Latest / The Financial Exchange Show / AI stock sell off could be a bust or a blip. What will decide the outcome?

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AI stock sell off could be a bust or a blip. What will decide the outcome? · The Financial Exchange Show

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Speaker 1: donation today. This is the Financial Exchange with Chuck Zada
1:06
Speaker 1: and Mark Fandetti.
1:10
Speaker 2: Chuck Mark Tucker with you here, and as we kick
1:14
Speaker 2: things off today, we're gonna talk a little bit about
1:18
Speaker 2: some jobs data. No, we don't get a BOS jobs
1:22
Speaker 2: report this week, but this morning at eight point fifteen
1:27
Speaker 2: Eastern time, ADP came out with their employment change report
1:34
Speaker 2: for the month of October. It showed forty two thousand
1:38
Speaker 2: jobs created for the month. Uh, this is in excess
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Speaker 2: of the twenty to twenty five thousand expected and a
1:46
Speaker 2: rebound from twenty nine thousand job losses in the prior month.
1:52
Speaker 2: It does bring the three month average, which again, you
1:56
Speaker 2: know how I tend to work on these, you know,
1:59
Speaker 2: data series, like don't read too much into any one
2:01
Speaker 2: kind of look at the trend, and the trend unfortunately
2:05
Speaker 2: continues down on this series, where the three month average
2:09
Speaker 2: is now basically zero like when you look at it,
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Speaker 2: and that is the lowest that we've seen this during
2:18
Speaker 2: this business cycle here. So I think ultimately this report
2:24
Speaker 2: is one way, you say, okay, like an improved report
2:26
Speaker 2: relative to the numbers that we got for September. But
2:32
Speaker 2: ultimately it's unclear if this is a one time move
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Speaker 2: or the start of a new trend, and the only
2:40
Speaker 2: way that we're going to figure that out is by
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Speaker 2: getting the November and December reports in to see what
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Speaker 2: happens afterwards.
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Speaker 3: Yeah, the reason we care, the main reason we care,
2:48
Speaker 3: at least most of us, is that the FED thinks
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Speaker 3: the labor market is weakening. It buys into that view
2:53
Speaker 3: of the economy, so they will probably continue to ease
2:56
Speaker 3: because the Fed, through its effective control over short term
2:59
Speaker 3: interest rate, can't stimulate demand, and that generally helps to
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Speaker 3: push employment up. Employment is one component of the Fed's mandate.
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Speaker 3: The other is, of course, price stability, which they've interpreted
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Speaker 3: is two percent inflation. We all know they haven't hit
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Speaker 3: two percent inflation, so they must be really concerned about
3:16
Speaker 3: the labor market. And if you're in the camp of indeed,
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Speaker 3: the labor market is weakening, and I think a reasonable
3:21
Speaker 3: objective observer would say that it probably is now. It's
3:24
Speaker 3: weakening from unusually on naturally strong levels. It's important to
3:28
Speaker 3: keep that point I think in mind. This could just
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Speaker 3: be an rmalization, not a weakening. If indeed this weakening
3:35
Speaker 3: leads to recession or something close to it, the FED
3:37
Speaker 3: will have been proven right. They're not going to be
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Speaker 3: able to act in time to stop it, because policy
3:41
Speaker 3: works with a lag. But again, this probably just validates
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Speaker 3: the view that the labor market is indeed softening.
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Speaker 2: And I think a couple things can be true at
3:49
Speaker 2: the same time. The first is the labor marketing, and
3:51
Speaker 2: I'll get into some of these other measures, but just
3:54
Speaker 2: about any measure out there does appear to be weakening.
3:58
Speaker 2: It's tough to find anything out there you say, yes,
4:01
Speaker 2: you know, labor is you know, inflecting upward, and there's
4:04
Speaker 2: you know, a renewed push for hiring. There's there's not
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Speaker 2: really anything out there that says that. The interesting thing
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Speaker 2: is that labor a is typically a lagging indicator because
4:15
Speaker 2: if you're a business, the way things typically move. In
4:18
Speaker 2: good times, it's hey, my sales are up. I need
4:22
Speaker 2: to hire more people to make the stuff or sell
4:25
Speaker 2: the stuff. I'm going to do that, so it's consumption
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Speaker 2: leads hiring. In bad times, it's hey, I'm not selling
4:34
Speaker 2: as much stuff. My margins are under pressure, and I
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Speaker 2: want to make sure I can keep the lights on.
4:39
Speaker 2: I've got to lay some people off because I'm not
4:40
Speaker 2: as busy, and we'll make do with what we have.
4:43
Speaker 2: So again, a lack of consumption in that case leads
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Speaker 2: hiring or firing. What's interesting about this situation is retail
4:53
Speaker 2: sales data generally been fine. The overall GDP data has
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Speaker 2: been in fine. There's nothing out there that suggests any
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Speaker 2: widespread lack of demand in the aggregate. But I do
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Speaker 2: think the interesting thing that we're seeing is this clear
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Speaker 2: bifurcation in spending by different demographic groups, and the ones
5:20
Speaker 2: that are being highlighted quite simply, high income groups are
5:23
Speaker 2: spending more, low income are spending less, and younger groups
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Speaker 2: in particular are spending less as well. That twenty five
5:29
Speaker 2: to thirty five demo is being brought up by a
5:31
Speaker 2: bunch of different places. So I think, you know, does
5:37
Speaker 2: that mean, hey, you know, on a net basis, you know,
5:41
Speaker 2: because there are far more people that are lower income
5:46
Speaker 2: than higher income. You know, again, like you you talk about,
5:49
Speaker 2: you know, where the wage distribution is, and you know,
5:53
Speaker 2: there's a big swath of people sixty seventy percent of
5:56
Speaker 2: the population that is out there saying I'm struggling right now,
6:00
Speaker 2: the top ten to fifteen percent that are saying yeah,
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Speaker 2: I'm doing, you know, really well. Still, hey, if that
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Speaker 2: bottom seventy percent isn't buying as much? Well, just from
6:08
Speaker 2: a volume perspective, do companies not need as many employees?
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Speaker 2: Maybe like that that could be the case in terms
6:13
Speaker 2: of what we're seeing, even though aggregate spending is fine.
6:18
Speaker 2: Other labor market data again, you might be you know,
6:21
Speaker 2: listening saying, you know, okay, this is you know, one
6:24
Speaker 2: data series ADP that's showing you know, a few months
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Speaker 2: of weakness.
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Speaker 4: What else is out there?
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Speaker 2: Indeed, who back in twenty twenty started they put out
6:32
Speaker 2: their Hiring Lab Portal, which is again just a fantastic
6:36
Speaker 2: data set. They're really transparent about their methodology. They tell
6:39
Speaker 2: you what they're doing, how they're doing it, why they're
6:41
Speaker 2: doing it. They have a job postings index that they
6:45
Speaker 2: publish for the month. If I'm sorry for the week
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Speaker 2: ending October thirty first, it fell another point two percent
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Speaker 2: to a reading of one oh one point seven the
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Speaker 2: benchmark that they start from from when they started publishing.
7:00
Speaker 2: This was in February of twenty twenty. The benchmarks one hundred.
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Speaker 2: So it's telling you the number of postings they're seeing
7:05
Speaker 2: is about one point seven percent above February of twenty twenty,
7:09
Speaker 2: the peak that we saw and this was when the
7:12
Speaker 2: labor market was crazy, So this is not somewhere that
7:14
Speaker 2: you would expect to get back to the peak. Was
7:18
Speaker 2: it a reading of about one hundred and sixty one
7:21
Speaker 2: back in March of twenty twenty two, And if you
7:24
Speaker 2: look at where we were a year ago, we were
7:27
Speaker 2: six point five percent higher. So the number of job openings, indeed,
7:29
Speaker 2: is saying is down six and a half percent year
7:31
Speaker 2: over year and another point two percent week over week.
7:34
Speaker 2: So job openings continue to contract other things that we're seeing.
7:39
Speaker 2: When we take a look at payroll tax withholding, it's
7:44
Speaker 2: a great metric for trying to understand what's happening just
7:48
Speaker 2: with aggregate wages, because ultimately there's a limit on how
7:52
Speaker 2: much income you can earn through wages and still be
7:55
Speaker 2: subject to payroll tax. If you look at the UH
8:01
Speaker 2: payroll tax limit for twenty twenty five, UH, it is
8:05
Speaker 2: capped out at one hundred and seventy six one hundred dollars,
8:09
Speaker 2: And what this means is once you get past that limit,
8:11
Speaker 2: there's no more payroll tax that is withheld. So this
8:15
Speaker 2: is a great way to tell what's going on with
8:16
Speaker 2: the vast majority of Americans who don't make more than
8:19
Speaker 2: one hundred and seventy six thousand dollars a year. It
8:22
Speaker 2: kind of filters out the high earners. And so what
8:26
Speaker 2: we've been seeing this is the the four month trend
8:31
Speaker 2: in terms of payroll tax withholding relative to twenty twenty four.
8:37
Speaker 2: June was up seven point four percent year over year.
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Speaker 2: It's good. Like that means that in the aggregate, households
8:44
Speaker 2: have seven point four percent more income to spend in
8:47
Speaker 2: June than they did in the prior June. That's good,
8:49
Speaker 2: It's what you wanted. Like, those are really good numbers.
8:52
Speaker 2: July seven point two percent, modest deceleration. I'm sorry, I'm
8:58
Speaker 2: one month ahead. This was July, and then August September
9:03
Speaker 2: four point three percent relative growth relative to September of
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Speaker 2: twenty four. Okay, it's a little bit more of a sizable,
9:10
Speaker 2: you know, down shift. And remember September there was no
9:14
Speaker 2: government shutdown going on or anything like that, and so
9:16
Speaker 2: you look at that and you say, okay, yeah, that
9:18
Speaker 2: could be a shift. October three percent growth, so a
9:22
Speaker 2: further down shift. The government shutdown does contribute a portion
9:26
Speaker 2: to that, about half of it, but the other half
9:29
Speaker 2: is you know, slow down in tax withholding. None of
9:33
Speaker 2: this is cataclysmic, Like, none of it is, Hey, the
9:36
Speaker 2: economy's falling off a cliff. But it is something where
9:39
Speaker 2: you say, look, if that trajectory continues, it gets you
9:42
Speaker 2: to the point where typically things start to get dodgy
9:46
Speaker 2: when you start to see you know, a couple months
9:48
Speaker 2: of negative readings there, and we could potentially be in
9:51
Speaker 2: that area by February or March of next year if
9:55
Speaker 2: this pace were to continue.
9:57
Speaker 4: Will it continue?
9:58
Speaker 2: I have no idea. So this is not you know,
10:00
Speaker 2: the world is ending. This is not you know, the
10:02
Speaker 2: economy's falling off a cliff. It is Yeah, there are
10:05
Speaker 2: kind of broad based signs that payroll growth is slowing
10:09
Speaker 2: and that overall earnings by employees are seeing slower growth.
10:14
Speaker 2: If it continues, it means there's probably some problems you know,
10:17
Speaker 2: four to six months from now. If it reverses, then
10:20
Speaker 2: this was just one of those little peaks and valleys
10:22
Speaker 2: that you see in the economy quite often on a
10:25
Speaker 2: regular basis, and it might not mean anything. But like,
10:30
Speaker 2: I don't think you can look at this data and say, hey,
10:33
Speaker 2: everything's hunky dory in the labor market. But I also
10:36
Speaker 2: think there's nothing that suggests it's falling off the cliff
10:38
Speaker 2: or accelerating towards a worse spot right now.
10:41
Speaker 3: Yeah, this is why the FEST job is challenging. Think
10:43
Speaker 3: about the FED as the economy's thermostat, and that's not
10:47
Speaker 3: that's not just a corny analogy. That's probably the closest
10:50
Speaker 3: you can get to you every day experience. Their job
10:54
Speaker 3: is to cool things down when things are overheating and
10:57
Speaker 3: vice versa. The challenge for the FED, to extend the
11:01
Speaker 3: analogy is they have to adjust the thermostat using the
11:05
Speaker 3: seven day forecast, not what the temperature is right now.
11:07
Speaker 3: Imagine if you tried to do.
11:09
Speaker 4: That, you'd be all over the place. We all would.
11:11
Speaker 3: A seven day forecast is general, is probably on average
11:14
Speaker 3: correct in terms of temperature and the state of the weather,
11:17
Speaker 3: but minute to minute it's not going to be a
11:19
Speaker 3: useful tool. The FED has to decide what the weather's
11:23
Speaker 3: going to be like tomorrow, but it's not just tomorrow,
11:26
Speaker 3: but it's quarters sometimes many quarters ahead, because policy works
11:30
Speaker 3: with a lag, and this is why their job is
11:32
Speaker 3: so challenging.
11:34
Speaker 2: Take a quick break. When we return, we'll talk about
11:37
Speaker 2: what we saw yesterday from artificial intelligence stocks. Right after
11:41
Speaker 2: this This.
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12:43
Speaker 2: All right, we got a piece in barns that AI
12:46
Speaker 2: stock sell off could be a bust or a blip.
12:51
Speaker 2: This will decide which. Okay, now that we've covered all
12:53
Speaker 2: the bases like, hey, great, it could be something or
12:57
Speaker 2: it could not. What are they actually talking about? Will
13:01
Speaker 2: decide whether it's a bust or a blip?
13:03
Speaker 3: Mark, Well, I have my own sort of interpretation, but
13:08
Speaker 3: it's far longer term than there. Look, I think anything other,
13:12
Speaker 3: anything other than a long term view on this is
13:16
Speaker 3: not likely to be productive. We'll know in several years.
13:19
Speaker 3: And I know this isn't a satisfying answer for those
13:22
Speaker 3: of us myself included around the edge of our seat.
13:24
Speaker 2: The financial exchange is rarely satisfying. That's why people keep coming.
13:27
Speaker 3: Back for more, because we never actually give We.
13:29
Speaker 2: Never give you the full thing. It's just okay, here's
13:33
Speaker 2: a little.
13:33
Speaker 3: Bit if I may give a slightly different perspective on this, Chuck,
13:36
Speaker 3: I think it's gonna take.
13:37
Speaker 2: You think our show is satisfying?
13:38
Speaker 3: No, I think personally, yes, I think it's gonna take.
13:45
Speaker 3: Pardon me, Uh, It's gonna take years before we know
13:48
Speaker 3: whether or not investments were excessive. They almost certainly are
13:52
Speaker 3: excessive at this point, but that's normal in the early
13:55
Speaker 3: stages of adoption of a new i'll just call it
13:58
Speaker 3: technology to the extent that it is life changing, and
14:04
Speaker 3: I mean I literally, if it increases productivity, it will
14:06
Speaker 3: be life changing. But we're not gonna have definitive and
14:10
Speaker 3: I use that word with some hesitancy, because you could
14:15
Speaker 3: always quibble, but we're not gonna have solid evidence on
14:17
Speaker 3: it for years, Chuck.
14:19
Speaker 4: I think we're gonna know sooner than you think you do.
14:21
Speaker 2: Okay, I still think it's measured in years, but I'm
14:23
Speaker 2: now at the point where I say, twenty six and
14:26
Speaker 2: twenty seven are where it's gonna have to either pay.
14:29
Speaker 3: Off if you're closer to the spirit of this.
14:32
Speaker 4: Is that fast enough?
14:33
Speaker 6: Though?
14:34
Speaker 3: For given the multiple particular movies, no are multiple is
14:39
Speaker 3: gonna sit where they are today stratospheric levels for the
14:41
Speaker 3: next twenty four months while we all just kind of wait.
14:44
Speaker 2: They could oh yeah, yea, because they've already been there
14:46
Speaker 2: for the last twenty four Yeah Okay, man, I didn't
14:49
Speaker 2: put that. And so I like where I've gotten to that.
14:52
Speaker 2: And this is something that I've I've kind of gotten
14:54
Speaker 2: to in the last couple of weeks now because I've
14:55
Speaker 2: gone through like this this whole earnings period. Two things
14:59
Speaker 2: make complete sense to me. The first is the financial
15:02
Speaker 2: incentives to build as excessively in AI as possible right now,
15:07
Speaker 2: they're fully understandable. I totally get why Mark Zuckerberg is like, hey,
15:12
Speaker 2: I got to spend two hundred and fifty billion dollars
15:14
Speaker 2: on data centers in the next five years. I get
15:16
Speaker 2: it because if there's a multi trillion dollar payoff at
15:20
Speaker 2: the end of it for you, of course, like, I
15:23
Speaker 2: totally get it. It's no different from the financial incentives
15:26
Speaker 2: during the run up to the financial crisis. I get
15:30
Speaker 2: why the guys selling mortgage backed securities were like, give
15:33
Speaker 2: me more, mortgage brokers, give me more, because they made
15:36
Speaker 2: out really well during that time. I'm not saying this
15:39
Speaker 2: is good or bad. It it was very bad in retrospect,
15:43
Speaker 2: but I understand the financial incentives that led us there,
15:46
Speaker 2: just like I understand the financial incentives that have led
15:49
Speaker 2: us here.
15:50
Speaker 7: That's good.
15:51
Speaker 2: The place that I then get to is ultimately, when
15:55
Speaker 2: you talk about how all of this capex is eventually
15:58
Speaker 2: going to hit the financial statements for Meta and Google
16:02
Speaker 2: and Amazon and Microsoft, when that heightened depreciation starts showing
16:08
Speaker 2: up and impacting the financial statements to the point where
16:12
Speaker 2: it's like, hey, we now actually need revenue, otherwise we're
16:17
Speaker 2: gonna start seeing problems, that's where and that's gonna start
16:21
Speaker 2: showing up in the next couple of years because it's
16:23
Speaker 2: now going to be okay, it's your depreciation from twenty
16:27
Speaker 2: twenty four, twenty five, twenty six, twenty seven, like that's
16:31
Speaker 2: all starting to hit then, and so it's going to
16:34
Speaker 2: start mattering at that point. The other piece that I
16:38
Speaker 2: find really interesting when looking at this, just like in
16:44
Speaker 2: the context of again things that we've seen and heard
16:48
Speaker 2: over the last week or so, sat Ya Nadella was
16:54
Speaker 2: on a podcast somewhere I can't remember where the heck
16:58
Speaker 2: it was, but Nadella was on a podcast and he said, Look,
17:05
Speaker 2: the thing that I am seeing right now is that
17:09
Speaker 2: the bottleneck is no longer in trying to get enough
17:14
Speaker 2: compute power. It's that we can't actually get enough power
17:18
Speaker 2: to power the compute like there's not enough electricity to
17:22
Speaker 2: do so. And what I find interesting about that is
17:26
Speaker 2: if that's actually true, then Microsoft is saying we've got
17:31
Speaker 2: enough chips, we don't have enough electricity. Is the market
17:37
Speaker 2: pricing for we have enough chips right now? No, it's
17:42
Speaker 2: basically taking in video and Jensen Huang and it's at
17:45
Speaker 2: his word and saying Okay, like you're telling us you've
17:48
Speaker 2: got this robust demand, but these chips, like you can't
17:52
Speaker 2: just have them like sitting in a warehouse and Video's
17:54
Speaker 2: rolling out new ones every one to two years. You
17:57
Speaker 2: can't just sit on them and then be like, oh,
17:59
Speaker 2: well them later, they're obsolete by the time you're deploying.
18:03
Speaker 2: If that's the case, And so you've got that going on,
18:07
Speaker 2: which is potentially shortening the refresh cycle on these chips
18:11
Speaker 2: you've got, you know, potentially then faster depreciation on these
18:15
Speaker 2: data centers because if you're replacing the chips in them
18:18
Speaker 2: every year instead of every two to three years, that's
18:21
Speaker 2: an additional expense that you've got to account for. And
18:23
Speaker 2: in the depreciation cycles faster, it's gonna hit your financial
18:26
Speaker 2: statements faster.
18:28
Speaker 4: And so this is.
18:30
Speaker 2: How I get to the place of totally understand why
18:33
Speaker 2: these guys are doing what they're doing because the financial
18:36
Speaker 2: incentives are immense. But if Nadella is telling us this
18:40
Speaker 2: and it's true, then that's a shift. And we're seeing
18:45
Speaker 2: this by the way, and how these companies are being priced.
18:47
Speaker 2: Look at what's happened to Meta in the last week.
18:49
Speaker 2: They've gotten hit Oracle has given back all of its
18:52
Speaker 2: post earnings bump in the last month and a half.
18:56
Speaker 2: Now there's something that's different there, and I do want
19:00
Speaker 2: under are investors starting to wake up to this? But
19:04
Speaker 2: the counterpoint is, Okay, maybe the really robust profit growth
19:08
Speaker 2: for AI's coming in the next couple of years and that'll,
19:10
Speaker 2: you know, lift things. But the next two years, twenty
19:13
Speaker 2: six and twenty seven, they're meady ones. They're they're big ones, juicy.
19:19
Speaker 2: It's like, it's this is this is for all of
19:22
Speaker 2: the artificial marbles. Let's take a quick break. When we return,
19:27
Speaker 2: it's Wall Street Watch and ask da da da da
19:30
Speaker 2: da da da da da da.
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20:02
Speaker 5: Well after yesterday's sell off driven by losses in the
20:05
Speaker 5: tech sector, markets today are slightly rebounding as Wall Street
20:09
Speaker 5: is reacting to a stronger than expected ADP private payrolls
20:13
Speaker 5: report posted earlier this morning. Right now, the Dow is
20:18
Speaker 5: up two tenths of one percent or ninety one points,
20:20
Speaker 5: SMB five hundreds up four tenths of one percent or
20:23
Speaker 5: twenty eight points, NASDAC up two thirds of a percent
20:27
Speaker 5: or one hundred and fifty one points, Russell two thousand
20:29
Speaker 5: also up two thirds of one percent, ten Youre Treasury
20:33
Speaker 5: realed up five basis points at four point one four
20:36
Speaker 5: to two percent, and Crude oiled down about two thirds
20:39
Speaker 5: of a percent, trading right around sixty dollars a barrel.
20:42
Speaker 5: Shares an AMD off about half a percent after the
20:45
Speaker 5: chip maker beat third quarter earnings in revenue forecast. However,
20:49
Speaker 5: sentiment took a slight hit after AMD's adjusted margin guidance
20:53
Speaker 5: before the current quarter came in line with expectations. Sticking
20:57
Speaker 5: with the chip sector, where Super Microcomputer posted quarterly results
21:01
Speaker 5: that missed estimates, sending shares down over eight percent. Meanwhile,
21:05
Speaker 5: McDonald's reported third quarter earnings in revenue that missed expectations,
21:09
Speaker 5: where the company said its value meals and new products
21:12
Speaker 5: we're helping revive sales and a challenging environment for fast food.
21:17
Speaker 5: US same store sales increase two point four percent, stronger
21:20
Speaker 5: than analysts had anticipated, while global same store sales climb
21:25
Speaker 5: three point six percent. McDonald's is up over two percent.
21:28
Speaker 5: Fast casual restaurant chain Cava offered a lower full year guidance,
21:33
Speaker 5: downwardly revising its same store sales outlook in addition to
21:36
Speaker 5: a lower profit margin range. Cava shares are now up
21:40
Speaker 5: one percent after a lower starts of the day. Elsewhere,
21:44
Speaker 5: Pinterest shares plunging twenty one percent after the social media
21:48
Speaker 5: company reported weaker than expected earnings, and after today's closing bell,
21:52
Speaker 5: we'll see more third quarter results from app Lovin, Qualcomm, Armholdings,
21:57
Speaker 5: Robin Hood, and door Dash. I'm Silva and that is
22:00
Speaker 5: Wolf Rewatch.
22:03
Speaker 1: This is Ask Todd on the Financial Exchange Radio Network.
22:06
Speaker 1: If you have an existing estate plan or in the
22:09
Speaker 1: market for one, Todd Lutsky is here to answer your
22:11
Speaker 1: questions and help you plan for later life. Ask Todd
22:14
Speaker 1: is presented by Cushing and Dolan, serving Massachusetts and New
22:17
Speaker 1: England for more than thirty five years, helping families with
22:21
Speaker 1: estate and tax planning, Medicaid planning, and probate law. Visit
22:24
Speaker 1: Cushingdolan dot com. Now here's Todd Lutsky.
22:29
Speaker 2: As promised, We've got Todd Lutzky live in studio here
22:33
Speaker 2: to answer your estate planning questions. Phone lines wide open
22:38
Speaker 2: right now at eight eight eight to zero five two
22:41
Speaker 2: two six three. That is the number to call to
22:44
Speaker 2: ask Todd your estate planning questions live on air again.
22:48
Speaker 2: It is eight eight eight two zero five two two
22:51
Speaker 2: six three. Remember we can usually get to about two
22:54
Speaker 2: or three of your calls, so make sure you get
22:56
Speaker 2: in line early so that you can ask Todd your
22:59
Speaker 2: estate planning question uestions. Again, that number is eight eight
23:03
Speaker 2: eight two zero five two two six three. Mister Lutsky,
23:08
Speaker 2: how are you doing today?
23:10
Speaker 4: I am never better? How are you? I'm good?
23:12
Speaker 2: Did you see that these scientists they tried to cross
23:18
Speaker 2: a cheetah with a crab.
23:20
Speaker 4: A cheetah and a crab. Yeah, that doesn't seem like
23:24
Speaker 4: a good mix.
23:24
Speaker 2: No, it went sideways real fast. Yeah, not great, Todd.
23:29
Speaker 2: Let's talk a little bit about revocable trust to day
23:32
Speaker 2: everyone likes to talk about like the big brother irrevocable,
23:35
Speaker 2: like the irrevocable trust, revocable trusts. Yes, what can they accomplish?
23:44
Speaker 8: So they can accomplish certainly, you know, estate tax planning.
23:50
Speaker 8: They can accomplish avoiding probate, and they can accomplish you know,
23:56
Speaker 8: dynasty trust planning. They can they can allow you to
23:59
Speaker 8: continue you to control the asset after you die for
24:02
Speaker 8: a very long time. Some states have no rule against perpetuities,
24:06
Speaker 8: means it can go on forever. Not in Massachusetts, of course,
24:09
Speaker 8: it allows you to do it, but only up for
24:11
Speaker 8: about yeah, one hundred years give or take is the
24:15
Speaker 8: rule about how long it can last. But it can
24:17
Speaker 8: also help you skip generations, meaning you can do generations
24:20
Speaker 8: skipping tax planning where you can take care of the family,
24:25
Speaker 8: protect from creditors and divorces, and still make it go
24:29
Speaker 8: to another generation without paying any estate tax at each generation.
24:33
Speaker 8: So to me, generational building wealth is phenomenal. And I
24:38
Speaker 8: think also it's important when we talk about you know,
24:41
Speaker 8: we always talk about irrevocable a lot, but with revocable,
24:44
Speaker 8: like with irrevocable, there are many kinds of trusts. There
24:48
Speaker 8: are many kinds of irrevocable trusts. Even with the revocable world,
24:51
Speaker 8: now there's you know, the idea of two trusts versus
24:53
Speaker 8: one trust, So we got to think about that as well.
24:56
Speaker 2: Talk with Todd Lutsky from Cushing and Dolan. Again, phone
24:59
Speaker 2: lines are open and for you to ask Todd your
25:01
Speaker 2: estate planning questions. The phone number is eight eight eight
25:05
Speaker 2: to zero five two two sixty three. Again, that is
25:09
Speaker 2: eight eight eight two zero five two two six three.
25:13
Speaker 2: Still have a little bit of space there for you
25:14
Speaker 2: to ask Todd your questions. Again, it's eight eight eight
25:18
Speaker 2: to zero five two two six three.
25:21
Speaker 4: Todd.
25:21
Speaker 2: These revocable trusts on a daily basis, What are changes
25:27
Speaker 2: that people would notice from how their finances worked before
25:32
Speaker 2: and what stays the same?
25:34
Speaker 8: Yeah, And I think that's part of the beauty of
25:37
Speaker 8: revocable trusts is that they are really simple. You know,
25:41
Speaker 8: you don't you don't have any separate income tax returns
25:45
Speaker 8: to file. So let's like you say, with your finances,
25:48
Speaker 8: let's say I put my investment portfolio inside the trust.
25:52
Speaker 8: Let's say I put my bank account inside the trust.
25:55
Speaker 8: What's gonna happen. Am I going to not have access
25:57
Speaker 8: to my money?
25:58
Speaker 4: Absolutely not.
25:59
Speaker 8: So the difference is the name. Let's say, the name
26:01
Speaker 8: on my on my investment account, if it was in
26:03
Speaker 8: my trust, would be called that. You know, maybe if
26:05
Speaker 8: I'm doing a joint trust, it might be the Lutsky
26:07
Speaker 8: Family Trust. Okay, that's all that You're gonna see the
26:10
Speaker 8: difference is you're gonna see that on your statements that
26:12
Speaker 8: you get from your your you know, investment advisor, and
26:17
Speaker 8: your access is exactly the same. Your investments are exactly
26:20
Speaker 8: the same. And since that account might have the Lutsky
26:24
Speaker 8: Family Trust as the name, it don't have my Social
26:26
Speaker 8: Security on it. So there's no income tax returns need
26:29
Speaker 8: to be filed. Just keep filing your own ten forty
26:31
Speaker 8: just like you always do. So really becomes, you know,
26:36
Speaker 8: just simple and uneventful for you, which is what we
26:39
Speaker 8: want when we do our planning.
26:41
Speaker 2: Talking with Tod Lutsky from the law firm of Cushing
26:43
Speaker 2: and Dolan. If you've got a question for Todd, eight
26:46
Speaker 2: eight eight two zero five two two sixty three is
26:49
Speaker 2: the number to call to ask him your question live
26:51
Speaker 2: on air. Right now, we're going to take a quick
26:54
Speaker 2: break and when we come back we'll get to your
26:57
Speaker 2: questions with Todd. That phone number is eight eight eight
27:00
Speaker 2: to zero five two two six three. Again it is
27:05
Speaker 2: eight eight eight to zero five two two six three.
27:10
Speaker 1: Ask Todd with Todd Letsky every Wednesday at ten thirty
27:13
Speaker 1: only here on the Financial Exchange Radio Network. Todd Letsky
27:18
Speaker 1: answers your questions about a State and elder life Planning
27:21
Speaker 1: every Wednesday at ten thirty right here on the Financial
27:24
Speaker 1: Exchange Radio Network.
27:35
Speaker 4: Talking with Todd Lutsky.
27:36
Speaker 2: You got a question for Todd. The number to call
27:38
Speaker 2: is eight eight eight to zero five two two six
27:42
Speaker 2: three to get your estate planning question answered again. That
27:45
Speaker 2: is eight eight eight to zero five two two six three.
27:49
Speaker 2: Let's go to Mark in Danvers. Mark, you are on
27:52
Speaker 2: with Todd Lutsky.
27:55
Speaker 7: Good morning, that's great show.
27:56
Speaker 4: Thank you.
27:59
Speaker 7: Of course you are talking about revocable trust and you
28:02
Speaker 7: would mentioned that the trust has no Social Security number
28:06
Speaker 7: assigned to it. Does that mean you do not have
28:09
Speaker 7: to pay capital gains on the trust if you put
28:12
Speaker 7: investments in there.
28:13
Speaker 8: Well, I'm sure there's a miscommunication on how we did that.
28:18
Speaker 8: By the way, I love your creativity so awesome. I'd
28:21
Speaker 8: love to figure out ways not to pay tax. Unfortunately,
28:24
Speaker 8: what I said was that the revocable trust does not
28:28
Speaker 8: have its own tax ID number, So you're correct about that. Instead,
28:33
Speaker 8: like if it was the Lutsky family trust, it would
28:35
Speaker 8: have my social Security number on it.
28:38
Speaker 4: Okay.
28:39
Speaker 8: So the beauty of the of the trust is that
28:43
Speaker 8: that when you put your investment portfolio in and your
28:46
Speaker 8: bank accounts in and I don't care if it's a
28:49
Speaker 8: rental property, et cetera, that the trust itself is.
28:54
Speaker 4: Not going to have to file an income tax return.
28:56
Speaker 8: So many people think that you know when you put
28:59
Speaker 8: assets in a trust that you pay higher taxes, not
29:03
Speaker 8: no taxes. They say, oh, I heard that you put
29:05
Speaker 8: assets in a trust. You have a much higher tax rate.
29:08
Speaker 8: So let me explain what that means. First of all,
29:11
Speaker 8: with revocable trust that's not the issue at all. With
29:14
Speaker 8: irrevocable trusts, it can be if it's not a grand
29:18
Speaker 8: tour trust for income tax purposes.
29:20
Speaker 4: So if you put it.
29:21
Speaker 8: In an irrevocable trust and it's not a grand tour trust.
29:25
Speaker 8: When I say they have higher tax rates if you
29:28
Speaker 8: make more than and this number changes a lot, I
29:31
Speaker 8: think it's somewhere around fourteen thousand, maybe a little higher.
29:36
Speaker 8: If the trust earns a little more than that in income, interest, dividends,
29:40
Speaker 8: capital gains, it's at the top tax rate whatever that
29:45
Speaker 8: thirty nine percent thirty seven percent tax rate federally, whereas
29:50
Speaker 8: with human beings our tax rate, we don't get into
29:54
Speaker 8: that tax level until we're in the hundreds of thousands
29:59
Speaker 8: of dot depending on whether you're married or single. So
30:02
Speaker 8: that's what I mean when I say trusts can have
30:05
Speaker 8: higher tax rates and be compressed as they are, But
30:09
Speaker 8: in the revocable trust situation, the beauty is we don't
30:12
Speaker 8: have to worry about that at all.
30:13
Speaker 4: You don't have to file a tax return.
30:15
Speaker 8: But it's not that good unfortunately, Mark, I wish I
30:18
Speaker 8: could make it as good as you like it. The
30:20
Speaker 8: trust doesn't pay the gain or the tax I do.
30:24
Speaker 8: The grant tour does. The person who creates the trust does.
30:27
Speaker 8: So it just continues to be taxed in my Social
30:30
Speaker 8: Security number at my rates on my tax return on
30:33
Speaker 8: my ten forty and I don't have to file a
30:35
Speaker 8: tax return. So to me, that helps it to be
30:37
Speaker 8: what I like to call simple and uneventful in my life,
30:41
Speaker 8: not disrupting my life. And folks, that's important because that
30:45
Speaker 8: really leads me into a brand new guide that we've
30:47
Speaker 8: never given away before. It's one that the BBBA passed,
30:51
Speaker 8: as we all know, and it really just drives home
30:54
Speaker 8: something that we've been doing at Cushing and Dolan for
30:56
Speaker 8: a long time, joint revocable trust trusts, and it's catching
31:01
Speaker 8: on now people are realizing that it is important. And
31:04
Speaker 8: for a lot of people with you know, what's a
31:06
Speaker 8: moderate estate these days under like fifteen million dollars. The
31:09
Speaker 8: exemption federally is going to go up because of the
31:12
Speaker 8: passage of the new Act, and it's going to be
31:15
Speaker 8: fifteen million January one. Well, for a lot of people,
31:18
Speaker 8: I don't have to give away stuff anymore. I can
31:21
Speaker 8: keep stuff, avoid a forty percent estate tax, and get
31:25
Speaker 8: a step up in basis when I die, eliminating the
31:27
Speaker 8: built in gain that like Mark was talking about, eliminating
31:31
Speaker 8: the built in gain and winning on the twenty eight
31:33
Speaker 8: point eight percent front. Wow, even if I got to
31:36
Speaker 8: give mass ten percent, I don't care. And these joint
31:39
Speaker 8: revocable trusts are so simple. You don't have to divide
31:42
Speaker 8: assets between husband and wife. You just fund them simply,
31:45
Speaker 8: all with all your assets at one time, and you
31:48
Speaker 8: can cram down way more assets than you could if
31:51
Speaker 8: you had two trusts. And they're really wonderful if you
31:53
Speaker 8: have large iras folks learn about joint revocable trusts, how
31:58
Speaker 8: they work the tax saving, it might be the way
32:01
Speaker 8: to go for you. Eight six six eight four eight
32:05
Speaker 8: five six nine nine or Legal Exchange show dot Com
32:08
Speaker 8: again brand New Guide eight six six eight four eight
32:12
Speaker 8: five six nine nine or Legal Exchange Show dot com.
32:17
Speaker 2: Todd, we got another one for you here. Let's go
32:18
Speaker 2: to Martin in Springfield. Martin, what is your question for Todd?
32:24
Speaker 6: Okay, my question is I filled out a will. I'm
32:28
Speaker 6: seventy nine years old. Uh. And my concern is about
32:33
Speaker 6: probate from northern Vermont that came down here to a
32:40
Speaker 6: senior community. And so that will is done. But my
32:48
Speaker 6: concerns are probates. And do I need to get a trust?
32:53
Speaker 6: How much does a trust cost? And h you're talking
32:59
Speaker 6: about vocable trust and irrevocable trust. I have an irrevocable
33:07
Speaker 6: trust for my cremation. Uh. And so so.
33:13
Speaker 8: Let me let me try to interject you so I
33:15
Speaker 8: can get your question answered. The irrevocable trust for your cremation,
33:18
Speaker 8: I'm sure has nothing. I don't think that's an estate
33:20
Speaker 8: planning trust, correct, I don't. I don't know what you
33:22
Speaker 8: did there, right, that's just something.
33:24
Speaker 6: So I don't know anything.
33:26
Speaker 4: So so you only have a will? Correct, That's that's
33:29
Speaker 4: the extent of your estate plan. Okay, so let's see
33:32
Speaker 4: your will. Yes, So one last question that.
33:34
Speaker 8: Might be helpful is you said you came down here
33:36
Speaker 8: to a senior community from Vermont?
33:39
Speaker 4: Did did? Do you own real estate in Vermont? Still?
33:43
Speaker 6: No? Okay, sold the house and from there I understand
33:48
Speaker 6: that it was it was a real property because I
33:53
Speaker 6: owned the land and the house here. I own the
33:58
Speaker 6: house I lived in complete lately, but it's in the
34:01
Speaker 6: senior community and they told me that the land is
34:05
Speaker 6: owned by somebody else.
34:07
Speaker 4: Right, I got it, I understand.
34:09
Speaker 8: So basically, in these senior communities you get to you
34:12
Speaker 8: kind of get a place to live, but you don't
34:14
Speaker 8: own the property. I totally get it. So that may
34:17
Speaker 8: not be an issue then. So you may not own
34:19
Speaker 8: any real estate in Massachusetts, which can be helpful, I
34:22
Speaker 8: guess from an avoiding probate standpoint. So from your point
34:26
Speaker 8: of view and your question, let me help others that
34:28
Speaker 8: are listening to if he owned real estate in Vermont
34:32
Speaker 8: and in mass his question is doubly important. I want
34:35
Speaker 8: to avoid probate because when you own real estate in
34:38
Speaker 8: multiple states, you got to go to probate in multiple states,
34:42
Speaker 8: even though you're not a resident of the state in
34:45
Speaker 8: which you own real estate. So that's important. Sounds like
34:48
Speaker 8: for you, Martin However, there's no Vermont real estates. I
34:51
Speaker 8: don't have to worry there, And it sounds like there's
34:53
Speaker 8: probably no Massachusetts real estate because you own it in
34:57
Speaker 8: this senior community and you just have an in in
35:01
Speaker 8: the house.
35:01
Speaker 4: Basically you just have that house.
35:03
Speaker 8: Now, other assets you might own we have to think about,
35:07
Speaker 8: which would be investments, stocks, bonds, mutual funds, iras. So
35:12
Speaker 8: to the extent, all you want to do is avoid probate,
35:16
Speaker 8: and you're not concerned about estate tax planning or nursing
35:19
Speaker 8: home planning and protecting assets. You can kind of do
35:23
Speaker 8: that if you have no real estate by simply making
35:25
Speaker 8: sure these accounts all have designated beneficiaries on them. If
35:30
Speaker 8: they do, they will pass to those designated beneficiaries outside
35:33
Speaker 8: of probate.
35:34
Speaker 4: Still subject to a state tax.
35:36
Speaker 8: But if you're under two million dollars here in mass
35:39
Speaker 8: you're not going to have any estate tax to worry about,
35:41
Speaker 8: and that would successfully help you avoid probate, again, assuming
35:45
Speaker 8: no real estate. But a lot of times and I
35:47
Speaker 8: heard you mentioned that maybe it's an irrevocable Well, if
35:50
Speaker 8: you want to protect assets from a nursing home, then
35:53
Speaker 8: you kind of need to think about an irrevocable trust
35:55
Speaker 8: and putting some of these items into the irrevocable trust
35:59
Speaker 8: so that they will be protected from the cost of
36:01
Speaker 8: long term care. And by putting them in there, Yes,
36:05
Speaker 8: it takes five years, but it's immediately protected from immediately
36:09
Speaker 8: avoids probate when you pass right. So what I like
36:12
Speaker 8: to tell folks a lot when they just have a will,
36:15
Speaker 8: a will is really a won't. It's better than nothing.
36:18
Speaker 8: It certainly will direct where your assets go, but it
36:22
Speaker 8: goes to probate, and it will not help you reduce
36:25
Speaker 8: the state taxes, So if you're married, you're not going
36:27
Speaker 8: to shelter a state taxes.
36:29
Speaker 4: And it will not.
36:30
Speaker 8: Protect assets from a nursing home, so it won't avoid probate,
36:33
Speaker 8: won't reduce the state taxes, and won't protect an asset
36:36
Speaker 8: from a nursing home.
36:37
Speaker 4: But it will say where they go. So if that's
36:39
Speaker 4: all you want, that works.
36:41
Speaker 8: And if you want to also, then just throw in
36:43
Speaker 8: the avoidance of probate, at least in your case, Martin,
36:46
Speaker 8: I think naming the designated beneficiaries on these investment accounts
36:50
Speaker 8: and brokerage accounts and bank accounts will get you there.
36:54
Speaker 4: Hope that helps a little.
36:56
Speaker 2: Mister Lutsky, thank you so much for the time. We
36:58
Speaker 2: appreciate you joining us today.
37:00
Speaker 4: It is always my pleasure.
37:03
Speaker 1: This has been asked Todd on the Financial Exchange Radio Network.
37:07
Speaker 1: Asked 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.
37:21
Speaker 1: The views expressed in this segment are solely those of
37:23
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.