Monday, November 15, 2010

The SBA and vitiate

1. To impair or spoil the effectiveness of.
2. To corrupt.
From Latin vitiare (to spoil, injure), from vitium (blemish). Earliest recorded use: 1534.

The vitiation of SBA loans is imminent.

There are only 46 days left until the 90 percent guaranty and fee waiver for SBA 7(a) loans end.

There is an SBA public meeting this week on the use of 504 loans for debt refinance from which the SBA wants comments. They will then develop proposed regulations which will then be published for a 30-day public comment period from which the SBA will then write final regulations which will then be published with a stated future effective date.
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%.

Are you worried about inflation?

The Federal Reserve isn’t.

At their last meeting on monetary policy they said “…measures of underlying inflation have trended lower in recent quarters.”

One of the Federal Reserve’s favorite gauges of the economy is the capacity utilization rate. The Federal Reserve watches capacity utilization rates to see if production constraints are threatening to cause inflationary pressures. Bottlenecks or shortages often lead to inflationary pressures that would drive prices even higher. Several analysts have pointed to a rate between 81% and 82% as a tipping point over which inflation is spurred.

In September, the capacity utilization rate slipped down to 74.7 percent.

Keep your eye on Tuesday’s report from the Federal Reserve on Industrial Production and Capacity Utilization for the month of October.

It just might slip again. Last week, according to a new report released by Ceridian-UCLA their index of up-to-the-minute diesel fuel purchases by commercial trucks fell 0.6% in October after declining 0.5% in September. Diesel purchases have come to be a good proxy for the state of commerce across the country. An increase in sales means more goods are being trucked and fewer diesel purchases suggest commerce is slowing.

Here is what capacity utilization rates have done:

1997- 83.6

1998- 83.0

1999- 82.4

2000- 82.6

2001- 77.4

2002- 75.6

2003- 74.6

2004- 79.2

2005- 80.7

2006- 82.4

2007- 81.5

2008- 79.9

2009- 69.9

2010- 74.8

What does all this mean?

I don’t know.

Capacity utilization at 74.7% is still far below normal - and well below the pre-recession levels of 81.2% in November 2007.

As the Federal Reserve keeps telling us, interest rates will be at exceptionally low levels for an extended period.

I always thought the Friday after Thanksgiving kicked off the holiday shopping season and was the biggest shopping day of the year.

It is also the day I am supposed to start on the Christmas lights and all the decorations.

According to the 44,000 member International Council of Shopping centers, the day after Thanksgiving is not the hottest shopping day. The records of the Council say the busiest day is the Saturday before Christmas as last-minute shoppers hit the stores. They figure that the day after Thanksgiving ranks fifth.

It turns out the Friday after Thanksgiving is also Native American Heritage Day. Last year Congress passed the Native American Heritage Day Act of 2009 which establishes that the Friday after Thanksgiving is to “to honor the achievements and contributions of Native Americans to the United States, and for other purposes.”

The Friday after Thanksgiving might be the closest we get to a college football playoff. Three of the four top teams in the country play that day. The top ranked team in the country, Oregon plays Arizona. The second top team in the country, Auburn, plays last year’s champion Alabama.

And the best team in the country, Boise State, plays Nevada. Boise State has won 23 games in a row, the longest winning streak in the country.

Nevada has a legitimate shot at an upset mainly because the game isn't being played on the blue carpet in Idaho. Instead it's in Reno. Nevada proved in its 52-31 victory over Cal that it can take care of a decent Pac-10 team. No one else has scored as many points against Boise State as Nevada has over the past three years—135 to be exact. Nevada lost all three games by a narrow combined margin of only 20 points.

The secret to Nevada is their pistol offense. In the pistol offense, the quarterback lines up four yards behind the center rather than seven yards, as with the shotgun formation. The running back lines up three yards directly behind the quarterback, as opposed to next to him as in the shotgun. Using the Pistol Offense last season, the Nevada Wolf Pack led the nation in rushing at 345 yards a game. The Wolf Pack also became the first team in college football history with three 1,000-yard rushers in the same season.

UCLA attempted to adopt the pistol offense this season but you need a quarterback who can throw and run. UCLA also plays on the Friday after Thanksgiving against Arizona State.

I guess the Christmas lights are going to have to wait that day.

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