Monday, June 15, 2015

The SBA and apricate



To bask in the sun.
To expose to the sun.

From Latin apricari (to bask in the sun).


The SBA 7(a) loan program will soon apricate before Congress as the Senate’s Small Business and Entrepreneurship Committee has submitted a proposed bill that would increase the authorized limit for the SBA 7(a) loan program by two billion dollars.   SBA loan volume is on track to surpass the authorized SBA funds approved for the 2015 fiscal year which ends September 30th.  

Both borrowers and lenders are obviously embracing the program.


SBA LIBOR Base Rate June 2015 = 3.18%
SBA Fixed Base Rate June 2015 = 5.16%
SBA 504 Loan Debenture Rate for May  

The debenture rate is only 2.77% but note rate is 2.817% and the effective yield is 4.850%.   


The Federal Reserve has its moment of aprication as it meets this week on interest rates.  

At its last meeting, the Fed said that it would not increase interest rates until it “is reasonably confident that inflation will move back to its 2 percent objective.”

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.

This morning the Federal Reserve reported that capacity utilization had actually decreased 0.2 percentage points in May to 78.1 percent.  

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- 78.8

What does this mean?

I don’t know.

Weaker capacity utilization might be interpreted as a sign that the Federal Reserve’s 2% inflation target is still out of reach and interest rates may not be going up anytime soon.

The bond market seems to agree.  The 30 year Treasury bond, which is very sensitive to inflationary fears, saw strong demand at last week’s $13 billion auction as the 30-year bond yield fell 10 basis points to 3.108%.  The 30 year Treasury bond yield had been pushed to its highest level since early September pressured by a sustained sell off in Euro zone government bonds acerbated by the Greek debt saga which in turn was caused by too much apricating by the Aegean Sea.

The season to apricate is upon us as the first day of summer is this Sunday!  The day of the summer solstice is the longest day of the year. The length of time elapsed between sunrise and sunset on this day is a maximum for the year.   There are about 14½ hours of daylight on this day for most of us. 

For those up in Alaska, that means its time for the Midnight Sun Game.  This is a baseball game played every summer solstice in Fairbanks.  Because the sun is out for almost 24 hours a day, the game starts at about 10:30 at night and completes around 1:30 the next morning.  The first game was in 1906 and artificial light has never been used.  The game is considered one of the highlights of the Alaska Baseball League season and Baseball America declared it one of the "10 Must-See Baseball Events."

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