Lumber, Price Anti-Bubbles and Inflation, and Fed Protocols

This year's timber chart is a graphic illustration of what happens when an asset is in a bubble. It took wood about three months to lose 75% (!) Of the price. This is a very good example of the fact that at some point, faith in the growth of an asset begins to be lacking. And if someone thinks that the stock market or the cryptocurrency market is different, they may be unpleasantly surprised.

Very often, price bubbles are replaced by anti-price bubbles. That is, the price deviates from the equilibrium, but not up, but down. There is no need to look far for an example - the oil market is a little over a year ago. Prices are less than the cost price - this is abnormal and oil has clearly demonstrated how it ends.

In this light, the current prices for timber seem already attractive enough at least to hedge market risks for those who have sales of risky assets, for example, in the same commodity market.

And also, according to Vanguard analysts, timber as a representative of the commodity markets does a good job of hedging inflation. Over the past decade, the beta inflation rate in commodities has fluctuated between 7 and 9 (meaning that a 1% rise in inflation leads to a 7-9% rise in commodities). This is especially true in light of yesterday's inflation data from Canada and the UK.

However, as an independent position, the purchase of timber has a right to exist, at least as the first round of purchases, the current prices look quite suitable. But God bless her with wood - whoever buys is well done, and who does not - he can work with hundreds of other assets.

Formally, the main event of yesterday was the publication of the FOMC minutes. Considering that for the second week in a row the FRB Presidents have been literally competing with each other in the field of rhetoric regarding the reduction of the quantitative easing program, the markets were very interested in whether there was anything about this in the last minutes of the Committee. It turned out there is. The Fed is clearly moving from the "denial" stage to the "bargaining" and "acceptance" stages. For buyers in the US stock market, this is extremely negative news. But the prices are still very high, so it's not too late to join the sellers.