11-6-25 - 6am - Affordability

Episode Transcript

Speaker 1 (00:00):
Hey, Michael mcguil Hey, I just wanted to pay my
respects to you for being respectful about the death of
Dick Cheney and that Liz loss of dad, and we
shouldn't be political or partisan, and I just wanted to
tell you I've known Dick for a long time and
I did Hunter Safety with him, and my limp is
healed immensely.

Speaker 2 (00:23):
Just waiting for that shoe to drop.

Speaker 3 (00:26):
You know, Okay, you got me, You absolutely got me.
That was That was par excellent, that that was wonderful.
I'm sitting here thinking, you know, first he's kind of
inflating my ego a little bit.

Speaker 2 (00:41):
Teed it up.

Speaker 3 (00:42):
That's right, tease it up. You know you were You're respectful,
and I appreciate you being respectful. And then the minute
he said Hunter's Safety, course, I thought, what and on
my limps get.

Speaker 4 (00:54):
Not quite a home run, but definitely a double air
of triple it was.

Speaker 3 (00:58):
It was a base hit, no doubt, no doubt that
was a base hit. But for this early in the morning,
it's it feels like a home it feels like a
Grand Slam because it's just like vam that early in
the morning, and you wonder why we want you to
follow us over to Koa so we can wake up
that state old fifty thousand walk blow torch. Just you know,

(01:19):
it's it's got Instead of like a fifty thousand walk
blow torch, it's now more like one of those lighters
you buy at the grocery store. You know you kind
of light your fireplace with the long lighter.

Speaker 4 (01:29):
Yeah, a big not a big light like one of
the stick light Yeah, the stick big lighters.

Speaker 3 (01:33):
You it's just kind of got a little flame at
the end. Well, they're wanting us to turn it back
into a blow torch, so you know, at least at
least that's the message that was delivered yesterday. Now when
we do, we'll see just exactly like, oh my god,
you cut the place on fire. What are you doing.

Speaker 4 (01:50):
We've been given permission to do what we want, which
really worries me.

Speaker 3 (01:58):
Yeah, because you and I are not a we're a
volatile combination. Yeah, we're like I was gonna tell you
like Lucy and Desi, but nobody will get that reference.

Speaker 2 (02:08):
I got some old people in the audience.

Speaker 3 (02:11):
Yeah yeah, but they can't they heard they heard turn
hearing it and who Ludi and who what? What?

Speaker 2 (02:17):
What the retired grandpa.

Speaker 3 (02:20):
Speak up, old man Bomer, Speak up, old boomer. I've
been really thinking about everything about affordability since I talked
about affordability yesterday. So let's let's walk through affordability. Let's
a riveting subject, isn't it.

Speaker 2 (02:42):
Well, I've already tuned out.

Speaker 3 (02:45):
Wait a minute, you've actually tuned out.

Speaker 2 (02:48):
Well, I had to tune in, because that's what I mean.

Speaker 3 (02:50):
You were tuned in for a moment.

Speaker 4 (02:52):
I had to play the rules of engagement and I
had to play the talk back, and then.

Speaker 3 (02:55):
You thought the talk back was great, so you're you're
kind of listening, and then I said the word of
afordability and you went right back to porn. Yeah, okay,
all right, Well that's fine then, pretty way, I would
say the situation is normal afu. You know, so snaffoo.
You've heard of the Consumer Price index basket of goods.

(03:18):
That basket of goods such a stupid concept. Okay, fine.
It covers shelter, food, energy including gasoline, transportation costs, medical care, apparel, recreation, education, communication.
I've never understood why they always put education slash communication together.
I've never understood that. But anyway, it's education slash, communication

(03:41):
and other goods and services, and then its weights or
relative importance are updated annually from recent consumer spending, with
shelter being the largest single component and energy a smaller component.
But even though it's it's more volatile, meaning that the

(04:03):
price fluctuations on fuel energy tend to go up and down,
so it's more volatile, more volatile. From twenty seventeen, because
I want to go back to Trump Biden Trump, that's
the comparison we're going to make. Okay, if we're following along,
you know, sing along with Mitch here, follow along from

(04:24):
early twenty seventeen to January of twenty one, when Biden
took place, overall prices rose very modestly, and then after
January twenty one, as we all know, then accelerated and
then it cooled to roughly a three percent year over
year pace by this past September, so nine point one

(04:49):
percent inflation. It was, It was very modesty. You know,
Trump's right when he talks about the bat he doesn't
refer to the basket of the goods, but he talks
about inflation was around one point nine percent or so
when he was when he was president, and then COVID hit,
and everything just kind of gets frozen in time. It's
kind of like finding, you know, a fossil, that's finding

(05:11):
a you know, a some sort of bub frozen in
an iceberg somewhere. And that's what COVID did. And then
when COVID all that pent up demand, you think about
all the pent up demand. We we should never forget COVID.
We should never forget Pearl Harbor, we should never forget
nine to eleven. We should never forget COVID because it

(05:33):
really screwed up everything. And then COVID kind of gets
over because we're all just kind of tired of and
we all say, you know what, screw this, I'm going
out and business, screw this. I'm going to open up.
And then boom, all that pent up demand. And so
you start getting inflation. And in addition to that inflation
that you would naturally get from going from zero, you

(05:53):
go from one hundred miles an hour to zero, and
then you start hitting the accelerator again and you quickly
get back up to you know, one hundred miles. Well,
of course that's going to increase inflation. From early twenty
seventeen to January twenty one, prices rose very modestly about
that one point nine percent. Then it accelerated after January
twenty one when Biden came into office, before cooling off too,

(06:16):
roughly a three percent year over year, paced by this
past September. So that's kind of the bell curve that
we've experienced. Shelter and food played outside roles in the
run up, and more moderate gains lately. Now. Of course,
shelter and food the two very basics out of that

(06:38):
basket that we need. So let's break down what's in
the basket, because you if we're going to analyze the basket,
you need to know what's in the damn basket, right,
like what's in this picnic basket. The CPI basket includes
major groups. Housing. They define it as shelter, food at home,
and food away from home. Energy as a broad category,

(07:00):
which includes gas line for your car, electricity utilities, gas,
et cetera, natural gas, transportation that's new and used, vehicles,
including the insurance for those vehicles. Medical care apparel you know, jeans,
white shirt, sneakers, that's all you really need. Education and communication,

(07:21):
and then quote other goods and services. That's all according
to the Bureau of Labor Statistics Now they publish a
relative importance table every year. As of December this past
December twenty twenty four, Shelter, which means housing in your
insurance costs, whether it's homeowners or renter's insurance, is the

(07:42):
largest single category. Food and energy together account for a
meaningful share, and weights reflect average consumer spending patterns from
two years prior per their annual weighted update policy. That's
just the way they count ulated. So specific CPI series

(08:05):
illustrate the basket's breadth. For example, the Bureau of Labor
Statistics tabulations include gasoline of all types, electricity, food at home,
food away from home, new vehicles, use cars and trucks,
and detailed medical care components. They roll all that up
to all items. So let's do a price change, just
Trump versus Biden under Trump Trump one point zero to

(08:30):
be specific, January seventeen, January twenty one. The all items
CPI rows from, and they have baseline numbers. I'm just
gonna give you. I'm not gonna give you the full number.
I'm just gonna give you the numbers before the decimal
rose from two hundred and forty two. That's just the
number in January seventeen to two hundred and sixty one

(08:52):
in January of twenty one. That implies a cumulative inflation
of approximately seven point seven percent over the entire term.
That's over the entire term, so you got to remember
we're comparing apples to apples here. Then, from twenty seventeen
to twenty nineteen, twelve month inflation often ran around that

(09:15):
one point nine two percent before the pandemic disruption sent
inflation even lower than that. I mean, there's nobody who's
spending anything, so you really can't have any inflation. And
all of that seems to be, from what I can tell,
consistent with the Bureau Labor Statistics long run charts of
category level twelve month changes. So Trump's right, two percent

(09:37):
or below over that twelve month period from twenty seventeen
twenty nineteen. Now under Biden, let's go from January twenty
one to the latest twenty twenty five readings. Because price
because he wasn't elected to November, right, all right, here
we go twenty four November twenty four. This goes through
twenty five. Price levels increase sharply between twenty twenty one

(10:02):
and twenty twenty two then decelerated, with the CPI up
zero point three percent in September twenty twenty five, running
on average three percent year over year as the latest report,
compared to the earlier nine point one percent year over

(10:23):
year during that Biden period. So that's the overall number,
So the affordability on that very broad basis, Republicans obviously
are not doing a very good job of explaining that. Yes,
broadly speaking, prices have moderated. Inflation has dropped from the

(10:48):
nine point one to an average of three percent year
every year. Now, food at home prices groceries ended high
relative to two the twenty twenty one levels, with the
food at home index was at three hundred and fifteen
in this past September and twelve month food at home

(11:11):
inflation running two point seven percent this past September. In
that same while food away from home was up three
point seven percent. So if you feel like grocery prices
are still going up, they have. Grocery prices are still up.
They the average is two point seven percent in September,

(11:32):
and food away eating abbs up even more three point
seven percent. Now, everybody's minding just going to vary depending
upon you know whether you the taco bell all the time,
or you go to venice restaurante all the time. It's
going to vary. But shelter, that was the key driver
of core inflation in twenty twenty two through twenty twenty three.

(11:56):
Shelter was up almost eight percent year over year in
January of twenty three. Now it has cooled a little bit.
Shelter is now running roughly three point six percent year
over year by late summer of last year, of this year,
late summer of this year, sorry, So shelter as part

(12:17):
of that component of the basket of goods is really
still high, and the inflation rate is still higher than
the core inflation of the entire basket. So if you
look at the entire basket, and you could put the
goods in that basket and pile them up relative to
the amount of inflation, well, groceries and stuff over here,

(12:39):
you know, apparel, everything else to be over here, probably
couldn't even see the top across the top of the basket.
But then you get to things like gasoline transportation, then
you start to see it a little bit higher over
the top of the rim of the basket. Then you
get to shelter and it's up even higher. It's like
real high compared to the others. Vehicle related components remained volatile.

(13:04):
Use vehicle serves earlier in the cycle then gave back
some gains, as reflected by the used cars and trucks
the CPI put that they put in there and there.
The BLS's methodological notes on used vehicle measurement updates in
twenty twenty four. Now there's some important notes on gasoline.

(13:25):
Gasoline is part of the basket under the Energy Group,
and the Bureau Labor Statistics list gasoline of all types
explicitly among the components that they measure, even though it
is often analyzed separately because it's so volatile. Well, I
understand it's volatile, but again, that gasoline, I think should

(13:45):
I don't like the Guess what I'm saying is I
don't like their methodology because gasoline is something that we
all need. You've got to get to work somehow, and
unless you're riding a horse, unless you know, and even
if you're riding light rail, whatever you're doing. And I know,
those prices are fixed and they're obviously RTD's not going
to jack up the prices. But nonetheless that goes into

(14:06):
the cost of operation, which is one reason why RTD
is in the whole, plus the lack of ridership. But
then you need a car, an uber something to get
to work. So I think it should remain in the basket,
even though they kind of compare it outside the basket.
So let's think about gasoline prices of Trump versus Biden
Trump period context. Let's put it that way just a context.

(14:32):
The EIA's weekly retail gasoline history shows prices were relatively
moderate twenty seventeen twenty nineteen, fell sharply in twenty twenty
because of the pandemic, recovered into early twenty twenty one,
and that reflects the broad macro shocks to demand and
then all the refining activity because of shutdowns during COVID.

(14:54):
They're not refining much because nobody's consuming much. Biden period context,
retail gas prices rose into mid twenty twenty two, retreated
a little bit, with current EIA readings showing US regular
at about three dollars two cents per gallon for the
week of November third, twenty twenty five. Have there been

(15:15):
small week to week fluctuations. I noticed that going to SAMs.
I think I told you one day, I was like
shocked that the premium unleaded was blow three dollars a gallon.
It was like two dollars and eighty four cents or something.
I go back to SAMs like a week later, and
what now, It's three dollars and twenty five cents a gallon.
So probably the most volatile of all components of that

(15:37):
basket of goods. Now. The FRED weekly retail gasoline series
depicts mid twenty twenty two spikes and then subsequent normalization
between twenty twenty three and twenty twenty five, situating the
latest levels near the lower end of the post spike
range after COVID as early as this past no Vement

(16:01):
as actually this month. So yes, gas prices according to
Trump and according to the Bureau of Labor Statistics and
the Saint Louis Federal Reserve, gas prices have lowered significantly.
But here's an additional point of reference. Aggregated series show
the national retail gasoline price is slightly blow its level

(16:25):
of a year earlier, indicating limited inflationary pressure from gas
over the past twelve months. So whatever pressure there is
on inflation, because it's remained relatively blow its level of
a year earlier. You can't blame gas In other words,
if if you hear somebody talking about these stats and

(16:46):
they say, oh, no, inflation is higher, well it's because
they're throwing gasoline back into that basket of goods and
bls is taking it out. Because it's so volatile going
up and down, it doesn't give you a very rational
picture of what inflation affordability he really is. Here's the summary.
I'll have to finish this after the break. Overall inflation

(17:08):
has slowed materially this year, with the latest CPI release
showing zero point three percent monthly rise. That's roughly a
three percent twelve month rate as of September of this year,
a backdrop that reduces the pace at which living costs
are compounding compared to Biden era in twenty twenty two. Yeah,

(17:34):
that's a complicated way of explaining it, but in simpler terms,
it's this. Yes, Trump's right, Inflation is way down three
percent or lower right now. So why do we feel
like it's not?

Speaker 5 (17:45):
Mike and Dragon, thank you for listening to my little
stupid talk back. I know it's not very exciting, but
I just thought a throwing in there. Anyway, you guys
have a wonderful evening, and it'll be fun seeing you
in the new time slid at your new station later.

Speaker 3 (18:09):
They they can see us because I didn't wear any
pants today.

Speaker 2 (18:14):
I uh uh, oh you, she said she can.

Speaker 3 (18:17):
Wait to see us in the new time slot. Are
there are there secret cameras over there or over here? What?

Speaker 4 (18:22):
What?

Speaker 3 (18:22):
I'm now nervous about it.

Speaker 4 (18:23):
I'm just looking out the window here. But I mean,
we do see apartment? Well is she over there?

Speaker 3 (18:28):
Is she over there with the telescope? She across the
street with the telescope watching us.

Speaker 4 (18:32):
You better close those blinds, Michael, if I would, if
they could, well two of them. They're permanently closed.

Speaker 3 (18:44):
Okay, back to uh somebody says, Michael, can you hear me?

Speaker 4 (18:48):
Yawn?

Speaker 3 (18:49):
Yeah, bite me if you want. If if you want
some uh ammo to combat the whole affordability issue, I'm
giving it to you. I know there's stats. Stats are boring.
I'm trying to give it to you in a way
that's interesting. Obviously I'm failing for one person. Let's go
to shelter, because shelter is probably the biggest driver of affordability.

(19:16):
Whether it's rent, mortgage, your mortgage rates, whatever it is,
and that's obviously central to household budgets. You got to
live somewhere, whether you rent by or you know, or
you got to buy a new tenant RII so you
can go sleep out on the street. You've got to
have something. It has ease from earlier peaks, with shelter

(19:42):
CPI decelerating to about three point six percent year over
year by this past summer, though the level remains elevated
relative to early twenty twenty one, after all of those
years of just outsized increases. You know, you look at
the value of your home and it just went it's skyrocketed.

(20:03):
So that is one of the reasons why people still
feel like affordability is a crisis. And part of that
is because we have these relatively speaking high interest rates.
And why do I say relatively high interest rates, because
we went for years at zero percent and so your

(20:24):
mortgage rate, yeah I got a two percent mortgage. Yeah,
well there was a time when I had a twenty
one percent mortgage. So it's all relative. And of course,
the more we print money and the more we go
along through discontinued government spending, that twenty one percent mortgage today,
the dollars that I used to pay a twenty one
percent mortgage, which I kept for about two years before

(20:45):
I sold and moved on. Can you imagine what those
dollars are worth today. Food inflation has also moderated food
at home up two point seven percent year over year,
food away from home as I set up three point
seven percent as of this past September. Now, that helps
stabilize grocery and dining costs compared with the rapid increases

(21:09):
seen earlier in the cycle when Biden was president, But
we don't point it out. And again you've got the
problem of yes, it's moderated, but it's still going up.
It's just going up at a much slower rate. So
then that begs the question of what are we going
to define affordability as do we want deflation? Oh? Yeah,

(21:32):
we do want we want prices to go. You know,
does Walmart still do that price rollback thing they used
to do?

Speaker 2 (21:39):
I don't recall.

Speaker 3 (21:40):
I don't either. I just don't know if I haven't
heard any ads about that. But it used to be
you go into a Walmart and they have signs everywhere
price rollback. Now I was always curious compared to what
last week or five years ago, or what I think
this We've been trained to think that way. If the
loaf of bread is buck fifty today and at one

(22:02):
time it was a dollar, and we remember the dollar,
and we look at the dollar fifty today and we're like,
oh my god, this is outrages. Is too expensive. Well,
when you consider the value of your dollar and how
it's been degraded by Congress spending so much money, borrowing
so much money, that buck fifty is probably not too bad.
But that doesn't matter to the person who's living paycheck
to paycheck. The person who doesn't understand how, you know,

(22:25):
economics work, are trying to save a little bit of money.
Same is true with gasoline borrowing costs. Another problem. Borrowing
costs remain a headwind for home buyers, even as even
though rates edge down, thirty year fixed mortgage rate tracking
about six point one seven percent at the end of October. That's,

(22:45):
according to Freddie Mac, improving affordability modestly from the highs
of twenty twenty three, but still far above the twenty
twenty two levels. Again, you can blame COVID zero percent
interest rates zero percent interest rates two percent mortgages increases

(23:06):
demand because you can get a cheap mortgage. So now
people are all out buying houses and there's a lack
of inventory. Why was there a lack of inventory because
of COVID and people weren't building, and people slowed down
because the economy had stopped. And so now you've got oversupply,
and you've got feeding that oversupply, low mortgage rates, so
more people trying to buy fewer houses. Of course, it's

(23:27):
going to take a while to recover from that. So
the bottom line on basket prices and affordability. The CPI
basket is broad includes gas, shelter, food, vehicle related items
that the pivotal drivers of the post twenty twenty one
price level increase and the recent cool of inflation concentrated

(23:51):
in shelter and goods beginning to ease. Price growth under
Trump relatively modest at roughly seven to eight percent cumuth
leaf through January of twenty one, while the Biden period
saw a sharp upswing followed by a cooling to about
three percent year over year as of September. This past September,

(24:14):
leaving the price level materially higher than in early twenty
twenty one, but now rising more slowly in the past year. Now,
over the past year since Trump's election, affordability has improved
at the margin because of slower inflation, positive real earnings growth,

(24:34):
but elevated shelter costs and still high borrowing costs continued
to constrain household budgets. That's compared relative to when Biden
took office. Why do you think he's putting so much
pressure on Jerome Paler in the federal Reserve. You've got
to lower those borrowing costs to free up the housing market,

(24:57):
and that alone will create the I was gonna say illusion,
Illusion is not the word. It'll create the appearance, the
perception that things are getting better when people can start
buying houses again, because that's one of the key factors
and what people look at in terms of what's my
cost of living. So the Bureau of Labor Statistics Relative

(25:20):
Importance updates that they do every December, and the monthly
CPI tables for the kind of the granular category trends
and weight all the weight shifts that affect how the
basket transmits category inflation into headline. Cpis the weekly retail
gas line update for near term fuel cost dynamics impacting

(25:43):
both consumers and supply chains is another key data point,
and then the last one would be the Bureau of
Labor Statistics Real Earning Summary and Freddie Max PMMs for
the interplay of wages and borrowing costs. Bottom line is
very simply, this affordability has improved in certain areas, it

(26:07):
has remained steady in other areas. And then in the
price in the areas where it is probably most important
to people's perception groceries, it's slowed. The rate of inflation
has slowed, but inflation still exists. Now, inflation that somewhere
between two and three percent is going to be noticeable

(26:31):
because that's going to you know, when that occurs every
single month. You notice that if it's below two percent,
which is the two percent or blow is the Fed's target.
When it gets below that two percent, it's less noticeable.
And it's also means that whatever they're selling, both the
blows of bread or widgets or whatever, they can probably

(26:52):
absorb those prices and start trying to grab larger market share.
So translate that into say groceries, that means that King
soupers can then start having sales and advertise lower prices
because they're absorbing some of that small increase they can
afford to do so, even with that type profit margin
that they have in a grocery store. And then that

(27:14):
translates to your perception that, oh, grocery prices aren't quite
as bad as they were, or they're coming back down.
The best thing that Trump can do is, as soon
as possible, replace Jerome Paths to the Federal Reserve. They've
really screwed stuff up. And you look at what they've

(27:35):
done in terms of zero percent rates and keeping on
that zero percent for so long, knowing that part of
that is because of COVID and then being very very
slowly to I mean rapidly increasing and slow to decrease.
They're behind the eight ball. They're absolutely behind the eight ball.
And so you can you compound those interest rates with

(27:58):
what the inventories happen with how that is the largest
driver of everything. Because we look at gas, for example,
which is so volatile, they keep it out of the
basket most of the time. It's actually while it fluctuates
up and down, the trend line is downward, absolutely downward.
Bottom line is this Republicans have got to find a

(28:21):
way one to keep the pressure on the federal reserve.
Get German Pale out of there, get somebody else in,
get those interest rates lowered, and then get better at
whatever it takes to translate lower energy prices. And show
find some specific examples where lower energy costs have lowered

(28:43):
the price of a particular product and point that out.
Give people something to chew on, show them how it works,
because just affordability. Now, I know some of you are
yawning about this because I've just explained to you how
it really works and what the numbers really are. And
some of you yawned. That's fine. You know what the

(29:05):
numbers are. You know how it works. Now. Look out,
you're driving to work, you're already in your office. Look
around at all the stupid people. You've got to simplify
it for. You got to put it in real numbers.
What's that loaf of bread? What's my mortgage rate? What
can I buy a house for? And when those things
start to change and you explain how we got to

(29:27):
where we are today, maybe they'll understand it.

Speaker 1 (29:30):
Michael, I'm so glad we had this time together just
to have a laugh and sing a song.

Speaker 3 (29:39):
But my day starts at six.

Speaker 6 (29:41):
Am, and you'll no longer.

Speaker 2 (29:43):
Beyond good riddance.

Speaker 5 (29:47):
Fine, it's been fun.

Speaker 3 (29:53):
Yeah, wah a lot, good riddance. We had a wonderful
time together. But you know now that I got your
cheating year out of here, Get out of here. I'm done.
I'm done, mom, Donnie. I finally listened to his acceptance
speech yesterday, and something caught my ear.

Speaker 6 (30:14):
Standing before you, I think of the words of.

Speaker 2 (30:17):
Juan lal Nehu.

Speaker 4 (30:21):
A moment comes but rarely in history, black, black class.
What are the chances anybody in that audience recognizes that name?

Speaker 2 (30:28):
But they cheered for it?

Speaker 3 (30:31):
Do you know who he is?

Speaker 2 (30:32):
Not a clue? All right?

Speaker 6 (30:33):
When we step out from the old to the new,
when an age.

Speaker 2 (30:38):
Oh no, not at all, Okay, not at all.

Speaker 3 (30:41):
No, In fact, that's kind of the point got ends,
And when.

Speaker 6 (30:45):
The soul of a nation long suppressed finds utterance. Tonight
we have stepped out from.

Speaker 2 (30:51):
The old into the new.

Speaker 6 (30:56):
So let us speak now with clarity and conviction that
cannot be misunderstood about.

Speaker 3 (31:04):
By quoting Nehru.

Speaker 6 (31:05):
Okay, this new age will deliver, and for whom this
will be an age? Or New Yorkers expect from their
leaders a bold vision of what we will achieve, rather
than a list of excuses for what we are too
timid to attackt.

Speaker 3 (31:21):
Oh yes, and just as a reminder.

Speaker 6 (31:25):
Standing before you, I think of the words of Juan
La Nehru.

Speaker 3 (31:31):
Jamal La La La laud Nehru, and what exactly did
Jula Neyru stand for and or do? He didn't quote Washington, Jefferson,
Lincoln hunch pricking, din't you know, quote his fellow traveler
and fellow communists Bill de Blasio. No, Jala Nehru, the

(31:57):
socialists that crushed the Hindus and the power the gi hobbies.
I'll explain that

Speaker 4 (32:05):
M