Monday, July 22, 2013

The SBA and Mimpsimus



1. A view stubbornly held in spite of clear evidence that it's wrong.
2. A person who holds such a view.

According to an old story, a priest used the nonsense word mumpsimus (instead of Latin sumpsimus) in the Mass. Even when told it was incorrect, he insisted that he had been saying it for 40 years and wouldn't change it.  The expression is "quod in ore sumpsimus" ('which we have taken into the mouth').



You can not be a mumpsimus about SBA loans.

Tax Code Section 179 allows small and medium sized business owners who acquire essential use equipment to deduct the entire equipment cost in a single tax year. Thanks to the Tax Relief Act of 2010 this accelerated method of depreciation far outweighs in benefits the traditional method of incremental tax deductions based on complicated depreciation schedules of the assets acquired.

Under Section 179 of the Internal Revenue Code, taxpayers that purchase new or used qualifying business property and place it in service in 2013 can immediately deduct up to $500,000 of its cost.  Additionally, taxpayers can take advantage of the temporary additional "50% bonus depreciation" deduction on qualified capital expenditures (new equipment only). 50% bonus depreciation applies in addition to the Section 179 deduction.

But those benefits won't be available for much longer; bonus depreciation is currently scheduled to sunset in 2014 and the annual Section 179 deduction amount is scheduled to drop to $25,000.

SBA loans can be used to acquire equipment and be amortized up to the estimated useful life of the asset being financed.



SBA LIBOR Base Rate July 2013 = 3.20%
SBA Fixed Base Rate July 2013 = 5.34%

Debenture Rate for July     

The debenture rate is 3.15% but note rate is 3.20% and effective yield is a whopping  5.232%.


The mumpsimus is that interest rates are starting to go up.

The Federal Reserve meets again next week.

They should make it very clear that it plans to hold its target interest rate near zero for quite awhile.

A few days after the Federal Open Market Committee meets, the Labor Department will report on jobs for the month of July.

In June, it was reported that employment increased by 195,000.

According to the Federal Reserve Bank of Atlanta, if the participation rate stays steady, the unemployment rate will fall to 6.5% in December 2014 if the economy adds around 185,000 jobs per month.  

6.5 percent is the Fed's threshold, but not trigger, for raising the Fed's funds rate.   This is consistent with the Fed not raising rates until 2015 or later.

So where then are interest rates going?

Eurodollar futures settle at a three- month lending rate that has averaged about 22 basis points more than the Fed's target over the past 10 years.

Here is a summary of what the market expects for Eurodollar futures based upon the pit-traded prices at the Chicago Mercantile Exchange:

DEC13- 0.33
DEC14- 0.61
DEC15- 1.32
DEC16- 2.32
DEC17- 3.20
DEC18- 3.83
DEC19- 4.23
DEC20- 4.48

What does all this mean?

I don’t know.

We can not be a mumpsimus about interest rates.

A mumpsimus should get off his rumpus.

Just as many people fear things they shouldn’t, like vaccines, there are plenty of everyday threats that deserve more of our attention. Take, for example, the humble desk chair. Sitting at work, and in leisure, for hours at a time shaves off more of your life than smoking cigarettes, according to a whole bunch of studies ignored by just about everyone.

The human body wasn’t built for the modern lifestyle of sitting all day, which leads to increased rates of heart attacks, diabetes and death all around. Even exercise and staying otherwise fit won’t protect against the dangers of the chair (though a standing desk will).

Instead of sitting, we should all lie down.

Studies by NASA and other sleep researchers show that a 10-minute power nap boosts memory, alertness, and mental and physical performance, and even reduces the chance of heart disease. So where are the nap rooms at our offices? No, seriously, where are they? 

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