Category Archives: Finance

One auction in May, the machining world looked brighter

By Lloyd Graff

Auction prices today are very hard to figure. I talked at length with Dennis Hoff of Hoff-Hilk Auctioneers about his May 26 sale at Bystrom Precision, a small CNC shop in Minneapolis. The magnet pieces in the 150 lot sale were three L-20 Citizens, Type VII new in 2000 with Iemca Genius barloaders.

Hoff says he told the client the sale price for each of those machines would be in the $30,000 to $40,000 range. The day after a long Memorial Day holiday is a lousy day to do an auction because people are just getting their plants up and running. An hour before closing, the prices were a little above dirt.

Hoff told me that the seller was distraught as he looked at the disappointing numbers on the screen, but suddenly the bidders started waking up. In the last few minutes of bidding, the Citizens spurted from $12,000 to an average of $60,000 for each of the three machines with barfeeds.

The Royal Master centerless grinders brought $15,000 for one and $20,000 for a second, and a one of a kind model went for $5000. Uglier ones sold in Canada a month earlier for $500 each.

There were three small Brother TC31A drilling and tapping machines which sold for an average of $11,000 each.

A Daewoo Lynx 200A turning center fetched $12,000, and a Eurotech 7 axis 420SLL with a 1-3/4” bar capacity new in 1999 brought $33,000.

The weak sisters of the sale were three Nomura CNC Swiss Model NN13-SB, which scored $10,000 bids, with Fedek loaders hitting around $2000.

This auction is no definitive marker of the beginning of a turnaround—it may be more a function of shrewd marketing by Hoff-Hilk. But on one day in May, the machining world looked brighter.

Question: The Consumer Confidence Index had a big bounce Tuesday, are you seeing anything positive?

Citizen Model L20-VII CNC Swiss Type Screw Machine from sale

Citizen Model L20-VII CNC Swiss Type Screw Machine from sale

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Is the economic tornado blowing over?

By Lloyd Graff,

At least three times per summer we hear the sirens blare, signaling the possibility of a tornado in our vicinity. We take cover in the basement or the safest corner and wait for it to pass over. We listen for the “all clear” signal and the absence of thunder.

For the machining industry, particularly in the Midwest, the tornado sirens keep shrieking and the all clear has yet to sound. Since September a lousy recession has become a depression worthy event for anybody who cuts or bends metal. The only hiding places have been in guns which are going nuts as people fret about an Obama weapons law, and medical which has held up partly because people shoot at each other occasionally. The big winner is still orthopedic implants which save the bodies of aging baby boomers.

The stock market has been signaling that the financial system is stabilizing. Houses are selling with the huge price drops and the inducements of low interest mortgages and assorted subsidies. The stimulus package, though diluted by transfer payment funding is going to kick in soon. The Fed has poured liquidity into the banking system and the corporate bond market has strengthened. Inventories are paltry in the bins and semiconductors, the guts of electronic tools are making a comeback.

It appears that the economy is beginning to get its legs back. Auction prices are in the toilet. Much of the equipment that goes to sale does not meet the reserves which ultimately depresses prices further. It seems like it cannot get worse and then it keeps getting worse in machining. We probably will get no clear bottoming signal. Some very sharp economists who know our world are predicting an uptown—next March.

Hang in there. Unfortunately I have no economic Doppler radar. It will get better, but we won’t hear any “all clear” horns go off.

Question: Do you think the tornado will ease up soon?

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A Renaissance in Detroit

By Noah Graff

Last week I went to Detroit to shoot a video spot for an advertiser of Today’s Machining World. A melancholy vibe permeated the city that I can only compare with the one I felt when I was last in New Orleans. When I arrived there were only three taxies and two limos sitting outside. Five vehicles to serve the entire Detroit Metro airport? I decided to query the empty rental car buses driving by to see if they had any cars available. I asked Hertz, Avis, and Budget, and every driver claimed that there weren’t any cars. Evidently so few people are traveling to Detroit Metro that the rental car companies have transferred their fleets to other more bustling cities.

Yet amidst all of its depression and desperation, Detroit now has an unexpected grassroots movement, attempting to revitalize the city’s housing market. At this moment, artists from around the world are buying houses in the Detroit ghetto for a few hundred dollars each.

Four years ago, artists Mitch and Gina Cope, bought a broken down house on Detroit’s North side for $1900. The house had been ravaged by scrappers who stole everything from copper plumbing, radiators to electrical lines. But the Copes bought it anyway and decided to turn it into what Mitch Cope calls the “Power House Project.” “Our idea — instead of putting it all back and connecting to the grid, we wanted to keep it off the grid and get enough solar and wind turbines and batteries to power this house and power the next-door house,” Cope says.

He thinks he can make the whole place operate “off the grid” for around $60,000, a cost he hopes to help cover with grants. He plans for the first floor to be a neighborhood art center and the second floor to be a bedroom for traveling artists. Of course, his grand vision is for the entire neighborhood to transform itself into an artist community using dirt cheep real estate as a magnet for new settlers. Cope has already convinced around a dozen artists from countries around the world such as the Netherlands and Germany to buy houses. Jon Brumit, a prominent artist from Chicago just bought a house in the area for $100.

You may find this story uplifting yet then put your nose up when you remember only 12 homes have been bought. But maybe manufacturers can learn from what these artists are doing. The bottom line is that the real estate in Detroit is going for practically nothing, Michigan is going out of its way to give tax incentives for new development, and there is an abundance of laid-off, skilled workers who potentially would jump at the chance to work at a job shop, even for a modest wage. Sounds like an opportunity for some creative types.

Listen to a podcast of the story at NPR.org

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What if we just gave the bailout money to the people?

By Noah Graff

What if instead of giving all the bailout money to the reckless, untrustworthy banks and incompetent automakers our government just gave the money to the people? I’m not talking about 500 dollar “stimulus” checks. Say all of this aid money, maybe about $10,000,000,000 ($10 trillion!), was distributed to 100 million tax paying units in the U.S.? The people – our people, rich and poor, would get $100,000 each, and surly they would do some awesome things to stimulate the economy. Think about what people might use the money for – cars, houses, college educations, stocks, bonds, starting new businesses – not to mention depositing the money in the bank. So the banks would get their liquid too! What if people got half that amount, a quarter? What would you do with $25,000?

Personally, I’m very skeptical that the recipients of the current bailout plan are going to use the money wisely. Like so many people, I am scared that they will not learn from their mistakes. I fear we may be throwing our hard earned dollars into a black hole.

I say let the people fix the economy!

Question: Would giving $100,000 to every U.S. tax payer be a better way to save our economy?

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Will China keep investing here?

By September 2008, China had owned 585 billion U.S. dollars in U.S. government bonds, becoming the largest creditor of the world’s largest economy, according to the latest statistics from China’s Ministry of Finance. It bought new US national debts every month during 2008’s first three quarters. (news.xinhuanet.com)

For years, China has had a surplus of money, which its national bank gleans from its high export to import trade imbalance. It takes the dollars it makes from U.S. consumers and then needs a reliable place to invest them, and it has historically invested heavily in U.S. treasuries along with private U.S. assets.

But now many of China’s investments in the U.S. have gone awry, as they were screwed by Freddie Mac and Fanny Mae, and reckless derivative trading. Naturally, like most people in the world, they have lost some trust in the once supposedly rock solid U.S. economy.

I believe that Americans will keep buying Chinese goods for a long time – although maybe slightly less because people here are struggling. Nevertheless, at least 90 percent of the goods Americans take for granted in their daily lives are made in China. Read the book, A Year Without Made in China, (reviewed by Today’s Machining World) and this concept is clear.

China’s government should have plenty of money to invest overseas for years to come. The question is … has the U.S. economy gotten so bad that they will put a lot of it elsewhere. Personally I don’t think so.

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Is our economy a modern day version of "Atlas Shrugged"?

By Noah Graff

A recent column in the Wall Street Journal made a comparison of U.S. government policies in the present economy to those in the classic novel, Atlas Shrugged, written in 1957 by the anti-government, ultra capitalist Ayn Rand. Rand’s dogma which transcends all of her works has the fundamental principle that when government steps in to “bailout” incompetent businesses for the sake of the “common good” it causes a tumultuous domino effect.

Wall Street Journal Columnist Stephen Moore summarizes the book’s moral as the following: “Politicians invariably respond to crises — that in most cases they themselves created — by spawning new government programs, laws and regulations. These, in turn, generate more havoc and poverty, which inspires the politicians to create more programs … and the downward spiral repeats itself until the productive sectors of the economy collapse under the collective weight of taxes and other burdens imposed in the name of fairness, equality and do-goodism.”

Sound kind of familiar? Tarp? Auto company bailouts? A bunch more “stimulus plans”? I know. It’s scary right now. Desperate times. And I believe the government must step in somehow to stop a catastrophic loss of jobs and halted workflow that a bankruptcy of the Big Three would entail. And yes, it has to create liquid for the banks. But just like in the book, large companies are getting a free pass on their incompetence in management and law breaking. A money infusion gives them an opportunity to change their ways, but there is a definite chance it could create a downward spiral just as Rand envisioned. Does GM have a plan for how to spend the new money, other than to survive the next few months? Do the banks know what to do with their new capital? All of a sudden they have to figure out new ways to lend it, because now we know that the ways they were using it — such as granting sub-prime mortgages and trading recklessly with high leverage won’t work. The economy can only stabilize when these companies get their act together, and then, when the people regain trust in them. I don’t see either one happening soon.

Question: Do you have faith that the U.S. government’s new stimulus plans are going to create economic change for the better in the near future, or will they exacerbate our problems by allowing incompetents and crooks to continue their ways?

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New Credit Game for Industrial Equipment

By Lloyd Graff

I think we got an important signal Tuesday when Bank of America decided not to raise credit lines for McDonalds franchisees to buy new equipment such as coffee machines. They’re keeping credit lines as they are – that doesn’t mean they’re cutting them, it just means they’re not raising them as a general policy. This is important because it shows that the Wall Street mess is starting to filter down to the lending habits of major banks.

I think this is going to affect industrial equipment purchases because it affects the money available to borrow. It’s going to mean that distributors and machine tool builders are going to have to become more resourceful in enabling their customers to buy new and used equipment. A Haas or an Okuma is going to have to be more involved in the financing issues of their customers, using their clout with lenders to find money for them. They will probably be paying more for the money than in the past, but I think this is part of what the FED is all about in providing ample liquidity in the system. The sources for the money may not be the traditional ones that people have used in the past. There will be leasing money, off-shore money and bank money available, but the banks will probably be lenders who fall to the sidelines, because the more resourceful and nimble lenders will probably be the ones to step in.

Question: Have you had a problem in buying equipment recently?

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Self-reliant Retirement Philosophy

A recent survey from Charles Schwab, showed that a growing number of young American workers believe that the government is not going to take care of them in retirement. According to Liz Ann Sonders, chief investment Strategist at Charles Schwab, resources that people have historically counted on for retirement such as employers, inheritance and the government, are less reliable in today’s economy. This has caused more people to pay close attention to their personal money management and educate themselves about investment strategies.

Source: TheStreet.com

Question of the day: Are you scared about your quality of life after you retire?

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Stimulus Plan for Manufacturing

The stimulus package for business will be kicking in this fall in a big way as companies and individuals figure out if they are making money for the year, and make the calculation that if Uncle Sam is giving money away they might as well catch it in their basket. The doubling of the expensing provision to $250,000 means that a small business could buy a couple of A-20 Citizens and get a fat $75,000 discount thanks to Uncle.

This could be a rollicking fourth quarter for machine tool builders if they position themselves with appropriate financing packages for buyers who know a good thing when they see it.

Permac (video below), a PMPA member from Burnsville, Minnesota, is one firm that is taking advantage of the Bush Stimulus.

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