Monday, December 7, 2015

The SBA and affectious

Affectionate or cordial.

Via French, from Latin afficere (to affect or influence)

Affectious is not an adjective normally associated with the IRS, but the IRS has finally figured out how to photo shop the SBA logo onto its IRS form 4506. 
The new Form 4506-T with the SBA logo in the upper-right corner is now available and must be used when requesting tax transcripts from the IRS Service Centers for SBA loan purposes. The Form has been updated to reflect minor changes made by the IRS earlier this fall.  It is important that anyone signing this form also checks the new attestation box above the signature line.


SBA LIBOR Base Rate December 2015 = 3.24%
SBA Fixed Base Rate December 2015 = 5.01%

SBA 504 Loan Debenture Rate for December
The debenture rate is only 2.70% but note rate is 2.746% and the effective yield is 4.778%.

It’s hard to be affectious with the Federal Reserve when you really look into how they go about things.

According to minutes from their last meeting on monetary policy: “It was also noted that a decision to defer policy firming could be interpreted as signaling lack of confidence in the strength of the U.S. economy or erode the Committee's credibility.”

Huh?  So they have to raise interest rates because they think they have to?

Employers added 211,000 jobs in November as the labor market turned in a solid showing for the second straight month, likely cementing a decision by the Federal Reserve to raise interest rates this month for the first time in nearly a decade.

The second part of the central bank’s dual mandate -- stable prices -- has been more elusive. The Fed’s 2 percent target for inflation hasn’t be met since April 2012.

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

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 declined 0.2 percentage point in October to 77.5 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 all this mean?

I don’t know.

Capacity utilization is actually 1 percent lower than it was a year ago.

The Federal Reserve’s report on capacity utilization comes out just before their announcement on monetary policy. Federal Reserve policy makers will take the manufacturing data into consideration as they debate whether the economy is strong enough to withstand higher tighter monetary policy.

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

The yield curve is getting flatter.  That means the spread, or yield differential, between short- and long-term Treasuries has recently tightened. Short-term Treasury yields have risen in anticipation of a rate hike while long-term yields have fallen on declining inflation expectations.  At last month’s auction, there was strong demand as the bidding was tight with the high yield coming in at only 3.07%.  After the jobs report, the 30 year treasury yield was at 3.00%.  The 30 year Treasury yield is at historic lows implying a lack of concern over escalating interest rates. 

There's an upside to a steady-but-slow-rising economy: The cost of buying your true love all the gifts from "The 12 Days of Christmas" rose just 0.6% this year.

The combined cost for the dozen gifts featured in the final verse of the famed Christmas carol totals $34,130.99 in 2015, up $198 from last year's pricetag and in-line with the government's Consumer Price Index, according to the 32nd annual PNC Christmas Price Index issued Monday.

This is the time of year to be affectious!    


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