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Strategies & Market Trends : Roger's 1998 Short Picks -- Ignore unavailable to you. Want to Upgrade?

To: BDR who wrote (11382)	7/12/1998 1:47:00 PM
From: Roger A. Babb	Read Replies (1) \| Respond to of 18691

Dale, I can not comment on specific forest industry companies unless I have something good to say about them as I have a business relationship with most of them. Thus my comments will be very general at this point. My only current forest industry position is a large position in Babb Lumber Company, a private company with revenues in the range of $50 million. The lumber industry has had a fantastic last 7 years with 1997 being a market top. This was fueled by lower interest rates and a booming economy. We saw lumber prices at all time highs in 1997. But 1998 is a very different year. First we had a huge supply influx of building material that normally goes to Asia. Prices have dropped substantially even though housing starts continue high. Second, I now see signs of a housing slowdown. Interest rates won't go much lower and the "pent up demand" caused by previous high interest rates has about dissipated. Most families who want a new house now have one. Houses are staying on the market longer and are being discounted. Third, the cost of building materials is becoming a smaller percentage of the cost of a new house as the price of land, services, and especially skilled labor escalates. Fourth, the cost of raw material (trees) is going up and the quality is decreasing as forest reserves are depleted and environmental restrictions increase, thus squeezing margins.