Stinson Dean - Talking Lumber
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Bill: Ladies and gentlemen, welcome to The Business Brew. I'm your host, Bill Brewster. As per usual, this episode is brought to you by Koyfin. Koyfin displays financial information simply and elegantly. Koyfin is one of the fastest growing platforms for financial data and analytics to research stocks and understand market trends. I discovered them, thanks to their very passionate users, many of which are my friends. Imagine a Bloomberg-lite with tons of high-quality fundamental data, a powerful graph engine that can show it all clearly, and a user interface that doesn't look like it was built in the 1990s. If you're an individual investor, research analyst, portfolio manager, or financial advisor, do yourself a favor and check them out. You won't regret it. Sign up for free at koyfin.com. That's K-O-Y-F-I-N dotcom. Remember, you're supporting an awesome founder. Rob's a great guy, so check it out.
This episode features Stinson Dean. Stinson is in the lumber trading business. He doesn't just trade financial contracts though. Stinson is actually the guy that you see that buys the railcars of physical lumber. He stores the lumber and then he sells the lumber at a profit assuming all goes well. He does recognize losses occasionally, but we don't like to talk about those. I joke. Stinson has a background in risk management, and I personally found the conversation fascinating. Why am I interested in a physical lumber trader to talk to? Well, one reason is Stinson is a very cool individual as you will find out. He may or may not have a lower back tattoo. Secondly, I was at BMO Harris where we banked food in consumer companies and I was always fascinated with how commodity-based company offset some of the price risk, whether or not they did, how they did, when they did, whether or not they use futures, whether or not they use options.
The lumber market is similar in certain dynamics, though, it's much less deep. Frankly, I also have small investment in a lumber mill. So, I wanted to have a conversation with somebody that knew something about lumber. As always, none of this is financial advice. All of the information contained in this program is for entertainment purposes only. Please consult your financial advisor before making investment decisions. Do your own due diligence, and please enjoy this conversation with Stinson. So, with that out of the way, I am thrilled to be joined today by Stinson Dean, ex-lumber celebrity. When everything was running, you were in a man that was in high demand. Now, I don't know if you're crying at a lack of demand, but you were once on Bloomberg's podcast.
Stinson: Right. I've fallen pretty far now to land here.
Bill: This is exactly correct. You now scraping the bottom of the barrel.
Stinson: Yeah, kind of coincides with the lumber chart.
Bill: That's exactly right. Do you think you're going to recover from stooping this low or do you think that you're going to make it back someday?
Stinson: Yeah, it's hard to tell from a risk-reward perspective but no one's been calling me lately. So, I've got a lot of stuff to say. I was happy that you reached out.
Bill: Good. So, I caught you at the bottom of your self-esteem-
Stinson: Exactly.
Bill: -general professional life and-
Stinson: Raw, just raw truth.
Bill: [laughs] That sounds good. That's how I like it. I can assure you that I'm not going to lift you up, and I'm at my bottom, too. So, we're just going to basically--, I'm drinking wine right now. I have no idea where this is going to go.
Stinson: Deal.
Bill: All right.
Stinson: Well, if I drink wine, you might see my higher for longer tattoo that I got.
Bill: I like it.
Stinson: But you know, after--
Bill: Is it on your lower back?
Stinson: Yeah, see.
Bill: [laughs] I will find out. So, dude, why don't you talk a little bit about where you're from. I'm really happy that we're not doing this episode when lumber was mooning and everybody was acting a damn fool, and that we can actually talk about what the life of a commodity trader is like or I don't even know that it's fair to call you a commodity trader. But why don't we get into that as it goes and talk about your background?
Stinson: Yeah, well, I think commodity trader is the sexiest thing that you could call me. But in reality, I buy lumber and I try to sell it for a little bit more than I bought it for. A lot of folks, I have learned this year that lumber is a commodity. So, it is just as volatile as any other more popular commodity, but I certainly didn't know lumber trading. I remember snickering when I started out of the grain desk at a company called FCStone-
Bill: Oh, yeah.
Bill: -which is, they're not called StoneX. I remember snickering when I heard the term 'lumber trader,' because I was sitting next to Nat gas traders, and energy, oil and, all this thrill fans derivatives, and grains was sexier than lumber. Then I started looking over at the gal, her desk next to me who led the lumber desk, and lumber's just limit up or limit down going to depend on what time of day it was and like this market is crazy.
Bill: [laughs]
Stinson: So, I just started asking questions about risk management and consulting, and how the industry utilizes futures. It's not as a very sophisticated marketplace from that standpoint. So, as a consultant on risk, which is what FCStone did was we would consult companies on managing their commodity risk is like, "Well, this, this might be a market that I could actually get some clients," because in grain everyone knew more than I did already, and they've been doing it for decades. So, I wasn't getting a lot of traction on the grain side. So, I switched to the lumber industry, and it was what I thought is largely untapped. A lot of education, just real basic education was needed. Everything from futures mechanics, to basis trading, to options, and potentially swaps, and different OTC products.
But that's how I got my start. I just happened to be sitting next to the lumber desk, and I volunteered to help them recruit cold call, and recruit for a hedge school that they're putting on. Yeah, they just got fell into it. [crosstalk]
Bill: What do you mean a hedge school? What is that?
Stinson: It's like a seminar that folks like consultant groups put on that you invite industry participants and just take them through a one or two-day seminar on how to use the futures market to manage your risk.
Bill: Okay.
Stinson: [crosstalk] all commercial participants in whatever commodity market. Because there's such a big learning curve with futures in and of itself, and then combining it with the cash market, there's a lot to learn and understand. So, for decades, risk consultants have been putting on hedge schools teaching farmers how to hedge their grain. That's typically how you get clients in the door, started with education. So, man, that's how I kind of fell into lumber. Before that, I was in medical sales. It was completely different.
Bill: Wow.
Stinson: I got hired at FCStone because they wanted salespeople. They wanted seasoned sales people to sell, consulting, business to business, risk management consulting, and their thought was, let's bring in sales professionals and put them through an academy to teach the book smarts. It's a great idea, and they did one academy, and they never did it again.
Bill: [laughs]
Stinson: I literally was the last one standing.
Bill: Why didn't they do it, again? [laughs]
Stinson: Like I said, I think it's a great idea. But yeah, it just didn't take off. I don't know if it didn't have the right internal support or what, but I think I was lucky enough to be in that initial and only class. And also, I was lucky to fall in the lumber. Because it's just is so hard to compete in these larger, more sophisticated commodity markets. Lumber was small niche uneducated and there's room for one person extra, and that was me. So, that's how I got my start.
Bill: It sounds like you were closer to creating your own luck than lucky to fall into, just based on what you said about you were looking at the desk, and thought, "Hey, this might be an inefficient market. I'm going to go attack this."
Stinson: Yeah, well, yeah, for sure. I didn't want to say it out loud. But yeah.
Bill: That's dope. I just had a conversation with the guy J Mintzmyer, and he's a shipping analyst. Very similar story, man. I think that one of the reasons that I'm excited to talk to you among the fact that you're a really cool guy with a great lower back tattoo is that there is an element of the world that is ignoring some of these lesser known niche products. So, a lot of kids ask me, "Oh, what would you do to get into finance?" The old school answer used to not be just covered tech and by the greatest company out there and watch the stocks moon. The older answer used to be find a market that's somewhat inefficient, become a specialist, add value, make money. That's the old school way to do it and I'm hopeful that we'll come back into vogue. I think, it will.
Stinson: When did that change, would you say?
Bill: dude, I don't know, it feels. First of all, I'm only 39 and I've only been relatively intelligent for maybe nine years. I consider the 18- to 30-year-old male a pretty dumb animal in general. Sorry to my listening base, but that's true. So, I get the sense that it probably started in like 2014 with people under appreciating the changes that were going on in the world, and my feeling now is that we're maybe on, if not the later endings, some of the middle innings of that narrative.
Stinson: Yeah, I'm looking at my bookshelf. There's a book called the Young Money, and I think it came out around 2014, and I talked about how Wall Street, and in that suit and tie culture was losing out on talent to Silicon Valley, and how the banks and sexier finance or traditional finance, I should say was having to change their culture, and their values and what they stood for to attract that talent back to traditional finance.
Bill: Yeah, and I think there's a reasonable amount of that that's reality. Then I think there's a reasonable amount of some of these underappreciated markets. Dude, you had a commodity boom, the BRICS and all commodities, what like 2004 to 2010 or 2009, ramped crazy, people got super amped up, capacity appears to have gotten too much. Now, you have a decade of decimation, like wants to go into that shit, right? I can go do something else that's way more interesting.
Stinson: Yeah. Okay, I get what you're saying. Yeah, traditional infrastructure, raw material base. This is what's been so fascinating for me like just basic, the economy running like me moving hundreds of railcars from Cornell, British Columbia, and some to Dallas, some to Atlanta, some to Kansas City, and then ultimately, homes get built. If there's a polar vortex dipping down into Chicago, we can't get lumber into the southern US from Canada. The things like that to me are so interesting and exciting because everything I read in here and see matters, and I can see how maybe 10 years ago, like you said, all the generalists on equities and finance, so bear with me, but the commodity boom, a ton of CapEx, and then when it all fell apart, it just nothing but overproduction and too much capacity.
There wasn't a lot of volatility. I remember when I started at FCStone, companies like that make money from futures markets going up and down, since there's hedging opportunities, and that's how they make money putting on trades for their clients, hedging trades. So, they need vol. When volatility is low, companies like that don't do well, because there's not a lot of arbitrage opportunities when volatility is low. So, I started in 2014 in commodities and quickly moved into lumber, and we were just kind of coming out of that slog of working through and clearing the commodity markets as a whole, I feel like, definitely lumber into kind of a post China-US based demand for commodities, this is how I summarize that.
Bill: What do you mean by post China-US base demand? China was the marginal buyer, seller, whatever? Is that [crosstalk]
Stinson: Right. Yeah. It was really interesting. When I started paying attention to lumber, China bailed out, again, this is just my--
Bill: This is all opinion, anyway. This people need to do their own damn due diligence.
Stinson: You're an intimidating guy and I'm not that [crosstalk] I'm trying to--
Bill: Am intimidating? I'm out here drinking red wine talking about your tattoos.
Stinson: Yeah. I'm just trying to stay on your level of sophistication here, but I'll quit apologizing so.
Bill: First of all, let's just drop the pretense. I am far from intimidating.
[laughter]
Bill: I appreciate it. I'm looking into dude that looks like he could beat me up. So, no need to view me as intimidating. [laughs]
Stinson: I probably can. You're right. At least your guests are always really sharp and fun to listen to. When I started, in 2014, I would sit there and look at a flat price chart and just ask the senior traders around me, "What happened here, what happened here, why, why, why?" Read old blogs and Twitter was starting to take hold in finance, and Ag Twitter has been around for a long time, you could get info. But anyway, in regards to China, lumber went up to the all-time highs with $590 or something in 2006 was astronomically high.
New home starts at $2 million, then it all came crashing down, and new home starts just slogged along, as we've all seen on the chart, still yet to eclipse pre-2008-- 2006 highs. But lumber, retraced pretty aggressively over the next couple years. So, that's why and it was China, so China's big infrastructure build and the 20% GDP growth, the ghost towns, and the roads, and they would use lumber for concrete forming, and they just like to form curbs on sidewalks for the-
Bill: That's interesting.
Stinson: -concrete forms.
Bill: Yeah, that's interesting.
Stinson: They use it for furniture, and crates, and stuff. But when they're in and buying, it's not because we're building houses, it's because they need 20-foot boards to form concrete curbs on the road. That's I think, a large part of when they come in and buy a Canadian commodity lumber. But China was the driver, and then right around, there was no-- Every time I look at a housing starts chart, post 2008 recession, it's just I was not in the business, and I could just couldn't imagine, 600,000 home starts. How is there room for enough people to have jobs in that kind of industry?
Bill: Yeah.
Stinson: Gosh, I think I started and home starts were 900 on their way to the million, I think, in the 2014-15. So, I just started paying attention to China. Again, I went through an academy. I have a degree in journalism, and I know how to sell. So, I just-- largely was just trying to make logical sense of price and asking why, and the answer I kept getting was, well China. Lumber in particular, there will be a lot of rumors and volatility because there'll be rumors in, "Hey, China's in and they're making a block buy and the mills are sold out for six weeks." They just sold everything offshore. That was kind of always the threat from 2010-2014. The reason I think a lot of commodity prices. I don't think that's [crosstalk]
Bill: When you say threat, you mean that the threat would be that China would leave the market and [crosstalk]
Stinson: No, [crosstalk] US buyers.
Bill: Okay.
Stinson: Yeah, because everyone in our industry is scared of being cut short. The industry model, almost everyone is short. Meaning, they're committing to sales with lumber they don't own yet.
Bill: Okay, so the reason that they're scared to get cut short is they're promising to deliver an amount of lumber in the future. If they can't deliver it, then there's a chance that the price moons on them, and since they're short that future delivery, they're just absolutely fucked on the delivery obligation, because they got to go into the open market somehow overpay and deliver what they need to. Is that fair?
Stinson: That's fair, and I want to be careful using the word 'future.' Technically, yes. In the future, but not necessarily using futures.
Bill: Yeah. True, at a future date.
Stinson: Yeah. It's homebuilders. Homebuilders come in and say, "Hey, quote this job. It is going to start in three months." The quoted off lumber, they don't really own yet, and they just kind of guess like, "What's my average cost or what I do own, what do I think it's going to be come three months from now and I throw a number on it? Then they get the PO, and then they have a decision to make. Do we buy the lumber and sit on it, wait for the job, tie up our cash, or do we speculate? Maybe the market comes to us and we compare our margin, and we don't have all our cash tied up in inventory.
What all lumber folks know is, if China's in, that's the threat of China's in. It's not that you're going to have to buy it at a higher price, it's that you can't find it. There's not a price you can pay to get it in that timeframe that you're in. So, that's when folks would cut short and that happened to the 10th degree this year.
Bill: Is that what made lumber moon?
Stinson: Oh, yeah.
Bill: Because China was in?
Stinson: No. Oh, I'm sorry. That the sales-- [crosstalk]
Bill: Oh, just people that cut short.
Stinson: Yeah.
Bill: Okay. That's fair.
Stinson: No. Yeah. So, all this rabbit trail was me being a young trader. Early in my career, just boiling it down to China. I was watching a chart, the price of lumber was up [crosstalk]
Bill: And every question you ask, the answer was China.
Stinson: Yes. And it just didn't match domestic demand. So, "Well, I guess we should pay attention to China." Then they pump the brakes in that 2014-2015 time period. The price of lumber was staying above 400 for a couple years-- two, three years, and then it just it broke below 400, went to 300, broke below 300, went to 215, I think is the 10-year low. In that whole time, I was just reading about China's slowing down and instead of 20% growth, at 7% growth, and they're trying to-- they got all the infrastructure built for the rural migration of their population into the cities and they're going to tighten their belt and whatever their narrative was. I didn't know. It was all over my head. I just was reading, and this is what was so fun and really hooked me to the whole industry. Early on, I was able to read Goldman Sachs commentary about China and how China has used more concrete from 2000-2010, some 10-year span than the US used in hundred years from 1900 to 2000.
Bill: Yeah, that's crazy.
Stinson: I remember reading that in the Goldman Sachs deal. Again, this is all very sexy to me. I thought it was very cool.
Bill: What is cool? What they did? That's wild shit. When you see those ghost villages that they built, it's like, "What in the world is going on?"
Stinson: They're bringing them down. I just saw some viral clips there. They're imploding entire blocks of these apartment buildings.
Bill: That's insane.
Stinson: It's wild.
Bill: So much waste.
Stinson: And really, that infrastructure investment that they had was sucking up so much lumber to form the concrete that Goldman Sachs was talking about.
Bill: Huh.
Stinson: So, it just made all the sense in the world to-- [crosstalk]
Bill: All right, dude, hang on, wait. I'm visualizing it now in my head. When you're watching a sidewalk get built, there is, unless I'm wrong, there's a bunch of wood that form sort of the curve and then every maybe yard or whatever, there's a two by four some structure, and then they pour the concrete in the middle of it, right?
Stinson: Yep.
Bill: Okay. All right. Yeah, now, I understand what you're saying. That's wild.
Stinson: Yeah. They put the little metal stakes next to it, and they form it up, and they take it to the next one. They're lumbers full of-- it's all messy and got all sorts of residue on it. But I didn't witness this, but that's what they were sucking it up for. They notoriously bought, we got low grade lumber. It didn't need to be pretty, it didn't need to have like a smooth and square edge. All it just needed to be relatively straightish. But there's not a lot of that that's made like ideally, the mills make high-grade wood when they process a log. So, they would suck up all the low grade and then start buying high grade. They didn't care. They needed it to form.
Again, I'm a little bit in over my head, but other commodities, China looked inward, "Can we do this ourselves, and store grain, and process aluminum and copper and blah, blah, blah. They did the same thing with lumber. They created sawmills, they started buying logs instead of finished lumber, and tried to supply themselves. I think largely it made a significant impact, because China, now, is nowhere to be found in our lumber market. You just never hear about China coming in and making a buy. Eight years ago--, seven years ago, when I started, everyone's looking over the shoulder, "Do I need to buy now before China does?" And that's not a threat anymore. So, it was interesting to me as an early trader saying, "Okay, well, we just watched China. I feel like that could tell us where commodities are going to go." And lumber fell, oil fell, grain prices fell right around that 2014-2015-year timeframe.
To me, that's just when China turned it off. They're trying to pivot to-- When I was taught in my Academy there, because China is such a huge market for Ag folks at FCStone. You look at the diet, and they were-- I'm not going to remember, maybe this is super common. Everyone knows what it is, but they're moving from rice and soft grains to meat and protein-- [crosstalk]
Bill: Yeah, more proteins and whatnot as you move up the well cycle or whatever.
Stinson: Yeah.
Bill: Yeah, that makes sense.
Stinson: That was what was transitioning, and so, as I was observing and they've got their infrastructure bill, and it's easy to jack up your GDP growth when you spend on infrastructure. But then, I remember feeling like they just making a concerted effort to pivot their economy to where the US was and was headed service-based stuff technology, I mean, certainly manufacturing, but less so. But regardless, I remember that, right? I just know that they just shut the valve off on infrastructure spending. So, all the commodities fell. All the commodities that-- that all at CapEx that was built into the pre-recession, and then China was just gobbling everything up, it was like another valve-- [crosstalk]
Bill: Everybody's built out as if China's going to stay there and then China shuts it all off, and then you got all this freaking over capacity.
Stinson: Ton of it. Lumber was the poster child for that-- [crosstalk]
Bill: This is called the capital cycle, right here.
Stinson: Okay. See, these are things journalism majors don't know.
Bill: Bro, I'm going to send you a book for real talk.
Stinson: [laughs]
Bill: I'll send this book, Capital Account, it's sick. It will change the way you look at this stuff. It's by a marathon--. I don't know what their actual proper name is but marathon is the investment book. It's a fantastic book, man. The way that they invest, well, I shouldn't say the way they invest. But one thing that they made popular was the capital cycle theory. Basically, what you're talking about is like, if you're going to play sort of cyclical trends, I hope, I'm not miss framing them because I really, really like what they do, but I think, I'm right. You really want to be wary of the kind of situation that you're referring to, and what you really want to look for is after, I don't know. A period of time when there's been under investment in an industry, perhaps because that industry expanded too much capacity and a main buyer left the market, if there is some sort of demand poll that comes up, especially, if the industry is in shock from say, five or six years of not making money because they over invested for the previous 10 to 15 years, you can have these cycles that you can invest into. It's probably the best term.
They wrote two books Capital Account, well, they didn't write but the two books that cover them are Capital Account and Capital Returns. I'll send you Capital Returns. Send me your address after this.
Stinson: Deal.
Bill: Capital Accounts, 500 bucks, and I like you, but we don't know each other that much. The other one I can avoid.
Stinson: Well, yeah, if I actually read it, then--
Bill: You should read it. It's dope.
Stinson: Oh.
Bill: Real talk. It's one of my favorite books out there.
Stinson: Well, it sounds like you said--
Bill: You might live it.
Stinson: Capital cycle, I was just dumbing into that saying, because you get into these euphoria's, and I mean, we'll get there with lumber recently. But you can imagine the narrative and the rhetoric around China coming out of the recession, some would argue, they did it right as far as they're spending. But they came roaring back and just sucked up all the resources, and everyone retooled and forecasted in anticipation of China being there. Then, one day, they weren't. The sawmills were less guilty as anyone, and that scar, 2006 was the peak of the housing market. Bottom 2008, that certainly was scarring. Lumber housing was the epicenter of the tragic recession we had.
But I think for sawmills, this China--, this dependence on China, China was the only game in town. Commodity lumber, what we're talking about soft wood framing lumber, the stuff that goes behind drywall and builds your house. Not hardwoods, not decking. It's driven solely by US single family home starts. When there were 500,000 homes being built a year or less-- [crosstalk]
Bill: Let me ask you this. What about repair and remodel?
Stinson: Yeah, so R&R is something I always overlook, and it is from the data that the mills give us, their R&R businesses approaching 50% of their production.
Bill: Yeah, okay.
Stinson: That's a relatively new, I'd say five to six-year market share, market mix change. I will say the caveat, without having the data in front of me is a lot of these Canadian mills own southern yellow pine production, and southern yellow pine is decking material, and that's huge in the repair remodel DIY world. But maybe they do have it segregated. I don't know. So, all I had was China. So, I just leaned into it, and I had all the relationships, and the governments were writing letters of credit and everyone was backing the credit risk, because-- one of the early things I learned just hearing stories of trading grain with the Chinese government, if prices fell and your boat was on the way over there, they'd probe it and claimed it was GMO, and they'd refuse delivery.
Bill: Hmm.
Stinson: Entire Ag desk across the world at this commodity firm I was at was trying to find a home for these boats of soybeans, because China just refused delivery. So, I was always taught to be fairly weary of business deals. The lumber folks were hot and heavy with those folks. There's a lot of outtake, and it was a great outlet, and it saved the lumber industry. If that wasn't there, and the lumber industry only had 500,000 homes to supply, I don't know what it would look like. So, I'm not saying it's a bad thing, but right when China started to turn off that infrastructure investment, purchasing lumber, and raw goods, US economy started to wake up a little bit 2014, 2015, 2016. Housing starts were quickly approaching a million.
I think I've said this before but if you're a homebuilder, if you're a lumberyard, and if you're saw mill, and you're still around 2014, 2015, 2016 is because you're fairly conservative, and you know what's possible, really slow to hire, really slow to add plant equipment, don't want to get over to leveraged and all the things that-- [crosstalk]
Bill: Yeah. They don't get over your skis.
Stinson: So it became on the demand side, folks never really leaned in, and reinvested or got aggressive from a capacity perspective, homebuilders on down, where the sawmills did, because they had China, and the China went away, the price of lumber went to $215 per thousand on the futures chart.
Bill: How many people are making money at that level, anyone?
Stinson: No.
Bill: Yeah.
Stinson: Nobody. Even back then--, back then, seven years ago.
Bill: It's a long time.
Stinson: Yeah. Nobody. The last time lumber did that, 2007 and 2008, it got down to $127 per thousand, and I wasn't in the industry, but I was just talking to folks who were that the mills, several of the big ones just kept pumping out lumber for just that--, we're all lumber traders. We're not, again, super sophisticated, but the narrative was they just got to keep pumping lumber out to produce cash, to pay the bills, no matter what the price is. Then there was-- [crosstalk]
Bill: Lose money and pay the bills, I like it. Sound strategy, make it up in volume. [laughs]
Stinson: Yeah, that's right. Someone said that to me, "I posted a big loser on the surface--."
Bill: I saw that. Yeah. Somebody said, "Make it up in volume."
Stinson: I was so confused. I had to Google it. I'm like, "What? This guy's smart. Why is he saying that?" But yeah, that's literally what the near--, I don't know if it's what they did, because I wasn't around. But it's what I was told. So, it's a race to the bottom, and then survival of the fittest, and, again, this is like second hand interviewing folks who've been around longer, and I was like, "What happened?" I say this, ironically, but I would have loved to have been around in six, seven and eight to experience that market, and see, and feel myself what I'm being told by-- [crosstalk]
Bill: Yeah, well, you would have been like then?
Stinson: Yeah. So, I got to relive it through articles, and interviewing, and asking questions of veteran traders, and what I surmised was some of the bigger mills were going to just, this is just me guessing. It's what I would do. If I had the money and the wherewithal, I would crush the market, crush my competition right around the business.
Bill: Yeah, [crosstalk] and then on the backend, make money.
Stinson: Yeah.
Bill: My man.
Stinson: When everyone out, consolidate, no one makes money at $215 per thousand, neither do we. But we get the cash to burn it, and that's what I think happened is that the bigger mills that had again, the wherewithal just wasn't-- were able. I don't want to say they drove the market down purposely, but they weren't too scared of it knowing whoever can make it to the other side is going to be in a really good position, because there's just going to be less producers, and that's definitely the case on the dimensional lumber side and the panel side, a lot of consolidation ever since 2008.
When China left, it was all US demand. So, then, it's like, you just get obsessed with the housing market. The good news is, there's a lot of really smart folks, and there's not going to be a lot of hidden insights into US home starts, it's pretty well covered. As a trader, I'm certainly concerned with long-term trends, but I'm more quarter-to-quarter, month-to-month price fluctuations.
Bill: Can we talk about your business a little bit just to frame it? So, you've mentioned that I used to bank food companies. So, the way I think about commodity markets is, you've got spot prices, and then you've got basis, and you've got carry. So, basis, if I remember correctly is the amount of money that you can make by transporting it from point A to point B. Is that fair? Then I think [crosstalk] carry is time, thank you for explaining how dumb I am. I appreciate this. But we should break that down, because you said basis trading, right? And then carry.
Stinson: Yeah. So, basis and spreads is what-- If I had a tattoo, that's what it would say, basis and spreads.
Bill: [laughs]
Stinson: Yeah.
Bill: That could kind of be you know, you could get kinky with that if you want it. I don't know.
[laughter]
Stinson: It depends where you put it I suppose.
Bill: [laughs]
Stinson: And higher for longer for that matter.
Bill: That's true.
Stinson: Basis, you're probably referring to what's taught in the textbooks as local basis. Basis, it's a spot price at any geographic [crosstalk] country.
Bill: Yeah, at a point.
Stinson: Right, less freights. You always got to back off freight, because freight's the same for everyone. You got to figure out which local market is paying up the most for whatever commodity you have. That's very common in every major traded commodity to talk in basis terms like what's NOLA basis, what's LA basis, what Chicago basis for corn, for wheat, oil. Traders talk in basis terms and basis is-- [crosstalk]
Bill: It's a real quick, just before we get ahead of that. I see NOLA basis, which is New Orleans. I see LA basis. If I were somebody that was interested in arbitrage, I would look at the cost of transport, what is it, a thousand board feet is how it's quoted?
Stinson: That's right.
Bill: From New Orleans to LA, if there is an opportunity to make money, I could arbitrage those two things by, what selling LA, buying New Orleans, and transporting it or some version of that, right?
Stinson: Yes.
Bill: Okay.
Stinson: Yes, some version-- Here's a really interesting part. It's an inefficiency. I tell folks, when I'm teaching this, you buy what's cheap and you sell what's expensive and then they come together. Lumber, there's not a lot of people that pay attention to that stuff. So, basis is the difference, and when talking about commodities basis is cash which is spot price minus futures. So, it's defining the premium or the discount of the cash market to the futures market. If you just think about that in real simple terms, it's just the valuation of time.
Bill: Yeah, that makes sense.
Stinson: What does it cost, if I need it today versus if I can wait 60 days? That 60-day carry tells me everything I need to know about the market. In a market like lumber where everyone's chronically short, basis skyrockets suddenly all the time, and it's geographic market-to-market. Lumber is not easy to transport. It takes a lot of manpower, forklifts, and flatbed trucks. It's not efficient to load and unload compared to filling a grain hopper. It just never seen a train get filled with grain. It just slowly rolls by the grain elevator and it just dumps it in there.
Bill: Yeah, man. They got the tracks that go around the elevator, the elevator dumps it in, and then it moves in or moves out.
Stinson: Yeah. There's like two people operating all that value.
Bill: Yeah.
Stinson: In lumber, it's a truck driver, it's a guy counting the sticks, it's a guy in the [unintelligible [00:39:08], it's just cumbersome to move it. That's what makes lumber unique. You can't transport it to NOLA to LA. You can't. There could be arbitrage opportunity on paper. But the reality is, you can't get it done. It's similar to I tweeted out the arbitrage opportunity on the futures contract. How you could buy lumber at 460 and the futures contract was trading at 500 and it expired in three days.
Bill: Yeah, man, how do we do this? can we raise capital and do this? That would be sweet.
Stinson: Yeah. You got to own a mill, because mills are the-
Bill: That's unfortunate.
Stinson: -only once. That's right. You got to own a Canadian mill because the contracts written specifically for Canadian lumber. It is a Canadian lumber contract, and it's actually priced FOB British Columbia. Just the restrictions of the contract, there's so much shipment risk that you have to control shipping in lumber currently and has been for 25 years, everything's bought delivered. Whoever selling you the lumber arranges freight. You don't even see the freight bill. It's just the delivered number.
Bill: Yeah, at your point of delivery, right?
Stinson: Right. The rule of thumb, you take futures plus $88, it gets to Chicago, plus 120 gets you to Dallas, gets you to Atlanta. But at the end of the day, it's all FOB Canadian mill, because we're all paying 88 bucks or at least the mill is charging us 88 bucks wherever they-- We don't face the rail line. So, we don't know.
Bill: But do you do physical and will you deal with the railroads? I thought you will buy cars, right?
Stinson: Yeah, so, I'll back up and talk about my business. My business is a physical trading firm. That sounds cool of a trading firm?
Stinson: It is cool, man. I think what you do is dope. On Labor Day, you said, you pay people, so, you keep people which is nice.
Stinson: [laughs] Those are ancillary businesses that are in the lumber-- outside of lumber, but heavily involved in those especially on the hiring side or the--
Bill: What are those businesses? The hell do you do Stinson Dean, you are an interesting individual.
Stinson: Well, I started with lumber for sure, and as I'm a lumber trader. I'll get into it, but I think it's important for context. I buy railcars of lumber that you see when you're stopped at the stoplight and you see lumber go by on the train. I own hundreds of those railcars. I store them, I store the lumber in warehouses across the country.
Bill: Do you own your warehouses or do you lease them?
Stinson: Neither. It's just pay per railcar.
Bill: Okay.
Stinson: If I don't buy any railcars, I don't have any overhead.
Bill: Yeah, that makes sense.
Stinson: Yeah, and lumber can't reload facilities. So, I placed lumber, I'm in Texas, several places. I'm in Atlanta, I'm up in the East Coast housing markets. When someone needs a lumber quickly, because again, they're short for all sorts of different reasons, maybe they miss budgeted, maybe they got a new customer all of a sudden, maybe they're waiting on a railcar that's stuck in a polar vortex and can't get through Chicago, they call me, because I have lumber on the ground ready to go, Canadian limber.
Bill: Oh, you smart man. You are smart. Can I call you from my new house, because they're going to screw me on this fucking thing? I know it.
Stinson: What's going on?
Bill: Oh, dude. Right now, nothing. It's just pencils down. I just got my first bill. It's terrifying.
Stinson: [laughs]
Bill: It's going to suck. [laughs]
Stinson: So, I've never built a house. So, how does that pencils down? So, you got your first bill, but like, are your prices fixed, are they cost-- Like how does that even-- [crosstalk]
Bill: Oh, man. Prices fix? That's hilarious, Stinson. No, they're not fixed and I cry every day.
Stinson: Is that your choice?
Bill: No, real talk. Well, dude, so first of all, framing it, you make your wife happy. That's number one rule in life. Happy wife to happy life. Real talk, I'm excited to build what we're going to build, where I live in Florida has a lot of old inventory. Lots. So, with the hurricane code and I grew up down here, so I saw what Andrew did to Miami homestead area. My dad had a single engine plane, and we flew supplies down to homestead after that hurricane, and you can pull it up on the internet and just see it. It was just a line of devastation.
It looked like people had bulldozers and they just drove them across the state, but as a kid flying and seeing the dichotomy between the houses that made it and the houses that got blown down, it left a lasting impression on me. So, a lot of these houses are older, and given what is going on with real estate where I am, we were fortunate enough. We bought a lot in September before everything skyrocketed, and we're going to build what we want to live in for, I don't know, 15, 20 years or whatever. Soon enough, maybe people will come and do live podcasts. I'll have like my own little Rogan setup or whatever. But they're penciling things out. You got to go through all the committees, you got to go through permitting, and what it-- [crosstalk]
Stinson: Who's doing that? Are you doing that? Is you builder?
Bill: Oh, no, man. We have a builder. They can handle the permitting, and we have a designer that's working with my wife. I mostly say, yes. But we started this process in probably December and here we are in September, and to me, my wife would argue differently. She does all the work. So, it's not fair for me to actually say this, but I don't think we're any closer to building this fucking house we were nine months ago. [laughs]
Stinson: I just think, nine months ago, January-- [crosstalk]
Bill: I just pay rent. Every month, I pay rent checks and I say, "When's this going to end?" The answer is, longer than you thought.
Stinson: Do you know what your framing package costs?
Stinson: No. I'll find out for you though.
Stinson: Because this helps the risk transfer, right? Is your builder putting lumber price risk on you or are you putting a--?
Bill: Yes, Cost Plus 15.
Stinson: Okay, it's Cost Plus. He's looking at you and you're getting, "Hey, give me an update a quote, give me an updated quote."
Bill: Yes, and I'm actually right now I'm like, "Dude, I want to get in there and I want to buy lumber right now," because my general theory of the case heavily influenced by my man, Mike, is that, as people come back from traveling through the summer, the risk of getting caught short lumber when I need it is scaring me. I don't want to have a situation where I'm building a house-
Stinson: You feel it.
Bill: -last year. Like, fuck that. I just rather lock in the costs and pay the storage.
Stinson: Yeah. Okay, so, I don't know how common that is. This is a custom home build, but Cost Plus, I know that's a thing. But that for the builder, it's just completely risk free. For large homebuilders, they don't do it that way.
Bill: No.
Stinson: Large homebuilders don't like to be committed on material they don't own. So, they go to their supplier and say, "Hey, give me a 90-day price." Their supplier typically does it like a retail lumberyard.
Bill: Yeah.
Stinson: Yeah, big chain. What I have theorized is--
Bill: Who are the big lumber yards?
Stinson: The biggest one is Builders FirstChoice-- FirstSource-- Builders FirstSource, BFS. But their ticker is BLDR. They're huge. They just bought number three in market share last year. It was BMC.
Bill: They seem to have an appetite for M&A, too. They're looking to go out and buy it seems to me, but I don't know that a 100%.
Stinson: They buy component trusses and wall panel manufacturing plants regionally. They bought a software company that they use, that was their party. They're monster, and my theory coming out of this actually, price started to change sort of make me think this is actually what was happening. So, price went up, Builders FirstSource, 84 Lumber, Carter Lumber, everyone is committed 90 days, sometimes, longer to Pulte, D. R. Horton. So, Pulte and D. R. did not feel the price increases until Q3 started-
Bill: This year?
Stinson: -where they're quarterly pricing. Right.
Bill: Yeah.
Stinson: The market was moving so fast inside of that quarter that Q2 quarter that the homebuilders didn't feel that.
Bill: Yeah, they got hit on the first half, and then they benefited on the downside or whatever, and they just didn't feel it?
Stinson: No. So, I don't know how my fingers look but if this--
Bill: They look like this.
Stinson: April--
Bill: They're going up and down.
Stinson: April 1st, they got priced.
Bill: Yep.
Stinson: So, they're locked in at this level.
Bill: Ah, for 90 days for the quarter.
Stinson: Yes.
Bill: Okay. So, the price goes up and then they don't get rebid until call it June, and they didn't even feel the price go up because they're bidding at two points that are low. Okay, fair.
Stinson: Yeah. They caught around to the homebuilder.
Bill: I'm enjoying this conversation. I hope you're enjoying this conversation.
Stinson: Yeah, I love it. I hope you are.
Stinson: I, really am.
Stinson: Well, and I hope you, I want to keep digging into your homebuilding process.
Bill: Okay, let's do it. People are going to have to listen for fucking hours. They can deal with it. I don't care.
Stinson: Well, I guess, I really got the answer. I was curious about is who has the lumber price risk and it's you.
Bill: It's me. Yeah.
Stinson: It's a good illustration of what happens. So, big homebuilders can demand these risky, locked pricing. It's risky clearly, and it turned out really bad for whoever's holding the bag on the short lumber risk, and it wasn't the homebuilders.
Bill: Will be me.
Stinson: Right.
Bill: Yes.
Stinson: Well, it was the homebuilders' suppliers, okay? And then, so, as Q3 started to get price, they start bidding stuff leading into July 1st, and as that big run up in prices started to get quoted, then homebuilders were like, "That is too expensive, actually. So, no, we're not going to do that." But more so than price, everyone was throttling. We don't really care about price necessarily as much as we can't tell a homebuyer. Your house is going to be built before school starts, and then actually, you can't move in until October, maybe. It's happened to a buddy of mine.
Bill: And this is because of labor?
Stinson: Someone can speak to it better than I could. As far as it delays-- [crosstalk]
Bill: It seems like supply chains plus labor is the answer to this question. That's what it seems like to me.
Stinson: Yeah, and that August to October delay, absolutely. It's because they're waiting on stuff to finish the house, because I got the lumber at this point, but then they can't get all the finish stuff.
Bill: Yeah, okay.
Stinson: Everything from drywall mud to windows. But when the homebuilder finally started to get quoted at the astronomical prices, that's when they pump the brakes. But not only that, the supply chain lumberyards were no longer in this kind of reactionary behavior, why would I give you a 90-day price? That did not work out for me last time.
Bill: Yeah, I got screwed the last time. You got to bid on too low points. I don't want to deal with this again.
Stinson: So, this quotes good for 30 days instead of 90. The build process for production home, I'm completely guessing 90 days. Let's call it. Well, now all of a sudden, the homebuilder has a decision for the first time in the cycle. Housing cycle, going back 2008. Do I want 60 days of lumber risk? The home builders are not set up to manage commodity price risk [crosstalk].
Bill: Yeah, lumber risk, Hmm.
Stinson: They're not, because they've always been able to transfer that risk to their supplier. Until now, when their supplier is like, "No, we're not doing that again. Good luck. Good luck finding someone who will," and someone will eventually, and they'll make a bunch of money until they don't. But it also plays into a larger or another element of this BFS merger, they're all of a sudden big enough to start pushing back on homebuilders. They are the biggest lumberyard across the country that their corporate sales people can talk to their corporate purchasing people and strike deals for the entire country. There's only a handful yards that can do that, and BFS is the biggest. I think, they're 2x almost the next biggest location wise.
All of a sudden, instead of having to compete and be like, "All right, we'll do 90 days to get your business, Mr. Customer. No, we're not going to do that. I'm not sure who else you're going to go to the service your nationwide needs." Now, this all me, no one has told me that. I just want to make sure that's clear, but that's what I would do. I think common knowledge now that 90-day pricing is not normal, and it's all been throttled back. So, that forced the homebuilders to be like, "What do we do?" They're not sophisticated, they don't have purchasing, that's not where their resources are. It's really simple to buy if you're home builder because you just pass the quotes off and pick the cheapest one, and it's the same price for 90 days.
Now, all of a sudden, they got to handle commodity risk, and all the things that comes with it. So, I think their decision was, "Well, we're just going to slow down and increase margin. Instead of going at the same pace, we're going to throttle it back because we don't want to and can't handle input volatility."
Bill: Hmm. Or, they just started saying--, they just start signing contracts like I did, where they do Cost Plus.
Stinson: Yeah.
Bill: Right. That may be the outcome.
Stinson: Yes. Which naturally, there's going to be just less people willing to do that. You can tell me to kick rocks, but--
Bill: No, I think you could be right.
Stinson: There's a bank sign up for Cost Plus. You have to go to a bank and be like, "I need a loan." Then you're like, "Oh, well, prices went up and I'm Cost Plus, I need more." I don't think banks play ball with that model.
Bill: Yeah, I don't know how many banks are going to finance construction risk anyway. I think that the interesting intersection of what you're talking about and I had a podcast with this guy, Logan. I think the issue is we're in the middle of a demographic patch, where household formation is so strong that I don't think the buyers are there for the first time in a really, really long-time demand is there, on the demand side--. Demand's there on the demand side. There you go. You're welcome, folks, for listening.
But I think, it's a different time where millennials are starting to have babies. If you were a younger millennial than me and you haven't had a baby yet, I assure you when you have one, your wife's going to want to house because she wants to nest. You're going to have a house. So, to have this kind of dynamic going on on the supply side, it's very interesting. I don't know how it all plays out, but the demand side-
Stinson: Higher prices-
Bill: -certainly seems like it.
Stinson: Yeah. The demand sides well covered.
Bill: At least in the lumber market. If lumber supply hits the market, you could have a ramp where higher prices lead to lower prices, which is the story of commodities.
Stinson: Yeah. So, we've covered a lot of ground, and one of the things so that the mills were scarred from depending on China, a lot of mills shut down, a lot of capacity has been shrinking, if you look at the data for seven, eight years out of Canada. So, they're just slow. Everyone's slow. It's like, your capital what you call it?
Bill: Cycle theory.
Stinson: Cycles. It's going to capital calendar.
Bill: That's fine. We can call it capital Calendar. But it is Capital Cycle theory.
Stinson: It's like this learn this most recent behavior, most recent pain is driving future decisions, and the producer side, their pain was China turning it off, and they have all this extra capacity, and winding all that down, and trying to clear the market. So, now, they're just slow to lean into what you and I, and a lot of folks believe it's just the greatest demographic housing market in the generation.
Bill: You know, it's wild. So, I talked to you before we went live, and I was on a call. Their inability to hire labor is really, really, really amazing. The amount of people that they need to hire in order to have somebody in the southeast stay for a year, it sounds like a very, very tough business to be in. So, I then say, my biggest fear as someone that has some exposure to lumber prices is, can capacity come on, on top of getting a mill permitted and getting the equipment in place, which seems like it's a 12-to-18-month process as it is, you then got to get people that want to work. That seems like a much harder-- That's not just snap your fingers and people are coming to work. That seems very difficult right now.
Stinson: Yeah, and it's very common-- I shouldn't say common, but among the smarter people that I talk to and listen to, this is the first thing to talk about. Because we're talking about the southeast, we're talking about Abbeville, Alabama, and middle of nowhere, Mississippi, and it's hard to find labor down there that wants to be there. Like you said, whatever their metric was for having someone stay for a year. The answer is automation, but that's not happening very quickly either. Just assume that takes a while to develop and the Canadians are pretty good at producing lumber from an automation perspective.
Yeah, so the labor constraints, okay, can you build a mill because there's plenty of wood and haven't covered all this because it's been-- I've definitely covered it, but there's a lot of wood in the US southeast, Southern yellow pine, and they're not enough mills. It definitely could use some mills like that there's room for more production in the southeast. One of the reasons there isn't in my opinion is the Southern yellow pine lumber, the species is not what we use to throw up houses as quickly as we can. Production builders don't use Southern yellow pine to build a single-family home. It's too dense, it's overkill from a strength perspective, and it twists, warps, wet, it's hard to work with a lot of waste.
Because of that, it doesn't store well. So, we're thrown off track homes, production homes churning and burning you just can't use Southern yellow pine. Not to mention the risk of if it's not installed perfectly, it'll twist behind your drywall a year and a half later, and you got a big bump in your drywall, and the builders on the hook for that. So, it's a risky to use it. As a stud, it's a great application for plate horizontal.
Bill: Why? Why wouldn't it twist horizontally?
Stinson: Because it's got a weight on it.
Bill: Ah, structurally, it can handle it. But if you just framing or whatever horizontal, then it's fine. I like how I use framing is if I know.
Stinson: I'll clarify. If it's horizontal, if it lays flat it just stays nice and flat. But if it's vertical, it can twist, and twerk and as it dries-- [crosstalk]
Bill: Twerking wood, you don't want that.
Stinson: Mm-hmm.
Bill: Mm-hmm.
Stinson: [laughs]
Bill: [laughs] I'm sorry, I couldn't resist.
Stinson: So, I'm trying to stay on track here, man. We've gone from China, to Cost Plus, to marriage advice.
Bill: This is--. We had gotten to marriage advice. The marriage advice is love the one you're with.
Stinson: Well, happy wife happy life.
Bill: Oh, yeah, that's true. That's true.
Stinson: And the home building process, I--
Bill: There's no need to stay on track. I just want you to know this. This is not a professional podcast.
Stinson: It's weird because I see your teleprompter there, and it looks like you're going through the script that we--
Bill: No, man. I'm taking notes as you're speaking.
Stinson: [laughs] No, everything is scripted here.
Bill: That's true.
Stinson: [crosstalk] business [crosstalk]
Bill: That's definitely true. Especially, the wine.
Stinson: You don't do video, because there's a teleprompter there.
Bill: Yeah, it's fair.
Stinson: Teleprompters, that's a big dig among boomers. If you say someone uses the teleprompter, it's [crosstalk]
Bill: Yeah, man, the drawback of a format like this is I've had some conversations recently that they kind of get going, and then I'm like, "Okay, so now what do you want to talk about?" Then it gets hitchy in the rapport. This kind of conversation, not a problem. But I can see the merit in having a teleprompter and having script, I like how spontaneous all this shit is, and it's my show, so I'm going to keep doing it.
Stinson: It all depends how much editing and backend--
Bill: Almost none.
Stinson: How committed you are to that.
Bill: My only commitment, I edit stuff. If somebody says to me, I said something, and it would be offensive or I said something that was really dumb, I'll edit that. But outside of that, I'm not really a believer in edits. I say enough stupid stuff. If somebody says something stupid on my show, well, you'll be able to listen, we'll edit whatever you want, but we're not going to edit much.
Stinson: No, I'm not worried about it. It's so fascinating to me, and again, it goes back to when I was an early trader [unintelligible [01:01:12] was rural migration from China had a huge impact on my daily life and I fell in love with that. So, I became a political junkie, and I became demographics, and interest rates, and macro and micro, and geographic, different cities, so much being put together a mosaic to come up with a market outlook in a thesis.
Bill: Do you know, Logan?
Stinson: Yeah, I love Logan.
Bill: He's great, man.
Stinson: Yeah, so, Logan, it's Twitter. When I got started in lumber and pinches the housing 14, 15, 16, I learned so much reading his blog, and I'm like, "Who is this guy?" This guy, he's a mortgage broker.
Bill: Yeah. Isn't that wild?
Stinson: Yeah. I'm a medical device sales guy. So, who cares? learned so much from, and he helped form my thesis. When I started Deacon Lumber, I had a nice little business plan and went to all the banks, and here's the thing, and I need to go reread it. I wrote it in 2017, going into 2018, and it was all about demographics, it was about smaller home sizes, it was about lack of Canadian Lumber, it was about the aging out of the lumber trade, the talent in the lumber trading pool.
Again, like you said, there's a season there where commodities not a cool thing to be a part of, lumber the last on that list. So, I talked a lot about that, and the competition's going, away and expertise and people-- Commodities is a just in time business. For a lot of different reasons, not the least of which is cash and just in time, inventory hand to mouth, that's a whole-- We joke, MBA inventory management philosophy.
Bill: Well, dude, the thing that's crazy is, all that just in time stuff, I think is really biting us in the ass right now.
Stinson: Yeah. So, everything from masks to dishwashers to lumber, everyone that lean Six Sigma and--
Bill: Like leaned into lean, yeah.
Stinson: Everyone's lean. Turn your cash, turn your inventory, and several financial benefits metrics that you guys will be more familiar with. But for me, it makes sense from a risk perspective. It's how people manage risk by less inventory, then if the price goes down, I'm not getting hurt. The way they manage risk is the turn their inventory and reduce their time to market, the time they have risk on. So, when I was starting the company, my pitch was, I know how to manage risk over time and I will carry large inventories. I will be the natural offset to an industry that wants to go lean just in time.
Compounded with the supply chain logistics of lumber being six weeks away in Canada needed to build a house in Houston, and I can get it to you tomorrow, and then as you're being chronically short and lean, it's a good place to be. If you can be the guy who can actually be just in time next day, because if you don't buy lumber right from a quantity perspective, not from a price perspective, but if you underbought your needs and projects are going to start in three weeks. You can't just go by mill direct, best pricing, no middleman markup and get it there. You're out of luck. You got to go to the secondary market. It's got to be rolling already or it's got to be on the ground. There's all sorts of reasons why if someone would be scrambling to buy lumber. They thought the price would go lower, and it didn't or they underbudgeted, and they're meeting because lumberyard had to think.
Talk about 90-day pricing 12 weeks, what are we going to need 12 weeks? So, now, we got to start making those decisions over the next several weeks. So, we actually have 12 weeks from now. And things change over 12 weeks. Jobs get delayed, cancelled changed and of course, the dynamics of the commodity market. So, the business, I know we're talking about Logan, but--
Bill: So, how do you finance your business? An ABL line, credit line?
Stinson: Yeah, so, I use Asset Base Line of credit.
Bill: What's your advance there, Like 90%, 85%?
Stinson: Well, that's another tattoo. I don't think you're going to see that one.
Bill: [laughs] It's just what I used to do. That's the only reason I'm curious.
Stinson: Yeah, well, it's--
Bill: We would do it on grain. So, 90% is a little high. I would think it would be closer to 85% of liquidation value or 60% of costs, something like that.
Stinson: So, this is interesting talking to you, who lent against grain. Did you guys care if it was hedged?
Bill: I think, we certainly preferred it from an income statement perspective, yes.
Stinson: But under advanced rate?
Bill: Yeah, I think that you would have-- Yeah, on a borrowing base, if it wasn't ABL, if it wasn't like you were sending us reports on a weekly basis, unless I've got my numbers backwards, which is possible, but I think that we'd probably only advance like 65% on inventory.
Bill: That sounds right. So, I have advanced rates that are dependent on my hedge ratio which makes sense from a banking perspective. You'll lend more aggressively against price risk managed inventory.
Bill: Yeah. AR, I think was like 85%.
Stinson: Yeah. We insure our--
Bill: Depending on credit profile.
Stinson: We insure AR, too. So, if it's insured, it's closer to 90%-
Bill: Yeah, that makes sense.
Stinson: -if [crosstalk] less. Lumber has a really good track record of, I've never had a claim. I've ever been around one in seven years. I don't just-- can pick one cycle, but I haven't been around one. So, pretty strong, and people pay in 10 days. Everyone has to pay in 10 days, because everyone's starving for cash. That's how the market dictates our terms. Very few businesses can carry their customer for 30-plus days when your main product just quadrupled in price, and you got this huge inventory at this high price [crosstalk] barring again. Mills are no different. The pressure is we talked about this, we'll make it up in volume. It's a --. Yeah, I'm not an analyst. I've never even looked at the there-- [crosstalk]
Bill: You're business guy. You know what you're talking about. Just you could talk.
Stinson: Yeah, okay. I got to stop apologizing, I guess.
Bill: You got more street smarts than most people, man, I think your take is interesting to hear.
Stinson: Especially, living it now, because I got to watch my cash because I buy lumber, and then I have to hedge it, and so, I got a margin call I got a budget for. So, always going to have a very significant chunk ready to deploy that next day as I get margin called on my short futures position.
Bill: But don't you have the physical? Doesn't that protect you from the call or no?
Stinson: It does on paper. But you still have a liquidity obligation to pay your-- my futures broker.
Bill: Okay.
Stinson: Whoever clears my futures trades and from a barn-based perspective, my mark to market value of my inventory is--
Bill: Not a hundred cents on the dollar.
Stinson: Well, it's a hundred cents on the futures side. So, as futures go up the value--, I explained to the folks, my breakeven fluctuates with the futures market. So, I get advanced against my breakeven price, which is my physical lumber position. Let's say, I own lumber at 600 bucks, and I hedged it at 550, and the market goes up 50 bucks-- the futures market goes up 50 bucks. Now, my breakeven 650. And that's my asset value.
Bill: Okay. That makes sense.
Stinson: So, I've a fluctuating breakeven if you just think about it from a flat price perspective. But from a basis perspective, I own it at 50 over the futures price. Wherever futures is, I add 50 bucks and that's my breakeven. But the cash cycle, I feel like in any commodity business, I'm only intimately aware in lumber, it just forces a lot of bad trading decisions. Because I know a lot of us right now have a massive pile of lumber. Very, very big pile. The price of lumber is down 75%. Some of us hedge it, a lot of them don't, and if you don't sell it, the bank doesn't know about it. Until you sell your inventory at a loss, a bank should be paying attention largely, but it's not unheard of--
Bill: You sending them your cost.
Stinson: I am.
Bill: No, but I'm just saying people generally are sending them the cost on their inventory. So, yeah, until you realize the loss, you can maybe hide from the fact.
Stinson: For a while. Lower of cost or market, how often are bankers? I have a sophisticated banking setup compared to the industry. I just know that from consulting and getting started. Most folks, most small businesses are financed aggressively against AR, and 50% against inventory. Well. lumber just fell 75%. They should have a margin call if they bought at the top-- To me, there's not only unrealized losses that no one knows about, there's anyone does an analysis, I think, there's a lot of margin call just based off of that advanced rate of 50%. You could have bought lumber at 1100 bucks. That was a deal at some point and you could have bought it on the way down. Now, it's worth 500, 550, 600.
Bill: So, what were you thinking when it was mooning? As somebody that I perceive your business to be somebody that is-- your value proposition is somewhat reliability of delivery if somebody can't get something. So, did you feel forced to buy inventory or were you skeptical of buying inventory at that time, what was going on in your head?
Stinson: I trade basis. I don't really care if the price makes a new all-time high every day. Because there's two prices we're looking at. We're looking at the futures price, which we can all watch and the spot market, the cash price. I'm arbitraging the difference between the two. I have a long thread on Twitter, which I'll update every 90 days or so. I have made the best trades in my short career buying lumber when it was at $1,500.
Bill: Wow.
Stinson: Because I hedged it at $1,700, okay? Futures went from $1,700 to $450. But this particular cash item went from $1,500 to I sold it for $650 or something.
Bill: This is what you were talking about when somebody was like, make it up in volume. Wasn't this the example?
Stinson: Yeah. And there's more. There's a longer thread which I linked to on there about a swap. I said, "Hey--" I said this, the market was at 1500 bucks. I said, "Hey, I will go long. I'll go long at $1,300 for the next two years, five cars a month for two years straight on a swap." The idea being it's just financially settled, and you don't have to be in the lumber business to take me up on this. Where I will settle up on five cars worth of lumber against the current price, which is the publicly available subscription price that we all kind of use as a benchmark. So, settle against brand, I'll go long at $1300.
Bill: Which means you have the obligation to deliver to somebody five carloads at $1.300, right?
Stinson: I will be taking delivery [crosstalk]
Bill: You're taking delivery. Okay, my apologies.
Stinson: So, I tweeted out, "Hey, just as a hypothetical, because I knew how it would end up. I'll go along for the next two years, I will just lock, I will be long at $1,300, you will be short at $1,300 for two years, some kind of volume schedule." I framed it as a swap. So, again, it's not a physical product with the idea of just being anyone could do this. It would just be counterparty risk. If you go read that thread, I hedged it at $1,700. What's 24 times five? Whatever that number is. Again, this is hypothetical. My breakeven after picking up carry, which is such a huge part. We haven't necessarily touched on, but carry is the function of time. How much does it cost me to carry it from one contract expiration to the next versus how much is the futures market paying me to carry it from one expiration to the next, okay?
Bill: Yeah.
Stinson: So, think about it like this. If I could buy lumber to spot market for $500 today, and the futures market today, it's trading-- there's a forest fire at a sawmill. I think it got up to $650. I could sell futures at $650. Let's call this 98% correlated-- and this is a real trade. I'll buy at $500, sell futures at $650. The futures contract I sold expires November 15th. Well, it's September 17th, we got two months. The only thing I have to do to get it to delivery against my futures contract is carry it. Interest, insurance, and storage, that cost six bucks a month, and the market is paying me $150 to do that. In that if talked to old grain traders, it's the market telling me what's grossly oversupplied, it's begging you, it's incentivizing you in an insane way to not bring inventory to market.
People are trying to buy lumber from me, I'm not even selling it to them. I'm making more money storing it. I can't get to put a number on it, but it's an incredibly high compared to my competitors because there's lumber everywhere, and you talked about my value to the market. The thing I love about commodity trading is my whole sales career they taught, "Don't sell a commodity. Make it different. Your widget is better and value add." I'm actually selling a commodity, and I don't have to wine and dine, I don't have to be super close friends with my customers, and I don't even like most people. So, it's just price. The value I bring is a cheap price times time. What's it cost and how quick can you get it here? And that's it. Because I'm selling the same lumber they could buy from the sawmill. I get a little excited about this sales model because it's funny to me. I'm actually selling a commodity and I'm bringing more value than I've ever brought to my customers just from insight and market intelligence. My customers do a lot of things besides buy lumber. So, I kind of keep tabs on it for them.
But at the end of the day, I got to bring them the right price. So, there's really not a value prop from a widget perspective. Relationships certainly matter, but at the end of the day, if you're around and you've been in business for a few years, it's because you do what you say, and you deliver on time, you pay your bills, everyone does that. So, the difference between me and the next guy is the price. I tell my customers that all the time. So, when they call me for a price, "Yeah, I'm not really selling, but I know you can get it anywhere you want at whatever price you want." Because I'm making more money holding it off the market. As I step back, and I've played this out before, lived it, read about it, done it, you just wait for your competition to blow out their low-priced inventory and then I'm the only one left with wood. Excuse me. [coughs] That's what happened around this time last year. So, the other facet of it and we're getting into the weeds here trading. So, I have to change my sell price with the fluctuation of futures and not everyone does. They can have a fixed price all week if they want to. But like I said, my breakeven fluctuates. Those futures go up, I'm always the first guy to raise my price. I have to or my competition--
Bill: Why is that?
Stinson: Other market participants--
Bill: Just so, I understand.
Stinson: Because my breakeven is directly tied to the futures price. As I accumulate futures account losses, I have to bake those in on a net perspective into my-
Bill: That makes sense.
Stinson: -physical side. So, every physical position has a hedge, your literal ticket number where I called my broker and put a hedge on. So, as futures move so is my breakeven. So, markets initially take off, I usually don't get a bunch of sales because I have to raise my price aggressively as the futures market goes. The other market participants could just have lower-- They don't have to raise their price, there's not hedge. So, if it goes up, they can keep their price the same and only raise it a little bit. But what eventually happens is, they get all the business, I don't, and then they run out of wood, and then they got to reset at the higher price where I'm at, and then we're back on an even playing field, and then futures fall, and I'm in the driver's seat again. Or, what I have experienced over the last year and a half, futures never fell and I was able to buy wood.
Here's the thing about managing risk. Number one, you can get a bank to lend to you if you manage your risk. But you can put on huge positions and you're only relatively, I should say, my biggest concern is liquidity. That's it. Margin call, pay my bills, AR, cash cycle stuff. With margin call being my biggest risk, I'm trying to forecast and stress test. If futures go-- and I have to do this. I don't want to do this with my partner, "Okay, futures are at $600. What if they go to $1,000?" Any other time in history, they'd be like, "Pfft. It would never happen." [laughs]
Bill: Yeah, now, it's possible.
Stinson: Right now-- Yeah, not only $1,000, it is like $1,700. So, we buy out of the money, call options to hedge our liquidity risk. So, if it goes to-- we pick a number, if it goes to $900, we're not very comfortable here, because if we kept going, we weren't turning inventory, because again on the way up, it's hard to sell inventory as quickly as other people, because you're raising your price so quickly. What you don't want to do is make a bad trading decision because of liquidity. So, if I have to make margin call, and I can't, either lift my hedge or I blow out inventory below breakeven just to get cash in the door, and we never want to be in that position. So, we're constantly obsessing over what if, where's the breaking point, and let's spend money on call options, out of the money to cover off that we just call liquidity risk. That's something I picked up from being in the commodity business for a while.
Every blow up from long-term capital management to MF Global, they're all right, because they ran out of cash in time. So, that as a basis trader, who's hedging everything, I don't mind futures losses, and I'm just a little company, but millions and millions of daily margin calls this year in the month of April into May, we were up $60 which was max extended limits or whatever. It just on the open, 60 bucks. I'm like, "Oh, 2 million-dollar margin call in one day." If you can't stand in there, and make the margin call, and have the bank relationships, and have a call options bought well ahead of time, then, fuck, I got to just lift my hedges.
Bill: Yeah.
Stinson: And then it goes from $1,700 to $600. That's how a bad trading decision happens because of liquidity constraints. So, I also see whether you're hedging or not, I see that the middle level, I'm guessing, they're not built their financial model and their infrastructures is not built to store lumber. Everything I've said about my business is about storing lumber where no one else will. This is risky to hold lumber for 90 days. I wouldn't do it and I don't trade lumber that I can't hedge. There's species, and products, and skews that have no hedge relationship. So, I just don't carry it. Because that is risky and stupid. I don't want to be a back-to-back broker going nuts on the phone every day. That's not fun to me.
Bill: Yeah, because you always feel like you got to move it right if it can't be hedged.
Stinson: Right. That's a perfectly fine model, but I enjoy fishing and--
Bill: It's a shitty way to live.
Stinson: That's a great way to learn at a certain age, but that's what the business is largely, the secondary business in lumber. I think a lot of commodities because it's simple, and you can hit homeruns on accident, you can get taken out, but largely, it's pretty safe. You just back-to-back in stuff.
Bill: What kind of spread are you dealing with? If you sell in that quick, it's got to be super tight.
Stinson: Oh, it's like 2%.
Bill: Yeah.
Stinson: It's tiny. It's real and now, when the market moves as fast as it did this year, these guys are making double digit mark--
Bill: So, it's a vol game.
Stinson: It's a what?
Bill: Like volatility benefits those kinds of guys.
Stinson: Yeah. If volatility speed is an element of that, yes.
Bill: Yeah.
Stinson: It moves so fast to the upside. You're normal If you buy it in the morning and sell in the afternoon at a normal day, you'll make 10 bucks to thousand, well, in that market, you're going to make 40 or 50, because the market was moving everyday like that. Then it just became a game of who can source it. There wasn't enough lumber to go around. So, everyone allocated to their best customers. So, just sourcing lumber was difficult, and a lot of people made a lot of money, and then you talk to flat price traders, back-to-back traders, and it's just a foregone conclusion like, "Yeah, I need to make as much as I can now because I'm going to give it back some of it on the way down." And that's just where their heads at. And I try to lighten up on the way down.
But for me, once we got to $900 and $1,000, this time last year, September went off at $1,000. That was crazy. No one wanted to own $1,000 lumber. It had never been $600. It had never been $600, and now, all of a sudden, it's $1000. Who's going to own that? Well, me, I owned it. I owned a lot of it. Because I could hedge it, and they did the $1,000 price didn't scare me at all. Futures went--
Bill: Who was the counterparty on the hedge? That's the thing I don't fully understand. If everybody's like, "I don't want to own this," who's the guy that wants to own the counterparty on the hedge?
Stinson: Well, the hedge is through the CME futures [crosstalk].
Bill: Yeah, I know. I just don't know who's buying that side of it.
Stinson: Yeah, that's a good point. It's someone else.
Bill: You're short that side. Who the hell is buying it? It's got to be somebody just playing like price speculation, right?
Stinson: Yeah, that's why we need to speculate.
Bill: Yeah.
Stinson: And it could be some hedger that has some four jobs old. But that's why the air-- and people will buy market participants who trade lumber like I do. Will buy futures thinking there's another 50 bucks in the rally, because that's a hell of a lot easier to click a few buttons than write a PO and get the logistics, cut a check for railcar to make the 50 bucks to thousand. So, folks trying to pick, speculate is still is the answer. Yeah, I would argue, there's folks who would buy a $1,000 because there's a hedge, they're short, there lumberyard that sold development at $1,200 and then -- [crosstalk]
Bill: And then they really need to go get it.
Stinson: Right.
Bill: Yeah, that makes sense.
Stinson: Because it could go to $1,700 which it did for a period of time. So, man, I just went on a whole deal there, but it's just been 2018 was the wildest lumber market up until this one. So, [crosstalk]
Bill: Yeah, I was going to say not more wild than this, I would assume.
Stinson: [laughs] It went from $300 to $600, and the world was ending, it was crazy, and then it went back down to $300. It feels very similar. The reason-- and Logan talks about this a lot too, 2018, I refinanced my house to fund Deacon Lumber at 5.25% in 2018.
Bill: Wow.
Stinson: I'll never forget that. That's probably why housing slowed down, there's a surplus of homes, lumber slowed down the second half of 2018. I didn't care because I feel like, "Well, I could get money." So, they could have charged me 12%, I would have done it. This time is different from the demand side versus 2018, because you can look at a chart, in 2018, the top 10 may got cut in half and just bounced around the bottom the rest of 18, and in the 19, then we started to climb in the 20, things were looking very, very good. In 2020 solid, housing starts, lumber price is a very good consistent bull trend. COVID, we went back down to $250, and then everything went off and running. The difference to me, we don't have 5.50% interest rates demands there. I'm not afraid to be long. The markets volatile, no doubt, and what we're we touched on it a minute ago.
Bill: But you see you're not afraid to be long, but you also see that there's a surplus of lumber here. So, how do you reconcile those two things?
Stinson: You store it baby.
Bill: Yeah. But if everybody's storing it, it's all latent. You know what I mean? Because the mills are still producing. It's not like the mills shut down.
Stinson: Yeah, you need outtake. If you're going to store it, you got to have the cash, and you got to have the hedge, and you got to have-- When I say the cash like all the things that come with the cash flows in a business got to have-- you can't pay your people in lumber. You got to have cash to pay them, you got to pay the bills, and the debt, and all that. And that largely depends on how you're financed. We don't have any term debt, and very, very, very lean from a salary perspective. So, we can just carry and not add to make bad trading decisions because we got to meet cash obligations. So, that's how I get long, and it's not like I'm not hedging, okay? But just because I'm hedged, it doesn't mean I'm bearish. I always get a kick out of executives buying puts and it's like publicly available, "Oh, They must not be bullish on their own company if they're buying protection." It's like "Whoa. I know this seems very normal, appropriate to me." So, when I say I hedge like, I'm not hedging, because I have an outlook more so, I'm hedging, because I have no idea what's going to happen from a quarter-to-quarter basis.
Lumbers piling up, I'm got a big stack myself, and I'm just waiting. I'm waiting for the market that come to me. The spread with a September went off at $100 cheaper than in November tells you everything you need to know about how much lumber is in the supply chain, when it costs you six bucks a month, 12 bucks to carry it to November 15th, and you could sell a futures contract for $100 to $150 above that, there's a lot of lumber out there. The futures contract at the end of the life becomes a physically delivered contract. So, anyone who's long, mills can sell it, then they'll sell it all the way down to the last day and then deliver against it just as another customer, it's all the same. So, there's a lot of wood that's got to be cleared.
To me, the other elements that go into building house trusses right now. Trusses have been a problem all year, but because we couldn't get a lumber to frame the first floor or from two floors to get to the roof trusses, or the floor trusses in between the first and second floor, it wasn't an issue. But now we got our lumber. So, where's our trusses? Well, we can't get the trusses, not because of the lumber that goes in the trusses, but the metal plates that go in the trusses, which is much more globally impacted material. We've learned, I tweeted the other day, I had no idea. No idea. There's two manufacturers of truss plates that own 80% of the market too, and these trusses are engineered like your house is drawn up, you got plans, the plates, I think they're called butt plates on the joints. Those respect, however long ago you got your permit. You can't change those to one of the 20% plate manufacturers, because they have them that you just can't-- You have to restart your whole process.
It's other parts of the supply chain that I underappreciated because I saw lumber, we talked about homebuilders missing the brunt of the price rally. They still got $1,000 lumber price, and they did fine. They did fine. And their margins are huge. They're increasing. So, it's not the $1,000 lumber. The home builder has cash constraints, and they can't move on to the next project until they close out the one, they're on and get the windows in the cabinets, and get that final check. Like there's just a bottleneck, and it gets used a lot. But to me, a lot of it comes down to cash and wood labor and all the things that are well covered. But if you can't finish the job, you can't get cash in the door to then roll it over to your next job for materials, and overhead, and all that. So, the cash, to me, it's what separates us and what we do different than most because we just watch that-- I mean everyone watches their cash position, I suppose, but we try to structure ourselves in a way that when I'm making business decisions based off of cash flow constraints. So, everyone from the mill to the homebuilder, it's an issue.
Bill: I'll tell you the thing that's kind of nuts to me, man. And maybe it's because there's just so much supply that is in the chain. There's guys like you that are holding it. But you're saying, I'm sitting on a ton of lumber, other people are sitting on a ton of lumber, builders haven't finished their projects. I'm looking at the futures. The November future right now is trading at $634. That's a lot higher than history with a lot of wood in the system. Why is that going on? Then it's not as if it's, I mean, it's kind of flat out to March 2022, but you're looking at 665 out to March 2022?
Stinson: Oh, man, you're going to trigger me, if you think those back months are forecasting flat price out there.
Bill: Well, I guess the question more than-- Well, there's no volume in March. But January 2022 has some volume, and that's 649. So, it's just kind of interesting with all this supply in the system, why are prices not going down according to the futures market?
Stinson: Yeah. One of my life's missions I just have to say is to educate people about spreads. It's less about volume about what those preferred months are indicating, and it's more about the cost that carry it out to march, and what does that tell you or January? So, the spot markets less than $630, Its 500ish.
Bill: That's still kind of high relative to history, though, no?
Stinson: It is. I wanted to get the context in there, and those thought price in that futures price, they don't have a "make sense" until November 15th. So, it can do whatever it wants to till it expires. So, yeah, the floor is raised. That was been my argument is we're going to be higher for longer. I thought we'd settle up north of $800 to $1,000 and bounce around.
Bill: Why was that your thought? Just watching price action and whatnot or--?
Stinson: Yeah, nothing too sophisticated. I pegged it to-- Homebuilders did not balk at $600, $700, $800, $900, $1,000.
Bill: Yeah.
Stinson: They did just fine, and they were extremely profitable, and everyone was happy. It wasn't till we got to that $1,500 price quotes and they started throttling it down among other factors. So, it just to me, it was a price equilibrium level that I witnessed didn't slow anything down when we were in those price quotes. When the homebuilders were realizing those input costs at those levels, they didn't blink at all. So, now, we're at the doldrums, because to your point just logically, we got homes that are not getting built as fast. So, the studs in the plate, there's two or three trickling out, but there's 10 getting produced every day, and there's a massive pile in the middle. So, the outtake has to increase to chew down the pile while the production decreases, and then we get balanced again. That's we've got a big mountain ahead of us, because I certainly didn't anticipate or recognize these other supply constraints within the homebuilding supply chain.
My customers were telling me about trusses and truss plates all year, and price kept going up, and I think it just was a factor of how homes are built, and now, there's enough lumber. It's on the forefront. So, to me, the higher for longer thesis largely came from the fact that we are so dependent on building homes from Canadian softwood lumber for all sorts of reasons, not the least of which it's the lightest strength to weight ratio to build a single-family home that you can get. You can get stronger wood, like Southern yellow pine, but it's heavy. You can get stronger wood like Doug Fir, and it's like in between Southern yellow pine and spruce tree from Canada. But that's just how we build the homes. It's a great piece of wood, it's easy to work with, it's light, it has a strength rating for single family home. So, we look at the basket in Canada and it's not growing. That's a pun.
Bill: I like it. Nicely done.
Stinson: Yes.
Bill: Well, BC is cutting down a lot of output, right?
Stinson: Yeah, they've reduced the annual allowable cut, AAC. And these provinces sets their own forestry [crosstalk]
Bill: BC is British-Columbia for those who don't know.
Stinson: Right. I honestly, can't even name the other ones. I just know BC.
Bill: It's fair.
Stinson: The BC region is the biggest producer of lumber ever. They're the monsters. West Fraser, Canfor, Interfor and those force over there or have been depleted at a rate the government wasn't comfortable with, and I've said this before, most Canadians that I talked to don't necessarily disagree that they need to slow down to sustain their forests, to have something to log for future generations and all the environmental impacts. I don't think that's up for debate that much up there. So, they started producing this allowable cut in 2015. It wasn't that big a deal, because the housing market was kind of wasn't as busy. No one really paid attention.
Bill: Becomes an issue now, though, potentially.
Stinson: Yes. So, the Canadians were telling us like, "Hey, this is common super cycle, and we don't have enough trees." No one listened to them, and I mean, they were wrong on timing, the folks who were saying it, but now here we are, and people are miserable and the price of lumber is 500 bucks. When I started in the business, you bought below $300 and you sold above $400, and you make money. That was the rule of thumb as a trader. Now, you're buying $500. The lowest we got for a commodity stick was in the low $400s. That was not available to the public. It was on the futures board. The last few cards as the mills are just blowing it out for cash cycle reasons or whatever. But to me, it's very significant, and if you look at a chart, the old highs are kind of the new lows. We're bouncing off the old $500s, the old $600s really before 2018, it was-- it was $450 to $500 was that zone where you would aggressively sell. But it's not-- specifically, in British Columbia, it's not like your breakevens are still where they were for the past several decades. Their breakevens somewhat volatile, because log costs their dynamic, their input costs because I got to buy logs from the Canadian government.
Bill: Yeah, it's like backward looking, they got to pay those royalties or a stumpage.
Stinson: Yeah, it's called stumpage. It's just not dynamic. It's backwards looking. The trees are getting further away, they're just we call them-- I get this isn't unique to lumber but high cost producers and low-cost producers. The high-cost producers are starting to concentrate in British Columbia. But British Columbia has a better basket of trees that are species mix. You can't cut 18- and 20-foot links out of the East. The trees just don't grow in a way, and I'm not a forester, but it's not a thing that you generally buy out of the East. Because the trees are bigger, taller, stronger in the West. I would say, not to--[crosstalk].
Bill: Like redwoods but different. I mean different, but I'm just mentally thinking.
Stinson: Yeah, redwoods in California versus whatever trees in Appalachia, they're just different. How they grow in the environment they are growing. North America-Canadians have depleted and they're depleting at a rate they're not comfortable with. So, they're just throttling back and they're not going to change the amount of trees that they're going to allow to be cut each year in British Columbia. That is the main province that spits out wood to build homes in Florida. You'll see West Fraser and I know, West Fraser, Southern yellow pine now, but you'll see West Fraser spruce all the way down to Miami. Even though, there's Southern yellow pine mills up the road, they'd rather ship Canadian Lumber thousands of miles, and frame with that then use pine.
Knowing that, seeing the boom, and I like that we've covered a lot of ground because now we're getting to the precipice. The boom, a lot of it was facilitated from mills being so scarred from housing recession, and China not wanting to believe, higher prices are going to stay, so, they didn't turn production back on as quickly from their COVID layoffs type deal, and then just under investment in capacity, because of the China fiasco. They weren't prepared. So, we pulled forward a lot of demand. I didn't build a house, but we moved to cross country last summer. If COVID didn't happen, I don't think we would have made the move. So, a lot of that, those kinds of procrastinated decisions were made, and we got the 1.7 million home starts and from lumber through the supply chain labor materials, we can't handle 1.7. That seems to be it.
Bill: It sounds to me like somewhere around 1.5, 1.6 is about as much as we can possibly handle.
Stinson: What changes that? I don't know. How do you improve that number? The capacity?
Bill: I don't know. My sense, and this is like still trying to piece this all together. But my sense is labor is a big constraint. Logan has said to me or did say that, he doesn't think builders are going to have a willingness to go much north of that, 15 was the number that he never believed but everybody else said. But now, it seems like, he thinks is possible for a couple years. His reasoning is they got so burned in 2008. So, I think the idea that there's going to be spec homes is really low-
Stinson: For sure.
Bill: -or is not probable. If prices are as high as they are, then you would think capitalism would demand some new homes, but then you get into, "Okay, well, how are we going to produce them?" I don't know that they can get produced. I don't think they probably can. But the demand appears to be there as long as rates are low, because affordability is high.
Stinson: Absolutely. I think immigration helps quickly us being able to build more homes. But that still doesn't solve the raw material and my lumber thesis.
Bill: Yes, I'm going to get trusses in your house. That's not-- This isn't going to help anything.
Stinson: Yeah. I asked how automation is kind of the textbook answer. I think it's true, but that takes a while to develop if it wasn't already there. So, to me, home prices, my friends who bought homes, I call this the top of the market. You read Ali from Zonda on Twitter, and she talks a lot about how the feedback from just the layperson is like, "Oh, this is the top of the market." We're all scarred even though we were kids from our parents-
Bill: Yes.
Stinson: -getting crushed on their house.
Bill: Yes.
Stinson: And if I weren't a traitor, I totally understand it. I'm buying the highest price this house has ever done, and it's $40,000 more than it was at the beginning of the year, and it freaks them out. But I tell them, we can't build enough even come close to oversupply in our home market. It's a problem. It's a chronic problem on the other end of the spectrum of what you're worried about. You just need to get long years you got to get in, and it's hard to make mistake on real estate. If you own it for 30 years, so you'll probably be okay, but when I was putting together my outlook, I looked at the baby boomer average age was 29 or 30 in 1989, and we built on average for the next 10 years. 1.8 to 1.9 million single family homes. Not multifamily. Every year, almost, yeah, 1.8, 1.9 for 10 years. Then we went overboard heading into the mid-2000s. I don't think that's because of what we did in the 90s. So, we have a generation that's just as big, that's even a little bit older. The average millennial is now in their 30s and we're building 1.5, was that the latest?
Bill: Yeah, man. This is why Logan thinks the biggest risk is prices explode to the upside.
Stinson: Yeah. Well, what happens if they explode?
Bill: I guess, I don't know the answer. You would think in a capitalist society that supply would come onto the market. But that requires the ability to get it done. I don't know that that's there. I don't know it's not, I don't know it is. That's a question.
Stinson: Is there any kind of proxy says this, "I was going to ask her much more well-read than I am, you have $500 textbooks?"
Bill: I don't know that that matters. I don't know, man. I really don't. I think that's the real question. The question for me and I guess the thing that makes me nervous is having a little bit of lumber exposure is, what if you can't get the houses done? What if the houses can't actually get built? There's not enough labor out there, and to your point, there's so much lumber supply that mills can come on line, and all of a sudden you have a really balanced market, and we're not higher for longer, and we're just middling through again. I think that how the thesis falls apart.
Stinson: Yeah. I think, we had a lot of mill closures in 2018, 2019 because of low prices, and the narrative was it was a long time coming. Those mills didn't get turned back on in Canada. They focused adding third shifts and running seven days a week at their low costs, high efficient newer mills. They didn't bring on mothballed mills in the past 18 months in Canada. It was that because of just behavior from being scared to over invest, and will that all of a sudden reverse if we searching $1,000 lumber again, but from what I understand like, when you shut down a mill in rural Mississippi, we can relate that employs the whole town and they all leave. If you shut down a mill in the Bush in BC, your workforce is gone.
Bill: Yeah, it's not so easy just to get them back.
Stinson: Right. So, being in the lumber milling business has been bad for however many 10, 12 years now, like you said, just kind of [unintelligible [01:47:14]. Buy $300, sell $400. Largely those stocks were just proxies for lumber prices and they've all diversified into different species of lumber, panels, CLT, the glulam engineered beams build skyscrapers trying to diversify away from commodity lumber. But which to me means that's like less focus on producing two by fours that build homes out of Canada.
So, when I hear how higher for longer not work and we get back into the-- Again, buy $300, sell $400 price dollars per thousand, I just think there's such a strong bid in housing. Literal folks, there's always a bid. For years and years, there's going to be someone to buy your house which means there's always going to be someone looking to build. So, to me that the bids always there. If I'm thinking about, "Do I want to be long real estate on a home or buy, pays high prices." We just hit a capacity constraint where we're stuck at 1.5 to 1.7. To me, if we're able to, I guess, the question I need to answer is, are the supply chain issues we're having that I'm blaming for lumber being lower truss plates windows, are those chronic or those COVID delta type?
Bill: Well, dude, if they're chronic, you could make the argument that there's going to be enough lumber in the supply chain that actually more mills should close and there's going to be more desire-- You're not going to remove the demographic push. That's fixed. We're all the age we are and we're going to have the kids when we're going to have them. So, I would maybe make the argument that yes, I would grant a bearish thesis-- They win the argument that maybe right now is not going to be some sort of like mooning scenario, but the longer you delay it the more pain is inflicted on mills, the more mills that closed down eventually, you would think that there's a day of reckoning. Now, that may be incorrect. I think a lot of commodities investors have hoped this for a long time and they've been really wrong. So, why should they be right now?
Stinson: Yeah, I think that, we lived in lumber. We lived that, that's what happened in 2018, 2019. Not a lot of people are paying attention to lumber, but a bunch of capacity came offline. I don't have the number. It's easy to look up. Shut down mothball middle on over Canada, and that production capacity was not prepared for 2020, 2021 boom. It just wasn't because of what you just talked about the-- If you look at a chart, the price of lumber was at $300 for seven, eight, nine months, but a couple of little volatility spikes in there. It just forced the closure of these mills, and then they got it to a point where it was starting to trend higher, and then you look at a chart, and so what happened 2020. So, I think they found it.
We're here at 1.5 starts and the floor in lumbers in the 400s, it's still a commodity. We've broken the Pandora's box at this massive trading range. So, people know what's possible, which I think caps the downside and caps the upside a little bit. Because folks who wouldn't buy $800 a year ago are little more apt to buy it now, because I know it could go to $1,800. If they buy it at $800, no one ever get $1,800 versus keeping staying short. Anyway, just trading dynamics. But I think with the equilibrium for lumber and the amount of lumber coming out of Canada, I don't know how they add more number one, and to me, folks are in a lot of pain right now. There's more money lost when price went from $800 to $400, then went from $1,700 to $800. I've no doubt.
Bill: Why?
Stinson: No doubt. Everyone, me too, piled in at $800. This is the bottom for all the reasons. So, they're just larger inventory positions put on at $800 than there wasn't.
Bill: Now, did you hedge when you were on- when you were piling in at $800?
Stinson: I did. The most bullish thing I've done is I hedge with a bunch of put options.
Bill: Oh, really?
Stinson: I paid a bunch of premium. A bunch, and like I have to be hedged for all sorts of reasons [crosstalk]
Bill: But when you say, you've piled in I didn't know if you sold, you buy current at $800. You sell two months out at nine. What's that look like? What is piling in look like? It's the real question.
Stinson: Just a large volume position.
Bill: Okay.
Stinson: It's not that hard to look at the futures market open interest and think why, but I don't think everyone hedges and lumber. There's a lot of people who bought an $800 and didn't buy puts or didn't short the market. Short futures, didn't hedge. Whatever vehicle. So, I would be in a much better position if I just outright shorted it, but I paid premium and bought out of the money strike in more traditional hedge leaving the upside open. So, when I have huge hedge gains--, huge hedge gains, a lot of people have huge losses. They're just big positions and a bunch of lumber came for sale way down, obviously. So, the more people holding the bag at $800 than $1,700, and so, here we are. This is the most pain the lumber industry has been in a while 2018.
Bill: And prices are still this high?
Stinson: That's what I'm saying. You step back--
Bill: That's nuts.
Stinson: Futures are rallying today because there's a sawmill caught on fire, the logs outside the mill. So, I think we went limit up or something close to it today. The mills are the thing driving the floor is the British Columbia producers, their breakeven price is higher than most in Canada. So, when they start to curtail, so what we call it in our industry, curtail production, reduce capacity, take a shift off, take two weeks off, that drives the rest of the market. So, to me, I was wrong when I'm higher for longer at $1,000, I was wrong when I said, "Hey, we're normalizing at $900," because we went from inverted spreads which penalize you for storing wood.
Bill: Yeah. So, for anyone that's still listening, you're buying at $900 and you're selling it-- If you wanted to hedge you're selling at $850 or something like that.
Stinson: Right.
Bill: Like you're locking in a loss.
Stinson: Right. You're defining your loss. I always tell folks because you could lose more. So, it's not like you should buy and not hedge. So, then we flipped. Anyway, we're like a train on the track. That's first car stopped and all these cars keep running into it while we wait for homebuilders to produce. I meant to look before we came on here, but completions, I think ticked up, but they're just lagging, starts are outpacing completions, and we got to get the ability to start to finish a home that's going to be more efficient before we can work through this up [crosstalk]
Bill: I'm just thinking about how we're wrong here, and I think the answer is, if there's enough people like you that have inventory in the system, is there a way to monitor that amount of inventory in the system? Because that's in a world where that inventory can flood the market, and it's not actually milk production that's driving costs, and it's the collection of inventory. That's where a problem can start.
Stinson: Yeah, and it takes a while to clear it.
Bill: Yeah.
Bill: The difference or the element, if I own it, I don't know who I'm going to sell it to. It's unsold, which is why I hedge it. I don't know what price and whom I sell to. But my customers, again, they're chronically short. So, the lumber that they own is committed to a customer build and there is waiting for the will call ticket to be pulled. So, they can ship it to the job.
Bill: And then the one that are setting the futures price, if you're selling the futures price, they're long the futures price. So, they're saying to you, "I will buy it from you at this price, at this date."
Stinson: Yes. They're the natural long in the futures market. But so, they're stacks of wood are all sold. They are because again, they can't buy enough inventory to cover all of their sales commitments. There may be 60% to 70% covered, [crosstalk] make it 30% and they rotate it through in the retail yard of the supply chain, not Home Depot, not Lowe's, your big contractor yards. So, it still has the same effect that they can't move the lumber out to the jobsite, and replenish then demand problem, but it's not like these homebuilders, I'm sorry, the lumber yards that have a lot of lumber have lost a bunch of money on that lumber. It's sold. The jobsite is not ready for it, though, it just creates like it's kind of a train the front railcar stopped and producers keep producing, and shoving wood in the market, and there's a lot of wood in the chain that you got to reduce the producer side more so, I mean, it's just the math. The outtake is two sticks a day and the production's three sticks day and you got 10 sticks in the middle, you're taking two steps back every day.
So, you got to get an outtake to five sticks a day production to two sticks a day, and then you can finally start chewing through that secondary inventory the guys like me have. But that's just typical lumber stuff. It'll take-- it'll fall, there's good seasonal push framing or gets cold, and then come Q1, I think there'll be a lot of curtailments and production reductions between now and then.
Bill: Where, MVC or--?
Stinson: Yeah.
Bill: Yeah.
Stinson: Yeah, and I think by Q1, a little largely be sorted out. There are so many jobs that-- Look at your house. Apartments.
Bill: There's nothing to look at, sir. No one's doing anything. But yes, theoretically, look at my home. Yes. Thank you for bringing that up.
Stinson: There you go, sorry. Your patch of grass.
Bill: It's okay. I'm very fortunate to have the problem I have. I'm building my own home. I realize it, but it is a fun joke to make.
Stinson: [laughs] Oh, man. Well, how are we wrong? And that's constantly I ask myself that, how could you hedge? But I think--
Bill: Well, the thing about hedging it for you, at least is you could sell it, and then you could stop buying and then you got to figure out what else you're going to do. But like I said, I'm looking at the futures right now in January 2022, you're looking at 650 per 1000 board feet or whatever. Last I checked, that's a reasonably good price to sell lumber at.
Stinson: That's a great, great price.
Bill: In November, you're looking at 634, and to your point, it's up six 6%. So, September 17th, I don't recommend anyone in the world goes out and buys equity in a lumber company. It's a terrible fucking idea. Please don't do it. Do your own due diligence. But it's an interesting setup, man. I kind of something I ponder a lot, because I read this guy, Ken Fisher, and you can't really talk about him anymore, because he tells sexual jokes at conferences and he's not the most-- He's a little socially awkward. So, whatever joke he tried to tell got him real close to canceled, if not canceled. But he likes to refer to the market as the great humiliator.
One of the ways I think that the market could humiliate everyone is to go on some sort of commodity real bull cycle. Maybe, it's who I roll with, maybe, it's the people that I see all the time or whatever, maybe, it's the social circle that I've chosen to be involved with. But no one is trying to hear commodity theses, like they just don't care. Here, you're telling me about there's a ton of wood in the channel. Even despite that, futures are $250 higher than they were three years ago. That's interesting to me at a minimum. I don't know. I hate the idea of being long a mill or mill production, it scares the shit out of me. But then there's the other side of me that looks at the numbers and the facts, and I'm like, "I don't know, this may work," and the odds offered matters.
Stinson: I think we are leaving-- I think the worst is behind us from just a flat price perspective. It doesn't mean we won't kind of be in this channel for better.
Bill: I hope we are, man. I got to build a house. I got to pay real dollars on real wood. I'm not trying to have this shit moon.
Stinson: [laughs] I have a hard time to the upside picking the number, but I think to the downside, it's very clear floor has been set, especially, being on the inside and knowing what those numbers were in the cash market and what it took to move it.
Bill: 500 in the cash market, what do you think?
Stinson: Say that again.
Bill: What do you think the cash market floor is roughly?
Stinson: 400.
Bill: 400?
Stinson: That the extreme. We touched it. You didn't see it on the screen, but there were cars move there, and I just think that was the worst of it. Because it felt like 2015 when the market fell because of China. It felt like 2018 when the market bottomed because the interest rates, and it felt like March 2020 when the market bottomed because of [crosstalk]
Bill: Wow, it felt that bad?
Stinson: It fell in March of 2020.
Bill: No, I'm saying recently felt that bad at 400 or was that March of 2020?
Stinson: No, no, no, I'm saying the 400, because we fell 70% the psyche- [crosstalk]
Bill: Okay.
Stinson: -of the industry. You just got to wait, and let the lumber clear, and get rid of your piles, and Britishers got to slow down a little bit, and they have. They've announced curtailments, they've announced shifts, three days a week, two shifts to slow down their output. But the vibe as a trader in the field, it feels like the bottoms we had in 15, 18 in March 2020 where it got real desperate. Those numbers where we cleared at, we're in the mid to low to hundreds, those other dips. That's my larger point. The same vibe, and desperation, and capitulation from a pricing perspective bottomed at 400.
Bill: Interesting.
Stinson: That's you're making the point on a chart-- on a futures chart, cash again is a little bit lower. But I think the worst is behind us from a flat price perspective. I think the mills are out-- of their heads out of the clouds. I'll never forget. I went on TV, and I forget-- [crosstalk]
Bill: That was back when you were popular. Now, you're doing second grade podcast.
Stinson: [laughs] I don't know. I got a tweet about labor-
Bill: [laughs]
Stinson: -paying people to get attention.
Bill: That's right. How's that feel, man? Do you feel like a little bit like a shun girlfriend? Did somebody paid attention to you for a little while, and now you got to go out and get attention elsewhere?
Stinson: No one in my personal life has Twitter cares about it. So, I feel a little bit like I live a double life on there. I'm very popular and get attention.
Bill: How's Twitter been for you?
Stinson: Pretty easy.
Bill: Do you think it's been a benefit to your life?
Stinson: It has. There's a large story behind Twitter I can't really talk about.
Bill: Okay, well, thanks for the lead. [laughs]
Stinson: But it changed my life--. It changed my life. So, it's been great.
Bill: Dude, I love Twitter.
Stinson: Because I've followed you for a while and I've watched what's the afterhours--
Bill: oh, Value: After Hours?
Stinson: Yeah, that's right. [crosstalk]
Bill: Oh, really. I didn't know that you listen to Value: After Hours. That's cool.
Stinson: One of the episodes, you guys were getting on aftermarket or whatever, one of the guys on there was an electric grid-
Bill: Yeah, Jake.
Stinson: -engineer.
Bill: Yeah.
Stinson: And Texas was going through their thing and I want to trade electricity. Before my career is over, I wanted to trade electricity. From what I understand, it's very similar to lumber.
Bill: Oh, yeah. You got to talk to Jake. Jake will help you out.
Stinson: There's a futures contract, there is some kind of hedge tool that's misunderstood and inappropriately used. That's right up my alley. Anyway, so yeah, Twitter. That's where I saw you. I don't take myself real seriously. I don't take anything very seriously. Except my futures contract, I get real upset when people-
Bill: [laughs]
Stinson: -talk down to buy my lumber futures contract. I get upset.
Bill: Yeah, well, that's how you make your money. I get it. That's how I feel.
Stinson: And I get upset--
Bill: I've been pissed off lately, man. People are shitting all over my portfolio, and by people, I mean, the market, and I don't appreciate that.
Stinson: [laughs] They like to pull up old tweets of yours and throw [crosstalk]
Bill: No, man. I had a nice run there for a minute, and I was feeling myself, and now the market has served me up a nice slice of humble pie as I've gotten involved in things like lumber, but it's not actually the lumber issue that's causing problems. It's some of the things that have worked in the past and some-- You know the problem with me, man is, I like cash flow, and I like it cheap, and turns out, it's not very desired in either today's market or I don't know enough to justify. Maybe, it said differently. Maybe, when I think cash flow is cheap, the market smarter than I am. I've gotten addicted to some of these cheaper cash flow ideas and it's really fucked me lately.
Stinson: So, let me as-- I don't know anything.
Bill: If you listen to Value: After Hours, you know I like QVC.
Stinson: Right.
Bill: Yeah, just treat me like a bastard for liking that the market is.
Stinson: I haven't drafted-- [crosstalk]
Bill: It's been terrible. Terrible.
Stinson: Yeah, I believe you. I'm asking as someone that I just trade lumber, but we said cash flow, you're saying at the end of every quarter, they're spitting off cash that they can lever up or pay shareholders with. Is that a simple way to summarize that?
Bill: Yeah, as I get red wine all over my lips. Yeah, so, I hate to reduce what's going on in the portfolio to a factor. But I also can't help but watch how certain things are trading together, and there are a couple businesses that rhyme that are like the second or third player in an industry, QVC, you could argue is sort of its own animal or maybe the fourth or fifth player in an industry. I'm not going to quibble with that. Maybe have leverage on them.
It's just stuff that you really have to--, and to be quite honest, I think you have to not have a whole lot of career risk in order to bet on it, and I think that with all of the hope and optimism of companies that are coming to market for the future, the incentive, if you are an analyst, PM, whatever at an institution that runs money to go out and bet your reputation on one of these companies that off the radar and or a fourth or fifth player makes no fucking sense, and by the way, a ton of ETFs have momentum as a factor, and on a market cap weighted world as things get less valuable, they get less valuable to be Yogi Berra. But it's also true and I just think that there's some things that are really thrown out with the bathwater.
So, I talk about it all the time. I love it, it should might as well be my only position. But QVC, that business, I fundamentally think to common equity, because they've got a ton of debt, and then they've got a preferred share, and then they've got the common equity. I fundamentally think $500 million to $750 million is under writable-- of cash flow is under writable for the next five to seven years, minimum. That business is trading today at $3.5 billion. It's basically trading as if it's in liquidation, and the customer dynamics are the best they've ever been. The average customer is 60, the super fans--
Stinson: Really? I guess that means [crosstalk]
Bill: The 60-year old woman. And the super fans, they order, I don't know what the fucking number is. I call it 35 times a year, and they spend, I don't know, 50 bucks per order or something like that. You're going to tell me that business just goes away in five years, I just don't buy it. Then on top of that, you've got a guy at the capital allocation helm that can spit you back cash or buy shares. He's very intelligent. He's not somebody that is just running a company for salary. I just don't think you can pitch anybody that company right now. If I give two fucks about my career, why in the world would I talk about QVC in a world where I can go talk about all of the great things of Etsy, I'm going to talk about all the great things of Zoom, you got Peloton, you've got Google, Microsoft, all this stuff.
End of the day, I think you come out of the gate with a 15% free cash flow to common equity multiple, and I think that's how you get paid. But I might be an idiot. But it's what I believe. So, if I don't believe on like--, if I don't bet on what I believe, how am I going to look at myself in the mirror when I die? We'll see. I look forward to seeing. I suspect that when I'm 50, maybe, I'll look back at myself and be like, "How are you such an idiot or thank God, you were smart?" But I don't think the answer is going to be, "Oh, that was a moderately fine bet." I think the outcomes are going to be-- The dispersion is wide. Same with this lumber idea.
Stinson: Yeah. I think that's the way to-- you're bent that way.
Bill: I can't shake it, dude. Like it's in me.
Stinson: Yeah. Here's the thing-
Bill: That's why Mike and I get along.
Stinson: -as a risk taker. Yeah, I've heard him talk. I think on your podcast. I think, he was talking about Zales or something, and just like a small dipping his toe in the water position for him is 15% portfolio.
Bill: Yeah, he said, it was mine. I love you, Mike but you're crazy. [laughs]
Stinson: I'm going to take this a little bit of a different path, but I'm passionate about it. The ability for me, and I don't know you personally, but to do those kinds of things, it's because I have just a tremendous wife, and family, and super stable home life with my kids that are well adjusted, and don't have a chronic illness, and don't have a disability, and don't have trouble at school, and a wife is super supportive and understands the risk in the volatility and the mood swings, who when we started Deacon lumber, we went out, it's like, we lose it all and more than that, because when you're levered, you can lose more than all. You can start losing other people's money. We go bankrupt and the whole thing, we're still going to be in love, and the kids won't know the difference, and we won't raise our lifestyle to have a big jolt if something like that happens. Like that, to me, is what empowers me to sleep at night to risk a bunch of money, because it's just money.
Without that support system, and you're talking about, you're just-- It's in you, and you're risk taking, and you're chasing, going, those wide dispersion plays. For me, the ultimate stability, as I assess risk is my family and my wife. The fact that we're super set and solid, and we've been through a lot together been married 13 years, and it just gives you the confidence to go take and put yourself out there professionally, because personally, super stable, and loved, and content, and safe. For me, as a trader, business owner, risk taker, it just makes me better at all those things. Because it's the most stable thing you can have in a world where we live a very, very volatile professional life. I couldn't imagine living volatile, personal and professional. [crosstalk]
Bill: Dude, preach. So, preach. That's how I feel too, man. The partner that you have in my view, is as important as the strategy--. If not well, more important than the strategy that you implement. Because I agree with you. I know that my kids are happy kids. I know that my wife is dope, and she's got my back, and I got hers, and she's more comfortable. If I lost everything, she's better-- she is more okay with that than I am. That's my biggest fear is, as I don't know who I be if I lost everything because I was born into a fair amount, and it's the thing that I run from the most.
The weird dichotomy in my life is, I play this game that is high risk, but I'm also really afraid of who I'd be without anything. But at the end of the day, if I didn't have anything, I'd still have my wife. And that is incredibly-- it's an insane backdrop. It is the biggest-- I'm long a huge put option, for lack of a better term, because she stuck with me and I know that we'll get back together-- life back together.
Stinson: [laughs] Yeah. Same. Yeah, same. That lesson is one of those I don't want to learn that the hard way, and just super special relationship with Stephanie. Like you said, it's the backdrop and it's the security net. I view making money in trading, and all those things more competitively, from a competitive lens in a scorecard, not that I advertise necessarily, but it's just fun to win, compete--
Bill: Yeah.
Stinson: -move on to the next challenge than anything else, it frees me up to take a lot of risks that I think a lot of others wouldn't.
But you said your partner gets to such a huge advantage and I feel weird saying like my wife's an advantage in the marketplace. But enough people have said over and over and over when you get it into your life, you didn't wish you saved more, spent more, made more money or spent more time at the office. Enough people have said that, we've tried to structure our lives too-- I don't want to grow. I don't want to become a nationwide distributor with locations all over the country and own the real estate and negotiate with the rail lines on freight rates and hire and staff, I don't want that at all. Because largely, I'll spend my 30s and 40s building that out.
Bill: Imagine all the shit you'll miss.
Stinson: For what? Yeah, in living a life on a keyboard is extremely fortunate from a just the workload and availability perspective. But I don't know. Stephanie's, I'm sending her to California. I did a lot of travel this summer unexpectedly, and she had the brunt of our four kids, and I'm sending her to California.
Bill: You got four kids? How old?
Stinson: Yeah. Eight, six, four, three.
Bill: Oh, you're maniac, dude. I got seven, five, and three-- or seven, five, and four. Sorry, Warren. I forgot. [laughs]
Stinson: Yeah, we're right there. It's really funny. So, I got the kids all next week. She really had them all summer, but it was a life changing and fun experience professionally for me this summer. Every week, as I think, yeah, I think I'm going to have to hit the road again. I got to go here, I got to go there, and it's not like we went into the summer knowing I'm going to have a busy summer. All this is kind of piled and grew in the stakes, in the time commitment, and she just was-- I don't know, if I put this on Twitter. I definitely put it on my Instagram. So, Stephanie and I have been going to marriage counseling for four years, and it was less-- I got to fight the urge, again, to be like it was an investment in my business to have a happy marriage. But that's the byproduct of it. My business has benefited from the strength that we have. So, we started going 16, 17-- and no 17 and 18 is starting spitting off Deacon Lumber. She was struggling with postpartum depression.
Bill: Oh, fuck, dude. That's a lot.
Stinson: She was going and then I would come in. Yeah, our fourth kid. And each kid I'd moved jobs, like every kid, I'd done some change in my life with career or house. Anyway, I put her through a lot. And I was posting about this journey on Instagram the other day, I viewed therapy eventually. I wasn't against it. It wasn't something I was scared of. But she's been working with a counselor and then they bring me in and we start working, and what I realized was, we were having typical midlife young kid marriage problems, which generations before just powered through.
Bill: And then resented each other by the way. But yes.
Stinson: Yeah, we can see it around us. And I'm lucky enough to have older brothers who I look up to, who have encouraged me to go to counseling for a while, because we all have the same baby boomer parents. So, can benefit. But [unintelligible [02:19:18] and it became a place where she could tell me things because I'm so intense and so competitive that I'm hard to argue with. So, she could be in a place with like a moderator and tell me things that I wouldn't want to listen to or I could write off, and we were able to get places in our marriage that we hadn't been before, and as we're learning to be parents, I tell my oldest daughter, she teaches me, she taught me how to be a dad, and having kids, and then running a business, and then having a risk on that moves lightning fast, that's a lot and it affects everyone in the family. So, we've been going for four years, and I go individually, she goes individually, we go together, and now, I view it as a mechanic. I remember thinking this therapist of hers, we're not unique to her at all. She sees people like us all the time, just like a car mechanic sees the same problems, they just kind of kind of drive it around the block, listen to a few things like "Oh, yeah, this is probably this--"
Bill: [laughs] Yeah. But in your own life, it's like, "No, this super unique." [laughs]
Stinson: Yeah, I became less special all of a sudden.
Bill: [laughs] I understand.
Stinson: To me, I appreciated her talent for keeping it fresh, because she didn't seem bored. But I'm like you've done this before. You've talked to people who that the husband works late, and then doesn't help with the kids at night, and the wife doesn't speak up, this is a normal problem.
Bill: I'm going through that today. My wife was like, "I'm so tired. I'm up every day," and I'm like, "You know, I have been up at 4:00 or 4:30 every single day this week." But it's hard to consider what each other is going through in that time and to remember that each has struggles and sacrifices through whatever's going on.
Stinson: I found counseling is where she was able to--, I was able to listen I should say. There are some therapists there to kind of keep me in check from steamrolling, or in conversations, or arguments. So, all of that to say, we go see her therapist to check in just like you go see your mechanic with your car, change the oil, "Hey, this is creeping up and talk through things," and now, we're able to recognize behaviors, and patterns, and be able to reach each other in a way that has allowed me to--
I own several businesses, I run a volatile lumber trading firm, and all the while, I know, my wife and I are going to be okay and love each other at the end of the day. I just think this is such a huge advantage to then go put on risk and get mad at myself for winning or losing, and double down and think of something creative and get after it, go after it. If I just lose money, this is not that big a deal. It's not a big deterrent to me. My wife and our journey, right in the middle of starting the trading firm, that has just brought us to a point where I really feel just so secure in my life that I can just go pile tons of risk in my profession life.
Bill: It's cool. I hope, you don't pile too much risk, but that's awesome.
Stinson: We did talk about advanced rates and they're pretty aggressive.
Bill: Well, man, I appreciate you coming on. I appreciate you sharing what you just did, and I've had a really good time talking to you. I hope that we continue to talk in the future. You're a very cool individual, and I think that you've picked a very cool profession. So, thank you very much.
Stinson: Thank you. Appreciate it.