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  

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