Hmm, I found lumber prices from 2004 to the end of 2006, it's available in www.nahb.org. More recent data, anyone?

MF Global Futures: Futures Brokers, Futures Trading, Commodity Trading, Online Trading

The May 2007 lumber future prices. Man, it just drops off a cliff there, doesn't it?

Check out lumber prices in 2000.

Lumber (LB, CME): Monthly Price Chart

Ouch.

Bureau of Transportation Stats: Transportation Index - Freight Component has been in nose dive since July. Mr. Market hasn't cared since the DJ-TRAN recovery (Rails were probing at all time highs until Feb 27th).

Well, there's another way the housing bubble wasn't sustainable: it wasn't environmentally sustainable. We need a recession to give the trees a fighting chance.

I'm looking at a copper chart from Prechter's Conquer the Crash book.

In 1929, copper appeared to peak at the same instant that the stock market did. As the market crashed, so did copper.

Further, here's copper's chart.

Copper High Grade (HG, Comex): Monthly Price Chart

For what it is worth...

1. Copper turned down in mid 2000 and took about 4 years to recover.
2. Copper turned down in early 2006 and has yet to recover.

I plotted the lumber monthly composite prices from Random Lengths from 1995/01 to 2007/02, but didn't find anything conclusive. Prices appear to have been down in 2002 and 2003 also.

Plot here

aapo,

I plotted the lumber monthly composite prices from Random Lengths from 1995/01 to 2007/02, but didn't find anything conclusive. Prices appear to have been down in 2002 and 2003 also.

For what it is worth, the stock market was still falling in 2002. It didn't make me want to rush out and buy furniture. I believe 2004 is when I finally broke down and bought a dining room table. I'd owned the house since 1997 and figured tables probably weren't going to get any cheaper. It was the same time I was buying gold and silver. Go figure.

Sold the gold and silver a bit too early in 2006 perhaps, on the way up the parabola (parabolas generally scare me). Those bears around me convinced that this was the big one turned me into a contrarian's contrarian it seems. No idea even to this day if it was the right thing to do. Can't complain though.

A picture says more than a thousand words. The graphs you posted really bring the trend line into perspective. Thanks.

If there is any one thing I learned is that being a fundamentalist bear or bull will kill you.

Here are a few arguments that made me cringe, and I paraphrase for comedic effect (hopefully).

Nothing has fundamentally changed when it comes to holding commodities.

You mean other than the 17 rate hikes inflicting pain and stress on borrowers?

Since it took 15% interest rates to tame inflation in the 1970s, I shall hold hard assets until I see 15% interest rates again, lock them in and live on easy street.

From where I sit, at even 8% interest rates I'd be buying easy street for pennies on the dollar.

I don't understand why gold and silver moved with the market when it crashed 400+ points.

Could it be that in our highly overleveraged world people were actually leveraging safe havens? That's just crazy talk!

The glass is 3/4 empty and it has a hole in it. - barely

That reminds me of one of my favorite quotes.

I guess I just prefer to see the dark side of things. The glass is always half-empty. And cracked. And I just cut my lip on it. And chipped a tooth. - Janeane Garofalo

A lurker here...

I just had a meeting with a client who runs a high-end cabinetry wood-shop. He told me that in the 22 years he's been in the business he has never experienced a slowdown like has occurred in the last few months. The phone just stopped ringing. Obviously the guy is very worried.

This is in Madison, WI

.

dryfly,

I might disagree with some of what you say.

I think Richard Russell sums up my mindset best.

RULE 3: RICH MAN, POOR MAN: In the investment world the wealthy investor has one major advantage over the little guy, the stock market amateur and the neophyte trader. The advantage that the wealthy investor enjoys is that HE DOESN'T NEED THE MARKETS. I can't begin to tell you what a difference that makes, both in one's mental attitude and in the way one actually handles one's money.

The wealthy investor doesn't need the markets, because he already has all the income he needs. He has money coming in via bonds, T-bills, money market funds, stocks and real estate. In other words, the wealthy investor never feels pressured to "make money" in the market.

The wealthy investor tends to be an expert on values. When bonds are cheap and bond yields are irresistibly high, he buys bonds. When stocks are on the bargain table and stock yields are attractive, he buys stocks. When real estate is a great value, he buys real estate. When great art or fine jewelry or gold is on the "give away" table, he buys art or diamonds or gold. In other words, the wealthy investor puts his money where the great values are.

And if no outstanding values are available, the wealthy investors waits. He can afford to wait. He has money coming in daily, weekly, monthly. The wealthy investor knows what he is looking for, and he doesn't mind waiting months or even years for his next investment (they call that patience).

But what about the little guy? This fellow always feels pressured to "make money." And in return he's always pressuring the market to "do something" for him. But sadly, the market isn't interested. When the little guy isn't buying stocks offering 1% or 2% yields, he's off to Las Vegas or Atlantic City trying to beat the house at roulette. Or he's spending 20 bucks a week on lottery tickets, or he's "investing" in some crackpot scheme that his neighbor told him about (in strictest confidence, of course).

For what it is worth, I was a little guy who invested in a gaming company and it retired me in 1999 at the age of 35. I chose to invest rather than buy a new car. It paid off. I no longer feel the need to make money. I'm all about wealth preservation these days. When real interest rates turned negative in a big way, I bought physical gold and silver. When interest rates were back to reasonable I sold it. I'm now patiently "waiting" on the sidelines in TIPS, T-Bills, and I-Bonds. As I spend beneath my means, the status quo is fine by me. However, I don't think any of us will be so lucky. I'm bracing for impact. However, I would love to be proven wrong. It is easier to maintain wealth in a bull market than a bear one.

"OK, I changed my mind. The mortgage thing is gonna work out! Home prices are on their way up! Buy stocks!"

Sounds like a NAR convention. I don't think I would last at that party either.

Perhaps I need to look for bear parties... or just lean hard on the juice at superficial feelgood cocktail parties and, so as long as I don't have to drive myself home, I won't care what the conversation is about.

Hey fence-riding stagflationary bear ... "now patiently 'waiting' on the sidelines in TIPS, T-Bills, and I-Bonds": what are you considering investing in when the wait is over?

If your children are grown (or you have none), your debt is small or zero, and your wants are modest, then mere upper-middle class affluence can free you from the markets. I semi-retired early and shifted to wealth-preservation mode last fall. About half of my friends have done likewise, but none of us is really wealthy.

Not to say that I won't get back into the markets when the time is right, but accepting the risk-free rate of return and sleeping well is just fine for now.

Great discussion Mark M, dryfly and others. Now I reveal my ignorance. Mark M, you pointed out the sick looking CRB index...I agree it looks sick. But why are the CRB spot indices at all time highs? Look at the CRB raw industrials and metals spot prices...up, up, up with no end in sight (well could change tomorrow, but...). Just been trying to understand this.

Think about it - has gold made anything? - dryfly

"It gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head." - Warren Buffett, 1998

You buy gold, like I did, under the expectation that someone else will buy it from you. In that sense, it is actually sort of undesirable, lol. I believe in market psychology though. When interest rates were 1% and inflation was higher than that, I was fairly confident (okay, a bit scared perhaps) someone would buy it from me. Other than that, I completely agree with you. Perhaps I'd read too many hyperinflation stories about how people late to the hoarding party ended up with bedpans too (no joke!). I would have chosen just silver, but silver is hard to transport. Further, I'd need something for the border guard if Bush was to somehow get elected for a 3rd term!

Hey fence-riding stagflationary bear ... "now patiently 'waiting' on the sidelines in TIPS, T-Bills, and I-Bonds": what are you considering investing in when the wait is over? - Sally

I kind of like the idea of the WisdomTree's earnings and dividend weighted mutual funds. They have low fees and are less likely to buy the "obvious" home run hitters like Google. What I don't like is seeing so many payday loan centers everywhere I go. I don't like how the radio is flooded with mortgage ads. I also don't like that the funds are currently overweight banks (since they have high earnings and dividends). I don't have a good feeling about financials. I remember buying Citigroup (Citicorp back then) when it had a P/E of 6. My broker tried to talk me out of it. The next month the cover of a major magazine had "Why Banks Are Sexy" on it. Good grief, that was a fun ride! Now it is implied that banks can't lose money and that the government has made us nearly recession proof even as the subprime loans fall apart. Call me skeptical. I could be wrong though!

I'm hoping it won't be real estate. I'm too lazy to be a landlord. That's like a real job. I certainly won't be a flipper. That's even more work than a landlord and seems to imply a TV crew will follow you around.

Part of me hopes I can permanently wait. The market just sort of muddles higher for the next 50+ years and I die penniless (living off assets like a good patriotic American). It wouldn't be the worst thing to happen, if I time it right, lol.

So, where's the cocktail party? - Tanta

All this talk of cocktail parties must be a sign! Maybe I can invest in a cocktail party business! Anyone think people will wish to drown their sorrows soon? Of course, I'd probably have to take credit instead of cash, wouldn't I? I could serve subprime beverages to offset the risk, but don't tell anyone else that!

If we look at a list of the 25 richest people in America, we find that only three of them "invested" their way to wealth - the others either started enormously successful businesses, or inherited from people who started enormously successful businesses.

So no dollar bears among the life -- I mean wealth -- preservers? - Sally

I probably should be more dollar bearish than I am. I'm sort of expecting a 1970s replay to some extent. The dollar was having problems heading into that era as well. It is hard though, with so many deflationary forces at play.

What if in the short-term the Fed protects the dollar? We have an unproven Fed right now. Bernanke might be more hawkish on inflation than he should be. I'm kind of surprised that they even got rates up to 5.25%.

In the long-term, TIPS are somewhat protecting me from a falling dollar. Well, assuming it doesn't get too far out of hand anyway. 15% interest rates and inflation scare the heck out of me. My TIPS would earn 17%, in theory, but the tax bite would be horrendous.

I can't even begin to imagine the carnage the stock and housing markets would face. Sometimes it is simply best to lose the least if pain sets in and simply come in like a janitor to see what tidbits are left behind. Perhaps. Maybe.

During a severe hyperinflation I'd still be in awful shape. I don't even want to think about earning 100% on my TIPS. It sounds all fine and dandy until you factor in taxes. That brings you down to an 80% return in a 100% inflation rate world. OUCH!

This is why people would hoard silver and gold. You could at least defer the taxes on 2 simple metals that in theory would keep up with inflation. Gold and silver would do better than that though. It would be like a game of musical chairs with not nearly enough chairs!

Stocks would inflate too, but kiss productivity goodbye. Restaurants would spend way too much time changing menu prices, maybe even while you are eating, lol.

But what do I know! We're in uncharted territory.

Foreclosures will not make people homeless
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Why a subprime bailout is full of BS

But why are the CRB spot indices at all time highs? - Glenn_in_MA

In my opinion, we've borrowed it. When the dotcom bubble imploded, the Fed pushed interest rates down to 1% in an attempt to reinflate our economy.

There have been 2 trends since that time.

1. Assets have gone up (stocks, real estate, oil, precious metals, commodities). Unfortunately, the "wrong" ones went up the most. Can't have the "inflationary" ones rise that much or the government gets involved.
2. Interest rates have gone up.

In a rational world, those 2 trends are not compatible long-term. The second trend has temporarily stopped. Who really knows how the first trend is doing.

Of course, there is another compelling trend.

China. They've been growing at an obscene pace even before the dotcom bubble. To me, they are like a store which continues to expand regardless of how their customers are doing. Can't afford to buy today? We'll take your IOUs! Happy times!! Just keep buying!! Would I want to invest in a company that did that? So what makes me want to invest in a country that does that? I think they are almost as scary as we are. Japan's story was once VERY compelling too. I drive a Camry. So what happened to them? The answer: a deflationary mess.

How bullish is the following chart in the long-term? I've seen silver permabulls claim silver will return to its all time high once people recognize its value. I find that VERY hard to believe.

Live Silver Prices, Silver Bullion Prices & 650 Years of Silver Prices

That's probably what commodities should do in the long run, assuming we aren't actually running out. I for one could believe in Peak Oil. I just can't say when. It might be long after I am dead, maybe. I have a much harder time in believing in Peak Everything, especially if it coincides with ultra low interest rates. Peak Housing? No, I think the builders would build as many as they can. Are sales prices still higher than the costs to make houses? It is very odd to see them slow their building. Why can't they just ask for IOUs like China does?

How much copper goes into each new house? I believe the answer is still, "A lot!" (hundreds of pounds) What about Peak Trees? Nope. We've got plenty of those still it seems.

Hey, just opinions and random theories. I could so be wrong on all of this, but that's what makes for a fun debate. I'd love for someone to convince me I'm wrong. If I am wrong, please convince me in time to change my investments. In a sense, I've been at least partially wrong since 2004, or right for the wrong reasons anyway. I became too inflationist perhaps. Maybe I'm still too inflationist. TIPS had a hard time last fall. Once everyone becomes inflationist, watch out below? Then, once everybody turns deflationist, that's when the real inflationary party might start? (falling dollar(s) from helicopters, more wars, more deficit spending)

Or not. The government decides. Perhaps it really isn't up to us.

cccatii,

I can certainly appreciate the appeal of the Yen right now. In some ways, it reminds me of 2004. Back then everyone was rushing to the Euro. I just couldn't do it. Gold and silver were not yet headline "material", pun intended. Few are rushing to the Yen these days. What's stopping me from buying foreign currencies is that I know so little. I'd prefer to go with a "known evil" workaround. At least I understand TIPS.

As for gold and silver at current prices...

I believe the global economy has bought too much stuff and used too much leverage allowed by interest rates that were too low, our country in particular. Therefore, I came to realize I was at risk buying even more stuff (gold and silver) as a hedge against it. I'm not suggesting it is necessarily a bad risk. It is simply a risk I hadn't thought of. It is almost always what you don't know that gets you in trouble.

It was very tempting to buy something, anything, when interest rates were just 1%. Gold and silver are somethings. Perhaps it is good that everybody didn't do what I did (sold stocks to buy precious metals)!

As for the competitive devaluation arguments, what if our interest rate hikes are actually intended to pop China's bubble? I wouldn't put it past our government to engage in economic warfare if they felt it would help the long-term situation. I'm not what you would call a conspiracy theorist, but I don't really think our current administration feels China is our friend. The Cold War was almost entirely economic.

Here's one extra little tidbit of trivia about China. I've heard arguments that nothing bad can happen in China before their Olympics in 2008. They just wouldn't allow it.

Any guesses on where the Olympics were held in 1932?

BOTH the Summer and Winter Olympics were held right here in the USA that year. Yeah, nothing bad can happen. As taken from the Olympics website...

The third Winter Olympics, in 1932, were held in Lake Placid, New York State, a town of fewer than 4,000 people. Faced with major obstacles raising money in the midst of a depression, the president of the organizing committee, Dr. Godfrey Dewey, donated land owned by his family to be used for construction of a bobsleigh run.

That probably won't happen though. It would lead to all sorts of It Was Not Different This Time T-Shirts, yet another business opportunity during the bust.

Sally,

But it seems to me that the meta-bet you make is that the house itself will remain solvent and/or responsible, and I don't know how to evaluate the house's exposure to funked-up and unwinding-at-any-time leverage.

I was going to say one thing in that last post, but instead I'd like to ask a question.

Is there any way I can make money shorting HaloScan? It reminds me of the US dollar. It is not stable!

Northern Trust;

Safe Haven | Recession Watch Perhaps, But Not Yet Warning

test

I didn't have time to go through all the posts but check out Association of American Railroads  for railroad volume. It might be lumpy but "Lumber & Wood Products" volume is down 26.7% YoY throug the first 10 weeks of the year. The weekly data comes out every Thursday. The Intermodal figure is painting an interesting picture as well since its basically goods coming via containership into the US. 15 - 20% of all containers into the US (mainly from Europe) are made up of furniture/household goods. Something to watch even if Week 10 had a big uplift (chinese new year?).

Some municipalities will go, especially those with high retirement and health obligations (older cities); those with high infrastructure developement costs to catch up with recent growth (newer cities); and those who gave away much of their non-residential taxable base in exchange for "development" (almost every city). Take your pick!

Given that the Secretary of the Treasury, his colleagues in the private sector, and the Japanese Finance Ministry will keep the yen low and the carry trade booming until hell freezes over, the only real place to look for change is at the Fed:

By Martin Crutsinger, AP Economics Writer
Federal Reserve Officials Expect to Keep Interest Rates Unchanged

Jones said he still expected there will be one or two rate cuts this year but not before late summer at the earliest.

"One or two rate cuts this year, but not before late summer..." that is what everything discussed here is all about: whether that statement holds up.

How you play that prediction is the premise beneath your entire economic game plan.

Calmo, Not sure if my post was clear but the lumber stats and the intermodal (ie...containership boxes arriving into US ports then moved onto railroad cars) are seperate. I wasn't trying to make a connection between hi-end furniture, far from it. The 15 - 20% figure is for finished products such as basic furniture & household goods imported into the US that comes in via container ships and a slowdown is a clear sign that retailers are scaling back their purchases in the face of waning consumer demand. It could also be due to the slowing roll-out of super stores. WMT is the single biggest container importer into the US.

So my post was highlighting two things: 1) big YoY decline in Lumber that is probably dirven by lower construction. 2) muted container voume into the US could mean consumer end demand is slowing quickly. Point #2 fits in with the trucking data.

Is that a good deal? Correct me if I'm wrong, but that seems expensive for the risk that remains.

Mark M.

Good stuff. As you are probably well aware, there were more millionares made per capita after the depression than any other period thereafter. At least that is what I have read.

I believe that there is a lot of good money chasing bad money right now. In fact, it has been that way for quite some time.

Kash has a follow up post on banking:

The Street Light

The majority of the very wealthy, from my observations, got that way one of two ways: 1) they inherited(e.g. the president); 2) they positioned themselves close to a major money stream and grabbed as much as they could as it went by (think hedge fund managers and Robert Toll). A third substantial fraction made their money by building up a business; these are the ones I feel contributed the most for their wealth. A smaller fraction was shrewd (sometimes lucky) investing, and last on the list were fortunate with stock options. I would be happy to see routes 3 and 4 move further up the list.