Monthly Archives: January 2015

How Much is College Worth?

By Lloyd Graff

John “Bluto” Blutarsky in 7th year of college. Eventual U.S. senator.

My Chicago Cubs just made a trade for center fielder Dexter Fowler, a 6-year Major Leaguer, who will make $9.5 million in the upcoming final year of his current contract. Coming out of high school in Alpharetta, Georgia, a suburb of Atlanta, he had the opportunity to get a full ride to Harvard University, but chose to take the money of a 14th round draft pick to try to get to the Major Leagues quickly.

It was an interesting choice for an 18-year-old kid. Harvard versus Minor League baseball and a small cash bonus. It reminds me of Billy Beane, the Oakland A’s general manager who had to choose between an offer to play baseball at Stanford or take a $100,000 signing bonus as a first round draft pick of the New York Mets in 1980. At the urging of his parents he took the money and spent most of his baseball career as a player scuffling in the Minors.

How much is a college education worth? How much is an education at Stanford or Harvard worth? You can figure the cost of tuition and room and board, but the true value in dollars of connections, urbanity, and love of learning cannot be measured in pecuniary terms.

Dexter Fowler’s gamble on baseball over Harvard worked out for him. On the other side of the spectrum, so many millennials are choking on debt from four years at Podunk A&M or even Dartmouth or Duke. In a changing job market more kids and parents may reject the expensive gamble on college. Money might be better spent traveling the world. I think of all of the young Israelis who travel the world after compulsory military service. They end up much more worldly and educated than provincial Americans who may never leave Nebraska.


I recently had a long phone conversation with Analisa Rudy, who along with her husband Eric Mott recently bought 60-year-old Cecor Corporation, which makes “Shark” sump pumping equipment and high quality shop carts. She piqued my interest by sending me an email with the subject line “take a dump.” I figured somebody with the sense of humor and audacity to approach me with that subject line was worth connecting with. She was charming and enthusiastic about the business challenge she and her husband have taken on. Sludge is exciting if it is your life’s work.

We are not defined by what we make or sell. The most mundane products are fascinating to the people who use and produce them. To the uninitiated, a simple brass fitting selling for 50 cents at Home Depot is utterly boring, but the nuances of that fitting are almost endless. How is the brass made? How much copper, brass scrap and electric power went into manufacturing the rod? Where was the brass made? Where was the fitting manufactured? Did Home Depot buy it in China or Thailand or Ohio? Was the thread cut or rolled? These are questions that barely touch the surface of that “simple” 50 cent fitting at Home Depot.

I am sure the challenge of making a high quality, competitively priced shop cart is equally complex. I laud Analisa and Eric for putting their money and energy at risk in the untidy world of rolling carts and gunk removal. Business is messy and so is life. Good luck.

Question: Should the government pay for Americans to go to college?

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Ernie Banks

By Lloyd Graff

Photo of Banks taken by Jim Graff 60 years ago.

The news of the past week was dominated by the brilliant scoundrel, Bill Belichick, coach of the New England Patriots, and the death of beloved Mr. Cub, Ernie Banks. Could there be two men at the top of their professions more different?

Today I’ll focus on Ernie because I feel like he’s almost been a member of the family. When I was a kid I learned early that I was a member of various tribes that helped define my identity. I learned I was Jewish, white, and Cub. I was a member of an offshoot of the main Tribe, because I was in the South Side sect that rooted for the Cubs, a small minority among millions of Chicago White Sox fans. We did not face pogroms like my brethren in Russia, but we felt like a beleaguered minority in my neighborhood.

In 1953 the Chicago Cubs bought Ernie Bank’s contract for $20,000 from the Kansas City Monarchs of the Negro Leagues. Soon after, they picked up Gene Baker a black Triple A player from the Pacific Coast League who definitely should have been playing in the Majors five years earlier, but teams were slow to break the color barrier even though Jackie Robinson had been in the Big Leagues for six years. Players had roommates on the road and the Cubs felt white players would resent bunking with black players, so they had to have a pair of Negroes on the team.

Ernie Banks was an immediate success at shortstop, as was Baker at second. Everybody got a nickname then and Banks got “Bingle,” and Baker got “Bangle.” The Cubs had a fat first baseman named Steve Bilko, so the new Cubs double play combination was the euphonious, Bingle to Bangle to Bilko. The Cubs were almost always a lousy team, but with Banks and Baker and home run hitter Hank Sauer in left, they were fun to watch on early TV and listen to on radio with the great play by play announcer, Jack Quinlan.

I read the sports pages religiously, even The Sporting News, the Baseball Bible, to keep up with my team. And I studied Ernie Banks assiduously. Ernie had a batting stance like nobody else in the game. He cocked his right elbow awkwardly so his bat was sticking straight up. As he eyed the pitcher his hands were moving constantly on the bat handle, like he was massaging it. I copied Ernie’s stance meticulously and practiced my swing for hours trying to build my bat speed. If it was working for Ernie I figured it would work for me. Banks won back to back Most Valuable Player Awards in 1958 and 1959.

Ernie Banks weighed only 170 pounds but he generated terrific bat speed with his great timing and powerful hands and wrists, which had developed from picking cotton as a kid in Dallas. Banks was one of 12 children. His father had a third grade education, but Ernie had a gift for baseball, an outgoing personality and endless curiosity, which set him apart from his baseball peers. Banks was always smiling and expressing his love for the game. He became synonymous with the phrase, “Let’s play two.” I loved the game like Ernie loved the game. I just couldn’t play it anywhere close to how he did.

I kept following the Cubs through bad times and worse times, dying with them in 1969 when they looked like they were going to win the pennant and then collapsed in September. Ernie was old then, 38 and playing first base, but still a dangerous hitter.

For me baseball wasn’t just a sport. It was a language and a link to talk to people, especially my grandfather and mother. Grandpa Kassel, my mom’s dad, was a taciturn lawyer for a railroad. We really had nothing to talk about except baseball, specifically the Chicago Cubs. We both loved it. He told me about “Jolly Charlie” Grimm and Mordecai “Three Finger” Brown. He went back to the days of “Tinkers to Evers to Chance,” the double play combo of the last Cubs World Series winner in 1908. He actually knew those players because they stopped at his family’s little grocery.

My mom used to excuse me form school and take me to Ladies Day games. I remember seeing Jackie Robinson and Roy Campanella play in one. It may have been the most special thing we ever did together just me and her at Wrigley Field in the grandstand talking baseball.

When she got older and sadder we still had the Cubs to talk about and that special bond baseball fans cherish when they are sharing knowledge.

So when I got the news Saturday morning that Ernie Banks, Mr. Cub, had died, I shed many tears. Ernie was family. Ernie was what I shared with my Mom and passed on to Noah. All three of my kids adopted the Banks batting stance. It’s part of my legacy – and his.

Thank you, Ernie. You’ve been a part of my life for over 60 years. I keep your picture hanging up in my house and look it almost every day. And I’m not stopping now.

Question: Who will win the Super Bowl? Do you care?

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The Title Shot

By Noah Graff

Rocky’s Title Shot with Apollo Creed

Many Super Bowl watchers are familiar with the Doritos Brand Global Crash the Super Bowl Ad Contest, a competition Frito-Lay has been running since the 2006-07 football season. This year, Doritos received 4,900 videos submitted from 29 countries made by independent filmmakers — not ad agencies — to compete to have their ad played during the Super Bowl and receive $1 million. A panel of judges consisting of Doritos executives, advertising experts, and actress Elizabeth Banks picked 10 finalists. Those finalists’ videos are online currently and will be voted on by Web viewers. Two videos will be shown during the Super Bowl, one the winner of the Web audience vote, whose creator will receive $1 million, and one other video chosen by the panel, whose creator will win $50,000.

I see this contest as a symbol of America’s romance with democratic opportunity, the idea that everyone should have their chance to reach their dream. The Doritos contest is like the World Heavy Weight Title shot that Apollo Creed gave Rocky Balboa. It’s the chance, to be broadcast on the most watched event of the year, win $1 million, and possibly break into an advertising career. It is the same theme as the barage of talent contest reality shows that saturate our TV schedule, such as Top Chef, American Idol, Americas’s Got Talent, and my favorite, So You Think You Can Dance. Their message is that if you have the talent and drive you should be given your dream title shot, regardless of where you were born, how much money you have, or who you know.

I’ve written before about my various YouTube series, such as Jew Complete Me, a reality dating show about my search to find the Jewish woman of my dreams, and my recent documentary, Saving Ferris, a film about the Chicago locations of Ferris Bueller’s Day Off. When it first debuted, I saw Jew Complete Me as my longshot chance to be discovered by a Hollywood executive who could give me a way into the professional mainstream TV industry. It wasn’t exactly a direct title shot, but it was my way of throwing my hat into the ring. Despite my videos receiving hundreds of thousands of views, I never became famous beyond the YouTube screen. So I chose to embrace the quality career options in front of me, journalism and the used machinery business. They weren’t my romantic dream jobs that I had fantasized about when I was 15 — at that age I had envisioned myself following in the footsteps of Quentin Tarantino. But it turned out that I liked both jobs and they grow on me every day. Nowadays, I fulfill my passion for filmmaking with projects like Saving Ferris. What’s nice is that I don’t have to make videos to eat. I get to make videos, and I only produce ones I feel like making. Do I ask myself what if I went a different route and tried harder to be a full-time filmmaker? Once in a while, but not that often like I used to. My main filmmaking ambition now is for my work to be seen and enjoyed by a lot of people.

My dad Lloyd Graff took his title shot when he tried out for the Chicago Cubs as a sidearm pitcher. He wrote a letter to the team and somehow convinced the Cubs to invite him to tryouts at Wrigley Field. As his story goes, he didn’t have his control that day.

Later, Lloyd was confronted with the choice of going into the relative security of the family machinery business or using his journalism master’s degree to take a shot at becoming the next Mike Royko. He chose the family business, and I’ve never once heard him say, “I wonder what would have happened if I had tried to get a job at the New York Times,” despite the fact that some of his fellow journalism classmates at University of Michigan did eventually become famous writers. But obviously, he never did give up his dream job of reaching thousands of people with his writing.

Question: What was your dream job when you were younger?

Noah Graff writes for Today’s Machining World and sells machines for Graff-Pinkert & Co.

Watch a clip of Apollo giving Rocky his shot

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Fittings Together Over 60 Years

By Lloyd Graff

Company Owners left to right: Tricia Morris, Perry Wiltsie, Jeff Wiltsie, Jim Wiltsie Jr.

The latest statistics show confidence building steadily for small businesses while Wall Street staggers over plunging oil and copper prices. The oily bankers and hedge funds bet big on the frackers in West Texas and North Dakota, and some of those leveraged loans look as solid as Venezuelan bonds today.

But for most of the folks we deal with on a daily basis, business looks rosy. The Detroit Auto Show has its mojo back. Cobo Hall has the pizzazz of the Las Vegas Consumer Electronics Show held last week. It’s amazing what 17 million cars can do for American machining.

A family business we’ve known for four decades, Vanamatic Company of Delphos, Ohio, is celebrating 60 years in business. The Wiltsie family has figured out a way to manage 70 people, including nine family members, into a prospering continuing company. Through turbulent times, the challenges of changing technology and an evolution in attitudes about work, Vanamatic has made it work. Four siblings share the authority of leadership with three brothers holding the title of President. To an outsider it may seem like a model for managerial chaos, but when family members respect each other’s talents, it can work.

A family business that works is a beautiful thing. As we watch the daily malfunction of government amidst the contentiousness of hardball politics, a functional family business seems almost magical.

The funny thing is that in the competitive machining world it really does work surprisingly often.

In the small microcosm of Graff-Pinkert & Co. my brother Jim and I worked with our father Leonard for 25 years. We argued frequently about the direction and tactics of the business, but the relationships were respectful. After our father died, leaving me with a slightly larger ownership in the business, it became harder to maintain balance and satisfaction. Ultimately my brother and I could not maintain the joy and momentum, and I bought out his interest in the company. But we still stay in touch and sometimes we do deals together.

Now my son Noah and I work at the art of balancing family and business while keeping the father-son relationship a happy one. Noah’s buoyant attitude sops up my incipient pessimism, making the situation generally viable and fun. I thought I understood the ethos of a successful family business when my Dad, Jim and I worked together, but there is no magic to it. It takes enduring respect and a daily subjugation of ego.

At Vanamatic four members of the third generation currently work in the firm. They are preparing for long careers. Employees average 17 years with the company.

Congratulations to the Wiltsie family and Vanamatic for 60 years of success, finessing ornery 8-spindle Conomatic screw machines and modern CNC equipment to produce beautiful fittings, along with automotive and aerospace components. Mastering screw machining is no easy task, but integrating nine family members into the fabric of Vanamatic over three generations is truly the art of the family business.

Vanamatic launches their new Website today.

Question: Should a spouse or in-law work in a family business?

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Review of Henry Kissinger’s “World Order”

By Jerry Levine

Henry Kissinger’s recently published World Order, is an extremely thoughtful meditation on international harmony and disorder. He validates the truism that wisdom comes with age. (He’s currently 91.) I doubt that he could have written this book at age 50.

Kissinger relies on his great knowledge of history and his years of foreign service experience. The book is peppered with subtle, yet diplomatic digs at Obama’s foreign policy. He faults Obama’s inconsistency towards both allies (such as Saudi Arabia and Israel) and enemies (Putin, Assad and Iran), as well as the U.S.’s recent alternating engagements and withdrawals (Libya, Iraq/Syria).

Kissinger notes that there never has been a true world order. Previous empires at their height of power defined the world in their own image — be it China, Rome, Europe or Islam, but they were not necessarily inclusive or collaborating with those they ruled.

In defining America’s view of itself as a world power, he begins by quoting Harry Truman on what made him most proud. “We totally defeated our enemies, then brought them back to the community of nations.” Truman wanted to be remembered not so much for America’s victories, but for its conciliations. All of Truman’s successors have followed some version of this narrative. We see ourselves as a “benevolent superpower,” even if we don’t always live up to our ideals.

Kissinger then discusses varieties of world orders, specifically the European Westphalian arrangement: a multiplicity of political units (some with contradictory politics) where none was powerful enough to defeat all the others. They checked each other’s ambitions through a general equilibrium of power. Later, as the U.S. entered this system, there was a shift from a strict balance of power to the “achievement of peace through the spread of democratic principles.” This system now encompasses many regions and cultures.

Yet there are challenges on all sides. The European Union itself is shifting from independent states to a pooled sovereignty, and not without some significant inter-state conflict. In the Middle East, jihadists from both sides of the Sunni-Shiite divide are dismantling states in quest of a “global revolution” based on their own fundamentalist versions of their religion. In Asia, conflicts are arising, reflecting historical claims and borders of individual countries

Meanwhile, America struggles to define its relationship between its power and principles. We have a strong urge to withdraw from a confusing world. Yet in business and economics, right now the world is coming together. Globalization is complex and messy, but progressing. However, in politics, the progress is slower. Forces of anarchy have grown with potential to do great harm. Today, much of the Islamic world (defined as the Middle East, Pakistan and Afghanistan) struggles between joining the world community and fighting against it.

Historically, Islam grew by conquest, beginning in 622 A.D. and continuing until about 1700 A.D. As Islam grew, the faithful believed that the religion, the government and the land were all to be Islamic forever. The joining of state and religion is the official doctrine of Iran and other Islamic states, and is the rallying cry of armed militias throughout the Middle East from Palestine to Afghanistan. Western states, on the other hand, have maintained a separation between “things that were Caesar’s and things that are God’s.”

Kissinger discusses the general failure of the Arab Spring and the Syrian Cataclysm as the inability to develop pluralistic institutions and leaders. Syria, in particular, has become a battleground between rival regional players manipulating militias. It is not about democratic government, but merely about prevailing or just surviving.

Most Moslem Palestinians see the doctrinal commitment never to give up territory to non-Moslems as a tenet of their faith. This makes a two-state solution with a Jewish entity an intractable proposition, and is why every time that firm proposals such as Clinton’s Camp David negotiations or Olmert’s 2008 offer become formalized, the Palestinians reject them. It’s worse than politics, it’s religion.

In his conclusion Kissinger warns that, “In an era of suicide terrorism and proliferating weapons of mass destruction, pan-regional sectarian wars must be deemed a threat to world stability, warranting cooperative effort by all responsible powers.” “The affirmation of America’s exceptional nature must be sustained. America, the modern world’s articulation of the human quest for freedom, and the geopolitical force for the vindication of humane values, must retain its sense of direction.” It is obvious that Kissinger worries about our future.

Question: Do you agree with Obama’s withdrawal from Iraq and Afghanistan?


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Before the Music Come the Machines

Courtesy of The New York Times. By TAMMY LA GORCE

D’Addario Makes Instrument Strings on Long Island

The words “I’m not that interested in guitars” sound strange coming from Pat Metheny, a 20-time Grammy-winning guitarist. But he can explain.

“Musical instruments are just tools,” Mr. Metheny said recently inside the 110,000-square-foot headquarters of the instrument string manufacturer D’Addario, in Farmingdale. “My awareness of them is fairly limited. What I care about is their results.”

That includes a certain “brightness” of sound, he added, as well as consistency. “If the string gauge was off even a millimeter on my guitar, I’d know it in a fraction of a second,” he said. Mr. Metheny had taken time off this fall from a tour of more than 200 cities to shoot an instructional video at the factory. “And if the strings didn’t feel the same as they always do, I would know that in a fraction of a second, too,” he said. “It’s a critical detail.”

Since the 1970s, when Mr. Metheny started using D’Addario strings exclusively, he has counted on the manufacturer to attend to such details. Now he is one of more than 3,000 artist-endorsers. He is also, in a sense, an adviser.

“They’ve kept the dialogue open, and they’ve kept improving the machinery,” he said. “You feel like, ‘These guys are actually listening to me.’ ”

Jim D’Addario, the chief executive of the company, nurtures close ties with musicians, who often visit the nondescript premises to tour or shoot videos. For the company, the artists add prestige to the brand, but they also improve the quality of the 700,000 fretted and bowed instrument strings a day that it produces on Long Island. The strings are sold at retailers like Guitar Center and Sam Ash, at independent stores, online and directly to instrument-makers around the globe.

“You can’t really have a music store without something from this factory,” Mr. D’Addario said.

And that is true whether or not a music store caters to string musicians. Though it is known for guitar strings, D’Addario has recently expanded into producing drumheads, drumsticks, reeds and mouthpieces. Drummers likeAnton Fig, who plays with Paul Shaffer’s house band on “The Late Show With David Letterman,” and Glenn Kotche, drummer for the band Wilco, have worked with Mr. D’Addario to improve the drum products.

“We’ve developed relationships with musicians who are good at giving justifiable, scientific feedback,” he said during a tour of the cavernous factory. Around him, the din of more than 200 string-winding machines and the workers who presided over them set a scene of brisk productivity.

For some local musicians, being one of the 820 or so employees at the Farmingdale headquarters is a boon to their craft. Nick Spadafora, a production assistant from Hauppauge who works on the company’s films, is also the guitarist in the Long Island rock band To Sail Beyond the Sun. For him, the perks of being a D’Addario insider include knowing which strings to use and why. His favorites — the NYXL 11-46 — “really do last longer and sound better than the standard XL strings,” he said.

Despite his access, Mr. Spadafora still marvels at the inner workings of the factory. “Knowing exactly what goes into making the strings, the science of it all, including the research and testing, is pretty amazing to me,” he said. “It’s a really complicated job.”

The history of the D’Addario family business starts in the Abruzzo region of Italy around the 1860s, said Mr. D’Addario. “We were able to trace it back, and they were shepherds and string makers,” for instruments including lutes, harps, guitars and violins. The strings were made out of sheep and hog intestines. “Whatever was in the grass or the air or the atmosphere made for great-sounding gut strings,” he said.

In 1905, Charles D’Addario, Mr. D’Addario’s grandfather, left Italy for Queens and began importing the family’s strings. In 1918, he opened a shop in his garage in Astoria, where he made his own gut strings. In the late 1930s, when Charles D’Addario’s son John Sr. had joined the business — by then known as C. D’Addario & Son — the company began making steel strings and nylon core strings for fretted instruments. “DuPont had developed a nylon microfilament for hairbrushes, toothbrushes and brooms,” Mr. D’Addario said. His father and grandfather thought the material was perfect for harp strings and the treble strings on classical guitars.

Even back then, D’Addario counted on artist feedback: Carlos Salzedo, a famous harpist and a friend to Charles, offered his advice on how to work with the new DuPont material. Throughout the 1940s and ’50s the company continued to perfect and sell its nylon strings. In the 1960s, John D’Addario Sr. developed the first nickel-plated steel alloy, engineering round-wound electric guitar strings that contributed to the rock ’n’ roll sound for the next four decades, Mr. D’Addario said.

From 1959 through the early ’70s, the company flirted with a name change, to Darco Strings, and it was briefly acquired by another company, C. F. Martin & Company. Neither idea had much staying power, so the company relocated from Queens to Long Island, opening its first factory in Lynbrook in 1973. Steady growth brought it to the current premises in 1994.

Now, in addition to the large factory building that houses the on-site studio visited by Mr. Metheny, the company occupies a 50,000-square-foot raw wire mill across the street. That same building houses both the mill and D’Addario’s drumhead factory, where 8,000 drumheads a day are produced. There are also D’Addario factories in California, Texas, Tennessee and Connecticut.

Worldwide, the fleet of D’Addario employees has ballooned to 1,100. But to Mr. D’Addario, the business still feels intimate. “It’s a family business, no matter how big we get,” he said.

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How Much Are You Worth?

By Noah Graff

There is a famous quote in the Talmud, the revered Jewish commentary, “Whoever saves a life, it is considered as if he saved an entire world.”

Our society puts a great value on human life, but the life preserving business is a complicated expensive challenge for patients, doctors, insurance companies and governments.

I want to share with you some fascinating insights on this topic brought up in a podcast of NPR’s show Radiolab.

Sovaldi (Sofosbuvir) is a drug for treating Hepatitis C that was released in December of 2013. In the U.S. it costs $1,000 per pill, which you take once a day. To cure the disease it costs about $84,000 over 12 weeks. It costs significantly less in other countries where governments regularly negotiate discounts with drug companies. In the first half of 2014, Gilead Sciences Inc., the company that owns Sovaldi, reported $5.8 billion in sales for the U.S. and Europe.

One thousand dollars a day is a ton of money, but unlike many expensive drugs, which often just attempt to prolong life, Sovaldi actually cures people and has a 95% success rate. Gilead argues that the steep $84,000 cost is justified because the treatment usually saves the patient’s life, and when the treatment ends he or she is no longer a burden to society. The company also justifies the high price based on the R&D cost such a powerful drug requires to develop.

The drug expense debate becomes more complicated with drugs that cannot be classified as a cure. For instance, Zaltrap is a cancer drug that costs $11,000 per month, and when the results are averaged out among patients it adds 42 days to a person’s life. It can prolong someone’s life three days or grant a person several more years.

How much money should 42 more days of life be worth? Eventually, the health care system, be it private or public, will not be able to support the number of sick people who have been promised whatever means necessary to preserve life. So where do you finally draw the line and say a person has already received the share of care they are entitled to in order to live longer? Many countries around the world have openly debated this question, but the discussion has remained fairly low key in the U.S. because when it was brought up a few years ago while Obamacare was conceived, Americans began ranting about “Death Panels.”

Believe it or not, the World Health Organization has an equation for this value. It recommends that for one additional year of a person’s life, countries should spend 1 to 3 times per capita income. With this standard, one more year of life for a U.S. citizen should be worth $50,000 to $150,000.

In the NPR story, a reporter asked people in Times Square what they believed was the right amount for society to pay for one more year of a person’s life. She was surprised that most people didn’t freak out or get angry at her. The responses ranged from under $1000 to $10 million. People often asked her questions such as, “What would the quality of life be?” “Would the person be emotionally happy during the year?” “Would other people also be trying to get the money at the same time?”

Listen to the Radiolab podcast here.

Question: How much money do you think one more year of your life should be worth?

Noah Graff writes for Today’s Machining World and sells machines for Graff-Pinkert & Co.

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This American Dollar

By Lloyd Graff

Falling Canadian Loonie

For those of us who live in the United States, shop on Amazon and eat French fries at McDonalds, the world feels pretty flat. But the world economy is trembling underneath us every day.

Ten years of pouring sand and water into fracking wells in Williston, North Dakota, and what were once thought to be played out Texas oilfields where they played football on Friday Night Lights has changed our world by bringing back $2 gasoline.

Ben Bernanke’s contrarian approach at the Federal Reserve stabilized a busted banking system and helped rejuvenate the emaciated American economy, which easily could have gone the other way into Depression.

Now in 2015, we have a timid fearful Europe with pathetic neo-fascist parties vying for power, a good chance England will exit the European Union in 2017, and Japan becoming a country of old people. America shares the stage with China as the world’s superpowers. But who would want to live in China where kids go to school with smog masks?

So it is not shocking that money is gravitating to the U.S. and propelling the U.S. dollar to levels not seen in a decade.

In 2012, 82 yen could buy a dollar. Today it takes 119. Last year, a euro was worth $1.35. Today, it is $1.19. The Canadian dollar was worth more than the American dollar last year, but today it is worth 85 cents. But the weird thing is that the changes have come so quickly that other than for gasoline, we do not easily see the shifts. Good Italian olive oil will cost you more than it did six months ago, while airline fares are sticking at last year’s rates. Car prices are not budging even though the yen has devalued by one third in two years.

What’s going on is not really a conspiracy of sellers, but people playing for time while enjoying a price cushion which feels both unbelievable and fleeting.

One of these days, Costco or Amazon will puncture the bubble of the suppliers and sell sneakers for $10 a pair. Nucor or another minimill will hack 40% off a price quote on sheet steel to Ford. Then the war will be on. Inflation, don’t make me laugh. Price wars will be rampant. We might see 99 cent gas as a loss leader.

I’ve been talking to many smart people in the machinery and machining business lately about pricing. People seem to have an underlying sense of disquiet but seem happy to loll with the status quo for as long as it lasts.

Folks, I hope it lasts through 2015, but frankly I do not think it will. The dike will show holes and we will not have enough fingers to plug them. The Japanese have made the first big move by shrinking the yen. The 20 years of malaise plus Fukashima five years ago have pushed them to take actions that a few years ago would have seemed radical. Fanuc, with its production without people, would seem like a company that could cut prices in half if it was inclined. It has a powerful market position and makes a ton of money, but what if the company decided to go for a virtual monopoly in machine tool controls by killing the price or adding features without raising prices? What would Siemens do to combat Fanuc’s market hegemony?

We could see a price war among Japanese machine tool builders, which could challenge Haas and Chinese builders. We have not seen this yet, but customers and distributors may eventually force a showdown. The situation is complicated because production is spread all over the world. A lot of “Japanese” machines are made in China. Japanese car companies have factories across America and Mexico, but the yen devaluation is eventually going to upset the status quo.

IMTS could have been the first salvo in price reductions, but it did not happen. There is social pressure to keep the lid on pricing, but I can imagine Gene Haas looking at a 100 machine order from a General Electric for vertical machining centers and Japanese and European builders eying the same order. The purchasing lady at GE wants to make a career move and low-balls an offer.

Game on. It could be an exciting year in the trenches.

Question: Do you prefer a strong American dollar or weak one?

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