Real Trees Don’t Grow To The Sky

Our Carol K. starts her new procedure tomorrow to fight off her AML. Come on, world, let’s will her to heath! You go, girl!

Check out the “spectacular” (ht/ CK) roundtrip in the price of lumber this year. After rising over 160 percent from January to May, Timber!

The commodity has fallen 70 percent and is now below its breakout price.

The pulp flop has brought out those preaching the the “D” word and point to lumber as a sign of deflation. O.M.G.!

Me thinks the price action reflects what I used to tell my young traders, who couldn’t resist chasing prices to the moon.

“Trees don’t grow to the sky,” an old German proverb translated from “Bäume wachsen nicht in den Himmel, which suggests there are fundamental and valuation limits on how high asset and commodity prices can go.  

Given the speculative zeitgeist that has hijacked global society,  lumber’s microstructure and it’s industry idiosyncrasies made it a good story for speculators to run it up, and run it up they did. 

You know, the inelastic supply curve thingy, the lead time to get lumber to the market is long, like it takes 200 years to grow a Redwood tree, blah, blah. 

Blood Clotting In Speculative Assets

Spec assets are like blood, folks, if they stop flowing (from lower left to upper right), they tend to clot, and many times kill the patient.   

Something I tried explain to my buddy’s 16-year old son a few months ago when Doggie Coin was trading north of $.50 (now 60 percent lower).  I quickly experienced a big beat down and he lectured me, “What do you know about the space?” 

This kid knew nothing, and could care less about the story of crypto currencies:  going to replace the dollar and the medium of exchange, scarcity value, etc.  He was sucked in simply because the price was moving higher.  Stories, themes, and memes are great fodder for the financial media to explain price action but not to sustain prices.    

We suspect many others are about to learn about the “speculative space” once monetary policy reverses, if it ever does or can.