Lumber – the Doge of Commodities

Lumber – the Doge of Commodities

What does Doge Coin and lumber have in common? They both skyrocketed in May to record highs and have since come crashing down.

And when I say crashing, I mean crashing. From their peaks last month, Doge is down 53% and lumber is down 41%. Now the question is, how is a commodity behaving as volatile as a meme crypto?

The main reason was because most did not see the construction boom happening during the pandemic – least of all sawmills who cut production by over 30% in Q2 of 2020. This lead to the biggest lumber shortage in the US at the same time as one of the biggest housing booms. The other reason is that amateur traders thought they could get into lumber futures contracts and ride them to the moon. If you’re an OG lumber Robinhood investor, you may have landed and gotten out. But those who were late got burned. Sawmills are back at capacity and lumber futures contracts had their largest weekly price drop ever last week.

At least the cost of building homes will come down.

 

Lies, Damned Lies and Statistics

It’s all about being first with the big headline – the shock and awe. We saw it with record year over year inflation headlines when we had negative inflation last year and we are seeing the same thing now with foreclosure readings. Todays big headline is that ATTOM Data found that foreclosures are up 23% from last year! Let’s scroll back our feed to last year. What was being implemented? MORTGAGE FORBEARANCES. Of course foreclosures are up from last year, people who could not afford to make their mortgage payment didn’t have to so there was almost no reason to foreclose a home. And of course the headlines leave out the fact that foreclosures are actually down 8% from last month… that statistic does not get clicks.

Many will say that a ton of people have gotten used to not making a payment and will go into foreclosure as soon as their forbearance is over. This is a valid concern; however, over 25% of people in forbearance across the country continued to make their payment.

 

The Rates

Mortgage Backed Securities broke through their 50 DMA and are now in a vulnerable position with only one floor of support nearby. We are holding a locking bias.