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Does the Fed need to reevaluate its 2 percent inflation target? · The Financial Exchange Show

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Speaker 2: Welcome to this Tuesday edition of the Financial Exchange. As
1:14
Speaker 2: we head into the end of the year, we will
1:17
Speaker 2: have today's trading session followed by tomorrow's training session, and
1:21
Speaker 2: that will wrap up twenty twenty five and what's been
1:24
Speaker 2: a surprisingly very strong stock market year. It feels like
1:29
Speaker 2: this year has been two years in terms of the
1:31
Speaker 2: economic discourse. We have had all sorts of ups and downs.
1:35
Speaker 2: But over the course of today's show and probably tomorrow's
1:38
Speaker 2: show as well, we'll sort of do a recap on
1:41
Speaker 2: how this year has fared in terms of economic growth, inflation,
1:46
Speaker 2: and many other economic topics. We start the show with
1:49
Speaker 2: a little bit of a discussion on the Federal Reserve
1:51
Speaker 2: and the interest rate front. Back on December ninth and tenth,
1:56
Speaker 2: the Federal Reserve got together for their most recent meeting,
1:59
Speaker 2: in which they cut interest rates by a quarter of
2:01
Speaker 2: a percent. The next meeting for the Federal Reserve is
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Speaker 2: a month out, so we have a lot of time
2:06
Speaker 2: to digest what their next steps are going to be
2:09
Speaker 2: and ultimately mark really where we sit at this point
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Speaker 2: in time is it is extremely unclear what interest rate
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Speaker 2: policy is going to look like heading into twenty twenty six.
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Speaker 2: I think anyone who says that they know where the
2:21
Speaker 2: Fed is going to go next year is fooling themselves
2:24
Speaker 2: because there is all sort of dissent and economic discourse
2:28
Speaker 2: that needs to.
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Speaker 3: Be sorted out.
2:30
Speaker 2: We will likely get a little bit more clarity as
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Speaker 2: we get some more economic reports coming out and sort
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Speaker 2: of emerge from that blackout period that clouded the end
2:39
Speaker 2: of this year, where we'll get a jobs report on
2:42
Speaker 2: January ninth, as well as a CPI inflation report on
2:46
Speaker 2: January thirteenth. But today, what we'll get is the FED
2:50
Speaker 2: meeting meeting. It's from December ninth and tenth, that will
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Speaker 2: be released at two o'clock today. I don't anticipate we're
2:56
Speaker 2: going to get a tremendous amount of commentary that's going
2:59
Speaker 2: to be any u full and any useful pieces of
3:01
Speaker 2: information for us, but certainly it is an interesting time
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Speaker 2: for the Federal Reserve, and I just have no idea
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Speaker 2: what interest rates they're going to do heading into next year.
3:11
Speaker 4: So we're at three point five percent today for federal funds.
3:15
Speaker 4: They target a band because they don't technically control that
3:19
Speaker 4: very short term interest rate policy instrument, but they can
3:22
Speaker 4: print money so they effectively exert control over short term
3:27
Speaker 4: interest rates, but not longer term interest rates. We've seen
3:30
Speaker 4: longer term interest rates, though they've come down over the
3:32
Speaker 4: course of twenty twenty five. And when I say longer
3:35
Speaker 4: term interest rates, for practical purposes, that means mortgages and
3:39
Speaker 4: car loans and certain types of business loans. But for
3:43
Speaker 4: most of us that means a mortgage or say a
3:46
Speaker 4: car loan. So the controls short term interest rates effectively.
3:50
Speaker 4: They can print enough money to get the Federal Funds rate,
3:54
Speaker 4: which is a rate that banks use when they lend
3:57
Speaker 4: to one another overnight when they're short runners nerves they
4:00
Speaker 4: borrow banks do from other banks, and that's the rate
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Speaker 4: they they borrow at. So that's why FED Funds is important.
4:06
Speaker 4: And that does affect lending rates to consumers non revolving
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Speaker 4: credit stuff like unsecured loans, stuff like that. But mostly
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Speaker 4: we're concerned with mortgages and car loans and stuff I think,
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Speaker 4: and FED can't control that. That depends on inflation and
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Speaker 4: how risky investors perceive holding long term bonds to be right.
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Speaker 2: And so when Mark speaking on the shore side of things,
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Speaker 2: he mentioned some of the unscared loans piece. You know,
4:32
Speaker 2: others are he locks home, nechro, lines of credit or
4:34
Speaker 2: another one that are impacted by these federals exactly, crime rates,
4:39
Speaker 2: prime rate exactly. Those are the areas that are impacted
4:42
Speaker 2: by these decisions made by the Federal Reserve. One thing
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Speaker 2: that has been clear from the most recent meeting is
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Speaker 2: that the bar is now going to be raised in
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Speaker 2: terms of what the Fed needs to see for another cut.
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Speaker 2: That was the one change in language and sentiment that
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Speaker 2: you saw on the most recent meeting. I believe the
5:01
Speaker 2: two words that they added in were extent and timing
5:05
Speaker 2: as to what they're going to be looking for for
5:08
Speaker 2: additional adjustments to their target range. Here now looking at
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Speaker 2: the CME futures, which does a probability projection as to
5:16
Speaker 2: what the Federal Reserve is going to do in their
5:17
Speaker 2: next meeting. And again I would take these with a
5:19
Speaker 2: major grain of solid as we are a full month
5:22
Speaker 2: away and a lot can happen between this point and
5:25
Speaker 2: the next meeting. We're at about an eighty four percent
5:27
Speaker 2: probability that they stay the course. There's another subject that
5:31
Speaker 2: came up in some of these pieces this morning, Mark
5:33
Speaker 2: that I wanted to get your two cents on. The
5:36
Speaker 2: Federal Reserve has had a dual mandate to control both inflation,
5:42
Speaker 2: and we've talked about that ad nauseum, the decisions that
5:45
Speaker 2: they've made there to get it out of the depths
5:47
Speaker 2: that we were in in twenty twenty two, to bring
5:49
Speaker 2: it down to the level that we sit at today
5:51
Speaker 2: about two point seven percent. But also the second part
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Speaker 2: of that dual mandate is the labor market. And in
5:56
Speaker 2: some pieces today there was cometary or reference to critics
6:02
Speaker 2: who say that the only focus of the Federal Reserve
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Speaker 2: should actually just be inflation and not this idea of
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Speaker 2: focus on the labor market. This isn't a unique idea
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Speaker 2: if you look at some of the other central banks
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Speaker 2: out there in Canada, so eas be all their focus
6:18
Speaker 2: is on inflation. And just curious, as someone who follows
6:22
Speaker 2: this for a long period of time, your thoughts on
6:24
Speaker 2: the idea of this dual mandy and whether or not
6:27
Speaker 2: the way the ECB does it makes makes more sense
6:29
Speaker 2: to just focus on just one piece, because if you
6:32
Speaker 2: were going to just focus on one piece on the
6:34
Speaker 2: inflation side, then you could make the argument that they
6:37
Speaker 2: should not have lowered rates, or perhaps they should have
6:40
Speaker 2: raised them.
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Speaker 4: So let's think step back, think about what the FED does.
6:43
Speaker 4: It controls the supply of money, and in the long term,
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Speaker 4: the only thing that matters for inflation is the supply
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Speaker 4: of money. There are other things that in theory could matter,
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Speaker 4: the rate of economic growth, the demand for money. Sometimes
6:54
Speaker 4: you hear the term velocity thrown around, which is the flip,
6:57
Speaker 4: the flip side of the reciprocal more technically of demand.
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Speaker 4: But in the long run, the FED controls inflation. So
7:03
Speaker 4: start with that principle. So what should the rate of
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Speaker 4: inflation be? Humphrey Hawkins says it should be low and stable.
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Speaker 4: It doesn't quite put it that way, but and the
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Speaker 4: FED has interpreted that to mean two percent in the
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Speaker 4: modern era since Bernanki set the target in twenty twelve.
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Speaker 4: Though the FOMC, the policy making body of the FED,
7:22
Speaker 4: has always targeted inflation since the Green Spin era of
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Speaker 4: something in that range, though they never articulated at target.
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Speaker 4: So FED wants two percent inflation hasn't been there since
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Speaker 4: twenty nineteen. By that standard, they haven't done their job
7:34
Speaker 4: in almost ten years. Any of us would be fired
7:37
Speaker 4: under those circumstances. So the FED is doing I'm going
7:39
Speaker 4: to answer your question, but I want to put in context.
7:41
Speaker 4: The FED arguably is doing a terrible job of keeping
7:44
Speaker 4: inflation low and stable. If you define low and stable,
7:46
Speaker 4: inflation is one to two percent, which I personally you
7:49
Speaker 4: asked about my sort of personal feelings, and this is
7:51
Speaker 4: just for what it's worth. I'm in the zero to
7:54
Speaker 4: two percent inflation camp. There are plenty of monetary economists,
7:57
Speaker 4: of which I am not one, like academics PhD to
8:00
Speaker 4: do this for a living, who think inflation could be
8:02
Speaker 4: as high as five and there were reasons for that.
8:05
Speaker 4: It helps, it helps the labor market adjust faster, is
8:08
Speaker 4: the simplest reason. We can get into that, but don't
8:10
Speaker 4: have to right now. So if you're sort of a
8:13
Speaker 4: hawk like me, and that's ideological, that's just me as
8:16
Speaker 4: a fiscal conservative, someone who thinks if you give government
8:20
Speaker 4: too much leeway, they're going to screw it up. So
8:23
Speaker 4: that's just ideological. I prefer lower inflation to hire. Other
8:26
Speaker 4: people might prefer slightly higher inflation. Has the FED done
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Speaker 4: a good job controlling that?
8:31
Speaker 1: No?
8:31
Speaker 4: Should They maybe be more focused on that perhaps, And
8:35
Speaker 4: that's the argument for removing the employment mandate from the
8:39
Speaker 4: Fed's roster. Of things it has to do. There are
8:43
Speaker 4: also good theoretical arguments. According to some economic models, if
8:47
Speaker 4: you stabilize inflation, unemployment will settle at the natural rate
8:50
Speaker 4: of unemployment, which the FED can't change anyway. By the way, sure,
8:54
Speaker 4: if FED can't do anything about the structure of the economy,
8:57
Speaker 4: the FED can goose demand. Can't do much about supply.
9:02
Speaker 2: Yeah, they're not going to impact infrastructure investments in AI
9:05
Speaker 2: data centers theory.
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Speaker 4: Not not on the long run and the short run.
9:08
Speaker 4: By lowering interest rates, they could stimulate activity.
9:11
Speaker 3: For borrowing and construction and the.
9:13
Speaker 4: Potential growth rate of the economy, which is really what
9:16
Speaker 4: drives inflation, because when the economy grows too fast, it
9:18
Speaker 4: exceeds its potential growth rate, and that's when inflation starts
9:21
Speaker 4: to rise. I'm rulling out shocks and some other things
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Speaker 4: that complicate that statement, but that's okay. The FED can't
9:28
Speaker 4: do anything about supply. It can, in the short term,
9:31
Speaker 4: control demand by printing money, lowering interest rates and getting
9:34
Speaker 4: people to spend again over simplifying a little, but I
9:36
Speaker 4: think that's okay. So if the FED can't do anything
9:39
Speaker 4: about supply and unemployment is a is an aggregate supply
9:42
Speaker 4: issue in the long run, why should they be targeting it.
9:45
Speaker 4: That's the I just gave you sort of the textbook
9:47
Speaker 4: argument against a dual mandate.
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Speaker 3: I'm going to put your feet to the fire. What
9:52
Speaker 3: do you what do you have I do? Would you
9:56
Speaker 3: just say just inflation? Yeah, I would.
9:57
Speaker 4: Focus laser focus on inflation, so somewhere between zero and
10:01
Speaker 4: two percent. You can't monomaniacally focus on two percent because
10:05
Speaker 4: you might have shocks, sure good or bad, that push
10:08
Speaker 4: inflation below or above. And when inflation got really low
10:12
Speaker 4: in the twenty tens, everybody was panicking. That didn't strike
10:17
Speaker 4: me as a bad problem to have inflation that was
10:19
Speaker 4: too low. High inflation screws with everything. It screws with
10:23
Speaker 4: your retirement plans, right, it screws with your day to day.
10:25
Speaker 3: It'd be like.
10:26
Speaker 4: Lengthening or decreasing the definition of a mile every year.
10:31
Speaker 4: Like I could adjust, but it would be really inconvenient.
10:34
Speaker 4: That analogy is due to famous economists, not to me,
10:37
Speaker 4: you know, So imagine if we change all acstlually.
10:39
Speaker 2: I think the biggest takeaway from the last three or
10:41
Speaker 2: four years is how painful inflation has been. I mean,
10:44
Speaker 2: if you look at the political change that was a
10:46
Speaker 2: reflection of the idea that inflation had run out of
10:49
Speaker 2: control and there was this sort of desire for.
10:52
Speaker 3: A change office. And it just still to this this day.
10:56
Speaker 2: Remains looming issue. So we'll continue to monitor that here
11:00
Speaker 2: on the Financial Exchange. But interesting commentary as we head
11:03
Speaker 2: into the Federal Reserve meeting minutes that we'll be released
11:06
Speaker 2: at two o'clock today, We're going to take a quick
11:08
Speaker 2: break here on the Financial Exchange, but we come back
11:11
Speaker 2: a little bit more on inflation and the FEDS target
11:14
Speaker 2: of two percent, as well as a recap of twenty
11:19
Speaker 2: twenty twenty five's US economy with some charts and more
11:22
Speaker 2: information right after this break.
11:24
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12:14
Speaker 2: Couple last pieces here on the inflation target. Treasury Secretary
12:20
Speaker 2: Scott Bessen went on in on the All In podcast
12:23
Speaker 2: within the last couple of weeks last week or so
12:27
Speaker 2: and gave some commentary about the Federal Reserve and that
12:31
Speaker 2: target two percent that we've talked about on the show before,
12:35
Speaker 2: and typically the policy that you had alluded to in
12:39
Speaker 2: the first segment of the show came about Mark with
12:42
Speaker 2: Ben Bernanke. Back in twenty twelve, the Federal Reserve officially
12:45
Speaker 2: set the target for the two percent. It's been there's
12:48
Speaker 2: always been this idea of keeping it within the range.
12:50
Speaker 3: This goes back way, you know.
12:52
Speaker 4: I mean, there's there's a reason Bernanki articulated a target,
12:55
Speaker 4: which Greenspan, by the way, said never ever do. He said,
12:58
Speaker 4: if it ever gets out of this room, he's talking
12:59
Speaker 4: to the FOMC. And obviously I wasn't there, but Alan Blinder,
13:03
Speaker 4: who was vice chair in the late nineties, wrote a
13:05
Speaker 4: lot about this and still does. He said, don't let
13:08
Speaker 4: this target get out of this room, no need, because
13:10
Speaker 4: there may be Greenspan was the ultimate pragmatist. Bernanky, though
13:14
Speaker 4: more of a theorist, recognizes the importance of expectations.
13:17
Speaker 3: Yes, and if you tell credit for inflation and there
13:19
Speaker 3: you go.
13:20
Speaker 4: If you tell people it's going to be two and
13:22
Speaker 4: you're credible, it's easier to get back to two without
13:25
Speaker 4: economic sacrifice, the so called sacrifice ratio, which is another
13:28
Speaker 4: big concept among monetary types. Sacrifice ratio is exactly what
13:31
Speaker 4: it sounds like, how much GDP do I have to
13:34
Speaker 4: give up in points? In your points? More technically, if
13:37
Speaker 4: you're interested, do I have to give up to get inflation?
13:40
Speaker 4: And you can translate that into an unemployment sacrifice ratio.
13:44
Speaker 4: So everybody thought in eighty two Volkaer is gonna have
13:46
Speaker 4: to raise an unemployment to twenty five percent to kill inflation.
13:49
Speaker 4: He did it a lot more quickly. Why credibility? Maybe
13:53
Speaker 4: people believed him and Bernanki therefore articulated a target, when
13:58
Speaker 4: coupled with credibility, should make it easier to get inflation down.
14:00
Speaker 3: And maybe it did.
14:01
Speaker 4: By the way, in twenty twenty two to twenty twenty three,
14:03
Speaker 4: and unemployment didn't go up. No, inflation came way now
14:06
Speaker 4: down enough to get it back to two, but it
14:08
Speaker 4: came down. It's gonna sound cavalier, I'm gonna say, kind
14:11
Speaker 4: of painlessly, which surprised the hell out of everybody.
14:14
Speaker 3: Very true. I would agree with that pamelessness.
14:16
Speaker 4: Arguably because expectations were pretty well anchored. There's a group
14:20
Speaker 4: of economists who would argue with that statement. But I'm
14:22
Speaker 4: just giving you kind of the consensus that made the
14:26
Speaker 4: sacrifice ratio a lot. Well, it was zero in twenty
14:29
Speaker 4: twenty two, twenty twenty three, right, which is pretty pretty
14:33
Speaker 4: remarkable considering the dire predictions.
14:36
Speaker 2: What he went to mention is that perhaps they would
14:38
Speaker 2: switch to a range bound target from the two percent target,
14:43
Speaker 2: but stating that that would not be done until they
14:46
Speaker 2: got back to this sketch.
14:47
Speaker 4: Second, Okay, he's got a tough job. He has no
14:49
Speaker 4: credibility on this. He's a total lightweight percent is when
14:51
Speaker 4: it comes to monetary policy. And yes, I'm being a
14:53
Speaker 4: little bit curt here, but he is.
14:55
Speaker 3: He's a lightweight.
14:56
Speaker 4: Treasury secretary should shut up and focus on efficient ways
14:59
Speaker 4: to manage debt. These people have their hands full. Their
15:03
Speaker 4: fiscal policy is not lowering the government spending levels. Deficit
15:08
Speaker 4: came down a little bit, right, That's and I credit
15:10
Speaker 4: Bessent for his focus on the deficit. He pays a
15:13
Speaker 4: lot of lip service to it. Sure, but they haven't
15:15
Speaker 4: done a lot. So get to work on that, Scott,
15:17
Speaker 4: and let the FED manage monetary policy.
15:20
Speaker 3: But I don't think these comments here are that offensive.
15:22
Speaker 4: I mean, it's no, they are, though he's infringing on
15:24
Speaker 4: the Fed's mandate. He should shut up and manage treasure
15:27
Speaker 4: right talk, Fed should manage monetary policy. He's not. They're
15:31
Speaker 4: not good at what they're doing right now. If your
15:32
Speaker 4: target is keep on employment low and shrink the deficit.
15:35
Speaker 4: Unemployment went up last year, deficit came down by like
15:38
Speaker 4: forty billion dollars, a rounding error. Okay, so get to
15:42
Speaker 4: work on that. Let the FED do its job. I
15:44
Speaker 4: share his philosophy. I think he's a focus on inflation
15:47
Speaker 4: only guy. But these guys all veer way outside their
15:50
Speaker 4: laying for some reason. And when you're not good at
15:53
Speaker 4: what you do your core responsibilities, and arguably they're not.
15:58
Speaker 3: Yeah, it doesn't bother, It doesn't really bother me.
16:00
Speaker 4: What bothers me, because it's kind of my thing.
16:02
Speaker 3: It doesn't really bother me as much.
16:04
Speaker 2: I think the idea of a range on inflation, it's
16:07
Speaker 2: not that controversial of a topic, and the idea of
16:11
Speaker 2: getting it back to the two percent target first is
16:13
Speaker 2: probably He.
16:14
Speaker 4: Mouths off routinely about the Fed's failure to do this,
16:17
Speaker 4: and that's okay to do behind the scenes, but the
16:20
Speaker 4: public browbeating of the FED, which he's complicit in, is
16:23
Speaker 4: absolutely not helpful. It undermines the institution.
16:26
Speaker 2: On the twenty twenty five US economy in charts, there
16:30
Speaker 2: is a piece here that was done by Guardian where
16:33
Speaker 2: it just sort of gives a recap on where we
16:35
Speaker 2: sit this year.
16:36
Speaker 3: It looks like GDP growth, again.
16:38
Speaker 2: We haven't got the final numbers in here, will clock
16:41
Speaker 2: in around two percent according to some recent projections. We
16:44
Speaker 2: did have a Q three number that was quite strong
16:46
Speaker 2: at four point three percent back in twenty twenty four.
16:50
Speaker 2: For reference, the economy, its GDP growth growth domestic product
16:54
Speaker 2: grew about two point eight percent. Some of the other
16:56
Speaker 2: charts that are covered here, it's just been a very
16:59
Speaker 2: interesting year again in terms of what we've seen inflation
17:03
Speaker 2: has sort of stubbornly hung around that three percent number,
17:06
Speaker 2: sitting at two point seven percent as of the most
17:09
Speaker 2: recent report. And then we've had a labor market that
17:12
Speaker 2: has been relatively weak. We have seen since June the
17:15
Speaker 2: unemployment rate tick up. It's been a little hard to
17:18
Speaker 2: figure out the job's picture as we've had that government shutdown,
17:22
Speaker 2: sort of clouding some of the recent monthly jobs reports.
17:25
Speaker 2: But by all indications, it does seem like we've seen
17:29
Speaker 2: a loss in job growth on that front. But all
17:32
Speaker 2: in all, I do sit back and look at this year,
17:35
Speaker 2: and it was a year that, particularly with the announcement
17:39
Speaker 2: of some of tariffs, that you saw a significant uptick
17:43
Speaker 2: in predictions for recession, and we sit on the prespice
17:46
Speaker 2: of the year closing out without that.
17:48
Speaker 4: Who was making I don't know this has been and
17:50
Speaker 4: the Wall Street Journal says this routinely economists were wrong
17:54
Speaker 4: about twenty twenty five predicting recession and inflation. I don't
17:57
Speaker 4: know if any professional or you know, sort of PhD
18:01
Speaker 4: level respected economists who were calling for a recession because
18:04
Speaker 4: of Gold.
18:05
Speaker 2: And Sacks increased their percentage chance of a recession from
18:08
Speaker 2: twenty two percent to forty five percent. I feel like
18:10
Speaker 2: all these investments from sort of moving lockstep where they
18:13
Speaker 2: say that they increased their problems still less than one.
18:15
Speaker 4: That's still less than fifty percent chance. And had tariff's
18:18
Speaker 4: been fully implemented aggressively implemented, well then maybe. But it
18:22
Speaker 4: was pretty clear as we went along that they were
18:25
Speaker 4: going to be retreat that did some of the sort
18:27
Speaker 4: of more severe tariffs were It.
18:33
Speaker 2: Seemed as this negotiat sentiment sentiment was increasing the probability
18:37
Speaker 2: of talks of recession not I don't recall anyone saying
18:40
Speaker 2: that we are headed for one. Jamie Diamond was set
18:43
Speaker 2: in here too. He's been predicting a recession for for years.
18:46
Speaker 2: That's kind of his sticks certainly to team, you shouldn't
18:49
Speaker 2: do it, right, shouldn't.
18:51
Speaker 4: Know, shouldn't predict I mean, jeez, unless it's COVID and
18:53
Speaker 4: we're shutting the economy down for some inexplicable and stupid reason,
18:57
Speaker 4: you shouldn't do it.
18:58
Speaker 2: It's like the projections for the stock market for twenty
19:00
Speaker 2: twenty six. You know, it's anyone's guest as to really
19:03
Speaker 2: how it's gonna fare. It's very difficult to do. Taking
19:06
Speaker 2: a look around at markets. We're in relatively mixed territory
19:10
Speaker 2: at the moment with the Dow Jones off just slightly here,
19:15
Speaker 2: but we're gonna have more information for you on the
19:17
Speaker 2: markets and how they're faring after back to back losses.
19:21
Speaker 2: Come up in just a moment here where we'll have
19:24
Speaker 2: Wall Street Watch and we'll be talking with Todd Lutsky
19:26
Speaker 2: here as well right after this break.
19:40
Speaker 1: Like us on Facebook and follow us on Twitter at
19:43
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19:48
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19:51
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20:21
Speaker 1: Time now for Wall Street Watch, a complete look at
20:25
Speaker 1: what's moving markets so far today right here on the
20:28
Speaker 1: Financial Exchange Radio Network.
20:29
Speaker 5: Well after yesterday's modest pullback, markets today are slightly in
20:33
Speaker 5: negative territory as Wall Street awaits minutes from the fed's
20:36
Speaker 5: December meeting do out this afternoon.
20:39
Speaker 3: At two pm.
20:40
Speaker 5: Right now, the Dow is down about a quarter percent,
20:43
Speaker 5: or one hundred and nine points. SMP five hundred down
20:47
Speaker 5: over a tenth of a percent or nine points lower.
20:50
Speaker 5: NASDAC down nearly two tenths of one percent to forty
20:53
Speaker 5: points lower. Rusted two thousand is down about a quarter percent.
20:57
Speaker 5: Ten youre Treasure reeled up one basis point of five
21:00
Speaker 5: four point one three percent to Incrude oil up about
21:03
Speaker 5: a half a percent higher, trading a fifty eight dollars
21:05
Speaker 5: and thirty six cents a baryl. Some acquisition news from
21:10
Speaker 5: Meta this morning, after the Facebook parent announced it has
21:13
Speaker 5: acquired Singapore based AI startup Manus.
21:17
Speaker 3: The Wall Street Journal.
21:17
Speaker 5: Reported that Meta is closing the deal at more than
21:20
Speaker 5: two billion dollars. In a statement, Meta said that its
21:23
Speaker 5: acquisition was aimed at accelerating AI innovation for businesses and
21:28
Speaker 5: integrating advanced automation into its consumer in enterprise products, including
21:34
Speaker 5: its Meta AI assistant. Meta shares are up over one
21:38
Speaker 5: percent on that acquisition news. Meanwhile, Applied Digital said it
21:43
Speaker 5: plans to spend out its cloud business and combined with
21:46
Speaker 5: Exo Bionics, Applied Digital shares are dipping, while Exostock is
21:50
Speaker 5: rallying seventy six percent. In mining stocks including Newmont and
21:55
Speaker 5: Barrack are bouncing back today and up about one percent
21:58
Speaker 5: after Metal's rebound from yesterday's tumble. I'm Tucker Silva and
22:03
Speaker 5: that is Wall Street Watch.
22:06
Speaker 2: As promised, we are now joined by Todd Lutsky from
22:10
Speaker 2: Cushion Dolan. Todd, thanks so much for joining us today.
22:13
Speaker 7: Well, thanks always a pleasure, Hey, Todd.
22:15
Speaker 2: One of the big things that I often discuss with
22:18
Speaker 2: clients is when you're considering doing a trust, the impact
22:22
Speaker 2: it can have on a state taxes. Could you just
22:25
Speaker 2: tell us and the listeners just some of the changes
22:27
Speaker 2: that have gone on with the Massachusetts the Massachusetts estate
22:32
Speaker 2: state of state tax recently within the last few years.
22:35
Speaker 7: Yeah, the latest updates were taking our exemption which was
22:41
Speaker 7: at one million for the longest time, I think back
22:45
Speaker 7: in two thousand and six, they leveled off at about
22:49
Speaker 7: a million dollar exemption and they raised it to two
22:51
Speaker 7: million dollar exemption, so in essence doubling the ability to
22:58
Speaker 7: shelter assets from the state taxes. So if you're married,
23:01
Speaker 7: now you can shelter four million. If you're single, you
23:05
Speaker 7: can shelter just the two. But again by being married,
23:09
Speaker 7: you can't just do it because you're married. You need
23:11
Speaker 7: the trusts in place to be able to double the
23:15
Speaker 7: exemption and take advantage of each person's exemption. And the
23:20
Speaker 7: other piece to that legislative update was they kind of
23:26
Speaker 7: got rid of the cliff rule, so you know, if
23:28
Speaker 7: you go over the two million, you're not taxed on
23:31
Speaker 7: every penny. Doesn't mean you don't plan by any stretch,
23:36
Speaker 7: but they did manage to get rid of that as well.
23:39
Speaker 2: One other concept that many clients aren't familiar with is
23:43
Speaker 2: just when those of state taxes are due, whether federal
23:46
Speaker 2: or on the state level. One concept that is probably
23:50
Speaker 2: unknown to many out there is this idea of portability.
23:53
Speaker 2: Can you just give a little bit of detail on
23:55
Speaker 2: that concept and how it applies with the state taxes?
23:58
Speaker 7: Todd Yes, the portability applies only to the Fed, not
24:05
Speaker 7: the state. So there's no states in the country that
24:08
Speaker 7: I'm aware of that allow porting your unused exemptions. So,
24:12
Speaker 7: first of all, what is portability is the ability to
24:15
Speaker 7: capture the unused exemption of the first spouse to die.
24:20
Speaker 7: So if for some reason you didn't plan, you can
24:23
Speaker 7: take the unused exemption and give a coupon in essence
24:27
Speaker 7: to the surviving spouse. However, it's not that easy. You
24:31
Speaker 7: actually need to file a federal return for the dicedent
24:36
Speaker 7: even if one is not due, meaning even if you're
24:39
Speaker 7: under the federal exemption, you still need to file. You
24:43
Speaker 7: have five years to file if you're not required to
24:46
Speaker 7: file otherwise, you need to file within nine months with extensions,
24:51
Speaker 7: and then by filing the federal return, you're in essence
24:55
Speaker 7: making the election to get the portability. But without it
25:00
Speaker 7: you just waste it. It's still wasted, so important to
25:04
Speaker 7: use it. So whenever you do your planning, just keep
25:07
Speaker 7: that in mind, folks. That's what this guide is all about,
25:11
Speaker 7: balancing asset protection, planning and estate taxes. Right. So I
25:17
Speaker 7: just explained some things about the federal side of it
25:21
Speaker 7: and the state side of it. But there's also people
25:24
Speaker 7: who say, I don't need the federal but I want
25:26
Speaker 7: to protect assets from the nursing home. Can I still
25:29
Speaker 7: save on Massachusetts the state tax. Yes, you can do both.
25:33
Speaker 7: Get the guide. It's the end of the month. Balancing
25:35
Speaker 7: Asset Protection and Avoiding Estate Taxes, talks about portability, talks
25:40
Speaker 7: about the exemptions, the marital share, the remainder share, really
25:44
Speaker 7: how they work way better than we can get into
25:46
Speaker 7: it on the radio. And it also does the same
25:49
Speaker 7: thing for irrevocable trust. So a little something for everybody
25:53
Speaker 7: in here eight six six eight four eight five six
25:58
Speaker 7: nine to nine or Legal Exchange dot com again Balancing
26:02
Speaker 7: Asset Protection and Avoiding Estate Taxes eight sixty six eight
26:06
Speaker 7: fourty eight five six ninety nine or Legal Exchange show
26:10
Speaker 7: dot com.
26:11
Speaker 2: Thanks so much for the time, Todd, rust up that voice.
26:14
Speaker 2: We need you for twenty twenty six.
26:16
Speaker 7: Thank you, Bye bye.
26:18
Speaker 1: The proceeding was paid for and the views expressed are
26:20
Speaker 1: solely those of Cushing and Dolan. Cushing and Dolan and
26:22
Speaker 1: or Armstrong Advisory may contact you offering legal or investment services.
26:25
Speaker 1: Cushing and Armstrong did not endorse each other and are
26:28
Speaker 1: not affiliated.
26:30
Speaker 2: Taking a look around at market still in a relatively
26:35
Speaker 2: mixed territory, slightly down across the board with the Dow
26:39
Speaker 2: Jones off over one hundred points at the moment. One
26:41
Speaker 2: of the areas of the market that has been fascinating
26:44
Speaker 2: to watch and something that I don't recall really talking
26:47
Speaker 2: about in any great detail over the course of my
26:50
Speaker 2: career is is silver and what it's done. From a
26:53
Speaker 2: trading perspective, Silver is up seven percent today. It was
26:58
Speaker 2: down as much as eight point seven percent sent on Monday.
27:01
Speaker 2: For the metals, it is just been an extremely robust year.
27:05
Speaker 2: Gold and silver both have significantly increased from where they
27:09
Speaker 2: began twenty twenty five, and the trading surrounding these metals
27:12
Speaker 2: is starting to mirror a little bit of the specuative
27:15
Speaker 2: of trading it seems like we saw in twenty twenty
27:18
Speaker 2: one with some of these meme stocks, with every single
27:20
Speaker 2: day over the course of the last few days, of course,
27:23
Speaker 2: just these rollercoaster rides of ups and downs. Certainly, the
27:28
Speaker 2: gold and silver trade, particularly the gold ones started earlier
27:31
Speaker 2: this year with concerns about the global economy and perhaps
27:36
Speaker 2: investors retreating to it as a bit of a means
27:38
Speaker 2: for a safe haven. But mark the activity that we've
27:41
Speaker 2: seen recently, silver's set to perhaps reach its biggest yearly
27:46
Speaker 2: gain since nineteen seventy nine. It's been incredible to fall
27:50
Speaker 2: for someone who doesn't get really into this world, into
27:53
Speaker 2: thenity gritty very much, but it's been fascinating to watch.
27:56
Speaker 4: Yeah, for some people, and I put myself in this camp.
28:00
Speaker 4: Think precious metals have, as you said, as safe haven
28:06
Speaker 4: character for historical reasons. They've served as as a medium
28:12
Speaker 4: of exchange. Is a form effectively current not effectively. They've
28:17
Speaker 4: been currency. So there's always nagging fear that governments are
28:23
Speaker 4: going to screw up fiat currencies. Fiat currency is a
28:25
Speaker 4: fancy way of saying the government can print the money,
28:27
Speaker 4: there's nothing back in it. And as you know, we've
28:30
Speaker 4: been off of the gold standard since nineteen thirty three
28:35
Speaker 4: thirty four and we've stopped. We've been off anything resembling
28:40
Speaker 4: goal backing since nineteen seventy one, so there's nothing backing
28:43
Speaker 4: dollars in circulation. If you look at the dollar in
28:45
Speaker 4: your pocket, it's as good for all death public in
28:49
Speaker 4: private and full faith and credit to the You some
28:51
Speaker 4: boloney about the forgive me, but ultimately it is blooney.
28:54
Speaker 4: It can be inflated away a dollar can, and we've
28:58
Speaker 4: seen experience a lot of that over the past several years.
29:01
Speaker 4: So if you're worried about big deficits and the possibility
29:04
Speaker 4: of additional def inflating a way of deficits. And it's
29:10
Speaker 4: not just the US government that's doing this, it's governments
29:12
Speaker 4: all over the globe. Since particularly since the particularly since COVID,
29:16
Speaker 4: but starting with the Great Recession, governments have governments have
29:21
Speaker 4: become increasingly fiscally reckless. They've been empowered to do that
29:24
Speaker 4: because interest rates until recently have been low. So people,
29:29
Speaker 4: I guess who buy gold and is everybody's reasons are
29:32
Speaker 4: a little bit different. And now silver too, because it's
29:36
Speaker 4: also historically served as a medium of exchange, are doing
29:40
Speaker 4: so to hedge against debasement of currencies. Debasement fancy way
29:44
Speaker 4: of saying printing, you could say coin clipping, coin shaving.
29:49
Speaker 4: Historically those have been ways of debasing the currency. These days,
29:51
Speaker 4: it's a lot easier. The king doesn't have to clip
29:53
Speaker 4: coins or shave them, or melt them down and mix them,
29:57
Speaker 4: or or degrade them by allin them with some inferior metal.
30:02
Speaker 4: The sovereign, the executive in our case, just prints more money.
30:06
Speaker 4: And I think that's people have shown that when the
30:09
Speaker 4: feed is eased or spoken of easing this year metals
30:13
Speaker 4: of sword, and it's hard to dismiss that as a coincidence, right, yes,
30:19
Speaker 4: not if is it it's like some sort of old fashioned,
30:22
Speaker 4: antiquated notion of gold being a safe haven and a
30:26
Speaker 4: potential currency once developed governments screw up currency management, which
30:32
Speaker 4: we appear to be well on the way of doing.
30:35
Speaker 2: It's not something it is something that I don't know
30:37
Speaker 2: if I necessarily would would hang my hat on as much.
30:40
Speaker 2: Usually the way i'd view it within a portfolio, it's, hey,
30:42
Speaker 2: it's something that's a non correlated asset. It hasn't to
30:45
Speaker 2: the markets, and it's a way to add some diversification
30:49
Speaker 2: to your portfolio.
30:50
Speaker 3: But yeah, and to each their own.
30:52
Speaker 2: But never should it be a sizeable sum of a portfolio,
30:56
Speaker 2: because if you study just the trading of metals over
30:59
Speaker 2: a period of time, over extended periods, they've done, you know,
31:02
Speaker 2: quite poorly relative to the growth of the stock market.
31:05
Speaker 2: Of course, there are exceptions. This year is quite a
31:08
Speaker 2: big exception in terms of the performance that we've seen
31:11
Speaker 2: a year to data. I was just looking silver started
31:14
Speaker 2: the year at thirty dollars and sits at seventy five
31:18
Speaker 2: sixty today and gold simile is up over almost forty
31:22
Speaker 2: four hundred dollars announced it owt So one way to.
31:25
Speaker 4: Think about metals is that they're insurance. Like insurance, it
31:29
Speaker 4: bleeds you, it bleeds you, it bleeds you, and then
31:31
Speaker 4: it pays.
31:32
Speaker 3: Off and your goals for trent pattern.
31:35
Speaker 4: It went dormant for three decades, right started two decades
31:39
Speaker 4: starting in the early nineteen eighties after the big inflation episode,
31:42
Speaker 4: and we showed, like we talked about in the last segment,
31:44
Speaker 4: that we could get monetary policy under control. We're now
31:47
Speaker 4: screwing all that up. And it's not just us, it's
31:49
Speaker 4: governments all over the world, and I'm not talking about
31:50
Speaker 4: the Trump administration. Politicians across the spectrum have been complicit
31:56
Speaker 4: in this and they will continue to be sure. The
31:58
Speaker 4: path we're on fiscally, that die was cast a long
32:01
Speaker 4: time ago. So this may be This appears to be
32:04
Speaker 4: one of those times when the insurance component of gold
32:07
Speaker 4: safe haven component, if you want.
32:08
Speaker 3: To call it, premium, has spiked on it, it seems.
32:10
Speaker 4: Yeah, or the payoff, right, so you're finally not bleeding
32:14
Speaker 4: premium like you are with any insurance that you carry.
32:16
Speaker 4: Insurance sucks.
32:17
Speaker 3: We all hate to have to own it.
32:19
Speaker 2: But in the situations I've had with clients, and I'm
32:21
Speaker 2: sure anyone can speak to this, you're really glad you
32:24
Speaker 2: have it when you need it, when it comes through,
32:27
Speaker 2: so fascinating to follow. Will continue to track the silver
32:31
Speaker 2: and gold trade, but the volatility continues, with silver up
32:34
Speaker 2: seven and a half percent today and gold almost up
32:37
Speaker 2: a full percent. We're going to take a quick break
32:39
Speaker 2: here on the Financial Exchange. But when we come back,
32:42
Speaker 2: when we're talking a little bit about Los Angeles titling
32:47
Speaker 2: rent controls for the first time in four decades, and
32:49
Speaker 2: much more. Right after this break on the Financial Exchange.
32:52
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34:00
Speaker 2: K control is something that has come up in the
34:02
Speaker 2: news quite quite frequently recently, particularly in the Boston area,
34:06
Speaker 2: which we're going to get into in a moment. But
34:08
Speaker 2: this is a piece here from the Wall Street Journal
34:10
Speaker 2: regarding Los Angeles, which tightens its rent control for the
34:13
Speaker 2: first time in four decades. Landlords will have new limits
34:18
Speaker 2: on what they can increase their multi family apartment rental
34:22
Speaker 2: rates by now. The capping is going to be between
34:27
Speaker 2: one to four percent. That's down from three to eight
34:30
Speaker 2: percent that dates back forty years. And then here in
34:34
Speaker 2: the local New England area and specific to Boston. This
34:38
Speaker 2: was something that got brought up because it was going
34:40
Speaker 2: to be I believe it's scheduled to be a twenty
34:42
Speaker 2: twenty six ballot question. Governor Moore heally came out recently
34:47
Speaker 2: with her commentary on rent control on gbh's Boston Public Radio.
34:52
Speaker 2: This was recently a quote from her, rent control is
34:55
Speaker 2: not going to be the solution to how we get
34:57
Speaker 2: through this crisis. We need to build more homes. If
35:00
Speaker 2: you look at studies, rent control effectively halts production. And
35:04
Speaker 2: I echo her sentiments here with the whole idea of
35:07
Speaker 2: rent control in general, it just creates more profit and
35:10
Speaker 2: it solves There's a lot of empirical data that you
35:14
Speaker 2: can point to that it's not effective in its ultimate goal.
35:17
Speaker 4: Now, there are a few things that like all economists
35:19
Speaker 4: agree on. One of them is free trade is generally good.
35:22
Speaker 4: Generally good. There are some exceptions, but they're really edge cases.
35:25
Speaker 4: Another is that rent control controlling any price, prices or
35:29
Speaker 4: signals they tell you where to invest. Their the manifestation
35:33
Speaker 4: of people's preferences. You don't want to stifle that, like
35:36
Speaker 4: Keeley said, and to a great credit, because it would
35:41
Speaker 4: have been easy for her to take the.
35:45
Speaker 3: Free lunch not free lunch.
35:48
Speaker 4: She could applicated her progressive base part of right. She
35:51
Speaker 4: is an important part of the Democrat party as I
35:53
Speaker 4: understand it.
35:54
Speaker 7: I don't know.
35:54
Speaker 4: I don't I'm not one. I don't go to the meetings.
35:56
Speaker 4: But you know, you get a walk a fine line
35:58
Speaker 4: as any politician to either party. I guess she could
36:01
Speaker 4: have taken the easy way out here. She didn't. She
36:03
Speaker 4: took a sensible stand. And as you said, anybody who's
36:05
Speaker 4: ever looked at rent control has concluded it results in
36:09
Speaker 4: deteriorating apartments because landlords have no incentive to make upgrades.
36:13
Speaker 4: Why should I? I can't get more money for them,
36:15
Speaker 4: and it does reduce supply. Why should I building Perman's plummet?
36:20
Speaker 4: Why would I do that? If my profits are like
36:22
Speaker 4: caright is going to be EA.
36:23
Speaker 3: This is true.
36:24
Speaker 4: If any price control, you could more generally any price
36:28
Speaker 4: control on pharmaceuticals. I know it's a hot button topic,
36:31
Speaker 4: but if you if you limit profits, you will limit.
36:34
Speaker 2: The research and development choice that go into trying to
36:37
Speaker 2: develop new drugs.
36:38
Speaker 4: This is twenty twenty five has been a really bad
36:41
Speaker 4: year for the free market. We've got an administration. You
36:43
Speaker 4: may think this is great, you may think it's bad.
36:45
Speaker 4: I think it's bad. But to each his own buying
36:48
Speaker 4: up publicly traded companies, are taking shares in publicly traded companies.
36:50
Speaker 4: Trump administration is doing that left and right. This is
36:53
Speaker 4: not good for the free market. Tariffs are generally not good.
36:55
Speaker 4: They restrict consumer choice, and then any number of policies
36:59
Speaker 4: at the state level. It's like we're regressing in In
37:03
Speaker 4: the eighties and nineties, we were moving toward liberalization. Consumer
37:07
Speaker 4: is king, let markets decide outcomes, and that's all been reversed,
37:12
Speaker 4: probably because growth is slowed. People are agitating for something different.
37:16
Speaker 4: Young people respond in huge numbers and polls that they
37:20
Speaker 4: like socialism and communism. We've really regressed in terms of
37:27
Speaker 4: the notion that markets can best determine should best determine outcomes.
37:33
Speaker 3: To me, that's sad.
37:34
Speaker 4: But if growth is slower as a result, I don't
37:37
Speaker 4: suppose people will have people will even know the difference.
37:40
Speaker 2: One lass piece on the real estate side of things.
37:43
Speaker 2: This was from the Wall Street Journal. Saint Paul, Minnesota
37:46
Speaker 2: had enacted a three percent cap on rent increases in
37:50
Speaker 2: twenty twenty two. And new apartment permits fell by seventy
37:53
Speaker 2: nine percent, according to The Wall Street Journal.
37:55
Speaker 3: On the other side of.
37:56
Speaker 2: The river, Minneapolis said they're going to do a different
37:59
Speaker 2: approach and target supply side reforms, and as a result,
38:02
Speaker 2: if you compare the rents between the two twenty twenty
38:05
Speaker 2: two to twenty twenty four, Saint Paul saw an average
38:07
Speaker 2: increase of three point three percent in rent compared to
38:11
Speaker 2: zero point seven percent in Minneapolis. So a true case
38:14
Speaker 2: study kind of apples to Apple's comparison, where you saw
38:17
Speaker 2: that rent control actually not having it's a intended effect
38:21
Speaker 2: on pricing because that supply and demand side is so critical,
38:25
Speaker 2: it's really a significant thing. Head into the bottom of
38:28
Speaker 2: the hour here, we still have markets in slightly negative territory,
38:31
Speaker 2: but not a whole lot moving today. We've got the
38:35
Speaker 2: US ten year treasury sitting relatively flat at four point
38:38
Speaker 2: one three percent, and oil is up about a half
38:41
Speaker 2: percent at fifty eight dollars. That's all the time we
38:44
Speaker 2: have for the first hour of the show here, but
38:46
Speaker 2: stick with us. We've got a lot more to cover
38:48
Speaker 2: on the second hour of the financial exchange right after
38:50
Speaker 2: this break