- Lumber prices have yet to hit their lowest point and will drop as much as 30% by the end of the year, according to Micheal Gayed.
- Gayed is an award-winning portfolio manager for Toroso Investments who has long presented timber as a powerful indicator for the US economy.
- He gave three reasons why lumber could drop to $ 357 per thousand board feet by the end of 2021.
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Lumber prices have yet to bottom out and will lose as much as 30% by the end of the year, veteran portfolio manager Micheal Gayed said.
That means the commodity could drop as low as $ 357 per thousand board feet, compared to about $ 510 per thousand board feet for lumber on August 27.
Gayed, an award-winning portfolio manager for Toroso Investments who has long touted wood as a powerful indicator for the US economy, said there are three reasons commodity will experience a prolonged decline.
The first is the slowdown in housing construction, as high prices deter buyers and undermine demand, he said. The market is about to reverse, and if housing cools, so does construction, he added. Various data shows that the housing crisis is worsening in the United States.
“Timber is sort of your closest real-time indicator of real estate activity,” Gayed, who also heads the ATAC Revolving Fund, told Insider. “Real estate activity is likely due to an aggressive downturn.”
Lumber prices have fallen 70% from a record high of $ 1,711 reached in May. Prior to this record, prices had climbed more than 500% during the COVID-19 pandemic due to supply chain disruptions.
Gayed’s second reason is an oversupply of lumber as sawmills rush to meet demand, he said. Lumber production, which begins in sawmills, was severely disrupted when much of the economy shut down.
But now, many analysts are seeing North America’s largest lumber producers brace for a rebound from a severe blow at the height of the pandemic caused by closures and raging wildfires.
The third reason, Gayed said, is that the market will soon realize that inflation is indeed transient. Lower inflation usually leads to lower Treasury yields, and yields, he says, generally move in the same direction as lumber.
Gayed is well known for his 2015 report on the relationship between gold, timber, and economics, and for knowing when to play ‘attack’ and ‘defense’.
If lumber outperforms gold in about four months, Gayed said, investors should take a more aggressive stance as it indicates economic strength. If gold outperforms lumber over the same period, he advises investors to do the opposite.
One final reason lumber could see a further downturn – which Gayed says less is talked about – is the looming debt ceiling crisis, which Republican lawmakers in the United States recently signaled they were talking about. would not rise.
“The implication is that if S&P and Moody’s downgraded the US debt rating like they did in 2011, and the reaction is the same, it … would greatly hurt economic activity.”
Gayed pointed to the massive correction in 2011 when the US stock market collapsed after a credit rating downgrade by S&P – the first time the country was downgraded.