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Back On Trend – Get Your Boards Soon

CAMS Weekly View from the Corner – Week ending 4/16/21

April 19, 2021

Throughout our 2021 editions we have periodically pointed to price increases throughout the economic structure.  Price increases have been broad as well as notably different in terms of their rapid rise and in some cases, nearly explosive up trends. On a personal note, in the past few weeks I have had more “board stories” shared with me than I’ve heard in the past several years.  “Have you seen the price of boards…..” is usually how it begins.  Interestingly, these are spontaneous conversations from unrelated individuals for projects that differ in size. These conversations have been initiated from DIY type people who have shared stories ranging from how they have added on to a shed to building a children’s climbing wall to building a storage loft in a garage as well as others.  The consistent if not constant complaint is the price of materials that frankly, if given enough time to share, move beyond the boards and into ancillary supplies deemed necessary to finish the job. For my part I often share the thought of can you imagine building a large structure right now such as a building or a home?  All of the above elicits some perspective of lumber prices. 

Click For Larger View:  https://schrts.co/mXevHZdN

Above is a 2 ½ year chart of the price trend of lumber.  The longer view gives us a better perspective in what has occurred as well as if our most recent experience is out-of-character from what we had been experiencing as consumers when shopping this category. The red uptrend line speaks for itself.  The red circle denotes yet another break higher after a very brief downturn.  All told, via the red circle, we are seeing new high prices.  In the above chart the launch point began in mid-summer of 2020.  Coincidentally, the extreme money printing of which the nation has become accustomed to began in earnest just months prior.  Printing money can certainly be done faster than growing and harvesting an increased supply of trees.  In market pricing, the “relief valve” of this if you will is higher prices.  Yes, higher prices. Drilled down a bit, if supply cannot keep up with demand said “valve” is higher prices in order to both incentivize suppliers to bring forth more supply and simultaneously to discourage consumption via a demand let up.  Think, “Hmmm, maybe I will not build that shed today in light of these prices….” Feeding Through the System   Back to an additional personal note I’ve also had impromptu conversations about the notable increased size of insurance premiums for structures that have replacement value agreements written within them. In these cases double digit increases are being shared in casual conversation.  The culprit:  Increased building material costs.  Our initial response to seeing board costs rising rapidly may seem unimportant to anyone who does not have a construction project on the docket be it large or small.  Unfortunately, these types of price increases come looking for most of us by other means.  Rising insurance costs are one of them. Federal Reserve In our previous edition we shared how the Federal Reserve has added $7 Trillion to its Balance Sheet in the previous 19 years.  Placing that growth of money printing in perspective, we also shared that since their inception in 1914 their Balance Sheet had grown to $700 Billion through what encompassed nearly the entire 20th century.  Those figures are not typos. With this level of printing few should be shocked that materials and services are rising when priced in our currency.  The question we have been asking and looking to answer via societal observation is:  Are consumers doing a remake on themselves in the form of carrying less consumer debt, more savings and less overall spending? In light of all the printing coupled with endless societal free money distributions the answer to that question will play a major role in what our going forward price inflation trends will look like.  (As an aside, as wise elders always said, there is no such thing as free money right.  In our free money societal story-line the cost shows up in prices.) We are watching closely and will share accordingly. I wish you well…

Ken Reinhart

Director, Market Research & Portfolio Analysis

Footnote:

H&UP’s is a quick summation of a rating system for SPX9 (abbreviation encompassing 9 Sectors of the S&P 500 with 107 sub-groups within those 9 sectors) that quickly references the percentage that is deemed healthy and higher (H&UP). This comes from the proprietary “V-NN” ranking system that is composed of 4 ratings which are “V-H-N-or NN”. A “V” or an “H” is a positive or constructive rank for said sector or sub-group within the sectors.

This commentary is presented only to provide perspectives on investment strategies and opportunities. The material contains opinions of the author, which are subject to markets change without notice. Statements concerning financial market trends are based on current market conditions which fluctuate. References to specific securities and issuers are for descriptive purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. There is no guarantee that any investment strategy will work under all market conditions. Each investor should evaluate their ability to invest for the long-term, especially during periods of downturn in the market. PERFORMANCE IS NOT GUARANTEED AND LOSSES CAN OCCUR WITH ANY INVESTMENT STRATEGY.

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