Speaker 1: Hello, and welcome to another episode of the Odd Lots podcast.
Speaker 1: I'm Joe Wisenthal and I'm Tracy Allaway. So you know
Speaker 1: you don't you know? One of the things I really
Speaker 1: like about is about one yeah or um. I mean
Speaker 1: I feel like I could take a guess, but why
Speaker 1: don't you go ahead and tell me? Well, so obviously, like, okay,
Speaker 1: it's you know, we've been doing a bunch of like
Speaker 1: supply chains and commodities, but I feel like this is
Speaker 1: a time for specialists, like people who know yes, yeah
Speaker 1: it is. I feel like one of the themes of
Speaker 1: kind of like this podcast but also in general, is
Speaker 1: like I'm kind of like weirdly less interested in some
Speaker 1: respects in some of like the pure macro stuff that
Speaker 1: we've like I've covered for much of my careers, and
Speaker 1: the people that I really yearned to talk about it,
Speaker 1: like the people who just like no an industry really well,
Speaker 1: I think it's like super fun. Yeah, I think we've
Speaker 1: discovered the wonders of micro and just being able to
Speaker 1: investigate these individual markets that we haven't necessarily been familiar
Speaker 1: with before has been really really interesting. And also I
Speaker 1: think I told you this once before, but when I
Speaker 1: was going into financial journalism, I always really wanted to
Speaker 1: be a commodities reporter because I was kind of interested
Speaker 1: in things and like this idea of global trade and
Speaker 1: has just been phenomenal from that perspective, like the actual
Speaker 1: study of things, like how they're produced, how supply and
Speaker 1: demand works for individual markets, the different players, plus the
Speaker 1: logistics of actually moving them from A to B. No,
Speaker 1: this is a year for granularity for specialists and the
Speaker 1: degree you know, like if I want to understand what's
Speaker 1: going on in a a commodity market, or I want to
Speaker 1: go understand what some aspect of the labor market, I'm
Speaker 1: not going to like ask some like you know, there
Speaker 1: are certainly like macro economists who are useful, and we
Speaker 1: talked to them all the time, and we had them
Speaker 1: on recently. But we just spoke to Matt King, right, yeah, yeah,
Speaker 1: So you know, I would not want to slag any
Speaker 1: of our other guests, but I really like there's so
Speaker 1: many things in that where it's like we got to
Speaker 1: talk to someone who knows this thing, and that's sort
Speaker 1: of been one of the fun things. I guess I
Speaker 1: would say about learning, learning and talking to people in
Speaker 1: one I mean what I will say, and Matt King
Speaker 1: kind of brought this up on the recent episode, but
Speaker 1: there are micro explanations for almost every move in the
Speaker 1: price of something that people have been talking about recently.
Speaker 1: So you know, we've been speaking a lot about individual commodities.
Speaker 1: You know, we did like one on sinks. I remember
Speaker 1: I wrote about mayonnaise. You can look at a particular
Speaker 1: product or market and come up with an individual perspective,
Speaker 1: but at the same time, like all of that are
Speaker 1: feeding into this broader macro backdrop where well are worried
Speaker 1: about inflation um and we've been talking about that but
Speaker 1: a lot as well. Right, So one of the first
Speaker 1: you know, we've had a bunch of these, but one
Speaker 1: of the first episodes that was kind of like one
Speaker 1: of the breakout for US episodes that was like really
Speaker 1: extraordinary that we learned a ton about was back in
Speaker 1: April and we talked to uh stincon Dean. He is
Speaker 1: the founder and CEO of Deacon Lumber, which is a
Speaker 1: lumber trading operation and if you were a call Lumber
Speaker 1: was interesting because I guess it was kind of like
Speaker 1: the canary in the coal mine in a way, because
Speaker 1: we've now had there's a global, huge, global commodity run right,
Speaker 1: like major bowl market and basically everything you can think of.
Speaker 1: But at the time I think commodities were running, but
Speaker 1: we did not, you know, Lumber was like this like
Speaker 1: was like kind of like there's like parabolic move and
Speaker 1: we're like, what's going on? There was this is kind
Speaker 1: of weird. And now you've seen in tons of commodities
Speaker 1: European energy and natural gas and call and stuff. Some
Speaker 1: of it's cooled down, but lumber was kind of like
Speaker 1: this canary in the coal mine. It's sword like crazy.
Speaker 1: And since then it's actually one of the few commodities
Speaker 1: of the last few months it's kind of been in
Speaker 1: like a bear market. It almost feels like it's been
Speaker 1: like a few months ahead of everything else. Right, So
Speaker 1: if you look at lumber as this canary in the
Speaker 1: coal mine or some sort of like mystical oracle when
Speaker 1: it comes to other supply bottlenecks, it's kind of telling
Speaker 1: you that, you know, some of those pressures might be easing.
Speaker 1: I think we're down to around is it like six
Speaker 1: hundred dollars a little over six hundred, down from a
Speaker 1: peak that was like more than six hundred So that's
Speaker 1: pretty exchange and it's something that you're interested in and
Speaker 1: something you know that It's like this idea we talked
Speaker 1: about the bull whip effect. It's like the question is
Speaker 1: does major demand in right now, like could we you know,
Speaker 1: people are talking about over One possibility is that we
Speaker 1: see persistent inflation in another possibilities we just see like
Speaker 1: major gluts of everything. If we have like major know,
Speaker 1: it's like maybe the backside. This is crazy disiplation. Anyway,
Speaker 1: I'm very excited because we have Stintson back, I said,
Speaker 1: the founder and see of Decade Lumber, and so now
Speaker 1: it is time to talk about perhaps the backside of
Speaker 1: the boom and what happens after the huge run up.
Speaker 1: So I'm very excited about this episode. Uh, Stintson, thank
Speaker 1: you so much for coming on Odd Lots. Hey, y'all,
Speaker 1: thanks for having me back. It's it's been a wildwide
Speaker 1: since Odd Lots and then, uh, you know, we've come
Speaker 1: a long way and yeah, we're trading it six d
Speaker 1: on on the future screen. We got as low as
Speaker 1: four fifty uh at a high high of seventeen thirty three.
Speaker 1: You know, for those paying attention, you know, it fell
Speaker 1: faster than it went up, which was hard to believe
Speaker 1: that that was even possible. But yeah, it's a different
Speaker 1: world than Lumber compared to what these other folks are
Speaker 1: going through right now. Yeah, and it's kind of crazy.
Speaker 1: I mean, it's a different world in Lumber, and I
Speaker 1: can't I don't know whether it feels like ages ago
Speaker 1: we talked to you or just yesterday. I hear what
Speaker 1: I said, but it was in April and now it's November,
Speaker 1: so I don't know. That's like six and a half
Speaker 1: months or something since the last thing we talked to
Speaker 1: kind of hard to believe, but like, why don't you
Speaker 1: just sort of like get big picture, you know, and
Speaker 1: we'll get into it more detailed, but give us like
Speaker 1: this sort of like big picture of what happened. You know.
Speaker 1: Lumber peaked about four weeks after we had spoken last time,
Speaker 1: so we kind of time to peek. We'll see we're
Speaker 1: time in the bottom here. But why don't you, uh,
Speaker 1: sort of what have what happened after that? Yeah, I
Speaker 1: I think that's good to kind of pick up where
Speaker 1: we left off from from a price perspective. So when
Speaker 1: we recorded late April May, the market peaked in late May,
Speaker 1: but from mid April to late May the market had doubled.
Speaker 1: It's not like it did some about face immediately, like
Speaker 1: there was a lot of price action left. It is
Speaker 1: all happened in a hurry. So it was a short squeeze.
Speaker 1: And uh, I think we talked about last time, like
Speaker 1: eventually people will get covered and then and then what?
Speaker 1: And my argument was higher for longer for lumber specifically
Speaker 1: because of a lot of structural bullish issues and and
Speaker 1: and the log supply, manufacturing and demand, incredible wave of
Speaker 1: demand as we all know. For housing, we squee definitely
Speaker 1: squeezed from a thousand dollars to sevred. That was all
Speaker 1: just short covering folks covering commitments that they had maybe
Speaker 1: committed at six seven, eight hundred dollars and they were
Speaker 1: just waiting for prices to come back down to normal
Speaker 1: to cover that for hopefully a profit. None of them
Speaker 1: thought about limiting their losses. There's gonna wait, wait, wait, well,
Speaker 1: no one could wait any longer. They had to cover
Speaker 1: and every seemingly everyone was in that boat. So it
Speaker 1: squeezed us and we blew the top off at and
Speaker 1: you know when when it turned, I felt pretty confident
Speaker 1: that it was over, but a lot of people didn't.
Speaker 1: And that that's what makes markets tops as folks who
Speaker 1: thought we shouldn't be this high all of a sudden
Speaker 1: start believing we're going to be two thousand dollars or higher,
Speaker 1: including the producers themselves. So it was it was a
Speaker 1: painful ride down for a lot of folks. And what
Speaker 1: was interesting, and I tweeted about it through the summer,
Speaker 1: we could watch lumber futures get cut in half and
Speaker 1: go from sevent to eight hundred and fifty, and we
Speaker 1: would see reports from builders or contractors going in and saying,
Speaker 1: my my price is not half of my quote from
Speaker 1: three months ago. Why why aren't I seeing price appreciation
Speaker 1: that we're seeing in futures and all the things. And
Speaker 1: to me, that was really telling because in a marketplace,
Speaker 1: and certainly commodities, you should have enough players that all
Speaker 1: have different trading strategies, different break even point points, that
Speaker 1: one or two of them can offer lower prices, gobble
Speaker 1: up all the market share and force their competitors to
Speaker 1: meet the meat or beat their price. But we weren't
Speaker 1: finding that this summer. It was bizarre and inefficient, and
Speaker 1: I I couldn't really explain it. And then I started
Speaker 1: to think maybe everyone was so upside down in their
Speaker 1: inventory that they were they were selling on cost plus
Speaker 1: with that cost being very high versus replacement cost. And
Speaker 1: if your competitor down the road also has a high
Speaker 1: break even and they could replace and buy more inventory
Speaker 1: for a lower price, they're gonna try to blow out
Speaker 1: their high price inventory before they lower their prices. But
Speaker 1: you can only do that as so long as your
Speaker 1: competitors are not lowering their prices. And it's seemingly all
Speaker 1: summer that the cost savings seemingly we're not passed along
Speaker 1: to the consumer. But the reality is they weren't cost
Speaker 1: savings because the lumber yard hadn't rebought to lower their
Speaker 1: break even price, so they were cost plus with their
Speaker 1: costs being extremely high, and they were able to largely
Speaker 1: as a group, pass along these higher costs and and
Speaker 1: and escape somewhat unscathed. Um it was. It was quite
Speaker 1: impressive and wild to think that there was no entity
Speaker 1: out there that that could undercut and gobble up market
Speaker 1: share because they had a lower break even costs. And
Speaker 1: I was arguing, this will be kind of my final
Speaker 1: point on that like lumber kept going down, certainly went
Speaker 1: lower than I thought it would go, and I'm like, well,
Speaker 1: I don't think it's going to bounce until folks step
Speaker 1: back in and replenish her inventory. And if they bought it,
Speaker 1: and they could buy it six hundred, their average would be,
Speaker 1: you know, a thousand bucks or something, and then you'll
Speaker 1: see lower prices pushed to consumers. So until it's stopped
Speaker 1: going down, indicating buyers coming in at much lower prices,
Speaker 1: until we saw that retail prices were gonna stay high.
Speaker 1: And I think that's kind of how it played out.
Speaker 1: Retail prices stayed high relative to replacement costs, and then
Speaker 1: finally that that high price inventory got moved out and
Speaker 1: prices have come down to the the end user. So
Speaker 1: that was June July, a little bit of August. Then
Speaker 1: something really interesting happened. I call it our negative oil moment.
Speaker 1: So y'all remember oil went negative. The fundamental reason was
Speaker 1: there was no place to store it, right, what's the number, Mr,
Speaker 1: customer that you would buy at? Just give me a bit,
Speaker 1: you know, and like there's like there is no number
Speaker 1: because I have no place to put it. And maybe
Speaker 1: this happened in oil, but certainly lumber. I had already
Speaker 1: bought what I thought was cheap at the time, so
Speaker 1: my cash is already my budget has already spent an inventory,
Speaker 1: so I have no budget left to average down. And
Speaker 1: if I did, I have no place to put it.
Speaker 1: So it turned into a negative oil like we'll pay
Speaker 1: you to take it from us because we don't have
Speaker 1: any place to put it either kind of situation and
Speaker 1: with lumber are negative oil. Moment was and this is
Speaker 1: real geeky commodity trading verbiage, but the contango went to
Speaker 1: a hundred dollar discount, which it was. The September contract
Speaker 1: traded one hundred dollars below the November contract. It basically
Speaker 1: means you could buy lumber for today and pre sell
Speaker 1: it six days later for a hundred dollars more. You
Speaker 1: just needed somewhere to store it, right, which is easier
Speaker 1: than with oil. Yeah, you would think, you know, it's
Speaker 1: certainly yes, Like you can stack lumber in a field,
Speaker 1: then it's not gonna like contaminate anything. But like the
Speaker 1: facilities that specialize in building materials handling were full, they're
Speaker 1: still full, so that the market was paying you a
Speaker 1: hundred dollars to store it for sixty days when the
Speaker 1: hard costs to do that is like twelve bucks. So
Speaker 1: the textbook calls it riskless profit. It's an eight eight
Speaker 1: dollar profit, no brainer by today sell it for a
Speaker 1: hundred dollars more to more us for on a futures
Speaker 1: contract two months out. I mean it was a no
Speaker 1: brainer when it was at and then they got the
Speaker 1: thirty and forty and fifty. There was no bid because
Speaker 1: no one had the money the budget left to buy
Speaker 1: it because they you know, they had bought lumber what
Speaker 1: they thought was cheap before and they had no place
Speaker 1: to put it. So there it's like, yeah, hate, mr broker,
Speaker 1: that sounds like a great deal. I agree with you,
Speaker 1: this is great value, but I cannot take it. There
Speaker 1: is no used to put it. So it certainly didn't
Speaker 1: show up in flat price. We didn't go negative. But
Speaker 1: the fact that we we had a hundred dollar discount
Speaker 1: to carry lumber from one month to the next contract
Speaker 1: month was insanity when I saw that happen, And we
Speaker 1: had pretty large carries in the July contract too. We
Speaker 1: got a while. There's a lot of lumber out there
Speaker 1: that we got to chew through before we get back
Speaker 1: to some kind of equilibrium. And we've been, you know,
Speaker 1: for months and months, been trying to work through that
Speaker 1: backlog of inventory that's in the pipeline. It's in different
Speaker 1: in the hands of different players in the supply chain,
Speaker 1: largely out of the mills hands. They've they've blown it out.
Speaker 1: I own a lot of record breaking amount of lumber
Speaker 1: for my little company and a lot of my counterparts
Speaker 1: as well, and a lot of my customers. So there's
Speaker 1: just a lot of lumber out there that needs to
Speaker 1: get delivered end users and installed before we can see
Speaker 1: you any kind of price appreciation. So, first of all,
Speaker 1: I feel really bad that neither Joe nor I, I
Speaker 1: think um wrote about the big contango moment in lumber
Speaker 1: futures like that completely possibly by think did you? I'm sorry,
Speaker 1: I think I think I wrote a piece about the contager.
Speaker 1: I'm not sure. I'll have to go back. Well, it
Speaker 1: was a big deal in my world, and to be
Speaker 1: honest with you, there's only like six of us in
Speaker 1: lumber who even paid attention to it anyway, But yeah,
Speaker 1: it was pretty dramatic. Well, so secondly, can we dig
Speaker 1: in a little bit more into that build up in
Speaker 1: inventory because I seem to remember when we spoke to
Speaker 1: you in April, like one of your thess for why
Speaker 1: this might be um, you know, higher prices for longer.
Speaker 1: Was this idea of the like lumber yards and lumber
Speaker 1: producers having been scarred by what happened in UH two
Speaker 1: thousand and eight with the bursting of the housing bubble,
Speaker 1: and that you know, they had persistently underinvested incapacity because
Speaker 1: they were always afraid of that happening again. And yet
Speaker 1: you know, fast forward to the summer of one and
Speaker 1: suddenly we're talking about a massive glut and inventory and
Speaker 1: you know contango such that you can hold lumber um
Speaker 1: you know, buy on the cheap and then sell it
Speaker 1: forward and make a riskless profit. So what exactly happened?
Speaker 1: The lack of capex includes storage capacity if if the
Speaker 1: idea is gonna we're gonna run lean and mean turn
Speaker 1: our inventory like you don't need a lot of space
Speaker 1: to turn it like ideally did you buy just in
Speaker 1: time inventory and you don't hold it very long? You
Speaker 1: turn it in the a R, you turn it into
Speaker 1: the cash. You do it over and over, and that's
Speaker 1: been the model from the producer. Are all the way
Speaker 1: down to the retail lumber yard. All of a sudden
Speaker 1: what we call in the lumber industry outtake how much
Speaker 1: lumbers leaving the lumber yard and getting installed in a
Speaker 1: house or an apartment. I'll take grinded to a halt.
Speaker 1: And this is I think the bullwhip effect if listening
Speaker 1: to your last several podcasts comes into play in the
Speaker 1: global supply chain crisis starting to peak right now affects lumber.
Speaker 1: So a lot of the lumber that's piled up is
Speaker 1: largely sold. It's committed to a job, but that job
Speaker 1: is not ready to take the lumber yet because they're
Speaker 1: still waiting on the windows and the appliances to finish
Speaker 1: the house before. So they have a job on the books,
Speaker 1: but they can't close out the previous house, and you know,
Speaker 1: they get all the finished products in there that are
Speaker 1: heavily related to the global supply chain. The biggest issue
Speaker 1: for US was trust plates. Floor trust is roof trust
Speaker 1: is the little butt plates that go on all the joints.
Speaker 1: Metal trust plates. Two companies have eight of the market share,
Speaker 1: and when these trusses are spect and approved by the
Speaker 1: county and no, no, no no, no, like it's you can't
Speaker 1: switch the plate to some other plate supplier, like it's
Speaker 1: spect specific to some certain technology, and you couldn't get
Speaker 1: trust plates. And this is just metal from Turkey or whatever,
Speaker 1: not an expert in that supply chain, but it's not
Speaker 1: domestically produced, so you couldn't get trust is. So it
Speaker 1: was almost like if you envisioned building a house, no
Speaker 1: one could get the lumber for the first floor. Then
Speaker 1: they got the lumber. Now it's we need a floor.
Speaker 1: Trust the wedding that goes between the first and second floor,
Speaker 1: we can't get that. It's backlogged. We can't get the plates.
Speaker 1: So I don't really need the lumber for the second
Speaker 1: floor until I get my floor trusses in and those
Speaker 1: are months out, months and months. So you had lumber
Speaker 1: that was scheduled to deliver in July. Now it's on
Speaker 1: indefinite hold, and you have lumber prices falling, falling, falling.
Speaker 1: So speculators like myself, UM and and other folks in
Speaker 1: the supply chain just kind of buy lumber because they
Speaker 1: think it's cheap. UM not anticipating the inability to turn
Speaker 1: your inventory because there's this bottleneck at the job site
Speaker 1: of the apartment and of the house, the single family
Speaker 1: home that is all held up. You can't get to
Speaker 1: the second floor because you don't have trust plates, and
Speaker 1: then you need the roof trusses, and and then it
Speaker 1: became I gotta I can't fit. Like there's there's caring
Speaker 1: costs for the builder and the construction loans and the draws,
Speaker 1: like they have to close out and deliver the house
Speaker 1: to get that last payment. Did that rollout into the
Speaker 1: next you know, Jack, So it held up all these
Speaker 1: other projects because I couldn't complete homes. This is so fascinating.
Speaker 1: You know, we talked to uh Ellie Wolf you know
Speaker 1: who monitors this stuff, I think a couple of months
Speaker 1: after we talked to you. And so basically, you know,
Speaker 1: we think about and again think about also the mat
Speaker 1: King episode, just like the sheer like complexity of what
Speaker 1: we're talking about. So it's like, okay, like we think
Speaker 1: about supply and demand is you know, these two lines
Speaker 1: that cross, and we know that there's a lot of
Speaker 1: demand for homes and we're a bit of major housing boom.
Speaker 1: Maybe there's a little bit of softening lately, but we've
Speaker 1: had this huge demand boom. But it's something as simple,
Speaker 1: and you know, Tracy has written a lot about this, like, okay,
Speaker 1: one part doesn't come and the house doesn't work, Like
Speaker 1: if you don't have faucet, you can't live in a house.
Speaker 1: So you could have major demand four housing and lumber
Speaker 1: and still no actual orders big placed because you're missing
Speaker 1: apart right, And I've learned about trust play. I had
Speaker 1: no idea that that was, Like, I'm gonna google trust
Speaker 1: plates right now so i can see what they look
Speaker 1: like while we're talking. I think we need a trust
Speaker 1: plate episode. Now I see Okay, okay, I see, I see,
Speaker 1: I see it. That just that little like four four
Speaker 1: inch by six inch, a little nothing, you know, and
Speaker 1: it is holding back an entire sector of of the economy.
Speaker 1: And okay, you got the trust plates in and then
Speaker 1: now you need faucets and toilets and refrigerators. So it
Speaker 1: caught me off guard and just being so narrowly focused
Speaker 1: on lumber. Now I'm like, I gotta think more macro
Speaker 1: than I would y'all. Y'all were talking earlier about the specialists,
Speaker 1: and I'm highly specialized in a two by fource. No
Speaker 1: idea about metal, But now I'm kind of like there's indicators,
Speaker 1: and I'm looking at and supply data and that now
Speaker 1: kind of come into view. Um and largely just talking
Speaker 1: to my customers and what they're hearing on lead times
Speaker 1: on trustes. But didn't see that one coming. A lot
Speaker 1: of us didn't, so Tracy, to tour round out your question,
Speaker 1: we just kept seeing lumber prices fall and we saw
Speaker 1: we know that customers are paying home builders extremely high
Speaker 1: historical prices for the lumber. So every time I buy lumber,
Speaker 1: I'm largely booking a profit because I know, not me,
Speaker 1: but the retail lumber yard, they know that what their
Speaker 1: home builders are paying. The problem was no one saw
Speaker 1: just the backlog of uncompleted homes and it shows up
Speaker 1: very clearly, and the housing starts data, the amount of
Speaker 1: homes are completing is is decoupling from home starts in
Speaker 1: a way that it's pretty glaring, and you know, it
Speaker 1: all rounds out this, Uh, this whole point is we're
Speaker 1: just not completing homes, so it's hard to roll over
Speaker 1: and and your money and build the next one. So
Speaker 1: it's just, you know, people saw value, they kept buying, buying, buying,
Speaker 1: and then not being able to deliver. So for every
Speaker 1: Reil car they bought five Reil cars, they maybe deliver one,
Speaker 1: so every month they'd accumulate four rail cars. And that
Speaker 1: happened over three or four or five months. And here
Speaker 1: we are. Okay, so here's another very basic question. But
Speaker 1: we're getting the sense that, you know, even if the
Speaker 1: lumber market had reacted perfectly to supply demand changes, there
Speaker 1: would be things outside of its external control, like what's
Speaker 1: going on with trust plates or you know, sinks and
Speaker 1: fawcets missing in a house that would affect the market.
Speaker 1: So I guess my question is like what is needed
Speaker 1: for prices to stop falling and for things to sort
Speaker 1: of like come back into balance or is it just
Speaker 1: like completely beyond the lumber market itself at this moment
Speaker 1: in time. No. So it's it's the question the industry
Speaker 1: is trying to answer, and to me, the answers simple
Speaker 1: but not easy. It's we have to cut production and
Speaker 1: we're just we're producing more than we're I call it
Speaker 1: installing in homes, and that's a recipe for oversupply and
Speaker 1: lower prices. And one contangoes you're we're just way out
Speaker 1: producing the capacity to build homes, which is shocking because
Speaker 1: just six months ago we're at seventeen d dollars and
Speaker 1: if you if you didn't see the spike on a chart,
Speaker 1: and here we are at six hundred bucks on futures,
Speaker 1: that would be the record high price ever and lumber
Speaker 1: prices and lumber futures going back thirty plus years. Six
Speaker 1: hundred bucks has never been seen before outside of the
Speaker 1: last eighteen months. But now we're talking about curtailing production.
Speaker 1: So this idea of higher for longer I we're almost
Speaker 1: double the five year average price. The mills used to
Speaker 1: love four. Now we're we're oversupplied at six. And for
Speaker 1: it to change, we need to produce less. But the
Speaker 1: problem with that is the supply chains so out of whack.
Speaker 1: The amount of inventory held by each player, the producer,
Speaker 1: the secondary market, the retail lumber yard. Ideally everyone has
Speaker 1: a little bit and it's all pretty smooth. Well, it
Speaker 1: just became this thing where the mills had all of
Speaker 1: it and then the secondary market now owns most of
Speaker 1: it because the retail lumber yard, their whole goal this
Speaker 1: summer was worked down that high price inventory. Like I
Speaker 1: talked about earlier, don't re buy, don't add average in
Speaker 1: get rid of the high price stuff and then we'll
Speaker 1: deal with it. So what we're seeing now is that
Speaker 1: big pile of lumber at the retail level is getting
Speaker 1: lower and lower. But now there's this big pile at
Speaker 1: the secondary level we've got to deal with. So that's
Speaker 1: getting bought. But if a retail lumber yard is buying
Speaker 1: from the secondary market, they're not buying from the sawmill.
Speaker 1: So the sawmill is I think headed for a little
Speaker 1: bit of pain here. Their break even prices are significantly
Speaker 1: higher because log costs are up, lumber tiariffs are doubling
Speaker 1: in a couple of weeks, and labor okay, so they
Speaker 1: don't have the break even so that they did in
Speaker 1: the past. So anything under six D the major sawmills
Speaker 1: are losing money. And here we are at six and
Speaker 1: they're not seeing the demand because the buyer can lean
Speaker 1: on the secondary market, which has been painfully holding onto
Speaker 1: lumber since Bucks and just trying to average average, average average,
Speaker 1: and uh, now here's their moment to blow out their
Speaker 1: pile and turn their inventory into cash. Everyone has held
Speaker 1: lumber longer than they've ever felt comfortable with and a
Speaker 1: much higher volumes. There's a big pile lumber we gotta
Speaker 1: get through. So the producers need to reduce their output.
Speaker 1: And I'm afraid when they figure that out and they
Speaker 1: implement it and they reduced their own hand inventories, they
Speaker 1: reduced their output, will be just around the time the
Speaker 1: secondary market has been depleted and now the end user,
Speaker 1: the retail lumber yard, will then turned to the mills
Speaker 1: to get ready for Q one spring building season, the
Speaker 1: seasonal lumber party that we have every year, and the
Speaker 1: mills they are going to have tooled down because they
Speaker 1: haven't seen demand in three months. So we have to
Speaker 1: restrict supply to bring the contango in and work through
Speaker 1: the pile a lumber we have. But I feel like,
Speaker 1: because we're so out of whack and we're hitting these
Speaker 1: extremes on the upside and the downside, that we're not done.
Speaker 1: That pendulum is not done swinging. So I'm a little
Speaker 1: nervous for really bullish Q one and not enough production
Speaker 1: to meet it. So one of the interesting implications of this,
Speaker 1: and you know, this was something that we talked a
Speaker 1: lot about on the last time we talked with you,
Speaker 1: and we've talked with other people, wouldn't examining this industry
Speaker 1: but it's acute in housing. And that is of course
Speaker 1: that after the Great Financial Crisis, so many actors within
Speaker 1: anything related to housing were scarred. They stopped investing, maybe
Speaker 1: they diminished capacity, and from what you're saying, and so that,
Speaker 1: you know, you so we sort of pay the price
Speaker 1: now because what you know, the diminished capacity then becomes
Speaker 1: a bottleneck that we have to pay the price for
Speaker 1: in a boom. You know what we're seeing now in
Speaker 1: lumber with that price, It's like, I wouldn't want to
Speaker 1: It does not sound like an environment in which there's
Speaker 1: gonna be much appetite to increased sawmill capacity, or that
Speaker 1: anyone is going to increase capacity or make a real
Speaker 1: like long term capex environment. Because in a way, they
Speaker 1: did just get burned again. And maybe it's not as
Speaker 1: bad and as you say, prices are still well above
Speaker 1: the five year average and so forth, but it did
Speaker 1: sort of once again. And the homebuilders, of course, you know,
Speaker 1: the bottom hasn't fallen out for them, but at least
Speaker 1: for this one part of the market, they're sort of like, well, yeah,
Speaker 1: this is like a good reason to like remain remain
Speaker 1: hesitant about significantly adding adding capacity. Yeah, like I got
Speaker 1: mocked for saying for implying this time is different, and
Speaker 1: they were right, like shirt off, like we didn't stay
Speaker 1: above a thousand and a little bit of my naivete
Speaker 1: and inexperience and lack of macro appreciation for global supply
Speaker 1: chain and trust plates um, but now I know, Yeah,
Speaker 1: we gotta do a trust plates episode. There's a lot
Speaker 1: of announced investment greenfield acquisition in southern in the southern
Speaker 1: US to produce more Southern other Pine. Southern the other
Speaker 1: Pine is incredibly profitable at these current prices, which are
Speaker 1: at the low end of the last eighteen months, in
Speaker 1: readibly profitable. Two by four's are going for over seven
Speaker 1: hundred bucks for thousand and I don't know the southern
Speaker 1: of the pine game as well, but I'm guessing their
Speaker 1: production costs or maybe a little higher three fifty. So
Speaker 1: there's a lot of announced investment into Southern Ola pine.
Speaker 1: But this goes into the larger point of Canadian lumber
Speaker 1: and southern alpine are different, used differently, are and you
Speaker 1: can't unless we build homes differently. All that announced production
Speaker 1: doesn't really alleviate the shortage of lumber in the way
Speaker 1: we build homes now if we start building homes of
Speaker 1: southern Ola Pine, that's different. But there is there is
Speaker 1: capex in the South, but in Canada the finite log
Speaker 1: supply that limits anyone from putting risk on on a
Speaker 1: production basis up there. In fact, the Canadians are the
Speaker 1: ones opening sawmills in the US South. So that that's
Speaker 1: a really interesting dynamic. We actually we've talked about we
Speaker 1: talked over the phone a couple of times, I think
Speaker 1: between our last episodes, But you're mentioned of the trust
Speaker 1: market and the market share that the two companies have.
Speaker 1: Reminds me that one of the interesting dynamics in the
Speaker 1: market right now, and it really relates to like who
Speaker 1: has market power at any given time, And so if
Speaker 1: you're trust seller, you probably have a lot of market
Speaker 1: power because there's only one other competitor and you could
Speaker 1: probably dictate terms. And if your own builder, you're probably
Speaker 1: forced that you're like a yah, you're probably a price
Speaker 1: taker on a lot of this stuff. Overall, in the
Speaker 1: housing market, what is the position of the home builders
Speaker 1: as it relates not just to their dealing with the
Speaker 1: lumber market, but also with all of the other things
Speaker 1: that they have to buy, Like how does like who
Speaker 1: has market power right now to sort of dictate terms
Speaker 1: both in terms of price and financing terms in housing
Speaker 1: right now, and how did that play out over the
Speaker 1: last six months. I'll speak briefly. I'll attempt to because
Speaker 1: this is a little out of my scope, but from
Speaker 1: because I'm further back in the supply chain, but from
Speaker 1: what I can observe. Okay, the home builder has less
Speaker 1: bargaining power and leverage than they've had this whole cycle
Speaker 1: two thou eight onward because the supply chain is consolidated
Speaker 1: around them. Their suppliers have consolidated, the suppliers suppliers have consolidated,
Speaker 1: so they're not in a great position. And it's really
Speaker 1: manifested in the last six months because on the lumber side,
Speaker 1: it came down to risk. Who is going to warehouse
Speaker 1: figuratively and literally the lumber price risk. And for twelve
Speaker 1: plus years it's been the lumber yard has been committing
Speaker 1: to prices over ninety days and buying the lumber second,
Speaker 1: hoping to buy it cheaper. And that's what got us
Speaker 1: in our squeeze. Now, coming out of that, the suppliers
Speaker 1: who are bigger in scale than they were facing national
Speaker 1: homebuilders are, yeah, we're not gonna do ninety day pricing.
Speaker 1: So the home builder suddenly has to have expertise and
Speaker 1: lumber price risk management, which they don't have. They never
Speaker 1: had to have that because their supplier gave them a
Speaker 1: fixed price and they moved on. Now the supplier has
Speaker 1: given them a two to four week price and the
Speaker 1: home builder needs to fix use to is accustomed to
Speaker 1: a ninety day fixed price. So I you know, I've
Speaker 1: seen homebuilders actually steal very talented buyers from from retail
Speaker 1: lumber yards to come work in house. You hear stories
Speaker 1: of home homebuilders warehousing their own materials, and I don't
Speaker 1: think that's going to end well unless they bring in
Speaker 1: some some talent. But they're just not tooled to handle
Speaker 1: price risk. And then from the terms and negotiation standpoint,
Speaker 1: there's less people for them to turn to in the
Speaker 1: supply chain because the supply chain is consolidated considerably in
Speaker 1: the last five years. You know, it is really interesting
Speaker 1: this idea of at a commodity price can collapse, not
Speaker 1: necessarily because there isn't demand for it, but because of
Speaker 1: other things going on. There's just like no one can
Speaker 1: take delivery even if there is still a lot of
Speaker 1: demand to build homes, and so you mentioned the trust
Speaker 1: is and windows and faucets. You know, we we we
Speaker 1: raised this question in the beginning, this idea of like
Speaker 1: lumber is kind of canary in the coal mine. We
Speaker 1: have seen some big moves and other commodities down lately.
Speaker 1: We've seen a lot up. But you know, if you
Speaker 1: look at like say aluminum prices or coal prices in China,
Speaker 1: or electric there's some there's some violent moves down even
Speaker 1: in this is there a and you know we're all
Speaker 1: just speculating here, but is what we've seen in lumber.
Speaker 1: Could it be in your view that maybe we are
Speaker 1: looking at not sort of persistent inflation, but sort of
Speaker 1: like an age of gluts after well all that we've
Speaker 1: seen in Yeah, I did to put a little bit
Speaker 1: of context about around the lumber glut being is really
Speaker 1: was exacerbated by the supply chain issues. But it was
Speaker 1: happening before trustplates were an issue, before appliances were an issue.
Speaker 1: To me a lumber it happened because of the price
Speaker 1: risk transfer from supplier to homebuilder, and homebuilders didn't know
Speaker 1: how to deal with it, so they just over ali
Speaker 1: was on your show and she she tweets a lot
Speaker 1: over and over limiting sales by design is wild that
Speaker 1: a business would do that, but I get it. That's
Speaker 1: how they're mitigating risk. So if if risk is getting
Speaker 1: moved to a part of the supply chain, whether or
Speaker 1: not used to handling it, like Costco chartering their own
Speaker 1: boat or whatever. Right, you guys talked about that with
Speaker 1: with one of your container folks and he he goes
Speaker 1: it was reading between the lines. He was like, Yeah,
Speaker 1: that's that's going to be an interesting one to watch
Speaker 1: because they have no idea the I know a guy
Speaker 1: commerce kind of how that works, and I think there's
Speaker 1: gonna charter about and so so Costco or a home
Speaker 1: builder all of a sudden has to deal with this
Speaker 1: risk that they used to just easily lay off on
Speaker 1: their vendor. That will limit their ability to to perform
Speaker 1: their business because they're they're dabbling in something they have
Speaker 1: no idea what they're doing, and so it just limits production.
Speaker 1: If you're thinking like home homebuilding, because we're not sure
Speaker 1: what we're doing, we're gonna roll. We're gonna pull back
Speaker 1: on the risk and try to feel our way through
Speaker 1: this market in which we find ourselves having more risk
Speaker 1: and price fluctuations than we've had to deal with in
Speaker 1: the past. So if that plays out, you know, on
Speaker 1: the other end, uh, and I mean these are worldwide commodities,
Speaker 1: metal oil, natural gas, Like, we don't have a structural
Speaker 1: shortage of those raw commodities. You know that the line
Speaker 1: of the cap X has been reduced because a green
Speaker 1: I just like these things are a little bit easier
Speaker 1: to switch on UM than I mean, we've seen it
Speaker 1: over and over, so I'm not super cycle for multiple
Speaker 1: years commodity guy, because I just think market forces will
Speaker 1: work itself out. So one of the reasons we actually
Speaker 1: UM wanted to invite you back on the show was
Speaker 1: obviously we wanted to talk about what lumber prices were
Speaker 1: doing and the drop that we've seen, but we had
Speaker 1: a number of people looking at your Twitter feed who
Speaker 1: saw some of your tweets on the labor market, and
Speaker 1: we're really interested in getting your perspective on what's going
Speaker 1: on at the moment because, of course, in addition to
Speaker 1: physical shortages of various goods, one of the things that
Speaker 1: people have been talking about over the past year or
Speaker 1: so is this idea of an actual labor shortage, and
Speaker 1: we've sort of gotten mixed messages on it with the
Speaker 1: people that we've spoken to. You know, on the one hand,
Speaker 1: there are those who say it's really hard to get
Speaker 1: people at the moment, and then on the other hand,
Speaker 1: there are people who say, well, you know, if you
Speaker 1: have the right job and you pay the right wages,
Speaker 1: it's actually not that difficult. So first of all, I'd
Speaker 1: just be curious to get like more of a sense
Speaker 1: of where you fit in here, like how many employees
Speaker 1: do you actually have, um, what sort of business are
Speaker 1: you running? And then secondly, what you've noticed in terms
Speaker 1: of the labor market recently. Yes, Tracy, are you sure
Speaker 1: you want to go down on this road? Yes, yes,
Speaker 1: we totally do. This is going to be like a
Speaker 1: two part episode all you know, all in one, let's
Speaker 1: do it. I love to talk about it. And I
Speaker 1: just for the record, I gave you like a head's
Speaker 1: up that you asked me. So. Yeah. So I own
Speaker 1: um several companies outside of Lumber and inside of Lumber
Speaker 1: that I have a total headcount of about a hundred employees,
Speaker 1: the vast majority of which drive a truck and makes
Speaker 1: a year. So I just have been on the front
Speaker 1: lines of hiring, staffing, paying, negotiating with the largely on
Speaker 1: college educated a year laborer. So that that's where most
Speaker 1: of my perspective has come from, is being on the
Speaker 1: front lines of the labor market. And what have you
Speaker 1: seen recently what a what works? And hiring? Yeah, so
Speaker 1: if you pay people more, it works. I try to
Speaker 1: keep things that I start from the very simplest explanation,
Speaker 1: like you just it's the labor market. As a commodity
Speaker 1: trader to the labor market, I don't want to like
Speaker 1: in folks, two pieces of a lumber, but it's a
Speaker 1: finite commodity at has fluctuations in supply. So as a
Speaker 1: commodity trader, I looked at this market and said, we're
Speaker 1: heading for a very tight labor market. And if you
Speaker 1: are bullish on whatever commodity you start buying, you get long.
Speaker 1: And so I told our our operators that we we
Speaker 1: need to start locking in labor that we already have
Speaker 1: and higher and build a bench and be overstaffed. If
Speaker 1: you're overstaffed, that's the goal. Like, I'm not gonna be upset.
Speaker 1: I'm not going to push back on budgets if it
Speaker 1: revolves around labor. So we are overstaffed. We have a
Speaker 1: very happy workforce, and we're not working everyone to death
Speaker 1: because we refuse to pay higher wages. So what what
Speaker 1: I see and what I've learned is the labor markets tight.
Speaker 1: Why it's tight. As a business owner, I don't care.
Speaker 1: I have opinions on it. My business partners have opinions
Speaker 1: on it. We don't agree, but we do agree on
Speaker 1: the reality that the lumber markets tight. And if you
Speaker 1: sign up to be a business owner, you sign up
Speaker 1: to be an entrepreneur. You don't have the luxury of complaining.
Speaker 1: You have to deal with reality. And the reality is
Speaker 1: if we're going to run a business and not at
Speaker 1: scale and not be the ones having to drive the
Speaker 1: trucks um, which isn't the best use of our time,
Speaker 1: we're gonna have to pay the folks and find a
Speaker 1: clearing wage UM. So we immediately raised our starting pay
Speaker 1: two thousand dollars a year more benefits. We actually offered
Speaker 1: uh college tuition Before Amazon I think made the headline,
Speaker 1: and it's fascinating. Amazon has commercials on the radio during
Speaker 1: football games promoting So this gal is a nurse and
Speaker 1: she's inner scrubs, and she's like, I am a nurse now,
Speaker 1: but it's because I worked at Amazon and they paid
Speaker 1: for my tuition. And Amazon clearly was not a lifelong
Speaker 1: career in the warehouse. But like I got to where
Speaker 1: I wanted to go, and I look at that I'm
Speaker 1: competing for the same exact employee, like we had minimum
Speaker 1: need to pay with Amazon's paying fifteen bucks an hour
Speaker 1: or more twenty bucks an hour, depending on where you are.
Speaker 1: So the beautiful part from a commodity trading perspective, like
Speaker 1: I know where everyone's bid is. It's there's no secret.
Speaker 1: I know where I need to be. And then of
Speaker 1: course we're dealing with human beings and we feel like
Speaker 1: we can sell culture and a vision in a community
Speaker 1: that can put us over the edge when you're doing
Speaker 1: the bare minimum of just paying as much as Amazon.
Speaker 1: And it's been I don't know what word to use,
Speaker 1: enjoyable to watch business owners who are reliant on cheap
Speaker 1: labor lose their minds because they have to work at
Speaker 1: the staffing side and they think they're entitled to profits.
Speaker 1: And we run our business with our eye businesses, I
Speaker 1: should say, with our eyes wide open, saying again the
Speaker 1: reasons are debatable, but at least I'll give you my perspective.
Speaker 1: In Washington, the government didn't have to do a federal
Speaker 1: minimum wage of fifteen an hour. There's a few levers
Speaker 1: of the poll and guess what fifteen hours the clearing
Speaker 1: wage and that like I was like, that's that's where
Speaker 1: the rules of the game are going. So we just
Speaker 1: need to get there first and accept it. And and
Speaker 1: this is the one where to me I differentiate a lot,
Speaker 1: because that's nothing I said is super rocket science. It's
Speaker 1: just a market that you've got to pay to cover.
Speaker 1: And we no longer have unlimited cheap labor. We our
Speaker 1: companies are fully aware and willing to accept lower profit
Speaker 1: margins to be in business. I we don't expect to
Speaker 1: raise prices dollar for dollar for a wage increases. We
Speaker 1: hope to raise them, you know, seventy cents for every
Speaker 1: dollar and wage increase we get. I'm just making that
Speaker 1: off top of my head, But we accept the fact
Speaker 1: that this economy is pro employee and if you're not
Speaker 1: good at that part, you just won't have a business,
Speaker 1: or you'll be running every aspect of the business yourself.
Speaker 1: Because no one want to work for you can you
Speaker 1: actually expound I think you said something I want to
Speaker 1: go back to before I forget the idea of essentially
Speaker 1: not working your employees to the bone, because I guess
Speaker 1: they're you know, the one approach could be right, you
Speaker 1: hire people, but really hire the absolute minimum number of
Speaker 1: people that you can hire. Yes, you pay them more,
Speaker 1: but how much are these other factors not strictly pay.
Speaker 1: But the idea of like you're not like running them
Speaker 1: ragged helpful in the recruiting process. Yeah, it's such a
Speaker 1: great point because the minimum is fifteen bucks to just
Speaker 1: play the game. Okay, then what is it after that?
Speaker 1: And we we like to sell like we have a community.
Speaker 1: We're picking up for each other. If someone needs to
Speaker 1: have time off or there's an emergency, folks are expected
Speaker 1: and the culture is to pick up their slack, so
Speaker 1: there's coverage there and everyone doesn't feel like they need
Speaker 1: to come into work. And they'll let the team down
Speaker 1: because they're so thinly staff. No one can do your
Speaker 1: job and pay them well enough where they do you like,
Speaker 1: they can take some time off and and not get
Speaker 1: a full paycheck that week and and and be okay.
Speaker 1: And I just think it's such a short sided and
Speaker 1: stubborn practice by business owners two cry and complain about
Speaker 1: the costs of labor and take their most loyal, longest tenure,
Speaker 1: dedicated employees and work them down to the bone so
Speaker 1: you can maintain your margin because it's just a matter
Speaker 1: of time before they quit and you don't have a
Speaker 1: business anymore. And you know, there's the altruistic side, which
Speaker 1: I'm not arguing for, or that's not my point. My
Speaker 1: point is it's it's great business practice to pay lower
Speaker 1: level employees and treat them as if you know their
Speaker 1: revenue producing high commission salespeople. It's it. They're they're just
Speaker 1: as important, and now they're able to flex for the
Speaker 1: first time. And I I think it's great. It's a
Speaker 1: lot of fun. It's challenging, but it's very fulfilling to
Speaker 1: know you pay equal to Amazon, but they come work
Speaker 1: for you instead, and your turnover is lower than all
Speaker 1: of your peers, and you're affecting lives and you're showing
Speaker 1: folks what a work environment can be and could be
Speaker 1: with folks who have a more communal mindset. And I
Speaker 1: mean a lot of that, I tweeted, a lot of
Speaker 1: that comes from my time as a football coach and
Speaker 1: a football player. It's kind of like a locker room
Speaker 1: vibe in that there's a brotherhood and a sisterhood of
Speaker 1: hard work and accountability and we've all seen each other
Speaker 1: struggle and per persevere and get promoted and have have
Speaker 1: failures and building that culture. When we were recruiting athletes
Speaker 1: like you, had to sell something beyond scholarships. Everyone has
Speaker 1: a scholarship and that that's kind of the mentality we
Speaker 1: brought to this is everyone's got a fifteen dollar wage.
Speaker 1: Now let's go compete with the best of the best.
Speaker 1: So we're trying to compete against Amazon by selling a
Speaker 1: differentiating culture um and that starts with or a big
Speaker 1: component I should say, is being overstaffed and accepting less
Speaker 1: margins lower profits to be overstaffed. If if I wanted
Speaker 1: to squeeze my margins out, I would have a terrible
Speaker 1: business owner experience. I would be I would be complaining
Speaker 1: all the time as well. But I'd rather make less
Speaker 1: and empower others more and have a sustainable business rather
Speaker 1: than being an employee at my own company. That's the
Speaker 1: business side of it. There was something else that you
Speaker 1: tweeted that caught my eye, and it was this idea
Speaker 1: that one of the reasons it's difficult to find workers
Speaker 1: is because someone else has already hired them. And you
Speaker 1: made the point that, you know, expanded unemployment insurance might
Speaker 1: have given people more time to find a job that
Speaker 1: they really like, so instead of just taking the first
Speaker 1: thing that comes up so they can pay their bills,
Speaker 1: they have a little bit of extra time, a safety
Speaker 1: net to actually wait and try to find something that
Speaker 1: they really like and enjoy, or something that pays a
Speaker 1: decent amount of money. And this is an idea that's
Speaker 1: like actually showed up in some macro economic research recently.
Speaker 1: So there's something called the beverage curve, which is basically
Speaker 1: the relationship between job openings and the unemployment rate, and
Speaker 1: it's just massively shifted post the pandemic. So it's taking many, many,
Speaker 1: many more job openings um in order to bring down
Speaker 1: the unemployment rate, so like it's taking employers much much
Speaker 1: longer to find the right people to fill open jobs.
Speaker 1: So I would just love to hear your perspective a
Speaker 1: little bit, because like your experience seems to sort of
Speaker 1: bear this out. It's not that people don't want to work.
Speaker 1: And you know, it's not that wages necessarily have to
Speaker 1: go up astronomically, but it's more there's a mismatch between
Speaker 1: jobs and workers, and people are kind of waiting longer
Speaker 1: to find the right thing for them in any other
Speaker 1: job market. Like folks who have been without a job,
Speaker 1: they have a gap in the resume, right, we've all
Speaker 1: heard like, you don't want a gap in the resume. Well,
Speaker 1: that the leverages shifted to EMPLO employees so hard. It's like,
Speaker 1: we don't care if there's a cap. You know, we're
Speaker 1: going to interview you and go trust our process and
Speaker 1: see you're gonna be a good fit. And the extended
Speaker 1: unemployment benefits allowed people who typically would be paycheck to
Speaker 1: paycheck and I just hate my job. I'm gonna go
Speaker 1: to the next job and hope I like it without
Speaker 1: any time in between, without any time to do a
Speaker 1: job search, because I you know, I don't have the
Speaker 1: savings paycheck to paycheck. Well, unextended unemployment allowed folks like
Speaker 1: that to take their time. They get their bills paid,
Speaker 1: they don't have the there's a mortgage forbearance, the rent moratorium.
Speaker 1: You know, they have a little bit of breathing room
Speaker 1: to value eight what they want to do, where, what
Speaker 1: the what kind of hours they want to have, and
Speaker 1: pick the right job um instead of the next job.
Speaker 1: And as a competitor and former athlete and coach like that,
Speaker 1: that to me means you have to compete that much
Speaker 1: harder for labor then before because folks are being very
Speaker 1: picky and they don't have to come work. This idea
Speaker 1: of unlimited cheap labor, it's not it's just not a
Speaker 1: thing anymore. And folks who haven't experienced that market like
Speaker 1: we did, my team did when we coached football and
Speaker 1: recruited high school athletes with a very limited supply of talent,
Speaker 1: Like it's weird to think that you really have to
Speaker 1: cater to and sell something beyond the pay because these
Speaker 1: folks like I've done the retail hours, and I've done
Speaker 1: being a waitress. We're a waiter and getting cut as
Speaker 1: we're slow, and the unpredicutled like I'm gonna take my time,
Speaker 1: and I heard about my buddy who works here, and
Speaker 1: and this is the kind of culture they have. But
Speaker 1: it's like we're being interviewed just as much as the employee.
Speaker 1: And when you're when you're making minimum wage, like you're
Speaker 1: not typically in that bargaining position, but now they are,
Speaker 1: so it just has exposed people. So the labor is
Speaker 1: out there. And the point of that tweet why it was,
Speaker 1: we're wealth, we're staffed, we're we're not having a problem
Speaker 1: or also paying the paying the money to be in
Speaker 1: the game, and we're investing heavily in the culture, which
Speaker 1: you know is a thing. But that's not new. But
Speaker 1: I do think it's new to emphasize the culture for
Speaker 1: low wage blue collar work. That has never been an
Speaker 1: emphasis to quote unquote retained talent, and we we leaned
Speaker 1: into that is this condition And I think a lot
Speaker 1: of people the people talk about a labor shortage, but
Speaker 1: it seems to me that what they're really saying is
Speaker 1: there is a labor shortage among managements expectation of what
Speaker 1: labor markets were like in ten. So if you think
Speaker 1: teen was like the right labor market, that that was
Speaker 1: the right level of pay, that was the right level
Speaker 1: of treatment, then yes it's going to be tougher, But
Speaker 1: there's no reason to think twenty nineteen was right in
Speaker 1: is wrong per se one is what it is in
Speaker 1: your view? Can this be sustained. Could we be in
Speaker 1: a structurally different era for labor bargaining power for this
Speaker 1: idea that an interview really does go in both directions,
Speaker 1: but the worker being interviewed but also the potential company
Speaker 1: being interviewed. And could this be something that you see
Speaker 1: sustained for a while or is this the kind of
Speaker 1: thing kind of like seventeen d lumber where it's just
Speaker 1: something weird post pandemic that can't that can't last. Yeah,
Speaker 1: a piece of data that shocked me was early retirees
Speaker 1: coming out of this pandemic. It was massive, like those
Speaker 1: folks aren't coming back. They're they're at least not going
Speaker 1: to come back forty hours a week and we're in
Speaker 1: a different demographic patch that is incredibly bullish housing. But
Speaker 1: the teenagers in the early twenties like that, that labor
Speaker 1: force is small. So to me, we do have a
Speaker 1: structural upshift forecasting five to ten years out. Certainly beyond that,
Speaker 1: we we have a demographic cliff that's in plain site
Speaker 1: and our productivity. We're gonna have to have a productivity
Speaker 1: boom from automation two. All the technological advances that happened
Speaker 1: in an economy, so I don't see labor being oversupplied
Speaker 1: anytime soon. On top of the political vacations of all
Speaker 1: of a sudden turning the tables back against the employee.
Speaker 1: I don't know how you pull that off. So wages
Speaker 1: are sticky in and of themselves. To me. To answer
Speaker 1: your question, you gotta answer. You gotta ask yourself. How
Speaker 1: does labor get oversupplied again? With all these retirees that
Speaker 1: had early retirements and then just every year more and
Speaker 1: more boomers are aging out. I don't know how we
Speaker 1: get over supplied again. But I'm not an economist. But
Speaker 1: well they didn't get anything right either, so yeah, yeah,
Speaker 1: I largely I don't see how we increase our labor
Speaker 1: pool outside of immigration. Stinson. This is, you know, once
Speaker 1: to get in a real treat. Thank you so much
Speaker 1: for coming on out lot. Thank you. See well, I
Speaker 1: mean I think that that delivered. We gotta do. I'm
Speaker 1: looking at these like trust plates and like the idea
Speaker 1: that like these like just little pieces of metal, and
Speaker 1: it's exactly like what you've been writing about and sort
Speaker 1: of like the Mad King idea. It's like this is
Speaker 1: not like just simple supply and demand, and this is
Speaker 1: not simply just like, oh, we're gonna like tap back
Speaker 1: on credit by raising rates or something like that. This
Speaker 1: is just like a series of like interconnected things, and
Speaker 1: you're like, Okay, here's like a two dollar piece of
Speaker 1: metal that caused like a massive crash of the price
Speaker 1: of lumber. It makes perfect sense, but it's also wild. Yeah.
Speaker 1: So two things. One, I think we should not just
Speaker 1: do a trustplate episode, but we need to like go
Speaker 1: into the market and become the third trustplate company and
Speaker 1: challenge the incumbents and see how that goes, because clearly
Speaker 1: there's an opportunity here. And then secondly, yeah, this this
Speaker 1: definitely has me thinking about that. Um. I mean I
Speaker 1: called it whack inflation, which isn't I don't think it's
Speaker 1: the best name, but it was the only one I
Speaker 1: can think of for it. But this idea that like
Speaker 1: it's not really that we have this out of control
Speaker 1: runaway inflation for individual components, is that we have these
Speaker 1: mini cycles of like boom busts in prices that are
Speaker 1: basically a reflection of the boom bust in physical supply.
Speaker 1: So you have the bull whip effect in commodities, and
Speaker 1: lumber is turning into a really good example where you know,
Speaker 1: we had a massive shortage, prices increased, and now we
Speaker 1: have a glut and prices are going down, and it's
Speaker 1: problematic because it makes the entire supply chain unpredictable. And
Speaker 1: at the same time, lumber is being also impacted by
Speaker 1: things like trustplates and other components of the supply chain,
Speaker 1: and so you do end up having these like sharp
Speaker 1: short cycles. And everyone's sort of focused on just the
Speaker 1: idea of prices going up and transitory inflation. But I
Speaker 1: feel like no one's talking as much about the prices
Speaker 1: going down. And you're totally right. We've seen it now
Speaker 1: in lumber, seen it in cole aluminum and a few
Speaker 1: other things, and I don't know, like it feels to
Speaker 1: me like that's probably the bigger danger here, is just
Speaker 1: this like volatility that takes forever to right itself. It
Speaker 1: feels like maybe the story is less inflation per se
Speaker 1: in more inflation volatility. It's like the first of inflation,
Speaker 1: so that you do have like and also just like
Speaker 1: this sort of idea of like lots of things lumber
Speaker 1: crashing while other things are surging, other things surging while
Speaker 1: other things are crashing, and a very difficult process of
Speaker 1: like getting something that resembles like the pre crisis smooth manner.
Speaker 1: And the lumber story is just like a great I'm
Speaker 1: sure it's you know, if we talk to someone else
Speaker 1: in another commodity, they would probably also have like some
Speaker 1: like weird part that they were missing. I think we're
Speaker 1: gonna do a grains one soon. And the connection there
Speaker 1: between fertilizer and fertilizer and energy all kinds of things.
Speaker 1: So I think that there is a lot of this
Speaker 1: going on. And again I speak, you know, go back
Speaker 1: to the central Bank question. It's like, yeah, in flaship, okay,
Speaker 1: raised rates, But what exactly does raising rates do when
Speaker 1: the issue is like the two companies that make trust
Speaker 1: plates can't get them in time. It's why it's a
Speaker 1: it's a very difficult time to make forecasts. Yeah, and
Speaker 1: also I mean imagine like if the Fed raised rates
Speaker 1: because they thought the price of lumber was too high,
Speaker 1: and then two months later it's crashing down because of
Speaker 1: the trust plate issue. Yeah. All right, well, um plenty
Speaker 1: to talk about for sure. Shall we leave it there?
Speaker 1: Let's leave it there. Okay, this has been another episode
Speaker 1: of the All Thoughts podcast. I'm Tracy Alloway. You can
Speaker 1: follow me on Twitter at Tracy Alloway and I'm Joe Wisenthal.
Speaker 1: You can follow me on Twitter at the Stalwart Deaf.
Speaker 1: Follow our guest Stinson Dean on Twitter. He is the
Speaker 1: CEO and founder of Deacon Lumber and his handle is
Speaker 1: at Lumber Trading and Absolute Wealth of Information. Also just
Speaker 1: a great guy. Follow our producer Laura Carlson at Laura M. Carlson.
Speaker 1: Follow the Bloomberg had a podcast, Francesco Leave at Francesca Today,
Speaker 1: and check out all of our podcasts at Bloomberg under
Speaker 1: the handle at podcasts. Thanks for listening