Occasionally I’ll turn on the “CNBC T.V” widget within my Think Or Swim Trading Platform.
I get a chance to “see what you see” there in the U.S – the wonderful rants n raves of the “oh so knowledgeable” and not at all “bias” staff of CNBC. This morning I was thrilled to hear of the massive recovery in housing in the U.S, with some “million plus new homes on the build” and the question came to mind……..
How can there be a housing recovery in the U.S when the price of lumber has absolutely tanked since March?
Raw_Lumber_Futures
I am no economist ( by any means ) and do hope that perhaps one my valued readers can help me understand.
Seriously? – Can some one a little closer to the source explain this? – Or just better to go with the opinions / bullshit that the local media keeps throwing you?
The Truth Behind Media Narratives and What They Mean for Currency Markets
Lumber Prices Don’t Lie – Unlike Television Pundits
Here’s the thing about commodity markets – they reflect actual supply and demand dynamics, not wishful thinking or political spin. When lumber futures crater by 70% from their highs while media outlets trumpet a housing boom, you’ve got yourself a classic disconnect between reality and narrative. This matters enormously for forex traders because commodities often serve as leading indicators for currency strength, particularly for resource-rich nations like Canada, Australia, and New Zealand.
The Canadian Dollar has historically shown strong correlation with lumber prices, given Canada’s massive forestry industry. When lumber tanks but housing “recovers,” something’s fundamentally broken in the story. Either the housing recovery is built on financial engineering rather than actual construction demand, or we’re looking at a supply glut that’s about to hammer commodity currencies. Smart money follows the commodities, not the headlines.
Following the Real Money Flow in Currency Markets
While CNBC cheerleaders wave pom-poms about housing starts, institutional money is already positioning for what the commodity collapse really means. Look at USD/CAD behavior during major lumber price swings – there’s your real economic indicator. When building materials crash but construction supposedly booms, you’re witnessing either massive inventory liquidation or demand destruction masked by statistical manipulation.
This creates opportunities in currency pairs tied to construction and housing sectors. The Australian Dollar, New Zealand Dollar, and Norwegian Krone all have significant exposure to commodity cycles that feed into construction. When these underlying commodities diverge from the media narrative, you get volatility – and volatility means profit potential for those paying attention to facts rather than fiction.
The Japanese Yen often strengthens during periods of commodity price uncertainty, as investors flee to safe havens when raw material markets signal economic trouble ahead. Meanwhile, the Euro can get whipsawed as European construction companies face margin compression from volatile input costs, even as media celebrates “recovery.”
Media Manipulation and Market Reality
Television financial media exists to sell advertising, not provide accurate market analysis. When lumber prices scream recession while talking heads scream recovery, professional traders know which signal carries more weight. Commodities don’t have public relations teams or political agendas – they simply reflect what’s actually happening in the real economy.
This lumber-housing disconnect reveals a broader pattern of narrative management that savvy forex traders can exploit. When media narratives diverge from underlying commodity and bond market signals, currency volatility typically follows. The USD often benefits from these disconnects initially, as confused markets flee to dollar safety, but the real moves come when reality eventually reasserts itself.
Consider this: if housing were truly booming with legitimate demand, lumber prices would be soaring, not collapsing. The fact that they’re moving in opposite directions suggests either massive overbuilding, inventory dumping, or demand funded by unsustainable financial engineering. None of these scenarios support long-term dollar strength against commodity currencies.
Trading the Disconnect: Practical Currency Strategies
When commodities diverge from media narratives, currency traders can position for the eventual convergence. If lumber stays weak while housing “recovers,” expect USD/CAD to trend higher as the Canadian economy feels pressure from its forestry sector. Similarly, watch AUD/USD for weakness as Australian commodity exports face global demand destruction.
The key insight here is timing. Media narratives can persist for months while underlying fundamentals build pressure. Smart traders accumulate positions gradually, using commodity price action as confirmation rather than fighting the initial narrative-driven momentum. When lumber and housing data eventually converge – and they always do – the currency moves can be substantial and sustained.
Bond markets often provide the bridge between commodity reality and currency action. When lumber crashes but housing allegedly booms, watch yield curve behavior. If long-term rates don’t support the growth narrative, you’ve got confirmation that commodities are telling the truth while media spins fiction. That’s your signal to position accordingly in currency markets, following the money rather than the mouths.
The lumber makes no sense on some fronts. Unless lumber mills have accumulated a ton of lumber that they are now releasing all at the same time. Perhaps taking advantage of a short term uptick to unload excess inventory buildup. I live in Texas and construction is Definately underway in a substantial matter. It probably has some legs as well based on lack of new home inventory over the last few years.
Dave!
Thank you so much for the insight – as frankly I’m only able to assess charts and data points. There is absolutely nothing more valuable than having ” a man on the ground ” when it comes to getting a real view. Living in Texas I can only assume you’re seeing things as close up as it gets – again thank you for your input.
Personally….I’m of the mindset that the media spin on “housing recovery” masks the stark reality that (perhaps on a country wide scale) the complete opposite is in effect – but again…am looking at things from waaaaaaaaay outside.
In my mind I keep coming back to some significant fundamental factors…ie…..just as many ( and more ) unemployed Americans….coupled with a massively devalued currency ( and inflationary pressures on the common household ) – difficult if not impossible lending procedures via banks for small business….and somehow housing on a rebound?
Who has the money to build the houses?
Who could possibly be in line to “buy” the houses?
Certainly interesting – and please….any more insight woud be greatly appreciated!
Hey Kong,
As far as who could possibly be in line to “buy” the houses? From what I can tell (as my gf is currently in the market looking to buy and actually LIVE in the property), it is totally an investor’s market right now.
Housing prices in SoCal have gone down (but are still ridiculously over-priced in my opinion), so it makes it seem look a good time to buy right now (the low interest rates make it even more attractive), but from what I’ve seen, the actual sales are going way over listing prices and many investors are scooping them up paying Cash. It’s sad actually (unless you’re that investor with the cash of course), as this is just one more nail in the coffin and causing further erosion of the middle class as the prices of places to rent are sky-rocketing at least 10% a year on avg over the last 3 years here and wages are more or less stagnant for many people.
Awesome man…..fantastic insight.
I hate to say it too – but it would be my thinking that this ” first wave” of home buyers in the U.S ( certainly people with the right thing in mind ) may find themselves on the short end of the stick…..as tempting as it might look.
So we will see.
It is difficult at times to separate what we read and what is happening in reality. In terms of realestate there are several things working in favor of a reasonable recovery in some areas. First of all for a brief period it was difficult to get a home loan. Talking to mortgage brokers that is no longer the case and in fact once again it is actually relatively easy. Loans over $500k are still somewhat difficult to close however. So that said you do have a significant pent up demand of home buyers that are snapping up what has been a woefully small inventory of new homes. Second thing that is huge is interest rates are at historical lows. My daughter just did a 15 year loan at 2.625 percent! Wow that is almost unbelievable. So if qualifying ratios for debt and income ratios stay the same you are able to qualify far more buyers. Additionally the average homeowner is also able to purchase more house than before because of those rates. Additionally the marginal builders have gone out of business leavimg the more efficient and stronger builders who are building really great value for the money. As far as the dollar it is roughly in the same range it has been for the last several years and while there is some inflation it does not seem to be transferring to any large degree into higher per square foot prices. So all in all looks pretty positive for housing over the near to medium term.
Thanks a tonne David – absolutely fantastic input / information.
I fear that “it getting easy to get a home loan again” is possibly a double edged sword….but wow….you sure can’t argue with the rate!
Thanks again.
Only reason i would have is that the commoditie bullcycle is over with most commodities comming down for some time now.
But dont know either much about it
Yo Fuzzy!
Interesting angle – your consideration that ” the bull in commods is over “. We’d have to consider then that the “price of stuff” moving forward is going to get cheaper?
The cost of beef? ( with far less available land, and higher feed costs ) pigs? grains?
No big concerns here in the short term – but looking further out…..I’ll likely be on the other side of that trade.
Yo Kong http://www.financialiceberg.com/us_lumber_prices.html here found some insight for ya
More great info ( a tad bias in my view ) – but great all the same!
The following is my random speculation. The “housing recovery” is propaganda used by cnbc to promote Lowes and Home depot stocks. In reality the market is being manipulated by the banks who are holding the shadow inventory of almost foreclosed homes back to keep prices high. They hope by relaxing lending standards they can slowly get new mortgages on the foreclosed homes to package up into reits to unload on another sucker, just like last time. Basically I think new home sales are the minority of sales, thus lumber wouldn’t be affected as much. More likely China dumped a bunch of lumber futures after after expanding their import of illegal lumber, or China is crashing and nobody noticed. After all Dr Copper has been jittery since mid February.
I like where you’re at with respect to the media spin – as well as the shady bankers.
I’ve just been reading on China’s illegal lumber imports – tough to get the real story.
Copper – no kddin!
Although there is a lot of manipulation on all fronts about the housing recovery I will say it is real to the extent of builders are builing and buyers are buying. As far as banks holding on to so called shadow inventory I say no. Prices where most of the so called shadow inventory would be, are areas that have seen a 20+% increase. Now I am no expert but I would think banks would be tripping over each other for these kind of numbers. Also Hedge funds now own about 16,000 homes nationwide and are renting them. They see housing 3-5 years from now up big and will reap the rewards as they sell these rentals. In any case I read where it takes 1.2 million new homes built per year just to sustain life. Maybe we are in a housing recovery. Keep in mind the economy is like a huge cruise ship and takes a long time to turn. It will also sputter at times as it does.
Your input is greatly appreciated.
I subscribe to the “cruise ship analegy” as well.
If I wasn’t so “globally bearish” I too would be looking at U.S housing – however…..with the mindset that this “zig” will most certainly see it’s “zag” – I can ‘t touch it.
these next 18 months ( in my view ) BRUTAL!
Thanks Kong,
Personally I believe that Lumber Futures came down to hard, and as a result has spooked the market. This is a dangerous place to be. To go from a state of Euphoria to Gloom. One where the attitude is, I will never buy again. The whipsaw effect can be tremendous. I would not be surprised to see just that.