Monday Catch-Up

Our Top CEOs: Meet 30 Leaders Who Turned Crisis Into Opportunity

For a sense of the economic whiplash that America’s corporate leaders have faced since the Covid-19 pandemic began, consider how weird things got for oil and lumber. There was a day in April 2020 when Texas crude sold for less than nothing—$37 less, in futures trading. Roads had emptied, refineries had shut down, and oil tanks at a key Oklahoma trading hub were so full that no one wanted to take delivery of the stuff.

Now, oil is over $70 a barrel. This past May, the price of two-by-fours—a cut of wood used by builders—hit four times its pre-pandemic level, adding $24,000 to the cost of building a typical house. Lumberyards had assumed no one would build during a pandemic and stopped ordering from sawmills, which had idled—just before pretty much everyone decided to build, remodel, tinker, or move.

Over the past year, chief executives at the country’s biggest companies were tasked with managing the snapback from dire downturn to frantic rebound, while keeping workers safe and customers content. Beyond the virus loomed bitter politics, racial angst, and supply-chain mayhem. Social activists have stopped asking and started telling, armed with shares and votes. CEOs are paid well enough for their efforts; we can save our sympathy for nurses, teachers, and grocery clerks. But consider the 30 standout leaders highlighted in this issue for what their playbooks can tell investors. Inflation Scares

The annual Berkshire Hathaway shareholders meeting is one of the premier events of the year. As investors this is a can't miss. While the actual event is 5 hours long, we're going to breakdown the most important hour of the meeting. We don't mean to sell fear, but Warren Buffet thinks this topic is not being taken seriously enough and that we should be much more worried about it.

What Warren Buffet said he's seeing right now is substantial increases in prices (due to inflation) across all of their subsidiaries and they have no choice but to accept the higher prices as it's become uniform. Within their home building division (Clayton Homes), they've seen new home building costs rise substantially. As one of the largest builders in the country, they should be able to negotiate better rates with the raw materials providers and they can’t. A large part of this is due the framing as framing is 20% of a home’s costs. With lumber up so much, there’s no choice but for new home construction rise drastically. Since 2016 there’s been over a 600% percent increase, which today is translating to over $3,600 in added costs to the price of constructing a new single family home (on average). While Buffet's companies are absorbing the costs, some homebuilders are slowing builds altogether which actually ends up driving costs significantly higher as this adds to the supply continuing to dip down.

The problem lies in the fact that if people think this will continue going up, they'll continue to ride the train out. For example if home prices only go up people will go out and buy homes now because they believe once they buy it, the appreciation of their home will cover the cost of them "overpaying" for it. If this continues to happen in perpetuity, thereby driving prices up and up every single week, eventually with such a big rise, a fall is inevitable. And a tank in the housing market, would have vibrations throughout the stock market as people’s primary wealth is tied up here. This event would lead to something called: hyperinflation - which people think the US is immune to.

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