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Swarf: Post IMTS 2010

By Lloyd Graff

Today’s Machining World Archives October 2010 Volume 06 Issue 08

It’s fall of 2010 and IMTS is behind us. Baseball, football, basketball and hockey are all going on at the same time. Elections loom and the economy cha-chas along—three steps forward and three steps back, following its own rhythm.

The earthquake of 2008 is behind us, but we’re still jumpy because the shock was so violent. The landscape is still damaged, with big unemployment, bankers living in bunkers, and homes, offices and factories waiting for occupants or lookers. But the unemployment statistics don’t tell you that four million folks get new jobs and approximately the same number leave jobs, some voluntarily, every month. Stores and restaurants (fast food) are busy and zillions of smart phones are selling every month.

IMTS

The pundits will tell you that almost everybody is “angry and won’t take it anymore,” but I personally don’t feel that visceral anger that supposedly suffuses the American populous. Obama is unpopular because he is the President of a lackluster economy that he campaigned to lead. If we have gridlock after the elections Obama will stand to gain like Bill Clinton did in 1994, and might even be re-elected if the Republicans nominate a Palinesque candidate who scares America into four more years of Barack.

The impression I got at IMTS is that the machine tool builders and buyers have emerged from the cave, but still have six months of food cached away. The memory of 2009 still affects every major decision machinery buyers make, which means a lot of tooling and fraying before orders are placed. But people are buying—just what they perceive they must—because God forbid they should make a mistake.

The stock and bond markets reflect the post cataclysm mood. Cha-cha-cha, back and forth, small investors hiding under their beds, two year bonds paying .4 percent, and speculators buying gold bullion and sterling silver platters because—other people are. Excuse me, the stats show deflation yet the “smart money” likes jewelry? Something is goofy about that picture.

I see an economy that values skills and smarts. The success of educational institutions during the post catastrophe period tells me that investments in things like houses and cars will take a backseat to spending for knowledge and productivity. You may think you sell machines and machined components, but what you are really selling is your unique ability to help somebody else makes money. The message I got from IMTS was that “cool” machines are nice but customers want ideas, a comfort level of success, backup and exquisite hardware. Nice machines are just fancy iron without the ideas and the service. And the value of ideas does not depreciate. Service people still rent out for $150 per hour—plus travel.

Fall 2010—buy brains, sell gold.

The “Jobs Bill” that President Obama signed September 27, may have sounded like another “stimulus” boondoggle, but it really has a lot of important goodies for the machining world.

The section of the bill that has immediate impact for the machine tool business is the expensing provision. The current rule was scheduled to expire by the end of 2010, which would have reduced the expensing write-off from $250,000 to $25,000. The new law pushes up the expensing provision to $500,000. For smaller companies making profits, this provision, which extends through 2011, will mean better cash flow and less money for Uncle.

Other provisions in the bill backstop the Small Business Administration with major new resources to lend to small business. With banks too frightened to fund loans and credit lines, this major infusion of guarantees by the Feds should help get the bank examiners off the backs of the loan officers. The ability to use losses for five years to offset profits should also start to lubricate the economy.

The Administration and Congress finally appear to be starting to “get it” as far as small business is concerned. Funny, how an election can focus people’s minds and even gather a consensus across party lines.

It was nice to see Brad Ohlemacher, president of EMC Precision of Elyria, Ohio, a third generation screw machine guy of all things—attending the signing ceremony. To quote the illustrious Rodney King, “Can’t we all just get along?”

In September, Loeb Winternitz
Industrial Auctioneers auctioned off Roseland Metal Products of Dolton, Illinois. I think an event like the Roseland sale tells us quite a bit about what is going on in the small contract shops— the core of precision machining.

Roseland was a casualty of the recession but also of a management that made scant investment over the last 10 years. The most significant capital investment was the retrofit of six out of 15 Brown and Sharpe screw machines with an early incarnation of AMT’s ServoCam upgrade technology.

Roseland bought a SNM clone of the New Britain model 52 in 1998. The past decade has been a cruel one for shops like Roseland, which kept playing the old game without expanding its customer base.

I talked to auctioneer Charlie Winternitz, who skillfully orchestrated the sale for the seller of the Roseland assets. He told me that 160 bidders signed up for what he had viewed as a tough sale. More than 100 bidders bought items. That was surprising breadth for a smaller auction that brought approximately $300,000 gross with no equipment newer than 12 years old.

The SNM multi sold for $19,500 plus buyer’s fee, while the ServoCam Brownies brought $7,500 to $15,000. A 2” standard cam B&S brought $8,000. The sale tells us that a lot of folks are interested in buying old school equipment but they are unwilling to go to the bank to pay for it. If they can pay for it out of cash flow or from the piggy bank they are interested, but if they have to check with their banker it’s often a “no go.”

The sale also indicated that old CNC equipment has little value. Four nice Traub TNM lathes from the mid 90’s with magazine loaders couldn’t crack $4,000 each, and a Brother drill and tap 1993 vintage brought $8,000 plus BP.

Buyers scouted the tooling for sexy nuggets, which indicated that business in the hustling has some life. For example, two B-13 Reed thread rollers with New Britain bases brought $650 each on average—cheap for a user, but a strong price at a Web auction.
Roseland tells me that bargain hunting buyers are plentiful now, even in shop depleted screw machine land. Buyers are frugal, but willing to spend if there is an attractive deal.

Thoughts on IMTS 2010

  • The DMG/Mori Seiki combined exhibit space at IMTS was aircraft carrier big. They spent over $8 million on the show with the goal of selling 200 machines. They made a statement, even if they sold half that.
  • Doosan took Haas’s spot on the floor from 2008, while Haas took a smaller less strategic location. Both had a lot of action. This IMTS decision may reflect the big Haas push into China, India and Eastern Europe, and Doosan’s rising stature in North America.
  • IMTS’s crowd looked old, overweight, male and white—except for the Asians who were young, thin and wore ties. Amidst the thousands of people at the show there were very few smokers, even outside in the permitted area. McCormick Place never looked better and the food was significantly improved. Also, I didn’t hear one complaint from exhibitors about the notoriously difficult union workers at McCormick Place.
  • On the second day of the show, Today’s Machining World had a wonderful 10 year anniversary party at Harry Caray’s restaurant. Celebrating with friends, family, colleagues and machining folk was a great gift. Barack sent his regrets.

I believe 2010 will go down as the year the wage discrepancy between public and private employees began to narrow.

According to a recent article in USA Today, the average yearly pay including benefits for a federal government worker is $81,000compared to $51,000 for a private business employee. Cadillac health plans and defined benefit pension programs have bloated federal payrolls. State and municipal payouts have kept up with or sometimes surpassed those of the federal.

The tide is changing. The dike of unchallenged government pay and benefits is showing leaks. California is broke and politically stalemated, but furloughs are now common in the school systems and layoffs and hiring freezes are the norm. In Illinois, it appears that 10 percent of the teacher’s pension plan portfolio will be sold to pay current pension obligations. In Washington DC, 241 teachers were not rehired by the gutsy new school superintendent.

The rationing of jobs we have witnessed in private business for the last 10 years is taking root in government. The latest monthly employment figures showed 131,000 lost government jobs. Some of these were temporary census jobs, but others were in schools, bureaucracy, police, sewer, etc.

I feel somewhat ambivalent about the new trend. I see an erosion of middle-class America, which is regrettable, but I also see the beginning of the cleansing of government excess that has been gumming up the engine of American capitalism for 50 years.

The lead story in the August 22nd New York Times discussed the “striking” drop in the investment in common stocks. The article went on to talk about the widespread disillusionment with equities since the dot-com crash and the subprime demolition. The Dow Jones average is actually down over 1000 points since 2001.

Personally, I think the widespread disgust with the stock market performance by individual investors derives from the “gaming” of the market by professional computer jockeys for whom long-term investing is holding a stock or an index for a week. The Quants, for whom the stock market is a video game, use huge leverage and a lightning fast computer thumb to play for pennies on a $50 stock.

I was thinking about this as I watched both the Little League World Series and Major League baseball games this past weekend. The kids are allowed to use metal and graphite bats but in Pro ball only wood bats are used, because it would be unsafe for the big boys to use metal sticks at the plate. Pitchers would literally get killed by batted balls.

We have speed limits on our highways and hold the maximum speed of showroom cars well below what is possible. But for trading stocks we have allowed the “gamers” to turn the markets for the most important business enterprises in the world into a casino.
This is nuts.

Major League baseball finally shut down the steroid tap, but stock trading is so out of control it is poisoning the public markets. Just because a Ford can theoretically go 200 mph on the interstate does not mean it should be legal.
Until the equities market or government regulators hold back the velocity of trading, long-term investors will take their marbles and go home.

The Honey Crisp apple season began with the Labor Day weekend. Honey Crisp is the apple that has overwhelmed the Golden Delicious, Macintosh, Pippin and Gala varieties in the hearts and palate of the applistas who frequent farmers’ markets in search of the perfect pomme.

Count me as an apple knocker with credentials.

I have traveled to the orchards of Wenatchee, Washington; Logan, Utah; Laporte, Indiana; and Honeoye Falls, New York, searching for apple succulence, but in the mountains of North Carolina I found my best Apple anecdote if not the tastiest fruit.

I stopped at a roadside stand near Asheville where a young woman was selling Winesaps—not my favorite variety but a presentable late season species. I always like to talk to apple sellers for tidbits about their growing approaches. The Winesap lady told me her story gladly. She said her husband was a minister and they knew they never would make a lot of money. When their children were born they planted apple trees on their homestead. They tended to trees with great care, and after five years began to get apples.

Their plan was to let God’s bounty pay for their children’s college education. She said they took a portion of the proceeds of each year’s crop to buy more trees, and the Apple reinvestment plan was working just as she had hoped.

I hope they planted Honey Crisps before they caught fire in the market. If they did they probably could afford Harvard.

Every column, article or “Swarf” piece I have written for Today’s Machining World over the last 10 years started as handwriting on a legal pad.

I may have graduated to an iPad for email and the New York Times, but to write creatively I find handwriting connects me to my juices more fluidly than keyboard stroking.

The virtues of handwriting are now clearly visible on an MRI, according to an article in the Wall Street Journal on October 5th. Brain activity is enhanced in young children who learn to connect letters into words on a page. For baby boomers, handwriting could be a useful exercise to keep us sharp as we age.

Virginia Berninger, Ph.D., a professor of educational psychology at the University of Washington showed that significant differences in brain function occurs with handwriting activating “massive regions involved in thinking, language and working memory—the system for temporarily storing and managing information.”

For me, writing material for TMW by hand connects me with language in a beautiful way. I hear the words in my mind as I write them. Handwriting allows me to get in the flow of the words. I can “hear” a discordant word when I write it by hand, which makes for an ugly page to transcribe because I do a lot of crossing-out and writing in the margins. But the process works for me.
I think there is an analogy to machining.

The artisans of the craft can take a drawing and transform it into a perfect part in their heads before it goes into a machine for machining, but the initial machined component is rarely perfect. The skilled machinist can feel the imperfections in the finish and takes that information to the toolmaker for adjustment.

Perhaps the more advanced we move in technology the more we can still value the building blocks of creativity housed in our hands and brains.

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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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Swarf: The Money Gravitates West

By Lloyd Graff

Today’s Machining World Archives June 2010 Volume 06 Issue 05

Let’s connect a few dots. The head of the Russian government, Dmitry Medvedev, is coming to visit Silicon Valley because he wants to build a competitive science center in his country. He hopes to learn something about what makes the Bay area so attractive to the Apples, Googles and Genentechs of the world. Toyota is putting a sizeable investment into electric carmaker, Tesla Motors, and is providing the closed Nummi factory in Fremont, Cal., to make Tesla cars. The DMG/Mori Seiki collaboration is probably going to manufacture machine tools in Davis, Cal., near Sacramento.

While the California government may have to pay people with IOUs, the state is still a magnet for investment and young people looking for opportunity. With Wall Street’s reputation muddied up by financial scandal, the best and brightest are turning to the left coast again for opportunity. This is a good thing. In the mid 2000s it seemed like every smart kid wanted to trade derivatives on the Street. A lot of young people actually wanted to be the next Gordon Gekko.

Apple Inc. headquarters in Silicon Valley, Cal.

The pendulum has swung the other way today. Apple, Google and Genentech are hiring tons of people now. Soon Tesla and DMG/Mori Seiki will be in full swing. The momentum is moving west again. The economy is turning toward making things in the highest labor market in the country. Money gravitates to energy and creativity. The magnetism of northern California is strong right now.

After the Memorial Day weekend I posed the question, “Should we be economic patriots”?

When I wrote the car buying stories for the April and May issues, I took heat from readers who felt I was derelict in not coercing my sons to buy American cars rather than Hyundai Sonatas.

It turns out that the Sonatas are made in Montgomery, Alabama, and have more than 50 percent American content. Hyundai spent $1 billion to build a factory, and the workforce is almost entirely Alabaman, but ultimately my sons’ buying decisions were based entirely on the products and price. Economic patriotism had nothing to do with it.

Do you buy a Haas vertical machining center because it is American or because it is the best machine for the money? Do you pass on bananas because they come from Honduras? Do you shun an iPhone because it was made in China at a FoxComm plant that has had 10 suicides among its workers this year? Where does your economic patriotism start or end?

Personally, I am not an economic agnostic. I have never bought a German Mercedes or BMW because of the Nazi atrocities of 70 years ago. But considering most of the taxis in Israel are Mercedes, I know that particular economic discrimination is now ridiculous.

Many of my long time screw machine customers have shops in China now. Are they economic Benedict Arnolds?

I recently talked with Joe Arvin who owns a big aircraft gear company near Chicago. He considers himself an economic patriot because he will not put up a plant in China, even though his clients are pushing him to do it. Do you think our soldiers died for Ford or for the economic and political freedom to buy oil from Saudi Arabia to drive a BMW to the sushi restaurant?

Here’s the good news and bad news. Bad news—75 percent of Americans are overweight. We’re French frying ourselves to death. Good news—it’s going to be great for the precision machining business.

Dr. Uli Sutor, key account manager at DMG, gave an illuminating talk at the first day of DMG/Mori Seiki’s Innovation Days, May 24, at its national headquarters in Hoffman Estates, Illinois. The event was a combination sales and networking event for the collaboration between two of the biggest players in the world machine tool business.

Sutor’s presentation discussed the opportunities in the medical machining business. As he sees it, orthopedics, primarily knee hip and spine, are the biggest growth segment. The passage of Obama’s health care plan in the U.S. will expand the area even faster. According to the literature it takes 40 minutes to do a knee replacement—20 if there’s no insurance.

A person who is at least 30 pounds overweight is three times more likely to need a knee or hip replacement than a trim person. It’s easy to see that the obesity trend is the friend of orthopedic surgeons and hospitals.

Sutor mentioned the number of bone screws and plates produced in the world. His number astounded me—200 million orthopedic screws and plates last year.

Last year 1.1 million knees and hips were replaced in the U.S. The expectation is 4.6 million per year by 2030, partly because a joint replacement lasts 10-12 years, so many people will need redos if the obesity trend continues.

Dr. Sutor gave the presentation from the DMG point of view. He employed a lot of data from the European perspective. One piece of information I found valuable was that “turbo whirling” is now being made by DMG for bone screw threads. The process employs linear technology, which uses no gears or belts and provides a superior surface finish. This is particularly valuable if a doctor will eventually remove the screw from the repaired joint.

The $64 billion dollar question for the economy is, what will happen to employment? What happens to unemployment is related, but the two numbers do not always shift in tandem.

We are seeing a strengthening in manufacturing now and the overtime strategy seems to be waning. Productivity stats are still impressively bullish but they are starting to level off. You can only squeeze so much juice out of the lemon. The Labor Department acknowledges that people are being hired in manufacturing and my anecdotal evidence confirms this.

New construction is still pathetically soft in most markets, but we are seeing a weird anomaly in the most devastated markets of Nevada, Arizona and Florida. Builders are starting to build houses. According to a recent article in the New York Times, the most devastated housing markets are starting to get hot. It appears that some buyers just want a new home and hungry builders with low cost lots are providing value. Buying out of foreclosure or employing a short sale is such a hassle it is pushing buyers to new. According to the article, individual buyers are losing out to out of state buying syndicates who are picking up large collections of foreclosures at cheap prices and
paying cash. Perhaps the dreaded foreclosure overhang will prove to be similar to a mild flu season, which bodes well for employment—but not necessarily unemployment.

Juan Williams, the astute Fox and NPR commentator, recently did an interesting piece on the composition of today’s long term unemployed. The stubborn unemployment is in older, white, blue-collar workers. He compares this demographic slice with black factory workers laid off in the early 1980s downturn. That group was very slow to get new work, saw families dissolve and higher levels of drug abuse and births out of wedlock. According to Williams, we are seeing similar trends now from the bluecollar, white, male demographic.

When I talk to people in the machining world I often hear confirmation of this employment issue. Company owners do not necessarily want to retrace their steps on new hiring. They may be looking for different skills and younger workers who are willing to start at a cheaper wage and be less insistent on health insurance. Immigrant workers with a strong work ethic may look more appealing than a 50-year-old former union guy who has been out of work for nine months.

I think the recovery of 2010 will be a little different than past rebounds. Companies will be hiring, but not necessarily rehiring. Unemployment will be sticky, but millions of people will be finding jobs.

The hot movie at the Cannes Film festival was Wall Street: Money Never Sleeps, the sequel to Oliver Stone’s Wall Street (1987). Michael Douglas plays Gordon Gekko again, who returns to the Street after spending eight years in prison. Art imitates reality. Reality imitates art.

I just finished Michael Lewis’ brilliant new book, The Big Short: Inside the Doomsday Machine, about the appalling fraud among the big shooters on the Street during the subprime fiasco. He could have used the same title he used for his last best seller, The Blind Side: Evolution of a Game, because of the duplicity and stupidity of the bond packagers and the rating agencies who blind-sided the government regulators and most investors.

In my callow youth I thought Wall Street banks were conservative stewards of investor money. The Big Short exposed them as crooked, dumb, cynical casino operators who lacked the scrutiny of Las Vegas.

I think the civil suit against Goldman Sachs was a preliminary probe by the SEC. Goldman’s management probably saw it as a political stunt to help the Obama 2010 Congressional election effort. But Lloyd Blankfein’s poor showing in Washington seems to have emboldened the Feds and New York’s Attorney General, Andrew Cuomo, to keep the pressure on. I’m sure Obama and Cuomo have read Lewis’ book, which lays out the derivative conspiracy with dramatic clarity. The big players—Morgan Stanley, Bank of America (Merrill Lynch), Bear Stearns, UBS, Goldman, AIG—are the names under scrutiny.

I really think we are going to see criminal indictments and “show trials” down the road. Lewis’ number one bestseller lays out the trail like dropped breadcrumbs. There will be a few Gordon Gekko’s headed to the penitentiary this time around, but unless we shut down the taxpayer funded Wall Street casino, it will all happen again in a few years.

Industry Scuttlebutt

  • I understand that some Japanese machine tool builders are running painfully short of inventory in the United States. Sales in Japan are up 260 percent year to year. The American distributors under-ordered last year and the Japanese factories slowed production, while huge Chinese orders flooded in several months ago. Six hundred CNC Swiss lathes were sold by one builder and 285 machining centers went to another for cell phone dies, swamping the companies. Now American demand is perking up, and the cupboards are bare. It will be interesting to see if ¥92 to the dollar will justify higher prices at IMTS.
  • The liquidation of Fadal machines in California has surprised the doubters. The liquidator, Machinery Network Auctions, has sold over 100 machines and has about a dozen left.
  • We hear that companies like Caterpillar, Deere and Case are still starving for inventory. They are pressing their vendors hard and their projections for next year are even more bullish.
  • On June 28 Cy Zvonar of Industrial Machinery Corporation of Milwaukee turned 99 years old. He still comes to work every day wearing a suit and tie like he has since 1939. It’s an incredible coincidence that three generations of Zvonars, Joseph, Cy and Jim, were all born on the same day of the year.
  • The authorities that operate McCormick Place in Chicago, where IMTS will be held Sept. 13-18, have awakened to the threat posed to its convention business by Orlando and Las Vegas. Millions of dollars will soon be flowing into marketing, but unless the total expense of exhibiting and attending is addressed, I can see the day when IMTS leaves the Windy City.

Elena Kagan has impressive credentials to become a Supreme Court Justice, but her nomination brings up some interesting questions about the composition of the Court. If she is confirmed there’ll be three Jews and six Catholics on the High Court—no Protestants, Buddhists, Muslims or evangelical Christians.

Four of nine Justices will be from New York city if Kagan gets in, one from each borough except Staten Island.

With Kagan’s appointment all nine Justices will have gone to either Harvard or Yale Law School. There will then be three women on the High Court, which would be a record number.

Kagan has written about the confirmation process, criticizing the charade of candidates for the bench who dance around their beliefs about crucial cases which the Court will hear. Now that she’s the one in the hot seat we will see if she’s as candid herself.

Ms. Kagan clerked for Abner Mikva who was one of Barack Obama’s early mentors. She was brought to Harvard by Larry Summers, who is head of Obama’s National Economic Council. She also worked in Bill Clinton’s White House with Rahm Emanual. This woman has great connections.

The only drama I anticipate is that a senator will ask her about her sexual orientation. If Ms. Kagan is gay, as has been speculated, it may come up in testimony about cases of special interest to gays. Personally, I hope she addresses the whispers. I would like to see a gay woman on the Court—especially a Court that begs for diversity.

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Swarf: Hyundai Heresy

By Lloyd Graff

Today’s Machining World Archive: May 2010 Vol. 6, Issue 04


I received impassioned letters (one is printed on page 13) about my “Swarf” piece in April recounting the purchase of new Hyundai cars by my two sons Noah and Ari. The letters were clearly heartfelt and probably representative of the feelings of many readers. They deserve an honest reply.

I did not buy the cars. My sons bought them, and they were focused on the monthly payments. Like me, neither are car buffs, but they valued my opinion on the car buying process more than on which car to purchase. They both did some research, but the primary reason Hyundai was on their radar screen was that they had driven a Sonata on a family trip in February and found it to be a capable performer.

I think the letter writers believe I conspired to have my sons reject American cars. But the fact is that they were rather naive car buyers and their driving experience was mainly with Toyota and some GM.

They were probably biased toward Toyota, especially Noah, who loved his 1997 Lexus despite a bad siege of transmission problems, dead air conditioning and a messed up radio. Ari’s strong bias was towards safety after working with badly injured patients in Chicago’s famed Rehabilitation Institute. I do confess I pushed them to look at the Prius, and if I were buying a car it would have been my choice because of the gas mileage. The question of buying American never really came up in the conversation. I had been a “buy American only” guy until 1996, when I chose Toyota because my Buicks and Chevys had been mediocre vehicles. GM had entered its desperate years and Toyota seemed more committed to America than they did.

I knew that my bread was buttered by the Big Three, but they were asking me to buy apple pie, motherhood and crappy products, and I rejected them with sadness.

Personally, I regret that we did not give Ford and Chevy a better shot. But the reality is my sons did not care, and I probably did not nudge them as much as I should have. We looked at Ford because it was gaining market share and I suggested they check it out. The fact that the salesman acted like he was doing us a favor to test-drive a Ford Fusion did have an effect on us. The attitude of a seller is important because it puts a human face on the brand.

In retrospect, I ask myself why we never even looked at the Chevy Malibu. It was probably because the Chevy dealer had shut its doors at the auto mall we visited. Both Ari and Noah were in a time crunch to buy because both of their cars were literally falling apart. They didn’t have the inclination to shop the market for weeks or months.For both sons, the last dealer we visited was Hyundai. (They never shopped together.)

Noah bought his car first. He wanted a vehicle with pizzazz, the lowest possible monthly payment and immediate availability.

Ari was more indecisive, but the fact that Noah bought the Hyundai probably affected his decision. He purchased his car a week after Noah, choosing a 2011 Sonata with a little less horsepower and smaller wheels. He really wanted a car that day, and buying a Hyundai offered the path of least resistance.

Response Letter
As an avid reader and financial supporter I was greatly saddened to see how your family makes major purchasing decisions. In your car shopping “Swarf” piece, you and the boys go to the local mega dealer, spend a couple of hours walking around and end up buying two cars based primarily on the “energy” of the salesman and the music in the showroom?

Let me get this straight. Both boys had to have new cars that day? They wouldn’t give the Ford guys enough time to check inventory at another lot and bring in the color or options they wanted? So some Koreans have good jobs because the Graff family is shallow and impulsive and won’t even take the time to see how good the American offerings are?

Where do you sell machinery? Hopefully to Koreans and the like, because it is people just like you that cause the high unemployment and loss of quality jobs right here at home. No, I don’t work for the Big Three. No, I am not a “union guy.” But I am an American manufacturing employer that works hard every day to keep my 40 people employed. I do that by quoting against companies across the globe that have the distinct advantages of near slave labor wages, a lack of employee safety and environmental compliance and trade imbalances that I have no control over. All I can do is to fight hard every day and hope that there are enough Americans that care to give American products a fair look. Obviously you are not such an American, even in these economic times.

I guess next IMTS I will wander around and see who has the best music, maybe even get a free latte and see who has the prettiest clueless girl standing out front. I will buy their machines, and who cares who the maker is? Who cares what the features are? Who cares about the impact on jobs? Not me, just bring on the energetic salesman!

Brian Capece has a five person shop in rural Maryland. He does wire EDM and precision machining for aerospace, satellite, medical and commercial clients, often working 65 to 70 hours a week. His wife runs his office now that his two children are in school. He’s been doing this for 10 years, since buying his first die sinker at an auction. It’s been a rough year for Brian. He says he used up his cushion of money to keep the business afloat while not letting any of his people go, because those core employees are the key to his business and if he lost them he would be in the soup.

He is finally back in the black but wonders if the path he has taken for the last decade was the right one. “After going to the tax man this year and seeing how much I had to pay, I really think I would have been better off working for somebody else than having my own business,” he said. His comment was not said out of anger or great regret, but I wonder how many people feel the same way—for the same money and less risk, they’d just as soon pull down a paycheck than sign all the checks.

Brian Pendarvis of Anaheim says he hasn’t felt the recession. His company, Pendarvis Manufacturing grew despite the softening that battered almost everybody else in the machining game. He attributes his success to marketing his job shop on the Web. Brian says he spends about $50,000 a year maintaining his Web site and spreading the word about his company’s capabilities on Yahoo, Google, ThomasNet.com and MacRAE’S. He pays for Google ad words, but just to promote the company within a 100-mile radius of Orange County.

His niche is combining fabricating, welding and machining, a combination we don’t see that often as firms reach for specialization. He says he tracks 5-8 calls per week directly from his Web prominence, which he says enables him to land one new customer per month on average. He lauds the work his Web designer has done for him—a firm that split off from ThomasNet—Creative Works.

Jim Chanos is famous for identifying the Enron scam, shorting the company’s stock and making a fortune. He runs a hedge fund named Kynikos Associates, which means “cynic” in Greek. He specializes in spotting emperors without clothes and is currently betting big that the Empire of China is a naked power. He compares China to Miamand Dubai of recent memory. The common thread is runaway condominium and office construction, huge real estate inflationand a shortage of able buyers. He says that today, all over China, high-rise buildings are rising, fueled by aggressive bank lending to developers. They are building 1,100 square foot shell apartments without floors, and selling them—or attempting to sell them, for around $150,000. The problem is that even though half are going empty, they are still building.

Chanos sees the phenomenal growth numbers in China being fueled primarily by real estate speculation and construction. In his view it is unsustainable. State and local governments are being funded by real estate development, so they have an interest in seeing it accelerate. They will suffer mightily when and if the bubble bursts. What happens if Chanos is right and the giant cranes go away like they did in Dubai and Miami? He feels that the raw materials companies who are supplying the steel, copper and cement will suffer immediately. Copper at $3.60 a pound could plummet, as well as iron ore and scrap prices. Crane companies will get killed. He feels that the Chinese currency, which everybody including the Obama administration is hoping will rise when it is no longer pegged—will fall.

Incidentally, Gary Schilling, the noted bearish economist who predicted the American stock market collapse (not the rebound, however) also feels the Yuan will fall in value when it is allowed to float. Jim Chanos is a very smart guy. He sees the Chinese bubble bursting later this year or in 2011. The Chinese have enormous reserves in dollars to soften the blow and may tighten credit dramatically soon to try to avert a property crash. China bashers may be happy to see the country suffer and revel in lower raw material prices, but with an interconnected world, be careful what you hope for .

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Swarf – Find Your Own Goat

For my 65th birthday on December 16th my daughter gave me a goat. When she told me about the gift I figured it was an effort to expiate the curse of the billy goat on my cherished Chicago Cubs. But no, this was an animal with an even better purpose.

For my Medicare birthday Sarah purchased a goat in my name from the WorldVision charity, which I’m told ended up in a small farm in Ecuador where it will provide milk for a family. The gift gave me pleasure, not only because it ended up in South America and not dropping dung on my patio and eating the hostas in the garden. It also gave me an insight into marketing to a jaded world, inundated with muddy media messages.

My daughter, a sophisticated and frugal person, put out $120 for a charity gift and photo of a cuddly goat presented to a milk deprived family in Ecuador. The goat sold her. The WorldVision Catalog would have ended up in the recycling bin along with a dozen other worthwhile charitable pitches, except for the hairy can eater on the cover of the brochure.

From a business standpoint the message is “sell the goat not the widget.” Your company and your product need a story and an image. I’m not talking about a building photo or a promise of precision.

Everybody has a building and if you can’t produce quality you would have been washed out two recessions ago. You need buzz, or at least a baa and your own credible goat to separate you from the herd. The competition wants to sell stuff. The buyer wants an authentic story.

Find your own goat.

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Swarf: Noah Graff’s Visit to Arve Industries, June 2008

Today’s Machining World Archive: June 2008, Vol. 4, Issue 06

Noah Graff spent the first week

of April in France’s Haute-Savoie region, just across the border from Geneva Switzerland at a press junket held by the Arve-Industries Haute-Savoie Mont-Blanc Competitiveness Pole (Arve-Industries for short). This is his account.

While famous for its ski resorts and mountain lakes, France’s Haute-Savoie region also happens to be a hot bed of screw machine companies; small to medium, privately owned firms whose origins date back to the clock making industry of the Middle Ages. Arve-Industries, named for its location in the Arve Valley, is what’s known in France as a “cluster.” It is an organization formed in 2006, of 183 companies in the region working together on joint R&D projects, to better compete in a relentless world economy. Lionel Baud President of Baud Industries, and Vice President of the Arve-Industries cluster, told me that before the cluster was formed, the small family businesses of the Arve spent little time or resources on R&D and rarely collaborated with one another. The cluster’s members believe their newly formed unity has the potential to bring the region’s companies unprecedented success.

I was the lone American journalist on the trip and the only one in his 20s, and I don’t think the French execs giving us the tours were accustomed to my frank, often sensitive questions. I asked them how French manufacturers could keep up with the rest of the world while tied down by their country’s mandated 35 hour workweek and laws prohibiting the firing of workers. I asked whether they were hiring a lot of workers from Turkey and North Africa to deal with the shortage of skilled labor. I asked why these companies wouldn’t just send all of their operations overseas, or at least 40 minutes across the border into Switzerland where many of these regulatory hurdles would be lifted. When I pushed the question about the difficulty firing workers as companies become leaner and automated one exec from Bosch, the one multi-national company we visited, answered frustrated, “Well, what do you want me to say?” But overall, most people I talked to, although a bit taken aback by my bluntness, really impressed me with their intelligent, honest responses.

The truth is, some companies in the Arve Valley do have plants in Switzerland containing some French employees who commute across the border daily. Switzerland has much lower corporate taxes than EU member states, it’s easier to find workers there, and its workweek is more flexible than that of France. Baud Industries concentrates its watch and medical device manufacturing there, yet Lionel Baud told me he still insists on keeping the most technical, complicated jobs in-house because the cluster is available for assistance and France is where he has the best communication with workers, which creates loyal employees and low turnover.

To deal with the 35 hour workweek, executives said that lights-out manufacturing, automation, and overtime helps keep up productivity. They also said that just because French workers put in less hours does not necessarily mean they can’t match productivity of workers with longer hours if they have superior focus.

As far as my query about firing workers – after a little badgering, the Bosch executive told me to downsize, the company sets up a type of early retirement plan for workers they want to lay-off that meshes with government regulations.

My questions about the employment of workers from the Middle-East and North Africa received the most diverse responses. One company said that 60 percent of its workers come from North Africa and that there are good training schools there producing a lot of quality skilled labor. He added however, that third generation North African immigrants born in France are often not interested in manufacturing jobs, similar to their native French counterparts. One company told me their workforce included 20 percent Turks or North Africans, but as more jobs are requiring advanced skills that number is declining. Another executive said he employs virtually nobody from those regions, but some of his best employees come from Eastern Europe.

Although the companies I visited had diverse business philosophies and strategies, throughout the week I felt a common spirit from my hosts; one of pride, creativity, and a passion to grow while still preserving their roots.

Managing Editor Jill Sevelow

attended the Delcam American Technical Summit, hosted by Methods Machine Tools in Sudbury, Mass., in mid-April. Jill was most impressed by the portfolio of Delcam products. Operations Director Clive Martell said their goal was “to build a series of ‘best in class’ when orchestrating their software CAM acquisitions. Aside from well-known turn/mill and Swiss-type lathe CAM software Partmaker (which Delcam acquired in July of 2006), Delcam includes DentCAD and DentMILL, a dental CAD system for dental machining, PowerMill for 5-axis machining, FeatureCAM, ArtCAM (which Delcam’s Rob Walker likened to “bringing craftsmen into the digital age), and now Crispin-CADCAM software for the shoe industry. In the age of increasingly individualized customization of product, Delcam’s software has evolved with market demand, generating sales of almost $60 million in 2007. Power point presentations laid the groundwork for each product, but customer testimonials drove the “message of excellence” home. Each attributed its growth and acceleration in its respective fields to the collaborative and innovative Delcam product used.

For many years I have been a

staunch advocate of gridlock in Washington politics. The visceral animosity on the national scene began when the Republicans ganged up on the Democratic House Leader Jim Wright, forcing him out of Congress. The Democrats finally got even by banishing Tom DeLay. The legislative process is a Pork Barrel provider presently and not a vehicle to tackle the serious issues of the day.

This might be starting to change. Assuming the presidential race is between John McCain and Barack Obama, a pair of mavericks in their parties who won their nominations as long shot outsiders, we might see each one reaching out to the other party for cabinet members and even vice presidential possibilities.

Some young people are reaching out to both parties to actually address issues that people care about. George Bush wasted eight years in addressing the health insurance problem that affects almost everybody in the United States. The insurance companies and Federal bureaucracy have made such a mess out of health care that we may be near some kind of national compromise if the partisans are circumvented by the people. With some baby boomers retiring soon and a new president, this would be the time.

Another huge Bush failure is immigration policy. He abdicated to the Lou Dobbsians and now the country is losing its transfusion of people energy. Hopefully McCain, who has a grasp of immigration issues from his Arizona experience, or Obama, who is sort of an immigrant himself, will pull us away from the know-nothing cheerleaders in both parties.

On Iraq it may be easier for McCain to extricate a lot of American troops from combat than Barack Hussein Obama, who may have to show the country, the Joint Chiefs and Bin Laden that he is a tough hombre.

I am strangely optimistic about this election and totally undecided about who I’ll vote for. These are two good men to choose from and I haven’t felt that way for a few decades.

On May 8, the state of Israel had

its 60th birthday as an independent country. The country has never been as strong economically as it is now with 20 years of spectacular growth behind it.

Americans can learn a lot from the Israeli experience.

The core strength of the Israeli economy derives from the creativity of a highly educated population. In technical fields, Israel excels. Silicon Valley is filled with Israelis who live in the U.S. and then go back to live in Israel’s Silicon Valley near Tel Aviv.

Israel thinks globally. A myriad of trade deals with other countries have thwarted the Arab economic boycott. After military service almost every secular young Israeli leaves the country for at least a year of travel. This gives the population a worldliness virtually unmatched elsewhere.

Israeli business has abundant access to money through a thriving venture capital network. A host of Israeli tech companies and medical firms have gone public on the Nasdaq stock exchange. Most children in Israel speak at least two languages, Hebrew and English, which is a necessity for global commerce.

The Israeli economy has continued to thrive despite terrorism, six wars, political isolation, and a tiny population with a large segment of parochial Orthodox Jews, many of whom barely work in the modern economy. In many respects, it is an economy functioning with one hand tied behind its back.

The United States can learn from Israel that terrorism can be contained with intelligent determination. We can also learn that immigrants, even poorly educated ones, can bring prosperity if properly acculturated and educated.

Israel has shown that a tiny country, surrounded by fanatical enemies, can thrive if its people have ingenuity, positive energy, intellectual capability, access to capital, a global outlook, and the determination to thrive – no matter what the obstacles.

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.

Our first challenge was to locate the place. Vienna has a big central shopping area, the “zentrum,” with a vast array of shops and restaurants adjacent to the city’s historic buildings. We took the “underground” to the zentrum and asked people for directions to Meinl. Nobody was helpful until we found, of all things, Starbucks. I walked into the old reliable and asked the young barista behind the counter where Meinl could be found. He answered instantly and offered detailed directions in excellent English. He then added that Julius Meinl had recently opened a store 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. The size of the cup was about one third smaller than the comparable American one and the price was double in American dollars. 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.

Jonathan Goodwin dropped out

of seventh grade to help pay the bills and follow his passion for cars and engines. Today the automotive world bows to his genius and wonders if this car nut might actually win the 10 million dollar X PRIZE for producing a low emission, competitively priced, 100 mile per gallon car.

His partner in this venture is Neil Young, rock legend, who contributed his 1960, Lincoln Continental “boat” as Goodwin’s test car.

Goodwin works out of a garage where he specializes in converting Hummers into fuel sipping diesels while boosting their power. He also likes to run his thug cars on fried chicken grease contributed by the local KFC outlet.

The fact that the prestigious X PRIZE contest committee has allowed Goodwin and Young to apply to join the elite, well financed, automotive companies from around the world gives him credibility.

Goodwin is negotiating with DHL to convert 800 vehicles to super efficient systems which cut fuel costs by 50 percent.

It appears that his approach is unique because he does not want to build a new vehicle and engine. His devious plan is to make inexpensive conversion packages for existing vehicles turning them into biodiesel burning plug-in hybrids.

Proving his point on Neil Young’s 40 foot “boat” may not win the X PRIZE, but that’s what they said about the crazy bike mechanics Wilbur and Orville Wright in 1903.

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