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Inflation Report Keeps Fed Rate Hike Debate Alive · The Financial Exchange Show

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Speaker 1: Zada and Paul Lane.
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Speaker 2: Well, Welcome to this Wednesday edition of The Financial Exchange.
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Speaker 2: Paul Lane, Chuck Zada, and Tucker Silva here with you
1:15
Speaker 2: as markets open up in relatively mixed territory. We've got
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Speaker 2: a lot to get into today in terms of economic
1:22
Speaker 2: reports as well as some big news from companies in
1:26
Speaker 2: the AI space. We did get an inflation report to
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Speaker 2: start out this morning at eight thirty that has large
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Speaker 2: ramifications for the Federal Reserve and its upcoming decision looming
1:37
Speaker 2: for the month of September, and overall, it seems to
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Speaker 2: be the case where markets are reacting relatively mixed to
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Speaker 2: the data that we saw. So, Chuck, we'll lead it
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Speaker 2: off by kind of recapping what we saw here from
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Speaker 2: this CPI report that came out this morning at eight thirty.
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Speaker 2: From July's data, where we saw a month of a
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Speaker 2: month increase on inflation of about one percent that was
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Speaker 2: relatively in line with estimates. We now sit on a
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Speaker 2: year over year basis with CPI sitting at about three
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Speaker 2: point four percent, and if you look at core CPI,
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Speaker 2: which strips out the impacts of food and energy, we
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Speaker 2: sit around two and a half percent with a point
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Speaker 2: two percent month over month increase. So largely Chuck myself
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Speaker 2: looking at this report, it seems like many of the
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Speaker 2: estimates were relatively in line. We did get some reprieve
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Speaker 2: from the decline and energy prices that contributed a huge
2:31
Speaker 2: drop in the month of June about six percent, and
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Speaker 2: then in July's data here about a one and a
2:36
Speaker 2: half percent drop.
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Speaker 3: Yeah, I think the big takeaways on this when you
2:43
Speaker 3: look at the data here. Number one, if the Fed
2:48
Speaker 3: wants to make a case for you know, continuing to
2:51
Speaker 3: be on hold as far as any changes to interest rates,
2:56
Speaker 3: this could make that case for them as a data
2:59
Speaker 3: point in that Definitely. I'm not saying that that's necessarily
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Speaker 3: the best idea, but I'm saying they could use it
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Speaker 3: in that direction, because Okay, Core came in at point
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Speaker 3: two and it's a two five, you know, year over year, YadA, YadA.
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Speaker 3: The counter to this is that when you look at
3:18
Speaker 3: the factors that tend to pass through into PCE, some
3:25
Speaker 3: of those still have some elevated readings that are likely
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Speaker 3: going to continue to drive this wedge between what we're
3:34
Speaker 3: seeing on core CPI and what we're seeing on Core PCE.
3:37
Speaker 3: So if you look at it and this is kind
3:39
Speaker 3: of flipped in the last couple of years here where
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Speaker 3: Right now, core CPI is running two five, but core
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Speaker 3: PCE is at three to three. And again, like, none
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Speaker 3: of these tell you exactly what inflation is. Like you
3:54
Speaker 3: can't sit here today and be like, well, I believe
3:56
Speaker 3: you know this one because it's you know, no, like,
4:00
Speaker 3: no one of these are one hundred percent accurate. They're
4:02
Speaker 3: all estimates, Like we don't know the actual price changes
4:05
Speaker 3: that we're seeing. But the point I'm making is, hey,
4:08
Speaker 3: there's a point eight percent gap right now between core
4:11
Speaker 3: CPI and core PCE for the last year. The interesting
4:15
Speaker 3: thing is that if you go back to UH when
4:20
Speaker 3: inflation peaked in the spring of twenty twenty two, UH,
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Speaker 3: there was a time when the gap was about one
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Speaker 3: percent in the other direction. It has to do with
4:28
Speaker 3: the composition of them. It has to do with the
4:31
Speaker 3: way that housing is measured in each one in particular,
4:34
Speaker 3: and so you can get this wedge that develops where
4:37
Speaker 3: you're saying, okay, like inflation somewhere in this range, but
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Speaker 3: you know, we don't know exactly what it is. If
4:43
Speaker 3: you go back to UH, you know the twenty tens,
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Speaker 3: generally there wasn't too much daylight between them because inflation
4:50
Speaker 3: wasn't moving around a whole lot. It was generally between
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Speaker 3: like one and a half and two and a half percent,
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Speaker 3: and really talked about no, like we never talked about
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Speaker 3: inflation because it just never showed up anywhere. So I
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Speaker 3: think at this point the case for the Fed to
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Speaker 3: be cutting interest rates is not great new the case
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Speaker 3: for them to be holding interest rates steady, you could
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Speaker 3: make it the case for them to be hiking interest rates.
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Speaker 3: Quite honestly, I still think is fairly strong. And I
5:23
Speaker 3: think the US economy would be just fine if you
5:26
Speaker 3: moved interest rates higher in a meaningful fashion. I'm not
5:29
Speaker 3: talking about doing what we did in uh, you know,
5:32
Speaker 3: twenty twenty two, where you moved up you know, five
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Speaker 3: percent over the course of the year. But FED funds
5:37
Speaker 3: rate right now is at three and a half to
5:38
Speaker 3: three seven five. If you took that up by one percent,
5:42
Speaker 3: the US economy would be fine because the stuff that's
5:45
Speaker 3: driving it isn't dependent on you know, cheap, cheap short
5:49
Speaker 3: term money. The stuff that's driving it right now is
5:52
Speaker 3: all of this AI spending that's happening. It's not people
5:55
Speaker 3: buying houses. Housing activity has been depressed the last four
5:59
Speaker 3: years so it's not like you're gonna throw a wrench
6:01
Speaker 3: in that it's already been wrenched. It's not consumer spending.
6:05
Speaker 3: Consumer spending is fine. It's not hot, it's not cold.
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Speaker 3: It's moving along at a perfectly acceptable pace. And so
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Speaker 3: I personally think that if the Fed wanted to hike
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Speaker 3: interest rates, they could do it, and I don't think
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Speaker 3: it would affect the US economy all that negatively.
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Speaker 2: Particularly the court of a percent based the court of
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Speaker 2: a percent hike that they would be looking at, you
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Speaker 2: would think, like you said, wouldn't have that much of
6:30
Speaker 2: an impact on the interest rate front. It seems like
6:33
Speaker 2: there has been a significant shift in the CME futures
6:38
Speaker 2: probabilities market since Kevin worsh has spoke after the last
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Speaker 2: Federal Reserve meeting, where there is more skepticism out there
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Speaker 2: if the Fed is actually going to use this September
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Speaker 2: media to cut this inflation report only reinforces that skepticism,
6:52
Speaker 2: or just shift in the probabilities on the futures market,
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Speaker 2: where yesterday we were looking at the likelihood of a
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Speaker 2: versus staying put as kind of a fifty, not a cut,
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Speaker 2: rather a hike or staying put as a fifty to
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Speaker 2: fifty proposition for the September meeting. Now, after the release
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Speaker 2: of this most recent report, kind of sitting at sixty
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Speaker 2: two thirty eight in terms of staying pat and not
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Speaker 2: raising interest rates in the September meeting versus doing a
7:21
Speaker 2: quarter percent hikes. So that's how the market seems to
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Speaker 2: be digesting it that this would perhaps reinforce the Fed's
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Speaker 2: case to stay pat not increase rates in September. We
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Speaker 2: will get another inflation report for the fed's next meeting
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Speaker 2: on September nineteenth.
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Speaker 3: And I think obviously the piece there that you have
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Speaker 3: to watch for Right now we are entering the period
7:44
Speaker 3: for collection of data, in particular things like gas prices,
7:49
Speaker 3: which go in and if you did gas prices in
7:51
Speaker 3: the impact that we saw for this report, gas prices
7:55
Speaker 3: energy as a hole, as you mentioned, down about one
7:57
Speaker 3: point five percent, but gasoline down to two point nine
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Speaker 3: percent in July relative to where it was in June.
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Speaker 3: And I'm just eyeballing this using the triple A national average.
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Speaker 3: A month ago we were at three eighty seven. Now
8:09
Speaker 3: we're at four oh three. That shows a four percent increase,
8:13
Speaker 3: you know, moving back up there. And so that means
8:16
Speaker 3: that okay, if you look at the waitings and everything,
8:19
Speaker 3: all else being equal, a plus four for gas instead
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Speaker 3: of a minus two point nine. That's a seven percent difference.
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Speaker 3: And gasoline is weighted in the CPI to the tune
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Speaker 3: of around four percent. And so you do the math
8:34
Speaker 3: out point oh four times point oh seven times one hundred,
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Speaker 3: you get about point three percent higher. So all else
8:41
Speaker 3: being equal, if everything else in the August CPI comes
8:46
Speaker 3: in the exact same, which it never does. But if
8:49
Speaker 3: it were in a similar boat, then instead of CPI
8:52
Speaker 3: coming in at point one percent for August, it'll come
8:54
Speaker 3: in at point four. That's what it's telling you. And
8:58
Speaker 3: so this is some thing where again I think we
9:02
Speaker 3: still need to see some of the other metrics that
9:04
Speaker 3: come out some of the different branches of the FED,
9:07
Speaker 3: the Cleveland and the Dallas FED. Do these trimmed mean
9:09
Speaker 3: and median CPI reports that they put out to give us,
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Speaker 3: you know, a look at how broad inflationary pressures may be.
9:16
Speaker 3: But my point is, look, don't get fooled by the headline,
9:21
Speaker 3: because gas prices aren't gonna come down two point nine
9:24
Speaker 3: percent every month for the rest of your life.
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Speaker 4: They're just not.
9:27
Speaker 3: I wish they would, but they're not. So we're still
9:31
Speaker 3: in this place where inflation is, you know, running core
9:35
Speaker 3: inflation is probably somewhere in the high twoes to low threes.
9:39
Speaker 3: And the question that Kevin worsh is going to have
9:41
Speaker 3: to deal with is, Kevin, you keep telling us that
9:44
Speaker 3: you're gonna restore price stability. Inflation is still above that
9:48
Speaker 3: two percent target, When are you actually going to act
9:51
Speaker 3: to restore price stability? And that's gonna be you know,
9:55
Speaker 3: put to him at some point. If these numbers don't
9:57
Speaker 3: improve in the next few months and we see them,
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Speaker 3: you know, continue to you know, go back towards where
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Speaker 3: we'd like to see them. Just take a quick break.
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Speaker 3: When we return. We got some earnings in the tech
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Speaker 3: space that we're going to.
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Speaker 4: Talk about next.
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11:03
Speaker 3: A couple of tech earnings reports that we got yesterday,
11:07
Speaker 3: and not from you know, giant major tech companies, but
11:11
Speaker 3: still ones whose names we all know and some of
11:14
Speaker 3: us love. Core Weave. They reported earnings yesterday. What do
11:19
Speaker 3: we see from them?
11:19
Speaker 2: Paul, This was a really good quarter for Corewave and
11:23
Speaker 2: as a result, anything kind of AI, data center infrastructure
11:26
Speaker 2: related is jumping pretty significantly.
11:29
Speaker 1: Today.
11:29
Speaker 2: They saw their revenue double from a year earlier. They
11:33
Speaker 2: came in at about two point six billion of revenue.
11:36
Speaker 2: And most noteworthy I think of all this earnings report
11:41
Speaker 2: is they have a sales backlog now that has significantly
11:46
Speaker 2: increased to about one hundred and four billion. That was
11:48
Speaker 2: double what they reported in November. So basically, for listeners
11:53
Speaker 2: out there, what core Weave does is it buys in
11:56
Speaker 2: videos chips that are the most sophisticated out there for
12:00
Speaker 2: training these AI models. They install them corri that is,
12:03
Speaker 2: installs those chips in data centers and then they lease
12:05
Speaker 2: them out to Microsoft and open Ai and other kind
12:10
Speaker 2: of big hyper scalers, So they sit in sort of
12:12
Speaker 2: the middle between Nvidia and the other hyperscalers who don't
12:16
Speaker 2: design the most sophisticated chips out there. The reason that
12:20
Speaker 2: there is a lot of focus on this company and
12:24
Speaker 2: others like it is because of the AI infrastructure data
12:28
Speaker 2: build out that we've spoken about a lot, where hundreds
12:30
Speaker 2: of billions of dollars are being dumped in from these
12:33
Speaker 2: hyperscalers to build out computing capacity. There's a tremendous demand
12:37
Speaker 2: for these data center services. The reason that this stock
12:41
Speaker 2: in particular and others like it have been quite volatile
12:44
Speaker 2: is because the financing that is required to build out
12:48
Speaker 2: these data centers is very significant. They have had to
12:51
Speaker 2: borrow a lot of money. Not to mention, it's really
12:55
Speaker 2: expensive to buy in Vidia chips and the quantities that
12:58
Speaker 2: they're purchasing them in typical and Nvidia rat goes for
13:02
Speaker 2: about three million bucks and the chips I believe are
13:04
Speaker 2: around fifty thousand per chip, So you start to add
13:08
Speaker 2: all those up, it's a lot of money that core
13:10
Speaker 2: Weave needs to dish out. And the way that they
13:12
Speaker 2: do it is they borrow that money at pretty high interest.
13:15
Speaker 2: So while this quarter you can't really beat it up
13:19
Speaker 2: at all in terms of the backlog, the increase in
13:22
Speaker 2: revenue there continues to be clearly a significant amount of
13:26
Speaker 2: demand for their services. What it comes down to, chuck
13:29
Speaker 2: for these companies is going to be the execution. It
13:32
Speaker 2: is a real high wire act that they are going
13:34
Speaker 2: to have to navigate here because they've borrowed a lot
13:37
Speaker 2: of debt to finance out their operations. They have this
13:40
Speaker 2: tremendous backlog. But what could serve as a pitfall is
13:44
Speaker 2: that they're relying upon kind of the shovels and the
13:49
Speaker 2: bricks being laid to use just an expression of building
13:52
Speaker 2: out these data centers, which can be subject to delays.
13:55
Speaker 2: They're reliant upon energy, build out and all these other
13:58
Speaker 2: resources that can be come constrained at points in time,
14:01
Speaker 2: and when you're sitting on a lot of debt and
14:03
Speaker 2: a lot of backlog, you just need to execute. And
14:07
Speaker 2: that is really what is at the heart of this
14:10
Speaker 2: business that has racked up two point three billion in
14:14
Speaker 2: losses since its IPO last year. But in Nvidia is
14:19
Speaker 2: a thirteen percent stakeholder in the company. I should note
14:22
Speaker 2: that as well.
14:23
Speaker 3: Big thing you're not gonna tell if the AI boom
14:28
Speaker 3: is softening, You're not gonna hear it first from these guys.
14:33
Speaker 3: It's going to be in video telling you, hey, like
14:36
Speaker 3: our orders dropped. And really the first place you'll hear
14:39
Speaker 3: it is okay, like company XYZ, I mean pick your hyperscaler.
14:43
Speaker 3: Oh we've decided to you know, cut captains for next year. Yeah,
14:47
Speaker 3: like that's where you'll hear it. And then it'll show
14:48
Speaker 3: up as oh, like yeah, Core Weave is you know,
14:51
Speaker 3: their their backlog is shrinking and things along those lines.
14:55
Speaker 3: So the piece that is interesting when it comes to
15:00
Speaker 3: Corewieve again, they've been public for a little over a
15:03
Speaker 3: year now. They went public March last year. Yeah, so
15:08
Speaker 3: if you will get the reporting that we have, which
15:10
Speaker 3: even you know predates that just because you know, you
15:12
Speaker 3: have quarters that are in your financials even before you
15:15
Speaker 3: go public, just for your S one and everything, if
15:19
Speaker 3: you will get their revenue, as you noted, like the
15:21
Speaker 3: revenue is going crazy in the last you know, eighteen months,
15:24
Speaker 3: It's gone from like one point three billion on an
15:28
Speaker 3: annual basis to seven point six billion. Cooking like obviously
15:32
Speaker 3: there's a lot of revenue growth. The net income side
15:36
Speaker 3: of the ledger is moving in the wrong direction though,
15:39
Speaker 3: Like normally you say, okay, as we get bigger, the biggerness,
15:44
Speaker 3: the biggerness, the biggerness, if you will, will bring with
15:49
Speaker 3: it profits because as we scale, will become more profitable. Instead,
15:54
Speaker 3: net income for the prior twelve months is now at
15:57
Speaker 3: the lowest that it's been since they were a publicly
15:59
Speaker 3: traded come company, negative one point nine to two billion.
16:02
Speaker 3: You say, okay, that's just profit. Like what about free
16:05
Speaker 3: cash flow? Interesting that you should ask Paul. Free cash
16:08
Speaker 3: flow now down to negative thirteen point six five billion
16:11
Speaker 3: dollars for the last twelve months relative to negative seven
16:14
Speaker 3: point five when they went public. So it is a
16:17
Speaker 3: question on like a company like this, the one I
16:21
Speaker 3: would be asking, Hey, you've got six billion dollars in
16:24
Speaker 3: cash on hand, your free cash flow for the last
16:27
Speaker 3: twelve months is negative thirteen billion. This is not a
16:31
Speaker 3: profitable business for you. It's not a cash flow positive
16:34
Speaker 3: business for you. And I know that you can financialize
16:37
Speaker 3: your way out of these things in the short term
16:39
Speaker 3: by issuing more debt or having special purpose vehicles that
16:42
Speaker 3: do this. So it doesn't show up on your your
16:44
Speaker 3: balance sheets and things like that. But I look at
16:48
Speaker 3: this and I go, there's nothing here that suggests that
16:53
Speaker 3: core weave A is going to be profitable anytime soon.
16:58
Speaker 3: B that they have any kind of moat that suggests
17:00
Speaker 3: once they reach profitability they'll stay there. You know, like,
17:05
Speaker 3: is there anything about their business that's unique.
17:09
Speaker 2: I don't know enough about the software within their data
17:12
Speaker 2: centers to how it compares to their competitors, but you're right,
17:16
Speaker 2: they sit in kind of a middleman spot that could
17:19
Speaker 2: be prone to disruption for sure.
17:21
Speaker 3: So I look at this and again, I it's I
17:28
Speaker 3: hesitate to say like it's a great company because the
17:31
Speaker 3: company in and of itself is not profitable, not free
17:33
Speaker 3: cash flow positive, and is not showing any inclination towards
17:37
Speaker 3: changing for the positive on either of those items. It's
17:40
Speaker 3: been a stock that has been choppy where it's gone
17:44
Speaker 3: through you know, these massive run ups where it's you know,
17:47
Speaker 3: tripled or quadrupled in months and then lost seventy five
17:51
Speaker 3: percent of its value in months and then chops ten
17:53
Speaker 3: to twenty percent in a day based on you know,
17:56
Speaker 3: the whims of investors. But it's it's I'm not sure
18:02
Speaker 3: what's actually there when it comes to this company.
18:06
Speaker 2: Ultimately it's going to be I'm trying to think of
18:08
Speaker 2: the The argument against is if they can become one
18:12
Speaker 2: of the central players to put together a significant amount
18:16
Speaker 2: of compute that there's going to be a continuous, just
18:21
Speaker 2: rapidly accelerating amount of demand for then they sit in
18:25
Speaker 2: a good spot. But what sits between that is a
18:28
Speaker 2: lot of need for some pretty flawless execution when you're
18:33
Speaker 2: levered as significantly then of capital, and if I.
18:37
Speaker 3: Guess the question is like, why would you give capital
18:40
Speaker 3: to them when you could give it to anyone else
18:42
Speaker 3: who's building data centers. I don't have a convincing reason
18:47
Speaker 3: why you're like, yes, I should give it to them
18:49
Speaker 3: over anyone else.
18:51
Speaker 2: And Nvidia needs them to Nvidia needs the whole ecosystem
18:55
Speaker 2: to stay up. But yeah, me and you, like another investor,
18:58
Speaker 2: totally get that.
18:59
Speaker 3: So that's where things stand. There another company in this space,
19:03
Speaker 3: super micro Computer. They've gone through accounting scandal after accounting scandal,
19:08
Speaker 3: but hopefully the accountants are good now. They are up
19:12
Speaker 3: thirteen percent after a nice little quarter, big beats on
19:16
Speaker 3: revenue margins improving, so very similar to the Core with
19:20
Speaker 3: again hope hopefully the accounts are good. Now, let's take
19:23
Speaker 3: a quick break. When we return Wall Street Watch and
19:26
Speaker 3: ask Todd.
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19:56
Speaker 5: Network, markets are in pause if Territory after the consumer
20:01
Speaker 5: price index revealed no surprises as the annual rate of
20:05
Speaker 5: inflation pulled back slightly to three point four percent. Right now,
20:09
Speaker 5: the Dow is up modestly or twenty three points higher,
20:12
Speaker 5: SMP five hundred up about a quarter percent or eighteen
20:15
Speaker 5: points higher, NASDAC up six tenths of one percent, or
20:18
Speaker 5: one hundred and fifty one points higher. RUSS two thousand
20:21
Speaker 5: is up about a third of a percent. Tenure treasuryilled
20:24
Speaker 5: down one basis point at four point sixty six percent,
20:27
Speaker 5: and oil mostly flat dipping trading at eighty two dollars
20:31
Speaker 5: a barrel. Core we rallying eighteen percent after posting second
20:34
Speaker 5: quarter revenue that doubled as the AI cloud Giant saw
20:38
Speaker 5: increased demand for its AI compute capacity in the infrastructure
20:43
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20:48
Speaker 5: the data center infrastructure company offered encouraging guidance for earnings
20:51
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20:56
Speaker 5: earnings in revenue expectations, where it said traffic was bounce back.
21:00
Speaker 5: That stock is up by eleven percent. Home Depot CEO
21:03
Speaker 5: Ted Decker said he is taking a temporary medical leave
21:07
Speaker 5: of absence and is expected to return in the next
21:10
Speaker 5: few months. That stock down by over two percent. And
21:14
Speaker 5: breaking news in the world of sports, where ESPN reported
21:18
Speaker 5: that the La Lakers are being sold to American businessman
21:21
Speaker 5: Josh Kushner and Bob Iger for record breaking price over
21:26
Speaker 5: over twelve billion dollars. That's right, twelve billion dollars for
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Speaker 5: the Lakers. I'm Tucker Silva and that is Wallstreet Watch.
21:35
Speaker 1: This is Asked Todd on the Financial Exchange Radio Network.
21:39
Speaker 1: If you have an existing estate plan or in the
21:41
Speaker 1: market for one, Todd Letsky is here to answer your
21:44
Speaker 1: questions and help you plan for later life. Ask Todd
21:47
Speaker 1: is presented by Cushing and Dolan, serving Massachusetts and New
21:50
Speaker 1: England for more than thirty five years helping families with
21:53
Speaker 1: the state and tax planning, medicaid planning, and probate law.
21:56
Speaker 1: Visit Cushingdolan dot com. Now here's Todd Budsky.
22:03
Speaker 3: And we are now joined by the one and only
22:06
Speaker 3: Todd Letsky from the law firm of Cushing and Dolan.
22:11
Speaker 3: We call the segment Asked Todd because you get to
22:13
Speaker 3: ask Todd your estate planning questions and he answers them
22:17
Speaker 3: live on air. Question and answer eight eight eight two
22:21
Speaker 3: zero five two two sixty three is the number we
22:25
Speaker 3: can usually get through two or three year calls to
22:27
Speaker 3: make sure you get calling early and often to get
22:30
Speaker 3: in line so that you can chat with Todd about
22:32
Speaker 3: your estate planning questions. Eight eight eight two zero five
22:36
Speaker 3: two two sixty three. That is the number to call again.
22:40
Speaker 3: It is eight eight eight to zero five two two
22:44
Speaker 3: six three. Mister Letsky, How you doing?
22:47
Speaker 4: I am never better? How you doing?
22:49
Speaker 3: I'm good?
22:50
Speaker 4: That's that's good for a change.
22:51
Speaker 3: I got a buddy of mine. He's uh, he's trying
22:54
Speaker 3: to mate a male deer with a female cheetah.
22:58
Speaker 4: Yeah, just wants to make a quick book, you know.
23:02
Speaker 3: But we'll see how it goes, Todd, I want to
23:04
Speaker 3: talk to you a little bit about last minute planning
23:07
Speaker 3: for nursing home stays. Obviously, in a perfect world, people
23:13
Speaker 3: do their state planning in advance and everything works smoothly. Sometimes,
23:18
Speaker 3: for one reason or another, it's not not able to
23:21
Speaker 3: you know, get it across the finish line, and so
23:23
Speaker 3: you end up with a situation where assets are not
23:26
Speaker 3: protected in advance of a nursing home stay right, What
23:30
Speaker 3: tools are available to folks if they fall into that situation.
23:36
Speaker 6: That that's a great question, Chuck, and I'm just gonna
23:40
Speaker 6: refine it a little to say, guess what, people that
23:43
Speaker 6: even do planning and everything goes well, there's always something
23:49
Speaker 6: that is not in the trust protected because can't be
23:53
Speaker 6: like an ira or a four to oh one K
23:55
Speaker 6: or sure or money we'd like to just leave outside
23:57
Speaker 6: the trust. So the good news is that this this
24:00
Speaker 6: question applies not only to people who have planned, but
24:05
Speaker 6: also to people who have not planned. So it's it's
24:07
Speaker 6: both and so unfortunately the people who have not planned
24:11
Speaker 6: have a lot more exposed than the people.
24:13
Speaker 4: Who do plan.
24:14
Speaker 6: So let's just start with that backdrop that said, yes,
24:19
Speaker 6: when you're enter the nursing home. Inevitably, they're gonna simply
24:23
Speaker 6: tell you you got to pay, you're not eligible, you
24:26
Speaker 6: have assets, you have too much, you can't you know,
24:28
Speaker 6: you can't apply.
24:29
Speaker 4: Not always the case. In fact, this the guide we're
24:35
Speaker 4: giving away this month's same idea.
24:37
Speaker 6: It lays out things that help you understand what is
24:41
Speaker 6: accountable and non countable assets. So it's not even so
24:43
Speaker 6: much that it's last minute planning. It's it's last minute
24:47
Speaker 6: understanding of what you can do and what you can't do.
24:51
Speaker 6: So I would say, you know, one of the first
24:54
Speaker 6: thing you need to do is contact a lawyer because
24:56
Speaker 6: you're not gonna know these little nuggets I'm.
25:00
Speaker 4: Telling you now.
25:00
Speaker 6: Like your home, for example, it's just a function of
25:04
Speaker 6: the fact pattern you're dealing with.
25:06
Speaker 4: Are you married, are you single? Do you have a
25:08
Speaker 4: primary residence? Yes?
25:09
Speaker 6: Okay, if you're married and your healthy spouse is living there,
25:14
Speaker 6: your house is non countable. But you need to know that,
25:17
Speaker 6: right If someone doesn't tell you that, you're not going
25:19
Speaker 6: to know it. Not only is it non countable, it's
25:21
Speaker 6: non leanable. It doesn't matter the value. It's one hundred
25:25
Speaker 6: percent off the table. Nice, But if you're.
25:28
Speaker 4: Single, it can be off the table.
25:31
Speaker 6: Meaning if it's less than I think it's going to
25:35
Speaker 6: be a million dollars in value come twenty twenty seven.
25:38
Speaker 6: It might be a little more than a million now,
25:40
Speaker 6: but the new BBBA is changing that effective twenty twenty seven.
25:46
Speaker 6: Call it a million dollars. Well, if it's over a
25:48
Speaker 6: million dollars and you're single, it's a hard stop. You're
25:51
Speaker 6: I got accountable asset. But if it's under a million
25:54
Speaker 6: dollars and you check a little box when you're applying
25:58
Speaker 6: for the nursing home to say I in tend to
26:00
Speaker 6: return home again? Who would think that checking a box
26:03
Speaker 6: is so important on the application? But if you check
26:06
Speaker 6: that box I intend to return home, it's worth less
26:08
Speaker 6: than a million dollars and I'm single. Now it's non countable,
26:12
Speaker 6: but it's leanable. So they're gonna make you put a
26:14
Speaker 6: lien on it, meaning you can get on the Medicaid rate,
26:17
Speaker 6: which is what we care about because I don't have
26:19
Speaker 6: any other assets. I want to pay less, uh and
26:22
Speaker 6: so the lien will be less, but there will be
26:25
Speaker 6: a lean but at least you get on Medicaid. And folks,
26:28
Speaker 6: that's just one asset. There's all kinds of other assets
26:31
Speaker 6: we need to address, but I obviously can't do it
26:33
Speaker 6: all in one in one segment.
26:35
Speaker 4: But folks, this is the idea.
26:37
Speaker 6: It's factually driven, and the type of assets you have
26:41
Speaker 6: are the tools, if you will, Chuck, that allow us
26:44
Speaker 6: to make these these decisions.
26:46
Speaker 3: Talking with Tom Lotsky from the law firm of Cushing
26:49
Speaker 3: and Dolan, still room on the phone lines for your
26:52
Speaker 3: estate planning questions at eight eight eight two zero five
26:55
Speaker 3: two two six three. That number again is eight eight
26:58
Speaker 3: eight two zero five two two six three. Quick break
27:04
Speaker 3: coming up here, but we're gonna get right to your
27:06
Speaker 3: questions when we return. That number is eight eight eight
27:10
Speaker 3: to zero five two two six three. Again, that number
27:15
Speaker 3: is eight eight eight to zero five two two sixty three.
27:19
Speaker 1: Ask Todd with Todd Lutsky every Wednesday at ten thirty
27:23
Speaker 1: only here on the Financial Exchange Radio Network. You're listening
27:29
Speaker 1: to Ask Todd with Todd Lutsky on the Financial Exchange
27:32
Speaker 1: Radio Network.
27:42
Speaker 3: Alrighty, let's get right to your questions with Todd. First up,
27:46
Speaker 3: we've got Michael in Dennis. Michael, what's your question for
27:50
Speaker 3: Todd Lutsky.
27:53
Speaker 7: I'm considering a remarkable press for my iouse for medicare prefaces.
27:59
Speaker 5: Uh.
27:59
Speaker 7: But my issue is right now, I'm sixty seven, my
28:02
Speaker 7: wife's sixty five. We have an IRA that we withdraw
28:06
Speaker 7: from all the time. But if I run out of money,
28:10
Speaker 7: I want to be able to use the downsairs my
28:14
Speaker 7: house and use some of that for living expenses. If
28:17
Speaker 7: I put my house into a revocable trust, would I
28:20
Speaker 7: be able to do that in the future.
28:22
Speaker 4: So I just want to make sure I understood part
28:24
Speaker 4: of the question.
28:25
Speaker 6: You said you might want to be able to downsize,
28:27
Speaker 6: meaning sell the house, buy something smaller, and then have
28:31
Speaker 6: money left over in the trust.
28:32
Speaker 4: Was that the question, yes, and.
28:35
Speaker 7: Be able to use that money in the trust just
28:37
Speaker 7: for living expenses.
28:39
Speaker 6: So the quick answer is, yes, you could put your
28:43
Speaker 6: house in the trust. Yes, you can sell your house
28:47
Speaker 6: anytime you want to sell it. I say you are.
28:51
Speaker 6: You're directing the sale because you're the donor. You and
28:54
Speaker 6: your wife are the donors of the trust, and you
28:57
Speaker 6: can direct that sale and the money would then the
29:02
Speaker 6: trust would sell it and the money would go in
29:04
Speaker 6: the trust. The other thing that's important to note is
29:06
Speaker 6: the trust is a grant or trust for income tax purposes,
29:09
Speaker 6: so you will still get your In this case you're married,
29:12
Speaker 6: your five hundred thousand dollars capital gains exclusion. So that
29:17
Speaker 6: means the first five hundred thousand dollars of gain on
29:21
Speaker 6: the sale of your house will be income tax free
29:24
Speaker 6: federal and state.
29:25
Speaker 4: So that's helpful.
29:27
Speaker 6: And of course now you can then use the money
29:29
Speaker 6: that's in the trust. So let's say we sell for
29:31
Speaker 6: a million, and we buy for half a million. So
29:35
Speaker 6: now half a million dollars goes out and a new
29:38
Speaker 6: house comes in for half a million, and I got
29:40
Speaker 6: half a million sitting in the brokerage account. Now in
29:43
Speaker 6: that brokerage account, you'll be able to invest the money
29:46
Speaker 6: any way you like, and you'll be able to take
29:49
Speaker 6: the income from that money to live on. So I
29:52
Speaker 6: don't know if that's going to be enough to supplement
29:55
Speaker 6: your additional income, meaning you're probably going to have let's
29:59
Speaker 6: say you have a bank account outside the trust. The
30:01
Speaker 6: bank account outside the trust is probably receiving social security
30:05
Speaker 6: maybe pension money. You might have an you did say
30:08
Speaker 6: you have an IRA, so the IRA is.
30:10
Speaker 4: Outside the trust.
30:12
Speaker 6: That's also receiving your required minimum distributions flowing into that
30:16
Speaker 6: bank account. And then the interest and dividends from your
30:19
Speaker 6: five hundred thousand dollars of investments are also flowing into
30:23
Speaker 6: that account, so hopefully all of that is allowed for
30:28
Speaker 6: you to live comfortably. That's so, that's that is using
30:31
Speaker 6: it for your living expenses. And I think if you
30:34
Speaker 6: need more money than that, you know, my thought would
30:38
Speaker 6: always be, well, you know, I want to tap my
30:41
Speaker 6: IRA because IRA money while I cannot protect it from
30:45
Speaker 6: the nursing home in advance. That's one reason to spend it.
30:49
Speaker 6: The other reason to spend it when I need extra
30:51
Speaker 6: money take it from there, is because the Secure Act says,
30:54
Speaker 6: if I work hard to save it for my kids,
30:58
Speaker 6: let's say, well, they're gonna have to take it out
31:01
Speaker 6: over ten years. If they take it out over ten years,
31:03
Speaker 6: the amount coming out could be significantly higher than what
31:07
Speaker 6: you take out. And if they're working, let's say they're
31:11
Speaker 6: earning one hundred grand a year, it's going to push
31:13
Speaker 6: them into a much higher income tax bracket than perhaps
31:17
Speaker 6: you are by sort of bleeding it down while you're
31:19
Speaker 6: in retirement. So yeah, I think you've got tons of
31:22
Speaker 6: flexibility with this trust and can in fact use these
31:27
Speaker 6: these dollars to live on. So hopefully that was helpful,
31:32
Speaker 6: and folks, that's why we do the planning and take
31:36
Speaker 6: things off the table. But for folks that enter a
31:39
Speaker 6: nursing home, again, whether you've done this planning or not,
31:43
Speaker 6: there's gonna be assets outside the trust like here would have.
31:47
Speaker 4: Been the IRA.
31:48
Speaker 6: For people who haven't done the planning. This guide is
31:51
Speaker 6: important as well, because well, let's face it, there's a
31:53
Speaker 6: lot more outside the trust. There's a lot more at risk.
31:57
Speaker 6: I should say, so, don't just write the check, get
32:01
Speaker 6: the guide, learn what you can do last minute for
32:04
Speaker 6: certain assets. And again they're treated differently for married couples
32:08
Speaker 6: versus single people. Like a house like a rental property
32:12
Speaker 6: or a vacation home. What about four oh one k's
32:16
Speaker 6: or iras? How are they treated? What about life insurance?
32:19
Speaker 4: Folks?
32:20
Speaker 6: Each item, believe it or not, can be treated differently.
32:24
Speaker 6: Some are accountable, some are not. Don't write to check,
32:27
Speaker 6: learn what can be done. Get the guide eight six
32:29
Speaker 6: six eight four eight five six nine nine or Legal
32:34
Speaker 6: Exchange Show dot com again eight six six eight four
32:38
Speaker 6: eight five six nine nine or Legal Exchange show dot com.
32:42
Speaker 4: You can download it right there. Todd.
32:45
Speaker 3: When it comes to retirement accounts, I know you had
32:48
Speaker 3: touched on those briefly and protecting retirement accounts and the
32:53
Speaker 3: challenges associated with that in the previous segments. What really
32:58
Speaker 3: are the available options for people and what are the
33:01
Speaker 3: pros and cons of those different options.
33:03
Speaker 4: For the retirement accounts.
33:05
Speaker 3: Specifically retirement accounts.
33:06
Speaker 4: Yeah, you would ask me the tough question. You always
33:09
Speaker 4: do I do.
33:09
Speaker 3: I try to.
33:11
Speaker 6: So retirement accounts are in fact one item that we
33:17
Speaker 6: cannot transfer to a trust while we are alive, Okay,
33:24
Speaker 6: because if we want to put it in the trust,
33:27
Speaker 6: like the trust we described for the caller was, it
33:31
Speaker 6: would be a taxable event. So that's the first problem
33:34
Speaker 6: you have is that you'd have to pull the money
33:37
Speaker 6: out of the IRA and retitle it to the name
33:41
Speaker 6: of the trust under a new ID number. And by
33:45
Speaker 6: pulling the money out of the IRA, you're going to
33:47
Speaker 6: have a huge, you know, taxable event. So we're not
33:52
Speaker 6: going to do that. It's going to stay where it is.
33:54
Speaker 4: Now.
33:55
Speaker 6: That said, if you're doing planning and I don't know
34:00
Speaker 6: if we're talking about last minute here or planning in advance, sure,
34:05
Speaker 6: but if it's last minute, what can I do with it?
34:09
Speaker 4: Well, you know, if you're married and.
34:14
Speaker 6: The person who's going in the nursing home doesn't own
34:17
Speaker 6: the IRA, but the community spouse owns the IRA. Well
34:22
Speaker 6: that's that's better because at least at that point, if
34:26
Speaker 6: the amount in the IRA exceeds your one hundred and
34:28
Speaker 6: fifty thousand dollars give or take as to the amount
34:33
Speaker 6: the community spouse is allowed to keep, I say, give
34:35
Speaker 6: or take. As it goes up every year, well then
34:40
Speaker 6: I'm going to have to do something with that excess.
34:43
Speaker 6: They call that an excess resource. They call that money
34:46
Speaker 6: over and above the amount you're allowed to keep. I
34:50
Speaker 6: have to convert that thing to an annuity. Mean by
34:54
Speaker 6: converting it to an annuity, I'm converting it from an
34:57
Speaker 6: asset to an income stream. And if it's now converted
35:01
Speaker 6: to income, it's no longer going to put me over assets.
35:05
Speaker 6: But if it's in the IRA, I'm okay with it
35:07
Speaker 6: because I can. I can have it converted to an
35:10
Speaker 6: annuity inside the IRA take out. You know, of course
35:14
Speaker 6: it has to pay out. This an annuity is going
35:18
Speaker 6: to pay back the money to you over a period
35:19
Speaker 6: of time, not to exceed your life expectancy. So if
35:23
Speaker 6: I took it out over let's say ten years, I'm
35:26
Speaker 6: going to get these distributions that have to come out
35:28
Speaker 6: of the IRA. Sometimes they could be more than my
35:31
Speaker 6: minimum distribution, causing you know, more income tax. But there's
35:37
Speaker 6: also the ability at least once every year if you
35:39
Speaker 6: took it out maybe one time a year, one payment,
35:42
Speaker 6: you can roll it back into the trust into the
35:44
Speaker 6: IRA to avoid that tax. But if not, you are
35:48
Speaker 6: taking it out slowly. But at least you're eligible for medicaid,
35:52
Speaker 6: so you can protect that IRA money For the person
35:55
Speaker 6: who is sick if they have the IRA, it can
36:00
Speaker 6: You'll be protected through the purchase of an annuity. But
36:03
Speaker 6: the downside is you are going to have to take
36:05
Speaker 6: it out of the six spouses IRA, pay the income tax,
36:09
Speaker 6: and then transfer it to the healthy spouse, which is
36:12
Speaker 6: permissible under the rules, and then have the healthy spouse
36:16
Speaker 6: buy this annuity for the healthy spouse.
36:19
Speaker 4: So you can do.
36:20
Speaker 6: It, but you always want to run the tax numbers,
36:23
Speaker 6: like if the six spouse is really sick and I'm
36:28
Speaker 6: going to incur you know, hundreds of thousands of dollars
36:31
Speaker 6: in income tax to make this move, I might decide
36:36
Speaker 6: to pay privately a little bit and wait because I'd
36:39
Speaker 6: hate to pay a huge income tax and then have
36:41
Speaker 6: the six spouse die right away.
36:43
Speaker 4: That's a huge problem.
36:45
Speaker 6: So there's a lot you bring up the tough, tough asset, Chuck,
36:49
Speaker 6: but there's a lot to think about when you're dealing
36:51
Speaker 6: with an IRA.
36:53
Speaker 4: But things still can be done.
36:55
Speaker 3: Last minute, mister Lutski, thank you so much for joining us.
36:57
Speaker 4: Always a pleasure.
36:59
Speaker 1: This has been Ask Todd on the Financial Exchange Radio network.
37:03
Speaker 1: Ask Todd with Todd Lutsky has been presented by Cushing
37:05
Speaker 1: and Dolan, serving Massachusetts and New England for more than
37:08
Speaker 1: thirty years, helping families with the state and tax planning,
37:11
Speaker 1: Medicaid planning, and probate law. Call eight hundred and three
37:14
Speaker 1: nine three four thousand and one or visit Cushingdolan dot com.
37:17
Speaker 1: The views expressed in this segment are solely those of
37:19
Speaker 1: Cushing and Dolan Armstrong advisor. He does not provide any
37:22
Speaker 1: legal or tax advice. Please consult with your legal or
37:24
Speaker 1: tax advisor on such matters. Cushing and Armstrong do not
37:26
Speaker 1: endorse each other and are not affiliated.
37:29
Speaker 3: Still a bunch to come as we head towards the
37:31
Speaker 3: second hour of the show, including a little bit more
37:35
Speaker 3: detail on in video's announcement a couple of days ago
37:40
Speaker 3: with a number of the big banks getting involved in
37:42
Speaker 3: some AI financing. We're also gonna be talking about what
37:46
Speaker 3: college grads are seeing in the job market and fear
37:50
Speaker 3: someone or if you know someone who's not a college grad,
37:53
Speaker 3: how they might be having a different experience there. And finally,
37:58
Speaker 3: we're also gonna be talking a little bit about what
38:01
Speaker 3: we are seeing in terms of prediction markets and some
38:07
Speaker 3: jurisdictions starting to say we're not so sure about this
38:11
Speaker 3: quick break. We got all that and more coming up