Monday, May 9, 2022

The SBA and PROlix

prolix

pro-LIKS, PRO-liks

Tediously wordy.

 

From Latin prolixus (extended, poured), from liquere (to flow),

 

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TIP OF THE WEEK

 

Prolix profligate promulgations proliferate over variable interest rates.

 

A SBA 7(a) loan with a variable rate tied to prime should adjust on a calendar quarterly basis.   That benefits both the borrower and the lender.

 

Because 7(a) loans are fully amortizing over long terms, increases in interest rates do not dramatically increase the monthly payment.

 

For example, a $100,000 SBA loan with a variable rate of PRIME plus 2.75 resulting in an interest rate of 6.75 amortized over 10 years would have a monthly payment of  $1,148.

 

If interest rates rise another 1% resulting in a rate of 7.75% the monthly payment is $1,200, an increase of $52.

 

Another 1% rise in rates would cause the monthly payment to now be $1,253, an increase of roughly $53.

 

A 2% increase in interest rates is a 30% jump but payments only went up 9%.

 

The impact is more pronounced with 7(a) loans with 25 year terms since more of the monthly payment goes towards interest and not principal.

 

In the above examples, if the loan had a 25 year amortization, payments would have increased by almost 20%.

 

 

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Indices:

PRIME RATE= 4.00%

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SBA 504 Loan Debenture Rate for May

For 20 year debentures, the debenture rate is only 3.82% but note rate is 3.88% and the effective yield is 5.061%.

For 25 year debentures, the debenture rate is only 3.94% but note rate is 3.98% and the effective yield is 5.119%.

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AHEAD OF THE YIELD CURVE

 

With no prolixity, the Federal Reserve Open Market Committee announced that it raised its key short-term interest rate by a half percentage point Wednesday, its largest hike since 2000.

 

Its official statement came in at 366 words.   The January statement after its prior meeting was at a prolix 420 words.

 

Most prospicient was its prognostication that “ that ongoing increases in the target range will be appropriate.”

 

Nobel Prize winning economist Milton 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%).

 

Most of the damage occurred in the spring and summer of 2020.

 

Here is a new chart reflecting the M2 Money Supply percent change quarterly:

 

2019-04-01          4.3

2019-07-01          5.2

2019-10-01          6.7

2020-01-01          7.9

2020-04-01          20.6

2020-07-01          23.4

2020-10-01          24.4

2021-01-01          25.7

2021-04-01          15.3

2021-07-01          13.3

2021-10-01          12.7

 

To put that into perspective, here is another chart reflecting monthly change in M2 in billions of dollars:

 

2019-12-01          69.0

2020-01-01          82.4

2020-02-01          57.3

2020-03-01          530.4

2020-04-01          1014.7

2020-05-01          833.8

2020-06-01          296.5

2020-07-01          149.5

2020-08-01          82.2

 

In March, April and May of 2020, the supply of money increased roughly $2.4 trillion.

 

It is not all the Federal Reserve’s fault.

 

Most of the increase came from fiscal stimulus, not Federal Reserve policy moves.

 

The Treasury Department pitched in by borrowing trillions to send stimulus checks to most Americans.   Stimulus spending sent both the FY 2020 deficit and the national debt to all-time highs.  Spending represented a jump of more than $2 trillion from the previous year, a 47% increase.  The increased government spending combined with declining revenue resulted in more than $3.1 trillion added to the national debt.

 

So what does this all mean?

 

How much higher will interest rates go?

 

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 3.22% up from 3.00% just last month and up from only 0.17% in October.   The December 2023 implied rate is at 3.45%

 

Keep your eyes and ears open for this week’s auction of 30 year Treasury bonds.   Last month’s auction was considered average, with demand for the debt at 2.3 times the bonds on sale even with the average of the past 12 months but well short of the 2.46 in the March auction.  The yield on the 30-year Treasury bond was down 2.7 basis points to 2.800%.   As of last Friday, the 30 year yield was 3.23%.

 

The yield curve is not close to inverting.   According to the Federal Reserve Bank of Cleveland, using past values of the slope of the yield curve and GDP growth to predict future growth and the probability of recession, the odds of a recession  have actually decreased.   The probability of a recession in 1 year is at only 2.7%.

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OFF BASE

 

There's no way to talk about prolix without being redundant, verbose, and wordy. That's because the word is a synonym of all of those long-winded terms. Of those words, prolix is the one most likely to suggest unreasonable and tedious dwelling on details. It derives from prolixus, a Latin term meaning "extended" or "copious." Prolixus originated from a combination of the prefix pro- (which means "forward") and the past participle of liquēre, a verb meaning "to be fluid." True to that history, something that is prolix flows on and on.

 

Liquere is also the source of words such as liquid, liquor, licorice.   Now you see the connection -- why consuming liquor makes people prolix.

 

All this brings to mind the proverb that even fools are thought wise if they keep silent.

 

Maybe I should shut up.

 

Monday, April 11, 2022

The SBA and PROcacious 

 Procacious

prō-kei-us

Insolent or arrogant in attitude or tone; forward, cheeky; provocative.

From Latin procax- “bold, impudent”

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TIP OF THE WEEK

No need to be procacious about the SBA 7(a) loan program.

The SBA program for next 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.

The guarantee fee for loans of $350,000 or less is ZERO.

 

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Indices:

PRIME RATE= 3.50%

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SBA 504 Loan Debenture Rate for April

For 20 year debentures, the debenture rate is only 3.38% but note rate is 3.43% and the effective yield is 4.620%.

For 25 year debentures, the debenture rate is only 3.50% but note rate is 3.54% and the effective yield is 4.680%.

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AHEAD OF THE YIELD CURVE

 

The procacity over the yield curve inverting is profluent proditomania.

 

Driven by a weak auction of 2 year treasury notes almost three weeks ago, the 2 year treasury yield jumped to over 2.365%, up a whopping 81.2 basis points from the prior month's auction rate and the highest awarded since February 2019.

 

That caused the widely followed spread between 2- and 10-year Treasury yields to become negative and prognostications proliferated that this inversion of the yield curve meant a recession was now on the way.

 

However, there is nothing “magical” about the “10/2” spread.

 

The spread between the 3 month Treasury bill and the 10 year Treasury bond is considered an even better indicator.

 

Right now, the current Treasury yield curve is historically very steep from 3-months to 2-years a bit flatter than normal from 2- to 3-years, and slightly inverts from 3- to 10-years.  Spreads between the 3 year Treasury and the Fed funds rate is at its widest since 1994.

 

This procellous slope of the yield curve is driven by concerns on what the Federal Reserve is going to do about inflation.

 

One of the Fed’s leading indicators on inflation is capacity utilization which measures the amount of a plant that is in use at factories, mines and utilities.

 

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

 

Here is what capacity utilization has been doing and this week 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

 

What does all this mean?

 

I don’t know.

 

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

 

Last month capacity utilization was up 0.3 percent to 77.6 percent.   This still almost 2 percentage points below the long run average dating back to 1972.

 

The Federal Reserve Open Market Committee next meets May 3rd and 4th.

 

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 3.00% up from 2.06% just last month and up from only 0.17% in October.

 

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OFF BASE

 

If you happen to watch a major league baseball game on Friday, April 15th you might notice that all the players are wearing number 42.  It is the only day you will see any player with that number on their jersey.   In 1997, MLB retired number 42 across all major league teams.

 

That is in honor of Jackie Robinson.  42 was his jersey number.  April 15 was Opening Day in 1947, Robinson's first game in the major leagues with the Brooklyn Dodgers.

 

For some strange reason it is not a national holiday.   We are now in the longest stretch of the year without a holiday.

 

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

Memorial Day May 30

Juneteenth      June 19

Independence Day July 4

Labor Day September 5

Columbus Day October 10

Veterans Day November 11

Thanksgiving Day November 24

Christmas Day December 25

Monday, March 14, 2022

The SBA and PROtervity

Protervity

prō-ter′vi-ti

The state or quality of being irritable; quick excitability; petulance; fretfulness; as, irritability of temper.

From Latin pro, forth, terĕre, to bruise

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TIP OF THE WEEK

Sensing protervity over the verification of tax returns for SBA loans, SBA Lenders may instead obtain tax return information by fully completing and submitting IRS Form 8821.

SBA Lenders may use either IRS Form 4506-C or IRS Form 8821.   Use of Form 4506-T has been discontinued.

Putting aside its protervity, Congress has passed both the short term Continuing Resolution (CR) that keeps the government operating to March 15, and also the full year FY22 funding package.

Both the SBA 7(a) and 504 loan programs have more than adequate resources to support small business through the end of the fiscal year which is in about 197 days.

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Indices:

PRIME RATE= 3.25%

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SBA 504 Loan Debenture Rate for March

For 20 year debentures, the debenture rate is only 2.53% but note rate is 2.57% and the effective yield is 3.766%.

For 25 year debentures, the debenture rate is only 2.75% but note rate is 2.78% and the effective yield is 3.929%.

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AHEAD OF THE YIELD CURVE

 

The protervity of the bond market continued at the government’s last auction of 30 year treasury bonds.

The high yield was awarded at 2.375 percent, up 3.5 basis points from last month's auction rate and the highest awarded for the bond since May of last year.

The shorter end of the yield curve has the pressure as reflected in the earlier 3 year auction where the high yield was awarded at 1.775 percent, up 18.3 basis points from last month's auction rate and the highest yield awarded for the note since July 2019.

The yield curve going procumbent is no need for proditomania.

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.

The Federal Reserve meets March 15th and 16th on monetary policy.

At the Semiannual Monetary Policy Report to the Congress, the chairman of the Federal Reserve said that they would probably raise the target range for the federal funds rate.

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 2.06% up from 1.18% at the beginning of the year and up from only 0.17% in October.

Protervity comes with a procellous prognostication.

 

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OFF BASE


The protervity caused by daylight saving time began with Germany during World War I.    The rationale was to minimize the use of artificial lighting to save fuel for the war effort.

In the US, “Fast Time,” as it was called then, was first introduced in 1918.   Only seven months later, daylight saving time was repealed.

In 1942, at the height of World War II, President Franklin D. Roosevelt reintroduced the measure, instituting year-round Daylight Saving Time in the US and referred to it as “War Time,”

The protervity of the Irish peoples is celebrated this Thursday, March 17th which is the day Saint Patrick died.

The first day of Spring is Sunday March 20th.

The next proscribed Federal holiday is not until Memorial Day May 30th.   This is the longest stretch of the year between three day weekends.  Protervity.

Monday, February 14, 2022

The SBA and PROceleusmatic

 Proceleusmatic

pros-uh-loos-MAT-ik

Inciting, exhorting, or inspiring.

 

From Late Latin proceleusmaticus, from Greek prokeleusmatikos (calling for incitement), from keleuein (to rouse to action).

 

One of the derivatives of keleúein, the agent noun keleustḗs, means “coxswain, one who beats time for the rowers,” referring specifically to the very quick rhythm to incite rowers charging into battle to ram enemy ships.

 

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TIP OF THE WEEK

 

A proceleusmatic prospicient House of Representatives passed a Continuing Resolution (CR) to fund the federal government, including SBA, through March 11, 2022 by a vote of 272-162.

This new CR maintains current funding levels and policies for SBA which are set to expire under the current CR on February 18.

 

Currently, the exact timing of Senate consideration is unclear but all indications are that the Senate will pass this latest CR and avoid a shutdown. President Biden is also expected to sign this CR.

 

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Indices:

PRIME RATE= 3.25%

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SBA 504 Loan Debenture Rate for February For 20 year debentures, the debenture rate is only 2.22% but note rate is 2.259% and the effective yield is 3.454%.

For 25 year debentures, the debenture rate is only 2.42% but note rate is 2.4526% and the effective yield is 3.598%.

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AHEAD OF THE YIELD CURVE

 

Rates are going up, rates are going up is the  proceleusmatic prognostication proliferating.

 

The US government’s deficit however is going down.

 

The federal government ran a budget surplus of $119 billion in January compared with a deficit of $163 billion in the same month last year, the Treasury Department reported last week.

 

Spending in January was $346 billion while receipts totaled $465 billion.   For the fiscal year to date, the deficit was $259 billion compared to $736 billion last year.

 

The deficit looks relatively tame during the first four months of the fiscal year mainly because last year the government had kept open the spending floodgates in 2021 to battle the effects of the coronavirus pandemic on the economy.

 

So what will the Federal Reserve do at their next meeting on monetary policy?

 

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.

 

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

 

DEC22- 1.92

DEC23- 2.275

DEC24- 2.13

DEC25- 2.14

DEC26- 2.145

 

What does all this mean?

 

I don’t know.

 

Keep your eyes and ears open for the Minutes from the Federal Reserve’s last meeting on monetary policy that will be released February 16th.

 

The December 2022 implied rate is now at 1.92% up from 1.18% a month ago and up from only 0.17% in October.

 

At last week’s auction of 30 year treasury bonds the high yield was 2.34%, up 26.5 basis points from last month's auction rate and the highest awarded for the bond since May of last year.

 

The Federal Reserve’s next meeting on monetary policy is March 15 and 16.

 

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OFF BASE

 

Where a number of individuals have been accustomed for centuries to perform exactly the same work at the same time, it is evident that they labored together to the rhythm of some familiar melody, the time of which was adapted to suit the particular requirements of the task in which they were engaged.

 

The ancient Phoenician builders of the Temple at Jerusalem, and the skilled stone-masons who were employed by the Kings of Egypt to construct the great pyramids sang songs so as to secure concerted effort. Otherwise they might never have been able to place their huge monoliths in position at all.

 

Proceleusmatic promulgations can become a profligate tyranny of rhythm.

 

It is important to sometimes take a break from that and a three day weekend approaches!

 

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

Washington's Birthday February 21

Memorial Day May 30

Juneteenth      June 19

Independence Day July 4

Labor Day September 5

Columbus Day October 10

Veterans Day November 11

Thanksgiving Day November 24

Christmas Day December 25

Monday, January 10, 2022

The SBA and PROscribe

Proscribe

pro-SKRYB

 

1. To forbid something, especially by law.

2. To denounce, condemn, or exile someone.

 

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

 

Proscribe has a meaning essentially the opposite of that of prescribe.

 

Prescribe is generally the more common of the two words, and anyone who uses the formal verb proscribe in their regular discourse is usually keen to the distinction. Keeping them separate, therefore, is often more difficult for the reader or listener (especially since they sound alike when spoken quickly). Context will usually tell you if an action is being ordered (prescribed) or prohibited (proscribed).

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TIP OF THE WEEK

 

The phrase supply chain has been proscribed.

 

Lake Superior State University released its 2022 banished words list as a result of misuse, overuse, and uselessness.   Included on that list was supply chain.  Supply chain issues have become the scapegoat of everything.  The adverse result: overuse ad nauseam.

 

Trucks move roughly 72.5% of the nation's freight by weight.   The truck tonnage index is an index that measures the gross tonnage of freight which is transported by motor carriers in the United States for a given month.  The Federal Reserve Bank of St. Louis maintains a chart of the truck tonnage index on their website.  In March 2018, the truck tonnage index read at 112.5. A year later the index reached 116.7. It continued to rise until August 2019 before dipping in 2020. In April 2020 it had dropped to 106.9.  The US Truck Tonnage Index is at a current level of 113.40.  This is a change of 1.98% from one year ago.

 

The trucking industry is one of the most fragmented ones in the U.S.   There are almost 4 million class 8 trucks in operation.   According to the U.S. Department of Transportation, as of February 2021, the number of for-hire carriers on file with the Federal Motor Carrier Safety Administration totaled 996,894.  97.4% operate fewer than 20 trucks.

 

Truckers are well suited for SBA financial assistance.  Loan proceeds can be used for truck and trailer purchases, or for the refinance of existing debt.   A SBA loan can typically provide an amortization up to the useful life of the asset.   Working capital can also be provided as well as real estate financing for warehouse and storage facilities.

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Indices:

PRIME RATE= 3.25%

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SBA 504 Loan Debenture Rate for January

For 20 year debentures, the debenture rate is only 1.84% but note rate is 1.87% and the effective yield is 3.07%.

For 25 year debentures, the debenture rate is only 2.04% but note rate is 2.068% and the effective yield is 3.216%.

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AHEAD OF THE YIELD CURVE

 

The Federal Reserve continues to promulgate that "Supply and demand imbalances related to the pandemic and the reopening of the economy have continued to contribute to elevated levels of inflation".

 

At least they did not use the phrase supply chain.

 

This statement from their last meeting on monetary policy left out the "some sectors" mentioned last time. The Fed Open Market Committee is acknowledging that inflation is more broad-based.

 

They mentioned that “Job gains have been solid in recent months”.

 

For all of 2021, the economy added a record 6.4 million jobs.  So far, the U.S. has recouped 18.8 million, or 84%, of the 22.4 million jobs lost early in the pandemic, leaving it 3.6 million jobs shy of its pre-crisis level.

 

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

 

December 199,000

November 249,000

October     648,000

September 312,000

August    483,000

July     1,053,000

June       962,000

May        614,000

April      269,000

March      916,000

February  468,000

January    233,000

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.

 

Keep your eyes and ears open for this week’s auction of the 30 year Treasury bond.

 

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

 

Since then the 30 year treasury bond yield has increased to 2.109%.

 

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 years.   The December 2022 implied rate is now at 1.18%, up from only 0.17% in October.

 

The Federal Reserve’s next meeting on monetary policy is January 25 and 26.

 

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OFF BASE

 

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

 

Birthday of Martin Luther King, Jr. January 17 

Washington's Birthday February 21 

Memorial Day May 30

Juneteenth      June 19

Independence Day July 4

Labor Day September 5

Columbus Day October 10

Veterans Day November 11

Thanksgiving Day November 24

Christmas Day December 25

Monday, December 13, 2021

The SBA and PROpinquity

 propinquity

pro-PING-kwi-tee

Nearness in space, time, or relationship.

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

 _____________________________________________

TIP OF THE WEEK

 

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

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

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

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

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

 _________________________________________

 Indices:

PRIME RATE= 3.25%

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SBA 504 Loan Debenture Rate for December      

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

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

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AHEAD OF THE YIELD CURVE

 

The propinquity of prodigious inflation proliferates.   Or does it?

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

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

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

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

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

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

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

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

 One of the Fed’s leading indicators on inflation is capacity utilization which measures the amount of a plant that is in use at factories, mines and utilities.

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

 

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

 

2007- 81.5

2008- 79.9

2009- 66.9

2010- 74.8

2011- 76.7

2012- 79.0

2013- 77.8

2014- 78.8

2015- 76.5

2016- 75.4

2017- 76.2

2018- 78.5

2019- 77

2020- 74.5

2021- 76.4

 

What does all this mean?

 

I don’t know.

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

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

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

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

 Prognostications proliferate over the protean slope of the yield curve.

 _________________________________________

 

OFF BASE

 

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

 

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

 

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

 

Nothing propinks like propinquity.

Monday, November 8, 2021

The SBA and PROfluent

profluent

PROF-loo-ent

Flowing smoothly; flowing in full stream.

from Latin pro- (forth) + fluere (to flow)

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TIP OF THE WEEK


Procellous not profluent was October for SBA 7(a) loan approvals.

 

SBA loans had propined small business in protean ways with the guarantee fee waiver and SBA payments of P&I through the fiscal year ending September 30th.

 

The prosaic promulgation reducing guarantee percentages and imposing the guarantee fee prompted SBA 7(a) loan approval volume to drop 35%.

 

October 2021 7(a) loan approvals were at $804,764,600 while October 2020 loan approvals for that month were $1,232,723,000.

 

October 2019 7(a) loan approvals for that one month period were $1,602,677,500, consistent with the prior three years.

 

_________________________________________

 

Indices:

PRIME RATE= 3.25%

________________________________________

SBA 504 Loan Debenture Rate for October

For 20 year debentures, the debenture rate is only 1.54% but note rate is 1.568% and the effective yield is 3.021%.

For 25 year debentures, the debenture rate is only 1.74% but note rate is 1.765% and the effective yield is 3.157%.

_______________________________________________

AHEAD OF THE YIELD CURVE

 

The pronunciamento from the Federal Reserve that later this month they will start to reduce purchases by $15 billion per month -- $10 billion in Treasuries and $5 billion Agency MBS overshadowed the Treasury’s announcement on its anticipated borrowing needs.

 

It turns out the government borrowed $570 billion LESS than they thought they had to last quarter.  A part of that was a greater than anticipated increase in receipts.

 

As a result, the Treasury anticipates decreases in its bond auction sizes.   Overall, these planned changes will reduce by $84 billion the auction sizes during the current quarter from the level in the August-October quarter.

 

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:

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

 

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.

 

What does all this mean?

 

I don't know.

 

After the job’s announcement of a nice increase of 531,000 in October, the 30 year Treasury bond DROPPED 7.8 basis points to 1.885%.

 

This drop was somewhat confounding, given that the robust payrolls number, lack of improvement in the participation rate, and strong hourly wage growth underlined inflation concerns.

 

Or it could be the carefully choreographed pivot in monetary policy is part of a bigger dance with the Treasury refunding announcement decreasing auction sizes.

 

Prognostications proliferate over the protean slope of the yield curve but it could be profluent.

 

__________________________________________

 

OFF BASE

 

According to the Federal Reserve, here are our remaining holidays:

 

Veterans Day November 11

Thanksgiving Day November 25

Christmas Day December 25

 

So why is Veterans Day on the 11th instead of a Monday?  Major hostilities of World War I were formally ended at the 11th hour of the 11th day of the 11th month of 1918, when the Armistice with Germany went into effect. It coincides with other holidays such as Armistice Day and Remembrance Day, which are celebrated in other parts of the world.

 

By the way, it is Veterans Day - a simple plural without a possessive apostrophe (Veteran's or Veterans').  The United States government has declared that the attributive (no apostrophe) rather than the possessive case is the official spelling.

Monday, October 4, 2021

The SBA and prow

 prow

(prou)

1. The front of a ship or a boat above the water 2. The projecting front part of something, as a building.

 From the Greek word prōira, from a base meaning “in front.”

 _____________________________________________

TIP OF THE WEEK

 

The terms Prow and Bow are often used interchangeably, but they’re not exactly the same thing.  The Bow is the forward part of the ship.   The prow however is the forward most part of the bow above the waterline.

 It’s the part you can see.     Often there is a lot of bow under the water.   A lot may go on we don’t see, like a duck calm on the surface but paddling hard underneath.

 What we can see is the new fee structure now in effect for SBA 7(a) loans:

-For loans of $350,000 or less: 0.00%.

-For loans of $350,001 to $700,000: 2.77% of the guaranteed portion.

-For loans of $700,001 to $1,000,000: 3.27% of the guaranteed portion.

-For loans of $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.

 The guarantee fee for the Small Business Loan Guarantee Program through IBank is now 2.5% of the guaranteed portion.

 

_________________________________________

 

Indices:

PRIME RATE= 3.25%

________________________________________

SBA 504 Loan Debenture Rate for September For 20 year debentures, the debenture rate is only 1.38% but note rate is 1.406% and the effective yield is 2.860%.

For 25 year debentures, the debenture rate is only 1.56% but note rate is 1.58% and the effective yield is 2.977%.

_______________________________________________

AHEAD OF THE YIELD CURVE

 

Like the prow of a ship, the most visible aspect of the Federal Reserve is their Federal Open Market Committee Statement.   After their last meeting on monetary policy the Fed presented a slightly more upbeat picture of the US economy.  The FOMC opted to remove "significantly" from the phrase "The path of the economy continues to depend on the course of the virus" which suggests policymakers see less risk of the pandemic worsening and endangering the current robust expansion.

 

The under the water or behind the scenes look will happen on October 13th when minutes from their  last meeting are released.

 

Also keep your eyes and ears open for this week’s announcement on employment for September.

 

Initial jobless claims rose  again in the week ended September 25.  While at a slower pace, this is the third week in a row for higher claims for regular unemployment benefits and will add to the gathering gloom that the September report for nonfarm payrolls may be weak enough to derail anticipation of a start to the tapering of asset purchases after the November 2-3 FOMC meeting.

 

What’s the prognostication on interest rates?

 

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 years.

 

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

 

DEC21- 0.17

DEC22- 0.17

DEC23- 1.09

DEC24- 1.52

DEC25- 1.79

DEC26- 2.01

 

What does all this mean?

 

I don’t know.

 

The December 2023 Eurodollar rate was at 0.85 four months ago.   It is now up almost 20 basis points.

 

Prognostications proliferate over the protean slope of the yield curve but now a procellous propugnaculum might be prospicient.

 

 

__________________________________________

 

OFF BASE

 

From the prow of the Pinta, Rodrigo de Triana sighted land on October 12, 1492.   it appeared he had also won himself the Royal Reward of 10,000 silver coins per annum for the rest of his life.

 

The king and queen of Spain had decreed that the man who first sighted land, there would be a Royal Reward of 10,000 silver coins, per year, for the rest of that man’s life.

 

When Rodrigo returned to Spain to claim his reward, Christopher Columbus claimed that the previous evening, he sighted the land first.  He added that the event was so inconsequential that he did not feel the need to tell anyone about it. He noted all of that in his diary however, and used this as a basis to challenge Rodrigo de Triana’s claim to the Royal Reward.   Columbus won, and was awarded 10,000 silver coins for the rest of his life.   Rodrigo sailed off to Africa and obscurity.

 

As a result, a three day weekend approaches.

 

According to the Federal Reserve, here are our remaining holidays:

 

Columbus Day October 11

Veterans Day November 11

Thanksgiving Day November 25

Christmas Day December 25

Monday, September 13, 2021

The SBA and prognathous

 prognathous

PROG-nuh-thuhs, prog-NAY-thuhs

1. Protruding outwards.

2. Having a jaw that protrudes outwards.

 From Greek pro- (before) + gnathos (jaw).

 _____________________________________________

TIP OF THE WEEK

 

A punch to the jaw for 504 loans.    The SBA 504 loan program has reached its lending cap for the current fiscal year (which ends September 30) which will cause a lapse in issuing loan approvals.

 

SBA is still able to authorize 504 debt refinance projects WITHOUT expansion as there are ample funds available in this part of the 504 program.

 

504 debt refinance WITH expansion will have to wait for the new fiscal year.   Borrowers may want to procrastinate on 504 debt refinance with expansion since the debt to be refinanced may not exceed 100% of the new expansion costs.

 

As Mike Tyson once said, “"Everybody has a plan until they get punched in the mouth."

 

To help borrowers punched in the mouth by the pandemic,  SBA last Thursday announced changes to the COVID-19 Economic Injury Disaster Loans (EIDL) program, including raising the loan cap from $500,000 to $2 million and adding business debt payments to the list of ways businesses can use the loan proceeds.

 

SBA also announced that the guaranty fee on 7(a) loans of $350,000 or less will remain at zero (0.00%) for the next year.

 

__________________________________________

 

Indices:

PRIME RATE= 3.25%

________________________________________

SBA 504 Loan Debenture Rate for September For 20 year debentures, the debenture rate is only 1.38% but note rate is 1.406% and the effective yield is 2.860%.

For 25 year debentures, the debenture rate is only 1.56% but note rate is 1.58% and the effective yield is 2.977%.

_______________________________________________

AHEAD OF THE YIELD CURVE

 

The pronunciamento from the Bureau of Labor Statistics said that total nonfarm payroll employment rose by 235,000 in August, a drop from the July total of 1,053,000 nonfarm jobs.

 

Do you ever wonder why they do NONFARM payroll employment?  Why aren’t farmers included in monthly jobs data?

 

The collection, dissemination, and use of agricultural labor data is complicated by several factors that relate to the structure of the agricultural industry and the characteristics of its workers. There is also considerable seasonal fluctuation in agricultural employment, with wide variations in peak employment by type of commodity and region.  Agricultural labor data are affected by the unknown number of undocumented workers in the field—literally.

 

But fear not, those farming fanatics who are interested in such jobs statistics. The Department of Agriculture tracks farm labor

 

In the 1950s, there were almost 10 million U.S. farmworkers. But the latest farm labor report from the USDA, released May 2021, showed only 613,000 workers employed on U.S. farms and ranches.

 

That’s just a drop in the bucket from the latest BLS jobs report (released in September 2021), which showed total nonfarm payroll employment at more than 153 million people in the United States.

 

For what it is worth, Here is a summary of net payroll employment and this week’s interesting little table of data:

 

August      235,000

July         1,053,000

June         962,000

May         614,000

April       269,000

March      916,000

February  468,000

January    233,000

December -306,000

November  245,000

October  610,000

September 711,000

August   1,489,000

July         1,761,000

June      4,791,000

May       2,725,000

April       -20,700,000

March     -1,400,000

February  275,000

January   214,000

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.

 

So far, the U.S. has recovered 17 million, or 76%, of the 22.4 million jobs lost in the spring of last year, leaving the nation 5.3 million jobs below its pre-pandemic level.

 

Currently 11,930,415 people are receiving benefits for insured unemployment or Pandemic Unemployment Assistance.

 

The prospicient long term treasury bond market promulgated a procellous prognostication at last week’s auction of $24 billion in 30 year treasury bonds when the high yield was only 1.910 percent, down 13 basis points from the prior month’s auction.

 

__________________________________________

 

OFF BASE

 

Prognathous promulgations by Charles Darwin where he thought prognathous jaws reflected racial inferiority caused his half cousin Francis Galton to disagree with him.   Darwin being unaware of Gregor Mendel’s experiments with peas prompted Galton to do his own experiments.

 

Galton first discovered regression by experimenting with sweet peas. His sweet peas produced seeds with a (normal) variation of sizes that regressed from the distribution of their parents.

 

The statistical term “regression,” from a Latin root meaning “going back,” was first used by Francis Galton in his paper “Regression towards Mediocrity in Hereditary Stature.”

 

Regression toward the mean simply says that, following an extreme random event, the next random event is likely to be less extreme.

 

For Galton, “regression” referred only to the tendency of extreme data values to "revert" to the overall mean value.

 

A good example is the following series of numbers which could represent anything, economic growth, sales projections or virus outbreaks:

 

2, 4, 6.

 

Quick what should the next number be?   My immediate reaction is to say 8 who do we appreciate, yell out Solons and throw my mitt in the air.

 

A regression to the mean would suggest the correct answer is probably somewhere between 4 and 6.    The mean of 2, 4, 6 is 4.  Mean is given by dividing the sum of observations by the number of observations  (2 + 4 + 6)/3 = 4.

 

Regression to the mean should be understood and appreciated.    That’s why Shohei Ohtani’s season this year is special and we should not worry about the price of lumber or anything else for that matter.

Monday, August 16, 2021

The SBA and PROnunciamento 

 pronunciamento

proh-nun-see-uh-MEN-toh

An official or authoritarian announcement.

From Spanish pronunciamiento (pronouncement, military uprising), from pronunciar (to pronounce), from Latin pronuntiare (to put forth), from pro- (toward) + nuntiare (to announce).

_____________________________________________

TIP OF THE WEEK

Be prepared for a pronunciamento from SBA regarding the stimulus provisions for its loan guarantee programs.

So far SBA has approved $25.36 billion in 7(a) loans.

The appropriation that funds the stimulus provisions (90% guaranty and zero fees) could be fully expended by September 15.

Even if the stimulus funds are fully spent, the 7(a) program will continue but under the normal statutory provisions with 75% guaranty with the normal upfront guaranty fees.

Borrowers and lenders feeling no love with a SBA guarantee should consider a guarantee from the California Infrastructure and Economic Development Bank.

Their Small Business Loan Guarantee Program has now increased its guarantee to $2,500,000.

__________________________________________

 

Indices:

PRIME RATE= 3.25%

________________________________________

SBA 504 Loan Debenture Rate for August

For 20 year debentures, the debenture rate is only 1.27% but note rate is 1.29% and the effective yield is 2.748%.

For 25 year debentures, the debenture rate is only 1.45% but note rate is 1.47% and the effective yield is 2.866%.

_______________________________________________

AHEAD OF THE YIELD CURVE

 

The pronunciamento about inflation may soon be prorogued.


The CPI increased 5.4 percent over the last 12 months.

 

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

 

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

 

In July the index level was at 273.003.   That essentially implies that the grocery cart full of stuff that would have cost you $100 in 1984 would now cost you $273.

 

In April of 2020 that index had declined to 256.389 from 256.571 in July 2019.   We are now at 273.003.  That’s just over a 6% increase in total prices over the last TWO years.

 

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

 

At last week’s auction of 30 year treasury bonds the high yield was awarded at 2.040 percent, up only 4.0 basis points from last month's auction rate.

 

One of the Fed’s leading indicators on inflation is capacity utilization which measures the amount of a plant that is in use at factories, mines and utilities.

 

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

 

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

 

2007- 81.5

2008- 79.9

2009- 66.9

2010- 74.8

2011- 76.7

2012- 79.0

2013- 77.8

2014- 78.8

2015- 76.5

2016- 75.4

2017- 76.2

2018- 78.5

2019- 77

2020- 74.5

2021- 74.4

 

What does all this mean?

 

I don’t know.

 

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

 

In June it was at 75.4 percent.

 

Over the last year capacity utilization has languished.  American manufacturing prowess had gone procumbent a while ago.  It was already declining in 2019 as reflected in the drop in capacity utilization in the above chart.

 

It is a propitious time for prospicient borrowers.

 

__________________________________________

 

OFF BASE

 

The Federal Reserve pronunciamento on holidays means summer is coming to a close.  Labor Day is almost here.

 

The Federal Reserve has promulgated that these are our remaining holidays for 2021:

Labor Day September 6

Columbus Day October 11

Veterans Day November 11

Thanksgiving Day November 25

Christmas Day December 25

Monday, July 12, 2021

The SBA and promontory

promontory

PROM-uhn-tor-ee, -tree

 

1. A point of high land projecting into a body of water.

2. A projecting part of the body, for example, of a bone.

 

From Latin promontorium, alteration of promunturium from prōminēre, to jut out

 

_____________________________________________

TIP OF THE WEEK

 

A promontory is just the kind of thing a heroine will threaten to throw herself off of if the love of her life does not return to her.

 

Borrowers and lenders feeling no love with a SBA guarantee should consider a guarantee from the California Infrastructure and Economic Development Bank.

 

Their Small Business Loan Guarantee Program has now increased its guarantee to $2,500,000.

 

__________________________________________

 

Indices:

PRIME RATE= 3.25%

________________________________________

SBA 504 Loan Debenture Rate for July

 

For 20 year debentures, the debenture rate is only 1.22% but note rate is 1.24% and the effective yield is 2.69%.

 

For 25 year debentures, the debenture rate is only 1.40% but note rate is 1.42% and the effective yield is 2.817%.

_______________________________________________

AHEAD OF THE YIELD CURVE

 

 

Jobs increased 850,000 in June.

 

Or did they?

 

Local, state and private education added 269,000 jobs but those advances represented a quirk of Labor’s seasonal adjustments.

 

State and local education hired fewer people for the past school year given Covid restrictions, and laid off workers earlier than normal due to school closures. Typically, this sector sees layoffs in the summer, when fewer school employees are needed. But since the numbers were already low due to earlier layoffs, there were fewer people to let go.  The increase in jobs, therefore, is partly a reflection of the fact that fewer people were laid off, not that more were hired.

 

But this is a seasonal quirk - there were actually 413 thousand education jobs lost in June, but that was fewer than normal for June, so seasonally adjusted this showed a gain.

 

No matter the actual number, the U.S. has recovered 15.6 million, or 70%, of the 22.4 million jobs lost last spring, leaving the nation 6.8 million jobs below its pre-pandemic level.   To put that in perspective, 8.7 million jobs were  lost in the Great Recession of 2008-2009.

 

Minutes from last month’s Federal Reserve meeting on monetary policy showed policy makers remained cautious about the economic outlook and willing to remain patient about making any changes to interest rate policy or their asset buying program.

 

Long term treasury bonds reflect a propitious propensity.

 

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:

 

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- 2.172

 

What does all this mean?

 

At last month’s auction, the high yield was awarded at 2.172 percent, down 22.3 basis points from May’s auction rate and the lowest rate awarded for the bond in four months.

 

Since then the 30 year Treasury bond yield has drifted down to 1.987%.

 

Prognostications proliferate over the protean slope of the yield curve.

 

__________________________________________

 

OFF BASE

 

The classic example of promontory in literature is from John Donne; Devotions upon Emergent Occasions; 1624:

 

“No man is an Island, entire of itself; every man is a piece of the continent, a part of the main; if a clod be washed away by the sea, Europe is the less, as well as if a promontory were, as well as if a manor of thy friends or of thine own were; any man’s death diminishes me, because I am involved in mankind; And therefore never send to know for whom the bell tolls; It tolls for thee.”