Friday, June 25, 2010

Lumber Prices Indicate Next Wave Down Underway

As I’ve been saying all along, nothing is solved until the DEBT SATURATION is resolved. Depressions move in 3 waves, A down, B up, C down. The psychology of each wave is different – wave A equals “oh no!” Wave B equals “we’re saved.” And wave C equals real change is forced to occur – no fooling around this time. You can clearly see how the psychology is different now than it was during the plunge in 2008. Instead of “stimulus” the buzz word is “austerity.”

No where else are the A,B,C waves more clear than in the price of lumber. First let’s look at a monthly chart of lumber going back to about 2001. You can see a sharp rise into a $460 peak, then a plummet that led the stock market by nearly 3 years all the way down to $140 – a stunning 70% collapse! That would be wave A. Note on this chart that the current month’s price of $182.80 is not yet reflected:



Then we bounced smartly all the way back to a recent April peak of $325, that would be wave B.

Since April, lumber prices have collapsed 44%, dipping below $180 and today is sitting at $182.80 – here are a couple of daily chart presentations, the top one is most current, but the bottom one is a better candlestick presentation:





Sure looks and feels like wave C.

And who could have guessed? Housing sales/prices have not bounced one iota… “It’s contained,” became “It’s stabilized.” Riiight, just like this ten year chart of New Home Sales shows:



I have repeatedly been showing this chart of mortgage loan balances that are subject to recasting. The wave of subprime loans is mostly behind us, but the wave of option-ARMs is still largely in front of us:



This is going to dramatically impact the price of upper-end homes. As upper-end homes fall further in price, it will pull the median price of homes down with it. This is the Baby Boomer’s wave of folly! The largest player in this space was Washington Mutual, now defunct and a part of JPMorgan, the collector of all trash – as they are the center of the derivative trash world.

As a side note, you know that it used to be illegal to play “the shell game” by moving assets into shell companies for the purpose of bankrupting or isolating those assets? Well today, not only is that highly immoral practice not prosecuted, the latest (yuk) Dodd/ Frank “Financial Reform” bill would legislate exactly that, according to Bloomberg:
"The most contentious part of the derivatives rules is a provision that will force banks to push some of their swaps- trading into subsidiaries, on the theory it would reduce taxpayers’ risk if the trades are walled off from depositary institutions that enjoy federal benefits such as access to the Federal Reserve’s discount lending window. "

Protect taxpayers my rear... In other words, dump the trash into shell corporations to protect the criminals who produced the trash in the first place! That’s our new rule of law? Bring on wave C, it obviously has more work to do and I have a feeling that one of its primary duties is to ensure that neither Dodd nor Frank ever have a chance to damage our country again.

The price of lumber is shouting something at us, are we listening? Debt stimulus? Austerity? Of course neither of those is appropriate. The real solution can only be found outside of the central banker debt backed money box which they created to serve themselves. See Freedom’s Vision.