Monday, August 1, 2011

The SBA and Gordian



Highly intricate; extremely difficult to solve.

In Greek mythology, King Gordius of Phrygia tied a knot that defied all who tried to untie it. An oracle prophesied that one who would undo this Gordian knot would rule Asia. Alexander the Great simply cut the knot with one stroke of his sword. Hence the saying, "to cut the Gordian knot", meaning to solve a difficult problem by a simple, bold, and effective action.



Many people think that there is no Gordian complexity to commercial real estate. The recovery in commercial estate will happen once jobs start coming back.

It’s not so simple. The July 20, 2011 The Moody’s/REAL Commercial Property Price Index (CPPI) measured a 6.3% increase in May, the first positive move in six months and the largest one-month increase since the inception of the index. This index measures the change in actual transaction prices for commercial real estate assets based on the repeat-sales of the same assets at different points in time.

Distressed transactions registered a price increase of 4.8%. Accounting for 27.0% of repeat sales, they switched this month from being a drag to a contributor to a price recovery.

Let me know if you would like a copy of the July Moody’s/Real Commercial Property Price Index report.

SBA 7(a) and 504 loans are available for buyers not wanting to miss out on opportunities in commercial real estate.



SBA LIBOR Base Rate July 2011 = 3.19%
SBA Fixed Base Rate July 2011 = 5.66%


504 Debenture Rate for July

The debenture rate is 3.74% but note rate is 3.79% and effective yield is only 5.59%.

Note that the effective yield for debt refinance under the 504 program is slightly higher.
It is now 5.947%.



The Federal Reserve meets next week on monetary policy. The decision on what the Federal Open Market Committee does with interest rates comes on the heels of another report on jobs for the month of July.

Keep your eye on Friday’s payroll report from the Department of Labor.

Here is a summary of net monthly payroll employment and this week’s interesting little table of data:

June 18,000
May 25,000
April 232,000
March 194,000
February 235,000
January 68,000
December 121,000
November 93,000
October 210,000
September (41,000)
August (1,000)
July (66,000)
June (175,000)
May 431,000
April 218,000
March 230,000
February (36,000)
January (26,000)
December (150,000)
November (11,000)
October (111,000)
September (215,000)
August (201,000)
July (304,000)
June (443,000)
May (322,000)
April (504,000)
March (699,000)
February (651,000)
January (655,000)
December (681,000)
November (597,000)
October (423,000)
September (403,000)
August (127,000)
July (67,000)
June (100,000)
May (47,000)
April (67,000)
March (88,000)
February- (83,000)
January- (76,000)

What does all this mean?

I don’t know.

Job growth has obviously stalled in the second quarter.

Through the first six months of 2011, the economy has added 757,000 total non-farm jobs or just 126,000 per month. There have been 945,000 private sector jobs added, or about 158,000 per month. This barely keeps up with population growth. While this is a better pace of payroll job creation than last year, the economy still has 6.98 million fewer payroll jobs than at the beginning of the 2007 recession.

The Federal Reserve will have no choice but to keep hacking at the Gordian knot by keeping interest rates low for an extended period.



I am not a Constitutional scholar but here’s something interesting.

Section 4 of the 14th Amendment reads: "The validity of the public debt of the United States, authorized by law, including debts incurred for payments of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned."

The Supreme Court has on only one occasion -- in the depths of the Depression -- had the opportunity to rule on this section. In that case, Perry v. United States, the Court said, "The Constitution gives to the Congress the power to borrow money on the credit of the United States ... Having this power to authorize the issue of definite obligations for the payment of money borrowed, the Congress has not been vested with authority to alter or destroy those obligations."

Now that Congress has borrowed money and incurred debt, we cannot -- as a nation and under our Constitution -- walk away.

It sounds like the whole debt ceiling debate, like most political debates, was a bunch of hot air and idle banter. The President could have pulled his sword out and cut that Gordian knot awhile ago.

More importantly, the Detroit Tigers went out and got some more pitching by trading for Doug Fister. Fister was the Mariners number three starter. Up to his last start before being dealt to the Detroit Tigers, Fister pitched to a 3–12 record with only a 3.33 ERA. Don’t be deceived by his win-loss record. He has the lowest run support in major-league baseball. And it’s not even close. Fister’s run support is 1.97 per nine innings. Next closest is San Diego’s Dustin Moseley at 2.55. He also has great control. Fister is tied for seventh among all American League pitchers with 2.0 walks per nine innings.

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