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Nvidia’s Trillion-Dollar Slide Tests the AI Trade · The Financial Exchange Show

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Speaker 1: is the Financial Exchange with Chuck Zada and Paul Lane.
1:10
Speaker 2: It's Chuck, Paul and Tucker with you here. And as we.
1:15
Speaker 3: Kick things off today, got a little bit of volatility
1:20
Speaker 3: going on, nothing crazy, but you know, about half percent
1:23
Speaker 3: down in the S and P five hundred and again,
1:28
Speaker 3: I think we're at a point in the year where
1:30
Speaker 3: there are a few things that are kind of coming
1:32
Speaker 3: into focus, and you know, we're gonna kind of direct
1:37
Speaker 3: how the next six months or the last six months
1:39
Speaker 3: of the year end up going number one. We got
1:43
Speaker 3: an earning season that's gonna be kicking off pretty darn
1:45
Speaker 3: soon at this point. Taking a look at you know,
1:50
Speaker 3: kind of your your big ones that are out there,
1:53
Speaker 3: they're on tap, you know, a few weeks out, but
1:55
Speaker 3: as of right now, you've basically got earning you know,
2:00
Speaker 3: really starting to kick off in the next week or
2:04
Speaker 3: so with the banks starting reporting. I believe it's next Tuesday,
2:07
Speaker 3: JP Morgan, Bank of America, Goldman Sachs. So again we're
2:10
Speaker 3: within a week of that kickoff, and then the heavy
2:13
Speaker 3: hitters they are back a couple weeks further as you
2:17
Speaker 3: get to the last week in July and first week
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Speaker 3: in August. So this is all kind of prologue to that.
2:24
Speaker 3: But the two things that I think are worth watching here,
2:28
Speaker 3: and there are two top stories as we kick today's
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Speaker 3: show off. Number One, President Trump early this morning saying,
2:38
Speaker 3: and I'll quote him, he was asked, you know about
2:40
Speaker 3: the ceasefire with Iran. He said, quote to me, I
2:42
Speaker 3: think it's over. I don't want to deal with them anymore.
2:45
Speaker 2: Now.
2:45
Speaker 3: Whether that means that the ceasefire actually is or is
2:48
Speaker 3: not over, I think is an open question. Just because
2:53
Speaker 3: the two countries have been firing stuff at each other
2:56
Speaker 3: for the last month or so, even after the ceasefire
3:00
Speaker 3: extension from June seventeenth, I think it was and so
3:06
Speaker 3: it's not like you've had a complete halting of firing,
3:08
Speaker 3: Like the firing hasn't actually ceased during that time. I
3:13
Speaker 3: think the open question on this is, Hey, does this
3:17
Speaker 3: represent an actual change in how the two countries are
3:20
Speaker 3: going to approach things or is it just, you know,
3:23
Speaker 3: more talk. We've seen both sides kind of talking to
3:26
Speaker 3: their respective, you know, domestic and international audiences throughout this.
3:31
Speaker 3: Is this just more talk? And I think we're gonna
3:34
Speaker 3: have to see how things play out there. The other
3:36
Speaker 3: one that we're gonna get to is what's going on
3:38
Speaker 3: with semiconductors in the tech space, and I think these
3:42
Speaker 3: are the two things that are really going to determine
3:45
Speaker 3: how the next three to six months go. On the
3:49
Speaker 3: oil side, you want this to just be talk and
3:52
Speaker 3: not have oil become a problem for markets. Again, on
3:55
Speaker 3: the tech side, you want to see something that shows
3:59
Speaker 3: that semi doctor stocks can continue to find ways to
4:03
Speaker 3: grow that revenue pie and continue to get the customers
4:06
Speaker 3: they want and not start to see growth rolling over.
4:09
Speaker 3: So these are the big questions for the second half
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Speaker 3: of the year in my opinion.
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Speaker 4: Yeah, it's to elaborate that a little bit further. You know,
4:15
Speaker 4: the war ties directly into to inflation, which is a
4:19
Speaker 4: byproduct of the fact that if we are to see
4:23
Speaker 4: more closures of another closure of the Strait or just
4:26
Speaker 4: any decrease in traffic in terms of global trade, that's
4:30
Speaker 4: something that will certainly be on economists and investors' minds
4:33
Speaker 4: here heading into the next few weeks. We'll have a
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Speaker 4: FED meeting at the end of the month, and the
4:38
Speaker 4: twenty ninth this afternoon will get the FED meeting minutes
4:42
Speaker 4: from last month's meeting at two o'clock, and so inflation
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Speaker 4: and the AI trade to me if I'm talking with people,
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Speaker 4: those are usually the two things that I'm bringing up
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Speaker 4: that are at the most focused for the second half
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Speaker 4: of the year here in terms of the US and
4:58
Speaker 4: Iran and those talks. It's something that I've just sort
5:02
Speaker 4: of thrown my hands up in the air and just
5:04
Speaker 4: you keep a prize of what's going on in the news,
5:06
Speaker 4: but I'm sort of done trying to speculate as to
5:10
Speaker 4: when this progress is going to be made, and more
5:13
Speaker 4: just react to what you see on a daily basis.
5:16
Speaker 3: President Trump later this morning I'm quoting here from Bloomberg,
5:20
Speaker 3: also indicated that they may put the blockade back in effect.
5:24
Speaker 3: So obviously, look, if you get to that point, then
5:26
Speaker 3: you do start to most likely see the ceasefire breaking
5:28
Speaker 3: down more heavily. The piece that I'll point out again,
5:32
Speaker 3: I'm a big believer in pay attention to what people do,
5:34
Speaker 3: not what people say. It's what I've said throughout this
5:37
Speaker 3: entire conflict. That's what I've said about things even before.
5:41
Speaker 3: The piece that caught my eye overnight was actually not
5:44
Speaker 3: anything from the US or Iran as it relates to oil,
5:49
Speaker 3: but rather it was something from little country in Asia
5:53
Speaker 3: called China.
5:54
Speaker 2: Some of you may have heard of it very little.
5:58
Speaker 2: And here's the thing.
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Speaker 3: China is the main reason why oil prices did not
6:05
Speaker 3: go sky high in May or June. They cut their
6:09
Speaker 3: imports by somewhere in the range of four to six
6:12
Speaker 3: million barrels a day for crude oil. And when you
6:16
Speaker 3: have global inventories looking like they did, that means hey,
6:19
Speaker 3: for a couple months, they basically, you know, pulled three
6:21
Speaker 3: hundred million barrels worth of demand off the table for
6:25
Speaker 3: crude oil. China overnight indicated that they were removing their
6:31
Speaker 3: refined product export band for the remainder of July. So
6:36
Speaker 3: here's the thing about the Chinese energy industry. China produces
6:39
Speaker 3: actually about four million barrels a day of crude oil,
6:42
Speaker 3: but they still need to import quite a bit more
6:44
Speaker 3: in order to provide for the supply of crude to
6:48
Speaker 3: make the gas, diesel, jet fuel, all the stuff you
6:51
Speaker 3: need to run a country. They have a number of
6:54
Speaker 3: large state owned refineries, but they also operate what are
6:57
Speaker 3: known as these teapot refineries, which sound like, you know.
7:00
Speaker 2: Look so cute.
7:00
Speaker 3: Look at these little tea they're still you know, sizable,
7:03
Speaker 3: and that they're not just refining like one barrel of oil.
7:06
Speaker 3: But they're not these giant state owned enterprises. And pretty
7:10
Speaker 3: much what's happened in the last couple of months is
7:12
Speaker 3: a lot of these teapot refineries have you know, either
7:14
Speaker 3: shut down completely or cut their runs significantly, because China
7:20
Speaker 3: was most likely using significant stores not just of crude
7:26
Speaker 3: oil that they had, you know, stockpiled, but also refined
7:28
Speaker 3: product that they had you know, probably stockpiled.
7:31
Speaker 2: No one really knows.
7:31
Speaker 3: Because it's you know, China, everything's kind of opaque. So
7:36
Speaker 3: here's the thing. When you have refineries, if you if
7:40
Speaker 3: you've ever worked at an oil refinery, I haven't, but
7:43
Speaker 3: I know enough to be dangerous on it. The way
7:45
Speaker 3: that oil refiners make their money is by paying X
7:49
Speaker 3: four crude and selling for X plus you know Y
7:53
Speaker 3: for the refined product. The number that we look at
7:56
Speaker 3: is what's called a crack spread. It's basically the difference
7:58
Speaker 3: between what crew costs and what the refined product that
8:01
Speaker 3: they sell they're able to realize. Crackspreads in the energy industry,
8:07
Speaker 3: the common one that's looked at is a three tow
8:09
Speaker 3: to one crack spread, typically sit somewhere in like the
8:12
Speaker 3: twenty to thirty dollars range. They're up at around sixty
8:15
Speaker 3: right now, so it's really profitable with oil at seventy
8:19
Speaker 3: to refine it into products. If China is getting rid
8:23
Speaker 3: of this product export ban stands to reason, at least
8:27
Speaker 3: the way I see it, that these teapot refineries, which
8:29
Speaker 3: China has a lot of them, and it can equate
8:31
Speaker 3: for a lot of demand for crude oil. Hey, if
8:34
Speaker 3: they can make a boatload of money starting to spool
8:36
Speaker 3: up production and then selling it to whoever needs it, gee,
8:41
Speaker 3: that could represent a significant increase in crude oil demand
8:44
Speaker 3: from China because you're going to need crude oil in
8:47
Speaker 3: order to make that product. So the question that popped
8:50
Speaker 3: into my head is, hey, is it a coincidence that
8:54
Speaker 3: as tensions started to ratchet up between Iran and the
8:56
Speaker 3: US again, that China is now not being friendly to
9:00
Speaker 3: the situation but instead maybe saying, Okay, we're going to
9:04
Speaker 3: provide that additional demand and yeah, if you really want
9:09
Speaker 3: to play this game, fine, have at it. The other
9:12
Speaker 3: thing that's exacerbating this is the Ukraine for the last
9:17
Speaker 3: six months or so, but really ramping up in the
9:19
Speaker 3: last couple is doing these nightly drone raids into Russia
9:22
Speaker 3: where they're just basically lighting.
9:25
Speaker 2: Russian refineries on fire on a regular.
9:26
Speaker 3: Basis, to the point where Russia has now curtailed up,
9:32
Speaker 3: hang on, let me get that Russia is now curtailed.
9:36
Speaker 3: They're exports of refined products and in fact are needing
9:39
Speaker 3: to import gasoline, jet fuel, and diesel. I mean again,
9:44
Speaker 3: this is Russia. So like, you know, things are bad
9:46
Speaker 3: if Russia is needing to import these things. So this
9:50
Speaker 3: is leading us to the point where, hey, we're gonna
9:53
Speaker 3: have to see how the next few weeks play out.
9:55
Speaker 3: Because if this does escalate militarily and China decides, hey,
10:00
Speaker 3: we're gonna play hardball by start by restarting those imports
10:04
Speaker 3: that we had curtailed, then you've got a situation where
10:07
Speaker 3: oil prices can potentially get ugly in the next couple months.
10:10
Speaker 3: I still am a big believer that the real window
10:13
Speaker 3: for any problems is, you know, throughout the remainder of
10:16
Speaker 3: this year, because after that, more export capacity becomes available
10:20
Speaker 3: through additional pipelines that come online and things like that.
10:23
Speaker 3: Businesses continue to adapt to the situation and reducing their
10:26
Speaker 3: you know, hydrocarbon demand as much as possible. But the
10:31
Speaker 3: China piece overnight was the one that really caught my
10:33
Speaker 3: eye more than what's being set here.
10:37
Speaker 4: You have obviously been following the energy marks a lot
10:39
Speaker 4: closer than I have over the last few months with
10:41
Speaker 4: all that's been going on here, and what has been
10:44
Speaker 4: so puzzling to me is we covered a piece on
10:46
Speaker 4: this show earlier this week check where they mentioned, I
10:49
Speaker 4: think it was Morgan Stanley, that there could be a
10:51
Speaker 4: glut of oil coming later this year, which just sounded
10:55
Speaker 4: so foreign to what we had been talking about for
10:58
Speaker 4: months prior. And some of that is due to what
11:00
Speaker 4: you just mentioned with China before. They were probably a
11:02
Speaker 4: big reason why the oil prices were able to fall
11:06
Speaker 4: as precipitously as they did once there was this perhaps
11:10
Speaker 4: renewed enthusiasm that a deal will be struck. But here
11:12
Speaker 4: we sit today.
11:13
Speaker 2: Obviously oil is.
11:14
Speaker 4: Up on the news of the you know, continued back
11:17
Speaker 4: and forth between the US and Iran, but I still
11:21
Speaker 4: am puzzled as to that story, this idea of there
11:24
Speaker 4: being a glut of inventory in the near term, based
11:28
Speaker 4: on just the factors that you mentioned that hey, maybe
11:30
Speaker 4: China's demand is going to start to pick back up again.
11:33
Speaker 4: You have all the issues that are still ongoing between
11:35
Speaker 4: Russian and Ukraine. The energy markets are absolutely impossible to predict.
11:39
Speaker 4: It really did surprise me that we were sitting at
11:41
Speaker 4: sixty eight dollars a barrel for as long as we did,
11:43
Speaker 4: when it seemed like it was tenuous as if to
11:47
Speaker 4: whether or not a deal was going to be struck.
11:49
Speaker 4: And so I guess the question I post to you
11:51
Speaker 4: is just why the energy markets have stayed so low
11:56
Speaker 4: from a price perspective with all these potential pitfalls, And
12:00
Speaker 4: maybe it is just as simple as less demand than anticipated.
12:05
Speaker 3: The Chinese lack of demand is the biggest one. Beyond that,
12:09
Speaker 3: it's something where we've talked about this a bit, but look,
12:13
Speaker 3: there's this belief that, Okay, this isn't going to be
12:17
Speaker 3: you know, this isn't the US administration is not going
12:20
Speaker 3: to let something catastrophic happen.
12:22
Speaker 2: Is the belief that's out there.
12:24
Speaker 3: And look, if you're someone trying to trade these things
12:27
Speaker 3: and you keep seeing oil getting bludging down. Anytime there's
12:29
Speaker 3: any you know, positive news on what's going on in
12:33
Speaker 3: the Middle East, you basically say, no, there's better ways
12:35
Speaker 3: to make money than doing that. And so, like you
12:37
Speaker 3: take a look right now, there's basically no long interest
12:41
Speaker 3: in a ton of short interest in anything related to energy,
12:47
Speaker 3: and it's just because no one wants to play that game.
12:49
Speaker 3: On the long side, it's just a dangerous one.
12:51
Speaker 2: So we'll see what happens.
12:53
Speaker 3: Look, this could just be you know, more sparring and
12:55
Speaker 3: it ends up being nothing, and you know, we get
12:57
Speaker 3: through the rest of the summer, because hey, if things
13:00
Speaker 3: look the way they've looked the last few weeks in
13:02
Speaker 3: terms of volumes through horm moves, it's not really a problem.
13:05
Speaker 3: So you're not getting back to fifty five dollars barrel oil,
13:07
Speaker 3: but you're not going back to ninety either. It's something
13:11
Speaker 3: where if that happens, that's great and that's what you'd
13:15
Speaker 3: like to see.
13:16
Speaker 2: But let's see if this is a turn.
13:17
Speaker 3: Just because China making that announcement last night made my
13:20
Speaker 3: intenna perk up a little bit, and so we'll see
13:22
Speaker 3: where things go. But otherwise, I don't know that there's
13:26
Speaker 3: necessarily any huge shift here.
13:28
Speaker 2: Quick break.
13:28
Speaker 3: When we come back, we're talking in video and semiconductors.
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14:29
Speaker 3: Let's talk a little bit about what's going on in
14:31
Speaker 3: semiconductor land.
14:32
Speaker 2: A couple pieces here.
14:34
Speaker 3: Number one from Bloomberg and videos one trillion dollars slide
14:37
Speaker 3: since valuation down to pre AI boom levels. Second one,
14:42
Speaker 3: Micron stock stumbles deeper into bear market. Is it time
14:46
Speaker 3: to worry? At the first thing I'll always point out
14:48
Speaker 3: individual stocks can't go into bear markets. They are a
14:51
Speaker 3: single stock, not a market, and thus it's a technical thing.
14:56
Speaker 3: But like, the reason why we call them bear markets
14:59
Speaker 3: is be because they don't happen all the time, and
15:02
Speaker 3: it's happening to the entire market. Individual stocks can go
15:05
Speaker 3: through a period where they fall twenty percent pretty regularly.
15:08
Speaker 3: It's not like an uncommon thing to see that happen.
15:11
Speaker 2: Yep.
15:12
Speaker 3: So I just don't like making a huge deal about like, oh,
15:15
Speaker 3: this stock fell twenty percent. Well, lots of stocks see
15:17
Speaker 3: twenty percent volatility in any given year and it's not
15:22
Speaker 3: particularly notable.
15:23
Speaker 4: What drives me crazier is the valuation play, using the
15:27
Speaker 4: dollars of evaluation, like oh, a trillion dollar drop for
15:30
Speaker 4: in Nvidia when you are a five trillion dollar company.
15:34
Speaker 2: They were six almost yeah, five seven, So.
15:36
Speaker 4: I mean that's that's how you get right to the
15:38
Speaker 4: trillion dollar thing. And this is also used in you know,
15:41
Speaker 4: Mark Zuckerberg lost billions of dollars because MetaStock went down.
15:45
Speaker 4: I get why journalists do it because it's eye popping
15:49
Speaker 4: for the reader, But the more and more you read
15:51
Speaker 4: of them, you're like, Okay, I know this trope. But anyway,
15:54
Speaker 4: we digress.
15:55
Speaker 2: We do.
15:56
Speaker 3: So here's the thing in Video right now, if you
15:58
Speaker 3: were to look at some of its financials, price to
16:02
Speaker 3: earnings ratio is at thirty point one five times earnings.
16:05
Speaker 3: Price to sales is at about nineteen times sales. So
16:11
Speaker 3: the big question with in Vidia is not whether they're
16:13
Speaker 3: making a boatload of money right now.
16:16
Speaker 2: They all plan are.
16:17
Speaker 3: The big question within Vidia is will they continue to
16:20
Speaker 3: see the amount of money they make grow and if not,
16:25
Speaker 3: then what do the earnings look like two, three, four
16:28
Speaker 3: years out, Because then in Vidia quickly becomes not something
16:32
Speaker 3: that's trading thirty times earnings, but maybe sixty times earnings.
16:36
Speaker 3: If these are not sustainable, it's just kind of wild
16:41
Speaker 3: when you actually look at it. In Vidia's net income
16:45
Speaker 3: right now is for the trailing twelve months one hundred
16:47
Speaker 3: and sixty billion dollars, one hundred and sixty billion dollars.
16:51
Speaker 2: It's it's crazy.
16:53
Speaker 3: Before the AI boom, they're trailing twelve month earnings, we're around.
16:59
Speaker 2: Five billionion dollars.
17:01
Speaker 3: So the question that matters anything in investing is always
17:06
Speaker 3: distilled down to this. I say this over and over.
17:08
Speaker 3: Is this permanent or is it temporary. Back in twenty
17:11
Speaker 3: twenty one, we had a whole bunch of people thinking
17:13
Speaker 3: that the conditions were that were created by the pandemic
17:16
Speaker 3: were permanent. It's why everyone was piling into Zoom and
17:20
Speaker 3: Peloton and all these you know, stay at home stocks.
17:24
Speaker 3: And as it turned out, well that was just a
17:26
Speaker 3: temporary thing. Remember all the stuff about like New York
17:28
Speaker 3: is dead? Does New York City look dead when the
17:30
Speaker 3: Knicks won the NBA Finals this year? Or did it
17:33
Speaker 3: look like the coolest place on earth? Looked like the
17:36
Speaker 3: coolest place on earth. So with Nvidia, the question is, hey,
17:41
Speaker 3: this inflection to one hundred and sixty billion dollars in
17:44
Speaker 3: net income, is that temporary or permanent? I don't know
17:51
Speaker 3: the answer to this, but that is the entire ballgame
17:54
Speaker 3: when it comes to AI, not just for them, but
17:58
Speaker 3: also for the quite the one it's being mentioned here Micron.
18:02
Speaker 3: If you look at their net income and go back
18:06
Speaker 3: to pre you know, uh, pre AI bubble, I'm gonna
18:11
Speaker 3: call it a bubble. I've been doing that all along.
18:13
Speaker 3: Micron actually had net income of negative three billion dollars
18:17
Speaker 3: in mid twenty twenty three. As of right now, their
18:20
Speaker 3: net income for the last twelve months is fifty billion dollars.
18:24
Speaker 3: Is this an outlier or is this, you know, kind
18:26
Speaker 3: of the new norm that we should expect from them.
18:29
Speaker 2: That's the whole ballgame.
18:30
Speaker 4: That is the whole question.
18:31
Speaker 2: And there's two different stories here.
18:33
Speaker 4: And Nvidia had the luxury with markets of being priced
18:37
Speaker 4: on a forward price to earnings basis a little bit
18:39
Speaker 4: higher in past years because their earnings growth continue to
18:42
Speaker 4: be really robust, and to be clear, it still is,
18:44
Speaker 4: but the pace of it is projected to slow in
18:48
Speaker 4: twenty twenty seven. There are some things out there where
18:51
Speaker 4: you have competitors looking to undercut margins that in Vidia
18:55
Speaker 4: has commanded, which have sat around seventy five percent for
18:59
Speaker 4: the last so years. Here, does that sustain is the question?
19:02
Speaker 4: And with Micron, you know, anyone who's invested in memory
19:05
Speaker 4: stocks knows it's been a commoditized, painful injury industry to
19:08
Speaker 4: invest in. The question is it different now and is
19:11
Speaker 4: there more sustained demand for these memory products in subsequent
19:15
Speaker 4: years three to five years out. That's what the whole
19:17
Speaker 4: valuation ball game is about here.
19:20
Speaker 3: Now you want to talk about bear markets, the Korean
19:23
Speaker 3: stock market, the COSPY is down twenty two percent since
19:26
Speaker 3: June twenty second, twenty two percent fall in two weeks.
19:29
Speaker 3: Now we're talking to bear market, but it's still up
19:31
Speaker 3: seventy two percent year to date. Quick break when we
19:34
Speaker 3: returned Wall Street Watch and ask Todd.
19:39
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19:51
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20:00
Speaker 5: We're seeing some volatility with markets in negative territory after
20:03
Speaker 5: President Trump said the ceasefire with Iran was over, following
20:07
Speaker 5: another round of Iranian attacks in the Strait of Hormuz,
20:10
Speaker 5: sending oil prices higher. Right now, the Dow is down
20:14
Speaker 5: one point two percent or six hundred and thirty seven
20:17
Speaker 5: points lower, s and P five hundred down six tenths
20:20
Speaker 5: of a percent, Nasdaq down about four tenths of one
20:23
Speaker 5: percent or one hundred points lower, Rush two thousand down
20:27
Speaker 5: over eight tenths of a percent. Tenure Treasure reeled up
20:30
Speaker 5: six basis points at four point five eight percent, in
20:35
Speaker 5: oil jumping over six percent higher. Trading right below seventy
20:40
Speaker 5: five dollars a barrel. Energy stocks including Chevron and others
20:44
Speaker 5: are seeing gains in reaction to increase tensions with Iran,
20:48
Speaker 5: while travel stocks like United, Delta and Carnival are seeing losses.
20:52
Speaker 5: I mean. Meanwhile, Apple said it plans to increase investment
20:56
Speaker 5: in US made chips, with plans to spend more than
20:59
Speaker 5: thirty billion dollars with Broadcom in the next five years.
21:02
Speaker 5: Apple shares it down modestly, while Broadcom is up by
21:06
Speaker 5: four percent after sinking eighteen percent yesterday following plans to
21:10
Speaker 5: sell more shares. Rivian Automotive stock is down another two
21:14
Speaker 5: and a half percent today, and at two o'clock this afternoon,
21:19
Speaker 5: the FED will post meeting minutes from Kevin Worris's first
21:22
Speaker 5: meeting as FED share I'm Tucker Silva and that is
21:27
Speaker 5: Wallstreet Watch.
21:29
Speaker 1: This is Ask Todd on the Financial Exchange Radio Network.
21:32
Speaker 1: If you have an existing estate plan or in the
21:35
Speaker 1: market for one, Todd Lutsky is here to answer your
21:37
Speaker 1: questions and help you plan for a later life. Ask
21:40
Speaker 1: Todd is presented by Cushing and Dolan, serving Massachusetts and
21:43
Speaker 1: New England for more than thirty five years, helping families
21:46
Speaker 1: with a state and tax planning, Medicaid planning and probate law.
21:50
Speaker 1: Visit Cushingdolan dot com. Now here's Todd.
21:54
Speaker 3: Lutsky, and as promised, we are now joined by the one,
21:59
Speaker 3: the only.
22:02
Speaker 2: Are you actually the only Todd Lotsky. I don't know.
22:05
Speaker 6: I think so.
22:06
Speaker 2: There might be another one somewhere, but you're are Todd Lutsky.
22:08
Speaker 2: And that's that's it. That's the one that we love,
22:10
Speaker 2: you know. That's that's the important thing.
22:12
Speaker 6: World doesn't need another one of me.
22:13
Speaker 3: The uh, the phone lines are open if you want
22:16
Speaker 3: to talk to our Todd Lutsky at eight eight eight
22:19
Speaker 3: to zero five two two sixty three. Because the segment's
22:22
Speaker 3: called Ask Todd. It's your chance to ask Todd your
22:25
Speaker 3: estate planning questions live on air right now. Eight eight
22:31
Speaker 3: eight to zero five two two sixty three is the number.
22:34
Speaker 3: We can usually get through two maybe three calls, So
22:37
Speaker 3: get calling early to uh get in line to ask
22:39
Speaker 3: Todd your questions, because otherwise we'll run out of time
22:42
Speaker 3: and we won't be able to do that. Eight eight
22:44
Speaker 3: eight two zero five two two sixty three is the number.
22:48
Speaker 2: Mister Lutsky. How you doing today?
22:50
Speaker 6: I am doing wonderful you. Okay, it's always something with you.
22:55
Speaker 2: Went out for Chinese yesterday, Chinese folk. Yeah, got to
22:58
Speaker 2: the end of the meal, got the cookie, opened it
23:02
Speaker 2: no paper inside. Kind of unfortunate. That is very unfortunate.
23:06
Speaker 2: Unfortunate and unfortunate a little bit. Uh.
23:09
Speaker 3: I want to talk a little bit about irrevocable trusts.
23:13
Speaker 3: Know that the term irrevocable can scare people a little bit.
23:17
Speaker 3: How does an irrevocable trust actually work specifically? I guess
23:21
Speaker 3: we're talking the ones that are used to protect assets
23:24
Speaker 3: from medicaid Like what right?
23:25
Speaker 2: What do they actually do? How does how does it
23:29
Speaker 2: do that? I guess so?
23:30
Speaker 6: And I'm glad you clarified that, right, because there's so
23:33
Speaker 6: many irrevocable trusts out there. I mean, I always worry
23:36
Speaker 6: when the you know, clients come and they call and
23:38
Speaker 6: they say, they say, uh, you know, I googled irrevocable
23:42
Speaker 6: trusts and I got like a million hits. That's because
23:45
Speaker 6: there's a lot of different kinds. We're focusing in this,
23:48
Speaker 6: Chuck said, we're focusing primarily on the irrevocable medicaid trust.
23:53
Speaker 6: And it's so different because in a lot of ways
23:56
Speaker 6: it's irrevocable, but in a lot of ways, you'll feel
23:58
Speaker 6: that you haven't lost any control it all. And I
24:00
Speaker 6: think that's the line share of the fear that many
24:04
Speaker 6: people have when they're dealing with these with these trusts.
24:08
Speaker 6: So how does it work? I mean, it has language
24:10
Speaker 6: in there that in essence says, you know, you have
24:13
Speaker 6: the right to the income, but not directly the right
24:17
Speaker 6: to the principle. So basically, if if you can't get
24:21
Speaker 6: the principle, the nursing home can't get the principle directly.
24:24
Speaker 6: But at the end of the day, you're going to
24:26
Speaker 6: find when you when you go through this document, when
24:28
Speaker 6: you go through this if you want, you know, the
24:30
Speaker 6: guide we're given away also deals with these trusts. You're
24:33
Speaker 6: going to learn really how they work day to day.
24:37
Speaker 6: Like people come in and they'll say, well, if I
24:39
Speaker 6: put my house in can I sell it? Well, yes,
24:42
Speaker 6: and can I buy another house and then move? What
24:45
Speaker 6: if I want to move after I set up a trust, Yes,
24:47
Speaker 6: you can sell it and move. And what about the
24:51
Speaker 6: you know the adverse, you know, income tax consequences. I
24:54
Speaker 6: hear all the time when I google these trusts that
24:56
Speaker 6: they're irrevocable and they have like really bad income tax rates. Well, no,
25:00
Speaker 6: if you make it a grand tour trust for income
25:02
Speaker 6: tax purposes, you're considered the owner. And if you're the owner,
25:06
Speaker 6: then you still get the same capital gains tax treatment
25:09
Speaker 6: you would get if you sold your own house. So
25:12
Speaker 6: what I mean by that is there's Section one twenty
25:14
Speaker 6: one of the Code says you get a five hundred
25:16
Speaker 6: thousand dollars capital gains exclusion on selling your home if
25:20
Speaker 6: you're married and it's your primary residence. Oh but if
25:23
Speaker 6: I put it in the trust, then I don't own it. Well,
25:25
Speaker 6: you still get the five hundred thousand dollars capital gains exclusion,
25:29
Speaker 6: so there's no adverse income tax to selling it. You
25:33
Speaker 6: could buy another house. Yeah, well, if you sell it,
25:35
Speaker 6: you're technically homeless. I know it sounds weird, but you
25:38
Speaker 6: can then go buy another house and move to any.
25:42
Speaker 2: State doesn't matter.
25:43
Speaker 6: The trust will go with you and you won't reset
25:47
Speaker 6: that five year waiting period, so you can then just
25:50
Speaker 6: have the money go out and a new house come in.
25:52
Speaker 6: You're saying, well, gee, that sounds like a lot of
25:53
Speaker 6: access to principle. Yeah, but that's okay. You're allowed to
25:58
Speaker 6: do that and have your new house and live in
26:01
Speaker 6: another state if you want to, and not not restart
26:04
Speaker 6: the clock. So, I mean there's so many things you
26:06
Speaker 6: could put your you know, you could put your rental
26:08
Speaker 6: property in. You can put vacation homes in. People wonder,
26:11
Speaker 6: you know what can go in there, your investment portfolio,
26:14
Speaker 6: manage your income. I mean there's collect income. There's so
26:18
Speaker 6: much you can do and so much flexibility with these trusts.
26:20
Speaker 6: But but people still get get nervous with them.
26:23
Speaker 3: Talking with Todd Lutsky from cushingan Dolan, we do still
26:26
Speaker 3: have room on the phone lines for your estate planning
26:29
Speaker 3: questions for Todd. Phone number is eight eight eight two
26:33
Speaker 3: zero five two two sixty three. That's the number to
26:36
Speaker 3: call to ask Todd your estate planning questions live on
26:40
Speaker 3: air right now eight eight eight to zero five two
26:45
Speaker 3: two six three. Again limited time to uh you know
26:48
Speaker 3: actually uh take your calls, So do make sure that
26:51
Speaker 3: you get in line so that we can.
26:53
Speaker 2: Get to you.
26:54
Speaker 3: Eight eight eight two zero five two two sixty three
26:57
Speaker 3: is the number. We're going to take a quick break,
27:00
Speaker 3: but when we return, it's right to your calls. That
27:02
Speaker 3: number one more time is eight eight eight two zero
27:06
Speaker 3: five two two six three.
27:08
Speaker 1: Ask Todd with Todd Lutsky every Wednesday at ten thirty
27:12
Speaker 1: only here on the Financial Exchange Radio Network. You're listening
27:18
Speaker 1: to Ask Todd with Todd Lutsky on the Financial Exchange
27:22
Speaker 1: Radio Network.
27:36
Speaker 3: All right, let's get to your questions with Todd Lotsky.
27:39
Speaker 3: First up, we've got Bill in New Hampshire. Bill, what
27:42
Speaker 3: is your question for Todd?
27:45
Speaker 4: Hi?
27:45
Speaker 7: Can you hear me?
27:46
Speaker 4: Okay?
27:47
Speaker 2: Sure?
27:48
Speaker 7: So does this type of trust with the five year
27:51
Speaker 7: that should work in New Hampshire or just in Massachusetts?
27:55
Speaker 7: Somebody told me, oh, it won't work in New Hampshire.
27:58
Speaker 6: Yeah, So I'll give you a give you a little
28:00
Speaker 6: story on that. And this is the problem, right, The
28:03
Speaker 6: misinformation that's out there is distressing. They work in New Hampshire. First,
28:08
Speaker 6: let's get the answer out there. I've got lots of
28:11
Speaker 6: clients in New Hampshire and we've had these trusts now
28:14
Speaker 6: ever since probably two thousand, I'm gonna say nineteen. I
28:20
Speaker 6: haven't really been battling with these trusts because there's been
28:23
Speaker 6: a Supreme Court decision in mass anyway that really blessed
28:27
Speaker 6: these trusts if they're drafted right, and that's the key.
28:30
Speaker 6: So you get to people who maybe they give you
28:32
Speaker 6: misinformation because the trust they've drafted perhaps didn't work because
28:36
Speaker 6: they weren't drafted properly.
28:38
Speaker 2: So I had to do this.
28:40
Speaker 6: I remember it was a three times in a row,
28:42
Speaker 6: but I say in a row, well, probably within a
28:45
Speaker 6: six month timeframe, maybe nine months. I'm attending these these
28:49
Speaker 6: fair hearing trials in New Hampshire defending our trust because
28:54
Speaker 6: they have this one trust case in New Hampshire called
28:57
Speaker 6: the Braiderman case, and the Braiderman case has an irrevocable
29:02
Speaker 6: trust in it with language and they challenged the paragraphs
29:06
Speaker 6: in these trusts, right, the one paragraph they were trying
29:08
Speaker 6: to challenge that, you know, make the assets countable meaning eligible,
29:14
Speaker 6: meaning available for the nursing home was there was a
29:17
Speaker 6: language that's called a limited power of appointment where the
29:19
Speaker 6: trust can make the trustee has the power to make
29:23
Speaker 6: distributions or I'm sorry, the donor has the power to
29:26
Speaker 6: appoint the assets to you know, a limited group of people,
29:30
Speaker 6: children of all generations, but not themselves. And they were saying,
29:34
Speaker 6: there's this case in New Hampshire that had that language
29:37
Speaker 6: in it, and in the same paragraph said oh, and
29:40
Speaker 6: by the way, without creating any obligation or or you know,
29:45
Speaker 6: really just no obligation to do this. It's the donors
29:48
Speaker 6: wish intent hope that if he ever needed money, that
29:51
Speaker 6: the trustee would distribute money out to the kids and
29:54
Speaker 6: it would be used for his care. Well, you can't
29:56
Speaker 6: have that language coupled with the power of attorney, with
29:59
Speaker 6: the power of appointment language. That language would make the
30:03
Speaker 6: asset available, because the rule is if you can get it,
30:08
Speaker 6: then the nursing home can get it. Well, that's bad language.
30:12
Speaker 6: But they were using that case to say the trust
30:16
Speaker 6: is no good. Our trust, Cushing and Dolance trust is
30:19
Speaker 6: no good. Yeah, but our trust doesn't have that bad
30:21
Speaker 6: language in it. It simply says distributions can be made,
30:25
Speaker 6: or the donor can make a distribution or power to
30:28
Speaker 6: appoint the principle to a class consisting of children of
30:32
Speaker 6: all generations, but not to the donor, the donor spouse,
30:36
Speaker 6: or the donor's estate. So we prohibit that, and that's
30:39
Speaker 6: where we stopped. And they said, oh, well, no, you
30:42
Speaker 6: can just distribute it out and then give it to
30:43
Speaker 6: the kid and the kid'll give it back. And no,
30:45
Speaker 6: didn't work, and so I had to go through three
30:48
Speaker 6: of those went through three of those fair hearing decisions,
30:52
Speaker 6: and we won every one. Not that I didn't lose
30:54
Speaker 6: some hair while I was going through it, but we
30:57
Speaker 6: won every single one of those. So long my long
31:00
Speaker 6: story short, if it's not too late, is they work
31:04
Speaker 6: in New Hampshire. But I understand why other attorneys have
31:08
Speaker 6: been telling people that they don't. And that's why the
31:11
Speaker 6: Braiderman case. Folks, I think that was a great question.
31:16
Speaker 6: But also I want you to understand that if you're
31:18
Speaker 6: going to get these trusts, please don't be afraid of
31:21
Speaker 6: them because the word irrevocable is in there. This guide
31:25
Speaker 6: I'm giving away offers question and answer format probably the
31:30
Speaker 6: top thirty five forty questions that I come across, and
31:33
Speaker 6: I keep updating the guide as I get new questions
31:37
Speaker 6: as to how they work day to day? Can I
31:39
Speaker 6: live in my house? Can I sell my house? Is
31:41
Speaker 6: it a taxable gift when I put it in? Do
31:43
Speaker 6: I have bad income tax problems when I sell when
31:47
Speaker 6: I'm living day to day? Can I sell my house?
31:50
Speaker 6: Do I have an adverse capital gains tax?
31:52
Speaker 2: If I do that?
31:53
Speaker 6: Can I put my rental property? And can I collect
31:55
Speaker 6: my income? Folks? Everything you need to know about how
31:59
Speaker 6: these trusts work are in here. And I think at
32:01
Speaker 6: the end of the day, if you've ever wondered if
32:04
Speaker 6: it's right for you, this will answer that question. You'll
32:08
Speaker 6: either like it or you'll hate it. I don't know
32:10
Speaker 6: the answer to that, but you'll know the answer. Get
32:11
Speaker 6: the guide eight six six eight four eight five six
32:15
Speaker 6: nine nine or Legal Exchange Show dot com again eight
32:19
Speaker 6: six six eight four eight five six nine nine or
32:24
Speaker 6: Legal Exchange Show dot com. You can download it there
32:27
Speaker 6: and Cushing Dolan PC our Instagram page also has much
32:30
Speaker 6: more information.
32:32
Speaker 2: Todd, we got another one here for you. Let's go
32:34
Speaker 2: to Let's see it's Ken in Charlestown. Ken. You're on
32:38
Speaker 2: with Tom Lutski.
32:40
Speaker 7: Good morning, Good morning. I have a rental piece of property.
32:44
Speaker 7: It was in a grand Choice trust with my father
32:47
Speaker 7: and I. We were both trustees and both beneficiaries. My
32:51
Speaker 7: father passed. If when I sell this, what are the
32:55
Speaker 7: capital gains gonna be? Will will they?
32:58
Speaker 6: So I got to ask you some more follow up questions. One,
33:01
Speaker 6: because I don't have the document in front of me,
33:03
Speaker 6: maybe you can shed some light on this. You and
33:06
Speaker 6: you and your dad were both trustees. I get that part.
33:10
Speaker 6: But who was the donor of the trust? Who who
33:13
Speaker 6: was listed as the donor?
33:15
Speaker 2: Just your dad?
33:17
Speaker 7: I'm hoping property was left The property was left to
33:20
Speaker 7: an estate and signed over to my dad and I
33:23
Speaker 7: at the same time.
33:24
Speaker 6: So this was so this property, who owned the property
33:28
Speaker 6: when the person died?
33:31
Speaker 7: My grandfather was in a trust prior to.
33:33
Speaker 6: This, and that trust then paid it out to you
33:36
Speaker 6: and your dad. Yeah, so upon Granddad's death, the property
33:42
Speaker 6: came out to you grandson and dad son.
33:46
Speaker 1: Yeah.
33:47
Speaker 6: Okay, you guys then prepare a deed transferring the property
33:50
Speaker 6: into this new trust.
33:51
Speaker 2: Correct?
33:52
Speaker 7: Correct?
33:53
Speaker 6: Okay, so you owned half and your dad owned half? Yes, okay,
33:58
Speaker 6: So was this trust revocable or irrevocable when you created it?
34:05
Speaker 7: Revocable?
34:07
Speaker 6: So here's going to be the answer. I'm fairly certain. Again,
34:13
Speaker 6: not reading the trust, I can give you the for
34:15
Speaker 6: sure answer, And whether there's another half step up in
34:18
Speaker 6: basis or not, I wouldn't know without reading it, but
34:22
Speaker 6: I'm gonna suspect no. So here's what happens when you
34:26
Speaker 6: transfer an asset to an to a revocable trust during
34:30
Speaker 6: life and die with the trust owning it, meaning you
34:34
Speaker 6: controlled it. You are a beneficiary, then that's included in
34:38
Speaker 6: his estate, and it gets a step up in cost
34:42
Speaker 6: basis for that piece. So if he put half in
34:48
Speaker 6: and he died, only his half would be included, and
34:53
Speaker 6: so half would be stepped up in basis. So if
34:57
Speaker 6: the property is worth a million when he dies, five
35:00
Speaker 6: hundred thousand would be the cost basis plus whatever you guys,
35:04
Speaker 6: whatever your basis was when you put it in, meaning
35:07
Speaker 6: your half, whatever your basis was when you put it in.
35:10
Speaker 2: So that would be helpful.
35:12
Speaker 6: Now, if this trust, for some reason, again it's strange
35:16
Speaker 6: that it's done by a father and a son, but
35:19
Speaker 6: if this trust for some reason had a general power
35:22
Speaker 6: of appointment in it, which means you can appoint or
35:25
Speaker 6: he can appoint where the other one's half goes, including
35:28
Speaker 6: to themselves, even though they don't exercise that appointment, that
35:34
Speaker 6: power of appointment, it would cause your half to be
35:38
Speaker 6: included in your dad's estate, and there would be a
35:41
Speaker 6: full step up in basis. But understand that full million
35:44
Speaker 6: dollars would be subject to a state tax. But again,
35:46
Speaker 6: as long as your dad is worth less than fifteen million,
35:49
Speaker 6: there's no federal estate tax. And as long as your
35:52
Speaker 6: dad is worth less than two million, there's no state
35:54
Speaker 6: a state tax, and it would get a full step
35:58
Speaker 6: up in basis. So if it was worth a million
36:01
Speaker 6: and it was fully included in your dad's estate, it
36:04
Speaker 6: would now have a million dollar basis and it would
36:07
Speaker 6: go wherever your dad directed it to go upon his death.
36:10
Speaker 6: If it's to you now, you could sell it for
36:14
Speaker 6: a million and there'd be no capital gains tax at
36:16
Speaker 6: all to pay. Again, not sure what the estate tax
36:21
Speaker 6: situation would be, because it would be fully included in
36:25
Speaker 6: your dad's state. Now, if this was a husband wife situation,
36:28
Speaker 6: that general power of appointment in a joint trust would
36:32
Speaker 6: be in there if we did it. It's the father
36:35
Speaker 6: son relationship that's causing me this pause. So you need
36:41
Speaker 6: to really read the document to see if you can
36:43
Speaker 6: find that power of appointment that allows you to direct
36:46
Speaker 6: where the other one's half goes, including to yourself, your state,
36:51
Speaker 6: creditors of your state. If that's in there, then you
36:53
Speaker 6: might get full inclusion. Otherwise, I think it's pretty safe
36:57
Speaker 6: to say you're going to have half inclusion, which is good.
37:01
Speaker 3: Mister Lutsky. Thank you so much for joining us today.
37:03
Speaker 3: We appreciate it. Always a pleasure.
37:06
Speaker 1: This has been asked Odd on the Financial Exchange Radio
37:09
Speaker 1: network Aske 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.
37:24
Speaker 1: The views expressed in this segment are solely those of
37:26
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
37:31
Speaker 1: advisor on such matters. Cushing and Armstrong do not endorse
37:34
Speaker 1: each other and are not affiliated.
37:35
Speaker 3: Still more to come As we head towards hour two,
37:38
Speaker 3: we'll be talking a little bit about the upcoming earning
37:40
Speaker 3: season and what to expect from it. We also have
37:42
Speaker 3: a few different AI stories we'll be covering. Also going
37:46
Speaker 3: to touch on, hey, what happens if you haven't saved
37:49
Speaker 3: enough for retirement? What are some of the different levers
37:52
Speaker 3: you can pull to try to fix that situation? And
37:56
Speaker 3: then we're also going to be talking about whether any
38:00
Speaker 3: in America would buy Tiny Little electric cars that only
38:05
Speaker 3: go twenty five miles an hour but cost less than
38:08
Speaker 3: fourteen thousand dollars. We'll have all that more coming up
38:12
Speaker 3: an hour two