Daley: Obama Policies ‘indefensible’

I try to keep up. Really I do. But I missed Bill Daley, White House Chief of Staff, basically saying that the White House was clueless on economics. This report was from 17 June.

White House Chief of Staff Bill Daley took heat from business executives Thursday for the Obama administration’s regulatory expansions. Daley also said he didn’t have any good answers for some of what President Obama is doing and expressed frustration about the “bureaucratic stuff that’s hard to defend.”

“Sometimes you can’t defend the indefensible,” Daley said at a National Association of Manufacturers (NAM) meeting.

Daley couldn’t answer basic questions and continually faced criticism from the executives in the room. The business leaders even applauded each other’s criticism of the administration. “At one point, the room erupted in applause when Massachusetts utility executive Doug Starrett, his voice shaking with emotion, accused the administration of blocking construction on one of his facilities to protect fish, saying government ‘throws sand into the gears of progress,’” wrote Peter Wallsten and Jia Lynn Yang in the Washington Post.

You have to read the whole thing. It is scathing. And I would not have known a thing about it had I not visited Ulsterman for updates.

When Daley, as the current Obama White House Chief of Staff came out publicly and declared there were policies initiated by the administration that were indefensible, that was just stunning. That story is being so under-reported. The White House Chief of Staff is calling President Obama indefensible. That is exactly what that was. And has there been any retraction? No. Did the president demand clarification? No. Daley said it and Daley was left untouched. It was an incredible power play on his part, the implications of which I don’t know at this point, but I do intend to find out.

Yeah. It was under reported. So I decided to have a look around and report it. We shall see if the story gets legs. Because right now it doesn't have any.

Cross Posted at Classical Values

What The Frack?

Fracking for natural gas is supposed to be very dangerous.
But is it? [pdf].

55. All technologies have environmental risks. Press coverage that talks about `toxic‘, `carcinogenic‘ and `radioactive‘ `chemicals‘ is meaningless. Vitamin A is toxic. A single cup of coffee contains more known carcinogens than the average American ingests from pesticide residues in a whole year. Bananas are radioactive. Dihydrogen monoxide is a chemical. The question that needs to be posed is always: how toxic, how carcinogenic, how radioactive?

And it has to be balanced against the gains.

76. Gas is a common feedstock for the chemical industry; so is ethane, a glut of which is now coming out of shale gas wells as a byproduct. Thus the shale gas revolution has already begun to draw chemical companies back to the Gulf of Mexico from the Persian Gulf, and hand them a competitive advantage. As well as being a fuel, gas and natural-gas liquids such as ethane are used in the manufacture of plastic, specialty chemicals, agrochemicals and pharmaceuticals. Shale gas is therefore revitalising the chemical industry wherever it can be produced.

77. Much environmental criticism of modern high-output farming argues that it is unsustainable because it depends of synthetic nitrogen fertiliser, which is manufactured from air and natural gas. Some have argued that famine will result when the gas, and therefore the fertiliser, runs out. It is now clear that the gas will not run out and will probably remain low-cost, so highoutput farming using fertiliser is indeed sustainable and affordable for the foreseeable future. This ensures not only food availability, but less pressure to convert wild lands to agriculture.

There are nearly 100 bullet points in the report and an introduction by Freeman Dyson. Read the whole thing.

A Double Dip?

Are we headed to a return to recession in the American economy?

U.S. consumers cut spending in September and turned gloomier this month, underscoring the fragility of the economy's recovery even as signs emerged that manufacturing may be picking up.

Manufacturing may not be picking up as advertised. I will get to that in a minute.

How about a look at some unwarranted optimism?

A separate report showed factory activity in the nation's Midwest expanding for the first time in more than a year, but employment conditions deteriorated. A dismal job market appeared to weigh on consumers, with the Reuters/University of Michigan final index of sentiment for October slipping to 70.6 from 73.5 last month.

What are gasoline prices doing to consumer sentiment?

Gasoline prices are now up 17 straight days after climbing 0.4 cents overnight to $2.695 a gallon, according to auto club AAA, Wright Express and Oil Price Information Services. That is the highest price since Oct. 26, 2008.

Prices are up 5.9 cents from a week ago and 14.8 cents from a year ago.

The average retail price for gas was $1.686 a gallon in December. Today's price will tack about $50 a month on to the monthly gas cost for the typical customer compared with then. It comes at a time when unemployment is at a 26-year high.

"It's a wet blanket on the consumer. It's something visible you see," said economist Ken Mayland of ClearView Economics.

Oil prices that skyrocketed to $147 a barrel a barrel in July 2008 helped push the economy into recession to begin with, he said.

"Can high oil prices shut down the economy? Well, clearly the answer is yes," he said.

With pessimism ruling the economy rising gasoline prices are going to hurt sentiment. The stimulus by the government is nearly played out and the government's line of credit went mostly for present consumption and not future growth. On top of that people know that with Bush's tax cuts expiring in 2010, taxes will be going up. That will further dampen current sentiment.

Now what about manufacturing? Steel is a barometer of the economy, just as steal is the watchword of politicians. And steel is going down while steal is going up. Not a good combination.

Let me start with steel tubing prices.

Price increases flopped for steel tubing products in October--in fact, they slipped--as prices of the feedstock hot-rolled sheet plateaued at September levels and tube purchasing by original equipment manufacturers declined, according to buyers.

Market sources say the proposed increase of $50/ton for structural tube has been rescinded by tubing mills in the South and Midwest. The October market price reported to Purchasing.com is $634/ton, down a smidge from a $638 average in September-and well below the $720 list price for hollow structural sections.

So demand is meeting supply at a lower price. That can only mean lower demand.

Steel scrap prices are slumping.

The economy is recovering too slowly to help U.S. steel manufacturers maintain recent steelmaking rates in excess of 60%. So, Key Bank Capital Markets analyst Mark Parr writes to clients that ferrous scrap prices could continue to decline over the next couple of months, noting that export scrap pricing for November already has dropped $30/long ton. "Domestic mills and export buyers remain on the sidelines," the Cleveland analyst writes, "likely dampening the ability to substantially maintain or raise hot-rolled pricing realizations over the near term despite low supply chain inventories."

Analyst Eric Prouty at Canaccord Adams in Vancouver, British Columbia, says market research "indicates that scrap industry fundamentals are weakening due to falling ferrous scrap prices, a relatively quiet export market, the end of inventory re-stocking by domestic steel mills and weaker seasonal trends."

And finally a how about sheet steel prices whose demand reflects the demand for autos and appliances.

Commentary from various steel mills and large service center chains discussing fourth quarter outlooks says demand for steel is muted amid the continued downturn in manufacturing and construction. This has held down prices since buyers have refused to pay what the mill shave been posting. Analysts now say recent increases in the rates at which mills are running have been an overreaction to customers, mostly distributors, who replaced inventory last quarter rather an indication that demands has increased among manufacturers.

Earlier last quarter, steel orders improved from historically low levels earlier in the year, helped by rising demand from the auto industry trying to boost manufacturing to replace cars junked in the "Cash for Clunkers" program. However, demand from the automotive and auto parts sectors appears to have slowed this month. So, the market for steel continues to pale in comparison to levels seen during much of last year.

Well well well. Cash for clunkers is no longer stimulating auto demand and with all those clunkers now in the scrap yards the demand for replacement parts has dried up. Who could have predicted this? I did. And I'm not even a government economist. I wish I was as smart as the economists now giving advice to the Obama administration. I could be getting a lot of money for saying really dumb things. Unfortunately it is not in my constitution to say things I know are dumb. Oh. Well.

Serve The People

Eric of Classical Values and I have been having an e-mail discussion of management styles provoked in part by his article on Chairman Mao: Proudly emulating the bold and imaginative attitude of Chairman Mao!

My attitude was to always treat those below me with the same attitude I treated those above me. Respect. Because good results depend on every one on the team. Or as an American philosopher put it:

“The society which scorns excellence in plumbing because plumbing is a humble activity, and tolerates shoddiness in philosophy because philosophy is an exalted activity, will have neither good plumbing nor good philosophy. Neither its pipes nor its theories will hold water.” — John W. Gardner, Saturday Evening Post, December 1, 1962

Chairman Mao was not the only one to see that a fundamental respect for others was necessary to make an organization work. Sadly the Chairman got carried away with the privileges of power and bad philosophy. Leading him to kill at least 50 million Chinese. The movie The Last Emperor is an excellent look at the Empire of Mao.

Which leads us to another dying empire. The American auto industry. Or as I currently prefer: Government Motors and Crisis Motors.

Everyone knew Detroit's reputation for insular, slow-moving cultures. Even by that low standard, I was shocked by the stunningly poor management that we found, particularly at GM, where we encountered, among other things, perhaps the weakest finance operation any of us had ever seen in a major company.

But that is only the money. What about their attitude towards the people producing the cars?

The cultural deficiencies were equally stunning. At GM's Renaissance Center headquarters, the top brass were sequestered on the uppermost floor, behind locked and guarded glass doors. Executives housed on that floor had elevator cards that allowed them to descend to their private garage without stopping at any of the intervening floors (no mixing with the drones).

And that is the essence of the problem. They never practiced management by walking around. Finding out what was actually going on and fixing things. They never liked the peasants. Reminding me of the old joke: Courtier to the King: "The peasants are revolting." King to the Courtier: "Yes they are." There is an identity there. As in congruency.

As Mao once knew. If you don't serve the people you can not succeed.

And Michelle Obama? All she wanted was a few servings of leafy greens.

Let's say you're preparing dinner and you realize with dismay that you don't have any certified organic Tuscan kale. What to do?

Here's how Michelle Obama handled this very predicament Thursday afternoon:

The Secret Service and the D.C. police brought in three dozen vehicles and shut down H Street, Vermont Avenue, two lanes of I Street and an entrance to the McPherson Square Metro station. They swept the area, in front of the Department of Veterans Affairs, with bomb-sniffing dogs and installed magnetometers in the middle of the street, put up barricades to keep pedestrians out, and took positions with binoculars atop trucks. Though the produce stand was only a block or so from the White House, the first lady hopped into her armored limousine and pulled into the market amid the wail of sirens.

Andrew Monaghan thinks this shows more than a minor disconnect from the "little people".

I ask my readers to consider one thing: What mindset must one be in to block traffic during rush hour (in Washington DC of all places!) in an attempt to satiate your craving for certified organic Tuscan Kale?

Here's the answer: One must be in the state of mind where your whimsical cravings supersede the desires of thousands (if not hundreds of thousands) of people to get home to see their families after a hard day of work.

This is giving Michelle Obama too much credit. The statement above presupposes that Michelle Obama actually has the desires of these people on her radar. She does not. Anyone who stops traffic in rush hour to obtain an obscure lettuce isn't thinking of anything other than impressing the "small people" with her nuanced palate.

Which brings me back to the political side of the current bunch of liars we have in office. They have more than the usual amount of disrespect for the people they serve (yeah that Chairman Mao again). It will not end well.



Cross Posted at Classical Values

Old Wafers

The electronics industry is going through a world of hurt. NEC is no exception.

Amid a massive December quarter loss, NEC Corp has stated plans to cut more than 20,000 jobs as it seeks to save $889 million (80 billion yen) over the next two years.

Now here is what really surprised me.

NEC's job cuts and earnings announcements came this morning, one day after NEC Electronics America announced it will close the six-inch wafer fab line at its manufacturing facility in Roseville, Calif, by the end of March 2010. With the action, the Roseville plant will exclusively offer 8-inch wafer production.

The move was not entirely unexpected. The closure is part of a broader decision by NEC Electronics America's parent company NEC to consolidate select six-inch fabrication lines worldwide as it aims to improve global manufacturing efficiency.

Six inches is also called 150 mm in the business. Do you know how old 150 mm technology is? It was introduced in 1981. That is 28 years ago. The 200mm size (8 inch)was introduced in 1990 [pdf] and roughly a doubled the chip output from a production facility given the area increase. That was nineteen years ago. In 2001 the 300 mm size (12 inch) was new. That is eight years ago. So it surprised me that NEC was keeping such an old production equipment running. Normally equipment that old has been donated to a university already.

Printed Circuit Boards Up Consumer Confidence Down

Electronic Design Magazine reports.

US consumer confidence fell to its lowest level in 28 years in the month of June, amidst high energy costs and rising joblessness. US new orders for computer and electronic products dipped in June with US economy registering a lower retail sale when compared to the month of May.

However printed circuit board (PCB), semiconductor and electronics manufacturing services (EMS) shipments continued their upward momentum. The long-term outlook for the EMS industry remains positive with ever increasing global demand for consumer electronics.

That is interesting. In the past when times were tough the entertainment budget was the first to be clipped. It appears that that is the case in the US. However, the low value of the dollar encourages US exports. How much longer that will last with the US dollar rising is a question. Time will give us the answer.

A lot of electronics is used for manufacturing. However, it is not enough to drive the market. The big drivers are cell phones, computers, and entertainment devices.

We Can't Drill Our Way Out

A blog about US politics has this comment:

The time for talk is over. We can't drill our way out of this and both his and Gore's plan point us in the right direction. We need to just do it.

I got news for him. If we can't drill our way out of our immediate problems, there is no immediate solution. Why? It is a matter of logistics and infrastructure. Our experience with the transition from wood to coal and coal to oil is instructive. Those transitions took about 75 to 100 years. Why? Whole new methods of production and infrastructure had to be developed. It is a problem of capital and logistics. Take our automotive fleet. It turns over at the rate of about 6% a year. That means a 15 or so year transition period if ALL the new vehicles embody the new energy technology. Add in another 4 to 10 years for the design of the new vehicles and the development of the support infrastructure. Say the new technology is electric of some sort. We need to be able to produce 15 million automotive qualified electric motors a year. So before we can even get up to full scale production of the transition vehicle we need quite a few new electric motor factories. How about power electronics to control the motors? Say the typical motor had a peak rating of 50 KW. That would require 750 megawatts of control electronics a year. Which is no small amount. We don't have the capacity for it. It takes 3 to 5 years to raise the capital and build a new semiconductor plant. Just to get a 15 year transition we would have to build all the support industry all at once. That will take around 5 years provided we know exactly what we want.

Which just goes to show that nothing is impossible for the man who doesn't have to do it.

And this all assumes we know what supporting industries we should invest in. Now what happens if during this all out production effort some one comes up with something new that completely changes the direction we ought to head in? A lot of the capital invested in the ramp up will have been wasted.

Sadly we have gone from Scientific Socialism to Hope and Change Socialism. The original Scientific Socialism was bad enough. Hope and Change Socialism is definitely not an improvement.

There is no magic bullet. We are going to have to muddle our way through. Slowly. For as long as it takes.

There are a couple of things to do while working towards change:

1. Do not panic
2. Drill for more oil

Cross Posted at Classical Values

The Amazing Edison

Innovate Like Edison is a book about how to use Edison's system of innovation to improve business practices. Control Engineering discusses the book based on a talk given at the recent Society for Manufacturing Engineers Convention in Detroit, MI.

Detroit, MI – Understanding Thomas Edison’s patterns of thinking can help us be more like the guy who has 1,093 U.S. patents to his name, says co-author of the book, “Innovate Like Edison: The Success System of America’s Greatest Inventor.” Sarah Miller Caldicott, also Edison’s great grandniece, helped a packed room of engineers at the SME Annual Meeting gain insights into Edison’s thought patterns, to improve U.S. competitiveness.

Bearing a family resemblance to her great great Aunt Mina Miller – who married Edison in 1886 – and telling stories of growing up with Edison phonographs in her bedroom, Caldicott offered exercises which seemed to win over SME attendees... along with a promise of an autographed book.

Caldicott, also founder of The Power Patterns of Innovation, noted five best practices based on her 3-year study of Edison: a solution-centered mindset; kaleidoscopic thinking; full-spectrum engagement; master-mind collaboration; and super value creation.

All the points are covered in the review, but I'd like to take up this one:

-Cultivate a solution-centered mindset. Do not seize an answer at the beginning of an initiative. A framework of options and pathways can lead to solutions. Look outward and scan the environment. Lean ahead and hunt for a solution. Combine factual information with what-if or if-then thinking. Envision the solution and “emotionalize” the state that will be experienced upon getting there.

Which could be translated into be patiently crazy. Also note that emotion is considered an important part of rational thinking. In fact emotion may be one of the most critical feedback mechanisms. We have a very good pattern recognition system in our brains. If you train your brain with good patterns, after a while you get a "feel" about the right way and the wrong way to do things. Caldicott also goes into the need for thinking before acting. She even calls it contemplation. Be quiet. Sit Still. Shut up. And good preparation for that contemplation time is to get on the www and start looking around. Go deep. Some times the good stuff is on the 30th page of a search.

I always had a standard which I tried to stick to when it came to development: Five days of planning, two days of work. That is both imperative and descriptive. You must recognize that this method is scary for most management. The typical exhortation is: put in all the time you need to, but meet the schedule. My answer was: I'm not putting in any extra time. I will meet your schedule. In two days I will have a plan. How did that work out? Three months were alloted to get the project on track. I did it in five weeks. Without raising a sweat. Of course once you have proven yourself it is easier the next time.

Cross Posted at Classical Values

The Manufacturing Decline

Control Engineering asks the provocative question: is manufacturing in decline in the USA?

Boston, MA – The keynote address at Aberdeen’s first annual Manufacturing in the 21st Century Executive Summit served as a stronger wake-up call for attendees than the free coffee. During this session, best-selling author Michael Treacy highlighted the dramatic evolution of workplaces during the past several decades and asked the provocative question “does manufacturing even matter anymore?”

Well does it? The magazine has some answers.

Subsequent presenters, however, demonstrated that manufacturing in North America is not only relevant, but thriving.

Innovation is indeed the engine which keeps our factories running, and the transformation of raw production data into actionable business information is central to improving the performance, productivity and ultimately the productivity of any industrial endeavor. Case in point: the transformation highlighted by Juan Carlos Sol, special projects manager of Sigma/Q.

Sigma/Q, a leading provider of custom packaging products in North and Central America, recognized a need to improve the performance and return of multi-million dollar equipment within their plants while simultaneously decreasing operational costs. To accomplish this, however, the organization needed to transition to an automated data collection process without creating significant downtime. Once in place, the data could then be used effectively to drive continuous improvement and facilitate better decision making in real-time.

As per usual the answer is to work smarter and harder. Control Engineering agrees.

However, as the name implies, continuous improvement is a journey, not a destination. Even the most robust data is of little value unless that data is used to consistently measure the performance of the business. This point was reinforced by continuous improvement experts and co-presenters Richard Kunst, VP of continuous improvement for La-Z-Boy and Mariela Castano-Kunst, continuous improvement manager for Nestle Waters Canada.

“A few years ago, a case of our water would sell for around $12 - $15,” said Castano-Kunst. “This week, one of our customers will be selling two cases for $5. Change happens rapidly and the business must be equipped to react.”

To maintain profitability and competitive advantage, manufacturers need to continually challenge themselves to seek new ways to work smarter, better, and more cost-effectively. Processes must be both repeatable and sustainable to deliver the desired results. Methodologies, such as lean, six-sigma, 5S, and others truly can create a positive effect. However, even with data-centric programs such as these, the most critical success factor is properly engaging the workforce and getting them to embrace the changes such programs enforce as part of their day-to-day activities.

Kunst described how success at La-Z-Boy begins and ends with trusting and empowering employees, providing the audience with insights on team dynamics and how to best mobilize a workforce to improve the chance of successful results.

“Every workforce or team, regardless of industry, tends to share a similar composition,” said Kunst. “Twenty percent of your workers will be positive leaders, 20% will be negative leaders and the remaining 60% will be neutral and can shift from one camp to another. It’s critical that you focus your attentions on the positive leaders and leverage their enthusiasm to sway the 60%.”

So the real question is as always: do American's still have the competitive spirit that G. S. Patton described so well.

When you, here, everyone of you, were kids, you all admired the champion marble player, the fastest runner, the toughest boxer, the big league ball players, and the All-American football players. Americans love a winner. Americans will not tolerate a loser. Americans despise cowards. Americans play to win all of the time. I wouldn't give a hoot in hell for a man who lost and laughed. That's why Americans have never lost nor will ever lose a war; for the very idea of losing is hateful to an American."

Interestingly enough manufacturing represents about the same percentage of the economy as it has for the last 50 years. So output is actually increasing to match the growth of the economy. So why all the talk of decline? In a word. Jobs. We are making more stuff than ever with fewer people. Just as the mechanical revolution eliminated farming as a mass employer, automation is in the process of eliminating manufacturing as a mass employer. So the question is - what next?

As usual there is no obvious answer. It is up to you to determine where the economy will go. Your best bet? Join the enthusiastic 20%. Figure out how you can be of service and just do it.