The SBA and cowabunga

cowabunga

kou-uh-BUHNG-guh

interjection: An expression of surprise, joy, or enthusiasm.

The word was the cry of Chief Thunderthud, a character in the children's television program Howdy Doody. The word was later adopted by surfers. It was popularized by its use on the animated show Teenage Mutant Ninja Turtles.

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TIP OF THE WEEK 

Cowbunga!  The SBA will be closed on Friday, July 3^rd in observance of Independence Day.

That means it should be a holiday for everyone else.

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Indices:

PRIME RATE= 3.25%

SBA LIBOR Base Rate June 2015 = 3.18%

SBA Fixed Base Rate June 2015 = 5.16%

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SBA 504 Loan Debenture Rate for June

The debenture rate is only 2.98% but note rate is 3.03% and the effective yield is 5.062%.   

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AHEAD OF THE YIELD CURVE 

The Bureau of Labor Statistics is probably also yelling out cowabunga as they too are taking Friday, July 3^rd off.

As a result, their report on jobs for the month of June will come out on Thursday, July 2^nd.

Last month’s report showed that the U.S. economy gained 280,000 jobs in May.  That was the best month so far this year.  March was the worst month of job growth, but the Labor Department revised up March's job gains from 85,000 to 119,000.  April's job gains were revised down slightly to 221,000.

A few weeks later, the Federal Reserve met and they didn’t exactly yell out cowabunga.

Federal Reserve policymakers are coming around to the bond market's wisdom about where interest rates are headed.

Futures traders have been signaling for more than a year that when the Fed begins raising target rates for the first time since 2006, the increases won't be fast or reach the levels central bank officials predicted. For the second time this year, the Fed's policymakers lowered their rate projections in official forecasts.  Officials reduced their median estimate for the funds rate at the end of 2016 to 1.625 percent, from 1.875 percent in their March forecast, and to 2.875 percent for the end of 2017, down from 3.125 percent in March.

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- 0.56

DEC16- 1.42

DEC17- 2.12

DEC18- 2.60

DEC19- 2.97

DEC20- 3.25

What does all this mean?

I don’t know.

Eurodollar futures currently imply a federal funds rate that really is not going to be moving up all that much any time soon.

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OFF BASE

The Federal Reserve affects our lives in many ways.  Not only do they call the shots on interest rates, more importantly, they are the official arbitrator of holidays.   

For July 3^rd, they declared that the Board of Governors would be closed.   Like all Federal Reserve pronouncements, the devil is in the details.  They go on say that while the Board of Governors get that day off, for holidays falling on Saturday, Federal Reserve Banks and Branches will be open the preceding Friday.  Had the Fourth of July fallen on a Sunday, all Federal Reserve Banks and Branches would be closed the following Monday.

As a result, there is some confusion as to whether or not July 3^rd is a holiday.  According to the U.S. OFFICE OF PERSONNEL MANAGEMENT, for most Federal employees, Friday, July 3, will be treated as a holiday for pay and leave purposes

Most banks will be open on Friday, July 3^rd.  Here is a handy dandy guide as to who is open and who is closed: http://www.theholidayschedule.com/bank-holidays.php

I will be taking the day off.  Cowabunga!

SBA 504 Loan Debenture Rate

SBA 504 Loan Debenture Rate for June         

The debenture rate is only 2.98% but note rate is 3.03% and the effective yield is 5.062%.

SBA Financial Services Champion of the Year

The SBA and apricate

apricate

AP-ri-kayt

To bask in the sun.

To expose to the sun.

From Latin apricari (to bask in the sun).

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TIP OF THE WEEK 

The SBA 7(a) loan program will soon apricate before Congress as the Senate’s Small Business and Entrepreneurship Committee has submitted a proposed bill that would increase the authorized limit for the SBA 7(a) loan program by two billion dollars.   SBA loan volume is on track to surpass the authorized SBA funds approved for the 2015 fiscal year which ends September 30^th.  

Both borrowers and lenders are obviously embracing the program.

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Indices:

PRIME RATE= 3.25%

SBA LIBOR Base Rate June 2015 = 3.18%

SBA Fixed Base Rate June 2015 = 5.16%

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SBA 504 Loan Debenture Rate for May  

The debenture rate is only 2.77% but note rate is 2.817% and the effective yield is 4.850%.   

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AHEAD OF THE YIELD CURVE 

The Federal Reserve has its moment of aprication as it meets this week on interest rates.  

At its last meeting, the Fed said that it would not increase interest rates until it “is reasonably confident that inflation will move back to its 2 percent objective.”

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.

This morning the Federal Reserve reported that capacity utilization had actually decreased 0.2 percentage points in May to 78.1 percent.  

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 this mean?

I don’t know.

Weaker capacity utilization might be interpreted as a sign that the Federal Reserve’s 2% inflation target is still out of reach and interest rates may not be going up anytime soon.

The bond market seems to agree.  The 30 year Treasury bond, which is very sensitive to inflationary fears, saw strong demand at last week’s $13 billion auction as the 30-year bond yield fell 10 basis points to 3.108%.  The 30 year Treasury bond yield had been pushed to its highest level since early September pressured by a sustained sell off in Euro zone government bonds acerbated by the Greek debt saga which in turn was caused by too much apricating by the Aegean Sea.

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OFF BASE

The season to apricate is upon us as the first day of summer is this Sunday!  The day of the summer solstice is the longest day of the year. The length of time elapsed between sunrise and sunset on this day is a maximum for the year.   There are about 14½ hours of daylight on this day for most of us. 

For those up in Alaska, that means its time for the Midnight Sun Game.  This is a baseball game played every summer solstice in Fairbanks.  Because the sun is out for almost 24 hours a day, the game starts at about 10:30 at night and completes around 1:30 the next morning.  The first game was in 1906 and artificial light has never been used.  The game is considered one of the highlights of the Alaska Baseball League season and Baseball America declared it one of the "10 Must-See Baseball Events."

SBA 7(a) Loan Rate Update

Indices:

PRIME RATE= 3.25%
SBA LIBOR Base Rate June 2015 = 3.18%
SBA Fixed Base Rate June 2015 = 5.16%

Lenders can charge up to 2.75% over these indices.

The SBA and inculcate

inculcate

in-KUHL-kayt

To instill something into the mind of a person by repetition.

From Latin inculcare (to tread on), from in- (in) + calcare (to tread), from calx (heel).

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TIP OF THE WEEK 

SBA loans are good for the economy.  SBA loans are good for the economy.  SBA loans are good for the economy.  SBA loans are good for the economy. 

SBA loans are good for the economy.  SBA loans are good for the economy.  SBA loans are good for the economy.  SBA loans are good for the economy. 

SBA loans are good for the economy.  SBA loans are good for the economy.  SBA loans are good for the economy.  SBA loans are good for the economy. 

SBA loans are good for the economy.  SBA loans are good for the economy.  SBA loans are good for the economy.  SBA loans are good for the economy. 

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.  SBA loans are good for the economy.  SBA loans are good for the economy.  SBA loans are good for the economy. 

SBA loans are good for the economy.  SBA loans are good for the economy.  SBA loans are good for the economy.  SBA loans are good for the economy. 

SBA loans are good for the economy.  SBA loans are good for the economy.  SBA loans are good for the economy.  SBA loans are good for the economy. 

SBA loans are good for the economy.  SBA loans are good for the economy.  SBA loans are good for the economy.  SBA loans are good for the economy. 

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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 May  

The debenture rate is only 2.77% but note rate is 2.817% and the effective yield is 4.850%.   

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AHEAD OF THE YIELD CURVE 

Interest rates will not be going up any time soon.

Interest rates will not be going up any time soon.

Interest rates will not be going up any time soon.

Interest rates will not be going up any time soon.

Interest rates will not be going up any time soon.

Interest rates will not be going up any time soon.

Keep your eyes and ears open for this week’s report on employment for the month of May.

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

April                                  223,000

March                                   85,000

February                             266,000

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.

Last month’s report on jobs for April sparked a small rally in the bond market, driving Treasury prices higher and yields down. 

For years, the $12.6 trillion U.S. Treasury market has signaled -- correctly -- that the Federal Reserve was too optimistic in its outlook for the economy and interest rates.  Regardless of when the first increase comes, futures show traders don’t see rates exceeding 1 percent by the end of 2016, versus the Fed’s estimate of 1.875 percent.

They took a June hike off the table, but buried in the minutes of the Federal Reserve's April meeting released last week showed policy makers are likely to keep interest rates lower for longer.

Interest rates will not be going up any time soon.

Interest rates will not be going up any time soon.

Interest rates will not be going up any time soon.

Interest rates will not be going up any time soon.

Interest rates will not be going up any time soon.

Interest rates will not be going up any time soon.

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OFF BASE

It’s normal to not immediately inculcate subliminal messages in your mind.

Subliminal messages have the ability to become a part of yourself, and since they don’t require logic and decision, you tend to believe and act them out almost instantly, as soon as you can perceive them.

Self hypnosis is one of the best ways to receive subliminal messages.   The first step is to be dulled into a stupor which should have occurred by now if you have actually read all this.

Just remember, SBA loans are good for the economy and interest rates are not going up anytime soon.

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%.   

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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.