Monthly Archives: April 2018

Hiring Line

By Lloyd Graff

The Precision Machined Products Association (PMPA) Tech Conference just ended, and I had a chance to talk to many of the stalwarts in the machining business. I was hoping to get a feel for the hiring situation that was more nuanced than “you just can’t find good people,” which I know is the fall-back cliché of folks who are going through the motions of building their businesses.

The feedback I received was insightful. Victor DaCruz of DaCruz Manufacturing Inc. in Connecticut told me that he thinks the hiring issues are resolving themselves even in one of the most expensive locations in America. He says young people have moved away from the litany of “you must go to college to get a good job.” They have bought into the technical training idea that avoids the college debt malaise that kids see bedeviling their peers. He recently advertised looking for a person to train as a quality inspector and was engulfed in applicants. He wasn’t offering a fortune, $14 per hour, which is Amazon or Kohl’s type of pay for the area. Victor accepts the notion that he will need to do some in-house training to bring a new person to his standard, but he is optimistic that he can find bright young people to build his firm.

Mike Petrusch of Cox Manufacturing in San Antonio was not so upbeat about the caliber of folks who are available to him in San Antonio. He says the kids coming to Cox out of local tech schools are woefully weak in math skills and basic machine shop fundamentals. They also are quite naive about their value in the real world. On the other hand, Mike shepherded a half dozen fresh young faces to the conference so Cox must be finding a few nuggets in the dross.

Harry and Scott Eighmy of American Turned Products run a successful machining firm in Erie, Pennsylvania. To some degree they have built their family firm on the bones of unionized old companies like General Electric and American Sterilizer Company. GE’s locomotive division used to be the largest employer in Erie, but most of the operation that survives is in Texas today. The $28 per hour staring pay negotiated by the unions killed the Erie operation and left a residue of overpaid, unmotivated blue-collar workers in the town.

Though the sclerotic big firms are withering, a profitable batch of entrepreneurs have built on the infrastructure of blue-collar skills to build successful manufacturing firms. GE Locomotive was sloppily managed, but the culture of machining skills it fostered through the years has been the fertilizer that has helped resourceful people in Erie to thrive.

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The economic news of the week gives a multicolored picture of the labor market we are dealing with in the machining world. Profits are coming in happily robust for the gigantic public companies like Google and Chase Bank. The tax cuts are definitely giving them a boost. Small business confidence has also soared over the past 18 months to almost record levels. Biggest problem is hiring. Interest rates are trending up. The 10-year Treasury which dictates mortgage rates has finally nudged the 3% level, meaning that house financing is costing more. New home sales are not as robust as we would expect in a 4% unemployment environment.

The Tuesday Wall Street Journal ran a front-page article on how Warren Buffett’s railroad, the BNSF, is paying signing bonuses of up to $25,000 to get hard-to-find employees. I’ve also been reading about bottlenecks in the Permian Basin of Texas, America’s Saudi Arabia, which are making it hard to get the oil to pipelines and ports.

Another interesting stat this week is that shipments of Class 8 trucks for the first quarter were the second highest in history. Trucking firms are really struggling to hire drivers now, yet they are ordering a lot of new big rigs.

If you imbibe the popular media you might think America is a mess, but for folks on the front lines of making and moving stuff it is a beautiful moment to be working.

Question: Do you think it is a good time to quit your job?

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Profilometer

By Lloyd Graff

I’m writing this blog in my new favorite Starbucks in Flossmoor, Illinois. All of the employees are African American women. I am one of three white people in the shop. If there was ever a company whose culture frowned on racial profiling it is Starbucks, with its Jewish founder, Howard Schultz, son of a New York cabbie. Yet at one of its shops in an upscale neighborhood in Philly, a couple of well-dressed black men ended up in handcuffs because an employee of Starbucks freaked out and called the cops when the guys wanted to use the bathroom and hadn’t yet ordered their Frappucinos.

Profiling happens all the time and it stinks.

To stereotype, to profile, is human. It’s a means of protection built into our brains. It’s a decision-making approach taught to us almost from birth.

I have learned through the years that one of the beauties of everyday life is that profiling is such an imperfect tool for making accurate judgements. Its flaws present us with opportunities to exploit the fallacies of stereotyping.

Profile of a Starbucks cup.

For running a business, profiling is the screening device we use, consciously or unconsciously to make decisions. Too fat, too ugly, too young, dresses inappropriately, dropped out of school, served time, wears his hat funny, gets around in a wheel chair, farts a lot, too old. We have a million disqualifications. In our machinery business, Graff-Pinkert, we try to use profiling of unloved machine tools to our advantage as we hunt for unloved gems in the scrap category.

A couple years ago, the best college pitching prospect in the county couldn’t get an offer to play professional baseball because he had an embarrassing sexual incident in his past. The kid was completely blackballed by Major League Baseball. The incident happened 10 years earlier. Was it fair?

Is life fair?

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One of the funnier cases of profiling, very literal profiling, took place a dozen years ago and was recounted recently by Michael Lewis in his book The Undoing Project. Lewis has a long chapter on Daryl Morey, the general manager of the Houston Rockets, who are favored to win the NBA Championship this year. Morey recounts his struggles through the years trying to figure out what players to draft, sign or trade to build a championship team.

He brings up the story of Marc Gasol, a Center from Spain whose brother Pau was already a respected player in the League. Marc had most of the pedigree to be a top five pick in the draft.

He had skills, a shot, a height of 7’1”, and a brother in the NBA. A no-brainer pick, except that the scouts and GMs hated one thing—his body type. Poor Marc Gasol had breasts. Because of his “man boobs” the profilers, the NBA draft mavens, all whispered with their half smiles that Marc really wasn’t “our kinda guy.” He went #48 in the 2007 draft. Upon entering the NBA, Gasol worked on his fitness, hit the weight room and became an NBA All Star for Memphis.

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One more stereotyping story to savor. Last Monday’s Boston Marathon was run in brutal weather conditions. Freezing cold, sheets of rain. Perfect weather for Boston in April. Boston is the premier marathon in America and most of the top distance runners in the world compete there. The great marathoners do not pay to enter the competition. The best ones are guaranteed their expenses and sometimes are paid just to show up.

Vegas puts odds on the favorites, and very rarely does an outsider break into the top group. But in 2018 it happened.

Sarah Sellers, a 26-year-old nurse from Arizona, paid her $180 entrance fee. She runs at 4:00 a.m. back home in Phoenix because her job as a nurse anesthetist doesn’t afford her a lot of training time. She came partly because her husband Blake was running too. Sarah had run cross country and track at Weber State and was an Academic All American. But she isn’t a marathoner. Boston was her second marathon.

She just kept pushing in the horrendous conditions of Boston, and all of the big names kept faltering. She was 25th at the midway point and 13th at 20 miles. Sarah just kept running and finished the race in second place, collecting $75,000 in prize money and a spot in the Olympic trials.

The profilers in Boston and Las Vegas didn’t know her name before Monday in Boston.

Question: Is profiling necessary for successful law enforcement?

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Rocket Men

By Noah Graff

I’ve always thought space travel was cool and interesting, particularly as a kid, but I seldom romanticized it like so many other people do.

I think it’s a generational thing. The Space Shuttles of the ‘80s and ‘90s were neat but those didn’t travel very far and they seemed too practical and utilitarian to me. Working on the Hubble Telescope and taking photos of earth and other planets was cool, but most of the news I heard about the Shuttles came when they blew up. The moon landing was amazing, but it was 49 years ago! So that has generally felt kind of “been there done that” for me.

I just read Rocket Men by Robert Kurson, a book documenting the story of NASA’s Apollo 8 mission in 1968, and my perspective on NASA and space travel has changed. I doubt most people nowadays even know what the Apollo 8 mission was. They know about the mission that landed men on the moon, though probably not by name (Apollo 11). Apollo 13 was the only Apollo mission I myself could name before I read this book because I had seen the great Tom Hanks movie about it.

View of the moon from Apollo 8 .

Apollo 8, launched 50 years ago, is arguably the NASA mission that most changed the world. It was the mission that sent a manned spacecraft to the moon and orbited it 10 times, not the mission that landed men on the moon. Apollo 11 was momentous, but Apollo 8 was the bigger achievement. Space travel had begun only a little more than a decade before it, and until that point in time the farthest any manned space flight had traveled was 800-some miles. To get to the moon’s orbit and return back to earth a spacecraft had to travel almost 250,000 miles at speeds up to 25,000 miles per hour. The ship had to have the power to break out of Earth’s orbit, enter the moon’s orbit, then break away from the moon’s orbit again and return to earth. Its instruments had to make extremely precise life or death calculations using computing power a micro-fraction of that found in a modern smartphone. The spacecraft’s so-called Apollo Guidance Computer was more basic than electronics in modern toasters that have computer controlled stop/start/defrost buttons. Upon reentry to the earth’s atmosphere the Apollo 8 spacecraft traveled in excess of 24,500 miles per hour and the computer took over flying duties. Some compared finding the entry corridor to throwing a paper airplane into a public mailbox slot from a distance of four miles.

Had a trip to the moon developed in conventional NASA fashion there would have been several missions prior to it in order to incrementally overcome the challenges of such a voyage, perhaps over the course of two years. It made sense to proceed with caution because just a year before, the Apollo 1 mission had ended tragically in a fire on the launchpad, killing the mission’s three astronaut crew members. In the summer of 1968 the odds of reaching John F. Kennedy’s goal of sending a man to the moon before 1970 and beating the Soviets in the Space Race seemed bleak. But on August 3, 1968, while sitting on a sandy Caribbean beach, George Low, one of the most important engineers at NASA at the time, had an epiphany. Suddenly it dawned on him that with the right plan and some good fortune it actually was possible for NASA to send a manned spacecraft to the moon in four months, arriving at the moon on Christmas eve. Remarkably in a matter of days he was able convince NASA and the U.S. government to attempt this audacious goal.

Had the Americans not shot for the moon in 1968 they likely would have lost the Space Race. Many accounts say the Soviets would have been capable of attempting a similar mission only two weeks after Apollo 8 launched. By September of 1968 the Soviets had already successfully completed a circumlunar voyage carrying passengers of tortoises, wine flies and meal worms. Why not a person?

Around the world many people said the idea of sending a manned spaceship to the moon by Christmas of 1968 was a reckless suicide mission. Imagine if the mission failed. A person could never look at the moon the same way again on Christmas. They questioned risking innocent people’s lives by rushing a mission just to win bragging rights. And it was the MOON! I try to place myself at that time period and I think I might have thought the idea crazy as well. It’s still hard to fathom. The MOON—that sphere in the sky, literally another world. A person had to travel 250,000 miles in a tin can to get there. At the time, deep space was only something in science fiction, but it is a mind boggling and surreal concept for me even today.

Not to mention, this pie in the sky mission was conceived in the midst of one of the most turbulent years in United States history. Americans were divided. The war in Vietnam was escalating. Race riots and assassinations filled the news, and people feared the Soviets were ready to start World War III.

But when Apollo 8’s Saturn V rocket launched Dec. 21, 1968, the world looked up and united for a moment. The mission was unprecedented and in its own way, bigger than all the conflicts raging on the ground. The Pope blessed the voyage before takeoff, and 65 countries tuned in on Christmas Eve to witness the ship’s broadcast from the moon’s orbit, including the Soviet Union and East Germany. Apollo’s three man crew had agonized for weeks prior to the trip about what to say to the world if they indeed reached lunar orbit on Christmas Eve. They consulted with just a few people to prepare a speech, and the wife of one of the writers they contacted finally gave them an idea of what to say. The speech was kept in complete secrecy from everyone, including NASA and their own families.

The three astronauts read the opening passage from the first book of Genesis.

William Anders

“We are now approaching lunar sunrise, and for all the people back on Earth, the crew of Apollo 8 has a message that we would like to send to you.”

In the beginning God created the heaven and the earth.
And the earth was without form, and void; and darkness was upon the face of the deep.
And the Spirit of God moved upon the face of the waters. And God said, Let there be light: and there was light.
And God saw the light, that it was good: and God divided the light from the darkness.

James Lovell

And God called the light Day, and the darkness he called Night. And the evening and the morning were the first day.
And God said, Let there be a firmament in the midst of the waters, and let it divide the waters from the waters.
And God made the firmament, and divided the waters which were under the firmament from the waters which were above the firmament: and it was so.
And God called the firmament Heaven. And the evening and the morning were the second day.”

Frank Borman

And God said, Let the waters under the heaven be gathered together unto one place, and let the dry land appear: and it was so.
And God called the dry land Earth; and the gathering together of the waters called he Seas: and God saw that it was good.”

They ended with the captain Frank Borman saying, “And from the crew of Apollo 8, we close with good night, good luck, a Merry Christmas – and God bless all of you, all of you on the good Earth.

We find ourselves in another divided United States right now, maybe the most divided since the time of Apollo 8. Russia is still an adversary but seemingly less of an immediate threat to our existence. The U.S. now collaborates with the Russians and other nations on the International Space Station. NASA doesn’t launch its own manned rockets or Shuttles anymore. It hasn’t sent a man to the moon since Apollo 17, 46 years ago.

Elon Musk says he hopes his company, SpaceX, will send a crewed mission to Mars in 2024. How much will I care about it? Is that mission as hard to fathom today as sending a man to the moon was in 1968? Would reaching Mars be more of an achievement than Apollo 8 reaching the moon? Will such a voyage take a leap of faith like that of Columbus or Apollo 8? Will sending people to Mars unite today’s world temporarily like sending men to the moon did?

Question: Is sending people to Mars important to you?

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Current Change

By Lloyd Graff

How do you deal with change? I’m talking BIG CHANGE. Existential change in the way you do business.

We are witnessing it being played out every week now in the drug sales world. CVS is buying Aetna Insurance, Express Scripts is combining with Cigna Insurance, and Wal-Mart is exploring a deal with Humana. These mergers are defensive moves because the health care delivery business is living in mortal fear of Amazon making a big move into the industry, which most people see as ripe low hanging fruit waiting to be plucked. Amazon, Berkshire Hathaway and Chase are combining efforts to develop an end run around traditional health insurance.

Many people more connected than I am think the machining world, particularly high-volume turning aimed at the automotive industry, will soon face similar existential change. This view is based on the growth of electric vehicles, which use significantly fewer machined parts than internal combustion powered vehicles. Automotive suppliers as well as companies involved in the oil and gas products and distribution industry face a long-term dwindling demand for the stuff they provide. This will also affect the metals business, from mining to melting to rolling and trucking.

The big shift to electric powered rechargeable cars and trucks will be more visible in five years because the Chinese seem to be committed to allowing only new electric cars to be sold in the country within a few years.

Smog in Harbin in northern China.

China is a 13 million car market. The country’s leadership, almost out of self-preservation, realizes air pollution is an existential issue that cannot be pushed off indefinitely.

The move to electric is a big step, and while it does not address China’s coal fired electricity plants, it will ameliorate air quality and show people that the government wants to make the country semi-livable.

A billion Chinese folks wearing gas masks isn’t my primary worry. I am concerned that my traditional machining company clients will be choking as they compete for dwindling contracts for beautiful, accurate machined components that connect the petrol to the engines in the Chevys, Toyotas and Benzes across the world.

These days I frequently address the big “electric” question to clients who I know well. The answers I usually get are the kind civilians probably give when they know an invasion is coming but don’t know when. The answer often goes something like this, “I know it’s coming. We discuss it every week, but we need to make money today, and today our business is terrific.”

What are some good options for folks (like me) who see very good business short-term by continuing to do what we are doing but are fearful about the longer term trend.

• Diversify. Find a business where your skills translate but is unrelated to the internal combustion engine. Medical, firearms, plumbing, construction and military are some areas of interest.

• Improve what you are doing now. Gasoline engines will be around for a long time even if new sales taper off, so prepare to get a bigger share of a smaller pie, especially the replacement market.

• Redefine your narrative. If you define yourself as an automotive supplier or a screw machine house, change your mission to a broader one or a more specialized one.

• If you are a company owner, fatten up your EBITDA and look for someone to buy your firm. Private equity companies are quite interested in machining companies these days. They like the cash flows and most of them are relatively short-term players. If you have a five-year window of growth in the machining world as related to oil and engines this is the time to fatten the cow.  If you are not an owner go work for a firm which has made necessary changes.

• As a wildcard countermeasure, invest in copper and cobalt stocks or futures. If electric really takes off, the price of copper and cobalt (lithium appears to be on the way out) will climb dramatically. The Chinese have been buying up copper and cobalt assets like crazy, especially in the Democratic Republic of Congo in Africa. If they hog the supply for internal use, the rest of the world will bid up the price for what is available.

• Be on the lookout for the next big thing. It could be additive manufacturing, urban farming, exercise equipment, underground living, water purification, or a million other possibilities if you can change your personal narrative.

Question: Do you think you will be driving in an electric vehicle in 10 years?

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