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Nvidia Earnings and Jackson Hole Put Markets on Edge · The Financial Exchange Show

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  Speaker 1: is The Financial Exchange with Paul Lane and Mark Vandetti.
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  Speaker 2: Welcome to this Wednesday edition of The Financial Exchange in
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  Speaker 2: what has been a very busy last few days for
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  Speaker 2: the economy and markets. Paul Lane, Mark Vandetti, and Tucker
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  Speaker 2: Silva here with you. Like I mentioned, we have a
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  Speaker 2: lot to cover in today's program. NVIDIA will be reporting
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  Speaker 2: its earnings after the bell. That is certainly going to
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  Speaker 2: be significant much watch for Wall Street and the markets.
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  Speaker 2: And we also have coming up on Friday, Kevin Warsh
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  Speaker 2: will be speaking at 10 a.m. in the Jackson Hole Symposium.
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  Speaker 2: So he will have some chance to perhaps make good
• 1:47
  Speaker 2: on some of the issues that he ran into at
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  Speaker 2: the last Federal Reserve meeting. So really, that's where the
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  Speaker 2: preview starts for our program is this week, the two
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  Speaker 2: pillars of what is probably the biggest focus for investors
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  Speaker 2: in the economy are taking center stage. As I mentioned,
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  Speaker 2: NVIDIA will report its earnings after the bell. Largely, they
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  Speaker 2: are anticipated to come out with some tremendous numbers. A
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  Speaker 2: lot of these numbers from the past quarter are sort
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  Speaker 2: of baked in and have already been sort of marked
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  Speaker 2: by analysts out there, but there will be a significant
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  Speaker 2: amount of scrutiny on some of the financing deals that
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  Speaker 2: they have announced, so any commentary that they're able to
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  Speaker 2: give On that front, certainly will be parsed through quite
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  Speaker 2: intensely by a lot of analysts out there and any
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  Speaker 2: commentary that they have in general in terms of what
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  Speaker 2: they're seeing from hyperscalers and the development of the new
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  Speaker 2: chips that they have coming out. So we'll certainly get
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  Speaker 2: into that. And then also, like I mentioned, Kevin Warsh
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  Speaker 2: will be able to speak on Friday. And how will
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  Speaker 2: he react to some recent actions by Treasury Secretary Scott Besson?
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  Speaker 2: And will he make comments on some of the bond
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  Speaker 2: buybacks that we're going to talk about on this program
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  Speaker 2: that have been in the headlines for the last three, four,
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  Speaker 2: five days here, and what commentary will he provide potentially
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  Speaker 2: about inflation and his path to bring it down to
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  Speaker 2: the Federal Reserve's target of 2% because he's been relatively
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  Speaker 2: mum on what he plans to do. That is intentional.
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  Speaker 2: Kevin Warsh has been very critical about the Federal Reserve
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  Speaker 2: over the last decade plus being too communicative, but now
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  Speaker 2: he's facing pushback from a lot of market pundits and
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  Speaker 2: a lot of the news reporters that cover the Federal
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  Speaker 2: Reserve for not really speaking out enough. So there's plenty
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  Speaker 2: to chew on here, Mark. We'll start with just your
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  Speaker 2: biggest takeaways from this week or things that you're most
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  Speaker 2: attuned to of those topics that I mentioned there.
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  Speaker 3: I haven't really been paying attention. No, I'm kidding. I
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  Speaker 3: guess NVIDIA will be the story today. They supply, what,
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  Speaker 3: 85-90% of the chips used to train, so to speak,
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  Speaker 3: an AI model, which just means estimate a a function,
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  Speaker 3: if you like, that can be then used to apply
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  Speaker 3: to other situations. That's all people mean when they say
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  Speaker 3: train a model. I just wanted to sort of define that.
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  Speaker 3: So their margins should be gigantic, wildly profitable. That's not
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  Speaker 3: going out on a limb. And the backlog should continue
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  Speaker 3: to be huge. They're going to report that everybody and
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  Speaker 3: their brother has been ordering chips from them. We sort
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  Speaker 3: of know all this because the hyperscalers, your Amazon, Apple, Meta, Oracle.
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  Speaker 1: Who did I leave out?
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  Speaker 3: Microsoft, They've told us they're spending a trillion dollars this
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  Speaker 3: year to build out data center capacity. And we know
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  Speaker 3: that most of that, most of the chips that run
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  Speaker 3: those suckers come from NVIDIA. So, like, there's no suspense here, right?
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  Speaker 4: Right.
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  Speaker 1: Okay.
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  Speaker 5: Right.
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  Speaker 3: So the bigger question is, how do we close the
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  Speaker 3: gap between what they're investing and the paltry revenue so
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  Speaker 3: far on AI, if you're an investor?
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  Speaker 4: Yep.
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  Speaker 2: That is definitely- And we can't answer that. That is
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  Speaker 2: definitely an area of focus. NVIDIA commands about 74% gross margins.
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  Speaker 2: They are likely to report that they doubled revenue from
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  Speaker 2: where they were last year and doubled their net income.
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  Speaker 2: Their financials have never been in question in terms of
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  Speaker 2: what the success that they've seen over the last several years,
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  Speaker 2: the numbers that they've reported. I just alluded to their
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  Speaker 2: gross margins, but The revenue and net income figures that
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  Speaker 2: they've been able to generate have been spectacular, and that's
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  Speaker 2: why they garner that top market cap position.
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  Speaker 3: Unless there's like a surprise in there, like somebody canceled
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  Speaker 3: a big order. God forbid that should happen. The market
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  Speaker 3: suffers a serious setback to follow. It's no exaggeration to
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  Speaker 3: say they are the industry.
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  Speaker 6: They are the epicenter of.
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  Speaker 3: But they're like 90... They're effectively the... I was going
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  Speaker 3: to use the term bellwether, but they're more than a
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  Speaker 3: barometer of bellwether. They are the industry. So the second
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  Speaker 3: they indicate that there's something wrong with demand, the hyperscalers
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  Speaker 3: canceled an order or something like that. But it ain't
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  Speaker 3: going to be for lack of capital because they're flush
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  Speaker 3: with it. The hyperscalers are still, despite their dwindling cash position...
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  Speaker 3: that's going to suggest that demand is slowed for other reasons,
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  Speaker 3: and that'll send the market, I imagine, into a panic.
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  Speaker 3: It's like, wake me when that happens, because otherwise it
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  Speaker 3: ain't going to be interesting.
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  Speaker 2: No, the only thing that I could point to, because
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  Speaker 2: besides on the numbers front, like you were saying, and
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  Speaker 2: I agree with this too, we're going to have a
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  Speaker 2: really good sense for what exactly they come in with
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  Speaker 2: on a revenue basis. You'd think that's pretty pinned down,
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  Speaker 2: but the commentary, and perhaps there won't be much in
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  Speaker 2: terms of what they're thinking on some of these financing build-outs,
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  Speaker 2: that has taken center stage and has gotten investors quite worried.
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  Speaker 6: There is just so much.
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  Speaker 2: Demand for compute that the hyperscalers are basically exhausting all
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  Speaker 2: financing sources.
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  Speaker 6: That they have.
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  Speaker 2: There was, you know, a example of Google issuing equity,
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  Speaker 2: which is just, you know, something that hasn't happened that
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  Speaker 2: often there has been tremendous amounts of access of public
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  Speaker 2: debt markets by the hyperscalers here, and then they've been
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  Speaker 2: burning through free cash flow as well. And so now
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  Speaker 2: you have Nvidia in this position where they are trying
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  Speaker 2: to make sure that they continue to prop up their
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  Speaker 2: buyers and their industry. And right now they have a
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  Speaker 2: concentration risk in that. these hyperscalers account for, I was
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  Speaker 2: trying to find the figure here. I think at one
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  Speaker 2: point I had read and I'll continue to look for it.
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  Speaker 2: It's a significant percentage of their revenue is attributable to
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  Speaker 2: these hyperscalers, but you want to have a diversification of customers.
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  Speaker 2: And what they've been doing recently is utilizing this fortress
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  Speaker 2: of a balance sheet that they've built up. I believe
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  Speaker 2: they sit on 80 or 90 billion of cash at
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  Speaker 2: this point in time to act as a backing for
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  Speaker 2: some of these other players in the AI space for
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  Speaker 2: financing guarantees on data center build-outs. And then there's also
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  Speaker 2: talk that they would act as a backstop for this
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  Speaker 2: $ 500 billion, I guess, fund would be the word, financing
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  Speaker 2: endeavor with some of the big Wall Street firms that
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  Speaker 2: would kind of continue to build out this AI infrastructure project.
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  Speaker 2: Just robust demand. And so any commentary they have there,
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  Speaker 2: I think that would be of interest. But perhaps we
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  Speaker 2: don't get much.
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  Speaker 3: They've already sort of told us. I mean, we know
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  Speaker 3: what's going on. Well, we don't know the specifics of
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  Speaker 3: the $ 500 billion fund.
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  Speaker 2: It's rumored 25% backing, but there's no specifics there and
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  Speaker 2: how it's going to work and what the terms of
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  Speaker 2: it would be. And maybe that doesn't come.
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  Speaker 6: From this call.
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  Speaker 3: Do they typically disclose that?
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  Speaker 2: I would think that we would have got, continue to
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  Speaker 2: get more information leaking, you know, coming out from the
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  Speaker 2: bigger firms.
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  Speaker 3: But we know they've got the money. I mean, what,
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  Speaker 3: this is not really my area, but I'm still taking
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  Speaker 3: the sort of extreme position that this is all boring.
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  Speaker 3: We know the results are going to be spectacular until
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  Speaker 3: Microsoft can't sell a bond or Google can't raise capital.
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  Speaker 3: This isn't interesting. By not interesting, I don't mean not
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  Speaker 3: spectacular and historic, because it is. I just mean it's
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  Speaker 3: not going to be different than what people expect until
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  Speaker 3: somebody can't raise capital or somebody cancels an order. I
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  Speaker 3: assume NVIDIA is going to frantically continue to engage in
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  Speaker 3: what some people have called circular financing, which is just
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  Speaker 3: an extreme version of vendor financing that everybody does, but
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  Speaker 3: this is vendor financing on steroids because it's like the
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  Speaker 3: whole economy right now or a big contributor to economic
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  Speaker 3: growth anyway.
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  Speaker 2: The last five out of six earnings that they've reported,
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  Speaker 2: the stock has traded down. And I was sitting here
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  Speaker 2: trying to find a way to counter you and say,
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  Speaker 2: what upside could potentially come from this earnings call? And
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  Speaker 2: I'm scratching my head a little bit as to what
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  Speaker 2: would make the stock robustly rise. And again, this is
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  Speaker 2: just speculation here that I'm undergoing. And I can't really
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  Speaker 2: think of one. I mean, of course, if for some
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  Speaker 2: reason they were to indicate some tremendous forward guidance that
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  Speaker 2: would blow away expectations of analysts, that could potentially be
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  Speaker 2: the case. But because we have such a good sense
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  Speaker 2: for what the CapEx projections are from their biggest customers,
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  Speaker 2: I find that an unlikely possibility. I cannot really think
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  Speaker 2: of another scenario that would lead to tremendous upside.
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  Speaker 3: No, I think the risk is all on the downside
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  Speaker 3: with these guys. There's no suspense here, probably, unless they
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  Speaker 3: surprise us and say, oh, Microsoft canceled an order yesterday,
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  Speaker 3: and we're incorporating that into the guidance that you see here.
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  Speaker 3: The guidance is different than what was expected. The results
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  Speaker 3: probably don't matter. It's the guidance, the backlog. projections, I
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  Speaker 3: would think.
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  Speaker 2: Well, we'll get our answer at the close of the
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  Speaker 2: bell today. They are going to report earnings and we'll
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  Speaker 2: be covering it first thing on our show tomorrow. We're
• 10:52
  Speaker 2: going to take a quick break here on the Financial Exchange.
• 10:55
  Speaker 2: When we come back, I want to talk about that
• 10:57
  Speaker 2: very important meeting, our symposium coming up on Friday in
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  Speaker 2: Jackson Hole and Kevin Warsh and what he may or
• 11:05
  Speaker 2: may not say coming up this Friday. We'll have a
• 11:07
  Speaker 2: preview of that right after this break here on the
• 11:09
  Speaker 2: Financial Exchange.
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  Speaker 2: The two biggest events that the markets are focused on
• 11:46
  Speaker 2: this week are NVIDIA's earnings. We talked about that in
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  Speaker 2: the prior segment. But, of course, the next biggest one
• 11:51
  Speaker 2: would be Fed Chairman Kevin Walsh, who will be speaking
• 11:55
  Speaker 2: at the Jackson Hole Symposium Friday at 10 a.m. And
• 11:58
  Speaker 2: this comes off of a backdrop regarding one of the
• 12:01
  Speaker 2: biggest stories in the financial markets over the course of
• 12:04
  Speaker 2: the last four or five days. Scott Besson and the
• 12:08
  Speaker 2: bond intervention that the U.S. Treasury sort of undertook on
• 12:13
  Speaker 2: Friday of last week, I believe, in which it was
• 12:17
  Speaker 2: announced that they would double the Treasury purchases by from
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  Speaker 2: $ 2 billion weekly to $ 4 billion from September through right
• 12:26
  Speaker 2: around the midterm elections. And ultimately, the attempt here is
• 12:31
  Speaker 2: to try and eat up some of the supply for
• 12:35
  Speaker 2: longer-term bonds and as a result of that, create demand
• 12:38
  Speaker 2: in order to drive up the price of longer-term bonds
• 12:41
  Speaker 2: and thus driving down the interest rate yield on those
• 12:45
  Speaker 2: longer-term bonds.
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  Speaker 3: The U.S.
• 12:46
  Speaker 2: 10-year treasury is the the bellwether or benchmark that is
• 12:50
  Speaker 2: used for a lot of lending in the United States,
• 12:53
  Speaker 2: whether you look at 30-year fixed mortgages or if you
• 12:56
  Speaker 2: look at vehicle loans. And Mark, I haven't had a
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  Speaker 2: chance to talk to you since this occurred. To me,
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  Speaker 2: it was very confounding and just seemed like a move
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  Speaker 2: that will be futile and does more harm than good
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  Speaker 2: in terms of trying to achieve their goals here.
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  Speaker 6: But curious, your thoughts.
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  Speaker 3: Yeah, so the immediate objective was to get longer term
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  Speaker 3: rates down ahead of an election. I assume the timing
• 13:23
  Speaker 3: is not a coincidence. A lot of governments try this
• 13:26
  Speaker 3: type of intervention. They intervene in currency markets. They intervene
• 13:29
  Speaker 3: in debt markets. Japan has been artificially suppressing the yield
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  Speaker 3: on its longer term bonds for years and years. Eventually, though,
• 13:37
  Speaker 3: the chickens come home to roost because the problem is
• 13:40
  Speaker 3: not a lack of fancy financial footwork on the part
• 13:44
  Speaker 3: of your finance minister or treasury secretary, and Besant knows
• 13:48
  Speaker 3: this because he made a living thwarting government's efforts to
• 13:52
  Speaker 3: do exactly what he's trying to do right now. He
• 13:54
  Speaker 3: did it in currencies, but it's the same sort of principle.
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  Speaker 3: The problem is borrowing. That's why long-term interest rates are high.
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  Speaker 3: So to intervene in the very short term would be like,
• 14:05
  Speaker 3: I don't know, faking your cholesterol test if you could
• 14:08
  Speaker 3: do such a thing. I don't think you can. If
• 14:10
  Speaker 3: you know a way, please text the show.
• 14:13
  Speaker 6: But you wouldn't do that. It would be stupid.
• 14:15
  Speaker 3: It would be self-defeating. When markets push interest rates up
• 14:19
  Speaker 3: or equivalently sell long-term bonds, when demand for long-term bonds,
• 14:24
  Speaker 3: as the way I should put it, wanes, it's because
• 14:26
  Speaker 3: investors are concerned about what the government is going to
• 14:29
  Speaker 3: do in the future to meet its obligations. Are they
• 14:32
  Speaker 3: going to print more money to meet them, for example?
• 14:34
  Speaker 3: If so, that reduces the purchasing power of the coupons
• 14:38
  Speaker 3: I'm going to get over time. I don't want to
• 14:39
  Speaker 3: buy those bonds. So by suppressing or distorting, however you
• 14:43
  Speaker 3: want to think about it, market signals, it ironically delays
• 14:48
  Speaker 3: the type of reforms that are necessary to get interest
• 14:51
  Speaker 3: rates down. In the long run, a good example of
• 14:53
  Speaker 3: this is what George H.W. Bush and then Bill Clinton
• 14:56
  Speaker 3: did in 1990 and 1993. They bit the bullet on
• 15:00
  Speaker 3: tax increases. It was more of a bullet biting for
• 15:02
  Speaker 3: George H.W., I think, than Clinton because he was probably
• 15:06
  Speaker 3: a little more averse to raising taxes, but he eventually did.
• 15:09
  Speaker 3: Those two pieces of legislation righted the U.S. 's fiscal ship,
• 15:14
  Speaker 3: and as a result, long-term interest rates came down throughout
• 15:18
  Speaker 3: the 1990s. There were other forces at work. This was
• 15:20
  Speaker 3: a global phenomenon. I don't want to overstate the case,
• 15:23
  Speaker 3: but it's widely agreed that those measures helped to get
• 15:26
  Speaker 3: interest rates down and helped facilitate the Internet boom, which
• 15:30
  Speaker 3: relied on borrowing. My point is you need long-term structural
• 15:34
  Speaker 3: reforms here. Only Congress and the president can do that.
• 15:38
  Speaker 6: Little gimmicks.
• 15:39
  Speaker 3: You called it artificial or futile. And you're right. And
• 15:43
  Speaker 3: Besson knows this. He was probably under pressure by the president.
• 15:47
  Speaker 6: To ahead of the election. It certainly seemed that way.
• 15:48
  Speaker 6: That's the only way.
• 15:49
  Speaker 3: That makes sense of what is otherwise inexplicable. It seems
• 15:52
  Speaker 3: almost stupid, but he's not stupid. Again, he invented exploiting
• 15:57
  Speaker 3: the stupidity of practically he, George Soros. And Druckenmiller, the great.
• 16:03
  Speaker 6: Some of the most star-studded investors that you've had.
• 16:06
  Speaker 3: Yeah, all on the same team, by the way. But
• 16:10
  Speaker 3: they executed some sort of famous trades over time that
• 16:13
  Speaker 3: made billions and billions, exploiting or betting that any government
• 16:19
  Speaker 3: can't outspend the markets forever.
• 16:22
  Speaker 6: It's true the U.S.
• 16:23
  Speaker 3: Government can print money, but markets have a virtually limitless
• 16:28
  Speaker 3: supply of capital to bet against government stupidity. Again, Bessett
• 16:32
  Speaker 3: knows this, and he was probably under... political pressure to
• 16:34
  Speaker 3: do what he did. That said, it did get long-term
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  Speaker 3: rates down a little bit.
• 16:37
  Speaker 4: It did.
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  Speaker 6: It did bring them down a bit.
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  Speaker 2: I thought you did a great job of kind of
• 16:41
  Speaker 2: giving the overview there. Really, the big structural issues for
• 16:46
  Speaker 2: listeners out there to understand is that these weekly bond buybacks,
• 16:50
  Speaker 2: typically the Treasury will intervene from a liquidity standpoint when
• 16:53
  Speaker 2: they have these periodic auctions because they constantly need to
• 16:57
  Speaker 2: raise debt because we spend more as a country than
• 17:00
  Speaker 2: we take in for revenue. So there's this constant need
• 17:03
  Speaker 2: to issue additional debt. And when you will see the
• 17:05
  Speaker 2: treasury typically step in on these auctions, if there are
• 17:09
  Speaker 2: issues from a liquidity standpoint, this one, and I'm quoting
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  Speaker 2: Druckenmiller here, who wrote an op-ed piece in the Financial
• 17:15
  Speaker 2: Times over the weekend on it, this was price management
• 17:18
  Speaker 2: and it wasn't liquidity management. They were trying to drive
• 17:21
  Speaker 2: up prices to drive down yields. The big issues here
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  Speaker 2: to Mark's point on the longer term structural forces that
• 17:29
  Speaker 2: need to be addressed Right now, our fiscal deficit is
• 17:32
  Speaker 2: 6% of our GDP, highest it's been since wartime conditions
• 17:36
  Speaker 2: back in World War II. And we just crossed the
• 17:39
  Speaker 2: $ 40 trillion debt threshold just last week. And our fiscal
• 17:44
  Speaker 2: deficit as a country is $ 2 trillion this year. Those
• 17:49
  Speaker 2: are the areas that need to be addressed. And to
• 17:51
  Speaker 2: be clear, neither administrations over the past several... I mean, heck,
• 17:56
  Speaker 2: it goes back, what... I guess since Clinton, have really
• 18:02
  Speaker 2: put any emphasis on addressing this problem.
• 18:04
  Speaker 3: But I've got to say, under George W., the primary deficit,
• 18:08
  Speaker 3: which is the total deficit less interest, was coming down
• 18:11
  Speaker 3: his last couple of years. People don't associate George W.
• 18:16
  Speaker 3: Bush with great economic growth, but if we hadn't had
• 18:19
  Speaker 3: the Great Recession on his watch, he would have been
• 18:22
  Speaker 3: viewed as a terrific economic success. The primary deficit was
• 18:25
  Speaker 3: coming down. Unfortunately, the Great Recession intervened. Under Obama, primary
• 18:30
  Speaker 3: deficit was coming. He raised taxes, of course, so I
• 18:32
  Speaker 3: disagree with how you do it. But there is precedent
• 18:35
  Speaker 3: for getting debt-to-GDP down. But it has been, call it 10,
• 18:39
  Speaker 3: 12 years. Those are exceptions. I think I started by
• 18:42
  Speaker 3: saying there are a couple of exceptions.
• 18:45
  Speaker 2: A few exceptions over 25 years, right, since anyone has
• 18:47
  Speaker 2: really taken this seriously. And as a result of that,
• 18:51
  Speaker 2: you can only do so much here on the fringes. Ultimately,
• 18:54
  Speaker 2: the great thing about... The way that the markets work
• 18:57
  Speaker 2: on the longer end of the yield curve is that
• 18:59
  Speaker 2: the market forces kind of dictate how ultimately yields are
• 19:05
  Speaker 2: dictated because of the way that this treasury market works.
• 19:09
  Speaker 2: Taking a look around at markets, we have markets slightly
• 19:12
  Speaker 2: down with the Dow Jones off 120 points and the
• 19:15
  Speaker 2: S & P 500 off 10. We're going to have
• 19:18
  Speaker 2: more on markets with Wall Street Watch. And get ready,
• 19:21
  Speaker 2: it's the weekly edition of Ask Todd, studio line 888-205-2263.
• 19:25
  Speaker 6: Ask Todd right after this.
• 19:29
  Speaker 1: Like us on Facebook and follow us on Twitter at
• 19:31
  Speaker 1: TFE Show. Breaking business news is always first, right here
• 19:36
  Speaker 1: on the Financial Exchange Radio Network. Time now for Wall
• 19:41
  Speaker 1: Street Watch, tracking the stocks, the data, and the headlines
• 19:45
  Speaker 1: driving markets so far today, right here on the Financial
• 19:48
  Speaker 1: Exchange Radio Network.
• 19:49
  Speaker 5: NVIDIA days upon us and markets are modestly lower ahead
• 19:52
  Speaker 5: of the chip in AI giant's earnings report due out
• 19:55
  Speaker 5: after today's closing bell. Right now the Dow is down
• 19:58
  Speaker 5: about a quarter percent, 116 points lower. S & P
• 20:01
  Speaker 5: 500 down a tenth of a percent or eight points off.
• 20:04
  Speaker 5: NASDAQ down over a third of a percent or 96
• 20:07
  Speaker 5: points lower. Rust 2000 is edging higher, not much movement there.
• 20:11
  Speaker 5: Ten-year Treasury yield is up two basis points at 4.66%
• 20:15
  Speaker 5: and oil down nearly 1%, trading at $ 81 a barrel.
• 20:19
  Speaker 5: Breaking news from Meta this morning after it agreed to.
• 20:22
  Speaker 6: An $ 18.
• 20:23
  Speaker 5: Billion settlement with a group of state attorneys general over
• 20:27
  Speaker 5: social media's harm to teenagers. With the settlement, Meta will
• 20:31
  Speaker 5: implement a default two-hour daily time limit on Facebook and
• 20:35
  Speaker 5: Instagram for users under 18. Meanwhile, shares in financial software
• 20:40
  Speaker 5: company Intuit down 3% after its fiscal year 2027 guidance
• 20:45
  Speaker 5: disappointed investors. The company plans to attract new TurboTax customers,
• 20:49
  Speaker 5: potentially with free offerings, despite a short-term hit to its
• 20:54
  Speaker 5: do-it-yourself tax business.
• 20:57
  Speaker 1: And J.M.
• 20:57
  Speaker 5: Smucker is jumping over 3% higher after the owner of
• 21:01
  Speaker 5: Jif Peanut Butter and Folgers Coffee reported higher-than-expected adjusted earnings
• 21:06
  Speaker 5: and sales in the previous quarter. I'm Tucker Silva, and
• 21:12
  Speaker 5: that is Wall Street Watch.
• 21:15
  Speaker 1: This is Ask Todd on the Financial Exchange Radio Network.
• 21:19
  Speaker 1: If you have an existing estate plan or are in
• 21:21
  Speaker 1: the market for one, Todd Lutzke is here to answer
• 21:23
  Speaker 1: your questions and help you plan for a later life.
• 21:26
  Speaker 1: Ask Todd is presented by Cushing and Dolan, serving Massachusetts
• 21:29
  Speaker 1: and New England for more than 35 years, helping families
• 21:32
  Speaker 1: with estate and tax planning, Medicaid planning, and probate law.
• 21:36
  Speaker 1: Visit CushingDolan.com. Now, here's Todd Lutzke.
• 21:42
  Speaker 2: It is Wednesday, so we are joined by Todd Lutzke
• 21:45
  Speaker 2: from Cushing Dolan. For any listeners out there that have
• 21:48
  Speaker 2: questions on estate plans, revocable trust versus irrevocable trust, Medicaid eligibility,
• 21:54
  Speaker 2: give our studio line a call at 888-205-2263. Again, that number,
• 21:57
  Speaker 2: 888-205-2263 for any of your questions for Todd Lutzke. I
• 21:59
  Speaker 2: have to start off by saying, Todd, You look fantastic today.
• 22:11
  Speaker 2: For those who want to check out Todd's attire, he's
• 22:13
  Speaker 2: in a very laid-back summer wear, summer fit on the
• 22:16
  Speaker 2: Financial Exchange YouTube.
• 22:18
  Speaker 6: You can take a look at it. He usually wipes
• 22:20
  Speaker 6: the floor with.
• 22:20
  Speaker 2: Me and is dressed to the nines and has me beat,
• 22:23
  Speaker 2: but I'm glad he's come to my level here and
• 22:26
  Speaker 2: looking nice and casual.
• 22:27
  Speaker 6: I'm casual today. I appreciate that, Todd.
• 22:29
  Speaker 2: Todd, a lot of times this comes up with clients
• 22:33
  Speaker 2: who I'm dealing with who are far into retirement. They
• 22:35
  Speaker 2: might be a little bit elderly, and unfortunately, they run
• 22:37
  Speaker 2: across the unfortunate situation where they haven't done the proper
• 22:41
  Speaker 2: planning and they run into a husband or wife who
• 22:44
  Speaker 2: is starting to deal with health issues. And how do
• 22:47
  Speaker 2: you address that from a state planning perspective? Is it
• 22:49
  Speaker 2: ever too late to take measures to try and protect
• 22:53
  Speaker 2: assets from the nursing home?
• 22:54
  Speaker 6: How do you guys handle that?
• 22:55
  Speaker 3: Yeah.
• 22:55
  Speaker 4: So it's, it's almost a, it's a matter of, of
• 22:58
  Speaker 4: both really. You could be heading into a nursing home.
• 23:02
  Speaker 4: That's usually when we're talking about last minute planning, last
• 23:05
  Speaker 4: minute eligibility. So it's not something we plan for, but this,
• 23:08
  Speaker 4: This idea of needing to do things last minute actually
• 23:11
  Speaker 4: works for people who have done planning in advance, advanced
• 23:16
  Speaker 4: planning in advance.
• 23:17
  Speaker 2: Why?
• 23:17
  Speaker 4: Because they have assets that are outside the trust, can't
• 23:20
  Speaker 4: put everything in. We never put everything in. And those
• 23:23
  Speaker 4: have to be protected or dealt with. And then there's
• 23:26
  Speaker 4: assets that people have that have not done any planning
• 23:31
  Speaker 4: and are faced with going in the nursing home. So
• 23:32
  Speaker 4: they have a lot more assets to deal with. What
• 23:36
  Speaker 4: I'm trying to convey here is that when you are
• 23:40
  Speaker 4: faced with nursing home planning, whether you've done planning or not,
• 23:44
  Speaker 4: there's going to be things you need to do last
• 23:47
  Speaker 4: minute other than just writing a check. So don't just
• 23:51
  Speaker 4: go there and say, oh, sorry, the nursing home will
• 23:54
  Speaker 4: tell you you have to write the check.
• 23:55
  Speaker 6: It's like $ 20, 000 a month at this point in this area, right?
• 23:57
  Speaker 4: Exactly. It's up there. I had a client. They were
• 24:02
  Speaker 4: worth probably like $ 2, 000. over $ 2 million between house and
• 24:07
  Speaker 4: money and stuff. And there was no planning done. Husband, wife,
• 24:10
  Speaker 4: they came in. Husband, not both of them. Husband was
• 24:13
  Speaker 4: in the nursing home. Wife was home. And they're like,
• 24:16
  Speaker 4: what do we do? We were actually able to get
• 24:19
  Speaker 4: that person eligible for Medicaid right away. You would think,
• 24:24
  Speaker 4: how is that possible with $ 2 million? Well, the reason
• 24:27
  Speaker 4: it's possible is because you guys, the general public doesn't
• 24:32
  Speaker 4: understand what the rules are, but there's rules for married couple,
• 24:35
  Speaker 4: single people, in terms of how assets are treated as
• 24:39
  Speaker 4: countable or non-countable during the application process. So, for example,
• 24:46
  Speaker 4: when you're running through a checklist of assets for a
• 24:49
  Speaker 4: married couple, the first thing you might come across is
• 24:51
  Speaker 4: the home because they all have one. Good news there, folks,
• 24:54
  Speaker 4: when we try to tell you how a home is treated,
• 24:57
  Speaker 4: a home is non-countable as long as the healthy spouse
• 25:00
  Speaker 4: is living there. It's even non-leanable does have to be
• 25:05
  Speaker 4: located in Massachusetts if you're applying in Massachusetts. And then
• 25:09
  Speaker 4: that would be off the table. So that's a big
• 25:11
  Speaker 4: number right there. If you had a $ 2 million client,
• 25:13
  Speaker 4: that might be a million dollar home. You're halfway to
• 25:16
  Speaker 4: getting eligible for Medicaid. You just have to get rid
• 25:18
  Speaker 4: of the rest of the million, which isn't always easy.
• 25:21
  Speaker 4: But other things that you need to think about, right?
• 25:23
  Speaker 4: And again, it's a little different, I say, for married
• 25:25
  Speaker 4: couples versus single people. For a single person, a house,
• 25:29
  Speaker 4: a home, is non-countable. But it's So you could get
• 25:35
  Speaker 4: on Medicaid, but then you've got to pay back the
• 25:37
  Speaker 4: state if you've been in the nursing home for a while.
• 25:42
  Speaker 4: When you die, you've got to pay back the state.
• 25:44
  Speaker 4: You don't have that when it's a married couple. And
• 25:47
  Speaker 4: the other thing with a single person is if the
• 25:50
  Speaker 4: house is worth more than, call it, it's changing, but
• 25:54
  Speaker 4: actually the BBBA bill that passed come, I believe, January 1st, everywhere,
• 26:00
  Speaker 4: it'll be, if the house is worth more than a
• 26:02
  Speaker 4: million dollars, you'll just be denied. So it's not going
• 26:05
  Speaker 4: to be the exact same for married couples and single people.
• 26:08
  Speaker 4: And folks, that's really what it's all about. And you
• 26:10
  Speaker 4: have to understand that for different items, they're treated differently,
• 26:13
  Speaker 4: whether it's a rental property, a vacation home. So at
• 26:17
  Speaker 4: the end of the day, there's just many rules governing these.
• 26:19
  Speaker 4: And the message, I think, the answer to your question is,
• 26:23
  Speaker 4: don't just write the check. Call an elder law lawyer,
• 26:26
  Speaker 4: see if you can get some help.
• 26:27
  Speaker 6: Absolutely. Great information.
• 26:29
  Speaker 1: There.
• 26:29
  Speaker 2: If you have any estate planning questions for Todd Lutzke,
• 26:33
  Speaker 2: he is here with us this week answering anything, whether
• 26:36
  Speaker 2: it be in the realm of Medicaid eligibility, revocable trusts,
• 26:39
  Speaker 2: irrevocable trusts, anything on the estate planning side of things.
• 26:43
  Speaker 2: The studio line here to give us a call, 888-205-2263. Again,
• 26:45
  Speaker 2: that number, 888-205-2263 for any of your questions for attorney
• 26:56
  Speaker 2: Todd Lutzky. We're going to take a quick break here
• 26:58
  Speaker 2: on the Financial Exchange. When we come back, we'll have
• 27:00
  Speaker 2: more with Todd Lutzky and your questions right after this break.
• 27:25
  Speaker 2: We are back here with Todd Lutzke from Cushy and
• 27:28
  Speaker 2: Dolan for our weekly segment of Ask Todd. If you
• 27:31
  Speaker 2: have a question on the estate planning front, anything regarding
• 27:34
  Speaker 2: nursing home protection or revocable trust, irrevocable trust, give our
• 27:37
  Speaker 2: studio line a call, 888-205-2263. Again, that number for any
• 27:42
  Speaker 2: of your questions for Todd Lutzke on the estate planning front, 888-205-2263.
• 27:47
  Speaker 6: 205-2263.
• 27:48
  Speaker 2: Todd, I often have clients who you had mentioned in
• 27:54
  Speaker 2: the prior segment, just sort of which assets are countable
• 27:57
  Speaker 2: from a Medicaid perspective and which aren't. When you were
• 28:01
  Speaker 2: applying for Medicaid, Can you give the listeners a sense
• 28:05
  Speaker 2: for really what is the benefit that they would gain there?
• 28:08
  Speaker 2: I mentioned in the prior segment, you know, nursing homes
• 28:11
  Speaker 2: are very expensive on a monthly basis. What is the
• 28:14
  Speaker 2: benefit of getting that Medicaid eligibility that would benefit, you know,
• 28:19
  Speaker 2: clients and different families around this area?
• 28:21
  Speaker 4: So the way it works is it's all about leverage, right?
• 28:25
  Speaker 4: What's the main benefit? The main benefit is leverage. Leverage how? Well,
• 28:29
  Speaker 4: there's a Medicaid rate that you pay the nursing home.
• 28:33
  Speaker 4: And then there's a private pay rate that you pay
• 28:36
  Speaker 4: the nursing home. Obviously, the private pay rate is way higher,
• 28:39
  Speaker 4: oftentimes double, let's say. It's probably close to double the amount.
• 28:46
  Speaker 4: So if the nursing home costs 17 grand a month,
• 28:50
  Speaker 4: you could probably get a Medicaid rate of maybe seven.
• 28:56
  Speaker 1: Okay.
• 28:57
  Speaker 4: That's not bad.
• 28:58
  Speaker 3: Yeah.
• 28:58
  Speaker 4: That's a big difference. So This is why it's so important.
• 29:01
  Speaker 4: So even if it's last minute, right, and you're trying
• 29:04
  Speaker 4: to get on Medicaid, the goal is you might not
• 29:08
  Speaker 4: save every penny, but you're going to stretch it. So
• 29:10
  Speaker 4: if you're single and you can somehow take your excess resources,
• 29:14
  Speaker 4: let's say the house is non-countable and you've gotten that
• 29:18
  Speaker 4: off the table and you're single and you're applying for Medicaid.
• 29:22
  Speaker 4: And you've got $ 500, 000 kicking around, and they're going to
• 29:25
  Speaker 4: say you're denied until you get that $ 500, 000 down to $.
• 29:28
  Speaker 2: 2, 000.
• 29:28
  Speaker 4: Well, how do you do that? Well, you can't give
• 29:30
  Speaker 4: it away. You create a five-year waiting period.
• 29:32
  Speaker 6: Right.
• 29:33
  Speaker 4: So I know I'll buy a Medicaid annuity, let's say.
• 29:36
  Speaker 4: So you could buy a Medicaid annuity that pays out over...
• 29:40
  Speaker 4: your lifetime, your life expectancy. So there's other rules that
• 29:45
  Speaker 4: go with it, but life expectancy is a key term
• 29:48
  Speaker 4: in terms of how long. So let's say you're 80
• 29:50
  Speaker 4: and you have a life expectancy of 10 years. You've
• 29:54
  Speaker 4: got $ 500, 000 paying out over 10 years.
• 29:56
  Speaker 6: I don't know.
• 29:56
  Speaker 4: Let's just say for easy numbers, it's $ 7, 000 a month.
• 30:00
  Speaker 4: minus your Social Security of $ 2, 500 a month, minus the
• 30:04
  Speaker 4: Medicaid payment of $ 2, 500 a month, let's say, I'm sorry,
• 30:07
  Speaker 4: the annuity payment. So now you got $ 5, 000 coming in.
• 30:11
  Speaker 4: You're left with $ 2, 000 that the state's paying.
• 30:14
  Speaker 6: Got it.
• 30:14
  Speaker 4: Wow, that's a great deal, right? Because now my money
• 30:17
  Speaker 4: is being stretched over a longer period of time for
• 30:20
  Speaker 4: the benefit of the person who's in the home, which
• 30:24
  Speaker 4: is what we want. And then you also have a
• 30:27
  Speaker 4: shot that the payback provision is only $ 2, 000 a month.
• 30:30
  Speaker 4: So the lien against the annuity is only about $ 2, 000
• 30:34
  Speaker 4: a month. That stretches your money way longer to not
• 30:38
  Speaker 4: only take care of the individual who needs the money,
• 30:41
  Speaker 4: but also there might be more money left over for
• 30:43
  Speaker 4: the family at the end of the day. So that's
• 30:45
  Speaker 4: really the leverage in which you get when you are
• 30:49
  Speaker 4: trying to apply for Medicaid. But folks, how do we
• 30:52
  Speaker 4: do this? Obviously, on the show today, I'm not going
• 30:54
  Speaker 4: to be able to go through all of the assets,
• 30:56
  Speaker 4: but I want you to understand that in this guide,
• 30:59
  Speaker 4: There's a last minute Medicaid eligibility guide is what can
• 31:03
  Speaker 4: we do when we're faced with entering a facility last minute?
• 31:06
  Speaker 4: And again, whether you've done planning or not done planning,
• 31:10
  Speaker 4: there's always going to be excess resources. So I talk
• 31:13
  Speaker 4: about things like primary residence. What about a rental property?
• 31:16
  Speaker 4: How is that treated differently? What about a vacation home?
• 31:20
  Speaker 4: What about IRAs versus 401Ks? Those are treated differently. Life insurance,
• 31:25
  Speaker 4: term insurance versus whole life insurance. These are all items
• 31:29
  Speaker 4: that are treated differently. And again, treated differently depending on
• 31:33
  Speaker 4: whether you're married or single. And then how do we
• 31:36
  Speaker 4: use annuities last minute to take care of excess resources,
• 31:40
  Speaker 4: excess money that might be available? Call and get this guide, folks.
• 31:44
  Speaker 4: It'll help you not just write the big check to
• 31:48
  Speaker 4: the nursing home, hopefully a much smaller one.
• 31:49
  Speaker 2: 866-848-7000.
• 31:54
  Speaker 4: 848-5699 or LegalExchangeShow.com. Again, 866-848-5699 or LegalExchangeShow.com to download the
• 32:03
  Speaker 4: guide there. And you can always go to Cushing Dolan
• 32:05
  Speaker 4: PC for more information on our Instagram page.
• 32:10
  Speaker 2: We are here with Todd Lutzke. If you have any
• 32:12
  Speaker 2: questions on the estate planning realm, give our studio line
• 32:14
  Speaker 2: a call, 888- 888-205-2263. Again, that number 888-205-2263. Todd, what
• 32:23
  Speaker 2: are some of the positive impacts that come from those
• 32:27
  Speaker 2: people who have done the trust planning early, who perhaps
• 32:31
  Speaker 2: did set up the irrevocable trust and have surpassed that
• 32:34
  Speaker 2: five-year waiting period? What are some of the pros that
• 32:38
  Speaker 2: can come from doing that? And how does that get
• 32:40
  Speaker 2: applied to different assets in terms of They've done the
• 32:43
  Speaker 2: irrevocable trust. What happens with their properties? You mentioned rentals
• 32:48
  Speaker 2: and vacation properties, which I'm sure a lot of listeners have.
• 32:50
  Speaker 2: What are some of the benefits that come from doing
• 32:52
  Speaker 2: that type of work?
• 32:53
  Speaker 4: So it really comes down to the fact that if
• 32:55
  Speaker 4: we're still talking about heading into a nursing home at
• 32:58
  Speaker 4: some point, the benefits are there's clearly going to be
• 33:02
  Speaker 4: less assets outside the trust to protect, to deal with
• 33:07
  Speaker 4: last minute. So let me give you an example. So
• 33:12
  Speaker 4: If you've done your planning, likely what's in the trust
• 33:15
  Speaker 4: is going to be all your real estate. Certainly if
• 33:17
  Speaker 4: you've done it with us, it's going to be all
• 33:19
  Speaker 4: your real estate. Your real estate will be in there.
• 33:21
  Speaker 4: Whether it's a vacation home or rental property, it won't matter.
• 33:24
  Speaker 4: In addition, we'll put some money in. But what's definitely
• 33:28
  Speaker 4: not going to be in there is your IRA. So
• 33:31
  Speaker 4: we always want to talk a little bit about IRAs
• 33:33
  Speaker 4: and how to deal with them, right? So you have
• 33:35
  Speaker 4: IRAs that are outside the trust and you have some
• 33:39
  Speaker 4: money that you're going to leave outside the trust. The
• 33:42
  Speaker 4: biggest issue is the IRA, right? We can't plan in
• 33:46
  Speaker 4: advance for an IRA because I can't move the money
• 33:49
  Speaker 4: into an irrevocable trust without paying a huge income tax.
• 33:53
  Speaker 4: So we know we're going to always have that money
• 33:56
  Speaker 4: outside the trust. Now, here's the real issue. Who gets
• 33:59
  Speaker 4: sick and whose IRA are we dealing with? Let's say
• 34:02
  Speaker 4: you've got both a husband IRA and a wife IRA. Okay,
• 34:07
  Speaker 4: so let's say husband gets sick and let's say husband's
• 34:10
  Speaker 4: IRA is you know, is 500 grand. And let's say
• 34:14
  Speaker 4: wife's IRA is 600 grand. Wow, what are we going
• 34:17
  Speaker 4: to do? Well, that's a lot of excess assets. Well,
• 34:20
  Speaker 4: the wife's IRA, you could take and buy a Medicaid
• 34:23
  Speaker 4: annuity right inside the IRA. Those are those annuities that
• 34:27
  Speaker 4: we were talking about earlier in your example, where she
• 34:30
  Speaker 4: could kind of, you know, buy that annuity inside the
• 34:33
  Speaker 4: IRA to preserve the income tax problem. What I mean
• 34:37
  Speaker 4: by that is this annuity then can pay out you know,
• 34:41
  Speaker 4: a monthly amount based on this annuity. Yes, it has
• 34:44
  Speaker 4: to come out of the IRA to her, and then
• 34:48
  Speaker 4: she'll have income tax on that hit. Now, it's possible
• 34:51
  Speaker 4: that you could arrange that IRA for her anyway to
• 34:54
  Speaker 4: come out once a year. And that way, if it
• 34:57
  Speaker 4: comes out in a big chunk, it can then be
• 35:00
  Speaker 4: rolled back into the IRA within 60 days and you
• 35:02
  Speaker 4: avoid the income tax hit. But you're only allowed to
• 35:05
  Speaker 4: do it once a year, so you've got to make
• 35:06
  Speaker 4: sure the annuity pays out once a year. So it's
• 35:08
  Speaker 4: some structuring, some planning ideas where you can actually make
• 35:11
  Speaker 4: that work. But the problem IRA, well, that's the sick spouse.
• 35:20
  Speaker 4: So the problem IRA, you come to the sick spouse
• 35:23
  Speaker 4: and you say, all right, there's $ 500, 000 there, and I've
• 35:26
  Speaker 4: taken care of the money in the healthy spouse's IRA.
• 35:30
  Speaker 4: But remember, the healthy spouse is not allowed to have
• 35:33
  Speaker 4: more than It goes up every year, but let me
• 35:36
  Speaker 4: just throw out a number like $ 155, 000. Sure. Somewhere in
• 35:40
  Speaker 4: that range, you can't have more than about $ 155, 000. And
• 35:43
  Speaker 4: the sick spouse is not allowed to have more than $ 2, 000
• 35:47
  Speaker 4: to become eligible. So what am I going to do
• 35:51
  Speaker 4: with the $ 500, 000 that's in his IRA? Well, I want
• 35:54
  Speaker 4: to take it out. I want to give it to
• 35:55
  Speaker 4: the healthy spouse. By the way, transfers to spouses are permissible.
• 36:00
  Speaker 4: And then the healthy spouse could buy an annuity for her.
• 36:02
  Speaker 4: And again, like magic, you convert the asset to an
• 36:06
  Speaker 4: income stream when you buy the annuity, making it no
• 36:10
  Speaker 4: longer countable. Well, great idea, but huge income tax problem. Right.
• 36:15
  Speaker 4: You take $ 500, 000 out of there, you're going to lose 30%, 40%.
• 36:18
  Speaker 4: That's $ 200, 000. You lose $ 200, 000. You have to think about
• 36:24
  Speaker 4: the health status of the individual before you do it.
• 36:27
  Speaker 4: If you're fairly confident they're going to live a while,
• 36:29
  Speaker 4: then it's worth doing it because you're saving $ 17, 000 a month.
• 36:32
  Speaker 4: That'll add up in no time. But if they're going
• 36:35
  Speaker 4: to die right away, well, then maybe private pay. So folks,
• 36:39
  Speaker 4: strategy is always important when you're entering a nursing home.
• 36:42
  Speaker 4: Don't go at it alone. Call and get some help.
• 36:44
  Speaker 2: Todd, thanks so much for your time this week. You
• 36:46
  Speaker 2: were incredibly helpful and I hope you have a fantastic weekend.
• 36:50
  Speaker 4: Thank you. Always a pleasure.
• 36:52
  Speaker 1: This has been Ask Todd on the Financial Exchange Radio Network.
• 36:56
  Speaker 1: Ask Todd with Todd Lutzke has been presented by Cushing
• 36:58
  Speaker 1: and Dolan, serving Massachusetts and New England for more than
• 37:01
  Speaker 1: 30 years, helping families with estate and tax planning, Medicaid planning,
• 37:05
  Speaker 1: and probate law. Call 800-393-4001 or visit CushingDolan.com. The views
• 37:11
  Speaker 1: expressed in this segment are solely those of Cushing and Dolan.
• 37:13
  Speaker 1: Armstrong Advisory does not provide any legal or tax advice.
• 37:16
  Speaker 1: Please consult with your legal or tax advisor on such matters.
• 37:18
  Speaker 1: Cushing and Armstrong do not endorse each other and are
• 37:20
  Speaker 1: not affiliated.
• 37:22
  Speaker 2: Markets are in relatively mixed territory, all in the negative,
• 37:25
  Speaker 2: but only slightly so. The Dow Jones is off about
• 37:28
  Speaker 2: 125 points, or a quarter of a percent. The S
• 37:31
  Speaker 2: & P 500 only off a measly three points, and
• 37:34
  Speaker 2: the NASDAQ is off about 0.2%.
• 37:38
  Speaker 6: Taking a look at the U.S.
• 37:40
  Speaker 2: 10-year Treasury, which has been in the headlines after Treasury
• 37:43
  Speaker 2: Scott Besson's actions last week, it is only up one
• 37:46
  Speaker 2: basis point at 4.65%. That's all the time that we
• 37:50
  Speaker 2: have for the first hour of the program, but we
• 37:52
  Speaker 2: have a jam-packed second hour with a lot to cover.
• 37:55
  Speaker 2: So stick with us here on the Financial Exchange. We'll
• 37:57
  Speaker 2: be right back at it.