The SBA and doldrums

doldrums

DOHL-druhmz

1. A state or period of stagnation or slump.

2. A region of the ocean near the equator marked by calms and light variable winds.

In the olden days when a sail-powered vessel hit a calm region of the ocean, it could be stuck there for days. Sailors called that area the doldrums. The word is from Old English dol (dull, stupid), the ending influenced by the word tantrum.

_______________________________________________

TIP OF THE WEEK 

No doldrums with SBA lending.

Loan volume is way up compared to the prior quarter as more and more lenders and borrowers seek SBA guaranteed financing.

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

Just for fun I calculated the correlation coefficient between SBA 7(a) loan volume and GDP for six years using the Microsoft CORREL function.  It came out to a statistically significant 0.86.

Seriously consider a SBA loan.  It just might save the economy.

______________________________________

Indices:

PRIME RATE= 3.25%
SBA LIBOR Base Rate July 2012 = 3.24%
SBA Fixed Base Rate July 2012 = 4.57%

________________________________________

504 Debenture Rate for July  

The debenture rate is 2.38% but note rate is 2.42% and effective yield is only 4.46%. 

 ________________________________________________

AHEAD OF THE YIELD CURVE 

The economy is stuck in the doldrums.

Gross domestic product, the value of all goods and services produced, rose at a 1.5 percent annual rate after a revised 2 percent gain in the prior quarter, Commerce Department data showed on Friday.  

This is barely half the pace the economy hit late last year as the final quarter of 2011 was revised up to a 4.1 percent gain, the best performance in almost six years.

As a result, job growth has really slowed over the last three months with only 225,000 payroll jobs added (a 900,000 annual pace).

Keep your eyes and ears open for Friday’s report on jobs for the month of July.

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

June 80,000

May 77,000

April 68,000

March 143,000

February 240,000

January 243,000

2011

December 203,000
November 157,000
October 112,000
September 158,000
August 104,000
July 127,000
June 20,000
May 25,000
April 232,000
March 194,000
February 235,000
January 68,000
2010
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)
2009
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)
2008
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.

The U.S. economy has never been so sluggish this long into a recovery. The Great Recession officially ended in June 2009.

The economy lost nearly 8.8 million jobs during the slump and reached its lowest total employment level in February 2010. It is still 4.9 million short of its peak, according to the Bureau of Labor Statistics.

The economy has added 902,000 jobs over the first half of the year.  At this pace, the economy would add around 1.9 million private sector jobs in 2012; less than the 2.1 million added in 2011.

We are not even half way there.  

The Federal Reserve’s Fed Open Market Committee meets on Tuesday, July 31^st and Wednesday, August 1^st.  They have no choice but to keep interest rates exceptionally low.

__________________________________________

OFF BASE

For sailors, the doldrums hit the horse latitudes. 

Low pressure caused by the heat at the equator makes the air rise and travel north and south high in the atmosphere, until it subsides again in the horse latitudes between 30 and 35 degrees both north and south.

The term “horse latitudes” derived from the "dead horse" ritual of seamen.  In this practice, the seaman paraded a straw-stuffed effigy of a horse around the deck before throwing it overboard.

Seamen were paid partly in advance before a long voyage, and they frequently spent their pay all at once, resulting in a period of time without income. If they got advances from the ship's paymaster, they would incur debt. The seaman's ceremony was to celebrate having worked off the "dead horse" debt.  As west-bound shipping from Europe usually reached the subtropics at about the time the "dead horse" was worked off, the latitude became associated with the ceremony.

This use of 'dead horse' to refer to pay that was issued before the work was done was an allusion to using one's money to buy a useless thing (metaphorically, "a dead horse"). Most men paid in advance apparently either wasted the money on drink or other such vices, or used it to pay outstanding debts.

The sailors were essentially working for a dead horse.  This is not to be confused with beating a dead horse.

SBA 7(a) Weekly Lending Update

SBA 7(a) loan volume picked up for the month ending June 30.  Approvals totaled $1,513,305,000.  That is an increase over the $1,352,404,000 approved for May.

SBA 7(a) approvals for the quarter totaled $4,039,042,000, a nice  pick up from the prior quarter.

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. 

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


Just for fun I calculated the correlation coefficient between SBA 7(a) loan volume and GDP for six years using the Microsoft CORREL function.  It came out to a statistically significant 0.86.

The SBA and countervail

countervail

koun-tuhr-VAYL

To counterbalance or to neutralize.

From Old French contrevaloir, from Latin contra (against) + valere (to be strong).

_______________________________________________

TIP OF THE WEEK 

The recovery in commercial real estate just might countervail this anemic economy.

CoStar indicates that commercial real estate pricing is continuing to recover at a fairly surprising pace despite the disappointing level of U.S. job growth and other economic factors.

If you would like a copy of July’s CoStar Commercial Repeat Sale Indices (CCRSI) report, let me know.

Now might be the time to get a SBA loan to purchase or refinance commercial real estate.

  

______________________________________

Indices:

PRIME RATE= 3.25%
SBA LIBOR Base Rate July 2012 = 3.24%
SBA Fixed Base Rate July 2012 = 4.57%

________________________________________

504 Debenture Rate for July  

The debenture rate is 2.38% but note rate is 2.42% and effective yield is only 4.46%. 

 ________________________________________________

AHEAD OF THE YIELD CURVE 

For awhile, manufacturing countervailed the negative economic forces out there.

Manufacturing's rebound had been reflected by a soaring jump in the capacity utilization rate.  This measure of the percent our manufacturing plants are in use is one of the Federal Reserve’s favorite gauges of the economy.

Capacity utilization had increased 11.8 percentage points from the record low set in June 2009.

But last month, the Federal Reserve reported that capacity utilization slumped to 79 percent in May.

Keep your eyes and ears open for the Federal Reserve's July 17th announcement on industrial production and capacity utilization.

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- 79.0

What does all this mean?

I don't know.

Capacity utilization at 79% is still 1.3 percentage points below its average from 1972 to 2010 and below the pre-recession levels of 80.6% in December 2007.  While this is 2.7% higher than a year earlier, we still have a ways to go.

Continued drops in capacity utilization rates might prompt the Federal Reserve to consider countervailing measures.

__________________________________________

OFF BASE

A Chicago White Sox World Series just might countervail a Mets World Series recession.

Remember, according to the Mets Recession Theory, every time the Mets go to the World Series, a recession follows.

Now it looks like every time the White Sox make it to the World Series, the economy actually picks up.

Unfortunately, the White Sox have only gone five times (1906, 1917, 1919, 1959 and 2005).

And actually the real reason I like the White Sox is because of Adam Dunn. 

Last year, Adam Dunn was by far the worst player in major league baseball.

His .159 average in 2011 was the lowest batting average since Bill Bergen hit .139 as a starter for the 1909 Brooklyn Superbas.

This year, when he actually hits the ball, it is usually a home run.  Dunn has the fifth-lowest career at bats per home run average in Major-League history. His 13.96 ratio (about one home run every 14 times he comes to bat) is behind only Mark McGwire (10.61), Babe Ruth (11.76), Barry Bonds (12.90), and Jim Thome(13.68).

He currently has 26 home runs, one of the major league leaders.  He also has 134 strikeouts, by far the leader in all of baseball.   Dunn is on pace for 265 strikeouts, 42 more than Mark Reynolds’ major-league record.

His 68 walks also lead the major leagues. 

If this keeps up, he just might have the most home runs, the most strikeouts and the most walks of any hitter in baseball.

SBA 7(a) Rate Update

Indices:

PRIME RATE= 3.25%
SBA LIBOR Base Rate July 2012 = 3.24%
SBA Fixed Base Rate July 2012 = 4.57%

Lenders can charge up to 2.75% over these indices.

The SBA and homologate

homologate

(huh-MOL-uh-gayt, ho-)

1. To approve officially.

2. To register a specific model of a motor vehicle to make it eligible to take part in a racing competition.

From Latin homologare (to agree), from Greek homologein (to agree or allow).

_______________________________________________

TIP OF THE WEEK 

SBA is about to homologate the use of a 10 tab submission tool for loan requests.  As reflected in a recent policy notice, the use of these tabs will soon be mandatory.  The National Association of Government Guaranteed Lenders will be offering a web based session on this process taught by yours truly.

If you have ever wondered how complicated this process can be, now is your chance.

For more information, go here-

www.naggl.org/AM/Template.cfm?Section=Training_and_Events&Template=/CM/ContentDisplay.cfm&ContentID=17812

______________________________________

Indices:

PRIME RATE= 3.25%
SBA LIBOR Base Rate June 2012 = 3.24%
SBA Fixed Base Rate June 2012 = 4.58%

________________________________________

504 Debenture Rate for June  

The debenture rate is 2.47% but note rate is 2.46% and effective yield is only 4.50%. 

 ________________________________________________

AHEAD OF THE YIELD CURVE 

The last time the Federal Open Market Committee met, they said that they would have to keep interest rates exceptionally low for quite awhile longer. 

The primary reason is that, as they said, “growth in employment has slowed in recent months, and the unemployment rate remains elevated.”

The Federal Reserve not only dictates interest rates but holidays. 

They have homologated that the Fourth of July holiday is Wednesday and Wednesday only.

According to them, here are our remaining holidays for the year:

Independence Day         July 4 

Labor Day           September 3   

Columbus Day   October 8       

Veterans Day    November 12  

Thanksgiving Day           November 22  

Christmas Day   December 25

With the Fourth of July holiday breaking up the week, Friday’s report on employment for June may slip through the cracks.   

Last month the Labor Department reported that U.S. employers added only 69,000 jobs in May.  April was also revised down from +115,000 to +77,000.

Job growth over the past three months is less than half the average 200,000-plus jobs added in the three earlier months.  There are a total of 12.7 million Americans still unemployed and 5.4 million have been unemployed for more than 6 months.

In the last 24 months, ONLY 3.45 million jobs have been created.  That’s not even keeping up with population growth.  The United States has added 3 million people a year since the recession began four years ago.  We will add 30 million people in the next 10 years. 

The unemployment rate is at 8.2 percent.  It had peaked at 10.2 percent in October of 2009.

The jobless rate dropped as unemployed workers stopped looking for work and left the labor force.  They've given up.  In other words, a shrinking percentage of our country is looking for work or employed.

Only one president since World War II - - Ronald Reagan -- has been re-elected with a jobless rate above 6 percent. Reagan won a second term in 1984 with 7.2 percent unemployment in the month of the election, after the rate had fallen almost three percentage points in the previous 18 months.

__________________________________________

OFF BASE

You’ve heard of the Pontiac GTO right?  It’s one of the all time classic Great American Muscle cars celebrated in song by Beach Boys sound- alike Ronnie and the Daytonas (Little GTO, you're really lookin' fine).

In 1964, Pontiac borrowed the term from the Italian car maker Ferrari.  Ferrari had been making a GTO racing car for quite a while.  Recently, a 1962 Ferrari 250 GTO just sold for $35 million.  Yes, $35,000,000.

 So what does GTO mean?

Some auto racing competitions require participating vehicles to be available for sale to the general public, and not be custom made for racing. The process of homologation verifies this. The initials GTO listed after some auto names (Ferrari, Pontiac, etc.) mean "Gran Turismo Omologato", Italian for "Grand Touring, Homologated".