The Hot New Thing To Worry About Is Lumber Futures

Given the crucial role of housing to the economic recovery, there’s suddenly a lot of interest in what’s going on with lumber futures, which has been on the decline.

SoberLook has the chart:

SoberLookThe questions is whether this is something about the US housing market (which is conceivable, given that housing starts missed expectations yesterday) or whether it’s got more to do with the global commodity decline, and thus perhaps China-related.

Jonathan Krinksy of Miller Tabak wrote about lumber in a note to clients yesterday:

Lumber prices and the Homebuilding Stocks have a pretty high correlation for obvious reasons. They generally move higher together, and lower together, over longer periods of time. When they start diverging, however, we should probably take notice. Maybe the biggest negative divergence in recent history was from 2004 to 2005. Lumber futures peaked in the late summer of 2004. Yet the S&P 500 Homebuilders Index pushed higher until peaking nearly a year later in July 2005. We have a similar set-up currently taking place, in that Lumber prices peaked in February of this year, and are now down over 20% from recent highs. Yet the S&P 500 Homebuilders have kept marching higher, hitting a recent high yesterday.

Anyway, watch this space.

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