The SBA and Pangloss

Pangloss

PAN-glos

noun: One who is optimistic regardless of the circumstances.

adjective: Blindly or unreasonably optimistic.

After Dr. Pangloss, a philosopher and tutor in Voltaire's 1759 satire Candide. Pangloss believes that, in spite of what happens -- shipwreck, earthquake, hanging, flogging, and more -- "All is for the best in the best of all possible worlds." The name is coined from Greek panglossia (talkativeness).

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TIP OF THE WEEK 

A Pangloss appetite drives the restaurant industry.

Although same-store sales and customer traffic levels remain somewhat uneven, the National Restaurant Association's Restaurant Performance Index (RPI) registered a modest increase in July.

The PRI is a monthly composite index that tracks the health of and the outlook for the U.S. restaurant industry. Launched in 2002, the RPI is released on the last business day of each month.  The RPI consists of two components – the Current Situation Index (measuring current trends) and the Expectations Index (measuring restaurant operators' six-month outlook) – and tracks the health of and outlook for the U.S. restaurant industry.  Although sales and traffic results softened in recent months, restaurant operators continued to report positive capital spending activity.

Restaurants are the largest recipient of SBA financial assistance based upon SBA loan volume data sorted by NAICS codes.

If you would like a copy of the latest National Restaurant Association's Restaurant Performance Index report, let me know.

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Indices:

PRIME RATE= 3.50%

SBA LIBOR Base Rate September 2016 =3.52%

SBA Fixed Base Rate September 2016 = 4.85%

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SBA 504 Loan Debenture Rate for September  

The debenture rate is only 2.03% but note rate is 2.066% and the effective yield is 4.082%.

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AHEAD OF THE YIELD CURVE 

Only a Pangloss would want to raise interest rates right now.

The Federal Reserve’s next meeting on interest rates will end on September 21^st, the last day of summer.

The $13.6 trillion Treasuries market is sending a signal it hasn’t flashed in years.  Last week’s auction of $12 billion in new 30-year Treasuries saw weak demand.   The yield on the 30-year note advanced 7.3 basis points to 2.469%.  Low end-investor interest meant that dealers had to step in and take down a large 37.5 percent of the $12 billion offered, their biggest share since August last year. The high yield awarded was 20 basis points higher than in the previous auction and matched the highest rate since May.  The extra yield that investors demand to own 30-year rather than five-year obligations, a measure of the yield curve, rose for almost two straight weeks.  That’s the longest streak since 2012. 

A Fed on hold is seen as potentially stoking inflation, which erodes the value of long-term debt. Futures signal barely a one-in-five chance that the Fed will tighten policy this month amid tepid economic growth and restrained inflation.

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:

DEC16- 0.93

DEC17- 1,09

DEC18- 1.23

DEC19- 1.39

DEC20- 1.57

DEC22- 1.931

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.

Impecunious concerns will motivate the Federal Reserve.  They don’t want to enervate the economy. 

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OFF BASE

Did you ever wonder why Oktoberfest occurs in September and not October? 

It goes back to when the Pangloss prince of Bavaria, Ludwig married a princess back in 1810.  The citizens of Munich were invited to attend the festivities held on the fields in front of the city gates to celebrate the royal event.  Everyone had such a good time that the decision to repeat the celebrations in 1811 launched what is now the annual Oktoberfest tradition.

Ludwig would go to become king.  Not understanding anything about his people, Ludwig decreed a tax on beer.  Splenetic presentiment erupted into the beer riots of Bavaria.  Crowds of urban workers beat up police while the Bavarian army showed reluctance to get involved. Civil order was restored only after the King decreed a ten percent reduction in the price of beer.  Friedrich Engels was so appalled that he wrote about it in the Northern Star newspaper and then co-authored the Communist Manifesto with Karl Marx.

The first day of fall is September 22, 2016.  The September equinox marks the moment the Sun crosses the celestial equator – the imaginary line in the sky above the Earth’s equator – from north to south.  The length of day and night is nearly equal but then the days will continue to be shorter and shorter and night will be longer and longer until we plunge into almost eternal darkness.  Eventually the days will then start to get longer again giving the Pangloss in all of us something to look forward to.

SBA 504 Loan Debenture Rate

SBA 504 Loan Debenture Rate for September      

The debenture rate is only 2.03% but note rate is 2.06674% and the effective yield is 4.082%.

SBA 7(a) Loan Rate Update

PRIME RATE= 3.50%
SBA LIBOR Base Rate September 2016 = 3.52%
SBA Fixed Base Rate September 2016 = 4.85%

Lenders can charge up to 2.75% over these indices.

The SBA and estivate

estivate

ES-tuh-vayt

To pass the summer in a dormant state.

From Latin aestivare (to spend the summer).

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TIP OF THE WEEK 

SBA did not estivate over the summer. 

There was a substantial change to guidance on affiliation and franchises.  Formerly SBA required review of all franchise agreements of all franchises owned by the franchisee, not just the applicant agreement.  That is no longer the case.

 SBA, along with other federal agencies, is currently developing a comprehensive approach to requests for consent to C-PACE financing on 504 and 7(a) project property.  Keep in mind that the $5,000,000 limitation for SBA financial assistance only applies on a per project basis for clean energy projects.  Borrowers can obtain additional financing even if they have $5,000,000 in existing SBA guarantees.

You also no doubt heard that SBA 504 loans can now be used for debt refinance.

SBA is also putting the finishing touches on another revision to its Standard Operating Procedures.

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Indices:

PRIME RATE= 3.50%

SBA LIBOR Base Rate August 2016 =3.49%

SBA Fixed Base Rate August 2016 = 4.75%

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SBA 504 Loan Debenture Rate for August   

The debenture rate is only 2.04% but note rate is 2.077% and the effective yield is 4.093%.

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AHEAD OF THE YIELD CURVE 

The Federal Reserve has one more chance to estivate. 

Its next meeting on interest rates will end on September 21^st, the last day of summer.

At its last meeting the Fed included this phrase in a statement released after the meeting: "Near-term risks to the economic outlook have diminished.”

Based on the FOMC statement, the likelihood of a rate hike in September (or November or December) has increased.  The first paragraph was about as upbeat as back in April when many analysts thought a rate hike in June was possible.  So now the key is the data.  In July, U.S. payrolls leaped for a second straight month as employers added 255,000 jobs.  Keep your eyes and ears open for the August report on jobs.  It comes out on the Friday of Labor Day weekend.   If the data is solid, the FOMC might raise rates in September.

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

July                                      255,000

June                                     292,000

May                                       11,000

April                                     123,000

March                                   186,000

February                             244,000

January                               172,000

2015     2,740,000

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.

There has been a recrudescence in job growth, averaging 274,000 over the last two months and 186,000 per month this year.   

Impecunious concerns will motivate the Federal Reserve.  They don’t want to enervate the economy and create any splenetic presentiment.

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OFF BASE

A three weekend approaches!

Here are the officially recognized Federal Reserve holidays:

Labor Day September 5

Columbus Day October 10

Veterans Day November 11

Thanksgiving Day November 24

Christmas Day December 26 

The SBA and impecunious

impecunious

im-pi-KYOO-nee-uhs 

Having little or no money.

From Latin im- (not) + pecunia (money), from pecus (cattle).

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TIP OF THE WEEK 

You will not be impecunious with SBA loans!

Through the government’s third quarter ending 6/30/2016, SBA 7(a) loan approvals totaled $17,465,543,000.  That’s a 9% increase over the same period last year.  While not as robust as the 20% increase in loan volume the year before, keep in mind that 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.

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Indices:

PRIME RATE= 3.50%

SBA LIBOR Base Rate July 2016 =3.47%

SBA Fixed Base Rate July 2016 = 4.64%

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SBA 504 Loan Debenture Rate for July  

The debenture rate is only 2.04% but note rate is 2.077% and the effective yield is 4.091%.

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AHEAD OF THE YIELD CURVE 

Impecunious concerns will motivate the Federal Reserve when they meet this week on interest rates.

In a statement after its meeting last month, the Fed didn't rule out a July rate increase but highlighted the recent downturn in job growth, possibly indicating a July move is a long shot. 

The Federal Reserve has concomitant goals.  Its dual mandate is stable prices and maximum employment.   Quiescent inflation has proven to be an intractable challenge to monetary policy makers.  The Fed’s preferred inflation gauge -- the Commerce Department’s personal consumption expenditures measure -- hasn’t reached the central bank’s 2 percent goal since April 2012. 

One of the Fed’s leading indicators on inflation is capacity utilization.  The Federal Reserve recently reported that capacity utilization for June, which measures the amount of a plant that is in use at factories, mines and utilities, increased 0.5 percentage point in June to 75.4 percent.  That increase offsets the prior month's drop when capacity utilization fell to 74.9 percent from 75.3 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

2015- 76.5

What does all this mean?

I don’t know.

Capacity utilization at 75.4% is 4.61% below the average from 1972 to 2015 and below the pre-recession level of 80.8% in December 2007.  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. 

Until there is a recrudescence in capacity utilization, it is arrant nonsense that the Fed will be soon raising interest rates as they do not want to enervate the economy.

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OFF BASE

“I am impecunious” is one response if accosted by a panhandling vagrant.

Why is panhandling called panhandling?

Panhandling supposedly got its name from Okies', slang for people from Oklahoma/Texas panhandle during the 'dust bowl' of the 1930s. Widely displaced, many migrated, notably to California, with nothing. So begging = panhandling.  The problem with that theory was that the word apparently first emerges in the mid to late 1800s. Well before the dust bowl.  The other theory is it was related to 'panning for gold', a-la the 1849-1850s California gold rush. Timing is right as is the image similarity, sitting stooped holding out a pan. And lots of hopeful gold rush participants came and left with nothing.  

The SBA and enervate

enervate

EN-uhr-vayt, adj.: i-NUHR-vit

verb tr.: To deprive of strength or vitality.

adjective: Deprived of strength; Weakened.

From Latin enervare (to weaken), from ex- (out) + nervus (sinew).  

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TIP OF THE WEEK 

The SBA will enervate on July 27^th its rules on affiliates.

As was true for the prior rule, the final rule frames affiliation in terms of control.

With respect to the affiliation analysis of a franchise or licensing agreement, SBA has made two significant changes. The first is that the presence of a license agreement will not be deemed to create affiliation as long as the small business applicant "has the right to profit from its efforts and bears the risk of loss commensurate with ownership." The second major change is that lenders must now only consider the franchise agreement of the small business applicant (and not franchise agreements of the small business's affiliates) in its franchise affiliation analysis.

Both of these changes will streamline the affiliation analysis process and allow better access to financing to small business franchisees.

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Indices:

PRIME RATE= 3.50%

SBA LIBOR Base Rate July 2016 =3.47%

SBA Fixed Base Rate July 2016 = 4.64%

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SBA 504 Loan Debenture Rate for June  

The debenture rate is only 2.18% but note rate is 2.219% and the effective yield is 4.232%.

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AHEAD OF THE YIELD CURVE 

A recrudescence of hiring did little with the splenetic presentiment dominating interest rates.

Payrolls climbed by 287,000 last month, after a revised 11,000 gain in May, a Labor Department report showed Friday.

But long-term yields wavered, inching higher shortly after the release but tumbling later to trade unchanged on the day.  The 30-year Treasury bond yield was down less than a basis point at 2.139, after falling earlier as low as 2.112%, its lowest level in history.

Traditionally, lower yields and a flatter yield curve in the U.S. are strong signals of an approaching recession -- and, in this particular case, they would be signaling a painful downturn, given how far yields have dropped and how flat the curve has become.

Yet that reading doesn't apply in this case: Rather than being driven by U.S. conditions, the Treasury yield curve has been captured by developments in Europe and, to a lesser extent, Japan -- specifically, the prospects for yet another economic slowdown and the likelihood of additional central bank stimulus (including lower rates in the U.K. and an expansion of the European Central Bank’s large-scale program of security purchases).

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

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.

The yield differential between long-term U.S. government debt and similar government bonds in Europe and Japan, where nearly $12 trillion in government bonds sport negative yields, is sparking foreign demand for U.S. Treasuries.

The moment yields tick higher, demand pushes yields down again.

It is arrant nonsense that the Fed will be raising interest rates.  If you are a borrower, this is a frabjous time! 

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OFF BASE

Hot weather seems to enervate all of us, unless you are a home run hitter.

Home runs increase with temperature, and really begin to take off when temperatures go above 90  One of the main reasons is that cold air molecules are closer to each other than warm air molecules.  This means that a baseball traveling through cold air must push through more molecules than when it travels through warm air, thus it experiences more wind resistance.  In warmer air, a baseball is able to travel faster and farther.  According to "The Physics of Baseball" by Robert K Adair, a 10 degree increase in air temp causing a ball to travel an extra 4 feet. 

This June was the warmest since 1895 in the U.S., surpassing the 1933 record, the National Centers for Environmental Information, a division of the National Oceanic and Atmospheric Administration, said in a report Thursday.   Global temperatures were the highest in the 20th century for the first five months of the year after the world posted its two hottest years in 2014 and 2015. There is so much heat in the atmosphere following the El Nino that began last year that there could well be a new all-time high for 2016.

Right now Major League Baseball is on pace to hit 5,562 home runs, which would be an amazing 1,376 more than in 2014 -- a 32 percent increase.

Leading the pack is the Orioles.  The O’s have officially hit more home runs in June than any other team in MLB history.  They could make a run at the single-season mark of 264 home runs, set by the Seattle Mariners in 1997.  The Mariners had broken the previous record of 257 set by the Orioles just one season earlier.  Leading the Mariners that year was Ken Griffey Jr. who had hit 56 home runs.  The Kid would end his career with 630 home runs, sixth most in baseball history.  Just this year Junior was elected to the Baseball Hall of Fame.  He received a record 99.32 percent of the vote, breaking pitcher Tom Seaver's record of 98.84 percent.

The SBA and concomitant

concomitant

kuhn-KOM-i-tuhnt

adjective: Occurring concurrently, especially in an incidental way.

noun: Something that occurs concurrently.

From Latin (concomitari, to accompany), com- (with) + comitari (to accompany), from comes (companion).

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TIP OF THE WEEK 

Concomitant with the new SBA 504 debt refinance program is a concern that it may be intractable.

The SBA has just published an interim final rule with a request for comments (due by July 25) on debt refinancing rules under the 504 program. The Notice outlines the requirements to be effective as of June 24, 2016 that must be met in order for a 504 project to be eligible for debt refinancing.

Interim final rule?  The dictionary defines interim as “a temporary or provisional arrangement” while final as an adjective means coming at the end of a series but can also mean allowing no further doubt or dispute.  So how can something be both interim and final?

Of course, final as a noun means the last game in a sports tournament or other competition, which decides the winner.  Is SBA is just playing with us?

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Indices:

PRIME RATE= 3.50%

SBA LIBOR Base Rate June 2016 =3.47%

SBA Fixed Base Rate June 2016 = 5.00%

________________________________________

SBA 504 Loan Debenture Rate for June  

The debenture rate is only 2.18% but note rate is 2.219% and the effective yield is 4.232%.

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AHEAD OF THE YIELD CURVE 

The Federal Reserve has concomitant goals.  Its dual mandate is stable prices and maximum employment.

Inflation has been the more difficult objective in recent years, with annual core PCE inflation running at 1.6 percent while the unemployment rate sits at 4.7 percent.  The Fed’s preferred inflation gauge -- the Commerce Department’s personal consumption expenditures measure -- hasn’t reached the central bank’s 2 percent goal since April 2012.  The Fed also has grown more cautious about the longer-term outlook. Fed policymakers’ median forecast has inflation rising to 1.4% by the end of 2016 and 1.9% by the end of 2017. Core inflation, which excludes volatile food and energy items, is also expected to edge up slightly faster, reaching 1.7% at the end of this year.

One of the Fed’s leading indicators on inflation is capacity utilization.  Last week, the Federal Reserve reported that capacity utilization, which measures the amount of a plant that is in use at factories, mines and utilities, fell to 74.9 percent from 75.3 percent.  Capacity utilization at 74.9% is 5.1% below the average from 1972 to 2015 and below the pre-recession level of 80.8% in December 2007.  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. 

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:

JUL 16- 0.66

DEC16- 0.78

DEC17- 0.98

DEC18- 1.16

DEC19- 1.37

DEC20- 1.59

DEC22- 1.91

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.

It is arrant nonsense that they will be raising interest rates.  If you are a borrower, this is a frabjous time! 

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OFF BASE

Concomitant with the first day of summer today is a full moon.  This is a rarity as a full moon hasn’t occurred on the same day as the Solstice since 1948.  This is the kind of stuff that made the Mayans build pyramids and the Druids move rocks around at Stonehenge.

The word solstice is from the Latin solstitium, from sol (sun) and stitium (to stop), reflecting the fact that the Sun appears to stop at this time.

Go outside today and check out your shadow at 1:00.  That’s your shortest shadow of the year. Watch for the full moon to shine from dusk till dawn for the next few nights.  A full moon resides opposite the sun so it will mimic the path of the December solstice sun, rising south of due east and setting south of due west.  It will also follow the low path of the winter sun