Monday, July 28, 2014

The SBA and hebetate

To make dull or obtuse.
From Latin hebetare (to make blunt), from hebes (blunt).

Nobody is being hebetated by what it takes to get a SBA loan.

Another $1,832,552,300 in SBA 7(a) loans were approved in the month of June.

This makes it the sixth straight month of improving SBA 7(a) loan volume.

The year to date total is $13,303,696,406; a 6.5% increase over the same period last year.

Keep in mind that the correlation coefficient between SBA 7(a) loan approvals and our economy's Gross Domestic Product is a statistically significant 0.86.

SBA LIBOR Base Rate July 2014 = 3.16%
SBA Fixed Base Rate July 2014 = 5.32%

SBA 504 Loan Debenture Rate for July  
The debenture rate is only 2.87% but note rate is 2.92% and the effective yield is 4.952%.

We are often hebetated by the Federal Reserve when they meet on monetary policy to determine interest rates.

As they wrap up their meeting this week, the initial estimate on second quarter Gross Domestic Product will be released.  First quarter GDP had contracted sharply thanks to last winter’s government shutdown that turned off the SBA 7(a) loan spigot.  Now that SBA loan volume has recovered, second quarter GDP should also have recovered.

Also keep your eyes and ears open for Friday’s report on jobs for July.

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

June                288,000
May                 224,000
April          304,000
March        203,000
February      222,000
January     144,000
2013     2,074,000
2012     2,193,000
2011      2,103,000
2010     1,022,000
2009     -5,052,000
2008     -3,617,000
2007    1,115,000
2006     2,071,000
2005     2,484,000
2004     2,019,000

What does this mean?

I don’t know.

Through the first half of 2014, the economy has added 1,385,000 payroll jobs - up from 1,221,000 added during the same period in 2013 - even with the severe weather early this year.  In June, the year-over-year change was 2.495 million jobs, and it appears the pace of hiring is increasing.  Right now it looks possible that 2014 will be the best year since 1999 for both total nonfarm and private sector employment growth.

Does that mean interest rates are about to really start going up?


The 30-year bond Treasury bond yield on Friday fell 6 basis points to 3.238% while the 5-year note yield fell 2.5 basis points to 1.675%.. 
The difference, or spread, between them shrank to 1.56 percentage points, its least since February 2009.

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.  Long-term yields are reflecting forecasts for slower growth.

The bond market does not seem to think interest rates are going up anytime soon.

Despite the hebetating from the Federal Reserve, Fed officials are still inclined to keep interest rates low for an extended period also.

Hebetation often sets in during the dog days of summer.
Dog days? What is a dog day? Is it so hot that dogs just lay around panting?
The term "dog days" has nothing to do with dogs. It dates back to Roman times, when it was believed that Sirius, the Dog Star, added its heat to that of the sun creating exceptionally high temperatures. The Romans called the period dies caniculares, or "days of the dog." The name Sirius seems to come from an ancient Greek word for "scorching" or "sparkling." Sirius is the brightest star visible from either of Earth's hemispheres. It's prominent in the evening during the northern hemisphere winter. But its appearance in the summer has also been noticed for many thousands of years. Each northern hemisphere summer, after being behind the sun for awhile, the Dog Star reappears before dawn. Early Greeks and Romans blamed Sirius for the heat in July and August. This is the time of year when Sirius comes up either with the sun or shortly before the sun each day. It travels across the sky with the sun during the daylight hours. The ancients believed that the double whammy of the sun and Sirius actually caused the hot weather.

As Yogi Berra once said, “It ain't the heat; it's the humility."

Thursday, July 17, 2014

SBA 504 Loan Debenture Rate

SBA 504 Loan Debenture Rate for July       

The debenture rate is only 2.87% but note rate is 2.92% and the effective yield is 4.952%.

Monday, July 14, 2014

The SBA and Sashay

1. To move, walk, or glide along nonchalantly.
2. To strut or move in a showy manner.

From switching of syllables in a mispronunciation of French chassé (a ballet movement involving gliding steps with the same foot always leading), past participle of chasser (to chase), from captare (to try to catch), frequentative of Latin capere (to take).


People are sashaying into hotels and motels.

According to Smith Travel Research, in year-over-year measurements, the hospitality industry’s occupancy rate increased 4.4 percent to 66.0 percent. Average daily rate increased 4.5 percent to finish the week at US$112.40. Revenue per available room for the week was up 9.0 percent to finish at US$74.14.  The 4-week average of the occupancy rate is solidly above the median for 2000-2007, and is at the same level as in 2000. 

Right now it looks like 2014 will be the best year since 2000 for hotels.

According to the Small Business Administration, hotels and motels have accounted for more SBA 7(a) and 504 loans than any other business since 2001.  Almost six percent of all SBA loans are to hotels and motels.  Hospitality also has one of the lowest failure and charge off rates.

SBA loans can finance hotel and motel purchases, construction or debt refinancing.


SBA LIBOR Base Rate July 2014 = 3.16%
SBA Fixed Base Rate July 2014 = 5.32%

SBA 504 Loan Debenture Rate for June
The debenture rate is only 2.99% but note rate is 3.04% and the effective yield is 5.069%.

The economy seems to sashay along.

Minutes from last month’s Federal Reserve Board meeting on monetary policy revealed that Fed officials are in no hurry to raise the central bank's benchmark short-term interest rate even though inflation has picked up recently. "Some" policymakers continued to voice concern about annual inflation that remains below the Fed's 2% target. "A couple" suggested the Fed "may need to allow the unemployment rate to move below its longer-run normal level for a time in order to keep inflation expectations anchored and return inflation to its 2% target.”

Keep your eyes and ears open for this week’s release from the Federal Reserve on industrial production and capacity utilization.

One of the Fed’s favorite gauges of the economy is the capacity utilization rate which measures how much plants and factories are being used.  The Federal Reserve watches capacity utilization rates to see if production constraints are threatening to cause inflationary pressures. Bottlenecks or shortages often lead to inflationary pressures that would drive prices even higher.   Several analysts have pointed to a rate between 81% and 82% as a tipping point over which inflation is spurred.  The Federal Reserve typically won’t initiate increases in interest rates until then.

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- 66.9
2010- 74.8
2011- 76.7
2012- 79.0
2013- 77.8
2014- 79.1

What does all this mean?

I don’t know.

Last month the Fed reported that capacity utilization for total industry was at 79.1 percent, the highest since June 2008.   That’s up 12.3 percentage points from the record low set in June 2009 and 2.4 percentage points higher than a year prior.   Capacity utilization at 79.1 percent is still 1 percentage point below its average from 1972 to 2012 and below the pre-recession level of 80.8 percent in December 2007.

What does all this mean?

I don’t know.

The 30-year Treasury bond yield serves as somewhat of a long-term outlook on economic growth and inflation expectations. But the security has at times been an early indicator for movements in other Treasury maturities.  

Last week’s auction of $13 billion in 30 year Treasury bonds drew a yield of 3.369% compared to June’s 3.355%.   

The long bond yield has dropped more than 50 basis points since the start of the year.

The bond market does not seem to think interest rates are going up anytime soon.

The minutes from the Fed reflect that some Fed officials are still inclined to keep interest rates low for an extended period also.

No more soccer players swaying and sashaying up and down.
Now we can play attention to things that really matter like Major League Baseball’s All-Star game this week.
Does the All-Star game really matter?  Isn’t it just an exhibition game between the American League and the National League?
Beginning in 2003, the league that won the game has home-field advantage in the World Series. The winning league would host the first two games of the best-of-seven Series, then go on the road for three, then host for the final two.
In the 10 years since, the winning league also won the World Series eight times. The National League’s Cardinals in 2006 and Phillies in 2008 are the only ones to win without that advantage, although both won in five games and wound up playing more games at home (three) than the team that was supposed to have home-field advantage (two).  We’ve had only one seven-game World Series since the All-Star home-field rule. In 2011, St. Louis beat Texas, winning Game 6 and 7 at home. That rule seemed to matter a whole lot that year.
Anyone watching baseball over the last seven years has noticed that the game is skewing towards younger, more athletic players. It's shifted the way games are played, with pitching and defense dominating the sport.
While there's incredible pitching on both sides, the National League clearly has the better pitching while the American League has the advantage with the bats.

As Yogi Berra once said,” Pitching always beats batting — and vice-versa.”  

Thursday, July 10, 2014

SBA 7(a) Loan Rate Update


SBA LIBOR Base Rate July 2014 = 3.16%
SBA Fixed Base Rate July 2014 = 5.32%
Lenders can charge up to 2.75% over these indices.