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Lumber is On Fire
When I recommended that you take profits on lumber in my February 25 piece (click here at http://www.madhedgefundtrader.com/February_25__2010.html ), after pleading with you to buy it for the past year, I hope you were all in a coma in intensive care, spending a weekend in Paris with your mistress, or on a long distance hike on the Appalachian trail (Is that redundant?).
Lumber futures have been far and away the top performing asset class of 2010, bringing in a blistering 39.9% year to date, and a healthy 16% gain since my call to take the money and run. All of the reasons to own the aromatic commodity kept coming through by the rail car, including decades of production downsizing, huge Chinese buying, and waning competition from Canada because of a strong loonie.
You can also throw in the possibility that hard asset investors are rotating into the laggards after running up everything else last year. Perhaps the economy is recovering faster than we realize?
No one ever got fired for taking a profit, but they do get sacked for being an idiot, or worse these days, being too conservative. At least I avoided the temptation to buy sugar, now down 31.7% YTD, the year’s worst performing investment. What a pairs trade that would have been (long lumber, short Sugar), but I doubt anyone actually put it on. And I did catch palladium (PALL), the year’s number two performer, with a 14.7% gain, and platinum (PPLT) (Remember that killer pair of lowriders?), up 9.1%.
I still think it’s wise to take profits on lumber futures, and the big producing companies like Weyerhaeuser (WY), Louisiana Pacific (LPX), and the timber ETF (CUT). Let’s face it, we are not going back to the heady days of 2.2 million housing starts a year anytime soon, as the recent dismal new home sales figures attest. Then you can take off on your own hike on the Appalachian Trail.
To see the data, charts, and graphs that support this research piece, as well as more iconoclastic and out of consensus analysis, please visit me at www.madhedgefundtrader.com . There you will find the conventional wisdom mercilessly flailed and tortured daily, and my last two years of research reports available for free. You can also listen to me on Hedge Fund Radio by clicking on the “Today’s Radio Show” menu tab on the left on my home page.
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China buys shit lumber. Shit lumber does not a profitable lumber company make. Any sustained demand for lumber will result in a wall of wood flooding the market. Right now lumber companies don't know whether to poop or lose their eyesight.
Looks like China is buying.
http://www.eurekalert.org/pub_releases/2010-02/ufsp-led022510.php
http://www.opinion250.com/blog/view/15842/1/record+lumber+exports+to+china
http://wood.lesprom.com/news/43448/
http://www.spokesman.com/stories/2010/feb/28/log-exports-diminish-but-lumber-shows-gain/
Lumber? No more gold left? GG must own it all now and won't sell to anyone.
LOL
Bought lumber and plywood in Dec 09 for less than I paid in 1990. Now it is 3/4 of the way back to what it was in 07. I do't see them building any houses anywhere. WTF!!!
Timber activity is still in the basement here in Oregon, with few signs of life. I suppose it can only get better, but sounds like that's already been priced in.
My lumber rep. first told me 3 months ago that their price increases were demand driven. I spoke with him last week and the demand hasn't shown up to the lumber party yet??? This is nothing more than a squeeze from the suppliers. Period.
Lumber? Seriously? The two lumber distros in my area that I queried are eating shit. If money is being made in the lumber industry it's not in selling it.
I'm surprised people haven't figured this out yet. QE = monye "printing". That money has to go somewhere. And so it has. 11,000 DOW anyone?
Last I checked, 1 + 1 still equals 2.
The precious metals complex is responding to a different set of fundamentals altogether: the death of fiat currency in general and the world reserve fiat currency in particular. When the final capitulation occurs, precious metals will accelerate in the opposite direction of stocks, bonds, and other paper assets not backed by any tangible product and not secured with a physical choke hold on the counterparty.
Gold, Guns, Garden.
I am Chumbawamba.
I sold off 300 acres of oak in 2004. Got TOP $$$ for it.
Tried to sell another 150 acres in the fall of "09. Absolutely NO bidders.
Pulled the sale and re-bid last month, NO bidders.
PINE bids are in the toilet. (I'll just let 'em grow)
Tell me, What is the market thinking??
There is NO supply side OR demand side -
***Agree with RSDallas below*** Suppliers trying to do to the market what they have done in the past for the Spring ramp-up. ONLY this year, there IS NO ramp-up. Only an "OPEC" squeeze play.
Enviro regulations are choking off supply... Timber is needed for toilet paper and heating your house. 2 critical items in the SHTF economy. Not sure what the upside is from here, but there should be reasonable demand.
Lumber is getting sold, just not in the USSA. Check with lumber exporters if you want to see what is really going on.
Of course, China's RE boom is most likely a bubble (though they can handle it as they are a high savings society), so there is a severe possibility that their lumber consumption will fall dramatically at some point. If you're sitting on some white oak on one of your properties, now is the time to sell it. I wouldn't be investing in it at this point.
Methinks you have a point on the lumber. It wouldn't be being distributed domestically, if commercial and residential construction has tanked or even just slowed the wood for sure just heads straight from the mills to the docks. Other than that I'm 100% sold on Chumba's post.
MHT's logic is right on with Canadian competitiveness dropping due to the high dollar as well. I'm positive the pattern of consumption has changed due Chinese demand, whether the total value has changed up or down, or just shifted destination I'm not sure, but my last understanding from around where I live is that the price of lumber was on the rise. And the shit is cut down next door in B.C. Either way, if the lumber isn't coming from here, it's coming from you guys in the States.
I think we're seeing a bubble to the downside in alot of commodities and other assets: silver, gold, treasuries... They're bubbles, just backwards. In Talebese: we are now leaving mediocristan and crossing the extremistan border. we have several upside (for me) fat tail events in queue in gold, silver, etc (considering long term price manipulation and such). We very well could have explosive upside - if the banks mathmatical models blow up, I think these assets could explode.
Prices hit the shelves but buyers aren't lining up out here. Did Chile supply drop off that much or is it just another - gasp - bubble?
Time to ban the word bubble and call it something else. How about opium? At that way I can understand why we are still in Afghan. Blowing up rocks and Taliban makes far less sense than supplying the NY Fed with the goods.
All that lumber is going towards toothpicks for Wall Streeters while they ponder the next bubble opportunity.