The SBA and uberous

uberous

YOO-buhr-uhs

Abundant; fruitful.

From Latin uber (rich, fruitful, abundant, etc.).

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TIP OF THE WEEK 

It is an uberous time for hotels and motels.

Even though January is one of the weakest periods of the year, average weekly hotel occupancy in 2016 is already above the average for ALL of 2009 (the worst year for hotels since the Depression)!

2015 was the best year on record for hotels and so far 2016 is tracking 2015.

Hotels and motels are one of the largest categories of SBA borrowers.

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Indices:

PRIME RATE= 3.50%

SBA LIBOR Base Rate February 2016 =3.43%

SBA Fixed Base Rate February 2016 = 5.00%

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SBA 504 Loan Debenture Rate for February

The debenture rate is only 2.27% but note rate is 2.31% and the effective yield is 4.324%.

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AHEAD OF THE YIELD CURVE 

Are things getting so uberous that interest rates will keep going up?

Minutes from the January Federal Open Market Committee meeting show that officials were worried about a series of drags and disruptions that are likely to derail their December projection of four rate increases this year.

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.

Last month the Federal Reserve reported that capacity utilization rose to 77.1 percent from 76.4 percent in the prior month.   This is the first increase in three months.

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

2015- 76.5

What does all this mean?

I don’t know.

Uberous consumer spending propelled factory production with the biggest gain in the output of consumer goods since July on increases in both durables and nondurables.

Capacity utilization at 77.1% is still 2.9% below the average from 1972 to 2015 and well below the pre-recession level of 80.8% in December 2007.

Keep your eyes and ears open for Friday’s report on jobs for the month of February but don’t over-react.  Many economists expect payroll growth to naturally slow this year as the near-normal unemployment rate leaves a smaller pool of available workers. 

The Federal Reserve does not meet until March 15^th and 16^th. 

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OFF BASE

February 29^th is a leap day. 

Leap days are needed to keep our calendar in alignment with the Earth's revolutions around the Sun.

It takes the Earth approximately 365.242189 days – or 365 days, 5 hours, 48 minutes, and 45 seconds – to circle once around the Sun. This called a tropical year. Without an extra day on February 29 nearly every four years, we would lose almost six hours every year. After only 100 years, our calendar would be off by approximately 24 days.

The calendar already seems off as the next official holiday recognized by the Federal Reserve is not until Memorial Day. 

If you need to find some pretense for a holiday before then here are some possibilities:

Saint Patrick’s Day- March 17^th

Good Friday- March 25^th

Opening Day Major League Baseball- April 4

April 4, 2016 seems appropriate as a holiday as it will also be Square Root Day.  Square Root Day is when both the day of the month and the month are the square root of the last two digits of the year.

The last square root day was 3/3/09 and the next one after 4/4/16 won’t be until 5/5/25.

The SBA and splenetic

splenetic

spli-NET-ik

Bad-tempered; spiteful.

From spleen, from French esplen, from Latin splen, from Greek splen. Earliest documented use: 1398.

In earlier times it was believed that four humors controlled human behavior and an imbalance resulted in disease. According to this thinking an excess of black bile secreted by the spleen resulted in melancholy or ill humor. Also, the spleen was considered to be the seat of emotions. To vent one's spleen was to vent one's anger.

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TIP OF THE WEEK 

If you are being splenetic perhaps you should get out and grab a bite to eat.

Did you know that restaurants are by far and away the leading recipient of SBA loans?

The National Restaurant Association’s Restaurant Performance Index (RPI) fell sharply in December.   For the first time in nearly three years, restaurant operators reported a net decline in same-store sales.  Forty-two percent of restaurant operators reported a same-store sales gain between December 2014 and December 2015, while 43 percent reported a sales decline.  Restaurant operators also reported a net decline in customer traffic results in December.   Please let me know if you would like a copy of the National Restaurant Association’s report for December on its Restaurant Performance Index.

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Indices:

PRIME RATE= 3.50%

SBA LIBOR Base Rate February 2016 =3.43%

SBA Fixed Base Rate February 2016 = 5.00%

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SBA 504 Loan Debenture Rate for January

The debenture rate is only 2.78% but note rate is 2.82869% and the effective yield is 4.831%.

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AHEAD OF THE YIELD CURVE 

Don’t get all splenetic about declining restaurant sales in December.  It was probably just a glitch as restaurants added 47,000 jobs in January.

Payroll growth slowed in January after a string of impressive gains as employers added 151,000 jobs, led by gains in retail, restaurants, health care and manufacturing.  Retailers added 58,000 jobs; restaurants, 47,000; and health care, 37,000. Perhaps most surprising was a 29,000 gain in hiring at manufacturers, the biggest increase since August 2013.

Treasury yields spiked after the jobs report, then tumbled toward a one-year low and rose again to trade slightly higher on the day in all maturities.

The yield on 2-year Treasuries was up 1.6 basis point on the day to 0.730%, suggesting the market expects a slightly more aggressive pace of interest-rate hikes by the Federal Reserve than it previously did.  Short-term Treasury yields are more vulnerable to changes in the Fed-funds rate, and tend to spike when the market’s rate-hike expectations increase.

At the other end of the yield curve, the 30 year Treasury bond was up 1.5 basis point to 2.713%.

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

2015- 2.91

What does all this mean?

I don’t know.

Last month’s30-year bond auction was strong and bidding was tight as the high yield was 2.905 percent.

Since then financial markets have been somewhat splenetic as the 30 year bond yield has drifted down about 20 basis points.

The yield curve is getting flatter.  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.

The implication is that concerns of recession are not being signaled and the pace of any interest rate increases will be fairly modest.

No reason to be splenetic.

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OFF BASE

Another reason to not be splenetic is that we have a three day weekend coming!

According to the Federal Reserve, here are our remaining holidays for 2016:

Washington's Birthday February 15

Memorial Day May 30

Independence Day July 4

Labor Day September 5

Columbus Day October 10

Veterans Day November 11

Thanksgiving Day November 24

Christmas Day December 26 

The SBA and on tenterhooks

On tenterhooks

MEANING:

in a state of suspense or agitation because of uncertainty about a future event

From tenter which is from Latin tēnsus past participle of tendere meaning to stretch.  This where the word tense also came from.

Tenterhooks aren't directly connected with tents, nor are they the hooks used by butchers, as the common misspelling 'tenderhooks' might suggest. A tenter is a wooden frame, often in the form of a line of fencing, used to hang woollen or linen cloth to prevent it from shrinking as it dries. The tenterhooks are, not surprisingly, the hooks on the tenter used to hold the cloth in place.

Tenters are no longer everyday objects but a hundred years ago, in wool weaving areas like the North of England, they were a common sight on the land around the many woollen mills, called 'tenter-fields'. It is easy to see how the figurative expression 'on tenterhooks', with its meaning of painful tension, derived from the 'tenting' or stretching of fabric.

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TIP OF THE WEEK 

You might always be on tenterhooks with SBA loans as another revision of their standard operating procedures is on the way.  SOP 50-10-5(I) will reflect changes to guidance on affiliations and franchise eligibility.  In addition, guidance on the use of 504 loans for real estate debt refinance should be provided.

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Indices:

PRIME RATE= 3.50%

SBA LIBOR Base Rate January 2016 =3.42%

SBA Fixed Base Rate January 2016 = 5.36%

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SBA 504 Loan Debenture Rate for January

The debenture rate is only 2.78% but note rate is 2.82869% and the effective yield is 4.831%.

 ________________________________________________
AHEAD OF THE YIELD CURVE 

Are you on tenterhooks because the Federal Reserve meets this week?

Friday afternoon the market was pricing no real probability of a rate increase at that meeting.

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:

FEB16- 0.63

DEC16- 0.93

DEC17- 1.34

DEC18- 1.69

DEC19- 1.99

DEC20- 2.25

DEC22- 2.41

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

No need to be on tenterhooks over the Presidential election.  Turns out game 6 of the World Series is the same night as Election Day.

Pitchers and catchers report in 23 days.

The SBA and batten

 batten

BAT-n 

MEANING:

1. verb: To fatten or to grow fat; to thrive and prosper at another's expense.

2. noun: A long strip of wood, metal, or plastic used for strengthening something.

3. verb: To fasten or secure using battens.

For 1: From Old Norse batna (to improve).

For 2, 3: From Old French batre (to beat), from Latin battuere (to beat).

The term is often heard in the idiom "to batten down the hatches" meaning to prepare for a difficult situation or an impending disaster. It is nautical in origin. Literally speaking, to batten down is to cover a ship's hatch (an opening in the deck) with a tarpaulin and strips of wood in preparation for an imminent storm.

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TIP OF THE WEEK 

No need to batten down the hatches.  Lenders and borrowers have batten themselves with SBA loans.  Over $5,356,360,000 in SBA 7(a) loans were approved in the last three months of 2015.  This was an increase over the same period a year ago.  For the fiscal year ending September 30^th, 2015 SBA had approved $23,583,863,400 in loans- an all time record.

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= 3.50%

SBA LIBOR Base Rate January 2016 =3.42%

SBA Fixed Base Rate January 2016 = 5.36%

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SBA 504 Loan Debenture Rate for December

The debenture rate is only 2.70% but note rate is 2.746% and the effective yield is 4.778%.

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AHEAD OF THE YIELD CURVE 

Batten down the hatches!  Interest rates are going up, right?

Actually they have been going down.  Since the Federal Reserve’s decision to raise interest rates last month for the first time in nearly a decade, longer term interest rates are actually lower.

After minutes from the Fed’s December 15^th and 16^th meeting were released, the 30 year Treasury bond yield dropped 6.4 basis points to 2.947%. 

The jobs report for December did not do much to longer term rates as the yield on the 30-year bond was up 0.6 basis point to 2.934%.

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

December                        292,000

November                       252,000

October                           307,000

September                          142,000

August                                 136,000

July                                       245,000

June                                      245.000

May                                       260,000

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.

For all of 2015, employment climbed by 2.65 million after a 3.1 million gain in 2014, for the best back-to-back years since 1998-99.

Does that mean the Fed is going raise rates again when they meet January 26^th and 27^th?

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

Last month the auction of $12.3 billion in 30-year Treasuries saw near-record demand by a group of buyers known as indirect bidders, which mainly consists of foreign central banks. Indirect bidders bought 63.9% of the auctioned securities, near the 66% record set in September.  The yield on the 30-year bond that day edged ended at 2.975%.

The yield curve is getting flatter.  That means the spread, or yield differential, between short- and long-term Treasuries has recently tightened. Short-term Treasury yields have risen in anticipation of a rate hike while long-term yields have fallen on declining inflation expectations.   The 30 year Treasury yield is at historic lows implying a lack of concern over escalating interest rates. 

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OFF BASE

If you battened yourself over the holidays or if you feel like you need to batten down the hatches with a full work week after the Christmas and New Year’s holidays we’ve got a three day weekend coming up.

According to the Federal Reserve, here are our holidays for 2016:

Birthday of Martin Luther King, Jr. January 18
Washington's Birthday February 15
Memorial Day May 30
*Independence Day July 4
Labor Day September 5
Columbus Day October 10
Veterans Day November 11
Thanksgiving Day November 24
Christmas Day December 26 

The SBA and affectious

affectious

uh-FEK-shuhs

Affectionate or cordial.

Via French, from Latin afficere (to affect or influence)

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TIP OF THE WEEK 

Affectious is not an adjective normally associated with the IRS, but the IRS has finally figured out how to photo shop the SBA logo onto its IRS form 4506. 

The new Form 4506-T with the SBA logo in the upper-right corner is now available and must be used when requesting tax transcripts from the IRS Service Centers for SBA loan purposes. The Form has been updated to reflect minor changes made by the IRS earlier this fall.  It is important that anyone signing this form also checks the new attestation box above the signature line.

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Indices:

PRIME RATE= 3.25%

SBA LIBOR Base Rate December 2015 = 3.24%

SBA Fixed Base Rate December 2015 = 5.01%

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SBA 504 Loan Debenture Rate for December

The debenture rate is only 2.70% but note rate is 2.746% and the effective yield is 4.778%.

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AHEAD OF THE YIELD CURVE 

It’s hard to be affectious with the Federal Reserve when you really look into how they go about things.

According to minutes from their last meeting on monetary policy: “It was also noted that a decision to defer policy firming could be interpreted as signaling lack of confidence in the strength of the U.S. economy or erode the Committee's credibility.”

Huh?  So they have to raise interest rates because they think they have to?

Employers added 211,000 jobs in November as the labor market turned in a solid showing for the second straight month, likely cementing a decision by the Federal Reserve to raise interest rates this month for the first time in nearly a decade.

The second part of the central bank’s dual mandate -- stable prices -- has been more elusive. The Fed’s 2 percent target for inflation hasn’t be met since April 2012.

Just before they begin their meeting, they will be releasing their report on industrial production and capacity utilization for the month of November.

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.

Last month the Federal Reserve reported that capacity utilization declined 0.2 percentage point in October to 77.5 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 all this mean?

I don’t know.

Capacity utilization is actually 1 percent lower than it was a year ago.

The Federal Reserve’s report on capacity utilization comes out just before their announcement on monetary policy. Federal Reserve policy makers will take the manufacturing data into consideration as they debate whether the economy is strong enough to withstand higher tighter monetary policy.

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

The yield curve is getting flatter.  That means the spread, or yield differential, between short- and long-term Treasuries has recently tightened. Short-term Treasury yields have risen in anticipation of a rate hike while long-term yields have fallen on declining inflation expectations.  At last month’s auction, there was strong demand as the bidding was tight with the high yield coming in at only 3.07%.  After the jobs report, the 30 year treasury yield was at 3.00%.  The 30 year Treasury yield is at historic lows implying a lack of concern over escalating interest rates. 

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OFF BASE

There's an upside to a steady-but-slow-rising economy: The cost of buying your true love all the gifts from "The 12 Days of Christmas" rose just 0.6% this year.

The combined cost for the dozen gifts featured in the final verse of the famed Christmas carol totals $34,130.99 in 2015, up $198 from last year's pricetag and in-line with the government's Consumer Price Index, according to the 32nd annual PNC Christmas Price Index issued Monday.

This is the time of year to be affectious!    

MERRY CHRISTMAS!

SBA 504 Debenture Rate

SBA 504 Loan Debenture Rate for November      

The debenture rate is only 2.70% but note rate is 2.746% and the effective yield is 4.778%.