Sunday, May 20, 2012

The SBA and desultory



1. Marked by absence of a plan; disconnected; jumping from one thing to another.
2. Digressing from the main subject; random.

From Latin desultorius (leaping, pertaining to a circus rider who jumps from one horse to another), from desilire (to leap down), from salire (to jump).



Don’t be desultory about your financing needs.

Think SBA guaranteed loans every time.  A SBA 7(a) loan can be used for real estate purchase, real estate debt refinance, business debt refinance, business acquisition, equipment purchase and working capital.


SBA LIBOR Base Rate May 2012 = 3.24%
SBA Fixed Base Rate May 2012 = 4.84%


504 Debenture Rate for May 

The debenture rate is 2.38% but note rate is 2.42% and effective yield is only 4.462%. 

The effective yield for the temporary debt refinancing available with a 504 loan is 4.665%. 

Keep in mind that the temporary debt refinancing provisions expire soon.    



Is the bond market being desultory about the massive debt our country is taking on with its deficit spending?

The last four budget deficits have been the largest in U.S. history, totaling $4.46 trillion.  Treasury debt outstanding has more than doubled from $4.254 trillion in June 2007 to $10.4 trillion.

And the bond market loves it! 

There was stronger-than-average bidding at the U.S. government’s last auction of $16 billion in 30-year bonds.  The bond sale drew a bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, of 2.73, compared with an average of 2.67 for the previous 10 sales. The yield on the current 30-year bond sold at 3.05 percent.  It has since dropped to only 2.80 percent.  The March 30 year bond auction sold at a yield of 3.230.

This is noteworthy as this bond is most sensitive to any expectation of inflation or interest rates going up.

Inflation does not appear to be a problem.  The consumer price index reflected a 12-month change for all items of 2.3 percent in April, the lowest figure since February 2011.  This is the first time since October 2009 that the 12-month all items change has not exceeded the 12-month change for all items less food and energy.

These measures show inflation on a year-over-year basis is mostly still above the Fed's 2% target.

One of the Federal Reserve’s favorite gauges of inflation is 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 drive prices higher. Several analysts have pointed to a rate between 81% and 82% as a tipping point over which inflation is spurred.

Last week the Federal Reserve reported that capacity utilization, which measures the amount of a plant in use, increased to 79.2 percent, the highest since April 2008, from 78.4 percent in March.

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- 67.3
2010- 74.8
2011- 76.7
2012- 79.2

What does all this mean?

I don't know.

Capacity utilization at 79.2% is still 1.1 percentage points below its average from 1972 to 2010 and below the pre-recession levels of 80.6% in December 2007.  While this is 3.1% higher than a year earlier, we still have a ways to go before the Federal Reserve will feel pressure to start raising rates.

In the meantime, things will be desultory.



Don’t be desultory about your Memorial Day plans.

Stop whatever you are doing at 3 p.m. local time on Memorial Day and remember those soldiers who gave their lives for our freedom.

The National Moment of Remembrance, established December 28, 2000 by Congress in the National Moment of Remembrance Act (Public Law 106-579), asks Americans wherever they are on Memorial Day to pause in an act of national unity for one minute.

According to the White House Commission on Remembrance, the idea for the Moment originated when children touring the nation’s capital were not able to describe the true meaning of Memorial Day, most responding “That’s the day the pool opens.”

Friday, May 18, 2012

SBA 7(a) Weekly Lending Update

The SBA approved $296,126,000 in SBA 7(a) loans for the week ending May 11.  That compares with $301,126,000 for the prior week.

Last month, April, the SBA had approved $1,173,333,000 in SBA 7(a) loans.

For the quarter ending March 31, SBA had approved $3,311,521,000 in SBA 7(a) loans.

That compares with $3,443,723,000 in 7(a) loan approvals for the quarter ending December 31, 2011.

This drop of $132,202,000 in quarterly SBA 7(a) loan volume coincides with a decline of GDP growth for the first quarter of 2012 compared to the prior quarter.

The correlation of SBA 7(a) loan approvals with our nation's economic performance appears to be quite strong.

Wednesday, May 16, 2012

504 Debenture Rate for May

504 Debenture Rate for May 

The debenture rate is 2.38% but note rate is 2.42% and effective yield is only 4.462%. 

The effective yield for the temporary debt refinancing available with a 504 loan is 4.665%.

Keep in mind that the temporary debt refinancing provisions expire soon.  

Sunday, May 6, 2012

The SBA and capricious


(kuh-PRISH-uhs, -PREE-shuhs)

Whimsical, impulsive, unpredictable.

From Italian capriccio (caprice), literally head with hair standing on end, from capo (head) + riccio (hedgehog).



SBA lending can be quite capricious.  Every year they have been changing the rules of the game with revisions to its standard operating procedure- the SOP.  A new and improved SOP- the SOP 50-10-5 (E) will be out at the beginning of June. 

Changes in this version of the SOP include new guidance for the reimbursement of in-house counsel fees; ability for some fees that are a percentage of loan; ability to refinance debt in the personal name of business owner when used for business purposes; clarified requirements on stock ownership purchases; and, of course, the direct final rule on EPC/OC that rewrites the current regulation to allow co-borrower structure for owner occupied real estate.



SBA LIBOR Base Rate May 2012 = 3.24%
SBA Fixed Base Rate May 2012 = 4.84%


504 Debenture Rate for April 

The debenture rate is 2.67% but note rate is 2.72% and effective yield is only 4.749%. 



The economy does not seem so capricious when you watch the yield curve.

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.  A steeper curve indicates stronger growth.  A flat curve indicates weak growth while an inverted yield curve (short rates above long rates) indicates a recession in about a year.

Yield curve inversions have occurred before each of the last seven recessions. One of the recessions predicted by the yield curve was the most recent one. The yield curve inverted in August 2006, a bit more than a year before the current recession started in December 2007.

Over the past month, the yield curve has flattened, as short rates stayed even and long rates fell.   Long term rates fell for a seventh consecutive week, the longest stretch since 2008 at the height of the financial crisis.

Pay attention to Thursday’s $16 billion auction of 30 year Treasury 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- 4.61
2011- 2.89
2012- 3.30

So what does this mean?

Two months ago, a $13 billion auction of 30-year bonds was sold at a yield of 3.383 percent, the highest since August.   This was a jump of 23 basis points from the February auction.

In April, the 30 year bond auction saw yields drop to 3.20 percent.

This drop in yields presciently foreshadowed things slowing down.

Real gross domestic product -- the output of goods and services produced by labor and property located in the United States – slowed in the first quarter.  According to the "advance" estimate just released by the Bureau of Economic Analysis, the U.S. economy expanded at an annualized rate of 2.2 percent in the first quarter, down from 3 percent in the previous three-month period.

In April, payrolls only climbed 115,000, the smallest gain in six months.   Employers had increased payrolls by 697,000 from January through March, the biggest quarterly gain since the first three months of 2006.

There are a total of 12.5 million Americans unemployed and 5.1 million have been unemployed for more than 6 months. These numbers are declining, but still very high.

Interest rates will be capricious. 



No sport is more capricious than baseball. 

Look at Albert Pujols. 

Since April 20th, The Angels’ new first baseman had the worst batting average, on-base percentage and slugging percentage in all of baseball.  He had not hit a home run all season.

Albert’s streak of no home runs had run up to 111 at-bats.   That is the longest streak ever to start a season by a player who had at least 400 career home runs entering the season.  He broke Eddie Murray’s record of 109 at-bats without a home run in 1996.  Eddie however was over 40 years old and would retire the next season. 

It had got so bad the Angels decided to bench Albert Saturday night. 

On Sunday, the Blue Jays were not afraid of Albert and decided to pitch to him.  It was the perfect opportunity to intentionally walk him if they had been afraid of his bat. With a man on second, with two outs, and first base open, the count went even with two balls and two strikes when Albert finally drilled his first home run of the season.

Now the fun starts. 

Pujols’ longest home run drought prior to this was just last season, when he came up empty in 27 straight games and 105 at-bats.   He would end the season with 37 home runs.  Albert has never finished a season with less than 32 home runs.  He is the only player in major league history to hit 32 or more homers in each of his first 11 years in the major leagues.