Today is the beginning of a new year for me. The Chicago Cubs begin spring training in Mesa, Arizona. Since the Cubs lost to the Dodgers in the National League Championship Series last October I’ve been longing for this day – the beginning of the beginning of the season.

I need these days to look forward to. I need an excuse to restart, reboot, begin to begin. I need the psychological energy that a relaunch provides.

The winter slog of Chicago weather is reaching its nadir. We had 20” of snow over the weekend, and I woke up to stalactites hanging 18” long from my roof like iced carrots.

I find my interest in the Cubs has intensified in recent years as they’ve finally gotten good after all these decades of mediocrity punctuated by awfulness. I read the blogs about the Cubbies almost every day, and Swarf has started to comment with pithy insight on the Cubs Den blogs.

I need this baseball jumpstart quite badly this year because I’m facing six weeks of radiation treatments for the remnants of a benign tumor that has started to grow again dangerously close to the optic nerve in my brain. This means schlepping down to University of Chicago Hospital 30 weekdays for five-minute zaps of radiation.

Lloyd’s new waistline

The small but frequent dosing is safer than doing five big wallops, which was what I had expected would be the ticket if the thing grew back.

The treatment also comes with brain MRIs, which are one hour of weird noises in a claustrophobic tube. I’ve had a lot of them, but each one is a delightful new treat. I’ll be mentally taking myself to Cubs games during the sessions in “The Tube.”

As this has turned into a health blog, I would like to share some happier news. I have lost 30 pounds in the last three months—voluntarily!

My internist at the U of C Hospital observed my chubbiness during my last checkup in November and suggested I peruse the book, Always Hungry?: Conquer Cravings, Retrain Your Fat Cells, Lose Weight Permanently, by Dr. David Ludwig. He said he had read it recently and learned stuff he had not known. I figured it was just another diet book that I would read for 10 minutes and then forget about, but I bought the book, read the first few chapters in which Ludwig validates his theories with research, and followed his advice for two weeks.

Ludwig’s approach shocked me. It was simple but radical. Forget about counting calories, just eliminate refined sugar, processed foods, and simple carbohydrates like white potatoes and bread. Then, shockingly to me, add fat like cheese, full fat yogurt and meat. Snacks should be mostly nuts and dark chocolate, at least 70% cacao.

I followed this regimen quite religiously for a few weeks and started dropping weight steadily.

The elimination of simple carbs and sugars with the replacement of fat and nuts, and of course, lots of fruits and vegetables, was easy for me because I like eating stuff like that. The sweets and bread weren’t hard to eliminate because I was virtually never hungry. My results were amazing.

My workouts are a lot easier now. My knees don’t hurt as much, and clothes I thought I would never wear again are now loose on me.

Did I know that sweets and carbs were poison for me before reading Ludwig? Sure. But the addition of fat and nuts made the regimen a happy challenge. When I started shedding the weight so easily it reinforced my new eating behavior. I am shocked but thrilled.

It’s mid-February in Chicago. Baseball season is within sight. Radiation—it’s an annoyance.

And I’ve lost my fat gut.

Bring on the Cubbies!

Question: What methods have you used to lose weight?

Janet Yellen has been dumped into the Brookings Think Tank by Donald Trump. Should we care?

Yes.

For years, she resisted her traditional banker type peers on the Fed and kept interest rates very low by traditional standards. The old bankers were peeved because higher interest rates usually mean bigger profits for lenders.

Janet Yellen was no silk-stocking blueblood by upbringing. Her father was a doctor whose patients were primarily dockworkers living in the poor Red Hook neighborhood of Brooklyn. Yellen’s bias has always been towards economic growth and she advocated for accommodative low interest rates that probably contributed to the housing boom and then bust prior to 2007. She has admitted that her views may have contributed to that bubble and the “tech bubble” around 2000.

Yellen always wanted economic growth, which would help lower and middle-class people live an easier life. Folks like the dock workers she saw her father treat in his practice.

The irony was that low interest rates also helped grow value for people who owned assets like homes and stocks. It also punished older, risk averse people who relied on interest payments during retirement. It fostered income disparity.

Federal Reserve Chair Janet Yellen, the first woman to lead the central bank and likely the most qualified nominee ever for the post, exited the Fed on February 3, 2018.

The current gyrations of stock markets are related to Yellen leaving the Fed and the realization that inflation, after being almost dead for a decade, might be waking up. Higher interest rates – think 6-8% mortgages and a 6% prime rate – could slow down asset appreciation and bite into business profits, thus reducing stock prices.

The stock markets have roared since Donald Trump became President with the anticipation of the tax cut legislation, which was recently enacted. The legislation will juice the economy with borrowed money and many pro-business features.

The question that troubles the markets is how inflationary is the current business climate and will the rising tide of business and wages soon bring significantly higher interest rates and a possible bust of stock and real estate prices, bringing on a recession.

I don’t pretend to know the answer, but I do know what I see around me. People with skills are able to get nice bounces in pay. This has been true for years but it now seems to be more pronounced. Folks on the bottom of the scale still cannot get much traction, even with supposed 4% unemployment. The people making $10-$15 an hour who have demonstrated an ability to hold a job are getting significant raises and overtime. Amazon is forcing up wages throughout the economy but it pushes its people hard and has trouble holding onto employees.

Gas and diesel prices have risen significantly and that ripples through the economy. Freight costs are rising fast and big truck sales are booming. Light trucks are also selling. Healthcare costs are rising, but we are reaching the point where the buyers of healthcare are pushing back. Trump’s attack on prescription drug makers, CVS buying Aetna Insurance, and Amazon, Berkshire Hathaway, and Chase banding together to attack healthcare costs is an important signal of change coming.

The big picture statistics from the government are showing minor signals of inflation at the moment, but my gut and business antennae tell me that inflation has started and it is moving faster than Washington’s numbers tell us.

For a business person like me who deals in hard assets like machine tools, this is a period of major opportunity in the short run. The first half of 2018 and probably the entire year should be a “boom” period. Inflation will work for me – until it doesn’t. Maybe automation will hold down wage surges, but eventually the dike will break. Inflation will spring up with inflationary expectations. Then we may get the bubble and the bust.

Janet Yellen is no longer at the top of the Fed. She and her predecessor Ben Bernanke helped us finally get out of the doldrums, and we’ve had 10 years of no inflation. Now times are great, and scary.

Question: Is this a good time to buy a house?

Over the course of one week I will have had the opportunity to watch two of the greatest athletes of all time compete at the highest level at an age when they should have been long retired.

Last week Roger Federer won his twentieth Grand Slam tennis title, the Australian Open, at 36 years old. This Sunday Tom Brady of the New England Patriots goes for his sixth Super Bowl win at age 40.

I find interesting parallels between the two men and their careers.

Federer’s success was waning in his early thirties. Novak Djokovic became the dominant player in men’s tennis supplanting Federer and Rafael Nadal. Andy Murray of England also rose to the top of the game.

Roger Federer and Tom Brady

But the physical and mental rigors of the sport eventually pulled down all of those remarkable players, yet Federer continued to play and even started to get better in 2016, 2017 and now 2018. His fitness level seems to have improved over the last couple years, and both his backhands down the line and cross court have sharpened significantly under a new coach he hired. He won Australia last Sunday in a hard fought five-set match against Marin Čilić, the number 3 ranked player in the world. Federer’s wife Mirka, a former Women’s Tour player, was watching in the crowd as she always does. She travels with Roger and their twin boys, and is a big part of Team Federer.

There is a parallel with Tom Brady and his wife Gisele Bündchen, the famous former supermodel from Brazil, who is also a crucial member of the Brady team. Brady’s team is much bigger than just the New England Patriots, he has his own independent trainer and nutritionists. He also has consultants for meditation and emotional counseling.

Federer and Brady have been shrewd in developing a pleasant demeanor with the outside world, but they are fanatical in their devotion to their sports careers. They have both survived knee surgeries that could have ended their careers. Brady has endured numerous concussions without ever complaining about them, which Gisele Bündchen alluded to in a 60 Minutes interview.

I have lost a lot of my passion for NFL football in recent years because of the sad toll of brain injuries on the players. I was appalled when Rob Gronkowski of the Patriots was obviously targeted by the Jacksonville Jaguars’ safety in the AFC Title game and knocked out of the game with a concussion. He may miss the Super Bowl, and the Jaguars’ player was not even ejected from the game!

But I am up for this Sunday’s Super Bowl with the Eagles because I want to watch Brady at 40 go up against a great defense.

If Roger Federer can win the Australian Open at 36, Brady can win a championship again, too. I will be rooting for him to beat back the inevitable decline one more time.

Question: Do you feel like you’re getting better with age?

I’ve been interested in K&K Screw Products since I sold the founder of the company his first three Davenport screw machines a million years ago. There have been several ownership changes since then. The company now has more than 200 multi-spindles and changed owners once again in December.

One private equity company sold the business to a bigger private equity firm this time around. CapitalWorks out of Cleveland had owned the firm (now KKSP) for five years, paid down the debt used to buy it, utilized the depreciation rules, improved the company by upgrading its data management, and facilitated two plant relocations. It plumped up KKSP’s EBITDA (earnings before interest, taxes, depreciation, amortization), and racked up juicy gains for the equity partners, which included management.

It was a textbook private equity deal and I was keen to find out the ins and outs of the game from an insider. Fortunately, Todd Martin of CapitalWorks was happy to discuss the deal with me.

Todd Martin of CapitalWorks Private Equity Firm

His private equity firm has partners who came out of the manufacturing world, some have sold family businesses, others have come out of corporate America like him (an Alum of GE). He has a wide network of folks who pitch deals to his group and numerous contacts to quickly find key managers who might be crucial in making acquisitions successful.

I was surprised when he told me that his group usually puts up 50% equity and 50% borrowed money into its acquisitions. I had thought that it would push 80% in borrowed money, but his belief is that less leverage makes for a safer investment, particularly in the early stage of ownership. If things are going well, they might recapitalize as they did with KKSP, two years into the deal.

Martin says that the key to a private equity deal is rapid payback of debt, increasing EBITDA, and use of of the tax code to limit taxes. CapitalWorks usually likes to have top management members take a stake in the company, whether they are inherited from the previous regime or recruited from the outside. Skin in the game definitely focuses the mind on the endgame, which is usually a sale of the company. In KKSP’s case it was sold to Mill Point partners, a New York firm with deeper pockets but a similar focus on manufacturing.

I asked him if larger companies sell for a bigger multiple of EBITDA. He confirmed that is often the case. The management requirement effort for a company with less than $10 million in sales may reduce the multiple to two to four times EBITDA, while a $100 million-dollar company might bring 7-10 times. Martin emphasized that firms that merge to get to the higher sales number often shoot themselves in the foot because they overshoot their managerial competence. A safer strategy may be to pick up smaller companies just to acquire customers and skilled employees. This is something KKSP did under the CapitalWorks ownership.

Todd Martin ended the interview by relating a story about a private equity hotshot from Wall Street with a Harvard MBA who came to a potential buyout meeting with a briefcase and credentials, but no socks. The nuts and bolts owner of the business in play was unimpressed. “Next time find somebody who wears socks,” he told Mr. Martin.

Private equity is the name of the acquisition game today in manufacturing, but you still have to know what you are doing—and wear socks.

Question: Would you prefer to work for a private equity firm or an individual owner.

We all absorb things from our childhood that literally wire our cerebral cortex and remain with us as we mature. There are images, sayings, emblems of fear and instigators of smiles. We soak up stories and develop a narrative that frames our lives.

As I thought about writing this piece the line I remembered most vividly from my father while growing up, of a thousand things I heard from him, was, “You’ve always got to make the nut.” To him that meant you had to cover your costs every month. Losing money in business was FAILURE. It was just about the worst thing you could endure short of death.

I was reminded of this after hearing a captivating interview with Sara Blakely, inventor and owner of Spanx, a fabulously successful young company that germinated when Sara cut off the feet of a pair of pantyhose and envisioned a new undergarment that nobody else had imagined. She was interviewed by James Altucher whose podcast I highly recommend.

One of the first things she talked about was her nightly dinner table conversations with her dad. He used to ask her, “How did you fail today?” This was not to tear her down, but to get her comfortable with the idea of failure. She got comfortable with failure when most kids were trying to ace every test or hit a home run every time up at bat.

She also became comfortable with embarrassing herself. Later, she even tried to be a stand up comedian, even though she wasn’t great at it.

Her father was trying to help her understand that failure wasn’t like death. It was a setback, something to learn from. Something even to laugh about – not the end of the world.

This was very different from the narrative I grew up with. I felt like I was the “designated winner,” and I was always expected to be the best. Failure was for other people.

Not that I was always successful, but success was always expected. Just like my father always had to “make the nut,” I felt like I always had to be successful to be valued, though that may not have really been the case.

Sara Blakely’s experience of having a parent normalize failure, though not extol it, was much healthier. Being able to experience disappointment without withering or blowing up seems like an ideal way to grow up healthy and be comfortable taking risks.

Through the years, I’ve had plenty of failure. I’ve lived through excruciating periods when I didn’t “make the nut,” and my life did not end in disaster.

In retrospect, I wish I had not gone through childhood and high school always being “successful” even when I knew in my heart of hearts that I failed often, like almost everybody else.

I also feel sad for my father who was so terrified of losing money in business, of not “making the nut” even for one month. He was always desperate about economic security, though by most standards, he had nothing to worry about financially.

“Failure” is such a subjective word. Sara Blakely’s father attempted to frame it for her in a positive way. If he truly succeeded at it, I think he was one of the very few.

Question: What was one failure you had this week?

New Year, new opportunities. I foresee a flurry of activity in 2018 in acquisitions in the machining world. Recently one of the largest screw machine operations in the country changed hands. KKSP Precision Machining based in the Chicago suburbs was sold by its owner, CapitalWorks of Cleveland, to Mill Point Capital of New York.

CapitalWorks bought KKSP in 2012 with management participation. They successfully integrated the Monterrey, Mexico, plant which has around 25 Davenport screw machines with the Chicago and Wisconsin plants. The Wisconsin plant is in Pheasant Prairie, just across the border from Illinois. KKSP also has a plant in East China, Michigan.

Graff-Pinkert sold K&K Screw Products, KKSP’s predecessor business, some of its first Davenports in the late 1960s. Today, the company has over 200 of the little dynamos producing 280 million parts a year.

Davenport Screw Machine

The Davenport machine is close to my heart. My father had a Davenport shop during and after World War II. Earl Brinkman, who had apprenticed to Mr. Davenport, the inventor of the original 5-spindle automatic, took a liking to my dad and helped him acquire the machines and get them running in 1942. Brinkman made a personal appearance at the inauguration of our new Oak Forest machinery warehouse in 1984.

Some people believe that the 3500-pound 5-spindle Davenport automatic won World War II for the Allies. The rigid Germans, despite their renowned engineering prowess, only ran 4-spindle multis during the War. Americans, running shells on the little Davenports with an index time of one second, slaughtered the Nazis in efficiency.

The basic brilliant design of Mr. Davenport and the improvements of Earl Brinkman are still very much alive, just ask the folks at KKSP.

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I did not vote for Donald Trump because his impulsiveness scared the heck out of me, but after 14 months in office he has been remarkably successful. Yes, his behavior is unconventional, even erratic and scary, but the results are certainly positive in many ways.

From a business standpoint, many people in the machining arena changed their view of the world almost immediately after the election. It was a signal that the extremely corrosive attitude of the Obama administration toward business, especially represented in its oppressive regulation, was over for now. This has proved to be true. The EPA bureaucracy has really eased up. There is still enforcement, but the attitude has shifted from “gottcha” to “you need to improve this.” Citations are much less frequent.

Equally important is the phenomenal rise of the stock market in 2017. Virtually all asset classes gained in value last year. Unemployment dropped to 4%. Oil production grew to a rate of 10 million barrels a day, the highest in 47 years. The tax bill of 2017 is a major positive for American manufacturing just with its depreciation rules. The pass-throughs for LLC firms are an improvement, though more of a break would have been nice.

I still think Trump is scary, but what a remarkably successful or lucky first year he has had.

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Today’s Machining World is moving into an exciting new arena, Podcasts. Noah and I will soon be interviewing some really fascinating people in the machining realm and disseminating the audio on Podcast smartphone apps. In recent months I have really gotten hooked on this radio show format. I think it will work well for us, and I am really stoked about trying something new. There is a flavor and feel that comes through on an audio interview that you just cannot capture in print.

Don’t worry, the blog will continue; but I think the Podcast will be a terrific addition.

Question: Has President Trump been successful in 2018?