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What Happened This Week:
After rallying more than 400% in the past year, lumber prices are now down about 50% off of the recent highs reached in May. Many experts are predicting lumber to continue to tumble to $600 per thousand board feet over the next few months but eventually trade around the $700-800 range.
According to the WSJ: The rapid decline suggests a bubble that has burst and the question is how low lumber prices will fall. Even after tumbling, lumber futures remain nearly three times what is typical for this time of year. Lumber producers and traders expect that prices will remain relatively high due to the strong housing market, but that the supply bottlenecks and frenzied buying that characterized the economy’s reopening and sent prices to multiples of the old all-time highs are winding down.
Business Insider also reported that the drivers of the lumber's recent slump are the decline in both new home construction and home-improvement sales from their record-highs earlier this year. Producers also seem to be catching up to a certain extent, largely incentivized by the sky-high prices of the commodity.
Even our boy J-Pow has been eyeing the lumber market, using it as a proxy for the Fed’s transitory inflation thesis. During the Q&A session this week following the Fed’s latest policy decision, Powell commented:
"For example, the experience with lumber prices...the thought is that prices like that that have moved up really quickly, because of shortages and bottlenecks and the like, they should stop going up and in some point, in some cases, they should actually go down and we did see that in the case of lumber."
While lumber prices have fallen sharply, there still hasn’t seemed to be much of a change from Home Depot and Lowes. I’m waiting for them to lower their lumber prices to something reasonable so I can afford to put in a new fence and deck. It’s kind of wild that lumber was so expensive that the composite materials actually started making more financial sense and they last probably 3-5x longer.
Also this week, the Fed sharply increased its inflation forecasts for the year as it now sees inflation running to 3.4% this year, above its previous estimate of 2.4%. The central bank also slightly hiked its PCE inflation estimates for 2022 and 2023. The Fed now sees at least two interest rate hikes in 2023, according to the central bank’s so-called dot plot of projections. This spooked the markets a little this week as Gen Z traders have never dealt with investing (trading) in a rising rate environment.
Regardless, 2023 feels like a long time from now and so many things could happen before then that would change their minds. And as we know from previous Fed meetings, the dot plot is always a moving target. Just do what I do and trust the Fed blindly because 1) you aren’t smarter than them and 2) you will lose money if you try to fight them.
Performance Update:
Now let’s see how the People’s Portfolio did this week…
Somehow we escaped with another weekly gain, making it four weeks in a row with gains as the S&P 500 and Dow turned lower. Shopify can be thanked for this as it rallied 17.6% this week and has been up 7 straight days in a row. It’s now less than 3% from an intraday all-time high.
On Friday, we voted Caterpillar (CAT) out of the portfolio and realized a 9.29% loss. Everything was actually looking great for CAT heading into the final 2 weeks of the 10-week hold. Then the dollar started rallying and industrials started selling off—including Deere as you can see in the chart below.
We replaced CAT on Friday with Adobe (ADBE). Adobe reported a quarterly profit of $3.03 per share, 21 cents a share above estimates. The software company's revenue also topped Wall Street forecasts and Adobe gave stronger-than-expected current-quarter guidance. Shares hit an all-time high on Friday on the earnings pop. Let’s hope this turns into a buy-high-sell-higher position.
Coinbase (COIN) is on the chopping block next week for the 1st time. We’re currently holding onto a -32.30% loss over the past 9 weeks as it has pretty much gone straight down since the IPO a few months ago which also seemed to mark the top on the overheated crypto market.
Our portfolio is currently -5.93% on the year and we’re slowly getting close to getting back to even on the year.
Captain put together this Regatta of WeRamp stocks to see how the conversation has changed over time.
Keep an eye out for the new Twitter poll every Friday. Follow along in real-time with nearly 300,000 others on Public.
Portfolio News Highlights:
The biggest stories affecting our portfolio this week:
Square Shows Rising Relative Strength, Gets An Upgrade Into 80-Plus (IBD)
Ag stocks dry up as Fed rate view scares investors off commodities (SA)
Nvidia Higher as Price Target Raised to $900 at Bank of America (The Street)
Shopify Expands E-Commerce Pact With Google and Facebook (Bloomberg)
Disney Stock Looks Set to Get a Boost From a Quicker Reopening (Barron’s)
What Else We’re Reading:
Blogs/Articles:
DraftKings: A $21 Billion SPAC Betting It Can Hide Its Black Market Operations - Hindenburg Research
Blink - Michael Batnick (The Irrelevant Investor)
Zero Knowledge: A Not Boring x Jill Carlson Collab on Moon Math, Privacy, and Hype - Packy McCormick x Jill Carlson (Not Boring)
Books:
Atomic Habits - James Clear
Need new reading material? Visit my Amazon page for my most purchased book recommendations.