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Wall Street Is Starting to Fear Permanent Inflation · The Financial Exchange Show

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Speaker 1: Zada and Mark Fandetti.
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Speaker 2: It's Chuck, Mark and Soccer with you today. And this
1:16
Speaker 2: morning at eight thirty am Eastern time, we got the
1:21
Speaker 2: Producer Price Index data for the month of April. Expectations
1:25
Speaker 2: were that headline was going to come in at point
1:27
Speaker 2: five percent, Core was going to come in at point three. Instead,
1:30
Speaker 2: we got one point four and one point zero percent, respectively,
1:33
Speaker 2: which pushed headline up to six percent for the last
1:36
Speaker 2: twelve months now and core PPI up to five point two. Now.
1:41
Speaker 2: I do like to point out that the PPI is
1:45
Speaker 2: the most misunderstood price index in finance, in that most
1:54
Speaker 2: people think that PPI is tracking the cost of making stuff.
2:01
Speaker 2: People think it's like, oh, that means that producers are
2:04
Speaker 2: paying more for their stuff, and so that's going to
2:07
Speaker 2: mean that CPI rises later. No, that's not how it works.
2:12
Speaker 2: What it actually is is the PPI is you got
2:16
Speaker 2: to look at it backwards, Okay. CPI is what are
2:19
Speaker 2: you paying for things? PPI is what are domestic producers
2:24
Speaker 2: receiving for their production. So it's reversed first and foremost.
2:31
Speaker 2: The other thing that you have to remember the PPI
2:36
Speaker 2: excludes imports, So this is a big thing. In the
2:40
Speaker 2: last year because there's nothing terrif for related that gets
2:43
Speaker 2: into PPI. It's only measuring domestic producers. So you can
2:48
Speaker 2: have some blind spots that show up as a result
2:52
Speaker 2: of that. But so again, don't think that this means, oh,
2:57
Speaker 2: that means that like CPI is going to be one
2:59
Speaker 2: percent next month or something. No, it doesn't work like that.
3:03
Speaker 2: It's just giving you another look at, you know, how
3:06
Speaker 2: costs are being passed through the system, and it's from
3:10
Speaker 2: a different point of view, and you have to accept
3:13
Speaker 2: that for what it is. But he got this hot
3:16
Speaker 2: inflation report, and you know, I went over to Mark
3:19
Speaker 2: about a half hour after that as I was kind
3:21
Speaker 2: of digesting it, and I said, Mark, I want to,
3:26
Speaker 2: you know, just kind of look at some things when
3:28
Speaker 2: we talk about you know, longer term inflation and break
3:32
Speaker 2: evens and things along those lines, and you know, what's
3:34
Speaker 2: going on with tips and what are they telling us
3:36
Speaker 2: about inflation? And without even talking to Tucker, Tucker ended
3:40
Speaker 2: up putting a piece from the Wall Street Journal titled
3:43
Speaker 2: Wall Street is getting more Anxious about long term inflation
3:46
Speaker 2: as the top piece in our stack. Despite us having
3:48
Speaker 2: no communication about marketized conversation, this just ended up there,
3:54
Speaker 2: which means that Tucker and I are very much just
3:56
Speaker 2: vibing right now. It's the vibes are good.
4:00
Speaker 3: Also, it's the biggest story in the world.
4:02
Speaker 2: Well, here's the thing. Is no offense talking, Yeah, none taken.
4:08
Speaker 2: Excuse me, no, No, it's fine. I appreciate that, backhanded, complimentary,
4:12
Speaker 2: backhanded just face slapped to Tucker. I had to actually,
4:17
Speaker 2: it's it's nice. It's kind of like moron wouldn't have
4:21
Speaker 2: put this first in the stack today. There's kind of
4:24
Speaker 2: the implication. But uh, I digress. Here's the thing. Uh, globally,
4:30
Speaker 2: sovereign bonds have been melting down for a little while now,
4:35
Speaker 2: Like if if if you were to go and take
4:38
Speaker 2: a look at the Japanese tenuere treasury just as an example, Uh,
4:44
Speaker 2: it's it's a two point five to five percent right now.
4:47
Speaker 2: Five years ago it was a negative point one percent,
4:50
Speaker 2: and really even in the last year, it's gone from
4:53
Speaker 2: like one and a quarter last February to two five five. Now. Uh,
4:56
Speaker 2: if you look at the UK and their ten year
5:01
Speaker 2: yield lot going on right now with you know, some
5:04
Speaker 2: issues that they're seeing. UK ten year yield's gone from
5:08
Speaker 2: again about zero percent five years ago up to five
5:11
Speaker 2: oh four. Now in the last you know, year and
5:14
Speaker 2: a half, it's gone from three to eight to four
5:15
Speaker 2: up to this five oh four reading. So this is
5:19
Speaker 2: not a US only issue, but globally, sovereign bonds are
5:23
Speaker 2: kind of sniffing out. Hey, you guys are trying to
5:26
Speaker 2: make the math math. But the only way that the
5:29
Speaker 2: math actually maths is if yields go up. Because inflation
5:33
Speaker 2: is running structurally hotter than it was before. Population growth
5:37
Speaker 2: is slower, which means deficits have to be bigger in
5:40
Speaker 2: order to pay for all this. No, we're not gonna
5:42
Speaker 2: be able to just figure this out and paper it over.
5:45
Speaker 2: Interest rates are gonna have to move up, and you're
5:48
Speaker 2: seeing it to a more muted effect in the US
5:51
Speaker 2: right now, I think probably because with oil still being
5:55
Speaker 2: priced globally in dollars, there's a lot of money flowing
5:58
Speaker 2: into dollars in order to buy higher priced oil at
6:02
Speaker 2: the moment. But as soon as you know that reverses,
6:05
Speaker 2: I think that you could end up seeing some some
6:08
Speaker 2: real problems with long bonds in the United States because
6:13
Speaker 2: long term inflation, I gotta tell you, I'm very skeptical
6:17
Speaker 2: gets back into that two percent range anytime soon. You
6:21
Speaker 2: might have pockets where you get down into like two
6:23
Speaker 2: and a half like we did last year. But I
6:25
Speaker 2: think fundamentally, structurally, you are, you know, heading towards a
6:29
Speaker 2: period where long term inflation probably is close to three
6:32
Speaker 2: to three and a half than two. That's not, you know, crazy,
6:36
Speaker 2: that's not something that is you know, horrible, horrible, horrible,
6:40
Speaker 2: but it's a fundamental difference from the mid nineties through
6:43
Speaker 2: late twenty tens. And I think you need to understand
6:47
Speaker 2: what that means as far as the economy, asset classes
6:50
Speaker 2: and what can come from that.
6:52
Speaker 3: Yeah, not without a huge opening in economic slack. And
6:55
Speaker 3: even then that's not a guarantee if expectations swamp the
6:59
Speaker 3: slow component in the inflation process. And I'll just say
7:03
Speaker 3: it in plain English, Normally a recession gets inflation down,
7:06
Speaker 3: but if people expect inflation to continue, you get stagflation.
7:09
Speaker 3: The stag being stagnation, inflation being the inflation part. That
7:12
Speaker 3: term was invented in the nineteen seventies because we had
7:14
Speaker 3: that paradoxical outcome. Everybody expected inflation to come down in
7:18
Speaker 3: seventy three seventy four. It did not. We realize later
7:22
Speaker 3: that you need to be aware of the expectations. Part
7:26
Speaker 3: are expectations people in firms, of the inflation humans, Yeah, yeah,
7:30
Speaker 3: of the inflation process. FED credibility plays into that as well,
7:35
Speaker 3: something I imagine we'll be talking about today.
7:37
Speaker 2: So what you're seeing is when you take a look
7:41
Speaker 2: at how to measure this, they're all different, you know,
7:45
Speaker 2: financial instruments out there. There are inflation swaps, there are
7:49
Speaker 2: break evens on treasuries indexed for inflation versus treasuries that
7:53
Speaker 2: are not. You've got all these different you know, items
7:58
Speaker 2: that you can look at in order to say, hey,
8:00
Speaker 2: how is the market pricing in uh inflation right now?
8:04
Speaker 2: And when you look at them, the thing that you're
8:07
Speaker 2: starting to see priced in is higher for longer inflation Now,
8:12
Speaker 2: higher for longer doesn't mean that we're going to go
8:14
Speaker 2: back to you know, nine percent inflation like we saw
8:17
Speaker 2: in twenty twenty two. But I gotta tell you this, Look,
8:22
Speaker 2: this is still going to depend at least you know,
8:24
Speaker 2: next couple of years. It's going to depend on what
8:27
Speaker 2: happens with the straight hornor moves and when it reopens
8:29
Speaker 2: into what capacity it's you know, there is a path
8:34
Speaker 2: where if you want to, like look at some of
8:35
Speaker 2: the really gnarly stuff. There's a path where inflation, does
8:40
Speaker 2: you know, move well beyond five percent annually if the
8:44
Speaker 2: straight of horror moves remains close to any extended period,
8:47
Speaker 2: you know, through this summer.
8:48
Speaker 3: I mean, there is another path the FED could kill.
8:50
Speaker 3: You know, It's interesting Germany didn't have the seventies inflation
8:53
Speaker 3: that we had. Japan I think escaped it too, So
8:57
Speaker 3: it raises Researchers explored these uh, cross country situations a
9:04
Speaker 3: lot after that great inflation experience. So I guess just
9:07
Speaker 3: cutt into the chase here. The FED could kill this
9:10
Speaker 3: in the cradle. Awful expression, but you know, captures.
9:12
Speaker 2: It basically by killing the economy. Correct.
9:14
Speaker 3: It would have to. It would probably have to inflict
9:17
Speaker 3: a lot of pain on the economy.
9:19
Speaker 2: Now do we get any sense that? Again, even let's
9:22
Speaker 2: you know, Powell's moving on at this point, Warsh is
9:25
Speaker 2: going to be officially confirmed as chair probably in the
9:28
Speaker 2: next week or so. Do we believe that? Look, even
9:32
Speaker 2: under Powell, Okay, the FED was very much in the
9:37
Speaker 2: business of not wanting to create a recession. In order
9:41
Speaker 2: to staunch inflation totally, I have to believe given what
9:45
Speaker 2: we know about you know, worsh coming in and what
9:47
Speaker 2: he stated he wants to do policy wise. And again
9:50
Speaker 2: I've maintained that Hey, once you're in the chair, you know,
9:52
Speaker 2: maybe feel the gravity, and you often see someone change
9:55
Speaker 2: what they're going to do. But I can't see Warsh
9:59
Speaker 2: or quite on anyone else who's sitting on the Board
10:02
Speaker 2: of Governors or you know, as a regional fed president
10:07
Speaker 2: coming out in large enough numbers, being like, yeah, you
10:10
Speaker 2: know what we're gonna We're gonna be Paul Vulker because
10:15
Speaker 2: there's just not the appetite for me right now.
10:17
Speaker 3: There was no appetite for Paul Volker to be Paul Vulker.
10:20
Speaker 3: But before Paul Vulker, you have to make we have
10:24
Speaker 3: the benefit of history. They did not. Yes, so before Vulkar,
10:28
Speaker 3: you had Miller and Burns. They didn't have the authority
10:31
Speaker 3: to do what Vulgar did. Carter, to his credit, gave
10:35
Speaker 3: Vulgar room. Reagan, to his credit, even though they chafed
10:38
Speaker 3: behind the scenes, they gave Vulgar the room to inflict
10:41
Speaker 3: economic pain. Sure, I don't know that we have the
10:45
Speaker 3: politic well, we don't have the political A lot of
10:47
Speaker 3: the Trump administration. You can love him or not like him,
10:50
Speaker 3: but he is not a hard money guy. He's for
10:53
Speaker 3: easy money under all circumstances. So I don't know that
10:56
Speaker 3: the political will exists to allow the FED to inflict
10:59
Speaker 3: economic pain.
10:59
Speaker 2: Check it doesn't exist anywhere because ultimately, our financial markets
11:05
Speaker 2: at this point, and this is something that's evolved over
11:09
Speaker 2: the last twenty to twenty five years. In my opinion,
11:13
Speaker 2: they have evolved. And this is not my own quote,
11:15
Speaker 2: so I'm stealing this, but I use it because I
11:17
Speaker 2: think it's a good one. Our financial markets have become
11:21
Speaker 2: political utilities. And what I mean by that is like,
11:25
Speaker 2: there's a reason why President Trump points out, hey, stocks
11:29
Speaker 2: are at all time highs, because it signals something to
11:31
Speaker 2: the broader group of people that participate politically and as
11:37
Speaker 2: a whole as a society, we look at financial markets
11:42
Speaker 2: now and think that it says something about the political system,
11:46
Speaker 2: when in fact, it's really just telling you, okay, like
11:48
Speaker 2: here's you know, what we're willing to pay for corporate earnings.
11:51
Speaker 2: And this has been a transformation over the last twenty
11:54
Speaker 2: to twenty five years. So again it's gone through you know,
11:56
Speaker 2: multiple administrations and multiple parties like that. This is not
12:00
Speaker 2: any one person who's responsible for this, it's just how
12:03
Speaker 2: society has transformed them as a whole. But I believe
12:06
Speaker 2: we're kind of at a point now where it's like,
12:09
Speaker 2: you know, the nineteen seventies from a stock market perspective.
12:13
Speaker 2: I don't think any politician would allow to happen now
12:18
Speaker 2: because of what it would mean for them and their
12:20
Speaker 2: party politically. And the problem there is the distortion that
12:24
Speaker 2: you end up within the economy because of that.
12:26
Speaker 3: They remember the great depression that generation lived through it,
12:30
Speaker 3: They fall in the war. They saw what stocks were
12:33
Speaker 3: only on by two percent of Americans, then now the
12:35
Speaker 3: numbers over fifty. Sure, the twenty nine crash killed confidence
12:41
Speaker 3: to the point where it depressed spending on durable goods
12:44
Speaker 3: by people who didn't own stocks. They remembered that they
12:47
Speaker 3: would never have thought of using the stock market as
12:49
Speaker 3: a policy tool as the fed US and Bernank's partly
12:53
Speaker 3: responsible for that, and green Span is too. As much
12:56
Speaker 3: as I respect an admire right.
12:57
Speaker 2: Again, this goes back like twenty five thirty years. Yes,
13:00
Speaker 2: you know, you're right.
13:01
Speaker 3: A lot of people are to blame.
13:03
Speaker 2: Yeah, it's it's where it is in our broader zeitgeist.
13:09
Speaker 2: Now just take a quick break. When we come back,
13:11
Speaker 2: we'll talk about what we're seeing from gas prices and
13:13
Speaker 2: how it relates to wage games that we've seen they're
13:17
Speaker 2: being eaten away by rising gas prices. We'll discuss after.
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13:56
Speaker 2: So yesterday we got Consumer Price in Next data that
14:00
Speaker 2: for the last twelve months CPI is running at three
14:04
Speaker 2: point eight percent. We also have wage growth data from
14:09
Speaker 2: the Department of Labor over the last twelve months which
14:12
Speaker 2: is showing that wages grew somewhere around three point six percent.
14:15
Speaker 2: Now here's the thing, this is all estimation. Again, prices
14:21
Speaker 2: may have actually risen it like three point nine. Wages
14:24
Speaker 2: could have risen at three point four. Wages could have
14:26
Speaker 2: risen at three point nine. Inflation could have been you know,
14:29
Speaker 2: so again, like the specific numbers, don't pay too much
14:34
Speaker 2: attention to them directionally though. Here's the deal is that
14:39
Speaker 2: wage growth and inflation for the last twelve months are
14:43
Speaker 2: probably pretty close to equal, which means that any gains
14:46
Speaker 2: that you've seen from your salary have very likely been
14:51
Speaker 2: eaten up by additional costs in the aggregate. And the
14:55
Speaker 2: other thing that we know is based on what we're
14:57
Speaker 2: seeing from you know, further gas price moves that have
15:00
Speaker 2: happened over the last months since this, you know, since
15:03
Speaker 2: the April data was collected, inflation is likely. I'm guessing
15:07
Speaker 2: that headline is probably gonna be running somewhere between like
15:09
Speaker 2: four one and four three when we get the May
15:12
Speaker 2: data that comes out, and I know that wages have
15:15
Speaker 2: not accelerated similarly for the month. So what I think
15:20
Speaker 2: you can say is, hey, by the time we get
15:21
Speaker 2: the MAD data, pretty good chance that wages will be
15:25
Speaker 2: trailing the inflation rate by a quarter to a half
15:30
Speaker 2: percent over the last twelve months. And this is ultimately
15:35
Speaker 2: not great because it means that in real terms, you
15:38
Speaker 2: can't buy as much stuff, which means that a you
15:42
Speaker 2: feel kind of bad about your financial situation, and b
15:46
Speaker 2: it potentially puts some pressure on sales numbers for non
15:50
Speaker 2: energy businesses because they have consumers have less money to
15:55
Speaker 2: spend at those other businesses and potentially pull back from
16:00
Speaker 2: those areas instead. Right, Yes, which is probably why if
16:03
Speaker 2: you take a look at like retail stocks, they've been
16:06
Speaker 2: in the toilet for the last month, like they haven't
16:09
Speaker 2: gone anywhere.
16:10
Speaker 3: Yeah. And one of the the at the crux of
16:13
Speaker 3: the dilemma for the FED, which we're talking a little
16:15
Speaker 3: bit about how monetary policy should respond earlier, They could
16:18
Speaker 3: allow aggregate allowed demand just to continue to expand the
16:22
Speaker 3: problem with that is that it will push up inflation further.
16:25
Speaker 2: Yeah.
16:25
Speaker 3: This is why the choice typically involves do we impose
16:29
Speaker 3: pain on the economy to get inflation down or not.
16:31
Speaker 3: If the answer is not, you're accommodating it, and that
16:35
Speaker 3: can create and that can cause inflation to become entrenched.
16:40
Speaker 3: That's one thought. Another is, well, this is why inflation
16:43
Speaker 3: is a form of taxation. It does ultimately come down
16:46
Speaker 3: to too much money slashing around. I'm not blaming the
16:48
Speaker 3: FED for the oil price spike.
16:50
Speaker 2: No, they can't do any They can't print oil anymore
16:52
Speaker 2: than you and I can no.
16:53
Speaker 3: I mean, there is this argument. It's interesting some researchers say, well,
16:55
Speaker 3: the seventies, the oil price spike was not actually outside
16:58
Speaker 3: the economy. The FED allowed it and others where banks
17:00
Speaker 3: allowed it to happen by overstimulating demand. It's kind of
17:03
Speaker 3: an interesting academic debate. So I guess what I'm saying is,
17:05
Speaker 3: if somebody's listening to this and they've heard about that,
17:07
Speaker 3: they remember that technicality. I'm acknowledging it, even though I
17:10
Speaker 3: don't think you've got to do a lot of sophisticated
17:12
Speaker 3: statistical analysis on the most recent series of events to
17:15
Speaker 3: get at the cause of it.
17:18
Speaker 2: When we look at you again kind of where things
17:22
Speaker 2: go over the rest of the year, the piece that
17:24
Speaker 2: is interesting to me that could provide a little bit
17:27
Speaker 2: of counterbalance to this, not necessarily in a good way.
17:31
Speaker 2: We've seen some signs that we may be, you know,
17:33
Speaker 2: entering kind of a nascent acceleration in hiring. There's been
17:37
Speaker 2: some green shoots over the last month or two, and
17:41
Speaker 2: this is happening against the backdrop of a labor force
17:45
Speaker 2: that is probably not growing due to the combination of
17:48
Speaker 2: baby boomer retirements and changes in immigration and the one
17:53
Speaker 2: piece that you may see, which again, this would be
17:56
Speaker 2: the piece that would scare the FED. Quite honestly, in
17:59
Speaker 2: my opinion, is Hey, if you don't have much labor
18:03
Speaker 2: force growth, but companies are trying to ramp up hiring,
18:06
Speaker 2: what do they need to do in order to hire?
18:09
Speaker 2: They need to raise wages more quickly. I think if
18:12
Speaker 2: you saw that, that would be the thing that spooks
18:14
Speaker 2: the FED, because then you get into the position of great,
18:17
Speaker 2: Now do we have, you know, this wage price spiral
18:20
Speaker 2: that starts happening, and do we start seeing you know,
18:23
Speaker 2: that cementing higher for longer inflation because of it. So
18:29
Speaker 2: just something to watch when you don't have much labor
18:31
Speaker 2: force growth and companies start trying to hire, there's only
18:35
Speaker 2: one lever they can pull, and it's higher wages. And
18:37
Speaker 2: that's not what the FED wants to see.
18:39
Speaker 3: So maybe, you know, the demand component is not going
18:42
Speaker 3: to drive the inflation process in this this inflation cycle,
18:45
Speaker 3: like it was part of it in the last cycle.
18:47
Speaker 3: You know, there was that debate, was it the COVID shoks,
18:50
Speaker 3: was it the Trump and the Biden stimulus? Was it
18:52
Speaker 3: the Fed? The latter three the stimulus and the FED
18:55
Speaker 3: would be part of the demand component of the inflation process.
18:59
Speaker 3: But again, expectations play a role in shocks play a role.
19:02
Speaker 3: This is why forecasting inflation is such a fraught exercise.
19:08
Speaker 2: To take a quick break here, but when we come back,
19:12
Speaker 2: we got quite a bit that we're going to get to.
19:14
Speaker 2: We've got Wall Street Watch, and then we are going
19:17
Speaker 2: to be joined by Todd Lutsky from Cushing and Dolan
19:20
Speaker 2: for Ask Todd. Todd's here to answer your estate planning
19:23
Speaker 2: questions live on air. Get them ready because Todd Lutsky
19:28
Speaker 2: is coming up next.
19:41
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19:53
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19:57
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20:00
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20:01
Speaker 4: Markets are mixed after Cinnamon took a hit on the
20:04
Speaker 4: heels of a hotter than expected producer Price index, where
20:08
Speaker 4: wholesale prices in April rows the most in three years,
20:11
Speaker 4: adding fuel to inflation anxiety. President Trump also landed in
20:15
Speaker 4: Beijing this morning with several CEOs, including Elon Musk and
20:19
Speaker 4: Jensen Huang for his summit with Chinese President Yijingping. Right now,
20:23
Speaker 4: the Dow is down about two tenths of a percent,
20:26
Speaker 4: SMP five hundred up modestly, only five points higher, NASDAC
20:31
Speaker 4: up about a third of a percent, RUSSED two thousand
20:34
Speaker 4: selling off over two thirds of a percent. A ten
20:37
Speaker 4: year Treasure reeled up one basis point at four point
20:40
Speaker 4: four eight one percent, and Oil up one on a
20:43
Speaker 4: quarter percent, trading at one hundred and three dollars.
20:46
Speaker 5: A barrel.
20:47
Speaker 4: Shares in Chinese e commerce DRI and ally Boba rising
20:49
Speaker 4: over six percent after it posted an eighty four percent
20:52
Speaker 4: drop in first quarter of profit and also reported heavy
20:56
Speaker 4: investments in a I. Meanwhile, according to the Wall Wall
21:00
Speaker 4: Street Journal, Walmart plans to cut or relocate about one
21:04
Speaker 4: thousand corporate employees. Walmart stock is up modestly. Elsewhere, Echo
21:09
Speaker 4: Star shares a climbing two percent after the FCC approved
21:12
Speaker 4: the company's forty billion dollars sale of wireless Spectrum.
21:15
Speaker 2: To AT and T and SpaceX.
21:18
Speaker 4: And Next Power shares are surging twelve percent after the
21:22
Speaker 4: energy technology company raised its full year revenue guidance. I'm
21:29
Speaker 4: Tucker Silva, and that is Wallstreet Watch.
21:32
Speaker 1: This is ask Todd on the Financial Exchange Radio Network.
21:36
Speaker 1: If you have an existing estate plan or in the
21:38
Speaker 1: market for one, Todd Lutsky is here to answer your
21:41
Speaker 1: questions and help you plan for a later life. Ask
21:44
Speaker 1: Todd is presented by Cushing and Dolan, serving Massachusetts and
21:47
Speaker 1: New England for more than thirty five years, helping families
21:50
Speaker 1: with a state and tax planning, medicaid planning, and probate law.
21:54
Speaker 1: Visit Cushingdolan dot com. Now here's Todd Lutsky promise.
22:03
Speaker 2: We're now joined by the one and only Todd. Let's
22:06
Speaker 2: kee from the law firm of Cushing and Dolan. We
22:09
Speaker 2: got the phone lines wide open for you because we
22:11
Speaker 2: get uh. This is your chance to ask Todd your
22:14
Speaker 2: estate planning questions live on air right now. Eight eight
22:18
Speaker 2: eight to zero five two two sixty three is the
22:22
Speaker 2: number again, That is eight eight eight two zero five
22:25
Speaker 2: two two six three. And remember, this is your chance
22:28
Speaker 2: to ask Todd your estate planning questions live on air
22:33
Speaker 2: right now, and we usually get through two to three
22:36
Speaker 2: of these, so get calling early to make sure we
22:38
Speaker 2: can get to your question. That phone number again is
22:42
Speaker 2: eight eight eight to zero five two two six three.
22:47
Speaker 2: Mister Lutsky, How are you doing today?
22:49
Speaker 6: I am never better and you I'm great, awesome. Where
22:55
Speaker 6: does a king put his armies?
22:58
Speaker 2: Uh? That I don't know. I'm not the king in
23:00
Speaker 2: his sleeves, his sleevees. Yeah, in his sleevies, Todd, I
23:05
Speaker 2: want to talk to you a little bit about h
23:08
Speaker 2: trusts and trusts as part of an estate plan. Is
23:11
Speaker 2: one would expect at what point does it become beneficial
23:17
Speaker 2: to a household to have multiple trusts as opposed to
23:22
Speaker 2: just a single one for their assets.
23:26
Speaker 6: So that is really driven by, I think by the
23:31
Speaker 6: federal exemption. So the federal exemption tends to go up
23:35
Speaker 6: and down. But let's say you have today a fifteen
23:38
Speaker 6: million dollar federal exemption. So for everybody listening, that's the
23:43
Speaker 6: amount of assets that you can pass to somebody other
23:46
Speaker 6: than a spouse and not pay tax. Go over that,
23:50
Speaker 6: and of course we got a forty percent tax hit
23:53
Speaker 6: per person. So at a bare minimum, I would say,
23:56
Speaker 6: if you're at fifteen million or under, I'm thinking that
24:00
Speaker 6: that should probably be a joint revocable trust because it's
24:06
Speaker 6: a you know, it's a large estate, but joint revocable trusts.
24:09
Speaker 6: And I think if you're four million or below. I
24:13
Speaker 6: don't know if you you weren't really asking this question,
24:15
Speaker 6: but if you're four millionaire below, you probably might be considering.
24:21
Speaker 6: And over sixty five, let's say, sure sixty you probably
24:26
Speaker 6: also might be thinking about whether you want a revocable
24:29
Speaker 6: or an irrevocable trust. But for a joint trust, for single,
24:33
Speaker 6: for a married couple, I'd say fifteen million is a good.
24:35
Speaker 2: Number at any point in that discussion. Are there certain
24:41
Speaker 2: types of estate plans where it may make sense to
24:45
Speaker 2: have different kinds of trust fulfilling different roles within that estate.
24:49
Speaker 6: Yeah, So when you get like larger estates like that,
24:52
Speaker 6: you know, sometimes you might have somebody that's got a
24:55
Speaker 6: twelve million dollar estate, let's say, but you know, a
24:58
Speaker 6: four million dollar life insurance poble. Well, that's just an
25:02
Speaker 6: asset that shouldn't be in there. I mean, so, I mean,
25:05
Speaker 6: to me, I would say, let's just make that asset.
25:07
Speaker 6: Why why do I want to increase my taxable estate
25:10
Speaker 6: by four million dollars? Maybe not so much for federal
25:13
Speaker 6: but for Massachusetts? Right? Why do I want my estate
25:16
Speaker 6: to be four million dollars higher? If I don't have
25:18
Speaker 6: to be four million dollars higher. How and why, Well,
25:22
Speaker 6: then I would be thinking of a separate kind of trust,
25:24
Speaker 6: probably called an irrevocable life insurance trust, where you might
25:29
Speaker 6: want to take that asset and put it in there.
25:32
Speaker 6: That asset being the the life insurance policy, put that
25:36
Speaker 6: into the irrevocable trust, and thereby making it not only
25:40
Speaker 6: income tax free, which is what it is in and
25:43
Speaker 6: of itself, but also estate tax free, both federal and state.
25:49
Speaker 2: Talking with Todd Lutsky from the law firm of Cushing
25:52
Speaker 2: and Dolan. Phone lines are open at eight eight eight
25:55
Speaker 2: two zero five two two sixty three. That is the
25:59
Speaker 2: number to call to ask Todd your estate planning questions
26:02
Speaker 2: live on air right now. We do still have room
26:06
Speaker 2: on those phone lines. Again. That number is eight eight
26:08
Speaker 2: eight to zero five two two sixty three. We're gonna
26:13
Speaker 2: take a quick break here, but when we come back,
26:16
Speaker 2: we're gonna get right to your questions with Todd. That
26:19
Speaker 2: phone number again is eight eight eight two zero five
26:24
Speaker 2: two two six to three.
26:26
Speaker 1: Ask Todd with Todd Letsky every Wednesday at ten thirty
26:29
Speaker 1: only here on the Financial Exchange Radio Network. Todd Letsky
26:35
Speaker 1: answers your questions about a state and elder Life Planning
26:38
Speaker 1: every Wednesday at ten thirty right here on the Financial
26:41
Speaker 1: Exchange Radio Network.
26:55
Speaker 2: Got Todd Letsky here from the law firm of Pushing
26:58
Speaker 2: and Dolan. We just to have room on the phone
27:01
Speaker 2: lines eight eight eight to zero five two two six
27:05
Speaker 2: three is the number again, that is eight eight eight
27:09
Speaker 2: to zero five two two six three, Todd. At what
27:12
Speaker 2: point does trust work that someone has previously done turn
27:17
Speaker 2: into a problem if it has not been updated appropriately? Like,
27:20
Speaker 2: what are some of the things that would cause someone
27:22
Speaker 2: to need to update an estate plan?
27:25
Speaker 6: And I think that's a great question because so many
27:28
Speaker 6: people who might have already done their estate plan think
27:31
Speaker 6: I'm all said, I don't have to do anything. Well, no, again, one,
27:35
Speaker 6: I think if you're ten years fifteen years in on
27:40
Speaker 6: an estate plan, I probably would say, you know what,
27:42
Speaker 6: maybe I should pick it up and review it.
27:44
Speaker 2: Why.
27:45
Speaker 6: Perhaps my assets have grown significantly. That would be a reason.
27:50
Speaker 6: I'm older, of course, so maybe, uh, if I did
27:54
Speaker 6: revocable trusts, I might want to think about changing my
27:58
Speaker 6: estate plan to an era of locable trust depending on
28:02
Speaker 6: how large my estate has grown. So obviously, you know
28:05
Speaker 6: when when nursing home concerns weren't an issue. Maybe they
28:09
Speaker 6: more are on your mind now. I would say things like,
28:14
Speaker 6: you know what if I've lost a spouse. You know when,
28:18
Speaker 6: even though you've done your estate plan, when you lose
28:20
Speaker 6: a spouse. The problems I've seen are people would say, oh,
28:25
Speaker 6: I got these two trusts and my spouse died, I'll
28:28
Speaker 6: just take everything out of my spouse's trust who's deceased,
28:30
Speaker 6: and put it in my trust.
28:32
Speaker 2: That's not good.
28:34
Speaker 6: Not only is it not good, it's not permitted by
28:36
Speaker 6: the terms of the trust, but you know, so someone's
28:39
Speaker 6: breaching their fiduciary duty number one. But number two, you've
28:43
Speaker 6: now completely blown the estate plan. You've now put all
28:47
Speaker 6: the assets back into the hands of the surviving spouse,
28:51
Speaker 6: bumping up the surviving spouse's estate to a point where
28:56
Speaker 6: it's larger, perhaps than the EGS exemption that was in
29:02
Speaker 6: effect or that is in effect on the date of death,
29:04
Speaker 6: thereby creating an estate tax liability, whereas one didn't exist
29:08
Speaker 6: if you left them in the old trust. So I
29:11
Speaker 6: think that's a really big problem learned. But that's why
29:14
Speaker 6: you call the lawyer. You call and say, I lost
29:16
Speaker 6: my spouse. What do I do? Please don't call the
29:19
Speaker 6: spouse and call the attorney and say here's what I did.
29:23
Speaker 6: Is it okay? I always hate it when they start
29:25
Speaker 6: the conversation, here's what I did. Okay, that's that's bad.
29:30
Speaker 2: So this is not a situation where it's better to
29:33
Speaker 2: ask forgiveness than permission.
29:34
Speaker 6: Right, That's exactly. I think that's a good a good analysis. So, folks,
29:40
Speaker 6: these are just some of the potholes that we encounter
29:43
Speaker 6: when you have an estate plan or are thinking about
29:46
Speaker 6: doing an estate plan. So this guide is good for
29:50
Speaker 6: both folks, whether you've done the planning or you haven't
29:53
Speaker 6: done the planning. I think it's going to help you,
29:54
Speaker 6: you know, for people who haven't done the planning. Don't
29:57
Speaker 6: not plan because you think you have a will and
29:59
Speaker 6: that's all you need. Don't you know, rely on a
30:02
Speaker 6: nominee realty trust as the only item you have. Don't
30:05
Speaker 6: sit around and think, oh, I don't have enough assets,
30:08
Speaker 6: I don't need to do a plan. Well, there's a
30:10
Speaker 6: lot of other reasons to do planning than just taxes.
30:12
Speaker 6: So folks call and get the guide. A state planning
30:17
Speaker 6: potholes to avoid eight six six eight four eight five
30:22
Speaker 6: six nine to nine or Legal Exchange Show dot com
30:26
Speaker 6: again eight six six eight four eight five six nine
30:30
Speaker 6: nine or Legal Exchange Show dot com. And you can
30:34
Speaker 6: always go to Cushing Dolan PC our Instagram page for
30:37
Speaker 6: much more information.
30:39
Speaker 2: Todd got a caller for you here. Let's go to
30:41
Speaker 2: Paul in Hanover. Paul, what is your question for Todd Lutsky?
30:46
Speaker 5: Yeah, good morning. I had a question we got. I
30:48
Speaker 5: have a revocable trust that was put together about fifteen
30:52
Speaker 5: years ago and updated maybe five okay, and sixty five,
30:56
Speaker 5: and I'm looking at, you know, like an irrevocable for
31:00
Speaker 5: the home only for that five year look back. Yeah,
31:03
Speaker 5: when when do you what's the downside I guess of
31:07
Speaker 5: doing something like that, other than maybe losing the value
31:10
Speaker 5: of the equity of the home.
31:12
Speaker 6: So so you're sixty five, are you married?
31:15
Speaker 1: Yeah?
31:16
Speaker 6: Kids?
31:18
Speaker 5: Yes? Three?
31:20
Speaker 6: And last question, excuse me when we talk about switching
31:25
Speaker 6: to an irrevocable trust or adding one, usually I would
31:29
Speaker 6: you probably won't need both, is my point. But how
31:32
Speaker 6: much are you worth in total including the house? Meaning
31:35
Speaker 6: are you more than two million? And if so, are
31:38
Speaker 6: you more than four Those are the Massachusetts thresholds that
31:41
Speaker 6: I that I worry.
31:43
Speaker 5: About more than four. Yeah, So if.
31:46
Speaker 6: You're more than four, the question is do you really
31:49
Speaker 6: need the irrevocable trust right if you've got enough assets?
31:54
Speaker 6: And again I don't know how much you're worth, but
31:57
Speaker 6: if you have enough assets, you could be self insured,
32:01
Speaker 6: meaning you know, if you start adding up your assets
32:05
Speaker 6: and investing it at say six percent plus social security
32:08
Speaker 6: and pension. You know, do I have enough income coming
32:12
Speaker 6: in that I'm really able to provide and pay for
32:15
Speaker 6: the nursing home anyway, and so I don't need to
32:18
Speaker 6: worry about protecting my assets. Do you think you're in
32:20
Speaker 6: that in that category?
32:24
Speaker 5: Close? I guess you know, I really haven't done the map,
32:26
Speaker 5: but it depends, you know, obviously on longevity there too.
32:30
Speaker 6: Sure. I mean, you're gonna need to cover about you know,
32:32
Speaker 6: one hundred and twenty five and thirty thousand dollars a
32:35
Speaker 6: year maybe more from the nursing home. So it's not
32:38
Speaker 6: a small number. And so I think that's the first thing.
32:43
Speaker 6: That's the only reason I'm hesitating on this. But but
32:46
Speaker 6: I will address your question. Let's assume you do need
32:48
Speaker 6: to protect assets from the nursing home. Probably if you're
32:51
Speaker 6: if you do need to protect them, you probably might
32:54
Speaker 6: be wanting to protect even more than just a house.
32:58
Speaker 6: You might want to even put some money in. Wait,
33:00
Speaker 6: and you learn how they work because you're asking me
33:02
Speaker 6: about the downside. There really isn't other than you can't
33:05
Speaker 6: refinance the mortgage on the house. You can keep the mortgage,
33:09
Speaker 6: but you can't get a new one unless you, you know,
33:13
Speaker 6: take it out of the house and start the five
33:14
Speaker 6: year clock over again. So other than that, there's no downside.
33:19
Speaker 6: You live in your house, you pay your bills. You
33:21
Speaker 6: could sell your house anytime you want. From the irrevocable trust,
33:24
Speaker 6: you can have the trust buy another house. The trust
33:27
Speaker 6: is still set up as a grand tour trust, so
33:30
Speaker 6: you get your five hundred thousand dollars capital gains exclusion.
33:33
Speaker 6: There's no adverse tax consequences when you sell the house.
33:38
Speaker 6: You can manage your money, collect the income. I mean,
33:40
Speaker 6: it's really I'm going through it quickly, but there's really
33:44
Speaker 6: not a lot of downsides at all. So I think
33:47
Speaker 6: it might be worth exploring. But get a handle on
33:50
Speaker 6: your assets and then maybe you can decide whether shifting
33:53
Speaker 6: putting more than just a house in is important.
33:56
Speaker 2: Todd, I get another one for you. Let's go to
33:57
Speaker 2: Steve in Weymouth. Steve, if you are on with Tom Lutsky.
34:02
Speaker 7: Hi, guys, thanks for talking taking my call. I was
34:06
Speaker 7: wondering about the fifteen million dollar exemption. We you don't
34:11
Speaker 7: have to pay taxes. Yeah, if your state is twenty million,
34:16
Speaker 7: do you just pay on the over five million or
34:20
Speaker 7: do you get tax on the whole thing?
34:22
Speaker 6: So one follow up question, are you married? Yes, so
34:27
Speaker 6: if you do basic planning, meaning a revocable trust, right,
34:33
Speaker 6: So in your case, if it's twenty million, we might
34:36
Speaker 6: do two separate revocable trusts and then fund those revocable trusts.
34:41
Speaker 6: Remember they're revocable, so it's just like it's still you,
34:44
Speaker 6: but they're owned by the trust. The reason I'm telling
34:47
Speaker 6: you that is because with basic estate planning, we now
34:51
Speaker 6: can double your exemption. So if you do basic estate
34:56
Speaker 6: planning between you and your spouse, we can shelter up
35:00
Speaker 6: to thirty million from a state taxes. So if you're
35:06
Speaker 6: worth twenty you're not gonna have to worry about paying
35:08
Speaker 6: a state taxes, at least not in the short term
35:11
Speaker 6: or even perhaps the long term. But that would answer
35:14
Speaker 6: that question. But let's let's address your question. Assuming that
35:17
Speaker 6: you had let's say you're married and you're worth forty million,
35:20
Speaker 6: to just make it the point, and you still did
35:23
Speaker 6: your basic estate planning, which I certainly would recommend. Now
35:27
Speaker 6: we would only have to pay tax on the ten
35:29
Speaker 6: million that we are over the forty I'm sorry, over
35:34
Speaker 6: the thirty. So but remember ten million. If you live
35:39
Speaker 6: in Massachusetts, it's it's not just the forty percent on
35:42
Speaker 6: ten million, which is four million. You've got mass and
35:46
Speaker 6: mass is over ten percent. Mass is close to sixteen percent.
35:50
Speaker 6: So I mean you're looking at every bit of fifty
35:52
Speaker 6: to fifty five percent total estate tax between federal and
35:56
Speaker 6: state on the amount over. So you would probably even
35:59
Speaker 6: do do more planning than basic estate planning if you
36:04
Speaker 6: were in that realm. But if you're in the twenty
36:06
Speaker 6: million dollar realm, at least basic estate planning, and then
36:08
Speaker 6: we can focus on what we might do for Massachusetts.
36:13
Speaker 6: I stress this only because I had a client that
36:15
Speaker 6: came in that was worth about forty million, not married,
36:18
Speaker 6: but with a significant other for thirty years, and I
36:22
Speaker 6: explained to them that, wow, if you get married, we
36:26
Speaker 6: can save you like twenty million dollars in state taxes. Well, WHOA,
36:31
Speaker 6: you should see how fast they ran to the courthouse, right.
36:34
Speaker 6: I mean, it's one of those things where they just
36:35
Speaker 6: don't think about it. I get it. You're not married.
36:37
Speaker 6: You know why ruin a good relationship by getting married?
36:39
Speaker 6: You've been together thirty years, kids from different sides of
36:42
Speaker 6: the relationships. But you know what, sometimes getting married can
36:48
Speaker 6: make sense. And in this case it certainly did for them,
36:52
Speaker 6: and it could well you're already married, Steve, but but
36:55
Speaker 6: not that it could for you. But planning now that
36:58
Speaker 6: you are married can take advantage each of this doubling
37:01
Speaker 6: of the exemption.
37:02
Speaker 2: Mister Wutski, thank you so much for joining us today.
37:05
Speaker 6: Always pleasure. Thank you.
37:06
Speaker 1: This has been Asked Odd on the Financial Exchange Radio
37:09
Speaker 1: network Ask Todd with Todd. Lutsky has been presented by
37:12
Speaker 1: Cushing and Dolan, serving Massachusetts and New England for more
37:15
Speaker 1: than thirty years, helping families with the state and tax planning,
37:18
Speaker 1: Medicaid planning, and probate law. Call eight hundred three nine
37:21
Speaker 1: three four thousand and one or visit Cushingdolan dot com.
37:25
Speaker 1: The views expressed in this segment are solely those of
37:27
Speaker 1: Cushing and Dolan. Armstrong Advisory does not provide any legal
37:29
Speaker 1: or tax advice. Please consult with your illegal or tax
37:32
Speaker 1: advisor on such matters. Cushing and Armstrong do not endorse
37:34
Speaker 1: each other and are not affiliated.
37:36
Speaker 2: Quite a bit to get to in the second hour,
37:38
Speaker 2: we'll talk a little bit about the US China Summit
37:42
Speaker 2: that is kicking off today with President Trump landing in
37:45
Speaker 2: Beijing earlier this morning. Also, we're going to be covering
37:49
Speaker 2: a little bit more on the Spring housing market and
37:51
Speaker 2: what we are seeing there. And then we got to
37:56
Speaker 2: talk about the tomatoes because there's a problem them with
38:00
Speaker 2: tomato prices, and I gotta tell you it's gonna gonna
38:06
Speaker 2: be something we're gonna have to discuss in depth in
38:08
Speaker 2: our two All that and more is coming up in
38:12
Speaker 2: just a little bits