Monthly Archives: May 2010

Economic Patriotism

By Lloyd Graff

The day after Memorial Day weekend I pose the question, “Should we be economic patriots”?

When I wrote the car buying stories for the April and May TMW issues, I took heat from readers who felt I was derelict in not coercing my sons to buy American cars rather than Hyundai Sonatas.

It turns out that the Sonatas are made in Montgomery, Alabama, and have more than 50 percent American content. Hyundai spent $1 billion to build a factory, and the workforce is almost entirely Alabaman, but ultimately, my sons’ buying decisions were based entirely on the products and price. Economic patriotism had nothing to do with it.

I ask you my readers, do you buy a Haas vertical machining center because it is American or because it is the best machine for the money? Do you pass on bananas because they come from Honduras? Do you shun an iPhone because it was made in China at a FoxComm plant that has had 10 suicides among its workers this year. Where does your economic patriotism start or end?

Personally, I am not an economic agnostic. I have never considered buying a German Mercedes or BMW, because of the Nazi atrocities of 70 years ago. But considering most of the taxis in Israel are Mercedes I know that economic discrimination is now ridiculous.

Many of my long time screw machine customers have shops in China now. Are they economic Benedict Arnolds?

I recently talked with Joe Arvin who owns a big aircraft gear company near Chicago. He considers himself an economic patriot because he will not put up plants in China even though his clients are pushing him to do it.

Do you think our soldiers died for Ford or for allowing us the opportunity to use our economic and political freedom to buy oil from Saudi Arabia to drive our BMW to the sushi restaurant?

Question: Do you consider yourself an economic patriot?

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French Fries Fuel Machining Business

By Lloyd Graff

Here’s the good news and bad news everyone. Bad news—75 percent of Americans are overweight. We’re French frying ourselves to death. Good news—it’s going to be great for the precision machining business.

Dr. Uli Sutor, key account manager at DMG, gave an illuminating talk at the first day of DMG/Mori Seiki’s Innovation Days, May 24, at its national headquarters in Hoffman Estates, Illinois. The event was a combination sales and networking event for the collaboration between two of the biggest players in the world machine business.

Sutor’s presentation discussed the opportunities in the medical machining business. As he sees it, orthopedics, primarily knee hip and spine are the biggest segment. The passage of Obama’s healthcare plan in the U.S. will expand the area even faster. According to the literature it takes 40 minutes to do a knee replacement—20 if there’s no insurance.

A person who is at least 30 pounds overweight is three times more likely to need a knee or hip replacement than a trim person. It’s easy to see that the trend is the friend of orthopedic surgeons and hospitals.

Sutor mentioned the number of bone screws and plates produced in the world. His number astounded me—200 million orthopedic screws and plates last year.

Last year 1.1 million knees and hips were replaced in the U.S. The expectation is 4.6 million per year by 2030, partly because a joint replacement lasts 10-12 years so there will be a lot of redos, especially if the obesity trend continues.

Dr. Sutor gave the presentation from the DMG point of view. He employed a lot of data from the European perspective. One piece of information I found valuable was that “turbo whirling” is now being made by DMG for bone screw threads. The process employs linear technology which uses no gears or belts and provides a superior surface finish. This is particularly valuable if a doctor will eventually remove the screw from the repaired joint.

Question: Who makes your favorite French fries?

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Admitting You Screwed Up

By Noah Graff

A BP cleanup crew removes oil from a beach at Port Fourchon, Louisiana. (Getty Images)

A BP cleanup crew removes oil from a beach at Port Fourchon, Louisiana. (Getty Images)

When is it best to take responsibility for a screw-up, even when you think it’s not entirely your fault?

Recently NPR’s “Morning Edition” interviewed Patrick Kinney of Gaffney Bennet Public Relations to get his thoughts on BP’s current public response to the Gulf oil spill. Kinney had worked for Ogilvy Public Relations, which helped BP rebrand itself as “Beyond Petroleum” 10 years ago.

At the beginning of the oil spill crisis BP’s PR team elected to deny responsibility for the disaster. However, later the company flip-flopped and admitted it was at fault. Kinney attributes BP’s first response to its lawyers who were in the “hide from liability” mindset. Whether the company is entirely responsible for the crisis or only partially, it realized that it was best to take responsibility for the mess, because the world wouldn’t rest until someone took the heat. Denying responsibility would only make the public’s resentment for the “evil, polluting, greedy oil company” escalate even more.

Another method the company is trying in order to defuse the public’s resentment is keeping people up to date on the status of the crisis using Twitter, Facebook and video updates on its Web site. Kinney says that along with using these information outlets, it’s important for BP to tell the public about the questions it doesn’t have the answers for and tell people why that is.

Of course there is the distinct possibility that BP is attempting to make the public think it is being transparent when in actuality it’s all big façade so the company can discreetly withhold the really dirty stuff. I wouldn’t put that tactic past them.

Kinney says that that BP’s CEO, Tony Hayward, will likely lose his job from the crisis. He’s a convenient scapegoat and his own public response that, “the amount of oil spewing is tiny in comparison to the amount of water in the Gulf,” is not what BP needs coming from the face of the company. Kinney says that in crises such as this one, 11 out 12 CEOs lose their jobs.

Question: Have you ever taken responsibility for a screw up that wasn’t totally your fault?

Click here To listen to the NPR Story

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Anniversary Ideas

By Lloyd Graff

This weekend I’m celebrating my 40th wedding anniversary with my wife Risa. We’re spending the weekend in Chicago, having dinner with our children tonight and catching a play on Saturday.

Does anybody have a suggestion for a unique and memorable way to celebrate a milestone occasion like a 40th?

My wife is not into helicopters or blimps. We are foodies to some degree but we both have some dietary restrictions. Cubs are out of town.

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Swarf: Hyundai Heresy

By Lloyd Graff

Today’s Machining World Archive: May 2010 Vol. 6, Issue 04


I received impassioned letters (one is printed on page 13) about my “Swarf” piece in April recounting the purchase of new Hyundai cars by my two sons Noah and Ari. The letters were clearly heartfelt and probably representative of the feelings of many readers. They deserve an honest reply.

I did not buy the cars. My sons bought them, and they were focused on the monthly payments. Like me, neither are car buffs, but they valued my opinion on the car buying process more than on which car to purchase. They both did some research, but the primary reason Hyundai was on their radar screen was that they had driven a Sonata on a family trip in February and found it to be a capable performer.

I think the letter writers believe I conspired to have my sons reject American cars. But the fact is that they were rather naive car buyers and their driving experience was mainly with Toyota and some GM.

They were probably biased toward Toyota, especially Noah, who loved his 1997 Lexus despite a bad siege of transmission problems, dead air conditioning and a messed up radio. Ari’s strong bias was towards safety after working with badly injured patients in Chicago’s famed Rehabilitation Institute. I do confess I pushed them to look at the Prius, and if I were buying a car it would have been my choice because of the gas mileage. The question of buying American never really came up in the conversation. I had been a “buy American only” guy until 1996, when I chose Toyota because my Buicks and Chevys had been mediocre vehicles. GM had entered its desperate years and Toyota seemed more committed to America than they did.

I knew that my bread was buttered by the Big Three, but they were asking me to buy apple pie, motherhood and crappy products, and I rejected them with sadness.

Personally, I regret that we did not give Ford and Chevy a better shot. But the reality is my sons did not care, and I probably did not nudge them as much as I should have. We looked at Ford because it was gaining market share and I suggested they check it out. The fact that the salesman acted like he was doing us a favor to test-drive a Ford Fusion did have an effect on us. The attitude of a seller is important because it puts a human face on the brand.

In retrospect, I ask myself why we never even looked at the Chevy Malibu. It was probably because the Chevy dealer had shut its doors at the auto mall we visited. Both Ari and Noah were in a time crunch to buy because both of their cars were literally falling apart. They didn’t have the inclination to shop the market for weeks or months.For both sons, the last dealer we visited was Hyundai. (They never shopped together.)

Noah bought his car first. He wanted a vehicle with pizzazz, the lowest possible monthly payment and immediate availability.

Ari was more indecisive, but the fact that Noah bought the Hyundai probably affected his decision. He purchased his car a week after Noah, choosing a 2011 Sonata with a little less horsepower and smaller wheels. He really wanted a car that day, and buying a Hyundai offered the path of least resistance.

Response Letter
As an avid reader and financial supporter I was greatly saddened to see how your family makes major purchasing decisions. In your car shopping “Swarf” piece, you and the boys go to the local mega dealer, spend a couple of hours walking around and end up buying two cars based primarily on the “energy” of the salesman and the music in the showroom?

Let me get this straight. Both boys had to have new cars that day? They wouldn’t give the Ford guys enough time to check inventory at another lot and bring in the color or options they wanted? So some Koreans have good jobs because the Graff family is shallow and impulsive and won’t even take the time to see how good the American offerings are?

Where do you sell machinery? Hopefully to Koreans and the like, because it is people just like you that cause the high unemployment and loss of quality jobs right here at home. No, I don’t work for the Big Three. No, I am not a “union guy.” But I am an American manufacturing employer that works hard every day to keep my 40 people employed. I do that by quoting against companies across the globe that have the distinct advantages of near slave labor wages, a lack of employee safety and environmental compliance and trade imbalances that I have no control over. All I can do is to fight hard every day and hope that there are enough Americans that care to give American products a fair look. Obviously you are not such an American, even in these economic times.

I guess next IMTS I will wander around and see who has the best music, maybe even get a free latte and see who has the prettiest clueless girl standing out front. I will buy their machines, and who cares who the maker is? Who cares what the features are? Who cares about the impact on jobs? Not me, just bring on the energetic salesman!

Brian Capece has a five person shop in rural Maryland. He does wire EDM and precision machining for aerospace, satellite, medical and commercial clients, often working 65 to 70 hours a week. His wife runs his office now that his two children are in school. He’s been doing this for 10 years, since buying his first die sinker at an auction. It’s been a rough year for Brian. He says he used up his cushion of money to keep the business afloat while not letting any of his people go, because those core employees are the key to his business and if he lost them he would be in the soup.

He is finally back in the black but wonders if the path he has taken for the last decade was the right one. “After going to the tax man this year and seeing how much I had to pay, I really think I would have been better off working for somebody else than having my own business,” he said. His comment was not said out of anger or great regret, but I wonder how many people feel the same way—for the same money and less risk, they’d just as soon pull down a paycheck than sign all the checks.

Brian Pendarvis of Anaheim says he hasn’t felt the recession. His company, Pendarvis Manufacturing grew despite the softening that battered almost everybody else in the machining game. He attributes his success to marketing his job shop on the Web. Brian says he spends about $50,000 a year maintaining his Web site and spreading the word about his company’s capabilities on Yahoo, Google, ThomasNet.com and MacRAE’S. He pays for Google ad words, but just to promote the company within a 100-mile radius of Orange County.

His niche is combining fabricating, welding and machining, a combination we don’t see that often as firms reach for specialization. He says he tracks 5-8 calls per week directly from his Web prominence, which he says enables him to land one new customer per month on average. He lauds the work his Web designer has done for him—a firm that split off from ThomasNet—Creative Works.

Jim Chanos is famous for identifying the Enron scam, shorting the company’s stock and making a fortune. He runs a hedge fund named Kynikos Associates, which means “cynic” in Greek. He specializes in spotting emperors without clothes and is currently betting big that the Empire of China is a naked power. He compares China to Miamand Dubai of recent memory. The common thread is runaway condominium and office construction, huge real estate inflationand a shortage of able buyers. He says that today, all over China, high-rise buildings are rising, fueled by aggressive bank lending to developers. They are building 1,100 square foot shell apartments without floors, and selling them—or attempting to sell them, for around $150,000. The problem is that even though half are going empty, they are still building.

Chanos sees the phenomenal growth numbers in China being fueled primarily by real estate speculation and construction. In his view it is unsustainable. State and local governments are being funded by real estate development, so they have an interest in seeing it accelerate. They will suffer mightily when and if the bubble bursts. What happens if Chanos is right and the giant cranes go away like they did in Dubai and Miami? He feels that the raw materials companies who are supplying the steel, copper and cement will suffer immediately. Copper at $3.60 a pound could plummet, as well as iron ore and scrap prices. Crane companies will get killed. He feels that the Chinese currency, which everybody including the Obama administration is hoping will rise when it is no longer pegged—will fall.

Incidentally, Gary Schilling, the noted bearish economist who predicted the American stock market collapse (not the rebound, however) also feels the Yuan will fall in value when it is allowed to float. Jim Chanos is a very smart guy. He sees the Chinese bubble bursting later this year or in 2011. The Chinese have enormous reserves in dollars to soften the blow and may tighten credit dramatically soon to try to avert a property crash. China bashers may be happy to see the country suffer and revel in lower raw material prices, but with an interconnected world, be careful what you hope for .

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A Pitcher’s Redemption

By Lloyd Graff

Barry Zito of the San Francisco Giants is 6-1 this season, his fourth since signing a $126 million free-agent contract.

Zito won the American League Cy Young award in 2002 when he pitched for the Oakland A’s. I’ve always been intrigued by guys who have it, lose it, and then find it again, years later. When confidence evaporates it is so hard to recover the belief.

For professional athletes who get the monster money like Zito we often see a dropoff in the performance the year after the contract is signed. I remember an interesting piece in Esquire magazine discussing Zito and his agent, the master negotiator, Scott Borris, and the pitcher’s misgivings about the money.

Zito is the son of a musician in Las Vegas. He never had a huge arm, but he had a dynamic curve and superb command. Billy Bean, the A’s general manager, could have traded him as his time with Oakland was ending, but he kept Zito until his contract expired. His velocity had already begun to slip and batters were starting to hit the overhand curve, but the Giants still offered him the enormous deal.

In the Esquire article, Scott Boras talked about how he often had to convince his clients they were worth the big money. My guess is that Zito, a bright and inquiring guy, knew in his heart he was going to disappoint the Giants in 2007.

Now, after three lousy seasons, almost half way through the contract, Zito is pitching superbly. He doesn’t have to be the ace because San Francisco has the amazing Tim Lincecum, who has won two consecutive Cy Youngs. He has changed his arm angle from straight over the top to three quarters, his velocity has jumped and his curve is sharper breaking. He’s pitching as well as the Barry Zito of 2002. He is showing all of us the power of pitching redemption.
Quesiton: Do you attribute success in business to cyclicality or skill?

Barry Zito (Photo from InsideSoCal)

Barry Zito (Photo from InsideSoCal)

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More Employed, but Same Unemployment

By Lloyd Graff

The $64 billion dollar question for the economy is, what happens to employment? What happens to unemployment is related, but the two numbers do not always shift in tandem.

We are seeing a strengthening in manufacturing now and the overtime strategy seems to be waning. Productivity stats are still impressively bullish but they are starting to level off. You can only squeeze so much juice out of the lemon. The Labor Department acknowledges that people are being hired in manufacturing and my anecdotal evidence confirms this.

New construction is still pathetically soft in most markets, but we are seeing a weird anomaly in the most devastated markets of Nevada, Arizona and Florida. Builders are starting to build houses. According to an article in last Saturday’s New York Times, the most devastated housing markets are starting to get hot. It appears that some buyers just want a new home and hungry builders with low cost lots are providing value. Buying out of foreclosure or employing a short sale is such a hassle it is pushing buyers to brand new. According to the article, individual buyers are losing out to out of state buying syndicates who are picking up large collections of foreclosures at cheap prices and paying cash. Perhaps the dreaded foreclosure overhang will prove to be similar to a mild flue season, which bodes well for employment—but not necessarily unemployment.

Juan Williams, the astute Fox and NPR commentator recently did an interesting piece on the composition of today’s long term unemployed. The stubborn unemployment is in older white, blue-collar workers. He compares this demographic slice with black factory workers laid off in the early 1980s downturn. That group was very slow to get new work, saw families dissolve and higher levels of drug abuse and births out of wedlock. According to Williams, we are seeing similar trends now from the blue-collar white male demographic.

When I talk to people in the machining world I often hear confirmation of this employment issue. Company owners do not necessarily want to retrace their steps on new hiring. They may be looking for difference skills and younger workers who are willing to start at a cheaper wage and be less insistent on health insurance. Immigrant works with a strong work ethic may look more appealing than a 50-year-old former union guy who has been out of work for nine months.

I think the recovery of 2010 will be a little different than past rebounds. Companies will be hiring, but not necessarily rehiring. Unemployment will be sticky, but millions of people will be finding jobs.

Question: Is it a mistake to lengthen the eligibility period for unemployment benefits?

A party for a new development in Las Vegas, Reserve at Coronado  Ranch (New York Times)

A party for a new development in Las Vegas, Reserve at Coronado Ranch (New York Times)

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Greed is Good (Again)

By Lloyd Graff

The hot movie at the Cannes Film festival is Wall Street: Money Never Sleeps, the sequel to Oliver Stone’s Wall Street (1987). Michael Douglas plays Gordon Gekko again, who returns to the Street after spending eight years in prison. Art imitates reality. Reality imitates art.

I just finished Michael Lewis’ brilliant new book, The Big Short: Inside the Doomsday Machine, about the appalling fraud among the big shooters on the Street during the subprime fiasco. He could have used the same title he used for his last best seller, The Blind Side: Evolution of a Game, because the duplicity and stupidity of the bond packagers and the rating agencies who blind-sided the government regulators and most investors.

In my callow youth I thought Wall Street banks were conservative stewards of investor money. The Big Short exposed them as crooked, dumb, cynical, casino operators who lacked the scrutiny of Las Vegas.

I think the civil suit against Goldman Sachs was a preliminary probe by the SEC. Goldman’s management probably saw it as a political stunt to help the Obama 2010 Congressional election effort. But Lloyd Blankfein’s poor showing in Washington seems to have emboldened the Feds and New York’s Attorney General, Andrew Cuomo, to keep the pressure on. I’m sure Obama and Cuomo have read Lewis’ book, which lays out the derivative conspiracy with dramatic clarity. The big players—Morgan Stanley, Bank of America (Merrill Lynch), Bear Stearns, UBS, Goldman, AIG—are the names under scrutiny.

I really think we are going to see criminal indictments and “show trials” down the road. Lewis’ number one bestseller lays out the trail like dropped breadcrumbs.

There will be a few Gordon Gekko’s headed to the penitentiary this time around, but unless we shut down the taxpayer funded Wall Street casino, it will all happen again in a few years.

Question: Would you want your son or daughter to work on Wall Street?

Label it Gordon Gekko, Wall Street (1987) from http://tapemixblog.wordpress.com/

Label it Gordon Gekko, Wall Street (1987) from http://tapemixblog.wordpress.com/

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Machining Industry Scuttlebutt

By Lloyd Graff

I understand that some Japanese machine tool builders are running painfully short of inventory in the United States. Sales in Japan are up 260 percent year to year. The American distributors under ordered last year and the Japanese factories slowed production, while huge Chinese orders flooded in several months ago. Six hundred CNC Swiss lathes went to one builder and 285 machining centers went to another for cell phone dies, swamping the companies. Now American demand is perking up, and the cupboards are bare. It will be interesting to see if ¥92 to the dollar will justify higher prices at IMTS.

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The liquidation of Fadal machines in California has surprised the doubters. The liquidator, Machinery Network Auctions, has sold over 100 machines and has about a dozen left.

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We hear that companies like Caterpillar, Deere and Case are still starving for inventory. They are pressing their vendors hard and their projections for next year are even more bullish.

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On June 28 Cy Zvonar of Industrial Machinery Corporation of Milwaukee will be 99 years old. He still comes to work every day wearing a suit and tie like he has since 1939. It’s an incredible coincidence three generations of Zvonars, Joseph, Cy and Jim, were all born on the same day of the year.

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The authorities that operate McCormick Place in Chicago, where IMTS will be held Sept. 13-18, have finally awakened to the threat posed to its convention business by Orlando and Las Vegas. Millions of dollars will soon be flowing into marketing, but unless the total expense of exhibiting and attending is addressed, I can see the day when IMTS leaves the Windy City.

Question: Are you finding it difficult to find new machines off the shelf?

Trucks Loads at Steel Service Center: http://www.allmetind.com/

Trucks Loading at Steel Service Center: http://www.allmetind.com/

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A Little Diversity on the Court?

By Lloyd Graff

Elena Kagan has impressive credentials to become a Supreme Court justice, but her nomination brings up some interesting questions about the composition of the court. If she is confirmed there’ll be three Jews and six Catholics on the High Court—no Protestants, Buddhists, Muslims or evangelical Christians.

Four of nine Justices will be from New York city if Kagan gets in, one from each borough except Staten Island.

With Kagan’s appointment all nine Justices will have gone to either Harvard or Yale Law School. There will then be three women on the High Court which would be a record number.

Kagan has written about the confirmation process, criticizing the charade of candidates for the bench who dance around their beliefs about crucial cases which the Court will hear. Now that she’s the one in the hot seat we will see if she’s as candid herself.

Ms. Kagan clerked for Abner Mikva who was one of Barack Obama’s early mentors. She was brought to Harvard by Larry Summers, who is head of Obama’s National Economic Council. She worked in Bill Clinton’s White House with Rahm Emanual. This woman has great connections.

The only drama I anticipate is that a senator will ask her about her sexual orientation. If Ms. Kagan is gay, as has been speculated, it may come up in testimony about cases of special interest to gays. Personally, I hope she addresses the whispers. I would like to see a gay woman on the Court—especially a Court that begs for diversity.

Question: Do you care about the sexual orientation of a Supreme Court Justice?

Elena Kagan, Supreme Court Nominee

Elena Kagan, Supreme Court Nominee from http://www.dumbassgovernment.com/images/elena_kagan.jpg

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