2018 is a year for the record books. All time price highs followed by all time largest price drop in shortest time.
One very important lesson learned or reinforced was how significantly supply disruptions can influence price movement. The variable is the set up. Specifically, the state of Inventory Shift and the point in the price cycle at the time of the disruption determines the disruption’s impact. Well orchestrated disruptions prior to spring create the most bullish scenario. Resolution of the disruption results in a radical reversal.
2018’s disruptions were the winter Canadian rail shipment delays, large tariffs on imports and exports, increased U.S. production, decreased Canadian lumber shipments to the U.S., and higher interest rates. Higher interest rates were the only expected disruption.
We can already see what the most significant 2019 disruption will be. That is WAR...TRADE WAR. The debate will be over whether the U.S. is justified as a retaliation for what we allowed to get out of hand, or if the WAR is an instigating act of aggression. All of that will be “noise.” The reality will be global economic turmoil. Immigration will be packaged with the WAR, which will alienate the U.S.
As the trade disruption intensifies, military conflicts will intensify, with Russia leading the charge. Putin will back Trump into a corner that he is trying desperately to avoid: military action. Of the top ten armies in the world, U.S. and its only ally, South Korea, would total 1.97 million troops. Russia and seven allies would total 7.7 million troops. We are out manned nearly 4 to 1. Technological advantage neutralized when a nuke is fired. It gets worse.
President Trump is no fool when it comes to money, his weapon of choice. In 2018, of the top ten economies, the U.S. and its six allies control 67% of that total. The remaining 33% is held by three Russian allies (Russia not in top ten).
By 2050, global economies will be realigned and projections are that U.S. and its four allies will control only 31%; Russia and its four allies will hold 69% control. Russia will vault from #14 to #6. China and India will represent 79% of the total top ten economies. The U.S. will fall to #2 behind China, controlling only 17% of the pie.
This inversion of global economic control is likely what President Trump is trying to reverse and he is doing a remarkable job of deflection. Tariffs are being spun as self destructive, while the real objective may be to derail the opposition, leaving the U.S. and its allies the strongest after the fall out...not a recession, but a very short DEPRESSION. Short because the world will agree to a rapid resolution in lieu of total annihilation. Wake up people. Lumber is in for its wildest ride ever in 2019 and 2020.
Lumber Market Forecast: Can LLG Beat a Depression?
Over the past 20 years, through all kinds of disruptions, LLG’s lumber market forecasts using the Forecasted Decision Points have sustained 86% accuracy. To be fair, our lumber market has not been tested like it will be over the next two years. Until proven otherwise, LLG’s FTP’s are not only the saving grace, but the only time tested weapon you have to turn cataclysmic catastrophe into mountains of opportunity.
The coming economic situation will not be the result of economics as we know it, rather a preventive measure to avert an inversion of global financial control.
Perhaps a last-minute global economic peace treaty will be brokered.
Looking Forward...ML
A veteran lumberman, Matt Layman publishes Layman’s Lumber Guide, the weekly forecasts and buying advisories that help component manufacturers save money on lumber purchases every day. You can reach Matt at 336-516-6684 or matt@laymansguide.info.