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Where is inflation right now? · The Financial Exchange Show

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Speaker 1: He's the Financial Exchange with Chuck Zana and Mark Vandetti.
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Speaker 2: It's Chuck, Mark and Tucker with you today, and our
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Speaker 2: lead story is this morning's Consumer Price Index data CPI
1:29
Speaker 2: came out at eight thirty this morning from the Bureau
1:32
Speaker 2: of Labor Statistics, and what we saw was in line
1:37
Speaker 2: with expectations. The headline number came in point three percent
1:40
Speaker 2: for the month, which is how do they need to
1:42
Speaker 2: like to see? But again in line with expectations is
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Speaker 2: still what matters. And the core number came into point
1:49
Speaker 2: three percent four of the month of November as well,
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Speaker 2: once again in line with expectations for the last twelve months. Now,
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Speaker 2: this brings the headline number to two point seven percent
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Speaker 2: on an annual basis. The core number is right now
2:03
Speaker 2: at three point three. That headline number at two seven
2:08
Speaker 2: largely being dragged down by energy prices, with gasoline down
2:12
Speaker 2: eight point one percent over the last year, so that's
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Speaker 2: been kind of the main difference there, and as such,
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Speaker 2: were we're in a spot where we seem to be
2:24
Speaker 2: kind of stuck right now in this position where core
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Speaker 2: inflation is running probably about one percent higher than you'd
2:32
Speaker 2: really be comfortable with it running and there's no clear
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Speaker 2: path for it to move, you know, down to the
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Speaker 2: low two percent range absence you know kind of this,
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Speaker 2: Uh yeah, because some kind of economic miracle, the likes
2:51
Speaker 2: of which I don't think we've really seen. It's it's
2:54
Speaker 2: just unclear what takes it down further at this point.
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Speaker 3: Your thoughts mark, Yeah, inflation came in right where very
3:01
Speaker 3: simple models that a generalist like me would use to
3:05
Speaker 3: predict inflation would suggest. The models have been right on
3:10
Speaker 3: the past few months. I'm not bragging about them. I
3:12
Speaker 3: didn't develop them, I just utilize them. And that tells me,
3:16
Speaker 3: for what it is worth that the process chuck whatever
3:19
Speaker 3: it is, forget about the components will probably get into that,
3:22
Speaker 3: and it's interesting. But for again, a generalist like me,
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Speaker 3: and like any everybody listening. Nobody listening, I presume is
3:29
Speaker 3: a you know, is an academic monetary economist.
3:32
Speaker 2: We have a few of those who listen. Really, I
3:35
Speaker 2: have no idea.
3:35
Speaker 3: They're not teaching right now, not on Wednesdays. So what
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Speaker 3: that tells me is that the process hasn't changed. You
3:44
Speaker 3: could say, well, that's good news. Inflation is stable, and
3:47
Speaker 3: when I say the process, I mean, whatever's under the
3:49
Speaker 3: hood generating the result. Sure, that's not a very deep statement.
3:53
Speaker 3: It's an acknowledgment that, however, that there are lots of
3:56
Speaker 3: things that could affect inflation. It's almost futile to try
3:59
Speaker 3: to guess from month to month which mole is going
4:01
Speaker 3: to pop up in the whack a mole game. Just
4:03
Speaker 3: look at what's happening overall. The process is stable, which
4:07
Speaker 3: is both good news and bad news. Doesn't appear to
4:09
Speaker 3: be breaking out. That's good news. Sure, doesn't appear to
4:12
Speaker 3: be moderating. Further though, that might be bad news. That
4:15
Speaker 3: might suggest, and I don't have a strong opinion on this,
4:18
Speaker 3: but that might suggest that the FED is prematurely lowering
4:21
Speaker 3: rates too quickly, by too much and too quickly.
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Speaker 4: We won't we won't know for months.
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Speaker 2: We're in a position where, if you look at the
4:29
Speaker 2: core inflation numbers, we've basically been stuck for the last
4:36
Speaker 2: six months now, and so there's kind of this steady
4:39
Speaker 2: state there. The pieces that are interesting is when you
4:42
Speaker 2: do dive under the hood and you say, okay, where
4:44
Speaker 2: is this coming from? Even within core inflation. A couple
4:48
Speaker 2: interesting things just in this report that we saw, and
4:51
Speaker 2: this is data from Jason Furman, who sliced and diced
4:55
Speaker 2: the BLS data to his heart's content, And what we
5:00
Speaker 2: did see in this month is an unexpected jump in
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Speaker 2: the annual rate of inflation for core goods, which typically
5:09
Speaker 2: are pretty deflationary, the reason being, hey, usually we're pretty
5:13
Speaker 2: good like once something, once you're making something, in today's world,
5:18
Speaker 2: someone's pretty good at commoditizing it, and so you typically
5:21
Speaker 2: don't see much goods inflation outside of supply shortages like
5:26
Speaker 2: we did in twenty twenty one and twenty twenty two
5:29
Speaker 2: and even into the first part of twenty three. Generally
5:32
Speaker 2: there's kind of a deflationary aspect to them, not the
5:36
Speaker 2: case this month, where they were actually running at a
5:38
Speaker 2: hotter pace than what we saw from core services. And
5:42
Speaker 2: so I think if you're looking for the silver lining
5:46
Speaker 2: on this, you could say, Okay, that's probably unlikely to repeat.
5:49
Speaker 2: It is likely due to a combination of factors, which
5:53
Speaker 2: you know might be companies trying to front run potential
5:58
Speaker 2: tariffs from next year and saying, hey, we're willing to
6:01
Speaker 2: pay more this month in order to buy these things
6:03
Speaker 2: up because the prices could be even higher next year.
6:07
Speaker 2: It could be still some hurricane related artifacts that are
6:10
Speaker 2: in here in terms of higher prices because of excess
6:14
Speaker 2: demand after the hurricane for things like lumber and you know,
6:18
Speaker 2: things you need to rebuild homes and businesses and things
6:21
Speaker 2: like that. But it would be unusual to see that
6:24
Speaker 2: repeat itself. So you say, okay, like that, that's good news.
6:27
Speaker 2: Maybe that means that you know the core number is
6:29
Speaker 2: going to come in better next month. Well, or it
6:32
Speaker 2: could just mean hey, once that short term thing is
6:35
Speaker 2: taken care of there, maybe the money that would have
6:38
Speaker 2: been spent there goes back into core services, and so
6:40
Speaker 2: you end up with core services printing higher in future months.
6:43
Speaker 3: I think that is the key issue for again, someone
6:47
Speaker 3: like most of us participating in this show today, most
6:50
Speaker 3: of us listening, we're generalists. We care about this stuff
6:52
Speaker 3: at a high level. We care about inflation because it
6:54
Speaker 3: has implications for interest rates and economic stability. This the
7:01
Speaker 3: level of inflation. If I had to sort of nuts
7:03
Speaker 3: shell it, putting it into a nutshell, sing it no.
7:07
Speaker 2: I like the use of nutshell.
7:09
Speaker 4: I feel about it. Shakespeare, I don't know, don't think
7:14
Speaker 4: about it.
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Speaker 3: Uh, it's doesn't feel like it's moderating further, and that's
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Speaker 3: consistent with the economy running a little bit hot. Growth
7:22
Speaker 3: as measured by GDP is above what most researchers think
7:26
Speaker 3: is the economy's capacity, it's potential, it's speed limit if
7:29
Speaker 3: you like. That's so that suggests a tachometer needle in
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Speaker 3: the red zone. Unemployment is low, it's gone up, so
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Speaker 3: the the direction is important. It has been rising, but
7:41
Speaker 3: it's still low. That points and other measures of labor
7:44
Speaker 3: market activity point to a solid labor market, probably not
7:48
Speaker 3: an overheating one anymore. Maybe the tachometer on that market
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Speaker 3: is not in the red zone. But overall, Chuck, economy
7:55
Speaker 3: has been strong. Using the averages which are the best
7:58
Speaker 3: we have at our dispose things like GDP and unemployment,
8:03
Speaker 3: and they're not consistent with further immaculate disinflation. By that
8:08
Speaker 3: I mean painless disinflation.
8:11
Speaker 2: Mark How do how does one reconcile what we're seeing
8:15
Speaker 2: right now with an economy that still is pretty hot
8:19
Speaker 2: by most measures other than you know, kind of the
8:22
Speaker 2: declines that we've seen in the labor market, which are
8:25
Speaker 2: strains because normally the labor market's the last thing to
8:28
Speaker 2: slow down in an economy. And here it's kind of
8:30
Speaker 2: showing signs that it's the first thing to slow, which
8:32
Speaker 2: is kind of backwards. But how do we reconcile the
8:36
Speaker 2: fact that we've got inflation still running a little bit
8:39
Speaker 2: hotter than anticipated and hotter than we'd like to see it.
8:43
Speaker 2: We've got GDP growth again, I'm just looking at the
8:47
Speaker 2: Atlanta Fed's GDP now now cast in terms of, hey,
8:51
Speaker 2: what is it showing. I'm not projecting this myself because
8:53
Speaker 2: I don't have that kind of capability. They're saying, hey,
8:56
Speaker 2: right now, through you know this point in q Q four,
9:00
Speaker 2: he grows is running three point three percent, which, again,
9:02
Speaker 2: how accurate it is, who knows, but it's there. It's
9:05
Speaker 2: saying that.
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Speaker 3: Until turning points is actually pretty don accurate.
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Speaker 2: And so we've got hotter than howter? Then we want
9:13
Speaker 2: inflation an economy that's growing faster than is you know,
9:18
Speaker 2: probably possible in the long run based on the demographic
9:21
Speaker 2: trends that we have, and we've got an incoming president
9:25
Speaker 2: who the button that he likes to push most is hey,
9:28
Speaker 2: let's grow faster. How do we try to figure out
9:33
Speaker 2: how this is all going to work next year? Is
9:36
Speaker 2: there a path for this to work in terms of
9:42
Speaker 2: trying to get inflation down further while also growing the
9:48
Speaker 2: economy at the clip the incoming president would like to
9:50
Speaker 2: see it if products.
9:51
Speaker 3: You put aside whatever Trump's saying today.
9:56
Speaker 2: Pay attention to what he's done though, and the button
9:59
Speaker 2: he likes to push is growth faster.
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Speaker 4: That button didn't.
10:03
Speaker 3: That button worked for a little bit in twenty eighteen
10:05
Speaker 3: and twenty nineteen, but in late twenty eighteen we were
10:08
Speaker 3: in a growth p fair.
10:09
Speaker 2: That's half it's that's half his term.
10:10
Speaker 3: So like you, no, I'm just saying there is no
10:12
Speaker 3: we know, there's no button. If there was a growth button,
10:14
Speaker 3: every president would just jam his thumb on it.
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Speaker 2: There For all I'm saying is that, like, that's the
10:19
Speaker 2: one that.
10:19
Speaker 3: Well just wouldn't like to push that. What's what's the
10:22
Speaker 3: other button you want to push?
10:23
Speaker 1: Well?
10:23
Speaker 2: There are I mean, look, you will get the Reagan
10:26
Speaker 2: through Clinton era there was a meaningful push of the
10:32
Speaker 2: other button, which is, hey, deficits are getting out of control.
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Speaker 2: Let's slow this thing. From Reagan, from Bush, and from Clinton,
10:38
Speaker 2: all three of them had deficit control measures at some
10:41
Speaker 2: point of their term, even if it impacted short term economics.
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Speaker 4: You're talking about fiscal policy.
10:47
Speaker 3: What else would you just want to Well, there's there's deregulation.
10:50
Speaker 3: There are other leverties O the push.
10:53
Speaker 2: Like the one that actually matters is fiscal. The deregulatory
10:56
Speaker 2: stuff doesn't matter. It doesn't matter from a A it's
11:01
Speaker 2: just gonna the deregulatory side is just gonna determine the right.
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Speaker 3: But Trump also wanted to impose big spending cuts on
11:06
Speaker 3: the government, which which would be contractionary.
11:09
Speaker 4: So is he gonna be.
11:11
Speaker 2: I'm looking at the track record.
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Speaker 3: That's why I'm saying, we don't know is he gonna be?
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Speaker 3: Is Elon gonna be driving the bus? Or is are
11:17
Speaker 3: the tax cutters? And to hell with deficits and debt,
11:20
Speaker 3: don't worry about it, they don't matter. Are those people
11:22
Speaker 3: going to be driving the bus?
11:23
Speaker 2: This is what I'm trying to reconcile is what.
11:26
Speaker 3: You can't reconcile those two things. They're in perfect tension.
11:28
Speaker 3: Is Elon and then the the the big spenders, whether
11:31
Speaker 3: it's tax cuts or additional outlays. I don't know how
11:33
Speaker 3: you reconcile those two things.
11:35
Speaker 2: I think the point that I'm getting to, though, is
11:38
Speaker 2: where I've been kind of for the last month now,
11:40
Speaker 2: which is Look, there's a chance that next year is
11:42
Speaker 2: kind of challenging as far as how to navigate all
11:46
Speaker 2: these different cross winds here.
11:49
Speaker 3: Yeah, forget fiscal policy. I think the safe approaches, all
11:52
Speaker 3: bets are off. Don't try to guess what Trump's gonna
11:55
Speaker 3: tweet about tomorrow. We don't know She's shifting.
11:59
Speaker 2: I think it's much more you know what he wants.
12:04
Speaker 2: His goal is to be judged on, Hey, is unemployment low?
12:07
Speaker 2: Is the stock market high and our interest rates low? Like, yeah,
12:12
Speaker 2: that's what you wants?
12:16
Speaker 3: And and and those are in Those are intention Unemployment
12:20
Speaker 3: low and low interest rates are probably intention Outside of
12:23
Speaker 3: a few exceptional periods like the early two thousands, which
12:27
Speaker 3: was a global phenomenon, you can't necessarily balance all those
12:30
Speaker 3: forces indefinitely, which I guess is your point. Which is
12:33
Speaker 3: going to prevail? The question is what you.
12:36
Speaker 2: Give is like where which one of those breaks? Is
12:39
Speaker 2: the question? Because you can't have all of it, at
12:42
Speaker 2: least not in year one based on where we are today.
12:46
Speaker 3: Yeah, you can't have both high growth and low interest
12:49
Speaker 3: rates and low inflation.
12:51
Speaker 4: Probably yeah, get the next year.
12:56
Speaker 3: That's that's why they use the expression no free launchs
12:59
Speaker 3: are unavoidable.
13:00
Speaker 2: You try to say, what's the path to mortgage rates
13:03
Speaker 2: in the fives next year, unemployment hanging around four and
13:08
Speaker 2: the S and P five hundred going to seventy five hundred.
13:11
Speaker 4: It's hard to do. It's like taste great, less filling.
13:14
Speaker 2: Really Miller figured that out, did they?
13:17
Speaker 4: Though I don't know that's rhetorical.
13:21
Speaker 2: Taste better than a lot of other light beers. And
13:24
Speaker 2: I have these things still.
13:26
Speaker 3: I guess my point is these things are always intention
13:28
Speaker 3: that things you want to eat, or were other worse
13:30
Speaker 3: things for you.
13:31
Speaker 4: For the most part.
13:31
Speaker 2: That's why we have December Eat everything you can, like
13:35
Speaker 2: any good Italian boy. Let's take a quick break here.
13:39
Speaker 2: When we come back, let's talk a little bit about
13:41
Speaker 2: how this inflation report impacts the Fed Wall Street.
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14:41
Speaker 2: Mark. What do you think the recent inflation day that
14:44
Speaker 2: we've gotten, including today's report, does to the FED and
14:49
Speaker 2: how they are likely to behave over the next six
14:52
Speaker 2: to twelve months.
14:53
Speaker 3: I think when they put these figures into their when
14:57
Speaker 3: they have their staff put these figures into their economic
15:00
Speaker 3: models that crank out outcomes for the whole economy, it
15:03
Speaker 3: probably doesn't change the trajectory of anything. So I don't think,
15:07
Speaker 3: and this is take this with a huge grain of salt,
15:11
Speaker 3: because I don't work with these big, complicated models. But
15:13
Speaker 3: if it doesn't change anything, why would it change their
15:15
Speaker 3: expected course of action?
15:18
Speaker 2: So here is the question that I look at is
15:23
Speaker 2: in September we got their most recent summary of economic projections,
15:28
Speaker 2: and let's look at how those projections may have evolved
15:30
Speaker 2: and whether there is, you know, something that we think
15:33
Speaker 2: has changed there so for the end of this year,
15:35
Speaker 2: which is not as relevant to the discussion at this point,
15:38
Speaker 2: but still matters. They thought that GDP would come in
15:41
Speaker 2: at two percent. Based on the recent data we've gotten,
15:44
Speaker 2: it's likely going to be stronger than that. This year.
15:47
Speaker 2: Unemployment rate they thought was going to go up to
15:48
Speaker 2: four point four. We're at four to two now. But
15:51
Speaker 2: that four to two is a rounding, you know, error
15:53
Speaker 2: away from being four to three. So there still is
15:55
Speaker 2: a potential that this ends up coming in at four
15:57
Speaker 2: to four for the unemployment rate, But with the downside
16:00
Speaker 2: skew to the range of potential outcomes. I think PCE
16:04
Speaker 2: inflation they thought would be a two to three, with
16:07
Speaker 2: CORE coming in at two six. Both of those are
16:11
Speaker 2: likely going to be a little bit light. So they're
16:13
Speaker 2: probably a little bit underestimating what they have there next
16:17
Speaker 2: year where all the meat is in terms of their
16:19
Speaker 2: projections FED things GDP is going to grow two percent
16:22
Speaker 2: because they basically always think it's going to grow two percent,
16:24
Speaker 2: because that's that's where they think that the speed limit is.
16:29
Speaker 2: Unemployment rate they think is going to end twenty twenty
16:32
Speaker 2: five at four point four. Do we think there's the
16:35
Speaker 2: potential for meaningful shift? There is that kind of right
16:38
Speaker 2: in the middle range of outcomes that.
16:39
Speaker 4: We would see for the end of next year, Yes.
16:42
Speaker 2: Is twenty twenty five. Yeah, I'm looking at the FED
16:46
Speaker 2: step like, do we think four to four is one
16:48
Speaker 2: that they're likely to revise up, down or no change
16:51
Speaker 2: when we get the next Summary of Economic projections.
16:54
Speaker 3: Next GDP is going to be fifty percent lower than
16:56
Speaker 3: it is, a third lower excuse me, than it is today. Uh,
17:01
Speaker 3: And they think unemployment is going to be the same
17:03
Speaker 3: with GDP a third lower. But these are just the medians.
17:06
Speaker 3: These aren't the numbers they actually put into this.
17:08
Speaker 2: No, exactly, brani acts. I'm just saying, do we expect
17:12
Speaker 2: the step to the same or different?
17:15
Speaker 3: I'm just trying to answer your question in a way
17:16
Speaker 3: that's consistent with the other data in the projections that
17:18
Speaker 3: you're reading. If you told me GDP is going to
17:20
Speaker 3: be a lot slower than it appears to be growing today.
17:23
Speaker 3: I would say, applying something called Oaken's law, named after
17:26
Speaker 3: the guy that observed it, unemployment would have to go
17:29
Speaker 3: up by more than they appear to project to be
17:32
Speaker 3: consistent with the GDP slow down of that magnitude if.
17:36
Speaker 2: That were to happen, so again, potentially ending up with
17:39
Speaker 2: you know, unemployment a little bit higher. They've got pc
17:42
Speaker 2: inflation ending next year at two one and core pce
17:45
Speaker 2: E at two two. Are those reasonable or based on
17:49
Speaker 2: the higher inflation that we've seen in Q four relative
17:52
Speaker 2: to their projections? Do those need to be revised up
17:54
Speaker 2: for next sear.
17:55
Speaker 3: So just let's let's use the same framework. If you
17:58
Speaker 3: think growth is going to slow from that that unemployment
18:01
Speaker 3: probably won't go down, It'll probably go up, especially if
18:04
Speaker 3: it slows down by as much as three today to
18:06
Speaker 3: two in a year or so from now. Sure inflation
18:09
Speaker 3: that that story to this point is also consistent with
18:12
Speaker 3: inflation slowing. So those three things that you just articulated
18:17
Speaker 3: are I think consistent as to this, you know, as
18:21
Speaker 3: to the number of decimal points we get this right by,
18:24
Speaker 3: that's less so elevant.
18:26
Speaker 2: If you were a FED member, and again I'm not
18:28
Speaker 2: I'm not saying that you are. You'd say, okay, okay,
18:32
Speaker 2: So GDP get us slow to two percent next year,
18:35
Speaker 2: unemployment might need to move up from the four to
18:38
Speaker 2: four projection, maybe it needs to move a little bit
18:40
Speaker 2: higher based on that kind of slowing. But if that
18:44
Speaker 2: were to happen, there is a reasonable path then where
18:47
Speaker 2: PCE and core PCE can come in in the low
18:51
Speaker 2: twos instead of the mid to high twos.
18:53
Speaker 3: Those things are not inconsistent. It's possibly uncomfortable with that, sure, But.
18:57
Speaker 2: A slowing GDP, and this is the part that I
19:00
Speaker 2: think there's questions on next year, is not necessarily then
19:04
Speaker 2: consistent with a stock market that is priced as steeply
19:08
Speaker 2: as it's pres to them.
19:09
Speaker 3: So unless there's something unique to these publicly traded companies
19:12
Speaker 3: that allows them to continue to expand margins notwithstanding a
19:18
Speaker 3: slow down in the overall and right, companies can make
19:21
Speaker 3: more money. It's not as it becomes zero sum at
19:23
Speaker 3: that point. But I guess that's not inconsistent.
19:26
Speaker 2: Let's take a quick break here. When we come back,
19:28
Speaker 2: we're joined by Todd Lebsky for ask Todd, we're also
19:31
Speaker 2: going to do Wall Street Watch right after this, Like us.
19:43
Speaker 1: On Facebook and follow us on Twitter. Act TFFE show
19:46
Speaker 1: breaking business news is always first right here on the
19:50
Speaker 1: Financial Exchange Radio Network. Time now for Wall Street Watch
19:56
Speaker 1: a complete look at what's moving markets so far today
19:59
Speaker 1: right here on the Financial Exchange Radio Network.
20:03
Speaker 5: Well markets are mixed territory as Wall Street reacts to
20:06
Speaker 5: the Consumer Price Index for the latest reading on inflation,
20:09
Speaker 5: where consumer prices climb two point seven percent year over year,
20:13
Speaker 5: in line with estimates. Right now, the Dow is only
20:17
Speaker 5: down by eight points in negative territory s and P
20:20
Speaker 5: five hundred is up by two thirds of a percent,
20:23
Speaker 5: and the tech heavy NASDAK is rallying one in a
20:26
Speaker 5: third percent or two hundred and sixty three points. RUSSED
20:29
Speaker 5: two thousand is up by about a half a percent
20:32
Speaker 5: or eleven points. Ten year treasury yield is up by
20:36
Speaker 5: two basis points at four point two five percent, and
20:39
Speaker 5: Crew Oil is up over one and a third percent,
20:43
Speaker 5: trading at sixty nine dollars in fifty three cents a barrel.
20:47
Speaker 5: Macy's down by seven percent after the struggling department store
20:50
Speaker 5: chain posted a decline in quarterly net income in sales
20:54
Speaker 5: and lowered its fiscal year forecasts. Macy's earnings report was
20:58
Speaker 5: delayed from November after the company discovered an employee had
21:03
Speaker 5: hidden expenses over several years that amounted to one hundred
21:06
Speaker 5: and fifty one million dollars in false bookkeeping entries. Meanwhile,
21:10
Speaker 5: General Motors announced it has scrapped its Cruise Robotaxi program
21:15
Speaker 5: after nearly a decade and ten billion dollars of development.
21:19
Speaker 5: GM shares are down by two percent. Elsewhere, shares an
21:22
Speaker 5: arcade and restaurant operator David Busters down by fifteen percent
21:26
Speaker 5: after it posted a significantly wider quarterly loss and also
21:31
Speaker 5: announced its chief executive has resigned. Video game retailer and
21:35
Speaker 5: meme stock favorite game stock swum swung a quarterly profit
21:40
Speaker 5: as a result of lower expenses. That stock is up
21:43
Speaker 5: by six percent, and shares in stitch Fix jumping by
21:46
Speaker 5: thirty four percent after the online personal styling company raised
21:51
Speaker 5: its second quarter revenue. Outlook, I'm Tucker Silvan, that's Wallstreet Watch.
21:57
Speaker 1: This is Aske Todd on the Financial Extramee Radio Network.
22:01
Speaker 1: If you have an existing estate plan or in the
22:03
Speaker 1: market for one, Todd Letsky is here to answer your
22:06
Speaker 1: questions and help you plan for a later life. Ask
22:08
Speaker 1: Todd is presented by Cushing and Dolan, serving Massachusetts and
22:12
Speaker 1: New England for more than thirty five years, helping families
22:15
Speaker 1: with a state and tax planning, medicaid planning, and probate law.
22:18
Speaker 1: Visit Cushingdolan dot com. Now here's Todd Lutsky.
22:23
Speaker 2: So this is your chance to ask Todd Lutsky your
22:26
Speaker 2: estate planning questions live on air. Todd's with us here
22:30
Speaker 2: and we got the phone lines open at eight eight
22:32
Speaker 2: eight to zero five two two six three. Remember we
22:37
Speaker 2: don't always get through everyone, So if you want to
22:39
Speaker 2: make sure we get to your question, call early, call often, well,
22:43
Speaker 2: really call once. Well you know Tucker will pick up.
22:46
Speaker 2: But that number is eight eight eight to zero five
22:50
Speaker 2: two two six three in order to speak with Todd
22:52
Speaker 2: Lotsky about any estate planning questions that you have right
22:55
Speaker 2: now again eight eight eight to zero five two six three,
23:01
Speaker 2: get calling so we can make sure that we get
23:03
Speaker 2: to your questions. Mister Lutsky, how are you doing today?
23:08
Speaker 6: I am doing great? How about yourself?
23:10
Speaker 2: Pretty good? Yeah?
23:11
Speaker 6: What's going on?
23:13
Speaker 2: Have you ever thought about buying a telescope? Not?
23:15
Speaker 6: Not generally?
23:16
Speaker 2: No, you should look into it.
23:18
Speaker 6: That's right.
23:19
Speaker 2: So Todd, I want to talk to you a little
23:21
Speaker 2: bit about estate taxes and trust work. Okay, how does
23:28
Speaker 2: creating an estate plan using trusts potentially work to minimize
23:32
Speaker 2: the state taxes?
23:33
Speaker 7: And you know it's fair, especially when we talk about
23:38
Speaker 7: you know, federal and state. So remember state. I will
23:41
Speaker 7: be mentioning more about Massachusetts. Please check your own state
23:44
Speaker 7: for those laws. But they're the federal and it's it's
23:48
Speaker 7: strange because when you talk about a federal estate tax,
23:51
Speaker 7: a lot of people don't think they need it, right
23:52
Speaker 7: and then, and it's true. I mean, the exemption is
23:55
Speaker 7: thirteen point nine million come January one, let's just call
23:58
Speaker 7: it fourteen million for easy numbers.
24:00
Speaker 8: Right.
24:01
Speaker 7: Well, if you think you have a large estate, like
24:04
Speaker 7: oh my gosh, I'm worth twenty million dollars, and again
24:07
Speaker 7: that's a large estate, you might be thinking, Wow, I've
24:10
Speaker 7: got all kinds of estate tax planning I have to do.
24:12
Speaker 7: I bet you it's real sophisticated and I got to
24:14
Speaker 7: get into all these special techniques. And guess what, No,
24:18
Speaker 7: right now, I would say that that's that's certainly not
24:21
Speaker 7: the case. We've got a new election or an election
24:23
Speaker 7: that took place. We've got a new president coming in,
24:26
Speaker 7: and I think the exemptions could stay high for a while.
24:31
Speaker 7: So when I say that, if you are a married
24:33
Speaker 7: couple and you are worth twenty million dollars, and you're thinking, wow,
24:36
Speaker 7: I got to do all kind of sophisticated planning, basic
24:40
Speaker 7: revocable trusts, or what I like to call estate planning
24:45
Speaker 7: one oh one, which is really the foundation of estate planning,
24:48
Speaker 7: pretty much can eliminate your estate tax. And it's amazing
24:51
Speaker 7: because if you don't do anything and you're a married
24:54
Speaker 7: couple and you just I leave everything to my spouse
24:56
Speaker 7: and I'm worth twenty million, well the surviving spouse will
24:59
Speaker 7: be worth twenty million, and you could have potentially wasted
25:01
Speaker 7: your fourteen million dollar exemption. Say you didn't do planning,
25:05
Speaker 7: and you didn't elect portability, and it's very possible when
25:09
Speaker 7: you don't plan, none of that happens. And so the
25:12
Speaker 7: surviving spouse is worth twenty million when they die with
25:15
Speaker 7: a fourteen million dollar exemption. Yeah, you have six million
25:19
Speaker 7: dollars subject to tax. You figure federal and state forty
25:23
Speaker 7: and ten, you're looking at fifty percent or three million
25:26
Speaker 7: dollars that you're given away However, to your point, Chuck,
25:31
Speaker 7: simple revocable trust one for each put ten million dollars
25:35
Speaker 7: in each trust, and when one dies, you really have
25:38
Speaker 7: the ability through the marital share and the remainder share
25:40
Speaker 7: built into this trust, to shelter that ten million dollars.
25:44
Speaker 7: So it'll be subject to or included in the estate
25:47
Speaker 7: of the first spouse to die, but not the second
25:52
Speaker 7: spouse to die. So ten million minus fourteen million no tax.
25:57
Speaker 7: Survivor dies and the survivor spouse's estates now only ten
26:01
Speaker 7: million because we're not going to include what was in
26:05
Speaker 7: the deceased spouse's a state or the seas spouses trust,
26:09
Speaker 7: I should say, leaving her with ten million, we have
26:13
Speaker 7: an exemption of fourteen million no tax.
26:16
Speaker 2: Talking with Todd Lutsky from the law firm of Cushing
26:19
Speaker 2: and Dolan. If you've got a question for Todd, the
26:21
Speaker 2: number is eight eight eight to zero five two two
26:25
Speaker 2: sixty three. That is the number to call to ask
26:27
Speaker 2: Todd your question live on air. We still have little
26:30
Speaker 2: bit of room on the phone lines, so eight eight
26:33
Speaker 2: eight two zero five two two sixty three that is
26:37
Speaker 2: the number to call. We are going to take a
26:39
Speaker 2: quick break right now, but when we come back, it's
26:42
Speaker 2: going to be right to your questions with Todd again.
26:44
Speaker 2: Still a little bit of room on the phone lines
26:46
Speaker 2: eight eight, eight to zero five two two sixty three,
26:49
Speaker 2: quick break, then your questions.
26:52
Speaker 1: Ask Todd with Todd Lutsky every Wednesday at ten thirty
26:55
Speaker 1: only here on the Financial Exchange Radio Network. You're listening
27:01
Speaker 1: to Ask Todd with Todd Lunsky on the Financial Exchange
27:05
Speaker 1: Radio Network.
27:13
Speaker 2: All right, Todd, we've got some calls for you, So
27:15
Speaker 2: here we go. Let's kick things off with Daniel from Wooster. Daniel,
27:20
Speaker 2: you are on with Todd Lutsky.
27:23
Speaker 8: Hey, how are we going today?
27:25
Speaker 2: Good? Good?
27:27
Speaker 8: So my question is, if I wanted to leave everything
27:29
Speaker 8: to one of my children or or my son, how
27:35
Speaker 8: are things not able to get held up in court
27:37
Speaker 8: under like probate, say, any debts, pass taxes, and any
27:43
Speaker 8: bills things like that. If I just wanted to leave
27:45
Speaker 8: him all of my.
27:46
Speaker 6: Ass that's how many How many children do you have?
27:49
Speaker 8: Just the one?
27:50
Speaker 6: Okay?
27:50
Speaker 7: Because you made it sound like I wanted to leave
27:52
Speaker 7: it all to just one child, and that made it
27:54
Speaker 7: sound like you were going to be disinheriting other children.
27:56
Speaker 7: Maybe that's just how I heard it, but uh, and
27:59
Speaker 7: that of course makes it a little more complicated. You
28:01
Speaker 7: certainly could do that, but then you always got to
28:03
Speaker 7: worry about making sure there's no fighting after you're you're
28:06
Speaker 7: you're gone. So yeah, this is a more more simple
28:10
Speaker 7: I would say, are you married?
28:13
Speaker 1: No?
28:13
Speaker 6: No, So you know how old are you at this point?
28:18
Speaker 8: I am forty five? Okay, I'll be forty five.
28:22
Speaker 7: So no more tough questions. So the the uh answer
28:28
Speaker 7: is pretty simple. I think for you, I don't well,
28:30
Speaker 7: I don't know the size of your estate. Are you
28:32
Speaker 7: under like the Massachusetts two million dollar level?
28:34
Speaker 6: Or are you over that?
28:35
Speaker 1: Yeah?
28:36
Speaker 7: No, I'm under okay, So good news on that front
28:39
Speaker 7: is you know, we're not really worried about taxes. I
28:42
Speaker 7: want to keep you in control, so you would be
28:44
Speaker 7: the trustee. I would want you to be the donor.
28:46
Speaker 7: Or it would be simply a revocable trust and put
28:50
Speaker 7: your assets into it so during life, your life will
28:54
Speaker 7: not change at all. You get to do everything you
28:56
Speaker 7: do today. You will not need to file an income
28:59
Speaker 7: tax return special for this trust. You will just continue
29:03
Speaker 7: to file your personal ten forty like you always do,
29:07
Speaker 7: and life will go on relatively unaffected. The old, set
29:10
Speaker 7: it and forget it idea, And then though what you're
29:12
Speaker 7: looking to accomplish will happen when you die. Everything in
29:16
Speaker 7: the trust avoids probate and it passes. So if doesn't
29:19
Speaker 7: go to probate, creditors can only attach assets in your
29:23
Speaker 7: probatea state. This is outside of your probatea state, so
29:27
Speaker 7: it'll pass directly to your child, or you could control it,
29:31
Speaker 7: depending on how you want to leave it to that child.
29:34
Speaker 7: Do you want to put it in you know, have
29:36
Speaker 7: them get it at certain ages like twenty five, thirty
29:39
Speaker 7: thirty five? Do you want to have it controlled and
29:42
Speaker 7: protected from future creditors. All of those things you will
29:46
Speaker 7: discuss with your state planning attorney to design how your
29:49
Speaker 7: child gets it.
29:50
Speaker 6: But that will accomplish your objectives.
29:54
Speaker 7: Folks, speaking of accomplishing objectives, sometimes avoiding taxes is one
29:58
Speaker 7: of those objectives. As a new article this month a
30:01
Speaker 7: tale of two objectives reduce taxes and protect assets from
30:06
Speaker 7: the nursing home.
30:06
Speaker 6: So it's really for everybody.
30:08
Speaker 7: It explains probate, It explains the portability rules, and it
30:12
Speaker 7: explains with an example, how with a revocable trust, a
30:16
Speaker 7: marital share and a remainder share can shelter assets for
30:20
Speaker 7: a state taxes like I was explaining earlier when Chuck
30:23
Speaker 7: asked the question, However, it also deals with the Massachusetts
30:27
Speaker 7: of state tax, the new Massachusetts of state tax one
30:30
Speaker 7: year later, of course. And then for folks who are
30:33
Speaker 7: more concerned about nursing, home planning and taxes, well, then
30:38
Speaker 7: we have a section in there regarding irrevocable trusts and
30:42
Speaker 7: how those are designed to provide both of those benefits
30:46
Speaker 7: at the same time. So, folks, is a little bit
30:49
Speaker 7: of everything in here, something for everyone eight six six
30:53
Speaker 7: eight four eight five six nine nine or Legal Exchange
30:57
Speaker 7: Show dot com again eight sixty six eight four eight
31:01
Speaker 7: five six ninety nine or Legal Exchange Show dot com.
31:05
Speaker 2: Todd, let's keep another one for you here. We've got
31:07
Speaker 2: Chris in Milton. Chris, what's your question for Todd?
31:11
Speaker 9: Hi, Todd, thank you for answering these questions. That's nicer
31:14
Speaker 9: you to do that. My question is on the Massachusetts
31:19
Speaker 9: a state tax, you know, but quote unquote newer state tax. Yes, say,
31:24
Speaker 9: if somebody has a grosser estate of two million, fifty thousand, okay, okay,
31:30
Speaker 9: but they have allowable deductions of say seventy five thousand. Okay,
31:37
Speaker 9: so that lowers the net of state to one million,
31:40
Speaker 9: nine hundred and seventy five thousand.
31:42
Speaker 6: Got it.
31:44
Speaker 9: Does somebody even need to file the Massachusetts a state
31:47
Speaker 9: tax return? I mean, is it based on the grosser
31:50
Speaker 9: state or the state after these allowable expenses?
31:54
Speaker 6: Great? Great question.
31:56
Speaker 7: It is based on the grosser state, So you would
32:00
Speaker 7: need to file even though you're not gonna pay any tax.
32:04
Speaker 7: It's going to pull you under the estate tax exemption.
32:07
Speaker 7: But because the gross estate is over the filing threshold,
32:12
Speaker 7: which is in essence what this two million dollar exemption
32:14
Speaker 7: is in Massachusetts, it's more of a threshold, you would
32:18
Speaker 7: still need to file the estate tax, but because you're
32:21
Speaker 7: at a million nine to seventy five, it would result
32:24
Speaker 7: in zero estate tax too. Versus if your gross estate
32:29
Speaker 7: was a million nine ninety nine, then technically you don't
32:34
Speaker 7: need to file.
32:34
Speaker 6: So hopefully that was helpful, Todd.
32:36
Speaker 2: We got another one for you here. Let's go to
32:38
Speaker 2: fill in Worcester. Phil. What's your question for Todd?
32:43
Speaker 10: Hey, Todd, I thank you for what you're doing. He
32:46
Speaker 10: just turned fifty five. I have really no family, no kids,
32:51
Speaker 10: no wife. I have roughly a small meager for one
32:57
Speaker 10: kid that I've rolled over to a rash and I
33:01
Speaker 10: just don't know if, if, if I should be looking
33:03
Speaker 10: at her trust at this point.
33:06
Speaker 6: How much are you worth in total? Under under a million?
33:11
Speaker 6: Under two million?
33:12
Speaker 10: Well well under.
33:14
Speaker 7: Okay, so probably not. I mean again, I want you
33:19
Speaker 7: to do only what you need to do. Not to
33:21
Speaker 7: sound like a liberty mutual commercial, but I got to
33:24
Speaker 7: tell you that that for someone in your situation, simply
33:28
Speaker 7: name a designated beneficiary on your wrath, put a designated
33:31
Speaker 7: beneficiary on whatever bank accounts you might have, or or
33:36
Speaker 7: or maybe other investment accounts that you might have, and
33:39
Speaker 7: then they will go directly to those people listed as
33:42
Speaker 7: beneficiaries and they can they can take it, and it
33:45
Speaker 7: will avoid probate. No need to get bogged down in
33:48
Speaker 7: trusts and wills for you. So but hopefully that's helpful.
33:51
Speaker 2: Todd. Let's go do one more here, we'll see if
33:54
Speaker 2: we can go four for four on this. Let's go
33:56
Speaker 2: to Bill in Austerville. Bill, you're on with Todd Lutsky Hike, Todd.
34:03
Speaker 9: The question is.
34:05
Speaker 10: If there's an irrevocable trust, YEP, can you.
34:10
Speaker 9: Sell the house. In other words, she has two houses
34:15
Speaker 9: and she wants to sell one so that she can
34:19
Speaker 9: be taken care of.
34:20
Speaker 6: Is this a single person widdow?
34:24
Speaker 7: Yeah, so single at the time, right, So I don't know.
34:27
Speaker 7: I didn't draft the trust, but I'm going to tell
34:29
Speaker 7: you how our irrevocable trusts work. And I'm assuming this
34:33
Speaker 7: was a Medicaid irrevocable type trust because remember there's many
34:37
Speaker 7: kinds of irrevocable trusts. So let's assume that it's a
34:40
Speaker 7: Medicaid irrevocable trust and she wants to sell it. Our
34:44
Speaker 7: trust absolutely allow for the sale, super simple. She would
34:49
Speaker 7: direct the trustee to put it on the market, it
34:52
Speaker 7: would sell, money would go or the house would go
34:55
Speaker 7: out the money would come in. Our trusts are also
34:58
Speaker 7: designed as grand or trusts, so she would still be
35:03
Speaker 7: entitled to her capital gains tax exclusion as a single person.
35:07
Speaker 7: If this is her primary residence of two hundred and
35:11
Speaker 7: fifty thousand dollars, the first two hundred and fifty thousand
35:14
Speaker 7: dollars of gain would not be taxed for her, and
35:19
Speaker 7: then the trust can actually use that money either for
35:24
Speaker 7: investments for her to live off of, or you could
35:28
Speaker 7: maybe downsize. Maybe she wants to now buy a condo
35:30
Speaker 7: and just not have to worry about maintenance and upkeep.
35:33
Speaker 7: And so money would go out and a new house
35:36
Speaker 7: would come in or new condo would come in, and
35:39
Speaker 7: arguably that transaction would not impact the five year waiting
35:45
Speaker 7: period if she did that for medicaid eligibility. So you
35:48
Speaker 7: just need to read the terms of the trust that
35:50
Speaker 7: will tell you whether she can do it or not.
35:53
Speaker 7: I hope it's drafted properly. I know in our trusts
35:56
Speaker 7: that can absolutely be done.
35:58
Speaker 2: Todd One other questions just that I have for you,
36:01
Speaker 2: just kind of getting back to what we discussed in
36:04
Speaker 2: the prior segment. Let's say that someone had done estate
36:07
Speaker 2: planning previously, and maybe now they're concerned about estate taxes.
36:13
Speaker 2: Their estate may have grown since they did it. Yes,
36:15
Speaker 2: how would someone know whether or not they need to
36:18
Speaker 2: update previous estate plans?
36:20
Speaker 10: You know?
36:21
Speaker 7: I guess the only way to really know that is
36:23
Speaker 7: to keep an eye on what your assets are. Right,
36:25
Speaker 7: We try to educate you as to what those exemption
36:28
Speaker 7: amounts are, and those exemption amounts. You know, if you
36:33
Speaker 7: know your estate has grown, call your accountant, call your
36:37
Speaker 7: estate planning attorney, check in, right, I always tell people
36:40
Speaker 7: check in with your estate planning attorney and try to
36:43
Speaker 7: figure out where you are and so if the estate
36:46
Speaker 7: tax has gone up high enough that now it's causing
36:48
Speaker 7: you to be an estate tax problem, he'll tell you
36:51
Speaker 7: or she'll tell you, and you will be able to
36:53
Speaker 7: adjust your plan to maybe do more sophisticated planning as
36:57
Speaker 7: the case may be.
36:58
Speaker 2: Mister Letsky, thank you how much for joining us today.
37:01
Speaker 6: Always a pleasure.
37:03
Speaker 1: This has been Aske Todd on the Financial Exchange Radio network.
37:07
Speaker 1: Aske Todd with Todd Lutsky has been presented by Cushing
37:09
Speaker 1: and Dolan, serving Massachusetts and New England for more than
37:12
Speaker 1: thirty years, helping families with the state and tax planning,
37:15
Speaker 1: Medicaid planning, and probate law. Call eight hundred three nine
37:18
Speaker 1: three four thousand and one or visit Cushingdolan dot com.
37:22
Speaker 1: The views expressed in this segment are solely those of
37:24
Speaker 1: Cushing and Dolan. Armstrong Advisory does not provide any legal
37:26
Speaker 1: or tax advice. Please consult with your illegal or tax
37:28
Speaker 1: advisor on such matters. Cushing and Armstrong do not endorse
37:31
Speaker 1: each other and are not affiliated