News from Alloy Steel

The company (OTC BB: AYSI.OB) filed this 8-K earlier today:

Mill Commissioning

The company advises that the new ARCOPLATE manufacturing plant specifically designed to produce extra thick (up to 20/11mm) and super alloy wear plate has been commissioned and has commenced production.

The new mill is the only one in the world capable of producing a bi-metallic fused super alloy wear plate in a thickness of application of up to 20 mm (just over ¾ of an inch) in a single continuous casting operation.

The conventional method used to produce a hard surface overlay is by a welding method which can only achieve a weld surface which at best is ¼ inch or 6mm thick in a single pass and is flawed with major quality technical limitations.

The new AYSI new technology has overcome all the known technical difficulties and is capable of fusing 20mm or super wear resistant alloy onto a ½ inch or 12mm steel backing plate.

This is a significant technological breakthrough which should see this plate be specified consistently in new mining projects and become the norm for replacements in upgrades for existing mining operations.

Mr. G Kostecki C. E. O. of the company is very encouraged with the strong interest being shown by all the major producers who have seen the test samples and the technical reports and predicts a large future demand for the product.

Mr. Kostecki was responsible for the technical innovation and development of the new process and alloy formulation.

These reports have been carried out by independent laboratories.

Whether any of the demand predicted above will be apparent in the 10-Q Alloy Steel is going to file next week remains to be seen, but this is good news. More generally, the surge in Chinese steel production and the recovery of iron ore prices has been good news for Alloy Steel's mining company customers (how sustainable Chinese demand will be remains to be seen).

I picked up a few more shares of Alloy Steel at .325 on Tuesday, when the stock dipped about 20% on no news. Still keeping most of my powder dry for investing in another asset class though.

Incidentally, a couple of weeks ago, I mentioned Alloy Steel in a comment thread on Fred Wilson's blog, in response to a comment by Mark Cuban about how he'd be more interested in investing in a Rearden Steel¹ than the next social media start-up. That was a brain cramp on my part: Even if Cuban could buy all of Alloy Steel, it wouldn't be a big enough investment to be worth his time. Plus, Cuban (wisely) likes to invest where he has an information advantage², so unless he has connections in the wear plate or mining industries, he probably wouldn't seriously consider investing in this sort of company.

¹An allusion to Hank Readen's company in Atlas Shrugged.

²Writer, entrepreneur, and angel investor Tim Ferriss seconded Cuban's point in a post last fall. Ferriss wrote that he feels more comfortable investing in tech companies where he has some inside knowledge and connections than swimming with the sharks in the stock market.

Atlas Shrugging

Ayn Rand's novel Atlas Shrugged has come up a lot recently in commentary about Obama administration initiatives (e.g., this column by Robert Tracinsky last week, "The Ayn Rand Factor In the Santelli Revolt"). Since one of Daniel Wahl's favorite posts (#5) on his old blog expressed Randian sentiments, I mentioned the Tracinsky column to him and suggested he might want to consider writing a post on the subject at his new blog, Systemically Important. Daniel hasn't written a post there on Atlas Shrugged yet (Today's Systemically Important post is "Mottos: Business Peopleguys"), but several other bloggers have, including Will Wilkinson (Hat Tip: Ross Douthat). For those who haven't read Atlas Shrugged and plan to, be warned that Wilkinson's post ("On Going Galt"), and the parts of it I'm about to excerpt below, include some spoilers.

Wilkinson:

I can’t help but feel that threatening to withdraw from economic production, ala Atlas Shrugged’s John Galt, is a certain kind of libertarian-conservative’s version of progressives threatening to move to Canada.

[...]

But insofar as this is all about taxes on the wealthy (as the link to Malkin suggests) it’s a bit hard to see tax rates somewhat exceeding the Clinton era’s as a move over some inflection point from the tolerable to the completely outrageous. And of course none of these folks designed an engine that would have created basically free energy (and made global warming a non-issue). In the individual case, “going Galt” smacks of a kind self-aggrandizement in the same way that climate smuggery does. Because, really, your marginal contribution doesn’t matter that much.

By the way, Atlas buffs, the point of Atlas Shrugged is not that you are John Galt. The point is that you are not John Galt. The point is that you are, at your best, Eddie Willers. You’re smart, hardworking, productive, and true. But you’re no creative genius and you take innovation — John Galt — for granted. You don’t even know who he is! And this eventually leaves you weeping on abandoned train tracks. 

Wilkinson makes a good point in that last paragraph, one I thought was plain when I read the book years ago, but this misunderstanding seems to be shared by some Atlas Shrugged detractors as well as buffs. Back to Wilkinson:

I think Obama’s policies will be bad for innovation, but not because higher marginal tax rates will lead our best and brightest to retire from the field of endeavor. I’m rather more worried that our best and brightest will follow the incentives and go Robert Stadler. I’m worried that our money, which might otherwise have gone to capitalize real innovation, will be confiscated in order to finance government directed “investment” instead. Our economy can readily absorb a passel of drop-out Willerses (though Eddie never quits!). It’s the misdirected capital embodied by the Stadlers and their Project Xes that really hurts.

Wilkinson is less convincing there. All things equal, additional government spending on scientific research (e.g., National Institutes of Health research grants) would probably increase innovation. The bigger potential threat to innovation isn't increased government spending per se¹, but the prospect of price controls (de facto or de jure) or rationing that might be part of a universal national health insurance program.

¹Increased government spending on transfer payments could indirectly stifle innovation if it increased pressure for price controls or reduced reimbursements in a universal government health insurance program.

I borrowed the image above, of the cover of a paperback edition of Atlas Shrugged, from this blog, which I'm sure borrowed it from Amazon.com or somewhere else.

Update: Daniel Wahl joins the discussion with his latest post: "Going Going Galt".

Tony Batman's Open Letter to Senator Obama

Today, RealClearMarkets published an open letter from Tony Batman, the CEO of the financial services firm 1st Global, to Senator Obama ("A Letter to Senator Obama"). About seven years ago I had the pleasure of meeting Tony Batman, though I doubt he remembers me. I worked for a start-up that was one of two finalists competing for a contract with his company, and I went to 1st Global's headquarters in Dallas to make our pitch. If memory serves, the other guy won the contract. One thing I remember about Tony was that he had more professional designations listed on his business card than anyone I had ever met. He mentions in his letter that he is a CPA, but as I recall he also holds a CFA, a CFP, and a few other designations.

Batman's letter is, among other things, an impassioned defense of the role business owners play in our economy, and a rant against class warfare and collectivism. Batman also explicates the role his Catholic faith has in his worldview, and throws in an allusion to Atlas Shrugged for good measure. Below are two brief excerpts:

I am a product of public schools, local community college, and state university. I am only marginally educated beyond my intelligence. I was taught to think rigorously.

No job was ever beneath my dignity. I did farm work, drove a tractor to plow fields, operated a combine to harvest summer wheat, cut and stacked hay, navigated a Sunday morning newspaper route, was a fry cook at Kentucky Fried Chicken, cutter in a beef packing plant, roughneck on a drilling rig, night clerk at a liquor store, a bouncer at a discotheque, and I even trapped and killed gophers on a golf course. Yep, I was the original Carl Spackler in “Caddyshack.”

My parents never financially helped me because they could not, despite their desires to do so. They did the best they could in life and they would not have ever considered asking for a handout from anybody. I would never change one thing about my upbringing.

[...]

My wife and I started our company in 1992 with an $88,000 investment from our savings, a few untapped credit cards, a month-to-month rental on an executive suite, no customers and no employees. All we had was a dream, the willingness to work very hard and to honor the promises we made to people.

We lived frugally and saved money which allowed us to have options and choices in life like starting a business. For the first thirteen years of marriage, we lived in a 1,200 square foot home with our two young sons with mortgage payments of only $650/month. Frugality ruled the day and it still rules.

For two years after the start of the business, I drew less than a $30,000 salary, living mostly on additional savings. For the ensuing five years, I drew a salary substantially below my market value just to make the business work. This is the price a working class business owner pays for happiness.

Sixteen years later, we have a national payroll of over $125 million and the pride we feel is for the creation of so many good jobs and the opportunity to serve those we love.

A life centered on high and unchanging values is central to the life of a working class business owner. For me, the virtue of personal responsibility is so important that I will not even give a permanent job to my sons. They cannot even apply for a job at my company. They are not entitled to one from me. I love them and I only owe them a good education and an education in those life values essential to their personal joy, significance and meaning. They will be better and happier men for it.

You may not agree with all of what Tony writes, but perhaps you will find it worth reading, as I did.