I had 3 follow up post of Lumber futures to see the progress of the triangle breakout towards inflation or housing slump. Since like lumber is heading for housing slump
I've decided to overlay LS1! vs SPX to see how they behave for the last two crisis. Orange line (Lumber futures), Blue Line (SPX)
Red bold vertical line with a circle indicates the point when Lumber and SPX started to diverge. And black thin vertical line being the exact equity market top before collapsing.
For 2000 tech bubble: Lumber peaked at Feb 2000 while SPX peaked at Aug 2000. Hence it took 6 months later for SPX to crash.
For 2008 subprime crisis It took 14 months before SPX finally had enough of bull fun.
Currently, i am not sure whether it will be a correction or crisis The fact is : Lumber had peaked out since March 2013. And 24 months later SPX has yet to peak.
The million dollar question will be what is the value of X (i shall limit it to single digit??)
Comments
claydoctor
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Nice charting Jang, good job spotting this correlation. It speaks to larger issue, housing... Housing is an anchor to the economy, maybe top 3 important. Some talk I hear now of a coming housing issue, draining down the economy. many reasons why. Milleniums not buying, prefer rent not own, or living with parents still. Credit not recovered from 2008, bad credit, no mortgage. Even if they loosen Fannie and Freddie guidelines (so government does own housing industry because no lenders ever hold mortgages after the sale anymore), the lag will take so long to get going again, this slump will keep its momentum for some time. Housing has not created jobs. So the anchor is too heavy, holding the boat from moving forward. And if FED rates go up, causing mortgage rates up, helping banks, but hurting housing, they won't make any new loans anyway, so the FED is between the rock and and hard place. Maybe Yellen won't say it, but that is a major factor for FOMC in keeping rates lower longer. And LUMBER is a major part of the housing market. The only thing that has kept it up is multi family housing starts, and that has peaked. They will only build as much as they think there is demand. Dollar strong, hard to export US lumber at these costs. If they cause dollar down, then maybe lumber picks up because they can export again, but that would bring down the markets. Another rock and a hard place. That is why we are stuck, everywhere I look, no matter what "they" do, it won't help, and only hurt the markets. INDECISION MEANS consolidation to the max. That's where we are. It won't take much rocking of the boat to cause a leak if not sink this ship.
jangseohee
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I knew it, Claydoctor, so much fundamental of Lumber behind the equity market :-)
Thank you for explanation
i really believe Yellen will protect US's interest first and once it is done, she is ready to solve that X!