The No. 1 Commodity This Year Is … Lumber?
Dear Wall Street Daily Reader,
I recently had a contractor send me a quote for a bathroom remodel.
Let’s just say my jaw hit the floor. The quote came in about three times higher than I expected.
So, I called a second guy. He was cheaper … but not by much.
Getting anything construction-related done costs a small fortune these days.
Some of this is labor scarcity. The February ice storm obliterated Texas. Every carpenter or contractor within a 500-mile radius of the state is booked until summer. They can charge what they want. And if you aren’t willing to pay it, your neighbor is.
But another huge factor is the price of lumber. It’s gone through the roof!
For you adrenaline junkies that don’t find cryptocurrency trading exhilarating enough, lumber futures might be your next fix.
Charlie Bilello of Compound Capital Advisors broke down the price gains of a basket of commodities over the past year.
They were pretty robust across the board.
Soft commodities like sugar, soybeans and corn are up 59%, 72% and 84%, respectively.
Energy and industrial commodities are up even more. Heating oil, gasoline and West Texas intermediate crude are up 107%, 182%, and 210%, respectively.
But the winner — and it’s not even close — is lumber, up 265% over the past year.
If you compare today’s lumber futures prices to the 2020 low, they’re up closer to 500%.
What’s going on here? And more importantly, how long will it continue?
Lumber Market Bottleneck
In some ways, this is a blue-collar version of the microchip shortage that’s hitting tech industries. The pandemic disrupted the supply chain. And we’re seeing the results months later.
The sawmills closed a year ago didn’t produce the lumber we’d normally expect to see at Home Depot today, so supply is crimped.
At the same time, demand is higher than usual. Americans that have spent far too much time staring at the inside of their homes have decided to make changes. New home demand is also surging as millennials abandon cities and move to the suburbs.
These effects are temporary, of course. The cure for high prices is high prices. Capitalism works, and high prices spur production to meet demand, thus pushing prices lower again. Most industry watchers expect lumber prices to be sharply lower by the end of this year.
What Happens Next
But that’s not the whole story here.
The Federal Reserve and every other major central bank have created a truly gargantuan pile of new money over the past year.
The Fed alone has increased its balance sheet by $3.6 trillion since the beginning of 2020, coming close to doubling it.
That new money creation hasn’t found its way into final consumer prices … or at least not yet. But it’s clearly showing up in the prices of basic commodity prices and in asset prices in general.
Stocks, homes, bitcoin … you name it, and it’s likely seen an explosion in price over the past year.
We don’t need to be handwringing Hamlets about it … though I will admit that’s how I felt when I got the remodeling quote from the contractor.
Rather than complain about rising prices, we can profit from them.
The general trend toward higher commodity prices isn’t likely to change anytime soon. The Fed has made it clear that it won’t be taking its foot off the gas for months, if not years. Meanwhile, we may see sustained demand from the largest infrastructure bill in decades and from the millennials finally growing up and moving to the suburbs.
Adam and I have been finding ways to profit from the commodities and energy boom in our premium research service, Green Zone Fortunes. We recommended two stocks within the energy space back in March that are still below our “buy up to” price.
That means now is the perfect time to get in, as these stocks have the potential to soar more than 100% over the next two years.
If you’d like to learn more about these stocks, guidance on when to get in and out of these investments and how Adam and I use the Momentum Principle to “buy high … sell higher,” click here for the details on Green Zone Fortunes and Adam’s Millionaire Master Class.
To safe profits,
Editor, Green Zone Fortunes
Money & Markets