Author Archives: Vincent

Swarf: Taking the Plunge

By Lloyd Graff

Today’s Machining World Archives January/February 2011 Volume 7 Issue 1

The key question facing American manufacturers, especially contract machining shops in the next two years is, how do you expand? Or, the interesting corollary question, is this the time to cash in?

Let’s be real, American manufacturing has always been cyclical and still is. We are a little past a year into the current upturn. With low interest rates, the 2012 presidential election run-up beginning, the depletion of domestic players and the competitiveness of North American industry, these should be two excellent years.

There is always a strong tendency to fight the last war, so a lot of folks are going to be reluctant to expand for fear of the next bubble burst, a la 2001 and 2008. The dilemma so many of us are faced with is that we cut back so deeply to weather the recession that it is hard both financially and psychologically to put it all on the line again. But some people will make the big bets and a portion of that group will win big.

This is the moment to ask yourself which camp you are in. Visibility of the future is always iffy, but I think the odds are strong that we have at least two fat years ahead. If you consider yourself a player who is in the game for the long term this is the time to plunge. If you can’t take the volatility of the manufacturing game, sell out in 12 to 18 months.

The train from Beijing to Shanghai goes 200 miles per hour. Amtrak’s Acela Express train from Washington D.C. to New York goes half that on a good day. But our erstwhile stimulus package of 2009 has a lot of money designated to make us slightly better than mediocre in rail.

They are upgrading the service between Chicago and St. Louis, Los Angeles and San Francisco, Miami to Orlando and Tampa, and that hot rail market between Albuquerque and Santa Fe, New Mexico.

Train travel is fun. Security is not as annoying as at airports and fares are pretty reasonable. My question is whether we can afford the cost of upgrading a third rate passenger rail system to a second rate one. Our interstate highway system is excellent and air transportation is still high caliber, so do we need to spend billions on passenger rail?

Anyone for buses?

Mike Jackson, the CEO of AutoNation, the big publicly held consortium of car dealers, says pickup trucks are flying out of his stores. He sees this activity as a reflection of the confidence of small business around the U.S.

Jackson is predicting a two or three year ramp-up to the 16 million car build rate, which has traditionally been the standard of automotive well-being. With GM and Ford solidly in the black at 11.5 million units they will be coining money at 16. My question is whether the auto infrastructure can quickly accommodate 16 million. From a precision machining standpoint we are beginning to push the comfortable limits of production now in place. A 40 to 50 percent increase in build rate will strain everybody to meet requirements.

I talked to Kevin Meehan of Hydromat recently about the ability of his clients to expand production. He’s seeing some activity, but he thinks the big Tier Ones in Europe, particularly those in Germany, will be in the catbird seat to provide the sophisticated assemblies that will be in short supply. The Germans maintained their automotive infrastructure, while in North America we allowed the market to gut part of the supply chain.

The opportunity to get fat and happy during the impending U.S. car up tick may be more a bonanza for the Germans than for companies in the New World.

There are at least three cable series currently chronicling the business life of pawn shops. What is then fascination with people borrowing against baubles or selling their junk to professional peddlers for rent money?

I get a kick out of these shows and their genteel predecessor, Antiques Road Show, because the used machine tool racket that I practice is a bastard cousin of the pawn shop. I’m dealing in esoteric machinery which could be fodder for the furnace, or somebody’s stake to a fortune in Turkey or Topeka.

But I’m not only a purveyor of oily, wreaking junktiques from the basements of defunct car making mausoleums. I have my own collections of metal skeletons that have no logical home. Who wants a stock reel for a 4-spindle Conomatic? Who covets orphan bearings for random spindles for who-knows-what machine that used to be made in a now demolished factory in Vermont?
Somebody may want my crusty flotsam and Jetsam, but who buys the pawnbrokers’ crap? If I’m the supposed authority on machine tool dinosaur bones, who’s my pawnbroker?

Once I almost traded an Acme for a yellow Mercedes convertible. Should have done it. Dumb iron is just dumb iron, unless it’s got a Fanuc control.

Goldman Sachs is valuing Facebook at $50 billon and I am still calling my kids on the phone and texting only if I’ve got a magnifying glass available.

Frankly, I don’t care what my third cousin’s niece had for breakfast or if a high school acquaintance just had a prostate biopsy. I’m not particularly social, but I do love media. I know Facebook CEO Mark Zuckerberg is Time’s Man of the Year and his success is legendary, but for a 60-something guy like me, Facebook seems like an Internet tinker toy.

What am I missing here? Are any of you machining brethren, machinery mavens, media types, etc. actually using Facebook either personally or professionally? Or is it just the province of children, teenagers, and Generation X, Y, Zers?

The growth of Facebook has been stunning, and Zuckerberg vows to connect the world. Every Bolivian lithium miner, vodka stained Finnish reindeer rancher, and Polynesian pearl diver supposedly will be clutching their iPhone waiting to connect with a sopping lobsterman from Maine. Six degrees of separation between Osama Bin Laden and General Stanley McChrystal.
Readers, bloggers, actual friends, please tell me about your Facebook divorces, your Facebook reunions, or better yet, your Facebook sales.

With the New Year beginning I wanted to see what the Sunday New York Times, the reflection of the Easternliberal elites, would be writing about. The front section was a montage of pessimism and orneriness about public workers’ pensions under attack, New York state’s financial woes as Andrew Cuomo takes over in Albany, and the inability of young workers to find liveable wage work in southern Europe.

The pieces were well done, but the editorial judgment of The Times was indicative of what I see as the disconnect of the public and business environment at this moment.

The politicians and elites (journalistic, academic and financial) are fixated on a problematic world economy while the people who have weathered the past three years are rearing to make money. You see this in the stock market, where the Gotham hedge funds and mutual funds have generally fought the tape expecting a double dip recession, deflation and more recently stagflation with commodities rising rapidly in price.

Meanwhile the Dow is up 80 percent from the 2009 low and Christmas sales were up twice as much as the consensus predicted.

The recent Purchasing Managers’ Chicago survey showed a stunning burst of industrial activity and almost everybody I talk to in manufacturing is bullish.

A few straws in the wind—I recently heard of two companies that flew heavy machine tools to the U.S. from Europe to get them on the floor in 2010. Also, with demand strong in China, machine tool firms in Japan are rationing supply because they do not want to shut out customers from around the world.

As I look at my Graff-Pinkert used machinery business I am wondering where we are going to find the skills we may well be needing in 2011.
The N.Y. Times is still looking at a 2009 world. Fortunately, we are living in 2011.

As Charles Barkley so eloquently stated in his first memoir, “I may be wrong, but I doubt it.”

Today I’ll put on my Carnac turban and peer into 2011.

I predict—the economy will grow much faster than most economists are forecasting. My number is 5.2 percent for the year. The manufacturing economy is taking off. Auto sales could reach the 14 million rate. Employment will improve with the tax issue settled for the moment and Congress writing the rules on Obamacare. Housing will still be tough, but the big problem children of housing—Florida and California—have both stabilized. Deflation will be off the table as will the dreaded double dip recession. Congress will actually start to seriously discuss the deficit because the Tea Party folk will balk at raising the debt ceiling in April.

I predict—Hilary Clinton will discuss running against Barack in 2012 but decide against it. Sarah Palin will travel to Iowa and decide to run. Mike Bloomberg of New York will look at the field on both sides and decide whether to run for President. I predict—he will decide to run as a Republican and will win the nomination and the Presidency in 2012. Bloomberg never loses. If he wants it bad enough and opts to run, he will become the first Jewish President.

I predict—The Boston Celtics will win the NBA Championship and Philadelphia will win the World Series. The surprise team in baseball will be Washington, but they are two years away from a pennant. The Cubs will finish a close second behind Cincinnati in their division.

Here’s hoping you don’t agree entirely and contribute your own fearless forecasts.

Maybe if you are living under a rock you haven’t heard of GROUPON™. But this two-year-old company allegedly had the chutzpa to reject Google’s $6 billion offer to acquire it.
So what do they do?

They sell coupons for goods and services on the Internet with good writing, a sense of humor, and a cool concept—the deals have a limited time frame and a minimum number of people need to take them before they kick in.

Noah Graff and I heard Andrew Mason, the 29-year-old founder of GROUPON™, at a Wall Street Journal forum on growing your business. We were fascinated by his story and self-effacing demeanor. As he told it, the GROUPON™ idea was not his brainstorm. He was interested in social media and had developed a Web site to attract young people to political meetings. A venture capitalist liked what he was doing and invited him to use the concept of attracting a minimum threshold group for a commercial purpose—i.e. selling discounted goods and services. As Mason recounted it, “he didn’t have anything better to do,” and “somebody was dangling a lot of cash in front of him.” So he went to work on the site with gusto. It caught on like wildfire, and he and his founders realized they had a monster by the tail. Mason started hiring salesmen and building infrastructure immediately, because as great an idea as GROUPON™ was, it was eminently copyable.

Since Noah and I heard Mason speak we have been working on our own version of GROUPON™ for the industrial world, which we call “The Real Deal.” The folks at Trusty-Cook Inc., a manufacturer of wonderful and unique non-marring hammers that replace the primitive lead and bronze hammers, immediately loved the idea and did their first Real Deal email blast in December. They have been very happy with the results and are signed up to do two more in the coming months.

If you think you don’t do discounts, think again. The possibilities are tremendous. If you want to do one give our Sales Manager, Dan Hummell, a call at (630) 715-4318, send him an email at dan@todaysmachiningworld.com, or email Noah Graff at noah@ todaysmachiningworld.com.

See how the Real Deal can grow your business.

I’ve been asked many times over the last 2.5 years since I almost died of congestive heart failure, if I am a changed man because of the experience.

The answer is yes and no.

I got back into my magazine work within days of getting home from the hospital. I was more passionate than ever to write my stories. The machinery business was harder to get into because in 2008 and 2009 business was so awful it seemed like anything I tried failed. I probably would have given it up if I could have financially, but after fighting so hard to live, I didn’t want to give in to financial duress.

Recently, I read a piece in Spirit Magazine, the publication of Southwest Airlines, about happiness. The thrust of the article was that we are programmed for happiness by our upbringing and biology, but on the margins we can decide to be happier if we commit to it.

This has been the case with me.

Since my heart surgery and a laundry list of ailments I actually feel happier and more content that at any other time in my life. At least partially, being happy is an exercise. I have made it a habit to make a mental note of things I’m grateful for every day. This is a regimen and I do it more regularly than walking on the treadmill. I believe it has made a difference in my personal happiness quotient.

I can honestly say I feel happier and more content today, 2.5 years after my Armageddon. Not that I would recommend it.

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Swarf: The Twinge Factor

By Lloyd Graff

Today’s Machining World Archives September 2010 Volume 06 Issue 07


Several years ago Graff Pinkert had a deal with a fellow who made a good living buying surplus machinery from government stockpiles and reselling it around the world. We talked about his bidding strategy and he told us his approach.

He would assess his risk in bidding on a bulldozer or crane and put down a price he was comfortable with. Then he would put down successively higher figures. When he reached the number that made his stomach twinge, he circled it and let it settle in his body for a while.

He told us he had learned from hard earned experience that the stomach twinge bid was the one that usually succeeded. The comfort zone bids won occasionally, but generally were also-rans.

I think the “twinge rule” is one of the most important and difficult laws to master for a business person. In business we negotiate with fear every week. Over time, many people understand their personal risk tolerance.

Some are adrenaline junkies and look forward to their “twinge” moments. Most people despise the fearful reaches and value predictability and safety.

The writer, Wayne Dyer, has written about going to a spa where there were a dozen sitting pools with temperatures ranging from very cold to very hot. Almost everybody gravitated towards the two pools that were around 100 degrees. He tried every pool and found he enjoyed them all.

Fear and uncertainty are constant companions in business today. The “twinge test” still works for those of us who can live outside the tepid zone.

The DMG/Mori-Seiki USA partnership is starting to pay dividends. I recently talked with a client who’s buying one and possibly two expensive DMG twin turret lathes. He liked the DMG technology, but he told me he would not have considered buying DMG if they were not selling through Maruka on the East Coast. Maruka is the Mori distributor based in Rocka-way, New Jersey, and it now also sells DMG. He trusts them, he respects his salesman, and he believes in Maruka’s support.
The DMG/Mori-Seiki showroom in Hoffman Estates near Chicago is a superb facility, but it is the reliability of Maruka that will ultimately make the New York sale of a $500,000 machine tool.

Are we in a period of deflation in America? Will prices for goods and services, real estate and machinery trend downward for the foreseeable future? Will wages also move down? Will the value of cash be greater and illiquid assets like homes and machinery get harder and harder to sell?

This is a question of enormous importance to not only econo-mists and statisticians, but to everyone who doesn’t live in a cave. The bond market is alerting us to the possibility of deflation, with the 2-year U.S. Treasury paying a .5 percent return and the 10-year yielding 2.6 percent. And this is in a period of trillion dollar federal deficits with foreigners supposedly skittish about U.S. debt.

If people are scared about repayment of principal or debasement of the currency, they will not accept less than three percent for 10 years.

The “sky is falling” inflation vigilantes who play the bond market were near apoplexy a few months ago about the pandemic of government deficits. Now many of the Henny Pennys, like Mohamed El-Erian of Pimco, are warning of deflation ala Japan in the 1990s.

I don’t think anybody really knows if we are entering a prolonged period of deflation, but I think that developing a contingency plan for deflation is wise. And the first commandment would be “Thou shall not own real estate.”

The worst thing to own during deflation is land and buildings. Better to rent with short-term leases and options to renew in case prices start to go way up. Small business people have traditionally built wealth by owning their buildings and renting to themselves, but this is absolutely wrong during deflation. Tokyo real estate has been a terrible investment for the last 20 years.

Leasing machinery and cars would be the way to go if prices slide. If a new Haas VF2 machining center dropped $10,000 in price over three years, the used value would depreciate accordingly.

An additional kicker is the likely appreciation of the U.S. dollar against foreign currency, which we have seen happen with the yen’s rise. This would make imports cheaper.

Deflation would bring wage deterioration and givebacks. We are already seeing a lot of this. We may soon be asking the counter intuitive question “Is my pay decrease in line with deflation?”

For the investor, big multi-national companies with well protected dividends would be the ticket. A company like Altria that pays six percent by selling to tobacco addicts might be a good bet, if you can stomach owning the stock.

If one figures in the recent drop in home prices, we are in a deflationary period now. It’s a depressing prospect, but if you adapt to it, perhaps you can make it work for you.

As the details gradually emerge from the BP oil spill it becomes more and more clear that the management in London had incentivized the troops in the field to skimp on maintenance to enhance the company’s bottom line. There probably is a connection between the BP refinery explosion at Texas City back in 2005 and the Deepwater catastrophe in the Gulf. It appears to me that London had incentivized its employees to emphasize the short-term bottom line and ignore the future consequences (see “Book Review”).

With the U.S. productivity statistics showing incredible improvement in efficiency month after month, it prompts the question of whether productivity incentives are always good long-term.

In the machining game, there is a danger in setting productivity targets that invite people to game the system. If one machine operator or shift is competing with another the temptation for sabotage in the plant is real. When teams compete against norms and other teams, the peer pressure within teams can become destructive to the enterprise. In a coal mine, where tonnage means everything, safety is often neglected, which may culminate in tragedy.

Sales incentives based on monthly or quarterly results often end up with employees gaming the system.
I’m interested in your experience with incentives.

I had the opportunity to spend several hours with Mitch Liss of Edsal Manufacturing (interview on page 34), a major producer of steel shelving and office furniture with sales of $200 million, based in Chicago. Mitch gave Noah and I an insider’s view of purchasing politics by big box retailers and huge catalog sellers.

He said that within massive organizations like Wal-Mart or Grainger you find two distinct parties influencing purchasing decisions, the buyers and the global (strategic) sourcing groups.

The shelving buyers, who work closely with the sourcing people, have the responsibility of making the final call about what product makes it to the sales floor or catalog and how much is ordered. The sourcing guys are charged with scouring the world to find cheaper shelves. Their salaries and bonuses are dependent on increasing the amount of dollars out-sourced, primarily from China.

The purchasing guys have little interest in where the product ultimately comes from, as long as it sells well. This drives a guy like Mitch Liss crazy because every rack and shelf he makes is a sitting target for the strategic sourcing dudes.
What bugs Liss is that the incentives are rigged to favor foreign placement of orders, even though he usually offers an equal or lower final price to the reseller.

His biggest irritation is with Costco, who he’s been trying to sell to for eight years without success. He says he can sell a better product for less money than the Chinese currently supply, but the buyers refuse to allow him to be seriously considered head-to-head against the competition. Evidently, for the Costco buyers, the idea that an American firm based in Chicago can undersell the Chinese is so ridiculous that Edsal cannot even demonstrate its products side-by-side at Costco headquarters in Washington state.

Interesting how Costco has remained blind to the fact that Edsal sells millions of dollars of products to Home Depot, Lowe’s, Menards, Grainger and McMaster-Carr.

I would think that an American company would at least get a fair look by a firm that sells most of its goods in this country.

Chelsea Clinton married Marc Mezvin-sky recently. Why should I care?

I care because Chelsea is American royalty and she just married a Jew. And not a plain clothes Jew or a hidden heritage Jew like John Kerry, but a practicing one. For better or worse, I grew up seeing everything through a Semitic lens. Bernie Madoff was a colossal thief, but for me it’s worse because he was a Jewish thief. I cared that Scott Feldman won 17 games for the Texas Rangers last season because he is Jewish. I voted for Al Gore in 2004 because Jewish Joe Lieberman was the vice presidential candidate.

For my generation of post World War II Jews, life is about proving Hitler did not win in his effort to exterminate us. The phenomenal success of Jews in America during the last 50 years in business, politics, science, the arts, academia etc. and the amazing ascendance of Israel, despite being surrounded by militant enemies, afford me great pride. When Elena Kagan was confirmed to the Supreme Court she became the third Jew on the Court. To most of America, she’s another New York liberal woman, if they care at all, but to me she is an MOT—a Member Of the Tribe, which makes her important. I keep score and I always will.

My acute sense of Jewish success in the U.S. scares me. I wonder when the next wave of jealousy and resentment will pop up like a mushroom. Personally, I am ashamed of my Jewish brethren at Goldman Sachs, whose cynicism and greed helped bring on the economic collapse of 2008. I am surprised that the resentment against Wall Street has not morphed into overt anti-Semitism and that the Tea Party movement has stayed away from “blaming the Jews,” which was common during the Great Depression.

When I heard the title of the new Steve Carell movie was “Dinner for Schmucks” I feared it was Hollywood turning on the Jews, but now I think I’m just ultra-sensitive about the topic.

I have taken a chance in writing about my Judaism and my Jewishness. It may be risky for business reasons, but to my surprise I feel very little pushback for it.

This country has changed in my lifetime—for the better. Chelsea Clinton was married under a chuppah, the canopy traditionally used in Jewish weddings, by a rabbi and a reverend, and the traditional Jewish Seven Blessings were read. It wasn’t that big a deal in the press. The father of the groom was a former congressman who had been in jail and married a congresswoman. But who keeps score anymore?

Summer jobs have run their course in 2010, for those lucky enough to get one. My first summer job was in 1960, when I was 16 years old. I found it by placing a situation wanted ad in the Chicago Tribune. I advertised my skill as a writer, perhaps slightly embellished (well, doesn’t everybody) and promptly heard from a small magazine publisher located in downtown Chicago. His name was Hadley and he published The Civil Service News which was a job posting rag, and Midwest Ports, a nondescript magazine about local shipping.

Hadley hired me for a little more than minimum wage, gave me a desk, and told me to write some stuff for Midwest Ports. The job was a blur. The exciting part was the 20 minute train trip to the Loop, working in the office building next to the Shubert Theatre, and occasionally eating at Wimpy’s Hamburgers for lunch.

I worked for Hadley, who wore sunglasses indoors, for six weeks. He was a grouchy curmudgeon so I stayed away from him as much as I could. Then out of nowhere he called me into his office and fired me. No explanation, just bye bye. One of the ad guys called me over while I was packing my pencils. He said Hadley had learned I was Jewish, which was all he needed to know.

It was an interesting lesson for a teenager to learn in his first summer job.

My wife Risa was cleaning out the garage and found a duffel bag packed with clothes, tools, photos and batteries. It was a “catastrophe” bag we had put together after September 11th, 2001.

We pitched the big jar of peanut butter and the oatmeal but kept the family photos and blank writing journals. It also held $120 in cash, which seems like a paltry sum for feeing Armageddon.

I know I am superstitious, but I wish we had kept the duffel bag as it was, just so we would never need it. I don’t think the idea is obsolete. I’m going to update a new “fee fast” bag with new pictures including our grandchildren, son-in-law and daughter-in-law, if for no other reason than to remind me about what is really important in life.

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Swarf: The Business Warrior

By Lloyd Graff

Today’s Machining World Archives August 2010 Volume 06 Issue 06

Tony Maglica, the owner, founder and embodiment of Maglite®, burns with the same intensity at 80 as he did when I met him at 40.I saw the flashlight king recently at his million square foot plant in Ontario, Cal. I could tell from the moment he greeted me at the reception center and we walked up the 20 stairs to his large but surprisingly austere office, that the factory was Toni’s home.

He immediately showed me a slide show on his Samsung 42” computer screen of his other home—the one he doesn’t live in… yet—his villa on his home island of Zlarin in the Adriatic off Croatia. He grew up poor as dirt there, endured the Nazi occupation and the life altering experience of staring at a German machine gun in the town square as the officer in charge threatened to kill everybody in sight in retaliation for the ambush of a Third Reich soldier.

Tony Maglica, a fabulously successful American entrepreneur, dreams of going back to Zlarin as the patron of the island, developing his property, and bringing back his extended family for visits. He wants to plant olive trees and shake the fruit off them with the most modern Italian harvesting machines. He considered buying 75 cement mixers in Florida recently, but decided it was more practical to make a deal with a cement form in Split, Croatia. He’s sunk $5 million into his land and buildings so far, freed his European architects, and hired an American one, but just can’t find the time to get to the island this summer. He’s too involved with a new flashlight rollout and the recent purchase of the German Eubama company out of bankruptcy.

I think the island villa is Toni’s dream of going home triumphant, but his real enduring and consuming passion is still building his business in America. Tony Maglica at 80 is totally committed to making a brilliant and beautifully designed flashlight out of the best materials in America, the country that afforded him the opportunity to shine. He comes to the Mag plant at 6:00 a.m. every morning, stays ‘til 7:00 p.m., and never lets his business fame flicker. The Eubama purchase intrigues him because he gets the chance to refine a machine tool he respects by making the components in the U.S. He’ll make them more efficiently and better by applying his intellect and zeal to the process. Tony says he’ll be making money with Eubama by the end of the year. He’s shopping for a big gantry mill to machine the castings he’s having made here. Eubama is real and practical, and a potential moneymaker. Tony is into it.

Toni’s obsession is making things at his California plant more efficiently and less expensively than in China. He says he’s “a bad businessman” because he doesn’t take the easy way out and buy product from Asia. That would just not be him. His life’s work and daily passion is to continually improve his processes and products so he can successfully make them in California. Mag has a sophisticated new flashlight aimed at the camping and boating market. It is powered by three Triple a batteries housed in an elegantly designed plastic receptacle. Tony says he has a ridiculously inexpensive proposal to make the housing in China, but he won’t do it. He’ll invest heavily in injection molding and assembly equipment, and clean rooms. He’ll do almost anything to make it here.

Tony Maglica is a business warrior and truly loves his America. He hates a government that he believes stupidly makes doing business much harder than it should be. He’s politically incorrect, but doesn’t care because he’s absolutely sure he’s right. Tony is a business anachronism and delights in it. He wants to run his business forever, the way he wants to run it, but his practical side tells him he needs a successor. He asked me if I knew of a manager who he could train to succeed him. I told him I would think about it, but where do you find another brilliant, America-centric, machining entrepreneur like Tony, who would have a small enough ego to learn the job and a big enough ego to stand up to the magnificent Mr. Maglica?

I received an email announcement entitled “AMT and NAM Announce Historic Partnership.” I didn’t know whether to laugh or yawn because of my gut cynicism about Washington based organizations. But then I thought about the financial regulation bill—the current obsession of D.C. politicians. Apparently the massive compromise bill’s regulations are being written by a collaboration of Washington lobbyists and staffers.

Most of the lobbyists are former staffers, and many of the staffers are former lobbyists, so you need a scorecard to know the players.

American manufacturing certainly needs an all-star team to advocate and trade for the interests of metal cutters and benders around the country.

The disconnect between the alphabet lobbying groups on K Street in D.C. and the contract shops of Dayton and Duluth has become a gulf. But behind my cynicism I’m hoping that our Washington advocates actually know the difference between carbide and high-speed steel, and can cut through the red tape and blather in the Capitol. That would be historic.

The post 4th of July period is a good time to celebrate the value of passionate and precise political advocacy. The Declaration of Independence was written by Thomas Jefferson, but his pure prose was edited and rewritten before it made the final scroll.

The reporters and public relations flacks will Red Bull it through windy John Engler’s National Association of Manufacturers (NAM) speech at the International Manufacturing Technology Show (IMTS), but Bonnie Gurney of the Association for Manufacturing Technology (AMT) says they will stream IMTS interviews on the Web with real constituents to members of Congress, which may actually penetrate the Capitol Hill haze.

Tesla Motors went public at the end of June. The company’s all electric roadster has not been a resounding success financially or mechanically, but has been a publicity magnet. Elon Musk, one of the company’s founders, has an amazing track record as an entrepreneur. He has Toyota money behind him now and the modern Nummi factory in the Bay Area to make the new versions of Tesla cars. Tesla chose not to participate in the X-Prize competition to produce a production-capable 100-mile-per-gallon car, but the company could still be a big big winner over the next 10 years.

Prices for nice CNC machinery at auction show some firmness in the market. On June 29, James Murphy Auctioneers sold a Mori Seiki 2007 NV5000/A1B40, 20” x 40” table for $135,000. The machine had a Lyndex Nikken 5th axis trunnion. A 2005 NV5000/A1A40 Mori 23” x 30” table brought $102,000. The sale at New Concepts in Redmond, Washington, also had a 2005 Mori DuraCenter, which sold for $67,000 and a 2006 Doosan 3016, which fetched $25,000. A 2006 Zeiss CMM Contoura G2 fetched $61,000.

On the same day, Thompson Auction Co. sold Sherman Tool near Dayton. Two Hurco VMX 30 machines, new in 2004, sold for $40,000 each, while a little Okuma ES-6 new in 2007 brought $35,000, and a 1998 Okuma Cadet with a 16” chuck brought $45,000.

In late June at a Winternitz sale near Duluth, Minnesota, a 2008 240-C Doosan 3-axis lathe sold for $49,000.

I would describe these prices as reasonably strong, particularly for the Hurcos. On the other hand, a couple sales in Michigan, MetaVision in Traverse City and a Hilco/Maynards auction in Detroit, were softer for machines that ran mostly automotive related stuff. Dealers bought the bulk of the equipment, and at Metavision a lot of older cam equipment went straight to the scrap yards.

Statistics from the Precision Machined Products Association (PMPA) indicate that business among its member companies has made a full V–shaped recovery over the last 18 months. After business dropped by a third during the worst of the recession in the spring of 2009, it regained the base level of sales in May of 2010. The ascent of automotive business to the still not so lofty level of 11.5 million units and the rebuilding of paltry inventories everywhere have fueled the resurgence. Weak home sales, tepid employment growth and an undulating stock market have eroded confidence, but as the BP mess slips from the news and the stats show the world isn’t coming to an end confidence will come back.

It’s August, the corn is high, and everybody in Machine-toolville is getting stressed out because IMTS is getting close.

If you are showing in Chicago the tension is building. Are you spending too much? Will enough people show to justify the Benjamins?

On the fop side, IMTS holds the promise of giving business a big bump for the end of 2010 going into 2011. It will connect you with the foot soldiers that can make a difference for your product. It can give you leads to drink from for a long winter. It will provide precious emails and cell phone numbers to bang away at.

IMTS is still important for showing off new machines and strutting your stuff. It establishes a pecking order in the key areas of metalworking. It’s part of playing in the Big Leagues, but still, I always agonize about whether IMTS is worth the sacrifice of tripping through the maze of McCormick Place. I have lived with this schizoid view of America’s machining festival for many years. When the holiday lasted 10 days it was an excruciating, foot killing, back cracking opportunity to press the flesh of the oil stained cognoscenti of Machinedom.

When there used to be tigers, contortionists and sexy German and Japanese models in the exhibits, IMTS was live theater. In 2010, the froth will be gone. It will be all “bidness” compressed into six days of hard selling.

God willing, I’ll be there, peddling and schmoozing and wearing a tie. Oh, what fun—I hope.

On June 8, Meg Whitman, former eBay CEO, won the Republican primary for governor in resounding fashion. The same day Rod Blagojevich, former governor of Illinois, watched while his lawyers grilled potential jurors for his corruption trial.

Blago’s father ran a numbers game in Chicago. Young Rod grew up in a world of payoffs and married the daughter of a rough local Democratic politician on his way up the political ladder.

Whitman used $71 million of her own dot-com fortune to pave her primary campaign, while Rod Blagojevich shook down the paving contractors to get his political seed money.

Is Whitman more pure than the driven snow because she was recruited by venture capitalists to run the fledgling eBay after the company’s founder realized he didn’t want to run the business?

Do we prefer the Rockefellers, Heinzes and Whitmans, or maybe celebrities like Arnold and Ronald Reagan to run our country because the earthy Rod Blagojeviches are too untrustworthy? Do we want only the elite who go to Harvard and Yale Law on the Supreme Court, which we now will have when Elena Kagan is confirmed?

Maybe we want a House of Lords because the raunchy Rods and the slick Willies get too dirtied up climbing to the top.

When I wrote the blog about Meg Whitman using her eBay wealth to win the Governorship of California while Rod Blagojevich defended his mastery of payoff culture in a Chicago courtroom, I was unconsciously touching a bigger theme—the rise of women in American life.

Hanna Rosin’s cover story in the July/August Atlantic—“The End of Men: How American Women are Taking Control of Everything”—tells the story of the decline of men in 2010. Economically, this trend is related to the decline of manufacturing and construction. Current unemployment is heavily weighted toward males but the long range trends are even stronger than recession related layoffs.

Testosterone, physical strength and a gambling spirit, the traits that tamed the Old West, are not as highly valued in today’s world. Women are earning 60 percent of the college degrees now. Statistically men struggle more in school, and school is the gateway to advancement.

I think that the shift towards female dominance is less apparent in the machining world we inhabit, but I find women taking more of the purchasing agent roles. Men may still be making most of the stuff, but women are often signing the checks.

When Pierre Omidyar, founder of eBay, realized his business was getting too complicated for him to manage, his venture capital investors found Meg Whitman in Boston biding time as a consultant and brought her to San Jose to grow the business by harnessing the entrepreneurial fervor of mom and pop companies everywhere.

Meanwhile, Rod Blagojevich, who still can’t use a computer, was wheeling and dealing in the backrooms of Chicago politics. His first big move was marrying a powerbroker’s daughter. He then joined the law form of Eddie Vrdolyak, a famous fixer and Chicago dealmaker. He used his smile and big hair to charm the voters all the way to the top of the State. Very competitive, very male, very Chicago, very corrupt, our Rod.

Meg goes to Sacramento if she beats the old liberal poll Jerry Brown, former governor of California from 1975-1983. Rod goes to prison if the wiretaps stick.

It’s getting tough to be a good ole boy.

I love the “Second Act” column which appears on Tuesdays in the Wall Street Journal. It recounts the stories of people who forsake their original career for one that promises more excitement, opportunity, fun or satisfaction than the career path they originally pursued.

On June 8, Journal writer Dennis Nishi told John Putnam’s story. Putnam was a successful bankruptcy lawyer in Boston with a form representing failed airlines and steel mills. While taking a deposition he had an epiphany. “Everyone there was very senior and making serious bucks. That’s when I looked around and [realized] I didn’t want to spend the best part of my life getting to where they are,” the Journal quoted him.

The rest of the story is about Putnam buying a farm in Vermont, taking a job with a Vermont law firm while developing the farm, and then chucking the law to make specialty cheese for a living.

He studied cheese making for four years and bought a custom made copper cheese vat to give his Alpine cheeses a unique favor. A French college student taught him some tricks of the trade in a work-study exchange while he wrote his graduate thesis.

Putnam started making cheese in 2002 and his business was profitable in 2003. Today his Thistle Hill Farm sells eight tons of cheese a year and is making decent if not great money. Doing Today’s Machining World is the second act for this used screw machine dealer.

I would like to hear from you about second acts you are now involved in, would like to be involved in, or have tried and given up

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Are we in a period of deflation in America?

By Lloyd Graff

PIMCO co-chief Mohamed El-Erian

Are we in a period of deflation in America? Will prices for goods and services, real estate and machinery trend downward for the foreseeable future? Will wages also move down? Will the value of cash be greater and illiquid assets like homes and machinery get harder and harder to sell?

This is a question of enormous importance to not only economists and statisticians, but to everyone who doesn’t live in a cave.

The bond market is alerting us to the possibility of deflation, with the 2-year U.S. Treasury paying a .5 percent return and the 10-year yielding 2.9 percent. And this is in a period of trillion dollar federal deficits with foreigners supposedly skittish about U.S. debt.

If people are scared about repayment of principal or debasement of the currency, they will not accept three percent for 10 years.

The “sky is falling” inflation vigilantes who play the bond market were near apoplexy a few months ago about the pandemic of government deficits. Now many of the Henny Pennys, like Mohamed El-Erian of Pimco, are warning of deflation ala Japan in the 1990s.

I don’t think anybody really knows if we are entering a prolonged period of deflation, but I think that developing a contingency plan for deflation is wise. And the first commandment would be “Thou shall not own real estate.”

The worst thing to own during deflation is land and buildings. Better to rent with short-term leases and options to renew in case prices start to go way up. Small business people have traditionally built wealth by owning their buildings and renting to themselves, but this is absolutely wrong during deflation. Tokyo real estate has been a terrible investment for the last 20 years.

Leasing machinery and cars would be the way to go if prices slide. If a new Haas VF2 machining center dropped $10,000 in price over three years, the used value would depreciate accordingly.

An additional kicker is the likely appreciation of the U.S. dollar against foreign currency, which we have seen happen with the yen. This would make imports cheaper.

Deflation would bring wage deterioration and givebacks. We are already seeing a lot of this. We may be asking the counter intuitive question, “Is my pay decrease in line with deflation?”

For the investor, big multi-national companies with well protected dividends would be the ticket. A company like Altria that pays 6 percent by selling to tobacco addicts might be a good bet, if you can stomach owning the stock.

If one figures in the recent drop in home prices, we are in a deflationary period now. It’s a depressing prospect, but if you adapt to it, perhaps you can make it work for you.

Question: Do you think we will be in inflation or deflation for the next three years? How will you adjust?

Bananas for sale at discount grocer Save-A-Lot in St. Louis (Wall Street Journal)

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What’s Religion Got to Do With It?

By Lloyd Graff

Chelsea Clinton married Marc Mezvinsky Saturday night. Why should I care?

I care because Chelsea is American royalty. She just married a Jew, and not a plain clothes Jew or a hidden heritage Jew like John Kerry, but a practicing one. For better or worse, I grew up seeing everything through a Semitic lens.

Bernie Madoff was a colossal thief, but worst of all, he was a Jewish thief. I cared that Scott Feldman won 17 games for the Texas Rangers last season because he was Jewish. I voted for Al Gore in 2004 because Jewish Joe Lieberman was the vice presidential candidate.

For my generation of post World War II Jews, life is about proving Hitler did not win in his effort to exterminate us. The phenomenal success of Jews in America during the last 50 years in business, politics, science, the arts, academia etc. and the amazing ascendance of Israel despite being surrounded by militant enemies affords me great pride.

When Elena Kagan is confirmed for the Supreme Court she will be the third Jew on the Court. To most of America, she’s another New York liberal woman, if they care at all, but to me she is an MOT—a Member Of the Tribe, which makes her important. I keep score and I always will.

My acute sense of Jewish success in the U.S. scares me. I wonder when the next wave of jealousy and resentment will pop up like a mushroom. Personally, I am ashamed of my Jewish brethren at Goldman Sachs, whose cynicism and greed helped bring on the economic collapse of 2008. I am surprised that the resentment against Wall Street has not morphed into overt anti-Semitism and that the Tea Party movement has stayed away from “blaming the Jews,” which was common during the Great Depression.

When I heard the title of the new Steve Carell movie was “Dinner for Schmucks” I feared it was Hollywood turning on the Jews, but now I think I’m just ultra sensitive about the topic.

I have taken a chance to write about my Judaism and my Jewishness in this blog. It may be risky for business reasons, but to my surprise I have felt very little pushback for it.

This country has changed in my lifetime—for the better. Chelsea Clinton was married under a chuppah, the canopy traditionally used in Jewish weddings, by a rabbi and a reverend, and the traditional Jewish Seven Blessings were read. It wasn’t that big a deal in the press. The father of the groom was a congressman. He has been in jail and married a congresswoman. But who keeps score anymore?

Question: Do you pay attention to the religions of famous people?

Chelsea Clinton with Husband Marc Mezvinsky

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When Incentives Blow Up

By Lloyd Graff

Texas City Explosion 2005

As the details gradually emerge from the BP oil spill it becomes more and more clear that management in London had incentivized the troops in the field to skimp on maintenance to enhance the company’s bottom line. There probably is a connection between the BP refinery explosion at Texas City back in 2005 and the Deepwater catastrophe in the Gulf. It appears to me that London had incentivized its employees to emphasize the short-term bottom line and ignore the future consequences.

With the U.S. productivity statistics showing incredible improvement in efficiency month after month, it prompts the question whether productivity incentives are always good long-term.

In the machining game, there is a danger in setting productivity targets that invite people to game the system. If one machine operator or shift is competing with another the temptation for sabotage in the plant is real. When teams compete against norms and other teams, the peer pressure within teams can become destructive to the enterprise. In a coal mine, when tonnage means everything, safety is often neglected, which may culminate in tragedy.

Sales incentives which are based on monthly or quarterly results often end up with employees gaming the system.

I’m interested in your experience with incentives.

How do you make incentives work for the business rather than undermine it?

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Should You Trust Your Gut or Your Doc?

By Lloyd Graff

What do you do when your doctor tells you to do something that you doubt is necessary?

I just endured a kidney scan and a cystoscope because I had a few extra blood cells in a urine test. The nurse called me several weeks after the initial test at a six-month appointment and told me that I needed to come back because my test wasn’t “normal.” OK, I’ll spend an afternoon going into the city to pee in a cup. But then the urologist says, “Lloyd, I want you to do a kidney scan and a bladder scope. There is a one in 100 chance there’s anything, but you are the age…”

So what do you do? Tell the doc who has treated you for 20 years, cut into your body and saved your life once, that he’s overreacting or milking the system? The doctor is God, right? Doing nothing could be a catastrophic mistake. Didn’t I miss the signals before my heart attack two years ago?

So I took all the tests. Everything was cool. I’ve got the nasty aftereffects of the scope and I feel like a chump, a dumb sheep who lamely colored between the lines of American medicine.

Question: What do you do these days when you feel fine, but the medical practitioner tells you to worry or take a drug? What do you trust—your gut or your doc?

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The Intersection Of Art and Connecting Mechanics

By Robert Strauss

Fernando Orellana’s father was a civil engineer and Fernando, when he was growing up, liked art. There seemed little to connect them.
“But I saw my father tinkering when he came home, doing this and that. I watched, but with no particular interest,” said Orellana. “Then someone connected the dots for me. What my dad was doing was no less art than what I did. The idea is that he was being creative and trying to figure things out. That is art.”

What finally dawned on Orellana is what has become an exciting mini-trend in modern art, the connection of mechanics, technology and art, primarily sculpture. Since it is primarily robotics-based, it is called ArtBots, and its advocates are positively evangelical about it.

“The definition of robotics is not firm and, frankly, the definition of art isn’t firm either,” said Douglas Irving Repetto, whose day job is as the Director of Research at the Columbia University Computer Music Center, but whose lifeblood is as the guru of the ArtBot movement. He has been the curator of several significant ArtBot exhibitions, the most recent one this summer at the Klein Art Gallery in the University City Science Center, a research facility just off the campuses of the University of Pennsylvania and Drexel University. “It is a diverse and wide open field and full of open questions. The primary one is, ‘What does it mean for a non-human system to be creative?’ Each artist is asking different questions when he or she enters the world of robotics. There is a sense now that there is a lot here, and that we don’t really know the answers yet.”

Read full article here >

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Should Obama go to IMTS

By Lloyd Graff

I received the email announcement entitled “AMT and NAM Announce Historic Partnership.” I didn’t know whether to laugh or yawn because of my gut cynicism about Washington based organizations. But then I thought about the financial regulation bill, which is the current obsession of D.C. politicians. Apparently the massive compromise bill is being written by a collaboration of Washington lobbyists and staffers.

Most of the lobbyists are former staffers and many of the staffers are former lobbyists, so you need a scorecard to know the players.

American manufacturing certainly needs an all-star team to advocate and trade for the interests of metal cutters and benders around the country.

The disconnect between the alphabet groups on K Street in D.C. and the contract shops of Dayton and Duluth has become a gulf. But behind my cynicism I’m hoping that our Washington advocates actually know the difference between carbide and high speed steel, and can cut through the red tape and blather in the Capitol. That would be historic.

The post 4th of July work week is a good time to celebrate the value of passionate and precise political advocacy. The Declaration of Independence was written by Thomas Jefferson, but his pure prose was edited and rewritten before it made the final scroll.

The reporters and public relations flacks will Red Bull it through windy John Engler’s National Association of Manufacturers (NAM) speech at the International Manufacturing Technology Show (IMTS), but Bonnie Gurney of the Association for Manufacturing Technology (AMT) says they will stream IMTS interviews with real people to members of Congress, which may actually penetrate the Capitol Hill haze.

Question: Should Obama attend IMTS?

The Capitol Building in Washington DC (Photo from US Southern Command)

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Machining Industry Scuttlebutt

By Lloyd Graff

Tesla Motors went public this week. The company’s all electric roadster has not been a resounding success financially or mechanically, but has been a publicity magnet. Elon Musk, one of the company’s founders has an amazing track record as an entrepreneur. He has Toyota money behind him now and the modern Nummi factory in the Bay Area to make the new versions of Tesla cars. Tesla chose not to participate in the X Prize competition to produce a production-capable 100-mile-per-gallon car, but the company could still be a big big winner over the next 10 years.

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Prices for nice CNC machinery at auction show some firmness in the market. On June 29, James Murphy Auctioneers sold a 2007 NV5000 A1B40, 20” x 50” table for $135,000. The machine had a Lyndex Nikken 5th axis trunnion. A 2005 NV5000A140 Mori 23 x 30 table brought $102,000. The sale of New Concepts in Redmond, Washington, also had a Mori DuraCenter 2005, which sold for $67,000 and a Doosan 3016, 2006 which fetched $25,000. A Zeiss CMM Contoura G2 2006 fetched $61,000.

On the same day Thompson Auction Co. sold Sherman Tool near Dayton. Two Hurco VMX 30 machines new in 2004 sold for $40,000 each, while a little Okuma ES-6 new in 2007 brought $35,000 and a 1998 Okuma Cadet with a 16” chuck brought $45,000.

Last week at a Winternitz sale near Duluth, Minnesota, a 2008 240-C Doosan 3-axis lathe sold for $49,000.

I would describe these prices as reasonably strong, particularly for the Hurcos. On the other hand a couple sales in Michigan, MetaVision in Traverse City and a Hilco and Maynards Auction in Detroit, were softer for machines that ran mostly automotive related stuff. Dealers bought the bulk of the equipment, and at Metavision a lot of older cam equipment went straight to the scrap yards.

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Statistics from the Precision Machined Products Association indicate that business amongst its member companies has made a full V–shaped recovery over the last 18 months. After business dropped by a third during the worst of the recession in the spring of 2009, it regained the base level of sales in May of 2010. The ascent of automotive business to the still not so lofty level of 11.5 million units and the rebuilding of paltry inventories everywhere have fueled the resurgence. Weak home sales, tepid employment growth and a depressing stock market have eroded confidence in June, but as the BP mess slips from the news and the stats show the world wasn’t coming to an end confidence will come back.

Question: Do you believe Wall Street insiders are manipulating the market to make President Obama look bad?

Telsa Roadster charging (Photo from Treehugger)

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