Chapter 1: What is the main topic discussed in this episode?
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Today's number... 218. That's how many decibels of sound a pistol shrimp produces when it snaps its claw. That makes it one of the loudest animals in the world, even louder than Alex Jones. Money markets matter. If money is evil, then that building is hell. The show goes on! Get back in there and watch the show sell! Welcome to Profiteer Markets. I'm Ed Elson. It is January 14th.
Let's check in on yesterday's market vitals. Major indices fell from recent highs. Treasury yields declined after the latest inflation report. More on that later. Oil prices rose on Trump's comments on Iran. We'll get to those in a moment. And finally, JP Morgan shares dropped 4% after fourth quarter investment banking fees missed expectations. Okay, what else is happening?
President Trump announced a 25% tariff on any country doing business with Iran. Trump wrote that the order is, quote, effective immediately and that the decision is final and conclusive. However, the White House has not yet explained how the tariffs would be enacted or by what authority.
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Chapter 2: What are the implications of Trump's 25% tariffs on Iran?
Learn how you can get more out of your .com from a Framer specialist or get started building for free today at framer.com slash markets for 30% off a Framer Pro annual plan. That's framer.com slash markets for 30% off. framer.com slash markets. Rules and restrictions may apply. We're back with Profiteer Markets. December inflation data came in without much of a shock, but costs remain high.
According to the Consumer Price Index, headline inflation held steady at 2.7% year-over-year. That is unchanged from November and in line with forecasts. Meanwhile, core inflation rose 0.2% month-over-month and 2.6% year-over-year, slightly below estimates. Still, food, shelter and energy prices increased in December up on the month and the year.
The big question, however, is, is this data even right? Because as we discussed last week, the government shutdown did impact the CPI report from November. And then the question now is, did it affect this one too? Here to help us answer that very important question, we have Mark Zandi, Chief Economist at Moody's Analytics. Mark, thank you for joining us again on Profit Markets.
Thanks, Ed. It's good to be with you.
So my first question to you, we discussed the previous CPI report, and you explained to us how the previous one from November was flawed. we've got a similar report, a similar number, 2.7%. I guess my first question to you, is this report flawed as well?
That number is. It's a year-over-year growth rate. And so it reflects the problem the Bureau of Labor Statistics had back in October when they couldn't conduct the survey. And as a result, they assumed that no change in prices for the vast majority of goods and services that they include in the CPI.
So if you make an adjustment like we've done, like we did this last month and we did this month to account for that problem, CPI inflation is still 3% year over year. Core CPI inflation, excluding food and energy, is 2.9%. So, you know, once you make the correction for what happened in October, inflation is still elevated and persistently elevated.
So I feel like this is a far larger story than what we're seeing in the news right now, where people are just kind of taking these numbers at face value. And what you're telling us is you're running your own analysis that is making up for the adjustments that they missed in October. which says that it's not 2.7%, it's 3%.
And considering this is one of the biggest issues in the nation right now, I think that this should be kind of more of a big deal, or at least people should talk about it more. I guess, tell us more about how the report is flawed. Like, we know that they were missing data in October. How does that affect both November and December in the CPI report?
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Chapter 3: What is the current economic situation in Iran?
Electricity prices up 6.7%, nearly 7% increase in electricity prices. This jumped out to our research team. I guess our question is, is that data centers? Is that AI? Do we have any— That's AI. That's AI?
Straight up. Straight up AI. I mean, the demand for electricity from data centers is enormous. It's putting a lot of pressure on the electric power grid and generation, and the prices are rising very, very rapidly.
The other thing that happened last month was natural gas prices also jumped because it was cold in many parts of the country, and home heating was important, and that pushed up the price of natural gas. So that also contributed. But the cost of light, we buckle up. I mean, this is not going away.
The data center phenomenon is just in early innings, and so we're going to see a lot of demand from— these AI data centers, and that's going to juice up electricity prices. Now, of course, the power companies, you know, they know all this and they're working hard to bring on new capacity. So, you know, I suspect a year or two, three down the road, this will abate.
But for the next year or so, I think we should all, you know, just be prepared for higher electricity prices.
So we've got higher electricity prices. We should expect them to go up because, I mean, this AI train isn't stopping anytime soon. We've got 3% inflation based on the adjustments that you've made for what we didn't see in October. Fed's target is 2%. Meanwhile, there is now a criminal investigation into the Federal Reserve about a building, but most people agree this is really about...
reducing interest rates even further. What do you make of what happened this week between Trump and Powell? And what does this mean for inflation going forward?
None of it's good. I don't see any upside here. It's all downside, all shades of gray and darkness. I mean, we know that a cornerstone of a well-functioning market economy like our own is an independent central bank and independent Fed.
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Chapter 4: How do sanctions and tariffs affect inflation in Iran?
We know this from history. I mean, our own history. You can hear it on the Nixon tapes, the conversations between President Nixon back in the early 70s and his friend who was chair of the Federal Reserve, Arthur Burns, at the time. And they kept rates lower than they would have otherwise in an effort to juice up the economy in the lead up to the 1972 election.
And by so doing, they laid the stage for the inflation that followed. And it was a terrible time. period of hyperinflation that ultimately ended in, you know, Paul Volcker coming in, slamming the economy with higher interest rates and pushing the economy into a deep recession. There's a lot of other factors involved in that inflation in that very dark time.
But, you know, one key factor was the loss of Fed independence. And, you know, we have experience overseas as well. Other countries like Argentina, Turkey, even the British, the UK, you know, not only until recently the Bank of England was not independent and you could see it in their inflation statistics, their inflation numbers are higher.
So that's the outcome of a Fed or a central bank that loses independence. The predisposition is going to be of the executive branches to keep rates low, to try to keep the economy moving and strong leading into an election. and overdoing it, and the result will be inflation. So that's kind of the direction of travel here, and so why this is such a disconcerting thing.
And, you know, hopefully the Fed can maintain some semblance of independence going forward.
Do you think it will? I mean, I think one thing that has been interesting has been the market's reaction where we haven't seen that much of a reaction. And we were having this debate in our episode yesterday about why that is. Maybe it's because... We've kind of seen the strength of the Fed in Jerome Powell's video. Maybe it means that the Fed truly is independent.
Maybe because the investigation isn't that serious. Maybe because the markets just don't seem to care anymore. It's some sort of taco effect. But does it genuinely worry you from an inflation perspective? Do you think that realistically this will actually lead to worse inflation, given what has happened in the past 48 hours?
No, not yet. I think that's why investors are still kind of sitting on their hands waiting to see, because there's a lot of things that are going to transpire here in the next few weeks, few months. One, obviously, is the president's going to nominate a new chair to the Federal Reserve, Chair Powell. His term is up as chair in May. Who's that person? You know, we need to know that.
There's a Lisa Cook case. Lisa Cook is on the board. You know, she's been charged with mortgage fraud. President has tried to fire her. She sued saying you can't do that. So that's now in front of the Supreme Court. That's a huge decision. If the Supreme Court says that what the president did is OK, then he's going to fire lots of folks and
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Chapter 5: What triggered the recent protests in Iran?
Thank you for listening to Profiteer Markets from Profiteer Media. If you liked what you heard, give us a follow. I'm Ed Elson. I will see you tomorrow.