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Lumber shows us the future: Morning Brief




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Tuesday, June 15, 2021

A transient thrust cools.

Two months ago, it only took one thing to be rich.

And it was a piece of wood.

In the spring, soaring lumber prices became the market narrative as it covered all the trends related to the pandemic: labor shortages, shipping constraints, and demand for housing in one place.

But now it looks like the latest mini-bubble to hit the market has started to appear and offers us a glimpse of what’s to come in the economy.

On Monday, the lumber futures contract slipped back below $ 1,000 per thousand board feet for the first time since the end of March. A still high level certainly, but back in line with the peaks of the pandemic era observed at the end of summer 2020 and at the beginning of winter 2021 (before the short epic compression of spring).

Lumber futures are down nearly 40% from their high in mid-May as the economy’s latest mini-bubble cools. (Source: Yahoo Finance)

During the housing bubble, the random length lumber futures contract never traded above $ 500 per board foot. But in early May, lumber futures were trading for over $ 1,600 a board foot. This increase added up to $ 36,000 to the cost of a new home; on average, new homes sell for around $ 400,000.

So while Cathie Wood may have become the face of the pandemic stock market recovery, real wood had become the hottest trade in the market.

We have called this recovery the “not enough” economy because the demand for almost all workers, vacations, dinner reservations, etc. exceeds supply. Another way to slice this narrative is, as Bloomberg’s Joe Weisenthal argued, to call it an economy facing a series of short cuts.

Used car prices, for example, have increased as demand increases and supply is limited. The used car market is, in essence, facing a short squeeze.

The same is true for the global shipping market, as Insider’s Rachel Premack pointed out in an article last week. And on the housing side, economist Ali Wolf recently told Bloomberg that there has been some sort of “buyer protest” in the market as single-family home prices in the United States have skyrocketed over the past decade. last year.

The story continues

But each of these automotive, maritime, real estate markets, among others, has become imbalanced, due to one-off spurts linked to a dramatic and synchronized shutdown, then the reopening of the world’s largest economy.

When the Fed says inflationary pressures will be “transient,” it means that prices in each of those categories facing short cuts right now will start to make more sense. As it turns out, lumber just shows us the way.

By Myles Udland, reporter and presenter for Yahoo Finance Live. Follow him on @MylesUdland

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