A Leading Economic Indicator: Lumber
Posted: Oct 08 2009 By: Dan Norcini Post Edited: October 8, 2009 at 2:49 pm
Filed under: Trader Dan Norcini
Dear Friends,
The more I look at the US equity markets and compare that to the world of Main Street, the more convinced I am that this nearly vertical rally in the equities is the result of funny money plowing into stocks which has little significance to the average citizen on the street who is trying to figure out why the stock market is saying things are so rosy when everything around him tells him that the truth is quite a different story.
Even in the commodity markets, index fund buying has become indiscriminate as they hurl huge sums of money into commodities across the board irrespective of any fundamental realities in those markets. Many markets are nothing but US Dollar plays with the weaker Dollar generating fears of inflation and driving investors into things tangible.
What makes me suspect that the US economy is going to remained mired in the mud however and that the equity markets are illusory is the simple price chart of Lumber that I am including here for your review.
Lumber and copper are two of the best indicators that I know of to gauge the condition of the economy. Why? Because copper reflects building activity and factory activity while Lumber reflects building activity. Copper has an international component to it meaning that it can be in weak demand here but strong demand overseas as those economies grow and expand while ours remains stagnant. Lumber however has no international component to it meaning that it reflects almost exclusively, the state of the US economy as far as the building industry goes. Employment in housing and multi-family dwelling units employs hundreds of thousands of workers from the trades not to mention the goods that go into a house once it is completed. It is therefore a much better reflection of how middle America is faring.
With that in mind, look at the following chart and tell me if you see a market that is evidencing a pickup in housing construction and signaling an improving economy ahead. Until it does, all such talk about the US economy being on the mend is nothing but mere blather.
Click chart to enlarge today’s Lumber chart in PDF format with commentary from Trader Dan Norcini
http://jsmineset.com/2009/10/08/a-leading-economic-indicator...
I rent the tools to build the house that uses the lumber
You dig the foundation before you get the lumber. Ain't nobody digging.
"What was taken from the boomers, it ain't there, what was taken from the X'ers it ain't there, what is being taken from their great, great, great squared grandchildren it ain't there. Some generation just has to have the guts to quit passing it on." Me
*May the only ones to touch your junk, be the ones you want to touch your junk.*
I know.... there are no
I know.... there are no green shoots.. by Christmas this year I would be surprised if the stock market has not crashed and we do not have a banking holiday.
A prudent man foresees the difficulties ahead and prepares for them; the simpleton goes blindly on and suffers the consequences. Proverbs 22:3
A prudent man foresees the difficulties ahead and prepares for them; the simpleton goes blindly on and suffers the consequences. Proverbs 22:3
Matthew 10:34 Think not that I am come to
send peace on earth: I came not to send peace,
but a sword.
what? no pearls of wisdom
what? no pearls of wisdom from jzneff about how we have green shoots and everything is just AOK with our economy?
A prudent man foresees the difficulties ahead and prepares for them; the simpleton goes blindly on and suffers the consequences. Proverbs 22:3
A prudent man foresees the difficulties ahead and prepares for them; the simpleton goes blindly on and suffers the consequences. Proverbs 22:3
Matthew 10:34 Think not that I am come to
send peace on earth: I came not to send peace,
but a sword.