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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