Lumber Is Getting Killed Again – Dave Kranzler

TND Guest Contributor:  Dave Kranzler

Down 13% in less than 3 trading days:

There are two reasons the price of anything plummets like this: 1) Oversupply or 2) Lack of demand. While it’s possible that lumber producers have been working overtime to oversupply the market with lumber (doubtful), I have not read any reports of this. However, I have shown exhaustively that homebuilders have built up a record level of inventories – higher than their inventories were at the peak of the housing bubble.

We are seeing housing starts begin to gap down, especially vs. Wall Street forecasts. Let’s not forget that the numbers presented by the Census Bureau on housing starts are “seasonally adjust, annualized rates.” Not only that, all it takes is for a homebuilder to file a permit and stick a shovel in the ground in order for a piece land to be called “a housing start.”

If I had seasonally adjusted and calculated an annualized rate for the Colorado Rockies win-loss record over the first nine games, I would have reported that “the Rockies had won 126 games already, SAAR (seasonally adjusted annualized rate).”  Get the picture?

The price of lumber is crashing because homebuilders have drastically slowed down their construction of new homes. I have shown in my homebuilder research reports that more than 50% of homebuilder inventory is classified as “speculative.”

Apparently the drop-off in housing starts in California prompted Bloomberg to publish are report blaming the rapid slow-down in homebuilding in California on the drought:

The weakness in the West might reflect the record-setting drought, which may be discouraging companies from building or taking out permits for new construction, said David Crowe, chief economist at the National Association of Home Builders in Washington.  – Bloomberg

To say this absurd is an injustice to word “absurd.”   In over thirty years of active, daily involvement in the financial markets, I NEVER heard analysts blaming declining economic activity on the weather – until last year.   Now it’s a daily exercise in propaganda.   But the media can’t hide what is happening with the price of lumber which is the shining the light of truth on reality.

It would not be impossible to prove with sufficient repetition and a psychological understanding of the people concerned that a square is in fact a circle. They are mere words, and words can be molded until they clothe ideas and disguise.  – Joseph Goebbels

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About Dave Kranzler:

 I spent many years working in various analytic jobs and trading on Wall Street. For nine of those years, I traded junk bonds for Bankers Trust. I have an MBA from the University of Chicago, with a concentration in accounting and finance. My goal is to help people understand and analyze what is really going on in our financial system and economy. You can follow my work and contact me via my website Investment Research Dynamics.  Occasionally, I publish on Seeking Alpha too. As a co-founder and principal of Golden Returns Capital, LLC Mr. Kranzler co-manages the Precious Metals Opportunity Fund, a metals and mining stock investment fund.

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