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Micheal Gayed states that the lumber price has yet to fall and could drop as high as 30% by the end the year.
Gayed, a Toroso Investments portfolio manager who won an award for his work, has long regarded lumber as a strong indicator of the US economy.
He gave three reasons lumber prices could drop to $357 per 1,000 board feet by 2021.
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Micheal Gayed, a veteran portfolio manager, said that the lumber price has not bottomed and could fall as high as 30% by the end the year.
This could mean that the commodity could fall to $357 per 1,000 board feet from $510 per 1000 board feet lumber, which was traded at on August 27, at around $510 per 1,000 board feet.
Gayed, a Toroso Investments portfolio manager who is an award-winning professional, has long cited lumber as a strong indicator of the US economy. He said that there are three reasons for lumber to continue its slide.
He said that the first is the slowdown in housing construction due to high prices, which discourage buyers and sap demand. He said that the market is in a reversal and that if housing prices drop, construction will also fall. Multiple data shows that the US housing crisis is worsening.
Gayed, who is also the ATAC Rotation Fund's chief executive, said that "Lumber" is "sort of your closest real time gauge of housing activity." "Housing activity is likely to slow down aggressively."
Lumber prices are now down 70% from May's record high of $1,711, which was reached in May. Prices had risen more than 500% in the COVID-19 pandemic, which was caused by disruptions to supply-chains.
Gayed said that the second reason for this is an oversupply of lumber. Sawmills were rushing to meet demand. When much of the economy was shut down, lumber production, which begins in the mills became severely disrupted.
Analysts now see North America's largest lumber producers as poised for a rebound after suffering a severe blow during the heights of the pandemic that was caused by lockdowns, wildfires, and other factors.
Gayed stated that the third reason is that the market will soon recognize that inflation is transitory. He said that lower inflation results in lower Treasury yields. Yields generally move in the same way as lumber.
Gayed is best known for his 2015 report about the relationship between gold and lumber and the economy. He also explains when it is appropriate to play "offense" or "defense."
Gayed stated that lumber outperforming gold in four months is a sign of economic strength. Investors should adopt a stronger stance. He advises investors to reverse the trend if lumber is outperforming gold in the same period.
Another reason lumber could experience a further downturn, but one Gayed says is less well-known is the looming debt ceiling crisis. US Republican lawmakers recently indicated that they would not lift it.
"The implication is that, if S&P or Moody's downgrade US bonds like they did in 2011, and their reaction is the same as it was in 2011, it would... broadly harm economic activity."
Gayed pointed out the huge correction that occurred in 2011, when the US stock exchange crashed following a S&P credit rating downgrade - the first time this country had been downgraded.
