The SBA and PROletariat

proletariat

pro·le·tar·i·at

The class of industrial wage earners who, possessing neither capital nor production means, must earn their living by selling their labor.

The poorest class of working people.

The propertyless class of ancient Rome, constituting the lowest class of citizens.

 

from Latin prōlētārius, belonging to the lowest class of Roman citizens Derived originally from the Latin PROLETARII, the name given in the census of Servius Tullius to those who were of value to the state only as baby makers (PROLES)

 

Proles came from Latin pro- + olēs (“growth”)

 

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TIP OF THE WEEK

 

Workers unite for small business.

 

Small businesses play a disproportionately large role in our labor markets: half the Americans that work for a private business work for a small one.

 

And with entrepreneurship surging since the pandemic, that role is poised to grow further.

 

Small businesses created over 70 percent of net new jobs since 2019. In the previous business cycle, small businesses created 64 percent of net new jobs.

 

An important component of this has been credit to small businesses with government guarantees.

 

Charge-off rates for the SBA’s flagship small business loan guarantee programs are at their lowest on record.

 

I am not making any of this up.   This just came out from the US Treasury analyzing Small Business and Entrepreneurship in the Post-COVID Expansion.

 

 

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Indices:

PRIME RATE= 8.00%

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SBA 504 Loan Debenture Rate for September

 

For 20 year debentures, the debenture rate is only 4.45% but note rate is 4.517% and the effective yield is 5.833%.

For 25 year debentures, the debenture rate is only 4.45% but note rate is 4.499% and the effective yield is 5.765%.

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AHEAD OF THE YIELD CURVE

 

The Federal Reserve was looking out for the proletariat.

 

The recent ½ percent drop in the fed funds rate was driven primarily by employment concerns.

 

In its statement after its last meeting on monetary policy, the Fed said "The Committee is strongly committed to supporting maximum employment and returning inflation to its 2 percent objective."

 

This wording regarding employment is new and suggests that the decision for a larger cut was due to the FOMC wanting to signal that they want to avoid further cooling in the labor market.

 

No cooling was reflected in the job numbers for September as employment increased by 254,000.

 

The monthly average in payroll gains for the third quarter is 186,000, somewhat above the monthly average for the second quarter of 147,000, but slower than 267,000 in the first quarter.

 

After the employment numbers came out, the 30 year Treasury bond jumped up to 4.255%.

 

At last month’s auction of 30 year Treasury bonds, the high yield was awarded at 4.015 percent.

 

Keep your eyes and ears open for this week’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 of data:

 

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

2024- 4.015%

 

 

So what does all this mean?

 

I don’t know.

 

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

 

Just after Labor Day the inversion of the yield curve ended with two year treasury rates now below the 10 year yield.

 

The yield curve had been inverted for a staggering 783 consecutive days, the longest such period in U.S. history.

 

More procellous promulgations on the yield curve is profligate.

 

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OFF BASE

 

In George Orwell’s book 1984, Proles were the lowest class of people but made up about 85% of the population of Oceania.

 

While impoverished, powerless and a massive group of people the proles were free, unlike the rest of Oceania. They are not checked by the Party on what they do and think; therefore the proles are the only ones able to take Big Brother down.

 

Something to think about over the upcoming three day weekend.

 

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 PROpose

propose

pruh-pohz

 

to make an offer or suggestion, especially of marriage.

to form or consider a purpose or design

 

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

 

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TIP OF THE WEEK

 

The proposed SBA 7(a) guarantee fees reflect a substantial increase for loans greater than $1,000,001.

 

Effective October 1st the guarantee fee for loans of $1,000,001 to $5,000,000 will be 3.5% 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 guarantee fee for SSBCI guarantees remain at 2.5% for guaranteed portions up to $2,500,000 plus 2.25% of the guaranteed portion over that.    The maximum SSBCI guarantee goes up to $5,000,000.

 

It would be proficuous to know the distinctions.

 

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Indices:

PRIME RATE= 8.50%

________________________________________

SBA 504 Loan Debenture Rate for September

 

For 20 year debentures, the debenture rate is only 4.45% but note rate is 4.517% and the effective yield is 5.833%.

For 25 year debentures, the debenture rate is only 4.45% but note rate is 4.499% and the effective yield is 5.765%.

_______________________________________________

AHEAD OF THE YIELD CURVE

 

Prospicient prognostications proliferate with our procurators of interest rates, the Federal Reserve.

 

The Fed’s next meeting on monetary policy concludes September 18th.

 

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

Sep-30-2024       5.19000

Nov-29-2024      4.67500

Feb-28-2025       3.81500

May-30-2025      3.28500

Aug-29-2025       2.94500

Feb-27-2026       2.77000

Aug-31-2026       2.81500

 

What does all this mean?

 

I don't know.

 

The current fed funds target rate is 5.25% to 5.50%.   Fed funds futures imply a target rate probability of 55% for a ¼ percent drop in the target rate.

 

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 4.015 percent versus 4.314 percent a month ago.

 

This lower yield was despite a reduced offering of $22 billion compared to $25 billion a month ago.

 

Non-dealer bids accepted accounted for 84 percent of the total, suggesting OK demand.

 

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

 

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OFF BASE

 

September 17th is the annual Mid-Autumn Moon Festival on the Chinese calendar.

 

This is one of the first harvest festivals of the year. Its history reaches back to the Tang Dynasty (618-907 AD).

 

The full moon rises at sunset around this date, allowing farmers to harvest well into the evening. It takes place on the 15th day of the 8th month of the Chinese lunisolar calendar, when the moon is at its brightest and fullest, coinciding with harvest.

 

In America, it is called the Harvest Super Moon, when the moon is closest to the Earth, making it appear larger than normal. It is so close that the moon will appear full for three straight nights. This year, that takes place less than a week before the fall equinox on September 22.

 

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 PROtagonist

protagonist

 

pro·tag·o·nist

-the principal character in a literary work (such as a drama or story) -the leading actor or principal character in a television show, movie, book, etc.

-an active participant in an event

-a leader, proponent, or supporter of a cause

 

-from Greek protagonistes, a word for the main actor in a play. It is made up of the words protos, meaning “first,” and agonistes, meaning “actor” or “competitor.”

 

The hero is the "first struggler", which is the literal meaning of the Greek word prōtagōnistēs.

A character who opposes the hero is the antagonist, from a Greek verb that means literally "to struggle against".

 

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TIP OF THE WEEK

 

Is the lender or the borrower the protagonist with government guaranteed loans?

 

The borrower needs to be able to demonstrate the ability to repay both SBA and SSBCI guaranteed loans.

 

The lender must explain why credit elsewhere is not available without the SBA or SSBCI guarantee.

 

The similarities end there.

 

It would be proficuous to know the distinctions.

 

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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 4.73% but note rate is 4.80% and the effective yield is 6.115%.

For 25 year debentures, the debenture rate is only 4.73% but note rate is 4.78% and the effective yield is 6.045%.

_______________________________________________

AHEAD OF THE YIELD CURVE

 

Employment and inflation are the protagonist and antagonist for Federal Reserve monetary policy.

 

The U.S. Bureau of Labor Statistics on Wednesday revised down its estimate of total employment in March 2024 by a whopping 818,000.

 

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

 

July        114,000

June      179,000

May       216,000

April       108,000

March       310,000

Feb        270,000

Jan         256,000

2023       2,700,000

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.

 

No need for proditomania.

 

The numbers are routinely revised each month, but the BLS does a broader revision each year when it gets the results of the Quarterly Census of Employment and Wages.

 

Even with the revisions, the participation rate is still high.   The is the percentage of the population that works.

 

The 25 to 54 years old participation rate increased in July to 84.0% from 83.7% in June to the highest level since 2001.

 

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

 

At the most recent auction of 30 year treasury bonds, the high yield was awarded at 4.314 percent versus 4.405 percent a month ago, 4.403 percent two months ago and 4.635 percent three months ago.

 

Friday the 30 year treasury bond closed at 4.093%.

 

Will the Federal Reserve be proactive and start lowering interest rates?    Fed funds future imply that it will happen.

 

At its last meeting on monetary policy, the FOMC added a word with inflation now "somewhat" elevated.

 

This suggests that sufficient progress has been made in disinflation to downgrade that risk.

 

In a pivotal move, the word "highly" has been removed from the phrase "highly attentive to inflation risks" that has been present since May 2022.

 

Attention is now shifted to "both sides of its dual mandate".

 

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OFF BASE

 

Today, Monday, Danny Jansen will become the protagonist in one of the strangest statistical oddities ever in baseball.

 

With one more strike he would have been the only player while at bat to also be the catcher.

 

Danny Jansen, who was traded from the Blue Jays to the Red Sox recently, was in the Blue Jays’ starting lineup and played the first two innings as their catcher and was at the plate when the game was suspended because of rain.

 

The makeup game today will force the Blue Jays to pinch-hit for Jansen, who could be catching for the Red Sox that day.

 

Jansen was a member of the Blue Jays on June 26 when the game began. He started at catcher and was batting seventh for Toronto, and he was actually at bat, facing an 0-1 count, when the game was suspended due to rain in the top of the second inning.

 

Jansen is technically still at bat for the Blue Jays -- even though he's on the Red Sox now -- with an 0-1 count, one out.

 

Obviously, he can't finish his at-bat since he's now on the opposing team. So Toronto will have to pinch-hit for Jansen when the game resumes.

 

But the fun part will be if Boston subs Jansen in at catcher right away.

 

That would result in Jansen catching a plate appearance that he started as the batter for the other team.

 

Unfortunately for the historical oddities at play, because there were less than two strikes on Jansen, whoever the Blue Jays use as the pinch-hitter for Jansen will get statistical credit for the result of the at-bat no matter what.

If there were two strikes, and the pinch-hitter struck out, that strikeout would be charged to Jansen, which would mean Danny Jansen caught a strikeout of Danny Jansen.

 

If Jansen does play in the game for the Red Sox after it resumes, he will indeed appear in the final box score for both teams, under the original date of the game. You'd see a statistical line for Jansen on both sides for June 26.

 

If that is making your head spin, a three day weekend approaches!

The SBA and PROactive

proactive

prō-ˈak-tiv

acting in anticipation of future problems, needs, or changes taking action by causing change and not only reacting to change when it happens from Latin pro "on behalf of, in place of, before, plus Latin activus, from actus "a doing"

 

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TIP OF THE WEEK

 

SBA has propounded a new 7(a) Working Capital Pilot (WCP) Program.   The three-year WC Pilot will take effect on August 1, 2024.

 

The WCP promulgates lenders to make both asset-based and transaction-based WCP 7(a) lines of credit (LOCs) in amounts up to $5 million, with the lines available to support both domestic and international transactions.

The maximum LOC term will be 60 months (5 years), and SBA’s standard maximum guaranties of 85% for loans of $150,000 and 75% for loans of $150,000 and over will apply.

 

Proficuously SSBCI guarantees can also be utilized for revolving lines of credit with a higher percent of guarantee and greater loan amounts.

 

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Indices:

PRIME RATE= 8.50%

________________________________________

SBA 504 Loan Debenture Rate for July

 

For 20 year debentures, the debenture rate is only 4.89% but note rate is 4.96% and the effective yield is 6.277%.

For 25 year debentures, the debenture rate is only 4.89% but note rate is 4.94% and the effective yield is 6.206%.

_______________________________________________

AHEAD OF THE YIELD CURVE

 

Will the Federal Reserve be proactive and start lowering interest rates anytime soon?

 

At its last meeting on monetary policy, its assessment of inflation has been upgraded to “modest further progress" from “a lack of further progress" in the prior version.

 

Modest further progress was reflected last week when the Consumer Price Index for June was down 0.1 percent month-over-month after no change in May. This is the first time the CPI has seen a monthly decline since down 0.1 percent in May 2020.

 

For inflation, the Federal Reserve looks closely at both industrial production and capacity utilization for prospicient prognostications.

 

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

 

The industrial sector, together with construction, accounts for the bulk of the variation in national output over the course of the business cycle.

 

The capacity utilization rate provides an estimate of how much factory capacity is in use.

 

The Federal Reserve watches this report closely to see if production constraints are threatening to cause inflationary pressures.

 

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

2023- 78.5

 

What does all this mean?

 

I don’t know.

 

Last month, total capacity utilization jumped 0.5 percentage points as it moved up to 78.7 percent in May.

 

Durable goods orders have posted strong gains so far this year and are beginning to be reflected in manufacturing volumes which have surged.

 

Fed policymakers will pay close attention to readings for the most persistent sources of upward price pressures. Some of these remain elevated.

 

The report might be enough to get the FOMC to be more inclined to lower interest rates soon, but not enough to prompt them to act at the July 30-31 meeting.

 

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OFF BASE

 

Proactivity was discussed by George F Will in his classic book, Men at Work.

 

One of his comments was something to the effect that “any difficult thing, like marriage or politics, requires compromise and adjustment.”

The SBA and PROnation

pronation

pro-NAY-shuhn

1. Rotation of the forearm so that the palm faces downward or backward.

2. Rotation of the foot such that the weight is borne on its inner edge.

3. The resulting position when the arm or foot is rotated in such a manner.

 

From Latin pronare (to turn or lean forward).  A counterpart is supination in which the palm is facing upward or the weight is borne on the outer edge of the foot.

 

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TIP OF THE WEEK

 

The pronation of one’s hands reveals much.

 

Hands open and your palms at a 45-degree angle: Communicates that you are being honest and open.

Hands open with palms down: Communicates that you are certain about what you are talking about.

Palms facing each other with your fingers together: Communicates that you have expertise about what you are talking about.

 

The SBA has thrown up its hands dealing with bad people.

 

SBA has published Procedural Notice 5000-857477 implementing the recent Criminal Justice Rule.

The restrictions on businesses with an Associate who is on probation or on parole have been removed.

Applicants currently incarcerated, under indictment for a felony or any crime involving or relating to financial misconduct or a false statement are still ineligible.

 

Let me know if you need a copy of this new procedural notice.

 

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Indices:

PRIME RATE= 8.50%

________________________________________

SBA 504 Loan Debenture Rate for June

 

For 20 year debentures, the debenture rate is only 5.06% but note rate is 5.13% and the effective yield is 6.445%.

For 25 year debentures, the debenture rate is only 5.04% but note rate is 5.09287% and the effective yield is 6.354%.

_______________________________________________

AHEAD OF THE YIELD CURVE

 

Pronation is the rotation of your hand towards your thumb.

 

Kind of like when Ceaser gives a thumbs down to a gladiator.

 

The Federal Reserve gave a thumbs down to interest rates coming down anytime soon at its last meeting.

 

Its statement on monetary policy issued June 12 is virtually unchanged from the one published May 1.

 

The assessment of inflation has been upgraded to “modest further progress" from “a lack of further progress" in the prior version.

 

The language related to the change in the balance sheet reduction program has been removed.    The Fed has reduced its reinvestments in US Treasuries by $35 billion a month.    This 1/3 of a trillion dollar reduction did not seem to impact the Treasury bond market.

 

At last week’s auction of $25 billion in 30 year Treasury bonds, the high yield was awarded at 4.403 percent versus 4.635 percent a month ago. The auction high yield was awarded 1.5 basis points below where the when-issued long bond was trading at auction time, indicating very strong demand,

 

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

 

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

2024- 4.350%

 

 

So what does all this mean?

 

I don’t know.

 

On Friday the 30 year yield closed at 4.350%.

 

Why is the 30 year yield dropping?

 

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

 

Keep your eyes and ears open for this week’s report on capacity utilization.

 

Last month capacity utilization had declined to 78.4 percent in April.

 

The decline was offset by a rise in utilities output.

 

Utilities' output rose 2.8 percent higher in April from March. There was a 3.1 percent rise in electric output and 1.1 percent in natural gas. Unusually warm weather in April boosted demand for cooling.

 

 

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OFF BASE

 

There is a thing called premature pronation.    Don’t blush, it is a baseball pitching phrase.

 

Premature Pronation is the pronation of the pitching forearm well before the Release Point

 

It is the twist you see in the wrists of many baseball pitchers who Point the Ball at Second Base or Center Field as part of their throwing motion.

 

This pronation occurs to get the fingers behind the ball so that they can impart the force generated by the body into the ball. It is a natural action in the follow-through.

 

It is also called the Tommy John Twist.     It is named for Dodger pitcher Tommy John who snapped the ligament in his elbow.

 

Tommy John surgery is a surgical graft procedure where the ulnar collateral ligament in the medial elbow is replaced with either a tendon from elsewhere in the patient's body, or with one from a deceased donor.

 

Wednesday June 19th is a bank holiday- Juneteenth.      There is also a full slate of baseball games all that day.

 

 

The SBA and PROprioception

 proprioception

pro-pree-uh/oh-SEP-shuhn

The awareness of location of parts of one’s body.

From Latin proprius (one’s own) + reception, from recipere (to receive), from capere (to take).

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TIP OF THE WEEK

 

Have you ever accidently poked yourself in the eye?     That would be a lack of proprioception.

 

Don’t poke yourself in the eye when it comes to government guaranteed lending.

 

The differences between SBA and SSBCI guarantees are unique.

 

It would be proficuous to know the distinctions.

 

_________________________________________

 

Indices:

PRIME RATE= 8.50%

________________________________________

SBA 504 Loan Debenture Rate for May

 

For 20 year debentures, the debenture rate is only 5.27% but note rate is 5.34517% and the effective yield is 6.656%.

For 25 year debentures, the debenture rate is only 5.24% but note rate is 5.29403% and the effective yield is 6.555%.

_______________________________________________

AHEAD OF THE YIELD CURVE

 

Proditomania profilerated over inflation at the Federal Reserve’s last meeting on monetary policy.

 

The Fed Open Market Committee added language that said,"In recent months, there has been a lack of further progress toward the Committee's 2 percent inflation objective".

 

It does not look that way if you go into the lumber section of Home Depot.    Douglas Fir 8 foot 2x4s are always at the front by the door at every store in America.

 

This is the most widely used wood in the country.    It was what was used for all the railroad ties and telegraph poles when the west was being settled.

 

Every new home and existing home project uses this 2x4.

 

As far as I could recall, the price of that 2x4 was consistently under $3.

 

Now every time I go into Home Depot, I check the price of this 8 foot 2x4.

 

Here is the price of the Douglas Fir 8 foot 2x4 over the last couple of years:

 

5/15/2024            $3.63

10/31/2023         $3.07

7/22/2023            $3.63

7/16/2023            $3.63

5/6/2023              $3.34

4/1/2023              $2.98

2/18/2023            $2.98

2/12/2023            $2.98

9/24/2022            $3.97

8/12/2022            $4.65

6/4/2022              $5.92

5/22/2022            $6.64

 

What does this mean?

 

I don’t know but my excuse that the price of wood is too high really isn’t working anymore.

 

At the most recent auction of 30 year Treasury bonds, the high yield was awarded at 4.635 percent versus 4.671 percent a month ago.

 

Two months ago the yield was at 4.331 percent.

 

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

 

While the auction size of the 30 year Treasury bonds was $25 billion, up from $22 billion in April, the Federal Reserve also announced it is lowering the cap on reinvestments of US treasuries from $60 billion to $25 billion.

 

While a reduction in the cap for US treasuries reinvestments was anticipated, the size was more than expected.

 

It appears that the FOMC feels that a quick reduction in the cap will accomplish their goals of managing the balance sheet better and allows the Fed to smoothly transition from an abundant reserves environment.

 

__________________________________________

 

OFF BASE

 

A three day weekend approaches!

 

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

 

Memorial Day May 27

Juneteenth      June 19

Independence Day July 4

Labor Day September 2

Columbus Day October 14

Veterans Day November 11

Thanksgiving Day November 28

Christmas Day December 25

The SBA and PROficuous

proficuous

pruh-FICK-yuh-wuhss

Profitable; advantageous; useful

from Latin proficuus beneficial

 

_____________________________________________

TIP OF THE WEEK

 

SBA has propounded a new 7(a) Working Capital Pilot (WCP) Program.   Its effective date will probably coincide with the release of another SBA Standard Operating Procedure.

 

It is promulgated to provide flexibilities bridging the gap between the unique rules and limitations of other SBA 7(a) guaranteed line of credits.

 

Its fee structure will be modeled after SBA’s 7(a) Export Working Capital Program (EWCP).

 

Proficuously SSBCI and SBLGP guarantees can now be utilized for revolving lines of credit.

 

_________________________________________

 

Indices:

PRIME RATE= 8.50%

________________________________________

SBA 504 Loan Debenture Rate for April

 

For 20 year debentures, the debenture rate is only 5.38% but note rate is 5.45619% and the effective yield is 6.767%.

For 25 year debentures, the debenture rate is only 5.38% but note rate is 5.43481% and the effective yield is 6.695%.

_______________________________________________

AHEAD OF THE YIELD CURVE

 

Prospicient prognostications proliferate with our procurators of interest rates, the Federal Reserve.

 

The Fed made no change to the fed funds target rate at its last meeting on monetary policy

 

The only tweak in the language of its policy announcement is concerning job gains which "remained strong" relative to the January assessment and which removes the January reference to moderation relative to 2023.

 

Its next meeting is Tuesday April 30th and concludes May 1st.

 

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

Apr-30-2024       5.32750

Jun-28-2024        5.29500

Sep-30-2024       5.16500

Dec-31-2024       4.99000

Mar-31-2025      4.82000

Sep-30-2025       4.50000

Mar-31-2026      4.13500

 

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 4.671 percent, up from 4.331 percent a month ago.

 

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

 

 

__________________________________________

 

OFF BASE

 

April 22nd is Earth Day.

 

It would be proficuous to hug a tree or catch a wave.

The SBA and PROpulsive

propulsive

pro·pul·sive

having the quality of driving or pushing forward

 

Latin prōpulsus, past participle of prōpellere "to push or thrust forward, compel to go onward"

 

_____________________________________________

TIP OF THE WEEK

 

There is a propulsive increase in the alternative size standard for SBA loan applicants.

 

Effective March 18, 2024, under the alternative size standard, a business, including any affiliates, will be considered small if its tangible net worth is not in excess of $20 million (up from $15 million), and its average net income after Federal income taxes (excluding any carry over losses) for the preceding two completed fiscal years is not in excess of $6.5 million (up from $5 million).

 

This is a 34.46 percent adjustment for inflation that has occurred since the establishment of the statutory alternative size standard in 2010.

 

Prodigious.

 

_________________________________________

 

Indices:

PRIME RATE= 8.50%

________________________________________

SBA 504 Loan Debenture Rate for March

 

For 20 year debentures, the debenture rate is only 4.98% but note rate is 5.05255% and the effective yield is 6.365%.

For 25 year debentures, the debenture rate is only 4.97% but note rate is 5.022257% and the effective yield is 6.286%.

_______________________________________________

AHEAD OF THE YIELD CURVE

 

Propulsive and propitious.

 

Jobless claims remain steady and low, indicative of strong demand for labor and posing no threat to restrictive monetary policy.

Initial claims fell 1,000 in the March 14 week to a lower-than-expected 209,000 that pulls the 4-week average slightly lower to 208,000, among the lowest readings so far this year.

 

Total nonfarm payroll employment rose by 275,000 in February.

 

The monthly average for nonfarm payrolls for the first quarter to-date is 252,000 compared to 212,000 for the fourth quarter 2023.

 

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

 

2023     2,700,000

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.

 

On Thursday, the 30 year Treasury auction high yield was at at 4.331 percent versus 4.360 percent in February and 4.229 percent in January.

 

The Federal Reserve looks closely at both industrial production and capacity utilization for prospicient prognostications.

 

The Federal Reserve watches this report closely to see if production constraints are threatening to cause inflationary pressures.

 

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

 

Capacity utilization was unchanged at 78.3 percent in February from January.

 

In February, manufacturing capacity rose to 77.0 percent from 76.4 percent in the prior month, mining to 93.8 percent after 91.7 percent, with utilities down to 67.8 percent after 73.5 percent.

 

Utilities output was lower due to milder weather conditions after colder weather in January. The index for electricity fell 6.5 percent in February with natural gas utilities down 13.0 percent.

 

The Federal Reserve’s next meeting on monetary policy is March 19th and 20th.

 

__________________________________________

 

OFF BASE

 

One of the most famous prognostications of all time was from the soothsayer in Shakespeare’s Julius Caesar in Act I, scene 2, line 103 when he said “Beware the ides of March.”

 

So what the heck is an ide?

 

The Ides Of March refers to how the Romans kept track of the days in a month, which is quite different from how we do it. While we count the days sequentially from the first day all the way to the last day, the Romans used a different system. They counted backward from three fixed points of the month. For instance, the Nones usually fell on the 7th, the Ides on the 15th and the Kalends was the beginning of the month.

 

It is now known as the day Caesar was assassinated.  After being warned, Caesar took the prophecy very lightly. In fact, as he passed the seer on his way to the Theater of Pompey where he ends being stabbed to death by Brutus and 60 other Senators,  Caesar commented that “The Ides of March have come.” To that, the seer is reported to have replied, “Aye, Caesar; but they have not gone.”

The SBA and Prodromuses

Prodromuses

 

PROH-druh-muhss

 

-A precursor or harbinger; also a warning event.

-An introductory or preliminary book or treatise.

-(medicine) An early sign or symptom (or set of signs and symptoms) warning of the onset of a disease.

 

New Latin, from Greek prodromos precursor

 

 

_____________________________________________

TIP OF THE WEEK

 

A prodromuses, in the context of an introductory treatise, for SBA Standard Operating Procedures can be found in the Informational Notices that coincide with the release of the SOP.   Those two notices 5000-852522 and 5000-848663 total 12 pages and nicely summarize the changes to the new SOP that totals 430 pages.

 

Unlike SBA guarantees, the guidance for SSBCI guarantees does not require a prodromuses as the SBLGP Policy Manual is only 22 pages.

 

_________________________________________

 

Indices:

PRIME RATE= 8.50%

________________________________________

SBA 504 Loan Debenture Rate for February

 

For 20 year debentures, the debenture rate is only 5.11% but note rate is 5.18370% and the effective yield is 6.496%.

For 25 year debentures, the debenture rate is only 5.07% but note rate is 5.12312% and the effective yield is 6.385%.

_______________________________________________

AHEAD OF THE YIELD CURVE

 

A produmuses, in the context of a harbinger or precursor can be the capacity utilization rate.

 

The Federal Reserve looks closely at both industrial production and capacity utilization for prospicient prognostications.

 

The industrial sector, together with construction, accounts for the bulk of the variation in national output over the course of the business cycle.

 

The capacity utilization rate provides an estimate of how much factory capacity is in use.

 

The Federal Reserve watches this report closely to see if production constraints are threatening to cause inflationary pressures.

 

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

 

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

 

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

 

 

Last month, it was reported that capacity utilization was unchanged in December at 78.6 percent

 

What does all this mean?

 

I don’t know.

 

At its last meeting on monetary policy, the Federal Reserve said that they would not be reducing interest rates any time soon.

 

In its statement the paragraph regarding the US banking system is completely excised.

Clearly the Fed feel the troubles in the banking industry of last March and the potential problems with liquidity are no longer a big risk.

 

The statement offered a strong warning that the FOMC is not yet ready to declare victory in achieving price stability.

 

There was new language in the statement that said “The Committee judges that the risks to achieving its employment and inflation goals are moving into better balance. The economic outlook is uncertain, and the Committee remains highly attentive to inflation risks."

 

Last week’s auction of 30 year treasury bonds saw the high yield awarded at 4.360 percent versus 4.229 percent a month ago.

 

__________________________________________

 

OFF BASE

 

Today, February 12th is Abraham Lincoln’s birthday.    It is also Charles Darwin’s birthday as well as the Monday after the Super Bowl.

 

It is not however a holiday.    We only celebrate Washington’s birthday.

 

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.

 

Enjoy the long weekend as the next holiday is not until Memorial Day.

The SBA and PRObabilism

probabilism

prob·a·bi·lism ˈprä-bə-bə-ˌli-zəm

a theory that certainty is impossible especially in the sciences and that probability suffices to govern belief and action from Latin probare, to test, approve

 

_____________________________________________

TIP OF THE WEEK

 

Probalilism proliferates with the protean promulgations proscribing procedures with SBA guarantees.

 

Prodition with any SBA 7(a) or 504 loan delayed because of an ETRAN error code that cannot be resolved in a timely manner can instead utilize a SSBCI guarantee.

 

_________________________________________

 

Indices:

PRIME RATE= 8.50%

________________________________________

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%.

_______________________________________________

AHEAD OF THE YIELD CURVE

 

Propitious prognostications.

 

The U.S. economy added more than 2.6 million jobs for the third consecutive year—a feat that hasn't been accomplished since the most recent soft landing in the 1990s.

 

Employers added 2.7 million jobs last year. That was down from 4.8 million in 2022 as a post-COVID surge in the economy faded.

 

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

 

On Friday, the 30 year Treasury bond closed at 4.20 percent.

 

Keep your eyes and ears open for this week’s auction of 30 year treasury bonds.

 

Here is what the 30 year treasury bond has been doing:

 

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

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.   Probabilism.

 

Why is the 30 year yield dropping?

 

The offering of $21 billion is less than the record high of $27 billion in August 2021, over two years ago, when rates were half their current level.

 

This is consistent with  a prior Treasury Department announcement that it would slow the pace of increases in its longer-dated debt auctions in the November 2023 to January 2024 quarter.

 

This slightly reduced supply of longer term debt could drive down longer term rates.   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.

 

Minutes from the Fed’s last meeting also said: "The easing in financial conditions reversed some of the tightening that occurred over the summer and much of the fall."

 

Easier financial conditions were in part due to declines in nominal Treasury securities yields, "more so at longer maturities", "as investors appeared to interpret incoming data as reducing risks of prolonged inflation pressures.”

 

The Federal Reserve’s next meeting starts on January 30th.

 

__________________________________________

 

OFF BASE

 

How to deal with probabilism?

 

In his 1936 essay “The Crack-Up,” F. Scott Fitzgerald writes that “the test of a first-rate intelligence is the ability to hold two opposed ideas in the mind at the same time, and still retain the ability to function.”

 

Here is something that is certain.   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 15 Washington's Birthday February 19 Memorial Day May 27

Juneteenth      June 19

Independence Day July 4

Labor Day September 2

Columbus Day October 14

Veterans Day November 11

Thanksgiving Day November 28

Christmas Day December 25

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’.

 

_____________________________________________

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.

 

_________________________________________

 

Indices:

PRIME RATE= 8.50%

________________________________________

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%.

_______________________________________________

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.

 

 

 

__________________________________________

 

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’

_____________________________________________

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.

 

_________________________________________

 

Indices:

PRIME RATE= 8.50%

________________________________________

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%.

_______________________________________________

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.

 

 

__________________________________________

 

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.