The Price of Construction Materials
Is About to Soar
January 5, 2010
By Tom Dyson,
Daily Wealth
If you want to know what's going on
in the economy, you need to watch
the price of lumber...
Housing is the most important asset
class in America. When house prices
fall, banks fail, consumers cut
back, unemployment rises, and the
economy collapses. But when house
prices are strong, the economy
rebounds.
In other words, the U.S. real estate
market is the main pivot in the
whole economic mess we're in right
now. If you can figure out what's
happening in real estate, you can
figure out everything else.
Lumber and building materials are
the best leading indicators of real
estate.
Take the timeline of the current
crisis as an example... The lumber
price reacted before any other
market: Lumber prices peaked in May
2004. The Bloomberg Homebuilders
Index peaked in July 2005. The Case-Shiller
U.S. Home Price Index peaked in July
2006. The credit crunch started in
February 2007, when New Century
Financial collapsed. And finally,
the S&P 500 peaked in October 2007.
When the recovery comes, I expect
it'll show up first in building
materials, too...
So what's happening right now in the
building materials markets?
Ro-Mac is a $100 million lumberyard
near Orlando, Florida. Ro-Mac
supplies central Florida's
homebuilders and contractors with
building materials like 2x4s, rebar
concrete, and gypsum wallboards.
I received an e-mail from Ro-Mac's
general manager, Don Magruder, last
week. Don says several suppliers
announced price hikes in December
and he expects "a caravan" of
further price increases in January.
"My feeling is that the month of
December is the calm before the
price storm of 2010," he writes. Don
advises contractors and builders to
be "wary" of entering long-term
contracts.
He says supply is the reason prices
are going to rise. Manufacturers of
building materials have closed
plants, fired workers, and sold
their inventories. Many have gone
out of business altogether. Don
calls it "supply destruction." He
says the moment demand picks up,
there's going to be an instant
shortage of materials.
My wife and I are taking advantage
of the situation by doing extensive
renovations to our home. We don't
need new kitchen cabinets, but my
wife and I have found such a good
deal, we're thinking about having
our entire kitchen remodeled. We're
also considering a new roof and an
upgrade for our air conditioning
system. Last month, we had our yard
landscaped front and back.
It's hard to say exactly how much
we're saving. But given the low
price of labor and materials, I bet
we're getting at least a 30%
discount.
If you're looking to get some work
done on your house, now's a great
time. But the easiest way to take
advantage of this situation is to
buy stock in forest-products
companies like Weyerhaeuser and
Rayonier. They benefit when building
material prices rise.
Good investing,
Tom
Tom points out that forest-products
companies like Weyerhaeuser and Rayonier benefit when building
material prices rise. If you're not sure which individual timer
stock to buy, why not go with a basket of them in one swoop? The
Claymore/Beacon Global Timber Index (NYSEArca:
CUT) gives you instant access to
a number of timber firms. Its $115 million portfolio includes names
like Weyerhaeuser, Hokuetsu Kishu Paper Co., Meadwestvaco Corp.,
Mondi Limited, Nippon Paper Group, and Sino-Forest Corp.
--Greg
DailyTradeAlerts.com
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