WEBVTT - Stinson Dean on the Lumber Crash That Followed the Boom 0:00:10.960 --> 0:00:14.560 Hello, and welcome to another episode of the Odd Lots podcast. 0:00:14.600 --> 0:00:19.639 I'm Joe Wisenthal and I'm Tracy Allaway. So you know 0:00:19.800 --> 0:00:21.440 you don't you know? One of the things I really 0:00:21.480 --> 0:00:30.760 like about is about one yeah or um. I mean 0:00:30.800 --> 0:00:32.279 I feel like I could take a guess, but why 0:00:32.280 --> 0:00:35.800 don't you go ahead and tell me? Well, so obviously, like, okay, 0:00:35.880 --> 0:00:37.519 it's you know, we've been doing a bunch of like 0:00:37.560 --> 0:00:41.879 supply chains and commodities, but I feel like this is 0:00:41.920 --> 0:00:47.440 a time for specialists, like people who know yes, yeah 0:00:47.720 --> 0:00:50.120 it is. I feel like one of the themes of 0:00:50.240 --> 0:00:52.440 kind of like this podcast but also in general, is 0:00:52.479 --> 0:00:56.000 like I'm kind of like weirdly less interested in some 0:00:56.120 --> 0:00:58.840 respects in some of like the pure macro stuff that 0:00:59.240 --> 0:01:01.680 we've like I've covered for much of my careers, and 0:01:01.680 --> 0:01:04.120 the people that I really yearned to talk about it, 0:01:04.160 --> 0:01:07.080 like the people who just like no an industry really well, 0:01:07.120 --> 0:01:09.959 I think it's like super fun. Yeah, I think we've 0:01:09.959 --> 0:01:13.120 discovered the wonders of micro and just being able to 0:01:13.160 --> 0:01:18.440 investigate these individual markets that we haven't necessarily been familiar 0:01:18.480 --> 0:01:21.720 with before has been really really interesting. And also I 0:01:21.760 --> 0:01:23.760 think I told you this once before, but when I 0:01:23.800 --> 0:01:26.240 was going into financial journalism, I always really wanted to 0:01:26.280 --> 0:01:29.160 be a commodities reporter because I was kind of interested 0:01:29.240 --> 0:01:33.280 in things and like this idea of global trade and 0:01:34.120 --> 0:01:37.320 has just been phenomenal from that perspective, like the actual 0:01:37.400 --> 0:01:41.319 study of things, like how they're produced, how supply and 0:01:41.319 --> 0:01:44.600 demand works for individual markets, the different players, plus the 0:01:44.640 --> 0:01:47.840 logistics of actually moving them from A to B. No, 0:01:48.120 --> 0:01:52.560 this is a year for granularity for specialists and the 0:01:52.600 --> 0:01:55.040 degree you know, like if I want to understand what's 0:01:55.040 --> 0:01:56.520 going on in a a commodity market, or I want to 0:01:56.520 --> 0:01:59.720 go understand what some aspect of the labor market, I'm 0:01:59.760 --> 0:02:02.240 not going to like ask some like you know, there 0:02:02.240 --> 0:02:04.840 are certainly like macro economists who are useful, and we 0:02:04.840 --> 0:02:06.280 talked to them all the time, and we had them 0:02:06.280 --> 0:02:09.679 on recently. But we just spoke to Matt King, right, yeah, yeah, 0:02:09.840 --> 0:02:12.320 So you know, I would not want to slag any 0:02:12.360 --> 0:02:15.600 of our other guests, but I really like there's so 0:02:15.639 --> 0:02:17.280 many things in that where it's like we got to 0:02:17.280 --> 0:02:20.679 talk to someone who knows this thing, and that's sort 0:02:20.720 --> 0:02:23.079 of been one of the fun things. I guess I 0:02:23.080 --> 0:02:26.360 would say about learning, learning and talking to people in 0:02:27.000 --> 0:02:29.919 one I mean what I will say, and Matt King 0:02:30.160 --> 0:02:32.560 kind of brought this up on the recent episode, but 0:02:32.880 --> 0:02:37.360 there are micro explanations for almost every move in the 0:02:37.400 --> 0:02:40.359 price of something that people have been talking about recently. 0:02:40.480 --> 0:02:44.560 So you know, we've been speaking a lot about individual commodities. 0:02:45.120 --> 0:02:47.600 You know, we did like one on sinks. I remember 0:02:47.600 --> 0:02:50.800 I wrote about mayonnaise. You can look at a particular 0:02:50.840 --> 0:02:53.960 product or market and come up with an individual perspective, 0:02:54.400 --> 0:02:57.120 but at the same time, like all of that are 0:02:57.160 --> 0:03:00.680 feeding into this broader macro backdrop where well are worried 0:03:00.680 --> 0:03:03.480 about inflation um and we've been talking about that but 0:03:03.600 --> 0:03:06.600 a lot as well. Right, So one of the first 0:03:07.160 --> 0:03:08.880 you know, we've had a bunch of these, but one 0:03:08.880 --> 0:03:11.400 of the first episodes that was kind of like one 0:03:11.400 --> 0:03:15.400 of the breakout for US episodes that was like really 0:03:15.440 --> 0:03:18.799 extraordinary that we learned a ton about was back in 0:03:18.919 --> 0:03:22.440 April and we talked to uh stincon Dean. He is 0:03:22.480 --> 0:03:25.240 the founder and CEO of Deacon Lumber, which is a 0:03:25.360 --> 0:03:28.959 lumber trading operation and if you were a call Lumber 0:03:29.040 --> 0:03:31.240 was interesting because I guess it was kind of like 0:03:31.280 --> 0:03:33.079 the canary in the coal mine in a way, because 0:03:33.080 --> 0:03:37.880 we've now had there's a global, huge, global commodity run right, 0:03:38.000 --> 0:03:41.000 like major bowl market and basically everything you can think of. 0:03:41.320 --> 0:03:44.120 But at the time I think commodities were running, but 0:03:44.160 --> 0:03:45.960 we did not, you know, Lumber was like this like 0:03:46.320 --> 0:03:48.960 was like kind of like there's like parabolic move and 0:03:48.960 --> 0:03:51.120 we're like, what's going on? There was this is kind 0:03:51.120 --> 0:03:53.960 of weird. And now you've seen in tons of commodities 0:03:54.280 --> 0:03:57.040 European energy and natural gas and call and stuff. Some 0:03:57.120 --> 0:03:59.440 of it's cooled down, but lumber was kind of like 0:03:59.480 --> 0:04:03.400 this canary in the coal mine. It's sword like crazy. 0:04:03.600 --> 0:04:06.240 And since then it's actually one of the few commodities 0:04:06.280 --> 0:04:08.200 of the last few months it's kind of been in 0:04:08.600 --> 0:04:11.200 like a bear market. It almost feels like it's been 0:04:11.320 --> 0:04:14.440 like a few months ahead of everything else. Right, So 0:04:14.520 --> 0:04:16.479 if you look at lumber as this canary in the 0:04:16.520 --> 0:04:19.800 coal mine or some sort of like mystical oracle when 0:04:19.839 --> 0:04:23.320 it comes to other supply bottlenecks, it's kind of telling 0:04:23.320 --> 0:04:26.279 you that, you know, some of those pressures might be easing. 0:04:26.320 --> 0:04:29.040 I think we're down to around is it like six 0:04:29.120 --> 0:04:32.640 hundred dollars a little over six hundred, down from a 0:04:32.760 --> 0:04:36.920 peak that was like more than six hundred So that's 0:04:36.920 --> 0:04:40.480 pretty exchange and it's something that you're interested in and 0:04:40.560 --> 0:04:42.280 something you know that It's like this idea we talked 0:04:42.279 --> 0:04:44.920 about the bull whip effect. It's like the question is 0:04:45.320 --> 0:04:49.520 does major demand in right now, like could we you know, 0:04:49.560 --> 0:04:52.719 people are talking about over One possibility is that we 0:04:52.760 --> 0:04:57.040 see persistent inflation in another possibilities we just see like 0:04:57.120 --> 0:05:00.080 major gluts of everything. If we have like major know, 0:05:00.279 --> 0:05:03.680 it's like maybe the backside. This is crazy disiplation. Anyway, 0:05:04.240 --> 0:05:07.000 I'm very excited because we have Stintson back, I said, 0:05:07.040 --> 0:05:09.440 the founder and see of Decade Lumber, and so now 0:05:09.480 --> 0:05:13.080 it is time to talk about perhaps the backside of 0:05:13.080 --> 0:05:15.760 the boom and what happens after the huge run up. 0:05:15.960 --> 0:05:19.080 So I'm very excited about this episode. Uh, Stintson, thank 0:05:19.080 --> 0:05:22.480 you so much for coming on Odd Lots. Hey, y'all, 0:05:22.800 --> 0:05:25.760 thanks for having me back. It's it's been a wildwide 0:05:25.800 --> 0:05:29.480 since Odd Lots and then, uh, you know, we've come 0:05:29.480 --> 0:05:32.600 a long way and yeah, we're trading it six d 0:05:32.800 --> 0:05:34.920 on on the future screen. We got as low as 0:05:35.000 --> 0:05:40.120 four fifty uh at a high high of seventeen thirty three. 0:05:40.600 --> 0:05:45.200 You know, for those paying attention, you know, it fell 0:05:45.440 --> 0:05:47.719 faster than it went up, which was hard to believe 0:05:47.800 --> 0:05:51.279 that that was even possible. But yeah, it's a different 0:05:51.279 --> 0:05:53.800 world than Lumber compared to what these other folks are 0:05:53.800 --> 0:05:55.839 going through right now. Yeah, and it's kind of crazy. 0:05:55.880 --> 0:05:57.760 I mean, it's a different world in Lumber, and I 0:05:57.800 --> 0:05:59.880 can't I don't know whether it feels like ages ago 0:06:00.320 --> 0:06:02.359 we talked to you or just yesterday. I hear what 0:06:02.360 --> 0:06:04.680 I said, but it was in April and now it's November, 0:06:04.839 --> 0:06:07.040 so I don't know. That's like six and a half 0:06:07.120 --> 0:06:09.640 months or something since the last thing we talked to 0:06:09.960 --> 0:06:12.640 kind of hard to believe, but like, why don't you 0:06:12.680 --> 0:06:15.840 just sort of like get big picture, you know, and 0:06:15.839 --> 0:06:17.719 we'll get into it more detailed, but give us like 0:06:17.720 --> 0:06:20.720 this sort of like big picture of what happened. You know. 0:06:21.040 --> 0:06:24.320 Lumber peaked about four weeks after we had spoken last time, 0:06:24.360 --> 0:06:26.799 so we kind of time to peek. We'll see we're 0:06:26.800 --> 0:06:28.800 time in the bottom here. But why don't you, uh, 0:06:29.120 --> 0:06:32.760 sort of what have what happened after that? Yeah, I 0:06:32.760 --> 0:06:34.360 I think that's good to kind of pick up where 0:06:34.400 --> 0:06:37.560 we left off from from a price perspective. So when 0:06:37.560 --> 0:06:43.279 we recorded late April May, the market peaked in late May, 0:06:43.600 --> 0:06:47.440 but from mid April to late May the market had doubled. 0:06:48.040 --> 0:06:50.760 It's not like it did some about face immediately, like 0:06:50.800 --> 0:06:53.800 there was a lot of price action left. It is 0:06:53.800 --> 0:06:56.640 all happened in a hurry. So it was a short squeeze. 0:06:57.160 --> 0:06:59.520 And uh, I think we talked about last time, like 0:06:59.560 --> 0:07:02.359 eventually people will get covered and then and then what? 0:07:03.279 --> 0:07:07.279 And my argument was higher for longer for lumber specifically 0:07:07.279 --> 0:07:11.160 because of a lot of structural bullish issues and and 0:07:11.160 --> 0:07:17.960 and the log supply, manufacturing and demand, incredible wave of 0:07:18.000 --> 0:07:21.600 demand as we all know. For housing, we squee definitely 0:07:21.640 --> 0:07:26.200 squeezed from a thousand dollars to sevred. That was all 0:07:26.240 --> 0:07:30.600 just short covering folks covering commitments that they had maybe 0:07:30.600 --> 0:07:33.800 committed at six seven, eight hundred dollars and they were 0:07:33.840 --> 0:07:36.440 just waiting for prices to come back down to normal 0:07:36.600 --> 0:07:39.640 to cover that for hopefully a profit. None of them 0:07:39.680 --> 0:07:43.200 thought about limiting their losses. There's gonna wait, wait, wait, well, 0:07:43.560 --> 0:07:45.280 no one could wait any longer. They had to cover 0:07:45.880 --> 0:07:49.240 and every seemingly everyone was in that boat. So it 0:07:49.320 --> 0:07:53.600 squeezed us and we blew the top off at and 0:07:54.600 --> 0:07:57.560 you know when when it turned, I felt pretty confident 0:07:57.760 --> 0:08:01.200 that it was over, but a lot of people didn't. 0:08:01.280 --> 0:08:04.520 And that that's what makes markets tops as folks who 0:08:04.600 --> 0:08:06.440 thought we shouldn't be this high all of a sudden 0:08:06.440 --> 0:08:09.960 start believing we're going to be two thousand dollars or higher, 0:08:10.600 --> 0:08:14.400 including the producers themselves. So it was it was a 0:08:14.440 --> 0:08:19.480 painful ride down for a lot of folks. And what 0:08:19.520 --> 0:08:22.240 was interesting, and I tweeted about it through the summer, 0:08:23.080 --> 0:08:27.000 we could watch lumber futures get cut in half and 0:08:27.040 --> 0:08:32.320 go from sevent to eight hundred and fifty, and we 0:08:32.320 --> 0:08:36.679 would see reports from builders or contractors going in and saying, 0:08:36.679 --> 0:08:40.240 my my price is not half of my quote from 0:08:40.280 --> 0:08:45.040 three months ago. Why why aren't I seeing price appreciation 0:08:45.160 --> 0:08:47.720 that we're seeing in futures and all the things. And 0:08:47.720 --> 0:08:51.439 to me, that was really telling because in a marketplace, 0:08:51.640 --> 0:08:56.480 and certainly commodities, you should have enough players that all 0:08:56.520 --> 0:09:00.600 have different trading strategies, different break even point points, that 0:09:01.600 --> 0:09:05.240 one or two of them can offer lower prices, gobble 0:09:05.320 --> 0:09:07.800 up all the market share and force their competitors to 0:09:07.880 --> 0:09:10.480 meet the meat or beat their price. But we weren't 0:09:10.480 --> 0:09:16.520 finding that this summer. It was bizarre and inefficient, and 0:09:17.360 --> 0:09:19.920 I I couldn't really explain it. And then I started 0:09:19.960 --> 0:09:25.560 to think maybe everyone was so upside down in their 0:09:25.600 --> 0:09:28.760 inventory that they were they were selling on cost plus 0:09:29.360 --> 0:09:35.200 with that cost being very high versus replacement cost. And 0:09:35.760 --> 0:09:39.600 if your competitor down the road also has a high 0:09:39.600 --> 0:09:43.960 break even and they could replace and buy more inventory 0:09:44.080 --> 0:09:48.800 for a lower price, they're gonna try to blow out 0:09:48.840 --> 0:09:51.800 their high price inventory before they lower their prices. But 0:09:51.880 --> 0:09:53.400 you can only do that as so long as your 0:09:53.440 --> 0:09:56.760 competitors are not lowering their prices. And it's seemingly all 0:09:56.840 --> 0:10:01.440 summer that the cost savings seemingly we're not passed along 0:10:01.480 --> 0:10:03.480 to the consumer. But the reality is they weren't cost 0:10:03.520 --> 0:10:09.360 savings because the lumber yard hadn't rebought to lower their 0:10:09.920 --> 0:10:12.200 break even price, so they were cost plus with their 0:10:12.200 --> 0:10:16.480 costs being extremely high, and they were able to largely 0:10:16.559 --> 0:10:20.160 as a group, pass along these higher costs and and 0:10:20.160 --> 0:10:24.520 and escape somewhat unscathed. Um it was. It was quite 0:10:24.559 --> 0:10:28.600 impressive and wild to think that there was no entity 0:10:28.640 --> 0:10:31.080 out there that that could undercut and gobble up market 0:10:31.080 --> 0:10:35.000 share because they had a lower break even costs. And 0:10:35.040 --> 0:10:37.160 I was arguing, this will be kind of my final 0:10:37.200 --> 0:10:40.600 point on that like lumber kept going down, certainly went 0:10:40.720 --> 0:10:43.439 lower than I thought it would go, and I'm like, well, 0:10:43.480 --> 0:10:46.560 I don't think it's going to bounce until folks step 0:10:46.600 --> 0:10:51.199 back in and replenish her inventory. And if they bought it, 0:10:52.720 --> 0:10:56.400 and they could buy it six hundred, their average would be, 0:10:56.600 --> 0:11:00.240 you know, a thousand bucks or something, and then you'll 0:11:00.240 --> 0:11:04.600 see lower prices pushed to consumers. So until it's stopped 0:11:04.600 --> 0:11:10.240 going down, indicating buyers coming in at much lower prices, 0:11:10.400 --> 0:11:14.240 until we saw that retail prices were gonna stay high. 0:11:14.280 --> 0:11:16.080 And I think that's kind of how it played out. 0:11:16.240 --> 0:11:19.559 Retail prices stayed high relative to replacement costs, and then 0:11:19.760 --> 0:11:23.240 finally that that high price inventory got moved out and 0:11:23.480 --> 0:11:26.240 prices have come down to the the end user. So 0:11:26.320 --> 0:11:30.480 that was June July, a little bit of August. Then 0:11:30.600 --> 0:11:36.520 something really interesting happened. I call it our negative oil moment. 0:11:37.400 --> 0:11:42.240 So y'all remember oil went negative. The fundamental reason was 0:11:42.280 --> 0:11:47.120 there was no place to store it, right, what's the number, Mr, 0:11:47.200 --> 0:11:50.400 customer that you would buy at? Just give me a bit, 0:11:50.559 --> 0:11:53.600 you know, and like there's like there is no number 0:11:54.559 --> 0:11:58.720 because I have no place to put it. And maybe 0:11:58.720 --> 0:12:01.680 this happened in oil, but certainly lumber. I had already 0:12:01.720 --> 0:12:04.840 bought what I thought was cheap at the time, so 0:12:04.920 --> 0:12:08.400 my cash is already my budget has already spent an inventory, 0:12:08.480 --> 0:12:12.800 so I have no budget left to average down. And 0:12:12.840 --> 0:12:14.680 if I did, I have no place to put it. 0:12:14.760 --> 0:12:16.920 So it turned into a negative oil like we'll pay 0:12:16.960 --> 0:12:18.360 you to take it from us because we don't have 0:12:18.360 --> 0:12:21.480 any place to put it either kind of situation and 0:12:21.600 --> 0:12:24.960 with lumber are negative oil. Moment was and this is 0:12:25.000 --> 0:12:31.200 real geeky commodity trading verbiage, but the contango went to 0:12:31.280 --> 0:12:37.080 a hundred dollar discount, which it was. The September contract 0:12:37.080 --> 0:12:42.160 traded one hundred dollars below the November contract. It basically 0:12:42.200 --> 0:12:45.680 means you could buy lumber for today and pre sell 0:12:45.760 --> 0:12:50.120 it six days later for a hundred dollars more. You 0:12:50.240 --> 0:12:53.600 just needed somewhere to store it, right, which is easier 0:12:53.640 --> 0:12:57.080 than with oil. Yeah, you would think, you know, it's 0:12:57.120 --> 0:13:00.000 certainly yes, Like you can stack lumber in a field, 0:13:00.080 --> 0:13:03.160 then it's not gonna like contaminate anything. But like the 0:13:03.200 --> 0:13:09.760 facilities that specialize in building materials handling were full, they're 0:13:09.800 --> 0:13:12.720 still full, so that the market was paying you a 0:13:12.800 --> 0:13:18.040 hundred dollars to store it for sixty days when the 0:13:18.240 --> 0:13:21.520 hard costs to do that is like twelve bucks. So 0:13:22.200 --> 0:13:25.720 the textbook calls it riskless profit. It's an eight eight 0:13:25.720 --> 0:13:29.160 dollar profit, no brainer by today sell it for a 0:13:29.200 --> 0:13:31.520 hundred dollars more to more us for on a futures 0:13:31.559 --> 0:13:33.719 contract two months out. I mean it was a no 0:13:33.840 --> 0:13:36.840 brainer when it was at and then they got the 0:13:36.880 --> 0:13:40.280 thirty and forty and fifty. There was no bid because 0:13:40.800 --> 0:13:42.920 no one had the money the budget left to buy 0:13:42.960 --> 0:13:46.400 it because they you know, they had bought lumber what 0:13:46.440 --> 0:13:49.520 they thought was cheap before and they had no place 0:13:49.520 --> 0:13:53.160 to put it. So there it's like, yeah, hate, mr broker, 0:13:53.640 --> 0:13:55.800 that sounds like a great deal. I agree with you, 0:13:55.880 --> 0:13:59.360 this is great value, but I cannot take it. There 0:13:59.480 --> 0:14:02.240 is no used to put it. So it certainly didn't 0:14:02.240 --> 0:14:04.200 show up in flat price. We didn't go negative. But 0:14:04.800 --> 0:14:07.280 the fact that we we had a hundred dollar discount 0:14:07.480 --> 0:14:10.760 to carry lumber from one month to the next contract 0:14:10.800 --> 0:14:15.520 month was insanity when I saw that happen, And we 0:14:15.559 --> 0:14:18.640 had pretty large carries in the July contract too. We 0:14:18.679 --> 0:14:21.320 got a while. There's a lot of lumber out there 0:14:21.480 --> 0:14:23.600 that we got to chew through before we get back 0:14:23.640 --> 0:14:28.320 to some kind of equilibrium. And we've been, you know, 0:14:28.800 --> 0:14:32.680 for months and months, been trying to work through that 0:14:32.720 --> 0:14:35.520 backlog of inventory that's in the pipeline. It's in different 0:14:36.080 --> 0:14:38.480 in the hands of different players in the supply chain, 0:14:39.120 --> 0:14:41.800 largely out of the mills hands. They've they've blown it out. 0:14:42.560 --> 0:14:47.760 I own a lot of record breaking amount of lumber 0:14:47.800 --> 0:14:51.840 for my little company and a lot of my counterparts 0:14:51.880 --> 0:14:53.880 as well, and a lot of my customers. So there's 0:14:53.920 --> 0:14:56.480 just a lot of lumber out there that needs to 0:14:56.520 --> 0:15:00.680 get delivered end users and installed before we can see 0:15:00.680 --> 0:15:19.360 you any kind of price appreciation. So, first of all, 0:15:19.440 --> 0:15:21.840 I feel really bad that neither Joe nor I, I 0:15:21.880 --> 0:15:24.880 think um wrote about the big contango moment in lumber 0:15:24.960 --> 0:15:28.840 futures like that completely possibly by think did you? I'm sorry, 0:15:29.160 --> 0:15:33.120 I think I think I wrote a piece about the contager. 0:15:33.160 --> 0:15:35.720 I'm not sure. I'll have to go back. Well, it 0:15:35.800 --> 0:15:37.720 was a big deal in my world, and to be 0:15:37.760 --> 0:15:39.680 honest with you, there's only like six of us in 0:15:39.800 --> 0:15:42.480 lumber who even paid attention to it anyway, But yeah, 0:15:42.560 --> 0:15:46.560 it was pretty dramatic. Well, so secondly, can we dig 0:15:46.600 --> 0:15:48.880 in a little bit more into that build up in 0:15:49.000 --> 0:15:51.640 inventory because I seem to remember when we spoke to 0:15:51.680 --> 0:15:54.960 you in April, like one of your thess for why 0:15:55.040 --> 0:15:58.440 this might be um, you know, higher prices for longer. 0:15:59.400 --> 0:16:03.080 Was this idea of the like lumber yards and lumber 0:16:03.080 --> 0:16:07.040 producers having been scarred by what happened in UH two 0:16:07.040 --> 0:16:09.720 thousand and eight with the bursting of the housing bubble, 0:16:09.840 --> 0:16:13.840 and that you know, they had persistently underinvested incapacity because 0:16:13.840 --> 0:16:17.200 they were always afraid of that happening again. And yet 0:16:17.400 --> 0:16:20.960 you know, fast forward to the summer of one and 0:16:21.040 --> 0:16:25.000 suddenly we're talking about a massive glut and inventory and 0:16:25.080 --> 0:16:28.680 you know contango such that you can hold lumber um 0:16:28.720 --> 0:16:30.320 you know, buy on the cheap and then sell it 0:16:30.360 --> 0:16:34.280 forward and make a riskless profit. So what exactly happened? 0:16:35.480 --> 0:16:40.880 The lack of capex includes storage capacity if if the 0:16:40.960 --> 0:16:44.360 idea is gonna we're gonna run lean and mean turn 0:16:44.360 --> 0:16:47.080 our inventory like you don't need a lot of space 0:16:47.320 --> 0:16:50.840 to turn it like ideally did you buy just in 0:16:50.880 --> 0:16:53.920 time inventory and you don't hold it very long? You 0:16:53.960 --> 0:16:55.680 turn it in the a R, you turn it into 0:16:55.680 --> 0:16:58.080 the cash. You do it over and over, and that's 0:16:58.120 --> 0:17:00.600 been the model from the producer. Are all the way 0:17:00.600 --> 0:17:03.960 down to the retail lumber yard. All of a sudden 0:17:04.440 --> 0:17:08.080 what we call in the lumber industry outtake how much 0:17:08.160 --> 0:17:10.840 lumbers leaving the lumber yard and getting installed in a 0:17:10.880 --> 0:17:14.879 house or an apartment. I'll take grinded to a halt. 0:17:15.560 --> 0:17:19.240 And this is I think the bullwhip effect if listening 0:17:19.280 --> 0:17:22.760 to your last several podcasts comes into play in the 0:17:22.840 --> 0:17:28.560 global supply chain crisis starting to peak right now affects lumber. 0:17:29.600 --> 0:17:32.399 So a lot of the lumber that's piled up is 0:17:32.520 --> 0:17:38.280 largely sold. It's committed to a job, but that job 0:17:38.680 --> 0:17:43.120 is not ready to take the lumber yet because they're 0:17:43.160 --> 0:17:47.320 still waiting on the windows and the appliances to finish 0:17:47.440 --> 0:17:52.000 the house before. So they have a job on the books, 0:17:52.040 --> 0:17:56.439 but they can't close out the previous house, and you know, 0:17:56.480 --> 0:18:00.320 they get all the finished products in there that are 0:18:00.440 --> 0:18:05.640 heavily related to the global supply chain. The biggest issue 0:18:06.800 --> 0:18:11.359 for US was trust plates. Floor trust is roof trust 0:18:11.440 --> 0:18:13.600 is the little butt plates that go on all the joints. 0:18:13.840 --> 0:18:19.040 Metal trust plates. Two companies have eight of the market share, 0:18:20.000 --> 0:18:25.520 and when these trusses are spect and approved by the 0:18:25.560 --> 0:18:27.680 county and no, no, no no, no, like it's you can't 0:18:27.720 --> 0:18:30.520 switch the plate to some other plate supplier, like it's 0:18:30.520 --> 0:18:34.640 spect specific to some certain technology, and you couldn't get 0:18:34.680 --> 0:18:38.240 trust plates. And this is just metal from Turkey or whatever, 0:18:38.800 --> 0:18:40.560 not an expert in that supply chain, but it's not 0:18:40.840 --> 0:18:44.639 domestically produced, so you couldn't get trust is. So it 0:18:44.680 --> 0:18:47.480 was almost like if you envisioned building a house, no 0:18:47.520 --> 0:18:49.960 one could get the lumber for the first floor. Then 0:18:50.000 --> 0:18:52.600 they got the lumber. Now it's we need a floor. 0:18:52.640 --> 0:18:55.600 Trust the wedding that goes between the first and second floor, 0:18:56.240 --> 0:18:59.840 we can't get that. It's backlogged. We can't get the plates. 0:19:00.800 --> 0:19:03.240 So I don't really need the lumber for the second 0:19:03.240 --> 0:19:06.520 floor until I get my floor trusses in and those 0:19:06.520 --> 0:19:10.960 are months out, months and months. So you had lumber 0:19:11.520 --> 0:19:14.280 that was scheduled to deliver in July. Now it's on 0:19:14.400 --> 0:19:18.879 indefinite hold, and you have lumber prices falling, falling, falling. 0:19:19.000 --> 0:19:22.760 So speculators like myself, UM and and other folks in 0:19:22.800 --> 0:19:25.119 the supply chain just kind of buy lumber because they 0:19:25.160 --> 0:19:30.320 think it's cheap. UM not anticipating the inability to turn 0:19:30.320 --> 0:19:35.080 your inventory because there's this bottleneck at the job site 0:19:35.119 --> 0:19:38.200 of the apartment and of the house, the single family 0:19:38.240 --> 0:19:41.359 home that is all held up. You can't get to 0:19:41.400 --> 0:19:43.840 the second floor because you don't have trust plates, and 0:19:43.840 --> 0:19:45.919 then you need the roof trusses, and and then it 0:19:45.960 --> 0:19:49.879 became I gotta I can't fit. Like there's there's caring 0:19:49.880 --> 0:19:53.040 costs for the builder and the construction loans and the draws, 0:19:53.040 --> 0:19:55.280 like they have to close out and deliver the house 0:19:55.680 --> 0:19:58.760 to get that last payment. Did that rollout into the 0:19:58.800 --> 0:20:01.719 next you know, Jack, So it held up all these 0:20:01.760 --> 0:20:06.320 other projects because I couldn't complete homes. This is so fascinating. 0:20:06.600 --> 0:20:09.399 You know, we talked to uh Ellie Wolf you know 0:20:09.480 --> 0:20:11.840 who monitors this stuff, I think a couple of months 0:20:11.880 --> 0:20:14.480 after we talked to you. And so basically, you know, 0:20:15.160 --> 0:20:17.840 we think about and again think about also the mat 0:20:18.040 --> 0:20:21.359 King episode, just like the sheer like complexity of what 0:20:21.400 --> 0:20:23.480 we're talking about. So it's like, okay, like we think 0:20:23.520 --> 0:20:26.560 about supply and demand is you know, these two lines 0:20:26.600 --> 0:20:29.280 that cross, and we know that there's a lot of 0:20:29.800 --> 0:20:33.560 demand for homes and we're a bit of major housing boom. 0:20:33.560 --> 0:20:36.040 Maybe there's a little bit of softening lately, but we've 0:20:36.040 --> 0:20:40.000 had this huge demand boom. But it's something as simple, 0:20:40.119 --> 0:20:43.240 and you know, Tracy has written a lot about this, like, okay, 0:20:43.280 --> 0:20:45.600 one part doesn't come and the house doesn't work, Like 0:20:45.640 --> 0:20:48.120 if you don't have faucet, you can't live in a house. 0:20:48.280 --> 0:20:51.280 So you could have major demand four housing and lumber 0:20:51.359 --> 0:20:55.359 and still no actual orders big placed because you're missing 0:20:55.400 --> 0:21:00.480 apart right, And I've learned about trust play. I had 0:21:00.480 --> 0:21:03.679 no idea that that was, Like, I'm gonna google trust 0:21:03.680 --> 0:21:05.560 plates right now so i can see what they look 0:21:05.640 --> 0:21:09.520 like while we're talking. I think we need a trust 0:21:09.560 --> 0:21:12.360 plate episode. Now I see Okay, okay, I see, I see, 0:21:12.400 --> 0:21:15.400 I see it. That just that little like four four 0:21:15.600 --> 0:21:19.359 inch by six inch, a little nothing, you know, and 0:21:19.960 --> 0:21:26.080 it is holding back an entire sector of of the economy. 0:21:26.359 --> 0:21:29.600 And okay, you got the trust plates in and then 0:21:29.640 --> 0:21:35.639 now you need faucets and toilets and refrigerators. So it 0:21:36.160 --> 0:21:39.800 caught me off guard and just being so narrowly focused 0:21:39.800 --> 0:21:43.280 on lumber. Now I'm like, I gotta think more macro 0:21:43.520 --> 0:21:47.160 than I would y'all. Y'all were talking earlier about the specialists, 0:21:48.080 --> 0:21:53.000 and I'm highly specialized in a two by fource. No 0:21:53.080 --> 0:21:56.440 idea about metal, But now I'm kind of like there's indicators, 0:21:56.480 --> 0:21:59.960 and I'm looking at and supply data and that now 0:22:00.080 --> 0:22:03.080 kind of come into view. Um and largely just talking 0:22:03.119 --> 0:22:05.119 to my customers and what they're hearing on lead times 0:22:05.119 --> 0:22:08.640 on trustes. But didn't see that one coming. A lot 0:22:08.680 --> 0:22:11.600 of us didn't, so Tracy, to tour round out your question, 0:22:12.480 --> 0:22:15.080 we just kept seeing lumber prices fall and we saw 0:22:15.280 --> 0:22:19.960 we know that customers are paying home builders extremely high 0:22:20.160 --> 0:22:23.840 historical prices for the lumber. So every time I buy lumber, 0:22:23.920 --> 0:22:27.000 I'm largely booking a profit because I know, not me, 0:22:27.080 --> 0:22:29.680 but the retail lumber yard, they know that what their 0:22:29.720 --> 0:22:33.520 home builders are paying. The problem was no one saw 0:22:34.480 --> 0:22:39.639 just the backlog of uncompleted homes and it shows up 0:22:39.760 --> 0:22:42.760 very clearly, and the housing starts data, the amount of 0:22:42.800 --> 0:22:46.040 homes are completing is is decoupling from home starts in 0:22:46.040 --> 0:22:48.840 a way that it's pretty glaring, and you know, it 0:22:48.880 --> 0:22:52.120 all rounds out this, Uh, this whole point is we're 0:22:52.119 --> 0:22:55.320 just not completing homes, so it's hard to roll over 0:22:55.400 --> 0:22:58.240 and and your money and build the next one. So 0:22:58.359 --> 0:23:01.560 it's just, you know, people saw value, they kept buying, buying, buying, 0:23:01.800 --> 0:23:05.639 and then not being able to deliver. So for every 0:23:05.640 --> 0:23:08.880 Reil car they bought five Reil cars, they maybe deliver one, 0:23:09.119 --> 0:23:12.240 so every month they'd accumulate four rail cars. And that 0:23:12.320 --> 0:23:15.120 happened over three or four or five months. And here 0:23:15.119 --> 0:23:19.520 we are. Okay, so here's another very basic question. But 0:23:19.760 --> 0:23:22.600 we're getting the sense that, you know, even if the 0:23:22.680 --> 0:23:27.120 lumber market had reacted perfectly to supply demand changes, there 0:23:27.160 --> 0:23:30.440 would be things outside of its external control, like what's 0:23:30.480 --> 0:23:32.840 going on with trust plates or you know, sinks and 0:23:32.880 --> 0:23:37.359 fawcets missing in a house that would affect the market. 0:23:37.480 --> 0:23:41.120 So I guess my question is like what is needed 0:23:41.520 --> 0:23:45.080