WEBVTT - Tony Katz & Dr. Matt Will on Latest Inflation Numbers 0:00:00.320 --> 0:00:03.560 So the numbers come in on the consumer price index, 0:00:03.680 --> 0:00:08.520 an inflation conversation, and they're up point one point one. 0:00:09.480 --> 0:00:13.160 Huh, that ain't that ain't bad at all. 0:00:13.800 --> 0:00:17.120 The annual rates three point four, well, that's not great, 0:00:17.440 --> 0:00:19.200 but it's not going up. 0:00:19.239 --> 0:00:20.760 If inflation is not going up. 0:00:20.800 --> 0:00:22.800 It's gonna tell the Federal Reserve don't do any rate 0:00:22.840 --> 0:00:26.960 hikes because they want to because inflation is still too high. 0:00:27.360 --> 0:00:29.240 But the measure doesn't make any sense when you get 0:00:29.320 --> 0:00:33.760 rid of food and energy, volatile energy and it goes 0:00:33.920 --> 0:00:38.440 up to point two. I don't understand what's happening here, 0:00:38.479 --> 0:00:41.159 Tony Katz, Tony Katz today, good to be with you. 0:00:41.280 --> 0:00:45.080 Doctor batt Will, economist at the University of Indianapolis, is 0:00:45.080 --> 0:00:49.440 here to make it all make sense. This is peculiar, right, 0:00:49.479 --> 0:00:52.760 because there's a lot of conversation about that. The Fed 0:00:52.880 --> 0:00:55.080 was going to raise rates in September. You have two 0:00:55.120 --> 0:00:57.360 Federal Reserve governors who want to do that because the 0:00:57.360 --> 0:01:00.840 inflation is still too high. Tariffs are caused. Towers did 0:01:00.840 --> 0:01:03.720 not create an explosion of inflation. It's just keeping it 0:01:03.800 --> 0:01:07.720 higher than we want it to be. But you also 0:01:07.800 --> 0:01:10.040 have this madness of oil prices because of what's going 0:01:10.040 --> 0:01:13.479 on in Iran that's having an effect. Yet somehow if 0:01:13.480 --> 0:01:16.960 I take energy out, the measure of inflation goes up, 0:01:17.240 --> 0:01:19.640 and that doesn't make any sense at all. So let's 0:01:19.640 --> 0:01:22.240 start where we start, doctor Matt, Well, what does this 0:01:22.280 --> 0:01:23.039 report say to you? 0:01:24.360 --> 0:01:25.959 Well, first of all, you got to remember that this 0:01:26.040 --> 0:01:27.800 is not the report that the FED is going to 0:01:27.840 --> 0:01:30.920 use to make decisions. But it does give Kevin Walsh cover, 0:01:31.360 --> 0:01:33.200 and we spoke of that just about that just a 0:01:33.240 --> 0:01:36.520 few days ago. Kevin now has more time. This is 0:01:36.560 --> 0:01:38.440 a good enough report that it's going to give him 0:01:38.520 --> 0:01:41.120 some breathing room again to not have to make a 0:01:41.160 --> 0:01:44.840 decision to increase rates to control inflation, because this isn't 0:01:45.080 --> 0:01:47.720 the measure that they use to make their decisions. But 0:01:47.800 --> 0:01:50.720 here's the good news. So the report point one for 0:01:50.760 --> 0:01:53.600 the months, it's now a trend. Last month it was 0:01:53.680 --> 0:01:57.040 down point four down. So we now have a two 0:01:57.080 --> 0:01:59.880 month decent trend in the CPI, which is what you 0:02:00.080 --> 0:02:02.200 and ipay when we go to the grocery store. Core. 0:02:02.520 --> 0:02:05.360 You mentioned at point two point two, that's two point 0:02:05.360 --> 0:02:09.799 four annualized. That's still too high, but the rest of 0:02:09.840 --> 0:02:12.200 the report gives him cover. In fact, When you dig 0:02:12.240 --> 0:02:16.120 down into the details, almost every category is in good shape. 0:02:16.160 --> 0:02:19.480 The only two that are not are airline tickets, which 0:02:19.480 --> 0:02:23.079 are two point two percent for the month, and healthcare, 0:02:23.120 --> 0:02:27.320 which is point six. The healthcare is persistent. We continue 0:02:27.360 --> 0:02:30.880 to see an increase in health care inflation. That is 0:02:30.919 --> 0:02:33.519 the big red flag in this report. If there is one, 0:02:34.080 --> 0:02:37.400 the airlines, I'm not worried about. That's a blip because 0:02:37.440 --> 0:02:41.920 they have contracted inventory during the whole situation with Iran. 0:02:42.360 --> 0:02:46.000 They're going to expand their inventory once things stabilize. It's 0:02:46.040 --> 0:02:48.880 a good report. It's not a decision report. But the 0:02:48.919 --> 0:02:51.880 bottom line for me is it gives Kevin Walsh more 0:02:51.960 --> 0:02:55.560 time to make the right decisions. So he should be happy, 0:02:55.639 --> 0:02:57.720 and quite honestly, we should be happy because he'll probably 0:02:57.760 --> 0:02:59.240 end up doing the right thing on inflation. 0:02:59.600 --> 0:03:02.160 Now, but me, you said trend. Now, let me go 0:03:02.240 --> 0:03:03.960 through a couple numbers with you. If I take a 0:03:03.960 --> 0:03:08.120 look at all items from May, June and July, all 0:03:08.120 --> 0:03:12.000 items was point five negative point four and last month 0:03:12.040 --> 0:03:15.160 point one that we're discussing. If I take out food 0:03:15.200 --> 0:03:19.560 and energy, it goes point two zero point zero and 0:03:19.600 --> 0:03:20.359 then point two. 0:03:20.480 --> 0:03:23.040 What we just saw in the month of July. What 0:03:23.120 --> 0:03:24.440 the hell kind of trend is that? 0:03:25.960 --> 0:03:30.600 Well, okay, it's not a uniform trend, but they're all low. 0:03:30.840 --> 0:03:32.400 When you take with you, when you look at the core, 0:03:32.480 --> 0:03:35.119 which you did, and those numbers you just listed, those 0:03:35.240 --> 0:03:39.320 are consistently low. Now, I know I'm saying low. You 0:03:39.360 --> 0:03:42.280 and I don't agree. Two point four percent inflation is 0:03:42.320 --> 0:03:45.400 not low, but it's lower than it was, and it's 0:03:45.440 --> 0:03:48.200 low enough that it's going to allow him to not 0:03:48.360 --> 0:03:53.560 have to take inflation reactions quickly. And again, I've told 0:03:53.600 --> 0:03:55.760 you before and I'll say it again. I don't think 0:03:55.760 --> 0:03:58.560 the way you fight inflation right now is by increasing 0:03:58.600 --> 0:04:00.720 the said funds rate. I think the red funds rate 0:04:00.800 --> 0:04:03.840 is stable. It should stay stable. I like where it's at, 0:04:03.960 --> 0:04:05.480 the way that he wants to fight it, and the 0:04:05.520 --> 0:04:08.040 way I also want to fight it is to begin 0:04:08.280 --> 0:04:10.120 to sell assets off the balance sheet. 0:04:11.400 --> 0:04:16.839 Talking to doctor Matt Will, economist at the University of Indianapolis, 0:04:17.360 --> 0:04:21.440 we'll save that conversation for another day. Annual inflation rate 0:04:21.800 --> 0:04:25.840 at three point four percent. We look at this, the 0:04:25.880 --> 0:04:28.560 market looks at this and says we don't care. 0:04:30.240 --> 0:04:32.800 Well, okay, again, market's looking at it like I do. 0:04:33.000 --> 0:04:35.279 That three point four percent is a government number that's 0:04:35.320 --> 0:04:39.200 twelve months old. They're not looking twelve months old. The 0:04:39.240 --> 0:04:42.000 market is looking at this month and last month, and 0:04:42.120 --> 0:04:44.000 both of these months. If you look at the headline 0:04:44.040 --> 0:04:47.800 number negative point four and point one. The market likes it. 0:04:47.920 --> 0:04:51.560 So immediately when this support was released, four things happened. 0:04:51.880 --> 0:04:54.839 We saw that the Nasdaq went up, We saw that 0:04:54.880 --> 0:04:58.440 the Dow went up. We saw that interest rates went 0:04:58.480 --> 0:05:00.840 down in both the ten year and the two year, 0:05:01.240 --> 0:05:03.840 so we saw a decrease in rates. We saw an 0:05:03.920 --> 0:05:07.600 increase in the stock market. The market likes this report 0:05:07.640 --> 0:05:11.359 because they see the same thing I see. Kevin Walsh 0:05:11.520 --> 0:05:14.400 gets breathing room, and that's what they want him to have. 0:05:14.760 --> 0:05:17.880 All Right, you're gonna drag me into this conversation because 0:05:19.040 --> 0:05:23.120 your argument, sir, is that the removing of things from 0:05:23.120 --> 0:05:28.840 the balance sheet is the golden goose. Once that starts happening, 0:05:29.480 --> 0:05:35.160 everybody does better. The tariffs won't matter, oil prices won't matter. 0:05:35.440 --> 0:05:37.719 Your pain in the ass, brother in law won't matter. 0:05:37.839 --> 0:05:41.520 Nothing matters if we take things off the balance sheet. 0:05:41.640 --> 0:05:44.599 First, describe what it means to take things off the 0:05:44.600 --> 0:05:45.200 balance sheet. 0:05:45.240 --> 0:05:47.320 What it is, Kevin wash the new chair of the 0:05:47.320 --> 0:05:52.040 Federal Reserve believes in and then is it indeed the 0:05:52.040 --> 0:05:53.800 panacea we've all been hoping for. 0:05:55.040 --> 0:05:57.560 Well, I'm gonna answer your first your second question. First, 0:05:57.720 --> 0:06:00.599 it's not the panacea, but it's one of the pieces. 0:06:00.920 --> 0:06:03.520 Tariffs are the other piece, and that is a big, 0:06:03.800 --> 0:06:07.000 big problem. And I will refer people to an article 0:06:07.000 --> 0:06:10.480 that you send me about you know, mister wonderful Kevin N. 0:06:10.560 --> 0:06:13.840 Leary talking about how bad the tariffs are and how 0:06:13.920 --> 0:06:16.479 the AI is covering up the damage done by those. 0:06:16.560 --> 0:06:19.599 So no, it's not the panacea. But the way it 0:06:19.640 --> 0:06:22.640 works is very simple. The FED and anybody should look 0:06:22.640 --> 0:06:25.040 this up. Just go to Google and look up FED 0:06:25.279 --> 0:06:27.760 balance sheet and look at the image. Look up images. 0:06:27.800 --> 0:06:30.280 You'll see this massive balance sheet that they have. They 0:06:30.320 --> 0:06:34.960 own all these assets, mortgages, treasury bills. They need to 0:06:35.120 --> 0:06:38.240 sell those. They've been buying them to juice the economy 0:06:38.360 --> 0:06:41.240 that was wrong. They need to sell them because here's 0:06:41.240 --> 0:06:44.560 what happens. They sell a bond because the government owns it. 0:06:44.920 --> 0:06:47.440 They sell a mortgage because the government owns it. As 0:06:47.480 --> 0:06:50.719 soon as they sell those, they receive cash, and that 0:06:50.839 --> 0:06:54.760 cash is removed from the economy. That is the key. 0:06:54.839 --> 0:06:58.840 When they remove the cash from the economy, inflation goes down. 0:06:59.480 --> 0:07:02.560 They need to sell these assets. They need to take 0:07:02.640 --> 0:07:06.200 cash out of the economy. Kevin Walsh knows that's the 0:07:06.240 --> 0:07:10.000 way to do it, not by increasing interest rates. That 0:07:10.120 --> 0:07:12.440 is not the right solution. Interest rates are now in 0:07:12.480 --> 0:07:16.200 a very good equilibrium location. Now they need to sell 0:07:16.280 --> 0:07:19.440 assets and pull that cash out of the economy. But 0:07:19.480 --> 0:07:23.040 there are other parts, like we mentioned, like tariffs, like 0:07:23.120 --> 0:07:24.600 federal government deficits. 0:07:25.600 --> 0:07:29.160 Talking to doctor Matt Wyll, economists at the University of Indianapolis, 0:07:29.280 --> 0:07:32.000 let me throw a curve your way. I wanted to 0:07:32.000 --> 0:07:35.280 talk to you about the report, but in the world 0:07:35.360 --> 0:07:38.640 of ai as, what I had sent you regarding Kevin 0:07:38.680 --> 0:07:42.360 O'Leary is that Kevin O'Leary's point is that we're spending 0:07:42.400 --> 0:07:47.200 so much money investing in AI it is booing the economy. 0:07:47.480 --> 0:07:50.200 And if it wasn't for that, the tariffs would knock 0:07:50.280 --> 0:07:52.360 this not out of this economy and break it into 0:07:52.600 --> 0:07:54.560 And I sent that to you, and your response to 0:07:54.600 --> 0:07:57.760 me was where I was at. He clearly listens to 0:07:57.800 --> 0:08:01.360 our conversations. He's listening to the show every single day. 0:08:01.360 --> 0:08:03.720 We've been having this conversation for over a year now 0:08:04.320 --> 0:08:09.560 in different ways. But on the AI tip, Brad Lightcamp, 0:08:10.320 --> 0:08:14.240 who was the chief operating officer for open Ai, has 0:08:14.400 --> 0:08:18.360 left the company. He's going to start something new. The 0:08:18.520 --> 0:08:22.880 question before us is is this a sign of something 0:08:23.080 --> 0:08:28.160 bad that at one of the bigger AI groups that 0:08:28.360 --> 0:08:30.240 you're starting to say it's not just him. 0:08:30.640 --> 0:08:32.680 You're seeing people head for the exits. 0:08:34.920 --> 0:08:37.920 Wait, wait, are they heading for the exits or are 0:08:37.920 --> 0:08:41.640 they heading for new opportunities? I mean, think about it. 0:08:41.840 --> 0:08:44.360 If you were a big shot in one of these companies, 0:08:44.400 --> 0:08:46.600 You've got your stock options, you've got your pay that 0:08:46.640 --> 0:08:50.079 you've made over the years. You cashed in. But wait, 0:08:50.120 --> 0:08:52.000 we're at the beginning of this boom, and I believe 0:08:52.000 --> 0:08:54.480 we're at the beginning of this boom. Wouldn't you go 0:08:54.559 --> 0:08:56.880 off and be, you know, the next Steve Jobs, the 0:08:56.920 --> 0:08:58.960 next Bill Gates? Wouldn't you want to start your own 0:09:00.120 --> 0:09:03.720 I really believe that these people know there's a golden 0:09:03.800 --> 0:09:05.480 goose out there and they're going to go get their own. 0:09:07.520 --> 0:09:10.040 When you say get their own, that is to believe 0:09:11.840 --> 0:09:17.000 that is to believe that there's more investment to come. 0:09:17.720 --> 0:09:22.120 We're already into the we're over a trillion dollars in 0:09:22.200 --> 0:09:24.280 the investments, and you're. 0:09:24.120 --> 0:09:26.480 Telling me that there's more to come. Now. 0:09:26.520 --> 0:09:29.040 I'm not a believer that the pie is finite, right, 0:09:29.240 --> 0:09:32.080 I'm not a player in that, but even I have 0:09:32.160 --> 0:09:36.240 to ask the question, exactly how much more investment can 0:09:36.280 --> 0:09:37.440 there possibly be? 0:09:39.200 --> 0:09:41.959 Okay, I don't have the number in front of me 0:09:42.040 --> 0:09:44.760 at my fingertips, but just go look at what Meta 0:09:44.760 --> 0:09:49.760 did last two weeks. They announced massive bond issues for 0:09:49.840 --> 0:09:52.320 the purposes of getting so much cash that could dump 0:09:52.360 --> 0:09:56.280 into data centers and AI development. Apple, which is way 0:09:56.320 --> 0:09:58.200 behind the curve on this. They aren't even in the 0:09:58.280 --> 0:10:01.160 game yet. Wait till they get into the AI game. 0:10:01.480 --> 0:10:04.240 Apple has a history. I'm I'm not a fan of 0:10:04.280 --> 0:10:07.840 Apple's r indeed since Steve Jobs passed, but I got 0:10:07.840 --> 0:10:10.360 to tell you they's nothing to be sneezed at. This 0:10:10.440 --> 0:10:14.240 company knows what they're doing. This people are going to 0:10:14.280 --> 0:10:17.079 look back and think, oh, you're kidding me. I should 0:10:17.080 --> 0:10:20.079 have gotten into the E the AI early. Yeah. Yeah, 0:10:20.320 --> 0:10:22.920 it's not too late to get in on AI. This 0:10:22.960 --> 0:10:25.439 thing is just beginning to take off. I mean, I 0:10:25.480 --> 0:10:29.280 could give you this week of people entrepreneurs I've had 0:10:29.320 --> 0:10:34.559 conversations with who are saying it's revolutionize their business across the. 0:10:34.520 --> 0:10:40.200 World's great, it's revolutionizing their business across the world. And 0:10:40.280 --> 0:10:42.200 there are going to be plenty of places that there's 0:10:42.240 --> 0:10:44.040 pushback on, like you know what, we tried to say, 0:10:44.080 --> 0:10:46.520 I crap and it doesn't work. 0:10:46.559 --> 0:10:47.640 We tried to say I stuff. 0:10:47.640 --> 0:10:49.920 You know what, we actually need people again these things 0:10:50.000 --> 0:10:50.960 EBB and flow. 0:10:51.679 --> 0:10:52.800 My question was to. 0:10:52.760 --> 0:10:55.880 The idea of is there a moment where markets say 0:10:56.160 --> 0:10:59.160 that's too much investment, that you guys are spending in 0:10:59.200 --> 0:11:01.840 the wrong places. We need to self correct on all 0:11:01.840 --> 0:11:03.720 of this because you're all being ridiculous. 0:11:05.520 --> 0:11:07.760 You know what. The answer is, yes, but this is 0:11:08.400 --> 0:11:10.480 not that situation. This is not a bubble like two 0:11:10.559 --> 0:11:13.560 thousand and one, because these companies have earnings. These companies 0:11:13.559 --> 0:11:17.720 have profits. Another reason that we see CPI being moderated 0:11:17.760 --> 0:11:20.360 and not let's go back to the original topic and 0:11:20.400 --> 0:11:24.080 not the producer prices those things are still inflated, is 0:11:24.120 --> 0:11:28.400 because the profits are so huge. These profits are justified. 0:11:29.320 --> 0:11:31.960 These prices are justified. When you see the price of 0:11:31.960 --> 0:11:34.559 a stock going up. This is not you know, a 0:11:34.640 --> 0:11:39.480 one hundred times earnings with no earnings. Sometimes these are earnings, 0:11:39.520 --> 0:11:42.560 These are profits and the prices are reasonable given the 0:11:42.600 --> 0:11:45.920 growth in these companies. There is no bubble here. There 0:11:45.960 --> 0:11:48.240 is well, the market go down at some point, of course, 0:11:48.440 --> 0:11:50.200 but there is no bubble that we're looking at in 0:11:50.200 --> 0:11:50.920 the near future. 0:11:51.679 --> 0:11:55.240 Doctor Matt Well, economist at the University of Indianapolis. I 0:11:55.280 --> 0:11:57.600 appreciate you taking the time to be with us. Keep 0:11:57.600 --> 0:11:59.560 it right here. This is Tony Katz today.