Monday, October 18, 2010

The SBA and gallimaufry

A hodgepodge; a jumble.
From Middle French galimafree (stew), probably from galer (to make merry) + mafrer (to gorge oneself).

Lost in the gallimaufry of SBA news is the fact that there are only 73 days left until the 90 percent guarantee and SBA guarantee fee waiver once again expire.

SBA 7(a) loans up to $5,000,000 are especially attractive to both lenders and borrowers right now to refinance any owner-user real estate debt that has a balloon.

Not only can borrowers potentially save up to $166,250 in SBA guarantee fees, they will benefit from a loan that is fully amortized and have a rate of interest that will be "extraordinarily" low for an “extended” period of time.
SBA LIBOR Base Rate October 2010 = 3.26%
SBA Fixed Base Rate October 2010 = 5.36%

504 Debenture Rate for October
The debenture rate is 3.11% but note rate is 3.16% and effective yield is only 4.521%.

The yield curve is getting steeper.

The slope of the yield curve, the difference between the yields on short- and long-term maturity bonds, has achieved some notoriety as a simple forecaster of economic growth.

The rule of thumb is that an inverted yield curve (short rates above long rates) indicates a recession while a flat curve indicates weak growth, and conversely, a steep curve indicates strong growth.

The yield on the 30-year bond touched a one-month high as the Treasury sold $13 billion of the bonds to pay for all the wonderful things the government is doing to us. This came a day after the Treasury had sold $21 billion of 10 year bonds. The extra yield that investors demand for 30-year bonds compared with 10-year debt touched a record high 1.46 percentage points Friday. The five-year average is a 0.52 percentage point difference.

The 30 year bond closed Friday at 3.99 percent. The securities drew yields of 3.954 percent in August and 3.82 percent in September.

Does this mean things are getting better and rates will really start to go up?

Not necessarily. The yield on the 30-year bond is rising because traders are betting that the Fed will purchase SHORTER-term U.S. notes in a strategy called quantitative easing. Fed Chairman Ben Bernanke said in a speech last week that additional stimulus may be warranted because inflation is too low and unemployment too high.

The futures market also doesn’t think rates are going to go up.

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:

DEC10- 0.35

DEC11- 0.61

DEC12- 1.15

DEC13- 1.90

DEC14- 2.75

DEC15- 3.48

DEC16- 3.98

DEC17- 4.18

DEC18- 4.26

What does all this mean?

It would appear that the savings from lower variable rates of interest should persist. In their last policy notice, the Federal Reserve said rates would remain "extraordinarily" low for an “extended” period.


There is a gallimaufry of polls about who the best team in college football is.

You have the Associated Press poll, the USA Today college football coaches’ poll, and the Harris Interactive poll.

The AP Top 25 College Poll is compiled from votes by 65 sportswriters and broadcasters from across the country.

The USA Today Coaches' Poll is compiled by the USA Today Board of Coaches which is made up of 59 head football coaches.

The Harris Interactive College Football Poll is a weekly ranking compiled by Harris Interactive, a market research company that specializes in Internet research. The Harris Interactive Poll is composed of former players, coaches, administrators, and current and former media who submit votes.

The University of Oregon Ducks is No. 1 in all the polls, but rated eighth in the computer rankings. EIGHTH!

Computer rankings?

Six different computer programs, run by six different people, also rank the best teams. Every week, the six systems input scores, let the computers spit out the rankings and send them to the BCS. That’s it. Nobody at the BCS double-checks the rankings. Only one of the six, Wes Colley, makes his formula fully public.

For each team, the BCS drops the highest and lowest computer ranking to get rid of potential outliers, adds the four remaining numbers, divides them by a hundred to get a percentage, and averages that percentage with the one from the coaches’ poll and Harris Poll. The BCS no longer uses the AP poll.

As a result, Oregon is number two in the BCS standings which just came out for the first time this season.

Oregon plays UCLA Thursday night. The Bruins are 22 point underdogs.

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