Latest / The Financial Exchange Show / China believes they can win a trade war with the US. Can they?

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China believes they can win a trade war with the US. Can they? · The Financial Exchange Show

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  Speaker 1: and Paul.
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  Speaker 2: Lane, Chuck Paul Tucker with you here on a Wednesday,
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  Speaker 2: and we're gonna kick things off with a little US
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  Speaker 2: China chatter just because I don't know. It seems like
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  Speaker 2: you're getting some renewed, renewed stories on that front, and
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  Speaker 2: big publications are happy to run with it. And so
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  Speaker 2: if everyone's talking about it, Gollagy Wilkers, we don't want
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  Speaker 2: to be left out. We certainly want to be included
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  Speaker 2: in the fun.
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  Speaker 3: Do we not want to be left out? Quite honest,
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  Speaker 3: I might want to be left out, but I will part.
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  Speaker 2: We'd prefer to be left out, but we we must discuss.
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  Speaker 2: So you got a piece in the Wall Street Journal here.
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  Speaker 2: It's titled China betting it can win a trade war?
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  Speaker 2: Is playing hardball with Trump? I don't really know what
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  Speaker 2: to do with this piece, just because again, ultimately, as
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  Speaker 2: we've said before, this is a game of chicken, and
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  Speaker 2: games of chicken, if you look at the game theory
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  Speaker 2: of them, they don't have a stable equilibrium that you
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  Speaker 2: get to. This is not, you know, the prisoner's dilemma.
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  Speaker 2: This is something where you say, gee, I don't know
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  Speaker 2: where this is going to land, because ultimately, what you're
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  Speaker 2: talking about is who blinks first and who can stomach
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  Speaker 2: more pain? And so there is nothing that Paul or
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  Speaker 2: I can say where we're like, well, I think that,
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  Speaker 2: you know, the US is gonna win because we're tougher,
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  Speaker 2: and then the other person says, no, I think that
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  Speaker 2: China's gonna win because they're I got no clue. And ultimately,
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  Speaker 2: when we look at this, what I do think that
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  Speaker 2: we can say that's interesting about this and kind of
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  Speaker 2: where I've landed is I think that for both the
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  Speaker 2: United States and China right now, there's kind of this
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  Speaker 2: there's this window in particular for China over the next
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  Speaker 2: five to seven years where they've got to make hey,
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  Speaker 2: otherwise they're not really going to be able to And
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  Speaker 2: let me explain what I mean by this, Hey is yes, exactly.
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  Speaker 2: So couple things. The first thing that I want to
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  Speaker 2: point out is Jijingping's age. He's seventy two years old
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  Speaker 2: right now, and he has been running the Chinese Communist
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  Speaker 2: Party as the President of China since twenty thirteen. It's
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  Speaker 2: been twelve years now, and all you know, everything that
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  Speaker 2: you read out there is basically, look, you'd like to
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  Speaker 2: make it through until the day he dies continuing to
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  Speaker 2: lead China. Realistically, just based on what we know about
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  Speaker 2: aging in the human body, you're probably talking somewhere in
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  Speaker 2: the range of ten to fifteen years is the most
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  Speaker 2: likely outcome there. And so he sees a finite window
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  Speaker 2: for him to really leave his mark on the wa
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  Speaker 2: world and say, here's what I was able to do
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  Speaker 2: with China during my time. Other things that you're seeing,
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  Speaker 2: the population of China, specifically the working age population of
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  Speaker 2: China is declining right now. There are not enough people
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  Speaker 2: that are excuse me, coming into the workforce to replace
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  Speaker 2: those that are exiting in China. Similar problem here, yeah, similar,
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  Speaker 2: but not not at the scale of what China see you.
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  Speaker 2: And so when you look at China from that perspective,
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  Speaker 2: it's very you know, clear to policy makers that they're saying, okay,
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  Speaker 2: like this is you know, we're gonna lose some of
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  Speaker 2: the edge that we have as our workforce deteriorates over time.
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  Speaker 2: Maybe this is part of the reason why they're trying
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  Speaker 2: to get so heavily into robot workers now, is because
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  Speaker 2: they see what's going on. Other things. When we talk
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  Speaker 2: about the the rare earth piece that's been chatted about
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  Speaker 2: over the last six months or so, and in particular
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  Speaker 2: in the last week with the new rare earth export restrictions.
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  Speaker 2: While it's probably well, well, it's really likely that the
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  Speaker 2: US and other countries are not going to be able
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  Speaker 2: to get any kind of you know, meaningful production and
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  Speaker 2: refining of rare earths up and running in the next
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  Speaker 2: you know, six to twelve months.
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  Speaker 3: Yeah, definitely not.
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  Speaker 1: Yep.
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  Speaker 2: Everyone in their grandmother knows about this now and is
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  Speaker 2: paying attention to it, and so I think it's pretty
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  Speaker 2: likely that either the US or other countries that are
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  Speaker 2: more friendly to the US than China are producing larger
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  Speaker 2: quantities of rare earths over the next five to seven years,
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  Speaker 2: to the point where maybe you can fill you know,
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  Speaker 2: forty to sixty percent of your needs through non China
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  Speaker 2: rare earths. And if that's the case, China loses a
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  Speaker 2: lot of the leverage that's out there. So I kind
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  Speaker 2: of roll this all up and I say, hey, based
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  Speaker 2: on that, it puts you in a position where China
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  Speaker 2: really sees the back half of the twenty twenties as
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  Speaker 2: their chance to cement the position that they want to
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  Speaker 2: be in, whether that is through economic, whether it is
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  Speaker 2: through military action on Taiwan. The next five years, I
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  Speaker 2: see China being more aggressive than they've been, simply because
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  Speaker 2: I think that things start to look not so bubbly
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  Speaker 2: and rosy for them as you get past twenty thirty
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  Speaker 2: and the demographic issues become problematic, And I think she
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  Speaker 2: also sees his own mortality there, and it's like, you know,
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  Speaker 2: like I kind of want to get this done before
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  Speaker 2: I'm gone.
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  Speaker 3: In addition to that, looking backwards, it's been a really
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  Speaker 3: poor last five years for the Chinese economy. You have
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  Speaker 3: a property market collapse, you have very weak consumer sentiment
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  Speaker 3: and spending, You've got rising deaths. So to your point
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  Speaker 3: of trying to round out your legacy as a leader,
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  Speaker 3: the last five years have just been awful. They really
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  Speaker 3: have not been strong at all. So over the course
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  Speaker 3: of the next five years, like you mentioned, you have
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  Speaker 3: to focus on reshaping that. And it seems like, you know,
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  Speaker 3: exporting goods continues to be the main focus here. Trying
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  Speaker 3: to establish dumb on the semiconductor and technology side of things, robots,
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  Speaker 3: anything AI that's definitely one frontier. You can see what
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  Speaker 3: they've done with electric vehicles and flooding of the market
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  Speaker 3: supply with BYD that has been a point, but it
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  Speaker 3: seems like for the near term, the rare earth metals
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  Speaker 3: have been the pun intended here, the Trump card that
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  Speaker 3: they have played, so did Hey, the most that they've
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  Speaker 3: done here is leaning on this because they have found
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  Speaker 3: significant leverage behind the rare earth metals. So it seems
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  Speaker 3: like that is going to be the card that they
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  Speaker 3: continue to play the strongest because that did merit sort
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  Speaker 3: of a softening of the policy stance from President Trump
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  Speaker 3: initially when that was brought out. So, like you said,
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  Speaker 3: if I were to summarize this whole story in three words,
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  Speaker 3: you led with it. It's a game of chicken. That's
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  Speaker 3: That's what this is and what it will continue to
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  Speaker 3: be unless we get further developments later this month when
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  Speaker 3: President g and President Trump will get together in South Korea,
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  Speaker 3: I believe, right for that Eason Pacific conference.
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  Speaker 2: Yes, so you've got you know, everyone kind of has there.
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  Speaker 2: You know, everyone's getting all prickly in advance of this now,
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  Speaker 2: you know, talking about the US now saying hey, maybe
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  Speaker 2: we'll stop buying you know, Chinese cooking oil, which did
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  Speaker 2: not have that My being over right, didn't even know
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  Speaker 2: it was a thing, but apparently it is a thing.
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  Speaker 3: You learn something new every day. I did not think
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  Speaker 3: we'd be discussing cooking oil and soybean sales today.
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  Speaker 2: No, And here's the thing that I will say, the look,
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  Speaker 2: the US economy has dealt with a lot of uncertainty
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  Speaker 2: over the course of this year to this point. Like again,
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  Speaker 2: you look at basically everything in the aggregate, and I'm
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  Speaker 2: not saying that things are perfect, because like we've talked
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  Speaker 2: about the areas where there's some slowdowns going on in
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  Speaker 2: areas of concern and this and that, but buy and large.
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  Speaker 2: When you look at the GDP numbers for this year,
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  Speaker 2: they're probably and again we won't really know because of
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  Speaker 2: this government shutdown that's going on, but you're probably looking
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  Speaker 2: somewhere in like the one and a half to two
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  Speaker 2: percent range, just kind of where things are looking like
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  Speaker 2: they're landing, which is perfectly fine. It's perfectly cromulent. You
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  Speaker 2: don't have to worry like it's that's fine. And so
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  Speaker 2: I keep coming back to the fact that ultimately it
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  Speaker 2: takes a lot to derail the US economy because it's
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  Speaker 2: so big, it's so dynamic, and so resilient that it
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  Speaker 2: takes a lot to do it. The only thing that
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  Speaker 2: I actually think could is if there were any extended period,
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  Speaker 2: like not only thing, but the only thing that's like
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  Speaker 2: been discussed this year that I think would is if
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  Speaker 2: there were any extended period where rare earth could not
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  Speaker 2: be imported into the US, just because they're so critical
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  Speaker 2: in everything from making cars too. I mean, like you
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  Speaker 2: go down the list, and it's just it's it's critically
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  Speaker 2: important to even you think about just you know, hey,
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  Speaker 2: if your cell phones, anything related to magnets, ye in
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  Speaker 2: electronics has some component of rare earth in it most likely,
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  Speaker 2: and so like whether you're talking like batteries and stuff
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  Speaker 2: like that. Like there's all these things that basically make
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  Speaker 2: modern society work. I mean, modern society basically functions because
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  Speaker 2: of electricity. Magnets and electric motors and the internal combustion engine,
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  Speaker 2: and all those need some type of rare earth in
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  Speaker 2: them in order to like, in order to produce them
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  Speaker 2: in their relative respective industries.
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  Speaker 3: And that's a backdrop against what's a weak manufacturing sector
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  Speaker 3: here domestically as it is. You know, it would only
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  Speaker 3: further exaggerate what's been pretty weak on the manufacturing side.
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  Speaker 1: Your day.
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  Speaker 2: Domestically, I think the Trump administration they obviously know this.
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  Speaker 2: They're starting to make some, you know, fairly sizable strategic
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  Speaker 2: investments in that fashion. I think that they're moving as
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  Speaker 2: quickly as they possibly can there, but it's still is
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  Speaker 2: going to be like three to five years I think
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  Speaker 2: before you have any credible deterrent on that side of things.
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  Speaker 2: And so ultimately, I think China's looking at this saying, yeah,
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  Speaker 2: this is our chance to really press the issue because
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  Speaker 2: we're going to lose a lot of our leverage over
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  Speaker 2: the come years. And I think that's why, you know,
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  Speaker 2: part of the reason why we're where we are right now.
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  Speaker 3: In three to five years may be ambitious, it's a
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  Speaker 3: very hard rarest mining is a very difficult process and
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  Speaker 3: something that we have never been incredibly successful.
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  Speaker 2: It was messy, right, Like we used to do a
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  Speaker 2: decent amount of it back in like the nineties, and
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  Speaker 2: we're like, yeah, this is part of gross let's let's
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  Speaker 2: move this somewhere else.
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  Speaker 3: Typical is just the margins on it. It has to be
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  Speaker 3: heavily subsidized. That's kind of what I'm saying.
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  Speaker 2: Yeah, it's not lucrative. No, the process is actually pretty easy.
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  Speaker 2: It's just like chemically and financially intensive and it's pretty
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  Speaker 2: gross and you don't really make much money doing it. Yeah,
• 11:39
  Speaker 2: and so we were like, yeah, China, you guys go
• 11:41
  Speaker 2: do this and like pollute your own you know, waters
• 11:44
  Speaker 2: and you know. And now we've kind of realized, Okay,
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  Speaker 2: like yeah, we don't want to do this domestically, but.
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  Speaker 1: Golley, g you will.
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  Speaker 4: We have to.
• 11:52
  Speaker 2: So let's take a quick break. When we come back,
• 11:55
  Speaker 2: let's talk j Powell, and let's talk banks. After this.
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  Speaker 2: J Powell was doing what he often does on a Tuesday,
• 13:07
  Speaker 2: which is give a speech talking about, you know, what
• 13:11
  Speaker 2: the FED is doing and not too many surprises. Really again,
• 13:16
  Speaker 2: Jay's pretty buttoned up at this point. Occasionally, you know,
• 13:19
  Speaker 2: he kind of lets loose with his version of, you know,
• 13:23
  Speaker 2: a zinger, but it's like Jay's not really you know,
• 13:26
  Speaker 2: one to you know, just throw words around, you know,
• 13:30
  Speaker 2: willy nilly. But pretty much what he said is, look,
• 13:33
  Speaker 2: we are getting to the point where we might stop
• 13:36
  Speaker 2: our quantitative tightening program. Meeting the fed's balance sheet runoff
• 13:39
  Speaker 2: would likely stop in the coming months. He didn't give
• 13:42
  Speaker 2: any prognostications on exactly where interest rates would be going,
• 13:46
  Speaker 2: but ultimately I think that when you look at this,
• 13:50
  Speaker 2: it points toward the FED continuing to reduce rates at
• 13:54
  Speaker 2: their upcoming meetings, most likely by a quarter percent on
• 13:58
  Speaker 2: a per meeting basis and not really looking to change
• 14:02
  Speaker 2: course too dramatically based on what he's saying here.
• 14:07
  Speaker 3: Yeah, there isn't a whole lot to really chew on here.
• 14:10
  Speaker 3: This is more of the same. Like you mentioned, it
• 14:14
  Speaker 3: was interesting a little bit some of the commentary on
• 14:16
  Speaker 3: the reduction of the asset portfolio, just kind of trying
• 14:19
  Speaker 3: to be careful with some of the maturities on those
• 14:22
  Speaker 3: securities that they had bought back in twenty twenty. But ultimately,
• 14:27
  Speaker 3: the two major takeaways I had, and these weren't new necessarily,
• 14:30
  Speaker 3: is that Powell mentioned that inflation is still gradually increasing,
• 14:35
  Speaker 3: and you've got a labor market in which both supply
• 14:38
  Speaker 3: and demand has declined quite sharply. So again, those are
• 14:42
  Speaker 3: things that we've covered on the show and talked about,
• 14:44
  Speaker 3: but those were probably two of the biggest takeaways that
• 14:47
  Speaker 3: I had from his commentary other than that it's kind
• 14:49
  Speaker 3: of steady as she goes for a cut on the
• 14:52
  Speaker 3: twenty eighth and twenty ninth when they get together again
• 14:54
  Speaker 3: or I guess the twenty ninth, which.
• 14:56
  Speaker 2: Does bring us to the question that is asked by
• 14:58
  Speaker 2: this piece in Bloomberg Opinion, big banks are on fire,
• 15:03
  Speaker 2: Oh dear well, someone called the fire department. Why is
• 15:07
  Speaker 2: the FED eyeing more fuel? And what we're talking about
• 15:09
  Speaker 2: here is when we talk about on fire again like
• 15:13
  Speaker 2: kind of a it's kind of a tough phrase, right,
• 15:15
  Speaker 2: like is that good or bad? When you say they're
• 15:16
  Speaker 2: on fire, you get you know, NBA jam, like, oh,
• 15:19
  Speaker 2: he's on fire, it's like really good. But when you
• 15:21
  Speaker 2: talk about banks being on fire, it's kind of like, oh,
• 15:24
  Speaker 2: like is that the bad kind of on fire? I
• 15:26
  Speaker 2: would say dumpster fire because we hear when they're smoke,
• 15:29
  Speaker 2: there's fire, true, And so it's kind of like, well,
• 15:33
  Speaker 2: which one is it? The good or the bad? In
• 15:35
  Speaker 2: this case? Look, big banks have been reporting earnings all week.
• 15:38
  Speaker 2: They have been knocking really out of the park. It
• 15:41
  Speaker 2: is NBA jam, you know, he's on fire. And so
• 15:46
  Speaker 2: I think that when you look at this, here's what
• 15:48
  Speaker 2: we've seen from the banks, by the way, investment banking
• 15:51
  Speaker 2: revenue through the freaking roof, trading revenue through the freaking roof.
• 16:00
  Speaker 2: Mortgage revenue slow and steady, it's fine, nothing too interesting there,
• 16:05
  Speaker 2: credit card revenue moving along with some aside from Bank
• 16:09
  Speaker 2: of America, who had you know, everything looks great, some
• 16:12
  Speaker 2: very modest deterioration in credit, you know, showing up in
• 16:17
  Speaker 2: charge offs and things like that, but very very modest, like,
• 16:21
  Speaker 2: not not much to be concerned about there. So the
• 16:24
  Speaker 2: point that this piece brings up is, look, the FED
• 16:27
  Speaker 2: typically engages in cutting interest rates when they are concerned
• 16:32
  Speaker 2: about aggregate demand and you know, potentially some questions about
• 16:37
  Speaker 2: you know, hey, are we going to see enough lending
• 16:39
  Speaker 2: going on? And capital markets are still pretty strong. There's
• 16:42
  Speaker 2: no signs at banks of major stresses in lending. And
• 16:48
  Speaker 2: so the point that this piece asks is, look, what
• 16:51
  Speaker 2: what what gives? Like, why are you you know, cutting
• 16:54
  Speaker 2: rates when things don't look bad there? And I think
• 16:58
  Speaker 2: the answer is, look, most of the time, unless it's
• 17:00
  Speaker 2: a true financial crisis, banks are not usually at the
• 17:04
  Speaker 2: epicenter of the problem. They're not necessarily the proximate cause
• 17:08
  Speaker 2: I know they were in two thousand and eight, they
• 17:10
  Speaker 2: were in nineteen ninety one. But during the tech bubble,
• 17:13
  Speaker 2: as an example, it wasn't that banks started blowing up
• 17:16
  Speaker 2: left and right and you know, saying, oh, g you like,
• 17:18
  Speaker 2: we need help. It was somewhere else, was a regular
• 17:22
  Speaker 2: business cycle that kind of caused things.
• 17:24
  Speaker 3: It's the Wall Street versus Main Street sort of debate
• 17:26
  Speaker 3: where the FED is more concerned about what's going on
• 17:29
  Speaker 3: on main street. In terms of the labor market, that
• 17:32
  Speaker 3: is really the primary focus, and that's why you have
• 17:35
  Speaker 3: the FED indicating that they're cutting rates, is to potentially
• 17:39
  Speaker 3: stave off a slowdown in the labor market. I mean, also,
• 17:42
  Speaker 3: they are the backdrop concerns with inflation, where cutting rates
• 17:46
  Speaker 3: doesn't really help you. But ultimately, with these banks, if
• 17:50
  Speaker 3: for some reason, let's say the labor market does worsen
• 17:53
  Speaker 3: and we see unemployment tick up to five percent over
• 17:55
  Speaker 3: the course of the next six to twelve months or
• 17:57
  Speaker 3: something like that, the results that we're seeing from banks,
• 18:01
  Speaker 3: I would think you would see a weakening market and
• 18:05
  Speaker 3: weakening capital, you know, concerns, and you wouldn't see these
• 18:08
  Speaker 3: type of strong bank results. So to kind of counter
• 18:11
  Speaker 3: that point that, you know, why the cutting banks are
• 18:14
  Speaker 3: doing so well, if this issue arises of the labor
• 18:18
  Speaker 3: market weakening, you won't see banks, in my opinion, fair
• 18:21
  Speaker 3: as well as they have over the course of this year.
• 18:23
  Speaker 2: And I gotta be honest, we're not really seeing a
• 18:26
  Speaker 2: ton of indication right now that lower rates are generating
• 18:32
  Speaker 2: more economic activity. I know we always talk about Hey,
• 18:35
  Speaker 2: it's kind of this long and you know, unpredictable cycle
• 18:38
  Speaker 2: in terms of when it hits. But ultimately we've seen
• 18:42
  Speaker 2: mortgage rates come down, you know, about a quarter to
• 18:46
  Speaker 2: a half percent from where they were over the course
• 18:49
  Speaker 2: of the summer. The NBA Mortgage Purchase Index, you know,
• 18:53
  Speaker 2: just fell by about two and a half percent over
• 18:56
  Speaker 2: the last week and is now down you know, about
• 18:58
  Speaker 2: six seven percent in mid September when rates first came
• 19:02
  Speaker 2: down that far. And so I kind of look at
• 19:04
  Speaker 2: it and yeah, you had this the initial wave of
• 19:07
  Speaker 2: REFI activity that was you know through the roof that
• 19:10
  Speaker 2: has subsequently not fully reversed, but it's kind of retrenched,
• 19:14
  Speaker 2: you know, about sixty seventy percent of that activity level.
• 19:18
  Speaker 2: Mortgages aren't really seeing any uptick in overall activity. I mean,
• 19:22
  Speaker 2: they've basically been flat since mid April, and so I'm
• 19:26
  Speaker 2: just not sure that rate cuts are going to have
• 19:28
  Speaker 2: a huge impact on the economy. I guess is where
• 19:31
  Speaker 2: I'm landing. Let's take a quick break. When we come back,
• 19:34
  Speaker 2: it's Wall Street Watch and ask Todd.
• 19:41
  Speaker 1: Like us on Facebook and follow us on Twitter at
• 19:43
  Speaker 1: TFE show. Breaking business news is always first right here
• 19:48
  Speaker 1: on the Financial Exchange Radio Network time now for Wall Street.
• 19:53
  Speaker 1: Watch a complete look and what's moving markets so far
• 19:56
  Speaker 1: today right here on the Financial Exchange Radio work.
• 20:04
  Speaker 4: Market sern rally mode. Despite the tit for tat trade
• 20:06
  Speaker 4: threats between the US and China's investors are encouraged by
• 20:10
  Speaker 4: a flurry of strong third quarter bank earnings. Right now,
• 20:14
  Speaker 4: the Dow is up by three quarters of a percent,
• 20:16
  Speaker 4: or three hundred and forty five points, SMP five hundred
• 20:19
  Speaker 4: up over one percent now were seventy three points higher,
• 20:22
  Speaker 4: Nasdaq up one point four percent or three hundred and
• 20:26
  Speaker 4: twelve points. Russell two thousand is up over one and
• 20:29
  Speaker 4: a half percent, Tenure Treasure Feled is flat at four
• 20:32
  Speaker 4: point zero one three percent, and crude oil up about
• 20:36
  Speaker 4: four tenths of one percent, trading just below fifty nine.
• 20:39
  Speaker 2: Dollars a barrel.
• 20:41
  Speaker 4: Well similar to its peers, Bank of America had a
• 20:44
  Speaker 4: solid third quarter, driven by stronger than expected investment banking revenue.
• 20:48
  Speaker 4: The bank said its profit climbed twenty three percent from
• 20:52
  Speaker 4: a year ago to eight and a half billion dollars.
• 20:54
  Speaker 4: Bank of America shares are up nearly five percent at
• 20:58
  Speaker 4: the moment. Brgan Stanley also impressed with its third quarter results,
• 21:03
  Speaker 4: posting earnings that exceeded expectations by the largest margin in
• 21:06
  Speaker 4: nearly five years. The bank saw its profit jump forty
• 21:10
  Speaker 4: five percent from a year ago to four point six
• 21:13
  Speaker 4: billion dollars. Morgan Stanley shares are up six percent. Elsewhere
• 21:17
  Speaker 4: PNC Financials. That stock is down four percent, despite the
• 21:22
  Speaker 4: lender logging higher profit and revenue in the previous quarter
• 21:25
  Speaker 4: as it continued adding customers. Meanwhile, chip maker asml stock
• 21:30
  Speaker 4: rising over one percent after the company said it expects
• 21:34
  Speaker 4: twenty twenty six total net sales to top those from
• 21:38
  Speaker 4: this year. Asmlo also posted mixed results for the third quarter.
• 21:43
  Speaker 4: According to Reuter's, Apollo Global Management has offered a new
• 21:47
  Speaker 4: bid to take Papa John's private at sixty four dollars
• 21:50
  Speaker 4: a share. The pizza chain stock is jumping over seven
• 21:53
  Speaker 4: percent on that news. And after today's close, we'll see
• 21:57
  Speaker 4: third quarter results from United Airlines. On Tucker SOOVA and
• 22:01
  Speaker 4: that is Walltree Watch.
• 22:04
  Speaker 1: This is Ask Todd on the Financial Exchange Radio Network.
• 22:07
  Speaker 1: If you have an existing estate plan or in the
• 22:10
  Speaker 1: market for one, Todd Letsky is here to answer your
• 22:12
  Speaker 1: questions and help you plan for a later life. Ask
• 22:15
  Speaker 1: Todd is presented by Cushing and Dolan, serving Massachusetts and
• 22:18
  Speaker 1: New England for more than thirty five years, helping families
• 22:21
  Speaker 1: with a state and tax planning, medicaid planning, and probate law.
• 22:25
  Speaker 1: Visit Cushingdolan dot com. Now here's Todd Lutsky.
• 22:31
  Speaker 2: Todd Lotsky joins us now for Ask Todd. Your chance
• 22:34
  Speaker 2: to ask Todd your estate planning questions live on air
• 22:38
  Speaker 2: right now. Phone lines are wide open at eight eight
• 22:41
  Speaker 2: eight two zero five two two six three, So get
• 22:45
  Speaker 2: calling so you can ask Todd your state plan state
• 22:48
  Speaker 2: planning questions right now again. Eight eight eight two zero
• 22:52
  Speaker 2: five two two sixty three is the number. We currently
• 22:55
  Speaker 2: have no one in line, so remember we can get
• 22:58
  Speaker 2: through usually two to three of your questions per show.
• 23:02
  Speaker 2: This is your chance to get right to the top
• 23:04
  Speaker 2: of the line at eight eight eight to zero five
• 23:07
  Speaker 2: two two six three. Again. The number to call to
• 23:09
  Speaker 2: ask Todd your estate planning questions is eight eight eight
• 23:13
  Speaker 2: to zero five two two six three. Mister Lutsky, how
• 23:17
  Speaker 2: are you doing today?
• 23:19
  Speaker 5: I am never better? How you doing not great? No,
• 23:22
  Speaker 5: something's always wrong with you.
• 23:23
  Speaker 2: Tuba margin fell on my foot three weeks ago and
• 23:26
  Speaker 2: it still hurts. It does I can't believe it's not better.
• 23:29
  Speaker 5: Yeah, me neither.
• 23:30
  Speaker 2: Todd want to talk to you a little bit about
• 23:33
  Speaker 2: gifting real estate. Is it always a bad idea?
• 23:39
  Speaker 5: You hate to answer questions like that. The carte blanche
• 23:44
  Speaker 5: answer is complicated. So I'm gonna do it this way lawyers. Yeah, yeah,
• 23:51
  Speaker 5: it depends right. I could say that, but I don't
• 23:52
  Speaker 5: like to say that, So so what I'm gonna say
• 23:55
  Speaker 5: is that generally it's probably not a great idea. And
• 24:02
  Speaker 5: he'll come and why, Well, you know, generally, you have
• 24:07
  Speaker 5: probably purchased the real estate long ago, and first of all,
• 24:10
  Speaker 5: if it's your home, you probably don't want to give
• 24:12
  Speaker 5: away your home because, for obvious reasons, it's your home
• 24:14
  Speaker 5: and you want to continue to control it and own it,
• 24:16
  Speaker 5: enjoy it. But other types of real estate, maybe it's
• 24:20
  Speaker 5: that vacation home you bought long ago and you think
• 24:23
  Speaker 5: getting it out of your you know, your name into
• 24:26
  Speaker 5: a trust for the benefit of children sounds like a
• 24:29
  Speaker 5: great idea. Or that rental property that I may have
• 24:34
  Speaker 5: purchased long ago but have been renting it for let's say,
• 24:37
  Speaker 5: over twenty seven and a half years. I use that
• 24:40
  Speaker 5: because that's the time in which you can fully depreciate
• 24:44
  Speaker 5: your basis on rental property. And so if you give
• 24:49
  Speaker 5: those away, likely those have appreciated over time, and so
• 24:54
  Speaker 5: the built in gain. And I'll just stick with the
• 24:57
  Speaker 5: idea of a rental property because they say, oh, get
• 24:59
  Speaker 5: that out of my eight Let's say I bought it
• 25:01
  Speaker 5: for one hundred thousand dollars, depreciated it to zero, it's
• 25:05
  Speaker 5: worth a million today. That, by the way, is not
• 25:07
  Speaker 5: an uncommon situation. I make it sound like that's a
• 25:10
  Speaker 5: crazy result. Sure, and if you give that away, that
• 25:13
  Speaker 5: means there's a million dollars of gain built in to
• 25:17
  Speaker 5: that to that property, because thats zero basis. And by
• 25:20
  Speaker 5: the way, some of the gain, the one hundred thousand
• 25:23
  Speaker 5: dollars that's associated with depreciation, is taxed at ordinary income,
• 25:28
  Speaker 5: not capital gains rate. So let's just say thirty percent
• 25:31
  Speaker 5: for easy numbers on everything. And I can't say thirty
• 25:34
  Speaker 5: percent because we've got this Massachusetts millionaire's tax of four percent,
• 25:38
  Speaker 5: so you could run into that if you're slightly over
• 25:41
  Speaker 5: that amount. So if you give that away, you're trapping
• 25:47
  Speaker 5: a million dollars of gain at thirty percent. If my
• 25:51
  Speaker 5: estate is not over fifteen million come January one, twenty
• 25:55
  Speaker 5: twenty six. I'm not giving it away to save any
• 25:58
  Speaker 5: federalist at tax. So that's a forty percent number, plus
• 26:03
  Speaker 5: Massachusetts another twelve percent. That's fifty two percent. Well that's
• 26:07
  Speaker 5: that's a good idea. But if I'm only giving it
• 26:10
  Speaker 5: away to save Massachusetts state tax because I'm under the
• 26:14
  Speaker 5: exemption amount, well then I'm only saving twelve percent. Well,
• 26:19
  Speaker 5: I'm trapping thirty percent capital gains to save twelve Probably
• 26:22
  Speaker 5: not a good idea. So that's why generally that's not
• 26:26
  Speaker 5: a good idea to give away. But you know, if
• 26:29
  Speaker 5: your assets have if you're if you're saving the fifty
• 26:32
  Speaker 5: two percent, then then so be it might might be okay.
• 26:35
  Speaker 5: So that that's why it's it's probably gonna be the
• 26:39
  Speaker 5: ninety percent of the time. Probably not unless you recently
• 26:42
  Speaker 5: bought something and has fully stepped up already. Well, then
• 26:44
  Speaker 5: maybe that's okay because it has high basis. So hope
• 26:47
  Speaker 5: that answers your question.
• 26:49
  Speaker 2: Talking with Todd Lotski from Kushing and Dolan. Todd's available
• 26:53
  Speaker 2: to answer your questions live on air right now during
• 26:56
  Speaker 2: Ask Todd. Phone number here at the studio is eight
• 26:58
  Speaker 2: eight eight two zero five two two six three. Still
• 27:02
  Speaker 2: room on the phone line, So get calling early and
• 27:05
  Speaker 2: often so that you can get your question answered by Todd.
• 27:09
  Speaker 2: Eight eight eight to zero five two two sixty three
• 27:13
  Speaker 2: is the number. We're gonna take a quick break here,
• 27:16
  Speaker 2: but when we come back, we are gonna get to
• 27:18
  Speaker 2: your questions with Todd. That phone number is eight eight
• 27:21
  Speaker 2: eight to zero five two two six three. Again it
• 27:26
  Speaker 2: is eight eight eight to zero five two two sixty three.
• 27:31
  Speaker 1: Ask Todd with Todd Letsky every Wednesday at ten thirty
• 27:35
  Speaker 1: only here on the Financial Exchange Radio Network. Todd Letsky
• 27:40
  Speaker 1: answers your questions about a state and elder life planning
• 27:43
  Speaker 1: every Wednesday at ten thirty right here on the Financial
• 27:46
  Speaker 1: Exchange Radio Network.
• 27:55
  Speaker 2: All right, let's get to your calls with Todd. First up,
• 27:57
  Speaker 2: we got Paul in Lester. Paul, what is your question
• 28:02
  Speaker 2: for Todd?
• 28:05
  Speaker 6: Thanks for taking my call. So, my mother we have
• 28:08
  Speaker 6: a summer home in Maine on a lake, and my
• 28:11
  Speaker 6: mother passed away ten years ago left it to me
• 28:14
  Speaker 6: and my four siblings in her will, and it's not
• 28:19
  Speaker 6: I think the wording is basically it goes to all
• 28:23
  Speaker 6: of us equal shares until somebody dies and everybody else
• 28:27
  Speaker 6: gets another portion, and it's still in my mother's name.
• 28:33
  Speaker 6: You know, it's never been The tax bill comes made
• 28:36
  Speaker 6: out to my mother, and I'm wondering if there's something
• 28:40
  Speaker 6: I need to do or should do or.
• 28:43
  Speaker 1: So.
• 28:44
  Speaker 5: So, Yeah, this is a you need to be very
• 28:47
  Speaker 5: clear about what the will actually says. In other words,
• 28:51
  Speaker 5: Generally wills don't end up holding things in trust because
• 28:55
  Speaker 5: they're will. I mean, could it. It could, but you
• 28:59
  Speaker 5: need to see what the trust actually says. In other words,
• 29:01
  Speaker 5: if it says, I leave all my real estate equally
• 29:06
  Speaker 5: to my kids, if living, pay it out, give it
• 29:10
  Speaker 5: to them, does it say that or does it say
• 29:14
  Speaker 5: hold it in trust for them for their life? Do
• 29:18
  Speaker 5: you know what it said? Do you know what it
• 29:19
  Speaker 5: actually says? I just it's very important. Makes a huge difference. Okay,
• 29:25
  Speaker 5: do you know what it says?
• 29:27
  Speaker 6: Yeah, I'm not exactly a hundred potential what it says.
• 29:32
  Speaker 5: So here's why it's a huge difference. If it says,
• 29:36
  Speaker 5: and it sounds like it probably does say that, it
• 29:39
  Speaker 5: would say to my kids if living, if not living,
• 29:43
  Speaker 5: then their peace would go to either their kids or
• 29:47
  Speaker 5: back to the ones that are still alive. And so
• 29:51
  Speaker 5: if if it says pay it out, and you all
• 29:54
  Speaker 5: four were living on the date of mom's death, then
• 29:57
  Speaker 5: even though the deed has not changed from mom's name,
• 30:02
  Speaker 5: and this happens all the time, the law says that
• 30:08
  Speaker 5: if it's paid, if it says give to my kids,
• 30:11
  Speaker 5: then the moment mom died, you four kids became title
• 30:17
  Speaker 5: owners to that property at that moment, even though there's
• 30:21
  Speaker 5: no deed out of the estate to you. Okay, it's
• 30:25
  Speaker 5: not required, but a lot of times people do prepare it.
• 30:29
  Speaker 5: And so what that means is that all four of
• 30:32
  Speaker 5: you kids actually own it right now. So if there
• 30:35
  Speaker 5: was a lawsuit or someone got hurt on the property,
• 30:37
  Speaker 5: they're going to sue all four of you. All four
• 30:39
  Speaker 5: of you are legally obligated to maintain the property, pay
• 30:42
  Speaker 5: the real estate tax bills, utilities up keep maintenance. I mean,
• 30:45
  Speaker 5: I assume you guys are all doing that now, is
• 30:47
  Speaker 5: that correct?
• 30:49
  Speaker 6: It's sadly yift.
• 30:50
  Speaker 5: Well again, that's where the sadly part comes in, Right,
• 30:52
  Speaker 5: we left it to four people. Now what well, what
• 30:54
  Speaker 5: if all four don't want it? Well, you guys could
• 30:57
  Speaker 5: get together and say I want to you know, whoever
• 30:59
  Speaker 5: wants it can buy out the interest of the ones
• 31:02
  Speaker 5: who don't. If no one wants to do that, you
• 31:05
  Speaker 5: can always force a sale by petitioning the court to
• 31:08
  Speaker 5: partition the property, and the court will basically do the
• 31:11
  Speaker 5: same things. They either sell it or buy each other out.
• 31:14
  Speaker 5: And so you know that's really where you are with that.
• 31:18
  Speaker 5: But at this point it's part of your estate. So
• 31:21
  Speaker 5: if you died, your estate would likely direct where your
• 31:26
  Speaker 5: one quarter interest in that property goes, not necessarily to them,
• 31:33
  Speaker 5: but to your kids or your spouse. So you really
• 31:35
  Speaker 5: need to plan your estate and figure out what you
• 31:38
  Speaker 5: want to do with it. But this is an arrangement
• 31:40
  Speaker 5: that's probably not the way to go. Hope that helps
• 31:43
  Speaker 5: a little, folks, Planning is always better. In this case,
• 31:46
  Speaker 5: mom didn't give away the asset. Mom died owning it,
• 31:49
  Speaker 5: and there's benefits to that. The guide we're giving away
• 31:52
  Speaker 5: is making the most of gifting assets. Sometimes we gift,
• 31:56
  Speaker 5: sometimes we don't. As Chuck asked, do we give away
• 31:59
  Speaker 5: real estate might not be a great item to give?
• 32:02
  Speaker 5: More importantly, how do we give? Do we give outright?
• 32:06
  Speaker 5: Do we give to irrevocable gifting? Trust for the kids?
• 32:09
  Speaker 5: What if I want to give something away. That's large
• 32:11
  Speaker 5: and I want to still enjoy it. Well, you can,
• 32:14
  Speaker 5: but you got to use espousal lifetime access trust. Folks,
• 32:17
  Speaker 5: so many income and gift tax and estate tax issues
• 32:21
  Speaker 5: to think about when you gift, as well as how
• 32:23
  Speaker 5: you gift. Learn if gifting is right for you, and
• 32:27
  Speaker 5: how to do it. Get the guide Making the Most
• 32:30
  Speaker 5: of Gifting Assets eight sixty six eight four eight five
• 32:35
  Speaker 5: six nine nine or Legal Exchange Show dot com again
• 32:39
  Speaker 5: eight sixty six eight four eight five six ninety nine
• 32:43
  Speaker 5: or Legal Exchange Show dot com.
• 32:46
  Speaker 2: Todd got another one queued up for you.
• 32:47
  Speaker 3: Here.
• 32:48
  Speaker 2: We've got Tim in Pittsfield. Tim, you are on with
• 32:51
  Speaker 2: Todd Lutski.
• 32:54
  Speaker 7: I thank you for day for my calls. So we
• 32:56
  Speaker 7: have my wife and I are both seventy and we
• 33:01
  Speaker 7: have only we only have four or five properties. Debt
• 33:05
  Speaker 7: total are worth less than three million. Okay, So do
• 33:09
  Speaker 7: we go about I'm just going by your information provided earlier,
• 33:15
  Speaker 7: trusting it or I guess the will doesn't sound like
• 33:19
  Speaker 7: the best thing either right now?
• 33:20
  Speaker 6: Yeah? Probably not?
• 33:23
  Speaker 7: Or do we sell them to them at a reduced rate.
• 33:27
  Speaker 5: To your kids?
• 33:29
  Speaker 7: Yes?
• 33:30
  Speaker 5: So what other assets do you have add to the
• 33:33
  Speaker 5: three million? The value of your investment stocks, bonds, mutual funds,
• 33:37
  Speaker 5: IRA accounts, banks.
• 33:39
  Speaker 7: Rough number, probably no more than three hundred to three
• 33:43
  Speaker 7: point five million, so.
• 33:44
  Speaker 5: Another another five hundred thousand, So the total estate is
• 33:47
  Speaker 5: three point five yes, okay, so five hundred of of
• 33:51
  Speaker 5: what we call money assets.
• 33:53
  Speaker 1: Okay.
• 33:54
  Speaker 5: So first and foremost, you mentioned selling it to your
• 33:56
  Speaker 5: kids at a reduced value. First of all, why on
• 33:58
  Speaker 5: earth would I even want to do that. I don't
• 34:00
  Speaker 5: see any benefit unless there's some reason I'm not seeing
• 34:04
  Speaker 5: that your family, your kids need to own this real estate. Now,
• 34:07
  Speaker 5: there's really no benefit in one gifting it to them,
• 34:10
  Speaker 5: because I'm sure there's built in gain, meaning you bought
• 34:12
  Speaker 5: it a while ago, rented it, depreciated it, so there's
• 34:16
  Speaker 5: probably a lot of built in gain here. So so
• 34:19
  Speaker 5: getting an asset by gifting it to kids out of
• 34:21
  Speaker 5: the estate is not helpful because I'm trapping all the
• 34:25
  Speaker 5: capital gain. It's not helpful for you because your entire
• 34:28
  Speaker 5: estate is under four million dollars. And with basic trust planning,
• 34:32
  Speaker 5: we can eliminate your Massachusetts state tax. You're already under
• 34:39
  Speaker 5: the federal exemption, so you have no forty percent federal
• 34:43
  Speaker 5: tax to deal with, and So if I gifted away,
• 34:47
  Speaker 5: I save nothing on the tax front, but I trap
• 34:51
  Speaker 5: a thirty percent capital gain. Whereas if I do trust
• 34:54
  Speaker 5: planning and keep it for each other first and then
• 34:58
  Speaker 5: the kids, now I can pay nothing on the estate
• 35:02
  Speaker 5: tax front, and then by dying owning it, get a
• 35:06
  Speaker 5: full step up in basis on these assets, which means
• 35:09
  Speaker 5: that the fair market value will equal the basis for
• 35:12
  Speaker 5: the children. So if they later sell it, there's zero
• 35:16
  Speaker 5: capital gains tax. So now we're winning on the estate
• 35:20
  Speaker 5: tax front and the capital gains tax front. Home run. Also,
• 35:26
  Speaker 5: I've not exposed it to my kids creditors sooner than
• 35:28
  Speaker 5: I need to, So selling it for a less amount
• 35:31
  Speaker 5: or gifting it, I'm thinking, is a bad idea. Now,
• 35:35
  Speaker 5: having said that, what should you do? Well you're seventy.
• 35:38
  Speaker 5: If I want to make sure these assets go to
• 35:40
  Speaker 5: my children later, I would set up two irrevocable medicaid trusts.
• 35:49
  Speaker 5: Why because I want to make sure they go there.
• 35:52
  Speaker 5: I want to make sure that if I keep them
• 35:53
  Speaker 5: my whole life, that there's nothing that could interfere with
• 35:57
  Speaker 5: them getting it, like taxes or like a nursing home
• 36:01
  Speaker 5: or some other you know, medical event that takes these
• 36:06
  Speaker 5: assets because we have to sell to pay bills. So
• 36:10
  Speaker 5: that's where I would set up the irrevocable trusts and
• 36:12
  Speaker 5: you could remain in control of these assets. You can
• 36:15
  Speaker 5: continue to rent them and collect your rent, which I
• 36:18
  Speaker 5: know is important. And again, why would I want to
• 36:21
  Speaker 5: give away my rent? This could be something I use
• 36:23
  Speaker 5: in my retirement. And you can still control the ability
• 36:27
  Speaker 5: to perhaps gift them away if you want to gift
• 36:29
  Speaker 5: them away later, or sell them later and you know,
• 36:33
  Speaker 5: replace them with something else. So you will get to
• 36:36
  Speaker 5: keep a lot of control over these assets. And at
• 36:39
  Speaker 5: the same time eliminate the capital gains tax by getting
• 36:44
  Speaker 5: a step up in basis, and eliminate the federal and
• 36:48
  Speaker 5: state estate tax. So this is a great question, folks.
• 36:53
  Speaker 5: Please don't just give away assets. Here not always the
• 36:59
  Speaker 5: smartest tax play.
• 37:00
  Speaker 2: Todd, appreciate you joining us today. Thank you so much
• 37:03
  Speaker 2: for the time. Always a pleasure.
• 37:06
  Speaker 1: This has been asked Odd on the Financial Exchange Radio network.
• 37:10
  Speaker 1: Ask Tod with Todd. Lutsky has been presented by Cushing
• 37:13
  Speaker 1: and Dolan, serving Massachusetts and New England for more than
• 37:15
  Speaker 1: thirty years, helping families with the state and tax planning.
• 37:18
  Speaker 1: Medicaid Planning and Probate Law call eight hundred and three
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  Speaker 1: nine three four thousand and one or visit Cushingdolan dot com.
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  Speaker 1: The views expressed in this segment are solely those of
• 37:27
  Speaker 1: Cushing and Dolan Armstrong advisor. He does not provide any
• 37:29
  Speaker 1: legal or tax advice. Please consult with your legal or
• 37:31
  Speaker 1: tax advisor on such matters. Cushing and Armstrong do not
• 37:34
  Speaker 1: endorse each other and are not affiliated.
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  Speaker 2: Excuse me, I couldn't quite catch my breadth there.
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  Speaker 1: Good time.
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  Speaker 2: I just say it was just great listening to Todd.
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  Speaker 2: You know, let's talk a little bit. In the second hour,
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  Speaker 2: we're going to be talking about AI and how big
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  Speaker 2: of an impact is actually having on the US economy.
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  Speaker 2: Also talking a little bit more about the auto industry
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  Speaker 2: and what is going on there, some gross three prices chatter,
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  Speaker 2: and then we're gonna be talking about gold because everyone
• 38:05
  Speaker 2: wants to talk about gold. Now we'll join in and
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  Speaker 2: we'll talk about it too. We got all that and
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  Speaker 2: more coming up on the Financial Exchange.