The SBA and hebetate

hebetate

HEB-i-tayt 

To make dull or obtuse.

From Latin hebetare (to make blunt), from hebes (blunt).

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TIP OF THE WEEK 

Nobody is being hebetated by what it takes to get a SBA loan.

Another $1,832,552,300 in SBA 7(a) loans were approved in the month of June.

This makes it the sixth straight month of improving SBA 7(a) loan volume.

The year to date total is $13,303,696,406; a 6.5% increase over the same period last year.

Keep in mind that the correlation coefficient between SBA 7(a) loan approvals and our economy's Gross Domestic Product is a statistically significant 0.86.

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Indices:

PRIME RATE= 3.25%

SBA LIBOR Base Rate July 2014 = 3.16%

SBA Fixed Base Rate July 2014 = 5.32%

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SBA 504 Loan Debenture Rate for July  

The debenture rate is only 2.87% but note rate is 2.92% and the effective yield is 4.952%.

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AHEAD OF THE YIELD CURVE 

We are often hebetated by the Federal Reserve when they meet on monetary policy to determine interest rates.

As they wrap up their meeting this week, the initial estimate on second quarter Gross Domestic Product will be released.  First quarter GDP had contracted sharply thanks to last winter’s government shutdown that turned off the SBA 7(a) loan spigot.  Now that SBA loan volume has recovered, second quarter GDP should also have recovered.

Also keep your eyes and ears open for Friday’s report on jobs for July.

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

June                288,000

May                 224,000

April          304,000

March        203,000

February      222,000

January     144,000

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 this mean?

I don’t know.

Through the first half of 2014, the economy has added 1,385,000 payroll jobs - up from 1,221,000 added during the same period in 2013 - even with the severe weather early this year.  In June, the year-over-year change was 2.495 million jobs, and it appears the pace of hiring is increasing.  Right now it looks possible that 2014 will be the best year since 1999 for both total nonfarm and private sector employment growth.

Does that mean interest rates are about to really start going up?

Hardly. 

The 30-year bond Treasury bond yield on Friday fell 6 basis points to 3.238% while the 5-year note yield fell 2.5 basis points to 1.675%.. 

The difference, or spread, between them shrank to 1.56 percentage points, its least since February 2009.

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.  Long-term yields are reflecting forecasts for slower growth.

The bond market does not seem to think interest rates are going up anytime soon.

Despite the hebetating from the Federal Reserve, Fed officials are still inclined to keep interest rates low for an extended period also.

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OFF BASE

Hebetation often sets in during the dog days of summer.

Dog days? What is a dog day? Is it so hot that dogs just lay around panting?

The term "dog days" has nothing to do with dogs. It dates back to Roman times, when it was believed that Sirius, the Dog Star, added its heat to that of the sun creating exceptionally high temperatures. The Romans called the period dies caniculares, or "days of the dog." The name Sirius seems to come from an ancient Greek word for "scorching" or "sparkling." Sirius is the brightest star visible from either of Earth's hemispheres. It's prominent in the evening during the northern hemisphere winter. But its appearance in the summer has also been noticed for many thousands of years. Each northern hemisphere summer, after being behind the sun for awhile, the Dog Star reappears before dawn. Early Greeks and Romans blamed Sirius for the heat in July and August. This is the time of year when Sirius comes up either with the sun or shortly before the sun each day. It travels across the sky with the sun during the daylight hours. The ancients believed that the double whammy of the sun and Sirius actually caused the hot weather.

As Yogi Berra once said, “It ain't the heat; it's the humility."

SBA 504 Loan Debenture Rate

SBA 504 Loan Debenture Rate for July       

The debenture rate is only 2.87% but note rate is 2.92% and the effective yield is 4.952%.

The SBA and Sashay

sashay

sa-SHAY

1. To move, walk, or glide along nonchalantly.

2. To strut or move in a showy manner.

From switching of syllables in a mispronunciation of French chassé (a ballet movement involving gliding steps with the same foot always leading), past participle of chasser (to chase), from captare (to try to catch), frequentative of Latin capere (to take).

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TIP OF THE WEEK 

People are sashaying into hotels and motels.

According to Smith Travel Research, in year-over-year measurements, the hospitality industry’s occupancy rate increased 4.4 percent to 66.0 percent. Average daily rate increased 4.5 percent to finish the week at US$112.40. Revenue per available room for the week was up 9.0 percent to finish at US$74.14.  The 4-week average of the occupancy rate is solidly above the median for 2000-2007, and is at the same level as in 2000. 

Right now it looks like 2014 will be the best year since 2000 for hotels.

According to the Small Business Administration, hotels and motels have accounted for more SBA 7(a) and 504 loans than any other business since 2001.  Almost six percent of all SBA loans are to hotels and motels.  Hospitality also has one of the lowest failure and charge off rates.

SBA loans can finance hotel and motel purchases, construction or debt refinancing.

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Indices:

PRIME RATE= 3.25%

SBA LIBOR Base Rate July 2014 = 3.16%

SBA Fixed Base Rate July 2014 = 5.32%

________________________________________

SBA 504 Loan Debenture Rate for June

The debenture rate is only 2.99% but note rate is 3.04% and the effective yield is 5.069%.

 ________________________________________________

AHEAD OF THE YIELD CURVE 

The economy seems to sashay along.

Minutes from last month’s Federal Reserve Board meeting on monetary policy revealed that Fed officials are in no hurry to raise the central bank's benchmark short-term interest rate even though inflation has picked up recently. "Some" policymakers continued to voice concern about annual inflation that remains below the Fed's 2% target. "A couple" suggested the Fed "may need to allow the unemployment rate to move below its longer-run normal level for a time in order to keep inflation expectations anchored and return inflation to its 2% target.”

Keep your eyes and ears open for this week’s release from the Federal Reserve on industrial production and capacity utilization.

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.

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- 79.1

What does all this mean?

I don’t know.

Last month the Fed reported that capacity utilization for total industry was at 79.1 percent, the highest since June 2008.   That’s up 12.3 percentage points from the record low set in June 2009 and 2.4 percentage points higher than a year prior.   Capacity utilization at 79.1 percent is still 1 percentage point below its average from 1972 to 2012 and below the pre-recession level of 80.8 percent in December 2007.

What does all this mean?

I don’t know.

The 30-year Treasury bond yield serves as somewhat of a long-term outlook on economic growth and inflation expectations. But the security has at times been an early indicator for movements in other Treasury maturities.  

Last week’s auction of $13 billion in 30 year Treasury bonds drew a yield of 3.369% compared to June’s 3.355%.   

The long bond yield has dropped more than 50 basis points since the start of the year.

The bond market does not seem to think interest rates are going up anytime soon.

The minutes from the Fed reflect that some Fed officials are still inclined to keep interest rates low for an extended period also.

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OFF BASE

No more soccer players swaying and sashaying up and down.

Now we can play attention to things that really matter like Major League Baseball’s All-Star game this week.

Does the All-Star game really matter?  Isn’t it just an exhibition game between the American League and the National League?

Beginning in 2003, the league that won the game has home-field advantage in the World Series. The winning league would host the first two games of the best-of-seven Series, then go on the road for three, then host for the final two.

In the 10 years since, the winning league also won the World Series eight times. The National League’s Cardinals in 2006 and Phillies in 2008 are the only ones to win without that advantage, although both won in five games and wound up playing more games at home (three) than the team that was supposed to have home-field advantage (two).  We’ve had only one seven-game World Series since the All-Star home-field rule. In 2011, St. Louis beat Texas, winning Game 6 and 7 at home. That rule seemed to matter a whole lot that year.

Anyone watching baseball over the last seven years has noticed that the game is skewing towards younger, more athletic players. It's shifted the way games are played, with pitching and defense dominating the sport.

While there's incredible pitching on both sides, the National League clearly has the better pitching while the American League has the advantage with the bats.

As Yogi Berra once said,” Pitching always beats batting — and vice-versa.”  

SBA 7(a) Loan Rate Update

Indices:

PRIME RATE= 3.25%
SBA LIBOR Base Rate July 2014 = 3.16%
SBA Fixed Base Rate July 2014 = 5.32%

Lenders can charge up to 2.75% over these indices.

The SBA and brouhaha

brouhaha

BROO-ha-ha, broo-ha-HA, broo-HA-ha

Noise, confusion, and excitement, especially over something insignificant.

An alteration of the Hebrew term barukh habba (welcome, literally, "blessed be the one who comes").

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TIP OF THE WEEK 

A brouhaha erupted recently as the Small Business Administration becomes un-pervicacious with the lender explicitly calculating a borrower’s ability to repay proposed loans of $350,000 and less.  Effective July 1^st, SBA Information Notice 5000-1314 declares that the Small 7(a) loan credit scoring model satisfies the requirement that the lender demonstrate the applicant’s ability to repay the loan with earnings from the business.   The credit score alone is enough.  Verifications of IRS income tax returns are still required however and if anything in the lender’s financial analysis demonstrates that the Small Business Applicant lacks reasonable assurance of repayment in a timely manner from the cash flow of the business, the loan request must still be declined, regardless of the collateral available or outside sources of cash.

Another brouhaha is also coming on franchise eligibility determinations!

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Indices:

PRIME RATE= 3.25%

SBA LIBOR Base Rate June 2014 = 3.15%

SBA Fixed Base Rate June 2014 = 5.31%

________________________________________

SBA 504 Loan Debenture Rate for June

The debenture rate is only 2.99% but note rate is 3.04% and the effective yield is 5.069%.

 ________________________________________________

AHEAD OF THE YIELD CURVE 

No brouhaha is expected once the Federal Reserve meets this week on interest rates.

The last time the Federal Open Market Committee met on monetary policy they said that they might have to keep “the target federal funds rate below levels the Committee views as normal in the longer run.”

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:

DEC14- 0.29

DEC15- 1.01

DEC16- 2.10

DEC17- 2.90

DEC18- 3.41

DEC19- 3.78

DEC20- 4.04

What does all this mean?

I don’t know.

Traders are betting the Federal Reserve won’t raise interest rates any time soon.

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OFF BASE

Where’s the brouhaha over hurricane season?

The eastern Pacific has never witnessed storms so strong so early.  First, hurricane Amanda became the strongest May hurricane in the eastern Pacific on record, when its peak winds soared to 155 mph (high-end category 4 level) on May 25. Now, just over two weeks later, the eastern Pacific has given birth to the powerhouse hurricane Cristina whose maximum sustained winds also reached 155 mph!

Forecasters have called for an active eastern Pacific hurricane season due to the expectation of El Niño conditions which elevate ocean temperatures (in the tropical Pacific).

The lack of a brouhaha might all be in their names.  People don’t take hurricanes as seriously if they have a feminine name and the consequences are deadly, finds a new groundbreaking study.

Female-named storms have historically killed more because people neither consider them as risky nor take the same precautions, the study published in the Proceedings of the National Academy of Sciences concludes.  Researchers at the University of Illinois and Arizona State University examined six decades of hurricane death rates according to gender, spanning  1950 and 2012.  Of the 47 most damaging hurricanes, the female-named hurricanes produced an average of 45 deaths compared to 23 deaths in male-named storms, or almost double the number of fatalities.  The difference in death rates between genders was even more pronounced when comparing strongly masculine names versus strongly feminine ones.

SBA 7(a) Loan Rate Update

Indices:

PRIME RATE= 3.25%
SBA LIBOR Base Rate June 2014 = 3.15%
SBA Fixed Base Rate June 2014 = 5.31%

Lenders can charge up to 2.75% over these indices.

SBA Loans Are Good for the Economy

SBA 7(a) loan approvals totaled $1,782,874,000 for the month of May.  This is a 12% increase over April's 7(a) loan approvals and a 49% increase over approvals for the month of January.

This makes it the fifth straight month of improving SBA 7(a) loan volume:

May                       $1,782,874,000

April                     $1,591,774,000

March                   $1,590,460,000

February             $1,323,495,000

January               $1,193,005,000

Keep in mind that the correlation coefficient between SBA 7(a) loan approvals and our economy's Gross Domestic Product is a statistically significant 0.86. 

The SBA and pervicacious

pervicacious

puhr-vi-KAY-shuhs 

Very stubborn.

From Latin pervicax (stubborn).

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TIP OF THE WEEK 

The Small Business Administration is avulsing itself of its pervicacious propensities with its latest improvements to the SOP (Standard Operating Procedures).

The pervicaciousness continues somewhat as there are just over 100 days until the next SOP comes out.

Borrowers however should not be pervicacious about SBA loans with more money available at better terms than conventional financing.

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Indices:

PRIME RATE= 3.25%

SBA LIBOR Base Rate May 2014 = 3.15%

SBA Fixed Base Rate May 2014 = 5.39%

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SBA 504 Loan Debenture Rate for May

The debenture rate is only 3.00% but note rate is 3.05% and the effective yield is 5.08%.

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AHEAD OF THE YIELD CURVE 

Is the economy being pervicacious?

The U.S. economy suffered its first contraction since 2011 in the first quarter of 2013. 

Gross domestic product fell at a 1 percent annualized rate according to revised Commerce Department figures.  

The advance estimate originally had the economy crawling along at only a 0.1 percent rate.  This revised decline was due to a drop in inventory.  Stockpiles grew at less than half the pace than in the final three months of 2013, lopping 1.6 percentage points off GDP.  Change in private inventories tends to bounce around quarter-to-quarter so this is more of a statistically aberration than anything else.

You can not be pervivacious about any of the numbers on the economy.

For example, the Bureau of Labor Statistics last month revised up the change in jobs for March from 192,000 to 203,000 while February was bumped up to 222,000 from 197,000.  With these revisions, employment gains in February and March were 36,000 higher than previously reported.

The U.S. also added 288,000 nonfarm jobs in April.  This was the most in more than two years.

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

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

April          288,000

March        203,000

February      222,000

January     144,000

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 this mean?

I don’t know.

Through the first four months of 2014, the economy has added 857,000 payroll jobs - slightly better than during the same period in 2013 (there were 821,000 payroll jobs added during the first four months of 2013).  Total nonfarm U.S. employment is currently 113 thousand below the pre-recession peak.  With the release of the May employment report next Friday, total employment will probably be at an all time high.

Despite this, the labor force shrank by more than 800,000 in April. The so-called participation rate, which indicates the share of working-age people in the labor force, decreased to 62.8 percent, matching the lowest level since 1978, from 63.2 percent a month earlier.  Even the strongest job growth in more than two years isn’t enough to entice more people into the labor force, one of the biggest conundrums of the U.S. economic expansion.

As a result, the Federal Reserve will remain pervicacious about keeping interest rates low.

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OFF BASE

June 6^th marks the 70^th anniversary of the D Day invasion.

June 6, 1944, 160,000 Allied troops landed along a 50-mile stretch of heavily-fortified French coastline to fight Nazi Germany on the beaches of Normandy, France.

More than 9,000 Allied Soldiers were killed or wounded in the first few hours but they were pervicacious with the assault and more than 150,000 soldiers began the march across Europe to defeat Hitler.

Have you ever wondered what the D in D Day meant?

The most ordinary and likely of explanations is the one offered by the U.S. Army in their published manuals. The Army began using the codes "H-hour" and "D-day" during World War I to indicate the time or date of an operation's start. Military planners would write of events planned to occur on "H-hour" or "D-day" -- long before the actual dates and times of the operations would be known, or in order to keep plans secret. And so the "D" may simply refer to the "day" of invasion.

The SBA and avulse

avulse

uh-VUHLS

To pull off or tear away.

From Latin avellere (to tear off), from a- (away from) + vellere (to pull, pluck).

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TIP OF THE WEEK 

Several pages have been avulsed recently from SBA’s playbook the SOP (Standard Operating Procedures) making it easier and easier for both borrowers and lenders to participate in the SBA’s loan programs.

Industrial real estate’s avulsion from the recession appears complete.  According to CoStar, vacancies now sit lower than pre-recession levels in the industrial property sector. 

If you would like a copy of CoStar’s Commercial Real Estate Sales Indices report for May 2014, let me know.

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Indices:

PRIME RATE= 3.25%

SBA LIBOR Base Rate May 2014 = 3.15%

SBA Fixed Base Rate May 2014 = 5.39%

________________________________________

SBA 504 Loan Debenture Rate for May

The debenture rate is only 3.00% but note rate is 3.05% and the effective yield is 5.08%.

 ________________________________________________

AHEAD OF THE YIELD CURVE 

Will the Federal Reserve ever avulse itself of low interest rates?

The last time the Federal Open Market Committee met on monetary policy they said that they might have to keep “the target federal funds rate below levels the Committee views as normal in the longer run.” 

Keep your eyes and ears open for this week’s release of the minutes from the Fed’s last meeting on monetary policy.  Ever since the Fed moved up the release of the minutes to three weeks after a meeting from six in January 2005, people parse each word looking for clues to policy.  This became a habit after former Federal Reserve chairman Alan Greenspan once remarked:

                “ I know you think you understand what you thought I said but I'm not sure you realize that what you heard is not what I meant”

The bond market does not seem to think interest rates are going up anytime soon.

At last week’s $16 billion dollar auction of 30 year Treasury bonds, the 30 year bond sold at a yield of 3.44%.

The long bond yield has dropped more than 50 basis points since the start of the year. April’s $13 billion auction of 30 year Treasury bonds sold at a yield of 3.525%.  In March the auction drew a yield of 3.630% compared to February’s yield of 3.69%.  January’s auction sold at a yield of 3.899% compared to December’s 3.90%.  

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

The 30 year Treasury bond is currently at 3.34 percent.

What does all this mean?

I don’t know.

Traders are betting the Federal Reserve won’t raise interest rates any time soon.

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OFF BASE

We should all be avulsing ourselves from work and the office this Monday as it is Memorial Day.

According to the Federal Reserve, here is our remaining holidays for 2014:

Memorial Day May 26
Independence Day July 4
Labor Day September 1
Columbus Day October 13
Veterans Day November 11
Thanksgiving Day November 27
Christmas Day December 25 

To many this marks the beginning of summer although technically summer really does not start until June 21^st, the summer solstice, which is the day with the most hours of sunlight during the whole year.  After that, the days start getting shorter and shorter.

To all of us, it should be a day to remember those who died serving our country. The holiday, which is celebrated every year on the final Monday of May, was formerly known as Decoration Day and originated after the American Civil War to commemorate the Union and Confederate soldiers who died in the Civil War.