The SBA and volte-face

volte-face

volt-FAHS

A reversal in policy or opinion; about-face.

From French, from Italian voltafaccia, from voltare (to turn), from Vulgar Latin volvitare, frequentative of Latin volvere (to turn) + faccia (face).

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TIP OF THE WEEK 

SBA has once again changed it rules for eligible passive companies (real estate holding entities) and operating concerns. 

The last SOP (Standard Operating Procedures) restricted SBA lenders from utilizing an EPC-OC structure for mixed-purpose loans that included use of proceeds by the OC for purposes such as business acquisition, purchase of intangible assets or goodwill.

This volte-face once again allows the OC to utilize loan proceeds for "working capital and/or the purchase of other assets, including intangible assets," provided that the OC is a co-borrower with the EPC on the loan.

A completely new and improved SOP 50-10-5 E is expected soon from SBA.

______________________________________

Indices:

PRIME RATE= 3.25%
SBA LIBOR Base Rate April 2012 = 3.24%
SBA Fixed Base Rate April 2012 = 5.02%

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504 Debenture Rate for March

The debenture rate is 2.51% but note rate is 2.55% and effective yield is only 4.591%.

The effective yield for the temporary debt refinancing available with a 504 loan is 4.793%.

________________________________________________



AHEAD OF THE YIELD CURVE 

Unemployment continues to fall.  Or does it?

Last month unemployment fell to 8.2 percent, the lowest since January 2009, from 8.3 percent.

The jobless rate dropped as unemployed workers stopped looking for work and left the labor force.  They've given up.  In other words, a shrinking percentage of our country is looking for work or employed.

Only one president since World War II - - Ronald Reagan -- has been re-elected with a jobless rate above 6 percent. Reagan won a second term in 1984 with 7.2 percent unemployment in the month of the election, after the rate had fallen almost three percentage points in the previous 18 months.

In the last 24 months, 3.45 million jobs have been created.  That’s not even keeping up with population growth.  The United States has added 3 million people a year since the recession began four years ago.  We will add 30 million people in the next 10 years. 

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

March 120,000

February 240,000

January 243,000

2011

December 203,000
November 157,000
October 112,000
September 158,000
August 104,000
July 127,000
June 20,000
May 25,000
April 232,000
March 194,000
February 235,000
January 68,000
2010
December 121,000
November 93,000
October 210,000
September (41,000)
August (1,000)
July (66,000)
June (175,000)
May 431,000
April 218,000
March 230,000
February (36,000)
January (26,000)
2009
December (150,000)
November (11,000)
October (111,000)
September (215,000)
August (201,000)
July (304,000)
June (443,000)
May (322,000)
April (504,000)
March (699,000)
February (651,000)
January (655,000)
2008
December (681,000)
November (597,000)
October (423,000)
September (403,000)
August (127,000)
July (67,000)
June (100,000)
May (47,000)
April (67,000)
March (88,000)
February- (83,000)
January- (76,000)

What does all this mean?

I don’t know.

There are a total of 12.67 million Americans unemployed and 5.3 million have been unemployed for more than 6 months. These numbers are declining, but still very high.

Keep your eye on Thursday’s auction of 30 year Treasury bonds.

Last month, a $13 billion auction of 30-year bonds was sold at a yield of 3.383 percent, the highest since August.   This was a jump of 23 basis points.  

Since then the yield curve has flattened a bit.

The slope of the yield curve—the difference between the yields on short- and long-term maturity bonds—has achieved some notoriety as a simple forecaster of economic growth.  A steeper curve indicates stronger growth.

Last month’s 120,000 increase in payrolls was the fewest in five months.

It would appear that interest rates will continue to remain low for some time.

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OFF BASE

If you need to do a volte-face with the whole Easter thing, you might want to consider what Ronald Reagan had to say about it:

Meaning no disrespect to the religious convictions of others, I still can't help wondering how we can explain away what to me is the greatest miracle of all and which is recorded in history. No one denies there was such a man, that he lived and that he was put to death by crucifixion. Where ... is the miracle I spoke of? Well consider this and let your imagination translate the story into our own time -- possibly to your own home town. A young man whose father is a carpenter grows up working in his father's shop. One day he puts down his tools and walks out of his father's shop. He starts preaching on street corners and in the nearby countryside, walking from place to place, preaching all the while, even though he is not an ordained minister. He never gets farther than an area perhaps 100 miles wide at the most. He does this for three years. Then he is arrested, tried and convicted. There is no court of appeal, so he is executed at age 33 along with two common thieves. Those in charge of his execution roll dice to see who gets his clothing -- the only possessions he has. His family cannot afford a burial place for him so he is interred in a borrowed tomb. End of story? No, this uneducated, property-less young man has, for 2,000 years, had a greater effect on the world than all the rulers, kings, emperors; all the conquerors, generals and admirals, all the scholars, scientists and philosophers who have ever lived -- all of them put together. How do we explain that -- unless He really was what He said He was?"

FOLLOW UP SAVVY

Want to stop dropping the ball?  Learn to follow up the right way.  Check out Wanda Allen's book, FOLLOW UP SAVVY.  More info can be found here: http://followupsavvy.com/

SBA revised rules for eligible passive companies and operating companies as co-borrowers

On April 2, 2012, the Small Business Administration published a "Direct Final Rule" in the Federal Register, (Vol. 77, No. 63, April 2, 2012) which provides much-anticipated clarification to the EPC rule set forth at 13 CFR 120.111.

This makes the EPC rule consistent with industry practice as it existed prior to the issuance of SOP 50 10 5(D) in the Fall of 2011.

The clarification provides Lenders with the ability to structure mixed-purpose loans for their borrowers without imposing undue hardship by either requiring the loan to be split into two loans or requiring that the loan be restructured.

A new and improved SOP 50-10-5 E will be out soon!

SBA 7(a) Weekly Lending Update

SBA 7(a) loan approvals jumped to $368,281,000 for the week ending March 30.  Year to date approvals now total $6,750,281,000.

SBA 504 loan approvals are at $2,711,396,000.  This is up from both last year and the year before.

SBA 7(a) Weekly Lending Update

SBA 7(a) loan approvals jumped up to $327,254,000 for the week ending March 23rd.

That brings the year to date total to $6,382,157,000.

Borrowers and lenders overall appear to be a little more active than they have been.

SBA 7(a) loan volume has historically been a leading economic indicator.

The SBA and lucubrate

lucubrate

LOO-kyoo-brayt

To work (such as study, write, discourse) laboriously or learnedly.

Here's a word that literally means "to burn the midnight oil".

It's derived from Latin lucubrare (to work by lamplight), from lucere (to shine).

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TIP OF THE WEEK 

Lucubrate over commercial real estate opportunities.

CoStar’s monthly National Composite Index of commercial real estate prices opened 2012 with a 1.5% increase.   The index is now 1.9% above the same period last year, reflecting the ongoing recovery in commercial real estate fundamentals.  Pricing for commercial real estate remains low relative to recent history. The National Composite Index ended January 2012 down 31.9% from its previous peak in August 2007.

If you would like a copy of CoStar’s March report, let me know.

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Indices:

PRIME RATE= 3.25%
SBA LIBOR Base Rate March 2012 = 3.24%
SBA Fixed Base Rate March 2012 = 4.88%

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504 Debenture Rate for March

The debenture rate is 2.51% but note rate is 2.55% and effective yield is only 4.591%.

The effective yield for the temporary debt refinancing available with a 504 loan is 4.793%.

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AHEAD OF THE YIELD CURVE 

The yield curve has gotten steeper, noticeable steeper.

Long term rates began to jump after the Federal Reserve announced at their last monetary policy meeting on March 13 that the economy was doing better. 

Two days after the Fed announcement, a $13 billion auction of 30-year bonds was sold at a yield of 3.383 percent, the highest since August.   This was a jump of 23 basis points.  

The slope of the yield curve—the difference between the yields on short- and long-term maturity bonds—has achieved some notoriety as a simple forecaster of economic growth.  A steeper curve indicates stronger growth.

Here is what the 30 year bond has been doing:

2001- 5.49

2002- 5.43

2003- ND

2004- ND

2005- ND

2006- 4.91

2007- 4.84

2008- 4.18

2009- 3.89

2010- 4.61

2011- 2.89

2012- 3.30

So what does this mean?

I don’t know.

The surge in longer term yields stalled on Friday.

Treasury 30-bond yields dropped below their 200-day moving average, indicating this month’s slump in bond prices and surge in yields may be drawing to a close.  The yields dropped as low as 3.2958 percent, less than Friday’s 200-day moving average of 3.3343 percent. 

The steeper slope of the yield curve is also not enough to significantly change projected future growth.

Projecting forward using past values of the yield spread and GDP growth, the Federal Reserve Bank of Cleveland thinks that real GDP will grow at about a 0.7 percent rate over the next year, equal to the past two months.

Thursday the Bureau of Economic Analysis will release their third and FINAL estimate for fourth quarter 2011 GDP.

Their first or “advance” estimate for fourth quarter GDP was an increase of an annual rate of 2.8%.   Their second and “preliminary” was then bumped up to 3%.

This was an improvement over the 1.8% third and “final” estimate for third quarter GDP.  GDP for the third quarter was initially put at 2.5%, with subsequent downward revisions to 2.0% and finally 1.8%. 

So rates obviously are going to go up, stay the same, or go down.

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OFF BASE

In the Spring a young man's fancy lightly turns to thoughts of love.

-ALFRED TENNYSON, Locksley Hall

Now before you go and think that the poem Locksley Hall is some beautiful sonnet about love and birds chirping, maybe you ought to read the whole thing.    It turns out that the theme of the poem is the bitterness of unrequited love. The speaker first recalls the happy times at Locksley Hall with Amy, the woman he loved. But after Amy left him, he became extremely bitter and angry. He heaps curses on her and the man she chose. He ends the poem by hoping that a storm destroys Locksley Hall.

As unbalanced as that is, things are even weirder.  Turns out the woman he was obsessed with was his COUSIN.  

Perhaps our fancy ought to turn to the fact that Opening Day for Major League Baseball is in just over a week.

SBA 7(a) Weekly Lending Update

For the week ending March 16, 2012, SBA has approved $6,054,903,000 in SBA 7(a) loans.  That's just over half as much ($11,0303,635,000) for the same period last year.

$271,998,000 in loans were approved for the week.  The week before that, $232,418,000 in SBA 7(a) loans were approved.

504 Debenture Rate for March

504 Debenture Rate for March

The debenture rate is 2.51% but note rate is 2.55% and effective yield is only 4.591%. 

The effective yield for the temporary debt refinancing available with a 504 loan is 4.793%.

The SBA and stenotopic

stenotopic

sten-uh-TOP-ik

Able to adapt only to a small range of environmental conditions.

From Greek steno- (narrow, small) + topos (place). Opposite is eurytopic.

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TIP OF THE WEEK 

Are borrowers being stenotopic about SBA loans?

SBA 7(a) loan approval volume is down by over 50% from a year ago. 

SBA 7(a) loan demand has historically been a leading economic indicator.

Lenders are now aggressively seeking new SBA 7(a) loan opportunities.

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Indices:

PRIME RATE= 3.25%
SBA LIBOR Base Rate March 2012 = 3.24%
SBA Fixed Base Rate March 2012 = 4.88%

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504 Debenture Rate for February   

The debenture rate is 2.63% but note rate is 2.68% and effective yield is only 4.711%. 


The effective yield for the temporary debt refinancing available with a 504 loan is 4.91%.

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AHEAD OF THE YIELD CURVE 

The Federal Reserve Open Market Committee meets this week and it is widely expected that they will once again state that they plan to maintain “exceptionally low levels for the federal funds rate at least through late 2014.”

So what happens after 2014?

Minutes from the last Fed meeting show that some six committee members (out of 17) "anticipated that the target rate would need to be increased to around 1½ to 2¾ percent at the end of 2014."  Moving out to 2015 and 2016, the target rate expectations for the committee were "in a range from 3¾ to 4½ percent”.

Then again they could very well revise their numbers.  

The Fed just last month revised their estimate of capacity utilization up from 78.1 percent to 78.6 percent for December.  They then said capacity utilization “fell” in January to 78.5 percent.  The capacity utilization rate, which measures how much plants and factories are being used, is one of the Federal Reserve’s favorite gauges of the economy.    Several analysts have pointed to a rate between 81% and 82% as a tipping point over which inflation is spurred.

The Fed next reports Capacity Utilization figures on Friday.     

The Department of Labor also revised their job growth numbers.  The change in December payroll employment was revised up from +203,000 to +223,000, and January was revised up from +243,000 to +284,000.   Revisions added a total of 61,000 jobs to payrolls in December and January.  The February jobs number came in at 227,000. 

Not to be left out, the Department of Commerce also revised their fourth quarter estimate of economic growth up to 3 percent from 2.8 percent.  

So where then are interest rates going?

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:

DEC12- 0.52
DEC13- 0.76
DEC14- 1.20
DEC15- 1.87
DEC16- 2.46
DEC17- 2.96
DEC18- 3.33

DEC19- 3.50

What does all this mean?

I don’t know.

The bond market remains skeptical.  Over the past month, the yield curve has flattened somewhat, as short rates moved up while longer rates barely budged.   A flatter curve telegraphs weaker growth. 

Keep your eye on Wednesday’s $13 billion auction of 30 year Treasury bonds.

The government had a little trouble selling $16 billion of 30 year Treasury bonds last month.    The 30 year Treasury bond yield reached 3.23 percent, the most since October 31^st.   The 30 year bond yield is now at 3.18 percent.

One obviously can’t be stenotopic.

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OFF BASE

Daylight saving time has begun.  By the way, it's daylight SAVING time, not SAVINGS time.  Remember we are saving daylight.  It's an adjective, as in labor saving device. 

How is daylight saved?  Most people are tied to the tyranny of a clock and use standard time instead of solar time for their schedules.  As the days get longer and longer drifting towards the summer solstice, most people fail to let the sun wake them.  So that daylight is "lost".  People could simply wake up earlier to take advantage of the sunlight, but this is evidently impractical because of the supposed inflexibility of clock based schedules.

So instead we have to spring forward and then fall back.  The alternative would of course be to throw out our clocks and watches and use sundials.

Someone who is totally disregarding time is Colorado Rockies pitcher Jamie Moyer.

Jamie is now 49 years old.  49 years old!  Only three pitchers have played at this age or older.  Satchel Paige (59, in a one-time special appearance), Jack Quinn (50) and Hoyt Wilhelm (49).  And Jamie has only 33 wins to go to make it to 300 wins.  He might be the last pitcher to do it for quite awhile.  The next closest active pitcher is Roy Halladay with 188 wins. 

On Wednesday, in the Rockies' spring training debut, Jamie threw two innings and allowed only one hit.  On Sunday, against the White Sox, Jamie started the game and lasted three innings giving up one run on three hits with two strike outs.   Not bad.

Now none of us have an excuse for being late getting out of bed.

SBA 7(a) Weekly Lending Update

SBA 7(a) loan approvals bumped up to $288,616,000 for the week ending March 2nd.

So far year to date, SBA has approved $5,550,487,000 in SBA 7(a) loans.

This 5 1/2 billion in SBA 7(a) loan approvals is quite a drop from the 10.7 billion for the same period a year ago.    

SBA 7(a) Rate Update

Indices:

PRIME RATE= 3.25%

SBA LIBOR Base Rate March 2012 = 3.24%

SBA Fixed Base Rate March 2012 = 4.88%


Lenders can charge up to 2.75% over these rates.

SBA 7(a) Weekly Lending Update

SBA 7(a) loan volume dropped for the week ending February 24th to $216,124,000.  So far year to date SBA has approved $5,261,871,000 in SBA 7(a) loans.

The SBA and caitiff

caitiff

KAY-tif

noun: A cowardly and despicable person.

adjective: cowardly, despicable.

Via French from Latin captivus (captive), from capere (to seize).

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TIP OF THE WEEK 

Don’t be caitiff about commercial real estate.

The CoStar Commercial Repeat Sale Indices (CCRSI) National Composite index ended the fourth quarter of 2011 up 5.5% from its low point in March 2011. 

This month's CCRSI provides the market's first look at December 2011 commercial real estate pricing.   

The CoStar indices are constructed using a repeat sales methodology, widely considered the most accurate measure of price changes for real estate.  If you would like a copy of CoStar’s February 2012 report, let me know.

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Indices:

PRIME RATE= 3.25%
SBA LIBOR Base Rate February 2011 = 3.26%
SBA Fixed Base Rate February 2011 = 4.72%

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504 Debenture Rate for February   

The debenture rate is 2.63% but note rate is 2.68% and effective yield is only 4.711%. 


The effective yield for the temporary debt refinancing available with a 504 loan is 4.91%.

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AHEAD OF THE YIELD CURVE 

On Wednesday, LEAP DAY, the Bureau of Economic Analysis will release their second or “preliminary” estimate for fourth quarter 2011 GDP.  Their first or “advance” estimate for fourth quarter GDP was an increase of an annual rate of 2.8%.  This was an improvement over the 1.8% third and “final” estimate for third quarter GDP.  

GDP for the third quarter was initially put at 2.5%, with subsequent downward revisions to 2.0% and finally 1.8%.

These revisions to the GDP numbers were caused primarily by inventory changes.

This is worth noting because more than the entire difference between the third quarter growth rate and the fourth quarter growth rate can be explained by the movement in inventories. Inventories subtracted 1.35 percentage points from growth in the third quarter, when they rose at just a $5.5 billion annual rate. Inventories then added 1.95 percentage points to growth in the fourth quarter when they rose at a strong $63.6 billion annual rate.

Unfortunately, this speedup in the rate of inventory accumulation will not continue. In future quarters inventories are likely to grow at a somewhat slower pace.

In the absence of this inventory growth we would have been looking at only a 0.9 percent growth rate in the fourth quarter. 

GDP is market value of all final goods and services produced within the USA where money is used in the transaction.  GDP counts monetary expenditures.  It is designed to count value added so that goods are not counted over and over as they move through the manufacture – wholesale – retail chain.

Consider that GDP includes the costs of suing your neighbor or McDonalds for hot coffee spilled in your lap, or even the replacement of your house if it burns down – yet little of these activities are real economic growth.  GDP does not include home costs (other than new home purchase prices), interest rates, or the money spent buying anything used.

It does not measure wealth, disposable income, or employment.  In short, GDP does not measure the change of the economic environment for you and me.

So what does that mean for job growth this year?

Keep your eyes and ears open for next Friday’s report on jobs for February.

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

January 243,000

2011

December 203,000
November 157,000
October 112,000
September 158,000
August 104,000
July 127,000
June 20,000
May 25,000
April 232,000
March 194,000
February 235,000
January 68,000
2010
December 121,000
November 93,000
October 210,000
September (41,000)
August (1,000)
July (66,000)
June (175,000)
May 431,000
April 218,000
March 230,000
February (36,000)
January (26,000)
2009
December (150,000)
November (11,000)
October (111,000)
September (215,000)
August (201,000)
July (304,000)
June (443,000)
May (322,000)
April (504,000)
March (699,000)
February (651,000)
January (655,000)
2008
December (681,000)
November (597,000)
October (423,000)
September (403,000)
August (127,000)
July (67,000)
June (100,000)
May (47,000)
April (67,000)
March (88,000)
February- (83,000)
January- (76,000)

What does all this mean?

I don’t know.

We added 157,000 jobs in November, 203,000 in December, and 243,000 in January.  Even with the awful summer of 2011, the economy added 1.95 million jobs in the last 12 months, the best figure in five years. 

This is a better pace of payroll job creation than in 2010, but the economy still has 6.0 million fewer payroll jobs than at the beginning of the 2007 recession. There are a total of 13.1 million Americans unemployed and 5.6 million have been unemployed for more than 6 months.

We still have a way to go before rates will start to really go up.

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OFF BASE

A caitiff is a contemptible or cowardly person. It’s archaic, so if you say it with a straight face you might even get away with the insult.   It started out, sometime before 1300, to mean a captive.  As captives were not in the best of circumstances, caitiff began to mean a wretched or miserable person. 

The leap day baby Frederic the pirate apprentice in Gilbert and Sullivan's 1879 comic opera The Pirates of Penzance was a caitiff in the original sense of the word.  His apprenticeship indenture stated that he remained legally and morally indentured to the pirates until his 21st birthday.   Frederic was born on February 29th, and so, technically, he only has a birthday each leap year, and so he must serve for another 63 years.

Leap Years are needed to keep our calendar in alignment with the Earth's revolutions around the sun.   Because seasons and astronomical events do not repeat in a whole number of days, a calendar that had the same number of days in each year would, over time, drift with respect to the event it was supposed to track like the winter solstice, vernal equinox, summer solstice and autumnal equinox.  By occasionally inserting an additional day or month into the year, the drift can be corrected.  If we didn't add a day on February 29th nearly every 4 years, we would lose almost six hours every year. After only 100 years, our calendar would be off by approximately 24 days!

Another famous leap day baby was Dickey Pearce.  Dickey played baseball back with the Brooklyn Atlantics in 1856.  Dickey is most famous for introducing his "tricky hit" to baseball, known today as the bunt.

Many people think baseball batters who bunt are caitiffs. 

One of the best bunters in all of baseball is Angel Erick Aybar. 

Last season against the Tigers and the best pitcher in all of baseball Justin Verlander,  Aybar stepped up to the plate.  It was the top of the eighth inning and Verlander had a no-hitter going through seven innings. With his team trailing 3-0,  Aybar dropped down a bunt.   Verlander fielded the bunt but rushed the throw which ended up in right field.  With Verlander rattled, the Angels would go on to score two runs that inning, making it close. 

Aybar attempted quite a few bunts last season.  He 42 attempts were second in the major leagues.  Joining him was Angel center fielder Peter Peter Bourjos who bunted 17 times in 29 attempts for a   .586 batting average.   Their new teammate, Albert Pujols, has attempted a sacrifice bunt just once, on June 16^th, 2001.  He also has two career bunt hits, one in 2003 and another in 2004.

SBA 7(a) Weekly Lending Update

More and more businesses are turning to the SBA 7(a) loan program as $322,060,000 in SBA 7(a) loans were approved for the week ending February 17th.   SBA 7(a) volume has been somewhat lackluster and last week's number is a jump in approvals.

So far this year SBA has approved $5,043,747,000 in SBA 7(a) loans.

504 Debenture Rate for February

504 Debenture Rate for February   


The debenture rate is 2.63% but note rate is 2.68% and effective yield is only 4.711%.


The effective yield for the temporary debt refinancing available with a 504 loan is 4.91%.

SBA 7(a) Weekly Lending Update

SBA 7(a) loan volume is off 53% from last year.  So far the SBA has approved $4,721,687,000 in SBA 7(a) loans.  Last year at this time, the SBA had approved $9,988,144,000 in SBA 7(a) loans.   Many people attribute the drop to the reduction in the percent of guarantee from 90 now down to 75.  With lenders assuming a greater share of the risk of the loan, they have become a little more selective.   Borrowers now need to figure out which lender is out there still willing to do their loan.  There are many lenders still out there doing SBA loans.

The SBA and limpet

limpet

LIM-pit

1. Any of various low conical-shelled marine mollusks that adhere tightly to rocks.

2. One that clings stubbornly.

From Middle English lempet, from Latin lampreda (lamprey) usually explained as literally "lick-rock," from lambere "to lick" + petra "rock."

The animals attach themselves to things with their sucker-like mouths..

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TIP OF THE WEEK 

Hotel occupancy rates are back to pre-recession levels.  Smith Travel Research’s preliminary performance numbers for January reveal another strong month for the U.S. hotel industry.   Occupancy overall was up 3% to 5% while revenue per available room was up 7% to 9%.

Loans to hotels are one of the single biggest industry categories of SBA borrower.

______________________________________

Indices:

PRIME RATE= 3.25%
SBA LIBOR Base Rate February 2011 = 3.26%
SBA Fixed Base Rate February 2011 = 4.72%

________________________________________

504 Debenture Rate for January 

The debenture rate is 2.76% but note rate is 2.81% and effective yield is only 4.839%. 

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AHEAD OF THE YIELD CURVE 

The government had a little trouble selling $16 billion of 30 year Treasury bonds last week.  

The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 2.47, compared with 2.6 at the January offering and an average of 2.66 for the previous 10 sales. 

The 30 year Treasury bond yield reached 3.23 percent, the most since October 31^st.  The difference between yields on Treasuries maturing in two and 30 years, our friend the yield curve, widened to 2.94 percentage points, the most since October 28^th when the difference was 3.08 percentage points. 

Short term rates remain exceptionally low because of, as the Federal Reserve put it, “low rates of resource utilization”.

In the Federal Reserve's eyes, resource utilization is gauged by capacity utilization which measures how much plants and factories are being used. 

Keep your eyes and ears open for Wednesday's Federal Reserve report on Industrial Production and Capacity Utilization.

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- 67.3
2010- 74.8
2011- 76.7

What does all this mean?

I don't know.

Last month capacity utilization for total industry stepped up to 78.1 percent.  This is up 10.8 percentage points from the record low set in June 2009.  It is still however 2.3 percentage points below its long term average and the pre-recession levels of 81.3% in December 2007. 

We still have a way to go before rates will start to really go up.

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OFF BASE

Valentine’s Day is Tuesday, February 14^th. 

You ever wonder how this whole crazy ritual started?

It turns out there really was a St. Valentine who was thrown in prison by Roman Emperor Claudius II.  Claudius attempted to get him to convert to Roman paganism in order to save his life. Valentine refused and tried to convert Claudius to Christianity instead. Because of this, Valentine was executed.

On the evening before Valentine was to be executed, he wrote a note - the first "valentine" card – to a lady friend.  It was a note that read "From your Valentine."

Ever since then, also sensing impeding doom if they don't, men have been compelled to do the same thing.  

The SBA and ululate

ululate

UHL-uh-layt, or YOOL-uh-layt

To howl or wail.

From Latin ululare (to howl or shriek) 
 

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TIP OF THE WEEK 

Restaurateurs must be happily ululating.

The National Restaurant Association just reported that their Restaurant Performance Index rose to highest level in nearly six years in December.  Building on a solid November performance that saw the strongest same-store sales results in more than four years, restaurant operators reported even better numbers in December.  In addition to positive sales and traffic levels, capital spending activity among restaurant operators continues to trend upward.

Loans to restaurants, both full service and limited service, are the single biggest industry category of SBA borrower.

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Indices:

PRIME RATE= 3.25%
SBA LIBOR Base Rate February 2011 = 3.26%
SBA Fixed Base Rate February 2011 = 4.72%

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504 Debenture Rate for January 

The debenture rate is 2.76% but note rate is 2.81% and effective yield is only 4.839%. 

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AHEAD OF THE YIELD CURVE 

Joyful ululation echoed on Friday when the Department of Labor reported that 243,000 jobs were added to start the year off.    We added 157,000 jobs in November, 203,000 in December, and now 243,000 in January.  Even with the awful summer of 2011, the economy added 1.95 million jobs in the last 12 months, the best figure in five years. 

The Federal Reserve Open Market Committee had just said that they planned to maintain “exceptionally low levels for the federal funds rate at least through late 2014.”

 The federal funds rate dictates short term rates, but what about longer term rates?

After the jobs report on Friday, a drop of more than three points in the price of 30 year bonds pushed yields up as much as 16 basis points to 3.16 percent. 

The 30-year Treasury bond yield finished 2011 at 2.89 percent.   

Keep your eyes on Thursday’s $16 billion auction of 30 year Treasury bonds.

Here is what the 30 year bond has been doing:

2001- 5.49
2002- 5.43
2003- ND
2004- ND
2005- ND
2006- 4.91
2007- 4.84
2008- 4.18
2009- 3.89
2010- 4.61

2011- 2.89


Wait a minute, why no numbers for 2003, 2004, and 2005?

One month after the 9/11 attacks, the Treasury 30 year bond is discontinued. When the Treasury mothballed the 30-year bond in 2001, experts speculated it was trying to drive down long-term interest rates, which had remained stubbornly high while the Federal Reserve was slashing short-term interest rates to revive the economy. When the Treasury discontinued the 30-year bond in 2001, its yield fell 35 basis points in one day. Why? A shrinking supply of the 30-year Treasury bond caused increased demand to drive rates down.

What does all this mean?

I don’t know.

The slope of the yield curve—the difference between the yields on short- and long-term maturity bonds—has achieved some notoriety as a simple forecaster of economic growth.

A flat curve indicates weak growth, and conversely, a steep curve indicates strong growth.

The yield curve is getting a little steeper.

Now that’s something to ululate about.

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OFF BASE


Ululating about having to work on Super Bowl Monday?

You are not alone as a survey conducted by Harris Interactive for the Workforce Institute at Kronos indicated that 1.5 million people could call in sick and an additional 4.4 million could be late to work the day after the Super Bowl.  According to the latest Bureau of Labor Statistics numbers that just came out on Friday, there are about 141 million employed people in the United States. So, to put those national loss productivity numbers in perspective, just over 4 percent of the American work force won’t be very productive as they are going to either be missing work or dragging through the day.

Hang in there.  Our next holiday is in only two weeks as we observe Washington’s Birthday. 

By the way, officially it is Washington’s Birthday and NOT “President’s Day.” 

In 1968, Congress passed the Uniform Monday Holidays Act, which moved the official observance of Washington's Birthday from February 22nd to the third Monday in February.  An early draft of the Uniform Monday Holiday Act would have renamed the holiday to "Presidents' Day" to honor the birthdays of both Washington and Lincoln, since Lincoln’s is February 12th.  This proposal however failed in committee and the bill as voted on and signed into law on June 28th 1968, kept the name Washington's Birthday.

Not only is Lincoln not getting his due, but Ronald Reagan is also being shortchanged.  His birthday is February 6th. 

Obviously the only equitable way to remedy this grievous oversight is to give each of these great Presidents their own birthday holidays.   Keeping in the spirit of the Uniform Monday Holidays Act, we could celebrate Reagan’s on the first Monday in February, Lincoln’s on the second Monday in February, and George still gets the third Monday.

Now before some prig goes off on exclaiming that would be allowing too much time off for frivolity amongst the hoi polloi, this trifecta of Presidential birthday holidays would be our last hurrah until the brink of summer. 

According to the Federal Reserve, the next federally recognized holiday is not until Memorial Day.  That’s not until the end of May.  Three whole months away; one forth of the year. 

Fortunately Opening Day for baseball is only 57 days from now and pitchers and catchers report for spring training next week.

Now there is something to joyfully ululate about.

SBA 7(a) Weekly Lending Update

For the week ending January 27, 2012, SBA approved $4,257,467,000 in SBA 7(a) loans.  That's an increase of $254,393,000 from the prior week.

SBA Loan Basics- What is a small business?

To be eligible for SBA financial assistance, which is a fancy way of saying to get a SBA loan, your company has to be considered a small business. Remember, SBA means SMALL BUSINESS Administration.

SBA uses what they call a size standard.


Currently the SBA defines a small business as one which has net profit after taxes less than $5 million averaged over the last three years and a BUSINESS net worth less than $15 million.

SBA 7(a) Weekly Lending Update

SBA ended its first calender quarter with $3,443,723,000 in approvals for the SBA 7(a) loan program.  If you annualized that pace, it would end up way off from the record setting $19,637,889,000 in SBA 7(a) loan approvals for the fiscal year ending 9/30/11.

Right now loan approvals are averaging about $191,873,000 a week.  Last year it was well in excess of $300,000,000 per week.

That means funding is readily available for borrowers.

The SBA and nugacity

Nugacity


noo-GAS-i-tee

Triviality; futility

From Latin nugax (trifling), from nugari (to trifle).

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TIP OF THE WEEK

Our oasis of nugacity looks at SBA loans for debt refinance.

A SBA 504 loan can be used to refinance debt as long as 85% of the loan proceeds from the debt being refinanced were originally used to purchase or build real estate.

A SBA 7(a) loan can also refinance real estate debt as well as business debt used for other purposes. It can be amortized for 25 years if at least 51% of the loan proceeds for the debt being refinanced were originally used for a real estate purpose. Debt refinance with a SBA 7(a) loan requires that the debt being refinanced has a balloon or there is a 10% improvement in cash flow.

Keep in mind that refinancing with a SBA 504 loan is for a limited time only.

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Indices:

PRIME RATE= 3.25%
SBA LIBOR Base Rate January 2011 = 3.30%
SBA Fixed Base Rate January 2011 = 5.00%

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504 Debenture Rate for January

The debenture rate is 2.76% but note rate is 2.81% and effective yield is only 4.839%.

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AHEAD OF THE YIELD CURVE

The Federal Reserve Open Committee meets this week.

Federal Reserve officials will for the first time make public their own forecasts for the federal funds rate at their January 24 and 25 meeting, according to minutes from last month’s Federal Open Market Committee.

By releasing their forecasts, central bankers are likely to alter expectations for the timing of the first increase in their benchmark rate, which has been kept near zero since December 2008.

Last month, Fed Officials repeated their view that economic conditions would warrant "exceptionally low levels for the federal funds rate at least through mid-2013.”

So what happens after 2013?

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:

DEC12- 0.58
DEC13- 0.73
DEC14- 1.28
DEC15- 2.00
DEC16- 2.60
DEC17- 3.05
DEC18- 3.34

What does all this mean?

I don’t know.

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OFF BASE

Happy New Year!

Or as our Chinese friends would say “Kung Hei Fat Choi.” Loosely translated, it means “Congratulations and be prosperous.”

Today is the first day of the Chinese New Year. Why today? Chinese New Year falls on the second new moon after the winter solstice.

The Chinese New Year tradition is to reconcile, forget all grudges and sincerely wish peace and happiness for everyone.

Reconcile, forget all grudges and sincerely wish peace and happiness for everyone. Not a bad way to start the year. Or restart your year.

504 Debenture Rate for January

504 Debenture Rate for January 


The debenture rate is 2.76% but note rate is 2.81% and effective yield is only 4.839%.

The SBA and sedulous

sedulous


SEJ-uh-luhs

Involving great care, effort, and persistence.

From Latin se (without) + dolus (trickery, guile).
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TIP OF THE WEEK

Be sedulous in choosing your financing options.

SBA loans are readily available as Congress passed and the President signed an omnibus-spending bill that appropriates $918.7 million to the SBA for fiscal year 2012.

Both the 7(a) and 504 programs should receive sufficient funding for the balance of the fiscal year.

This gives the 7(a) program $17.5 billion in commitments for this fiscal year.

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Indices:

PRIME RATE= 3.25%
SBA LIBOR Base Rate January 2011 = 3.30%
SBA Fixed Base Rate January 2011 = 5.00%
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504 Debenture Rate for December

The debenture rate is 2.87% but note rate is 2.918% and effective yield is only 4.95%.

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AHEAD OF THE YIELD CURVE

The 30-year Treasury bond yield finished 2011 at 2.89%, after starting the year at 4.5%.

This drop in yield is noteworthy.

That means the yield curve moved flatter. Long rates fell, and short rates stayed the same, because they can go no lower.

The slope of the yield curve—the difference between the yields on short- and long-term maturity bonds—has achieved some notoriety as a simple forecaster of economic growth.

A flat curve indicates weak growth, and conversely, a steep curve indicates strong growth.

According to the Federal Reserve Bank of Cleveland, projecting forward using past values of the treasury yield curve spread and GDP growth suggests that real GDP will grow at about a 0.7 percent rate over the next year.

That’s a slow down from last year.

Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 1.8 percent in the third quarter of 2011 according to the "third" estimate released by the Bureau of Economic Analysis just before Christmas.

This does not bode well for job growth next year.

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

December 200,000
November 100,000
October 112,000
September 158,000
August 104,000
July 127,000
June 20,000
May 25,000
April 232,000
March 194,000
February 235,000
January 68,000
2010
December 121,000
November 93,000
October 210,000
September (41,000)
August (1,000)
July (66,000)
June (175,000)
May 431,000
April 218,000
March 230,000
February (36,000)
January (26,000)
2009
December (150,000)
November (11,000)
October (111,000)
September (215,000)
August (201,000)
July (304,000)
June (443,000)
May (322,000)
April (504,000)
March (699,000)
February (651,000)
January (655,000)
2008
December (681,000)
November (597,000)
October (423,000)
September (403,000)
August (127,000)
July (67,000)
June (100,000)
May (47,000)
April (67,000)
March (88,000)
February- (83,000)
January- (76,000)

What does all this mean?

I don’t know.

In 2011, the economy added 1.64 million total non-farm jobs or just 137 thousand per month. This is a better pace of payroll job creation than in 2010, but the economy still has 6.0 million fewer payroll jobs than at the beginning of the 2007 recession. There are a total of 13.1 million Americans unemployed and 5.6 million have been unemployed for more than 6 months.

Interest rates will obviously have to remain low for a long time.

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OFF BASE

Did everybody get spoiled by all the time off for Christmas and New Year’s?

If the thought of a full work week is terrifying, don’t despair. Another three day weekend is just ahead.


Monday, January 16th is Martin Luther King’s Birthday. Actually his birthday is January 15th but thanks to the Uniform Monday Holidays Act, we recognize it on the 16th.

According to the Federal Reserve, here are the holidays for 2012:

Birthday of Martin Luther King, Jr. January 16
Washington's Birthday February 20
Memorial Day May 28
Independence Day July 4
Labor Day September 3
Columbus Day October 8
Veterans Day November 12
Thanksgiving Day November 22
Christmas Day December 25

Notice that long stretch of no holidays between Washington ’s Birthday and Memorial Day?

That’s ridiculous. We could neatly wedge in there as a holiday opening day for Major League Baseball. It’s only 86 days away.