America's Persistent Debt Issue

It’s more than a little disconcerting that the United States Government seems indifferent toward a practical and workable solution to our current public debt situation. Perhaps the timetable isn’t what the public would like, but it is what The Market is now commanding.

This pic was taken during one of Mr. Heston's meditations with The Market. The tablets, translated loosely, read: "Pay down your debts, Charlton."

Somewhere a long way from here, where it is blazingly torrid and parched, a man is staggering dazedly down a mountain slope. He’s been hit with a meteorite. The Market’s message to that guy was probably to do something about the debt issue, and to bring a GPS with him when he’s wandering around in strange lands…

There was a good editorial in the May 23 issue of Forbes by David Malpass. I hope you have better luck with the link than I am having. Their site, much like their magazine, has been wildly inconsistent for me. Here, at least, is a semi-serious starting point of conversation regarding the tipping point of the nation. I agree with Mr. Malpass—we’re not there yet—but it could happen with continued disregard of some rather serious issues.

One is the debt to GDP issue. If the damned Forbes link above would work, you could read about it. Or...If you have the misfortune of being a subscriber, you have probably already read it. I haven't even cracked my Weekend Journal yet, and this is the treatment... Figures range generally from 79-90% debt to GDP as a point of very serious concern, and it appears the United States is diligently stomping its way into the mid-eighties within a few years. The US appears to be well-positioned to handle such nonsense with a bit of responsible management. Japan has demonstrated it is possible through sound asset management. We’ll see if this happens at home.

Underemployment, Continued...

This is something of a continuation of the previous post. The latest United States unemployment numbers came out last week, and the news is mixed. An editorial in the Weekend Wall Street Journal provides a brief analysis of the figures’ current relevance.

Some good news, some bad. There are individual sector reports which are promising, and just looking around the landscape here in Kansas, things seem to be picking up a bit. I’m noticing some filling of commercial vacancies, and there seems to be a little less reluctance to get something up and going around here.

In the end, we will see. I remain hopeful that Americans will innovate and eventually excel, despite some of the current systemic barriers. This doesn’t seem to affect the upper-end markets at first glance, but there is indeed some trickle-down effect in economic activities. Hopefully, increased capital investment in new ventures will continue to spur a little growth in North America.

Singapore: A Free Trade Case Study

The city-state of Singapore has transformed itself from a backwater colonial outpost to a world leader in international trade and finance in just a half-century's time.  How does something like this happen?  The Economist has a great summary for those with any interest in Asia's financial markets here.  For our purposes, let's look at what's happening with lumber and the associated products thereof.

The latest population figures for China come in at about 1.45 billion.  India at about 1.2 billion.  That's a lot of people, and people seem to acquire a few things made of wood over the course of their lives.  How does this affect me in the United States?  Well, the global trades of lumber products, pulp, manufactured goods, etc. are always going to be disproportionally skewed by activities in emerging markets.  I'm focusing on the activities of these Asian markets because price and supply fluctuations 10,000 miles away most certainly have an impact on pricing at home.

The point to be made here is that tropical lumber products fall under a very wide swath of variation.  If you've ever bought an $11 sheet of underlayment with a bamboo veneer from Home Depot that was manufactured in Vietnam, you've benefited from increased production in emerging markets.  A cheap assemble-it-yourself table from Ikea made in the Philippines--same thing.  The fact of the matter is that the industrialized countries simply cannot compete on an even playing field with manufactured goods on a global scale.  We still have vast supplies of North American forest products available for domestic production and consumption, due to the fact that our timber reserves remain vast, and are increasingly managed responsibly.

What does this mean to the exotic lumber market?  Despite the fact that the vast majority of tropical forests featuring the high-end decking materials such as Ipe, Cumaru, and Massaranduba are responsibly managed, it doesn't take much imagination to know where the irresponsible forestry is being practiced in the world.  The same people who bark about how the rain forests are disappearing worldwide are quite powerless to address concerns in countries that share no such concern over responsible management and growth.

Singapore, with its duty-free port, has become a hub of raw materials and manufactured goods.  I don't know if there is such a thing as "product laundering" to effectively wipe out the trace source of such goods, but if there is, it most certainly exists in this port.  It appears to me that about half the lumber goods flowing through that port are sourced in countries that are signors to no international treaties advocating responsible forestry.

So, next time you're sharing some drinks at a friends' home, and he or she starts bemoaning the state of the world's rain forests, take a close look at their furniture.  Ask if they know where the plywood was sourced to build their new green home.  You might just surprise those who seem to be the most concerned.

China Lights Up The Dollar

When researching the global supply and demand for lumber and lumber products, I was not surprised to note the dominant role that Chinese production and trading activities played on the global pricing and distribution structure.  East Asia in general was a surprising market, however, and for reasons that were somewhat enlightening.

General information about global lumber supply and demand is difficult to come by.  Oftentimes, the most current data I'm seeking is lagged by over a year.  I'll admit I've not been tracking data for very long now, but the conclusions one can draw from basic analysis is eye-opening.

I would have been quite surprised, for example, to find that Vietnam is the world's leading exporter of Wooden Furniture and parts, and has been since 2006.  It is no surprise that the United States is the leading importer of these products, and has been a worldwide leader for quite some time.  The ITTO (International Tropical Timber Organization) has their 2009 Annual Report available here.

The localized Asian market is predictably dominated by Chinese activity on both the import and export end, but Japan and Malaysia are dominant players as well.  Malaysia is a world leader in export activity, and Japanese imports of finished products are annually among the highest in East Asia.  At Specialty Lumber Solutions, we deal predominately with South American imported lumbers, but the activity in Asia, due to its sheer volume, makes it important to note for future world supply and demand fluctuations.

As China attempts to cool its overheated economy (or not--love that central planning!), the rest of the world sits and waits.  The Chinese are divesting in the US Dollar, and the global trade imbalances the US is already facing will become inflationary over time as the global markets react to trade activities.  In the meantime, a weakened dollar is good news for our Canadian and Mexican neighbors, all the while pointing toward the inevitability of US inflation to reflect the weakened currency and higher commodity pricing across the board.

As current economic trends necessitate, I will attempt to provide a very basic analysis on a periodic basis concerning these and other trends.  Comments are always welcome.