The SBA and etiolate

etiolate

EE-tee-uh-layt

1. To make pale by preventing exposure to sunlight.

2. To make weak by stunting the growth of.

3. To become pale, weak, or stunted.

>From French étioler (to make pale), from Latin stipula (straw).

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TIP OF THE WEEK 

SBA lending will not etiolate.

Section 125 of the Continuing Appropriations Resolution  H.J. Res 124 ("the CR") that just passed Congress contains good news for the SBA 7(a) industry -- a $1 billion increase in the SBA's lending authority for both FY 2014 and FY 2015:  from $17.5 billion to $18.5 billion. 

Even with a 17 day "hiatus" at the start of the 2014 fiscal year, loan volume grew at such a rate that the $17.5 billion lending level would have been reached prior to September 30.

_____________________________________
Indices:

PRIME RATE= 3.25%

SBA LIBOR Base Rate September 2014 = 3.16%

SBA Fixed Base Rate September 2014 = 5.34%

________________________________________

SBA 504 Loan Debenture Rate for September  

The debenture rate is only 2.969% but note rate is 2.69% and the effective yield is 5.002%.

 ________________________________________________
AHEAD OF THE YIELD CURVE 

If interest rates go up, the economy just might etiolate and shrink.

As least that’s what the Federal Reserve was saying when they met last week on monetary policy.

They said that they would continue to keep rates low for a “considerable” time.

The day before they met, the Federal Reserve had announced that the capacity utilization rate had etiolated down 0.3 percentage point to 78.8 percent.

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- 78.8

What does all this mean?

I don’t know.

This etiolation of industrial production and capacity utilization is the first such decline since January.  This comes on the heals of August’s report on job growth when employers added 142,000 jobs in August.  Before that employers had added 200,000-plus jobs for six straight months — the longest stretch since 1997. 

Capacity utilization is only 1.0 percentage point above its level of a year earlier and 1.3 percentage points below its long-run (1972–2013) average.

Interest rates will remain low for a, as the Federal Reserve puts it, “considerable” time.

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OFF BASE

Today is the last day of summer.

The days are etiolating.

The SBA and degust

degust

di-GUHST

To taste or savor appreciatively.

From Latin degustare (to taste), from de- (completely) + gustare (to taste).

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TIP OF THE WEEK 

People are degusting.

The National Restaurant Association reported that for the fifth consecutive month, a majority of restaurant operators reported higher same-store sales. Fifty-four percent of restaurant operators reported a same-store sales gain between July 2013 and July 2014.  For the 11th consecutive month, a majority of restaurant operators said they are planning for capital expenditures in the months ahead. Fifty-four percent of restaurant operators plan to make a capital expenditure for equipment, expansion or remodeling in the next six months.

According to the Small Business Administration, restaurants (limited service and full service) have accounted for more SBA 7(a) loans than any other business since 2001.  Almost ten percent of all SBA loans are to restaurants.

_____________________________________
Indices:

PRIME RATE= 3.25%

SBA LIBOR Base Rate September 2014 = 3.16%

SBA Fixed Base Rate September 2014 = 5.34%

________________________________________

SBA 504 Loan Debenture Rate for August  

The debenture rate is only 2.88% but note rate is 2.92% and the effective yield is 4.96%.

 ________________________________________________
AHEAD OF THE YIELD CURVE 

Last month payroll growth slowed significantly after six months of strong gains.

Or did it?

U.S. employers added 142,000 jobs in August.  Before that employers had added 200,000-plus jobs for six straight months — the longest stretch since 1997.

Job gains for June and July were also revised down by a total 28,000. June's was revised to 267,000 from 298,000 and July's to 212,000 from 209,000.

Revisions to August’s job’s number might be even more significant, but perhaps in a positive direction.  

For example, in 2011, the Labor Department initially reported there were no job gains in August. That total was subsequently adjusted up to a 57,000 gain and then to a 104,000 gain on the second revision two months later.  Last year, August job gains were revised up from 169,000 in the first estimate to 193,000 and then to 238,000.

After the jobs report came out on Friday, the 30-year bond yield shed 1.5 basis points to 3.194%.  

Keep your eyes and ears open for this week’s auction of the 30 year Treasury bond.  Last month’s $16 billion sale of 30 year Treasury bonds sold at a yield of 3.224%.  January’s auction sold at a yield of 3.899%.

The Federal Reserve meets next week on monetary policy.

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- 0.25

DEC15- 0.95

DEC16- 2.03

DEC17- 2.75

DEC18- 3.11

DEC19- 3.37

DEC20- 3.59

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

Degust the waning days of summer and the final games of the regular season for major league baseball.

It’s also one of your last chances to degust an unheralded baseball player.

The Oakland A’s, celebrated as being the most statistically forward thinking team in all of baseball, has traded for the greatest three true outcome player in the game.

Three True Outcomes?  What is that, it sounds kind of cool?

The Three True Outcomes are a walk, strikeout or home run. They are called this because the three supposedly are the only events that distilled the game down to its essence of a battle between pitcher and hitter.

Adam Dunn is the ultimate "Three True Outcomes" guy.  

Dunn has hit 95 homeruns  the last three seasons, more than almost everyone except three guys.  He hits a home run every 14.8 times he comes to the plate.  That’s second most of all active major league baseball players.  All time, he is ninth behind legends like Babe Ruth and Harmon Killebrew.

Adam Dunn also has more strikeouts than any other player currently playing.  As a matter of fact, he is 528 strikeouts ahead of the next closest guy still playing.  His 2,355 total strikeouts is third ALL TIME.

He has led both the National League and American League with the most walks in a season.  

Dunn hit a two-run homer on Monday with his very first swing as a member of the A's.  

Amazingly,  Dunn has yet to experience the playoffs, and his 1,976 games are the most by any active player without a postseason appearance.  He plans to retire at the end of this season.

SBA Loans Are Good For the Economy

The third quarter got off to a slightly slower start as $1,696,438,000 in SBA 7(a) loans were approved in the month of July.

Here are the SBA 7(a) loan approvals since the beginning of the calendar year.

July                      $1,696,438,000

June                      $1,832,552,000

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.

SBA Loans Are Good For the Economy

$1,832,552,000 in SBA 7(a) loans were approved during the month of June.  

That makes it three straight quarters of steadily improving SBA 7(a) loan volume:

2^nd quarter 2014:            $5,203,700,000

1^st quarter 2014:              $4,106,960,000

4^th quarter 2013:             $3,989,696,000

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

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

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

Second loan volume has jumped significantly from the prior quarter.

The correlation of SBA 7(a) loan approvals with our nation's economic performance appears to be quite strong.  Just for fun I calculated the correlation coefficient between SBA 7(a) loan volume and GDP for over six years using the Microsoft CORREL function. 

It came out to a statistically significant 0.86.

The SBA and congeries

congeries

kon-JEER-eez, KON-juh-reez

A collection of miscellaneous things.

From Latin congeries (heap), from congerere (to heap up), from con- (with) + gerere (to carry).

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TIP OF THE WEEK 

Please note our new mailing address

Stultz Financial, Inc.

1200 Quail Street Suite 165

Newport Beach CA 92660

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Indices:

PRIME RATE= 3.25%

SBA LIBOR Base Rate August 2014 = 3.16%

SBA Fixed Base Rate August 2014 = 5.38%

________________________________________

SBA 504 Loan Debenture Rate for August  

The debenture rate is only 2.88% but note rate is 2.92% and the effective yield is 4.96%.

 ________________________________________________
AHEAD OF THE YIELD CURVE 

Do you remember what the Federal Reserve said about interest rates last time they met?

Did you even understand what they said?

Stay tuned for this Wednesday’s release of minutes from the Federal Reserve’s last meeting on monetary policy.

Analysts parse each word looking for clues to policy.  There is actually a statistical method known as Latent Semantic Analysis (LSA) to extract meaning from the FOMC minutes. LSA is an algorithm that identifies common themes across a collection of texts and then characterizes the documents by the relative prevalence of each theme. The first step of LSA is to represent a document as a term-frequency vector, i.e. a list of the words in the document with their relative frequencies.  Latent Semantic Analysis can often extract a complex, multifaceted signal from the minutes and as a result Treasury yield changes around the time of the minutes release depend on the specific themes expressed, the level of monetary policy uncertainty, and the economic outlook.

The bond market keeps things simple.  Last week’s $16 billion sale of 30 year Treasury bonds sold at a yield of 3.224, the lowest auction yield since May 2013.

The long bond yield has dropped more than 50 basis points since the start of the year.  July’s auction sold at a yield of 3.369%.  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

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.

The 30 year Treasury bond is currently at 3.14 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

Latent Semantic Analysis can be used to study a problem that has plagued philosophy and science since Plato 24 centuries ago.

(If you are wondering what Latent Semantic Analysis is, you obviously skipped the congeries of information in the above section.  Shame on you).  

One of the deepest, most persistent mysteries of cognition is how people acquire as much knowledge as they do on the basis of as little information as they get. Sometimes called "Plato's problem'' or ' 'the poverty of the stimulus,'' the question is how observing a relatively small set of events results in beliefs that are usually correct or behaviors that are usually adaptive in a large, potentially infinite variety of situations.  Plato's solution, of course, was that people must come equipped with most of their knowledge and need only hints and contemplation to complete it.  Latent Semantic Analysis proved that through the analysis of children’s vocabularies.

In other words, we all deep down know what’s right and wrong.

For example, we all know you can’t steal first base, right?  That’s just wrong.  As a matter of fact it is rule 7.08i in the rules of baseball.  You Can't Steal First Base

The word "travesty" appears only once in the rule book and it has nothing to do with cheating. The offense in question is one that defies logic: stealing first base from second.

On Aug. 4, 1911, Washington Senators infielder Germany Schaefer stole second in an attempt to draw a throw from the catcher that would allow a teammate to score from third. When that failed, according to the Society for American Baseball Research, he went in reverse and stole first, just to elicit a throw.

Schaefer, whose legendary antics made him part-ballplayer, part-vaudeville act, wasn't the only player to attempt to steal first, but he was the last. At some point thereafter, MLB introduced Rule 7.08i, which deems a runner out if he "runs the bases in reverse order for the purpose of confusing the defense or making a travesty of the game."

The rule has upheld the integrity of baseball ever since.

Keep in mind that the root of congeries is heap and this email is definitely a heap of something.

SBA 7(a) Loan Rate Update

Indices:

PRIME RATE= 3.25%
SBA LIBOR Base Rate August2014 = 3.16%
SBA Fixed Base Rate August 2014 = 5.38%

Lenders can charge up to 2.75% over these indices.

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.

_____________________________________
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 July  

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

 ________________________________________________
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).

 _______________________________________________

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.

_____________________________________
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.

__________________________________________
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.”