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Comment by dev_tty01 | Hacker News Reader

Yeah, its a shame the article left off what is probably one of the biggest reasons for the price spike. Speculation. 4x price spikes in a relatively stable commodity aren't explained by simple supply/demand economic factors. The article is a couple of months old and we can now see the speculative bubble unwinding.

https://markets.businessinsider.com/commodities/lumber-price

Down 8% two days ago. Down over 50% from the peak. No doubt prices will remain above trend for a while, but 4X is just another case of speculative nonsense over-amplifying the realities.

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Is it speculation or is it hedging? We weren't speculating on toilet paper when it was massively out of supply early in the pandemic. Rather, there was a demand shock, and maybe a bit of a supply shock too. If TP's spot price had been meaningfully allowed to float, I have no doubt that it would have traded at 4x its long term average, even if you had factored in only consumer demand.

All that is to say I don't see compelling evidence here that speculation is the cause of the problem. I can as easily see more benign explanations.

Is there a meaningful difference between speculation and hedging - besides the intent to take delivery? People hedging with the intent to take delivery are simply speculating that the price would go up. Maybe it makes more sense to separate out along those lines instead.

Yes, I think there is. Speculation is trading activity with the intent to profit from a change in price. Hedging -- in the sense I'm talking about -- is buying an asset to guard against a change in price or shortage. You can certainly see them as similar things, and in some sense they are, but I think there would be broad agreement that this sort of hedging does not deserve the same scorn that some have for speculators.

Even if the activity is exactly the same, most people tend to feel differently about an activity because of its motivation. The motivation to obtain large profits is held in much less respect than the motivation to guard against personal shortage. Also, corporate behaviors in general get a lower prior amount of esteem than individual and household level behaviors.

We can definitely talk about whether people ought to view these things differently, but there is little question as to whether they currently do.

Speculation is about taking a risk to make a potential gain, while hedging is about reducing risk. Someone buying lumber futures as a hedge really doesn't want lumber prices to go up - it's just an insurance protection in case it does, not a way to make profit.

Whether you take delivery or not isn't exactly the point, since a speculator could take delivery of something then resell it for profit. I think some people did that for TP and masks...

If you're buying far more inventory than you could ever conceivably use, you are not hedging, you are speculating.

This may just be a Russel Conjugation.

https://tomdehnel.com/what-is-russell-conjugation/

I hadn't heard that term before, learned something, thanks!

There absolutely were people straight up speculating. I mean videos of people gloating over a garage full of TP exist.

Sorry, to be clear, I never claimed that speculation was nonexistent. I'm just saying that I haven't seen evidence that it was the main driver of the cost changes, outside of bare assertions.

Well that's definitely speculating. Hedging is when you also buy several bushels of bran.

I'm keeping fingers crossed copper will fall back down. I was pricing out some heavy gauge wire last year for a project and passed because I wasn't ready to work on it. Now I'm kicking myself for not pulling the trigger.

A shower elbow at HD is $6.95. Double what it was a year ago. Then again, HD has slowly raised the price on everything since most competitors closed.

https://www.bloomberg.com/news/articles/2021-06-16/china-ord...

I think you may get your wish. It's old info, but there are big players who don't see this as sustainable.

How does speculation drive the price of lumber up?

Speculators are buying lumber futures. When too many start betting that the price will go up it becomes a self fulfilling prophecy.

Just from a technical perspective, the 1Y chart on that page shows some real promise, for example higher highs and higher lows on multiple time scales.

I'm not terribly interested in lumber but if you want a good price, with that chart it seems like now may be a great time to buy given the current low. It may also be the last time at that price level for a while. (No promises, just what I'd speculate based on the chart)

Edit: To clarify, this comment is mostly registering my surprise. I see no cabal speculation activity, just a big invite for your neighbor to buy some for their active retirement fund at these levels. Think about that as another variable.

I can’t quite tell if you’re either lampshading/mocking speculator thinking or if this is sincere. But the thinking behind the above comment largely seems to be the source of all the problems.

Is this thinking _really_ the source of all the problems?

I have to admit I expected to see something idiotic when I clicked through to the link! Like, "pshah, pure speculation!" but instead I am looking at a chart that any broker worth their salt, even a conservative one, might green-light for a client right now, today. So I'm sharing what I'm seeing and no, this doesn't perfectly fit a speculation-cabal mindset.

IOW: This is clearly a price level where your non-cabal types will happily buy in and take a reasonable profit later.

For all we know, the really evil ones could have brought it down to this level. So are we going to pin the blame on those millions of people attempting to prepare for a retirement?

And there's nothing wrong with sharing another perspective, is there, really?

Nobody's even proven, or shown how speculation is the source of the problem. It's just expected that we simply believe that? Speculation could be a side effect for all we really know.

I've been trading technicals for years, and a huge lesson you learn is that everybody has a "why", and everybody has a story, but it always comes late. You then turn around and see the same patterns in nature and start to realize: "Why" can be a terribly unhelpful and misleading direction to take your solutions-oriented mindset.

If you want to cut down on speculation, IMO you need to look into things critically, deeply, and everybody's "why" ought to be first. Was it _really_ speculation? Or are speculators just watching natural patterns unfold and joining the ride?

Metaphorically: Even if it feels amazing to pin the blame on the fox who got into the hen house, do you want to go after every fox in the forest, or maybe understand the fox better--draw the foxes around to another location, or design a hen house with doors on it?

I visited the link with an open mind. But I have experience with charts like that and I can tell you, people will buy here, and the price will very likely go up again. I just think that we can do better, creatively if we want to "solve" the greater lumber issue.

It seems you are working from a theory built around price "anchoring". It's a proven bad model.

Nope, not price anchoring. And how do you effectively prove a negative anyway...I see people profiting from models that were long considered voodoo. Always manage risk.

Some people profit at the slot machines sometimes too. For what it’s worth.

Yes, it’s clear speculation is the source of much of this, “all” was hyperbole on my part.

> fairly clearly speculation is the source of much of this

That's a hand wave. You don't want to open your mind and look at different perspectives, fine. But let's not ever think of such a position as a high-quality one.

Okay that seems reasonable.

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