The SBA and presentiment

presentiment

pri-ZEN-tuh-ment

A sense that something is going to happen, especially something bad.

From Latin pre- (before) + sentire (to feel).

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TIP OF THE WEEK 

Some presentiment came from the FDIC recently.

Commercial banks and savings institutions insured by the Federal Deposit Insurance Corporation (FDIC) reported the highest quarterly income on record as reflected in the latest FDIC Quarterly Banking Profile.

The head of the Federal Deposit Insurance Corp. says banks have responded to low margins by extending long-term assets more than long-term liabilities, setting the stage for vulnerability if interest rates were to grow.  Net interest margins continue to shrink, down by nearly 80 basis points since 2009.  In response, banks have been extending asset maturities — but not longer-term funding at the same rate.

The secondary market premiums for the guaranteed portion of SBA 7(a) loans are well in excess of 10%.  This is one way lenders can offset compressed net interest margins. 

Let me know if you’d like a copy of the latest FDIC Quarterly Banking Profile.

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Indices:

PRIME RATE= 3.25%

SBA LIBOR Base Rate September 2015 = 3.20%

SBA Fixed Base Rate September 2015 = 5.09%

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SBA 504 Loan Debenture Rate for August

The debenture rate is only 2.82% but note rate is 2.87% and the effective yield is 4.909%.   

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AHEAD OF THE YIELD CURVE 

Do you have any presentiment about the Federal Reserve’s meeting this week on monetary policy and interest rates?

Just before they begin their meeting, they will be releasing their report on industrial production and capacity utilization for the month of August.

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.

Last month the Federal Reserve reported that capacity utilization had increased 0.3 percentage point to 78%.

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.

Capacity utilization is actually 0.3 percent lower than it was a year ago.  On the plus side, capacity has actually grown 1.7 percent over the last year.

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.

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OFF BASE

Any presentiment on this?

Andrew Heaney, the sole bright spot on the Angels pitching staff has agreed to sell 10 percent of his future earnings to Fantex, a publicly traded company, in exchange for $3.34 million, the company announced on Thursday.

Shares of Heaney aren’t yet for sale, but once they are he would become the first player in major league history to sell a portion of his earnings in that way. 

In order for investors to make a profit from Heaney, he would need to earn more than $33.4 million in his career, including endorsements and other sources of income.

Heaney is making just above the major league minimum of $500,000 this year. He will make approximately the same amount in 2016 and 2017, but once he’s eligible for arbitration, his salaries will jump significantly. He could make about $4 million his first year of arbitration, followed by about $6 million and about $9 million.

For Heaney, he is giving up a portion of his future earnings in exchange for the guarantee of cash up front, which presumably he can invest and earn more than he would if he’d waited to earn the money himself. He also protects himself from an injury that could derail his earnings potential.  He could also just be a flash in the pan.