The SBA and desultory

desultory

DES-uhl-tor-ee

1. Marked by absence of a plan; disconnected; jumping from one thing to another.

2. Digressing from the main subject; random.

From Latin desultorius (leaping, pertaining to a circus rider who jumps from one horse to another), from desilire (to leap down), from salire (to jump).

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TIP OF THE WEEK 

Don’t be desultory about your financing needs.

Think SBA guaranteed loans every time.  A SBA 7(a) loan can be used for real estate purchase, real estate debt refinance, business debt refinance, business acquisition, equipment purchase and working capital.

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Indices:

PRIME RATE= 3.25%
SBA LIBOR Base Rate May 2012 = 3.24%
SBA Fixed Base Rate May 2012 = 4.84%

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504 Debenture Rate for May 

The debenture rate is 2.38% but note rate is 2.42% and effective yield is only 4.462%. 

The effective yield for the temporary debt refinancing available with a 504 loan is 4.665%. 

Keep in mind that the temporary debt refinancing provisions expire soon.    

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AHEAD OF THE YIELD CURVE 

Is the bond market being desultory about the massive debt our country is taking on with its deficit spending?

The last four budget deficits have been the largest in U.S. history, totaling $4.46 trillion.  Treasury debt outstanding has more than doubled from $4.254 trillion in June 2007 to $10.4 trillion.

And the bond market loves it! 

There was stronger-than-average bidding at the U.S. government’s last auction of $16 billion in 30-year bonds.  The bond sale drew a bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, of 2.73, compared with an average of 2.67 for the previous 10 sales. The yield on the current 30-year bond sold at 3.05 percent.  It has since dropped to only 2.80 percent.  The March 30 year bond auction sold at a yield of 3.230.

This is noteworthy as this bond is most sensitive to any expectation of inflation or interest rates going up.

Inflation does not appear to be a problem.  The consumer price index reflected a 12-month change for all items of 2.3 percent in April, the lowest figure since February 2011.  This is the first time since October 2009 that the 12-month all items change has not exceeded the 12-month change for all items less food and energy.

These measures show inflation on a year-over-year basis is mostly still above the Fed's 2% target.

One of the Federal Reserve’s favorite gauges of inflation is capacity utilization rate.  The Federal Reserve watches capacity utilization rates to see if production constraints are threatening to cause inflationary pressures. Bottlenecks or shortages often drive prices higher. Several analysts have pointed to a rate between 81% and 82% as a tipping point over which inflation is spurred.

Last week the Federal Reserve reported that capacity utilization, which measures the amount of a plant in use, increased to 79.2 percent, the highest since April 2008, from 78.4 percent in March.

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

2012- 79.2

What does all this mean?

I don't know.

Capacity utilization at 79.2% is still 1.1 percentage points below its average from 1972 to 2010 and below the pre-recession levels of 80.6% in December 2007.  While this is 3.1% higher than a year earlier, we still have a ways to go before the Federal Reserve will feel pressure to start raising rates.

In the meantime, things will be desultory.

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OFF BASE

Don’t be desultory about your Memorial Day plans.

Stop whatever you are doing at 3 p.m. local time on Memorial Day and remember those soldiers who gave their lives for our freedom.

The National Moment of Remembrance, established December 28, 2000 by Congress in the National Moment of Remembrance Act (Public Law 106-579), asks Americans wherever they are on Memorial Day to pause in an act of national unity for one minute.

According to the White House Commission on Remembrance, the idea for the Moment originated when children touring the nation’s capital were not able to describe the true meaning of Memorial Day, most responding “That’s the day the pool opens.”

SBA 7(a) Weekly Lending Update

The SBA approved $296,126,000 in SBA 7(a) loans for the week ending May 11.  That compares with $301,126,000 for the prior week.

Last month, April, the SBA had approved $1,173,333,000 in SBA 7(a) loans.

For the quarter ending March 31, SBA had approved $3,311,521,000 in SBA 7(a) loans.

That compares with $3,443,723,000 in 7(a) loan approvals for the quarter ending December 31, 2011.

This drop of $132,202,000 in quarterly SBA 7(a) loan volume coincides with a decline of GDP growth for the first quarter of 2012 compared to the prior quarter.

The correlation of SBA 7(a) loan approvals with our nation's economic performance appears to be quite strong.

504 Debenture Rate for May

504 Debenture Rate for May 

The debenture rate is 2.38% but note rate is 2.42% and effective yield is only 4.462%. 

The effective yield for the temporary debt refinancing available with a 504 loan is 4.665%.


Keep in mind that the temporary debt refinancing provisions expire soon.  

The SBA and capricious

capricious

(kuh-PRISH-uhs, -PREE-shuhs)

Whimsical, impulsive, unpredictable.

From Italian capriccio (caprice), literally head with hair standing on end, from capo (head) + riccio (hedgehog).

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TIP OF THE WEEK 

SBA lending can be quite capricious.  Every year they have been changing the rules of the game with revisions to its standard operating procedure- the SOP.  A new and improved SOP- the SOP 50-10-5 (E) will be out at the beginning of June. 

Changes in this version of the SOP include new guidance for the reimbursement of in-house counsel fees; ability for some fees that are a percentage of loan; ability to refinance debt in the personal name of business owner when used for business purposes; clarified requirements on stock ownership purchases; and, of course, the direct final rule on EPC/OC that rewrites the current regulation to allow co-borrower structure for owner occupied real estate.

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Indices:

PRIME RATE= 3.25%
SBA LIBOR Base Rate May 2012 = 3.24%
SBA Fixed Base Rate May 2012 = 4.84%

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504 Debenture Rate for April 

The debenture rate is 2.67% but note rate is 2.72% and effective yield is only 4.749%. 

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AHEAD OF THE YIELD CURVE 

The economy does not seem so capricious when you watch the yield curve.

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.  A flat curve indicates weak growth while an inverted yield curve (short rates above long rates) indicates a recession in about a year.

Yield curve inversions have occurred before each of the last seven recessions. One of the recessions predicted by the yield curve was the most recent one. The yield curve inverted in August 2006, a bit more than a year before the current recession started in December 2007.

Over the past month, the yield curve has flattened, as short rates stayed even and long rates fell.   Long term rates fell for a seventh consecutive week, the longest stretch since 2008 at the height of the financial crisis.

Pay attention to 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

2012- 3.30

So what does this mean?

Two months ago, 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 from the February auction.

In April, the 30 year bond auction saw yields drop to 3.20 percent.

This drop in yields presciently foreshadowed things slowing down.

Real gross domestic product -- the output of goods and services produced by labor and property located in the United States – slowed in the first quarter.  According to the "advance" estimate just released by the Bureau of Economic Analysis, the U.S. economy expanded at an annualized rate of 2.2 percent in the first quarter, down from 3 percent in the previous three-month period.

In April, payrolls only climbed 115,000, the smallest gain in six months.   Employers had increased payrolls by 697,000 from January through March, the biggest quarterly gain since the first three months of 2006.

There are a total of 12.5 million Americans unemployed and 5.1 million have been unemployed for more than 6 months. These numbers are declining, but still very high.

Interest rates will be capricious. 

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OFF BASE

No sport is more capricious than baseball. 

Look at Albert Pujols. 

Since April 20th, The Angels’ new first baseman had the worst batting average, on-base percentage and slugging percentage in all of baseball.  He had not hit a home run all season.

Albert’s streak of no home runs had run up to 111 at-bats.   That is the longest streak ever to start a season by a player who had at least 400 career home runs entering the season.  He broke Eddie Murray’s record of 109 at-bats without a home run in 1996.  Eddie however was over 40 years old and would retire the next season. 

It had got so bad the Angels decided to bench Albert Saturday night. 

On Sunday, the Blue Jays were not afraid of Albert and decided to pitch to him.  It was the perfect opportunity to intentionally walk him if they had been afraid of his bat. With a man on second, with two outs, and first base open, the count went even with two balls and two strikes when Albert finally drilled his first home run of the season.

Now the fun starts. 

Pujols’ longest home run drought prior to this was just last season, when he came up empty in 27 straight games and 105 at-bats.   He would end the season with 37 home runs.  Albert has never finished a season with less than 32 home runs.  He is the only player in major league history to hit 32 or more homers in each of his first 11 years in the major leagues.  

SBA 7(a) Weekly Lending Update

SBA 7(a) loan approval volume increased to $308,476,000 for week ending April 20.  That brings the year to date total to only $7,492,500,000.  That's a 42% decrease from the same period last year.  While a lot of that volume last year was driven by stimulus act incentives such as an increased percent of guaranty, it should noted that the year before that volume for the same period was even higher than it is now.  It was $8,301,686,000 for the same period in 2010.

SBA 504 loan approval is still somewhat robust as borrowers and lenders rush to get in their deals before the temporary debt refinance provisions expire.

SBA Loan Basics for Borrowers- The SBA Guaranty Fee

What is the SBA guaranty fee?

A lender must pay a fee to SBA for each loan guaranteed under the 7(a) program. This fee is known as the SBA Guaranty Fee.

Think of it as like an insurance premium. SBA uses these fees to pay for when they have to honor the guaranty for a lender.

The total loan amount determines the percentage that is used to calculate this fee. The guaranty fee is based on the guaranteed portion of the loan and not the total loan amount.

For Loans of $150,000 or less the guaranty fee is 2% of guaranteed portion

For Loans between $150,001 to $700,000 the guaranty fee is 3% of guaranteed portion

For Loans between $700,001 to $5,000,000 the guaranty fee is 3.5% of guaranteed portion up to $1,000,000 PLUS 3.75% of the guaranteed portion over $1,000,000

For example, the guaranty fee on a $100,000 loan with an 85% guaranty would be 2% of $85,000 or $1,700.

The guaranty fee on a $2,000,000 loan with a 75% guaranty ($1.5 million guaranteed portion) would be 3.5% of $1,000,000 ($35,000) PLUS 3.75% of $500,000 ($18,750), which totals $53,750.

While many think that this fee seems high in comparison to other financing options, they forget that the SBA loan is  amortized over a longer term and NEVER has a balloon.

The SBA and scuttlebutt

scuttlebutt

SKUT-l-but

1. Rumor, gossip.

2. A drinking fountain or a cask of drinking water on a ship.

From scuttle (a small opening in the deck or hull of a ship) + butt (cask).  

The word arose from the sailors' habit of gathering around the scuttlebutt on a ship's deck. Things haven't changed much with time. Now we have water cooler gossip in modern offices.

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TIP OF THE WEEK 

The scuttlebutt is that commercial real estate is the place to be.

Costar’s Commercial Repeat-Sale Indices are up 4% from the same period last year.  While their U.S. Composite Index is still 33.6% below the peak before the recession, slow but stable pricing growth is signaling that the recovery is becoming broader.

If you would like a copy of the Costar Commercial Repeat Sale Indices April report, let me now.

SBA loans are perfect for financing and re-financing OWNER-USER commercial real estate.

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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 April 

The debenture rate is 2.67% but note rate is 2.72% and effective yield is only 4.749%. 

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AHEAD OF THE YIELD CURVE 

The scuttlebutt is that the economy is sputtering.

Last week the Federal Reserve reported that capacity utilization, which measures the amount of a plant in use, dropped to 78.6 percent last month from 78.7 percent in February.

Capacity utilization is one of the Federal Reserve’s favorite economic indicators.  The Federal Reserve watches capacity utilization rates to see if production constraints are threatening to cause inflationary pressures. Bottlenecks or shortages often drive prices higher. Several analysts have pointed to a rate between 81% and 82% as a tipping point over which inflation is spurred.

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

2012- 78.6

What does all this mean?

I don't know.

We are no where close to any real inflation in the economy.

The Labor Department just said that consumer prices increased 2.7 percent in the 12 months ended in March, the smallest 12-month gain in a year.

Capacity utilization at 78.6% is still 1.7 percentage points below its average from 1972 to 2010 and below the pre-recession levels of 81.3% in December 2007.   While capacity utilization has increased 11.8 percentage points from the record low set in June 2009 and is up 2.1 percentage points above its level from a year earlier it still has a ways to go. 

It’s like losing those last five pounds.

Keep your eyes and ears open for Friday’s report on the first quarter Gross Domestic Product.

Gross Domestic Product, or GDP, is a measure of a country's industrial output.  Some people are high-fiving each other now that the Fed is predicting growth of 2.0-2.3% this year, which is up from the 1.7% growth recorded in 2011.

This is not something to cheer about.

How bad are we doing? If our economy's projected growth rate doubles to 4% it would still be 30% behind its growth rate from before the recession and half of what it was back in the '80s.

Federal Open Market Committee meets this week and will on Wednesday announce their intentions with respect to interest rates.

Interest rates will obviously have to remain low for some time.

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OFF BASE

You may have heard the scuttlebutt that Jamie Moyer became the oldest pitcher to ever win a major league game.  Jamie was 49 years and 150 days old when he won the game last week.

The second oldest pitcher is Jack Quinn who was 49 years and 70 days old when he won a game for the Brooklyn Dodgers back in 1932.

Jack Quinn is also the second oldest player to ever hit a home run.   He did it when he was 46 years old while playing for the Philadelphia A’s. 

The secret to Quinn’s longevity was the spitball.   It had become an illegal pitch.

In August 1920, Ray Chapman was famously struck in the temple and killed by a spitball thrown by pitcher Carl Mays.  Following the 1920 season, the spitball was banned, except for existing spitballers who were allowed to keep throwing the pitch legally until they retired.

One of the most famous spitballers was Preacher Roe, who played for the Brooklyn Dodgers in the 1950s and was featured in Roger Kahn’s classic “The Boys of Summer”.

While Quinn was grandfathered in and could legitimately throw the spitter, Preacher had to use some subterfuge. 

The nickname preacher?  When an uncle who had never seen the boy before asked him his name, he replied “preacher” because he was fond of a Methodist minister and his wife who took him on horse-and-buggy rides. 

SBA 7(a) Weekly Lending Update

Only $231,889,000 in SBA 7(a) loans were approved for the week ending April 13.  That brings the year to date total to $7,184,889,000.

That means lenders are eagerly seeking new deals.

504 Debenture Rate for April

504 Debenture Rate for April 

The debenture rate is 2.67% but note rate is 2.72% and effective yield is only 4.749%. 

SBA self-storage options- 7(a) or 504?

We have financed millions of dollars in SBA loans for self-storage facilities since SBA began allowing it.

All of them have been done as a SBA 7(a) loan.

Borrowers typically have two SBA loan options-

-the SBA 7(a) loan

-the SBA 504 loan

 The SBA 7(a) loan seems to be a better fit.

Why?  A complicating factor of the SBA 504 program is that it has a job creation provision.   The requirement that borrowers create jobs does not seem to work well for self-storage operations.

SBA 7(a) Weekly Lending Update

SBA 7(a) loan approvals went on spring break last week as loan approvals totaled only $201,854,000 for the week ending April 6.  Year to date total is now $6,952,135,000.  The week before SBA 7(a) loan approvals were at $368,124,000 for the week.

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.

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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%.

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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.