRAN error code.

 

Any SBA 7(a) loan delayed because of an ETRAN error code that cannot be resolved in a timely manner can instead utilize a SSBCI guarantee.

 

There is NO guidance on amortization with a SSBCI guarantee.   Lenders can use any amortization they want.

 

Amortizing a SSBCI guaranteed loan with a balloon payment would then be eligible for a subsequent SBA refinance if the ETRAN error code is eventually resolved.

 

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Indices:

PRIME RATE= 8.50%

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SBA 504 Loan Debenture Rate for December

 

For 20 year debentures, the debenture rate is only 5.23% but note rate is 5.30472% and the effective yield is 6.707%.

For 25 year debentures, the debenture rate is only 5.28% but note rate is 5.33413% and the effective yield is 6.594%.

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AHEAD OF THE YIELD CURVE

 

Our procurators of interest rates, the Federal Reserve at their last meeting on monetary policy kept the fed funds rate in its range of 5.25 to 5.50 percent.

 

The most notable change is the insertion of "any" in the policy outlook which now reads, "In determining the extent of ANY additional policy firming that may be appropriate to return inflation to 2 percent over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments."

 

This would strongly suggest that the current tightening cycle has peaked unless there is something that would prompt policymakers to rethink it.

 

30-Day Fed Fund futures pricing data have long been relied upon to express the market’s views on the likelihood of changes in U.S. monetary policy.

 

Here are the Futures Implied Fed Funds

Dec-29-2023       5.33000

Feb-29-2024       5.29500

May-31-2024      4.90500

Aug-30-2024       4.44000

Nov-29-2024      4.07500

May-30-2025      3.42500

Nov-28-2025      3.21000

 

 

What does all this mean?

 

I don't know.

 

In its statement, the Fed maintained that inflation remains elevated.

 

The long end of the yield curve prognosticates inflationary expectations and ultimately market rate expectations.

 

Last week’s auction of 30 year treasury bonds the high yield was 4.344 percent, down from 4.769 percent last month and from 4.837 percent two months ago.

 

On Friday the 30 year Treasury yield closed at 4.012.

 

The drop in yield reflects the month-long easing of inflation risk.

 

More procellous promulgations on the yield curve’s continued inversion is profligate.

 

An inversion of the 3 month treasury bill and 10 year treasury note began in late October of 2022.

 

That makes this one of the deepest and longest inversions going back to 1982.

 

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 preceded each of the last eight recessions (as defined by the NBER).

 

Of course, it might not be advisable to take these numbers quite so literally.

 

The underlying determinants of the yield spread today are materially different from the determinants that generated yield spreads during prior decades.

 

Differences could arise from changes in international capital flows and inflation expectations, for example. The bottom line is that yield curves contain important information for business cycle analysis, but, like other indicators, should be interpreted with caution.

 

 

 

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OFF BASE

 

Christmas this year is on Monday December 25th .   It is an official bank holiday according to the Federal Reserve.

 

The next Monday is New Year's Day, also a bank holiday.

 

Happy Holidays!

  

The SBA and PROfess

Profess

proh-fes

-to say or declare (something) openly

- to say that you are, do, or feel something when other people doubt what you say -old-fashioned : to believe in (a particular religion)

 

from Latin profess- ‘declared publicly’, from the verb profiteri, from pro- ‘before’ + fateri ‘confess’

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TIP OF THE WEEK

 

Professed SBA 7(a) lenders can also utilize SSBCI guarantees.

 

The U.S. Small Business Administration’s (“SBA”) release of SOP 50 10 7, effective November 15th, clarifies that  when loan proceeds are used for multiple purposes and if 51% or more of the proceeds are used for real estate then the maximum maturity may be up to 25 years.

 

Lenders should note that the new SOP does not allow the 51%  rule to be used when the loan finances a complete partner buyout or a partial change of ownership, regardless of whether the business owns real estate.  This appears to primarily impact an Eligible Passive Company partner buyout, where the real estate is the primary asset, but the 25 year term will not be available for these transactions.  SBA expressly limits the term for partner buyouts to 10 years.

 

There is NO guidance on amortization with a SSBCI guarantee.   Lenders can use any amortization they want.

 

Any SBA 7(a) loan delayed because of an ETRAN error code that cannot be resolved in a timely manner can instead utilize a SSBCI guarantee.

 

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Indices:

PRIME RATE= 8.50%

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SBA 504 Loan Debenture Rate for October

 

For 20 year debentures, the debenture rate is only 5.80% but note rate is 5.879% and the effective yield is 7.276%.

For 25 year debentures, the debenture rate is only 5.82% but note rate is 5.876% and the effective yield is 7.221%.

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AHEAD OF THE YIELD CURVE

 

At their last meeting on monetary policy and interest rates, the Federal Reserve professed that “job gains have moderated since earlier in the year but remain strong.”

 

The post-meeting statement was little changed from the one issued September 20. There were a few tweaks to the language.

 

Job gains are now said to "have moderated since earlier in the year" from "slowed in recent months".

 

What is the difference between moderated and slowed?

 

Two days after the Federal Reserve met, the report on employment for October came out.

 

Here are the latest jobs numbers from the Bureau of Labor Statistics.

 

October   150,000

September 297,000

August    165,000

July      236,000

June      209,000

May       306,000

April     217,000

March     217,000

February  311,000

January   504,000

2022      4,810,000

2021       7,270,000

2020    -9,370,000

2019     2,108,000

2018      2,679,000

2017      2,110,000

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.

 

One profligate propaedeutic has been that there is a trade-off between jobs and inflation.

 

Some of the softer gain in October can be attributed to a decline of 33,200 in manufacturing of motor vehicles and parts while the UAW strike is active. These jobs will come back once the strike is settled.

 

Payrolls among service-providers rose 110,000 reflecting strong gains among education and health services of 89,000.

 

In October, the year-over-year change was 2.97 million jobs.  Employment was up solidly year-over-year but has slowed to more normal levels of job growth recently.

 

In its statement, the Fed maintained that inflation remains elevated.

 

The long end of the yield curve prognosticates inflationary expectations.

 

At the last auction of 30 year treasury bonds, the high yield was awarded at 4.837 percent, way up from 4.345 percent a month ago and 4.189 percent in August.

 

Keep your eyes and ears open for the next auction of 30 year treasury bonds this Thursday.

 

The 30 year treasury bond is currently at yields not seen since June of 2007.

 

 

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OFF BASE

 

So what is the difference between one who professes and a professor?

 

Literally, professor derives from Latin as a "person who professes".

 

Their job is to profess what they believe after years of study and thought on an issue.

The SBA and PROlong

Prolong

proh-lawng

to make something last a longer time

from Latin pro "forth" + longus "long"

 

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TIP OF THE WEEK

 

A continuing resolution prolongs funding the federal government through November 17, 2023.

 

Then another continuing resolution or a full year funding package will need to be passed or the government will profligately go procumbent.

 

There is also a propitious promulgation that now the guarantee fee for SBA 7(a) loans of $1,000,000 or less is 0.00%.

 

For loans over $2,000,000 the State Small Business Credit Initiative (SSBCI) and State Small Business Loan Guarantee Program offers a higher percent of guarantee and a lower guarantee fee.

 

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Indices:

PRIME RATE= 8.50%

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SBA 504 Loan Debenture Rate for September

 

For 20 year debentures, the debenture rate is only 5.39% but note rate is 5.466% and the effective yield is 6.867%.

For 25 year debentures, the debenture rate is only 5.41% but note rate is 5.464% and the effective yield is 6.812%.

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AHEAD OF THE YIELD CURVE

 

The Federal Reserve protended interest rates at the fed funds target rate range at 5.25 percent to 5.50 percent.

 

The Federal Reserve description of economic conditions was described as "solid" which was an upgrade from "moderate" in their previous release on monetary policy.

 

Job gains are downgraded slightly as "slowed" but remaining "strong".

 

Employment for the month of September will be released on Friday.

 

Keep your eyes and ears open for the Federal Reserve release on Industrial Production and Capacity Utilization.

 

The Federal Reserve watches manufacturing closely.    One of the Federal Reserve’s preferred measures of inflation is the capacity utilization rate.

 

Normally the Fed is concerned about inflationary pressures when the capacity utilization rate is about 82%.

 

Here is what capacity utilization has been doing and this week 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- 79.7

2020- 74.5

2021- 76.4

2022- 80.0

2023- 79.7

 

What does all this mean?

 

I don’t know.

 

Last month capacity utilization moved up to 79.7 percent, in line with its long-run (1972–2022) average.

 

Durables manufacturing nearly ¾ of all manufacturing is up 0.1 percent in August with some small gains nearly offset by a 5.0 percent drop in motor vehicles production.

 

The Federal Reserve does not meet again on monetary policy until Halloween.

 

 

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OFF BASE

 

This weekend is prolonged!   A three day weekend comes up thanks to Columbus Day on October 9th.

 

Columbus Day is an official Federal holiday recognized by the Federal Reserve.

 

Originally celebrated on October 12th to celebrate Columbus’s arrival in the Americas on October 12th, 1492, the Uniform Monday Holiday Act moved permanently to a Monday Washington's Birthday, Memorial Day and Columbus Day as  federal holidays.

 

As a result, Columbus Day is always celebrated on the second Monday in October.

The SBA and PROtend

Protend

proh-tend

verb (used with object)

to stretch forth.

to extend in duration; postpone; defer

verb (used without object)

to stretch forward.

 

Latin protendere, from pro- + tendere to stretch

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TIP OF THE WEEK

 

SBA has not protended on SBA 7(a) guarantee fees effective October 1st, 2023.

 

The new guarantee fees are:

 

For loans of $1,000,000 or less: 0.00%.

 

For loans of $1,000,001 to $2,000,000: 1.45% of the guaranteed portion of the loan up to and including $1,000,000, plus 1.70% of the guaranteed portion of the loan over $1,000,000.

 

For loans $2,000,001 and greater: 3.50% of the guaranteed portion of the loan up to and including $1,000,000, plus 3.75% of the guaranteed portion of the loan over $1,000,000.

 

The State Small Business Credit Initiative (SSBCI) and State Small Business Loan Guarantee Program guarantee fee is 2.5% of the guarantee portion.

 

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Indices:

PRIME RATE= 8.50%

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SBA 504 Loan Debenture Rate for September

 

For 20 year debentures, the debenture rate is only 5.39% but note rate is 5.466% and the effective yield is 6.867%.

For 25 year debentures, the debenture rate is only 5.41% but note rate is 5.464% and the effective yield is 6.812%.

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AHEAD OF THE YIELD CURVE

 

Will the Federal Reserve protend interest rate increases when it meets on monetary policy on September 19th and 20th?

 

Fed policymakers might find the August employment report in line with their expectations for a cooling labor market.    The numbers could support a decision to pause in hiking rates at the September meeting.

 

Interpreting the August increase there are other factors to take into account.  The bankruptcy at Yellow Corp. led to a 36,700 decline in truck transportation. This will be a one-off and many of these workers could find jobs elsewhere due to a reported shortage of drivers.

 

On Wednesday the Bureau of Labor Statistics will report on the consumer price index for last month.

 

Also on the same day, keep your eyes and ears open for the Treasury’s auction of $20 billion in 30 year Treasury bonds.

 

This auction provides the bond market interpretation of the CPI data.

 

Here is what the 30 year Treasury bond has been doing and this week’s interesting little table:

2001- 5.49

2002- 5.43

2003- ND

2004- ND

2005- ND

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

2018- 3.13

2019- 2.594

2020- 1.216

2021- 1.88

2022- 2.375

2023- 3.741

 

Wait a minute, why no numbers for 2003, 2004, and 2005?

 

One month after the 9/11 attacks, the Treasury 30 year bond is discontinued. When the Treasury mothballed the 30-year bond in 2001, experts speculated it was trying to drive down long-term interest rates, which had remained stubbornly high while the Federal Reserve was slashing short-term interest rates to revive the economy. When the Treasury discontinued the 30-year bond in 2001, its yield fell 35 basis points in one day. Why? A shrinking supply of the 30-year Treasury bond caused increased demand to drive rates down.

 

So what does all this mean?

 

I don’t know.

 

The offering of $20 billion is slightly less than the $23 billion last month.    It had been $18 billion the prior two months.

The offering size remains below its record high of $27 billion in August 2021, exactly two years ago, when rates were half their current level.

 

Results were good for last month’s 30-year bond auction as the market continues to show a hearty appetite for Treasury paper.

 

The high yield was awarded at 4.189 percent, up from 3.910 percent in July.

 

The 30 year Treasury closed at a yield of 4.34% on Friday.

 

 

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OFF BASE

 

Summer protends until the fall equinox on September 22nd.

 

The word “equinox” comes from Latin aequus, meaning “equal,” and nox, ”night.” On the equinox, day and night are roughly equal in length.

 

After the autumnal equinox, days become shorter than nights as the Sun continues to rise later and nightfall arrives earlier. This ends with the winter solstice, after which days start to grow longer once again.

 

The SBA and PROclivity

Proclivity

proh-kliv-i-tee

 

an inclination or predisposition toward something especially : a strong inherent inclination toward something objectionable

 

From Latin prōclīvitās tendency, literally, a steep descent, steepness, equivalent to prōclīv(is) sloping forward, steep (prō-pro-1 + clīv(us) slope + -is adj. suffix

 

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TIP OF THE WEEK

 

SBA has a proclivity to change things up.

 

SBA SOP 50-10-7 was effective August 1st, 2023.

 

A technical update has not yet been released clarifying some issues that arose in the initial version of the SOP.

 

For example, the new SOP did not include language that allows a maximum maturity of 25 years when the loan is for mixed purposes and 51% or more of the proceeds is used for real estate.

 

The State Small Business Credit Initiative (SSBCI) and State Small Business Loan Guarantee Program has a propensity to keep it simple.    Amortization is not based upon use of proceeds but instead on the cash flow of the borrower.

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Indices:

PRIME RATE= 8.50%

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SBA 504 Loan Debenture Rate for August

 

For 20 year debentures, the debenture rate is only 5.13% but note rate is 5.2039% and the effective yield is 6.609%.

For 25 year debentures, the debenture rate is only 5.15% but note rate is 5.20364% and the effective yield is 6.554%.

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AHEAD OF THE YIELD CURVE

 

What’s the difference between proclivity and propensity?

 

More importantly, what’s the difference between modest and moderate?

 

The Federal Reserve at their last meeting on monetary policy changed their assessment of the economy from modest to moderate.

 

Otherwise, the Fed’s statement on monetary policy was virtually unchanged outside of the language regarding the rate move.

 

The change was “Recent indicators suggest that economic activity has been expanding at a moderate pace.”   Previously everything was at a modest pace.

 

“Moderate” is a bit stronger growth than “modest” in the Federal Reserve's idiosyncratic lexicon.

 

Does that mean the Federal Reserve will continue to raise rates at their next meeting in late September?

 

Fed Fund futures can be prospicient.

 

Fed Fund futures are a direct reflection of collective marketplace insight regarding the future course of the Federal Reserve’s monetary policy.

 

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

 

DEC23- 5.41

DEC24- 4.25

 

What does all this mean?

 

I don’t know.

 

Results were good for last week’s 30-year bond auction as the market continues to show a hearty appetite for Treasury paper in the face of much bigger offerings.

 

The auction was upsized to $23 billion from $18 billion in the last two months. The offering size remains below its record high of $27 billion in August 2021, exactly two years ago, when rates were half their current level.

 

The high yield was awarded at 4.189 percent, up from 3.910 percent in July.

 

Keep your eyes and ears open for Wednesday’s release of the minutes from the Federal Reserve’s last meeting on monetary policy.

 

The propounding profundity over promulgating moderate or modest could be procacious prolix.

 

 

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OFF BASE

 

What’s the difference between propensity and proclivity?

 

Propensity is an inclination to behave in a particular way.    It is from Latin pro- (toward) + pendere (to weigh).

 

Proclivity is derived from a Latin word “pro” and “clivus.” While “pro” means “forward,” “clivus” means “slope.”

 

Thus the term has derived its meaning as “having an inclination” or “leaning DOWN towards” something.

 

Proclivity is used more when describing a negative inclination while “propensity” is used equally for a negative or positive inclination.

The SBA and PROtocol

protocol

pro·to·col -ˌkōl,

 

the customs and regulations dealing with diplomatic formality, precedence, and etiquette.

 

an original draft, minute, or record from which a document, especially a treaty, is prepared.

 

from Medieval Latin prōtocollum, from Late Greek prōtókollon originally, “a leaf or tag attached to a rolled papyrus manuscript and containing notes as to contents

 

 

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TIP OF THE WEEK

 

SBA has broken protocol by correcting and clarifying a new version of its Standard Operating Procedure before it goes into effect.

 

SBA SOP 50-10-7 will be effective August 1st, 2023.

 

A technical update to SOP 50-10-7 is being released clarifying some issues that arose in the initial version of the SOP.

 

SBA is indicating that any seller carry utilized as a portion of an equity injection in a business acquisition can not have a balloon payment.

 

In the case of a partial purchase of a business, any remaining seller that had at least a 20% ownership interest PRIOR to the transaction must personally guarantee the loan.

 

The guidance for SSBCI guarantees has also changed providing more flexibility with debt refinance.

 

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Indices:

PRIME RATE= 8.25%

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SBA 504 Loan Debenture Rate for July

 

For 20 year debentures, the debenture rate is only 5.16% but note rate is 5.23% and the effective yield is 6.637%.

For 25 year debentures, the debenture rate is only 5.18% but note rate is 5.23% and the effective yield is 6.583%.

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AHEAD OF THE YIELD CURVE

 

What’s the protocol for the Federal Reserve?

 

Employment rose by another 209,000 in June.   Or did it?

 

Employment for April was revised down by 77,000, from +294,000 to +217,000.

 

Originally, employment in April was estimated at 253,000 new jobs.

 

A month later, April was revised up by 41,000, from +253,000 to +294,000.

 

Now, its been knocked down to 217,000 new jobs.

 

The change for May was revised down by 33,000, from +339,000 to +306,000.

 

With these revisions, employment in April and May combined is 110,000 lower than previously reported.

 

Here are the latest jobs numbers from the Bureau of Labor Statistics.

 

June      209,000

May       306,000

April       217,000

March   217,000

February  311,000

January  504,000

2022      4,810,000

2021       7,270,000

2020    -9,370,000

2019     2,108,000

2018      2,679,000

2017      2,110,000

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.

 

One profligate propaedeutic has been that there is a trade-off between jobs and inflation.

 

The Fed likes to gauge inflationary pressure by looking at capacity utilization rates.

 

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

 

Last month capacity utilization moved down to 79.6 percent in May.

 

The decline in however may not be because manufacturing and utility production has slowed.    Instead capacity has grown.

 

One of the bright spots in the economy right now is investment in plants and fixed assets.

 

Manufacturing capacity expanded about 3/4 percent in 2022 and is expected to grow by 1-1/4 percent in 2023.

 

Since capacity utilization rates measures output as a percentage of capacity, if capacity grows faster than output, the capacity utilization rate would decline.

 

Keep your eyes and ears open for this week’s Federal Reserve release on Industrial Production and Capacity Utilization.

 

The Federal Reserve meets on monetary policy next week.

  

 

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OFF BASE

 

Protocol ultimately comes from Late Greek prōtókollon, a compound noun meaning “the first kóllēma (sheet) on a papyrus roll,”

 

It was formed from prōto-, a combining form of prôtos “first” and the noun kóllēma “something bound or glued together”.

 

The plural kollēmata means “sheets of papyrus glued together to form a roll,”.

 

These rolls were usually 20 sheets, averaging 20–26 feet in length.

 

In Medieval Latin prōtocollum acquired the meaning “draft (of a document), minutes (of a meeting), public register, a document bearing an official seal.”

 

In the 19th century, it began to be used in reference to the etiquette observed by the Head of State of France in ceremonies and relations with other dignitaries and the accepted and customary codes of behavior in polite society.

 

In late 19th-century Russia, protocol ( protokól ) meant “an official police record of a case or incident,” its meaning in the infamous “Protocols [ protokóly ] of the Elders of Zion,” first published in Russia in 1903.

 

It has since extended in meaning to cover any code of proper conduct.

The SBA and PROfundity

profundity

pro·fun·di·ty

intellectual depth

something profound or abstruse

the quality or state of being profound or deep

 

from Latin profunditat-, profunditas depth, from profundus

 

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TIP OF THE WEEK

 

Some profundity with SBA 7(a) loan volume.

 

Through April 30th SBA 7(a) loan approvals totaled $14,797,717,000.   That is almost an 11% increase from the same period a year ago.

 

SBA 7(a) loan approval volume has been prospicient about the direction of the economy.

 

Just for fun I calculated the correlation coefficient between SBA 7(a) loan volume and GDP for over nine years using the Microsoft CORREL function.  It came out to a statistically significant 0.86.

 

Business acquisitions had accounted for almost 25% of all 7(a) loans three years ago but now account for 20% of the total.

 

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Indices:

PRIME RATE= 8.25%

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SBA 504 Loan Debenture Rate for June

 

For 20 year debentures, the debenture rate is only 4.91% but note rate is 4.98196% and the effective yield is 6.388%.

For 25 year debentures, the debenture rate is only 4.93% but note rate is 4.98238% and the effective yield is 6.334%.

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AHEAD OF THE YIELD CURVE

 

Profundity from the Federal Reserve’s last statement on monetary policy when they eliminated the previous language that said, "The Committee anticipates that some additional policy firming may be appropriate."

 

They meet this week on June 13 – 14.

 

Their inflation-fighting patience however is being tested by the strength of job growth.

 

Total nonfarm payroll employment increased by 339,000 in May.

 

Manufacturing, which has contracted for six straight months, cut 2,000 jobs.

 

The Federal Reserve watches manufacturing closely.    One of the Federal Reserve’s preferred measures of inflation is the capacity utilization rate.

 

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

 

Here is what capacity utilization has been doing and this week 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- 79.7

2020- 74.5

2021- 76.4

2022- 80.0

 

What does all this mean?

 

I don’t know.

 

Keep your eyes and ears open for this week’s release on capacity utilization.    It is the day after the Federal Reserve meets on monetary policy.

 

Capacity utilization edged up to 79.7 percent last month, a rate that is equal to its long-run (1972–2022) average.

 

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OFF BASE

 

A three day weekend approaches.

 

Yes, June 19th is a holiday.   Juneteenth.

 

The Federal Reserve has proscribed banks from being open on the following days:

 

Juneteenth      June 19

Independence Day July 4

Labor Day September 4

Columbus Day October 9

Veterans Day November 11

Thanksgiving Day November 23

Christmas Day December 25

The SBA and PROpound

propound

pro·pound

to offer for discussion or consideration

 

from Latin proponere to display, propound, from pro- before + ponere to put, place

 

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TIP OF THE WEEK

 

The new SOP propounds that the liquidity of small business owners does not matter anymore.

 

It is now promulgated that lenders are not required to consider the personal resources of owners of the Applicant, and SBA will not evaluate the personal liquidity of owners.

 

SBA propines that personal resources from owners enhance SBA’s ability to mitigate loan losses to the taxpayer due to the personal guaranty required of all owners of the small business Applicant.

 

This is reflected in the new SBA Standard Operating Procedure 50-10-7 effective August 1, 2023.

 

The old SOP provision that a determination that some or all of the loan is not available from the liquidity of owners has been deleted.

 

_________________________________________

 

Indices:

PRIME RATE= 8.25%

________________________________________

SBA 504 Loan Debenture Rate for May

 

For 20 year debentures, the debenture rate is only 4.60% but note rate is 4.669% and the effective yield is 6.079%.

For 25 year debentures, the debenture rate is only 4.62% but note rate is 4.67% and the effective yield is 6.026%.

_______________________________________________

AHEAD OF THE YIELD CURVE

 

Propounding that the slope of the yield curve—the difference between the yields on short- and long-term maturity bonds—is prospicient may be  profligate prodition.

 

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 preceded each of the last eight recessions.

 

One of the recessions predicted by the yield curve was the most recent one: The yield curve inverted in May 2019, almost a year before the most recent recession started in March 2020.

 

The spread between 90 day treasury bills and the 10 year treasury bond turned negative in October of 2022.

 

It has since remained negative with one of the deepest inversions ever peaking at a minus 1.89 on May 4th.    Driving this inversion is the long end of the curve.

 

At last week’s auction of 30 year treasury bonds, the high yield was awarded at 3.741 percent compared with 3.661 percent last month and 3.877 percent two months ago.

 

The auction amount rose to $21 billion from $18 billion last month. The increase contrasted with smaller offering sizes for shorter term bills with higher rates.

 

Here is what the 30 year Treasury bond has been doing and this week’s interesting little table:

2010- 4.61

2011- 2.89

2012- 2.77

2013- 3.25

2014- 3.97

2015- 2.91

2016- 2.32

2017- 3.16

2018- 3.13

2019- 2.594

2020- 1.216

2021- 1.88

2022- 2.375

2023- 3.741

 

So what does all this mean?

 

I don’t know.

 

The extreme inversion of the yield curve on May 4th was the day after the last meeting of the Federal Reserve on monetary policy when they raised the fed funds rate another ¼.

 

In their statement after the meeting, it eliminated the previous language that said, "The Committee anticipates that some additional policy firming may be appropriate."

 

The shift likely means that the FOMC is prepared to pause for a time.

 

On Tuesday, the Federal Reserve will release its report on Capacity Utilization for April.

 

Last month capacity utilization moved up to 79.8 percent.

 

The month-over-month gain in March is entirely due to an 8.4 percent jump in utilities production.

 

Manufacturing capacity is down 5 tenths to 78.1 percent, mining down 5 tenths to 91.1 percent, and utilities up to 75.3 percent from 69.7 percent in the prior month.

 

The Federal Reserve does not meet again on monetary policy until June 13 – 14.

 

 

__________________________________________

 

OFF BASE

 

Memorial Day is Monday, May 29th.

The SBA and PROdition

prodition

pro·di·tion

prōˈdishən

 

betrayal, treason

 

From Latin proditio, from prodere to give forth, betray

 

_____________________________________________

TIP OF THE WEEK

 

The Final Rule on  regulations on use of proceeds for partial changes of ownership, lending criteria, loan conditions, reconsiderations, and affiliation standards has been published.

 

It is now available on the Federal Register.    These changes will be in the next SOP.

 

Borrowers should no longer feel a sense of prodition with being unable to obtain a subordination on their EIDL loans.

 

The EIDL loans have been consolidated into a new servicing center which should make these requests flow better in the future with a goal of eleven business days to turn them around.

_________________________________________

 

Indices:

PRIME RATE= 8.00%

________________________________________

SBA 504 Loan Debenture Rate for April

 

For 20 year debentures, the debenture rate is only 4.48% but note rate is 4.547% and the effective yield is 5.956%.

For 25 year debentures, the debenture rate is only 4.48% but note rate is 4.529% and the effective yield is 5.884%.

_______________________________________________

AHEAD OF THE YIELD CURVE

 

Prodition from the Federal Reserve and the economy?   A profligate proliferation.

 

U.S. employers added 236,000 jobs last month, a solid gain but the weakest showing since December 2020.

 

At least through the March data, Fed policymakers will be able to characterize the labor market as strong enough to withstand another rate hike to combat persistent inflation.

 

Eurodollar futures can be prospicient.

 

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 several decades.

 

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

 

DEC23- 4.55

DEC24- 3.22

DEC25- 3.07

DEC26- 3.12

DEC27- 3.23

 

What does all this mean?

 

I don’t know.

 

The December 2023 implied rate is now at 4.55% down from 5.03% just four months ago.

 

Keep your eyes and ears open for three big things.

 

On Wednesday, the Bureau of Labor Statistics will release the Consumer Price Index.   Last month the CPI was up 0.4 percent in February from January and up 6.0 percent year-over-year.

 

On Thursday, Treasury will auction $18 billion in Treasury bonds.   At last month’s auction, the high yield was awarded at 3.877 percent, down from a high of 4.080 percent in November.    The 30 year is currently at 3.623%.

 

On Friday, the Federal Reserve will release its report on Capacity Utilization for March.   Capacity utilization was unchanged in February at 78.0 percent.

 

The Fed meets again on monetary policy May 2nd and 3rd.

 

 

 

__________________________________________

 

OFF BASE

 

Proditiophobia is the fear of being betrayed by someone you love.

 

It can be cured by remembering the words of perhaps Dr. Suess which were also the last comment by Vin Scully as he retired as the voice of the Dodgers:

 

“Don't cry because it's over. Smile because it happened.”

 

The SBA and PROem

proem

PRO-uhm, -em

An introduction, preface, or preamble.

from Latin prooemium, from Greek prooimion, from pro- (before) + oime (song).

 

_____________________________________________

TIP OF THE WEEK

 

The proem on the future of the SBA is a one page overview in the President’s budget request for the next fiscal year.

 

Only $987 million is being requested in discretionary budget authority for 2024.

 

With less than a billion dollars, this will support almost $58 billion in lending through mainly the SBA 7(a) and 504 loan programs.

_________________________________________

 

Indices:

PRIME RATE= 7.75%

________________________________________

SBA 504 Loan Debenture Rate for March

 

For 20 year debentures, the debenture rate is only 4.86% but note rate is 4.931% and the effective yield is 6.338%.

For 25 year debentures, the debenture rate is only 4.93% but note rate is 4.98% and the effective yield is 6.334%.

_______________________________________________

AHEAD OF THE YIELD CURVE

 

A proem for the Federal Reserve’s next meeting on interest rates is the latest on jobs.

 

The Bureau of Labor Statistics reported that total nonfarm payroll employment rose by 311,000 in February.

 

105,000 of those new jobs were in leisure and hospitality.   At the beginning of the pandemic, in March and April of 2020, leisure and hospitality lost 8.2 million jobs, and are now down 410 thousand jobs since February 2020.

So, leisure and hospitality has now added back about 95% all of the jobs lost in March and April 2020.

 

US employment has largely returned to pre-pandemic levels but this recovery hasn’t been even across the labor market.

 

You can use data from the Federal Reserve Bank of Saint Louis to illustrate the recovery in employment according to establishment size: 1-19, 20-49, 50-249, 250-499, and 500+ employees.

 

Before the pandemic, employment across all establishment sizes had been slowly increasing. Predictably, employment dropped in March 2020 for all size categories.

 

For the smallest establishments (1-19 employees), employment dropped the least and recovered the fastest; however, employment in these establishments has fallen slightly since the end of 2021.

For establishments with 20-49 employees, 250 to 499 employees, and 500+ employees, employment has followed a similar pattern, increasing above employment levels from 2020.

For mid-range establishments with 50 to 249 employees, employment dropped the most and recovered the slowest.

 

The smallest establishments obviously benefited from PPP financial assistance

 

Here are the latest jobs numbers from the Bureau of Labor Statistics.

 

February  311,000

January  504,000

2022      4,810,000

2021       7,270,000

2020    -9,370,000

2019     2,108,000

2018      2,679,000

2017      2,110,000

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.

 

One profligate propaedeutic has been that there is a trade-off between jobs and inflation.

 

At last week’s auction of $18 billion in 30 year Treasury bonds, the high yield was awarded at 3.877 percent, up from 3.686 percent last month but down from a high of 4.080 percent in November.

Non-dealer bids accepted accounted for 91 percent of the total, indicating excellent demand from investors.

 

On Tuesday, the Consumer Price Index will be released.

 

Core prices in February are expected to hold steady at an elevated 0.4 percent monthly gain with overall prices also expected to rise 0.4 percent after January's 0.5 percent rise.

Annual rates, which in January were 6.4 percent overall and 5.6 percent for the core, are expected at 6.0 and 5.5 percent.

 

On Friday, the Federal Reserve will report on capacity utilization.

Last month capacity utilization dropped 0.1 percentage point in January to 78.3 percent.

 

Neither of these reports should provoke procacious proceleusmatics on the Federal Reserve’s next meeting March 21 and 22.

 

__________________________________________

 

OFF BASE

 

A glance at the Federal Reserve calendar of bank holidays reveals the next day off is not until May 29th Memorial Day.

 

If that is too long, the following excuses could be used:

 

-St Patrick’s Day Friday March 17th

 

-Opening Day Major League Baseball March 30th

 

-Good Friday April 7th

The SBA and PROceed

proceed

pro·ceed  prō-ˈsēd

begin or continue a course of action

move forward, especially after reaching a certain point or after a pause or interruption

from Latin procedere, from pro- forward + cedere to go

As you can tell from the etymology of this word, proceed and procedure are closely related.

Procedure however refers to not just going on but to go on in an orderly regulated way

 

_____________________________________________

TIP OF THE WEEK

 

The SBA will soon proceed with the release of a new version of its Standard Operating Procedures.

 

This new version of the SOP promulgates changes from two pending Proposed Rules once finalized addressing affiliation and lending criteria.

 

_________________________________________

 

Indices:

PRIME RATE= 7.75%

________________________________________

SBA 504 Loan Debenture Rate for February

 

For 20 year debentures, the debenture rate is only 4.51% but note rate is 4.578% and the effective yield is 5.988%.

 

For 25 year debentures, the debenture rate is only 4.61% but note rate is 4.66% and the effective yield is 6.015%.

_______________________________________________

AHEAD OF THE YIELD CURVE

 

How will the Federal Reserve proceed?   There is no procedure.

 

The Bureau of Labor Statistics reported an unbelievable 517,000 new jobs in January.   That compares to an average monthly gain of 401,000 in 2022.

 

Seasonal adjustments, always big in January, had an even larger than usual upward impact, likely adding over 200,000 to the jobs figure.

 

Keep your eyes and ears open for this week’s release on the capacity utilization rate.

 

One of the Federal Reserve’s preferred measures of inflation is the capacity utilization rate.

 

Here is what capacity utilization has been doing and this week 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- 79.7

2020- 74.5

2021- 76.4

2022- 80.0

 

What does all this mean?

 

I don’t know.

 

Capacity utilization dropped 0.6 percentage point in December to 78.8 percent.

 

The drop would have been even greater but Utilities capacity use was up 2.7 points to 76.8 percent.

 

A bout of extreme cold weather in December is likely behind the rise in utilities output. Electric production was up 2.9 percent in December and natural gas up 8.2 percent.

 

At last week’s auction of 30 year treasury bonds the high yield was awarded at 3.686 percent, up from 3.585 percent last month but down from a high of 4.080 percent in November.

 

The Federal Reserve does not meet again until March 21 and 22.

 

__________________________________________

 

OFF BASE

 

A three day weekend approaches.

 

The Federal Reserve has proscribed banks from being open on the following days:

 

Washington's Birthday February 20

Memorial Day May 29

Juneteenth      June 19

Independence Day July 4

Labor Day September 4

Columbus Day October 9

Veterans Day November 11

Thanksgiving Day November 23

Christmas Day December 25

 

This upcoming three day weekend is officially referred as Washington’s Birthday.

 

The effort to rename the holiday Presidents Day, intended to honor the birthdays of both Washington and Lincoln, failed in Congressional committee.

The bill, which was then signed into law on June 28, 1968, specified that the Federal holiday would retain the name Washington’s Birthday.

The Uniform Monday Holiday Act of January 1, 1971, established its observance on the third Monday in February.

 

The SBA and PROsateur

prosateur

pro-zuh-TUHR

A writer of prose.

From French prosateur (a prose writer), from Italian prosatore, from Latin prosator, from prosa (straightforward).

_____________________________________________

TIP OF THE WEEK

 

Prolix prosateurs procrastinate over promulgations in a new version of the SBA Standard Operating Procedures.

 

The comment period for two pending Proposed Rules have ended.

 

SBA will then revise the SOP to incorporate any changes to program requirements made by the Final Rules.

 

The prosaic propaedeutic on these Final Rules pertain to Small Business Lending Companies, the SBA loan authorization, affiliation and lending criteria.

 

In the meantime, a Fiscal Year 2023 funding bill has been approved by Congress which includes $35 billion in authorization for 7(a) lending.

 

This should be more than enough to meet anticipated demand even with the significantly reduced guarantee fees for 7(a) loans.

 

_________________________________________

 

Indices:

PRIME RATE= 7.50%

________________________________________

SBA 504 Loan Debenture Rate for December

 

For 20 year debentures, the debenture rate is only 4.56% but note rate is 4.63% and the effective yield is 6.037%.

For 25 year debentures, the debenture rate is only 4.714% but note rate is 4.769% and the effective yield is 6.114%.

_______________________________________________

AHEAD OF THE YIELD CURVE

 

Inflation has stepped down.

 

That was the pronunciamento from the prosateurs for the Federal Reserve’s Fed Open Market Committee's last meeting on monetary policy.

 

Not once, but twice they used the phrase "stepped down" in the minutes from the December 2022 meeting.

 

In the staff review of the economic situation they stated " Consumer price inflation—as measured by the 12-month percent change in the price index for personal consumption expenditures (PCE)—STEPPED DOWN in October but continued to be elevated."

 

They then later stated that " In November, the 12-month change in the CPI STEPPED DOWN to 7.1 percent and core CPI inflation dropped to 6.0 per-cent."

 

So what does stepped down mean?

 

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.

 

Here is what the index has done over the last two years:

 

2021-01-01          262.200

2021-02-01          263.346

2021-03-01          265.028

2021-04-01          266.727

2021-05-01          268.599

2021-06-01          270.955

2021-07-01          272.184

2021-08-01          273.092

2021-09-01          274.214

2021-10-01          276.590

2021-11-01          278.524

2021-12-01          280.126

2022-01-01          281.933

2022-02-01          284.182

2022-03-01          287.708

2022-04-01          288.663

2022-05-01          291.474

2022-06-01          295.328

2022-07-01          295.271

2022-08-01          295.620

2022-09-01          296.761

2022-10-01          298.062

2022-11-01          298.349

 

What does all this mean?

 

I don't know.

 

It appears that price increases have gone procumbent over the last few months.

 

Back in February and March of 2021 the monthly difference in prices was about 0.65% (265.028 compared to 263.346) or roughly 7.8% annualized.

 

Now it is only about 0.1% (298.349 compared to 298.062).

 

Keep your eyes and ears open for this week's report on the CPI.

 

On the same day, there will also be an $18 billion auction of 30 year Treasury bonds.

 

At last month's auction of 30 year treasury bonds, rates actually dropped by roughly 1/2 percent.

 

The high yield of 3.513 percent compares with 4.080 percent in November's auction.

 

The drop in yield reflects the month-long easing of inflation risk.

 

The final report on jobs for 2022 reflected an increase of 223,000 in December.

 

With 4.50 million jobs added, 2022 was the 2nd best year for job growth in US history behind only 2021 with 6.74 million.

 

The Federal Reserve next meets January 31-February 1.

 

 

__________________________________________

 

OFF BASE

 

A three day weekend approaches.

 

The Federal Reserve has proscribed banks from being open on the following days:

 

Birthday of Martin Luther King, Jr. January 16 

Washington's Birthday February 20 

Memorial Day May 29

Juneteenth      June 19

Independence Day July 4

Labor Day September 4

Columbus Day October 9

Veterans Day November 11

Thanksgiving Day November 23

Christmas Day December 25