IS THE GLASS OVERFLOWING?

I have suffered through two very depressing "recessions" in the 1970's and 1980's. They take a mental and a physical toll, but we learn to live through it.

Those of us who had parents that lived through the The Great Depression understand, and should remember when we didn't have school milk money or the fifteen-cent bus fare, we walked to school.

Now with easy credit vanishing it reinforced the adage, "there is no free lunch." The results: today's (Dec. 5, 2009) BLS Commissioner's statement, " . . . the unemployment rate rose to 6.7 percent in November, 1.7 percentage points above the December rate." But, also in that statement (http://www.bls.gov)are facts such as:
*Two-thirds of the recent job declines occurred in the service-providing sector as well as the gargantuan losses in industrial labor. However, there has been an increase in health care employment. Are we getting, not only older, but more stupid to the real world of economics?

Everything is relative. Mining is suspending strategic extraction, steel production is down, food prices increase, but fuel prices are on the decline. It's all supply and demand. Food and toilet paper are recession proof but auto's are not.

Then there are issues pointed out in today's chem.info (http://chem.info.com) that "U.S. Squandering Millions Due to Clumsy Project Management." Okay, we know we are wasteful. How many of us glut up at COSTCO only to waste half of the fresh products we purchased because we can't consume them before they go bad?

The same thing happens in industry -- world wide. We don't pay attention by organizing our thinking as well as our spending habits. We spend like drunks and then scratch our heads because we ran out of juice. I won't even talk about the AIG bailout without wanting to throw up.

So the solution: stop the flow, shore up the defences, financially and mentally. It doesn't take an MBA to figure this one out. Quit spending so much frivolously and own up to the fact that we can't be everything to everybody and every nation.

MARKET MYTHS

Jorina Fontelera, reported in her ThomasNetIndustrialNewsRoom article, Light Friday: Great Depression Myths and Bailout Bashes (Nov. 14, 2008): We are probably misguided if we believe our current state of affairs is at all like the Great Depression. To quote:

"1. Herbert Hoover Believed that markets were self-correcting. Fact: Hoover believed in government intervention to support incomes and employment. His policies kept businesses from cutting wages as the economy fell and championed many of the ideas in Franklin D. Roosevelt's New Deal such as central planing and control of the economy."

This tells me that we are repeating the past in that the current administration will inherit the last administration's foibles, if that's what they are. The current administration inherited the predecessors problems, or what goes around comes around.

"2. The October 1929 crash precipitated the Great Depression. Fact: The crash triggered the passing of countervailing tariffs that caused the international economy to collapse."

A bit different this time, but the crash of the international economy is directly related to the U.S. ability to stay afloat.

"3. Where the market failed, the government stepped in to protect the people. Fact: The Agricultural Marketing Act caused farmers to lose export markets and raised prices from hard-pressed consumers, which both lowered farm productivity and drove farmers off their land."

Where there is cause there is affect or influence. Because the corn market got way out of whack and the price of fuels got way out of whack hasn't seemed to have created a great collapse in the other factors that produce, food, energy and medical related needs. These last three, according to this week's CPI grew a few tenths of a percent where things like transportation absolutely tanked.

I won't go on with the list, but Ms. Fontelera's article is worth reading -- it puts values in perspective again. I believe that the value remains where value belongs, in the products and things that we really need to live. The rest of the stuff, SUV's and $5million houses aren't really necessary in today's economy. Check the archives at http://news.thomasnet.com/IMT/archives/2008/light-friday-111408-great-depression-

VALUE IN EDUCATION

One of my favorite blogs, a chock full of stuff site, is ThomasNet Industrial News Room. If you don't already subscribe to this free site, take a look. Everyday the site has informative and useful information.

Today was no exception, and I think it dovetails with Bureau of Labor Statistics Commissioner's Friday, November 7, 2008 "Statement . . . that non farm payroll employment declined by 240,000 in October, and the unemployment rate rose to 6.5 percent."

Sure, there are all avenues of excuses now why employment is the lowest since we can remember in this lifetime, YA-BUT,what about manufacturing?

If you are a manufacturer or a dealer, do you not receive, on a daily basis, at least four major auction notices a day of some manufacturing business going to auction? According to an article written by David R. Butcher, NEW EDUCATION COUNCIL TO SHAPE MANUFACTURING WORKFORCE, some higher houses of learning are taking notice --we are losing our manufacturing expertise.

Now there's an epiphany. We've only been shipping the jobs and the technology offshore for the last thirty years. Dare I say that dreaded word, "DUH?"

Further, the article says, "As International competition intensifies, U.S. manufacturers are having a difficult time finding qualified people to replace the retiring baby boom generation in increasingly sophisticated, high-tech, jobs. Well double "DUH."

Wasn't it in Europe, I believe Germany the leader in this, where a K-12 student was led down the path of either college or trade school. Those that attended and finished trade school are engineer quality. Now the U.S. is recognizing this as a possible solution. Teach science, and math. I happen to be a proponent of liberal arts and I fervently believe that you need art, music and communication as well as physics to be literate. The history of the great thinkers of the world is that they could think in more than one dimension. Mathematicians were philosophers and great artists were mathematicians -- hand in glove.

If the jobs aren't here, if the wages aren't here, if the manufacturing plants aren't here, are we going to ship the new hierarchy of educated machinists and engineers to China to join the rest of our technology.

Come on now. If we want to compete, lets compete. Quit listening to those silly MBA's who hedge funds to put and mostly take. And unions, get real. You can't have it all. You may have to subsidize your own health insurance, I've been paying my full tab for more that thirty-years. Some of you will have to learn like most small businessmen, to support yourself if you want to survive. Keep manufacturing here in the U.S. so that we can compete and cut the deficit -- you think that a new administration is going to save you? Uncle Vinnie would say fugit-about-it. The new admin is going to help those who already stand on their own two feet because we are running out of money.

Pick-Up-Sticks?

I've been off of the blog for a month, almost two. The same washing machine that has the world in a mix affects all of us and I'm viewing the mess as the old game of Pick-Up-Sticks. If you attempt to sort one thing out of a pile chances are the whole mix collapses.

We tread carefully now; just ask your bank for a loan. To post anything worthwhile about the economy is ludicrous -- who wants to hear it anyway? We've finally finished the elections -- thank you, and now we have serious issues. We can see today's BLS post, -1.0 percent in manufacturing, but still 3.3 percent in durable goods manufacturing; -7.3 percent in non durable goods manufacturing. What does this mean in the flux? You would surmise that one supports or detracts from the other. It tells me that we, as a nation, are importing most of our durable goods, TVs, dishwashers, personal computers and Mini-Coopers -- nothing new about that. The increase in aircraft sales will increase the numbers, but then there are glitches, like a strike at Boeing, or domestic auto manufacturing is down. Pick-Up-Sticks.

BUT seriously, can you believe the "downfall of TWINKIES?" According to an article from Jeff Reinke of Advantage Media, the manufacturer of American icon, the TWINKIES is in Chapter 11 Bankruptcy -- awful! The company filed four-years ago and is still working it out.

What a fickle public we are to let that wonderful pastry fall into the bin. Where's our country going? Before the Golden Arches and Taco Bell came TWINKIES. After school it was TWINKIES to bolster the one that was in your sack lunch.

I believe that a boost in the old standbys Rainbow Bread, Bunny Bread, Hostess Cupcakes and TWINKIES will bring our poor economy back on it's feet. AND don't forget MOON PIES too. Oh-you're counting carbs.

THERE MUST BE A PHOENIX IN ALL OF THIS

I attended an M&A seminar today, and I learned something. The market may be wounded and questionable, but it's not dead. The mega-deals may have gone away for awhile, but we are living proof that we aren't going away anytime soon.

Okay, the market has taken a big hit, but even as I write this, the market shows signs of life and the government's bail out plan is yet implemented. The market may bounce like a ball for awhile. We aren't holding our breath though.

Public ownership aside, there is private placement money still on the loose and looking for opportunities. And, remember, quality sells in any market. If your balance sheet and assets look bad, clean them up. A knowledgeable buyer won't buy junk in most markets and certainly not under the present circumstances. Manufacturing still looks good while building and construction are way down on the bottom. You know that all of this is cyclical even in the worst of times. We still have to have shelter, eat and commute.

In my business of appraising machinery and equipment, us practitioners are waiting and seeing like most folks. We don't know if manufacturers are going to retrench or re-credit. They can't very well be looking for credit when the greed merchants have already put the lid on legitimate sources.

Compounding conditions are the rehabilitating and rebuilding of devastated areas like New Orleans, Biloxi, Galveston, and cities in Missouri, Iowa, and Colorado, only to name the ones that I can remember; they're so many. We want to give our citizens help via the government resources also. So everything hits at the same time. But, what's new?

The financial world took a hit today!

The Wall Street whack over the weekend of September 14-15th -- couldn't you just feel it coming? Yes, the proof that Bears make money, Bulls make money and Pigs get slaughtered is right there on the news channels today.
Not that major funding mismanagement has anything to do with it, I'm sure, but the Bureau of Labor Statistics ,PPI, August 2008, and out Sept. 12, 2008 show a goods decline by 0.9 percent in August "seasonally adjusted."
Further, the "index for finished energy goods declined 4.6 percent in August etc. etc. That's all awash now in the wake of Hurricane IKE.
So in the wake of man made and natural disasters -- what's next?
If we knew that there wouldn't be any problems we couldn't plan for. In the consulting business where properties are inspected and values researched, look for changes -- again.
According to what I see via the Internet and friends reporting in: The prices in stainless are dropping, but carbon steel remains high and looks positive. Precious metals, they're always up and down, but reasonably steady today. And, despite auctions of prime manufacturing facilities by the day, manufacturing in the U.S. still has some life.
Current economic signs, who knows? They're like the weather, but we can't stop planning, it's just not the way we Americans do things.

SWIM WITH THE FISHES

Swim with the Fishes?
By: Alan C. Iannacito

Think of a school of fish all rushing for the same bait. You understand how fast a single, voracious, cold blooded, torpedo like, vertebrate can target and devour its prey. Just imagine what a whole school of barracuda could do.

Now think of adjectives like “cold blooded” that can have double meanings. Cold blooded can define an animal with internal body temperatures that vary with the temperature of its surroundings. Or, cold blooded as in a total lack of kindness, pity or care for somebody’s suffering. Think about those two differences or similarities in relationship to industrial markets and unlimited money.

Does unlimited money mean private funds, governments; individuals? History teaches that money has always influenced or attempted to control markets. There are unregulated pools of capital whose managers can buy or sell any assets. Whatever drives industrial markets there is money available to invest in commodities like corn, soybeans, energy other raw materials, and interim products like steel and gold bars.

Raw materials are influenced by demand and by the cost of extraction. The cost of another commodity, oil to make fuel for example, helps drive the cost. Iron ore, bauxite, copper ore, nickel, gold ores and the like are processed into radiated gold seeds for the treatment of prostrate cancer, to aluminum packaging, ships, utensils, planes and seemingly infinite uses.

Where does all of this start? The earth, the oceans; the air we breathe. Increasingly, a lot of it comes from scrap metals and recycle too. We tear up the earth and the atmosphere when we extract metals and fuels. It’s like plastic surgery. In today’s hopefully regulated extraction parameters most of it looks good on the outside, all smooth and neat, but the cuts and scars are in the inside where no one notices. So recyclables are good.

What’s not so good is that scrap metals may come from perfectly usable things like the wiring just installed in your new house, the tin from your factory roof, the stainless steel vessels that you may have in your yard for future use. I mean, watch out there, nail down the silverware or you may find it has gone missing.

Years ago I was involved in the dismantling and reselling of vessels and used equipment from a Brooklyn brewery. The sales crew was advised to skedaddle out of the location before 5:00pm each day, because, you could actually hear things moving in the far reaches of the brewery as the scavengers gleaned the guts of the brewery pipe lines and electrical wiring. Was I going to be the person, flashlight in hand, to walk into the bowels of an unlighted nasty hole to inquire “who’s there please? And, will that be cash or credit card?” You get the picture.

So, in my profession as a machinery and equipment appraiser, what does this do to the value of equipment? Scrap value is good today, salvage materials are better, and late machinery still has a good market. That means that costs increase, and despite what the media reports, manufactured goods still have a market. This also means that industrial machinery appraisers are looking more closely at materials markets that are steady for certain things. Look closely into your salvage yard. Now is the time to clean and glean. Scrap dealers call it, “cleaning the corners.”

Of course this is all cyclical, but I believe that the cycles get more mileage as the population demands more, restrictions grow, shortages abound and there are those increasing mouths to feed. Like those voracious fish big money finds what’s hot and targets the bait. Sanford and Son is a nostalgic benchmark, but the big guys are global conglomerates with plenty of money funding their scrap heaps.

Now this rhetoric is only from my personal experience in buying and selling, and there’s that waggling phrase: “yah-but.”

Yah-but what about the recent “Open Letter to All Airline Customers,” from UAL and signed by twelve major air carriers telling us why crude oil and fuel costs have skyrocketed. Airlines lay the blame on commodities traders driving the price, buying, selling and never taking delivery of oil. Who knows without examining all of the facts? Reality says that the interest in a perceived scarcity of commodities and strategic metals influence speculators. Like “futures,” buy short sell long, buy, sell and add weight to the commodity like a growing ball of string.

This goes back to the example of some scrap metals. If it’s scarce it becomes valuable. A Bloomberg News article had an interview with some steel producers, Nucor and Arcelor-Mittal, that the “price of steel-making raw materials such as iron ore, coal and scrap metal will continue to rise for several years, keeping pressure on manufacturers.” It’s all relative: demand, money, and supply -- like bait fish.