Latest / The Financial Exchange Show / AI Is Breaking Software Stocks—And Why That Matters for the Entire Market

Transcript

AI Is Breaking Software Stocks—And Why That Matters for the Entire Market · 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
0:09
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 Paul Lane, your exclusive look
0:39
Speaker 1: at business and financial news affecting your day, your city,
0:42
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
0:53
Speaker 1: Veterans Department of Massachusetts. Help us support our great American
0:57
Speaker 1: heroes by visiting DAV five K Boston and making a
1:01
Speaker 1: donation today. This is the Financial Exchange with Chuck Zada
1:06
Speaker 1: and Paul Lane.
1:09
Speaker 2: Chuck, Paul, and Tucker with you here as we continue
1:12
Speaker 2: through a busy week of earnings and data, though some
1:17
Speaker 2: of that data is delayed because of the very short
1:21
Speaker 2: government shutdown that lasted what about two and a half days,
1:24
Speaker 2: maybe three days. But in any case, we've got plenty
1:29
Speaker 2: to talk about today because there is a whole lot
1:31
Speaker 2: of movement in markets. I know that yesterday the S
1:35
Speaker 2: and P at one point was down about one and
1:38
Speaker 2: a half percent. It closed down a little bit less
1:40
Speaker 2: than one percent. I think maybe about zero point eight
1:42
Speaker 2: five percent down yesterday, which is not like it's not
1:46
Speaker 2: a noteworthy day in and of itself. But what is noteworthy,
1:50
Speaker 2: in my opinion, is there is an absolutely monster amount
1:55
Speaker 2: of volatility happening in single stock names right now, and
2:01
Speaker 2: it's basically to the downside. It's concentrated in two areas, predominantly.
2:07
Speaker 2: The first is the software space of the tech sector.
2:12
Speaker 3: A little bit of spillover into.
2:14
Speaker 2: Semiconductors today, but software has just been getting bludgeoned, and
2:17
Speaker 2: we'll talk about that. The other place that you saw
2:19
Speaker 2: it yesterday was in financials. Not so much the big banks,
2:23
Speaker 2: they were fine ish, but these asset managers that are
2:27
Speaker 2: focused on the private credit space, think Blackstone, KKR, Blue Owl,
2:35
Speaker 2: those types of names getting absolutely beaten up yesterday. And
2:40
Speaker 2: the tie at the center of all of this is
2:43
Speaker 2: what's happening in the software space with really, I think
2:48
Speaker 2: just concerns about whether generative artificial intelligence is going to
2:55
Speaker 2: eat these businesses alive is the best way that I
2:58
Speaker 2: can frame it. So let's look at just a couple
3:01
Speaker 2: of names in that space and discuss what this means
3:06
Speaker 2: and why it might impact them. So let's take a
3:11
Speaker 2: look at into It. Just as an example. Into It
3:15
Speaker 2: is best known for their TurboTax tax prep software.
3:20
Speaker 3: They have some other.
3:21
Speaker 2: Stuff as well that they try to get into, but
3:23
Speaker 2: Turbotaxes is the workhorse of their business. And if you
3:28
Speaker 2: you know, go and use TurboTax in any particular year,
3:33
Speaker 2: it costs you anywhere from I think they have a
3:35
Speaker 2: free version if you have like a very simple return
3:38
Speaker 2: with just like a W two and standard deduction. But otherwise,
3:42
Speaker 2: I think it's generally at this point somewhere between like
3:45
Speaker 2: sixty bucks a year on the low end up to
3:48
Speaker 2: you know, hundreds. You can even get into the low
3:49
Speaker 2: thousands if you're filing returns across multiple states, since each
3:53
Speaker 2: state return is its own fee. But let's say the
3:57
Speaker 2: average TurboTax person probably spends one hundred fifty to two
4:00
Speaker 2: hundred bucks a year. The threat to TurboTax is this
4:06
Speaker 2: from generative AI is. There are two ways that you
4:10
Speaker 2: can look at. The first is that if you need
4:13
Speaker 2: to file a tax return in any given year, you
4:16
Speaker 2: can go into a generative AI platform, take your pick,
4:21
Speaker 2: Open AI, Claude, Gemini, whatever you preferred method is, and say, hey,
4:27
Speaker 2: make me a piece of software for tax return filing
4:32
Speaker 2: for twenty twenty six. Here are here's the irs code
4:35
Speaker 2: for the year, and please make sure that the forms
4:37
Speaker 2: are properly built and it can go and do that,
4:41
Speaker 2: and you don't have to pay anything to TurboTax in
4:44
Speaker 2: order to do it. The other threat is this is
4:49
Speaker 2: that instead of into it doing this, let's say that
4:52
Speaker 2: you know, company XYZ like super tax People is founded
4:58
Speaker 2: and they say, look, we're gonna build a piece of
5:01
Speaker 2: tax software that we can build really cheaply using artificial
5:06
Speaker 2: intelligence code generators to build, and then instead of having
5:10
Speaker 2: to charge you two hundred dollars like TurboTax does, hey,
5:13
Speaker 2: you know what, because our overhead is so low because
5:17
Speaker 2: we don't have eight thousand software engineers. Instead of charging
5:22
Speaker 2: you two hundred bucks, we can do it for fifty
5:25
Speaker 2: dollars and it'll be a whole lot cheaper. And we
5:29
Speaker 2: can still make money at fifty dollars. By the way,
5:31
Speaker 2: and the problem for into It is very simple. They
5:34
Speaker 2: have their operating margins are twenty six percent. If someone
5:38
Speaker 2: can undercut them by seventy five percent, they don't have
5:41
Speaker 2: a business.
5:43
Speaker 3: Now.
5:44
Speaker 2: The counterpoint to this is, hey, into It, over a
5:47
Speaker 2: long period of time has built up a level of trust.
5:51
Speaker 2: Whereas much as you might despise the fact that you
5:53
Speaker 2: have to pay a couple hundred bucks to file your taxes,
5:56
Speaker 2: you generally trust that the platform is secure yep, that
5:59
Speaker 2: it does what it's a post to, that your money
6:00
Speaker 2: actually goes to the irs or to the state, you know,
6:03
Speaker 2: revenue department. And so there's some trust that's built up.
6:07
Speaker 2: But remember this all honey only needs to happen on
6:09
Speaker 2: the margin. If twenty percent of Into It TurboTax users say, hey,
6:14
Speaker 2: peace out, We're gonna go with you know, Bill's cheap
6:17
Speaker 2: tax company that was built USINGAI dot com Okay, like
6:21
Speaker 2: that could be enough to really impact into its business still.
6:25
Speaker 2: And so this is why software companies all types right
6:29
Speaker 2: now are basically basically being you know, judged as, hey,
6:35
Speaker 2: you've got a real problem because of some of these
6:36
Speaker 2: new coding tools that we've seen rolled out in the
6:39
Speaker 2: last couple months.
6:40
Speaker 3: Yeah, the question is.
6:41
Speaker 4: Really how durable is your software business? And all different
6:45
Speaker 4: businesses out there have different advantages to them, and so
6:48
Speaker 4: into It is a good example. Legal Zoom is another
6:51
Speaker 4: one that's been beaten up quite a bit that helps
6:53
Speaker 4: put together legal tools, research materials and goes through different databases.
6:59
Speaker 4: There's been through Anthropic, a legal tool plug in that
7:03
Speaker 4: has been able to replicate you know, some of those features.
7:05
Speaker 4: When it comes back to the example of into It,
7:08
Speaker 4: the advantages that it has are the cybersecurity piece. You know,
7:12
Speaker 4: you're uploading some very sensitive data into that site. There's
7:15
Speaker 4: the APIs or the links that they have with your
7:18
Speaker 4: custodial brokerage houses that are able to import data the way.
7:22
Speaker 4: Not to say that these other vendors couldn't do that,
7:26
Speaker 4: but there is that level of trust, like you mentioned before,
7:29
Speaker 4: that is so critical to their business. There are some
7:33
Speaker 4: other software businesses where I was thinking about Salesforce this
7:36
Speaker 4: morning because we use it for our own you know,
7:38
Speaker 4: customer relationship management system internally, and yes, could someone go
7:43
Speaker 4: out there with AI and perhaps develop a CRM, a
7:47
Speaker 4: customer relationship management system that has many of the features
7:50
Speaker 4: of Salesforce. They probably could with a lot of these
7:53
Speaker 4: new tools. But then you have the question to the
7:55
Speaker 4: business owner of do you want to migrate all of
7:58
Speaker 4: the years of history of cut from our data over
8:01
Speaker 4: to that new platform. Maybe not, maybe it's not worth
8:04
Speaker 4: the pain process. So there's different intricacies to all the
8:08
Speaker 4: software businesses, like how deeply embedded, how much do you
8:10
Speaker 4: have in terms of data advantage versus something that withinto it.
8:14
Speaker 4: I guess you could make the argument that, yeah, they
8:16
Speaker 4: might have some of my tax history over the years,
8:18
Speaker 4: but how much does that really help as I go
8:22
Speaker 4: through each year, because you know, my W two and
8:25
Speaker 4: stuff might be similar. But you could start from scratch
8:28
Speaker 4: pretty easily in a given tax share. It's not that
8:30
Speaker 4: much of a challenge, I think.
8:32
Speaker 2: The big thing so historically, let's look at CRM software
8:38
Speaker 2: Customer relationship management basically your database of your customers. The
8:43
Speaker 2: reason why historically it's been a very sticky business. Is
8:48
Speaker 2: that quite honestly, it's a huge pain to pick all
8:52
Speaker 2: that stuff up to move it to a different place,
8:55
Speaker 2: and generally for the same types of features, the costs
8:58
Speaker 2: are pretty similar. The threat that is out there to
9:02
Speaker 2: these businesses now that's being viewed by the market is that, hey,
9:06
Speaker 2: it's still going to be a huge pain for you
9:09
Speaker 2: to go and pick up and move. But if you
9:12
Speaker 2: have if you're a large company and you've got a
9:15
Speaker 2: ten million dollar annual budget for your your CRM across
9:19
Speaker 2: your users, and new AI CRM company Xyz comes in
9:25
Speaker 2: and says, hey, that ten million dollar budget, we can
9:30
Speaker 2: do what you're doing with your current vendor, and instead
9:33
Speaker 2: of you paying ten million dollars a year, you can
9:36
Speaker 2: pay us three million dollars a year. You look at
9:39
Speaker 2: that and you say, wow, we can save seventy million
9:41
Speaker 2: dollars over the next decade by doing that, right, Is
9:45
Speaker 2: it worth a disruption for Okay, a couple of years,
9:48
Speaker 2: it's going to be a pain for you know, six
9:50
Speaker 2: to twelve months, but after that we're going to be
9:52
Speaker 2: saving seven million dollars a year. There's an awful lot
9:55
Speaker 2: of CFOs that might have their ears perk up and say, oh, really,
9:59
Speaker 2: you can do that for us. And it's not gonna
10:01
Speaker 2: happen all at once. But remember, with any company, all
10:05
Speaker 2: that you're talking about, all that you need to lose
10:06
Speaker 2: is that marginal buyer, and your growth rate slows down,
10:10
Speaker 2: your terminal earnings projections slow down, And that's the whole ballgame,
10:14
Speaker 2: because it's it's not just the thing that takes you from.
10:18
Speaker 2: The threat is not that your earnings go from a
10:20
Speaker 2: dollar per share down to twenty cents necessarily like that's bad,
10:24
Speaker 2: but it's more, Hey, your earnings over the next decade,
10:27
Speaker 2: we're projected to go from a dollar up to two
10:30
Speaker 2: and you've got and you've got a twenty two x
10:32
Speaker 2: multiple on that dollar, so you're trading, you know, twenty
10:35
Speaker 2: two bucks a share. Now your earnings are projected just
10:38
Speaker 2: to stay at a dollar and you're gonna get an
10:40
Speaker 2: eight x multiple. That's a sixty percent loss in your
10:42
Speaker 2: stock price as a result, not because your business fundamentally
10:46
Speaker 2: like went under, but just you stopped growing because those
10:50
Speaker 2: new users are going somewhere else. And that is the
10:53
Speaker 2: threat that's out there that's being seen by software in
10:56
Speaker 2: the software space right now the reason why it's spilling
10:59
Speaker 2: over in financials. Those private equity firms, they own an
11:03
Speaker 2: awful lot of software in their stack too, in terms
11:06
Speaker 2: of what they've invested into, whether it's in private credit,
11:09
Speaker 2: private equity. There's a ton of money that is tied
11:12
Speaker 2: up there and now might be looking for an exit.
11:16
Speaker 2: Let's take a quick break on this. When we come back,
11:20
Speaker 2: let's talk a little bit about this the other side
11:23
Speaker 2: of the rotation that we're seeing in markets.
11:25
Speaker 1: Right after this business and financial news affecting the markets
11:29
Speaker 1: and your wallet. We've got it all straight from Wall
11:32
Speaker 1: Street right here on the Financial Exchange Radio Network. Text
11:36
Speaker 1: yes six one seven three six two one three eighty
11:39
Speaker 1: five with your comments and questions about today's show. This
11:43
Speaker 1: is the Financial Exchange Radio Network.
11:52
Speaker 5: This segment of the Financial Exchange is brought to you
11:54
Speaker 5: by the US Virgin Islands Department of Tourism. Experience America's
11:58
Speaker 5: Caribbean fall naturally in rhythm with the heartbeat of the
12:01
Speaker 5: islands while enjoying incredible beaches, world class cuisine, and unforgettable sunsets.
12:06
Speaker 3: The weather is perfect.
12:07
Speaker 5: All year round, so I head to visit USBI dot
12:10
Speaker 5: com and book your trip to Saint Croix, Saint Thomas,
12:12
Speaker 5: or Saint John. Enjoy one or all three on the
12:16
Speaker 5: vacation of a lifetime. The USBI is America's Caribbean paradise.
12:20
Speaker 5: Playing your winter escape now at visit USBI dot com.
12:24
Speaker 5: That's visit USBI dot com.
12:26
Speaker 2: Probably got a piece here in Bloomberg Wall Street's rotation
12:29
Speaker 2: in the value has a dot Com warning to it.
12:31
Speaker 3: What's being outlined in this piece.
12:33
Speaker 4: Basically what we've seen over the first few months of
12:36
Speaker 4: the year, and this dates back to November, is that
12:38
Speaker 4: value has significantly outperformed the growth sector by about fourteen
12:43
Speaker 4: percentage points since November. The reason that it draws parallels
12:47
Speaker 4: to the dot com bust is that the last two
12:50
Speaker 4: times we've seen value outperform as significantly as it has
12:54
Speaker 4: against the growth sector was in the early days of
12:57
Speaker 4: the dot com bust back in A one and two thousand,
13:00
Speaker 4: and then in the bear market that we saw in
13:03
Speaker 4: twenty twenty two, where for the calendar year the market
13:06
Speaker 4: was off about eighteen percent. You know, again, typically you
13:11
Speaker 4: do see a rotation to value when there are concerns
13:14
Speaker 4: with the market, as evidenced by those two eras that
13:17
Speaker 4: they highlight in this piece here by Bloomberg, but ultimately
13:21
Speaker 4: you are talking about a small sample size. It is
13:23
Speaker 4: noteworthy the difference in performance between the two, but it
13:27
Speaker 4: really comes down to how a person's going to position
13:31
Speaker 4: their portfolio. If you look back over the last twenty
13:34
Speaker 4: five years, growth versus value, growth has outperformed by about
13:40
Speaker 4: close to a percent over that span of time. Look
13:43
Speaker 4: at some of the different ETFs to track it. But
13:46
Speaker 4: it value does tend to have its day when there
13:48
Speaker 4: are market concerns out there.
13:50
Speaker 3: Yeah, I think that.
13:52
Speaker 2: Again we're seeing this violent, like again, very violent rotation
13:57
Speaker 2: under the surface in markets right now. Here's the really
14:01
Speaker 2: interesting thing is the S and P five hundred, as
14:03
Speaker 2: we say here right now is at sixty nine to ten,
14:05
Speaker 2: which is pretty much the same place was at in
14:07
Speaker 2: late October. So the SMP has not moved in three
14:11
Speaker 2: and a half months. It's had some chopping around. I
14:14
Speaker 2: mean we've had, you know, a five or six percent decline,
14:16
Speaker 2: a couple smaller ones.
14:18
Speaker 3: We've made some you know.
14:19
Speaker 2: Very very modest new all time highs up about you
14:22
Speaker 2: know one and a quarter percent from that October high.
14:25
Speaker 2: But other than that, we're kind of just stuck in
14:27
Speaker 2: the mud. So you look at this and you're like,
14:29
Speaker 2: not much is really happening with the index. But if
14:32
Speaker 2: you actually take a look under the surface and you're like, hey,
14:36
Speaker 2: what's been going on? You know, just again, call let's
14:39
Speaker 2: say over the last three months, just as an example,
14:42
Speaker 2: and taking us back three months would be to yeah,
14:46
Speaker 2: so we're basically flat over that time span as well.
14:49
Speaker 2: And just here, like here's some of the single stock
14:51
Speaker 2: moves that you've seen. Microsoft is off almost twenty percent
14:54
Speaker 2: in that time, Oracles off forty percent, in videos off fifteen,
14:58
Speaker 2: broad Cooms off four teen, Amazon and Tesla are off
15:02
Speaker 2: seven to ten, respectively. So a lot of those big
15:04
Speaker 2: names that have been powering this market are down double
15:07
Speaker 2: digits in some cases like large double digits. But then
15:11
Speaker 2: you take a look at other stuff. It's like Walmart's
15:13
Speaker 2: up twenty six percent, Johnson Johnson's up twenty five, Like
15:16
Speaker 2: when's the last time Johnson Johnson was ever up twenty five?
15:19
Speaker 2: Exon Mobiles up twenty seven, merk is up forty three,
15:23
Speaker 2: Caterpillars up twenty five, ups Is up twenty two, And
15:28
Speaker 2: ultimately this gets to what I think is like the
15:31
Speaker 2: most interesting outcome for markets.
15:32
Speaker 3: This year would be s and P five hundred.
15:35
Speaker 2: Is flat, but just it's reversing and twisting around on
15:40
Speaker 2: this axis everything that worked for the last couple of years.
15:44
Speaker 2: And this is a real possibility here, but it's also
15:48
Speaker 2: a market like it's a set of conditions that's dangerous
15:51
Speaker 2: because if you've got the previous market leadership in free fall,
15:56
Speaker 2: and anything happens to that new leadership, which is you know,
15:59
Speaker 2: un proven and untested, you go splat, which is what
16:03
Speaker 2: happened in August of twenty four and then again in
16:06
Speaker 2: April of last year, you went splot. You could say
16:09
Speaker 2: there's mitigating factors in this and that, but ultimately, the
16:12
Speaker 2: last two times that anything other than big tech tried
16:15
Speaker 2: to lead this market fell on its face. And so
16:19
Speaker 2: like that's the risk that I think is out there
16:22
Speaker 2: that needs to be appreciated as well. Is Hey, it's
16:24
Speaker 2: all well and good that you want to move away
16:26
Speaker 2: from Microsoft and Video and you know Amazon leadership, great,
16:31
Speaker 2: but you're really gonna trust UPS or you're really gonna
16:36
Speaker 2: trust Johnson and Johnson as that new leadership.
16:41
Speaker 4: Yeah, there's not gonna be Ernie's growth and excitement to
16:43
Speaker 4: go with any of those businesses. And if you look
16:45
Speaker 4: at the you got a new band aid on the market.
16:47
Speaker 4: The sector performances year to date. The three best performing
16:51
Speaker 4: sectors are materials, You've got energy, and you've got consumer stables,
16:55
Speaker 4: all of them up over double digits. But here's the problem.
16:59
Speaker 4: If you look at their within the S and P
17:01
Speaker 4: five hundred, each of those respectfully, outside of consumer staples,
17:04
Speaker 4: which is probably a little over five percent, the other
17:07
Speaker 4: two are around two or three percent, So all in
17:10
Speaker 4: you barely get to ten percent if you're lucky there
17:13
Speaker 4: when you have the tech sector, which is close to
17:15
Speaker 4: thirty three or thirty four percent, down three percent year
17:18
Speaker 4: to date. That's what makes it so that we sit
17:20
Speaker 4: with a market that is, you know, I believe as
17:23
Speaker 4: of yesterday slightly up you know, one percent year to date.
17:25
Speaker 4: Is that these minor sectors have performed the best, but
17:28
Speaker 4: they don't carry the weight of the day. And that's
17:31
Speaker 4: your point on the tech sector. It's like you kind
17:33
Speaker 4: of you kind of need them. They've become very critical.
17:37
Speaker 4: So if they have a week year other times other
17:40
Speaker 4: sectors fall right with it, or you just don't get
17:42
Speaker 4: any sort of outperformance.
17:44
Speaker 2: Piece to the Wall Street Journal with jobs data delayed,
17:47
Speaker 2: analysts flocked unofficial data. Yeah, so with this three day
17:50
Speaker 2: government shutdown, the Joltz report didn't come out yesterday. The
17:54
Speaker 2: jobs report that was scheduled for this Friday is not
17:57
Speaker 2: going to be released.
17:58
Speaker 3: Then.
17:59
Speaker 2: My guess is it's probably next Friday, just because I
18:03
Speaker 2: feel like they'll just push it a week. So it
18:05
Speaker 2: should be apt pretty quickly, just because all the data
18:08
Speaker 2: collection was actually completed. And so this is just talking
18:11
Speaker 2: about how, hey, there are other private data sites that
18:14
Speaker 2: you can look at in order to get a sense
18:16
Speaker 2: of what's going on with the labor market. The big
18:19
Speaker 2: thing is they don't typically don't give you the breadth
18:21
Speaker 2: of collection that you get from the government data. You know,
18:26
Speaker 2: Paychecks runs a small business jobs index, but again it's
18:29
Speaker 2: based on the kinds of companies signing up for their services.
18:34
Speaker 2: You might not get older companies that don't use a
18:37
Speaker 2: platform like that, and so it's more skewed towards newer
18:41
Speaker 2: companies that are looking for new technology to manage their
18:43
Speaker 2: payroll and benefits.
18:44
Speaker 4: Yeah, as much as there is scrutiny over the Bureau
18:47
Speaker 4: of Labor Statistics, they've done this for a long time,
18:49
Speaker 4: and the breath of the simple data, like you're mentioning,
18:51
Speaker 4: they survey six hundred thousand work sites in a carefully
18:55
Speaker 4: constructed sample compared to some of these other ones that
18:58
Speaker 4: do similar sampling but not to the same size and scale.
19:01
Speaker 4: So typically you do lean on that. As much as
19:04
Speaker 4: it has its flaws and its revisions that are necessary
19:07
Speaker 4: from time to time, it really is the gold standard
19:10
Speaker 4: when you're looking at this economic data specific to the
19:13
Speaker 4: job sector.
19:14
Speaker 2: Let's take a quick break here. When we return, we're
19:18
Speaker 2: gonna do a little bit of Wall Street Watch. But
19:20
Speaker 2: then Todd Lovsky from the law firm of Cushing and
19:23
Speaker 2: Dolan joins us for Ask Todd, Get your estate planning
19:27
Speaker 2: questions ready for Todd.
19:29
Speaker 6: Right after this, Like us on Facebook and follow us
19:42
Speaker 6: on Twitter at TFE show.
19:44
Speaker 1: Breaking business news is always first right here on the
19:48
Speaker 1: Financial Exchange Radio Network. Time now for Wall Street Watch
19:54
Speaker 1: a complete look at what's moving market so far today
19:57
Speaker 1: right here on the Financial Exchange Radio ne work.
20:00
Speaker 5: Following yesterday's AI driven selloff, markets today are mixed as
20:04
Speaker 5: investors sift through a new flurry of fourth quarter earnings.
20:08
Speaker 5: Right now, the Dow up by seven tenths of a percent,
20:11
Speaker 5: or three hundred and forty one points higher, SMP five
20:14
Speaker 5: hundred down about two tenths of a percent, Nasdaq selling
20:17
Speaker 5: off over eight tenths of a percent of one hundred
20:20
Speaker 5: and ninety two points lower, Russell two thousand mostly flat
20:23
Speaker 5: at the moment. Ten You're tres reeled up one basis
20:26
Speaker 5: point a four point two eighty four percent to crude
20:29
Speaker 5: oil up about a third of a percent, trading at
20:31
Speaker 5: sixty three dollars and forty four cents a barrel. AMD
20:35
Speaker 5: sinking fourteen percent despite the chip maker notching a thirty
20:39
Speaker 5: four percent jump in fourth quarter sales driven by its
20:43
Speaker 5: data center business. AMD also said its data center revenue
20:46
Speaker 5: could grow over sixty percent in the coming years as
20:49
Speaker 5: demand for AI hyperscalers grows. Sticking with the AI space
20:53
Speaker 5: where super Micro computer shares rallying thirteen percent after the
20:57
Speaker 5: company b quarterly earnings and revenue expects as super Micro
21:01
Speaker 5: saw strong demand for its AI optimized servers. The company
21:05
Speaker 5: also raised its annual revenue forecast. Meanwhile, Texas Instruments agreed
21:09
Speaker 5: to purchase chip designer Silicon Labs for seven and a
21:12
Speaker 5: half billion dollars, Silicon stock surging nearly fifty percent, while
21:16
Speaker 5: Texas instrument shares are off by one percent. Elsewhere, Eli
21:20
Speaker 5: Lilly rising eight percent after the drug maker posted higher
21:25
Speaker 5: than expected results for the fourth quarter. While it's revenue
21:27
Speaker 5: forecast also impressed. Uber saw its quarterly profit decline and
21:31
Speaker 5: offered a conservative guidance, sending that stock down by four
21:35
Speaker 5: percent and more big tech earnings are on the way
21:38
Speaker 5: after today's closing bell, where Google parent company Alphabet will
21:43
Speaker 5: report their results. I'm Tucker Silva and that is Wall
21:47
Speaker 5: Street Watch.
21:48
Speaker 1: This is Asked Todd on the Financial Exchange Radio Network.
21:52
Speaker 1: If you have an existing estate plan or in the
21:54
Speaker 1: market for one, Tod Letsky is here to answer your
21:57
Speaker 1: questions and help you plan for later life. Asked Tome
22:00
Speaker 1: is presented by Cushing and Dolan, serving Massachusetts and New
22:03
Speaker 1: England for more than thirty five years, helping families with
22:06
Speaker 1: a state and tax planning, Medicaid planning, and probate law.
22:09
Speaker 1: Visit Cushondolan dot com. Now here's Todd Lutsky.
22:17
Speaker 2: As promised, We're now joined by the one and only
22:20
Speaker 2: Todd Lutsky from the law firm of Cushing and Dolan.
22:24
Speaker 2: Phone lines are open because this segment is called Ask Todd,
22:27
Speaker 2: which means get calling so that you can ask Todd
22:29
Speaker 2: your estate planning questions about your estate plan. Eight eight
22:34
Speaker 2: eight two zero five two two sixty three is the
22:37
Speaker 2: number again, that is eight eight eight two zero five
22:41
Speaker 2: two two six three. We can usually get through two
22:44
Speaker 2: to three questions, So get in line or early, get
22:47
Speaker 2: those phones dial and those fingers warmed up. Eight eight
22:50
Speaker 2: eight to zero five two two six three. Again it
22:54
Speaker 2: is eight eight eight two zero five two two sixty three.
22:59
Speaker 3: Mister Letsky, how are you doing today?
23:01
Speaker 7: I am never better? How are you doing?
23:03
Speaker 3: Not great?
23:04
Speaker 7: No, it's always something with you.
23:05
Speaker 2: Got fired from the calendar factory.
23:07
Speaker 7: A calendar factory. Try to take a day off, you
23:10
Speaker 7: know that doesn't work so well. Not fans, not on
23:12
Speaker 7: the calendar. No, no, no, Todd. Want to talk to
23:15
Speaker 7: you a little bit about really simple estate planning questions.
23:20
Speaker 7: I know sometimes we get all into these, you know,
23:22
Speaker 7: really complex scenarios.
23:25
Speaker 3: For a person listening.
23:27
Speaker 2: That knows nothing about estate planning. Right, what are the
23:31
Speaker 2: basic legal documents that exist? And when should people have
23:37
Speaker 2: those as their estate plan?
23:40
Speaker 7: Yeah? So I think when you're thinking about starting your
23:43
Speaker 7: estate plan, the way to go is, you know, there's
23:45
Speaker 7: a there's a series of things to think about. Right,
23:47
Speaker 7: you don't know, well, you know what kind of trust
23:50
Speaker 7: I need? You don't know how many trusts you need.
23:52
Speaker 7: You know, you're not sure what you need to do.
23:54
Speaker 7: I think the place to start is valuation. I think
23:59
Speaker 7: you take look at you know, what's my estate even worth?
24:03
Speaker 7: How do I know whether I even need to do
24:06
Speaker 7: the state tax planning? Well? When I talk about what's
24:10
Speaker 7: your estate worth, people don't even know what to include
24:13
Speaker 7: in that, So they're thinking about it so very basic, right,
24:17
Speaker 7: think about the value of all your bank accounts, the
24:20
Speaker 7: value of all your brokerage accounts, the value of your IRA.
24:26
Speaker 7: People forget that. Here's another one they forget wroth IRA.
24:31
Speaker 7: I say, wait, what isn't a wroth tax free? Yeah,
24:33
Speaker 7: but it's not a state tax free. So think about
24:36
Speaker 7: your wroth IRA four oh one k. Then head down
24:40
Speaker 7: things like on the real estate world, do I have
24:42
Speaker 7: a home? Do I have a vacation home, a rental property?
24:47
Speaker 7: All things that most people don't think that doesn't make
24:50
Speaker 7: them feel rich. You know, you say, oh yeah, I
24:52
Speaker 7: got real estate, but doesn't feel like I'm worth millions
24:54
Speaker 7: because I have real estate. But when you die, it
24:58
Speaker 7: is valued. So put those in play. And here's the
25:02
Speaker 7: last one that people always forget about life insurance. So
25:06
Speaker 7: many people are say, you know, life insurance is tax free.
25:11
Speaker 7: I was told that when I bought it, they told
25:13
Speaker 7: me that it's tax free. Well, that's accurate. The problem
25:18
Speaker 7: with it is that the life insurance agents don't always
25:21
Speaker 7: tell you what kind of tax free it is. It
25:25
Speaker 7: is income tax free to the recipient. So if I die,
25:30
Speaker 7: my wife would get my policy and it would be
25:33
Speaker 7: income tax free. But when I die and I transfer
25:37
Speaker 7: it to her, it's an estate taxable event. For what
25:41
Speaker 7: for the value of life insurance? Oh well, Todd, I
25:44
Speaker 7: got a term policy, so I have zero value on
25:47
Speaker 7: my life insurance. There's no cash surrender value, so it's
25:50
Speaker 7: worth nothing. True today, but remember when we're talking about
25:55
Speaker 7: valuation and figuring out what's in your estate, it's data
26:00
Speaker 7: death value that matters. So if that policy is a
26:03
Speaker 7: million dollar face value and I die, it's worth a
26:06
Speaker 7: million dollars, that's when they value it. So you need
26:09
Speaker 7: to think of that. And why this is important, folks,
26:11
Speaker 7: is because obviously there's a two million dollar Massachusetts exemption,
26:15
Speaker 7: and if I'm married, I can double it to four million.
26:18
Speaker 7: So knowing the value of your estate will help you
26:21
Speaker 7: decide which kind of estate planning you need. And of
26:24
Speaker 7: course there's a fifteen million dollar federal exemption. But again,
26:28
Speaker 7: if you're lower, maybe I need revocable trusts and it
26:32
Speaker 7: would be one versus two, or if I need nursing
26:35
Speaker 7: home planning thrown in the mix. Because I'm in a
26:38
Speaker 7: smaller number, I'm likely going to need two irrevocable trusts
26:42
Speaker 7: if I'm over the two million dollar number. So valuation
26:46
Speaker 7: very good place to start.
26:48
Speaker 2: Talking with Tom Lunsky from the law firm of Cushing
26:50
Speaker 2: and Dolan. We still have room on the phone lines
26:52
Speaker 2: for your estate planning questions. Eight eight eight two zero
26:56
Speaker 2: five two two sixty three is the number again, and
27:00
Speaker 2: that is eight eight eight to zero five two two
27:04
Speaker 2: six three. We're gonna take a quick break, but when't
27:07
Speaker 2: we come back right to your questions with Todd again.
27:10
Speaker 2: That phone number is eight eight eight to zero five
27:14
Speaker 2: two two six three.
27:15
Speaker 1: Ask Todd with Todd Lutsky every Wednesday at ten thirty
27:19
Speaker 1: only here on the Financial Exchange Radio Network. You're listening
27:25
Speaker 1: to Ask Todd with Todd Lutsky on the Financial Exchange
27:29
Speaker 1: Radio Network.
27:36
Speaker 2: Still room on the phone lines for your estate planning
27:39
Speaker 2: questions at eight eight eight to zero five two two
27:43
Speaker 2: six three. That phone number again to ask Todd your
27:46
Speaker 2: state planning questions live on air right now is eight
27:49
Speaker 2: eight eight to zero five two two six three. We
27:54
Speaker 2: do have our first caller all queued up here. Let's
27:57
Speaker 2: go to Dave in Melrose. Dave, what is your question
28:01
Speaker 2: for Todd Lensky?
28:02
Speaker 8: Good morning, gentlemen. My question is I've got some rental
28:08
Speaker 8: property that the money is. One of my tenants sends
28:15
Speaker 8: the money using zel the l you know, yeah, and
28:20
Speaker 8: it goes directly to the trust account. So all right,
28:24
Speaker 8: so that everything's fine.
28:26
Speaker 7: Trust revocable or irrevocable, irrevocable, irrevocable trust, got it?
28:32
Speaker 8: Yeah, And he changes his bank, and when he changes
28:36
Speaker 8: his bank, the new bank sends it by mistake to
28:42
Speaker 8: personal account. So I picked this up after two months
28:49
Speaker 8: and reverse, you know, straightened it out so that it
28:52
Speaker 8: goes directly to the the account that's owned by the trust.
28:57
Speaker 8: So do I have to do anything other than what
29:01
Speaker 8: I did, like give the money from my personal account
29:06
Speaker 8: to the trust and then take it back again or
29:09
Speaker 8: any of that stuff. So just forget about it.
29:11
Speaker 7: So let me ask you this. Of course, the toughest
29:13
Speaker 7: part for me to answer this kind of question is
29:15
Speaker 7: that I've never read or looked at your trust. So
29:18
Speaker 7: I need to ask you a couple of questions and
29:20
Speaker 7: hopefully you can you can answer. You know this your
29:24
Speaker 7: irrevocable trust. Does it have a tax ID number?
29:28
Speaker 8: Yes?
29:28
Speaker 7: Great?
29:29
Speaker 8: Yes?
29:29
Speaker 7: And do you file income tax returns for that trust
29:33
Speaker 7: every year?
29:35
Speaker 8: Yes?
29:36
Speaker 7: Okay, so you file a ten forty one income tax return.
29:39
Speaker 7: Do you know if that trust is designed as a
29:43
Speaker 7: grand or trust for income tax purposes, meaning that the
29:47
Speaker 7: trust pays zero income tax all the income on that
29:54
Speaker 7: that was earned by the trust flows onto your personal
29:57
Speaker 7: income tax return and you pick it up on your ten.
30:01
Speaker 8: Yes, and you folks set it up for me.
30:03
Speaker 7: So well, that's that's all. Yeah that Once you said that,
30:06
Speaker 7: now I know the answer, so I guess I guess
30:09
Speaker 7: I do know what it is. Then if that's the case,
30:11
Speaker 7: so okay, you're right, so so so yes, that is
30:14
Speaker 7: a grant toward trust. Now I totally understand the trust.
30:17
Speaker 7: So here's along in the short of it. The trust
30:20
Speaker 7: has language in it, then, since I know it's it's
30:23
Speaker 7: one of Cushing indolence trusts. It has language in it
30:26
Speaker 7: that says all the income belongs to you, Dave, okay.
30:30
Speaker 7: So the rent as it flows into the trust, like
30:35
Speaker 7: it was doing under the old Zell account, could hit
30:39
Speaker 7: the bank account in the name of the trust, and
30:41
Speaker 7: then the trust could distribute the money out to your
30:44
Speaker 7: personal account. In fact, it can be set up as
30:46
Speaker 7: an automatic transfer first, so everybody else who's listening, if
30:50
Speaker 7: you've got this, the money could just go right into
30:52
Speaker 7: that direct deposit irrevocable trust account, and then the irrevocable
30:57
Speaker 7: trust account could be set up as an automatic trans answer,
31:00
Speaker 7: so every time that check hits it, it automatically kicks
31:04
Speaker 7: it out to his personal bank account. Because it's his money,
31:08
Speaker 7: he's entitled to it, and so that's how it should work.
31:11
Speaker 7: Now in this case, the last two months, what I'm
31:15
Speaker 7: understanding is two months of the checks went directly to
31:20
Speaker 7: the personal bank account and did not go through the trust.
31:25
Speaker 7: And is that going to be a problem for medicaid
31:29
Speaker 7: eligibility if later on, you know, he applies for medicaid.
31:34
Speaker 7: The answer is going to be no, it's not going
31:36
Speaker 7: to be a problem. Why because the money is entitled
31:40
Speaker 7: to go to him anyway. The fact that you know,
31:42
Speaker 7: we skipped this middle ground by hitting the trust account
31:47
Speaker 7: first and coming out is more of an operator error
31:51
Speaker 7: a trustee error. It is not going to cause the
31:55
Speaker 7: trust to be invalid. It is not going to cause
31:57
Speaker 7: the trust to somehow not work from Medicaid, and it
32:01
Speaker 7: is not going to restart a five year waiting period.
32:03
Speaker 7: Why because at the end of the day, for income
32:06
Speaker 7: tax purposes, whether Dave would have taken that money out
32:10
Speaker 7: or not, it's still all going to be picked up
32:12
Speaker 7: on his personal income tax return. So this is not
32:15
Speaker 7: an IRS problem, and it's not a Medicaid nursing home
32:20
Speaker 7: problem because we're only dealing with income here, not assets,
32:25
Speaker 7: not principle. So that income comes in, comes out doesn't
32:29
Speaker 7: affect Medicaid. If that income goes in and doesn't come out,
32:34
Speaker 7: it doesn't affect medicaid because the way we've got our
32:37
Speaker 7: trust drafted is if you earn like five thousand dollars
32:41
Speaker 7: an income one year, and then five thousand the next
32:43
Speaker 7: and five thousand the next, and you got now fifteen
32:46
Speaker 7: thousand dollars of income over three years, but you never
32:50
Speaker 7: actually took it out. The trust says it shall be
32:54
Speaker 7: paid out, but even if it didn't physically come out,
32:58
Speaker 7: it's still going to be considered an account receivable, so
33:02
Speaker 7: it's still income. It's not restarting a five year clock.
33:05
Speaker 7: In other words, Dave under this example could reach in
33:08
Speaker 7: and say I need fifteen thousand dollars in year three
33:11
Speaker 7: and take it out. Why because the fifteen thousand is
33:15
Speaker 7: an account receivable. It's a little complicated, David. But I
33:18
Speaker 7: think the easy answer, which I was trying to explain
33:21
Speaker 7: everything for the other listeners, the easy answer for you
33:24
Speaker 7: is please just fix it going forward and have the
33:27
Speaker 7: money hit the account like you've been doing, and don't
33:30
Speaker 7: go back and try and correct the two months that
33:33
Speaker 7: went directly to your account. Folks, this is how the
33:38
Speaker 7: irrevocable trust work. That guide we're giving away is back
33:41
Speaker 7: to the basics to help people figure out what's the
33:45
Speaker 7: right way to do an estate plan for them. You know,
33:47
Speaker 7: how do I get started? I've never done this before.
33:50
Speaker 7: Valuation ideas are in here, you know, look at age,
33:53
Speaker 7: look at family dynamics, look at second marriages. These are
33:57
Speaker 7: all things to think about when you're doing your planning.
34:00
Speaker 7: Then once you and these are listed in the guide,
34:02
Speaker 7: then once you have that this guide is actually a
34:06
Speaker 7: four million dollar example. You could put your own fact
34:09
Speaker 7: pattern in. But at the end of the day, it
34:11
Speaker 7: explains how to do an estate plan for a four
34:14
Speaker 7: million dollar client husband and wife, and goes into and
34:17
Speaker 7: detail how the irrevocable trust works because that's what was
34:21
Speaker 7: recommended in this particular case. It's literally one of my
34:26
Speaker 7: engagement letters explaining in a state plan to a client,
34:29
Speaker 7: which is a great way for you to see if
34:32
Speaker 7: your fact pattern fits this fact pattern and maybe this
34:35
Speaker 7: is actually a recommendation for you. Either way, it's going
34:38
Speaker 7: to help you get started. Folks, call and get the
34:40
Speaker 7: guide eight six six eight four eight five six nine
34:45
Speaker 7: nine or Legal Exchange Show dot com again eight sixty
34:49
Speaker 7: six eight four eight five six nine nine or Legal
34:53
Speaker 7: Exchange Show dot com. And also check out our Instagram
34:56
Speaker 7: page Cushing and Dolean PC lots more in is there, Todd.
35:01
Speaker 2: If someone's starting to research estate planning, how do they
35:05
Speaker 2: figure out what tool is right for their specific estate
35:09
Speaker 2: because there are a lot of different choices out there.
35:11
Speaker 7: Yeah, no, that's true. And of course if you're Google
35:14
Speaker 7: estate plan, you're going to be inundated with like millions
35:16
Speaker 7: of hits, and you're going to say, how do I
35:18
Speaker 7: get started? Again? Not to say it, but this guide
35:21
Speaker 7: really will help you narrow things down, so please get it.
35:24
Speaker 7: But to address your question, Chuck, you know, we just
35:29
Speaker 7: talked about valuation as one goal, right, and I just
35:32
Speaker 7: mentioned family dynamics, second marriages, things like that to think about.
35:37
Speaker 7: But once you get the size of your estate, let's
35:40
Speaker 7: say it's four million, just to give you an example,
35:43
Speaker 7: then you need to ask yourself how old you are. Well,
35:46
Speaker 7: let's say I'm sixty and over. I just throw that
35:49
Speaker 7: age out. Well, it's sixty and over on a four
35:51
Speaker 7: million dollar estate. Yes, you're worried about probate. Yes, you're
35:56
Speaker 7: worried about estate taxes. So those are going to help
35:59
Speaker 7: guide you as to what kind of trust you need.
36:02
Speaker 7: But then if you throw in the question of you
36:04
Speaker 7: know what, I also need to protect assets from a
36:07
Speaker 7: nursing home, well, now you've really geared yourself away from
36:11
Speaker 7: the revocable trust idea and right into the irrevocable trust idea.
36:16
Speaker 7: So that's a good way of looking at that. The
36:19
Speaker 7: other thing is if you say no, I don't need
36:23
Speaker 7: Oh and by the way, since it's four million and
36:26
Speaker 7: you now know you want nursing home planning. You also
36:29
Speaker 7: now know you're going to need two irrevocable trusts. But if,
36:33
Speaker 7: on the other hand, you say, you know what, Todd
36:35
Speaker 7: not worried about nursing home planning, or you have long
36:38
Speaker 7: term care insurance or something, I want a revocable trust. Well, now,
36:43
Speaker 7: because you only have four million dollars or five million
36:46
Speaker 7: or six million, I would need a revocable trust. And
36:52
Speaker 7: due to the size of the estate it's called a
36:54
Speaker 7: moderate estate. I'm only going to need one trust, a
36:58
Speaker 7: joint revocable trust, which which is more efficient and less expensive.
37:02
Speaker 7: So those are the things to look for when you're
37:05
Speaker 7: beginning your process.
37:06
Speaker 3: Mister Lutski, thank you so much for joining us today.
37:08
Speaker 7: Always a pleasure. Thank you.
37:10
Speaker 1: This has been Aske Todd on the Financial Exchange Radio network.
37:14
Speaker 1: Ask Todd with Todd Lutsky has been presented by Cushing
37:16
Speaker 1: and Dolan, serving Massachusetts and New England for more than
37:19
Speaker 1: thirty years, helping families with the state and tax planning,
37:22
Speaker 1: Medicaid planning, and probate law. Call eight hundred three nine
37:25
Speaker 1: three four thousand and one or visit Cushingdolan dot com.
37:29
Speaker 1: The Views expressed in this segment are solely those of
37:31
Speaker 1: Cushing and Dolan. Armstrong Advisory does not provide any legal
37:33
Speaker 1: or tax advice. Please consult with your illegal or tax
37:35
Speaker 1: advisor on such matters. Cushing and Armstrong do not endorse
37:38
Speaker 1: each other and are not affiliated