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.

 

_________________________________________

 

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.

_________________________________________

 

Indices:

PRIME RATE= 8.50%

________________________________________

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.

 

_________________________________________

 

Indices:

PRIME RATE= 8.25%

________________________________________

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%.

_______________________________________________

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.

 

_________________________________________

 

Indices:

PRIME RATE= 8.25%

________________________________________

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%.

_______________________________________________

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%

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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%.

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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

 

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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).

 

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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).

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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

 

The SBA and PROdrome

 prodrome

PROH-drohm

An early symptom that indicates the onset of a disease or an episode of something such as a migraine.

From Latin prodromus, from Greek prodromos, from pro- (before) + dromos (running)

 

_____________________________________________

TIP OF THE WEEK

 

A prodrome with the new version of the SBA Standard Operating Procedures.

 

SBA had previously indicated that it expected to release the SOP revision in November with a mid-January 2023 effective date.

 

SBA now intends to defer issuance of the SOP revision until two pending Proposed Rules are finalized.

 

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

 

This SOP is a propaedeutic prolusion for upcoming changes.

_________________________________________

 

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

 

As prognosticated, the Federal Reserve’s Fed Open Market Committee raised the fed funds rate target by another 50 basis points to 4.25-4.50 percent.

 

That means interest rates will keep going up, right?

 

The protervity over increasing interest rates is profluent proditomania.

 

At last week'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.

 

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

 

So what does all this mean?

 

I don’t know.

 

Demand was soft for the reopening of November's 30-year bond, at a 2.25 bid to cover which is the lowest in a full year for this issue and down from 2.42 last month.

 

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

 

More procellous promulgations on the yield curve inverting is profligate.

 

An inversion of the 3 month treasury bill and 10 year treasury note began in late October and became more pronounced in mid-November.   It is now at roughly -90 basis points with the three month at roughly 4.34% and the ten year at 3.52%.

 

That makes this one of the deepest 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).

 

One measure of slope, the spread between 10-year Treasury bonds and 3-month Treasury bills, bears out this relation, particularly when real GDP growth is lagged a year to line up growth with the spread that predicts it.

 

The Federal Reserve Bank of Cleveland uses past values of the slope of the yield curve and GDP growth to provide predictions of future GDP growth and the probability that the economy will fall into a recession over the next year.

 

Right now they are saying the probability of a recession in 1 year is less than 50/50 at 41.8%.   That's up from 26.5% back in October.

 

Procacity over the slope of the yield curve can be prosaic.

 

 

 

__________________________________________

 

OFF BASE

 

With Christmas December 25th being a Sunday, Federal Reserve Banks will be closed on Monday December 26th.

 

That will allow us all to observe Boxing Day.

 

Boxing Day originated as a holiday the day after Christmas to give gifts to the poor

 

One idea is that December 26 was the day centuries ago when lords of the manor and aristocrats typically distributed “Christmas boxes” often filled with small gifts, money and leftovers from Christmas dinner to their household servants and employees, who were required to work on December 25, in recognition of good service throughout the year. These boxes were, in essence, holiday bonuses.

 

The SBA and PROlusion

prolusion

prōˈ lo͞o zhan

a preliminary action or event; a prelude.   To warm up.

an introductory and often tentative discourse

From Latin prolusion-, prolusio, from proludere to play beforehand, from pro- before + ludere to play

 

_____________________________________________

TIP OF THE WEEK

 

A new version of the SBA Standard Operating Procedures will be released soon and be effective around January 15, 2023.

 

SOP 50-10-6.1 will reflect changes in equity injection verification requirements, credit elsewhere, collateral requirements, and an overhaul of debt refinance requirements.

 

This SOP is a propaedeutic prolusion for upcoming changes reflected in recent Notices of Proposed Rulemaking on Affiliation and restrictions on loans for changes of ownership.

 

The notices are only proposed rule changes with the comment period ending on December 27, 2022.    Those changes won’t happen until well after the new SOP is released and effective.

 

_________________________________________

 

Indices:

PRIME RATE= 7.00%

________________________________________

SBA 504 Loan Debenture Rate for October

 

For 20 year debentures, the debenture rate is only 4.89% but note rate is 4.96% and the effective yield is 6.13%.

For 25 year debentures, the debenture rate is only 5.04% but note rate is 5.09% and the effective yield is 6.219%.

_______________________________________________

AHEAD OF THE YIELD CURVE

 

As prognosticated, the Federal Reserve’s Fed Open Market Committee raised the fed funds rate target by 75 basis points to 3.75-4.00 percent.

 

The FOMC statement for November 2 was the same as the one from September 21 with the exception that it added forward guidance on the cumulative impact of prior hikes to its anticipation of further rate hikes.

 

This is a fairly good signal that the FOMC may not pause on rate hikes.

 

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:

 

DEC22- 5.117

DEC23- 5.03

DEC24- 4.26

DEC25- 3.96

DEC26- 3.97

DEC27- 4.09

 

What does all this mean?

 

I don’t know.

 

The December 2022 implied rate is now at 5.12% up from 4.73% just last month and up from only 0.17% a year ago.

 

This week on Thursday there will be an auction of 30 year Treasury bonds.   At last month’s auction of 30 year Treasury bonds, the high yield was awarded at 3.930 percent, up from 3.511 percent at last month’s auction.      The 30 year Treasury yield is now at 4.253%.

 

For all the protervity of an inverted yield curve, the 3 month and 10 year yields have not maintained a sustained inversion.   The last time they inverted for any length of time was back in 2019.

 

 

The procacity over the yield curve is profluent proditomania.

 

__________________________________________

 

OFF BASE

 

Don’t forget to vote.

 

Ever wonder why elections are always a Tuesday in November?

 

The answer stems from the agrarian makeup of 19th-century America. In the 1800s, most citizens worked as farmers and lived far from their polling place. Since people often traveled at least a day to vote, lawmakers needed to allow a two-day window for Election Day. Weekends were impractical, since most people spent Sundays in church, and Wednesday was market day for farmers.

 

With this in mind, Tuesday was selected as the first and most convenient day of the week to hold elections. Farm culture also explains why Election Day always falls in November. Spring and early summer elections were thought to interfere with the planting season, and late summer and early fall elections overlapped with the harvest. That left the late fall month of November—after the harvest was complete, but before the arrival of harsh winter weather—as the best choice.

 

It is not propaganda when the Federal Reserve promulgates official holidays.    A three day weekend approaches!

 

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

Veterans Day November 11

Thanksgiving Day November 24

Christmas Day December 25 

The SBA and PROpaedeutic

 propaedeutic

pro-pi-du-tik

 

preceding and preparing for something

a course that provides an introduction to an art or science (or to more advanced study generally)

 

You don't have to be a walking encyclopedia to use it, but "propaedeutic" does tend to occur mostly in scholarly discussions of learning and education.

 

"Propaedeutic" might be a "hard" word, but one easy thing to remember about it is that it is closely related to "encyclopedia."

"Encyclopedia" is from Greek paideia, meaning "education," plus enkyklios, meaning "general." "Propaedeutic" is from Greek paideuein, meaning "to teach," plus "pro-," which means "before."

 

_____________________________________________

TIP OF THE WEEK

 

A propaedeutic promulgation.

 

Like the slope of the yield curve, 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.

 

SBA 7(a) loan approvals were profluent.

 

Through September 16th $24,101,763,300 in SBA 7(a) loans had been approved.   While below the levels of the prior year that had a 90% guarantee and no guarantee fee, SBA 7(a) loan volume did exceed fiscal years 2017 through 2020.

 

The new fiscal year starting October 1st has an authorization level of $30 billion which is more than sufficient lending authority.

 

The SBA program for this new fiscal year sets the 7(a) loan program at a ZERO subsidy rate.

 

That means the fees collected from borrowers and lenders are sufficient to cover the projected costs of the loan guarantee.   No tax payer subsidy is needed.

 

Effective October 1st, the guarantee fee for SBA 7(a) loans are:

-loans of $500,000 or less: 0.00%:

-loans of $500,001 to $700,000: 0.55% of the guaranteed portion.

-loans of $700,001 to $1,000,000: 1.05% of the guaranteed portion.

-loans $1,000,001 to $5,000,000: 3.5% of the guaranteed portion up to $1,000,000, plus 3.75% of the guaranteed portion over $1,000,000.

 

_________________________________________

 

Indices:

PRIME RATE= 6.25%

________________________________________

SBA 504 Loan Debenture Rate for September

 

For 20 year debentures, the debenture rate is only 4.10% but note rate is 4.16% and the effective yield is 5.343%.

For 25 year debentures, the debenture rate is only 4.26% but note rate is 4.30% and the effective yield is 5.44%.

_______________________________________________

AHEAD OF THE YIELD CURVE

 

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

 

The Phillips Curve, named after New Zealand economist A. W. Phillips, misconstrues a supposed correlation between unemployment and inflation as a causal relation.

 

When he won the Nobel Prize in economics in 1976, Milton Freidman in his acceptance speech titled Inflation and Unemployment made it clear there is no tradeoff between inflation and unemployment.

 

Freidman had promulgated that “inflation is always and everywhere a monetary phenomenon,” and said central bankers should prevent the supply of money from growing faster than economic output.

 

The growth rate of all the dollars in circulation (“M2 Money Supply”) soared a historic record 27% in 2020.

 

To put that in perspective, this increase in M2 Money Supply is the biggest jump in America’s history. That is bigger than the Financial Crisis of 2007-2008 (10%), bigger than World War II (18%), and bigger than FDR’s stimulus to fight the Great Depression (10%).

 

The recent increases by the Federal Reserve in the fed funds rate has moderated the changes in the M2 money supply.   M2 actually decreased by over $300 billion in May with nominal increases in June and July and no increase in August.      As a result month by month changes in the consumer price index over the last quarter has also plateaued.

 

As for jobs, initial claims for unemployment fell again last week, rapidly approaching the lowest levels seen early this year. Overall, claims remain historically low, and are headed lower again after trending higher from May through July. Claims suggest the labor market remains tight.  All signs point to continued tightness in the labor market, despite weaker growth.

 

Keep your eyes and ears open for this week’s report on employment for the month of September.

 

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

 

August  315,000

July        526,000

June      293,000

May       386,000

April      368,000

March     398,000

February  714,000

January  504,000

2021       6,400,000

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.

 

Next week on Thursday there will be an auction of 30 year Treasury bonds.   At last month’s auction of 30 year Treasury bonds, the high yield was awarded at 3.511 percent, up from 3.106 percent at last month’s auction.      The 30 year Treasury yield is now at 3.77%.

 

For all the talk of an inverted yield curve, the 3 month and 10 year yields have not inverted.   The last time they inverted was back in 2019.

 

On the same day, the consumer price index will also come out.   While year over year price increases will be reflected, it is important to actually note the month to month change.

 

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 10 plus years.

 

The December 2022 implied rate is now at 4.73% up from 4.454% just last month and up from only 0.17% in October.

 

 

__________________________________________

 

OFF BASE

 

It is not propaganda when the Federal Reserve promulgates official holidays.    A three day weekend approaches!

 

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

Columbus Day October 10

Veterans Day November 11

Thanksgiving Day November 24

Christmas Day December 25