Monday, June 20, 2016

The SBA and concomitant

adjective: Occurring concurrently, especially in an incidental way.
noun: Something that occurs concurrently.
From Latin (concomitari, to accompany), com- (with) + comitari (to accompany), from comes (companion).


Concomitant with the new SBA 504 debt refinance program is a concern that it may be intractable.

The SBA has just published an interim final rule with a request for comments (due by July 25) on debt refinancing rules under the 504 program. The Notice outlines the requirements to be effective as of June 24, 2016 that must be met in order for a 504 project to be eligible for debt refinancing.

Interim final rule?  The dictionary defines interim as “a temporary or provisional arrangement” while final as an adjective means coming at the end of a series but can also mean allowing no further doubt or dispute.  So how can something be both interim and final?

Of course, final as a noun means the last game in a sports tournament or other competition, which decides the winner.  Is SBA is just playing with us?

SBA LIBOR Base Rate June 2016 =3.47%
SBA Fixed Base Rate June 2016 = 5.00%
SBA 504 Loan Debenture Rate for June  
The debenture rate is only 2.18% but note rate is 2.219% and the effective yield is 4.232%.

The Federal Reserve has concomitant goals.  Its dual mandate is stable prices and maximum employment.

Inflation has been the more difficult objective in recent years, with annual core PCE inflation running at 1.6 percent while the unemployment rate sits at 4.7 percent.  The Fed’s preferred inflation gauge -- the Commerce Department’s personal consumption expenditures measure -- hasn’t reached the central bank’s 2 percent goal since April 2012.  The Fed also has grown more cautious about the longer-term outlook. Fed policymakers’ median forecast has inflation rising to 1.4% by the end of 2016 and 1.9% by the end of 2017. Core inflation, which excludes volatile food and energy items, is also expected to edge up slightly faster, reaching 1.7% at the end of this year.

One of the Fed’s leading indicators on inflation is capacity utilization.  Last week, the Federal Reserve reported that capacity utilization, which measures the amount of a plant that is in use at factories, mines and utilities, fell to 74.9 percent from 75.3 percent.  Capacity utilization at 74.9% is 5.1% below the average from 1972 to 2015 and below the pre-recession level of 80.8% in December 2007.  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. 

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:

JUL 16- 0.66
DEC16- 0.78
DEC17- 0.98
DEC18- 1.16
DEC19- 1.37
DEC20- 1.59
DEC22- 1.91

What does all this mean?

I don’t know.

Eurodollar futures currently imply a federal funds rate that really is not going to be moving up all that much any time soon.

It is arrant nonsense that they will be raising interest rates.  If you are a borrower, this is a frabjous time! 

Concomitant with the first day of summer today is a full moon.  This is a rarity as a full moon hasn’t occurred on the same day as the Solstice since 1948.  This is the kind of stuff that made the Mayans build pyramids and the Druids move rocks around at Stonehenge.

The word solstice is from the Latin solstitium, from sol (sun) and stitium (to stop), reflecting the fact that the Sun appears to stop at this time.

Go outside today and check out your shadow at 1:00.  That’s your shortest shadow of the year. Watch for the full moon to shine from dusk till dawn for the next few nights.  A full moon resides opposite the sun so it will mimic the path of the December solstice sun, rising south of due east and setting south of due west.  It will also follow the low path of the winter sun  

Monday, June 6, 2016

The SBA and frabjous

Wonderful; delightful.

Coined by Lewis Carroll in his 1871 novel Through the Looking-Glass. A blend of fair, fabulous, and joyous.

Things are not so frabjous with being able to refinance debt with a 504 loan. 

Each refinancing project must meet either the 504 program’s existing job creation and retention goals, or alternatively meet at least one of the public policy or community development goals of the program.   Under the temporary refinance program you simply had to show the benefit of the refinance (cash flow savings and working capital benefit if paying off eligible business expenses - typically a current liability) and it was generally deemed eligible.

Under the new guidelines, projects that include an amount for Business Operating Expenses will max out at 75% LTV and that portion of the financing cannot exceed 25% of the value of the 'Eligible Fixed Asset' securing the qualified debt.

If that doesn’t work, you can still utilize a SBA 7(a) loan for real estate debt refinance.  If you need to go beyond the $5,000,000 maximum 7(a) loan, you can utilize a guarantee through the State of California SBLGP (if the project is in California) up to $20,000,000.
SBA LIBOR Base Rate June 2016 =3.47%
SBA Fixed Base Rate June 2016 = 5.00%
SBA 504 Loan Debenture Rate for May  
The debenture rate is only 2.27% but note rate is 2.31% and the effective yield is 4.32%.

The Federal Reserve may have to galumph along after the no so frabjous jobs report that came out Friday.

The government said 38,000 jobs were created in May.  It was the worst month for job creation since September 2010.  Adding insult to injury, employment gains in March and April were revised down 59,000 less than previously reported. Over the past 3 months, job gains have averaged 116,000 per month.  That doesn’t even keep up with population growth.

Here is a summary of net payroll employment and this week’s interesting little table of data:

April                                     123,000
March                                   186,000
February                             244,000
January                               172,000
2015     2,740,000
2014     3,116,000
2013     2,074,000
2012     2,193,000
2011      2,103,000
2010     1,022,000
2009     -5,052,000
2008     -3,617,000
2007    1,115,000
2006     2,071,000
2005     2,484,000
2004     2,019,000

What does all this mean?

I don’t know.

In a matter of minutes after the release, the market-implied probability of a June rate increase nearly vanished, with federal-funds futures traders pricing in a 4% probability of a June rate increase Friday morning, down from 21% on Thursday afternoon, according to CME Group’s FedWatch tool. Even the possibility of a July increase fell to about 29 percent from 55 percent on Thursday.  The yield on the 30-year bond lost 6.5 basis points to 2.522%, its lowest level since April 4.

The Federal Reserve Open Market Committee next meets on interest rates June 14-15.

If you are a borrower, this is a frabjous time! 

Did you notice that I used the word galumph above?  It means to move clumsily or heavily.  Like frabjous it was coined by Lewis Carroll in his 1871 novel Through the Looking-Glass and is a blend of gallop + triumph.

It’s rare that a word someone coins goes on to grace the pages of a dictionary. What about multiple words coined by a person? What if those words were in a single work? Well, anything is possible if your name is Lewis Carroll. 

That wasn’t even his real name.  The pseudonym derived from his real name- Charles Lutwidge Dodgson. Lewis derived from Ludovicus which was Latin for Lutwidge. Carroll was similar to the Latin name Carolus which derives from the name Charles. Charles Lutwidge in Latin is Carolus Ludovicus and when translated into English, it is Carroll Lewis.

The real Alice, who lent her name to the story, was the daughter of Henry Liddell, the dean of Christ Church College at Oxford, where Carroll taught mathematics.  When Carroll began telling a fantastic tale to Alice Liddell and her two sisters on a summer 1862 boating trip up the Thames, he didn’t plan on becoming a children’s author. But just like your kid or grandkid that won’t stop begging to watch Frozen again, the kids wouldn’t stop asking him to tell the story.  He eventually turned it into a written novel, presenting it to Alice as an early Christmas gift in 1864. By the time he self-published the final version of Alice’s Adventures in Wonderland in 1865, it had doubled in length, with new scenes including those with the Mad Hatter and the Cheshire Cat.