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Speaker 1: Hello, and welcome to another episode of the Odd Lots Podcast.

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Speaker 1: I'm Joe Wisenthal and I'm Tracy Alloway. So, Tracy, I'm

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Speaker 1: guessing there is a much construction of new homes anymore

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Speaker 1: in Hong Kong? Is there? Um, there's always some, but

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Speaker 1: we definitely aren't having a housing boom like the US

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Speaker 1: is now. It is absolutely crazy what's going on here.

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Speaker 1: There is a housing boom here, there is a renovation boom.

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Speaker 1: People are buying existing houses, driving the prices up. People

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Speaker 1: are starting new homes like it's super it's super wild.

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Speaker 1: What's going on here in real estate? Yeah, So I've

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Speaker 1: seen a lot of stories on this. And then of

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Speaker 1: course one of the things I've seen that's been really

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Speaker 1: striking is the price chart of lumber, and that's just

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Speaker 1: has been absolutely soaring. And it's actually like I see

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Speaker 1: it mentioned in the pantheon of meme stocks nowadays, but

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Speaker 1: of course, you know, lumber is an actual thing that

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Speaker 1: people use to build homes and other important structures. No,

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Speaker 1: it literally is like kind of becoming a meme stock,

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Speaker 1: like lumber itself. Like there's like meme stocks and crypto

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Speaker 1: and now people are making TikTok's about the price of lumber,

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Speaker 1: and the line literally is just a straight up for

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Speaker 1: days we're recording, there's April one, and actually the last

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Speaker 1: two days, I think lumber actually sold off a bit.

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Speaker 1: So maybe I don't know, maybe there's some sort of peak.

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Speaker 1: I have no idea, but the point for like days

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Speaker 1: and days in a row, the lumber futures market went up,

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Speaker 1: limit up every single day as absolutely wild and it's

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Speaker 1: like becoming a cultural thing. How much would cost right now? Yeah? Um.

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Speaker 1: It's also sort of becoming a moment for I guess

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Speaker 1: lumber Twitter, which is a really interesting community, as I

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Speaker 1: think you recently discovered, right there's a really vibrant conversation

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Speaker 1: around the lumber industry and lumber trading, construction, things like that.

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Speaker 1: Online lumbers having its moment in the sun, and I

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Speaker 1: just have to say, this is our chance to dive

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Speaker 1: into lumber market structure. I've been doing a little bit

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Speaker 1: of research. It is an absolutely delightful market, like just

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Speaker 1: some of the terms that they use, like stumpage feet

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Speaker 1: that is such a great word. No, it's great. There's

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Speaker 1: so much good stuff here because it's got its own

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Speaker 1: market structure, there's the futures market, there's the cash market.

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Speaker 1: There's all these different entities. There's the lumber yards, the sawmills,

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Speaker 1: the forests, the timber where they sell timber or turned

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Speaker 1: into lumber. There's the home builders. Everything. Just a super

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Speaker 1: interesting market that up until very recently, probably very few

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Speaker 1: people other than people in the industry, had thought about.

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Speaker 1: But now everyone wants to learn. And you mentioned lumber Twitter,

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Speaker 1: it's kind of taking over everything. And the guests we're

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Speaker 1: going to have on today, Um, we recently had him

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Speaker 1: on TV to talk about the lumber market and I've

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Speaker 1: never posted a clip that got so many views. I

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Speaker 1: think it was literally one of the biggest views ever.

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Speaker 1: Everyone wanted to hear more from the guest, so we

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Speaker 1: had to get him, get him on the podcast to

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Speaker 1: really do a true, uh deep dive into what's going

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Speaker 1: on right now and how lumber market structure actually works.

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Speaker 1: For sure, let's do it all right, So I'm very excited.

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Speaker 1: Together we're gonna go deep on the lumber market. We're

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Speaker 1: gonna be speaking with Stinson Dean. He is the CEO

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Speaker 1: and founder of Deacon Trading, which is a lumber trading

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Speaker 1: shop that operates all over the country. He's at lumber

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Speaker 1: trading on Twitter, so he's sort of like become one

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Speaker 1: of the pre eminent lumber Twitter experts blowing up now here.

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Speaker 1: Everyone wanted to hear him on nod lots and now

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Speaker 1: he's here. Uh, Stinson, thank you so much for uh

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Speaker 1: for coming on the show. Yeah, thanks for having me.

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Speaker 1: I'm excited to talk uck potentially endlessly about all the

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Speaker 1: nuances of lumber. We're gonna go super deep on a

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Speaker 1: lumber We're gonna go beyond just the church. But you know, like,

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Speaker 1: so I have this idea I'm an expert on lumber

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Speaker 1: now because I've been paying attention to it for two weeks. Um,

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Speaker 1: I have this idea that there's you know, there's the

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Speaker 1: home builders and they buy from the lumber yard, and

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Speaker 1: the lumber yards buy from the sawmills, and the sawmills

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Speaker 1: have a lot of pricing power these days, and they

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Speaker 1: so forth, Well, why don't you give us the sort

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Speaker 1: of like very high level overview of the different players

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Speaker 1: in this market and also specifically what Deacon Trading does

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Speaker 1: and how it fits into the sort of the lumber

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Speaker 1: trading ecosystem. Sure, so the players in the supply chain.

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Speaker 1: There's the producers on one end and the end users,

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Speaker 1: which would be the home builders on the far end,

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Speaker 1: and the it's easier to kind of start with the

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Speaker 1: home builders. So the home builders is going to buy

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Speaker 1: from what we call lumber dealers commonly commonly called lumber yards,

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Speaker 1: those little lumber yards that you and I aren't allowed

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Speaker 1: to walk into. They've got the high fences, they're big,

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Speaker 1: there's a lot of activity going on, and they sell

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Speaker 1: only two commercial accounts home builders in large contractors, and

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Speaker 1: they sell them framing packages. So it has the OSB

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Speaker 1: and other sheathing and panel goods. It has the framing

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Speaker 1: lumber OH oriented strand board, that's the sheathing that goes

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Speaker 1: underneath like your roofing shingles. Okay, and that, for the record,

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Speaker 1: is even worse of a shortage, or at least from

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Speaker 1: a pricing perspective, than than lumber. It's really insane. But

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Speaker 1: it's like the most common kind of forbright sheet you

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Speaker 1: see on the in cap at lows when you walk in.

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Speaker 1: The point being the lumber dealer buys in bulk all

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Speaker 1: of these of front products that go to build a house,

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Speaker 1: and then they put them together in smaller housing packages

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Speaker 1: a little bit of each and deliver it to pads

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Speaker 1: and job sites. Right, So the lumber dealer buys in

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Speaker 1: bulk all these building materials, and the bigger the lumber dealer,

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Speaker 1: the more likely they buy direct from the producer. So

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Speaker 1: I would say most of the lumber that goes into

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Speaker 1: a home was produced at a sawmill and sold directly

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Speaker 1: to a lumber dealer and then put on a flatbed

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Speaker 1: truck for a framing package to the to the home builder.

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Speaker 1: So it's pretty efficient in that way, but it's a

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Speaker 1: highly volatile commodity where there's frantic scrambles for supply, there's

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Speaker 1: scrambles of oversupply where you're scrambling just to get rid

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Speaker 1: of whatever products you have, and there's all sorts of

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Speaker 1: breakdowns in the supply chain. So it sounds easy, Hey, Canada,

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Speaker 1: Canadian sawmill to lumber dealer in Houston, Texas to homebuilder.

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Speaker 1: But the reality is that lumber purchased in Canada had

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Speaker 1: to You had to make that purchasing decision eight weeks

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Speaker 1: before you actually get to get the lumber, and so

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Speaker 1: you're having to anticipate what are my lumber needs two

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Speaker 1: months from now, and when the market gets really hot,

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Speaker 1: it's like you're twelve weeks out and these lumber dealers

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Speaker 1: and the buyers that work for them are often in

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Speaker 1: a really impossible decision to forecast, and they all get

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Speaker 1: their heads together and they try to forecast how much

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Speaker 1: how much lumber do we need? So in between the

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Speaker 1: sawmill and the lumber dealer, there's several different types of

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Speaker 1: wholesalers and or middle middleman type folks, and that's where

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Speaker 1: I fit in. And I said on the show, I

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Speaker 1: look at myself as a liquidity provider because the market

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Speaker 1: is ill liquid as a physical market and the futures market,

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Speaker 1: so it just gets scarce very fast or oversupplied very fast.

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Speaker 1: So I can stand in the middle and provide liquidity

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Speaker 1: to sawmills that have a backlog of inventory, or I

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Speaker 1: can provide liquidity to a lumber yard that misbudgeted ten

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Speaker 1: weeks ago and needs prompt wood tomorrow. Because where I sit,

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Speaker 1: I buy lumber from Canada and you know, eight weeks later,

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Speaker 1: I have it an anticipation of someone needing it over

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Speaker 1: the next thirty days because they miss forecast eight weeks prior. Okay,

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Speaker 1: So that's where I sit, and there's not a lot

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Speaker 1: of us, because I take a tremendous priced risk. The

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Speaker 1: second I agree to buy lumber, I have risked on

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Speaker 1: it won't ship to me for two to three weeks

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Speaker 1: if the mills are shipping on time, and they'll take

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Speaker 1: three weeks if the rail lines aren't running slow to

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Speaker 1: actually get it, and then another thirty days to market it.

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Speaker 1: So I'm I have risk on for a significant amount

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Speaker 1: of time. The other type of wholesaler at our supply chain,

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Speaker 1: and this kind of rounds it out. We call them

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Speaker 1: a transit wholesaler, where they buy the rail car and

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Speaker 1: they immediately try to sell it to a lumber dealer

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Speaker 1: before it ships, and they'll you know, typically like right now,

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Speaker 1: mills are selling for June production, so a wholesaler could

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Speaker 1: buy a handful of cars for June and then they

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Speaker 1: have six weeks to find a destination for it. And

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Speaker 1: that's that's kind of the and that's more common. There's

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Speaker 1: less risk. They try to kind of sell it before

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Speaker 1: they pay for it, and that's that's more or less

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Speaker 1: their their model. So you've laid out the ecosystem really

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Speaker 1: well for us. Talk to us about how I don't

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Speaker 1: want to say how bad things are at the moment,

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Speaker 1: but um, you know how intense the price surge has been,

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Speaker 1: what the scramble for wood is actually like, and where

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Speaker 1: in the ecosystem those pressure points are coming from. It's

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Speaker 1: a short squeeze. It's from the dynamic of the sales

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Speaker 1: model that lumber dealers. I think. I don't know really

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Speaker 1: how they did it before the recession, but coming out

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Speaker 1: of the recession, they'll commit to deliver lumber um days

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Speaker 1: out sometimes. Sorry, just to be clear, would you say

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Speaker 1: the recession? Do you mean the last recession? Right? Yeah?

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Speaker 1: The great one? Yeah, you're right, Sorry, keep going no, no, Well,

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Speaker 1: which was which was the center of the housing crept?

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Speaker 1: And since then the model has been and maybe this

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Speaker 1: was model before I wasn't in the industry, but they

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Speaker 1: commit to these sales. Let's just say ninety days worth

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Speaker 1: of sales. The most inventory these folks can holds forty

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Speaker 1: five days because of cash constraints and kind of how

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Speaker 1: they manage manager inventory. When they're bullish, they'll they'll go

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Speaker 1: forty five to fifty five days. When they're barished, they'll

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Speaker 1: work their inventory down to thirty days. And if you

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Speaker 1: think about that, you're fift covered, and you've got ninety

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Speaker 1: days worth of commitments and forty five days worth inventory.

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Speaker 1: So they're buying on the open market. You know, they

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Speaker 1: have their average cost of forty five days worth the inventory.

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Speaker 1: But then they got to cover the next ninety days

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Speaker 1: or excuse me, the next forty five days. And when

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Speaker 1: they don't cover that aggressively, maybe they they dial it

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Speaker 1: back to thirty days worth of inventory, anticipating a dip. Well,

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Speaker 1: the dip doesn't come. Didn't come, which we were all anticipating,

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Speaker 1: me included um in Q one. We we stayed kind

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Speaker 1: of flat at a thousand dollars for six weeks, and

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Speaker 1: it felt like things were going to crack to the downside.

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Speaker 1: But the mills were able to hold out. I think

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Speaker 1: they were able to sell the Canadian market. They were

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Speaker 1: able to say sell to Asia and this kind of

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Speaker 1: standoff the mills one. So now you've got ninety days

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Speaker 1: and commitments, thirty days worth inventory. You've got a lot

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Speaker 1: of ground to make up with your purchases. And I

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Speaker 1: think that's what's happening. That's what's happening right now is

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Speaker 1: you've got to get you gotta cover your commitments. Eventually

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Speaker 1: they're going to get covered. Eventually, they're going to buy

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Speaker 1: enough wood cover, get the lumber out the door. They're

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Speaker 1: gonna have made a ton of money on the inventory

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Speaker 1: they had on the ground. They're not going to make

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Speaker 1: as much money on these open market purchases where they're

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Speaker 1: scrambling the cover, and those two dynamics, or those two

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Speaker 1: profit margins will average out, and I think ultimately they'll

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Speaker 1: be okay. But what's happening right now is there's commitments

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Speaker 1: that need to be covered, and we've all waited too

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Speaker 1: long to get those covered. So basically, you have the

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Speaker 1: lumber yards and they you know, if they don't deliver

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Speaker 1: the lumber they've promise, they you know, they've defaulted. So

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Speaker 1: to avoid that, they have to cover those shorts. Let's

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Speaker 1: talk about the um the mentality, you know, like coming

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Speaker 1: out of the Great Financial Crisis, I have to imagine

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Speaker 1: that just sort of like numerous players in the industry

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Speaker 1: got totally wrecked. And I remember for years people talked

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Speaker 1: about housing is never really gonna come back the way

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Speaker 1: it did, And then of course we had the crash

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Speaker 1: last March and a lot of people got DejaVu. But

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Speaker 1: then we saw, okay, we got some people started renovating

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Speaker 1: their homes and that called people by surprise. But people

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Speaker 1: didn't think that would last and then okay, the winter

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Speaker 1: is gonna come. Then didn't slow down. So talk to

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Speaker 1: us about like the role that essentially diminished expectations, permanent

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Speaker 1: pessimism and fears of the ongoing, fears of another shoe dropping.

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Speaker 1: How that contributed to the yards, uh, not caring that

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Speaker 1: much inventory. Yes, So it's such a great point. And

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Speaker 1: I can speak confidently about my market, and I think

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Speaker 1: I can say that we're more conservative than others because

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Speaker 1: of what we went through in two thousands six, seven

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Speaker 1: and eight and what we ignored in two thousands six

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Speaker 1: and seven and paid the piper in two thousand and eight,

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Speaker 1: and we we really were one of the sectors that

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Speaker 1: really never still haven't reached an eclipsed our peak. You know,

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Speaker 1: if you just look at housing starts, and it was

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Speaker 1: pretty devastating, as you can imagine if for everyone involved,

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Speaker 1: and so a lot of people got cleaned out. And

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Speaker 1: if you survived and you're still around today, and you

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Speaker 1: you survived twelve years ago, it's because you're extremely conservative, right,

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Speaker 1: You hold a lot of cash, you don't put your

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Speaker 1: neck out too much. You don't. You're you're you're slow

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Speaker 1: to reinvest, you're slow to hire, you're slow to expand,

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Speaker 1: your slow to buy more trucks because what if? Right,

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Speaker 1: it's it's such a year. And ultimately you're also slow

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Speaker 1: to buy a bunch of inventory. You want as little

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Speaker 1: inventory as possible in case the bottom falls out. So

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Speaker 1: that's that's very fresh, even all this time later in

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Speaker 1: everyone's mind. And again, the names that are around right

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Speaker 1: now are around because they were able to scrap, scrape

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Speaker 1: and survive being the epicenter of the great financial meltdown.

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Speaker 1: And so there's just a characteristic of these legacy names

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Speaker 1: and the folks who run them that they're just conservative.

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Speaker 1: And the same with the home builders. You listen to

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Speaker 1: the home builders. They're paying down debt and they're not

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Speaker 1: aggressively going after land and they're playing it safe, and

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Speaker 1: it's like, what are we doing here? We have this

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Speaker 1: massive housing shortage, but you can just feel how hesitant

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Speaker 1: everyone is to believe it. So me included last March,

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Speaker 1: I was like depression, this is bad stock market sell off,

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Speaker 1: lumber future sell off. And I mean I was quote

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Speaker 1: in the Wall Street Journal that April saying, no one's

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Speaker 1: thinking thinking about buying a new home. It's the last

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Speaker 1: thing on anyone's mind. And so we all de risked.

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Speaker 1: We sold on our inventories to almost nothing. The sawmills,

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Speaker 1: if they had any extra inventory on the ground, which

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Speaker 1: they typically operate with to fill in the gaps and

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Speaker 1: smooth out the supply chain in case there's a weird

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Speaker 1: production run glitch, they can pull from the inventory, fill

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Speaker 1: the car and get it gone. They sold those stacks

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Speaker 1: down to pavement. Lumber dealers went sold their their inventory

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Speaker 1: down to nothing. Middlemen and liquidity providers same thing. Like

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Speaker 1: none of us wanted to risk gone. So then you know,

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Speaker 1: we started the rebound. And the short of it is,

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Speaker 1: prices went from to fifty on the future screen to

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Speaker 1: four fifty to five hundred, and we're all thinking, oh,

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Speaker 1: this is the top, like historically a great price us.

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Speaker 1: And in two thousand eighteen we went to six fifty

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Speaker 1: five and that was the top. So we get to

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Speaker 1: six fifties sift five, like this is it, there's no way,

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Speaker 1: and then hundred thousand by September, and those last three

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Speaker 1: for just backbreaking for the industry. High prices cure high prices.

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Speaker 1: But in our industry, high prices raise concern and people

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Speaker 1: get really scared that it's just going to crash. So

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Speaker 1: everyone was slow to believe in the recovery, so no

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Speaker 1: one and no one invested in inventories. Effectively, the mills

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Speaker 1: didn't invest in inventories, lumber dealers didn't invest in inventories.

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Speaker 1: Prices are too high and go to wait for them

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Speaker 1: to come down just can't possibly last. So that hesitation

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Speaker 1: to lean in and to put risk on perpetuated the

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Speaker 1: situation that we're in. That's that has been such an

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Speaker 1: acute run up. We'll talk about larger structural issues supporting

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Speaker 1: the price of lumber, but what happened and is happening

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Speaker 1: right now, I think is ultimately from the scars of

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Speaker 1: the Great Recession and the conservative nature of our industry

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Speaker 1: not wanting to put risk on via lumber inventories. Well,

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Speaker 1: so what would it take to actually change that conservative mindset?

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Speaker 1: Or maybe another way of putting it is what would

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Speaker 1: it take to make the industry more flexible and better

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Speaker 1: able to respond to change. Is it just a function

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Speaker 1: of you know, trees taking a long time to grow

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Speaker 1: and taking a while to transport. That means you have

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Speaker 1: this sort of like longer lead times um that feeds

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Speaker 1: into that forward planning. I don't know the answer to

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Speaker 1: that question that I hinted at the largest actual problems.

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Speaker 1: The Canadian forests are where their problems are. The Canadian

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Speaker 1: government a few years ago decided we are logging these

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Speaker 1: two fast and that we're just not going to have

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Speaker 1: the forest if we keep going at this pace. So

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Speaker 1: they reduced what they call the annual allowable cut a

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Speaker 1: C annual allowable cut before they had expanded that a C.

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Speaker 1: Because there was a bunch of what we call beat

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Speaker 1: beetle kill trees out there from this pinewood beetle infestation

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Speaker 1: that it's most folks have heard of it, but it

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Speaker 1: was devastating, it was. It was ravaging forests up there.

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Speaker 1: So they opened up the force for logging to get

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Speaker 1: those trees cut while they're still harvest the bowl. You

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Speaker 1: can still use them for lumber. You still find blue

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Speaker 1: blue stain lumber in the stores. Some people use that

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Speaker 1: for decorative reasons, but a lot of houses built in

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Speaker 1: the two thowenty have blue stain studs on them, and

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Speaker 1: the those are beetle kill logs, which is also a

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Speaker 1: thing in the US. So they opened they opened up

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Speaker 1: logging to a much faster pace to harvest the trees

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Speaker 1: before they rotted and that you couldn't harvest them in

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Speaker 1: the lumber, and also reducing the fire risk of having

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Speaker 1: dead trees in your forest. Right. And you know, there's

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Speaker 1: a long discussion about why is their pine beetle infestation

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Speaker 1: is it so bad? Um? A lot of that points

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Speaker 1: to the winters not being as cold for as long

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Speaker 1: to kill those beetles off, But ultimately it leaves the

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Speaker 1: forest vulnerable the fire. So they wanted to get in

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Speaker 1: there and coal as much of those as they could.

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Speaker 1: So if you look at lumber prices pretty flat, and

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Speaker 1: you look at lumber stop, the publicly traded lumber sawmill companies,

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Speaker 1: pretty flat pricing, not a lot of dividends, um, really

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Speaker 1: low returns over over ten years on just their their

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Speaker 1: stock price, it was not a great business to be in.

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Speaker 1: We're just flooded with lumber, partially because we were overproducing,

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Speaker 1: because we've got these beetle kill trees We've got to

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Speaker 1: take care of. That changed in two thousand and fifteen

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Speaker 1: or sixteen, they reduced the a c and that that's

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Speaker 1: set by the Canadian government who they called the Crown.

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Speaker 1: Crown Land, they own the forests up there. And I

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Speaker 1: am not a deep expert in these licenses and tenure,

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Speaker 1: but the mills and logging companies are allotted timberland to

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Speaker 1: the harvest. They control basically the paste of what they

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Speaker 1: can harvest, so they just cut what you're allowed to cut.

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Speaker 1: So the mills they're they're just there's these mills all

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Speaker 1: over in the bushop in Canada, and if there aren't

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Speaker 1: enough logs to keep them going, and then lumber prices

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Speaker 1: were low and the returns were low, like these these

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Speaker 1: mills started getting shut down. And that was mostly two

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Speaker 1: thousand nineteen. Lumber prices were very low. Housing market was

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Speaker 1: mediocre second half of eighteen and the nineteen, and it

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Speaker 1: just devastated the industry, like it was really sad, Like

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Speaker 1: main employers lumber towns just like devastated. The main source

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Speaker 1: of employment in this tiny town is shuttered. Now, of

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Speaker 1: course we're missing that supply. I don't think all of

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Speaker 1: them would still be here. I think the log supply

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Speaker 1: was going to ultimately shut down several of those mills anyway.

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Speaker 1: But now here we are less logs to cut, a harvest,

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Speaker 1: less mills to do it with. And you have an industry,

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Speaker 1: a sawmill industry that really has had mediocre returns for

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Speaker 1: ten years and now that here's their their moment to maximize.

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Speaker 1: There's so many different strands on and pull on, but

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Speaker 1: let's keep talking about this sort of the relationship between

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Speaker 1: the sawmills and the tree growers the forests. Some reports

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Speaker 1: have said, uh, oh, there, so there's plenty of trees.

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Speaker 1: The real issues at the the just the saw mill

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Speaker 1: capacity as you just described. I've seen others say, actually,

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Speaker 1: there isn't as many trees as people think because a

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Speaker 1: lot of the trees that are available there in the South,

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Speaker 1: and those trees aren't really great for building homes. Maybe

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Speaker 1: they're like better for cardboard boxes of the e commerce

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Speaker 1: industry or something like that. So are there a lot

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Speaker 1: of trees available? And then also like how do the

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Speaker 1: Trump teariffs play into it? Um, No, there's not a

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Speaker 1: lot of trees available to build. To build homes as

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Speaker 1: we build them today, the plate material, which is kind

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Speaker 1: of the horizontal laying lumber and the studs in between

379
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Speaker 1: them behind your dry wall is is most likely a

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Speaker 1: Canadian specie piece of wood, and that's how we build homes.

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Speaker 1: There's there's certainly a lot of production in the US

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Speaker 1: and the Pacific Northwest that is interchangeable with Canadian spruce,

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Speaker 1: but they don't they don't produce as much as the

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Speaker 1: Canadian lumber mills do. And um, that is the way

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Speaker 1: we build the homes. We don't build up. We don't

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Speaker 1: build homes with southern yellow pine from the US South.

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Speaker 1: You could, and I guess you can, but it's it's

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Speaker 1: a different stick. Um, it's heavy, wet, dense, crooked, twists,

389
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Speaker 1: a lot of waste on the job site. You can't

390
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Speaker 1: store it. So it's like we'd have to change what

391
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Speaker 1: we do. So, yes, there's a ton of trees in

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Speaker 1: the US South, but we don't build houses with trees

393
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Speaker 1: from the US South. We build houses from trees from

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Speaker 1: the Pacific Northwest. In Canada and particularly Canada, as we

395
00:24:31,400 --> 00:24:35,120
Speaker 1: just talked about, they're getting more and more scarce because

396
00:24:35,240 --> 00:24:38,360
Speaker 1: they just made the decision. And you talk to most Canadians,

397
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Speaker 1: they don't disagree with this decision. It's like you've got

398
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Speaker 1: to stop logging at this pace where the forest won't

399
00:24:43,640 --> 00:24:46,399
Speaker 1: won't be here, So it's not really a point of

400
00:24:46,400 --> 00:24:49,960
Speaker 1: contention up there. It's taken as factum, and I'm not

401
00:24:50,000 --> 00:24:52,240
Speaker 1: gonna argue with them, So I don't you know, I

402
00:24:52,240 --> 00:24:54,800
Speaker 1: don't want the force to go away and go away.

403
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Speaker 1: And they told me. I thought it was thirty years.

404
00:24:58,119 --> 00:25:02,520
Speaker 1: It takes eighty years to grow a Canadian lumber tree. Okay,

405
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Speaker 1: So they gotta they had a hard decision to make,

406
00:25:05,680 --> 00:25:07,720
Speaker 1: and they made it, and we're all going to have

407
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Speaker 1: to adjust. So given that long lead in time, I

408
00:25:11,560 --> 00:25:15,040
Speaker 1: mean eighty years to grow a tree, is the solution

409
00:25:15,280 --> 00:25:20,000
Speaker 1: to the squeeze on the demand side rather than the

410
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Speaker 1: supply side, because it feels like you can't fix the

411
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Speaker 1: supply issue anytime soon. Yeah. Amen, I've been saying that.

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Speaker 1: That's kind of been my narrative. Once prices went the

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Speaker 1: seven hundred and they kept going, I goes. I was like,

414
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Speaker 1: something's wrong here because these mills have never seen seven

415
00:25:38,680 --> 00:25:42,199
Speaker 1: dollars in their life and we still couldn't find lumber, Like,

416
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Speaker 1: why why aren't they producing more? And there used to

417
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Speaker 1: be an old adage when I was taught in the

418
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Speaker 1: lumber industry the sawmills can always outproduce the market and

419
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Speaker 1: then I had a bad habit of doing so. So

420
00:25:53,119 --> 00:25:56,040
Speaker 1: when returns got good, they turned the switch on and

421
00:25:56,080 --> 00:25:59,639
Speaker 1: they produced a ton of lumber and crushed price. And

422
00:25:59,680 --> 00:26:03,040
Speaker 1: I'm like kept waiting, kept looking around, like where, why

423
00:26:03,040 --> 00:26:06,760
Speaker 1: why aren't they doing this? Where's like this hidden inventory?

424
00:26:06,880 --> 00:26:12,359
Speaker 1: I keep hearing about seven Why aren't they selling futures?

425
00:26:12,560 --> 00:26:15,440
Speaker 1: You know, they're not showing up as as headers in

426
00:26:15,480 --> 00:26:22,080
Speaker 1: the CFTC report, Like something's wrong, and clearly the supply

427
00:26:22,160 --> 00:26:26,280
Speaker 1: side can't fix this. Clearly they just can't. Like they would.

428
00:26:26,320 --> 00:26:29,879
Speaker 1: It would be criminal of them. I mean, like maybe

429
00:26:29,920 --> 00:26:33,879
Speaker 1: fiduciary wise if they were like secretly not producing as

430
00:26:33,920 --> 00:26:38,080
Speaker 1: much as they could when lumber hits seven eight nine, Um,

431
00:26:38,119 --> 00:26:41,040
Speaker 1: it's just folks were like, oh, they're hiding it, and

432
00:26:41,920 --> 00:26:44,199
Speaker 1: there's more that we don't know about. But I like,

433
00:26:44,200 --> 00:26:47,040
Speaker 1: they're publicly traded. They can't do that, and it would

434
00:26:47,080 --> 00:26:51,480
Speaker 1: be complete shifting from all their past behaviors. So it

435
00:26:51,600 --> 00:26:54,680
Speaker 1: is not a supply side fix, not in the near term.

436
00:26:54,880 --> 00:26:58,719
Speaker 1: So yeah, it's a demand side, and it's high prices

437
00:26:58,720 --> 00:27:01,800
Speaker 1: cure high prices. And we have not found that equilibrium

438
00:27:01,880 --> 00:27:06,280
Speaker 1: or that tipping point where we start slowing demand because

439
00:27:06,280 --> 00:27:09,520
Speaker 1: the high lumber prices and it's astonishing and it makes

440
00:27:09,560 --> 00:27:12,320
Speaker 1: you think maybe lumber should have been more expensive for

441
00:27:12,359 --> 00:27:16,320
Speaker 1: a lot longer. So I'm glad you mentioned the futures

442
00:27:16,359 --> 00:27:19,480
Speaker 1: market because we haven't really gotten into that, but it's something.

443
00:27:19,880 --> 00:27:22,439
Speaker 1: You know, we had this long streak of like limit up,

444
00:27:22,520 --> 00:27:24,840
Speaker 1: limit up every day. Talk to us a little bit

445
00:27:24,880 --> 00:27:29,960
Speaker 1: about the relationship between the futures market and the cash

446
00:27:30,040 --> 00:27:33,679
Speaker 1: market and how you use both and how they slip,

447
00:27:33,760 --> 00:27:36,000
Speaker 1: but how tightly a line they are, Like, give us

448
00:27:36,000 --> 00:27:39,439
Speaker 1: a little overview of m the future market. Yeah, and

449
00:27:39,440 --> 00:27:44,360
Speaker 1: it's relationship to the whole thing. So I'm like, full disclosure,

450
00:27:44,760 --> 00:27:49,760
Speaker 1: highly dependent and a huge user of lumber futures. That's

451
00:27:49,760 --> 00:27:53,040
Speaker 1: how we run my business. And I don't care if

452
00:27:53,080 --> 00:27:56,560
Speaker 1: they go up or down. I care that it's easy

453
00:27:56,640 --> 00:27:58,560
Speaker 1: to execute and get in and out, so I care

454
00:27:58,560 --> 00:28:03,040
Speaker 1: about liquidity. The lumber futures is one rail car of

455
00:28:03,160 --> 00:28:09,560
Speaker 1: lumber priced Prince George, British Columbia in US dollars. So

456
00:28:09,680 --> 00:28:12,520
Speaker 1: the number you see on the screen is per thousand

457
00:28:12,520 --> 00:28:15,280
Speaker 1: board foot, which is a volume measurement, and the two

458
00:28:15,280 --> 00:28:18,119
Speaker 1: by four eight I think there's like six board feet

459
00:28:18,320 --> 00:28:23,040
Speaker 1: in a two eight stick you can build like four

460
00:28:23,240 --> 00:28:28,280
Speaker 1: to five houses out of one futures contract worth of product.

461
00:28:28,440 --> 00:28:32,600
Speaker 1: It's a it's a large volume, but that's how our

462
00:28:32,680 --> 00:28:36,600
Speaker 1: industry traits lumber by railcar, especially out of the Pacific

463
00:28:36,680 --> 00:28:42,640
Speaker 1: north western Canada. Being a cash and futures trader, I

464
00:28:42,640 --> 00:28:47,080
Speaker 1: I can tell you that it's highly effective, highly correlated.

465
00:28:47,440 --> 00:28:52,800
Speaker 1: But convergence and which would be the cash or spot

466
00:28:52,840 --> 00:28:56,000
Speaker 1: price converging with the futures price of expiration. It happens

467
00:28:56,040 --> 00:28:59,360
Speaker 1: every contract. It's a physically delivered contract, so it has

468
00:28:59,400 --> 00:29:04,800
Speaker 1: to happen, and the correlations are really high. The problem

469
00:29:04,840 --> 00:29:06,640
Speaker 1: when you look at it, you know, people see the

470
00:29:06,720 --> 00:29:09,960
Speaker 1: volume and or the open interest. So when we were

471
00:29:10,000 --> 00:29:14,120
Speaker 1: going locked limit up on this run, there'll be a

472
00:29:14,200 --> 00:29:16,480
Speaker 1: hundred and fifty trades on the screen on the front

473
00:29:16,560 --> 00:29:19,440
Speaker 1: rount and people would point that out and I would say,

474
00:29:20,000 --> 00:29:22,800
Speaker 1: that's about a hundred and thirty more trades than what

475
00:29:22,840 --> 00:29:25,880
Speaker 1: was happening in the cash markets. The cash markets were

476
00:29:26,960 --> 00:29:29,400
Speaker 1: there was no market, There was no market for wood.

477
00:29:29,440 --> 00:29:31,880
Speaker 1: There was no wood to be found, so the only

478
00:29:31,920 --> 00:29:36,240
Speaker 1: alternative was to buy lumber features for your purchase. Because

479
00:29:36,240 --> 00:29:41,120
Speaker 1: again these folks are making purchasing decisions today for wood,

480
00:29:41,120 --> 00:29:43,840
Speaker 1: they're going to need eight to ten weeks out, so

481
00:29:43,960 --> 00:29:47,360
Speaker 1: buying a May futures contract in March like that aligns

482
00:29:47,400 --> 00:29:49,880
Speaker 1: with what they would be doing in the cash markets.

483
00:29:50,280 --> 00:29:53,400
Speaker 1: So the cash markets and the future markets are are

484
00:29:53,480 --> 00:29:56,760
Speaker 1: really marry each other really well in that they're highly

485
00:29:57,000 --> 00:30:01,520
Speaker 1: i liquid, highly volatile. One of my observations has been

486
00:30:02,960 --> 00:30:07,960
Speaker 1: the consolidation of our industry from sawmills to lumber dealers.

487
00:30:08,520 --> 00:30:10,880
Speaker 1: Um not so much homebuilders because they're not buying real

488
00:30:10,880 --> 00:30:13,600
Speaker 1: cars with lumber from sawmills. That's not how they operate.

489
00:30:14,400 --> 00:30:18,120
Speaker 1: So lumber dealers and sawmills make the market. They're they're

490
00:30:18,160 --> 00:30:22,400
Speaker 1: the ones moving rail cars all all across the country.

491
00:30:22,880 --> 00:30:26,480
Speaker 1: They've been consolidating since the Great Recession to the point

492
00:30:26,560 --> 00:30:32,760
Speaker 1: where there's basically four or five major Canadian producers and

493
00:30:32,800 --> 00:30:40,320
Speaker 1: there's basically three or four, maybe five major US lumber dealers,

494
00:30:41,520 --> 00:30:45,280
Speaker 1: and so that's five asks and five bids, and they

495
00:30:45,280 --> 00:30:49,000
Speaker 1: always get these massive standoffs. And you can imagine if

496
00:30:49,040 --> 00:30:51,920
Speaker 1: your bid asked is hundreds of dollars apart, well, when

497
00:30:51,960 --> 00:30:55,640
Speaker 1: someone blinks, the whole market makes this hundred dollar move

498
00:30:56,640 --> 00:30:58,880
Speaker 1: because you heard this rumor that's so and so made

499
00:30:58,880 --> 00:31:02,040
Speaker 1: a block purchase, and now the mills are off the

500
00:31:02,080 --> 00:31:04,560
Speaker 1: market and there's no more open market would to buy

501
00:31:04,800 --> 00:31:08,120
Speaker 1: and it's because there's not a lot of bids and

502
00:31:08,200 --> 00:31:11,000
Speaker 1: asks in the cash markets and the futures markets kind

503
00:31:11,000 --> 00:31:15,760
Speaker 1: of represent the same thing where the folks who taught

504
00:31:15,840 --> 00:31:21,000
Speaker 1: me lumber cash markets. When they started, there was a

505
00:31:21,080 --> 00:31:24,760
Speaker 1: bunch of independent, mom and pop lumber yards and there's

506
00:31:24,880 --> 00:31:29,200
Speaker 1: a bunch of family owned legacy sawmills dotted all around

507
00:31:29,200 --> 00:31:35,120
Speaker 1: Canada and Pacific Northwest. So you could information arbitrage just

508
00:31:35,160 --> 00:31:39,720
Speaker 1: by working the phones and find a sawmill that that

509
00:31:39,920 --> 00:31:44,800
Speaker 1: is behind the market pricing, find a buyer that didn't

510
00:31:44,840 --> 00:31:47,360
Speaker 1: understand the market has moved because you're just making thirty

511
00:31:47,400 --> 00:31:49,320
Speaker 1: calls to the buy side, thirty calls to the seal

512
00:31:49,400 --> 00:31:51,880
Speaker 1: side of every single day trying to find the market.

513
00:31:52,400 --> 00:31:54,720
Speaker 1: So you could just do this information arbitrage, and like

514
00:31:55,320 --> 00:31:57,200
Speaker 1: you just make a killing and you're back to backing

515
00:31:57,240 --> 00:32:00,320
Speaker 1: most of it, so you're not even taking the price risk. Well,

516
00:32:00,320 --> 00:32:04,560
Speaker 1: now there's five and there is no information or arbitrage,

517
00:32:05,440 --> 00:32:11,400
Speaker 1: Like you can't find an inefficiency in pricing because there's

518
00:32:11,440 --> 00:32:13,680
Speaker 1: only five of them and same on the buy side,

519
00:32:14,320 --> 00:32:17,000
Speaker 1: Like you can't find anyone sleeping there. All know exactly

520
00:32:17,000 --> 00:32:19,440
Speaker 1: where they're at. They all know exactly where the mills stand.

521
00:32:20,080 --> 00:32:23,280
Speaker 1: So there's no way to to to find a busy

522
00:32:23,440 --> 00:32:27,080
Speaker 1: lumber yard owner who's worried about a truck that's late,

523
00:32:27,760 --> 00:32:30,640
Speaker 1: you know, not paying attentional lumber prices, and you can

524
00:32:30,680 --> 00:32:32,840
Speaker 1: goose them for ten or twenty bucks per thousand because

525
00:32:32,840 --> 00:32:34,960
Speaker 1: they're not paying attention. Like that doesn't happen anymore. We

526
00:32:35,000 --> 00:32:41,320
Speaker 1: have professional, extremely sophisticated and very smart centralized buying floors

527
00:32:42,120 --> 00:32:45,520
Speaker 1: at these dealers that buy at their corporate headquarters for

528
00:32:45,560 --> 00:32:48,920
Speaker 1: all their their locations across the country, and they're extremely

529
00:32:49,000 --> 00:32:56,040
Speaker 1: smart and savvy and crafty. Like these guys are very

530
00:32:56,160 --> 00:32:58,560
Speaker 1: very good at what they do, so it's hard to

531
00:32:58,680 --> 00:33:02,360
Speaker 1: understand what decisions they're going to make because they represent

532
00:33:03,120 --> 00:33:09,000
Speaker 1: hundreds of yards where twenty years ago hundreds of yards

533
00:33:09,040 --> 00:33:12,040
Speaker 1: represented hundreds of yards. So there's just all sorts of

534
00:33:12,280 --> 00:33:17,520
Speaker 1: different inefficiencies. So that dynamic, that consolidation dynamic, has made

535
00:33:17,520 --> 00:33:22,200
Speaker 1: it harder to trade lumber because there's just these massive

536
00:33:22,280 --> 00:33:26,680
Speaker 1: moves and it makes futures mirror what's happening in the

537
00:33:26,680 --> 00:33:29,240
Speaker 1: cash markets. I'll often say, if you think futures is

538
00:33:29,680 --> 00:33:34,000
Speaker 1: crazy right now. You should see what's happening in cash markets. There.

539
00:33:34,040 --> 00:33:36,000
Speaker 1: There are days, there have been days during this run.

540
00:33:36,360 --> 00:33:39,480
Speaker 1: You call the sawmill, they don't answer the phone. It's

541
00:33:39,560 --> 00:33:43,240
Speaker 1: like we've got nothing to sell, Like there's nothing for sale.

542
00:33:43,360 --> 00:33:45,520
Speaker 1: So what are you gonna do. You gotta buy lumber

543
00:33:45,600 --> 00:33:49,959
Speaker 1: futures to at least get something on so you can

544
00:33:49,960 --> 00:33:51,920
Speaker 1: get a delivery in June. It will ship to you

545
00:33:51,960 --> 00:33:54,240
Speaker 1: in mid May. It'll take a few weeks to get

546
00:33:54,280 --> 00:33:57,920
Speaker 1: to you. And that's so that's why we see these

547
00:33:58,480 --> 00:34:03,480
Speaker 1: squeezes and the big limit moves at the open of

548
00:34:03,480 --> 00:34:06,560
Speaker 1: the market, because they called the sawmills five minutes before

549
00:34:07,320 --> 00:34:09,120
Speaker 1: and they're what we call off the market. They're not

550
00:34:09,160 --> 00:34:12,440
Speaker 1: even showing any inventory to sell. This is a really

551
00:34:12,520 --> 00:34:16,440
Speaker 1: dumb question, but what's the normal state of the lumber

552
00:34:16,800 --> 00:34:22,240
Speaker 1: futures curve? Is it contango or backwardation? It's um typically

553
00:34:22,280 --> 00:34:25,880
Speaker 1: in contango, yes, um. I did a study when I

554
00:34:25,880 --> 00:34:29,480
Speaker 1: was launching the business over twenty years. It's there's typically

555
00:34:29,480 --> 00:34:34,240
Speaker 1: a five dollar carry five dollar contango in the market

556
00:34:34,320 --> 00:34:40,160
Speaker 1: on average, and the highest backwardation we've ever seen was

557
00:34:40,200 --> 00:34:43,920
Speaker 1: in two thousand eighteen. I think it was forty bucks

558
00:34:44,080 --> 00:34:47,120
Speaker 1: or something like that, and that was crazy crazy at

559
00:34:47,120 --> 00:34:51,720
Speaker 1: the time. And the biggest carry we've seen was later

560
00:34:51,840 --> 00:34:54,080
Speaker 1: the same year. It was a forty five dollar carry

561
00:34:54,760 --> 00:34:59,000
Speaker 1: or contango um where the front month was fort discount

562
00:34:59,239 --> 00:35:04,040
Speaker 1: to the next contract six days out. You know, it

563
00:35:04,120 --> 00:35:09,120
Speaker 1: only takes twelve bucks per thousand to store it, and

564
00:35:09,200 --> 00:35:11,520
Speaker 1: the market was paying you forty five dollars to store

565
00:35:11,560 --> 00:35:15,560
Speaker 1: it in the second half of eighteen and now we

566
00:35:15,640 --> 00:35:19,400
Speaker 1: have a hundred and thirty dollar invert. Last contract we

567
00:35:19,440 --> 00:35:22,360
Speaker 1: went up over two hundred. The biggest one was in

568
00:35:22,400 --> 00:35:24,480
Speaker 1: September when this whole thing got kicked off, we had

569
00:35:24,480 --> 00:35:29,759
Speaker 1: a three d dollar invert. So um it it is

570
00:35:30,040 --> 00:35:35,080
Speaker 1: way out of whack, but representative of the cash market.

571
00:35:52,840 --> 00:35:56,000
Speaker 1: So you talk about how like there it's hard to

572
00:35:56,000 --> 00:35:59,080
Speaker 1: get an informational edge in the market. You talk about

573
00:35:59,160 --> 00:36:03,440
Speaker 1: how sophistic catered these sort of big players are. So

574
00:36:03,840 --> 00:36:07,560
Speaker 1: I have like sort of two related questions. One, what

575
00:36:07,800 --> 00:36:10,279
Speaker 1: is your edge? I mean like essentially like where does

576
00:36:10,320 --> 00:36:14,279
Speaker 1: your alpha is the term? Where does your premium come

577
00:36:14,360 --> 00:36:18,480
Speaker 1: from into such an efficient market? And be what is

578
00:36:18,520 --> 00:36:23,080
Speaker 1: the role now of relationships in the industry data you

579
00:36:23,160 --> 00:36:25,920
Speaker 1: as a trader might have your relationship to the sawmills,

580
00:36:26,000 --> 00:36:28,680
Speaker 1: to the lumber yard. How important is that in this

581
00:36:28,800 --> 00:36:31,880
Speaker 1: sort of the current structure of the market. So for me,

582
00:36:32,239 --> 00:36:35,160
Speaker 1: I talked about being a liquidity provider. If you can

583
00:36:35,280 --> 00:36:40,200
Speaker 1: manage your risk and provide liquidity in an illiquid market,

584
00:36:40,520 --> 00:36:43,839
Speaker 1: there's a lot of reward there and if you could,

585
00:36:44,280 --> 00:36:48,239
Speaker 1: if you can reduce the risk compared to the reward um,

586
00:36:48,280 --> 00:36:51,319
Speaker 1: you can do pretty well. I just take on a

587
00:36:51,320 --> 00:36:54,319
Speaker 1: lot of physical lumber risk where I'm buying real cars

588
00:36:54,320 --> 00:36:56,239
Speaker 1: a lumber, I get them unloaded, I put them on

589
00:36:56,239 --> 00:37:00,640
Speaker 1: the ground in different markets across the country for someone

590
00:37:00,680 --> 00:37:04,600
Speaker 1: to need something right away because they their blumber budget

591
00:37:04,920 --> 00:37:08,719
Speaker 1: was off on their inventory. And I'll use futures to

592
00:37:08,760 --> 00:37:12,080
Speaker 1: manage to downside risk. So when futures go up, like

593
00:37:12,120 --> 00:37:16,240
Speaker 1: I have massive margin calls. But the way it works,

594
00:37:17,040 --> 00:37:22,920
Speaker 1: hopefully is your cash value is moving up faster and

595
00:37:23,080 --> 00:37:27,879
Speaker 1: further than your future's losses. And you can imagine if

596
00:37:27,920 --> 00:37:32,520
Speaker 1: there's a scramble for wood and the mills will get

597
00:37:32,560 --> 00:37:34,520
Speaker 1: you would in eight weeks, and I can get you

598
00:37:34,560 --> 00:37:38,440
Speaker 1: would tomorrow. Folks pay a premium for that to get

599
00:37:38,440 --> 00:37:41,440
Speaker 1: it tomorrow and get it in I also sell in

600
00:37:41,520 --> 00:37:44,480
Speaker 1: truckload quantities, so I'll charge a higher price, but they're

601
00:37:44,520 --> 00:37:47,319
Speaker 1: not committing to a car load. There's four trucks for

602
00:37:47,360 --> 00:37:51,680
Speaker 1: everyone car load, so they can swallow one higher price truck,

603
00:37:51,800 --> 00:37:53,880
Speaker 1: get it in, get it out, and kind of go

604
00:37:54,000 --> 00:37:57,439
Speaker 1: hand to mouth in that fashion. Um. So I'll I'll

605
00:37:57,440 --> 00:38:00,239
Speaker 1: be able to provide just in time inventory at a

606
00:38:00,320 --> 00:38:04,440
Speaker 1: higher price, but it may not move their average costs

607
00:38:04,440 --> 00:38:07,399
Speaker 1: that much because it's one truck versus a carload. That's

608
00:38:07,440 --> 00:38:12,360
Speaker 1: something I learned from grain traders. I basically use a

609
00:38:12,480 --> 00:38:19,760
Speaker 1: grain elevator business model with risk management basis seasonality. Um.

610
00:38:19,800 --> 00:38:22,480
Speaker 1: And it's pretty basic and agg like. You won't find

611
00:38:22,520 --> 00:38:26,840
Speaker 1: folks who quote you flat price corn. They're going to

612
00:38:26,920 --> 00:38:30,080
Speaker 1: tell you it's twenty over des Moines or something, or

613
00:38:30,120 --> 00:38:34,480
Speaker 1: twenty over Chicago Futures because everyone's hedged, because they're not

614
00:38:34,640 --> 00:38:39,200
Speaker 1: crazy and and Lumberd's, it's just different. Folks use futures

615
00:38:39,840 --> 00:38:43,879
Speaker 1: as a physical proxy. They use features to speculate even

616
00:38:43,920 --> 00:38:47,239
Speaker 1: if they're in the physical marketplace. So that causes a

617
00:38:47,239 --> 00:38:51,880
Speaker 1: lot of inefficiencies and futures which allowed me to arbitrage,

618
00:38:52,480 --> 00:38:55,239
Speaker 1: you know, the cash value versus a hedge. I can

619
00:38:55,320 --> 00:38:58,840
Speaker 1: get off and that those those windows were open and closed,

620
00:38:58,880 --> 00:39:01,680
Speaker 1: and it works both ways. So we had this massive

621
00:39:01,680 --> 00:39:04,279
Speaker 1: sell off yesterday in futures, and that was beautiful for

622
00:39:04,320 --> 00:39:07,439
Speaker 1: me because nothing changed in the cash markets at all.

623
00:39:07,719 --> 00:39:12,719
Speaker 1: In fact, cash went up eighty dollars and futures went

624
00:39:12,760 --> 00:39:15,759
Speaker 1: down forty five dollars forty eight dollars from the day before,

625
00:39:16,760 --> 00:39:20,319
Speaker 1: and so like that was a weird speculative move that

626
00:39:20,400 --> 00:39:23,880
Speaker 1: did not match fundamentals, and I was able to arbitrage

627
00:39:23,920 --> 00:39:27,480
Speaker 1: that and and make good money. And you know, it

628
00:39:27,480 --> 00:39:30,080
Speaker 1: goes against you too. Sometimes it will make a speculative,

629
00:39:30,360 --> 00:39:32,960
Speaker 1: non fundamental move to the upside and I'm kind of

630
00:39:33,000 --> 00:39:36,000
Speaker 1: locked out of the market. I could buy more. Typically

631
00:39:36,640 --> 00:39:38,640
Speaker 1: that would be a recipe. Futures are up and the

632
00:39:38,680 --> 00:39:41,080
Speaker 1: cash market didn't go up with it. Then cash is

633
00:39:41,160 --> 00:39:43,799
Speaker 1: cheap and futures is expensive. I'll sell the expensive thing

634
00:39:43,840 --> 00:39:47,839
Speaker 1: and buy the cheap thing. But don't always work that way,

635
00:39:48,440 --> 00:39:50,560
Speaker 1: so often I just kind of get locked out. I

636
00:39:50,640 --> 00:39:53,560
Speaker 1: can't price competitively because I have hedges that are working

637
00:39:53,920 --> 00:39:56,880
Speaker 1: against me. But that's the life of a hedger. And

638
00:39:57,320 --> 00:40:02,000
Speaker 1: I just make modest, and I mean modest, at least

639
00:40:02,040 --> 00:40:05,640
Speaker 1: consistent margins and up and down markets. I don't really

640
00:40:05,640 --> 00:40:08,239
Speaker 1: care if the market goes up or down. I just

641
00:40:08,480 --> 00:40:12,560
Speaker 1: care that there are spikes in demand and scarcity in

642
00:40:12,640 --> 00:40:15,360
Speaker 1: my markets that I can fill. You get my hedges

643
00:40:15,400 --> 00:40:19,879
Speaker 1: off and then wait for another opportunity to restop. So yes,

644
00:40:19,920 --> 00:40:23,160
Speaker 1: we're where is the edge now? And it's not making

645
00:40:23,400 --> 00:40:27,279
Speaker 1: sixty phone calls a day. It's being big. It's it's

646
00:40:27,360 --> 00:40:31,560
Speaker 1: having access to the mills, it's having access to that

647
00:40:31,920 --> 00:40:35,000
Speaker 1: information at the middle level, and it's being a big

648
00:40:35,040 --> 00:40:39,440
Speaker 1: customer that an already big producer wants to pay attention to.

649
00:40:40,000 --> 00:40:43,080
Speaker 1: You have to be big. The producers won't pay attention

650
00:40:43,080 --> 00:40:46,400
Speaker 1: to you. You're not You're not worth their time. And

651
00:40:46,400 --> 00:40:48,920
Speaker 1: it's not like personal, but like they got to move

652
00:40:48,920 --> 00:40:51,520
Speaker 1: a bunch of wood. They're massive company and they got

653
00:40:51,520 --> 00:40:54,239
Speaker 1: to face another massive company. So if you're big and

654
00:40:54,280 --> 00:40:58,160
Speaker 1: you move a lot of wood, that's the edge. And

655
00:40:58,280 --> 00:41:01,080
Speaker 1: if you are small, you've got to go through a

656
00:41:01,120 --> 00:41:03,799
Speaker 1: buying group or buy on the secondary market from from

657
00:41:03,840 --> 00:41:07,440
Speaker 1: folks like me. So that that now is the edge,

658
00:41:07,480 --> 00:41:10,799
Speaker 1: and I think that's what you're seeing in consolidation. One

659
00:41:10,800 --> 00:41:13,760
Speaker 1: of the motivations was for the buy side, but another

660
00:41:14,480 --> 00:41:18,239
Speaker 1: factor of consolidating. Another benefit is I think you're going

661
00:41:18,320 --> 00:41:23,160
Speaker 1: to see pricing power facing the home builders. That power

662
00:41:23,239 --> 00:41:25,200
Speaker 1: dynamic is going to change because all of a sudden,

663
00:41:25,200 --> 00:41:28,560
Speaker 1: these vendors are getting big enough to say, we're not

664
00:41:28,600 --> 00:41:31,520
Speaker 1: gonna do ninety day pricing. Because the homebuilder used to

665
00:41:31,560 --> 00:41:34,279
Speaker 1: be used to say, okay, you won't this other lumber yard,

666
00:41:34,360 --> 00:41:36,399
Speaker 1: they'll do it, and they would do it and they

667
00:41:36,400 --> 00:41:38,080
Speaker 1: wouldn't care if they lost money. They just got a

668
00:41:38,160 --> 00:41:41,799
Speaker 1: huge home builder as a customer. Right now, it's now

669
00:41:41,840 --> 00:41:45,719
Speaker 1: the homebuilders going to start seeing there's less options and

670
00:41:45,760 --> 00:41:47,480
Speaker 1: if they're not going to give me ninety day pricing,

671
00:41:48,400 --> 00:41:50,520
Speaker 1: there might not be another lumber yard to give me

672
00:41:50,600 --> 00:41:52,719
Speaker 1: ninety day because now those lumber yards on each other

673
00:41:53,440 --> 00:41:57,560
Speaker 1: and there's gonna be a power shift and how that

674
00:41:57,640 --> 00:42:02,000
Speaker 1: risk is managed. And just today we saw some comments

675
00:42:02,000 --> 00:42:05,360
Speaker 1: from home builders via Ali wolf On on Twitter. She

676
00:42:05,440 --> 00:42:11,200
Speaker 1: said they're no longer locking in prices when there's just dirt.

677
00:42:11,880 --> 00:42:15,400
Speaker 1: They're they're offering homes for sale once they got the

678
00:42:15,480 --> 00:42:17,560
Speaker 1: lumber literally on site, so then know what the cost

679
00:42:17,760 --> 00:42:19,640
Speaker 1: is and then they can mark it up. That used

680
00:42:19,680 --> 00:42:21,799
Speaker 1: to not be the case. Homebuilders had a pretty good

681
00:42:21,880 --> 00:42:25,399
Speaker 1: run where they did not have price risk, and I

682
00:42:25,440 --> 00:42:28,319
Speaker 1: think you know these contracts and how they're priced. I

683
00:42:28,400 --> 00:42:32,799
Speaker 1: don't have visibility to them and their proprietary but I

684
00:42:32,840 --> 00:42:35,520
Speaker 1: think we're seeing a risk transfer back to the home

685
00:42:35,560 --> 00:42:40,880
Speaker 1: builders because they're losing supplier options, so that the size

686
00:42:41,080 --> 00:42:44,279
Speaker 1: now is where the edge is. I want to ask

687
00:42:44,280 --> 00:42:47,040
Speaker 1: you about the home builder response, but before I do,

688
00:42:47,560 --> 00:42:51,120
Speaker 1: you mentioned this idea of moving lumber just then, and

689
00:42:51,200 --> 00:42:54,480
Speaker 1: I imagine that when you're dealing with, you know, big

690
00:42:54,520 --> 00:42:58,920
Speaker 1: amounts of a physical commodity, whether it's fogs or sheets

691
00:42:58,920 --> 00:43:03,320
Speaker 1: of wood or whatever. UM transport costs can be pretty high.

692
00:43:03,360 --> 00:43:05,719
Speaker 1: And one of my pet themes for the year is

693
00:43:05,719 --> 00:43:08,440
Speaker 1: this idea that economics doesn't actually do a great job

694
00:43:08,480 --> 00:43:13,000
Speaker 1: of appreciating transport costs and UH and taking into account

695
00:43:13,000 --> 00:43:15,160
Speaker 1: shocks to those. And we've seen a lot of shocks

696
00:43:15,200 --> 00:43:18,359
Speaker 1: in transportation this year, so I'm just wondering how that

697
00:43:18,640 --> 00:43:21,640
Speaker 1: has affected the business, if at all. Are you seeing

698
00:43:21,800 --> 00:43:25,880
Speaker 1: UM gridlock or shortage of truckers things like that. You know,

699
00:43:25,960 --> 00:43:29,520
Speaker 1: there there was a big pinch and truck truck drivers

700
00:43:29,520 --> 00:43:32,520
Speaker 1: truck availability and it made a lot of headlines. I

701
00:43:32,520 --> 00:43:36,160
Speaker 1: think it does an eighteen nineteen like with assigning bonuses,

702
00:43:37,400 --> 00:43:41,160
Speaker 1: and they're trying to recruit long haul truck drivers because

703
00:43:41,200 --> 00:43:44,200
Speaker 1: a lot of lumber is moved. Like I move all

704
00:43:44,239 --> 00:43:47,680
Speaker 1: of my lumber from my storage facility to my customer

705
00:43:47,800 --> 00:43:51,000
Speaker 1: via a flatbed that I go find an open on

706
00:43:51,040 --> 00:43:53,720
Speaker 1: the open market, the trucking market, on the quote board,

707
00:43:54,000 --> 00:43:56,800
Speaker 1: the load boards that have online, and tell them what

708
00:43:56,840 --> 00:44:02,200
Speaker 1: I'm going to pay for lumber. It lays shipment prices

709
00:44:02,239 --> 00:44:06,920
Speaker 1: have gone up. I'd say from two years ago, from

710
00:44:06,960 --> 00:44:12,520
Speaker 1: from typical lanes that I would sell consistently, Prices are

711
00:44:12,560 --> 00:44:15,920
Speaker 1: now higher than they were a year ago. You're a

712
00:44:15,920 --> 00:44:20,760
Speaker 1: pre COVID, but the liquidity of trucks has has vastly improved.

713
00:44:20,800 --> 00:44:23,920
Speaker 1: I think that push for hiring drivers and investing in

714
00:44:23,960 --> 00:44:28,919
Speaker 1: more trucks. You're able to get trucks more easily than

715
00:44:28,960 --> 00:44:30,640
Speaker 1: you were a year and a half ago. Two years ago.

716
00:44:30,719 --> 00:44:33,799
Speaker 1: Now that's just me and my little niche, and I'm

717
00:44:33,800 --> 00:44:37,080
Speaker 1: sure there's there's data that at my point otherwise, but

718
00:44:37,200 --> 00:44:42,160
Speaker 1: in my experience, there's more trucks two move loads. I

719
00:44:42,160 --> 00:44:44,439
Speaker 1: I get all my loads moved in one or two

720
00:44:44,480 --> 00:44:48,040
Speaker 1: three days. It's pretty rare that I get stuck a

721
00:44:48,080 --> 00:44:50,360
Speaker 1: week out but that was happening all the time, and

722
00:44:50,440 --> 00:44:54,760
Speaker 1: I'm remembering in two thousand eighteen massive logistics issues with trucking.

723
00:44:55,360 --> 00:44:58,520
Speaker 1: The other element for lumber is and this it's the

724
00:44:58,600 --> 00:45:01,800
Speaker 1: biggest transportation costs is the rail freight from the Pacific

725
00:45:01,880 --> 00:45:07,560
Speaker 1: Northwest to Atlanta. So the futures contract is priced FOB

726
00:45:08,120 --> 00:45:11,960
Speaker 1: Canada British Columbia hundred and twenty dollars per thousand board

727
00:45:12,040 --> 00:45:16,320
Speaker 1: feet gets it to Atlanta. Hut. If you're in Atlanta

728
00:45:16,400 --> 00:45:18,839
Speaker 1: and you look, you want to do the math. You're

729
00:45:18,840 --> 00:45:21,239
Speaker 1: not paying the futures price. You're paying the futures price

730
00:45:21,440 --> 00:45:24,000
Speaker 1: plus a hundred and twenty to to get it there,

731
00:45:24,160 --> 00:45:26,680
Speaker 1: plus the handling to get it undone. And then if

732
00:45:26,719 --> 00:45:30,080
Speaker 1: it's got to move from distribution facility to a store,

733
00:45:30,440 --> 00:45:33,439
Speaker 1: you know that's that's another twenty to thirty bucks per

734
00:45:33,480 --> 00:45:37,359
Speaker 1: thousand board feet. And what we've experienced in lumber is

735
00:45:37,800 --> 00:45:41,560
Speaker 1: the c N and the CP rail lines obviously dominate

736
00:45:42,200 --> 00:45:46,360
Speaker 1: original rail origination out of Canada, and the c N

737
00:45:46,520 --> 00:45:49,840
Speaker 1: is the biggest mover of lumber out of Canada, and

738
00:45:50,960 --> 00:45:54,600
Speaker 1: the sawmills or the seller controls freight, so I'm always

739
00:45:54,640 --> 00:45:59,640
Speaker 1: buying delivered Atlanta delivered Dallas, delivered Baltimore. That's my price.

740
00:45:59,680 --> 00:46:02,040
Speaker 1: I don't face the rail line. I don't pay them,

741
00:46:02,320 --> 00:46:05,480
Speaker 1: I don't book rail cars. I pay a delivered price.

742
00:46:06,560 --> 00:46:11,160
Speaker 1: And the sawmills have contracts with the rail lines. None

743
00:46:11,160 --> 00:46:13,040
Speaker 1: of us are privy to to have a certain amount

744
00:46:13,080 --> 00:46:15,960
Speaker 1: of cars, you know, each week, each month, depending on

745
00:46:16,040 --> 00:46:17,680
Speaker 1: what they think their needs will be, because they don't

746
00:46:17,680 --> 00:46:20,480
Speaker 1: want to have more cars contracted than they need. So

747
00:46:20,560 --> 00:46:24,839
Speaker 1: you can imagine sometimes they under budget how many rail

748
00:46:24,880 --> 00:46:28,440
Speaker 1: cars they need and we'll get bottlenecked and there's not

749
00:46:28,640 --> 00:46:34,280
Speaker 1: enough rail cars moving across the country. Because I'm making

750
00:46:34,320 --> 00:46:38,279
Speaker 1: this up, but because two months ago they miss interpreted,

751
00:46:38,400 --> 00:46:41,239
Speaker 1: they miss forecasted how many rail cars they're going to

752
00:46:41,360 --> 00:46:44,800
Speaker 1: need in June. This is the one thing that strikes

753
00:46:44,840 --> 00:46:49,799
Speaker 1: me is there's only one national price as you describe it.

754
00:46:49,840 --> 00:46:52,799
Speaker 1: Like when I think about the oil market. Obviously we

755
00:46:52,840 --> 00:46:55,400
Speaker 1: talked about like West Texas Intermediate, but I can like

756
00:46:55,480 --> 00:46:59,719
Speaker 1: go on the Bloomberg and there's like there's dozens, I

757
00:46:59,760 --> 00:47:03,360
Speaker 1: don't know, like dozens of actual oil prices everywhere around

758
00:47:03,440 --> 00:47:05,719
Speaker 1: the country, and they tend to correlate, but they're all

759
00:47:05,760 --> 00:47:08,960
Speaker 1: slightly different because it's slightly grade, or it's a different

760
00:47:09,040 --> 00:47:12,600
Speaker 1: logistical network to get there. But as you describe it,

761
00:47:12,600 --> 00:47:15,360
Speaker 1: there's like one price of national price of lumber, and

762
00:47:15,360 --> 00:47:19,480
Speaker 1: then you add on a cost of transportation depending on

763
00:47:19,520 --> 00:47:21,360
Speaker 1: how far it has to go, whether it's to Dallas

764
00:47:21,400 --> 00:47:24,279
Speaker 1: or Baltimore, in Atlanta or whatever. So how does that

765
00:47:24,440 --> 00:47:28,560
Speaker 1: change the lumber trading game? The singularity of their just

766
00:47:28,600 --> 00:47:32,120
Speaker 1: being the one price you know, to me, it makes

767
00:47:32,160 --> 00:47:38,000
Speaker 1: it easier and less there's less arbitrage opportunities because I

768
00:47:38,040 --> 00:47:40,360
Speaker 1: know in grains and an energy, when I was around

769
00:47:40,400 --> 00:47:44,759
Speaker 1: those traders local basis, that was an information arbitrage and

770
00:47:44,800 --> 00:47:48,120
Speaker 1: you could point the market would get so inefficient that

771
00:47:48,160 --> 00:47:51,880
Speaker 1: you could rail it to Kansas City and then truck

772
00:47:52,000 --> 00:47:55,880
Speaker 1: grain to Tulsa instead of railing at to Tulsa because

773
00:47:55,920 --> 00:47:58,960
Speaker 1: the rail to Tulsa there's a spike in rail freight. Right,

774
00:48:00,040 --> 00:48:07,160
Speaker 1: we don't experience that and lumber because the sawmills control

775
00:48:07,360 --> 00:48:10,120
Speaker 1: the freight, which for me is kind of a nice

776
00:48:10,160 --> 00:48:13,480
Speaker 1: perk that I don't have to deal with that and

777
00:48:13,920 --> 00:48:19,440
Speaker 1: I don't have to have a logistics person manage all

778
00:48:19,440 --> 00:48:24,960
Speaker 1: those things. But it's interesting because if Phoenix is blowing up,

779
00:48:25,000 --> 00:48:28,760
Speaker 1: the sawmills and buying a bunch of lumber, they're driving

780
00:48:28,840 --> 00:48:33,200
Speaker 1: up that fob Prince George price. So if you're in

781
00:48:33,320 --> 00:48:36,080
Speaker 1: Dallas or Atlanta, you're kind of at the mercy of

782
00:48:36,560 --> 00:48:40,000
Speaker 1: how busy is it in Phoenix because they're bumping up

783
00:48:40,000 --> 00:48:43,560
Speaker 1: everyone else's price, and that that dynamic is unique, I

784
00:48:43,560 --> 00:48:46,480
Speaker 1: think to lumber. And that's because the shipper controls freight.

785
00:48:46,560 --> 00:48:50,680
Speaker 1: And that's also because because the shipper controls freight, they

786
00:48:50,680 --> 00:48:53,239
Speaker 1: are the importer of records, so they're actually paying the

787
00:48:53,320 --> 00:48:55,480
Speaker 1: tariff instead of the by side, which I think is

788
00:48:55,600 --> 00:48:58,719
Speaker 1: unique for for imports. You know, it's hard for me.

789
00:48:58,840 --> 00:49:01,520
Speaker 1: I haven't don't have a ton of experience in other commodities,

790
00:49:02,280 --> 00:49:04,640
Speaker 1: but in a way, I think it makes it more

791
00:49:04,640 --> 00:49:08,560
Speaker 1: efficient and I know for me running my business, um,

792
00:49:08,600 --> 00:49:12,440
Speaker 1: it really simplifies things. The other side of that sword

793
00:49:13,200 --> 00:49:16,000
Speaker 1: is some of those situations where I was talking about

794
00:49:16,680 --> 00:49:20,640
Speaker 1: you cannot bid up freight to get the product because

795
00:49:20,680 --> 00:49:23,840
Speaker 1: you need it so badly, like it is a very finite,

796
00:49:24,400 --> 00:49:26,160
Speaker 1: like there is no price you can pay because you

797
00:49:26,160 --> 00:49:29,440
Speaker 1: don't control the rail cars. You can't tell the c

798
00:49:29,680 --> 00:49:33,319
Speaker 1: N I will pay two, three, four x whatever it

799
00:49:33,400 --> 00:49:35,960
Speaker 1: is because I gotta have the product. So it causes

800
00:49:36,040 --> 00:49:40,040
Speaker 1: major issues and peak lumber season shipping seasons. And if

801
00:49:40,040 --> 00:49:42,799
Speaker 1: you look at lumber shipment seasonality, it's it's big and

802
00:49:43,560 --> 00:49:47,480
Speaker 1: January and February and then there's another bulge in the fall.

803
00:49:48,440 --> 00:49:52,719
Speaker 1: And if there's a shortage of rail cars, there is

804
00:49:52,760 --> 00:49:56,520
Speaker 1: no open market wholesaler of rail cars that you can

805
00:49:56,560 --> 00:49:58,680
Speaker 1: go to to get your lumber for me to be

806
00:49:59,040 --> 00:50:04,960
Speaker 1: like your ap the mercy of the sawmills contract with

807
00:50:05,000 --> 00:50:08,160
Speaker 1: the rail cars, so that will drive out price in

808
00:50:08,200 --> 00:50:11,719
Speaker 1: the on the futures contract. But more than anything, it

809
00:50:11,840 --> 00:50:15,000
Speaker 1: drives up prices for local basis for someone like me

810
00:50:15,320 --> 00:50:19,000
Speaker 1: who has it so so lumber yards have learned this

811
00:50:19,120 --> 00:50:22,040
Speaker 1: over the years and they try to anticipate and buy

812
00:50:22,200 --> 00:50:25,920
Speaker 1: before there's a rail shortage um and load up on

813
00:50:25,960 --> 00:50:29,080
Speaker 1: inventory ahead of time so they so they don't get

814
00:50:29,120 --> 00:50:33,839
Speaker 1: starved out from lack of contracted rail supply UM. And

815
00:50:33,880 --> 00:50:36,520
Speaker 1: I think that was from the traders that have been

816
00:50:36,520 --> 00:50:39,640
Speaker 1: doing this longer than me. That transition happened about twenty

817
00:50:39,760 --> 00:50:43,160
Speaker 1: years ago UM And I imagine it's because the rail

818
00:50:43,200 --> 00:50:46,000
Speaker 1: lines just wanted to face a bigger player who they

819
00:50:46,040 --> 00:50:50,080
Speaker 1: could just deal do volumes with versus onesie tuesies, little

820
00:50:50,160 --> 00:50:55,920
Speaker 1: lumber yards. So I have a really basic question, but, um,

821
00:50:56,760 --> 00:51:00,640
Speaker 1: who is making money from the price rise in lumber?

822
00:51:00,680 --> 00:51:03,279
Speaker 1: Because I get the sense from this conversation that even

823
00:51:03,280 --> 00:51:06,640
Speaker 1: though we've had this big surge, it's sort of made

824
00:51:06,640 --> 00:51:10,360
Speaker 1: things difficult for everyone, and there's no one in the

825
00:51:10,440 --> 00:51:14,080
Speaker 1: lumber ecosystem who's like making out like a bandit at

826
00:51:14,080 --> 00:51:18,840
Speaker 1: this moment in time. Yeah, that is very true. The

827
00:51:18,920 --> 00:51:23,919
Speaker 1: sawmills are doing great, I mean unbelievably great, and it's

828
00:51:23,960 --> 00:51:28,040
Speaker 1: long overdue, and I'm happy for him. I think we

829
00:51:28,040 --> 00:51:31,480
Speaker 1: were going to grind higher to a price like this eventually,

830
00:51:31,880 --> 00:51:35,040
Speaker 1: but COVID, you know, did its thing, and and we

831
00:51:35,080 --> 00:51:37,719
Speaker 1: did it all at once. And the reason I think

832
00:51:37,800 --> 00:51:40,920
Speaker 1: that was because that's what the Canadian experts that I

833
00:51:40,960 --> 00:51:44,040
Speaker 1: work with and the folks who cover that sector have

834
00:51:44,120 --> 00:51:46,920
Speaker 1: been telling me for a while, like it's coming, it's coming,

835
00:51:47,360 --> 00:51:51,239
Speaker 1: We're reducing the cut, and um, eventually prices are going

836
00:51:51,280 --> 00:51:55,680
Speaker 1: to be astronomically high. It just happened very quickly, and

837
00:51:55,719 --> 00:51:58,720
Speaker 1: it also happened after it sell off the two fifty

838
00:51:58,719 --> 00:52:03,320
Speaker 1: dollar low and now were at basically twelve months later.

839
00:52:03,680 --> 00:52:08,360
Speaker 1: So the mills, for sure, easy answer after that because

840
00:52:08,400 --> 00:52:11,080
Speaker 1: it's the rise has been so sharp, it's going to

841
00:52:11,160 --> 00:52:16,560
Speaker 1: compress margins for under lumber dealers and homebuilders that kind

842
00:52:16,560 --> 00:52:20,160
Speaker 1: of have that forward price lock dynamic. But prices have

843
00:52:20,239 --> 00:52:25,560
Speaker 1: been this high for six plus months. We know then

844
00:52:25,640 --> 00:52:29,120
Speaker 1: that these prices have been able to been marked up

845
00:52:29,120 --> 00:52:32,240
Speaker 1: and sold over the past couple of quarters. So higher

846
00:52:32,280 --> 00:52:34,880
Speaker 1: prices generally are more profitable, and we love it as

847
00:52:34,880 --> 00:52:38,239
Speaker 1: an industry. How we got there is not ideal, But

848
00:52:38,320 --> 00:52:40,880
Speaker 1: if we stay here, everyone's gonna make a lot more

849
00:52:40,920 --> 00:52:46,160
Speaker 1: money everybody, just because gross margin for a lumber dealer,

850
00:52:46,360 --> 00:52:51,080
Speaker 1: according to publicly traded financials on lumbers is a lot

851
00:52:51,120 --> 00:52:55,400
Speaker 1: better than six lumber, right, So if we're higher for longer,

852
00:52:55,480 --> 00:52:58,680
Speaker 1: everyone's going to do very well. This transition into it

853
00:52:58,760 --> 00:53:02,239
Speaker 1: is fairly painful, but I am of the belief that

854
00:53:02,400 --> 00:53:05,200
Speaker 1: the floor for this market, because the market's going to

855
00:53:05,280 --> 00:53:08,200
Speaker 1: stay volaible. It hasn't been volatile. If it only goes up,

856
00:53:08,719 --> 00:53:12,600
Speaker 1: that's not volatility. That's just one direction you needed to

857
00:53:12,600 --> 00:53:16,239
Speaker 1: go up and down. Eventually, folks will get covered and

858
00:53:16,239 --> 00:53:18,359
Speaker 1: they'll get the lumber they need and will roll over.

859
00:53:19,160 --> 00:53:26,759
Speaker 1: But if they've been selling forward nine thousand lumber purchases

860
00:53:27,640 --> 00:53:33,439
Speaker 1: are extremely profitable for them, and this idea of am

861
00:53:33,440 --> 00:53:35,800
Speaker 1: I going to get caught in a short squeeze again,

862
00:53:36,440 --> 00:53:39,040
Speaker 1: shame on me. So I think you're gonna see bigger

863
00:53:39,200 --> 00:53:43,200
Speaker 1: lumber purchases on these dips so they can be well

864
00:53:43,239 --> 00:53:47,440
Speaker 1: supplied and have the product, because that's ultimately driving this behavior.

865
00:53:47,480 --> 00:53:50,319
Speaker 1: It's not the price, it's it's having the product on

866
00:53:50,360 --> 00:53:54,239
Speaker 1: hand to fulfil your commitment to the builder. So higher

867
00:53:54,280 --> 00:53:58,640
Speaker 1: for longer means these prices get normalized. A gross margin

868
00:53:58,719 --> 00:54:01,360
Speaker 1: on a higher price is I deal for everybody involved

869
00:54:01,640 --> 00:54:05,479
Speaker 1: the transition to get there. Obviously it's painful, but I

870
00:54:05,520 --> 00:54:08,920
Speaker 1: think at the end of the day, for this housing cycle,

871
00:54:09,400 --> 00:54:14,600
Speaker 1: it's a great thing for the industry. Stinson, this was fantastic.

872
00:54:14,640 --> 00:54:18,160
Speaker 1: I loved learning about this totally new market structure and

873
00:54:18,440 --> 00:54:21,280
Speaker 1: hearing your perspective on it. Really appreciate you coming on

874
00:54:21,280 --> 00:54:25,240
Speaker 1: a lot. Yeah, Hey, I appreciate it. Folks learn something

875
00:54:25,360 --> 00:54:29,080
Speaker 1: and uh happy to contribute. Thanks so much. Yeah, I

876
00:54:29,080 --> 00:54:48,840
Speaker 1: think they definitely will. Thank you so much. Tracy. Remember

877
00:54:48,880 --> 00:54:54,120
Speaker 1: a recent episode with um Sam Bankman Freed the Cryptoga. Yeah, sure,

878
00:54:54,440 --> 00:54:57,000
Speaker 1: I kind of been thinking about that a lot actually,

879
00:54:57,040 --> 00:55:01,240
Speaker 1: with like the with the Lumbar conversation, and his whole

880
00:55:01,280 --> 00:55:03,880
Speaker 1: story is about No, I'm serious, like his whole stories,

881
00:55:03,920 --> 00:55:06,600
Speaker 1: it's like okay, like you bought this and then like

882
00:55:06,680 --> 00:55:09,839
Speaker 1: you sold it, transferred it to someone in Japan and

883
00:55:09,880 --> 00:55:13,120
Speaker 1: stuff like that. Like I feel like all the interesting

884
00:55:13,200 --> 00:55:20,120
Speaker 1: markets essentially involve they guess they involved legwork, like they

885
00:55:20,160 --> 00:55:22,279
Speaker 1: involved of like putting in the work to like, well,

886
00:55:22,440 --> 00:55:24,520
Speaker 1: this sells for this and this place, and this sells

887
00:55:24,520 --> 00:55:26,719
Speaker 1: for this in another place, that you have a relationship

888
00:55:26,760 --> 00:55:28,319
Speaker 1: with this and you get to some size that you

889
00:55:28,400 --> 00:55:31,120
Speaker 1: can do it. And it feels like even though like

890
00:55:31,160 --> 00:55:33,040
Speaker 1: we kind of joked at the beginning, like lumber is

891
00:55:33,120 --> 00:55:35,000
Speaker 1: kind of a meme stock or it's kind of a crypto,

892
00:55:35,120 --> 00:55:39,040
Speaker 1: Like they're kind of are similarities in market structure, I

893
00:55:39,080 --> 00:55:43,359
Speaker 1: feel like, is that contrived? No? I mean, I think

894
00:55:43,360 --> 00:55:48,640
Speaker 1: it makes sense that markets with arbitrage opportunities are more interesting,

895
00:55:48,800 --> 00:55:51,360
Speaker 1: and certainly they're going to attract people who are quite

896
00:55:51,440 --> 00:55:54,880
Speaker 1: keen on making money. But again, like making that money

897
00:55:54,920 --> 00:55:58,200
Speaker 1: does involve having some sort of edge or informational advantage

898
00:55:58,280 --> 00:56:01,160
Speaker 1: or some sort of ability, for instance, to arbitrage the

899
00:56:01,200 --> 00:56:05,080
Speaker 1: price of bitcoin in South Korea versus somewhere else in

900
00:56:05,080 --> 00:56:08,000
Speaker 1: the world. So there is that. The other thing that

901
00:56:08,040 --> 00:56:11,839
Speaker 1: this reminded me of is our conversations around COVID and

902
00:56:11,920 --> 00:56:15,879
Speaker 1: just this idea that the coronavirus sort of accelerated all

903
00:56:16,000 --> 00:56:19,200
Speaker 1: these previous trends that were already underway. And if you

904
00:56:19,239 --> 00:56:24,400
Speaker 1: think about lumber Stinson was describing the supply issues in Canada,

905
00:56:24,960 --> 00:56:27,960
Speaker 1: the pine beetle infestation and the fact that Canada was

906
00:56:28,000 --> 00:56:31,600
Speaker 1: sort of becoming more conservative about how much would it

907
00:56:31,680 --> 00:56:35,680
Speaker 1: was actually chopping down. That seems to have gotten worse,

908
00:56:36,000 --> 00:56:38,239
Speaker 1: um over the past year or so, and so it

909
00:56:38,280 --> 00:56:41,120
Speaker 1: feels like a lot of this was on its way,

910
00:56:41,520 --> 00:56:45,280
Speaker 1: but because of COVID, the impact has just sort of, um,

911
00:56:45,360 --> 00:56:49,960
Speaker 1: you know, multiplied. Yeah, And that's the other thing, Like,

912
00:56:50,040 --> 00:56:52,799
Speaker 1: you know, the population of the United States has grown

913
00:56:52,840 --> 00:56:56,160
Speaker 1: a lot, because that's what populations do. The home buying

914
00:56:56,200 --> 00:56:58,360
Speaker 1: population has grown, and like people have like talked for

915
00:56:58,400 --> 00:57:01,359
Speaker 1: a long time about how the US was just like

916
00:57:01,520 --> 00:57:05,359
Speaker 1: under housed and the scars And I love that point

917
00:57:05,360 --> 00:57:08,840
Speaker 1: you made about the scars of two seven eight continuing

918
00:57:08,880 --> 00:57:11,520
Speaker 1: to link over the industry, linker over the industry. So

919
00:57:11,560 --> 00:57:14,800
Speaker 1: it's kind of like we're getting this like shock therapy

920
00:57:14,920 --> 00:57:18,160
Speaker 1: for the housing market overall, where we knew we've been

921
00:57:18,240 --> 00:57:21,040
Speaker 1: under housed for years, and suddenly we're like trying to

922
00:57:21,120 --> 00:57:24,320
Speaker 1: like make up for that under housedness in like the

923
00:57:24,360 --> 00:57:26,840
Speaker 1: span of like a year or two. And so you

924
00:57:26,880 --> 00:57:29,680
Speaker 1: get you get these like you know, super like painful

925
00:57:29,680 --> 00:57:32,480
Speaker 1: periods like we're seeing right now. Yeah, it also makes

926
00:57:32,520 --> 00:57:34,920
Speaker 1: you wonder if we're going to flip from being super

927
00:57:34,920 --> 00:57:38,120
Speaker 1: conservative in the aftermath of the two eight financial crisis

928
00:57:38,160 --> 00:57:43,080
Speaker 1: to everyone being scarred by the undersupply issues in one

929
00:57:43,120 --> 00:57:45,680
Speaker 1: like for the next decade, is lumber just going to

930
00:57:45,760 --> 00:57:49,840
Speaker 1: be this huge market and everyone's ramping up production. Well

931
00:57:49,840 --> 00:57:51,440
Speaker 1: that's what he kind of was hinting. Yet at the end,

932
00:57:51,520 --> 00:57:53,560
Speaker 1: right because you're like, well, no one wants, you know,

933
00:57:53,800 --> 00:57:55,640
Speaker 1: no one wants to get short anymore. Like if you

934
00:57:55,840 --> 00:57:58,600
Speaker 1: basically if you think of all the lumber yards, is

935
00:57:58,600 --> 00:58:02,640
Speaker 1: having just been like brutalize in the short squeeze, and

936
00:58:02,680 --> 00:58:06,240
Speaker 1: now that becomes the new thing that scars them, then

937
00:58:06,320 --> 00:58:08,280
Speaker 1: maybe you start to get this other correction. You have

938
00:58:08,440 --> 00:58:10,920
Speaker 1: to start to get like more building and more investment

939
00:58:10,960 --> 00:58:14,600
Speaker 1: and more capacity to probably ultimately good for the economy

940
00:58:14,720 --> 00:58:19,600
Speaker 1: rather than rather than shrinking. Yeah, more houses at least. Okay,

941
00:58:20,000 --> 00:58:23,800
Speaker 1: shall we leave it there? Yeah, let's leave it there. Okay,

942
00:58:23,840 --> 00:58:27,160
Speaker 1: this has been another episode of the Albots podcast. I'm

943
00:58:27,160 --> 00:58:30,000
Speaker 1: Tracy Alloway. You can follow me on Twitter at Tracy

944
00:58:30,040 --> 00:58:33,160
Speaker 1: Alloway and I'm Joe wisn't Thal. You can follow me

945
00:58:33,320 --> 00:58:36,560
Speaker 1: on Twitter at the Stalwart. Be sure to follow our

946
00:58:36,600 --> 00:58:39,640
Speaker 1: guests on Twitter Stinson Dean. He is under the handle

947
00:58:40,160 --> 00:58:43,000
Speaker 1: at lumber Trading. You really want to check out all

948
00:58:43,040 --> 00:58:45,920
Speaker 1: of lumber Twitter. It's a really good spot. Follow our

949
00:58:46,280 --> 00:58:50,160
Speaker 1: it really is. It's great. Follow our producer on Twitter,

950
00:58:50,520 --> 00:58:53,880
Speaker 1: Laura Carlson. She's at Laura M. Carlson. Follow the Bloomberg

951
00:58:53,960 --> 00:58:57,840
Speaker 1: head of podcast, Francesca Levi at Francesca Today, and check

952
00:58:57,880 --> 00:59:01,840
Speaker 1: out all of our podcasts at the handle at podcasts.

953
00:59:02,000 --> 00:59:02,800
Speaker 1: Thanks for listening.