Latest / The Financial Exchange Show / Will the Fed act fast enough as potential trouble brews?

Transcript

Will the Fed act fast enough as potential trouble brews? · The Financial Exchange Show

0:00
Speaker 1: The Financial Exchange is produced by Money Matters Radio and
0:03
Speaker 1: is hosted by employees of the Armstrong Advisory Group, a
0:05
Speaker 1: registered investment advisor. All opinions expressed are solely those of
0:08
Speaker 1: the hosts. Do not reflect the opinions of Armstrong Advisory
0:11
Speaker 1: or anyone else. Investments can lose money. This program does
0:14
Speaker 1: not offer any specific financial or investment advice. Please consult
0:17
Speaker 1: your own financial, tax, and estate planning advisors before making
0:20
Speaker 1: any investment decisions. Armstrong Advisory and the advertisers heard on
0:23
Speaker 1: this program do not endorse each other or their services.
0:26
Speaker 1: Armstrong and Money Matters Radio do not compensate each other
0:28
Speaker 1: for referrals and are not affiliated. This is the Financial
0:34
Speaker 1: Exchange with Chuck Zada and Mark fan Daddy, your exclusive
0:39
Speaker 1: look at business and financial news affecting your day, your city,
0:43
Speaker 1: your world. Stay informed and up to date about economic
0:46
Speaker 1: and market trends plus breaking business news every day. The
0:50
Speaker 1: Financial Exchange is a proud partner of the Disabled American
0:54
Speaker 1: Veterans Department of Massachusetts. Help us support our great American
0:58
Speaker 1: heroes by visiting dav fik dot Boston and making a
1:02
Speaker 1: donation today. This is the Financial Exchange with Chuck Zada
1:06
Speaker 1: and Mark Fandetti.
1:11
Speaker 2: Chuck Mark Tucker with you here on a Wednesday, and
1:18
Speaker 2: we're gonna kick things off with this piece from Barons.
1:24
Speaker 3: November.
1:24
Speaker 2: ADP jobs data could complicate the Fed's rate decision. First
1:27
Speaker 2: of all, I really don't think the Fed is paying
1:30
Speaker 2: a ton of attention to the ADP report. I just
1:33
Speaker 2: don't think it's something that is really on their radar.
1:37
Speaker 2: And the reason why is historically what has mattered to
1:40
Speaker 2: the Fed is what is going on with the unemployment rate.
1:44
Speaker 2: And given the fact that historically the ADP report has
1:48
Speaker 2: not had a strong correlation with the unemployment report, the
1:52
Speaker 2: FED has generally said, no, we're not gonna pay you know,
1:54
Speaker 2: a ton of attention, like it's it's not something anyone
1:57
Speaker 2: really pays attention to because it's just historically not been
2:02
Speaker 2: something that's a great month to month's correlation with the
2:06
Speaker 2: unemployment rate.
2:07
Speaker 4: You're looking like, yeah, I found that it does. Maybe
2:10
Speaker 4: a sample I was looking at was wrong. It helps
2:12
Speaker 4: you predict it a little bit.
2:14
Speaker 3: The what kind of correlation you know the AP If
2:16
Speaker 3: you know ADP recently it's been good, Like history, it
2:20
Speaker 3: has not.
2:21
Speaker 4: Whatever fred DA, Federal Reserve Economic ID I don't know why
2:24
Speaker 4: I'm waving at the camera, but anyway, whatever, the Federal
2:26
Speaker 4: Reserve Economic Database goes back to maybe it's only the
2:30
Speaker 4: early twenty twenties, I forget. But if you know it,
2:33
Speaker 4: it helps you do a better forecast of the.
2:35
Speaker 3: The last two years, it's been very lot.
2:37
Speaker 4: Yeah, and that can distort averages, which is what I'm
2:40
Speaker 4: reporting to you.
2:40
Speaker 2: Never mind, So I think here's here's where I get
2:44
Speaker 2: to when when looking at this the.
2:49
Speaker 3: FED.
2:50
Speaker 2: The reason why the Fed's not going to care about
2:51
Speaker 2: the ADP report is because it's one report and they
2:54
Speaker 2: generally haven't paid attention to it.
2:56
Speaker 3: Ever, I see your point. Okay, what does matter right now?
3:01
Speaker 2: Fed's Beage book, which came out last week, says that
3:05
Speaker 2: employment is shrinking. ADP says employment is shrinking. The BLS
3:12
Speaker 2: says the unemployment rate is going up, continuous jobless claims
3:16
Speaker 2: rising five to seven percent year over year. You've got
3:20
Speaker 2: warn notices that are rising. Challenger Grand Christmas is saying
3:23
Speaker 2: that layoffs are going up. It's really hard right now
3:29
Speaker 2: to find something out there that you look at and say, yep,
3:32
Speaker 2: labor markets cranking. And so given that, yeah, absolutely, I
3:38
Speaker 2: don't think the November ADP jobs data could complicate the
3:41
Speaker 2: Fed's rate decision, especially since it came in this morning
3:44
Speaker 2: bad thirty two thousand jobs lost compared to a range
3:47
Speaker 2: of five to fifteen thousand gained expected. And I think
3:52
Speaker 2: that when you look at this, ultimately the outlier that
3:56
Speaker 2: we have right now is that the September jobs, the
4:01
Speaker 2: headline jobs created number came and stronger than anticipated, even
4:04
Speaker 2: as the unemployment rate rose. But basically aside from that,
4:09
Speaker 2: the message that you're getting right now is, yes, companies
4:12
Speaker 2: haven't been laying people off, you know, too quickly this year.
4:16
Speaker 2: There are signs that may be starting to shift, and
4:20
Speaker 2: the overall hiring picture has remained very, very slow. And
4:24
Speaker 2: so as such, net job growth is probably somewhere around zero.
4:29
Speaker 2: It might be plus or minus fifty thousand for a month,
4:33
Speaker 2: but it's probably somewhere flat ish. And assuming that those
4:38
Speaker 2: errors don't trend in any direction, flat is not really
4:42
Speaker 2: a great place for a job market to be.
4:46
Speaker 3: If you will get.
4:47
Speaker 2: Other data that we track, another one that's out there
4:53
Speaker 2: with holding four solid security taxes and FIKA. If you
4:57
Speaker 2: look at the data, we've gone through a deceleration since
5:00
Speaker 2: the middle of the year, where fighter Withholding was growing
5:03
Speaker 2: at a rate of about seven percent in July, it's
5:06
Speaker 2: now declined each of the last four months to be
5:09
Speaker 2: at around a three point two percent annual growth rate.
5:13
Speaker 2: You might say, hey, why is fighta withholding you know
5:16
Speaker 2: growing at three percent despite a flat job market?
5:19
Speaker 3: Is in there a disconnect there? And the answer that
5:20
Speaker 3: I'll say.
5:20
Speaker 2: Is no, because if you are working generally, even if
5:25
Speaker 2: you stay at the same company, you might get a
5:27
Speaker 2: raise of one to three percent, and if you're hopping
5:29
Speaker 2: to a new firm, you might get a paid you know,
5:32
Speaker 2: bump of four to six percent, and so three percent
5:35
Speaker 2: year over year growth, and FIGHTA Withholding, which is actually
5:39
Speaker 2: capturing like what's going into the US treasury from payrolls,
5:43
Speaker 2: is pretty consistent with flat job growth. The place where
5:46
Speaker 2: things get dangerous is if FIGHTA Withholding continues to decline here,
5:50
Speaker 2: because now that's indicative of a labor market that is
5:54
Speaker 2: in decline. But all these factors are pointing towards the
5:57
Speaker 2: same thing, which is the labor market's been weakening for
6:00
Speaker 2: the last three to four years now, since mid twenty two.
6:04
Speaker 2: It's probably starting to reach a critical point where if
6:08
Speaker 2: it doesn't improve in Q one of twenty six.
6:13
Speaker 3: You've got some real.
6:13
Speaker 2: Issues that show up in the economy, and as such,
6:17
Speaker 2: I continue to be in the same place, which is
6:20
Speaker 2: the FED, based on what they've already done, should be
6:24
Speaker 2: cutting in December. But that cut is not likely to matter,
6:28
Speaker 2: because if the economy worsens, you're gonna need another one
6:31
Speaker 2: hundred and fifty two hundred basis points of cuts. Anyways,
6:34
Speaker 2: a policy error is not made at one meeting. It's
6:36
Speaker 2: made by making the wrong choice repeatedly, and so whether
6:41
Speaker 2: the FED does or doesn't cut in December is immaterial.
6:44
Speaker 3: In my opinion, the.
6:46
Speaker 4: FED may not be able to do anything about a
6:48
Speaker 4: softening labor market. It depends on why the labor market
6:50
Speaker 4: is softening.
6:51
Speaker 1: Sure, the FED.
6:52
Speaker 4: You could think of the FED as controlling demand. That's
6:55
Speaker 4: a real oversimplification, but we all know that they control
6:59
Speaker 4: in a literal sense, the money supply. They can print money,
7:02
Speaker 4: they tell the Treasury to print money, they credit it
7:04
Speaker 4: to banks, and banks lend it. That is a very
7:08
Speaker 4: short fairy tale of the mechanism. So they try to
7:12
Speaker 4: stimulate the economy when they think it's getting solved, and
7:15
Speaker 4: vice versa when they think it's running too hot. That
7:17
Speaker 4: suggests there is some happy medium. We don't know what
7:21
Speaker 4: that is. You could call it the nature. You ever
7:23
Speaker 4: took an economics class, you recognize the neutral or natural
7:26
Speaker 4: rate of unemployment. Milton Friedman, among others, came up with
7:29
Speaker 4: the concept, really popularized. It exists. We just don't know
7:32
Speaker 4: what it is. Maybe the right natural rate has gone
7:35
Speaker 4: up where cutting immigration. Sure, labor market changed a lot
7:37
Speaker 4: after COVID. Maybe the natural rate or the non inflationary
7:40
Speaker 4: rate not technically the same things, but I'll use those
7:43
Speaker 4: terms interchangeably. Maybe the non inflationary rate of unemployment and
7:46
Speaker 4: that sound that means just what it says. You go
7:49
Speaker 4: below it pushes inflation up, you stay added or above it.
7:52
Speaker 4: Inflation is the static or falling. That non inflationary rate
7:57
Speaker 4: may have gone up. We don't know. That's the FEDS challenge.
8:01
Speaker 4: Inflation as we know is. I'll give the counter to
8:03
Speaker 4: the argument you made. Inflation is still elevated. Maybe the
8:08
Speaker 4: natural rate is. And growth by all accounts in the
8:12
Speaker 4: data has been foggy lately or just missing. Growth is
8:15
Speaker 4: still on track to hit a trend or potential which
8:20
Speaker 4: is roughly two percent. Maybe FED funds is just right,
8:23
Speaker 4: That's what worries me a bit.
8:25
Speaker 3: I think so couple pieces just on this.
8:28
Speaker 2: If you want to take the view that, hey, the
8:30
Speaker 2: Fed doesn't need to do something, and you're looking for
8:32
Speaker 2: data points in your favor, one that is showing up
8:35
Speaker 2: the last couple of weeks, indeed's Jobs Posting Index is
8:39
Speaker 2: showing a meaningful rise in job openings.
8:42
Speaker 1: Yeah.
8:43
Speaker 2: The counter to this is that it showed a similar
8:46
Speaker 2: bump in late August that turned out to be like
8:49
Speaker 2: a one month bump and then resumed a decline that
8:51
Speaker 2: it's been on since the start of twenty twenty two.
8:54
Speaker 2: So again, I don't think you can say there's a
8:56
Speaker 2: clear change in trend yet because it's been three weeks
8:59
Speaker 2: of inclin reached openings, and three weeks does not a
9:02
Speaker 2: new trend make there. But if you're looking for positive
9:04
Speaker 2: data in the labor market, this is, you know, one
9:07
Speaker 2: of those few data points that you can point to
9:09
Speaker 2: and say, yeah, things are things are better here on
9:13
Speaker 2: the inflation side of things.
9:14
Speaker 4: Can I say one thing about labor though? Yah, I'm
9:16
Speaker 4: not disputing that it's softening. I'm wondering whether the yeah,
9:19
Speaker 4: I know you and I are we're not arguing we
9:20
Speaker 4: just pretend to What I'm wondering is can the FED
9:23
Speaker 4: doing We're pretending?
9:25
Speaker 3: You think we're pretending. I hate you.
9:27
Speaker 2: You think we're pretending. You're Tucker to turn your mic
9:31
Speaker 2: off for the show, and now you're fired after that show.
9:34
Speaker 2: First of all, Jack, now I'm I mean labor market
9:38
Speaker 2: could be uh indisputably softening. I wonder if the FED
9:42
Speaker 2: can do anything. It sounds foolish because we think of
9:44
Speaker 2: the FED as a miracle worker. But never mind the
9:48
Speaker 2: lags with which policy works. You hinted at this interest
9:51
Speaker 2: rate cuts today may not affect the economy for a few,
9:53
Speaker 2: even several quarters. What if we don't have a demand problem.
9:57
Speaker 2: This was the problem throughout the nineteen seventies, So I'm
9:59
Speaker 2: having the nightmares that we're reliving it.
10:01
Speaker 4: The FED kept thinking, right, The FED kept thinking, the
10:04
Speaker 4: natural rate is lower than the actual rate. We can
10:08
Speaker 4: do something about that. We could stimulate demand. What they
10:11
Speaker 4: weren't taking into account was that they misread. They didn't
10:13
Speaker 4: think of the They didn't think of things in the terms.
10:16
Speaker 4: This is a little bit of an anachronism. They didn't
10:17
Speaker 4: think of it in these terms. But the parallels are
10:22
Speaker 4: pretty clear. They just misread the productive potential of the
10:25
Speaker 4: economy over and over again throughout the nineteen seventies, and
10:27
Speaker 4: they misread underlying inflationary pressure over and over again. So
10:31
Speaker 4: we ended up with a decade of choppy growth, still
10:34
Speaker 4: good on average, but choppy and uncomfortably high inflation that
10:38
Speaker 4: it took a massive recession to ring out of the economy. Sorry,
10:41
Speaker 4: go ahead, quick break.
10:42
Speaker 2: When we come back, I want to talk more about
10:43
Speaker 2: that inflation piece after this.
10:46
Speaker 1: This is your home for the most comprehensive coverage of
10:49
Speaker 1: the economy and the trends on Wall Street. Face is
10:53
Speaker 1: the Financial Exchange Radio Network. Miss any of the show.
10:57
Speaker 1: Catch up and your convenience by visiting Financial extantmeshow dot
11:00
Speaker 1: com and clicking the on demand icon, where you'll find
11:03
Speaker 1: all of our interviews in full showers. This is your
11:06
Speaker 1: home for the latest business and financial news in New
11:09
Speaker 1: England and around the country. This is the Financial Exchange
11:13
Speaker 1: Radio Network.
11:16
Speaker 5: This segment of The Financial Exchange is brought to you
11:18
Speaker 5: by the US Virgin Islands Department of Tourism. There's still
11:22
Speaker 5: time to book your holiday vacation to Saint Croix, Saint
11:25
Speaker 5: Thomas or Saint John enjoy one or all three, and
11:29
Speaker 5: if you act fast, you could be on Saint Croix
11:31
Speaker 5: to experience their Crucian Christmas Festival, taking place this December
11:35
Speaker 5: through early January. Discover the magic of this long standing
11:38
Speaker 5: tradition with incredible food, music and entertainment. Or just go
11:42
Speaker 5: soak up the sun, stroll along white sand beaches and
11:45
Speaker 5: feel the rhythm of the heartbeat of the islands. The
11:47
Speaker 5: USVII is America's Caribbean paradise. Plan your winter escape at
11:51
Speaker 5: visit USVII dot com. That's visit USVII dot com.
11:56
Speaker 2: In the last segment, we were talking about the upcoming
11:58
Speaker 2: FED meeting and this uh push pull between you know,
12:02
Speaker 2: inflation and the unemployment rate, and you know the challenge
12:08
Speaker 2: that the FED is facing. And I gotta tell you,
12:13
Speaker 2: the more that I look at what is developing right now,
12:17
Speaker 2: the less concerned I am about a continued inflationary impulse
12:22
Speaker 2: in twenty six. It's not to say that it might
12:24
Speaker 2: not rear its head at some point later, but I'm
12:28
Speaker 2: just unconcerned about it for next year for a couple
12:32
Speaker 2: of reasons.
12:33
Speaker 3: The first is mark we talk of.
12:37
Speaker 2: An awful lot about, you know, the conditions that are
12:39
Speaker 2: necessary for inflation to take hold. And it's something again
12:44
Speaker 2: like no one knows the exact formula because there is
12:47
Speaker 2: no exact formula. It evolves and changes over time, but
12:50
Speaker 2: it's some combination of Hey, high inflation is caused by
12:54
Speaker 2: excess demand, reduced supply, and high inflation expectations. Is that
12:58
Speaker 2: a fair place to start I can go with that.
13:01
Speaker 2: So let's look at those three pieces the one that
13:03
Speaker 2: I am.
13:04
Speaker 4: You said, did you say supply shocks in there? Because
13:06
Speaker 4: in the short term, of course they I would put
13:08
Speaker 4: the supply shock term on there.
13:09
Speaker 3: Yeah, I said, you know, high whatever, Yeah, so whatever.
13:16
Speaker 2: Here's the place that I'm looking here is ultimately when
13:21
Speaker 2: we look at tariff induced inflation.
13:24
Speaker 4: Yeah, that'd be a supply shock.
13:25
Speaker 2: Yet it's very much something where the rate of change matters.
13:32
Speaker 2: If you impose a fifteen percent tariff and all else
13:35
Speaker 2: being equal, nothing else changes once you lap that year
13:38
Speaker 2: of that tariff imposition, that tariff has been absorbed by
13:42
Speaker 2: the inflation during that year, and anything from there is
13:47
Speaker 2: neutral in theory because you're not changing the tariff.
13:52
Speaker 4: Yeah, the problem is that would affect expectations, probably correct,
13:56
Speaker 4: But yeah, so one time change is different. Than a graduation.
13:59
Speaker 2: It doesn't necessary passed through. Like tariffs are something that
14:02
Speaker 2: I really thought again, if you had imposed like the
14:04
Speaker 2: full weight of them initially in April, they could have
14:06
Speaker 2: had a huge impact on the economy. House say, yeah, probably,
14:09
Speaker 2: And as we get to you know, next year, I
14:13
Speaker 2: just don't think that that's going to be a major
14:14
Speaker 2: factor because they're in place and it's going to be
14:17
Speaker 2: what it's going to be, or if the Supreme Court
14:20
Speaker 2: says no, you can't do this, it's going to be
14:21
Speaker 2: even lower.
14:22
Speaker 3: Either way, I don't.
14:23
Speaker 2: See tariffs as being a major issue for inflation in
14:27
Speaker 2: twenty six the way they have been a problem in
14:30
Speaker 2: twenty five. If you will get you know, goods related
14:32
Speaker 2: in place, which is clearly risen. So this brings us
14:35
Speaker 2: over to the services side of things. And I got
14:38
Speaker 2: to tell you, based on what we're seeing in the
14:40
Speaker 2: housing market, shelter disinflation is picking up speed.
14:46
Speaker 3: Rapidly. Uh.
14:47
Speaker 2: You know, prices are falling in the housing market in
14:50
Speaker 2: large portions of the country. Now they are not in
14:53
Speaker 2: the Northeast because of you know, different conditions that exist
14:56
Speaker 2: to begin with, but housing is like to have significant
15:01
Speaker 2: disinflationary trends through twenty twenty six, and as part of
15:07
Speaker 2: a result of home price is falling, I think you
15:09
Speaker 2: are likely to see some struggles in the construction industry,
15:12
Speaker 2: which in turn impacts the demand side as employment weakens further.
15:16
Speaker 3: And so I.
15:18
Speaker 2: Get to a place where goods inflation I don't think
15:20
Speaker 2: is going to be impacted by tariffs in twenty six
15:22
Speaker 2: the same way it was this year. Services inflation. The
15:25
Speaker 2: dominant piece there is housing. I don't think you are
15:29
Speaker 2: going to see any problems on that side based on
15:33
Speaker 2: what we're seeing in the housing market, and I think
15:36
Speaker 2: demand is likely to continue to weaken in the first
15:39
Speaker 2: part of next year, and so I don't see twenty
15:43
Speaker 2: six being a problem on the inflation side, which gets
15:46
Speaker 2: me more towards Hey, if there is a real problem
15:49
Speaker 2: on the labor side, which the data is starting to indicate.
15:52
Speaker 2: To be honest, I'm getting to a point where I
15:55
Speaker 2: might be okay with the FED starting to cut faster than.
15:59
Speaker 4: Yeah, you're kind of begging the question. You've assumed away
16:01
Speaker 4: all the problems, But yeah, if it all works out.
16:04
Speaker 2: Like that, isn't that what the FED does with you know,
16:07
Speaker 2: their modeling and everything, is they say, this is what
16:09
Speaker 2: we think is going to happen, and here's the policy
16:11
Speaker 2: that we prescribe. Like they don't just look at the
16:13
Speaker 2: snapshot of where things are today, they look at where
16:15
Speaker 2: they think things will be in the future, and they say,
16:18
Speaker 2: this is what I think needs to be done. I'm
16:20
Speaker 2: getting to the point where, again, my you know, brain
16:25
Speaker 2: model is not as fancy as the FED models, but
16:27
Speaker 2: I'm getting to a point where it's like, I see
16:30
Speaker 2: the issue on the labor side being more acute in
16:33
Speaker 2: twenty six than the inflation one next year.
16:37
Speaker 4: Yeah, if you're really worried about an economic slow down,
16:40
Speaker 4: then I get and you assume no supply shocks, and
16:44
Speaker 4: you assume that inflation expectations which are elevated Michigan's got
16:49
Speaker 4: it at nearly five percent one year ahead, if you
16:52
Speaker 4: assume that's going to again, I'm just assuming away all
16:54
Speaker 4: the problems here. If you're willing to do that and
16:57
Speaker 4: focus just on the labor market cut away.
17:00
Speaker 3: Yeah, that's where I get to. That's honest. Like I'm
17:05
Speaker 3: common there at this point.
17:06
Speaker 4: But I'm a hawk. You're either a hawky or not.
17:09
Speaker 4: And this is maybe it's a liberal conservative thing.
17:12
Speaker 3: I don't know.
17:13
Speaker 4: You know, I'm fiscally conservative. Maybe that translates into conservative.
17:16
Speaker 4: I'd rather kill inflation. My favorite number would be close
17:19
Speaker 4: to zero. But there are plenty of far more accomplished
17:21
Speaker 4: researchers than I am who are very comfortable with three
17:24
Speaker 4: to five. I could live with that, but in a
17:27
Speaker 4: otherwise quiescent environment, And maybe we're not, and maybe things
17:30
Speaker 4: are fluid. Maybe I should be thinking more dynamically, but
17:33
Speaker 4: I'm I'm aggressive when it comes to inflation. I'd rather
17:37
Speaker 4: squash it. But maybe I'm paranoid after the experience of
17:40
Speaker 4: the nineteen seventies and the experience we just had three
17:43
Speaker 4: years ago when we seriously underestimated the supply demand gap.
17:49
Speaker 2: Look, I totally get that, and who knows, Like if
17:53
Speaker 2: either of us are right, Yeah, I say, this is
17:56
Speaker 2: where I think things are going on the inflation side.
18:00
Speaker 2: It can obviously like I don't have a crystal ball,
18:02
Speaker 2: but this is what I'm seeing right now and kind
18:07
Speaker 2: of where I land. And yes, like I would like
18:12
Speaker 2: to see inflation lower than it is today. I think
18:16
Speaker 2: we're going there quite honestly, because the housing market's going
18:19
Speaker 2: to take us there. That's where I think that we're
18:22
Speaker 2: going is housing is going to drag us there because
18:26
Speaker 2: prices are falling and likely to fall throughout more of
18:31
Speaker 2: the country next year than they have this year.
18:35
Speaker 4: Yeah, that's one part of the economy. It's a big part, obviously.
18:38
Speaker 2: It's it's historically it's been that marginal piece. It's housing
18:42
Speaker 2: leads the economy. And maybe I'm too anchored to that
18:45
Speaker 2: view still because look, for the last five years, housing
18:48
Speaker 2: has not let the economy. Housing has been kind of
18:51
Speaker 2: like dragged like along by everything else. But I guess
18:56
Speaker 2: I'm kind of looking at it and I see where
18:57
Speaker 2: home prices are going, and I kind of say, look,
19:00
Speaker 2: I've seen that story before. And usually once you start
19:05
Speaker 2: seeing year over year negative home prices nationally, which we'll
19:10
Speaker 2: get to in Q one or Q two based on
19:12
Speaker 2: listing prices and where things are going on that front,
19:15
Speaker 2: we'll get there in Q one or Q two. That's
19:18
Speaker 2: pretty tough for the economy. And that's where I think
19:21
Speaker 2: we are going, is negative national home prices.
19:23
Speaker 3: That's fair.
19:24
Speaker 2: Let's take a quick break. When we return Wall Street
19:27
Speaker 2: Watch and Todd Lensky joins us. Ask Todd, get your
19:30
Speaker 2: questions ready.
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 networ.
20:00
Speaker 5: Markets are mixed as Wall Street reacts to the ADP
20:03
Speaker 5: Private employment report for November posted this morning, which fell
20:07
Speaker 5: thirty two thousand, worse than expectations of an increase of
20:10
Speaker 5: ten thousand. Right now, the Dow is up four tenths
20:13
Speaker 5: of a percent, SMP five hundred is edging a tenth
20:16
Speaker 5: of a percent higher, Nasdaq is dipping by merely eleven points,
20:20
Speaker 5: Russell two thousand is up over eight tenths of a percent.
20:24
Speaker 5: Ten You're treasurreeled down one basis point at four point
20:26
Speaker 5: zero five excuse four point zero seven to five percent,
20:32
Speaker 5: and crude oil up about one percent higher, trading just
20:35
Speaker 5: above fifty nine dollars a barrel. Macy's posted its highest
20:38
Speaker 5: quarterly sales in more than three years, as the department
20:41
Speaker 5: store chains turnaround strategy showed signs of momentum. Furthermore, Macy's
20:46
Speaker 5: raised its full year sales in earnings outlook for second
20:49
Speaker 5: consecutive quarter. However, its outlook anticipates challenges in the holiday quarter,
20:54
Speaker 5: including selective spending by consumers and higher tariffs. Macy stock
20:58
Speaker 5: is edging higher mean, while shares an American Eagle surging
21:02
Speaker 5: fourteen percent after the retailer beat third quarter earning z
21:05
Speaker 5: and revenue forecast and also reads its same store sales
21:08
Speaker 5: guidance as it is seeing a strong start to the
21:12
Speaker 5: shopping season. Holiday shopping season, that is elsewhere. Delta expects
21:16
Speaker 5: to take a two hundred million dollar profit hit in
21:19
Speaker 5: the final quarter after the carrier was forced to slash
21:22
Speaker 5: flights due to the recent record government shutdown. Delta stock
21:26
Speaker 5: is rising two percent. Chip maker Marvel Technology agreed to
21:30
Speaker 5: buy Celestial Ai and a three point two five billion
21:33
Speaker 5: dollar deal. Marvel also posted robust quarterly results in forecasts,
21:37
Speaker 5: setting shares jumping nearly seven percent higher. In cybersecurity company
21:42
Speaker 5: CrowdStrike posted a bigger quarterly loss then a year ago
21:46
Speaker 5: and narrowed its annual sales growth forecast. CrowdStrike shares are
21:50
Speaker 5: down by about two percent. I'm Tucker Silva and that
21:54
Speaker 5: is Wall Street Watch.
21:56
Speaker 1: This is asked Todd on the Financial Exchange Radio net.
22:00
Speaker 1: If you have an existing estate plan or in the
22:02
Speaker 1: market for one. Todd Lutsky is here to answer your
22:05
Speaker 1: questions and help you plan for a later life. Ask
22:07
Speaker 1: Todd is presented by Cushing and Dolan, serving Massachusetts and
22:11
Speaker 1: New England for more than thirty five years, helping families
22:14
Speaker 1: with a state and tax planning, medicaid planning, and probate law.
22:17
Speaker 1: Visit Cushingdolan dot com. Now here's Todd Lutsky.
22:24
Speaker 2: As promised, we are now joined by the one and
22:29
Speaker 2: only Todd Lutsky from the law firm of Cushing and Dolan.
22:35
Speaker 2: Segment is called Ask Todd Bicutt because it is your
22:38
Speaker 2: chance to ask Todd your estate planning questions. And we've
22:45
Speaker 2: got phone lines open at eight eight eight to zero
22:48
Speaker 2: five two two six three. Again that number is eight
22:52
Speaker 2: eight eight two zero five two two sixty three. We
22:55
Speaker 2: usually get through two to three questions, so make sure
22:57
Speaker 2: you get calling early and often so you can speak to Todd.
23:02
Speaker 3: Todd. How you doing today? I am doing great and
23:04
Speaker 3: you I'm doing pretty well. I just finished writing a
23:07
Speaker 3: book on penguins.
23:08
Speaker 6: You like penguins.
23:09
Speaker 3: It would have been easier if I wrote it on paper.
23:11
Speaker 2: Yeah, that's true, but you know, we'll do what we
23:14
Speaker 2: can Todd want to talk to you a little bit
23:16
Speaker 2: about is state taxes when it comes to.
23:22
Speaker 3: Trusts, how can they help.
23:24
Speaker 2: Manage estate tax payments or how much is owed on
23:28
Speaker 2: a state taxes both at the federal and state level.
23:32
Speaker 6: So the rule is that if you leave every and
23:37
Speaker 6: this is really the trust by the way, from an
23:39
Speaker 6: estate planning standpoint, in taxes, you know it's they only
23:44
Speaker 6: work to double your exemption if you're married. Right, If
23:47
Speaker 6: you're single, you we all have our own exemption and
23:51
Speaker 6: the goal is to use our exemption either before we
23:56
Speaker 6: die by gifting if that's appropriate for you, or when
24:00
Speaker 6: you die through sheltering in trusts. If you are single,
24:06
Speaker 6: you only have one exemption, so you can't double it
24:09
Speaker 6: as a single person.
24:10
Speaker 3: Just to make that clear, So, as.
24:13
Speaker 6: A married couple, when one spouse dies, if you've got
24:17
Speaker 6: the trust in place, right, let's start with. Not having
24:20
Speaker 6: the trust in place might be easier. If you don't
24:23
Speaker 6: have the trust in place, all the assets will simply
24:26
Speaker 6: just pass to the survivor under something called the marital deduction.
24:31
Speaker 6: It's an unlimited marital deduction. What that means is that
24:36
Speaker 6: you can leave as much as you want between spouses,
24:40
Speaker 6: and there's no tax federal or state death tax, which,
24:46
Speaker 6: of course, if the government's giving us this thing, it
24:48
Speaker 6: can't be good for us, right, It's generally good for them,
24:51
Speaker 6: so we need to figure out how to use it.
24:52
Speaker 6: It's good for them because now the survivor has all
24:57
Speaker 6: the assets and has success xuly pushed the surviving spouse's
25:03
Speaker 6: estate into as high a possible bracket as it could be,
25:06
Speaker 6: hoping that when the survivor dies, that the value of
25:10
Speaker 6: the survivor's estate exceeds the exemption. We would hope both
25:15
Speaker 6: federally and state. Now, sometimes it might not exceed the
25:18
Speaker 6: federal but it would exceed the state. Remember, the state
25:21
Speaker 6: exemption is only two million, and the federal exemption is
25:25
Speaker 6: going to be fifteen million. Come January one. It's thirteen
25:29
Speaker 6: point nine to nine million today. When I tell you
25:33
Speaker 6: what these exemptions are, they are the amount of assets
25:35
Speaker 6: that you can leave to somebody other than a spouse
25:39
Speaker 6: and not pay tax. Go over that and you pay tax. Okay,
25:46
Speaker 6: that's a little bit about the exemptions. If you're married
25:49
Speaker 6: and you have a trust, now you put assets in
25:53
Speaker 6: the trust, even if it's a joint trust like we're
25:55
Speaker 6: talking about last month. You put assets in the trust
25:58
Speaker 6: on the first death, you allocate assets to a remainder
26:03
Speaker 6: share and a marital share, and these buckets are designed
26:06
Speaker 6: to hold the assets for the surviving spouse, but subjecting
26:11
Speaker 6: them to tax on the first death in a manner
26:14
Speaker 6: that will never result in tax, never result in an
26:17
Speaker 6: amount more than either the federal or the state exemption. Therefore,
26:21
Speaker 6: no tax is due on the first death, and then
26:24
Speaker 6: on the second death. The assets are held in this
26:27
Speaker 6: trust for the survivor's benefit, but they don't own them. Therefore,
26:32
Speaker 6: when the survivor dies, they are not taxed in the
26:35
Speaker 6: survivor's of state again federal or state based on the
26:38
Speaker 6: remainder share or the marital share numbers. So that you've
26:42
Speaker 6: claimed and sheltered those assets from future taxation. And that's
26:46
Speaker 6: how you use the estate tax exemptions.
26:49
Speaker 2: Talk with Todd Lutsky from Cushingen Dolan. Still have room
26:52
Speaker 2: on the phone lines at eight eight eight two zero
26:55
Speaker 2: five two two six y three. That is the number
26:58
Speaker 2: to call to ask Todd your state planning questions live
27:02
Speaker 2: on air right now. Eight eight eight to zero five
27:07
Speaker 2: two two sixty three is the number. We're gonna take
27:10
Speaker 2: a quick break here, but when we return, we are
27:14
Speaker 2: going to get right to your questions with Todd. That
27:16
Speaker 2: number is eight eight eight to zero five two two
27:20
Speaker 2: six three. Again it is eight eight eight two zero
27:24
Speaker 2: five two two sixty three. Quick break, Then your questions
27:27
Speaker 2: with Todd.
27:29
Speaker 1: Ask Todd with Todd Lutsky every Wednesday at ten thirty
27:33
Speaker 1: only here on the Financial Exchange Radio Network. You're listening
27:38
Speaker 1: to Ask Todd with Todd Lutsky on the Financial Exchange
27:42
Speaker 1: Radio Network.
27:54
Speaker 2: Talk with Todd Lutsky from the law firm of Kushigan Nolan.
27:57
Speaker 2: We got room on the phone lines at eight eight
27:59
Speaker 2: eight two zero five two two sixty three for your
28:04
Speaker 2: estate planning questions. It's your chance to ask them to
28:06
Speaker 2: Todd again. That number is eight eight eight to zero
28:10
Speaker 2: five two two sixty three.
28:12
Speaker 3: Todd.
28:12
Speaker 2: Let's say that you've had legal work done. How do
28:15
Speaker 2: you know if the work that you've had done, the
28:17
Speaker 2: trust that you've had produced, have the necessary components to
28:22
Speaker 2: manage state and federal estate taxes.
28:25
Speaker 6: So you know, you always hope that your trusts are
28:28
Speaker 6: drafted right. You know, I get it that certain lawyers
28:32
Speaker 6: maybe shouldn't be doing a state tax planning and do
28:35
Speaker 6: it anyway, and maybe they're not right. So I've heard
28:37
Speaker 6: these stories, so you're right to ask the question. I
28:41
Speaker 6: think the way to do it would be when you
28:43
Speaker 6: when you look at your trust, there's going to be
28:46
Speaker 6: a paragraph that says what happens during the donors life
28:51
Speaker 6: or something to that effect. Let's say during the donors' life,
28:55
Speaker 6: and then read it and it'll show you what you
28:58
Speaker 6: can do. So let's assume the trust is revocable for
29:00
Speaker 6: the moment. It'll show you what you can do and
29:03
Speaker 6: what you can't do. Then look and this is whether
29:07
Speaker 6: it's irrevocable or revocable, so either trust. Then look a
29:13
Speaker 6: little further down, and it's usually in the first couple
29:15
Speaker 6: of pages, so you're not digging deep into the document.
29:20
Speaker 1: You know.
29:20
Speaker 6: Look a little further down and you're gonna find a
29:23
Speaker 6: paragraph that says, upon the death of the donor, or
29:29
Speaker 6: if it's a joint trust, upon the death of the
29:33
Speaker 6: you know, first donor to die, there will be a
29:38
Speaker 6: marital share and a remainder share. Look right after that,
29:42
Speaker 6: it'll say it breaks down into these buckets. If it
29:45
Speaker 6: has these two buckets, or or a marital share, a
29:48
Speaker 6: special marital share and a general marital share. If it
29:52
Speaker 6: has these three buckets broken down, without trying to understand
29:56
Speaker 6: the formula, which I don't want you to try to understand,
30:00
Speaker 6: just know that likely with those buckets there, the correct
30:04
Speaker 6: formula will be in there to take care of the
30:07
Speaker 6: estate tax. That's the buckets you're looking for in order
30:10
Speaker 6: to do this. But you know what, folks, that's a
30:13
Speaker 6: great question, because the guide we're giving away this month
30:17
Speaker 6: is balancing asset protection and avoiding estate taxes. It talks
30:21
Speaker 6: about portability, the pros and cons of electing portability, which
30:25
Speaker 6: is exactly the exemptions dealing with the unused exemption of
30:30
Speaker 6: this first spouse to die, which is what we talked
30:32
Speaker 6: about earlier when Chuck asked a question, and it also
30:36
Speaker 6: explains exactly the way to calculate your estate tax. It
30:40
Speaker 6: talks about a revocable trust and all three of these buckets,
30:44
Speaker 6: how they're funded, how they're designed, and you could put
30:47
Speaker 6: your own numbers in and see what tax liability you
30:50
Speaker 6: would have. It also then breaks down into a smaller
30:53
Speaker 6: section dealing with irrevocable trusts and how the marital shares
30:57
Speaker 6: and remainder shares work in those trusts to shelter estate
31:02
Speaker 6: taxes and at the same time protect it from the
31:05
Speaker 6: nursing home. So I think you'll get your answers little
31:07
Speaker 6: something for everyone in this guide. Folks call and get it.
31:10
Speaker 6: It's brand new for the month eight six six eight
31:13
Speaker 6: four eight five six nine nine or Legal Exchange show
31:17
Speaker 6: dot com. You can download it right there again eight
31:20
Speaker 6: six six eight four eight five six nine nine or
31:24
Speaker 6: Legal Exchange Show dot com.
31:26
Speaker 2: Todd got a caller on the line for you. Let's
31:29
Speaker 2: go to George in Wuburn. George, what's your question for
31:32
Speaker 2: Tom Lutsky?
31:34
Speaker 7: Hi question on gifting. My wife and I have three
31:38
Speaker 7: adult children, and I was wondering we can give nineteen
31:42
Speaker 7: thousand dollars each thirty eight thousand dollars to each kid annually.
31:47
Speaker 7: I believe if that's not taxed, is that a better strategy?
31:52
Speaker 7: Then at some point, you know it would be in
31:54
Speaker 7: their inheritance to do an annual thirty eight thousand gift
31:59
Speaker 7: to well.
32:02
Speaker 3: It kind of a function.
32:04
Speaker 6: It's great question because gifting requires a little bit more
32:07
Speaker 6: of an analysis. So let me just ask you a
32:09
Speaker 6: question in terms of your overall estate, real estate money,
32:13
Speaker 6: IRA's investments, life insurance death benefit. Give me a round number.
32:18
Speaker 6: What do you think you're worth?
32:21
Speaker 7: Four millionaires?
32:22
Speaker 6: Okay, so if you're right at four million, and you're
32:25
Speaker 6: a married couple with proper estate planning, we should be
32:29
Speaker 6: able to completely eliminate your Massachusetts estate tax. Remember it's
32:36
Speaker 6: a two million dollar exemption each. I can't say for
32:40
Speaker 6: sure because I don't know exactly the type of assets,
32:42
Speaker 6: like how much are iras and how much are not
32:44
Speaker 6: iras and things like that, but we're pretty close to
32:48
Speaker 6: being able to eliminate your your mass estate tax even
32:53
Speaker 6: without making the gift. Okay, even without making the gift.
32:57
Speaker 6: Now that's the state analysis. The federal analysis is the
33:03
Speaker 6: exemption is thirteen point nine million each, So obviously you're
33:08
Speaker 6: way below that number. So the first thing we would
33:12
Speaker 6: say is there's no tax reason for me to make
33:17
Speaker 6: a gift to save federal estate taxes because I'm way
33:20
Speaker 6: under it. So that forty percent not an issue Massachusetts.
33:24
Speaker 6: We turn our attention back to that and saying, well,
33:26
Speaker 6: if we go over the four million, let's say we're
33:29
Speaker 6: at four point five million, well the tax will occur
33:34
Speaker 6: on the amount over the exemption, So yeah, we could
33:38
Speaker 6: have some tax there. The next question would be what's
33:41
Speaker 6: the rate. Well, yeah, it's about ten eleven percent on
33:45
Speaker 6: the amount over the exemption. Okay, well, you know, if
33:49
Speaker 6: it's five hundred thousand, it's you know, fifty grand I
33:51
Speaker 6: mean yeah, I mean it's taxes.
33:53
Speaker 3: I don't want to pay it. I get it, But
33:56
Speaker 3: is it worth it? Right? Is it worth it? Now?
34:00
Speaker 6: For the nineteen thousand dollars apiece? I assume you're giving away.
34:04
Speaker 6: Would it be cash you're thinking about giving?
34:06
Speaker 5: Yeah?
34:07
Speaker 6: Okay, So then if it's cash you're thinking about giving,
34:10
Speaker 6: you're giving it and it's not going to cause a
34:12
Speaker 6: problem at all. Okay. Why it's not going to cause
34:15
Speaker 6: a problem is because cash is cash, and there's no
34:18
Speaker 6: built in gain in the cash, cause you have to
34:21
Speaker 6: think about capital gains tax when you make gifts, and
34:25
Speaker 6: gift tax okay, so, and state tax. So since you're
34:30
Speaker 6: you know, at that realm, if you're giving away the
34:32
Speaker 6: cash and it makes you feel good again, I get it,
34:35
Speaker 6: giving away stuff while I'm alive, letting my kids enjoy it,
34:38
Speaker 6: letting them see it, and I see them enjoying it
34:41
Speaker 6: while I'm alive. There's a benefit to that. I like it,
34:44
Speaker 6: And we can make that gift and for the nineteen
34:46
Speaker 6: thousand per year per person that you mentioned. As long
34:49
Speaker 6: as it's cash, there's no problem. There's no filing a
34:54
Speaker 6: gift tax return, there's no reporting anything, and there's no
34:59
Speaker 6: paying any tax. Write them a check and go about
35:01
Speaker 6: your business and that can work. But again, if you're
35:05
Speaker 6: doing it because it feels good, that's fine, but it
35:08
Speaker 6: doesn't need to be done. So I'm just going to
35:10
Speaker 6: expand the question a little bit for everyone else. You know, folks,
35:14
Speaker 6: if if I was at five million dollars in an
35:18
Speaker 6: estate and I wanted to bring my estate down to
35:21
Speaker 6: four million so that I save the mass tax, it's okay.
35:25
Speaker 6: You can do that by making a gift, but you
35:28
Speaker 6: have to compare what it is you're giving. Like here,
35:31
Speaker 6: George's doing a great deal. Giving us away cash is
35:34
Speaker 6: no problem. But what if I had a million dollar
35:36
Speaker 6: vacation home that I wanted to get out of my
35:38
Speaker 6: estate that's worth five million, and I want to bring
35:41
Speaker 6: it down to four million, so I give away this
35:43
Speaker 6: one million dollar a piece of property, and well, Todd,
35:46
Speaker 6: won't that work. I'll be now at four million and
35:48
Speaker 6: I'll have no estate tax. Yeah, I think ultimately with
35:52
Speaker 6: the new rules, it will work. Right, that will reduce
35:56
Speaker 6: your estate. And let's say we save the estate. How
36:00
Speaker 6: much would the estate tax be and MASS on a
36:02
Speaker 6: five million dollar estate, let's call it about one hundred thousand.
36:07
Speaker 3: Right, But what if this vacation.
36:09
Speaker 6: Home that I'm giving away because that's ten percent of
36:12
Speaker 6: the amount over has a built in gain. Maybe I
36:15
Speaker 6: bought it for two fifty it's worth a million. I
36:16
Speaker 6: got seven hundred and fifty thousand of built in gain.
36:20
Speaker 6: Well if I give that away, yeah, I saved the
36:24
Speaker 6: one hundred thousand in mass estate tax. Sounds great, But
36:27
Speaker 6: my kids now have a piece of property with a
36:30
Speaker 6: built in gain of seven point fifty. The tax on
36:33
Speaker 6: that is somewhere around two fifty two hundred and fifty
36:39
Speaker 6: thousand dollars of tax because it's built in gain on
36:41
Speaker 6: the seven to fifty. Instead, I might tell that person
36:46
Speaker 6: keep it. I'm happier dying owning it, giving mass one
36:50
Speaker 6: hundred thousand dollars because then when my family inherits it,
36:54
Speaker 6: they get a brand new basis equal to fair market value.
36:57
Speaker 6: And I saved the two hundred and fifty thousand in
36:59
Speaker 6: capital gains. So lots to think about when you give folks,
37:03
Speaker 6: what you're giving and how to gift very important.
37:06
Speaker 3: Mister Wutski, thank you so much for joining us today.
37:09
Speaker 6: Always a pleasure. Thank you.
37:11
Speaker 1: This has been Asked Odd on the Financial Exchange Radio network.
37:15
Speaker 1: Ask Todd with Todd Lutsky has been presented by Cushing
37:17
Speaker 1: and Dolan, serving Massachusetts and New England for more than
37:20
Speaker 1: thirty years, helping families with the state and tax planning,
37:23
Speaker 1: Medicaid planning, and probate law. Call eight hundred three nine
37:26
Speaker 1: three four thousand and one or visit Cushingdolan dot com.
37:30
Speaker 1: The views expressed in this segment are solely those of
37:32
Speaker 1: Cushing and Dolan Armstrong Advisor. He does not provide any
37:34
Speaker 1: legal or tax advice. Please consult with your legal or
37:36
Speaker 1: tax advisor on such matters. Cushing and Armstrong do not
37:39
Speaker 1: endorse each other and are not affiliated.
37:41
Speaker 2: Still more to come as we head towards the second
37:44
Speaker 2: hour of the show, be talking a little bit about
37:47
Speaker 2: holiday shopping, including Macy's latest earnings.
37:50
Speaker 3: Also going to be.
37:51
Speaker 2: Talking more about the current state of artificial intelligence, and
37:56
Speaker 2: then big chatter, that big talk that we need to
37:59
Speaker 2: have about how housing. Heading into twenty twenty six because
38:05
Speaker 2: the trends are unmistakable in terms of what we are
38:09
Speaker 2: seeing there, and we need to talk about, you know,
38:12
Speaker 2: where things are probably going for housing next year. Quick
38:16
Speaker 2: break all that and more coming up an hour two