The SBA and festinate

festinate

FES-tuh-nayt

verb: To hurry or hasten.

adjective: Hurried or hasty.

From Latin festinare (to hasten).

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TIP OF THE WEEK 

The festinate release of yet another change to the SBA Standard Operating Procedures just came out.  SOP 50-10-5 (H) is retroactively effective May 1, 2015.

Amongst the changes is a clarification and simplification of the policies regarding debt refinancing for SBA 7(a) loans.  

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Indices:

PRIME RATE= 3.25%

SBA LIBOR Base Rate May 2015 = 3.18%

SBA Fixed Base Rate May 2015 = 5.11%

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SBA 504 Loan Debenture Rate for April

The debenture rate is only 2.51% but note rate is 2.55% and the effective yield is 4.591%.   

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AHEAD OF THE YIELD CURVE 

Will the Federal Reserve festinate an increase in interest rates?

On Friday, the Bureau of Labor Statistics reported that in April employers added 223,000 jobs.

Total employment is now 3.0 million above the previous peak and up 11.7 million from the employment recession low.

The bond market took this as a mixed job report, sparking a small rally, driving Treasury prices higher and yields down.

The 30-year Treasury bond yield fell 3.1 basis points to 2.877%.  

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

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.

Last month’s auction of $13 billion in 30-year Treasury bonds saw weak demand.  Following the auction, the 30-year Treasury bond yield rose 3.9 basis points to a closing yield of 2.597%.  A few weeks later the 30-year bond yield jumped 10.2 basis points to 2.775% following the latest statement on monetary policy from the Federal Reserve.  Yields continued to climb as the U.S. Treasury market is highly correlated with the Eurozone bond market.  The sell off in Europe over concerns about Greece led Treasury yields to “rise in sympathy”.

Despite a modest improvement in jobs numbers, warning signs abound as reflected in the 30 year Treasury bond yield.  

The day after the 30 year Treasury bond auction, the Federal Reserve will report on capacity utilization.  Last month, the Federal Reserve reported that capacity utilization decreased 0.6 percentage point in March to 78.4 percent.  For the first quarter of 2015 as a whole, industrial production declined at an annual rate of 1.0 percent, the first quarterly decrease since the second quarter of 2009.  Weaker capacity utilization might be interpreted as a sign that the Federal Reserve’s 2% inflation target is still out of reach.

The Federal Reserve may not festinate after all.

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OFF BASE

The festinate arrival of summer for many is Memorial Day.  That’s in two short weeks!

According to the Federal Reserve, here are our remaining holidays for 2015:

Memorial Day May 25
*Independence Day July 4
Labor Day September 7
Columbus Day October 12
Veterans Day November 11
Thanksgiving Day November 26
Christmas Day December 25 

*Independence Day this year falls on a Saturday – so the Board of Governors is closed on July 3, 2015 and bankers get a three day weekend!

If that seems way too sudden, maybe we should all stop festinating.

The SBA and prebuttal

prebuttal

pri-BUH-tl 

An argument in anticipation of a criticism; a preemptive rebuttal.

A blend of pre- + rebuttal, from rebut (to refute), from Old French rebouter (to push back), from boute (to push).

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TIP OF THE WEEK 

Standard & Poor’s expects RevPAR to post strong growth this year and next.   RevPAR, or revenue per available room, is a performance metric in the hotel industry that is calculated by dividing a hotel's total guestroom revenue by the room count and the number of days in the period being measured

This strong growth in demand and occupancy levels coincided with a period of extremely low lodging supply growth. Inventory grew by 0.6% in 2011, 0.5% in 2012 and 0.7% in 2013, compared to a 17-year average of approximately 1.8%.  Last year, however, supply growth accelerated by 0.9%, and given the favorable demand and RevPAR levels in the near term, new construction is likely to follow.  That could mean supply growth of about 1.5% this year, and possibly approaching 2.05 in ’16.

A prebuttal to anyone that thinks SBA loans don’t matter should note that 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, debt refinancing or construction.

In the last four years, loans to new businesses, such as hotels under construction, have grown from about one-quarter of all SBA loans to almost one third.

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Indices:

PRIME RATE= 3.25%

SBA LIBOR Base Rate April 2015 = 3.18%

SBA Fixed Base Rate April 2015 = 4.91%

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SBA 504 Loan Debenture Rate for April

The debenture rate is only 2.51% but note rate is 2.55% and the effective yield is 4.591%.   

 ________________________________________________
AHEAD OF THE YIELD CURVE 

The Federal Reserve Open Market Committee meets this week and many people wonder if interest rates will soon start going up.

A prebuttal to a variable rate loan and the frightened premise of rising interest rates can be found in the futures market.

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:

DEC15- 0.59

DEC16- 1.30

DEC17- 1.71

DEC18- 2.18

DEC19- 2.43

DEC20- 2.63

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 much if at all.

Just last week, the Federal Reserve reported that capacity utilization decreased 0.6 percentage point in March to 78.4 percent.  For the first quarter of 2015 as a whole, industrial production declined at an annual rate of 1.0 percent, the first quarterly decrease since the second quarter of 2009.  Weaker capacity utilization might be interpreted as a sign that the Federal Reserve’s 2% inflation target is still out of reach.

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OFF BASE

Another prebuttal to rising interest rates is how well the New York Mets are doing.

Remember, every time the Mets do really well a recession soon follows.  

In October of 1969 the Mets went to the World Series.  A recession soon followed.   In October of 1973 the Mets went to the World Series.  A recession soon followed.  In October of 1986 the Mets once again went to the World Series.   The economy held its breath for as long as it could but when it finally had to gasp for air the stock market crashed. The stock market crash of 1987 was the largest one day stock market crash in history, larger than that of 1929.  The economy would soon slump into recession.  The economy recovered and the nation enjoyed the 1990 boom years.  The party ended when the Mets went to the World Series in 2000.  Soon after the 2000 World Series ended, the economy slid into recession.  In 2006 the Mets dominated the National League winning more games than any other team.  The next year they assembled an even stronger team and appeared a certainty to be in the World Series.  They then suffered the greatest collapse in baseball history.  The economy also soon collapsed.

Since back-to-back late-season collapses in 2007 and 2008, the Mets have gone six straight seasons without a winning record.  Now they have the best record in baseball.

By Baseball Prospectus‘ playoff odds, the Mets now have a 59.7% chance of securing at least a Wild Card berth. They became the 27th team since the year 2000 to win at least 11 straight games. The prior 26 averaged over 92 wins per season.

SBA 504 Loan Debenture Rate

SBA 504 Loan Debenture Rate for April        

The debenture rate is only 2.51% but note rate is 2.55% and the effective yield is 4.591%.

The SBA and hortatory

hortatory

HOR-tuh-tor-ee 

Strongly urging.

From Latin hortari (to urge).

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TIP OF THE WEEK 

Hortatory, pronounced hawr-tuh-tawr-ee, is probably not a word you hear a lot, but what it describes is common. When you're lying in bed in the morning, look for that little hortatory voice in your head, encouraging you to get up.

The hortatory activities of SBA 7(a) lenders have caused SBA loan volume to increase 25% over last year’s volume.  Six months through the fiscal year, SBA 7(a) loan approvals are now at $9,941,695,000.  This is the most since 2011.

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Indices:

PRIME RATE= 3.25%

SBA LIBOR Base Rate April 2015 = 3.18%

SBA Fixed Base Rate April 2015 = 4.91%

________________________________________
SBA 504 Loan Debenture Rate for March

The debenture rate is only 2.72% but note rate is 2.76% and the effective yield is 4.799%.       

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AHEAD OF THE YIELD CURVE 

The hortatory signals of rising interest rates from the Federal Reserve might soon be muted.

According to minutes of the Fed's March 17-18 meeting, several Federal Reserve policymakers said last month the central bank is likely to raise its benchmark interest rate in June but "others" said the move will probably occur "later in the year".  This debate occurred before the recent disappointing payroll figures for the month of March.  The minutes are consistent with Fed policymakers' forecasts, released after the mid-March meeting, that indicate the first bump in rates since 2006 is unlikely before September as the Fed awaits signs of a pickup in anemic inflation.

Keep your eyes and ears open for this week’s report 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- 78.8

Last month the Federal Reserve reported that capacity utilization decreased to 78.9 percent in February.

What does this mean?

I don’t know.

Capacity utilization may continue to slump as sales of durable goods at U.S. distributors in January and February suffered the biggest two-month drop since the recession's last gasp in early 2009, figures from the Commerce Department showed last Thursday.  As demand weakened, stockpiles built up, sending the inventory-to-sales ratio for those long-lasting goods up to an almost six-year high.  More order books at factories may be a bit leaner, which could leave manufacturing in a funk.

Weaker capacity utilization might be interpreted as a sign that the Federal Reserve’s 2% inflation target is still out of reach.

The softening in the Fed’s two main policy targets, namely inflation and employment, as reflected in March’s weak jobs report released on Good Friday, suggest that the Fed may delay an interest rate hike.

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OFF BASE

There should be more of a hortatory clamor for another holiday right about now.

According to the Federal Reserve, here is our remaining holidays for 2015:

Memorial Day May 25
*Independence Day July 4
Labor Day September 7
Columbus Day October 12
Veterans Day November 11
Thanksgiving Day November 26
Christmas Day December 25 

*Independence Day this year falls on a Saturday – so the Board of Governors is closed on July 3, 2015 and bankers get a three day weekend!

Our last holiday was Washington ’s Birthday on February 16^th.  Memorial Day is a long way’s off.

Good Friday merits consideration but now another opportunity presents itself.

April 15^th, 1947 was Opening Day for Major League Baseball and was the day Jackie Robinson made his major league debut.

April 15^th is now celebrated, not as tax day, but as Jackie Robinson Day by Major League Baseball.  On that one day, all players, coaches, and managers on both teams, and the umpires, wear #42 on their jerseys, which makes scoring games virtually impossible.

The SBA and discursive

discursive

dis-KUHR-siv

1. Jumping from topic to topic; rambling.

2. Proceeding logically, using reason or argument rather than emotion.

From Latin discurrere (to run about), from dis- (apart) + currere (to run).

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TIP OF THE WEEK 

SBA has revised SBA form 413, the personal financial statement.

Make sure that you are using the current version that has an expiration date of 01/31/2018.

While a personal guarantee will always be required with a SBA loan, guidance for SBA 7(a) loans don’t necessarily require the personal guarantee be secured by personal real estate.

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Indices:

PRIME RATE= 3.25%

SBA LIBOR Base Rate March 2015 = 3.17%

SBA Fixed Base Rate March 2015 = 5.15%

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SBA 504 Loan Debenture Rate for March

The debenture rate is only 2.72% but note rate is 2.76% and the effective yield is 4.799%.       

 ________________________________________________
AHEAD OF THE YIELD CURVE 

Will Good Friday be a good Friday?

That’s when the Bureau of Labor Statistics will release its jobs report for the month of March.

February reflected total employment increasing 295,000.  The year-over-year change was 3.3 million jobs. This was the highest year-over-year gain since March of 2000.

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

February                             295,000

January                               239,000

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.

Revisions to employment gains in December and January ended up 18,000 lower than previously reported.  There will be additional revisions with the report for March.

The Federal Reserve at its last meeting on monetary policy slightly downgraded its economic outlook, saying that growth "has moderated somewhat."

It said it will raise its benchmark short-term rate, now near zero, only when the labor market improves further.

There was a lot of consternation after the Fed's policymaking committee dropped a pledge to "be patient" as it considers raising the fed funds rate.

Despite claiming to no longer being patient, Federal Reserve officials lowered their median estimate for the federal funds rate at the end of 2015 to 0.625 percent, compared with 1.125 percent in December forecasts.

The 30-year Treasury bond yield has declined to 2.529% as inflation remains below the Federal Reserve’s 2 percent target, increasing speculation the central bank won’t rush to raise interest rates.

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OFF BASE

The Federal Reserve unexplainably does not recognize Good Friday as a bank holiday.

It should as its existence can be tied in some ways to Good Friday itself.  

While Good Friday isn't a federal holiday, it is a stock market and bond market holiday.  After being usually closed on Good Friday, 1907 was the final year in which the exchange was open on Good Friday.

That last one was the same year as the infamous Panic of 1907, when the total value of all Big Board stocks plunged by more than a third.   

Traders took it as a sign from God that he didn’t want the exchange open.

By November 1907, the aggregate value of all shares on the NYSE had plunged 37 percent, and at least 25 banks and 17 trust companies collapsed

The crisis ultimately prompted the creation of the Federal Reserve system.

So what is Good Friday?

The day marks the crucifixion and death of Jesus Christ.  How could that possibly be considered good?  

Many believe this name simply evolved—as language does. Originally it was called "God's Friday."

This seems a reasonable conjecture, given that "goodbye" evolved from "God be with you."

Goodbye.

SBA 504 Loan Debenture Rate

SBA 504 Loan Debenture Rate for March       

The debenture rate is only 2.72% but note rate is 2.77% and the effective yield is 4.799%.

The SBA and triskaidekaphobia

triskaidekaphobia

tris-ky-dek-uh-FO-bee-uh 

Fear of the number 13.

From Greek treiskaideka (thirteen), from treis (three) + kai (and) + deka (ten) + phobia (fear).

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TIP OF THE WEEK 

13 is an important number for SBA loans.

The Code of Federal Regulations (CFR) is a public record of all permanent rules and regulations published by the executive departments and federal agencies of the U.S. government.

The code is broken up into 50 titles that cover a broad range of topics subject to federal regulation.

Title 13 of the CFR deals with business credit and assistance and governs the SBA.

Interpretation of Title 13 of the CFR is left to SOP 50-10-5(G). 

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Indices:

PRIME RATE= 3.25%

SBA LIBOR Base Rate March 2015 = 3.17%

SBA Fixed Base Rate March 2015 = 5.15%

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SBA 504 Loan Debenture Rate for February      

The debenture rate is only 2.46% but note rate is 2.51% and the effective yield is 4.546%.       

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AHEAD OF THE YIELD CURVE 

Will 13 be the economy’s lucky number?

For the last 12 months in a row, the economy has added at least 200,000 jobs.  This is the longest streak since 1995.

In February, jobs increased 295,000.  New jobs are now 2.8 million above the previous peak.

Over the last week, the 30 year Treasury bond yield has increased 12.4 basis points to 2.841%.

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. The rule of thumb is that an inverted yield curve (short rates above long rates) indicates a recession in about a year.  More generally, a flat curve indicates weak growth and conversely, a steep curve indicates strong growth.

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

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

What does all this mean?

I don’t know.

The yield on the 30-year bond ended the year at only 2.74 percent.  It was at 3.97 percent in January of 2014.

Last month’s auction of $16 billion in 30-year bonds yielded only 2.56 percent.

A flattening of the curve may be an expectation of rising short-term rates at a time when inflation is still low. 

The Federal Reserve meets next week.

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OFF BASE

Not only is there a word for fear of the number 13, there is a word for the fear of Friday the 13^th.  It is friggatriskaidekaphobia.

This has been a tough year for friggatriskaidekapobics.

Friday the 13^th appears three times in the 2015 calendar.

February 13, 2015 was the first appearance of the day. Because February is 28 days, expect March to follow the exact same pattern. That means the second Friday the 13th will appear just 4 weeks after the first one on March 13, 2015.

That’s right, this Friday is another Friday the 13^th.

Luckily for those with is friggatriskaidekaphobia, there is a long break between the second and third dates. The third Friday the 13th just narrowly missed October, which would have been fitting for the month of Halloween and perfect for a “Friday the 13th” movie marathon. Instead, the date falls two weeks before Thanksgiving on November 13, 2015.

The odds of Friday the 13th happening three times in one year aren’t that uncommon, but it won’t happen again for a while. The last time this happened was in 2012, and the next time it’ll take place is 2026.  Those who are terrified by the idea of three Friday the 13ths will be happy to know that 2016 will only have one in May.

Triskaidekaphobia stems from the belief that the 13th guest to attend the Last Supper was thought to be the same person who betrayed Jesus prior to his death. His death, coincidentally, is said to have occurred on a Friday.