The SBA and sclertotic

sclerotic

skluh-ROT-ik

1. Hard, rigid, slow to adapt or respond.

2. Relating to or affected with sclerosis, an abnormal hardening of a tissue or part.

3. Of or relating to the sclera, the white fibrous outer layer of the eyeball.

From Greek skleros (hard).

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TIP OF THE WEEK 

The Small Business Administration is shedding its sclerotic ways with sweeping changes for its guaranteed loan programs reflected  its new Standard Operating Procedures SOP 50-10-5(F).

The cure for SBA sclerosis can be found here: www.sbapro.com

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Indices:

PRIME RATE= 3.25%
SBA LIBOR Base Rate November 2013 = 3.17%
SBA Fixed Base Rate November 2013 = 5.31%

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SBA 504 Loan Debenture Rate for November 

The debenture rate is only 3.38% but note rate is 3.44% and the effective yield is 5.459%

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AHEAD OF THE YIELD CURVE 

Is the bond market being sclerotic?

Last week’s auction of 30 year Treasury bonds drew a yield of 3.81 percent.  The yield at the last offering of long bonds, on October 10, was 3.758 percent.  The $16 billion sale of the debt drew lower-than-average demand. The bid-to-cover ratio, which gauges demand by comparing the amount bid with the amount offered, was 2.16, versus an average of 2.48 at the past 10 auctions. 

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 week the Fed reported that capacity utilization for total industry declined 0.2 percentage point in October to 78.1 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

What does all this mean?

I don’t know.

While capacity utilization up 11.1 percentage points from the record low set in June 2009 and 1.1 percentage points above its level of a year earlier, it is still 2.1 percentage points below its long-run (1972-2012) average.  There is no inflationary pressure whatsoever in the economy.

Don’t be sclerotic in your thinking about where interest rates are going.

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OFF BASE

To the dismay of sclerotic traditionalists, the holiday season seems to shift earlier every year, with retailers selling Christmas decorations well before Halloween.  But this year, the season will get a legitimate jump-start of sorts.

In a rare convergence of the calendar, Thanksgiving and the first day of Hanukkah, which typically commences close to Christmas, fall on the same date in 2013: November 28.  This is only the second time since Thanksgiving was declared a national holiday by President Abraham Lincoln. The last time was 1888, and the next time will be in the year 79,811.

Hanukkah however is not a Jewish Christmas.   Hanukkah actually commemorates a Jewish military victory over Greek forces in the second century B.C. and the miracle of a day's worth of lamp oil lasting for eight.

Don’t however get too excited about having a kosher Turkey.  Kosher is about killing quickly and humanely as possible but also as cleanly as possible which means eradicating the blood.  To achieve that, before the turkey is plucked it is dipped in cold water but this doesn’t make de-feathering as easy as the scalding dip commercial processors use today.  The cold water closes up the follicles in the skin and makes feather removal very difficult.  You might need a pair of needle-nose pliers at the table.

On the extreme opposite end of the Thanksgiving spectrum is the bacon wrapped Turkey.  Yes, there is such a thing:  

http://therunawayspoon.com/blog/2011/10/bacon-blanketed-herb-roasted-turkey/

It really doesn't matter what you eat, just be Thankful.

SBA 504 Loan Debenture Rate for November

SBA 504 Loan Debenture Rate for November  

The debenture rate is only 3.38% but note rate is 3.44% and the effective yield is 5.459%

SBA 7(a) Loan Rate Update

Indices:

PRIME RATE= 3.25%
SBA LIBOR Base Rate November 2013 = 3.17%
SBA Fixed Base Rate November 2013 = 5.31%

Lenders can charge up to 2.75% over these indices.

The SBA and nyctophobia

nyctophobia

nik-tuh-FOH-bee-uh

An abnormal fear of night or darkness.

From Latin nycto (night) + -phobia (fear).

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TIP OF THE WEEK 

Don’t be in the dark over how much time you have before the year ends.

The way Thanksgiving, Christmas and New Year’s holidays fall this year, we are likely to lose an entire week and a half.

That gives everyone just over a month to close a loan prior to year end.  

That also means the benefits from section 179 won't be available for much longer. 

Under Section 179 of the Internal Revenue Code, taxpayers that purchase new or used qualifying business property and place it in service in 2013 can immediately deduct up to $500,000 of its cost.  Additionally, taxpayers can take advantage of the temporary additional "50% bonus depreciation" deduction on qualified capital expenditures (new equipment only). 50% bonus depreciation applies in addition to the Section 179 deduction.  The bonus depreciation is currently scheduled to sunset in 2014 and the annual Section 179 deduction amount is scheduled to drop to $25,000.

SBA loans can be used to purchase equipment.  They can also be used to purchase businesses, refinance debt, buy real estate or for general working capital purposes.  

Check out our website: www.sbapro.com

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Indices:

PRIME RATE= 3.25%
SBA LIBOR Base Rate October 2013 = 3.18%
SBA Fixed Base Rate October 2013 = 5.37%
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SBA 504 Loan Debenture Rate for October 

The debenture rate is only 3.37% but note rate is 3.425% and the effective yield is 5.451%.

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AHEAD OF THE YIELD CURVE 

The Federal Reserve’s FOMC met last week and they made it real clear that interest rates won’t be going up anytime soon.

The financial markets seem to agree.

Just look at the Dow Jones utility average.

What does the utility average tell us? Mainly, it represents Wall Street's view on interest rates.

Utilities typically pay higher dividends than the industrials or the transports, and they're popular with income investors. As interest rates on longer term Treasury notes fall investors look to utilities for higher yields.  Conversely, when Wall Street expects rates to rise, the utility average falls, because Treasuries and other bonds become tougher competition for utility stocks.

Conventional wisdom has held that interest rates would rise — but that's not what the utilities index has been telling us.   Year to date the Dow Jones Utilities Average is up 13.93%.  Over the last month it is up just over 4%.  If you're looking for a quick read on what Wall Street thinks about interest rates, the Dow Jones utility average is a pretty good indicator.

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:

DEC13- 0.25

DEC14- 0.44

DEC15- 1.01

DEC16- 2.02

DEC17- 2.96

DEC18- 3.66

DEC19- 4.13

DEC20- 4.43

What does all this mean?

I don’t know.

Traders are betting the Federal Reserve will wait well into 2015 to raise interest rates after the jobs report for September showed the labor market lost steam even before the government shutdown.

Keep your eyes and ears open for Friday’s jobs report for the month of October.  The monthly job gains reported by the Labor Department have steadily slowed this year, averaging 207,000 in the first quarter, 182,000 in the second quarter and 143,000 in the third quarter.   The advance estimate of third quarter Gross Domestic Product from the Department of Commerce’s Bureau of Economic Analysis will be released on Thursday.

All that might be something to be scared about.

But don’t be afraid of interest rates going up anytime soon.

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OFF BASE

The sun will be going down earlier than usual now that daylight savings time has ended.   On the plus side, it will seem to be coming up earlier than usual.

Nyctophobes will have an extra day to hide as we head into a three day weekend.

According to the Federal Reserve, here are the remaining holidays for 2013:

Veterans Day November 11

Thanksgiving Day November 28

Christmas Day December 25

SBA Loans Are Good For the Economy

The SBA is working through the backlog created by the government shutdown.

For the one week period ending October 25th, $308,113,000 in SBA 7(a) loans were approved.

The average SBA 7(a) loan amount appears to be declining.  The average SBA loan amount approved last week was $308,730.

There are no longer any guaranty fees on SBA 7(a) loans of $150,000 or less.

SBA Loans Are Good For the Economy

The SBA is doing a good job of playing catch-up.

Small Business Administration officials returned to work on Thursday October 17^th to find a backlog of several hundred loan-guarantee applications that were filed during the 16-day government shutdown.

In just two days, 929 SBA 7(a) loans were approved totaling $294,770,000.  

This just might be an example of Parkinson’s Law in reverse.

Parkinson's law is the adage first articulated by Cyril Northcote Parkinson as part of the first sentence of a humorous essay published in The Economist in 1955:

Work expands so as to fill the time available for its completion.

The SBA and petard

petard

(pe-TAHRD)

1. A small bomb used to blast down a gate or wall.

2. A loud firecracker.

From French péter (to break wind), from Latin peditum (a breaking wind), from pedere (to break wind). Ultimately from the Indo-European root pezd- (to break wind) which also gave us feisty, fart, and French pet (fart).

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TIP OF THE WEEK 

Ignore some of the petards about wasteful government spending.

The continuing resolution that will fund the federal government for another 86 days should include broad based support for the Small Business Administration.

 For the SBA 7(a) program, the return to a zero subsidy rate removes the need to seek appropriations.  It also reduces lender fees.  For its 7(a) guaranty loan program, the SBA budget authority will support a program level of $17.5 billion!

SBA loans are good for the economy.    Remember, SBA 7(a) loan volume is a leading economic indicator as the correlation coefficient between SBA 7(a) loan volume and the economy’s Gross Domestic Product is a statistically significant 0.86.

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Indices:

PRIME RATE= 3.25%
SBA LIBOR Base Rate October 2013 = 3.18%
SBA Fixed Base Rate October 2013 = 5.37%
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SBA 504 Loan Debenture Rate for October 

The debenture rate is only 3.37% but note rate is 3.425% and the effective yield is 5.451%.

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AHEAD OF THE YIELD CURVE 

Lost amongst the petards in Washington was the fact that employment growth is languishing.

The government shutdown has severely affected employment, or at least the reporting of it.

The jobs report from the Bureau of Labor Statistics for the month of September will finally be released tomorrow.  It would have normally come out three weeks ago. 

Only 169,000 jobs were added in August.   The government had also revised down its estimated job growth for June and July by a combined 74,000 jobs, meaning the net gain from the job’s report is under 100,000 jobs.  That does not even keep up with population growth.

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

August 169,000

July 104,000

June 172,000

May 176,000

April 165,000

March 88,000

February 332,000

January 148,000

2012

December 155,000

November 161,000

October 137,000

September 114,000

August 142,000

July 181,000

June 45,000

May 77,000

April 68,000

March 143,000

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.

At the current pace of job growth, it would take more than six years to get back to pre-recession employment levels.  The Federal Reserve’s Federal Open Market Committee meets next week on monetary policy and they have made it clear that they won’t even consider raising interest rate until unemployment improves.

It would appear that interest rates won’t be going up anytime soon.

Our politicians might be hoisted by their own petards yet.

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OFF BASE

Hoisted by one’s own petard?

Believe it or not, Vin Scully once used that phrase in a baseball game.

On Cinco de Mayo back in 2008, Dodger pitcher Chad Billingsley struck out ineffectually, prompting Vinny to state that "he was hoisted on his own petard"...  The Dodgers would go on to win that game 5-1. 

So what does it mean to be hoisted by one’s own petard?

A petard was a bell-shaped bomb used to breach a door or a wall.  Now that we have advanced to nuclear missiles, this low-tech word survives in the phrase "to hoist by one's own petard" meaning "to have one's scheme backfire".

The idiom was popularized by Shakespeare in his play Hamlet.  Hamlet, having turned the tables on those tasked with killing him, says:

    For 'tis the sport to have the engineer

    Hoist with his own petard 

SBA Loans Are Good For the Economy

SBA 7(a) loan volume exploded at the end of the government’s fiscal year as borrowers and lenders rushed in to obtain loan guarantees prior to the government shutdown.

For the one month period ending September 30^th, 7(a) loan volume was $2,419,791,000.  That accounted for almost HALF of the total volume of SBA 7(a) loan approvals for the entire quarter.

Here is a breakdown of SBA 7(a) quarterly loan volume for the last year:

3^rd quarter 2013:             $5,371,662,000

2^nd quarter 2013              $4,273,683,000

1^st quarter 2013               $4,049,146,000

4^TH quarter 2012             $4,173,790,000

3^rd quarter 2012              $4,359,166,000

2^nd quarter 2012              $4,039,042,000

1^st quarter 2012                 $3,443,723,000

 Assuming all these loans actually fund, this up-tick in loan volume bodes well for the economy.

Remember, SBA 7(a) loan volume is a leading economic indicator as the correlation coefficient between SBA 7(a) loan volume and GDP is a statistically significant 0.86.

SBA 504 Loan Debenture Rate for October

SBA 504 Loan Debenture Rate for October  

The debenture rate is only 3.37% but note rate is 3.425% and the effective yield is 5.451%

The SBA and contumely

contumely

KON-too-muh-lee, kuhn-TOO-muh-lee, KON-tuhm-lee, -tyoo-, -tyoom-) 

Contemptuous or insulting treatment arising from arrogance.

Via French from Latin contumelia (insult), probably from con- (with) + tumere (to swell).

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TIP OF THE WEEK 

Contumely has caused the government to shut down.

The day before the shutdown lenders rushed to have SBA approve over $½ billion in SBA 7(a) loans.  

That is the most loans ever approved in a single day by the SBA.

You can still get in line and apply for a SBA loan.

Don’t miss out once the SBA re-0pens for business- small business.

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Indices:

PRIME RATE= 3.25%
SBA LIBOR Base Rate October 2013 = 3.18%
SBA Fixed Base Rate October 2013 = 5.37%
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SBA 504 loan Debenture Rate for September 

The debenture rate is only 3.62% but note rate is 3.678% and the effective yield is a whopping 5.698%.

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AHEAD OF THE YIELD CURVE 

How contumely can one get?

Even though the government has shut down, it still has to borrow money.

The government will run out of borrowing authority October 17^th according to the Treasury Department, when it hits it’s the $16.7 trillion debt ceiling.

What exactly is the “debt ceiling”?

The United States debt ceiling or debt limit is a legislative restriction on the amount of national debt that can be issued by the Treasury.  Because expenditures are authorized by separate legislation, the debt ceiling does not actually restrict deficits. In effect, it can only restrain the Treasury from paying for expenditures that have already been incurred.   It is a limit on the ability to make good on its commitments.

If the debt ceiling is not raised by the time the government really runs out of money, the executive branch has the authority to determine which obligations are paid and which are not.  The executive branch’s hands are tied.  It MUST choose to prioritize interest payments on bonds, which would avoid an immediate, direct default on sovereign debt. 

The Fourteenth Amendment (Amendment XIV) to the United States Constitution Section 4 is pretty clear on that: The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.   SHALL NOT BE QUESTIONED.

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

We will see if anybody is questioning the “public debt of the United States.”

Here is what the 30 year Treasury bond has been doing and this week’s interesting little table:

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- 2.77

2013- 3.25

What does all this mean?

I don’t know.

Last month’s $13 billion auction of the securities drew a yield of 3.82 percent.  Since then yields have dropped down to about 3.71 percent.  It climbed to 3.94 percent on August 22, the highest since August 2011.

The Constitution makes it clear that we won’t be defaulting on any debt.   

Article III, Section 3, of the Constitution also clearly defines treason.  Unfortunately the Treason Clause applies only to disloyal acts committed during times of war. Acts of disloyalty during peacetime are not considered treasonous under the Constitution.  So we can’t line them all up in front of a firing squad.

Nobody should be contumely.

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OFF BASE

When told to use contumely in a sentence, Shakespeare came up with Hamlet’s “to be or not be” soliloquy in King Lear:  "For who would bear the whips and scorns of time, Th’ oppressor's wrong, the proud man's contumely?"    He’s whining about the insults of arrogant men.

Another dose of contumely hits with the news that Monday is a Federal holiday.

According to the Federal Reserve, here are the remaining holidays for 2013:

Columbus Day October 14

Veterans Day November 11

Thanksgiving Day November 28

Christmas Day December 25

SBA 7(a) Loan Rate Update

Indices:

PRIME RATE= 3.25%
SBA LIBOR Base Rate October 2013 = 3.18%
SBA Fixed Base Rate October 2013 = 5.37%

Lenders can charge up to 2.75% over these indices.

SBA Loans Are Good for the Economy

After processing a record $600 million in loans yesterday, SBA ran out of FY 2013 authorization last night a couple hours before the shutdown.