Category Archives: Finance

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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Free Trade Flip-Flopping

In the following video video TheStreet.com’s  political analyst John Fout points out free trade issues which he believes both presidential candidates have flip-flopped on. He says that in the democratic primary Obama knocked NAFTA saying the country needed to “renegotiate” the agreement. After beating Hillary who had taken such a strong anti-NAFTA stance, now Obama says he supports “fair” free trade.

Fout then rips McCain for touting free trade to win the Republican vote, yet afterward giving a speech in April proposing the creation of a “League of Democracies” alienating China and Russia. Fout also claims that McCain said he wants kick Russia out of the G8.

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Business in Vienna

Noah and I visited Vienna, Austria, recently on a business trip to central Europe. Our first order of business was to find the original Julius Meinl coffee shop, which is my favorite in Chicago.

After several missteps, we found Meinl at about 6:00 in the evening on Sunday. The only part of the store which was serving customers was the outdoor seating area. The blond fraulein who came to take our order spoke no English. She was quite pretty but she carried a near scowl on her face. I tried to order a latte, but she only understood cappuccino, so that’s what we ordered.

The coffee came promptly and it was beautifully presented with a heart artfully drawn in the foam.To the best of my tasting ability, the Viennese and American coffees tasted the same – excellent, but the attitude and the price were decidedly better at Julius Meinl in Chicago. The size of the cup was about one third smaller than the comparable American one and the price was double in American dollars. I felt like a poor American in continental Europe. Yet on the other hand it reminded me how cheap America is now, and that I need to use that to my advantage in business.



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'Made in China' Is Cheap No More

A recent story by Frank Langfitton on NPR’s “All Things Considered” reported that rising costs and shifts in Chinese government policy are actually forcing hundreds of smaller Chinese factories to close. According to the story, profit margins are disappearing as a result of the rising Chinese currency value, which has forced manufacturers to move their operations to lower cost countries such as Vietnam.

The story reports that China’s government wants to encourage higher-tech manufacturing, so it is taking away the incentives it used to give to cheap goods manufacturers such as no taxes and cheap rent. China wants to follow the same path as its fellow Asian countries such as Japan and Taiwan, whose products eventually progressed from low-tech to high-tech. This movement to more sophisticated types of production has created the same obstacle for Chinese companies that challenges U.S. companies – finding skilled labor.

Familiar patterns aren’t they.

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A Different Kind of Strike

American Axle has finally sat down at the bargaining table with the UAW since its members went on strike Feb. 26. Since the strike, 10 plants have been shut down and about 20 percent of GM’s workforce has been affected. What makes this strike different from other recent UAW strikes is that GM has so much inventory in its truck divisions that it is not under such urgency to get a deal hammered out quickly. Also, unlike other recent UAW strikes, the company trying to cut wages is not in bankruptcy. American Axle made 37 million dollars last year. It’s hard to convince a union to allow wage cuts for a company which has been so profitable.

In this video Eric Merkle, Vice President of forecasting for consulting firm IRN Inc., discusses the effects of the American Axle strike.

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The Glass Half

Rarely have I ever seen such a dramatic glass half empty, glass half filled story.

The pessimists, the bears, the media based in New York and the economists who work for money center banks see an economy tanking, dollar falling apart, housing dead for a decade, and a stock market shuffling in the mud. Virtually, blood in the streets.

The optimists see a slowdown in housing offset by a surge in exports. They see softening interest rates, a useful fiscal stimulus that will easily pass Congress and be signed, a bottoming residential real estate climate very inviting to speculators, and booming economic growth in the U.S. by late 2008. They also see oil softening to $75 a barrel and refiners keeping gas well under $3 per gallon. The only real inflation is caused by the idiotic ethanol boondoggle which has screwed up the old balances in American agriculture.

When I look at the two scenarios, the glass half full view looks much more likely, particularly in the industrial arena. Wall Street has taken a series of body blows because of the latest derivatives fiasco. The sub-prime mortgage market is unwinding, but the refinancing wave will begin very soon as 5 percent money becomes available to solvent borrowers. If you add this to benign commercial rates, tax cuts for individuals, weak dollar, modest inflation, cheaper gas, a national election, and cheaper depreciation and small business write-offs, it spells explosive rebound. Man on the street confidence is soft now, and business has caught the fear bug because of the shrill, no-nothing New York media claque, but this will turn as the election gets closer. People are tired of Bush. An Obama presidency is both enormously bullish for personal confidence and very scary because of the senator’s leftist rhetoric. A Clinton nomination probably means another Republican in the White House, which means gridlock, which is usually bullish.

So at the end of January, 2008, the year looks very promising – if we are not blinded by the sourpusses.

Comment on this blog at www.swarfblog.com.

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Tata Motors $2,500 car unveiled. “The People’s Car”

On Jan. 10, 2008, Tata Motors unveiled its revolutionary $2500 car, the Tata Nano, also being called “The People’s Car” by its maker.

The vehicle measures 3.1 meters in length, 1.5 meters in width and 1.6 meters in height. It has a mono-volume design, with wheels at the corners and the power-train at the rear in order to provide both maneuverability and space on the inside to accommodate families.

The Nano has a rear-wheel drive, all-aluminum, two-cylinder, 623 cc, 33 PS, multi point fuel injection petrol engine. It’s the first time that a two-cylinder gasoline engine is being used in a car with single balancer shaft. That might seem pathetic compared to industry standards but in a country in which millions use motor scooters to transport families it will revolutionize the lifestyle of India’s masses. According to Forbs.com, $2,500 is three times higher than India’s per capita income, and the average pay for a Tata Motors factory worker is $5,500 a year.

Read the “Next” feature in Today’s Machining World’s December issue for further insight on the $2,500 car from auto industry experts.

In this video of the car’s unveiling, Mr. Ratan N. Tata, Chairman of the Tata Group and Tata Motors compares the innovation of “The People’s Car” with the moon landing, the invention of the bicycle and the evolution of today’s personal computer.

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