Latest / The Financial Exchange Show / AI fatigue sets in for S&P 500 investors

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AI fatigue sets in for S&P 500 investors · The Financial Exchange Show

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Speaker 2: Welcome to this Wednesday edition of the Financial Exchange. Paul Lane,
1:14
Speaker 2: Tucker Silva, and Mark Vendetti here with you as we
1:17
Speaker 2: dive into a very busy show and an important week
1:21
Speaker 2: and a half or so for the US economy. As
1:24
Speaker 2: we will get several different economic reports to digest over
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Speaker 2: the next few days and some early next week as well.
1:31
Speaker 2: The focus for this week is largely the labor market
1:34
Speaker 2: that has been the biggest concern of the Federal Reserve.
1:37
Speaker 2: The story last year was the announcement of tariffs precipitated
1:41
Speaker 2: a lot of concerns about rising inflation and increased costs
1:46
Speaker 2: across the economy. Those largely haven't bared out just yet,
1:49
Speaker 2: and so as a result, you've seen the Federal Reserve
1:52
Speaker 2: shift its focus more largely to the employment market. We
1:55
Speaker 2: see the unemployment rate as of last month's jobs reports
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Speaker 2: sitting about four point six percent. We will get another
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Speaker 2: jobs report this Friday where we will get another read
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Speaker 2: on the unemployment rate for the month of December, and
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Speaker 2: we did get several labor reports today that will go
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Speaker 2: into We're going to start right off the bat ADP,
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Speaker 2: which is a private service that reports payroll data noted
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Speaker 2: that private payrolls rose forty one thousand in the month
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Speaker 2: of December. That was slightly below expectations, which I believe
2:29
Speaker 2: that they had projected for about forty eight thousand jobs
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Speaker 2: to be added for the month of December. In November
2:36
Speaker 2: that was a negative number. We had a loss of
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Speaker 2: about twenty nine thousand. So it's important to note with
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Speaker 2: the ADP data, it's not something that is focused on
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Speaker 2: as significantly as the Bureau of Labor Statistic report that
2:47
Speaker 2: is going to come out on Friday, but it is
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Speaker 2: something that you do take into account with some of
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Speaker 2: these other economic data pieces out here. And we also
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Speaker 2: had a Jolts report that just came out moments ago.
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Speaker 2: This is the job Openings in Labor Turnover Survey, and
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Speaker 2: that one seemed to be a relatively low reading. And
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Speaker 2: we're gonna have to break this down a little bit
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Speaker 2: more as the show progresses, because it did just come
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Speaker 2: out within the last few minutes. But now we sit
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Speaker 2: from November's data again, this is a little bit backwards
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Speaker 2: looking how they do these Jolts reports. With seven point
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Speaker 2: one five million job openings, that was below, well below
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Speaker 2: estimates of seven point six five million jobs. So that
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Speaker 2: is a pretty significant drop off if you look back
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Speaker 2: at the Jolts reports and the job openings over the
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Speaker 2: course of the last five years ago five years or so.
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Speaker 2: We hit our peak back in March of twenty twenty two,
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Speaker 2: where there was about twelve million jobs available in March
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Speaker 2: of twenty twenty two. Since then, it's trend to downward.
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Speaker 2: I don't want to make it seem as if this is,
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Speaker 2: you know, a huge area of concern, that twelve million
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Speaker 2: to seven and a half or seven point one five
3:56
Speaker 2: million drop off, because that was a true peak in
3:59
Speaker 2: the labor market in March of twenty two when we
4:01
Speaker 2: hit that three and a half percent unemployment rate. But
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Speaker 2: still market has been treading to have less job openings
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Speaker 2: and another sort of kernel of data that is somewhat
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Speaker 2: pessimistic about the direction of the labor market could be
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Speaker 2: going in twenty twenty six.
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Speaker 3: Yeah, Jolts has received a lot of attention because it
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Speaker 3: became a better forecaster of inflation than the traditional measure
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Speaker 3: of slack in the economy, which is the unemployment rate.
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Speaker 3: So if you're an economic forecaster, Jolts has been more
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Speaker 3: useful over the past. Really couple of decades than the
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Speaker 3: unemployment rate as an indicator of whether the FED is
4:38
Speaker 3: over or understimulating or getting things just right. Unemployment is
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Speaker 3: a measure of slack in the economy. It's a measure
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Speaker 3: of how healthy demand is, so the FED pays a
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Speaker 3: lot of attention to measures of slack in the labor market,
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Speaker 3: historically unemployment. More recently, Jolts, you mentioned that the number
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Speaker 3: of job openings fell from the original October number Paul
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Speaker 3: was about seven point six and change million. Right, That
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Speaker 3: means businesses were advertising for about I'm gonna round up,
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Speaker 3: businesses were advertising for about seven point seven million positions.
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Speaker 3: The number reported this morning was seven point one four million.
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Speaker 3: I can't really round that up. You know the rule
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Speaker 3: if it's greater than a five year rounded up. So
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Speaker 3: I'm gonna round this up. I'm gonna call it seven
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Speaker 3: point one. So it looks like six hundred million job
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Speaker 3: openings just disappeared, But in fact October got revised downward
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Speaker 3: down looks like it's seven point four to four nine million,
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Speaker 3: is the actual. It was originally reported at seven as
5:36
Speaker 3: I mentioned, point six seven zero million. So there goes
5:38
Speaker 3: a couple hundred million, A couple hundred thousand, excuse me,
5:41
Speaker 3: job openings into thin air because they never existed. So, nevertheless,
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Speaker 3: the number of advertised positions so called job openings, has
5:51
Speaker 3: dropped a lot from its peak. At its peak, it
5:54
Speaker 3: was eleven twelve excuse me, point one million. Now it's
5:58
Speaker 3: seven point one million. One way to make sense of
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Speaker 3: it is to take the ratio of number of people
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Speaker 3: looking for jobs or the unemployment relative. Take the number
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Speaker 3: of job openings now seven point one to the ratio
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Speaker 3: of the number of people looking for jobs, which is
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Speaker 3: just the unemployment level, the same level that we used
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Speaker 3: to derive that we used to calculate the unemployment rate.
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Speaker 3: That level is now below one. It's the the quotion
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Speaker 3: is seven point one divided by seven point z. I'm
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Speaker 3: just going to call that point nine and.
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Speaker 4: How many how many unemployed on the seven.
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Speaker 3: Point eight some point is the unemployment level. So yeah,
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Speaker 3: seven point eight million people looking for work.
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Speaker 4: So the the.
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Speaker 3: Stat that's that that comes from jolts that receives a
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Speaker 3: lot of attention is that supply to that demand for
6:47
Speaker 3: workers relative to supply. That ratio was well over two
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Speaker 3: in early twenty twenty two, when the economy was everybody agrees.
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Speaker 3: Now overheating due to too much stimulus and the opening
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Speaker 3: up of the of the economy following the COVID lockdowns.
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Speaker 3: We're now back to that ratio now is back to
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Speaker 3: something closer to the late twenty tens, still higher, though
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Speaker 3: much higher than its historical value. I'm not I don't
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Speaker 3: know that that's a good reference point. I don't know
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Speaker 3: that the right ratio of openings to unemployed people Z
7:21
Speaker 3: point seventy five, and by right I mean non inflationary.
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Speaker 3: So this is good news, I guess if you're looking
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Speaker 3: for downward pressure on inflation. Bad news if you fear
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Speaker 3: that the labor market is cooling too fast. I just
7:36
Speaker 3: I don't know what to make of it. The labor
7:38
Speaker 3: market was so unnaturally hot a few years ago, and
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Speaker 3: we saw the inflationary consequences, right.
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Speaker 2: Yeah, it seems like it reset all expectations a little bit.
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Speaker 2: It's hard to do it justice when you're looking back
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Speaker 2: at these five year figures. You mentioned the twelve million
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Speaker 2: of openings. I mean that was a once in a
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Speaker 2: one hundred year shot, naturally that we were dealing with
7:58
Speaker 2: where the economy shut down and reopened, And that's why
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Speaker 2: you had just a flood of jobs on the market,
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Speaker 2: and now the data looks more similar, like you were
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Speaker 2: saying to the late twenty tens numbers that we had
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Speaker 2: seen in terms of the job openings out there. But
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Speaker 2: I want to hit that point that you made again
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Speaker 2: because I think it is important. Right now, according to
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Speaker 2: the survey, seven point one four million jobs available to
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Speaker 2: seven point you said seven to eight looking for jobs
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Speaker 2: in terms of the unemployment level.
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Speaker 3: Unemployment level, right, So that's just.
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Speaker 2: Something that is worth you know, focusing on that level
8:30
Speaker 2: was much a much higher ratio when you had twelve
8:34
Speaker 2: million jobs available to those looking for jobs out there.
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Speaker 4: So again, this is the big focus.
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Speaker 2: I think for twenty twenty six, it would be one
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Speaker 2: of the headline pieces to look at.
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Speaker 4: It is the labor market. And I'm not saying that.
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Speaker 3: The Joe the be all, but I'm going to disagree.
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Speaker 3: I don't know if it's still the right slack variable.
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Speaker 3: That's what slack variable sounds technical. It just means the
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Speaker 3: measure that an economist would use to well to to
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Speaker 3: measure slack in the economy. So I guess it is
8:58
Speaker 3: pretty self explanatory. It might be the unemployment right now
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Speaker 3: is a better predictor of inflationary pressures. Either way, both
9:04
Speaker 3: these things I guess we should sum up by pointing
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Speaker 3: out that both these things are pointing in the same direction.
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Speaker 3: There's more slack now in the economy than a year
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Speaker 3: and two years ago. Certainly, I just don't know if
9:14
Speaker 3: that means the FED needs to goose demand, which they
9:16
Speaker 3: have decided is the right course, or this is a
9:21
Speaker 3: welcome normalization. Inflation has slowed, labor markets kind of getting
9:24
Speaker 3: back to normal. Four point six percent unemployment historically speaking,
9:28
Speaker 3: is awesome. That may sound flip because if you're looking
9:32
Speaker 3: for a job and you're hearing me say that, you say, well,
9:34
Speaker 3: it's not awesome to meet jerk, but it is pretty good.
9:37
Speaker 3: So we have to talk in terms of averages here.
9:39
Speaker 3: We can't address everybody's situation. That's pretty darn good historically speaking.
9:43
Speaker 3: We know GDP growth was awesome in the second and
9:46
Speaker 3: third quarter, if you average those two quarters. We're not
9:49
Speaker 3: talking about GDP right now, but it's lurking in the background.
9:52
Speaker 3: You can't avoid it. We're talking about four percent real
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Speaker 3: GDP growth. I'm dropping the first quarter, which was terrible,
9:58
Speaker 3: but last two quarters have been pretty good.
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Speaker 4: For context for listeners out there.
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Speaker 2: Four percent, I mean two percent is sort of the
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Speaker 2: average that we run on to see that four percent
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Speaker 2: number is pretty tremendous.
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Speaker 3: By the way, unsustainably awesome. I should have added that
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Speaker 3: I'm not like really excited about it because I think
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Speaker 3: it's sustainable. It actually worries me a little bit because
10:16
Speaker 3: it's clearly not sustainable. The economy is not The supply
10:19
Speaker 3: side of the economy is not growing fast enough to
10:21
Speaker 3: support growth the four percent unless unless there's some AI
10:25
Speaker 3: miracle going on that we can't measure more specifically yet
10:31
Speaker 3: and it's just showing up somehow in GDP and productivity
10:36
Speaker 3: too very very possible.
10:37
Speaker 2: Yeah, there certainly is just a lot of interesting indicators
10:40
Speaker 2: out there. Like you mentioned on the labor front, it
10:43
Speaker 2: does seem like there is a bit of slowing here
10:46
Speaker 2: in terms of market reaction. There really isn't a tremendous
10:48
Speaker 2: amount to this data that we see today. I think
10:50
Speaker 2: there will be far more focus on the Bureau of
10:53
Speaker 2: Labor Statistic report that is going to come out on Friday.
10:56
Speaker 2: Right now, you have the Dow Jones off about two
10:58
Speaker 2: hundred points. There are close to half in the s
11:00
Speaker 2: and p. Five hundred is barely budging here, So we're
11:03
Speaker 2: gonna take a quick break here on the Finish Exchange,
11:05
Speaker 2: and when we come back, we're going to be covering
11:07
Speaker 2: AI fatigue leaving investors focusing on companies outside of that
11:13
Speaker 2: magnificent seven. We're going to talk about that and much
11:15
Speaker 2: more right after this break here on the Financial Exchange.
11:18
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12:20
Speaker 2: The SMP five hundred has achieved a cumuative gain of
12:24
Speaker 2: about close to eighty percent over the course of the
12:26
Speaker 2: last three years, and largely a significant portion of that
12:30
Speaker 2: seventy eight percent cumtive game has come off the backs
12:33
Speaker 2: of the quote unquote Magnificent seven, which encompasses a lot
12:37
Speaker 2: of the companies that we talk about quite frequently on
12:39
Speaker 2: the show and that have the largest waiting within the
12:42
Speaker 2: SMP five hundred and Video Microsoft, Amazon, Facebook, Google, et cetera.
12:49
Speaker 2: Those are the companies that have contributed a tremendous amount
12:53
Speaker 2: to the gains that we've seen in the stock market
12:55
Speaker 2: of the last few years. There's a piece here in
12:57
Speaker 2: Bloomberg that is titled AI Fatigue leaves the investors focusing
13:03
Speaker 2: on the S and P five hundreds other four hundred
13:06
Speaker 2: and ninety three stocks away from the Magnificent seven. If
13:09
Speaker 2: you look at the earnings growth that we've seen from
13:13
Speaker 2: the S and P five hundred, the Magnificent seven that
13:16
Speaker 2: I was mentioning before is a huge contributor to the
13:19
Speaker 2: earnings growth that we've seen there. If we were to
13:21
Speaker 2: strip out the earnings growth of those big names, it
13:24
Speaker 2: would be a far worse picture in terms of what
13:27
Speaker 2: we've seen from the other four hundred ninety three companies.
13:30
Speaker 2: To me, this piece goes into this idea that you
13:35
Speaker 2: should focus on the other four ninety three. Perhaps you
13:38
Speaker 2: could focus on the other four ninety three, but to me,
13:41
Speaker 2: this year, and at least the story for this year
13:44
Speaker 2: is still going to be the momentum from those those
13:47
Speaker 2: seven companies.
13:48
Speaker 4: I just don't see how you have a.
13:49
Speaker 2: Year where they perform poorly and the other four ninety
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Speaker 2: three pick us up and we have a good year
13:57
Speaker 2: for the market.
13:58
Speaker 3: The problem with that argument, well, if you strip out
13:59
Speaker 3: the best performers, everything else stinks. The problem with that argument,
14:03
Speaker 3: and journalists make it a lot, it's a an economist
14:07
Speaker 3: would say that's partial I'll use a fancy term. I
14:09
Speaker 3: don't mean to sound high falutine, because I barely understand
14:12
Speaker 3: it myself. That's partial equilibrium. Thinking you can't just take
14:15
Speaker 3: a slice of the economy, change that and then put
14:17
Speaker 3: it back in and then and then resum everything because
14:21
Speaker 3: the other parts would have changed. So suppose there was
14:25
Speaker 3: less investment in AI over the last five years, leading
14:27
Speaker 3: to less fast earnings growth from AI and AI adjacent stocks,
14:32
Speaker 3: where would that investment have gone. Instead, it would have
14:34
Speaker 3: gone into other sects rights there would have been innovations elsewhere,
14:37
Speaker 3: not AI, but innovations elsewhere that would have propelled the
14:41
Speaker 3: earnings of those companies that investment would have so there
14:43
Speaker 3: would have been growth elsewhere. That sentence, and you see
14:46
Speaker 3: that repeated a lot. Take these companies out in the
14:48
Speaker 3: s and p stinks.
14:50
Speaker 4: Now, you can't.
14:51
Speaker 3: You can't just remove the chance of something. It's like
14:54
Speaker 3: these movies about time travel. You change one thing. They
14:58
Speaker 3: finally caught on to the fact if you change one thing,
14:59
Speaker 3: you change everything. So you need an alternate univers just
15:01
Speaker 3: to make everything make sense. And now you've got this
15:03
Speaker 3: genre of multiverses. You can't just change one thing about
15:06
Speaker 3: the economy and then slide it back in and then
15:09
Speaker 3: measure the whole again. Yeah, that's why I don't like
15:12
Speaker 3: I'm sorry, I'm I'm digressing on this point, but that's
15:15
Speaker 3: why I don't like that reasoning. It just occurred to
15:17
Speaker 3: me why that's flawed.
15:18
Speaker 4: No, I don't. I don't particularly you weren't.
15:20
Speaker 3: You weren't espousing it by this no craizing what's in
15:22
Speaker 3: the article.
15:23
Speaker 2: It's I just don't think that's the way to focus
15:27
Speaker 2: on investing. Is this idea that, hey, these these companies
15:31
Speaker 2: have performed significantly well, this idea of making a case
15:34
Speaker 2: for for the other four ninety three, to me, that's
15:37
Speaker 2: that's not really an approach to.
15:39
Speaker 4: You made it.
15:40
Speaker 3: You made the point that if if those tank like
15:42
Speaker 3: I think what you were say, I'm gonna put words
15:44
Speaker 3: you like, make the case to me that everything else
15:45
Speaker 3: is gonna go gangbusters when those tanks. Yeah, like those tanks,
15:48
Speaker 3: we're kind of up a creek.
15:51
Speaker 4: Absolutely.
15:52
Speaker 2: To me, if there's no I would be shocked to
15:56
Speaker 2: see a year where those big seven tank and somehow
16:00
Speaker 2: we come out with positive market performance. I mean the
16:03
Speaker 2: size of them alone, You're talking about close to thirty
16:05
Speaker 2: five percent of the waiting of the s and P
16:07
Speaker 2: five hundred from those big seven right there. So it
16:10
Speaker 2: would be very difficult for the other sixty five percent
16:13
Speaker 2: to counterbalance any negative declines there. I could certainly see
16:18
Speaker 2: a story where the whole five hundred goes down because unemployment,
16:23
Speaker 2: you know, gets out of control. But obviously when you're
16:25
Speaker 2: doing any of these kind of projections and there's a
16:27
Speaker 2: couple pieces that will cover in the sack today, nobody
16:30
Speaker 2: really knows. But again, when you look at the s
16:33
Speaker 2: and P. Five hundred, I'm in agreement with you. You know,
16:35
Speaker 2: it's not something that you can just focus on. Well,
16:38
Speaker 2: if you take out seven, this is the deal. You
16:40
Speaker 2: got to focus on the whole thing, for good or
16:42
Speaker 2: for bad, all of it. Venezuela is going to give
16:46
Speaker 2: the US up to fifty million.
16:47
Speaker 3: Give sorry, sorry to jump in, I'm not going to
16:53
Speaker 3: shoot the messenger. Interesting choice of verb.
16:57
Speaker 2: They're going to provide fifty million barrels of oil to
17:01
Speaker 2: the United States. This is about an approximate value based
17:05
Speaker 2: on the heavy crew that we would be extrava taking from, giving, receiving,
17:10
Speaker 2: whatever verb you want to use them again from Venezuela
17:14
Speaker 2: is a market value of about two billion dollars. Venezuela
17:18
Speaker 2: produces a heavier crude than what is produced here domestically
17:23
Speaker 2: in the United States. That's about as far as I'll
17:26
Speaker 2: go in terms of my knowledge on crude and refinery processes.
17:30
Speaker 2: But it does set up for a situation where to me,
17:34
Speaker 2: and again, energy prices are these one area that is
17:37
Speaker 2: a fool errand to try and project. Also in addition
17:40
Speaker 2: to interest rates and some of the other economic variables
17:43
Speaker 2: out there. But it seems like mark that you're going
17:46
Speaker 2: to have a tremendous amount of bump. And I'm not
17:48
Speaker 2: saying this this incident alone really changes the forecast for
17:52
Speaker 2: twenty twenty six, but it seems like there's going to
17:54
Speaker 2: continue to be a surplus of energy. Whether you look
17:57
Speaker 2: at OPEC and its increasing supply and non opluck as well,
18:01
Speaker 2: it seems like there will be a lot of surplus.
18:04
Speaker 2: So from a strategic standpoint, I just don't understand why
18:08
Speaker 2: this oil is such a huge focus. Don't get me wrong,
18:11
Speaker 2: I understand the importance of it, but it's not like
18:14
Speaker 2: we're talking about the seventies where the US doesn't produce
18:16
Speaker 2: fourteen or FI.
18:19
Speaker 3: Yeah, So the strategic.
18:20
Speaker 2: Standpoint on this maneuver, I don't really understand the focus
18:26
Speaker 2: behind it. One of the things that popped in my
18:29
Speaker 2: head is maybe this is the best way to try
18:31
Speaker 2: and keep inflation down under the control of the political.
18:35
Speaker 3: I don't know, environments, I'll say again, it depends on
18:38
Speaker 3: what happens elsewhere in the economy. Fifty million. Your point
18:41
Speaker 3: is I should be well taken. It's a drop in
18:43
Speaker 3: the bucket relative to yeah, one hundred million barrels of
18:45
Speaker 3: oil the world economy consumes every day. I'm not saying
18:48
Speaker 3: it couldn't move the price. I suppose it could. But
18:50
Speaker 3: what's going to happen? What are other producers going to
18:52
Speaker 3: do if we continue to extract oil from Venezuela. It's
18:58
Speaker 3: Jesus just sounds crazy to say that. I'm thinking about
19:00
Speaker 3: the state the world is in today that countries feel
19:03
Speaker 3: like they can do that, and we're only doing it
19:04
Speaker 3: because other countries have done It doesn't make it right.
19:06
Speaker 3: But anyway, so this is the world we live in now.
19:08
Speaker 3: You want something, if you're strong enough, you just kind
19:10
Speaker 3: of take it. Different than the world I grew up in.
19:12
Speaker 3: But we play the hand where dealt What effect will
19:16
Speaker 3: that have on production? I suppose we decide to do
19:18
Speaker 3: it again in a few months, What effect will that
19:20
Speaker 3: have on production elsewhere?
19:21
Speaker 2: I think fantastic investment. Yeah, certainly a lot to get
19:24
Speaker 2: into there. We're gonna take a quick break here in
19:26
Speaker 2: the financial exchange when we come back, we're gonna have
19:28
Speaker 2: ass Tod, So get all your questions ready for ask
19:32
Speaker 2: Todd and Todd Lutsky eight of eight two zero five
19:34
Speaker 2: two two sixty three as Tod right after this break.
19:40
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
19:47
Speaker 1: on the Financial Exchange Radio Network. Time now for Wall Street.
19:53
Speaker 1: Watch a complete look at what's moving market so far
19:56
Speaker 1: today right here on the Financial Exchange Radio Network.
20:00
Speaker 5: Markets are a little changed in mixed as investors react
20:02
Speaker 5: to jobs data posted this morning, including the ADP Private
20:06
Speaker 5: Pales Report in addition to the Joltz Report for the
20:09
Speaker 5: latest on job openings, The all important December Jobs report
20:13
Speaker 5: will be released on Friday morning. Right now, the Dow
20:17
Speaker 5: is off by over four tenths of a percent or
20:19
Speaker 5: two hundred and nineteen points. SMP five hundred is edging
20:23
Speaker 5: only two points higher, Nasdaq is up by about a
20:26
Speaker 5: third of a percent or a four points higher. Rusted
20:28
Speaker 5: two thousand down by seven tenths of a percent. Ten
20:31
Speaker 5: Your Treasure reeled down two basis points at four point
20:34
Speaker 5: one five five percent. Crew to oiled down about one
20:38
Speaker 5: and a half percent. Trading a fifty six dollars and
20:40
Speaker 5: thirty two cents a barrel. The Financial Tabs reported that
20:45
Speaker 5: Chevron and Quantum Capital are planning to are planning a
20:49
Speaker 5: bid to buy Luke Oil's international assets. If a deal
20:52
Speaker 5: is agreed upon, Chevron and Quantum plan to divvy up
20:55
Speaker 5: the assets between them, valued at twenty two billion dollars
20:59
Speaker 5: by Luke Oil. Chevreun stock is dipping. Meanwhile, Warner Brothers
21:03
Speaker 5: told shareholders to reject Paramount's amended hostile bid for the company,
21:08
Speaker 5: saying its existing deal with Netflix is stronger. In a letter,
21:11
Speaker 5: Warner's board said Paramounts offer quote remains inadequate. Warner stock
21:17
Speaker 5: is up modestly on that news. Elsewhere, shares in Game
21:20
Speaker 5: Stop jumping five percent after the video game retailer unveiled
21:24
Speaker 5: its compensation package for CEO Ryan Cohen that included performance
21:29
Speaker 5: objectives to grow the company to one hundred billion dollars.
21:34
Speaker 5: And Mobile Eye shares are up by about three percent
21:39
Speaker 5: after the self driving systems company said it would buy
21:42
Speaker 5: humanoid robot maker Mentee for nine hundred million dollars. I'm
21:48
Speaker 5: Tucker Silva, and that is a Wall Street watch.
21:52
Speaker 1: This is asked Todd on the Financial Exchange Radio Network.
21:56
Speaker 1: If you have an existing estate plan or in the
21:58
Speaker 1: market for one, Todd, Let's here to answer your questions
22:01
Speaker 1: and help you plan for later life. Ask Todd is
22:04
Speaker 1: presented by Cushing and Dolan, serving Massachusetts and New England
22:07
Speaker 1: for more than thirty five years, helping families with a
22:10
Speaker 1: state and tax planning, medicaid planning, and probate law. Visit
22:14
Speaker 1: Cushingdolan dot com. Now here's Todd Lutsky.
22:19
Speaker 2: As is the case every Wednesday here on the Fantasy Exchange,
22:22
Speaker 2: we are joined by Todd Lutsky from Cushion Dolan. If
22:25
Speaker 2: you have any questions regarding a state planning, gifting, Medicaid protection,
22:30
Speaker 2: give our studio line a call at eight eight eight
22:32
Speaker 2: to zero five two two six three. Again, any of
22:35
Speaker 2: your questions for Todd Lutsky, give our studio line of
22:38
Speaker 2: call at eight eight eight two zero five two to six'. Three,
22:43
Speaker 2: todd thank you so much for joining.
22:44
Speaker 6: Us always a. Pleasure thank.
22:47
Speaker 2: YOU i would Say Happy New, year but my producer
22:49
Speaker 2: here hates that and says that the time has passed
22:52
Speaker 2: to Say Happy New year on, that SO i will
22:54
Speaker 2: not do that to make SURE i don't get beaten
22:56
Speaker 2: up By.
22:57
Speaker 6: Tucker, well, Great i'm not gonna Say Happy New year, either,
23:00
Speaker 6: right two of us didn't Say Happy New, year merving one.
23:02
Speaker 4: Time moving, On.
23:04
Speaker 2: Todd one big subject that comes up often meeting with
23:06
Speaker 2: clients is long term care costs and the planning surrounding.
23:10
Speaker 2: That and for some people it's just too costly to
23:14
Speaker 2: afford a long term care insurance, policy and it can
23:17
Speaker 2: be a situation where they just fall behind the eight
23:20
Speaker 2: ball and they find themselves in a situation where they're
23:23
Speaker 2: just not prepared for the long term care costs that they.
23:26
Speaker 2: Face what are some of the suggestions or tips that
23:29
Speaker 2: you have for folks for those who have not done
23:33
Speaker 2: their planning in terms of long term care, costs because
23:35
Speaker 2: it's a big issue around this, area quite.
23:37
Speaker 6: Expensive, yeah so a couple of. Things if you haven't
23:41
Speaker 6: done any long term care, planning you, know and you're
23:44
Speaker 6: of course not not faced with you, know going into
23:47
Speaker 6: the nursing home anytime, soon then you have, time right
23:53
Speaker 6: to do some advanced planning and to figure out our
23:56
Speaker 6: way to protect some of these. Assets and by the,
23:59
Speaker 6: way not necessarily pooh pooing long term care. Insurance but you're,
24:02
Speaker 6: right you, Know, paul it does. Take it can cost
24:05
Speaker 6: a lot of, money and quite, frankly people that are,
24:08
Speaker 6: like when you get to age, seventy it's kind of.
24:10
Speaker 6: Tough it gets harder and harder to afford. It and,
24:15
Speaker 6: again you never need long term care insurance to be you,
24:18
Speaker 6: know the end all be. All it can just be you,
24:20
Speaker 6: know you, know don't have to be A cadillac. Policy
24:22
Speaker 6: it can be a smaller policy that sort of supplements the.
24:26
Speaker 6: Care but either, way it's it's generally never enough to
24:30
Speaker 6: cover sixteen seventeen thousand dollars a. Month it just. Isn't
24:35
Speaker 6: but so people in fact will, say, well, fine what
24:38
Speaker 6: CAN i? Do, well that's where these Irrevocable medicaid trusts come.
24:41
Speaker 6: In AND i know we spend a lot of time
24:43
Speaker 6: on them over the, years but they truly are you,
24:46
Speaker 6: know they're really the only way THAT i know of
24:49
Speaker 6: to protect assets from the nursing. Home so many people, say,
24:52
Speaker 6: well isn't there like a ton of, Options AND i always, say,
24:54
Speaker 6: no there's. Not like it's not like protect it's not
24:57
Speaker 6: like you, know looking paint where you have tons of it's,
25:01
Speaker 6: really you, know do nothing give your assets away to your,
25:06
Speaker 6: kids which is a horrible idea across the, board or
25:11
Speaker 6: do any irrevocable medicaid. Trust so those are really your
25:14
Speaker 6: three options if you want to protect. It and these
25:17
Speaker 6: trusts are are, really you, know designed in a way
25:22
Speaker 6: to keep you in. Control AND i think that's the
25:24
Speaker 6: most important message THAT i can send to people When
25:29
Speaker 6: i'm talking about irrevocable. Trusts in, FACT i had one
25:31
Speaker 6: recently real life. Story we got hired to do the estate,
25:35
Speaker 6: plan and about two weeks later he called back and,
25:38
Speaker 6: Said i'm just so afraid of the word. Irrevocable and
25:41
Speaker 6: THEN i had to call him back and we talked,
25:43
Speaker 6: again AND i had to explain to him that you're
25:45
Speaker 6: reading the engagement letter and it seems, scary but it
25:49
Speaker 6: just needed. Clarification and by the time we hung, up he's, like, oh,
25:52
Speaker 6: yeah you're, Right i'm really not giving up any control
25:55
Speaker 6: BECAUSE i explained to, him AS i explained to, everybody
25:58
Speaker 6: that you, know you live in your, house you pay your,
26:00
Speaker 6: bills you sell your, house you buy another, house all
26:03
Speaker 6: through the, trust very easily, done no, effort no adverse tax.
26:08
Speaker 6: Consequences you, know you can also have investment accounts in
26:12
Speaker 6: there now Not ira, accounts but investment, accounts you, know, stocks,
26:16
Speaker 6: bonds mutual. Funds you can manage the. Money you can you,
26:20
Speaker 6: know invest the money the same as you always. Did
26:23
Speaker 6: you can live off the, income take it, out enjoy the,
26:25
Speaker 6: income and even pay the taxes on that income at your,
26:30
Speaker 6: rates not at trust. Rates people get concerned all the.
26:34
Speaker 6: Time they hear or they go on the website or
26:36
Speaker 6: internet and they, say you, know my, GOSH i read
26:38
Speaker 6: about your vocable trusts and there's huge income tax problems with. Them,
26:42
Speaker 6: well there can, be but if they're drafted as grant
26:46
Speaker 6: our trust and they're not sure and everything is taxed
26:48
Speaker 6: at your own, rate so you, know just a. Little
26:52
Speaker 6: that's just an overall summary of these irrevocable trusts to
26:55
Speaker 6: let people know that it's really the best, way the
26:58
Speaker 6: only way to actually tech assets and to not really
27:02
Speaker 6: be frightened off by the word.
27:03
Speaker 4: Irrevocable certainly a lot of nuanced to the.
27:06
Speaker 2: Subject if you have any, questions we're here With Todd
27:08
Speaker 2: lutsky From Cushian dolan on the, estate paying realm or
27:11
Speaker 2: regarding irrevocable Trust give our studio line a call at
27:14
Speaker 2: eighty eight to zero five two two sixty three. Again
27:18
Speaker 2: that studio line number for any of your questions For
27:20
Speaker 2: Todd lutsky From Cushian dolan eighty eight two zero five
27:24
Speaker 2: two two sixty. Three we're gonna take a quick break,
27:26
Speaker 2: here but when we come, back we'll have your questions
27:28
Speaker 2: With todd right after this.
27:30
Speaker 1: Break Ask todd With Todd lutsky Every wednesday at ten
27:34
Speaker 1: thirty only here on The Financial Exchange Radio. Network you're
27:40
Speaker 1: listening To Ask todd With Todd lutsky on The Financial
27:44
Speaker 1: Exchange Radio.
27:45
Speaker 2: Network we are back here With Todd lutsky From Cushian.
27:53
Speaker 2: Dolan if you have any questions regarding gifting irrevocable trusts
27:57
Speaker 2: or a state, planning give our studio line a call
27:59
Speaker 2: at eighty eight the two zero five two two six three.
28:02
Speaker 2: Again any of your questions heading into twenty twenty six
28:05
Speaker 2: on a state planning gifting air vocable trust give our
28:08
Speaker 2: studio on a call eight eight eight two zero five
28:11
Speaker 2: two two six. Three we're gonna go to our first, Caller,
28:14
Speaker 2: jim who is in a. Truck, jim you're on With Todd.
28:16
Speaker 4: Lutsky, Hi, JOHN.
28:19
Speaker 7: I did A i did irrevocable trust with you five
28:24
Speaker 7: years ago past the getting just getting desk a look
28:28
Speaker 7: back period and come to a realization that my state
28:34
Speaker 7: is it is apt to want to deal with the
28:36
Speaker 7: rental properties that are contained within the. TRUST i have
28:40
Speaker 7: been And i'm trying to plan my strategy going. Forward
28:46
Speaker 7: balancing ten thirty one exchanges With, uh how to DO
28:51
Speaker 7: i sell the? Properties put it in a B I?
28:54
Speaker 4: Ira?
28:54
Speaker 7: Uh WHAT i just do that whole process of moving.
28:58
Speaker 7: Forward IF i sold the proper pay the. Taxes does
29:02
Speaker 7: that money go into MY? Ira or DO i have
29:05
Speaker 7: to set up a separate? Account how does that? All
29:08
Speaker 7: how does that all?
29:09
Speaker 6: Work, Yeah so stay on the line and keep it
29:12
Speaker 6: open BECAUSE i have a bunch of follow up questions
29:14
Speaker 6: just to make SURE i understand what you're asking SO
29:17
Speaker 6: i can ask another. Question. One you've had the trust
29:20
Speaker 6: for five years and you've had rental property in, it
29:22
Speaker 6: and you've been collecting rent and paying your bills and
29:25
Speaker 6: living off the. Income all that's been fine so. Far?
29:28
Speaker 6: Correct that is? Correct, Okay now you're at a point
29:32
Speaker 6: where you're saying and that's important for listeners to, know
29:35
Speaker 6: by the, way just so they can understand that you, Know,
29:38
Speaker 6: HEY i can have an irrevocable, trust have rental property in,
29:41
Speaker 6: it and live my. Life and it's so important that
29:43
Speaker 6: someone like you sort of you, know you, know justifies
29:47
Speaker 6: and verifies that that that can be. Done now the next, question,
29:50
Speaker 6: oh what IF i want to sell? It absolutely no
29:53
Speaker 6: problem in selling it. Now i'm going to strongly suggest
29:56
Speaker 6: that you reach out to us when you're ready to do,
29:57
Speaker 6: that just because you, know some real estate attorneys don't
30:00
Speaker 6: understand the trust and how to do. It but absolutely
30:04
Speaker 6: you can sell. It out will go the? MONEY i
30:07
Speaker 6: mean out we'll. Go let's say rental property number, one
30:10
Speaker 6: and in will come the. Money make sure that the
30:14
Speaker 6: money gets deposited into a bank account in the name
30:18
Speaker 6: of the trust under the TRUST id, number Which i'm
30:22
Speaker 6: sure you already, have because if you had rental, property
30:24
Speaker 6: we would have gotten you AN id number when we created.
30:27
Speaker 6: It and so now the real estate is gone and
30:31
Speaker 6: the money's. Here now you said a couple of. Things, one, Well, Geez,
30:34
Speaker 6: todd CAN i put the money in MY? Ira, no,
30:37
Speaker 6: right please don't do, that because the money that's in
30:40
Speaker 6: the trust is now just as protected as the house
30:47
Speaker 6: was when it was in the, trust and there is
30:51
Speaker 6: no new five year waiting. Period so don't take the
30:55
Speaker 6: money out and put in THE. Ira that would be
30:58
Speaker 6: a bad idea because, remember, member THE ira is not
31:03
Speaker 6: in your, trust it is outside the. Trust it has
31:05
Speaker 6: to be outside the, trust otherwise there'd be a huge
31:09
Speaker 6: income tax if you were to pull the money out
31:13
Speaker 6: of THE ira and put it into the. Trust, now
31:16
Speaker 6: if you don't like that, approach you mentioned the word
31:20
Speaker 6: ten thirty one. Exchange, well listeners don't know what that,
31:23
Speaker 6: is so let me tell. THEM a ten thirty one
31:26
Speaker 6: exchange is a way for, You, jim or any of
31:30
Speaker 6: you listening to, SAY i want to sell my, property
31:34
Speaker 6: my rental, property which might have a very low basis
31:37
Speaker 6: Because i've been renting. It so let's SAY i bought
31:40
Speaker 6: it a long time, ago and so my cost basis is.
31:44
Speaker 6: Low in addition to, That i've been renting, it so
31:48
Speaker 6: my basis has been reduced even further via depreciation deduction
31:54
Speaker 6: every year THAT i take on my income tax. Return
31:57
Speaker 6: and IF i sell, It i'm going to have a
31:59
Speaker 6: large capital gains. Tax, WELL i don't want to do,
32:02
Speaker 6: that SO i want to defer that capital gain till. Later,
32:08
Speaker 6: well you can defer it by selling it and buying
32:13
Speaker 6: another property within one hundred and eighty. Days you have
32:16
Speaker 6: one hundred and eighty days to buy the replacement property
32:19
Speaker 6: if you're going to do a delayed ten thirty one,
32:22
Speaker 6: exchange and then the replacement property takes on the basis
32:27
Speaker 6: of the property that you, sold so there's no gain
32:30
Speaker 6: recognized and it's still built, in but you're not paying any.
32:35
Speaker 6: Taxes but if you die owning it because you decided
32:40
Speaker 6: never to sell this replacement property that you, bought well
32:44
Speaker 6: then you'll get a step up in basis inside this irrevocable,
32:49
Speaker 6: Trust So, jim this trust is designed as a grand
32:52
Speaker 6: tour trust for income tax, Purposes so not only can
32:57
Speaker 6: you direct the sale and the purchase of another, property
33:03
Speaker 6: since you are treated as the owner for income tax,
33:07
Speaker 6: purposes you are also able to do a ten thirty one.
33:11
Speaker 6: Exchange just make sure the trust sells it and the
33:15
Speaker 6: trust buys the new, property and you will be able
33:19
Speaker 6: to defer the gain and then die owning the replacement,
33:23
Speaker 6: property and everything in the trust will get a new
33:26
Speaker 6: step up in, basis eliminating the built in gains for the,
33:31
Speaker 6: beneficiaries so then they can sell the property and pay
33:35
Speaker 6: no capital gains. Tax and depending on the size of your.
33:37
Speaker 6: Estate there may be no estate taxes when you pay
33:41
Speaker 6: when you die, either so hopefully that gives you some
33:46
Speaker 6: indication of the flexibility and the benefits of doing. This and,
33:50
Speaker 6: yes you can do all of those things with the
33:52
Speaker 6: trust you, have and anybody else who's got an irrevocable,
33:56
Speaker 6: trust at least ones that we've prepared At cushing And
33:58
Speaker 6: dolan can do these things. Well SO i long winded, answer,
34:02
Speaker 6: sorry but there was a lot going on in that.
34:04
Speaker 6: Question hopefully that was. Helpful but reach, out don't sell
34:08
Speaker 6: it on your. Own please contact the office and let's
34:10
Speaker 6: make sure we do it.
34:11
Speaker 1: Right.
34:13
Speaker 6: Folks jim in this case did advance. Planning so kudos To.
34:18
Speaker 6: Jim he's already gotten past the five year waiting. Period
34:21
Speaker 6: you've heard all about that and all the things he can.
34:25
Speaker 6: Do but you know, what there's people who don't do.
34:28
Speaker 6: It and the guide we're giving away this month allows
34:31
Speaker 6: you to figure out how to protect. Assets last. Minute
34:36
Speaker 6: never as, good but better than. Nothing if you're faced
34:39
Speaker 6: with nursing home, care it's called long term care. Planning
34:42
Speaker 6: for the. Procrastinator it talks about the look back period
34:46
Speaker 6: that we discussed. Here it talks about. Annuities how do
34:49
Speaker 6: you use these to protect? Money last, minute it talks
34:53
Speaker 6: about pooled, trusts how to work with a, home a rental,
34:57
Speaker 6: property a vacation. Home they're all tree, differently iras treated
35:02
Speaker 6: differently for married couples and single. People if you're faced
35:07
Speaker 6: with nursing home, care don't just write the. Check so
35:11
Speaker 6: for folks who have done no, planning or folks who
35:14
Speaker 6: have done planning but still have assets outside of this irrevocable.
35:19
Speaker 6: Trust there's something for everyone in this. Guide if you're
35:22
Speaker 6: faced with going in the nursing, home call and get
35:24
Speaker 6: it eight six six eight four eight five six nine
35:29
Speaker 6: nine Or Legal Exchange show dot. Com you can download
35:32
Speaker 6: it there again eight six six eight four eight five
35:36
Speaker 6: six nine nine Or Legal Exchange show dot com.
35:41
Speaker 2: Tud quick question for. You we're running out of time,
35:44
Speaker 2: here but what are the differences for planning for long
35:47
Speaker 2: term care costs for a married couple versus an? Individual
35:50
Speaker 2: what are some of the key takeaways between those two?
35:52
Speaker 6: Differences you mean from a planning perspective or a cost.
35:57
Speaker 2: A planning perspective between a married couple considerations versus a single.
36:01
Speaker 6: Person, yeah and you know, what there's still the same irrevocable.
36:05
Speaker 6: Trust so it's a it's a great question for the
36:07
Speaker 6: amount of time we have, left it's it's it is
36:11
Speaker 6: still going to be an irrevocable. Trust the difference, is you,
36:15
Speaker 6: know one is obviously a single person trust and one
36:17
Speaker 6: is a married couple. Trust and the operational differences are
36:22
Speaker 6: very much the, same but for tax, purposes, uh they're
36:28
Speaker 6: a little. Different not for income tax, purposes but for
36:32
Speaker 6: estate tax. Purposes so for income tax, purposes operational day to,
36:37
Speaker 6: day you, know using investing the, money living on the,
36:40
Speaker 6: income all of that is the. Same paying the income
36:43
Speaker 6: taxes is the. Same but when you're, married the benefit
36:47
Speaker 6: there is the trust is designed to shelter assets for
36:50
Speaker 6: estate taxes as, well so you're able to do both,
36:54
Speaker 6: nursing home planning and estate tax reduction by doubling the
36:58
Speaker 6: exemption to four million dollars rather than just.
37:02
Speaker 2: TWO a lot of great information. There thanks so much
37:04
Speaker 2: for the, Time. Todd we really appreciate. It good luck
37:07
Speaker 2: to your steelers this, weekend AND i hope you have
37:09
Speaker 2: a great rest of the. Week thanks so much for joining, Us.
37:11
Speaker 6: Todd thank you always a.
37:13
Speaker 1: Pleasure this has been Ask todd on the Financial exchange radio.
37:17
Speaker 1: Network Ask todd With Todd lutsky has been presented By
37:20
Speaker 1: cushing And, dolan Serving massachusetts And New england for more
37:22
Speaker 1: than thirty, years helping families with the state and tax,
37:25
Speaker 1: Planning medicaid, planning and probate. Law call eight hundred and
37:28
Speaker 1: three nine three four thousand and one or Visit cushingdolan dot.
37:32
Speaker 1: Com the views expressed in this segment are solely those
37:34
Speaker 1: Of cushing And Dolan Armstrong. Advisory he does not provide
37:36
Speaker 1: any legal or tax. Advice please consult with your legal
37:39
Speaker 1: or tax advisor on such. Matters cushing And armstrong do
37:41
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