By Careful Spender

Practical financial lessons are rare in school, and lately I’ve been noticing the lack of sophistication and street smarts that my fellow 30-something friends have about money. Many of my friends have given up hope that they can live any other way but in debt and paycheck to paycheck, and have accepted their situation as permanent. They don’t talk about it too much, but I see a heavy cloud hanging over them. These are my peers and my friends – some of America’s struggling and under-employed 33-year-olds, with $34,000 of student loan debt, an annual salary of $24,000, and a $25,000 car loan. Personally, I have been able to resist the 0% interest new car loan and credit card disasters, but some of my friends haven’t been so smart. They don’t know how far in the red they’ve gone. They have mired themselves into an 8-year loan on a depreciating car and wedded themselves to a usurious credit card with compound interest. They are stuck.

CHRISTINE
My friend Christine is a 31-year-old worker at an animal shelter. She’s been there for nine years and now makes $12 an hour answering phones, cleaning litter boxes, and processing applications. She’s an incredible worker. She treats the shelter as if it were her own business, and in return gets a moody bitchy boss, works every weekend, and hasn’t had a raise in three years. She stays because she believes the animals need her, and she’s afraid to move out of her comfort level. She’s the kind of worker you’d sell your kidney for.

Christine lives in a trailer park where the lot rent is $575 a month, and she regularly has sewage backing up into her teeny lot. She’s lived there for several years with her pot addicted high school boyfriend who doesn’t work – never has and never will. They live together mostly as roommates now. She would marry him if he asked, but he hasn’t brought it up.

At her boyfriend’s urging, Christine bought a new Toyota Rav4 at just under 5% interest last year, with many kudos from her Facebook friends. She couldn’t tell me how much the car cost or how long she’d be paying for it. All she knew was how much the monthly payment would be.

Christine has never left Illinois and frequently talks about winning the lottery. She bought a house in 2006, but lost it in 2009 to foreclosure. Her dream is to own a modest 800 square foot house with a fenced-in yard for her two little dogs. Christine will be paying off her student loan of over $20,000 for the next 20 years or so.

KARA
Kara is a 25-year-old department secretary at a local college. She never finished college herself, even though she is bright and quick-witted.

Kara has a four-year-old child fathered by her on-again off-again boyfriend of seven years. The most recent time they got back together, he had a job working at a factory and had promised he’d buy her a house. She went back to him, and they lived in the home for about two years. Then one day he threw a fit at work and punched the time clock – literally – and was promptly canned.

Kara calls him a baby. She says he’s always whining about things and demands that their house be spotless, even though she’s working full-time too and drives their daughter 30 minutes every morning and night to be taken care of at her mother’s house.

Their pathological pattern is for him to insult her then win her back with expensive jewelry. They love 0% interest store credit cards, one of which awarded them the largest outdoor projector screen I’ve ever seen in a backyard.

When he recently lost his job, she left him alone and penniless in their house and moved back in with her mother. When he wasn’t working, she couldn’t stand to have him around so much and hated his neediness. She took their daughter with her.

The last time I saw Kara on Facebook she was selling a baby car seat for $20. I asked her how she was doing and she replied, “broke.” I truly believe she did not have a dollar to her name.

ALEX
Alex is a 37-year-old woman. She used to run a fancy clothing store at the mall, not just one store, she managed the entire Midwest region. The stores consolidated, and she lost her job in the crash of 2008.

Because she and her husband had filed for Chapter 13 Bankruptcy four years earlier, Alex decided to get a job that was not on the books, so she started cleaning homes for cash. She has built up an extensive network of clients who own fancy homes on Lake Michigan. They call her and keep passing her name along. She’s recruited two friends to expand her off-the-books business.

Alex has one 19-year-old son who still lives at home and recently stormed out of his job at Wal-Mart when the manager wouldn’t accommodate his scheduling request. Now he’s collecting carts at a local grocery store. He was given his grandmother’s old car as a high school graduation present, but it sits unused in their driveway because he can’t hold onto money long enough to make an insurance payment. Alex has to drive him to and from work.

Alex’s second husband of 10 years has no patience for her son’s laziness and wants him out of the house. Her husband also struggles with depression and blames Alex for his unhappiness. His latest destructive thought is that she’s just with him for his money. Alex is afraid he’s cheating on her.

I’m the first to admit that fear is my main motivation for being debt free and having a nest egg. I’m blessed with a streak of old-fashioned independence and fear of embarrassment at the thought of asking family or friends for help. But I think it’s a healthy fear and a positive kind of pride. At least I won’t be selling junk on Craigslist to eat this week.

Question: What financial mistakes did you make when you were young?

By Lloyd Graff

It looks like Paul Ryan, the new Speaker of the House of Representatives from Wisconsin, delivered the goods for manufacturers in the massive tax and spending bill released for public consumption on Tuesday.

The vital Section 179 allowing the depreciation of capital equipment to offset profits in a given year, up to $500,000, is in the package. The provision, rather than being good for only 2015, now has no expiration date. This will enable owners and managers to plan with some certainty and not have to scramble at year’s end to buy a machine or vehicle, which improves the company’s productivity.

Section 179 is extremely important to small companies, which may have the money to buy only one piece of necessary equipment all year – if they get the little push of a tax benefit. For the sellers of machine tools, the uncertainty of the last few years has played havoc with stocking decisions and forced all-nighters ahead of the Christmas holidays in order to deliver equipment before the end of the year.

The stupidity of waiting until mid-December to make a deal is apparent to both Republicans and Democrats. The pundits say that if John Boehner had remained Speaker we might have had a gunfight in Washington resulting in a government shutdown with both sides preferring suicide rather than being perceived as weak.

Paul Ryan is from Janesville, Wisconsin, a few miles north of Rockford, Illinois, once a machine tool Mecca with Sundstrand and Barber-Colman. Parker Pen used to make the T-Ball Jotter pen in Janesville. I think Ryan has some feel for the needs of manufacturers and the value of improving equipment in the face of world competition. I do not want to put a crown on Ryan’s head for passing Section 179, but just like a football coach or a baseball manager can set a positive tone in an unwieldy organization, a Speaker like Ryan, who is respected by Republicans and at least tolerated by Democrats, can move the ball.

I have been a fan of gridlock in DC because I thought it could prevent a lot of harm, but Section 179 is a case where gridlock would have been a killer.

It is early to predict the 2016 elections, but if the Republicans end up with an unelectable Donald Trump as the Presidential Candidate, yet manage to hold onto the House, Paul Ryan will be the clear leader of a Republican Party in shambles. I think that is a slightly hopeful thing for America.

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The Federal Reserve finally raised interest rates by a quarter point. We have been waiting for it for seven years, so many people see it as smart and inevitable.

I see it as dumb and unnecessary.

The economy is on the verge of a commodities crash recession. We have deflation in a large swath of the economy. Banks are loaded with cash, yet slow to lend. Unemployment is statistically low, but in reality, quite high if you look at the weak labor participation rate. The dollar is killing virtually every other world currency making American goods and services hard to sell. Europe worries about deflation, and we should too.

Wages, except for skills like programming, are stagnant. Janet Yellen, head of the Fed, wants 2% inflation. We are at 1.3% and rate hikes will flatten that number further.

The rationale she gives for the rate rise is that if we were to go into a recession, she would then have room to lower rates. Idiotic reasoning.

Raise rates and possibly cause a recession, so you can then lower them to fight it. Brilliant.

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Star Wars comes out today. Harrison Ford makes a cameo appearance. Hooray. I may see it when the crowds recede.

If you want to see a really good flick, I recommend Brooklyn, an amazing movie about an Irish immigrant to America in 1953, and her struggles with adapting, homesickness, and love.

I also loved Spotlight, about the three Boston Globe reporters who uncovered  the cover-up of child abuse by the Catholic Church in Boston.

I’m sure Star Wars will be fun, but for me it’s in a Galaxy too far away to get excited about.

Question: Has it been a good year for you financially?

By Lloyd Graff

Frank Sinatra was born 100 years ago this week and this anniversary has gotten a lot of play in the media. Sinatra has long fascinated me. Few entertainers of renown have been so obviously abrasive yet consistently popular. I still listen to Sinatra’s songs and I love his sense of phrasing, and his ability to sing a lyric so perfectly you think he’s singing straight to you. I have always loved to sing. Some of my happiest moments ever are of our family together around the piano at our home, my sister Susan playing flawlessly and us singing from the sheet music.

We’d do mostly songs from musicals, but there would usually be a little Sinatra music in the medley. We had to include “My Way” for the night to be complete.

One thing I learned this weekend while listening to Sinatra retrospectives was that he could not read music. He never wrote a song or penned a lyric. He just sang – but his genius was that he felt the music and could convey its essence like few other entertainers. I heard Andrea Bocelli on a PBS concert Sunday, the remarkable Italian singer. Amazing voice and wonderful musicality, but I felt I was listening to a purely technical singer, and the music did not have the connection to the lyrics that Sinatra had. Sinatra and his music were beautifully connected. That was his gift and that’s why we celebrate his 100th birthday.

*******

Baseballs’ winter meetings are over and most of the best players have signed monster contracts. My team, the Cubs, signed outfielder Jason Hayward, and the most versatile player in the game, Ben Zobrist. On paper, they should win 100 games and go to the World Series, but the best players rarely make for the best team in Major League Baseball. Last year the Washington Nationals looked unbeatable going into the season and then laid an egg. Kansas City had no stars and weak starting pitching, but they clearly had the best “team” in baseball by October.

A team is more than stats and stars. It is about playing together unselfishly, submerging individual egotism and going for the win. Talent is obviously important, but when you have a lot of very good players like the Cubs do now, the task may be more to find the chemistry than to add another star. This is where the manager of the team is crucial over a long, long season. He understands the egos. He senses when players need to rest. He can accept the fact that players have slumps and then eventually come out of them. Except when they don’t, and you have to bench them or say goodbye.

And the young players have to accept their own failures, yet somehow believe they will get better.

I sometimes wish a business was like a baseball team where you could draft young talent, with the worst teams getting first crack at the best players. In the real world, the best teams have both more money and greater access to future stars. Weak businesses languish and then die.

Question 1: Do you like Christmas? Why? Why not?

Question 2: Is Adele the next Sinatra?

By Jerry Levine

Being a longtime moderate Republican, I am dismayed by the shift of the party’s base to an extremely angry conservatism. Trump and Carson have tapped into this base, and most of the umpteen others have jumped in too.

The base is angry. They are angry at terrorists, government, the banking system, immigration, the unequal economy, blue collar and white collar job loss, the rate of technological change, and at social issues like gay marriage, abortion and one-parent families. Finally, many are angry about any infringement of the Second Amendment. This anger is heightened by the 24/7 news media with mostly liberal talking heads blasting them.

Worse, they feel they are becoming powerless to stop or slow these changes.

The Republican Party is at a tipping point. To quote David Brooks, the New York Times house (not very) conservative, “It’s (not) any exaggeration to say the next six months will determine the viability of the Republican Party.” The demographics (age, ethnicity, metro vs. rural, sexual life style, etc.) of the country are changing and voting patterns will change to favor Democrats.

Brooks says, “Republicans must ask themselves, are we as a party willing to champion the new America that is inexorably rising around us, or are we going to recede in the rear view mirror of an America that is never coming back?”

In his book, America Ascendant, Stanley Greenberg (a Democratic pollster for Clinton, Gore, and Tony Blair among others) answers Brooks’ question with a resounding, “Yes, the GOP is near collapse!” And once that happens, the New Democrats will reform government in their image. While I disagree with many of Greenberg’s conclusions, there are many nuggets to glean from his extensive polling data.

America is being transformed by revolutionary changes. These changes create opportunity according to Greenberg, “to renew America and make it possible for America to be exceptional again.”

America is being fueled by revolutions in energy, immigration, innovation, big data, advanced manufacturing, and growth and change in metro areas. Democrats are aligned with the growing trends, while Republicans are fighting them. The GOP is the party of the oldest, most rural, most religiously observant, mostly married white voters. The GOP is barely considered by Millennials, the secular, the foreign born and people of color. The Party is not competitive in the country’s most dynamic growing metro areas.

Energy Revolution

Greenberg’s first area of American ascendancy is energy. He rightly points to fracking, 3-D seismic technology and horizontal drilling as having a major impact on our economy and world politics. America’s low energy costs are revitalizing energy intensive industries like steel, glass and petrochemicals. Fracking was developed largely in spite of government, not because of it. Along with the energy development, Greenberg also touts many CO2 emission reductions. But much of what he touts never happened. The advances he lauds in his book are merely press releases. The substance is not there. My former employer, BP, was a master at that, and look where they ended up.

Immigration Revolution

Greenberg does get it right on immigration. The best and brightest from all over the world are being educated at American universities, and 70% of the PhDs stay here. Greenberg points out that 25% of U.S. Nobel Prize winners were immigrants. The United States also benefits from unskilled and blue collar labor adding energy and wealth, and value in both services and manufacturing.

Innovation Revolution

Greenberg touts America’s innovation revolution. An R&D triad has evolved—industry government and academia. The book focuses on Silicon Valley, but one can include Boston’s Route 128 or Raleigh-Durham’s Research Triangle Park, as well as many others.

America is once again becoming one of the most productive places for manufacturing in the world. Markets are also doing well. Raw materials are plentiful, energy is cheap, and automation and skills are great. And this is old boring manufacturing. New high-tech from nanotechnology to biotech to artificial intelligence is exploding in the United States like no other place in the world.

Metropolitan and Millennial Revolutions

America’s cities and metro areas are now the engines of economic prosperity and social change. There is a return to urban life, away from rural and even suburban life. In cities there is a clustering of immigrants, younger people and the best educated. The radical changes in family, life-style and culture feed on one another to create innovation and drive economic growth. Eighty percent of Americans live in cities and produce 85% of the GDP. In Europe it is about 60%. Both young and older people today are not automatically buying single-family homes in the suburbs, but rather are moving to smaller rental units in the inner city close to public transportation.

Household size is declining, so less space is needed. Single person households will soon equal households made up of families. A large percentage of Millennials (people born between 1981 and 1997) don’t even own a car. Zip Cars and Uber are replacing the family car.

Millennials now number 75 million and are equal in size to Baby Boomers. They will make up 40% of eligible voters by 2020. Greenberg expects them to tilt the scale further to the left. However, young people have a habit of growing older and wiser—and more conservative in middle age, so we will see how this shakes out.

Overall, the demographic trends favor the Democrats, and the difference between the parties is expected to grow. Again, to quote Brooks, “Republicans must ask themselves, are we as a party willing to champion the new America that is inexorably rising around us, or are we going to recede in the rear view mirror of an America that is never coming back?”

Question: Donald Trump: Love him or hate him? Why?

Jerry Levine worked for Standard Oil and BP for over 30 years, working as an engineer and lobbyist later in his career. He has written book reviews for TMW for a decade.

By Lloyd Graff

Are you happy about the price of gas falling below $2 per gallon? You probably should not be. You should feel angry and scared, unless you drive 150,000 miles a year or make mostly automotive gear. If you live in the rest of the machining world a sinking feeling should accompany the sinking price of petrol and natural gas.

We are in a severe commodities recession now and may be headed toward a deflating commodities depression. The price drop has been caused by several factors and currently shows little sign of reversing. The biggest reason is China’s slowdown in manufacturing. Ok, you’re no fan of the Beijing Bandits, but they fueled the commodities boom of recent years and now they are taking us down with their waning appetite for goods.

China’s leaders are desperately trying to guide their economy to a soft landing as they move away from an economy based on manufacturing to one more weighted toward tech and services. This is an extremely difficult task, and they may not be successful in making a stress free de-emphasis from making things, what they have done for 30 years.

Virtually every commodity related to making things, including food like corn and wheat, has been murdered over the last year. Oil is the poster child, affected by slack demand. Saudi Arabia’s willingness to allow oil’s price to fall by not curtailing its production is partially because it fears Iran is taking its market share. U.S. production has rebounded with fracking, which has brought forth major new production in North Dakota, Texas, Ohio and Pennsylvania. Natural gas is killing coal in the U.S. for power, yet prices continue to sink even as it is used more, because of conservation and mild weather.

Metals like copper and nickel are falling with slack Chinese demand. They are setting multi-year lows almost daily. Speculators are doing what speculators do, leaning on prices when they are dropping, thus exacerbating the fall. The dollar continues its strong rise against almost every world currency. The euro has fallen almost 30 percent from its peak and is near parity with the greenback. The Canadian dollar, which not long ago was worth more than the U.S. dollar, has fallen 30 percent. This is brutal for U.S. exports. It is tough on the machining world here.

The tractor market stinks, hydraulics are lousy, construction machinery is mediocre, oil and gas are ugly, mining is a disaster. This is a lot of bad news for our machining world.

So automotive is thriving with cheap gas, cheap financing, and the world’s car makers here in North America are enjoying themselves with an 18 million unit year.

The Fed may raise interest rates a tad in December, but Janet Yellen has to be scared about a strengthening dollar, the possibility of a hard landing in China, a fiscal mess in Washington, and a declining participation rate in employment, which masks the huge unemployment rate for the poorly educated. The Wall Street bond players keep lobbying the Fed for higher rates. Bernanke and Yellen have resisted behind the scenes because of just what is happening now – the potential for a China and commodities double dip.

So are you reveling in that cheap gas at the Shell? If it gets much lower you may want to crawl into your shell.

On the positive side, Today’s Machining World’s spies tell us that Section 179 tax deductions for capital equipment may sneak in before Dec. 11. Congress is doing its usual dance before the Christmas break. I’m hoping for the best with the China-commodities headwinds. Make sure to call your local Congress Person to help get the bill passed!

Question: What is the best pickup truck on the market?