Monday, August 16, 2010

The SBA and quiescence


(kwee-ES-uhns, kwi-)

A state of rest, inactivity, or quietness.

From Latin quiescere (to become quiet), from quies (quiet).


The quiescence from the dog days of summer will soon fade into the crisp focus of autumn. The same thing will happen with SBA lending. On September 14th the Small Business Jobs bill will finally come up for a vote. Included in the bill will be provisions for a larger 7(a) loan program and 504 loan program. The 504 loan program will also have the ability to refinance debt for a few years. The increased guarantee and guarantee fee waiver for the 7(a) program will also be extended until the end of the year.

SBA LIBOR Base Rate August 2010 = 3.30%
SBA Fixed Base Rate August 2010 = 5.67%

504 Debenture Rate for August
The debenture rate is 3.52% but note rate is 3.57% and effective yield is only 4.93%.

The Federal Reserve Open Market Committee met last week and once again said that interest rates will remain low for an extended period.

The Fed also said after its policy meeting this week that it will reinvest principal payments on mortgage assets it holds into long-term Treasuries after judging that “the pace of economic recovery is likely to be more modest in the near term than had been anticipated.”

The central bank plans to buy about $18 billion of Treasuries and inflation-protected securities by the middle of September. The first purchases will be on August 17 for U.S. debt maturing from August 2014 to July 2016, according to the New York Fed’s website.

A few days later the Treasury Department sold $16 billion in 30-year bonds at a yield of 3.954%. Money managers and international investors were drawn to the government's sale of 30-year bonds despite yields coming at the lowest since March 2009. Investors offered to buy 2.77 times the amount of debt sold, compared to an average of 2.44 times at the last four new sales of 30-year bonds.

Here is what the 30 year bond has been doing:

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- 4.77

What 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?

About 72 percent of the U.S. government’s $862 billion economic stimulus program has been spent or obligated, according to President Barack Obama’s administration. Obama has increased the nation’s publicly traded debt to a record $8.18 trillion to fund his programs, leading some members of Congress to say the government should curb its spending.

The government appears to be borrowing prudently.

Last week’s sale of the 30 year bond was the same as the last three quarterly sales of new long bonds. While the government has steadily shrunk its auctions in most shorter term maturities, it has kept longer-dated debt sales larger to extend the overall maturity of its debt and thus reduce refinancing risk in coming years.

The 30 year yield has dropped from 4.77 percent at the last sale of the securities on April 8. The bond’s average yield was 4.49 percent from Dec. 31, 2007, through Sept. 12, 2008, just before the collapse of Lehman Brothers.

The bond market appears to be telegraphing no imminent rise in rates.
"“t ain't the heat; it's the humility."
-Yogi Berra
It’s the dog days of summer. Dog days? What is a dog day? Is it so hot that dogs just lay around panting? The term "dog days" has nothing to do with dogs. It dates back to Roman times, when it was believed that Sirius, the Dog Star, added its heat to that of the sun creating exceptionally high temperatures. The Romans called the period dies caniculares, or "days of the dog." The name Sirius seems to come from an ancient Greek word for "scorching" or "sparkling." Sirius is the brightest star visible from either of Earth's hemispheres. It's prominent in the evening during the northern hemisphere winter. But its appearance in the summer has also been noticed for many thousands of years. Each northern hemisphere summer, after being behind the sun for awhile, the Dog Star reappears before dawn. Early Greeks and Romans blamed Sirius for the heat in July and August. This is the time of year when Sirius comes up either with the sun or shortly before the sun each day. It travels across the sky with the sun during the daylight hours. The ancients believed that the double whammy of the sun and Sirius actually caused the hot weather.

I learned a new golf rule yesterday.

You can’t “ground” a club if you are in a bunker. What’s grounding? When setting up for a swing, many golfers will allow the club head to gently rest upon the ground with arms extended to enable the feet to be situated the proper distance from the ball. Also, you might take a divot during your practice swing. That also constitutes grounding. This is perfectly acceptable on the fairway, in the rough and off the tee. However, when playing a ball within the boundaries of a hazard, such as a sand trap the golfer is not permitted to allow the club head to touch the surface during address or any practice swings (Rule 13-4: 2 stroke penalty in medal play, loss of hole in match play). He or she may only strike the ground during the actual swing itself.

What is the motivation for this rule? Some claim that it permits the golfer to determine how thick or heavy the sand is, thus allowing a better feel for how hard the swing must be. But that doesn't really make sense because it is perfectly permissible for a golfer to slightly shuffle his/her feet at address to get a solid stance, and in the process, determine how heavy the sand is. More likely is the interpretation that to ground the club within a sand trap is to improve the lie of the ball. It is impossible to allow the club to touch the sand without depressing the sand, no matter how slightly. A sand trap affords an opportunity for a ball to become plugged. Were a golfer permitted to ground the club within a bunker, the ball would become more exposed, defeating the spirit of playing as it lies.

I figured that out yesterday. Professional Dustin Johnson had a one-stroke lead on the 18th hole of the PGA Championship at Whistling Straights. His tee shot landed in a flat area that had served as a path for spectators. It was sandy. But it did not strike him as being a formal hazard. In addressing the ball, Johnson grounded his club. Bad move. It cost him two strokes plus chance to tie and join the playoff.

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