The SBA and capricious

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).

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TIP OF THE WEEK 

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.

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Indices:

PRIME RATE= 3.25%
SBA LIBOR Base Rate May 2012 = 3.24%
SBA Fixed Base Rate May 2012 = 4.84%

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504 Debenture Rate for April 

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

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AHEAD OF THE YIELD CURVE 

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. 

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OFF BASE

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.