Week 26: The Dollar, Lumber and Cybersecurity

Briefing: There are three themes that rose to the top this week as we head towards a much-needed long Summer weekend. In spite of the many noisy headlines: the dollar is not on the verge of collapse, lumber prices are normalizing fast and there is an exponentially increasing need for cybersecurity. Let’s dive into each of these in turn below.

The dollar is not on the verge of collapse

There was a refreshingly pragmatic Bloomberg Opinion column last week covering the competition between the dollar and cryptocurrencies. “First, the dollar is not on the verge of collapse, nor will it be replaced by a crypto asset. The U.S. is one of the world’s two largest economies and the center of the English-speaking world. It has the power to tax, the strongest network of alliances and the most powerful military.” If you’ve followed any cryptocurrency logic over the past year, you’ve probably heard existential arguments that the money supply is expanding too much or inflation is ruinous. As we’ve written in the past, inflation is largely within your control via your personal consumption choices.

The dollar today is almost entirely digital already. PayPal, Venmo, CashApp, ACH and bank wires are capable of transmitting value electronically with 100% reliability. User error may be common, but transfers do not have issues. The US legal system is responsible for carrying the dollar’s status as the reserve currency. The US has very clear rules on how business is conducted and does not seize assets or control of entire companies without permission like the Chinese government.

It is possible that either the US dollar or cryptocurrencies will replace less reliable global currencies like those in Venezuela, South Africa, Zimbabwe or Argentina. Decentralized cryptocurrency protocols (which basically means that the code controls your money and no single person controls the code) could end up being extremely useful where there is government corruption risk.

Lumber is coming back to earth, and fast!

On May 5th we published our lumber article, Why The Lumber Chart Has Gone Parabolic, when the price was over $1700 “While we wouldn’t recommend that you short the lumber futures market, you can at least gain confidence that the sticker shock of these astronomical lumber prices won’t last.” It’s not all that straightforward to short a commodity futures contract. Today’s price of lumber is near $700 and dropping fast. There is no shortage whatsoever of trees (timber).

There are a few takeaways here. For one, today’s markets move faster than ever. This is a sentiment shared often by investment professionals over the past few years. It doesn’t take long at all for a market to react and readjust to new sentiment, threat or opportunity. We expected lumber prices to gradually fall over the course of the year. Now it seems increasingly likely that we’ll see a price in the $400s over the next two months as mills catch up. $300 to $400 is the rough historical range of lumber over the past 20 years.

Our guess is that markets move faster today thanks to the internet, a more global economy, a larger working population and more competition in nearly all markets. Retailers take as long as possible to adjust prices downward, so you won’t see lower prices at Home Depot until after prices have settled.

Exponentially increasing need for cybersecurity

From an article last month, tech writer Matthew Vulpis pointed out, “The administration and Congressional leaders wish to pour trillions of dollars into upgrading America’s airports, roads, shipping ports, public buildings, schools, water systems, energy grids, and more, instrumenting the world with sensors that can collect and analyze data to ensure resilience and efficiency. And while the Industrial Internet of Things will continue to generate enormous value, unless the networks that connect to the edge to collect information are rock solid, “unintended consequences” could be grave.”

The $1T+ infrastructure deal proposed by the Biden administration includes benefits for the semiconductor and cloud computing industries. IoT devices are not particularly expensive. It’s not all that complicated or expensive to connect a sensor or device to internet. What’s more complicated is the data warehousing, software to analyze the data to drive automated action and the cybersecurity to keep the entire system secure. This infrastructure ambition creates an opportunity for innovators to unlock entirely new markets. There is a tailwind behind the 5G network needed to run all of that connectivity and the cybersecurity-related companies who are setting the standard in Zero-Trust security.

Please reach out if you would like to discuss any of this in further detail – have a great 4th of July weekend!