Stinson Dean on the Lumber Crash That Followed the Boom

it is. I feel like one of the themes of kind of like this podcast but also in general, is like I'm kind of like weirdly less interested in some respects in some of like the pure macro stuff that we've like I've covered for much of my careers, and the people that I really yearned to talk about it, like the people who just like no an industry really well,

I think it's like super fun. Yeah, I think we've discovered the wonders of micro and just being able to investigate these individual markets that we haven't necessarily been familiar

with before has been really really interesting. And also I think I told you this once before, but when I was going into financial journalism, I always really wanted to be a commodities reporter because I was kind of interested in things and like this idea of global trade and has just been phenomenal from that perspective, like the actual study of things, like how they're produced, how supply and demand works for individual markets, the different players, plus the

logistics of actually moving them from A to B. No, this is a year for granularity for specialists and the degree you know, like if I want to understand what's going on in a a commodity market, or I want to go understand what some aspect of the labor market, I'm not going to like ask some like you know, there are certainly like macro economists who are useful, and we talked to them all the time, and we had them

on recently. But we just spoke to Matt King, right, yeah, yeah, So you know, I would not want to slag any of our other guests, but I really like there's so many things in that where it's like we got to talk to someone who knows this thing, and that's sort

of been one of the fun things. I guess I would say about learning, learning and talking to people in one I mean what I will say, and Matt King kind of brought this up on the recent episode, but there are micro explanations for almost every move in the price of something that people have been talking about recently. So you know, we've been speaking a lot about individual commodities. You know, we did like one on sinks. I remember

I wrote about mayonnaise. You can look at a particular product or market and come up with an individual perspective, but at the same time, like all of that are feeding into this broader macro backdrop where well are worried about inflation um and we've been talking about that but

a lot as well. Right, So one of the first you know, we've had a bunch of these, but one of the first episodes that was kind of like one of the breakout for US episodes that was like really extraordinary that we learned a ton about was back in

April and we talked to uh stincon Dean. He is the founder and CEO of Deacon Lumber, which is a lumber trading operation and if you were a call Lumber was interesting because I guess it was kind of like the canary in the coal mine in a way, because we've now had there's a global, huge, global commodity run right, like major bowl market and basically everything you can think of.

But at the time I think commodities were running, but we did not, you know, Lumber was like this like was like kind of like there's like parabolic move and we're like, what's going on? There was this is kind of weird. And now you've seen in tons of commodities European energy and natural gas and call and stuff. Some of it's cooled down, but lumber was kind of like this canary in the coal mine. It's sword like crazy.

And since then it's actually one of the few commodities of the last few months it's kind of been in like a bear market. It almost feels like it's been like a few months ahead of everything else. Right, So if you look at lumber as this canary in the coal mine or some sort of like mystical oracle when it comes to other supply bottlenecks, it's kind of telling you that, you know, some of those pressures might be easing.

I think we're down to around is it like six hundred dollars a little over six hundred, down from a peak that was like more than six hundred So that's pretty exchange and it's something that you're interested in and something you know that It's like this idea we talked

about the bull whip effect. It's like the question is does major demand in right now, like could we you know, people are talking about over One possibility is that we see persistent inflation in another possibilities we just see like major gluts of everything. If we have like major know,

it's like maybe the backside. This is crazy disiplation. Anyway, I'm very excited because we have Stintson back, I said, the founder and see of Decade Lumber, and so now it is time to talk about perhaps the backside of the boom and what happens after the huge run up. So I'm very excited about this episode. Uh, Stintson, thank you so much for coming on Odd Lots. Hey, y'all,

thanks for having me back. It's it's been a wildwide since Odd Lots and then, uh, you know, we've come a long way and yeah, we're trading it six d on on the future screen. We got as low as four fifty uh at a high high of seventeen thirty three. You know, for those paying attention, you know, it fell faster than it went up, which was hard to believe that that was even possible. But yeah, it's a different world than Lumber compared to what these other folks are

going through right now. Yeah, and it's kind of crazy. I mean, it's a different world in Lumber, and I can't I don't know whether it feels like ages ago we talked to you or just yesterday. I hear what I said, but it was in April and now it's November, so I don't know. That's like six and a half months or something since the last thing we talked to kind of hard to believe, but like, why don't you just sort of like get big picture, you know, and we'll get into it more detailed, but give us like

this sort of like big picture of what happened. You know. Lumber peaked about four weeks after we had spoken last time, so we kind of time to peek. We'll see we're time in the bottom here. But why don't you, uh, sort of what have what happened after that? Yeah, I I think that's good to kind of pick up where we left off from from a price perspective. So when we recorded late April May, the market peaked in late May, but from mid April to late May the market had doubled.

It's not like it did some about face immediately, like there was a lot of price action left. It is all happened in a hurry. So it was a short squeeze. And uh, I think we talked about last time, like eventually people will get covered and then and then what? And my argument was higher for longer for lumber specifically because of a lot of structural bullish issues and and and the log supply, manufacturing and demand, incredible wave of demand as we all know. For housing, we squee definitely

squeezed from a thousand dollars to sevred. That was all just short covering folks covering commitments that they had maybe committed at six seven, eight hundred dollars and they were just waiting for prices to come back down to normal to cover that for hopefully a profit. None of them thought about limiting their losses. There's gonna wait, wait, wait, well, no one could wait any longer. They had to cover

and every seemingly everyone was in that boat. So it squeezed us and we blew the top off at and you know when when it turned, I felt pretty confident that it was over, but a lot of people didn't. And that that's what makes markets tops as folks who thought we shouldn't be this high all of a sudden start believing we're going to be two thousand dollars or higher, including the producers themselves. So it was it was a

painful ride down for a lot of folks. And what was interesting, and I tweeted about it through the summer, we could watch lumber futures get cut in half and go from sevent to eight hundred and fifty, and we would see reports from builders or contractors going in and saying, my my price is not half of my quote from three months ago. Why why aren't I seeing price appreciation

that we're seeing in futures and all the things. And to me, that was really telling because in a marketplace, and certainly commodities, you should have enough players that all have different trading strategies, different break even point points, that one or two of them can offer lower prices, gobble up all the market share and force their competitors to meet the meat or beat their price. But we weren't finding that this summer. It was bizarre and inefficient, and

I I couldn't really explain it. And then I started to think maybe everyone was so upside down in their inventory that they were they were selling on cost plus with that cost being very high versus replacement cost. And if your competitor down the road also has a high break even and they could replace and buy more inventory for a lower price, they're gonna try to blow out their high price inventory before they lower their prices. But you can only do that as so long as your

competitors are not lowering their prices. And it's seemingly all summer that the cost savings seemingly we're not passed along to the consumer. But the reality is they weren't cost savings because the lumber yard hadn't rebought to lower their break even price, so they were cost plus with their costs being extremely high, and they were able to largely as a group, pass along these higher costs and and

and escape somewhat unscathed. Um it was. It was quite impressive and wild to think that there was no entity out there that that could undercut and gobble up market share because they had a lower break even costs. And I was arguing, this will be kind of my final point on that like lumber kept going down, certainly went lower than I thought it would go, and I'm like, well, I don't think it's going to bounce until folks step

back in and replenish her inventory. And if they bought it, and they could buy it six hundred, their average would be, you know, a thousand bucks or something, and then you'll see lower prices pushed to consumers. So until it's stopped going down, indicating buyers coming in at much lower prices, until we saw that retail prices were gonna stay high. And I think that's kind of how it played out.

Retail prices stayed high relative to replacement costs, and then finally that that high price inventory got moved out and prices have come down to the the end user. So that was June July, a little bit of August. Then something really interesting happened. I call it our negative oil moment. So y'all remember oil went negative. The fundamental reason was there was no place to store it, right, what's the number, Mr,

customer that you would buy at? Just give me a bit, you know, and like there's like there is no number because I have no place to put it. And maybe this happened in oil, but certainly lumber. I had already bought what I thought was cheap at the time, so my cash is already my budget has already spent an inventory, so I have no budget left to average down. And if I did, I have no place to put it.

So it turned into a negative oil like we'll pay you to take it from us because we don't have any place to put it either kind of situation and with lumber are negative oil. Moment was and this is real geeky commodity trading verbiage, but the contango went to a hundred dollar discount, which it was. The September contract traded one hundred dollars below the November contract. It basically means you could buy lumber for today and pre sell

it six days later for a hundred dollars more. You just needed somewhere to store it, right, which is easier than with oil. Yeah, you would think, you know, it's certainly yes, Like you can stack lumber in a field, then it's not gonna like contaminate anything. But like the facilities that specialize in building materials handling were full, they're still full, so that the market was paying you a hundred dollars to store it for sixty days when the hard costs to do that is like twelve bucks. So

the textbook calls it riskless profit. It's an eight eight dollar profit, no brainer by today sell it for a hundred dollars more to more us for on a futures contract two months out. I mean it was a no brainer when it was at and then they got the thirty and forty and fifty. There was no bid because no one had the money the budget left to buy it because they you know, they had bought lumber what they thought was cheap before and they had no place

to put it. So there it's like, yeah, hate, mr broker, that sounds like a great deal. I agree with you, this is great value, but I cannot take it. There is no used to put it. So it certainly didn't show up in flat price. We didn't go negative. But the fact that we we had a hundred dollar discount to carry lumber from one month to the next contract month was insanity when I saw that happen, And we had pretty large carries in the July contract too. We

got a while. There's a lot of lumber out there that we got to chew through before we get back to some kind of equilibrium. And we've been, you know, for months and months, been trying to work through that backlog of inventory that's in the pipeline. It's in different in the hands of different players in the supply chain, largely out of the mills hands. They've they've blown it out. I own a lot of record breaking amount of lumber for my little company and a lot of my counterparts

as well, and a lot of my customers. So there's just a lot of lumber out there that needs to get delivered end users and installed before we can see you any kind of price appreciation. So, first of all, I feel really bad that neither Joe nor I, I think um wrote about the big contango moment in lumber futures like that completely possibly by think did you? I'm sorry, I think I think I wrote a piece about the contager.

I'm not sure. I'll have to go back. Well, it was a big deal in my world, and to be honest with you, there's only like six of us in lumber who even paid attention to it anyway, But yeah, it was pretty dramatic. Well, so secondly, can we dig in a little bit more into that build up in inventory because I seem to remember when we spoke to you in April, like one of your thess for why this might be um, you know, higher prices for longer.

Was this idea of the like lumber yards and lumber producers having been scarred by what happened in UH two thousand and eight with the bursting of the housing bubble, and that you know, they had persistently underinvested incapacity because

they were always afraid of that happening again. And yet you know, fast forward to the summer of one and suddenly we're talking about a massive glut and inventory and you know contango such that you can hold lumber um you know, buy on the cheap and then sell it forward and make a riskless profit. So what exactly happened?

The lack of capex includes storage capacity if if the idea is gonna we're gonna run lean and mean turn our inventory like you don't need a lot of space to turn it like ideally did you buy just in time inventory and you don't hold it very long? You turn it in the a R, you turn it into the cash. You do it over and over, and that's been the model from the producer. Are all the way

down to the retail lumber yard. All of a sudden what we call in the lumber industry outtake how much lumbers leaving the lumber yard and getting installed in a house or an apartment. I'll take grinded to a halt. And this is I think the bullwhip effect if listening to your last several podcasts comes into play in the global supply chain crisis starting to peak right now affects lumber. So a lot of the lumber that's piled up is

largely sold. It's committed to a job, but that job is not ready to take the lumber yet because they're still waiting on the windows and the appliances to finish the house before. So they have a job on the books, but they can't close out the previous house, and you know, they get all the finished products in there that are heavily related to the global supply chain. The biggest issue for US was trust plates. Floor trust is roof trust is the little butt plates that go on all the joints.

Metal trust plates. Two companies have eight of the market share, and when these trusses are spect and approved by the county and no, no, no no, no, like it's you can't switch the plate to some other plate supplier, like it's spect specific to some certain technology, and you couldn't get trust plates. And this is just metal from Turkey or whatever, not an expert in that supply chain, but it's not

domestically produced, so you couldn't get trust is. So it was almost like if you envisioned building a house, no one could get the lumber for the first floor. Then they got the lumber. Now it's we need a floor. Trust the wedding that goes between the first and second floor, we can't get that. It's backlogged. We can't get the plates. So I don't really need the lumber for the second floor until I get my floor trusses in and those are months out, months and months. So you had lumber

that was scheduled to deliver in July. Now it's on indefinite hold, and you have lumber prices falling, falling, falling. So speculators like myself, UM and and other folks in the supply chain just kind of buy lumber because they think it's cheap. UM not anticipating the inability to turn your inventory because there's this bottleneck at the job site of the apartment and of the house, the single family

home that is all held up. You can't get to the second floor because you don't have trust plates, and then you need the roof trusses, and and then it became I gotta I can't fit. Like there's there's caring costs for the builder and the construction loans and the draws, like they have to close out and deliver the house to get that last payment. Did that rollout into the next you know, Jack, So it held up all these other projects because I couldn't complete homes. This is so fascinating.

You know, we talked to uh Ellie Wolf you know who monitors this stuff, I think a couple of months after we talked to you. And so basically, you know, we think about and again think about also the mat King episode, just like the sheer like complexity of what we're talking about. So it's like, okay, like we think about supply and demand is you know, these two lines that cross, and we know that there's a lot of demand for homes and we're a bit of major housing boom.

Maybe there's a little bit of softening lately, but we've had this huge demand boom. But it's something as simple, and you know, Tracy has written a lot about this, like, okay, one part doesn't come and the house doesn't work, Like if you don't have faucet, you can't live in a house. So you could have major demand four housing and lumber and still no actual orders big placed because you're missing

apart right, And I've learned about trust play. I had no idea that that was, Like, I'm gonna google trust plates right now so i can see what they look like while we're talking. I think we need a trust plate episode. Now I see Okay, okay, I see, I see, I see it. That just that little like four four inch by six inch, a little nothing, you know, and it is holding back an entire sector of of the economy. And okay, you got the trust plates in and then

now you need faucets and toilets and refrigerators. So it caught me off guard and just being so narrowly focused on lumber. Now I'm like, I gotta think more macro than I would y'all. Y'all were talking earlier about the specialists, and I'm highly specialized in a two by fource. No idea about metal, But now I'm kind of like there's indicators, and I'm looking at and supply data and that now kind of come into view. Um and largely just talking to my customers and what they're hearing on lead times

on trustes. But didn't see that one coming. A lot of us didn't, so Tracy, to tour round out your question, we just kept seeing lumber prices fall and we saw we know that customers are paying home builders extremely high historical prices for the lumber. So every time I buy lumber, I'm largely booking a profit because I know, not me, but the retail lumber yard, they know that what their

home builders are paying. The problem was no one saw just the backlog of uncompleted homes and it shows up very clearly, and the housing starts data, the amount of homes are completing is is decoupling from home starts in a way that it's pretty glaring, and you know, it all rounds out this, Uh, this whole point is we're just not completing homes, so it's hard to roll over and and your money and build the next one. So it's just, you know, people saw value, they kept buying, buying, buying,

and then not being able to deliver. So for every Reil car they bought five Reil cars, they maybe deliver one, so every month they'd accumulate four rail cars. And that happened over three or four or five months. And here

we are. Okay, so here's another very basic question. But we're getting the sense that, you know, even if the lumber market had reacted perfectly to supply demand changes, there would be things outside of its external control, like what's going on with trust plates or you know, sinks and fawcets missing in a house that would affect the market.

So I guess my question is like what is needed for prices to stop falling and for things to sort of like come back into balance or is it just like completely beyond the lumber market itself at this moment in time. No. So it's it's the question the industry is trying to answer, and to me, the answers simple but not easy. It's we have to cut production and we're just we're producing more than we're I call it installing in homes, and that's a recipe for oversupply and

lower prices. And one contangoes you're we're just way out producing the capacity to build homes, which is shocking because just six months ago we're at seventeen d dollars and if you if you didn't see the spike on a chart, and here we are at six hundred bucks on futures, that would be the record high price ever and lumber prices and lumber futures going back thirty plus years. Six hundred bucks has never been seen before outside of the

last eighteen months. But now we're talking about curtailing production. So this idea of higher for longer I we're almost double the five year average price. The mills used to love four. Now we're we're oversupplied at six. And for it to change, we need to produce less. But the problem with that is the supply chains so out of whack. The amount of inventory held by each player, the producer, the secondary market, the retail lumber yard. Ideally everyone has

a little bit and it's all pretty smooth. Well, it just became this thing where the mills had all of it and then the secondary market now owns most of it because the retail lumber yard, their whole goal this summer was worked down that high price inventory. Like I talked about earlier, don't re buy, don't add average in get rid of the high price stuff and then we'll deal with it. So what we're seeing now is that big pile of lumber at the retail level is getting

lower and lower. But now there's this big pile at the secondary level we've got to deal with. So that's getting bought. But if a retail lumber yard is buying from the secondary market, they're not buying from the sawmill. So the sawmill is I think headed for a little bit of pain here. Their break even prices are significantly higher because log costs are up, lumber tiariffs are doubling in a couple of weeks, and labor okay, so they don't have the break even so that they did in

the past. So anything under six D the major sawmills are losing money. And here we are at six and they're not seeing the demand because the buyer can lean on the secondary market, which has been painfully holding onto lumber since Bucks and just trying to average average, average average, and uh, now here's their moment to blow out their pile and turn their inventory into cash. Everyone has held lumber longer than they've ever felt comfortable with and a

much higher volumes. There's a big pile lumber we gotta get through. So the producers need to reduce their output.

And I'm afraid when they figure that out and they implement it and they reduced their own hand inventories, they reduced their output, will be just around the time the secondary market has been depleted and now the end user, the retail lumber yard, will then turned to the mills to get ready for Q one spring building season, the seasonal lumber party that we have every year, and the mills they are going to have tooled down because they

haven't seen demand in three months. So we have to restrict supply to bring the contango in and work through the pile a lumber we have. But I feel like, because we're so out of whack and we're hitting these extremes on the upside and the downside, that we're not done. That pendulum is not done swinging. So I'm a little nervous for really bullish Q one and not enough production

to meet it. So one of the interesting implications of this, and you know, this was something that we talked a lot about on the last time we talked with you, and we've talked with other people, wouldn't examining this industry but it's acute in housing. And that is of course that after the Great Financial Crisis, so many actors within

anything related to housing were scarred. They stopped investing, maybe they diminished capacity, and from what you're saying, and so that, you know, you so we sort of pay the price now because what you know, the diminished capacity then becomes a bottleneck that we have to pay the price for

in a boom. You know what we're seeing now in lumber with that price, It's like, I wouldn't want to It does not sound like an environment in which there's gonna be much appetite to increased sawmill capacity, or that anyone is going to increase capacity or make a real like long term capex environment. Because in a way, they did just get burned again. And maybe it's not as bad and as you say, prices are still well above the five year average and so forth, but it did

sort of once again. And the homebuilders, of course, you know, the bottom hasn't fallen out for them, but at least for this one part of the market, they're sort of like, well, yeah, this is like a good reason to like remain remain

hesitant about significantly adding adding capacity. Yeah, like I got mocked for saying for implying this time is different, and they were right, like shirt off, like we didn't stay above a thousand and a little bit of my naivete and inexperience and lack of macro appreciation for global supply chain and trust plates um, but now I know, Yeah, we gotta do a trust plates episode. There's a lot of announced investment greenfield acquisition in southern in the southern

US to produce more Southern other Pine. Southern the other Pine is incredibly profitable at these current prices, which are at the low end of the last eighteen months, in readibly profitable. Two by four's are going for over seven hundred bucks for thousand and I don't know the southern of the pine game as well, but I'm guessing their production costs or maybe a little higher three fifty. So there's a lot of announced investment into Southern Ola pine.

But this goes into the larger point of Canadian lumber and southern alpine are different, used differently, are and you can't unless we build homes differently. All that announced production doesn't really alleviate the shortage of lumber in the way we build homes now if we start building homes of southern Ola Pine, that's different. But there is there is capex in the South, but in Canada the finite log supply that limits anyone from putting risk on on a

production basis up there. In fact, the Canadians are the ones opening sawmills in the US South. So that that's a really interesting dynamic. We actually we've talked about we talked over the phone a couple of times, I think between our last episodes, But you're mentioned of the trust market and the market share that the two companies have.

Reminds me that one of the interesting dynamics in the market right now, and it really relates to like who has market power at any given time, And so if you're trust seller, you probably have a lot of market power because there's only one other competitor and you could probably dictate terms. And if your own builder, you're probably forced that you're like a yah, you're probably a price

taker on a lot of this stuff. Overall, in the housing market, what is the position of the home builders as it relates not just to their dealing with the lumber market, but also with all of the other things that they have to buy, Like how does like who has market power right now to sort of dictate terms both in terms of price and financing terms in housing right now, and how did that play out over the

last six months. I'll speak briefly. I'll attempt to because this is a little out of my scope, but from because I'm further back in the supply chain, but from what I can observe. Okay, the home builder has less bargaining power and leverage than they've had this whole cycle two thou eight onward because the supply chain is consolidated around them. Their suppliers have consolidated, the suppliers suppliers have consolidated,

so they're not in a great position. And it's really manifested in the last six months because on the lumber side, it came down to risk. Who is going to warehouse figuratively and literally the lumber price risk. And for twelve plus years it's been the lumber yard has been committing to prices over ninety days and buying the lumber second, hoping to buy it cheaper. And that's what got us

in our squeeze. Now, coming out of that, the suppliers who are bigger in scale than they were facing national homebuilders are, yeah, we're not gonna do ninety day pricing. So the home builder suddenly has to have expertise and lumber price risk management, which they don't have. They never had to have that because their supplier gave them a fixed price and they moved on. Now the supplier has given them a two to four week price and the home builder needs to fix use to is accustomed to

a ninety day fixed price. So I you know, I've seen homebuilders actually steal very talented buyers from from retail lumber yards to come work in house. You hear stories of home homebuilders warehousing their own materials, and I don't think that's going to end well unless they bring in some some talent. But they're just not tooled to handle

price risk. And then from the terms and negotiation standpoint, there's less people for them to turn to in the supply chain because the supply chain is consolidated considerably in the last five years. You know, it is really interesting this idea of at a commodity price can collapse, not necessarily because there isn't demand for it, but because of

other things going on. There's just like no one can take delivery even if there is still a lot of demand to build homes, and so you mentioned the trust is and windows and faucets. You know, we we we raised this question in the beginning, this idea of like lumber is kind of canary in the coal mine. We have seen some big moves and other commodities down lately.

We've seen a lot up. But you know, if you look at like say aluminum prices or coal prices in China, or electric there's some there's some violent moves down even in this is there a and you know we're all just speculating here, but is what we've seen in lumber.

Could it be in your view that maybe we are looking at not sort of persistent inflation, but sort of like an age of gluts after well all that we've seen in Yeah, I did to put a little bit of context about around the lumber glut being is really was exacerbated by the supply chain issues. But it was happening before trustplates were an issue, before appliances were an issue.

To me a lumber it happened because of the price risk transfer from supplier to homebuilder, and homebuilders didn't know how to deal with it, so they just over ali was on your show and she she tweets a lot over and over limiting sales by design is wild that a business would do that, but I get it. That's how they're mitigating risk. So if if risk is getting moved to a part of the supply chain, whether or not used to handling it, like Costco chartering their own

boat or whatever. Right, you guys talked about that with with one of your container folks and he he goes it was reading between the lines. He was like, Yeah, that's that's going to be an interesting one to watch because they have no idea the I know a guy commerce kind of how that works, and I think there's gonna charter about and so so Costco or a home builder all of a sudden has to deal with this risk that they used to just easily lay off on

their vendor. That will limit their ability to to perform their business because they're they're dabbling in something they have no idea what they're doing, and so it just limits production. If you're thinking like home homebuilding, because we're not sure what we're doing, we're gonna roll. We're gonna pull back on the risk and try to feel our way through this market in which we find ourselves having more risk and price fluctuations than we've had to deal with in

the past. So if that plays out, you know, on the other end, uh, and I mean these are worldwide commodities, metal oil, natural gas, Like, we don't have a structural shortage of those raw commodities. You know that the line of the cap X has been reduced because a green I just like these things are a little bit easier to switch on UM than I mean, we've seen it over and over, so I'm not super cycle for multiple years commodity guy, because I just think market forces will

work itself out. So one of the reasons we actually UM wanted to invite you back on the show was obviously we wanted to talk about what lumber prices were doing and the drop that we've seen, but we had a number of people looking at your Twitter feed who saw some of your tweets on the labor market, and we're really interested in getting your perspective on what's going on at the moment because, of course, in addition to physical shortages of various goods, one of the things that

people have been talking about over the past year or so is this idea of an actual labor shortage, and we've sort of gotten mixed messages on it with the people that we've spoken to. You know, on the one hand, there are those who say it's really hard to get people at the moment, and then on the other hand, there are people who say, well, you know, if you have the right job and you pay the right wages,

it's actually not that difficult. So first of all, I'd just be curious to get like more of a sense of where you fit in here, like how many employees do you actually have, um, what sort of business are you running? And then secondly, what you've noticed in terms of the labor market recently. Yes, Tracy, are you sure you want to go down on this road? Yes, yes, we totally do. This is going to be like a two part episode all you know, all in one, let's

do it. I love to talk about it. And I just for the record, I gave you like a head's up that you asked me. So. Yeah. So I own um several companies outside of Lumber and inside of Lumber that I have a total headcount of about a hundred employees, the vast majority of which drive a truck and makes a year. So I just have been on the front lines of hiring, staffing, paying, negotiating with the largely on

college educated a year laborer. So that that's where most of my perspective has come from, is being on the front lines of the labor market. And what have you seen recently what a what works? And hiring? Yeah, so if you pay people more, it works. I try to keep things that I start from the very simplest explanation, like you just it's the labor market. As a commodity trader to the labor market, I don't want to like in folks, two pieces of a lumber, but it's a

finite commodity at has fluctuations in supply. So as a commodity trader, I looked at this market and said, we're heading for a very tight labor market. And if you are bullish on whatever commodity you start buying, you get long. And so I told our our operators that we we need to start locking in labor that we already have and higher and build a bench and be overstaffed. If you're overstaffed, that's the goal. Like, I'm not gonna be upset. I'm not going to push back on budgets if it

revolves around labor. So we are overstaffed. We have a very happy workforce, and we're not working everyone to death because we refuse to pay higher wages. So what what I see and what I've learned is the labor markets tight. Why it's tight. As a business owner, I don't care. I have opinions on it. My business partners have opinions on it. We don't agree, but we do agree on the reality that the lumber markets tight. And if you sign up to be a business owner, you sign up

to be an entrepreneur. You don't have the luxury of complaining. You have to deal with reality. And the reality is if we're going to run a business and not at scale and not be the ones having to drive the trucks um, which isn't the best use of our time, we're gonna have to pay the folks and find a clearing wage UM. So we immediately raised our starting pay two thousand dollars a year more benefits. We actually offered uh college tuition Before Amazon I think made the headline,

and it's fascinating. Amazon has commercials on the radio during football games promoting So this gal is a nurse and she's inner scrubs, and she's like, I am a nurse now, but it's because I worked at Amazon and they paid for my tuition. And Amazon clearly was not a lifelong

career in the warehouse. But like I got to where I wanted to go, and I look at that I'm competing for the same exact employee, like we had minimum need to pay with Amazon's paying fifteen bucks an hour or more twenty bucks an hour, depending on where you are. So the beautiful part from a commodity trading perspective, like I know where everyone's bid is. It's there's no secret.

I know where I need to be. And then of course we're dealing with human beings and we feel like we can sell culture and a vision in a community that can put us over the edge when you're doing the bare minimum of just paying as much as Amazon. And it's been I don't know what word to use, enjoyable to watch business owners who are reliant on cheap labor lose their minds because they have to work at the staffing side and they think they're entitled to profits.

And we run our business with our eye businesses, I should say, with our eyes wide open, saying again the reasons are debatable, but at least I'll give you my perspective. In Washington, the government didn't have to do a federal minimum wage of fifteen an hour. There's a few levers of the poll and guess what fifteen hours the clearing wage and that like I was like, that's that's where the rules of the game are going. So we just

need to get there first and accept it. And and this is the one where to me I differentiate a lot, because that's nothing I said is super rocket science. It's just a market that you've got to pay to cover. And we no longer have unlimited cheap labor. We our companies are fully aware and willing to accept lower profit margins to be in business. I we don't expect to raise prices dollar for dollar for a wage increases. We hope to raise them, you know, seventy cents for every

dollar and wage increase we get. I'm just making that off top of my head, But we accept the fact that this economy is pro employee and if you're not good at that part, you just won't have a business, or you'll be running every aspect of the business yourself.

Because no one want to work for you can you actually expound I think you said something I want to go back to before I forget the idea of essentially not working your employees to the bone, because I guess they're you know, the one approach could be right, you hire people, but really hire the absolute minimum number of people that you can hire. Yes, you pay them more, but how much are these other factors not strictly pay. But the idea of like you're not like running them

ragged helpful in the recruiting process. Yeah, it's such a great point because the minimum is fifteen bucks to just play the game. Okay, then what is it after that? And we we like to sell like we have a community. We're picking up for each other. If someone needs to have time off or there's an emergency, folks are expected and the culture is to pick up their slack, so there's coverage there and everyone doesn't feel like they need to come into work. And they'll let the team down

because they're so thinly staff. No one can do your job and pay them well enough where they do you like, they can take some time off and and not get a full paycheck that week and and and be okay.

And I just think it's such a short sided and stubborn practice by business owners two cry and complain about the costs of labor and take their most loyal, longest tenure, dedicated employees and work them down to the bone so you can maintain your margin because it's just a matter of time before they quit and you don't have a business anymore. And you know, there's the altruistic side, which

I'm not arguing for, or that's not my point. My point is it's it's great business practice to pay lower level employees and treat them as if you know their revenue producing high commission salespeople. It's it. They're they're just as important, and now they're able to flex for the first time. And I I think it's great. It's a

lot of fun. It's challenging, but it's very fulfilling to know you pay equal to Amazon, but they come work for you instead, and your turnover is lower than all of your peers, and you're affecting lives and you're showing folks what a work environment can be and could be with folks who have a more communal mindset. And I mean a lot of that, I tweeted, a lot of that comes from my time as a football coach and

a football player. It's kind of like a locker room vibe in that there's a brotherhood and a sisterhood of hard work and accountability and we've all seen each other struggle and per persevere and get promoted and have have failures and building that culture. When we were recruiting athletes like you, had to sell something beyond scholarships. Everyone has a scholarship and that that's kind of the mentality we brought to this is everyone's got a fifteen dollar wage.

Now let's go compete with the best of the best. So we're trying to compete against Amazon by selling a differentiating culture um and that starts with or a big component I should say, is being overstaffed and accepting less margins lower profits to be overstaffed. If if I wanted to squeeze my margins out, I would have a terrible business owner experience. I would be I would be complaining

all the time as well. But I'd rather make less and empower others more and have a sustainable business rather than being an employee at my own company. That's the business side of it. There was something else that you tweeted that caught my eye, and it was this idea that one of the reasons it's difficult to find workers

is because someone else has already hired them. And you made the point that, you know, expanded unemployment insurance might have given people more time to find a job that they really like, so instead of just taking the first thing that comes up so they can pay their bills, they have a little bit of extra time, a safety net to actually wait and try to find something that they really like and enjoy, or something that pays a

decent amount of money. And this is an idea that's like actually showed up in some macro economic research recently. So there's something called the beverage curve, which is basically the relationship between job openings and the unemployment rate, and it's just massively shifted post the pandemic. So it's taking many, many, many more job openings um in order to bring down the unemployment rate, so like it's taking employers much much longer to find the right people to fill open jobs.

So I would just love to hear your perspective a little bit, because like your experience seems to sort of bear this out. It's not that people don't want to work. And you know, it's not that wages necessarily have to go up astronomically, but it's more there's a mismatch between jobs and workers, and people are kind of waiting longer to find the right thing for them in any other job market. Like folks who have been without a job, they have a gap in the resume, right, we've all

heard like, you don't want a gap in the resume. Well, that the leverages shifted to EMPLO employees so hard. It's like, we don't care if there's a cap. You know, we're going to interview you and go trust our process and see you're gonna be a good fit. And the extended unemployment benefits allowed people who typically would be paycheck to

paycheck and I just hate my job. I'm gonna go to the next job and hope I like it without any time in between, without any time to do a job search, because I you know, I don't have the savings paycheck to paycheck. Well, unextended unemployment allowed folks like that to take their time. They get their bills paid, they don't have the there's a mortgage forbearance, the rent moratorium.

You know, they have a little bit of breathing room to value eight what they want to do, where, what the what kind of hours they want to have, and pick the right job um instead of the next job. And as a competitor and former athlete and coach like that, that to me means you have to compete that much harder for labor then before because folks are being very picky and they don't have to come work. This idea of unlimited cheap labor, it's not it's just not a

thing anymore. And folks who haven't experienced that market like we did, my team did when we coached football and recruited high school athletes with a very limited supply of talent, Like it's weird to think that you really have to cater to and sell something beyond the pay because these folks like I've done the retail hours, and I've done

being a waitress. We're a waiter and getting cut as we're slow, and the unpredicutled like I'm gonna take my time, and I heard about my buddy who works here, and and this is the kind of culture they have. But it's like we're being interviewed just as much as the employee. And when you're when you're making minimum wage, like you're not typically in that bargaining position, but now they are, so it just has exposed people. So the labor is

out there. And the point of that tweet why it was, we're wealth, we're staffed, we're we're not having a problem or also paying the paying the money to be in the game, and we're investing heavily in the culture, which you know is a thing. But that's not new. But I do think it's new to emphasize the culture for

low wage blue collar work. That has never been an emphasis to quote unquote retained talent, and we we leaned into that is this condition And I think a lot of people the people talk about a labor shortage, but it seems to me that what they're really saying is there is a labor shortage among managements expectation of what

labor markets were like in ten. So if you think teen was like the right labor market, that that was the right level of pay, that was the right level of treatment, then yes it's going to be tougher, But there's no reason to think twenty nineteen was right in is wrong per se one is what it is in

your view? Can this be sustained. Could we be in a structurally different era for labor bargaining power for this idea that an interview really does go in both directions, but the worker being interviewed but also the potential company being interviewed. And could this be something that you see sustained for a while or is this the kind of thing kind of like seventeen d lumber where it's just

something weird post pandemic that can't that can't last. Yeah, a piece of data that shocked me was early retirees coming out of this pandemic. It was massive, like those folks aren't coming back. They're they're at least not going to come back forty hours a week and we're in a different demographic patch that is incredibly bullish housing. But the teenagers in the early twenties like that, that labor force is small. So to me, we do have a

structural upshift forecasting five to ten years out. Certainly beyond that, we we have a demographic cliff that's in plain site and our productivity. We're gonna have to have a productivity boom from automation two. All the technological advances that happened in an economy, so I don't see labor being oversupplied anytime soon. On top of the political vacations of all of a sudden turning the tables back against the employee. I don't know how you pull that off. So wages

are sticky in and of themselves. To me. To answer your question, you gotta answer. You gotta ask yourself. How does labor get oversupplied again? With all these retirees that had early retirements and then just every year more and more boomers are aging out. I don't know how we get over supplied again. But I'm not an economist. But well they didn't get anything right either, so yeah, yeah, I largely I don't see how we increase our labor

pool outside of immigration. Stinson. This is, you know, once to get in a real treat. Thank you so much for coming on out lot. Thank you. See well, I mean I think that that delivered. We gotta do. I'm looking at these like trust plates and like the idea that like these like just little pieces of metal, and it's exactly like what you've been writing about and sort

of like the Mad King idea. It's like this is not like just simple supply and demand, and this is not simply just like, oh, we're gonna like tap back on credit by raising rates or something like that. This is just like a series of like interconnected things, and you're like, Okay, here's like a two dollar piece of metal that caused like a massive crash of the price of lumber. It makes perfect sense, but it's also wild. Yeah.

So two things. One, I think we should not just do a trustplate episode, but we need to like go into the market and become the third trustplate company and challenge the incumbents and see how that goes, because clearly there's an opportunity here. And then secondly, yeah, this this definitely has me thinking about that. Um. I mean I called it whack inflation, which isn't I don't think it's the best name, but it was the only one I

can think of for it. But this idea that like it's not really that we have this out of control runaway inflation for individual components, is that we have these mini cycles of like boom busts in prices that are basically a reflection of the boom bust in physical supply. So you have the bull whip effect in commodities, and lumber is turning into a really good example where you know, we had a massive shortage, prices increased, and now we have a glut and prices are going down, and it's

problematic because it makes the entire supply chain unpredictable. And at the same time, lumber is being also impacted by things like trustplates and other components of the supply chain, and so you do end up having these like sharp short cycles. And everyone's sort of focused on just the idea of prices going up and transitory inflation. But I feel like no one's talking as much about the prices

going down. And you're totally right. We've seen it now in lumber, seen it in cole aluminum and a few other things, and I don't know, like it feels to me like that's probably the bigger danger here, is just this like volatility that takes forever to right itself. It feels like maybe the story is less inflation per se

in more inflation volatility. It's like the first of inflation, so that you do have like and also just like this sort of idea of like lots of things lumber crashing while other things are surging, other things surging while other things are crashing, and a very difficult process of like getting something that resembles like the pre crisis smooth manner.

And the lumber story is just like a great I'm sure it's you know, if we talk to someone else in another commodity, they would probably also have like some like weird part that they were missing. I think we're gonna do a grains one soon. And the connection there between fertilizer and fertilizer and energy all kinds of things. So I think that there is a lot of this going on. And again I speak, you know, go back

to the central Bank question. It's like, yeah, in flaship, okay, raised rates, But what exactly does raising rates do when the issue is like the two companies that make trust plates can't get them in time. It's why it's a it's a very difficult time to make forecasts. Yeah, and also I mean imagine like if the Fed raised rates because they thought the price of lumber was too high, and then two months later it's crashing down because of the trust plate issue. Yeah. All right, well, um plenty

to talk about for sure. Shall we leave it there? Let's leave it there. Okay, this has been another episode of the All Thoughts podcast. I'm Tracy Alloway. You can follow me on Twitter at Tracy Alloway and I'm Joe Wisenthal. You can follow me on Twitter at the Stalwart Deaf. Follow our guest Stinson Dean on Twitter. He is the CEO and founder of Deacon Lumber and his handle is at Lumber Trading and Absolute Wealth of Information. Also just

a great guy. Follow our producer Laura Carlson at Laura M. Carlson. Follow the Bloomberg had a podcast, Francesco Leave at Francesca Today, and check out all of our podcasts at Bloomberg under the handle at podcasts. Thanks for listening