The Lumber Market is Full of Cowboys

This week, Jeff Korzenik, joined to talk about his new book "Untapped Talent: How Second Chance Hiring Works for Your Business and the Community" and why people with criminal backgrounds should not be employees of last resort. Binance.US CEO Catherine Coley came on to react to the Coinbase listing and discussed whether there was room for multiple winners in this space. Roshun Patel, vice president of institutional lending at Genesis, a digital currency prime brokerage, also discussed the Coinbase listing and crypto market structure. Then Deacon Lumber Company CEO Stinson Dean joined to talk about the frenzy in the lumber market and why prices are rising like he's never seen before.

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Episode Transcript

Speaker 1 (00:08):
Welcome to Would You Miss This Week? I'm Joe Wisenthal.
This podcast has some of our favorite interviews from the
Daily Market Clothes show that I co anchor along with
Romaine Bostick and Caroline Hyde. What Do you Miss? It's
the perfect way to kick off your weekend. US jobless
claims for last week plummeted to the lowest level since
the start of the pandemic. The US is heading to

(00:28):
seeming a labor shortage or something and resembling that at
least faster than we think. The FED trying to foster
a quote broad and inclusive labor market recovery. This means
businesses need to be prepared to find talent wherever it
can be found. Now, there are nineteen million people in
America with felony convictions and the millions more with misdemeanors
who are largely untapped underutilized workers. They're outside the labor force, unemployed,

(00:53):
or they're employed well below their ability to contribute to
the economy. Investment professional Jeff Corzenic, who usually talks to
us about markets, has long been passionate about this subject.
And there's the author of a new book, Untapped Talent.
How second chance hiring works for your business and the community.
Jeff joined us to talk about what he learned while
writing this book, and we started by asking him what
the number one thing people should know about in finding

(01:15):
this untapped talent? Sure? Number one thing is to recognize
that people with criminal records should not be the employee
of last resort, but when sourced right and supported appropriately,
they can actually be superior employees. That's the message. We've
heard this message from other folks. How do you get

(01:36):
that message through, though, Jeff? Uh? To uh employees, specifically employers,
I should say uh. And more importantly, I guess to
a general public that I think still seems to be
skeptical of anyone who spent time in prison. Yeah, no,
it's it's going to be a long haul. And the
one of the reasons I wrote the book was simply
to guide people, uh, the employers, so that they didn't

(02:00):
have to make the mistakes of others. There's a right
way to do this, there's a wrong way to do this,
And the the truth of the batter is, you can't
sugarcoat this. The majority of people who serve the prison
term were there for serious crimes. UH, usually crimes of violence,
often crimes of property, and yes, drugs as well. And
that doesn't mean though that they are irredeemably bad people

(02:25):
or can't be great employees. So there is this uphill battle.
One of the things that I focused on is showing
the example of other employers, because I think there's nothing
like one employer seeing the positive experience of another employer.
Think that helps quite a bit. Yeah, talk to us
about those experiences. You say, like, this has to be business,

(02:46):
not charity to be scalable. Who is doing it right
in a business like manager? So it's often middle market
companies because they don't have all the resources. They may
not be the employer first uh first choice in a
given market place. They may not be able to read
direct their uh employment to other geographies in the company,
in the country. But you find some really great companies.

(03:09):
So for instance, in Philadelphia Superstores, Jeff Brown runs a
chain of grocery stores. Six hundred of his twenty hundred
employees are second chance hires. We've seen similar successes in
Michigan Cascade Engineering as about twelve hundred employees, hundreds of
them have been through their welfare to career program. And

(03:31):
then one of the masters of this is a company
called mehem i Am Manufacturing in Cincinnati. There they were
the subject of Harvard Business Schools first and only case
studying the second chance employer. Hundred and thirty of their
und employees are second chance. All of these are for
profit companies. So Jeff I started this segment pointing out

(03:51):
that this this dovetails with what we're hearing from the
FED spread the benefits of employment to as many uh
as wide as possible. What do you think needs to
happen on the sort of like national policy front. I mean,
your book is targeted towards businesses, but from a national
policy perspective, what can accelerate this and make this go

(04:11):
even faster and better. Well, first of all, it's very
difficult to do this nationally because most of the criminal
justice laws that could that are actively interfering with employment
are state legislation. So this is a long slog of battle.
But fortunately there's some great nonprofits and think tanks that
are taking up this charge. But the starting point, and

(04:32):
this can be a national message, is that the old
paradigm of your either soft on crime or you're tough
on crime is wrong. What you should be is strong
on public safety and strong on giving people opportunities, and
those go hand in hand. Very often, our tough on

(04:53):
crime laws actually interfere with the ability of people to
get employ or stay employed. Now, this week was a
landmark one for crypto. Coin Base, the largest US cryptocurrency exchange,
went public with the direct listing on the naz deck.
Shares open the three dollars and traded as high as

(05:14):
four dollars and fifty four cents and its debut on Wednesday,
giving coin based evaluation above one and twelve billion, but
then share slip back below it's opening prices. Bigcoin fell
from record highs and tech stocks fell across the board.
So we got some perspective on what this listing meant
for the larger cryptocurrency space with the chief executive of

(05:34):
one of coin bass competitors, Katherine Coley. She is the
CEO of Finance dot Us, the U S branch of
the largest crypto exchange in the world. That she joined
us to talk about the competitive landscape, and we started
by asking her if this would be a multi winner space. Collectively,
we share a mutual mission to bring more Americans into

(05:56):
the space and access financial freedom. So we were all
applauseed all down with our team, cheering on the coin
Based team making making huge strides in the industry. As
you said, it's been a mocked industry, and yet we've
seen validation after validation, but institutional customers coming in, companies
going public really huge milestones that are quite remarkable across
the space. So so now with coin Base out there

(06:18):
in the public markets, that brings with it, Catherine, of course,
a lot more scrutiny, rightly or wrongly, about the company's fundamentals,
and of course about a correlation to the actual price
wings in bitcoin itself. I am curious when you look
at the volatility that we see in crypto and you're
trying to run an actual company of that's based on
the fundamental returns of how much you earn in this

(06:39):
space here, do those correlations maybe come back to bite you.
I guess that's one way to look at it. But
we really welcome the success and think there's so much
room in this space for users to explore the many
options that they have when it comes to entering the
digital frontier. You saw those great Q one numbers from
coin Based, and to put things in perspective, I'll run
through a little bit of what Finance US did this

(07:00):
past quarters. We uh we happened to four x are
registered users on the platform from the end of which
was remarkable considering we also saw a ten x increase
in trading volume, crushing over one point three billion dollars
trading just today alone, an all time high for US,
which is about coin basis global volume in total. So

(07:23):
when you look at that from a perspective year on year,
that's a hundred nine x increase of activity, trading activity
taking place that Finance US has been able to welcome
in in America. So if you're looking and curious that
there's room for more, the answer is absolutely yes. And
if you're curious at who's coming into this space, well
we all we do see institutions coming in with fervor

(07:43):
and excitement. We just launched our institutional page welcoming more
of our folks that are from my old world of
Morgan Stanley and traditional hedge funds, but we also cater
so much to those in need of accessing digital assets.
We saw an eleven increase in our most simple trading
platform for buying and selling crypto, and that is really
remarkable to see that much growth in Q one. So

(08:06):
when you talk about institutions, how much of that is say, Okay,
some institution wants to just maintain as a part of
their portfolio, some uh, some slug of crypto versus hardcore
hedge funds traders, etcetera that want to get into a
new asset class that's extremely volatile and so therefore extremely

(08:29):
exciting and fund to trade and potentially a lot of
profit opportunities. What's the split in terms of what you
see when you say institutional trading, Well, it would be
quite rude to generalize their strategy. So you've got a
significant amount of city in that institutional class, which we
cater to all of that. Whether you're a high frequency trader,
whether you're interested in in purely arbitrage, whether you whether

(08:51):
you're coming in for buying holes, considering your treasury, these
are all parts in our business that we build out
for understanding the sophistication levels and strategies customers coming in
needs to be as broad but also as welcoming as
possible to make sure that we have healthy markets. So
I'd be keen to understand really who's coming into this space.
We saw a lot of family offices, a lot of

(09:11):
big macro players trading with their personal accounts and coming
in and these are excited, but they're following more of
the trends momentum trading just like they had been in
other asset classes. Whereas those taking advantage of these liquid
markets and fast moving volatility, those guys are absolutely coming
in and trading in much more size every day. So
what's the future for finance um? You want to tell

(09:32):
us when you're having your I p O right now,
If I had a crystal Ball, I would already be
sending out coffetti. But for us, building process is still
in place, really just the beginning of what's being done.
I'm incredibly proud of our team in the last two
years to make this much stride in the market that
people have dubbed with saturated or over over over built

(09:54):
with crypto exchanges. There's obviously a clear need for more
Americans to understand this asset class and get access to it.
So by championing the success of others in this space
and considering we can we can still build this together.
We set ourselves out to be the most accessible and
approachable platform delivering recurring, wise, purposefully low trading fees and

(10:15):
all powered by cutting edge technology that really can handle
the growth that's ahead. So that's great, and I take
you at your word that you're very happy for a
competitor and everyone wins and it's more attention. But what
is the pitch when you if someone is interested in
crypto and they have many options, coin Base is the
most well known. What is the key way that you

(10:37):
see binance you as differentiating yourself, and what can you
say about the type of person who ends up opening
up an account of binance that us versus coin Base.
For me, it's simple. I don't like to pay fees
on things that are digital that are going to be
involved in my life on a routine basis. Paying away
two percent on management fees or even just on costly
fees is it really takes away the excite for this

(11:00):
space and the utility in how I look at it.
So when it comes down to fees, that's what I'm
looking for first. The next I really want to make
sure that the platform is built with a market minded
individual behind it. So the idea that we've built this
understanding where traders are coming from, understanding where traders are
going to be going into that's really critical. You'll see
that in our technical analysis that we provide. We'll see

(11:21):
that in our API having extensive amounts of work for
most of our ALLGA traders, and that really is critical
to make sure that we're building this in an asset
class that's going to be able to be nimble as
we see it evolved over the next year's ahead. And
we also got reaction to the coin based from Rossian
Hotel Is, the vice president of Institutional Lending at Genesis.

(11:44):
Genesis is a full service digital currency prime brokerage that
is the world's largest digital asset lender and provides a
single point of access for global high net worth and
institutional investors, as well as two sided liquidity for buyases
and sellers of digital assets. We started by asking about
an interesting bitcoin trade that is seemingly free money. And
I don't just mean buying it and waiting it for

(12:05):
it to go up. If you check out the church,
there's a difference between the spot price of bitcoin and
what the trades that on the exchanges in the futures market.
So I started by asking Row if he would lend
me money to my bitcoin in spot and short the
futures to capture that spread. Thanks for having me, It's
great to be here. Um, you know, regarding the base

(12:26):
and kind of lending cash against bitcoin, is that conversation
we've been having a ton more, you know, recently, especially
leading up to this. I p O such a monumental
day for the space of large in short. Yes, that is,
you know, a large source of our demand to borrow cash,
and it's it's a big reason for sort of the

(12:47):
demand you see in institutional lending and crypto for a
cash all right, Well, I know you I know crypto
has become a real asset when you can do a
basis trade off of it. I am curious though about
the risk involved in something like that when you have
a lot more of latility on the underlying than what
you would have maybe as some of the traditional basis
trades here. How do you smooth that out to make
sure that you know, Genesis doesn't get left hold in

(13:08):
the bag. Yeah, so, you know with the basis, Uh,
this is kind of the threat I touched on Twitter
and Joe sort of followed up on it. You know,
there's a couple of risks that come into play, especially
when you're talking about the cmme one of the largest
ones there is the margin requirement. So you know, when
you're shorting futures on CMME, you're required to post around
the collateral in cash. As the price of bitcoin goes up,

(13:31):
that cash margin requirement could be prohibbly expensive. It's a
lot easier to do the trade from the other side
in many ways where the future is trading below the
spot price. And you know, Genesis has been around since
twenty eighteen. Lending in crypto. Um, you know, our first
sort of borrowers are really bitcoin borrowers for posting cash
collateral to us, sort of the inverse of what's going

(13:52):
on now, and that that trade has has has evolved
a lot to be now the inverse, so um, you know,
kind of the way you think about it is, you know,
if the price were to go up quite a bit,
you could you could really lose out on a lot
of margin, and then if it widens out relative to
your collateral, it could be it could be pretty pretty
bad for you. So that's that's one of the major risks,
among others. So obviously it's a pretty big step for

(14:14):
the industry for a company like coin base to go
public institutional acceptance. What do we need to see still
on a sort of like market structure infrastructure basis to
sort to close that spread so that it becomes easier
to to actually do these trades and not face so
much execution risk. Yeah, for sure. I think there's two

(14:38):
major aspects to sort of the solving the issue around
how do these threads compressed. The first one is physical
delivery of futures. Right now, a lot of the future
is products out there, especially to see mean ones are
cash settled. So what that means is you settle to
like a one hour average price at the at the
end of the quarterly future window. That introduced to some

(15:00):
issues with how much size can really be grown at
the trade. The second is the margin requirement, which is
you need to have coin be able to be used
as margin, and that's a feature in some of the
offshore platforms, but it's not one that's like a direct
point of access from the crypto market. So those are
two of the major issues I would say, and um, yeah,
we'll see kind of how that how that evolves over time.

(15:22):
I have no idea how it's going to do you
kind of move forward, bro, Do you anticipate saying that
more traditional financial institutions maybe try to get into this,
try to hone in on this side of the business,
offering uh effectively, I guess what you're offering, but maybe
with a scale that you don't necessarily have at the moment. Yeah,
I think Genesis has done a really good job about

(15:43):
catering to a lot of the people that do this
trade right now, A lot of the inbound that we're
getting right now is more on the education side of
how the trade works. But prior to that, for years,
you know, a reason we're the largest institutional lender in
the spaces. We've been catering to the firms that are
doing this for quite some time and are very nimble
and able to do it. So part of what we're
doing right now is education. We have the capacity to

(16:03):
do it, and you know, we're looking forward to more
and more people engaging in the trade. UM. I do
think ultimately at some point some of the large banks
and whatnot might offer it, but we'll see kind of
how they fare relative to a place like Genesis when
we've already been involved in the space and kind of
already facilitating the trades with multiple billions of dollars of transactions.
So people have actually been talking about this basis trade

(16:25):
for years, and it's been well understood and sort of
known within the uh, you know, the crypto community, and
probably not many people outside of it paying real attention.
Have you seen a change lately in the awareness of
this opportunity and what kind of clients now are looking
into it as an opportunity to like essentially pick up

(16:46):
pick up some yield in a yield starved world. Yeah,
for sure. I mean it's involved quite a bit over time.
I mean in twenty eighteen you had a pretty much
a pretty vicious bear market where the futures are trading
at a discount to the whole way through. So that
introduced a lot of the sort of traditional finance guys
that were early in crypto thinking about early and really

(17:07):
just thinking about the space and looking at seeing me.
They were like, well, you know what, let's try to
borrow a spot. Where do we do it? Genesis seems
like the only spot I could really do it, uh,
and then kind of take the indrass. Now, the other
side of it is a cash denominated trade, so a
lot of people have a lot of cash. So what
you're seeing is like more traditional financial firms that really
might not know much about bitcoin or really care to
even hold it, setting up more STV type structures or

(17:30):
more you know, specific types of basis ones that are
coming in and trying to close the spread and do
it all a PC and and get a lot of
this sort of cross margining that Genesis offers um to
kind of make the trade a little bit more friendly
from a from a user perspective or from a client perspective.
So yeah, the client base is definitely evolved over time. Um,
we'll see kind of how it how it continues to evolve,
but it's definitely a broader conversation for sure. Now, this

(17:55):
week I discovered my new favorite asset class. The first
thing I've been checking each learning his lumber prices. Lumber
of futures keep rising day after day after day, and
they've served more than to record highest this year. Do
you think you were looking at well, the price of bitcoin.
The frenzy is likely to keep going through the summer,
which is the peak season for you. His home building
inventories are already leaning, and lumber of suppliers simply cannot

(18:17):
keep up with the skyrocketing home demand. So to learn
more about what's going on in the space. We spoke
with Stintson Dean, the CEO of Deacon Lumber Company. We
started by asking Stinson to explain his role in the space. Yeah,
in the supply chain, I'm a trader, so I almost
provide liquidity two sellers when they need to sell and

(18:41):
to buyers when they need to buy. Our market futures
and the cash market is fairly ill liquid, so I
stand in between, and I try to buy low and
sell high um on the price of lumber. Since how
much hot has your job of making any sort of
liquidity bin when just every well wants to buy and

(19:01):
supply is so thin. It's tough sourcing product right now,
is It's It's not about the price. Price is just
kind of a by byproduct of what's happening fundamentally, And
if you can get your hands on it, you're gonna
buy it no matter what the number is, And the
numbers are getting higher and higher. Futures have a daily limit,

(19:23):
but in the cash market where I trade, there is
no limit, and prices are going up significantly in a
way that no one's ever seen before, certainly from just
the flat price, but also the daily jumps and and
what's happening is builders and their suppliers I think waited

(19:44):
for a dip because a thousand dollar lumber is ridiculous.
And they waited and they waited, and hey, I'm gonna
buy the dip. Meanwhile, they were selling and committing themselves
to deliver lumber. Well, they waited long enough the mills
were able to hold out. Now they have to cover uh,
those commitments to builders, and builders have to cover their

(20:04):
commitments to homebuyers. So they have no choice but to
buy the lumber right now. Um and well, but they
do have a choice. They could either not by the
lumber and default on their commitment and lose their customer,
or pay whatever it takes the when covered and try
again the next time. So go back and talk about

(20:25):
the idea that some of these folks are waiting, because
we heard this a lot, uh several months ago when
this really started to rear its head with regards to
home builders. There are a lot of people that are
sort of waiting for the market to sort of right
size itself. Right. The idea here that some of the
shortages are more due to COVID and more dudes to
some just temporary or transitory issues, as the FED would say.
I mean, after all, there's no there's no shortage of

(20:46):
trees out there. It's just a matter of getting them
cut down and getting them down to the mills. Do
you anticipate the right sizing of the market in any
tangible way soon, Well, there's there's a few things kind
of in the weeds here in lumber. You really got
to focus on the Canadian forests and there is not
an abundance of trees up there that the government is

(21:07):
willing to be cut. Uh. They actually reduced most of
the forced forced land up there is owned by the government,
and they reduced the allowable cut a few years ago
because they saw the pace of logging wasn't sustainable for
the health of that forest. Um and homes from Phoenix
to Charlotte are built with Canadian lumber behind the dry wall.

(21:30):
So really it's a structural problem with a shortage of
trees or logs. And uh, this is like COVID fast
tracked a lot of trends in our economy. One of
the trends was reduced fiber basket in Canada. And uh,

(21:50):
the the mills had a really tough year in two
thousand nineteen. If you look at lumber prices, they stayed
depressed for a long time, so they had low lumber price,
this pretty mediocre housing market, and tariff, so a bunch
of mills permanently shut down. In two thousand nineteen one
prices where at three per thousand board foot on the

(22:11):
future screen, and now here we are quadruple um. It
would be really nice if we could have some of
those mills back. Maybe some of them survived if we
didn't have a tariff. But by and large, stepping back,
the issue is fiber supply in Canada, which is why
they've invested in southern yellow pine mills and production in
the US. But you know, again this is getting in

(22:36):
the weeds. But the Southern yell the pine stick is
not the same as a Canadian or Pacific Northwest piece
of lumber. Like they're not as interchangeable as you think.
So there's a bigger structural problem and until to me,
the futures curve is going to tell you the answer.
We're in the steep record setting backwardation where the front

(22:57):
monthster trading and an extreme premium uh two deferred months,
and a lot of people look at that and say Okay,
down the line, futures say prices are going to be cheaper,
and in fact, in fact it's the opposite. That's the
most bullet structure you can have. So until that curve normalizes,
I don't see, uh a correction per se well would

(23:20):
normalize it. I mean, you know, I guess there's got
to be some law of economic gravity every day and
market just can't keep going limit up, limit up, limit up,
whether it's some sort of slow down in the pace
of buying, some sort of expansion of capacity, some sort
of swapping perhaps of builders maybe opting for less lumber
or a different material for their building. Like when what,

(23:43):
what in your view could make it start to balance
out a little bit. It it's a demand side problem.
Supply side can't fix it clearly. You know they would
have They would have fixed it at seven per thousand.
So once the builders, once we start hearing from home builders,
we cannot pass these costs along, then you'll see the

(24:03):
you know, the the economics one O one price correction.
But I think and a lot of us in the
industry think lumber has just been under price for a while.
When lumber was at nine hundred per thousand, which at
the time, this last fall at the time was earth
shattering in a h B came out and said it
increased the price of a home sixteen thousand dollars And
I'm sitting here thinking, that's not that much really over

(24:26):
thirty years, and now you know the new data at
the newer price is twenty four thousand UM. So at
some point the build that those big builders are the
ones that that matter. Single family homes, not apartments. Single
family homes drive the price of lumber. And until they
say I cannot pass these costs along, we're gonna be

(24:46):
higher for longer. Now. I think there will be innovation
how we use lumber more effectively in building plans um
framing packages. But as far as like a new disruptive technology,
there's not much on the horizon to help this kind
of acute shortage we have going on. Have people been hedged,

(25:09):
have people been sort of making an awful lot of
money by not being who's winning out of the situation?
Who might not automatically think apart from the people selling
wood right now, well, the one selling would aren't necessarily
winning depending on where their risk is. They're forward committed
at a fixed price and they're buying. Second, their margins,

(25:30):
margins are getting squeezed. That's both vendors home builders. Um So.
I think spec homebuilders who don't have a price locked
in with the customer, and then they build, they're doing fine.
And then certainly the sawmills are doing great. Um And
after that it's it's when you're in this type of market,

(25:50):
you're kind of unless you're a producer, you're getting If
you're making money, you're kind of lucky. Like this, the
swings are so big, we could fall fifty fifty and
still be higher than we ever have been in sixty
years of lumber futures today. And so a guy like me,

(26:11):
I hedge aggressively because I have massive downside risk and
I'm able to sell my lumber above and beyond my
hedge losses. Um So, I'm still making modest gains. But
but lumber is notoriously full of cowboys that don't manage
risk aggressively. And if you if you can source the lumber,

(26:31):
you're making a whole bunch of money right now. Because
it's just the price is not the issue for in
the immediate term. It's the scarcity, and that's it. For
what you missed this week. You like to show, and
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(26:53):
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