Go to the Workshops Area to the Left of your Home. Look at the map to see where they are located. Watts will be there building a blacksmith room. Ask him every question to end the event.
Upon Completion: Warning: this quest is missable in the cactus diaries! Return home, talk to Lil' Cactus, go downstairs (watch him write the Event on the leaf), and go back upstairs to save your game before continuing.