Timber (there she goes)

I keep reading that in America new house starts are now on the increase after four years of retraction. Similarly the Developing World’s new rich middle classes are also demanding more individual housing as opposed to high rise flats. This type of housing is likely to be of a timber framed construction. The cheap high rise apartments that are being built to house the masses, and reduce the shanty towns that blight the poor cities in the developing world, are frequently constructed using timber framed factory modules. All these new dwellings will require furniture and even if this furniture is made from chipboard, the chipboard is made from timber chips in the first place. All of the above will require astronomical amounts of timber.

As the world’s economies exit this long recession there will be the need to satisfy this pent up demand for housing. Where will the timber come from and will there be enough to satisfy demand? In the first instance I dont know, and in the second instance no there won’t. Timber has a long term growth plan and cannot be switched on and off. The days of wholesale forest clearances are gone as the environmental lobby fortunately now influences these commercial decisions. Even if new timber plantations are being planted today to replace those that are being harvested, it is not nearly enough. The new plantations even using new generation tip planting techniques will take twenty five years to produce the crop. So demand must far exceed supply. As a consequence the price of timber must continue to rise even more sharply than it has already done in recent years.

So how might it be possible to take a financial advantage of this potential hike in world timber prices. Well as it happens there is an ETF that covers this arena and it has just reared its head in the Saltydog numbers. It is named S&P Global Timber and Forestry (IE) and has the most wonderful Ticker of WOOD. How appropriate. So it has to be worth watching this to see which way it moves over the next few weeks and months. Maybe worth a punt.

The Greater Mekong region

On the 17th of September I wrote about the importance of the up and coming Greater Mekong region. The countries involved being Thailand, Vietnam, Myanmar, Cambodia and Laos, all members of the ASEAN Free Trade agreement. I reported on how it was becoming self sufficient for oil and gas, it had a young cheap labour force with a total population in excess of 560 million people, and an economy of over 2 trillion dollars. It looked as if it would become the next source of cheap manufactured products for the world and possibly become self sufficient in its own right.

Well since that was written President Obama of the USA and Xi Jinping,  the President of China, have both made their first visits to a foreign country (since retaining or gaining office) to this region. Now that must be very significant for future trade and investment. Then last week we have the announcement that the newly elected Prime Minister of Japan, Shinzo Abe is also setting out to visit this same region. Now baring in mind that there appears to be a falling out between Japan and its largest trading partner China, then surely this visit must hold a similar significance. So unless these countries get over whelmed by hugs and kisses from these elderly relatives then they must be set fair for the future.

Looking at the numbers coming through from Saltydog on ETFs it is now showing the db X-tracker FTSE Vietnam rising towards the top. In fact this ETF has risen 22% in the last three months with 16% coming through in the last month. This must be connected with all the attention that this region is receiving, and perhaps we are seeing only the very beginning of these fund rises. We will continue to look out for, and report on, other funds heavily invested in this area.image

The American Smooth

Now I’m a long way from being an economist, but has the world really changed because the Americans have dredged up, under pressure, a tiny piece of sticking plaster to put on its so called ‘fiscal cliff’. Certainly a little bit of money will be raised by these small tax hikes, and maybe this is the start of the of reduction of the five trillion dollar national debt. However without significant cuts in the state expenditure it will not even make a dent in this mountain of debt, so I’m guessing that in two months time, when these cuts come up for discussion again, we are going to be subjected to the same nail biting drama and I would not like to bet the family silver on the outcome.

Another question is how important is this mountain of debt to America’s financial survival – is it just an academic number? As long as America can service the interest repayments and continue to roll the debt over then does it matter – as long as their bonds can be bought and sold, then who really cares? Certainly Charles Dickens and the Victorians would have viewed the situation with deep disapproval, but perhaps in today’s world it’s not so important. Maybe America will be able to reduce its debt in other ways as its economy improves.

The last couple of years have certainly produced some positive turn arounds. The most incredible being that America could shortly become an exporter of oil and gas and not an importer. A most remarkable financial bonus in its own right. Its citizens have also been paying down their personal debt at a rapid rate which, when completed, will lead to a lift in spending in the shops and another boost to the economy. Many products have been repatriated back from Asia to be manufactured in the homeland, lifting employment which is rising month on month with the corresponding rise in tax payments. Consumption of fossil fuels and energy is being reduced with the acceptance of more efficient car engines and a general public awareness of green issues – yet more money to be freed up for more productive expenditure. Housing prices may in some places have further to fall, but new house build figures have started to rise which is a boost for the construction industry and employment. So how bad is this debt? Maybe a few minor cuts in State expenditure will make a point, but possibly a combination of inflation and time will bring about the healing process.

As a DIY investor it must now be time to keep a careful watch on how the American economy goes forward over the next year. For myself this will be revealed in the performance numbers of the American funds. Until they start to rise it is all just noise and I will sit on the fence. I would liken it to a similar situation over the last six months with gold and gold funds. The whole world and his dog have been advocating the purchase of this commodity in both of these fashions. Nobody would or could sensibly argue against the logic of the case – it all made sense. Yet if you had followed this advice you would have watched your investment lose twenty percent or more. Sorry to raise the name of Jesse Livermore again but he would have told you not to back your hunches until the market confirmed the hunch was correct. Possibly American funds are yet another example – let’s wait and see.