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