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.”

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