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.”  

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