The SBA and enervate

enervate

EN-uhr-vayt, adj.: i-NUHR-vit

verb tr.: To deprive of strength or vitality.

adjective: Deprived of strength; Weakened.

From Latin enervare (to weaken), from ex- (out) + nervus (sinew).  

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TIP OF THE WEEK 

The SBA will enervate on July 27^th its rules on affiliates.

As was true for the prior rule, the final rule frames affiliation in terms of control.

With respect to the affiliation analysis of a franchise or licensing agreement, SBA has made two significant changes. The first is that the presence of a license agreement will not be deemed to create affiliation as long as the small business applicant "has the right to profit from its efforts and bears the risk of loss commensurate with ownership." The second major change is that lenders must now only consider the franchise agreement of the small business applicant (and not franchise agreements of the small business's affiliates) in its franchise affiliation analysis.

Both of these changes will streamline the affiliation analysis process and allow better access to financing to small business franchisees.

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Indices:

PRIME RATE= 3.50%

SBA LIBOR Base Rate July 2016 =3.47%

SBA Fixed Base Rate July 2016 = 4.64%

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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%.

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AHEAD OF THE YIELD CURVE 

A recrudescence of hiring did little with the splenetic presentiment dominating interest rates.

Payrolls climbed by 287,000 last month, after a revised 11,000 gain in May, a Labor Department report showed Friday.

But long-term yields wavered, inching higher shortly after the release but tumbling later to trade unchanged on the day.  The 30-year Treasury bond yield was down less than a basis point at 2.139, after falling earlier as low as 2.112%, its lowest level in history.

Traditionally, lower yields and a flatter yield curve in the U.S. are strong signals of an approaching recession -- and, in this particular case, they would be signaling a painful downturn, given how far yields have dropped and how flat the curve has become.

Yet that reading doesn't apply in this case: Rather than being driven by U.S. conditions, the Treasury yield curve has been captured by developments in Europe and, to a lesser extent, Japan -- specifically, the prospects for yet another economic slowdown and the likelihood of additional central bank stimulus (including lower rates in the U.K. and an expansion of the European Central Bank’s large-scale program of security purchases).

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

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

2014- 3.97

2015- 2.91

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 yield differential between long-term U.S. government debt and similar government bonds in Europe and Japan, where nearly $12 trillion in government bonds sport negative yields, is sparking foreign demand for U.S. Treasuries.

The moment yields tick higher, demand pushes yields down again.

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

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OFF BASE

Hot weather seems to enervate all of us, unless you are a home run hitter.

Home runs increase with temperature, and really begin to take off when temperatures go above 90  One of the main reasons is that cold air molecules are closer to each other than warm air molecules.  This means that a baseball traveling through cold air must push through more molecules than when it travels through warm air, thus it experiences more wind resistance.  In warmer air, a baseball is able to travel faster and farther.  According to "The Physics of Baseball" by Robert K Adair, a 10 degree increase in air temp causing a ball to travel an extra 4 feet. 

This June was the warmest since 1895 in the U.S., surpassing the 1933 record, the National Centers for Environmental Information, a division of the National Oceanic and Atmospheric Administration, said in a report Thursday.   Global temperatures were the highest in the 20th century for the first five months of the year after the world posted its two hottest years in 2014 and 2015. There is so much heat in the atmosphere following the El Nino that began last year that there could well be a new all-time high for 2016.

Right now Major League Baseball is on pace to hit 5,562 home runs, which would be an amazing 1,376 more than in 2014 -- a 32 percent increase.

Leading the pack is the Orioles.  The O’s have officially hit more home runs in June than any other team in MLB history.  They could make a run at the single-season mark of 264 home runs, set by the Seattle Mariners in 1997.  The Mariners had broken the previous record of 257 set by the Orioles just one season earlier.  Leading the Mariners that year was Ken Griffey Jr. who had hit 56 home runs.  The Kid would end his career with 630 home runs, sixth most in baseball history.  Just this year Junior was elected to the Baseball Hall of Fame.  He received a record 99.32 percent of the vote, breaking pitcher Tom Seaver's record of 98.84 percent.

The SBA and concomitant

concomitant

kuhn-KOM-i-tuhnt

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).

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TIP OF THE WEEK 

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?

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Indices:

PRIME RATE= 3.50%

SBA LIBOR Base Rate June 2016 =3.47%

SBA Fixed Base Rate June 2016 = 5.00%

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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%.

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AHEAD OF THE YIELD CURVE 

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! 

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OFF BASE

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  

The SBA and frabjous

frabjous

FRAB-juhs

Wonderful; delightful.

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

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TIP OF THE WEEK 

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.

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Indices:

PRIME RATE= 3.50%

SBA LIBOR Base Rate June 2016 =3.47%

SBA Fixed Base Rate June 2016 = 5.00%

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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%.

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AHEAD OF THE YIELD CURVE 

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! 

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OFF BASE

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.

The SBA and quiescent

quiescent

kwee-ES-uhnt, kwy

Still; inactive; not showing symptoms.

From Latin quiescere (to rest), from quies (quiet).

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TIP OF THE WEEK 

Things remain quiescent for small businesses according to the National Federation of Independent Business’ (NFIB) monthly economic survey.

According to the NFIB monthly report, loan demand remains historically weak as owners can’t find many good reasons to borrow to invest when expectations for growth are not very positive.

Interest rates are low, but prospects for putting borrowed money profitably to work have not improved enough to induce owners to step up their borrowing and spending.

This is being reflected in SBA 7(a) loan volume as it up only 9% through April 29th compared to the 23% growth a year ago.

If you would like a copy of the NFIB monthly report, let me know.

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Indices:

PRIME RATE= 3.50%

SBA LIBOR Base Rate May 2016 =3.44%

SBA Fixed Base Rate May 2016 = 4.97%

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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%.

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AHEAD OF THE YIELD CURVE 

Quiescent inflation is keeping interest rates low.

On Friday, the yield on the 30-year Treasury bond fell 5.1 basis points to 2.552% and was down 8 basis points over the week.

Last week the $15 billion auction of the 30 year Treasury bond saw lackluster demand, after two auctions earlier this week — $23 billion in 10-year Treasuries on Wednesday and $24 billion in 3-year Treasuries on Tuesday—experienced stellar demand, driving yields to their lowest level in a month on Wednesday and perhaps reflecting a market preference for shorter maturities given economic uncertainty.

Keep your eyes and ears open for Tuesday’s report from the Federal Reserve 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- 66.9

2010- 74.8

2011- 76.7

2012- 79.0

2013- 77.8

2014- 78.8

2015- 76.5

What does all this mean?

I don’t know.

Last month, 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 74.8 percent from 75.3 percent.  While up 10.2 percentage points from the record low set in June 2009, capacity utilization at 74.8% is 5.2% 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. 

Until there is a recrudescence in capacity utilization, it is arrant nonsense that the Fed will be soon raising interest rates.

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OFF BASE

If splenetic presentiment is creating a need to be quiescent, a holiday soon approaches. 

According to the Federal Reserve our next holiday is Memorial Day.  Here are the officially recognized Federal Reserve holidays:

Memorial Day May 30

Independence Day July 4

Labor Day September 5

Columbus Day October 10

Veterans Day November 11

Thanksgiving Day November 24

Christmas Day December 26 

SBA 7(a) Loan Rate Update

Indices:

PRIME RATE= 3.50%
SBA LIBOR Base Rate May 2016 = 3.44%
SBA Fixed Base Rate March 2016 = 4.97%

Lenders can charge up to 2.75% over these indices.

The SBA and intractable

intractable

in-TRAK-tuh-buhl

Not easily handled, managed, or controlled.

From Latin tractare (to handle),

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TIP OF THE WEEK 

SBA lending may seem intractable if you don’t know what you are doing.  That’s why many lenders utilize lender service providers such as Stultz Financial to avoid any splenetic presentiment.

The recrudescence in hospitality has been oppugned as occupancies are on a declining trajectory.  This should not come as a surprise because more and more hotels and motels are opening, often with SBA financial assistance.  Supply growth has outpaced demand growth for two consecutive months, but the 61.7% occupancy for February is still the second-highest occupancy ever recorded.

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Indices:

PRIME RATE= 3.50%

SBA LIBOR Base Rate April 2016 =3.44%

SBA Fixed Base Rate April 2016 = 4.87%

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SBA 504 Loan Debenture Rate for April  

The debenture rate is only 2.26% but note rate is 2.30% and the effective yield is 4.311%.

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AHEAD OF THE YIELD CURVE 

Intractable is the perfect adjective to describe both the economy and the Federal Reserve.  At least the smart money seemed to be saying that.

At last week’s auction of $12 billion in 30-year Treasury bonds there was record demand from so-called buy-side institutions, such as mutual funds, life insurance companies, hedge funds, and pension funds.   The yield on the 30-year bond gained 2.5 basis points to 2.602%.   That compares to last month’s auction where the yield ended up at 2.72%.

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

2014- 3.97

2015- 2.91

What does all this mean?

I don’t know.

The day after the 30 year Treasury auction, 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 74.8 percent from 75.3 percent.  The yield on the 30 year Treasury bond then tumbled 4.4 basis points to 2.556%.  While up 10.2 percentage points from the record low set in June 2009, capacity utilization at 74.8% is 5.2% below the average from 1972 to 2015 and below the pre-recession level of 80.8% in December 2007.  It should be noted however that like the drop in hotel occupancy mentioned above, part of the decline in capacity utilization can be attributed to a 1.2% growth over the last 12 months in capacity.

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. 

It is arrant nonsense that the Fed will be raising interest rates when they meet later this month.

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OFF BASE

If things seem intractable right now, maybe you need a day off.  Unfortunately according to the Federal Reserve our next holiday is not until Memorial Day.  Here are the officially recognized Federal Reserve holidays:

Memorial Day May 30

Independence Day July 4

Labor Day September 5

Columbus Day October 10

Veterans Day November 11

Thanksgiving Day November 24

Christmas Day December 26

If you need an excuse for day off, Passover starts Friday evening.  The start of Passover, which celebrates the Israelite exodus from Egypt, begins in the evening with the Seder which is a ritual feast. 

So Friday could be a day off.  To put this in perspective: imagine if you had to work during the day of Thanksgiving, then prepare for Thanksgiving dinner after getting home from work. 

That would be intractable.

The SBA and arrant

arrant

AR-uhnt

 Complete; thorough.

Here's a word that has had both its spelling and meaning bent out of shape from use. It's a variant of errant (wandering). Earlier the word was used in the sense of wandering or vagrant, for example, an arrant thief or an arrant knave. Over time the word began to be taken as an intensifier so an arrant fool was no longer a vagrant fool, but a complete fool.

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TIP OF THE WEEK 

Don’t be so arrant with completing IRS form 4506 with the signatures being in blue ink.

When blue ink is used to complete Form 4506-T requests, the information sometimes does not show up to the IRS.  To alleviate rejections for missing information and to better service the taxpayer the IRS is asking that the use of blue ink be discontinued immediately.

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Indices:

PRIME RATE= 3.50%

SBA LIBOR Base Rate March 2016 =3.44%

SBA Fixed Base Rate March 2016 = 4.89%

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SBA 504 Loan Debenture Rate for March

The debenture rate is only 2.50% but note rate is 2.54381% and the effective yield is 4.553%.

 ________________________________________________
AHEAD OF THE YIELD CURVE 

The Federal Reserve meets later this month.  Will they be raising interest rates?

Keep your eyes and ears tuned for this week’s release of the minutes from the Federal Reserve’s last meeting on monetary policy.

FOMC Minutes is a vital piece of information that is released three weeks to the day after the conclusion of each FOMC meeting.    Though the gist of the Fed’s official views are disclosed at the end of each FOMC meeting with a public statement, we can arrantly scrutinize details of the Fed opinions in the minutes for better understanding.

Friday afternoon the market was pricing no real probability of a rate increase at that meeting.

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:

APR 16- 0.63

DEC16- 0.85

DEC17- 1.06

DEC18- 1.32

DEC19- 1.58

DEC20- 1.83

DEC22- 2.24

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.

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OFF BASE

Spring training is over, play ball.

The Washington Nationals closed spring training with an 18-4 record. That’s a winning percentage of .818, best in the bigs.

Big deal, you’re thinking, it’s spring training. And everybody knows that spring training results don’t matter.  Or do they?  In the past 20 years, only once has a team finished spring training with a winning percentage of .800 or better. That team? The 1997 Miami Marlins, who went 26-5 in Grapefruit League action (.839), then proceeded to win 92 regular-season games, plus another 11 in the postseason, including four in the World Series.

Of the 40 teams that have made the World Series over the past two decades, only 30 percent of them had losing records in spring training that year, and those same 40 teams had a combined winning percentage of .536 in exhibition play during their World Series seasons.

Second in Cactus League play were the Angels.

How’s that for an arrant dissection of nothing?