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Speaker 1: Live from the Heartbeyer and the Crossroads of America. It's

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Speaker 1: Tony Katz today. So we have two different reports, we'll

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Speaker 1: really two different pieces of data, and it sent the

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Speaker 1: markets right from the beginning up. But it tells us

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Speaker 1: that inflation is three point one percent. It tells us

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Speaker 1: that the GDP was only zero point seven percent growth

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Speaker 1: in the fourth quarter. I mean, that number is freaking anemic.

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Speaker 1: That's all because of the shutdown in October November, and

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Speaker 1: of inflation is three point one Why about the Dow

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Speaker 1: and the Nasdaq at least at the start of the

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Speaker 1: market today, Why did they go up over three hundred

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Speaker 1: points of the Dow over one hundred in the Nasdaq?

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Speaker 1: What exactly is going on here? Tony Katz, Tony Katz today,

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Speaker 1: Good to be with you. Doctor Matt will joins, us

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Speaker 1: economist at the University of Indianapolis. Caught it while he's

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Speaker 1: on the road. Appreciate you taking the time. Let's let's

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Speaker 1: let's start with this inflation number, because this inflation number

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Speaker 1: says three point one percent, well, three point one percent,

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Speaker 1: three percent inflation, Well, that's that's more than the one

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Speaker 1: point seven that the administration wants to talk about. How

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Speaker 1: they want to look at the numbers. And if it's

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Speaker 1: three point one, why is the market saying, well, that's

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Speaker 1: good news.

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Speaker 2: Well, let me just say that the market's not saying

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Speaker 2: it's good news because the market's digesting two reports, the

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Speaker 2: GDP revision and the PCEE report. The pce is is

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Speaker 2: what you're referring to. It's the inflation report that the

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Speaker 2: Fed uses. And the reason the market didn't react negatively

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Speaker 2: is neither one of these are a surprise. That's the key.

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Speaker 2: The key is what is expected and what actually happens,

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Speaker 2: and neither one of these are a surprise. But let

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Speaker 2: me correct the number. You said three point one again,

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Speaker 2: that's the headline they want to tell you. Core PCEE

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Speaker 2: was point four for the month. Let me repeat that,

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Speaker 2: point four for the month. Is it gonna work for the.

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Speaker 1: Year, yep, four point eight. We knew it. You're gonna

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Speaker 1: multiply by twelve, and you're make it sound all miserable,

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Speaker 1: and that's why people say you're doctor doom. But you're

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Speaker 1: not trying to be doctor doom.

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Speaker 2: No, I'm just trying to be realistic here, because that's

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Speaker 2: what it is, and that's what the Fed is looking

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Speaker 2: at the most recent month is trending up. It's not

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Speaker 2: in a small way. It's trending up in a pretty

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Speaker 2: significant way. And that's what we're seeing in this inflation report.

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Speaker 2: And it's across the board, healthcare, housing, utilities, financial services,

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Speaker 2: final expenditures for institutions, all these top four category you

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Speaker 2: mentioned it all the time. Insurance insurance rates massively up

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Speaker 2: sixteen percent. That's not a small amount, and that's in

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Speaker 2: this PC report that the Fed uses to make policy.

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Speaker 1: So now we take a look a point four. You say, well,

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Speaker 1: then that's high they are than three point one. Why

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Speaker 1: doesn't the market react to that number? As you're describing

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Speaker 1: the number we should focus on, Well, the market's.

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Speaker 2: Not reacting because this isn't news. The PCEE is giving

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Speaker 2: us the same data that we saw in the ISM report,

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Speaker 2: which is the Manufacturing Index report, which it said was

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Speaker 2: extremely high inflation. It's now a trend and again we

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Speaker 2: saw that trend. So it's not news. And so the

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Speaker 2: market is not reacting negatively because this is expected. Is

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Speaker 2: it good? No, but it's not a surprise to the market.

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Speaker 2: And I believe the market is reacting more to the

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Speaker 2: war than they are to these two reports, because these

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Speaker 2: two reports have nothing new in them, and therefore the

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Speaker 2: markets say, okay, let's put it aside. And I believe

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Speaker 2: what you're seeing in the market is other information, you know,

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Speaker 2: such as oil isn't as bad as we thought. Okay,

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Speaker 2: so there's other data it's consuming other than just these

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Speaker 2: two reports.

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Speaker 1: Talking to doctor Matt Will, economist at the University of Indianapolis,

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Speaker 1: you brought up oil. Let's just get into this really

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Speaker 1: quick before I get back to the inflation conversation. We

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Speaker 1: see that there are tankers not willing to move through

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Speaker 1: the Strait of horn Moves. We see that Iran has

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Speaker 1: made threats on tankers going through the Strait of hor Moos.

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Speaker 1: We have seen the administration say we aren't yet putting

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Speaker 1: a naval escort to tankers. We heard the Secretary of

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Speaker 1: warpete hegsath To say today say don't worry about the

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Speaker 1: Straight of Horror moves. We have seen the oil prices

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Speaker 1: go up to one hundred and twenty come back down

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Speaker 1: to eighty. The issue here with oil, as you see it,

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Speaker 1: is this something that self regulates its way out. Is

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Speaker 1: this something that needs a bit of military intervention. Escorts

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Speaker 1: and then immediately you see oil go back to sixty

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Speaker 1: dollars a barrel. What's the mover here?

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Speaker 2: Oh goodness, well, okay, to get a little nerdy on.

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Speaker 1: You on this way, I only hope you would.

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Speaker 2: The problem we have with oil is we have a

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Speaker 2: flow system. It used to be that we did batch processing,

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Speaker 2: which means the crude oil would show up on a

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Speaker 2: truck or a tanker, go to a refinery, the refinery

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Speaker 2: would process it, put in another tank, and then the

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Speaker 2: tank would send it out to the world through trucks

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Speaker 2: and so forth. Now it's a flow system because the

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Speaker 2: darn liberals haven't let us build new refineries in forever.

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Speaker 2: So any slight disruption and now flows off of you know,

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Speaker 2: the loop out in the in the Gulf of Mexico

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Speaker 2: typically goes to a refinery, goes onto a pipeline up

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Speaker 2: the Mississippi, goes to another distribution center, and let's say Illinois,

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Speaker 2: it's flowing. So any disruption in the flow, whether it's

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Speaker 2: that disruption occurs in the Gulf where it occurs in

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Speaker 2: Saudi Arabia, or occurs in you know, when I say Golf,

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Speaker 2: I'm talking like, you know, the Middle East or the

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Speaker 2: Gulf of America. It doesn't matter that flow is being

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Speaker 2: disrupted and the war is doing that. So you ask

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Speaker 2: the question, how can we re all of it. I'm

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Speaker 2: sorry to say this. You know this may sound tough,

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Speaker 2: but from an economic standpoint, the US has to get

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Speaker 2: control of the straits. It's not escorts, it's not just

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Speaker 2: mine sweepers. They have to get control the sway in

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Speaker 2: the straits. And what does that mean. Maybe you put

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Speaker 2: boots on the ground on the other side and Iran

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Speaker 2: in order to control the straits. If they don't control

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Speaker 2: the straits, the flow will be disrupted. And the flow

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Speaker 2: is what's important, and it's being disrupted at this very moment.

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Speaker 1: I think one can control what's known as carg Island

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Speaker 1: and still be able to get that result. Talking to

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Speaker 1: doctor Matt Will, economist at the University of Indianapolis, and

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Speaker 1: I should note that we are building in the United

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Speaker 1: States because I'm totally with young refineries. We're building our

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Speaker 1: first new refinery in fifty years. This is going to

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Speaker 1: happen in Brownsville, Texas. It's a three hundred billion dollar

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Speaker 1: deal that is being funded with help from I believe

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Speaker 1: it's India that's a part of this, which all right,

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Speaker 1: I've got questions about there. But we do have a

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Speaker 1: new refine finery that's slowly being built. We are years

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Speaker 1: behind in our refinery capacity. But now let's bring it

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Speaker 1: back to the inflation conversation. The markets seem to at

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Speaker 1: this report seemed to go okay, great, this is in

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Speaker 1: line with where we thought things would be. We've already

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Speaker 1: got it baked into the cake. Everything's good. Let things

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Speaker 1: build and grow from here. We'll take any good news

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Speaker 1: anywhere we can find the good news. And it just

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Speaker 1: seems to be very disconnected from the oil price conversation

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Speaker 1: that on any given day, the markets will allow any

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Speaker 1: given thing to affect them, and none of that is

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Speaker 1: telling us an economic story, presenting a valuable picture, an

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Speaker 1: honest picture of where we're at. Paint the picture for me.

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Speaker 1: Here we are, March twenty twenty six. Where is this

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Speaker 1: economy at.

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Speaker 2: Well, I don't know that I can say it much

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Speaker 2: better than what you just did, because that's the whole point.

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Speaker 2: The market is being reactive. It's seeing what's happening with

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Speaker 2: an oil tanker, it's seeing what's happened with a bomb

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Speaker 2: being shot into you. Know, the Middle East, whether it's

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Speaker 2: Dubai or Tel Aviv. You know, it's reacting to all

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Speaker 2: these things. You know the problems in Washington, you know

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Speaker 2: gridlock on, you know the DHS. These things are causing

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Speaker 2: the market to react. And the picture that needs to

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Speaker 2: be drawn is we don't want that. We want the market,

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Speaker 2: we want the economy to not be looking in the

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Speaker 2: Middle East, to Washington, d C. To Congress, and to

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Speaker 2: the present. We want the market to be looking at

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Speaker 2: Wall Street, Main Street, manufacturing, profits, productivity. We want it

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Speaker 2: to be looking at the day to day things that

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Speaker 2: happen in the economy, not politics. And that is totally

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Speaker 2: causing chaos. The market doesn't like. You know, again, people

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Speaker 2: may not like to hear this. They don't like Republicans,

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Speaker 2: they don't like democrats. They like stability, and there is

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Speaker 2: no stability right now. There is chaos in the world,

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Speaker 2: and that is what the market hates. It wants the

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Speaker 2: chaos that disappears so it can focus in on the

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Speaker 2: nuts and bolts of business.

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Speaker 1: So now let's move this around talking to doctor Matt Well,

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Speaker 1: economists at the University of Indianapolis, and let's talk about

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Speaker 1: this GDP number fourth quarter GDP got revised down two

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Speaker 1: point seven percent. I use the word anemic. Point seven

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Speaker 1: percent is horrible, awful, very bad, non existent. What the

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Speaker 1: hell is happening to you? Growth explain the number to me?

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Speaker 2: Well, you know what anemic is even a generous term,

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Speaker 2: because this is like, you know, in using the analogy

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Speaker 2: of poker, It's like you're sitting across a table from

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Speaker 2: someone and the opponent you're playing against just drew an

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Speaker 2: inside straight and you throw your cards on the table

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Speaker 2: and taking you got to be kidding me, had a

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Speaker 2: pair of vases and this person draws an insight straight. Yeah,

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Speaker 2: because if you look at the GDP numbers, every single

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Speaker 2: component was revised in the wrong direction. So, first of all,

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Speaker 2: right out of the gate, the GDP price deflator, which

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Speaker 2: is the inflation part of the GDP, was higher than expected.

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Speaker 2: The consumer spending was lower than expected, business investment was

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Speaker 2: lower than inspected. Exports okay, and I'm gonna you know, yeah,

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Speaker 2: doctor doom is here. Exports were less than expected because

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Speaker 2: of terrafts. Tariffs don't increase exports, they decrease them in

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Speaker 2: the long run. We've seen it and the data shows it.

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Speaker 2: Imports also caused a contraction. And the only good part,

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Speaker 2: but it's a drag on GDP, is government reduced its

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Speaker 2: size more than it was anticipated originally. So all these

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Speaker 2: things moved into the exact wrong direction to cause this

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Speaker 2: GDP to decline. You couldn't have asked for a more

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Speaker 2: perfect storm to negatively impact. And of course we all

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Speaker 2: know where this came from, mostly was the massive government

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Speaker 2: shutdown in the fourth quarter.

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Speaker 1: So now you've mentioned that before, walk us through it

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Speaker 1: again in case anybody missed it. I don't mean before.

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Speaker 1: Just now we talked to doctor will a lot. How

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Speaker 1: does the shutdown then remen This is October November, this

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Speaker 1: is forty two days. How does the shutdown have such

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Speaker 1: a radical effect on the gross domestic product?

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Speaker 2: Well, the one component, which I believe and we've discussed

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Speaker 2: is very flawed, is that government spending can actually expand

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Speaker 2: the GDP and government contraction can actually reduce the GDP.

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Speaker 2: So that part is a good reason why GDP would fall,

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Speaker 2: and that's what happened because the government was shut down.

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Speaker 2: But what the government also does is things we need.

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Speaker 2: It runs, you know, Norfolk, Virginia, Port bayonwe Nee, Jersey, Oakland, California, Jacksonville, Florida.

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Speaker 2: The government, if they're not operating those ports, cannot operate

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Speaker 2: to import and export goods, so that slows it down.

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Speaker 2: You need a permit to continue to build the new

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Speaker 2: refinery that you just mentioned. Well, that process to get

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Speaker 2: the ball rolling is stopped because of the government shutdown

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Speaker 2: in the fourth quarter. It's not you know, I'm not

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Speaker 2: a big government guy, but I'm not a no government guy.

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Speaker 2: You need the government to be the referee, to be

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Speaker 2: the police officer, to be the military, and also simply

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Speaker 2: to make sure everybody is following the rules. Well, those

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Speaker 2: people were sidelined for the fourth quarter, and it impacts

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Speaker 2: everyone across the board. You can't put up a factory

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Speaker 2: without an approval from the government. Even though Trump is

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Speaker 2: expediting those approvals, you couldn't get the approval because the

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Speaker 2: government was shut down.

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Speaker 1: Talking to doctor Matt Well, economists at the University of Indianapolis.

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Speaker 1: So when we see this revised down number point seven,

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Speaker 1: the market looks at this and says, Okay, there's a

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Speaker 1: reason for it. Go full Taylor swift s take it off,

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Speaker 1: onward and upward. What does an onward? And that's what

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Speaker 1: I think they're saying. You could disagree with me there,

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Speaker 1: but what does an onward and upward look like. You know,

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Speaker 1: the first quarter of twenty twenty six, everything's going to

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Speaker 1: be just fine. We still have a partial shutdown with

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Speaker 1: the Department of Homeland Security, so there's going to be

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Speaker 1: some impact there. At what moment do we see low

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Speaker 1: GDP numbers affect the US economy?

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Speaker 2: You know, you're afraid. I like your shake it off phrase,

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Speaker 2: because that's what the market was doing. That's what it

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Speaker 2: is doing at this very moment as we speak. It's saying, Okay,

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Speaker 2: this is fine. We understand why it happened. By the way,

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Speaker 2: I'm no genius on this, Tony. The market knew exactly

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Speaker 2: the same thing that I just said about why GDP

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Speaker 2: was not where it should be. But let me go

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Speaker 2: back to your earlier comment. The chaos that's being created

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Speaker 2: by the geopolitical world right now is going to make

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Speaker 2: the market nervous because if that can be put aside,

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Speaker 2: we've said this two months in a row of growing

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Speaker 2: domestic manufacturing. Wow, we haven't seen that in years. And

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Speaker 2: then you look at the other things that are happening,

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Speaker 2: such as the AI, such as the deep investments that's

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Speaker 2: occurring throughout the country domestically and also importing dollars into

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Speaker 2: the US investments scene. There are a lot of positive things,

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Speaker 2: you know, we could list them all. We've done it before,

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Speaker 2: no need to do it again. That's what the market

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Speaker 2: is looking for, that's what the market sees. And if

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Speaker 2: we could just stop the chaos around the world, that's

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Speaker 2: what the market is optimistic about. If big, if.

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Speaker 1: Big, if last, but not least before I let you go.

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Speaker 1: In all of this, we noticed that there's no conversation

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Speaker 1: of AI investment whatsoever. And there's been a lot of

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Speaker 1: talk from a lot of people about maybe the AI

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Speaker 1: investment is overblown. And you've got people like the Fames,

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Speaker 1: Mark Burry, Michael Burry, who's who's betting against this, that

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Speaker 1: the investment is just too much, it's been too great,

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Speaker 1: it's overblown, it's unseerious, and it has to be clawed back.

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Speaker 1: There's just too much reliance on AI investment to lead everything.

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Speaker 1: Are we going to see an AI snapback? Or is

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Speaker 1: this investment still full bore ahead?

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Speaker 2: No questions, no, no, Look, look, you know Michael Burry

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Speaker 2: got he got he got big. You know, he got

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Speaker 2: successful on the big short Okay, good for him. He's

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Speaker 2: wrong on this one. There is no stopping The reason

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Speaker 2: you haven't heard it in the news because it's now

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Speaker 2: just a foregone conclusion. We just assume it's happening and

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Speaker 2: it is so. No, we should do not in the

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Speaker 2: gate and do not bet against AI. That's that'd be

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Speaker 2: like betting gets the Internet when it was first invented.

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Speaker 2: I remember people saying, oh, that online e commerce shopping thing,

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Speaker 2: it's a fad, it's not going anywhere. Yeah, have that

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Speaker 2: thought at your own risk.

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Speaker 1: Well, that's definitive. That's that's very direct right there, Doctor Mattwell,

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Speaker 1: economist at the University of Indianapolis. I appreciate you taking

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Speaker 1: the time to be with us. More is coming up

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Speaker 1: on Tony Katz. This is Tony Katz today.