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Welcome to Money for the Rest of Us. This is a personal finance show on money. How it works, how to invest it, and how to live without worrying about it. I'm your host, David Stein.
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Today is episode 538.
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It's titled Forests, Fakes and the Fight for the Real. Le Pearl and I have spent the last couple of weeks exploring Vancouver Island. Last weekend we were in the far north in the town of Port Hardy. Collectively this year we've spent about six weeks in Canada, three weeks in Quebec in May. And this trip now, I've never been to Port Hardy and I saw some things there that I had never seen in my life. There were salmon jumping off the coast of Port Hardy as they were preparing to enter rivers to spawn. Once there was enough rainfall to raise the flow in the river. I've seen trout jump, but I had never seen wild salmon jumping. Near where the wild salmon were jumping, there was some clam beds and the clams were squirting water, which he'd ask one of the locals, like, what is that? And apparently clams, when they sense some type of disturbance or just part of their normal feeding activity, when they close their shells, that forces water out of their siphons that they use. Also this past weekend, the pro and I hiked this San Joseph Bay trail in Cape Scott Provincial Park. It's about an hour and a half drive from Port Hardy and it goes along these logging roads over the mountains and in the forest in that area are maintained and harvested by Western Forest Products. And their timber is primarily red and yellow cedar, Douglas fir and hemlock. Western Forest Products is a publicly traded Canadian company. They say on the website they collaborate with over 50 First nations in the coastal B.C. area as they work to advance sustainable forestry and provide career opportunities. They had signs on the road that showed when various trees were planted, when they had been thinned and fertilized. And the trees that they were harvesting had been planted back in 1950, so 75 years ago. And it reminded me of the trip we took to Norway and Sweden just over 10 years ago. And there they have a lot of spruce and pine forests. Most of those were managed by or owned by families or 50% were owned by families. And they would harvest these trees after 75 years and then they would plant new ones, which is what you do if you want sustainable forestry. But it's a very long time cycle. We don't usually think about 75 year periods when it comes to investing. I was curious in looking at Western Forest Products, how they're doing financially the the tariff rate on cedar imports into the US last year was 8% and that was after it was increased. Now it's 35%. There was an article recently in the Wall Street Journal that talked about how wood markets have been whipsawed by trade uncertainty. Future prices for lumber be a thousand board feet I believe is the measurement. Right now it's around $530 per thousand board feet. That's down 24% from a three year high this past August. We saw the price of timber jumped this year as businesses imported more of it, stockpiled it, not knowing what the tariff rate would be on Canadian timber imported into the U.S. it's fascinating to look at a price chart of timber. Back in 2021 it got as high as $1700 per thousand board fee. This is the future prices. Now it's around 530. And so you had a huge spike up due to the capacity constraints and all the building that was occurring coming out of the pandemic. But long term, when we look at well, how has timber, how have they done? If you bought timber or invested in timber, how would you have performed? Back in the early 2000s at my advisory firm, I was our timber analyst as I was working several roles. One was as co head of our private capital group as we were identifying managers within the private equity space, venture capital buyout and real assets. And I took upon myself to learn timber investing, visited a number of timber organizations and tried to understand this asset class which in retrospect has done okay. It's returned from what I could see, 7 to 8% annualized over the past 25 to 30 years. The primary measurement is the NECRIF timber index and they seem to keep those returns hidden somewhere. So I couldn't find up to date returns. But in looking at the returns of timber REITs for example, these are companies that invest in timber, manage timber. Weyerhaeuser is an example. Potlatch Deltic is another. We look at their 15 year returns, around 7% annualized. Western Forest Products hasn't done as well. It's returned about 5% annualized over the past 15 years. But part of that could be the currency conversion from the Canadian dollar to the US dollar. Before we continue, let me pause and share some words from one of this week's sponsors. Delete me. Deleteme makes it easy, quick and safe to remove your personal data online. 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Privacy or the privacy of your business.
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From doxing attacks before sensitive information can be exploited. I've been using DeleteMe for several years now and I appreciate that they protect my personal privacy. So take control of your data and keep your private life private by signing up for Deleteme now at a special discount for our listeners. Get 20% off your delete me plan when you go to JoinDeleteMe.com David20 and use promo code David20 at checkout. The only way to get 20% off is to go to JoinDeleteMe.com david20 and enter code David20 at checkout. That's JoinDeleteMe.com David20 code David20. If we look at how timber firms manage, how do they make money? What drives the return? Well, part of it's the operating income. So it'd be timber harvest. As these trees grow over 75 years, they get bigger and so their value increases. And so then after 75 years for cedar and hemlock, could be 50 years it's harvested and you get operating income from that. There's also the value of the land. If the land is sold, the value of the land that has this timber increases and then there's higher and better use for land. Not so much, I think, in the area where we were, but it ultimately leads to a return stream from the cash flow, from the value of land about 7 to 8% annualized. If we look at the actual price of timber though, and I, you have to be careful when you look at the price of a commodity because it depends on where you start. You can start at the high, you can start at the low and then take it out. So I, I went back to 1979. So it was around, it was, that was sort of a high after the run up of the 1970s, but timber was $250 for a thousand board feet. Now as I mentioned, around 530, $530, that's one and a half percent per year. Appreciation in the price of inflation over that time frame has been 2.9%. So timber has not kept up with inflation over the past 55 years or so. And we think, well, why not? Well, when you look at what drives the price of timber, clearly the demand, the demand for housing and other construction projects, the supply will impact that. Supply and demand we would know. But also how fast is the money supply increasing and so over that 50 year period, the money supply, the measure of US dollars, so physical currency, checking and savings accounts, retail money market mutual funds that has grown about 6% per year on average due to expanded bank lending, due to quantitative easing. But the primary reason timber hasn't kept up with inflation or kept up with the money supply is productivity has increased dramatically when it comes to timber. Back in the 1970s, harvesting timber was involved a lot of manual labor with chainsaws. A typical output per worker with a chainsaw in the 70s was four cords of wood per day. Now there are modern harvesters that will fell the trees, they'll bunch them, they can do about 25 to 30 cords an hour versus 4 cords a day back in the 70s. The productivity is for one machine is 50 times greater than an individual out there with their chainsaw. And so that productivity, in the absence of money supply growth, prices should fall because of competition and the greater supply. We haven't seen prices for timber fall. They have appreciated one and a half percent per year, but it's been less than inflation, which has been double that rate. And it's been less than the money supply growth. And that's just a natural thing that incurs in the real world with real goods that are produced. You see the same thing in agriculture. Productivity increases, helps keep prices down. In the absence of money supply growth, we would see prices fall. So I've thought a lot about timber the past couple of weeks because there's a lot of timber on Vancouver Island. While we were exploring the island, I got a call from my nephew. He asked about voiceover work and what to charge. He'd been running a YouTube channel for think maybe a decade now in the auto automotive space. He retrofitted an old car, a BMW M3 for us that we sponsored on his channel and later sold that. But one of his sponsors that has supported his channel has wanted to do some voiceover work for the website. And he didn't know what to charge. And I asked him what have you asked AI? And he hadn't because my nephew is works with cars, he does YouTube, but he hasn't spent a whole lot of time with AI and it just never occurred to him to ask him that. And so I did for him, gave him some rates. But AI is something we've talked about, we've talked about about the huge real world impact on energy, on materials due to the data center build out. And that got me thinking that conversation and all this timber everywhere. How has the economy evolved over the last 50 years? How much of this is real in the sense of manufacturing, construction, agriculture, moving those goods through transportation, buying and selling physical goods, hospitality, delivering health care. And back in the 70s it was 80 to 85% of the economy. You had 15% or so would have, would have been financial. And these aren't clear cuts because is financial activity, is that real? I mean it's numbers, it's digits, but it has a real world impact. But I included financials as part of digital information based economy. So roughly 15% back in the 70s and it's 35 to 40% today. And we've seen that shift more digital, more information based. And one of the risks of that is we lose contact with our embodied self as things become more digital. I thought about this the other day as we were in Nanaimo having dinner at an Indian restaurant. And I saw a teenage girl walk by outside and she had headsets on and she was looking at her phone as she walked. Something I'm sure we've all done. But she was there, but she wasn't there. And I found myself doing the same thing. I was driving and I got caught up in my thoughts. I think I was thinking about our model portfolios, money for the rest of us plus and the PRO had interrupted me, said to stop because I was about to run a stop sign because I forgot that I was driving this car. We can do that. We can, we can be physically in the world but not really there as we get caught up listening to something or, or, or whatever. Before we continue, let me pause and share some words from this week's sponsors. Over the years, as AI has evolved, I've used it more and more like an advisor to discuss complex challenges, problems we're facing or opportunities we're facing in our business. And I've gotten real insights from using AI. Now CLAUDE is an AI for minds that don't stop it good enough that they want help with their entire workflow. They want an AI to work with them, not for them. A real collaboration. And that's what CLAUDE does. It has internal and external research capability, so it goes way deeper than just basic web search. I used it in this episode to get some of the data and analysis regarding what percent of the economy is digital versus more physical. So if you're ready to tackle bigger problems, you can sign up for CLAUDE today and get 50% off Claude Pro when you use my link Claude AI David. That's Claude AI David right now for 50% off your first three months of Claude Pro. That includes access to all the features mentioned in today's episode, Claude AI David. The Bureau of Labor Statistics in the US does an American time use survey. They do it quarterly. And I thought again, well, how much time do households or individuals spend engaging with physical things embodied versus not so. For example, your typical individual spends about three hours a day watching television. And I would argue television, while it's a physical thing, it's a digital medium. And it does kind of carry us away. And now again, we've. Humans have always done this. Reading in some ways is losing connection with the physical world. Even if you're holding, if you're reading on a physical book. And so it's okay to escape. It's just a question of how much of our time do we spend that. So of the 24 hours a typical activity, roughly 9 to 10 hours is spent sleeping or getting ready to sleep, another one and a half hours a day eating and drinking. Again, this is from this, this survey about two hours of household activity that would include food preparation, lawn and garden care, household management. Spend about 3/4 of an hour a day purchasing goods and services. And then if they include everybody that's not working, they spend about three hours a day to four hours a day working. People that actually work full time, they're spending about six to eight hours a day. And what I found interesting on the survey is those in production physically making things work more hours, about 8.7 hours a day. Self employed workers like me, it's 6.4 hours a day. But if we look at just leisure and sports, it's around six hours a day of which half of that is watching television. Then include video games in that and these other activities and only about 20 minutes spent reading. Now they separate out email and telephone calls separately. But if you think about your life, how much of your time is embodied, interacting with physical real things versus some might call it escapism. I don't, I don't. That's sort of a derogatory term, but just out in the digital realm, not embodied. Daydreaming, thinking, pondering, reflecting. Recently J. Crew, which sells clothes, they've been around since the 80s. I read a book about their company, I think it was last year, but there was a new biography basically on J. Crew. But they recently came out with an ad campaign and it was sort of kind of capturing the vibes of the late 1980s. And J. Crew was known for their catalogs and their photography shoots. They would go on location and they would take photos of the models doing stuff, the real world. And someone was fantasy. They'd be boating or whatever, but kind of preppy type clothes. So they did this ad campaign this year to sort of revive that, but they used AI to do it. And if you would have seen it, and I, first time I saw it, it's like, looks like the 1980s. But others paid a little closer attention and say, well, there's something wrong with these, the, these photos. And there was kind of a vans campaign. One that one guy was wearing vans and his foot was essentially backwards or not, not completely, but it wasn't, it wasn't right. And if you look at some of the clothes, there was inconsistent stripes on the shirt from one image to the next, even though they were in the same shirt. And then for those that are experts in boating, there were some boating photos and there was some things wrong with the boat, including too much rope on some of the boats and even some of the bicycles. And there was just small things. My question was, does it matter in that, does it matter that a company is using fake people, fake images in their ad campaign to evoke a nostalgic emotion? I saw a video the other day where it was an, an ad, and the video was about the ad, but it was fake people. I mean, they were, they were created with AI and they told this story about how they were a family that had come. They could compose music for people, custom music, and they were going out of business and they were offering their skills to the public to. You could have them produce any song or a song about anything you wanted, and they were willing to do it because they were going out of business. And they presented themselves as real in the video, deconstructed how this wasn't real. That they could find these AI people that they, they were this, supposedly this family. They could find them, find them in AI databases, AI models, and you can make videos out of AI models. And then sounds like the songs themselves were just generated by AI. There are a lot of fake music groups on Spotify. And as I think about, you know, what I. A living, I, I teach, I educate, I provide investment help, I podcast. Does it matter if I'm real? I could. AI can create podcasts now. I think it does matter. I, I think about my television watching habits. I'll occasionally watch a movie, but if, if I'm just going to watch television, it's generally sports and it's live. There's something about having it happen right then in a real place with real people, with real fan reaction, nobody knowing what's going to happen. And I don't, I don't watch that much sports and admittedly sometimes I'll just watch the summary of a game like last Sunday's contest between the Baltimore Ravens and the Buffalo Bills because I heard it was a good game. So then I just watched the 20 minute recap that the NFL put on YouTube, but generally I would prefer to watch it live if I could. I don't always have access to that, but I, I worry because of AI that we're losing that connection with real things, with real people. When it becomes difficult to figure out is this image real or not, I feel like I need to raise the bar so that people know that it's real. And one way we're doing this is we're going to do a live stream on September 25th for plus members. This is our premium membership community and it'll be live and I'll provide a market update. And I won't be doing a podcast that week because I want to focus on this live event and making it good and helpful for people and covering whatever's going on that week. We've always tried to do that with a podcast. Today's Tuesday, release the podcast tomorrow morning. Part of that is we want to make it as real time as possible. Even though a lot of the things are evergreen. The idea of recording a podcast and not releasing it for several months, I mean, that's perfectly fine, but that's not how we've ever done it. I want it to be as close to real and live as possible.
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And sometimes we're going to do it.
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Live and we're going to do it September 25th. Have you never tried out plus membership? Just sign up for a month, 50 bucks and attend and ask questions and it'll be real. But as I think about PLUS membership and we think about how the world is evolving, becoming more digitized, more difficult to separate what's real and fake. Recognizing that most of our life needs to be embodied in the real world. That's where we get the most satisfaction. There's a reason that there are behavioral emotional issues from too much screen time for children. I mean, there's documented studies of that and I think it impacts adults also, and teens. And so I, I, I know in my life I'm trying to make sure that I spend more time in the present, physically embodied, feeling the breath, not letting my mind just wander, but focus on what is happening now, not getting caught up in what happened in the past, aware things, you know, going in the future, trying to be there when I'm driving so I don't run through a stop sign because I'm thinking about potential model portfolio changes. I recently had a good friend who passed away. He lived in Japan. I knew him in my 20s, great cook. He would make meals. He just would invite me over and he liked to cook and he would just cook me a meal which was incredibly kind. And when our family visited him in Japan in 2018 he he made us a meal because that was what he that's how he expressed love and appreciation to people. He would cook for them. And I last saw him in person last May when I was in Japan, but he he got cancer and he has a nine year old son. Last year he came back to the States to visit his family and they took a road trip and I talked about this with him a couple of weeks ago before he passed. We did a couple of FaceTime calls just to connect and he drove 3,000 miles with his 9 year old across the US last fall. And in conversing with him, I mean he admitted that he wasn't going to make it, but he accepted it and was at peace. But it got me thinking again about what is real, what is embodied, and how we can't lose that as the world becomes more digital, as AI proliferates, to not allow ourselves to get too caught up in the past or in the future. What is going on now right before us, with our friends and our family, our jobs, doing things with our hands in the real world, it is absolutely critical. I love your input on this. It's not kind of a free flowing topic. What have been your thoughts as we think about what's going on? As the economy continues to evolve, becomes more digitized, AI proliferates, it becomes harder to distinguish between the real and the fake. How are you continuing to hold on to what is real? That's episode 538. Thanks for listening.
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Everything I've shared with you in this episode has been for general education. I've not considered your specific risk profile, not provided investment advice. This is simply general education on money investing in the economy. Have a great week. Sa Sam.