Monthly Archives: November 2010

Dying for What?

If you want a dose of machining today go directly to the ads, because I’m mad and I just can’t take it anymore.

In a couple of days we’ll celebrate Thanksgiving, watch the NFL, sop our dressing, and try to sleep with reflux. But 10,000 miles away thousands of American men and women will be trying to stay alive in Afghanistan.

Tell me, why?

We are propping up a corrupt Karzai government, playing ball with a Pakistan that harbors Al Qaeda, and inflating our monstrous budget deficit, to accomplish what?

I don’t care if you are a lefty or a righty, counting the caskets of young Americans dying in the hundred-year quagmire called Afghanistan is ridiculous. Thirty years ago the Russians lost a generation of kids while we supported the Mujahedin, which spawned a Bin Laden. Tell me why it makes sense for Americans to emulate the Russian experience.

Afghans do one thing brilliantly—kill each other. It’s their national sport or religion, or both.

If we have to indulge our own blood lust, buy 5000 more Predator drones and play remote control war against the Taliban and Al Qaeda, but take the soldiers out of the field and away from the hideous roadside bombs.

I am grateful to our brave soldiers for their sacrifice to country, but I am sick of politicians sending kids out to be killed in another meaningless war we cannot win. Hell, we don’t even know who’s on our team.

Question: This Thanksgiving, what are you thankful for?

Salvatore Giunta, the first soldier to win the Congressional Medal of Honor
while still living since the Vietnam War

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The Gorbachev of GM

With GM going public today and bringing back billions to the taxpayers, we are seeing a batch of revisionist opinion pieces about Rick Wagoner, former head of the auto giant.

Malcolm Gladwell, a favorite writer of mine, wrote a fascinating review of Steven Rattner’s new book, Overhaul, about the restructuring of GM for the Obama Administration. Rattner is a Wall Street mover and shaker who headed the restructuring in Detroit. Rattner saw Wagoner as a bureaucratic company guy and ultimately fired him, bringing in crusty Ed Whitacre to oversee the saving of a big part of the American auto industry.

Gladwell sees Wagoner as the guy who did most of the heavy lifting—chopping people, making a historic deal with the UAW, building a Chinese business, developing the Cadillac CTS and Chevy Malibu, and initiating the Chevy Volt.

Holman Jenkins of the Wall Street Journal also wrote a laudatory ode to Big Rick, former Duke basketball bench warmer.

I see Wagoner as the Gorbachev of General Motors. He was an important transitional figure who understood the company’s problems and tried his best to save the company without blowing it up.

Like Gorby, he had to go when everything imploded. Rattner is no Yeltsin, but the oligarchs of Wall Street will make billions like their counterparts in Russia did after the fall.

Question: Do you think Wagoner was Obama’s fall guy?

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The Mormon Missionary Advantage

Pilkington Metal Finishing employs 110 workers and does upwards of $5 million a year in aluminum anodizing work out of a 72,000 square foot building five minutes from the Salt Lake City airport.

From his desktop computer, with the help of specially designed software, company founder and president Van Pilkington can monitor and track in real time, the jobs in progress of each of his production workers.

But it wasn’t always so. The business, he recalls only too well, began a quarter century ago about as modestly as an enterprise possible can: in a cinder block garage that her ented for $145 a month. With nobody but himself on the payroll, Pilkington loaded jobs into the back of the family pickup after his afternoon classes at the University of Utah, did them himself on the little tank line that he and his father had set up in the garage, delivered them a day or two later, then scurried home to type up invoices.

His father, who’d retired from the Air Force and worked for a Fortune 500 company that supplied chemical and process equipment to the metal finishing industry, had helped with $4,500 in seed money – and more importantly, suggested an eager account – a medical devices company that needed many of its expensive parts refurbished. “This is something we don’t want to do in-house,” the company’s purchase agent told Pilkington. “It’s a good opportunity for an enterprising young man like yourself.”

Read full article here

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Rising New Machine Tool Prices

We are seeing an acceleration of year end buying in machinery for both new and used equipment. One reason for this is the widespread business expectation that prices for new machine tool inventory ordered from Japan will reflect the 25 percent drop in the past year of the value of the U.S. dollar versus the Japanese yen.

The Japanese importers generally erred on the conservative side when 2010 orders were placed, which means the cupboards are now relatively bare. I’m hearing that 10 percent to 13 percent price increases are coming on Japanese built equipment, indicating that the builders hedged the yen or they just don’t think the American market will accept whopping increases in one gulp.

If we continue to see yen versus dollar in the current range of 80-85 it would not be surprising to see DMG/Mori Seiki USA bite the bullet and build a plant, probably in Davis, California. Other builders could follow suit if they see North America as a growth market.

Nevertheless, we Americans are so ethnocentric we still see ourselves as everybody else’s primary focus. As President Obama just learned at the G-20 meeting, China, India, Brazil, Korea and Southeast Asia are where the growth is if you are a world player.

With Japanese machine tool builders still recovering from an almost catastrophic 2009 they may be reluctant to invest big in a North American market with slow growth, a weakening currency, and an old workforce that is not being renewed by well organized worker training nor liberal immigration policies.

So in the foreseeable future, swallow hard, and pay the price if you want to expand.

Question: Will future sticker shock for new equipment push you to buy used machinery?

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The Price of Anything

One of my abiding lifetime fascinations has been under-standing how markets value things. My father raised me on stories about buying machines at low prices and selling them at higher ones. I’ve been titillated by the stock market since childhood as I’ve tried to grasp the mystery of the shifting values of equities.

Recently our new accountants leaned on us to do a comprehensive inventory of our stuff so they would feel secure about the values ascribed to our inventory in case the IRS came to visit. So we counted every screw and shaft (well, give or take a few) and dutifully recorded the tally. The accumulation of a business lifetime of buying and selling, stripping and saving. And what is it worth?

A useful fictional number will be affixed to the iron because the taxman demands it. But what is it really worth? Nobody knows because it changes every day, just like the stock market and the price of celery.

In this magazine we have the audacity to explore the ideas – and the prevailing fictions that affect our personal and professional lives.

The fear that a tiny amount of lead in a steel fitting in a junked car could be injurious to a wandering French lad is an idea (a fiction) that affects the business life of a toolmaker in San Diego or a machinist in San Juan. It changes the price of metal you buy and the components you sell.

The price of anything is a market-driven construct, shaped by the ideas of an instant. And the fictions.

Read full article here

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Iron Turns to Gold

The mood has changed in the last few weeks in the precision machining world. It became real to me as I talked to folks at the Asset Sales auction at Caire Medical in Indianapolis last Thursday.

The people of the machining world are happy again. They have a bit of visibility about orders. Washington has been neutered. Tax breaks are out there to shield income. Free cash flow is increasing. The dollar is weak and interest rates are low.

The banks may be Scroogy, but just about everything else looks good. I see people rushing to get the last of the 2009 bust bargains, and since there are very few left they are willing to push up the price of used machinery to get the expensing tax goodie if they buy before the end of the year.

I can’t back this conclusion up with statistics, but if you are slugging it out in the market everyday like I am you can feel it. The iron gets a life of its own. It morphs from cold casting to artistic sculpture and then into a gold and green life form. We are passing through one of those rare passages at the moment, and I am living in the present and loving it.

Question: Do you feel good about the new year?

Turning Iron into Gold

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Auction Action

I attended the auction of Caire Medical’s surplus machinery Nov. 4, in Indianapolis. The auctioneer, Asset Sales Inc. of Indian Trail, North Carolina, had a financial interest in the sale. There was an 18% buyer’s premium tacked onto the bid prices. The equipment was superb and the bidding was spirited.

The hottest piece in the sale was a Citizen M32 Type V, new in 2007, with a FMB barloader. The bid price was $262,500 plus 18%, taking it over $300,000. There were (2) M32 Type III machines (new in 2003) which fetched $160,000 and $140,000 plus BP. An A-16 VIP Citizen (new in 2006) sold for $50,000 plus BP.

Two Mori Seiki vertical machining centers (new in 2007) fetched $73,000 each. A similar machine in Seattle three months ago brought 65K. A nine-year-old Tsugami 10 pallet vertical machining center brought $140,000. A Nakamura TW-20, (new in 1992) fetched $95,000, and a similar machine (new in 1995) brought $65,000—don’t know why the difference.

I talked to a lot of people at the sale and a recurring theme was “business is good and I want to get the year end tax break.”

Another reason may be that the Japanese machine tool importers are low on inventory now. With the dollar dropping like a stone verses the yen, there is an expectation of price increases when the new machines come in.

Citizen and Nakamura tooling and accessories were also keenly bid on. One Citizen lot of tooling fetched $9,000. This was particularly interesting because conventional CAT 40 machining center holders brought modest prices.

What I gleaned from this sale is that “cream” machinery is escalating rapidly in price because of strong demand and the desire of successful entrepreneurs to capitalize on the raised expensing tax break in 2010.

Question: Do you think the machinery market will soften after the first of the year?

Citizen M32 Type V from the Caire Medical auction

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What 2010 Means for 2012

The 2010 election reflected the anger of the American voters towards the Obama Administration, Congress, the Fed, Washington lobbyists, Wall Street, and Fannie and Freddie—just about everybody except Jack Bauer. The People have spoken and they are pissed—and they want Washington to know it. Now Washington does know it. But is anything important going to happen to make businesses hire and banks lend? Probably—but it will have only a little to do with the election.

Business is getting better now. Retail had a good “back to school” season, and it’s predicted that Christmas will be fine. Cars are selling decently in the U.S. at the new normal of 11-12 million units. Industrial is doing nicely, thank you, just look at Grainger’s stock price. Inflation has evaporated. McDonald’s, Panera Bread and Chipotle’s Mexican chain are thriving. The stock market is up 80 percent from the bottom—yet everyone’s still pissed.

And they should be, because unemployment is 9.5 percent, shadow unemployment is 15 percent, and three million people will soon see their weekly safety net checks expire. Housing is a pit because of unemployment, banking paralysis and a gaping oversupply.

But the situation will be getting better in 2011 and 2012 because businesses will be able to show healing statements to whipsawed lenders. They will start to loan money for expansion, which may actually lead to additional hiring.
Individuals will have money in their 401(k)s and savings accounts, which will make cars and houses buyable again. The economy will start growing briskly, and the politicians will take the credit—which they do not deserve.

I believe Barack Obama watched the election returns with ambivalence. They showed that the voters repudiated his policies, but they gave him political cover to move to the center, like Bill Clinton did in 1994. I think he must feel a lot like Brer Rabbit in the Uncle Remus stories.

For Obama, getting shellacked was being thrown into the briar patch. As loudly as he moaned, legislative gridlock and a recovering economy are putting him in a fortuitous position going into 2012, and ready for a dream one-on-one matchup with the feisty lady point guard from Alaska.

Question: Do you think Obama will have a similar political fate as Bill Clinton in 1994?

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