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[00:00:00] Welcome back to the What's Your 1 More podcast. I'm your host, Quinton Harris. You're dialed in for episode two 34. So in this episode, a couple of [00:00:05] these, we're going to talk about obviously a big gut punch here on the CPI index that came out on [00:00:10] Wednesday. Uh, let's talk about the reevaluation of what the treasury is doing to offset some of these [00:00:15] hits were taken.
[00:00:15] It's pretty interesting concept that, uh, the U S treasury secretary [00:00:20] Bessa is doing to kind of offset. Some of these issues to drive down the 10 year yield and then also finally [00:00:25] talk about burying the hatchet. I think that's pretty important. Anytime you get an opportunity to do that in life, uh, it's a pretty [00:00:30] cool thing you can do.
[00:00:30] And, uh, I had one of those moments myself this week. So all that and more in this episode at what's your one more.
[00:00:34] [00:00:35] Um,
[00:00:39] All [00:00:40] right. So here we are. CPI week came out like we had. All the momentum, all the dominoes were lined up. [00:00:45] Everything's going our way. And then, ooh, gut punch today. Uh, today's Wednesday, [00:00:50] the, uh, what the 12th. So this episode is going to drop on Monday, the 17th on the holiday. So yeah, you [00:00:55] know, I mean, obviously by the time you hear this, the, the producer price index will be out and retail sales, [00:01:00] but it will all.
[00:01:00] for the most part be irrelevant, right? We were chasing the CPI index, even though it's not the [00:01:05] Fed's favorite form of inflation. Everything was lined up for us to kind of really start to [00:01:10] push that 10 year Treasury down and get into that really below that 4 4 mark that we were looking to get in the 4 [00:01:15] 3s and, you know, really just kind of set the stage for this next rate cut.
[00:01:18] Now, If you were [00:01:20] to look at the anticipation of a rate cut from here on out from the Federal Reserve, it's probably at zero after this report [00:01:25] because it just came in hotter than expected. Um, you know, there's some lagging shelter components [00:01:30] inside of this along with some other, um, items that kind of spiked if you [00:01:35] may.
[00:01:35] Um, but again, It's lagging data and you know, we're going to talk about that and break it [00:01:40] down and I'm going to show you some charts here If you want to go to our youtube channel at what's your one more with number one at what's your one [00:01:45] more with number one You'll see those charts as we get to them in this episode But I mean, hey, we were [00:01:50] looking at a number that was going to come in around You know 0.
[00:01:53] 3 on the month and it came in, uh [00:01:55] at 0. 5, which is higher And so that increased the overall headline of inflation [00:02:00] from 2. 9 to over 3 and that's not where we wanted to be by any means and so, you know, the core rate [00:02:05] also came in higher, than expected and so that's not where we wanted to be and it took the core reading from [00:02:10] 3 2 to 3 2 year over year and Um again that that could kind of cause for [00:02:15] uh some concern, right?
[00:02:16] And especially off of pal's comments the day before where he said, you know, hey [00:02:20] inflation is getting under control this This doesn't give you that feeling if you're, uh, you know, if you're an [00:02:25] investor, if you're in the bond market, this is not what you want to see. And then the markets are reacting accordingly to it here at the end of the day.
[00:02:29] Um, there's been a [00:02:30] little bit more settling in, but there's some things in there that, um, you know, just there, when you see [00:02:35] them, you go, yeah, that's kind of obvious. I mean, so I'll pull up some charts here as I'm talking with you, because I think. [00:02:40] Um, it kind of adds to, uh, the commentary that we got and also adds to the notion of what's [00:02:45] going on.
[00:02:45] So again, check out these charts at what's your one more on our YouTube channel at what's your one more with number one. [00:02:50] But you know, as I dive into this here, a couple of things that really jumped off to me that were like, boom, this is, this [00:02:55] was the leaders in the, in, in the, in the camp that kind of offset this energy was higher than [00:03:00] anticipated.
[00:03:00] Um, you know, the cost of energy had gone up quite a bit, food. Food was one of the biggest components [00:03:05] inside of this. Obviously, shelter is the largest component, uh, we'll break that down in a minute, but food makes up about 13. [00:03:10] 7 percent of the CPI and it was up higher than anticipated month over month [00:03:15] and, uh, with the largest component of that being from, you know, the eggs, obviously the cost of eggs.
[00:03:19] You've seen [00:03:20] this on the news with the bird flu and things that are going on. I just didn't anticipate it would be at this level to kind of [00:03:25] raise and bump this up because when you look at the culprits of raising. The cost of the [00:03:30] CPI, what led to it, uh, it breaks down pretty simple, you know, it was motor vehicle, motor vehicle [00:03:35] insurance, used car sales, shelter being the largest component.
[00:03:37] I'm gonna get into that in a minute, uh, food and [00:03:40] energy. And that is what really kind of caused this reading that we got. Cause everything else was [00:03:45] really lower than anticipated. And so when we look at core, uh, obviously we talk about [00:03:50] that and what that means, but the core, the core headline is when you take out food and energy, right?[00:03:55]
[00:03:55] And so shelter inside of that core reading makes up roughly just under 45 percent of that. [00:04:00] And the shelter is made up of three different metrics, right? What's the rent, what's the rent [00:04:05] going on in the world, as well as the owner's equivalent of rent and then lodging away, [00:04:10] um, like your vacation rentals, et cetera.
[00:04:12] The challenge with this reading [00:04:15] that I saw in here is that it's lagging. We've been talking about that for some time. And, you know, if you look at [00:04:20] the core logic, component, that's more real time and up to date, this indicator is [00:04:25] half of what this reading was, which would have put.
[00:04:28] The whole CPI in [00:04:30] line where it should have been, but for whatever reason, we're still using lagging indicators as a component of [00:04:35] that. And you know, another challenge on this is, uh, just the owner's equivalent of rent. We talked about how [00:04:40] dated of a metric that is, you know, pick up the phone and survey and an audience like, Hey, what would you rent your house for?
[00:04:44] [00:04:45] That's always going to lead to just skewed numbers. Uh, you always got someone that goes, I wouldn't rent my house for less than this. And [00:04:50] so these are challenges in the readings. But again, even with all that said, we know how that's worked. We know how this [00:04:55] component is made up. There was not just us.
[00:04:58] There were several, if not [00:05:00] all, of economists thought that this thing was going to come in lower than expected. And if you just look at [00:05:05] the three month run rate and the six month run rate on this, and if you look at it just without the [00:05:10] lagging indicators in there, we would have been in the twos right where the Federal Reserve wanted to be.
[00:05:14] And so this was just [00:05:15] kind of shock. I think it was shocking to everybody here. And it's a, it's not a good stance for the [00:05:20] market. All markets are feeling it today. And, uh, you know, it's going to take some settling in of this to get back where it [00:05:25] needs to be and settling in over the next couple of weeks.
[00:05:27] We, we did have a treasury auction at the end of today that [00:05:30] helped a little bit in the bonds have settled in accordingly instead of the overreaction because of that. But there's [00:05:35] also something else taking place in that bond market, if you may. For example, uh, I [00:05:40] mentioned earlier in the intro, the U. S.
[00:05:41] Treasury Secretary, now here's a concept that you gotta give a hats off [00:05:45] to this, uh, to this administration if, if they decide to do this.
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[00:06:49] So, you know, [00:06:50] the United States has, uh, an abundance of gold, right? They have, uh, some, some [00:06:55] gold that they have over the years and they have valued that back in 1973 at 42.
[00:06:59] [00:07:00] 22 an ounce. Like the value of the United States gold with the United States Treasury is valued at [00:07:05] 42. 22 an ounce since 1973. It's never been [00:07:10] revalued. It's never been called, uh, what we would call mark to market. For example mark to [00:07:15] market means you mark the value of that to the current market value of what it is So if you go [00:07:20] back, you know, what is that 50 plus years ago?
[00:07:22] We haven't changed the value of what [00:07:25] we have in gold. We're still undervaluing that based on today's value So [00:07:30] if you were to take the current value of a gold ounce compared to what it's been valued at for many [00:07:35] years at 42. 22 It would go from 42. 22 to roughly 2, [00:07:40] 900 per ounce, thus giving an additional evaluation of [00:07:45] anywhere between 800 and 900 billion worth of capital in the United States [00:07:50] government's budget.
[00:07:51] That's a large number. And what in turn that would do is allow the United States [00:07:55] Treasury to not have to issue as many treasuries, specifically 10 year treasuries. And this is one of the [00:08:00] tactics that the Treasury is using to drive down the 10 year. Bessett himself said he listened. [00:08:05] It's not our stance to tell the Federal Reserve they need to lower rates.
[00:08:08] Matter of fact, you know, we think they're [00:08:10] doing a great job as is. I think this is something that, uh, you know, now I'm speaking into this. I think this is something that's [00:08:15] pretty interesting, the way they're handling this. Um, because I thought by now in the administration, you might have Trump [00:08:20] versus Powell.
[00:08:21] You're not having that right now. They seem to be in lock and step because even Trump [00:08:25] came out and said, I think they did a good job. They shouldn't have lowered rates. Um, and I think that's interesting because that's not [00:08:30] what. Many of us anticipated and now you've got the US Treasury Secretary, uh, [00:08:35] Besant coming in from behind saying, Hey, listen, I think they're doing a great job.
[00:08:38] I'm not here to tell them what to [00:08:40] do. What I'm here to do is to get the 10 year yield lower. Now, if you've listened to our show [00:08:45] and you've watched our forecast or even our episode we did on how a long term mortgage rate is [00:08:50] made, while it's not made necessarily by the lowering of the fed funds rate. It [00:08:55] is necessarily compiled of the 10 year treasury plus the spread and the spread we broke [00:09:00] down is the the risk variances that a servicer or investor would have on the mortgage backed [00:09:05] security pool.
[00:09:05] And we talked about those risk and the threat of prepayment penalty default and cost of servicing that pool. [00:09:10] The 10 year however is a large component that can be [00:09:15] oftentimes The major component of dictating that meaning that [00:09:20] as the bond market, uh deteriorates, right? And it gets worse the higher the higher [00:09:25] the actual, um yield on the bond goes thus raising the mortgage rate But in this particular case [00:09:30] what best sense is suggesting is that if we can control how many treasuries [00:09:35] we issue Based on our fluctuation of raising this gold [00:09:40] price of 42 22 an ounce to 20 to the market rate of 2900 Let's use that as an example [00:09:45] We're going to create all this additional influx of capital.
[00:09:47] So therefore we don't need to issue as many [00:09:50] treasuries Now like anything If you don't have to issue as [00:09:55] many, that means there's not enough supply in the market. You're not technically flooding the market [00:10:00] with them because if you flood the market with a product, in this case, treasuries, the value of that treasury is not [00:10:05] going to be as valuable as it could be if less treasuries were in the market.
[00:10:09] And [00:10:10] so since bonds are inversely proportional, the way they work, The less the less [00:10:15] amount of issue treasuries that are available for the market space to buy The more [00:10:20] valuable they become thus the yield goes down because they don't need to raise it as much to make them [00:10:25] Excuse me Don't need to have as high a yield to make them as attractive for people to buy and I think that's [00:10:30] really important because If they pull this off Again, this goes back to the [00:10:35] commentary we've said many times, the Federal Reserve isn't going to have to lower interest rates for that 10 year [00:10:40] yield to get better or the spreads to get better, thus making the lower mortgage rate [00:10:45] happen without the Federal Reserve having to move the needle as much.
[00:10:47] We have suggested that if this [00:10:50] combination of the spread getting better, Without even knowing what Besson had cooking over there, [00:10:55] that if the spread got better and then if there was a lowering of the interest rate from the Federal Reserve, [00:11:00] excuse me, Federal Reserve Fed funds rate, that that could cause a compound effect and make it better.
[00:11:04] But this [00:11:05] whole thing about mark to market on the gold as standard and mark to market on the gold [00:11:10] that the U. S. has at the Treasury, this is an interesting dynamic because this, Is something that [00:11:15] I don't think any of us saw coming and it's it's a pretty brilliant move now It's a one time needle mover. I [00:11:20] think that's really important.
[00:11:20] You can't keep doing this over and over again So I think the timing of this has to be really [00:11:25] good coming off of this cpi Uh index that we got that's a I don't I don't know that's the [00:11:30] time you do it But I know that they have already thrown in casted net out there This is what they're looking to do [00:11:35] and maybe this is like an entry point of you say, okay Listen, how do we jump in and do this?
[00:11:39] Is it [00:11:40] now? Is it when we get better readings? Is it when we know the Federal Reserve might be, uh, suggesting they're going to [00:11:45] cut rates? When is it? I think if these things happen in accordance, we [00:11:50] could see that, we could see that drastic lower we've been talking about, even with a bum reading like [00:11:55] what we just got.
[00:11:55] And I think that's unfortunate. Um, you know, and again, uh, [00:12:00] I'll stay, you know, I'll, I'll stay tight lipped on this on some of these readings here. But other than that, I will [00:12:05] say this. It's unfortunate. I think it's a one off. I think what we see coming down the pipe, [00:12:10] the shelter at some point is going to show correctly.
[00:12:12] It's not going to show these lagging numbers. [00:12:15] And I mean, and the food component, yes, I know you could say, Hey, listen, I went to, I had someone tell me, go, Hey [00:12:20] man, I went to Subway spent 14 on a foot long. Like that's, that's inflation at its best. I [00:12:25] agree. So I know food's inflated, but I'm talking about in this particular case, like the egg thing is.[00:12:30]
[00:12:30] that shelter, excuse me, really leading that food component and then shelter is being driven by lagging [00:12:35] data. And I think when that data catches up and it's not such a lagging effect anymore, we'll see more [00:12:40] of that realized, uh, core number that I keep talking about. That's without [00:12:45] shelter, that the actual run rates are a lot different than what we're seeing right now.
[00:12:48] The last thing I wanted to end on with this [00:12:50] podcast is, uh, kind of had one of those cooler moments of the week for me personally, [00:12:55] and I don't know, many of you may be in a situation like this, but. I'm sure at some point in your life you've had [00:13:00] You've had like a, um, a conflict, maybe it's been a disagreement, [00:13:05] maybe it's just been a complete divide, whether it's with family, friends, colleagues, or [00:13:10] maybe someone that was once a colleague that's no longer a colleague, or maybe you felt like someone has done you wrong in [00:13:15] your life.
[00:13:15] And uh, we've all been there. And in a particular case I had, uh, with a [00:13:20] gentleman that, uh, lasted way longer than it should have. And it all surrounded business. Typically those, [00:13:25] those business ones are nasty. I'd say family's right there with them as well. But, um, [00:13:30] uh, kind of reached out of the blue and, uh, called me up and said, Hey man, um, you know, I [00:13:35] don't like the way our last conversation ended.
[00:13:37] And more importantly, I'd like to, uh, you know, have a better [00:13:40] one with you and bury the hatchet. And, uh, you know, it's kind of one of those weird things where you get that, that kind of, [00:13:45] uh, comment and, you know, balls in your court at that point. So we set this meeting up and, uh, you [00:13:50] know, on Monday evening, I got a chance to sit down with someone that was a, uh, a long friend of a friend of [00:13:55] mine for a long time ago for many years, we went through a lot together.
[00:13:58] And then over the last 12 years has been a very [00:14:00] distant relationship, uh, almost one that was, which like you could call very volatile, like [00:14:05] sometimes even in public, it wasn't good. Like the amount of dislike there. Um, and I think [00:14:10] going into this meeting, one of the things I thought about was that, you know, I talk about this on the show, so that's why I bring this up [00:14:15] is, I think one of the challenges with today's world is that we don't have to [00:14:20] agree with everyone and their opinion and their stance, but we should respect it.[00:14:25]
[00:14:25] And, you know, and it's one of those things where it's like, if we say that on here, if you're gonna, [00:14:30] if you're gonna talk the talk, you need to walk the walk. And so, uh, it was, I think it would be very, [00:14:35] um, Uh, hypocritical of me to say those things and then not actually do them. And this is one of those moments where [00:14:40] I could actually act on what I was saying.
[00:14:42] So getting the opportunity to do that. And as [00:14:45] I sat down with this gentleman, that's one of the things I talked about was, Hey, listen, no matter how this conversation goes, [00:14:50] at the end of the day, like we've got to be able to have our own opinions and express how we [00:14:55] feel about those opinions, but then also respect each other's opinion.
[00:14:58] And, um, It was a really cool [00:15:00] meeting. I got a chance to sit there and listen and hear everything he had to say about, you know, our [00:15:05] business ventures and how, how they went and, you know, how that made him feel and, and [00:15:10] where he was in his life. And I think I just kind of seek to understand in order to be understood during that [00:15:15] moment.
[00:15:15] And, uh, about a couple hours later and, uh, and a couple of, uh, beers later, it [00:15:20] was one of the cooler moments that I've had because it was a closing of a chapter in my life that I'm so [00:15:25] glad is behind me. And I'm also glad that it ended in where I could potentially [00:15:30] rekindle a friendship that I had lost from 12 years ago and having it back again, just because [00:15:35] I needed to sit down and understand someone else's point of view and also respect [00:15:40] it and have the same thing reciprocated from me.
[00:15:42] Cool moment. And if you ever get. a [00:15:45] chance for something like that to kind of be mended in your life. Highly recommend it. Um, because obviously life's [00:15:50] too short and obviously carrying things like that don't need to happen. And, uh, and you [00:15:55] can always have things understood without it being said. And I thought that was really important.
[00:15:59] So [00:16:00] Guys, I hope you're having a wonderful week here at What's your One more. And, uh, thanks for tuning in. If you like what [00:16:05] you're hearing, please share it. Please put us on, uh, your Spotify, your Apple playlist, five star review us, check us out on our YouTube [00:16:10] channel at, what's your, one more with number one.
[00:16:11] My producer Charlie will put all this in the graphs. And, uh, hope you guys are having a [00:16:15] wonderful holiday here on this Monday, and we'll be back next week at, what's your, one more?
[00:16:18] I got one more [00:16:20] shot. I'm gonna make it one more chance. I'm gonna take it [00:16:25] a minute. When I said it, now it's time for me to do it. I got one life to live. So I put [00:16:30] them all into it. [00:16:35] Yeah.
