Monday, February 9, 2015

The SBA and frustraneous

Useless; unprofitable.

From Latin frustra (in vain).

SBA loans are NOT frustraneous.

SBA 7(a) loan volume has totaled $6,489,661,500 since the government’s fiscal year began October 1st.  This is a 26% increase over the same period last year.  

The proposed budget for next year calls for SBA to support $21 billion in loan guarantees for the flagship 7(a) program, the biggest such request in history.  

This is not a frustraneous use of taxpayer dollars.  For fiscal year 2016, the administration contemplates a $701 million budget for SBA, less than the $733 million Congress granted it for the current year.

But the proposed cuts appear to have more to do with improved loan performance rather than a reduction in programs or services.  There is $0 in taxpayer subsidy for the SBA guarantee loan programs.


SBA LIBOR Base Rate February 2015 = 3.17%
SBA Fixed Base Rate February 2015 = 4.75%
SBA 504 Loan Debenture Rate for January      

The debenture rate is only 2.52% but note rate is 2.56% and the effective yield is 4.60%.       


The economy is not as frustraneous as it once was.

The U.S. labor market leaped forward in January, capping the greatest three-month jobs gain in 17 years.  Payrolls advanced by 257,000 last month following increases in December and November that were even bigger than previously reported.  Employment in November was revised up to a 423,000 gain, the most since May 2010.  Payroll gains averaged 336,000 over the last three months, the strongest since 1997.  Total employment is now 2.5 million above the previous peak and up 11.2 million from the employment recession low.

Last time the Federal Reserve met, they said that they could be “patient” on raising interest rates.  The Fed also dropped a clause from its December statement that the assurance of patience was consistent with a previous pledge to hold rates low for a “considerable time.”

So how long before the Fed loses patience and starts to raise interest rates?

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:

DEC15- 0.865
DEC16- 1.66
DEC17- 2.125
DEC18- 2.37
DEC19- 2.54
DEC20- 2.69

What does all this mean?

I don’t know.

Eurodollar futures currently imply a federal funds rate well below the indications of just three months ago.  For example, the December 2020 rate is now 66 basis points lower.

Keep your eyes and ears open for this week’s auction of 30 year Treasury bonds.

After the Fed’s meeting, the 30 year Treasury bond dropped 10 basis points to 2.30 percent, an all-time low.  
Last month’s auction of $13 billion in 30-year bonds drew a yield of 2.430 percent, below the previous record of 2.580 percent in July 2012.  
After the jobs report on Friday,  the 30-year Treasury added 10.1 basis points to 2.523%.

This distinct flattening of the long end of the yield curve implies investors are rethinking the timing of Federal Reserve interest-rate hikes.

If it ends up being a frustraneous week, go ahead and take Monday off.
It’s Washington’s Birthday!
Officially it is Washington’s Birthday and NOT “President’s Day.” 

In 1968, Congress passed the Uniform Monday Holidays Act, which moved the official observance of Washington's Birthday from February 22nd to the third Monday in February.  An early draft of the Uniform Monday Holiday Act would have renamed the holiday to "Presidents' Day" to honor the birthdays of both Washington and Lincoln, since Lincoln’s is February 12th.  This proposal however failed in committee and the bill as voted on and signed into law on June 28th 1968, kept the name Washington's Birthday.

According to the Federal Reserve, here are our holidays for 2015:
Washington's Birthday February 16
Memorial Day May 25
*Independence Day July 4
Labor Day September 7
Columbus Day October 12
Veterans Day November 11
Thanksgiving Day November 26
Christmas Day December 25 

*Independence Day this year falls on a Saturday – so the Board of Governors is closed on July 3, 2015 and bankers get a three day weekend!

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