The SBA and PROfound

Profound

pro·​found

difficult to fathom or understand

very great or significant

 

from Latin profundus, from pro- before + fundus bottom

 

_____________________________________________

TIP OF THE WEEK

 

The most recent changes to SBA’s SOP are profound.

 

SBA SOP 50-10-8.1 will be effective October 1^st 2026.

 

Proficiency with SBA lending requires knowing SOP 50-10-8.

 

It has a prolix 147,517 words over 416 pages.    That’s an improvement over  the prior SOP 50-10-8 which had 163,291 words and 467 pages.

 

The biggest changes are focused on business acquisitions with increased debt service coverage requirements and how to amortized acquisitions that include both real estate and a business.

 

The guidance manual for SSBCI guarantees has only 6,742 words.    Only 22 pages.

 

 

_________________________________________

 

Indices:

PRIME RATE= 6.75%

________________________________________

SBA 504 Loan Debenture Rate for August

 

For 20 year debentures, the debenture rate is only 5.08% but note rate is 5.15332% and the effective yield is 6.026%.

For 25 year debentures, the debenture rate is only 5.14% but note rate is 5.19340% and the effective yield is 6.033%.

_______________________________________________

AHEAD OF THE YIELD CURVE

 

The prodigal son, the bond vigilantes, return.

 

Rates on the longer end of the yield curve continue to climb.

 

At last week’s $25 billion auction of 30-year Treasury bonds the high yield was awarded at 5.216 percent versus 5.058 percent a month ago.

 

This rate is a full ½ percent higher than it was at the beginning of the year.

 

This $25 billion offering was an increase compared to $22 billion the month prior.

 

The increased supply is causing prices to down causing the yields to go up. 

 

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

 

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

2024- 4.015

2025- 4.773

 

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

 

 

__________________________________________

 

OFF BASE

 

We have now past the metrological midpoint of summer with only 38 days left until the first day of autumn.

 

 

The SBA and PROficient

Proficient

proFISHant

competent or skilled in doing or using something.

 

from Latin pro- ("forward") and facere ("to make, do"), meaning someone skilled who moves forward or succeeds in a task

 

 

_____________________________________________

TIP OF THE WEEK

 

Proficiency with SBA lending requires knowing SOP 50-10-8.

 

It has a prolix 163,291 words.   467 pages.

 

The guidance manual for SSBCI guarantees has only 6,742 words.    Only 22 pages.

 

 

_________________________________________

 

Indices:

PRIME RATE= 6.75%

________________________________________

SBA 504 Loan Debenture Rate for January

 

For 20 year debentures, the debenture rate is only 4.72% but note rate is 4.79013% and the effective yield is 6.065%.

For 25 year debentures, the debenture rate is only 4.72% but note rate is 4.77119% and the effective yield is 5.856%.

_______________________________________________

AHEAD OF THE YIELD CURVE

 

Is the Bureau of Labor Statistics being proficient with their reporting on employment?

 

Total payrolls increased by 50 thousand in December.

 

The change in total nonfarm payroll employment for October was revised down by 68,000, from -105,000 to -173,000, and the change for November was revised down by 8,000, from +64,000 to +56,000.

 

With these revisions, employment in October and November combined is 76,000 lower than previously reported.

 

Last year the March 2024 total nonfarm payroll employment level was revised downward by 598,000.

 

Don’t question the probity of the BLS.

 

Revisions are part of the normal process used to gauge job gains and losses in the U.S.

 

Over the prior 10 years, absolute benchmark revisions have averaged 0.1 percent, with a range from < 0.05 percent to 0.3 percent. Benchmark revisions are a standard part of the payroll survey estimation process. The benchmark adjustment represents a once-a-year re-anchoring, based on March data, of sample-based employment estimates to full population counts available through Unemployment Insurance (UI) tax records filed by nearly all employers with State Workforce Agencies.

 

The next benchmark revision comes out in two months.

 

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

 

2025          594,000

2024      2,230,000

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.

 

The economy has only added 93 thousand jobs since April (8 months).

 

This brings the monthly average change in nonfarm payrolls to a decrease of 22,000 compared to increases of 111,000 in the first quarter, 55, 000 in the second quarter, and 51,000 in the third quarter. Some of the weakness in the fourth quarter can be attributed to the government shutdown which encompassed October and the first days of November. However, even allowing for that, hiring continues its downward trend.

 

Minutes from the Federal Reserve’s December 9th and 10th meeting on monetary policy reflect divisions among committee participants as to the proper path of monetary policy to achieve the dual mandate for maximum employment and price stability.

 

The next meeting is January 27-28, 2026.

 

 

__________________________________________

 

OFF BASE

 

A three day weekend approaches!

 

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

 

Martin Luther King, Jr.'s Birthday January 19 

Washington's Birthday February 16 

Memorial Day May 25 

Juneteenth June 19 Independence Day Fourth of July 

Labor Day September 7 

Columbus Day October 12 

Thanksgiving November 26 

Christmas December 25

 

The SBA and PROscenium

Proscenium

pro-SEE-nee-uhm

 

The part of the stage that is in front of the curtain.

 

From Latin proscenium, from Greek proskenion, from pro- (before) + skene (scene).

 

“Pay no attention to that man behind the curtain”

-Wizard of Oz after Toto pulls back the curtain

 

_____________________________________________

TIP OF THE WEEK

 

If you pull back the curtain on the changes in the new SBA SOP 50-10-8, SBA is concerned about the adequacy of equity injections for business acquisitions.

 

Added language makes it clear that “search funding” is not eligible for the 7(a) Loan Program.

 

A search fund is an investment vehicle through which an entrepreneur raises funds from investors in order to acquire a company in which the entrepreneur wishes to take an active, day-to-day leadership role.

 

SBA will consider any investment subject to an agreement to repay equity or make distributions to recover an investor’s investment prior to release of the guaranty (e.g., certain types of redeemable preferred stock) to be debt and not equity.

 

_________________________________________

 

Indices:

PRIME RATE= 7.50%

________________________________________

SBA 504 Loan Debenture Rate for August

 

For 20 year debentures, the debenture rate is only 4.91% but note rate is 4.98186% and the effective yield is 6.255%.

For 25 year debentures, the debenture rate is only 4.96% but note rate is 5.01254% and the effective yield is 6.237%.

_______________________________________________

AHEAD OF THE YIELD CURVE

 

The curtain does not need to be pulled back on revisions to economic data.

 

Revisions for May and June jobs were larger than normal.   With these revisions, employment in May and June combined is 258,000 lower than previously reported.

 

Revisions are part of the normal process used to gauge job gains and losses in the U.S.

 

The confidence interval for preliminary estimates from the payroll surveys is +/-136,000 at a confidence level of 90%, according to the Employment Situation technical notes. A confidence interval shows the range of values that are expected for the survey’s results to fall between if the survey were repeated many times.   This is another way of saying it’s highly likely that the actual number of jobs gained or lost would be within 136,000 jobs of the preliminary estimate.

 

For example, the July estimate of 73,000 jobs gained came with a +/- 136,000 confidence interval. This suggests the true value is likely between 63,000 jobs lost and 209,000 jobs gained.

 

Final revisions for June are scheduled for release with the Sept. 5 Employment Situation report.   The average revision from preliminary to final since 2023 is a relatively modest reduction of 32,000 jobs.

 

Revisions to the Federal Reserve’s release on capacity utilization are insignificant.

 

The preliminary estimate for June’s capacity utilization was 77.6 but was revised to 77.7.

 

In July, capacity utilization moved down to 77.5 percent.

 

A decline in utilities output, plus a contraction in mining activity, fueled the contraction.

 

Within manufacturing, durable goods output increased 0.3 percent and nondurable goods production fell 0.4 percent in July.

 

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

 

2007- 81.5

2008- 79.9

2009- 66.9

2010- 74.8

2011- 76.7

2012- 79.0

2013- 77.8

2014- 78.8

2015- 76.5

2016- 75.4

2017- 76.2

2018- 78.5

2019- 79.7

2020- 74.5

2021- 76.4

2022- 80.0

2023- 78.5

2024- 76.8

 

What does all this mean?

 

I don’t know.

 

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%.

 

Minutes from the Federal Reserve’s last meeting on monetary policy noted that the Committee might face difficult tradeoffs if elevated inflation proved to be more persistent while the outlook for the labor market weakened.

 

Probabilism proliferates with profligate prognostications.

 

 

__________________________________________

 

OFF BASE

 

The Federal Reserve might face difficult tradeoffs?

 

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

 

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:

 

Labor Day September 2

Columbus Day October 14

Veterans Day November 11

Thanksgiving Day November 28

Christmas Day December 25

The SBA and PROperate

properate

pro per ate

speed up

quicken

hasten

From Latin properatus, past participle of properare, from properus speedy

_____________________________________________

TIP OF THE WEEK

 

Have you wished something would just hurry up and be done with?    That’s properation.

 

Effective June 1st is the new SOP 50-10-8.

 

It is a return to time-tested, prudent lending policies SBA Lenders should be familiar with.

 

The differences between SBA and SSBCI guarantees are unique.

 

It would be proficuous to know the distinctions.

 

_________________________________________

 

Indices:

PRIME RATE= 7.50%

________________________________________

SBA 504 Loan Debenture Rate for May

 

For 20 year debentures, the debenture rate is only 5.07% but note rate is 5.14339% and the effective yield is 6.416%.

For 25 year debentures, the debenture rate is only 5.14% but note rate is 5.17343% and the effective yield is 6.397%.

_______________________________________________

AHEAD OF THE YIELD CURVE

 

The Federal Reserve will not be properating any cuts to interest rates.

 

The Fed Open Market Committee left the fed funds target rate range at 4.25 to 4.50 percent at the end of the May 6-7 meeting.

 

It’s statement on monetary policy said it “judges that the risks of higher unemployment and higher inflation have risen.”

 

I walked into Home Depot to see where the price of 2 x 4s are.

 

Douglas Fir 8 foot 2 x 4s 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:

 

5/15/2025              $3.83

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?

 

The price of soft lumber is up just over 5 ½ % from a year ago.

 

Can’t really blame tariffs for that.

 

Canadian lumber accounts for roughly 30% of the U.S. softwood lumber supply, making tariffs a significant factor for downstream industries like homebuilding and manufacturing.

 

As of today, Canadian softwood lumber entering the United States is subject to a combined 14.54% tariff rate.

 

On April 2 Canadian softwood lumber was exempted from the new 25% reciprocal or baseline tariffs applied to other Canadian goods.

 

This exemption was a critical win for the forest value chain, maintaining the status quo at 14.54% and avoiding a cost spike that could have disrupted markets.

 

While the price of lumber may not be jumping, long term interest rates are.

 

At the most recent auction of 30 year Treasury bonds, the high yield was awarded at 4.819 percent versus 4.813 percent a month ago and 4.623 percent two months ago.

 

The offering amount at $25 billion is up from $22 billion last month.

 

Increases in the amounts auctioned impacts rates from the supply and demand side.

 

The U.S. Treasury Department has sharply increased its borrowing estimate for the current quarter, projecting $514 billion in net marketable debt from April through June. That marks a stunning 317% jump from its earlier forecast of $123 billion, made just two months ago.

 

The big shift is largely due to the government starting the quarter with far less cash on hand than expected.

 

Treasury expected to have $850 billion in its coffers by the end of March. Instead, the balance was just $406 billion.

 

The lower balance is mostly the result of Congress still not raising the federal debt ceiling, which limits the government's ability to issue new debt.

 

Congressional properation and procrastination will prognosticate longer term interest rates.

 

__________________________________________

 

OFF BASE

 

The week will properate.

 

A three day weekend approaches.

 

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

 

Monday, May 26: Memorial Day

Thursday, June 19: Juneteenth

Friday, July 4: Fourth of July

Monday, Sept. 1: Labor Day

Monday, Oct. 13: Columbus Day

Thursday, Nov. 27: Thanksgiving

Thursday, Dec. 25: Christmas

The SBA and Prodigal

 

prodigal

prod·i·gal

characterized by profuse or wasteful expenditure : lavish recklessly spendthrift

Latin prodigus, from prodigere to drive away, squander, from pro-, prod- forth + agere to drive

 _____________________________________________

PROTREPTIC OF THE WEEK

 

SBA Guarantee Fees effective March 26, 2025:

For loans of $150,000 or less: 2% of the guaranteed portion.

For loans of $150,001 to $700,000: 3% of the guaranteed portion.

For loans of $700,001 to $5,000,000: 3.5% of the guaranteed portion of the loan up to and including $1,000,000, plus 3.75% of the guaranteed portion over $1,000,000.

 

Per SBA Notice 5000-865758 just released.

 

Guarantee fees remain at 2.5% of guaranteed portion for SSBCI guarantees.

 

_________________________________________

 

Indices:

PRIME RATE= 7.50%

________________________________________

SBA 504 Loan Debenture Rate for March

 

For 20 year debentures, the debenture rate is only 4.97% but note rate is 4.82471% and the effective yield is 6.315%.

For 25 year debentures, the debenture rate is only 4.97% but note rate is 5.02251% and the effective yield is 6.246%.

_______________________________________________

AHEAD OF THE YIELD CURVE

 

The prodigal son, the bond vigilantes, return.

 

Rates on the longer end of the yield curve continue to climb.

 

At last week’s $22 billion auction of 30-year Treasury bonds the high yield was awarded at 4.813 percent versus 4.623 percent a month ago.

 

This continues to be a reduced offering compared to a $25 billion average a year ago.

 

Normally the reduced supply would cause prices to go up causing the yields to go down.

 

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

 

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

2024- 4.015%

 

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

 

Just after Labor Day last year 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.

 

 

 

__________________________________________

 

OFF BASE

 

Prodigal Son is the only song on the Rolling Stones album “Beggars Banquet” not written by Mick Jagger and Keith Richards.

 

It was written by Reverend Robert Wilkens, an African American/Cherokee country blues guitarist from the 1920s.

 

 

The SBA and PROducent

Producent

pro·du·cent

one that produces (as a witness or a document) from Latin pro "before, forth" + ducere "to bring, lead"

This is really just a fancy way to say producer.   In legal terms it is one that exhibits; one that offers.

_____________________________________________

PROTREPTIC OF THE WEEK

 

The new administrator of the SBA was the producent of a policy notice (5000-865754) that now requires ALL owners (100%) of a small business applying for financial assistance must either be US Citizen or Lawful Permanent Resident.

 

In addition, SBA faces a programmatic shutdown on March 14th.   As of March 4, total 7(a) gross volume since October 1 is now $14,988,635,600 leaving only $831,987,688 million available in authority.

 

This allows for about $83.2 million/day.   Last Tuesday saw $193.1 million in gross volume for just that one day.

 

The current Continuing Resolution, which funds the government expires Friday, March 14 at midnight.

 

Another continuing resolution or a government shutdown will occur.

 

SSBCI guarantees are NOT impacted.

 

It would be proficuous to know the difference.

 

_________________________________________

 

Indices:

PRIME RATE= 7.50%

________________________________________

SBA 504 Loan Debenture Rate for MARCH

 

For 20 year debentures, the debenture rate is only 4.97% but note rate is 4.82471% and the effective yield is 6.315%.

For 25 year debentures, the debenture rate is only 4.97% but note rate is 5.02251% and the effective yield is 6.246%.

_______________________________________________

AHEAD OF THE YIELD CURVE

 

The producents at the Federal Reserve meet on monetary policy March 18 and 19.

 

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

 

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

Mar-31-2025      4.32750

May-30-2025      4.25000

Aug-29-2025       3.94500

Nov-28-2025      3.70500

Feb-27-2026       3.58000

Aug-31-2026       3.47500

Feb-26-2027       3.36500

 

What does all this mean?

 

I don't know.

 

The current fed funds target rate is 4.25% to 4.50%.

 

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

 

Last month’s auction of 30 year treasury bonds had a high yield of 4.748 percent versus 4.913 percent a month ago.

 

This week the auction will be on Thursday for $22 billion.    This continues to be a reduced offering compared to a $25 billion average a year ago.

 

As a result, the reduced supply has caused prices to go up causing the yields to go down.

 

On the shorter end of the curve, auction sizes for both the three month and six month weekly auctions are still at near record levels.   Last week the auction size for the three month treasury bill was $76 billion.

 

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

 

 

__________________________________________

 

OFF BASE

 

The day after daylight savings is not a holiday.

 

Saint Patrick’s Day isn’t either.

 

Our next holiday is not until Memorial Day.

 

Here are the upcoming Federal Reserve Holidays:

 

Monday, May 26: Memorial Day

Thursday, June 19: Juneteenth

Friday, July 4: Fourth of July

Monday, Sept. 1: Labor Day

Monday, Oct. 13: Columbus Day

Thursday, Nov. 27: Thanksgiving

Thursday, Dec. 25: Christmas

proscription

pro-SKRIP-shuhn

A prohibition or the act of prohibiting, particularly one imposed by law.

Latin proscribere (to publish in writing, to name someone as outlawed), from pro- (front) + scribere (write).

 

Proscription is the opposite of prescription.

Prescription is written instructions on what to do.

Proscription is written instructions on what not to do.

 

_____________________________________________

PROTREPTIC OF THE WEEK

 

The proscription for use of proceeds with SBA loans is that you can not repay delinquent taxes.    You also can not use loan proceeds to repay a shareholder note.

 

The same proscription regarding repayment of delinquent taxes also applies to the State Small Business Loan Guarantee Program.

 

Shareholder notes however can be repay with a SBLGP loan.

 

It would be proficuous to know the difference.

 

_________________________________________

 

Indices:

PRIME RATE= 7.50%

________________________________________

SBA 504 Loan Debenture Rate for JANUARY

 

For 20 year debentures, the debenture rate is only 5.24% but note rate is 5.31491% and the effective yield is 7.038%.

For 25 year debentures, the debenture rate is only 5.24% but note rate is 5.29403% and the effective yield is 6.517%.

_______________________________________________

AHEAD OF THE YIELD CURVE

 

The economy ended the year on a strong note with 256,000 new jobs for December.

 

The current streak of positive job growth of 48 months is now in second place for longest job streaks in US History.

 

The longest streak was 113 months that ended in early 2020.

 

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

 

2024      2,230,000

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.

 

Of the total 256,000 new jobs in December, 33,000 were government jobs.

 

How many government employees are there in the United States?

 

There are a little less than 23 million public employees.

 

2.4 million are in the federal government.   What’s striking is that the federal government workforce has remained relatively flat over the last seven decades.

 

Of course, over such a long period, the population of the United States would have increased considerably. So it probably makes more sense to look at the public workforce as a percentage of the population.

 

In 1960 federal employees accounted for 1.07% of all jobs.   It has now declined to 0.7% of all jobs.

 

That makes the federal government the nation’s single largest employer, with even more workers than Walmart, Amazon or McDonald’s.

 

The federal government spent roughly $271 billion last year to compensate all those civilian federal employees.

 

With the budget deficit projected to be $1.9 TRILLION, firing all government workers would barely dent the deficit.

 

As a result, the government continues to borrow.

 

The weekly 3 month treasury bill auction was at a record $84 billion for the second week in a row.    The rate came in at 4.205 percent.

 

Results for the $22 billion 4.50 percent 30-year bond resulted in a high yield awarded at 4.913 percent versus 4.535 percent a month ago.

 

Fed policymakers meet on January 28-29.      There will be little reason to ease the fed funds target rate range and fight the bond market on the longer end of the yield curve.

 

 

__________________________________________

 

OFF BASE

 

A three day weekend approaches.

 

In addition to setting monetary policy, the Federal Reserve also proscribes what days you can work.

 

Here are the upcoming Federal Reserve Holidays:

 

Monday, Jan. 20: Martin Luther King, Jr.'s Birthday 

Monday, Feb. 17: Washington's Birthday 

Monday, May 26: Memorial Day 

Thursday, June 19: Juneteenth 

Friday, July 4: Fourth of July 

Monday, Sept. 1: Labor Day 

Monday, Oct. 13: Columbus Day 

Tuesday, Nov 11: Veterans Day

Thursday, Nov. 27: Thanksgiving 

Thursday, Dec. 25: Christmas

 

The SBA and PROtreptic

protreptic

pro·trep·tic

an utterance (such as a speech) designed to instruct and persuade from the Greek word protreptikos, which is derived from protrepein, meaning "to turn forward" or "to urge on".

 

_____________________________________________

PROTREPTIC OF THE WEEK

Roughly 21% of all SBA 7(a) loans were utilized for business acquisitions.    A growing portion of those are for Employee Stock Ownership Plans (ESOP).

 

A SSBCI guarantee can also be used on those ESOP deals that are too big for a 7(a) loan.   Loan amounts can go up to $20,000,000.

 

_________________________________________

 

Indices:

PRIME RATE= 7.75%

________________________________________

SBA 504 Loan Debenture Rate for NOVEMBER

 

For 20 year debentures, the debenture rate is only 5.01% but note rate is 5.08277% and the effective yield is 6.395%.

For 25 year debentures, the debenture rate is only 5.01% but note rate is 5.06275% and the effective yield is 6.325%.

_______________________________________________

AHEAD OF THE YIELD CURVE

 

The Federal Reserve no longer has confidence.

 

Its last protreptic on monetary policy left out any mention of the "greater confidence" that the FOMC had been seeking in its fight against inflation.

 

The statement said, "The Committee judges that the risks to achieving its employment and inflation goals are roughly in balance”.

 

Previously it had stated “The Committee has gained greater confidence that inflation is moving sustainably toward 2 percent, and judges that the risks to achieving its employment and inflation goals are roughly in balance.”

 

For inflation, 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%.

 

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 week it was reported capacity utilization moved down to 77.1 percent in October but that drop might be an outlier.

 

The Boeing strike has since been settled and hurricane effects should be more-or-less gone from the data in November.

 

Treasury yields turned higher Friday morning with indications that the Federal Reserve is not looking to cut rates quickly.

 

The November auction of 30 year treasury bonds ended with the high yield awarded at 4.608 percent versus 4.389 percent a month ago and 4.015 percent two months ago.

 

The yield on the 30-year Treasury was 4.639% on Friday, up 5 basis points from 4.589% on Thursday.

 

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

 

 

__________________________________________

 

OFF BASE

 

Thanksgiving is almost here.    The Friday after Thanksgiving however is NOT a federal holiday.

 

Many people mistakenly think it’s because banks can’t be closed more than 3 days straight.

 

The Bank Holiday of 1933 shut down the American banking system.    For an entire week, Americans would have no access to banks or banking services. They could not withdraw or transfer their money, nor could they make deposits.

 

The crisis had been a long time coming. In the three years leading up to it thousands of banks had failed as bank panics proliferated.

 

The Emergency Banking Act of 1933 aimed at restoring public confidence in the nation’s financial system after the weeklong bank holiday.   It promised to not let banks be closed for extended periods.

 

When banks reopened, it was common to see long lines of customers returning their stashed cash to their bank accounts.  Within two weeks the public had redeposited about two-thirds of this cash.

 

Currently there is no law requiring banks to not be closed more than 3 days.

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”)

 

_____________________________________________

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.

 

 

_________________________________________

 

Indices:

PRIME RATE= 8.00%

________________________________________

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

 

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.

 

__________________________________________

 

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

 

_____________________________________________

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.

 

_________________________________________

 

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.

 

__________________________________________

 

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".

 

_____________________________________________

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.

 

_________________________________________

 

Indices:

PRIME RATE= 8.50%

________________________________________

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".

 

__________________________________________

 

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"

 

_____________________________________________

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.

 

_________________________________________

 

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.

 

__________________________________________

 

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.”