Monthly Archives: June 2014

Asian Steel Industry Eats America’s Lunch

Courtesy of The Huffington Post. Leo W. Gerard

In the depth of the recession, some foreign countries made a simple calculation. They’d subsidize their steel industries even though that violates international trade rules. It paid off by keeping their citizens employed, paid and fed.

These countries banked on dumping their excess steel in the United States. That has cost good, family-supporting American jobs. It has wounded the American steel industry. And it has emboldened foreign countries to continue eating America’s lunch by violating international trade laws.

Last week, Mario Longhi, President and Chief Executive Officer of U.S. Steel, and Iasked Congress to enforce the law. We’re not seeking special deals or subsidies or handouts. We’re asking Congress to implement American and international trade laws to level the field of competition. If the same rules apply to everyone, U.S. industry can compete and win. And American workers can retain their jobs and afford their daily bread.

A simple story explains how this works. Just as the economic crisis hit, China began dumping Oil Country Tubular Goods, the pipes used in oil and gas exploration, into the American market. Dumping occurs when foreign manufacturers export products at prices lower than they charge in their home country or at prices below the cost of production.

American steel companies would quickly go bankrupt if they set prices below the cost of production. Many foreign manufacturers can get away with it because part of their production cost is offset by government subsidies. In 2011, half of the world’s 46 top steel companies were state-owned. They don’t live by the same rules American companies do.

Government subsidies are fine if all of the beneficiary company’s products are sold in their home market. But international trade rules prohibit sale of subsidized goods to other countries because their artificially low prices would distort the market and destroy companies that aren’t propped up by their governments.

To keep their citizens employed and sustain vital industries like steel, lots of countries ignore the rules. That’s what China was doing in 2008 with Oil Country Tubular Goods. A half dozen steel companies and my union, the United Steelworkers (USW), won a dumping case against them in 2009. Tariffs were placed on China’s Oil Country Tubular Goods to offset the value of the illegal subsidies. After that, Chinese shipments of the pipe to the United States virtually stopped.

When enforcement of the rules leveled the field of competition, American companies and American workers won.

This is an important story because it involves pipe essential to natural gas drilling. Americans are reveling in the possibility that hydraulic fracturing will make them energy independent. But there’s no point in achieving energy independence if failure to enforce trade laws condemns America to steel dependency.

Here’s what Longhi told the Senate Finance Committee last week: “It is not enough to open new markets for American goods and services; I submit to you that the greater economic and national security, and, indeed, moral imperative is to ensure that the rules governing trade in our own market are respected.”

In the past 18 months, American steel producers and the USW have issued demands for that respect 40 times, filing 40 antidumping and countervailing duty petitions. That’s the largest number of steel cases since 2001.

Among them is yet another Oil Country Tubular Goods case, this one against South Korea and eight other nations. In February, the International Trade Administration announced preliminary duties against the eight: India, Philippines, Saudi Arabia, Taiwan, Thailand, Turkey, Ukraine and Vietnam. But it exempted South Korea.

The International Trade Administration’s final determination is expected in July. It should include South Korea, which exports 98 percent of the pipe it produces to the United States. Fearing the effect of sanctions, South Korea has stepped up exports. Last year, it shipped to the United States an average of 27,000 tons a month. In May, it sent eight times that amount — 214,000 tons.

That subsidized steel takes bread off of American tables. Thousands of American steelworkers have been laid off. And untold additional Americans whose work depends on the steel industry have lost hours or jobs.

The cost is wide ranging. As steel production declines, so does coal, limestone and iron ore mining. Coke and iron ore pelletizing plant operations suffer. Truckers, railroad workers and barge hands who deliver supplies to mills all lose work. Scrap dealers who provide steel for recycling, as well as pump, industrial fan and valve manufacturers who supply mill replacement parts lose business. Profits shrink at restaurants, grocery stores and shops near mills. School districts, municipalities and states all lose tax revenue.

Considering all of that, it’s easy to understand why foreign countries would try to keep their steel furnaces operating, even if that meant violating international rules.

Read more here.

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Harvard Robot Whiz Invents a Way to Weave Facades Out of Clay

Courtesy of Wired. BY JOSEPH FLAHERTY

Harvard grad student Jared Friedman is a designer who is trying to use one of the most precise industrial tools on the planet to produce architectural facades with the earthy charm of your grandmother’s macramé. The budding architect, and his classmates Olga Mesa and Hea Min Kim, were tired of the smooth glass and concrete skins of modern buildings and wanted to create a new architectural style by employing 3-D printing technology.

Low-cost 3-D printers that produce tchotchkes made of melted plastic wouldn’t satisfy Friedman’s architectural ambitions, so he had to build his own machine. “We were tired of seeing the same things over and over being 3-D printed within the design community,” he says. “The scale was always very small due to the size of standard 3-D printing machines and everything relies on a ‘layer upon layer’ process.”

Friedman appropriated a robotic arm from a factory floor and bolted a giant clay-filled syringe to it. He created CAD files that specified paths for the robot to follow and as it progressed clay was squeezed like toothpaste from the metallic cylinder onto an irregular surface forming a two-foot square panel. Half-inch thick clay coils were woven, braided, and built-up in patterns on the panel, but despite their futuristic pedigree they were actually inspired by much older manufacturing processes. “Tools such as the industrial robot can allow for designers to revisit techniques such as weaving, and leverage the abilities granted by the robot to produce new and unique products,” says Friedman. After the pattern was completed the panel’s edges were trimmed, they were fired in a kiln, and assembled on a steel scaffold.

Turning an industrial robot into an artistic tool required fine tuning of the controller software as well as the mixture of clay it extrudes. Friedman’s goal was to create subtle variations in the panels while maintaining tight control at points where the panels would be anchored to the buildings.”The biggest challenges involved striking the right balance between what was controlled and what was uncontrolled,” he says. “We wanted to have enough control to print a panel with a fair degree of accuracy to the initial design, but we also wanted to allow for some of the irregularities to occur that make each panel unique.”

Combining dozens of these panels provides architects with an opportunity to create architectural facades that have the warmth of handwoven fabrics while stretching for hundreds of square feet. Friedman and company have no plans to commercialize their creations, but are excited to have wrung new possibilities out of old hardware.

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Thinking of Chicago in Silicon Valley

By Lloyd Graff

This modest 1300 square foot 3-bedroom 2-bath home in Palo Alto, sold for $1,750,000 in February of 2014.

What’s going on in the world? This is how it looks to me after two weeks in Silicon Valley, on sort of a vacation.

The U.S. economy continues to rebound – but rather like a partially deflated basketball. Growth is tepid after a rough first quarter when the ferocious five-month winter in the North killed retail. Yet the numbers show unemployment receding, with some of the long-term unemployed actually finding work, but wage growth is still very light.

New home sales are mediocre, mortgage rates are trending down again. Home re-sales are robust in San Francisco, San Diego and Boston, but mediocre in Chicago and New York. Detroit is bouncing back again, but it is long way from getting out of the toilet. Some people expected Baby Boomers to be moving en masse to apartments but it is not happening. A weak home market, especially in suburban markets, and high prices for apartments and condos in city centers make an exodus by boomers to the city uneconomic. A Boomer exodus to warmer climates has been slow to happen, probably because 60-70-year-old folks feel they need to work more to afford a pensionless retirement with incredibly minuscule interest on savings.

I have an unusual view of the housing, Baby Boomer and unemployment world. I live in the depressed area of the Southern Suburbs of Chicago, in the once high-end suburb of Olympia Fields. It is the home of the elite Olympia Fields Country Club, which hosted the 2003 U.S. Open Golf Tournament. Back in the day, it allowed no Blacks, Jews and probably not Eskimos, if any ever applied. Today it cannot afford to be quite as restrictive. A middle class Navajo might pass muster. Olympia Fields ranked in the top five Chicago suburbs 35 years ago. Today it might make the top 40 in the Chicago metropolitan area.

My 3000 square foot home is worth slightly more than the $136,000 we paid for it in 1979. My wife and I have put a ton of money into improvements for it. It is within walking distance of the Metra commuter train. You can get to downtown Chicago in a half hour on the express train.

During the housing boom of 2004-2007, many African Americans used 100% financing to buy homes in Olympia Fields. A lot of them lost their homes a few years later. Several neighbors of ours are now renting their homes from lenders and speculators who are still buying up more homes in the neighborhood for a song. Half of the re-sales in Chicago’s suburbs are for cash these days. Low mortgage rates are for the few in 2014, not the masses. My neighbors, at least those that I know, are an eclectic group of bus drivers, teachers, doctors, lawyers and retired folks.

When my wife and I travel to Silicon Valley to see our daughter’s family, we see the bungalows built in 1959 up for sale, with full page ads in local newspapers. Usually they are unoccupied, staged with brought-in furniture, carpeting, lighting and landscaping to give the small houses drama. Prices start in the $1.5 to $1.8 million range and often attract overbids. It is unusual for a house to last a month on the market near Stanford University.

New multi-family housing is going up, but there are no available vacant lots to build single family houses. If you want to buy into the area, you play the game, otherwise, head 30 miles down the freeway where more affordable housing still exists.

We’ve now had the opportunity to see both ends of the housing spectrum. Chicago is generally still soft, but where we live it is toasted marshmallow soft. Some people see depressed housing prices as part of a conspiracy against African-Americans. This month’s cover story in The Atlantic is a long diatribe, arguing for reparations for Black people as compensation for 500 years of persecution. The story focuses on Chicago.

I’m wondering. Should I be paying reparations to my next door neighbors in Olympia Fields? I get the writer’s point, but America is not Nazi Germany. Olympia Fields is not Nuremberg.

America is a country of rich and poor, to be sure, but I do not feel the outrage that I see in the popular press or from self-serving politicians and professional do-gooders.

At Graff-Pinkert we recently hired several men, comprised of Hispanics, Whites, and African Americans, for our machine cleaning department at $10.50 per hour, no benefits. They are eager to work and found the job vacancy on Craigslist. Most of them are turning out to be good workers who don’t mind working hard and getting dirty.

It’s America, summer of 2014. Boomers keep on trucking. People are finding work if they are smart enough to read Craigslist, take their hats off, and make appointments on time. Googlers are paying $2 million for homes in Palo Alto that bus drivers would pay $150,000 for in Olympia Fields. If you mow grass for a living you make the same in both locations, but the season is longer in the Valley.

Question: Do people work harder today than they used to?

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G.M. Prepares to Count Cost of Suffering


Mykia Jordan has no memory of the car accident that put her in a coma for three weeks, left a large scar across her jaw and caused the limp that forces her to walk with a cane at 23.

She only knows what the police and others told her — that in the middle of a Sunday afternoon, with her 3-month-old son strapped in a car seat, she lost control of her Chevrolet Cobalt on a freeway ramp in Detroit. It crashed into a cement barrier and overturned, crushing the roof around her. The air bags did not deploy.

She missed a year of work and school while she recovered from a head injury and many broken bones, breathing through a tracheostomy tube and relearning how to walk. The baby survived with hardly a scratch, remarkable fortune that she says helps blunt the pain she still feels in her leg every day.

Lawyers and investigators now believe Ms. Jordan’s accident, on Oct. 14, 2012, was the fault of a defective ignition switch in Cobalts and several other models of General Motors cars.

As such, Ms. Jordan personifies the next challenge in a safety crisis that has led G.M. to recall 2.6 million vehicles after years of inaction: how to deal with hundreds of injury claims that the company has refused to discuss or characterize. Some experts predict the cost to the company could run into the billions of dollars, exceeding the payouts related to deaths linked to the defect.

Read more here.

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Where Are You Going?

By Noah Graff

Four days ago, I uploaded Where Are You Going?  to YouTube. It’s a documentary I shot when I was 19 years old about a trip I took on the Greyhound Bus from Chicago to San Francisco. In the film I captured the stories of my colorful fellow travelers. I interviewed Rick, a chef from a nudist spa in California, Robert, a 36-year-old bisexual grandfather, KC, a man who was living on a ranch in seclusion house-sitting for free, and Bill, a man who had just gotten out of prison. I wove their stories around mine, a 19-year-old filmmaker on my own journey, trying to figure out my path in life.

I hadn’t planned on putting Where Are You Going? on YouTube until about a year ago. I’ve been toiling over my latest movie, Saving Ferris, for several years now — I’m embarrassed to admit. It’s a documentary about the Chicago locations of Ferris Bueller’s Day Off, my favorite film, and I’m glad to say that I’m really happy with it. It’s by far the most professional movie I’ve made. So I decided it would be a good idea to release Where Are You Going?  first, to hopefully build a fan base before releasing Saving Ferris.

As I’ve been posting the videos on YouTube the last few days, I’ve been reflecting on my mindset as a carefree 19-year-old, going on one of the most important, coolest adventures of his life. At 19, I thought that one day I might go to Hollywood and be the next Quentin Tarantino — really, I did. I was making a feature length movie at 19 and was going to enter it in film festivals and thought I was going to be discovered. It was a great time in my life. I didn’t feel held down by the need to have a practical job. I had my dreams, I was young, I was doing cool stuff that other people my age weren’t doing, so why not me?

Where Are You Going never got into a film festival for one reason or another, but soon after I finished it, I began working on a new masterpiece. I made a documentary about a restaurant in Florence, Italy, called Trattoria Mario, where I frequented while studying abroad — I entitled it My Home In Florence. In many respects My Home In Florence was a better movie than Where Are You Going?, but it also wasn’t accepted into any film festivals. Then in 2007, I produced my third opus, Jew Complete Me, a reality show about my search to find the Jewish woman of my dreams. The show had a strong following for a while and was watched by people all over the world. As of yesterday, it had over 326,000 views on YouTube. While making it, I admit I still had the long shot dream that the right person would discover it and I would be thrust into the big time, like being paid to do real TV or movies — or something. But despite the show’s popularity that didn’t happen, nor did I find my soul-mate.

Making Saving Ferris, I had a different mindset than when I made the three previous major projects. Today I no longer have the aspiration to break into the commercial film industry. I like being a machinery dealer, and it provides a much easier lifestyle then 90 percent of folks in the film production business have. I’m not saying that many struggling professional filmmakers aren’t happy. They may feel totally fulfilled because they love what they do everyday. I still sometimes ponder what my life would be like if I had chosen that path. Maybe I could have been one of the lucky prosperous ones if I had just tried a little harder. But today, I see filmmaking in my life as a labor of love. It’s something I get to do, not something I have to do to pay the mortgage. I have the privilege of having fun using my creativity, and with the blessing of YouTube and social media I have the chance to exhibit my work to the world. I feel good in this situation, but I’d feel even better if my new videos could catch fire and be seen by thousands of people.

So if you have a few minutes, please check out Where Are You Going? (first episode also posted below). The first two out of 13 episodes are on YouTube, and the rest will follow in the next few weeks. I have also put a trailer up.

It’s a work I’m proud of, and I think many of you will enjoy it.

Question: When you were 19, what did you think you would do in the future?

Where Are You Going Trailer

Where Are You Going? (My Greyhound Bus Story) Episode 1

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Keeping Your Kid Alive

By Lloyd Graff

Ed Damiano with Bionic Pancreas. Courtesy of NPR

I grew up around diabetes. Grandma Graff was a constant presence in our family. She was a practicing diabetic. She measured her food by the bite. Injections of insulin were like clockwork. To me, as a kid, she was diabetes. Her husband was also a diabetic but did not manage it well. I never met him. He died at 54. My father was diagnosed late in life and managed the disease quite well with finger pricking and injections.

When I heard the story Monday on National Public Radio about Ed Damiano’s obsession to build a viable robotic pancreas for his 15-year-old son David before he goes away to college, it really hit home.

Ed Damiano was an engineering professor when his son was diagnosed with Juvenile Diabetes at 11 months old. Some diabetic kids die sleeping in the middle of the night. Since the time David was diagnosed up until today, Ed has gotten up in the middle of the night to check if his son is still breathing. Ed has also put a monitor in David’s room, but the fear of the unexpected catastrophe has ruled his life. His wife Toby, a pediatrician, also knows the horrors of the illness only too well from her practice.

Ed moved away from academic life to focus on his obsession, building an artificial pancreas to keep his son alive and safe. His goal is to accomplish the feat before his son goes off to college.

His son’s pancreas cannot balance sugar and insulin for his body properly, so Damiano has developed a mechanical pump and system of measurement to act as a substitute organ which he calls a “bionic pancreas.”

The bionic pancreas is controlled by an App on the iPhone. It utilizes two small pumps mounted on the user’s body. A probe constantly monitors the user’s blood sugar level, then directs the pumps electronically to discharge the correct amount of insulin and glucagon to maintain proper levels. The bionic pancreas automatically makes a new decision for dosing every five minutes.

The device was tested on 52 diabetic teens and adults around the country and had great results. Now Ed has the go-ahead to let volunteers try it. Damiano is confident the bionic pancreas will be ready by the time David goes away to college.

I love this story because I have seen how uncontrolled body regulation can wreck lives. I love that the people in our medical industry who make creative devices like these often use turned metal parts of perfect dimensions coming off screw machines and CNC lathes.

The scourge of diabetes has not been cured, but because of the determined tinkering of Ed Damiano the day is approaching when a diabetic can almost live a normal life.

Question:  Are U.S. regulators too tough or too easy on new medical products?

Read the original NPR story here.

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Important Work

By Lloyd Graff

Lisa Earle McLeod

Lisa Earle McLeod’s question is a simple one. “Do you have a Noble Purpose? Or do you just sell (make) stuff?”

I talked to her yesterday for quite awhile after she returned home to Atlanta from one of her many speaking gigs. I’m fascinated by outstanding public speakers, partly because I’m a mediocre one myself. I watched Ms. McLeod’s presentation on video and was impressed by her energy and authenticity. I wanted to get her take on public speaking and how it relates to her core message.

McLeod is a sales leadership consultant, whose clients include companies such as Merck, Google and Apple. Her career really started in high school. She was popular and decided to run for senior class Vice President. She had to give a speech to the class before the voting. She gave a great talk, she thought, and then lost the election. She asked a friend about her speech. The friend told her she “had put on a persona” and did not seem authentic. Lisa McLeod decided to learn from her defeat. She studied public speaking. She watched videos of the great ones like Steve Jobs, Tony Robbins and Bill Clinton. She found a professional coach and practiced. She told me you have to believe your own material, put in the time and energy to achieve mastery, and keep some bullet points in front of you, just in case you lose the thread and need a path back to your message.

Frankly, when I first heard of her work, my cynical self thought she was peddling recycled clichés. But after speaking to her and listening to her talks, she came off as real and her message had meaning.

A coal miner

McLeod argues that if you are working just to hit somebody’s numbers, even if they are your own, the work will get stale, quickly. People need to put an authentic human spin on their endeavors to fuel their motivation and be able to connect it to others.

The leader of a group can help the group forge an identity, but the group goal may not resonate with an individual’s purpose.

I have struggled with this notion throughout my career. Making a profit reselling a used machine tool hardly sounds noble to me, even if I spin it like a top and turn it inside out in my head. I’m not curing cancer. I’m not even milking cows or bending steel.

Yet I find myself absolutely engrossed in my game, even after doing it for over 40 years. When I got off the hospital ventilator six years ago, I had no doubt that I wanted to go back to the machinery trading business, and the writing game. They provided the challenge and intensity that I felt I needed in my life. For me, work is my creation. Connecting the dots in deal-making or writing a piece is what makes me feel happy and charged. When I go on vacation I don’t want to turn my juices off. My blogs are my little creations. Are they “noble”? Doubtful. But they give me energy and a reason to get out of bed and create something that did not exist before I applied my effort and frontal lobes to a problem or a blank sheet of paper.

My “Noble Purpose,” Linda Earle McLeod, is “to connect the dots to create value.” It works for me.

What is yours?

Question: Do you do important work?

For more info on Linda Mcleod visit her Web site at

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For Western Oil Companies, Expanding in Russia Is a Dance Around Sanctions

Courtesy of The New York Times. By ANDREW E. KRAMER

MOSCOW — Like many chief executives of American companies, Rex W. Tillerson of Exxon Mobil didn’t attend the major business forum in Russia last month, at the urging of White House officials. But the company’s exploration chief, Neil W. Duffin, did.

In a ceremony at the event, Mr. Duffin signed an agreement with Igor I. Sechin, the head of the state-owned Rosneft, to expand its joint ventures to drill offshore in the Arctic Ocean, to explore for shale oil in Siberia and to cooperate on a liquefied natural gas plant in Vladivostok.

The deal came just weeks after the United States government imposed sanctions on the personal dealings — though not the corporate activities — of Mr. Sechin, a former military intelligence agent and longtime aide to President Vladimir V. Putin.

Despite the push by Western governments to isolate Moscow for its aggression in Ukraine, energy giants are deepening their relationships with companies here by striking deals and plowing more money into the country.

As President Vladimir V. Putin of Russia watched, David Campbell, BP’s Russia chief, left, signed a preliminary agreement in May with Igor Sechin, president of Rosneft, right, to study shale oil deposits. CreditSergei Karpukhin/Reuters

Along with Exxon, BP of Britain and Total of France also signed contracts at the business forum in St. Petersburg to explore for shale oil in Russia. Exxon plans to drill its first exploratory well offshore in the Russian sector of the Arctic Ocean this summer. Statoil of Norway is in talks for another shale joint venture. Royal Dutch Shell’s chief executive, Ben van Beurden, met with Mr. Putin in April and told him, “Now is the time to expand,” referring to a liquefied natural gas plant project.

The companies are taking a calculated risk, given the threat of further sanctions. But they also want to protect their long-term interests in Russia, the world’s largest energy-exporting nation.

“They are likely to continue to engage until there is a clear policy signal that they should stop. It is not rational to think they would act in any other way,” said David L. Goldwyn, who served as the State Department’s special envoy and coordinator for international energy affairs during President Obama’s first term. “If the government wants them to stop, it needs to say louder they should stop.”

Exxon declined to comment on the deal signed in St. Petersburg. Total and BP have emphasized that their agreements fully comply with sanctions.

So far, the United States and the European Union have imposed only limited sanctions, aimed largely at individual Russians and a handful of companies. The existing sanctions don’t explicitly bar the energy giants from operating in Russia. Though Mr. Obama authorized an executive order on March 20 that could outlaw such deals, it has not yet been put into effect by the Treasury Department.

The risk for energy companies is that the next stage of sanctions, called the third phase, will be broader, cutting off dealings with major sectors of the economy like finance, metals and energy. The United States and its allies proposed such sanctions at a Group of 7 summit meeting in Brussels last week, to be carried out if the violence in Ukraine did not subside within a month.

While the companies are not violating the current rules, they are walking a fine geopolitical line.

At the St. Petersburg gathering on May 24, the British oil giant BP signed a $300 million preliminary agreement with Rosneft to study shale oil deposits in the Volga Valley and Ural Mountains, west of the area where Exxon Mobil will be working. BP’s chief executive, Robert W. Dudley, an American citizen, attended the forum. But David Campbell, BP’s Russia chief and a British citizen, signed the agreement with Mr. Sechin.

Also at the business forum, Total signed a deal with Lukoil, another Russian oil company, for exploring more than 1,000 square miles of western Siberian wilderness for shale oil. “My message to Russia is simple — it is business as usual,” Total’s chief executive, Christophe de Margerie, told journalists there.

To keep it that way, oil companies are publicly and privately pushing back against more sanctions by speaking out at shareholders’ meetings and by lobbying in Washington.

“We have a responsibility to stand with our partners in a difficult time,” Mr. Dudley of BP told an audience at the St. Petersburg forum.

Mr. Tillerson, Exxon’s chief executive, told reporters last week in Dallas that the company was making its skepticism about sanctions clear to the United States government. “Our views are being heard at the highest levels,” he said.

Vladimir Putin shaking hands with Ben van Beurden, right, Shell’s chief executive, in Moscow.CreditMaxim Shipenkov/European Pressphoto Agency

“There has been no impact on any of our business activities in Russia to this point, nor has there been any discernible impact on the relationship” with Rosneft, he added.

The energy giants, in part, are wary of offending their partners in Russia. Several big Western companies have large existing investments and important joint ventures in Russia that they want to protect from a government that is sometimes seen as fickle on property rights.

Exxon has a wide-ranging relationship with Rosneft, including existing oil production off Sakhalin Island in eastern Russia. BP has a nearly 20 percent stake in the Russian company. In all, Western energy companies have invested an estimated $35 billion in Russia.

The future opportunities could prove even more valuable.

The recent agreements signed by BP, Exxon and Total will help Russia push its petroleum industry into the high-tech field of extracting oil from shale. The big Western companies mostly arrived late to the shale boom in the United States as smaller companies took the lead, and Russia, which geologists estimate has the greatest potential for shale outside of the United States, represents a chance to gain an early edge. In the last few years, shale formations like the Bakken in North Dakota and the Eagle Ford in Texas have added three million barrels a day to the oil output of the United States.

Exxon is also gaining access to offshore drilling sites in the Russian Arctic Ocean, while the waters off Alaska remain tied up in lawsuits and regulation. Exxon and Rosneft plan to drill the first exploratory well this summer in the Kara Sea, one of the shallow extensions of the Arctic Ocean north of Russia, where there could be enormous oil and gas resources.

And Exxon is joining with Rosneft to explore the Bazhenov shale formation in western Siberia, an area that has already produced tens of billions of barrels of oil through conventional drilling methods — a good sign for shale drillers, according to geologists. “Compared to other opportunities worldwide, Russia is certainly one of the most promising,” said John Webb, an analyst at the market research firm IHS who specializes in Russian energy.

Rosneft welcomed the deals: Extracting oil from these types of reserves represents a technical challenge, the statement said. “That is why Rosneft teamed up with the best international companies like Exxon Mobil and Statoil for the scope of exploring and producing those resources.”

The energy giants, in a sense, are betting that the Russian oil and gas industry will not be hit by direct sanctions.

The energy industry provides financing for the Russian government and military, making sanctions a threat to continued action in Ukraine. But the United States and Europe must tread carefully, given the industry’s major role in world markets.

From its swamps, tundra and wilderness, Russia pumps about the same volume of oil as Saudi Arabia, while exporting more energy than the desert kingdom, if oil and gas are counted together. Russia supplies about one-third of the gas to heat homes and generate electricity in Europe. And Russian oil and gas exports help ease energy reliance on the politically volatile Middle East.

For that reason, many analysts think Russian energy companies like Rosneft are simply too big to punish.

The companies are making “a hedged bet that the Russian energy sector will escape sanctions and the Ukraine crisis will quiet down,” said Cliff Kupchan, a Russia analyst at the Eurasia Group.

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As Ties With China Unravel, U.S. Companies Head to Mexico

Courtesy of The New York Times. By DAMIEN CAVE

SALTILLO, Mexico — Jason Sauey calls them lemmings — all the American companies that rushed to China to make things like toys and toilet brushes, only to be searching now for alternatives in Mexico and the United States. His own family-owned plastics company, Flambeau, nearly made the same mistake around 2004, he said, when competitors contracting with China undercut prices and seized market share.

Flambeau resisted, turning instead to its factory here in central Mexico. And now the company — which makes Duncan yo-yos, hunting decoys, plastic cases and an array of industrial items — is reaping the rewards, Mr. Sauey (pronounced SOW-ee) said.

Revenues at its Mexican plant have grown by 80 percent since 2010, according to company records, prompting a search for a second location near Mexico City. And in the past year, a dozen corporations have come to Flambeau and requested bids on projects worth tens of millions of dollars for things like smartphone cases and car parts.

“They’re all looking for a new model,” said Mr. Sauey at his offices in Middlefield, Ohio. “It’s not just about cost; it’s about speed of response and quality.”

With labor costs rising rapidly in China, American manufacturers of all sizes are looking south to Mexico with what economists describe as an eagerness not seen since the early years of the North American Free Trade Agreement in the 1990s. From border cities like Tijuana to the central plains where new factories are filling farmland, Mexican workers are increasingly in demand.

American trade with Mexico has grown by nearly 30 percent since 2010, to $507 billion annually, and foreign direct investment in Mexico last year hit a record $35 billion. Over the past few years, manufactured goods from Mexico have claimed a larger share of the American import market, reaching a high of about 14 percent,according to the International Monetary Fund, while China’s share has declined.

“When you have the wages in China doubling every few years, it changes the whole calculus,” said Christopher Wilson, an economics scholar at the Mexico Institute of the Woodrow Wilson International Center for Scholars in Washington. “Mexico has become the most competitive place to manufacture goods for the North American market, for sure, and it’s also become the most cost-competitive place to manufacture some goods for all over the world.”

Many American companies are expanding in Mexico — including well-known brands like Caterpillar, Chrysler, Stanley Black & Decker and Callaway Golf — adding billions of dollars in investment and helping to drive the economic integration that President Obama and President Enrique Peña Nieto have both described as vital to growth.

As that happens, some companies are cutting back in China and heading to Mexico to manufacture an array of products, like headsets (Plantronics); hula hoops (Hoopnotica); toilet brushes (Casabella); grills and outdoor furniture (Meco Corporation); medical supplies (DJO Global); and industrial cabinets (Viasystems Group).

And while in some cases a move to Mexico is tied to job cuts in the United States, economists say that the American economy benefits more from outsourcing manufacturing to Mexico than to China because neighbors tend to share more of the production. Roughly 40 percent of the parts found in Mexican imports originally came from the United States, compared with only 4 percent for Chinese imports, according to the National Bureau of Economic Research, a private research group.

Such comparisons appear to have blunted some of the scorn that greeted American companies moving production to Mexico in the 1990s. And yet, for the economic relationship to reach its full potential, experts, officials and executives say, the United States needs to make trade efficiency as important as border security. Long waits at the border continue to frustrate many companies. At the same time, Mexico needs to overcome longstanding problems like education, organized crime and corruption.

However, for every successful Flambeau, there seems to be a KidCo, another Midwestern manufacturer, which gave up trying to move production from China to Mexico last year.

“It’s a lot more convenient to fly to Mexico than to China,” said Ken Kaiser, the company’s owner. “But we just couldn’t find a way to get an advantage by moving. It took forever just to get a price quote.”

Dozens of interviews with executives, economists and American and Mexican officials over the past year show that what many companies are discovering is that there is not one Mexico, but many. Despite many signs of promise, Mexico is still a country of vast differences in efficiency and education, where only a small minority of the population has the training needed to compete with the world. Especially for the crowded middle of American manufacturing — the family-owned, medium-size businesses like KidCo and Flambeau — Mexico disappoints as often as it satisfies.

Ed Juline, a manufacturing consultant in Guadalajara who came to Mexico in 2001 with IBM, has seen many companies both attracted and repelled. Like others who help American businesses in Mexico, he described last year as a tipping point. With studies showing Mexico rapidly reaching the same cost level as China for the production of certain products, dozens of companies came to him — including KidCo — looking for help to find a Mexican factory to contract with or buy.

Business owners were in a rush. Some had tired of the travel to China or the six- to 10-week wait for orders to arrive from across the Pacific. Others said their Chinese suppliers were raising prices even as quality declined.

At KidCo’s headquarters outside Chicago, the headaches were mounting. Last year began with a factory in northern China that produced the company’s best-selling products, a series of child-safety gates, demanding a 10 to 12 percent pay increase. Then an entire shipment of wooden gates arrived with a major flaw. “That’s when we realized we really needed to have backup supply,” said Mr. Kaiser, 61, who contacted Mr. Juline.

Mr. Juline did have some success to point to. One of his clients, Casabella, a broom, brush and mop company from Long Island, had recently completed a deal with a factory near Mexico City to produce about $800,000 worth of brushes.

But success turned out to be a rarity. The more Mr. Juline traveled around Mexico seeking partners for American manufacturers, he said, the more he realized that many Mexican business owners were unwilling to take on a surge of new business, either because they could not line up suppliers or credit, or because they feared demands for money from government inspectors or gangs.

Guillermo Calderon, the factory manager for Diseño Global, said his response to KidCo’s bid request may have seemed high — about 20 percent above the production price in China — but that was because he wanted to make sure his company took on as little risk as possible. “It’s easier to look at the opportunities you already have instead of looking outside,” he said. “What if we get a 40,000-piece order and then they leave?”

Flambeau’s experience has been more positive. Since Mr. Sauey joined the business in 1985 at the urging of his father, a co-founder, sales have grown to $230 million, up from $65 million. And as tours of its plants in Saltillo and in rural Ohio revealed, the company has largely thrived through a calculated mix of investment in Mexico and in the United States.

Mr. Sauey, 52, compact and serious, a passionate libertarian with an M.B.A. from the University of Chicago, insisted that cross-border production keeps American companies alive. At the plant in Middlefield, a small town near Cleveland where Mennonites steer horses clear of pickup trucks, and where most factories have already closed, he pointed to a hulking contraption with robotic arms sprouting from the back. “This is what helps keep us here,” he said. The machine cost $2 million. It turns the raw materials of hard plastic into one of Flambeau’s best-selling products, cases for art supplies.

A generation ago, Mr. Sauey said, the factory in Middlefield did about $14 million in sales. Now, because of investments in more sophisticated technology, it does twice that with the same number of employees, about 180.

The factory in Mexico has more space, many more employees — about 480, making about $17.70 a day — and more machines, many bought used. Both factories will generate roughly the same amount of revenue, according to company estimates. But while the Middlefield plant focuses on high-end plastic cases for everything from guns to medical supplies, the Saltillo factory makes simpler products — bottles for windshield washer fluid, yo-yos, hunting decoys.

Flambeau is not immune to the problems that kept KidCo in China. “In Mexico, almost right is good enough; second best is fine,” said Edward Treanor, Flambeau’s factory manager in Saltillo.

Worker turnover, maintenance troubles and inconsistent quality have been a drag on the bottom line for years. But because Mexico is closer than China, Mr. Treanor added, Flambeau could do more about it: a few months ago, the company sent a trusted American employee to oversee maintenance full time and improve factory operations.

Experts say that these are the kinds of companies succeeding now in Mexico, those big enough to manage their own factories and those that did not give up their technical knowledge by outsourcing to China.

“There are a lot of examples of clients who were in Mexico, went to China and now want to come back, and most of them have given up their expertise in manufacturing,” said Scott Stanley, a senior vice president at North American Production Sharing, one of the largest firms to help American companies set up production facilities in Mexico.

To draw more companies now, executives, officials and experts say, Mexico and the United States will need to become better neighbors, more focused on sharing labor and moving products.

Mr. Wilson at the Mexico Institute called specifically for a focus on “globally literate workforces in both countries.”

“At a very basic level, that means teaching more Spanish in the U.S. and more English in Mexico,” he said. Other, more immediate changes are also necessary, he added, including shorter wait times at the border, better roads and productivity gains in Mexico — lowering the cost of electricity, for example. After all, as the rise of China showed once before, there is no guarantee that Mexican and American manufacturing will stay attractive for long.

As Mr. Sauey notes, today’s global economy has increasingly come to resemble the volatile market for yo-yos or any other fad: the ups and downs come and go faster than ever. “It’s like shooting to the moon when the spikes happen,” he said. “And it’s like falling off a cliff when it ends.”

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Book Review: Flash Boys

Jerry Levine

Michael Lewis has written several great books about various marketplaces. Two standouts are Moneyball and The Big Short. These books extol the virtue of determining the true value of an item in an opaque market. How do you find the real value of a minor league baseball player or a securitized sub-prime mortgage bond fund, then exploit that knowledge to find a hole in the market?

Lewis’s most recent book, Flash Boys, takes the opposite tack. Here, the math oriented, technically superior high-frequency traders (HFT) who are exploiting the hole are the bad guys, even though they seem to have a lot in common with Oakland’s Billy Bean, or hedge fund manager Steve Eisman.

In Flash Boys Lewis takes on the innovators, the HFT, for their predatory behavior. He also goes after the big Wall Street banks and their so-called “dark pools,” where big trades are made but no official printed rules exist, and where the banks making the market assure buyers and sellers that they are both simultaneously getting the best price. But both sides can’t be winning, and this contradictory claim is one reason customers’ trust in the big banks has eroded in recent years.

Once upon a time, as many of us remember, if an investor wanted to buy or sell a stock he would call a broker who would find a way to execute the trade as efficiently as possible — talking to other human beings. The arrival of computerized exchanges eliminated many of the people from the process. Now bids and offers are matched by computers. In theory this means that markets should become more efficient and the cost of trading should fall. But the effects of technology are rarely so simple.

Today, if you place an order for 1000 shares of IBM, the order is supposed to ping from exchange to exchange claiming a few shares at each stop, seeking the best price until the order is complete. But the moment the order hits the first exchange the information is out, and the high-frequency traders (with ultra fast computers and shorter fiber optic cable) see your order (especially if it’s large), and race ahead of you to the other exchanges. They buy the stock you want, and then sell it back to you for a slight up-charge. All of this happens in a matter of milliseconds — millions of times a day.

High Frequency Traders execute a combination of two old Wall Street scams — first, insider trading (seeing your order), and second, front running the market. However, in this situation, it is entirely legal. It is an unintended consequence of SEC Regulation NMS passed in 2007, intended to protect the consumer from paying too much. But it opens the door for HFT to squeeze in between trades and create arbitrage opportunities worth billions.

The heroes of the book are the so-called “flash boys,” Brad Katsuyama and a team of talented oddballs who ferret out the schemes going on and create a HFT-proofed exchange called IEX, signifying “Investor’s Exchange,” where the price a trader sees is the price he gets.

The exchange is backed by some leading hedge funds and banks who felt they were getting bilked by the HFT. The average small investor is also being taken advantage of by HFT but likely doesn’t notice a penny or two per share on an occasional trade. But if the investor is invested in a pension fund or mutual fund, he is being hurt by HFT.

Currently, even though the new IEX exchange is well on its way to financial success, there doesn’t seem to be any evidence that high-frequency trading has declined. And, in reality, the villains of this story, the high-frequency traders are not quite villains. They are just smarter and faster than everyone else. Even Katsuyama comments, “It’s not their fault. It’s brilliant what they have done legally, within the bounds of the regulation.”

Lewis’s Moneyball revolutionized the way the market for baseball talent is evaluated from the major leagues to fantasy leagues. It will be interesting to see if Flash Boys has the same effect on the financial markets.

Question: Do you feel abused by financial institutions?

Jerry Levine is a writer for Today’s Machining World, and a retired engineer who worked in BP’s chemical division.

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