Latest / The Financial Exchange Show / Alphabet Faces the AI Spending Test

Transcript

Alphabet Faces the AI Spending Test · The Financial Exchange Show

0:00
Speaker 1: The Financial Exchange is produced by Money Matters Radio and
0:02
Speaker 1: is hosted by employees of the Armstrong Advisory Group, a
0:05
Speaker 1: registered investment advisor. All opinions expressed are solely those of
0:08
Speaker 1: the hosts. Do not reflect the opinions of Armstrong Advisory
0:11
Speaker 1: or anyone else. Investments can lose money. This program does
0:14
Speaker 1: not offer any specific financial or investment advice. Please consult
0:17
Speaker 1: your own financial, tax, and estate planning advisors before making
0:20
Speaker 1: any investment decisions. Armstrong Advisory and the advertisers heard on
0:23
Speaker 1: this program do not endorse each other or their services.
0:25
Speaker 1: Armstrong and Money Matters Radio do not compensate each other
0:28
Speaker 1: for referrals and are not affiliated. This is the Financial
0:34
Speaker 1: Exchange with Chuck Zada and Mark fan Daddy, your exclusive
0:38
Speaker 1: look at business and financial news affecting your day, your city,
0:42
Speaker 1: your world. Stay informed and up to date about economic
0:46
Speaker 1: and market trends, plus breaking business news every day. The
0:50
Speaker 1: Financial Exchange is a proud partner of the Disabled American
0:53
Speaker 1: Veterans Department of Massachusetts. Help us support our great American
0:57
Speaker 1: heroes by visiting DAV five K dot Boston and making
1:01
Speaker 1: a donation today. This is the Financial Exchange with Chuck
1:05
Speaker 1: Zada and Mark Fandetti.
1:11
Speaker 2: Chuck, Mark and Tucker with you today, and as we
1:15
Speaker 2: kick things off, a couple different stories that I think
1:21
Speaker 2: are gonna be the big ones today, not that I
1:23
Speaker 2: think are there, they're in the stack, and they're the
1:25
Speaker 2: first two stories. So they are our top stories today.
1:29
Speaker 2: What's going on in the Middle East and oil prices.
1:32
Speaker 2: And then we've also got Alphabet or the company formerly
1:37
Speaker 2: known as Google, reporting earnings after the bell today. Let's
1:42
Speaker 2: start with oil prices and what we're seeing in energy markets.
1:47
Speaker 2: Oil prices today rising in additional about three percent this morning.
1:52
Speaker 2: At one point we're up as much as four percent,
1:54
Speaker 2: but have paired some of their gains this as the
1:57
Speaker 2: trip A national average for gas prices up another four
2:01
Speaker 2: point one cents overnight to four oh six, diesel prices
2:05
Speaker 2: rising four cents as well to five eighteen. And so
2:10
Speaker 2: we're again getting, you know, back to the point where
2:14
Speaker 2: these are starting to, you know, near the short term
2:17
Speaker 2: peaks that we saw in March and April. Still have
2:21
Speaker 2: about ten percent higher to go on both of those
2:23
Speaker 2: before we get to those peaks. But based on what
2:26
Speaker 2: we're seeing in gasoline futures markets, I think it's pretty
2:29
Speaker 2: much a certainty that by the end of this week
2:31
Speaker 2: will be somewhere in that four twelve to four fifteen range.
2:34
Speaker 2: And from there it's an open question that ultimately is
2:37
Speaker 2: related to, hey, what does the situation in the Middle
2:41
Speaker 2: East look like over the next three to five weeks
2:44
Speaker 2: in particular, But obviously the longer that any disruption goes
2:49
Speaker 2: on there, the worse the picture looks for energy prices,
2:53
Speaker 2: just because there's not much out there when it comes to,
2:57
Speaker 2: you know, excess inventories that are just floating around. At
3:01
Speaker 2: this point, we've basically, in no uncertain terms, eaten through
3:10
Speaker 2: any real excess inventories that we had. If you take
3:15
Speaker 2: a look at the Strategic Petroleum Reserve, after another five
3:19
Speaker 2: million barrel draw down, we're now about three hundred and
3:22
Speaker 2: sixteen million barrels. Consensus generally has believed that, you know,
3:26
Speaker 2: you can get as low as like one hundred and
3:28
Speaker 2: fifty to two hundred and forty million barrels in that
3:32
Speaker 2: strategic reserve without you know, running into real problems. Chris Wright,
3:36
Speaker 2: the Energy Secretary, said, I think it was either yesterday
3:38
Speaker 2: or Monday that they thought they could get down to
3:42
Speaker 2: seventy million barrels. So that's a far lower estimate as
3:45
Speaker 2: far as you know where they think they're able to
3:47
Speaker 2: get to there. And the only point I'll make on
3:50
Speaker 2: that is, look, right, may or may not be correct
3:54
Speaker 2: in stating that, But the only reason that you state
3:58
Speaker 2: that is because you think that you might hit those
4:01
Speaker 2: higher numbers sooner rather than later. You don't need to,
4:04
Speaker 2: you know, talk about how low it can get if
4:06
Speaker 2: you're not worried about hitting the numbers for how low
4:10
Speaker 2: it can get. Commercial oil inventories in the United States
4:14
Speaker 2: right now we're at about four hundred and nine million
4:16
Speaker 2: barrels of oil the estimates that we've seen for how
4:20
Speaker 2: low that can go and still having you know, the
4:23
Speaker 2: system operating effectively or anywhere from three hundred and fifty
4:26
Speaker 2: to three hundred and ninety million barrels. So again, there's
4:29
Speaker 2: just not a ton of cushion if the Strait of
4:32
Speaker 2: horm Moves now remains locked up for any extended period
4:35
Speaker 2: of time. And the two things that could exacerbate the
4:38
Speaker 2: situation are if the Bobel Mandeb Strait, which is at
4:43
Speaker 2: the bottom of the Red Sea. Basically it's used to
4:47
Speaker 2: transit oil from the western Saudi Arabian port of Yanbu
4:52
Speaker 2: down through there and out to Asia. It's been kind
4:54
Speaker 2: of that bypass route when Hormuz has been closed over
4:57
Speaker 2: the last six months. And you've got you know, so
5:00
Speaker 2: somewhere in the ballpark is seven million barrels a day
5:02
Speaker 2: that flows through there. If that straight indeed ends up
5:05
Speaker 2: being closed by the Hoothies, you potentially have problems with, Okay,
5:09
Speaker 2: how much oil can we realistically get out through the
5:11
Speaker 2: Suez Canal because the problem that you run into at
5:14
Speaker 2: the Suez Canal is the biggest tankers, the very large
5:17
Speaker 2: crude carriers vlccs as they are known, that carry two
5:21
Speaker 2: million barrels of oil in one ship, they can't fit
5:25
Speaker 2: through Suez fully loaded because the draft is too deep.
5:28
Speaker 2: They bought them out. It's not an ever given situation
5:31
Speaker 2: where they turn the wrong way, but they just think
5:34
Speaker 2: the Seuwess Canal is not deep enough to handle those
5:37
Speaker 2: ships fully loaded, and so you instead have to run
5:40
Speaker 2: through a much smaller fleet of what are known as
5:42
Speaker 2: Suez Max vessels that carry about half as much crude oil.
5:46
Speaker 2: And you know, obviously then you got extended transit times
5:49
Speaker 2: and things like that as well. So the Red Sea's
5:52
Speaker 2: one thing that you watch. The other one that I
5:54
Speaker 2: think we're seeing the early signs of now, China dropped
5:59
Speaker 2: its crude imports throughout much of the spring, from around
6:01
Speaker 2: eleven million barrels a day down to five to six million,
6:04
Speaker 2: So big dropping in crude imports. No one has known,
6:08
Speaker 2: you know, how long they can you know, last at
6:10
Speaker 2: those lower levels of imports. But there are some signs
6:14
Speaker 2: that we may be starting to see China's spooling up
6:18
Speaker 2: refinery activity and starting to purchase more crude oil than
6:23
Speaker 2: they previously were. The two signs that I look at.
6:26
Speaker 2: Number one, crack spreads, the difference between what you pay
6:30
Speaker 2: for crude and what you can receive for selling refined product.
6:35
Speaker 2: They've started to narrow in the last couple days. And
6:38
Speaker 2: this has happened while the price of crude has been
6:40
Speaker 2: bit up.
6:41
Speaker 1: What we've been.
6:42
Speaker 2: Seeing for the previous two weeks was the price of
6:44
Speaker 2: crude going up with crack spreads moving up as well.
6:47
Speaker 2: Crude moving up with cracks coming down to me suggest
6:50
Speaker 2: additional refinery capacity coming online, which the only place they
6:56
Speaker 2: can realistically do that right now is China, Russia Camp
6:59
Speaker 2: because the refineries are being attacked every night by Ukraine.
7:03
Speaker 2: The US camp because our refineries are maxed out already.
7:06
Speaker 2: In fact, some regions of the US are running north
7:08
Speaker 2: of one hundred percent stated capacity in order to meet
7:11
Speaker 2: demand in the Middle East. Can't spool anything up because well,
7:15
Speaker 2: you can't get anything out of there. So this to
7:18
Speaker 2: me suggests that China may be coming back to the
7:21
Speaker 2: game in crude. And the question there is, hey, if
7:24
Speaker 2: China comes back and starts buying another five million barrels
7:27
Speaker 2: a day, and if you have the Red Sea, you know,
7:29
Speaker 2: being reduced in terms of its potential flow out of there,
7:34
Speaker 2: that represents a potentially again anywhere from like a seven
7:38
Speaker 2: to ten million barrel a day shift relative to what
7:41
Speaker 2: we were looking at in the spring, and you just
7:43
Speaker 2: don't have the oil inventories to handle that with a
7:45
Speaker 2: closed straight offore moves. So that's the lay of the
7:49
Speaker 2: land as it relates to oil right now. Let's take
7:53
Speaker 2: a quick break. When we come back, I do want
7:55
Speaker 2: to touch on those alphabet earnings and what to expect
7:59
Speaker 2: after the belt.
7:59
Speaker 1: To day miss the show. You can find them on
8:03
Speaker 1: our YouTube page. The show streams live every day, but
8:06
Speaker 1: every hour is archived, including all of our most newsworthy interviews.
8:10
Speaker 1: Go to YouTube and search for the Financial Exchange Radio show.
8:14
Speaker 1: When business news breaks, we're talking about it on X.
8:18
Speaker 1: Watch the Financial Exchange everyday live on X. This is
8:21
Speaker 1: the Financial Exchange Radio Network.
8:29
Speaker 3: Subscribe now to our YouTube page. Well, you'll find interviews,
8:33
Speaker 3: show highlights in full hours of the Financial Exchange. You'll
8:36
Speaker 3: get caught up in anything and everything you might have
8:39
Speaker 3: missed right here on the Financial Exchange Radio Network. Just
8:42
Speaker 3: search the Financial Exchange on YouTube and hit that subscribe button.
8:49
Speaker 2: After the belt. Today, we've got Alphabet reporting earnings and
8:54
Speaker 2: Alphabet the company formerly known as Google. I still don't
8:58
Speaker 2: know why they why they changed their name, Like it
9:03
Speaker 2: would be like if Apple would change their name to like,
9:07
Speaker 2: I don't know. I after like they started putting eye
9:11
Speaker 2: in front of everything. It's just no, Like you don't
9:13
Speaker 2: have to like rename yourself every fifteen years or something.
9:18
Speaker 2: It's fine to just be who you are, man. That's
9:22
Speaker 2: just my opinion. Uh. So, you've got Alphabet shares. They're
9:26
Speaker 2: up around eleven percent so far year to date. They
9:29
Speaker 2: had a monster year last year in twenty five, up
9:32
Speaker 2: sixty five percent. And the two big things that I
9:37
Speaker 2: think everyone's going to be looking for from Alphabet. Number one,
9:41
Speaker 2: show us what's happening with your your cloud computing segment
9:45
Speaker 2: and its growth? Are you seeing you know, activity there
9:48
Speaker 2: that indicates that all this data center capacity that you're
9:51
Speaker 2: building is you know, generating more revenue and potentially profit?
9:54
Speaker 2: And Number two, Hey, what's your what are your kapex plans?
9:57
Speaker 2: Are you going to you know, keep them? Are you
10:00
Speaker 2: to increase them? Are you going to decrease them? Those
10:02
Speaker 2: are the two things that I think everyone wants to
10:03
Speaker 2: see here.
10:04
Speaker 4: Mark, Yeah, one thing I'm wondering about, and others who
10:08
Speaker 4: follow this more closely can probably ask this in a
10:12
Speaker 4: more useful way. But their historic return on invested capital,
10:17
Speaker 4: return on equity, and we'll just use Alphabet as an example,
10:20
Speaker 4: but some of the other hyperscalers certainly fall into this characterization.
10:25
Speaker 4: They do a very good job of putting shareholder capital
10:28
Speaker 4: to good use. Another way of saying that, I guess
10:32
Speaker 4: is that they're just really profitable. Will these investments generate
10:38
Speaker 4: the same I'll just call it margins, even though there
10:41
Speaker 4: are different ways you could define it as their past
10:43
Speaker 4: investments have or are they pouring a lot of capital
10:46
Speaker 4: into what is effectively going to become a commodity? Will
10:50
Speaker 4: asked differently, will this boom and like past booms did
10:55
Speaker 4: with an over investment, ruinous competition, and are dramatic reduction
11:01
Speaker 4: in margins followed? I guess by you know, a consolidation, bankruptcies,
11:06
Speaker 4: that kind of stuff.
11:08
Speaker 2: The big thing again, let's just think of this. You mentioned, hey,
11:12
Speaker 2: the return on invested capital, you know, is historically it
11:14
Speaker 2: had been very strong way to look at it. Let's
11:17
Speaker 2: just talk about again, just for those of you who
11:19
Speaker 2: are listening, like what that actually means if you look
11:23
Speaker 2: at it from this perspective, return on invested capital, the
11:26
Speaker 2: formula for it will make this really clear why this
11:29
Speaker 2: is a question. What you're doing. You're taking your after
11:31
Speaker 2: tax net profits and that is your top line of
11:35
Speaker 2: the fraction. The bottom line is invested capital. Hey, return
11:39
Speaker 2: on invested capital. It's literally like, when you look at it,
11:42
Speaker 2: you're like, oh, this is the return on top of
11:43
Speaker 2: the invested capital. Invested capital is three items. Number one
11:49
Speaker 2: it is total debt number two, total equity number three,
11:54
Speaker 2: subtract out the cash. So you're basically looking at, hey,
11:57
Speaker 2: when I look at you know, the capital that I've
12:00
Speaker 2: put into this thing minus the cash I have on hand,
12:02
Speaker 2: because again that's not invested just sitting on your books effectively,
12:06
Speaker 2: what is the return that I am generating. The piece
12:10
Speaker 2: that is interesting here is that when when you look
12:15
Speaker 2: at it, okay, the things that Google has typically I'm
12:20
Speaker 2: pulling them up just so that I can give you
12:21
Speaker 2: the actual numbers here when we look at Google and
12:26
Speaker 2: their total liabilities that are outstanding, which I think again
12:32
Speaker 2: you would say, let's you know, basically looking at okay, like, actually,
12:34
Speaker 2: let's look let's look at long term debt specifically Google
12:38
Speaker 2: historically from basically they went public back in two and
12:44
Speaker 2: from two through twenty eleven they had no debt. They
12:48
Speaker 2: started doing some borrowing in the twenty tens and even
12:50
Speaker 2: in the early twenty twenties, and they got up to
12:52
Speaker 2: around twenty six billion dollars in debt in September of
12:56
Speaker 2: twenty twenty. They were flat there pretty much through the
13:00
Speaker 2: next five years, and since March of last year, their
13:04
Speaker 2: long term debt has exploded from twenty five billion in
13:07
Speaker 2: debt up to ninety four billion dollars in debt. So
13:13
Speaker 2: if you just look at this from the perspective of
13:15
Speaker 2: that return, on invested capital formula. Hey, you're making the
13:19
Speaker 2: bottom number bigger while the top number stays the same,
13:23
Speaker 2: all else being equal. What does that do that makes
13:26
Speaker 2: the return less? All else being equal?
13:29
Speaker 4: I think investors might be expecting past performance from the hyperscalers,
13:33
Speaker 4: but they're getting into a different business. As the point
13:35
Speaker 4: I was trying to make, ch why would I expect
13:38
Speaker 4: the return from Google's early innovations and search and advertising
13:43
Speaker 4: just brilliant path breaking stuff. Why would I expect the
13:48
Speaker 4: returns on datus on cloud computing as revolutionary as it
13:53
Speaker 4: I'll just say is is likely to be. I'll diserted
13:55
Speaker 4: the experts. Why would I expect that to be as
13:58
Speaker 4: profitable when everybody and their brother is getting into building
14:02
Speaker 4: data centers and stuffing it with cloud computing hardware.
14:07
Speaker 2: The other piece of that, remember shareholders equities, the other
14:09
Speaker 2: side that's gone from three hundred and forty five.
14:11
Speaker 4: I asking the right question, Chuck, okay, one hundred percent
14:15
Speaker 4: and the time I'm gending you know, the numbers are
14:17
Speaker 4: gonna bear this out.
14:18
Speaker 2: Because here we're gonna they say, never do math on
14:21
Speaker 2: the radio. We're gonna do math on the radio, and
14:23
Speaker 2: you're gonna like it. Uh, So here's the deal. A
14:27
Speaker 2: year ago Google had three hundred and forty five billion
14:29
Speaker 2: dollars in equity. So you look at the total and
14:31
Speaker 2: you say, okay, a year ago, in total, Google had
14:34
Speaker 2: three hundred and seventy billion dollars between equity and debt.
14:38
Speaker 2: On the books. Equity now is up to four seventy eight.
14:41
Speaker 2: Debt we set us up to ninety five. So make
14:43
Speaker 2: the math easy. Let's just call it five hundred and
14:46
Speaker 2: seventy billions. So you've seen the basically that the capital
14:50
Speaker 2: invested has gone from three seventy to five seventy in
14:55
Speaker 2: the past year. The net income over that time has
15:01
Speaker 2: gone from one hundred and fifteen to one hundred and sixty.
15:04
Speaker 2: So I do the math on the radio. Might I
15:08
Speaker 2: add and what we're looking at here? And again I
15:11
Speaker 2: don't know if this is like there's problem. I just
15:13
Speaker 2: broad brushes, but bear with me. Here one fifteen divided
15:17
Speaker 2: by three seventy is a return on invested capital of
15:19
Speaker 2: thirty one percent. So that's what their roiice was a
15:23
Speaker 2: year ago. Today we are looking at one sixty divided
15:27
Speaker 2: by five seventy. It's twenty eight percent. That's a ten
15:32
Speaker 2: percent reduction in the rate of their of the return
15:35
Speaker 2: on invested capital. You might say, no, Chuck, that's three.
15:38
Speaker 2: I'm saying no, like to go from thirty one down
15:40
Speaker 2: to twenty eight your returns being reduced by ten percent
15:43
Speaker 2: relative to what it was before. And we're in the
15:46
Speaker 2: early innings of this capex that they're planning to do.
15:50
Speaker 2: They're planning to increase capex an additional fifty percent next
15:54
Speaker 2: year from this year, and it doesn't include what they've
15:56
Speaker 2: done in the second half of this year.
15:58
Speaker 4: Yet, I would expect a relationship that, like the letter J,
16:01
Speaker 4: over time it will come down. And this is what
16:04
Speaker 4: their marketers will tell you, what their investment public relations
16:10
Speaker 4: people will tell you. We're making investments, higher profits are
16:13
Speaker 4: to come so over time, Roi c Roe other measures
16:17
Speaker 4: of how good, how effectively they're deploying your capital should
16:20
Speaker 4: look like a jay. It's going to go down, then
16:22
Speaker 4: it's going to go up, according to them. Why would
16:25
Speaker 4: anybody think that given the saturation that we're laying the
16:29
Speaker 4: groundwork for, is what I'm asking.
16:32
Speaker 2: And this is the whole question is again, as you say,
16:35
Speaker 2: the expectation is you'all have heard the classic you know
16:39
Speaker 2: you got to spend money to make money. The idea is, Okay,
16:42
Speaker 2: we're in the spending money phase right now, and then
16:44
Speaker 2: eventually it's going to make us money. The interesting thing
16:47
Speaker 2: about Google's business, and this is the question that Mark
16:50
Speaker 2: raised earlier, is look, for the first twenty years as
16:53
Speaker 2: a publicly traded company, Google didn't have to spend money
16:56
Speaker 2: to make money. Google made money to spend money. It
17:01
Speaker 2: was okay, we're making so much money, we can then
17:03
Speaker 2: afford to spend it, and so you know, we're able
17:08
Speaker 2: to basically, you know, fund that directly out of operations.
17:15
Speaker 2: You know this, by the way, if you look at
17:17
Speaker 2: their return on invested capital, like it basically was always
17:22
Speaker 2: rock solid. You know, they went through a brief period
17:25
Speaker 2: in the mid tens when you know, the things were
17:30
Speaker 2: moving more heavily to mobile and they were kind of
17:31
Speaker 2: adjusting their strategy in this and that. But Google always
17:36
Speaker 2: had just a ridiculous amount of cash to be able
17:40
Speaker 2: to spend. You can look at this, by the way,
17:43
Speaker 2: if you look at Google's free cash flow historically until
17:47
Speaker 2: the last year, it was basically just like a consistently
17:51
Speaker 2: upward moving up into the right. It was just okay,
17:56
Speaker 2: like our cash flows up. Great, we can spend some
17:58
Speaker 2: money out of that and still see increasing free cash flow.
18:00
Speaker 2: There's no problem. The thing here is, Hey, their free
18:03
Speaker 2: cash flow has now gone from seventy three billion dollars
18:06
Speaker 2: down to sixty four billion after this quarter. I'm guessing
18:09
Speaker 2: it's probably going to be in the ballpark of like
18:11
Speaker 2: fifty five to fifty billion for the last twelve months.
18:15
Speaker 2: And so now they are in the Hey, we're gonna
18:18
Speaker 2: spend this money, but it's gonna lead to more, but
18:21
Speaker 2: more and more.
18:21
Speaker 4: Return on all the hyper scalers have had virtual strangleholds
18:25
Speaker 4: on their respective markets for thirty years, and now they're
18:29
Speaker 4: they're all chasing the same thing. How in the world
18:32
Speaker 4: could margins remain the same they're pees suggest investors are
18:36
Speaker 4: expecting that to be the case. How could that be
18:39
Speaker 4: the case?
18:40
Speaker 2: Is?
18:40
Speaker 4: I think the key you all you want to distill
18:42
Speaker 4: this to like a key point, because it's overwhelming. That's
18:45
Speaker 4: the key point. Sorry.
18:46
Speaker 2: No, They've all built their moats in their respective business
18:49
Speaker 2: virtual monopolies, and now they are going into a business
18:52
Speaker 2: that has no moat against each other, against each other
18:55
Speaker 2: and anyone else who wants to get involved.
18:57
Speaker 4: This is the destructive competition phase of over investment.
19:01
Speaker 2: Yeah, which again, as I've been saying for a year now,
19:06
Speaker 2: we're all gonna be using more AI five years from
19:08
Speaker 2: now than we are today unless it unless it kills
19:11
Speaker 2: us all than we won't. Then we'll use less. That's
19:16
Speaker 2: the only way we use less is if it can
19:17
Speaker 2: trust me. We have another story we're gonna get to about, like, hey,
19:21
Speaker 2: it might actually kill us, but we're all gonna be
19:24
Speaker 2: using more AI five years from now, but you still
19:27
Speaker 2: could have a bunch of capital. It gets washed away
19:29
Speaker 2: in the wreckage. Let's take a quick break. We've got
19:32
Speaker 2: asked Todd and Wall Street Watch next.
19:38
Speaker 1: Like us on Facebook and follow us on Twitter at
19:41
Speaker 1: TFE show. Breaking business news is always first Right here
19:46
Speaker 1: on the Financial Exchange Radio Network. Time now full of
19:50
Speaker 1: Wall Street Watch tracking the stocks, the data, and the
19:53
Speaker 1: headlines driving markets so far today, Right here on the
19:56
Speaker 1: Financial Exchange Radio.
19:58
Speaker 3: Network, markets are mixed with oil. Rice is again higher
20:01
Speaker 3: as tensions between the US and Iran remain elevated. Investors
20:04
Speaker 3: are also reading for a batch of earnings from Google's
20:08
Speaker 3: alphabet Tesla and IBM after the bell. Right now, the
20:12
Speaker 3: Dow is up about a tenth of a percent eighty
20:15
Speaker 3: three points higher, SMP five hundred down about a tenth
20:18
Speaker 3: of a percent or ten points lower. Nasdaq is down
20:21
Speaker 3: about half a percent to one hundred and fifteen points lower,
20:24
Speaker 3: RUSS two thousands down about a third of a percent
20:27
Speaker 3: ten You're treasureheeled up three basis points at four point
20:30
Speaker 3: sixty six percent, and oil jumping three percent higher, trading
20:34
Speaker 3: at eighty seven dollars a barrel. According to the Wall
20:38
Speaker 3: Street Journal, AMD and Thropic have signed a deal for
20:41
Speaker 3: tens of billions of dollars worth of AI servers, supplying
20:44
Speaker 3: Entropic with much needed computing power, in further strengthening AMD's
20:49
Speaker 3: competition against leader in Nvidia. AMD will also invest up
20:53
Speaker 3: to five billion dollars in Entropic. AMD is up by
20:57
Speaker 3: one percent. Meanwhile, shares in super Microcomputer surging twenty three
21:00
Speaker 3: percent after the AI server company projected fourth quarter margins
21:04
Speaker 3: of fifteen to seventeen percent, nearly double its prior target,
21:09
Speaker 3: and AT and T saw its revenue climb two point
21:12
Speaker 3: three percent from a year ago in the previous quarter.
21:14
Speaker 3: The telecom giant also added more monthly wireless phone subscribers
21:18
Speaker 3: than expected. In the previous quarters, sending the stock up
21:23
Speaker 3: by three percent. I'm Tacker Silva and that is Wall
21:28
Speaker 3: Street Watch.
21:30
Speaker 1: This is Ask Todd on the Financial Exchange Radio Network.
21:34
Speaker 1: If you have an existing estate plan or in the
21:36
Speaker 1: market for one, Todd Lutsky is here to answer your
21:38
Speaker 1: questions and help you plan for a later life. Ask
21:41
Speaker 1: Todd is presented by Cushing and Dolan, serving Massachusetts and
21:44
Speaker 1: New England for more than thirty five years, helping families
21:48
Speaker 1: with the state and tax planning, medicaid planning, and probate law.
21:51
Speaker 1: Visit Cushingdolan dot com. Now here's Todd Lutsky.
21:56
Speaker 2: Todd Lonsky from the law firm of Cushing and Dolan
21:58
Speaker 2: now joins us live on air right now for Ask Todd.
22:03
Speaker 2: It's your chance to ask Todd your estate planning questions.
22:06
Speaker 2: Last week we either got through three or four, so
22:10
Speaker 2: it was close to an all time record. But again,
22:13
Speaker 2: normally two to three is what we have time for,
22:15
Speaker 2: so get calling it. Eight eight eight to zero five
22:18
Speaker 2: two two sixty three. That's the number to call to
22:20
Speaker 2: ask Todd your questions live on air right now. Again
22:26
Speaker 2: eight eight eight to zero five two two six three
22:29
Speaker 2: is the number. And again we can only get through
22:31
Speaker 2: a couple of calls, so make sure you get calling
22:33
Speaker 2: early to get your spot in line. Eight eight eight
22:36
Speaker 2: to zero five two two six three. Mister Lutsky, how
22:41
Speaker 2: are you doing today?
22:43
Speaker 5: I'm doing pretty good, pretty good. Still early though, Yeah. Yeah,
22:46
Speaker 5: you know, I was at the post office the other day.
22:49
Speaker 5: Some people go there, and I saw this guy and
22:52
Speaker 5: he was just yelling into an envelope. Yeah, and I'm like,
22:55
Speaker 5: my dude, like, what are you doing? He goes, I'm
22:58
Speaker 5: sending a voicemail like, oh, oh, that's it.
23:02
Speaker 2: Wasn't that wasn't expecting.
23:04
Speaker 5: That me neither, Todd.
23:06
Speaker 2: I want to talk a little bit about irrevocable trusts. Yeah,
23:09
Speaker 2: and let's say that I decide, Hey, I'm I'm going
23:13
Speaker 2: to uh utilize one of these irrevocable trusts to protect
23:18
Speaker 2: assets from medicaid. Yes, how does my house go into
23:22
Speaker 2: that trust? Like, what's the process for actually getting a
23:25
Speaker 2: property into an irrevocable trust?
23:27
Speaker 5: Yeah? So and again, people overthink this stuff a lot,
23:31
Speaker 5: and I and I think it's a great question, Chuck,
23:33
Speaker 5: because it the house number one is there is their
23:36
Speaker 5: biggest asset mostly, uh, especially when we're trying to protect
23:39
Speaker 5: assets from the nursing home. So, so most people have
23:43
Speaker 5: this and they want to put it in and they're like,
23:46
Speaker 5: what do I do. It's a simple, it's it's a deed.
23:49
Speaker 5: You you go get the old deed, do a title rundown,
23:53
Speaker 5: prepare new deed that says, you know, I Todd Letsky
23:55
Speaker 5: here by, you know, convey my property located at to
24:01
Speaker 5: Todd Lutsky or to maybe you know, Alexa, trustee of
24:06
Speaker 5: the Todd Lutsky family, irrevocable trust. And you basically change
24:10
Speaker 5: just the granting section on the deed. The rest of
24:15
Speaker 5: the deed remains exactly the same. And once you put
24:18
Speaker 5: that on record here, your house is effectively in there
24:21
Speaker 5: and you really notice no change to your life day
24:25
Speaker 5: to day.
24:26
Speaker 2: So, once once a home is in an irrevocable trust, yeah,
24:31
Speaker 2: how do how does it change what you do day
24:34
Speaker 2: to day? And let's say you want to sell it
24:35
Speaker 2: down the road? How does that process work?
24:37
Speaker 6: Yeah?
24:38
Speaker 5: So I think we'll answer both of those questions. Once
24:41
Speaker 5: you know day to day, how does it change? And
24:42
Speaker 5: then selling, of course doesn't happen day to day, so
24:44
Speaker 5: let's address that too. So day to day, you know,
24:48
Speaker 5: if your house is in there. You got to pay
24:49
Speaker 5: your you know, electric bill and your utility bill, heat bill. Right,
24:53
Speaker 5: sometimes the real estate tax bill comes you got to
24:55
Speaker 5: pay that, right. That is all the same, just like
25:00
Speaker 5: you were doing before. You just write the check out
25:02
Speaker 5: of your own personal account, pay those bills. Now, if
25:08
Speaker 5: I want to sell it, it's a little different, but
25:11
Speaker 5: it's still very much the same. Who decides if you
25:15
Speaker 5: want to sell? Well, you do? You decide today, you
25:18
Speaker 5: decide tomorrow if it's if it's in your trust. While
25:22
Speaker 5: you might not be the trustee, you do decide to sell.
25:26
Speaker 5: So you tell the trustee, we're putting it on the market.
25:29
Speaker 5: You put the for sale sign in the front yard
25:30
Speaker 5: and list it. If the trustee gives you any grief,
25:34
Speaker 5: you have the power to remove and replace the trustee.
25:36
Speaker 5: So you again are able to sell the house without
25:40
Speaker 5: getting anybody's permission to sell the house, which is exactly
25:44
Speaker 5: where you were before so before the trust So so far,
25:48
Speaker 5: so good. Then when you sell, the house goes out
25:52
Speaker 5: and the money comes in, just like it would if
25:54
Speaker 5: you were selling it, you would give away the house
25:57
Speaker 5: and you would collect the check. This time, the only
25:59
Speaker 5: difference is the check goes into the trust. Once the
26:01
Speaker 5: check is in the trust, the house is sold, you're
26:04
Speaker 5: gonna have a capital gains tax to pay. Good news.
26:07
Speaker 5: These trusts are grand tor trust for income tax purposes.
26:10
Speaker 5: So in English, that simply means that if you got
26:12
Speaker 5: a five hundred thousand dollars capital gains exclusion when you
26:15
Speaker 5: would have sold your house outside the trust, because you're
26:18
Speaker 5: married and it's your primary residence, you're gonna get that
26:22
Speaker 5: exact same five hundred thousand dollars capital gains exclusion when
26:26
Speaker 5: you sell the house from the trust. You don't lose
26:29
Speaker 5: your primary residence exclusion because it's a grand tour trust.
26:33
Speaker 5: So there you go.
26:35
Speaker 2: Talking with Todd Lutsky from the law firm of Cushing
26:37
Speaker 2: and Dolan. We do still have some room on the
26:39
Speaker 2: phone lines at eight eight eight two zero five two
26:42
Speaker 2: two sixty three. Again we call the segment Ask Todd
26:46
Speaker 2: because you get to ask Todd your estate planning questions
26:49
Speaker 2: live on air right now. Eight eight eight to zero
26:54
Speaker 2: five two two six three is the number again, that
26:58
Speaker 2: is eight eight eight two zero two two sixty three.
27:02
Speaker 2: We're gonna take a quick break here, but when we return,
27:05
Speaker 2: we're getting right to your calls with Todd again. That
27:08
Speaker 2: phone number is eight eight eight two zero five two
27:12
Speaker 2: two sixty three.
27:14
Speaker 1: Ask Todd with Todd Lutsky every Wednesday at ten thirty
27:17
Speaker 1: only here on the Financial Exchange Radio Network. Todd Lutsky
27:23
Speaker 1: answers your questions about a state and elder life planning
27:26
Speaker 1: every Wednesday at ten thirty right here on the Financial
27:29
Speaker 1: Exchange Radio Network.
27:36
Speaker 2: Alright, let's get right to your questions with Todd Lotski.
27:40
Speaker 2: First up, we got Gail in Rockland. Gail, what's your
27:43
Speaker 2: question for Todd?
27:45
Speaker 7: Hi? My question is I just retired and I have
27:50
Speaker 7: a home that I paid one hundred and forty two
27:52
Speaker 7: thousand and four, but it's now worth close to seven
27:55
Speaker 7: hundred thousand.
27:56
Speaker 5: Nice.
27:56
Speaker 7: If I put my house in the irrevocable trust and
28:00
Speaker 7: it is willed to my children after I pass away,
28:04
Speaker 7: do they have to pay taxes on the difference of
28:07
Speaker 7: the one hundred and forty two to the seven hundred thousand.
28:10
Speaker 5: So, for everybody's easy math, let's make it two hundred
28:15
Speaker 5: minus seven hundred is your five hundred thousand of gain. Okay,
28:19
Speaker 5: let's just make it simple and so the I can
28:23
Speaker 5: give you the quick answer. But I want to explain
28:26
Speaker 5: so they understand how it works. The quick answer is no,
28:30
Speaker 5: they're not going to have to pay any capital gains tax.
28:32
Speaker 5: So a little just a little more explanation on that
28:35
Speaker 5: so everyone understands. Is if you buy a house long
28:39
Speaker 5: ago for two hundred and today it's worth seven hundred.
28:43
Speaker 5: The difference is gain. So that's five hundred thousand of gain.
28:47
Speaker 5: Now are you married, Gail?
28:49
Speaker 6: Oh, I'm not okay.
28:51
Speaker 5: So for gail situation, if there was a five hundred
28:53
Speaker 5: thousand dollars gain and she wanted to sell the house
28:56
Speaker 5: before she passes, again, we don't know. Life goes on though.
29:00
Speaker 5: You throw the house in an irrevocable trust, like Chuck
29:02
Speaker 5: asked me earlier, how do you sell the house? I
29:05
Speaker 5: went through that just a second ago, from the irrevocable trust.
29:08
Speaker 5: So Gail, you'd still be able to live there. You'd
29:11
Speaker 5: still be able to sell the house, make all your decisions,
29:13
Speaker 5: move if you want to move, So there's no restrictions
29:16
Speaker 5: for you or anyone in the irrevocable trust situation. So
29:20
Speaker 5: that is good news for Gail. And then if you
29:23
Speaker 5: did sell it, Gail out of that trust before you
29:25
Speaker 5: died because you wanted to move, you would have that
29:28
Speaker 5: five hundred thousand dollars gain, and you'd be able to
29:30
Speaker 5: take a two hundred and fifty thousand dollars capital gains
29:33
Speaker 5: exclusion because you're single and it's your primary residence, so
29:38
Speaker 5: you'd only have to pay gain on the two fifty.
29:40
Speaker 5: But if Gail decides to live there the rest of
29:42
Speaker 5: her life and pass away, because the way the trust
29:45
Speaker 5: is designed, where she would have retained the right to
29:49
Speaker 5: the income from that trust during her life, that would
29:53
Speaker 5: cause the asset in the trust to be included not
29:56
Speaker 5: in her probatea state, but in her gross estate, thereby
29:59
Speaker 5: give the kids the beneficiaries a step up in cost
30:04
Speaker 5: basis on the date of her death. So if when
30:06
Speaker 5: she died, say the house grew to a million dollars,
30:09
Speaker 5: we wouldn't care because the kid's basis on the date
30:13
Speaker 5: of death would be a million dollars and they could
30:16
Speaker 5: sell it for a million in their capital gains tax
30:19
Speaker 5: would be zero. So there you go for that, folks.
30:23
Speaker 5: These are the kinds of questions that are answered in
30:27
Speaker 5: this Unlocking the Power of Irrevocable Trust guide. Right. It
30:31
Speaker 5: is designed as a question and answer guide. This in fact,
30:33
Speaker 5: this very question is one of them that are in there?
30:36
Speaker 5: I updated, I add all over thirty years, I've been
30:39
Speaker 5: putting in questions that I get that are common questions
30:42
Speaker 5: for everybody in terms of how they work. If you
30:45
Speaker 5: never knew if these trusts were right for you, when
30:48
Speaker 5: you get done reading this guide, you'll be able to say, yeah,
30:50
Speaker 5: I love this trust or Nope, not for me. So folks,
30:53
Speaker 5: it'll help you get your estate planning off the ground.
30:56
Speaker 5: Call and get it eight sixty six eight four eight
30:59
Speaker 5: five six or Legal Exchange Show dot com again eight
31:03
Speaker 5: six six eight four eight five six nine nine or
31:07
Speaker 5: Legal Exchange Show dot com. You can always go to
31:10
Speaker 5: Cushing Dolean pc our Instagram page for more information.
31:14
Speaker 2: Ton I got another one here for you. Let's go
31:15
Speaker 2: to Richard in South Hadley. Richard, what is your question
31:19
Speaker 2: for Todd Lutsky?
31:21
Speaker 6: Okay, here's the question. I own a big house and
31:26
Speaker 6: I use it as I been in breakfast and it's
31:29
Speaker 6: by primary residence married over eighty. Question is can I
31:40
Speaker 6: can I claim the capital well the deduction as my
31:45
Speaker 6: primary residence when I sell well?
31:48
Speaker 5: The fact that I assume you own it, you and
31:50
Speaker 5: your wife own it jointly correct? So do you live
31:55
Speaker 5: at the problem here is that you don't live in
31:58
Speaker 5: the entire property, correct, You you live in some of
32:01
Speaker 5: it and you and you rent some of it. Correct.
32:06
Speaker 5: So I'm just gonna give you a general example. It's
32:09
Speaker 5: much like a two family, right. If you got a
32:10
Speaker 5: two family in Somerville, you got a unit upstairs, a
32:13
Speaker 5: unit downstairs, You live in the unit downstairs, you rent
32:16
Speaker 5: the unit upstairs. If that's the case, when you go
32:18
Speaker 5: to sell it, yes, you still get your capital gains
32:22
Speaker 5: exclusion of in this case five hundred thousand dollars because
32:26
Speaker 5: you're married. However, you're only going to get the five
32:31
Speaker 5: hundred thousand dollars exclusion off of half of the gain
32:36
Speaker 5: because the other half of the gain associated with the
32:40
Speaker 5: house part that you rent is not your primary residence.
32:44
Speaker 5: So you'll simply allocate the gain between the rental and
32:48
Speaker 5: the primary residence and allocate the exclusion only against the
32:53
Speaker 5: part that is your primary residence. So hope that helps, Todd,
32:57
Speaker 5: I got another one for you here. Let's go to
32:59
Speaker 5: Tom in Ohio. Tom, you are on with Todd Lutsky.
33:05
Speaker 8: Hey, Todd, you know I hear a lot about the
33:08
Speaker 8: uh irrevocables with parking a home into it. Uh huh,
33:13
Speaker 8: but I don't But I don't hear a lot about
33:15
Speaker 8: what other assets you could possibly put into an irrevocable.
33:20
Speaker 8: I know there's a five year look back, but I mean,
33:22
Speaker 8: can you put IRA's ross? Can you put other things
33:25
Speaker 8: into the irrevocable to shoulder them or shelter them from
33:30
Speaker 8: the nursing home.
33:31
Speaker 5: So the the quick answer is going to be way
33:34
Speaker 5: more assets than a home can go in. And let
33:36
Speaker 5: me explain what those are. And and of course give
33:39
Speaker 5: you a shout out for being from Ohio because that's
33:41
Speaker 5: my home state. So there you go. IRA's roths. We'll
33:47
Speaker 5: start with those. No, they don't go in this trust.
33:50
Speaker 5: They don't go in any trust. Why because they're a
33:54
Speaker 5: taxable event. If you try to pull them out and
33:57
Speaker 5: put it in the IRA. Now not a roth, A
33:58
Speaker 5: ROTH wouldn't be taxable event, but it would no longer
34:01
Speaker 5: be a roth once it's retitled to the trust, So
34:05
Speaker 5: you tend to leave those outside the trust. However, a
34:09
Speaker 5: rental property right, you could put it in your vacation home.
34:13
Speaker 5: You could put it in your investment portfolio. You've got
34:17
Speaker 5: that investment portfolio wherever you're managing trading your accounts, retitle
34:22
Speaker 5: it in the trust. Yes, you can still manage that account,
34:25
Speaker 5: invest the account right, take out the income, you pay
34:28
Speaker 5: the taxes at your own rate, not at a trust rate. Again,
34:33
Speaker 5: because it's a grant or trust, which is really what
34:36
Speaker 5: I was just describing. For the last caller, that Gail
34:38
Speaker 5: explaining why she got that capital gains exclusion, So that
34:43
Speaker 5: was a benefit. Same thing here, and even that your
34:46
Speaker 5: rental property, you could collect the rent right because you
34:49
Speaker 5: get all the rental income it comes in, comes out
34:52
Speaker 5: to you. You continue to enjoy the rental property, sell
34:55
Speaker 5: it whenever you want to sell it, you'll have the
34:57
Speaker 5: same capital gains tax that you would have if it
34:59
Speaker 5: was not in there. So great question, Tom, And there
35:02
Speaker 5: is lots of other assets that can go in these trusts,
35:06
Speaker 5: but not iris.
35:08
Speaker 6: Todd.
35:09
Speaker 2: I have yet another one for you. We got Joe
35:12
Speaker 2: and Springfield on the line. Joe, what's your question for Todd?
35:16
Speaker 9: Hey Todd, longtime listener, first time follow my question.
35:20
Speaker 5: Here is my folks.
35:23
Speaker 9: I'm in my fifties. My brothers and I we're in
35:26
Speaker 9: our fifties. They're in their eighties, and we put their
35:30
Speaker 9: assets in a trust. The five year looked back is
35:34
Speaker 9: coming up. But they're all of a sudden, we've found
35:36
Speaker 9: out that they're gonna inherit some money from a friend,
35:41
Speaker 9: like three hundred thousand sounds like a problem. Well, they
35:44
Speaker 9: want to get it to us, But does the five
35:46
Speaker 9: year look back to start they receive that money.
35:49
Speaker 5: So no, no, So the first of all, and you
35:52
Speaker 5: didn't say the word irrevocable, So I hope the trust
35:54
Speaker 5: is irrevocable. That they put it in and it wasn't revocable.
35:57
Speaker 5: So as long as that's irrevocable, and let's assume it
36:00
Speaker 5: drafted right, the stuff they put in there long ago
36:02
Speaker 5: is protected and unaffected by their inheritance. Now, this inheritance
36:07
Speaker 5: that comes in is three hundred thousand dollars is accountable asset.
36:10
Speaker 5: I get it. And if they got sick, you know,
36:13
Speaker 5: we'd have to do things, buy an annuity. There's things
36:15
Speaker 5: you can do last minute to you know, sort of
36:18
Speaker 5: slow the bleeding and save these assets, even if they
36:21
Speaker 5: don't give them away. But if they really want to
36:23
Speaker 5: give it away, they can. But you do need to
36:26
Speaker 5: understand that the moment they make that gift to you kids,
36:30
Speaker 5: the five year clock starts to run only for the
36:34
Speaker 5: gift that they gave you, not for what they put
36:38
Speaker 5: in the trust years and years and years ago. So
36:41
Speaker 5: they're not going to impact that at all. But they
36:44
Speaker 5: will be denied Medicaid eligibility for the gift that they're
36:47
Speaker 5: making for you. So I certainly wouldn't give it all away,
36:50
Speaker 5: maybe half at best. I might even just think about
36:53
Speaker 5: their age and their health and focus on some last
36:55
Speaker 5: minute things that could be done if they got sick.
36:58
Speaker 5: Hope that helps, mister than Thanks so much for joining
37:01
Speaker 5: us today. Always a pleasure. Thank you.
37:03
Speaker 1: This has been Asked Odd on the Financial Exchange Radio network,
37:07
Speaker 1: Ask Todd with Todd. Lutsky has been presented by Cushing
37:09
Speaker 1: and Dolan, serving Massachusetts and New England for more than
37:12
Speaker 1: thirty years, helping families with the state and tax planning,
37:15
Speaker 1: Medicaid planning and probate law. Call eight hundred and three
37:18
Speaker 1: nine three four thousand and one or visit Cushingdolan dot com.
37:22
Speaker 1: The views expressed in this segment are solely those of
37:23
Speaker 1: Cushing and Dolan Armstrong Advisor. He does not provide any
37:26
Speaker 1: legal or tax advice. Please consult with your legal or
37:28
Speaker 1: tax advisor on such matters. Cushing and Armstrong do not
37:30
Speaker 1: endorse each other and are not affiliated.
37:33
Speaker 2: Still more to come as we head towards the second hour,
37:35
Speaker 2: including what happens when AI agents start trying to hack
37:39
Speaker 2: other AI agents. That's a fun one. Also going to
37:43
Speaker 2: talk a little bit about SpaceX's IPO, and then we're
37:48
Speaker 2: also going to be covering a little bit on the FED,
37:52
Speaker 2: since we've got a FED meeting next Wednesday. Actually we're
37:54
Speaker 2: a week out now, and so time to start talking
37:56
Speaker 2: about what Kevin Warris's second FED meeting may or may
38:01
Speaker 2: not look like. Let get all that more coming up
38:05
Speaker 2: an hour or two. Stick around back in a bit