Lumber: Worth It's Weight in Gold Offense and Defense in Active Portfolio Management

2015 NAAIM Wagner Award Winner

18 Pages Posted: 11 May 2015 Last revised: 3 Mar 2016

See all articles by Charlie Bilello

Charlie Bilello

affiliation not provided to SSRN

Michael Gayed

Pension Partners, LLC

Date Written: May 8, 2015


Prior academic research focuses on commodities in isolation as leading economic indicators, ignoring the message price behavior may have on other asset classes. We find that the relative movement of Lumber to Gold provides important information on economic growth and inflation expectations, which gradually diffuses with a lag to stock and bond markets. Lumber’s sensitivity to housing, a key source of domestic economic growth in the U.S., makes it a unique commodity as it pertains to macro fundamentals and risk-seeking behavior. On the opposite end of the spectrum is Gold, which is distinctive in that it historically exhibits safe-haven properties during periods of heightened volatility and stock market stress. We find that the relationship between Lumber and Gold helps to answer the critical question of when to “play defense” and when to “play offense” within the context of active portfolio management. In this paper, we show that a strategy using the signaling power of Lumber and Gold results in stronger absolute and risk-adjusted returns than a passive buy-and-hold index. This outperformance stems from being more aggressive in a portfolio during periods when Lumber is leading Gold and being more defensive during periods when Gold is leading Lumber. The results are robust to various time frames and across multiple economic and financial market cycles.

Keywords: Intermarket Analysis, Stocks, Risk, Trading, Market, Momentum, Rotation, Volatility, Bonds, Fixed Income, Treasuries, Equities, Rebalancing, Quantitative, Efficient Markets, Hedge, Asset Allocation, Gold, Lumber, Offense, Defense, Small-Caps, Large-Caps, Cyclicals

JEL Classification: C00, C10, C50, G00, G11

Suggested Citation

Bilello, Charles and Gayed, Michael, Lumber: Worth It's Weight in Gold Offense and Defense in Active Portfolio Management (May 8, 2015). 2015 NAAIM Wagner Award Winner. Available at SSRN: or

Charles Bilello

affiliation not provided to SSRN

Michael Gayed (Contact Author)

Pension Partners, LLC ( email )

430 West 14th Street
Suite 505
New York, NY 10014
United States
2122555000 (Phone)


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