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Weekly Wrap: Lumber Prices Down, Inflation Duration, Crypto Resignations
Personal Finance

Weekly Wrap: Lumber Prices Down, Inflation Duration, Crypto Resignations 

Lumber Prices Up, Down, Up Again

The decrease in lumber costs looked like the light at the end of the tunnel for rising building and remodeling costs. However, a spike this week has thrown shade on that light.

Timbeeeeer. . . Not So Fast

Lumber futures had been in steady decline since mid-October. The price per thousand board feet was at about $538 earlier this week. However, that figure rose to just over $800 late Friday. That is down dramatically from its high of $1,686 per thousand board feet.

Most forecasters see the cost settling where it is now or lower. However, the new normal for lumber prices are higher than pre-pandemic levels.

Steel Price Decline

Steel futures have dropped to below $4,300 per tonne. That is 25 percent lower than its May 11th high of $5,975.

A primary reason for the decline in steel prices is reduced demand by China. About 40 percent of China’s steel consumption is in its real estate market. That sector was hit with a debt crisis in May. As a result, new construction plummeted over 33 percent in October year-over-year.

Price of Other Building Materials

Lumber and steel prices respond quicker than other building materials to market changes, according to Maurice van Sante, ING senior economist – construction.

“The sales price of timber and steel has a less delayed correlation,” writes van Sante. “Building suppliers of these materials almost directly indicate fewer price increases when they see an improvement in their inventories. There is only a time lag of one or two months between the improvement of stocks and price changes.”

Conversely, concrete, brick, and cement prices do not change until inventories increase, notes van Sante.

“Therefore we first need to see some stock improvement, before the prices of these building materials stabilize, let alone decrease,” according to van Sante. “So, taking the six to nine months price delay into account, we don’t expect prices of concrete and cement to come down before the summer of 2022.”

Remodeling Booming

Harvard University’s Leading Indicator of Remodeling Activity (LIRA) forecasts continued growth in remodeling through next year.

The Lira report says home improvement and repair expenditures will grow nine percent over last year. That rate is expected to continue into next year.

“Residential remodeling continues to benefit from a strong housing market with elevated home construction and sales activity and immense house price appreciation in markets across the country,” says Carlos Martín, Project Director of the Remodeling Futures Program at Harvard’s Joint Center for Housing Studies. “The rapid expansion of owners’ equity is likely to fuel demand for more and larger remodeling projects into next year.”

Crypto Crimping Labor Supply

A new study by Civic Science indicates a small but growing number of people are quitting their jobs to live off their cryptocurrency investments.

The study polled thousands of respondents in October. It found that 11 percent have quit their jobs or know someone who has quit to live on returns from digital assets.

Not A Rich Person’s Game

The popular perception of crypto wealth fueling the lifestyles of tech-savvy entrepreneurs is turned on its head by the Civic Science survey.

The lowest-income respondents fueled most of the cryptocurrency resignations.

A majority of respondents who said they replaced their paycheck with a digital income earn below $50,000. Of those, 37 percent earn between $25,000 and $50,000. In addition, 27 percent earn below $25,000.

Life-Changing

“This data implies that crypto investments may have provided life-changing levels of income for some,” states the report. “While the wealthier owners of crypto use it more as another form of asset diversification rather than source of income. And further data elaborates this point. “

Of active traders polled, 38 percent say they invest in cryptocurrencies. Another three percent plan to invest in digital currencies.

Similarly, numbers for occasional trades show 34 percent trade cryptocurrencies and nine percent are planning to.

“Respondents who are active or occasional traders on the stock market are significantly more likely to have invested in cryptocurrency,” says the report. “So while heavier stock investors may not be quitting their jobs as a result of any crypto gains, they are the ones driving much of the market.“

Other Findings

Some other findings include:

  • Respondents making $25,000 a year or less in income, 27 percent say crypto investments have made them wealthier.
  • Of those earning in excess of $150,000 annually, 42 percent said cryptocurrencies have made them wealthier.
  • Interviewees aged 55 plus, 28 percent see cryptocurrencies as a short-term investment. On the other hand, 15 percent see their digital assets as a long-term investment.
  • Of younger investors (18-24) 19 percent view digital currencies as short-term investments. Conversely, 36 percent are holding on for the long haul.

When Will Inflation End

Inflation has just started. However, many of us have no patience in waiting for it to end. We are like kids on the way to grandma’s house repeatedly asking, “are we there yet?”

Mom and dad could look at the odometer and give you a fair idea of how long it would be to get to grandma’s. However, there is no gauge to accurately predict how long inflation will last.

That said, we are going to give it a try.

What Triggered Inflation

SA has documented the rise in consumer prices spearheaded by oil and gas, housing, and meat.

The bureau of labor statistics reported last week that the Consumer Price Index (CPI) rose again to 6.2 percent. That is the highest year-over-year increase in over 30 years.

Many prices, most notably for fuel, dropped markedly during the pandemic. We were traveling less and not going out.

However, when the economy began to open inflation began to rise. There was a sudden and sustained increase in demand for consumer goods. At the same time, inventories had dwindled, the supply chain kinked and gas and oil production slowed.

Money Supply

The government has pumped money into the economy through stimulus checks to consumers. Additionally, the Federal Reserve Bank (Fed) began buying bonds to boost the money supply to banks and investors.

Recently, the Fed began tapering its purchase of Treasuries. That was done to avoid having too much money floating around, which contributes to inflation.

When Will We Get There

Eventually, inflation will ease. The difficulty comes in figuring out when and what to do in the meantime.

Fed Chair Jerome Powell says inflation will continue until supply problems are resolved. He has speculated that will not occur until well into 2022.

“These bottlenecks are why the Federal Reserve believes that the currently high inflation rates will ease over time and fade by next year,” Mary Ellen McGonagle, senior managing director of stocks for Simpler Trading tells Go Banking Rates. “I’m viewing inflation as being transitory unless we see increased labor shortages drive up wages and, hence, pricing.”

Mark Zandi, chief economist of Moody’s Analytics, Agrees.

“But this uncomfortably high inflation isn’t here to stay,” writes Zandi in a CNN opinion piece. “It won’t be lower a month or even three months from now, as quelling the chaos created by the pandemic will take time. But a year from now, as the pandemic recedes, inflation will be low enough that we won’t be talking about it. The hair-on-fire discourse over high inflation is understandable, but it’s overdone.”

Inflation Investing

Several advisors and investment firms are offering ideas for cashing in on inflation.

Two advisors offered inflation investment ideas on CNBC’s Your Money last week.

Gargi Pal Chaudhuri, of Black Rock, pointed to infrastructure, commodities, and financials as areas of potential interest. However, she noted investors on a fixed income would have the best results with Treasury Inflation-Protected Securities (TIPS). These Treasury bonds rise and fall with the rate of inflation.

Marguerita M. Cheng, CEO and co-founder of Blue Ocean Global Wealth, noted the potential for alternative investments to do well. These might include cryptocurrencies or NFTs. However, she recommends a balanced portfolio in which “alternatives can represent anywhere between five and 15 percent.”

Through it all, the stock market has stayed its upward course. In fact, investment banking firm Goldman Sachs this week forecast the Dow is on its way to 5,100 next year. Quality stocks are still a good investment, according to Goldman.

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