Monthly Archives: October 2010

Swarf: Post IMTS 2010

By Lloyd Graff

Today’s Machining World Archives October 2010 Volume 06 Issue 08

It’s fall of 2010 and IMTS is behind us. Baseball, football, basketball and hockey are all going on at the same time. Elections loom and the economy cha-chas along—three steps forward and three steps back, following its own rhythm.

The earthquake of 2008 is behind us, but we’re still jumpy because the shock was so violent. The landscape is still damaged, with big unemployment, bankers living in bunkers, and homes, offices and factories waiting for occupants or lookers. But the unemployment statistics don’t tell you that four million folks get new jobs and approximately the same number leave jobs, some voluntarily, every month. Stores and restaurants (fast food) are busy and zillions of smart phones are selling every month.

IMTS

The pundits will tell you that almost everybody is “angry and won’t take it anymore,” but I personally don’t feel that visceral anger that supposedly suffuses the American populous. Obama is unpopular because he is the President of a lackluster economy that he campaigned to lead. If we have gridlock after the elections Obama will stand to gain like Bill Clinton did in 1994, and might even be re-elected if the Republicans nominate a Palinesque candidate who scares America into four more years of Barack.

The impression I got at IMTS is that the machine tool builders and buyers have emerged from the cave, but still have six months of food cached away. The memory of 2009 still affects every major decision machinery buyers make, which means a lot of tooling and fraying before orders are placed. But people are buying—just what they perceive they must—because God forbid they should make a mistake.

The stock and bond markets reflect the post cataclysm mood. Cha-cha-cha, back and forth, small investors hiding under their beds, two year bonds paying .4 percent, and speculators buying gold bullion and sterling silver platters because—other people are. Excuse me, the stats show deflation yet the “smart money” likes jewelry? Something is goofy about that picture.

I see an economy that values skills and smarts. The success of educational institutions during the post catastrophe period tells me that investments in things like houses and cars will take a backseat to spending for knowledge and productivity. You may think you sell machines and machined components, but what you are really selling is your unique ability to help somebody else makes money. The message I got from IMTS was that “cool” machines are nice but customers want ideas, a comfort level of success, backup and exquisite hardware. Nice machines are just fancy iron without the ideas and the service. And the value of ideas does not depreciate. Service people still rent out for $150 per hour—plus travel.

Fall 2010—buy brains, sell gold.

The “Jobs Bill” that President Obama signed September 27, may have sounded like another “stimulus” boondoggle, but it really has a lot of important goodies for the machining world.

The section of the bill that has immediate impact for the machine tool business is the expensing provision. The current rule was scheduled to expire by the end of 2010, which would have reduced the expensing write-off from $250,000 to $25,000. The new law pushes up the expensing provision to $500,000. For smaller companies making profits, this provision, which extends through 2011, will mean better cash flow and less money for Uncle.

Other provisions in the bill backstop the Small Business Administration with major new resources to lend to small business. With banks too frightened to fund loans and credit lines, this major infusion of guarantees by the Feds should help get the bank examiners off the backs of the loan officers. The ability to use losses for five years to offset profits should also start to lubricate the economy.

The Administration and Congress finally appear to be starting to “get it” as far as small business is concerned. Funny, how an election can focus people’s minds and even gather a consensus across party lines.

It was nice to see Brad Ohlemacher, president of EMC Precision of Elyria, Ohio, a third generation screw machine guy of all things—attending the signing ceremony. To quote the illustrious Rodney King, “Can’t we all just get along?”

In September, Loeb Winternitz
Industrial Auctioneers auctioned off Roseland Metal Products of Dolton, Illinois. I think an event like the Roseland sale tells us quite a bit about what is going on in the small contract shops— the core of precision machining.

Roseland was a casualty of the recession but also of a management that made scant investment over the last 10 years. The most significant capital investment was the retrofit of six out of 15 Brown and Sharpe screw machines with an early incarnation of AMT’s ServoCam upgrade technology.

Roseland bought a SNM clone of the New Britain model 52 in 1998. The past decade has been a cruel one for shops like Roseland, which kept playing the old game without expanding its customer base.

I talked to auctioneer Charlie Winternitz, who skillfully orchestrated the sale for the seller of the Roseland assets. He told me that 160 bidders signed up for what he had viewed as a tough sale. More than 100 bidders bought items. That was surprising breadth for a smaller auction that brought approximately $300,000 gross with no equipment newer than 12 years old.

The SNM multi sold for $19,500 plus buyer’s fee, while the ServoCam Brownies brought $7,500 to $15,000. A 2” standard cam B&S brought $8,000. The sale tells us that a lot of folks are interested in buying old school equipment but they are unwilling to go to the bank to pay for it. If they can pay for it out of cash flow or from the piggy bank they are interested, but if they have to check with their banker it’s often a “no go.”

The sale also indicated that old CNC equipment has little value. Four nice Traub TNM lathes from the mid 90’s with magazine loaders couldn’t crack $4,000 each, and a Brother drill and tap 1993 vintage brought $8,000 plus BP.

Buyers scouted the tooling for sexy nuggets, which indicated that business in the hustling has some life. For example, two B-13 Reed thread rollers with New Britain bases brought $650 each on average—cheap for a user, but a strong price at a Web auction.
Roseland tells me that bargain hunting buyers are plentiful now, even in shop depleted screw machine land. Buyers are frugal, but willing to spend if there is an attractive deal.

Thoughts on IMTS 2010

  • The DMG/Mori Seiki combined exhibit space at IMTS was aircraft carrier big. They spent over $8 million on the show with the goal of selling 200 machines. They made a statement, even if they sold half that.
  • Doosan took Haas’s spot on the floor from 2008, while Haas took a smaller less strategic location. Both had a lot of action. This IMTS decision may reflect the big Haas push into China, India and Eastern Europe, and Doosan’s rising stature in North America.
  • IMTS’s crowd looked old, overweight, male and white—except for the Asians who were young, thin and wore ties. Amidst the thousands of people at the show there were very few smokers, even outside in the permitted area. McCormick Place never looked better and the food was significantly improved. Also, I didn’t hear one complaint from exhibitors about the notoriously difficult union workers at McCormick Place.
  • On the second day of the show, Today’s Machining World had a wonderful 10 year anniversary party at Harry Caray’s restaurant. Celebrating with friends, family, colleagues and machining folk was a great gift. Barack sent his regrets.

I believe 2010 will go down as the year the wage discrepancy between public and private employees began to narrow.

According to a recent article in USA Today, the average yearly pay including benefits for a federal government worker is $81,000compared to $51,000 for a private business employee. Cadillac health plans and defined benefit pension programs have bloated federal payrolls. State and municipal payouts have kept up with or sometimes surpassed those of the federal.

The tide is changing. The dike of unchallenged government pay and benefits is showing leaks. California is broke and politically stalemated, but furloughs are now common in the school systems and layoffs and hiring freezes are the norm. In Illinois, it appears that 10 percent of the teacher’s pension plan portfolio will be sold to pay current pension obligations. In Washington DC, 241 teachers were not rehired by the gutsy new school superintendent.

The rationing of jobs we have witnessed in private business for the last 10 years is taking root in government. The latest monthly employment figures showed 131,000 lost government jobs. Some of these were temporary census jobs, but others were in schools, bureaucracy, police, sewer, etc.

I feel somewhat ambivalent about the new trend. I see an erosion of middle-class America, which is regrettable, but I also see the beginning of the cleansing of government excess that has been gumming up the engine of American capitalism for 50 years.

The lead story in the August 22nd New York Times discussed the “striking” drop in the investment in common stocks. The article went on to talk about the widespread disillusionment with equities since the dot-com crash and the subprime demolition. The Dow Jones average is actually down over 1000 points since 2001.

Personally, I think the widespread disgust with the stock market performance by individual investors derives from the “gaming” of the market by professional computer jockeys for whom long-term investing is holding a stock or an index for a week. The Quants, for whom the stock market is a video game, use huge leverage and a lightning fast computer thumb to play for pennies on a $50 stock.

I was thinking about this as I watched both the Little League World Series and Major League baseball games this past weekend. The kids are allowed to use metal and graphite bats but in Pro ball only wood bats are used, because it would be unsafe for the big boys to use metal sticks at the plate. Pitchers would literally get killed by batted balls.

We have speed limits on our highways and hold the maximum speed of showroom cars well below what is possible. But for trading stocks we have allowed the “gamers” to turn the markets for the most important business enterprises in the world into a casino.
This is nuts.

Major League baseball finally shut down the steroid tap, but stock trading is so out of control it is poisoning the public markets. Just because a Ford can theoretically go 200 mph on the interstate does not mean it should be legal.
Until the equities market or government regulators hold back the velocity of trading, long-term investors will take their marbles and go home.

The Honey Crisp apple season began with the Labor Day weekend. Honey Crisp is the apple that has overwhelmed the Golden Delicious, Macintosh, Pippin and Gala varieties in the hearts and palate of the applistas who frequent farmers’ markets in search of the perfect pomme.

Count me as an apple knocker with credentials.

I have traveled to the orchards of Wenatchee, Washington; Logan, Utah; Laporte, Indiana; and Honeoye Falls, New York, searching for apple succulence, but in the mountains of North Carolina I found my best Apple anecdote if not the tastiest fruit.

I stopped at a roadside stand near Asheville where a young woman was selling Winesaps—not my favorite variety but a presentable late season species. I always like to talk to apple sellers for tidbits about their growing approaches. The Winesap lady told me her story gladly. She said her husband was a minister and they knew they never would make a lot of money. When their children were born they planted apple trees on their homestead. They tended to trees with great care, and after five years began to get apples.

Their plan was to let God’s bounty pay for their children’s college education. She said they took a portion of the proceeds of each year’s crop to buy more trees, and the Apple reinvestment plan was working just as she had hoped.

I hope they planted Honey Crisps before they caught fire in the market. If they did they probably could afford Harvard.

Every column, article or “Swarf” piece I have written for Today’s Machining World over the last 10 years started as handwriting on a legal pad.

I may have graduated to an iPad for email and the New York Times, but to write creatively I find handwriting connects me to my juices more fluidly than keyboard stroking.

The virtues of handwriting are now clearly visible on an MRI, according to an article in the Wall Street Journal on October 5th. Brain activity is enhanced in young children who learn to connect letters into words on a page. For baby boomers, handwriting could be a useful exercise to keep us sharp as we age.

Virginia Berninger, Ph.D., a professor of educational psychology at the University of Washington showed that significant differences in brain function occurs with handwriting activating “massive regions involved in thinking, language and working memory—the system for temporarily storing and managing information.”

For me, writing material for TMW by hand connects me with language in a beautiful way. I hear the words in my mind as I write them. Handwriting allows me to get in the flow of the words. I can “hear” a discordant word when I write it by hand, which makes for an ugly page to transcribe because I do a lot of crossing-out and writing in the margins. But the process works for me.
I think there is an analogy to machining.

The artisans of the craft can take a drawing and transform it into a perfect part in their heads before it goes into a machine for machining, but the initial machined component is rarely perfect. The skilled machinist can feel the imperfections in the finish and takes that information to the toolmaker for adjustment.

Perhaps the more advanced we move in technology the more we can still value the building blocks of creativity housed in our hands and brains.

Share this post

Construction or Destruction of America?

This week I am enjoying the wonderful experience of connecting with my three granddaughters and feeling the enormous sense of possibility in Palo Alto, California.

This is the town the recession tornado bounced over. Homes sell in weeks, restaurants are crowded, and nannies are at a premium. The huge boulevard, El Camino Real, runs through the city, home of Stanford, Hewlett Packard, Tesla Motors and Facebook.

El Camino Real actually runs from San Diego to Sonoma. It dates back to the founders of the Spanish missions in California in the 1700s. It tied together 21 missions and presidios up the coast of the state.

I walked a section of El Camino this morning. The ability of America to continually rebuild, reinvent and recreate itself shows clearly on Palo Alto’s slice of the road. A bowling alley is awaiting teardown for condos. A new school was recently completed where a few tired retail shops had languished.

Lozana’s Car Wash, a living art deco display, throbs with energy as young Mexicans polish the clean-before-they-started cars that cycle through endlessly during daylight while the patrons munch free popcorn.

A block from a new Whole Foods, the building that used to house Rambus Corporation stands mostly vacant—97,000 square feet, which will soon find a new Silicon Valley tenant or be recycled for housing.

Palo Alto is the America of hope. Immigrants beg to come here. Public schools are excellent, but residents still start alternative private schools because they want their kids to get better than excellent.

In a few days I will return to the other America. I recently drove east on Sibley Blvd. close to Today’s Machining World headquarters in the southern suburbs of Chicago. Also called 147th Street, it’s a street with a history half as long as El Camino. My Sibley experience started with an almost empty Krispy Kreme Donut shop. Old dollar stores, empty storefronts and defunct manufacturing firms flank the potholed road. No schools are coming to Sibley. No condo conversions. The construction (destruction) activity consists of tearing down an old multi story factory for a Metra (commuter train) parking lot.

Question: Is America’s future an El Camino or Sibley? Will the election give us a clue?

Whole Foods grocery store, Palo Alto, CA

Whole Foods grocery store, Palo Alto, CA

Share this post

A Motley Crue of Valuable Machines

For used machinery dealers who are prepared to “detrashify” the ugly refugee machines emerging from the automotive flotsam being pushed into the market, 2011 stands to be a good year.

For example, Hilco and Maynards auctioneering firms are now selling off multiple GM, Ford, and Chrysler plants with thousands of motley machines. Machines like Twin Grip Cincinnati centerless grinders and 8-spindle National Acme screw machines are being sold for near scrap prices.

These are rugged machines which have been abused by indifferent operators and mindless management, but they are so durable that they can be brought back to life by skilled rebuilders.

For buyers who have long running Jobs, often supplying the now healthy automotive companies, these machines have value if they are brought back to almost new condition. When compared to European or Japanese competition they are viable if the versatility of CNC is not a major factor, because they are running dedicated jobs.

Add in automation and robotics and the old “trash” machines become virtually equal to new.

The scarcity of skilled rebuilders means that those few players in the “detrashifying” game have a chance to make 2011 a big year.

Question: Which of these machines make the most sense to rebuild, G & L boring mill, 1990 long-bed CNC lathe, 8-spindle National Acme, something else?

The band: Motley Crue

Share this post

Today’s Machining World 2011 Survey

The folks at Today’s Machining World are constantly trying improve its content.

We create the magazine and blog for you, so we want to know who you are and what you really want. Please take a minute or two to complete this anonymous survey. We will be eternally grateful.

Sincerely,

The TMW Team

Click to take survey

Share this post

Lean is a Dream

I was talking to Greg Knight of AMT Machine Systems (ServoCam), whose company adapts old school cam Brown & Sharpes into 21st century CNC hybrids. He was lamenting the difficulty he has selling his product to job shop owners who have no visibility of work from one month to the next. The days of consistent long-running contracts seem to have vanished like untaxed cigarettes.

In the used machinery business, and I’m guessing also in the new machinery business, we live with future blindness. Projections are difficult, which drives accountants and bankers mad, but they probably deserve it. Business people crave the myth of being in control. They think they deserve an accurate vision of the future. And now we must live with the blank order sheet and wait for the sketchy buyers to call or email their requests for parts in a week. “Sure,” you say obediently, and immediately order material for next day delivery. Welcome to the new normal.

Every time I proclaim that I do not pray at the “Temple of Lean” I am chastised as a manufacturing heretic. But in a sloppy, erratic, fog shrouded world, “lean” is a dream lived fully only in the predictable world of government contracts, lubricated by friendly politicians from “safe districts,” a rarity in our blindfolded world.

Question: Is lean manufacturing impractical for most job shops in today’s economy?

www.wikwikit.com

Share this post

The Twinge Factor

Several years ago Graff Pinkert had a deal with a fellow who made a good living buying surplus machinery from government stockpiles and reselling it around the world. We talked about his bidding strategy and he told us his approach.

He would assess his risk in bidding on a bulldozer or crane and put down a price he was comfortable with. Then he would put down successively higher figures. When he reached the number that made his stomach twinge, he circled it and let it settle in his body for a while.

He told us he had learned from hard earned experience that the stomach twinge bid was the one that usually succeeded. The comfort zone bids won occasionally, but generally were also-rans.

I think the “twinge rule” is one of the most important and difficult laws to master for a business person. In business we negotiate with fear every week. Over time, many people understand their personal risk tolerance.

Some are adrenaline junkies and look forward to their “twinge” moments. Most people despise the fearful reaches and value predictability and safety.

The writer, Wayne Dyer, has written about going to a spa where there were a dozen sitting pools with temperatures ranging from very cold to very hot. Almost everybody gravitated towards the two pools that were around 100 degrees. He tried every pool and found he enjoyed them all.

Fear and uncertainty are constant companions in business today. The “twinge test” still works for those of us who can live outside the tepid zone.

Share this post

To Buy or Not to Buy

I am beginning to reassess the importance of owning things like real estate, cars, books and perhaps capital equipment America.

We are now in the crest of the third wave of home foreclosures as the idiotic subprime mortgage blister oozes on. If there was ever a strong argument for renting housing, the massive drop in home values makes it. I live in a home we bought 30 years ago for $130,000 in Olympia Fields, Illinois. I paid off the mortgage several years ago. My wife and I have put at least $200,000 more in renovations into the property over the years. If we tried to sell it today we would probably struggle to get $180,000 for the five-bedroom home on half an acre in the southern suburb where the 2003 U.S. Open Golf Tournament was held.

I think the idea that a house should be one of the principle repositories of wealth for people is suspect. It is a proposition that has been sold by the real estate industry so hard that it has become a pervasive belief in this country. The second home, or the vacation home, has been pushed hard too, which is why so many people own homes that are vacant 95 percent of the time but still burning money.

My daughter, Sarah, lives in a totally different real estate market—Palo Alto, California. Prices in her town, home to Stanford University, Hewlett Packard, Facebook and Tesla Motors, are as high as ever. Home prices never fell and now are rising again. But does it make sense to buy a home there? She and her husband Scott don’t think so.

If my house sat on the same lot where Sarah’s three-bedroom rental sits, it would be worth 10 times its value in Olympia Fields, Ill. I estimate it would be worth $1.8 million and you could expect to sell it in one month if you put it on the market. Sarah and Scott have calculated that their best option is to rent a home in their crazy Palo Alto Island of prosperity. They figure that one third of the houses on their block are rented. People come and go a lot in the Silicon Valley, which makes leasing particularly attractive, but the average home occupancy in the U.S. is seven years, which is not much different than Palo Alto. Sarah gets a special tax deduction as a member of the clergy, which makes house rental the equivalent of ownership.

Sarah has observed that most of the rental homes in her area are owned by Chinese and Japanese people, who take a long-term perspective on owning property. Their belief in the safety of owning a house in America trumps the meager returns they get from Palo Alto home rentals. There seems to be an insatiable demand for houses to rent if they are priced at a level that values the real estate at less than half of the current selling prices on a cash return basis.

Olympia Fields, Illinois, and Palo Alto, California, are completely different markets, but in both cases house rental from an economic point of view makes sense. In the deflationary market where I live, why buy? In a buoyant market where Sarah lives and people from around the world will pay double what a house is worth, why buy?

This brings us to the interesting question of whether or not to buy precision machining equipment. Should a machine be considered a repository of wealth, or a tool to be rented like a Rototiller in the spring?

2 Bedroom / 1 Bath House in Palo Alto CA Selling for $799,000 (www.doctorhousingbubble.com)

Share this post