Latest / The Financial Exchange Show / What does another Fed rate cut mean for your wallet?

Transcript

What does another Fed rate cut mean for your wallet? · The Financial Exchange Show

0:00
Speaker 1: The Financial Exchange is produced by Money Matters Radio and
0:02
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 Paul Lane, your exclusive look
0:38
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
0:45
Speaker 1: and market trends, plus break in business news every day.
0:49
Speaker 1: The Financial Exchange is a proud partner of the Disabled
0:52
Speaker 1: American Veterans Department of Massachusetts. Help us support our great
0:56
Speaker 1: American heroes by visiting DAV five k dot Boston making
1:00
Speaker 1: a donation today. The DAV five K Boston is presented
1:04
Speaker 1: by Veterans Development Corporation. This he's the Financial Exchange with
1:08
Speaker 1: Chuck Zutta and Paul Lane.
1:13
Speaker 2: Fed day here on the Financial Exchange.
1:16
Speaker 3: As a result of that, we're gonna spend the first
1:18
Speaker 3: hour of the show talking about the Mortgage Bankers Association
1:21
Speaker 3: Mortgage Market Index because we can't know what we're gonna
1:27
Speaker 3: do to FED.
1:28
Speaker 2: So in any case, you got the FED.
1:30
Speaker 3: They are going to be announcing their interest rate decision
1:33
Speaker 3: at two PM. Along with that, we also get what's
1:36
Speaker 3: called the Summary of Economic Projections, or the STEP as
1:41
Speaker 3: it's commonly referred to in the biz. And then at
1:46
Speaker 3: two point thirty, Jay Powell puts on his finest purple
1:50
Speaker 3: tie and tells us, Hey, all you people out there,
1:57
Speaker 3: we may have cut this time, but don't think you're
2:00
Speaker 3: getting any more.
2:01
Speaker 2: Got it, No more cuts for Christmas ever? Got it on?
2:04
Speaker 3: No more cuts, only coal from j Powell from here
2:06
Speaker 3: on out. Santa Powell's unhappy with you. You've been getting too
2:11
Speaker 3: happy in the markets, and inflation's higher than we'd like,
2:16
Speaker 3: and so the way to get inflation down is to
2:18
Speaker 3: put coal in stockings.
2:21
Speaker 2: That's a pretty good summary. I think that's what he'll
2:24
Speaker 2: go with.
2:25
Speaker 4: Now, I think largely what I would anticipate this afternoon,
2:28
Speaker 4: as I was thinking about this morning, is obviously we're
2:30
Speaker 4: gonna get the cut, and then you would imagine that
2:34
Speaker 4: a lot of the messaging from J. Powell is going
2:37
Speaker 4: to be very scrooge ba humbug of this idea that hey,
2:42
Speaker 4: don't expect this to continue on at this pace to
2:45
Speaker 4: temper market expectations as to what we look at for
2:49
Speaker 4: FED cuts coming in twenty twenty five. And then also
2:51
Speaker 4: we'll get some data behind that, so we won't just
2:54
Speaker 4: have to parse through his words very carefully to try
2:57
Speaker 4: and figure out what the messaging is. In addition, as
3:00
Speaker 4: you mentioned, we'll get the summary of economic progestions. In particular,
3:03
Speaker 4: one piece of interest will be that dot plot update
3:06
Speaker 4: in which twelve of the members will list out what
3:09
Speaker 4: they anticipate for cuts in the upcoming year. And that
3:14
Speaker 4: will be you know, information that will look over. Obviously,
3:17
Speaker 4: this is always a moving target, so it's not to
3:20
Speaker 4: say anything that they project is set and stone, but
3:23
Speaker 4: it's helpful to get a sense for what they're thinking
3:25
Speaker 4: at the moment.
3:26
Speaker 2: Yeah it is.
3:28
Speaker 3: And look, i'd rather get a step every two months
3:33
Speaker 3: than forty six FED speakers every week.
3:37
Speaker 2: Yes, I would agree.
3:38
Speaker 3: I don't need all the speaking. Just tell me what
3:40
Speaker 3: you think is going on and what you think is
3:41
Speaker 3: gonna happen. I don't want to have to be parsing,
3:45
Speaker 3: you know, whether J. Powell said a hawkish the or
3:49
Speaker 3: a doubvish and I just want to know, Hey, do
3:54
Speaker 3: you think you guys are doing enough now or not?
3:57
Speaker 2: And then not to where you came America.
4:00
Speaker 4: Evidence would be a lot easier to go through than
4:03
Speaker 4: trying to go through what is always going to be
4:06
Speaker 4: a very measured speech that any FED chair is giving
4:10
Speaker 4: when they're out in public that has caveats attached to it.
4:13
Speaker 2: Yeah, it's it's just how the thing is set up
4:16
Speaker 2: at this point. But this is.
4:18
Speaker 3: An important juncture because you've had some warmer inflation readings
4:25
Speaker 3: again for the last few months, and quite honestly, I'm
4:32
Speaker 3: gonna throw some cold water on them because I think
4:35
Speaker 3: this market has it wrong. And I think this market
4:40
Speaker 3: has it wrong, because I'm not just gonna be like, oh,
4:44
Speaker 3: I think it has it wrong. Because the economic data
4:48
Speaker 3: that had turned up in September, October, November is now
4:55
Speaker 3: starting to turn again. We got just as an example,
4:59
Speaker 3: this morning. Building permits and housing starts for the month
5:02
Speaker 3: of November, permits actually show good growth, up six percent.
5:07
Speaker 3: And the reason why is like every real estate developer
5:09
Speaker 3: after the elections like pull on the permit just in
5:11
Speaker 3: case I need it. Housing starts dropped another one point
5:15
Speaker 3: eight percent. We're now below one point three million units
5:17
Speaker 3: annually on that side of things. And that's concerning on
5:22
Speaker 3: one level. But the piece that I come back to
5:26
Speaker 3: on this is one that I've I've never brought up before,
5:30
Speaker 3: but it was tweeted out by connorson who we covers
5:34
Speaker 3: pieces from Bloomberg.
5:36
Speaker 2: Opinions time to time market. And here's the thing.
5:40
Speaker 3: If you look at real estate units under construction, not
5:44
Speaker 3: real estate units, but housing units under construction, they peaked
5:48
Speaker 3: in July of twenty twenty three at one point seven million.
5:53
Speaker 3: Today we're at one point four to three four million.
5:56
Speaker 3: And Paul, can you have a completion without a start? No,
6:00
Speaker 3: you can't. So if you're now only starting one point
6:04
Speaker 3: three million on an annulyzed basis, there's more room to
6:06
Speaker 3: go down.
6:07
Speaker 2: And if you look.
6:08
Speaker 3: At the last oh gee, let's see the data set
6:12
Speaker 3: I have here goes back fifty five years. Is how
6:15
Speaker 3: is how long we have this going back to January
6:17
Speaker 3: of nineteen seventy that's when they started this. Each of
6:22
Speaker 3: the drops that we have seen in residential units under
6:27
Speaker 3: construction in the United States over that time period has
6:34
Speaker 3: eventually led to recession. Now, I'm not saying it's gonna
6:37
Speaker 3: happen next week, next month, or anything along those lines.
6:41
Speaker 3: But if you want to tell me, hey, it's different
6:43
Speaker 3: this time, you got to tell me. Okay, like why
6:47
Speaker 3: because sorry, I just threw my pen. I got so excited.
6:52
Speaker 3: If if you look at this housing always none, no, no,
6:56
Speaker 3: I'm good, Paul. I don't need to run a music
6:57
Speaker 3: a computer on even though I'm holding a pen.
6:59
Speaker 2: It just gives me something besides your point. Drive it home. Yeah,
7:03
Speaker 2: I'm Chuck likes to click pens. I don't know if
7:05
Speaker 2: you're notice that I'm a clicker.
7:06
Speaker 3: Mike just abuse it. You see a pen that Mike's
7:12
Speaker 3: had for ten minutes and you're like, yeah, my goodness,
7:15
Speaker 3: that prip did chance it's been inside.
7:17
Speaker 2: A nuclear reactor.
7:20
Speaker 3: But the point I'm making on this is why would
7:24
Speaker 3: this cycle be any different? And it's not that you're
7:26
Speaker 3: seeing like a ton of recessionary data out there right now.
7:29
Speaker 2: You're not the only.
7:30
Speaker 3: Place where there are any kind of concerns around the
7:32
Speaker 3: labor market. And even that's kind of like, eh, watch
7:35
Speaker 3: it and see what happens. But the decline in housing
7:39
Speaker 3: units under construction is continuing to accelerate. And given that,
7:43
Speaker 3: my question is, hey, how do you end up seeing
7:47
Speaker 3: growth if one of the main growth engines in the
7:51
Speaker 3: US is contracting?
7:53
Speaker 2: Is it? Is it just like data center construction.
7:56
Speaker 3: Everyone who is doing drywall moves into you know, putting
8:00
Speaker 3: in sprinklers for data set.
8:01
Speaker 4: No, are you talking about the economic growth in totality
8:05
Speaker 4: like the GDP growth?
8:06
Speaker 2: Yeah, where's it come from?
8:07
Speaker 4: Because it's been the consumer. It's been on the backs
8:09
Speaker 4: of the consumer. Right as though, if you want to
8:11
Speaker 4: make the counter argument, I guess it's it's the resiliency
8:14
Speaker 4: of the consumer. How long can that go on for?
8:16
Speaker 4: As a fair counter to that, I mean, we've seen
8:19
Speaker 4: consumer spending levels I think three and a half percent
8:22
Speaker 4: growth year over year and the numbers there. How long
8:26
Speaker 4: can that go on for? It is a fair point,
8:28
Speaker 4: but that would be the counter is the resiliency of
8:30
Speaker 4: the consumer. But it's getting long in the tooth. How
8:33
Speaker 4: long you've leaned on the consumer to keep spending for.
8:36
Speaker 3: It is like you're you're, you're at a pretty good
8:38
Speaker 3: clip there in terms of you know, what we've seen historically,
8:43
Speaker 3: and so it's just one where again I'm I'm mentioning
8:49
Speaker 3: this stat not because I think you're gonna go into
8:51
Speaker 3: recession in January or February or March.
8:54
Speaker 2: Maybe do maybe don't like who the heck knows.
8:56
Speaker 3: I'm saying it much more because when you have data
9:02
Speaker 3: that is starting too cool and this is some of it,
9:04
Speaker 3: by the way, Like this is again just one set,
9:07
Speaker 3: and this one's been cooling for the last this one's
9:09
Speaker 3: been cooling basically since.
9:11
Speaker 2: March, so like the last nine months.
9:14
Speaker 3: But you start seeing like other pockets that are that
9:16
Speaker 3: are cooling, and you go, look. The reason why economists
9:20
Speaker 3: believe that raising interest rates kills inflation is because it
9:26
Speaker 3: eventually induces a recession that gets people to just be
9:30
Speaker 3: happy with a two percent raise, and pricing, you know,
9:33
Speaker 3: goes away from companies in terms of them having pricing
9:36
Speaker 3: power because people can't afford it, and people get used
9:39
Speaker 3: to lower pricing, you know, lower price increases as opposed
9:43
Speaker 3: to higher ones. So I don't know, I'm gonna poo
9:47
Speaker 3: pooh the last few months of inflation data and say
9:52
Speaker 3: it's more similar to Q one, which was an outlier,
9:54
Speaker 3: than anything else, and I'm not sure that it means anything.
10:00
Speaker 2: And yeah, I think.
10:01
Speaker 3: That the FED doesn't need to either hike or cut
10:04
Speaker 3: at this point necessarily. Like I think that there's an
10:07
Speaker 3: underpriced probability right now that the FED might just sit
10:11
Speaker 3: tight for like six to nine months. I could see
10:14
Speaker 3: that because they don't need to do anything. And that's fine, right,
10:18
Speaker 3: Sometimes doing nothing is the right thing to do.
10:20
Speaker 2: Do you have any issue with the cut today? I
10:22
Speaker 2: don't know.
10:23
Speaker 3: Okay, No, Like, it's not gonna hurt, not gonna help,
10:26
Speaker 3: It's just it is. And quite honestly, I said this
10:30
Speaker 3: the other day to Mike, I'm like, if Ja Powell
10:31
Speaker 3: really wanted to take what is a completely unwarranted victory
10:35
Speaker 3: lap in framing this as like, hey, we're gonna pause now,
10:39
Speaker 3: they could say, look, by successfully front loading fifty basis
10:42
Speaker 3: points of cuts in September and then doing smaller ones,
10:45
Speaker 3: now we've accomplished what we needed to do in order
10:47
Speaker 3: to support the labor market, and now we can pause
10:50
Speaker 3: instead of having to continue on.
10:52
Speaker 4: Speaking of victory laps, it's been a really good year
10:54
Speaker 4: for the FED. If you look at just how things
10:56
Speaker 4: displayed out, you really can't beat them up too much.
10:58
Speaker 4: You certainly could on when they started cutting our raising
11:03
Speaker 4: rates rather, but you really can't beat them up over
11:06
Speaker 4: the last probably year and a half or so in
11:08
Speaker 4: terms of how things have gone in the way that
11:10
Speaker 4: they've acted.
11:11
Speaker 3: Just take a quick break here when we come back.
11:14
Speaker 3: Hmm okay, yeah, let's touch on this. How is this
11:17
Speaker 3: FED cut or expected fedcut can actually impact your wallet?
11:22
Speaker 3: We'll tell you that right after this business.
11:25
Speaker 1: And financial news affecting the markets and your wallet. We've
11:28
Speaker 1: got it all straight from Wall Street right here on
11:31
Speaker 1: the Financial Exchange Radio Network. The Financial Exchange streams live
11:36
Speaker 1: on YouTube. Like our page and stay up to date
11:39
Speaker 1: on breaking business news all morning long. This is the
11:42
Speaker 1: Financial Exchange Radio Network.
11:51
Speaker 5: The Financial Exchange is a proud partner of the Disabled
11:54
Speaker 5: American Veterans Department of Massachusett's. With the holiday season approaching,
11:58
Speaker 5: now is a great time to say thank you to
12:00
Speaker 5: our great American heroes by making a donation.
12:03
Speaker 2: At DV fivek dot Boston.
12:05
Speaker 5: Your gifts will sports services such as the Veteran Advancement
12:09
Speaker 5: Program which offers permanent and affordable housing opportunities for veterans
12:12
Speaker 5: and their dependence. Thank you again for your support. The
12:16
Speaker 5: DV five K Boston is presented by Veterans Development Corporation.
12:20
Speaker 3: So the Fed's expected to cut rates are cut the
12:23
Speaker 3: Fed Funds rate by a quarter percent later today. How
12:27
Speaker 3: does this actually affect you and.
12:30
Speaker 2: The money you have or the money you may want
12:32
Speaker 2: to borrow?
12:34
Speaker 3: Dare I say first places that it's not going to
12:37
Speaker 3: effect If you have an existing fixed rate mortgage, nothing
12:40
Speaker 3: changes because it has that word fixed rate in it.
12:44
Speaker 3: If you have an existing adjustable rate mortgage, if you
12:48
Speaker 3: are coming up on the period in which it starts adjusting,
12:50
Speaker 3: this could potentially impact it. Because most adjustable rate mortgages
12:54
Speaker 3: are based off of either the Fed Funds rate. They
12:59
Speaker 3: could also be based off the prime rate, and the
13:01
Speaker 3: other one that they're typically based off of is what's
13:03
Speaker 3: known as the SOFA rate, the secured overnight financing rate SOFR,
13:07
Speaker 3: not SOFA but SOFUR so I don't know, so it's
13:14
Speaker 3: typically one of those, and those tend to be pretty
13:17
Speaker 3: well correlated. So if you do have an adjustable rate mortgage,
13:20
Speaker 3: that is coming up on an adjustment in January. As
13:23
Speaker 3: an example, you may see, you know, a quarter percent
13:27
Speaker 3: lower than it would have adjusted to otherwise. Credit cards
13:31
Speaker 3: typically credit card rates adjust as of the next billing period,
13:34
Speaker 3: and so you might see a quarter percent lower interest
13:36
Speaker 3: rate if you have a balance out standing there. Other
13:39
Speaker 3: than that, are there any other areas that we you know,
13:43
Speaker 3: may see some impact for actual human beings on this.
13:47
Speaker 4: Money market, and CDs is another place. Those are really
13:50
Speaker 4: particularly the money markets, those move pretty well in conjunction.
13:55
Speaker 4: You know, within a week later you'll probably see the
13:57
Speaker 4: impact on your your money markets, and certainly the short
14:01
Speaker 4: term CDs will be impacted as well. That would be
14:04
Speaker 4: the other area to hit one thing on the credit
14:06
Speaker 4: card side of things, they're usually the credit card companies
14:09
Speaker 4: a little they do move them down, they're just a
14:11
Speaker 4: little slower to react. It seems like I had read
14:15
Speaker 4: some reporting where when we had done the fifty bas
14:18
Speaker 4: point cut back in September, card ratings survey card ratings
14:22
Speaker 4: dot Com did a survey where they gauged where the
14:25
Speaker 4: credit card companies were in terms of dropping their rates
14:28
Speaker 4: at that point, and they only saw an average ae
14:30
Speaker 4: point three percent drop in correspondence with a half percent
14:35
Speaker 4: round of cuts that we saw in September, So they
14:37
Speaker 4: can always be a little leary and perhaps extending the
14:39
Speaker 4: profit margins a little further to drop those rates.
14:43
Speaker 3: Now when we look at, you know, basically anything else,
14:48
Speaker 3: Remember the FED does not control long term rates or
14:51
Speaker 3: anything along those lines. So if you are, you know,
14:55
Speaker 3: as an example, thinking about buying a ten year US Treasury,
14:58
Speaker 3: the FIT is not exercise direct control over that market.
15:03
Speaker 2: At this point.
15:04
Speaker 3: Really, they don't exercise much direct control over those rates.
15:07
Speaker 3: They might decide to buy up some bonds, but they
15:09
Speaker 3: don't specifically target interest rates across the yield curve, so
15:14
Speaker 3: that's not stuff that they control as part of this.
15:17
Speaker 3: So again the FED interest rate cut here, remember the
15:20
Speaker 3: Fed's now cut three quarters of a percent since September.
15:25
Speaker 3: During that time, the thirty year fixed rate mortgage has
15:28
Speaker 3: gone up eight tenths of a percent. So just because
15:32
Speaker 3: the Fed is cutting rates does not mean that you
15:33
Speaker 3: are going to see it show up in mortgage rates.
15:38
Speaker 3: Just as an example, there piece in the Wall Street
15:41
Speaker 3: Journal that I don't agree with entirely. Twenty twenty four
15:45
Speaker 3: has been a year of extremes in the stock market.
15:47
Speaker 3: Can it last?
15:49
Speaker 2: And I guess the.
15:53
Speaker 3: Only extreme that we've really seen, well, I guess there's
15:56
Speaker 3: a way that you can get to this. This has
15:59
Speaker 3: been one of the calmest years in market history from
16:02
Speaker 3: a volatility perspective. So it's been extremely calm. You don't
16:06
Speaker 3: normally think of that as an extreme. And you've really
16:10
Speaker 3: seen this continuation of the last few years where if
16:13
Speaker 3: you haven't owned the S and P five hundred, basically
16:16
Speaker 3: nothing else is keeping pace, whether it's domestically with small
16:18
Speaker 3: and mid caps, whether it's international stocks, it just has
16:22
Speaker 3: been this.
16:22
Speaker 2: Continued S and P five hundred dominance.
16:25
Speaker 3: And it seems like you're getting a lot of people
16:28
Speaker 3: kind of throwing in the towel on that and being like, yeah,
16:30
Speaker 3: like just invest in the S and P and you're good.
16:34
Speaker 3: And I caution people because that's kind of what they
16:36
Speaker 3: were saying about emerging markets back in the early two thousands,
16:40
Speaker 3: It's what people were saying about small caps in the seventies,
16:42
Speaker 3: eighties and nineties, that's what people are saying about the
16:45
Speaker 3: Nasdaq in the late nineties. So I kind of look
16:48
Speaker 3: at this and yeah, it's I'm certainly not saying like, hey,
16:53
Speaker 3: don't invest in the S and P. That's not the message,
16:55
Speaker 3: but it's much more the things that do well for
16:58
Speaker 3: three to five years, it's tough for them to maintain
17:02
Speaker 3: that outperformance indefinitely, and just understand that when you're looking
17:07
Speaker 3: at the market fair.
17:09
Speaker 2: Point to make.
17:10
Speaker 4: I do think that it's very interesting to follow just
17:12
Speaker 4: what's gone on with small caps in general, where for
17:16
Speaker 4: a long period of time, there was this theory that
17:19
Speaker 4: you needed small caps in your portfolio. And I'm not
17:21
Speaker 4: saying that anything has changed with that, but I amaged
17:24
Speaker 4: to just the components of the small cap market. It
17:27
Speaker 4: seems like have changed greatly from where they were back
17:30
Speaker 4: when a lot of this data was put together the
17:32
Speaker 4: seventies and eighties and nineties, where I think you've had
17:34
Speaker 4: a couple interesting dynamics where the size of the private
17:38
Speaker 4: market has doubled over the last decade, where there's a
17:40
Speaker 4: lot of good companies that can stay private for longer.
17:43
Speaker 4: And if you think back to the history of companies
17:45
Speaker 4: like Facebook or Microsoft, some companies that have just been
17:48
Speaker 4: tremendous in terms of their success, they were really prompted
17:51
Speaker 4: to go public because they hit five hundred private shareholders
17:54
Speaker 4: and we're going to have to start disclosing their financials
17:57
Speaker 4: to the SEC. So they just said, script, we may
17:59
Speaker 4: as well go public. That threshold since has been raised
18:02
Speaker 4: to two thousand, so it's allowing for companies to stay
18:05
Speaker 4: private longer. And then you also have a larger private
18:07
Speaker 4: capital market and as a result, the amount of profitable
18:10
Speaker 4: companies are high quality companies in the rustle two thousand,
18:14
Speaker 4: the percentage of them that are losing money is a
18:16
Speaker 4: lot higher than they were back in the nineties or eighties,
18:19
Speaker 4: and so just an interesting demographic shift. Does that lead
18:22
Speaker 4: to under or outperformance? Who knows, but it's just interesting
18:25
Speaker 4: how it's changed, you know, over time.
18:27
Speaker 2: It it is so.
18:30
Speaker 3: Again, I think the thing I come back to on
18:34
Speaker 3: a lot of this is the stuff that you just
18:37
Speaker 3: described in terms of you know, small caps versus large
18:40
Speaker 3: and some of the other stuff that we were just
18:41
Speaker 3: talking about. Sometimes these get put into thinking as hey,
18:46
Speaker 3: these are hard and fast rules, when really, hey, they
18:49
Speaker 3: may have been true for five years or even like
18:51
Speaker 3: thirty five years, like they could be true for an
18:53
Speaker 3: entire investor's career, but maybe that investor just operated in
18:57
Speaker 3: this unique period where it happened to be true instead
19:00
Speaker 3: of it being you know, undoubtedly true as you know gravity,
19:05
Speaker 3: and it's what happens in markets is not It's not physics.
19:11
Speaker 3: I say that a lot. But you have to be
19:13
Speaker 3: ready for conditions to change. And I think that's the
19:18
Speaker 3: big thing that you always need to keep in mind
19:21
Speaker 3: when investing.
19:23
Speaker 2: Quick break here when we come back, we got Wall
19:24
Speaker 2: Street Watch.
19:25
Speaker 3: Then we're joined by Todd Lutsky for Ask Todd.
19:41
Speaker 1: Like us on Facebook and follow us on Twitter at
19:44
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
19:53
Speaker 1: Street Watch. A complete look at what's moving markets so
19:56
Speaker 1: far today right here on the Financial Exchange Network.
20:00
Speaker 5: Well, markets are relatively quiet edging higher as Wall Street
20:03
Speaker 5: awaits the conclusion to the fed's final monetary policy meeting
20:07
Speaker 5: of the year, where it is widely expected the Central
20:10
Speaker 5: Bank will make a quarter point interest rate CUTVET Chairman
20:13
Speaker 5: Jerome Powell will hold a press conference this afternoon at
20:17
Speaker 5: two thirty. Right now, the Dow is up by four
20:19
Speaker 5: tenths of a percent, or one hundred and ninety five points,
20:22
Speaker 5: SMP five hundred is up by nearly a quarter percent
20:26
Speaker 5: or thirteen points, and the Nasdaq is up by thirty
20:29
Speaker 5: two points so far today, Russell two thousand is edging
20:32
Speaker 5: four points higher, Tenure treasure Reeled is up by one
20:36
Speaker 5: basis point at four point four zero percent, and crude
20:40
Speaker 5: oil is up just over one percent higher, trading just
20:43
Speaker 5: below seventy one dollars a barrel. General Mills shares down
20:46
Speaker 5: by three percent after the maker of Cheerios and others
20:49
Speaker 5: trimde it's outlook for twenty twenty five, citing uncertain consumer demand,
20:53
Speaker 5: where it now expects adjusted earnings per share to fall
20:56
Speaker 5: between three and one percent. Despite the outlook adjustment, the
21:00
Speaker 5: serial maker did be quarterly expectations. Meanwhile, electronics components company
21:05
Speaker 5: Jabill posted stronger than expected fiscal first quarter earnings and guidance,
21:09
Speaker 5: while also lifting its full year revenue and EPs guidance,
21:13
Speaker 5: that stock jumping by eight percent after four consecutive losing
21:17
Speaker 5: sessions and entering correction. Territory and Video shares rebounding by
21:20
Speaker 5: four percent today. Elsewhere, Bare downgraded electric vehicle startup Rivian
21:27
Speaker 5: to neutral from outperformed, citing few catalysts in twenty twenty
21:30
Speaker 5: five and lower EV sales expectations. Rivian shares down by
21:34
Speaker 5: four percent. And after today's closing bell, we'll see earnings
21:38
Speaker 5: from Micron Technology.
21:40
Speaker 2: That stock so far today up by two percent. I'm
21:44
Speaker 2: Tucker Silvan.
21:44
Speaker 5: That's Wall Street Watch.
21:47
Speaker 1: This is Asked Todd on the Financial Exchange Radio Network.
21:51
Speaker 1: If you have an existing estate plan or in the
21:53
Speaker 1: market for one, Tod Letsky is here to answer your
21:55
Speaker 1: questions and help you plan for a later life. Ask
21:58
Speaker 1: Todd is presented by Cushing and serving Massachusetts and New
22:01
Speaker 1: England for more than thirty five years, helping families with
22:05
Speaker 1: a state and tax planning, Medicaid planning, and probate law.
22:08
Speaker 1: Visit Cushingdolan dot com. Now here's Todd Lutsky.
22:13
Speaker 3: And we are now joined by Todd Lutsky from the
22:16
Speaker 3: law firm of Cushing and Dolan. The segment is Asked Todd.
22:20
Speaker 3: You get to ask Todd your estate planning questions live
22:23
Speaker 3: on air. Last week, I think we might have set
22:25
Speaker 3: a new record, Todd.
22:26
Speaker 2: Did we do four or five? I can't can't remember.
22:29
Speaker 6: It was every bit of that I can't tell. I
22:31
Speaker 6: think we did get to five.
22:32
Speaker 3: And we still left one on the board just because
22:34
Speaker 3: again we were a little filled up with callers, So
22:37
Speaker 3: get calling early in order to make sure we get
22:40
Speaker 3: to your call eight eight eight to zero five two
22:43
Speaker 3: two six three. More often than not we don't have
22:45
Speaker 3: a chance to get to five callers. But uh again
22:49
Speaker 3: eight eight eight to zero five two two six three.
22:52
Speaker 3: That is the number to call to speak with Todd
22:54
Speaker 3: Lutsky right now, live on air about your.
22:57
Speaker 2: Estate planning questions. More time. Eight eight eight two zero
23:03
Speaker 2: five two two six three. Todd, how are you today?
23:08
Speaker 6: I'm never better. I'm afraid to ask you how you are.
23:10
Speaker 2: I'm good. I learned something new over the weekend.
23:13
Speaker 6: Yeah, well, that's good. You're always learning.
23:14
Speaker 2: Did you know that Sweden puts barcodes on their.
23:17
Speaker 6: Naval ships on their naval ships on their navy No,
23:20
Speaker 6: I didn't know that.
23:21
Speaker 2: It's so they can Scandinavian.
23:23
Speaker 6: Oh well that's that's that's good.
23:25
Speaker 2: That would work, It would But I said, there's no
23:29
Speaker 2: way that that happens.
23:31
Speaker 6: Now, that's very true. There's no way.
23:32
Speaker 2: And so finally I said, look, let me know when
23:35
Speaker 2: they finish, denmark them as all completed.
23:39
Speaker 6: Oh that's that's cute, I thought, So that works, Todd.
23:43
Speaker 3: Let's talk a little bit about state estate taxes. State
23:48
Speaker 3: state tech, not federal got a state estate taxes. Let's
23:52
Speaker 3: say that someone has done trust work, they have irrevocable
23:56
Speaker 3: trust multiple ones and.
23:57
Speaker 2: Or irrevocable trusts. Okay, if someone moves from a state
24:03
Speaker 2: that has no state estate tax into one that does,
24:08
Speaker 2: how do they know if the trust planning they've done
24:11
Speaker 2: adapts for the fact that their new state might have
24:14
Speaker 2: an a state tax in it.
24:15
Speaker 6: So great question.
24:16
Speaker 7: The way the reason that chuck is, you know, directing
24:20
Speaker 7: it to be state because first, I'll just say federally.
24:22
Speaker 7: Of course, we know federally in every state is the same,
24:25
Speaker 7: So that's why we're not ignoring federal, but we are,
24:29
Speaker 7: you know, discussing the state. Federal will be covered state first,
24:34
Speaker 7: and foremost, what do you do when you move?
24:37
Speaker 6: You check with a local lawyer.
24:40
Speaker 7: Right now, we are licensed in a lot of states,
24:42
Speaker 7: so a lot of our clients can just call us
24:45
Speaker 7: when they move, because there are a lot of things
24:47
Speaker 7: you need to do when you move. It doesn't just
24:49
Speaker 7: mean you move and everything works. So you got to
24:52
Speaker 7: you got to make sure that that you know, call
24:55
Speaker 7: that they would call us and talk to us if
24:56
Speaker 7: we're still licensed in the state. If not, you find
25:00
Speaker 7: I'd a local lawyer who's licensed in the state, and ask, however,
25:06
Speaker 7: make it a little easier on some of you.
25:08
Speaker 6: I believe I don't.
25:09
Speaker 7: Have the exact number, but I believe there's only about
25:13
Speaker 7: fifteen states that even have an estate tax. So right
25:18
Speaker 7: off the bat, the answer might be pretty easy. I
25:21
Speaker 7: don't have to do anything.
25:22
Speaker 6: Right.
25:22
Speaker 7: So, like a lot of clients from here move to Florida, right, well,
25:26
Speaker 7: Florida has no estate tax, so they don't have to worry.
25:30
Speaker 7: There's no estate tax. Now, remember when I do planning
25:33
Speaker 7: for clients, or when we had Cushing and Dolan do
25:35
Speaker 7: planning for clients, we always make sure, like if they're
25:38
Speaker 7: already a Mass resident, that we've got the shares built
25:41
Speaker 7: into the trust that are needed to shelter a state
25:44
Speaker 7: and federal estate tax. So lots of times what I
25:49
Speaker 7: see as a client will move to Florida, they're all set,
25:52
Speaker 7: But if they move back to mass they would also
25:56
Speaker 7: be all set because it got the state language in it.
25:59
Speaker 7: And that happens a lot. Usually you have one, you know,
26:01
Speaker 7: the family moves to Florida, one spouse dies, they're alone,
26:04
Speaker 7: they want to come back to where the kids are.
26:06
Speaker 7: If they're here in Mass or and they move back,
26:09
Speaker 7: so you know, we have to account for that.
26:11
Speaker 6: So that's the first thing. Check with someone local.
26:14
Speaker 7: Secondly, when you are moving, if you really want to
26:17
Speaker 7: change your residency to take effect and make sure that
26:20
Speaker 7: the reason you're moving is to not be taxed in
26:22
Speaker 7: the state that you left. There may be some other
26:24
Speaker 7: steps you need to take, from maybe updating your basic
26:27
Speaker 7: estate planning documents, not the trust, but the will, the
26:30
Speaker 7: health care proxy, the power of attorney, the basics so
26:33
Speaker 7: that they are that state specific. Change your driver's license,
26:38
Speaker 7: voter registration, use your credit card down there when you're
26:41
Speaker 7: whatever location you're living in so that you can prove
26:44
Speaker 7: that you're there six months in a day. So a
26:47
Speaker 7: lot of other things to think about when you're changing residency.
26:51
Speaker 7: In addition to, as you said, Chuck, updating your estate
26:55
Speaker 7: plan at least the basic docs.
26:57
Speaker 3: Talking with Todd Lutski from Cushion Dolan still room on
27:00
Speaker 3: the phone lines here at eight eight eight two zero
27:03
Speaker 3: five two two sixty three. Call that number to speak
27:06
Speaker 3: with Todd live on air about your estate planning questions.
27:10
Speaker 3: We are going to take a break now, but when
27:12
Speaker 3: we come back, we're gonna get right to those questions
27:16
Speaker 3: from you. Again, That phone number is eight eight eight
27:19
Speaker 3: to zero five two two six three. One more time
27:25
Speaker 3: eight eight eight two zero five two two six three
27:29
Speaker 3: quick break. Then write to your calls with Todd.
27:32
Speaker 1: Ask Todd with Todd Lutsky every Wednesday at ten thirty
27:36
Speaker 1: only here on the Financial Exchange Radio Network. You're listening
27:42
Speaker 1: to Ask Todd with Todd Lutsky on the Financial Exchange
27:45
Speaker 1: Radio Network.
27:56
Speaker 3: Still got a little bit of room on the phone line,
27:58
Speaker 3: so if you do have a question for Todd eight
28:01
Speaker 3: eight eight two zero five two two six three. Must
28:04
Speaker 3: be a little slower because of the Christmas holiday coming
28:07
Speaker 3: up next week. Again eight eight eight two zero five
28:10
Speaker 3: two two six three to speak with Todd. We do
28:13
Speaker 3: have a caller all queued up for you right now. Though,
28:16
Speaker 3: Let's go to Steve in Centerville. Steve, what's your question
28:19
Speaker 3: for Todd Lutsky?
28:21
Speaker 8: Yes, I have a question. I had a house put
28:24
Speaker 8: in a Medicaid non revocable trust done the right way.
28:29
Speaker 8: There's a mortgage on the property. Say the house is
28:32
Speaker 8: worth a million and mayl about three hundred at some
28:36
Speaker 8: point in the future. After the trust was set up,
28:39
Speaker 8: you pay the house off. Does that three hundred start
28:42
Speaker 8: a clock on that money that you paid the house
28:44
Speaker 8: off with.
28:46
Speaker 7: That's a great question and the answer is absolutely not right.
28:50
Speaker 7: But let me explain the way the medicaid clock works
28:54
Speaker 7: is you transferred the property in, however long ago that happened,
29:01
Speaker 7: and when the day you transferred the property in is
29:06
Speaker 7: the day you started that five year medicaid clock. Okay,
29:10
Speaker 7: so that that's step one. The only time that medicaid
29:13
Speaker 7: clock resets or starts over would be let's say you
29:19
Speaker 7: added something to the trust after you put this in,
29:22
Speaker 7: something new like money, or you know, you had to
29:25
Speaker 7: spare a brokerage account and you wanted to protect more assets,
29:28
Speaker 7: so you added it to the trust. That would reset
29:31
Speaker 7: the clock, but only as to the new addition. It
29:36
Speaker 7: would not at all reset the clock on the house.
29:40
Speaker 7: Another comment we get all the time is that, and
29:43
Speaker 7: you might be thinking this down the road, Steve, what
29:46
Speaker 7: if you sell your house through the trust and buy
29:50
Speaker 7: another one inside the trust. Again, no restarting of the clock.
29:55
Speaker 7: As long as out goes the house in comes all
30:00
Speaker 7: all the money from the proceeds, and then you use
30:03
Speaker 7: those proceeds to buy the new house inside the trust.
30:08
Speaker 7: You see nothing new went in. All that happened was
30:12
Speaker 7: you reinvested the assets that were already in there, so
30:18
Speaker 7: that didn't restart the clock. And finally, the reason it
30:21
Speaker 7: doesn't restart the clock for your mortgage is that mortgage
30:26
Speaker 7: was never owned by the trust. That mortgage was in
30:31
Speaker 7: your name alone, or you and your wife's name alone,
30:34
Speaker 7: if you're married, and so you are using money I
30:38
Speaker 7: assume outside the trust to pay off a mortgage of
30:44
Speaker 7: your own that is outside the trust, so that transaction
30:49
Speaker 7: never impacts the trust at all and doesn't reset the clock. Now,
30:55
Speaker 7: I'm gonna leave one other comment for everybody else out
30:57
Speaker 7: there who's listening, because Steve, you kind of know this.
31:00
Speaker 7: But Steve situation, I'm guessing had the mortgage on the
31:06
Speaker 7: property before it went into the trust. So if that's
31:10
Speaker 7: the case, always be mindful when you're setting up these
31:13
Speaker 7: trusts that the transfer to the trust could trigger a
31:19
Speaker 7: do on sale clause on the mortgage. That's why we
31:23
Speaker 7: would always reserve a life estate in the deed if
31:29
Speaker 7: you have an existing mortgage. That's how you could keep
31:32
Speaker 7: that mortgage, Steve, even though the property was in the trust.
31:38
Speaker 7: But the one issue is you probably couldn't refinance it
31:42
Speaker 7: without resetting the clock. So anyways, long winded answer, but
31:46
Speaker 7: as a great question, it's one that comes up and
31:48
Speaker 7: I'm sure a lot of people have it. So folks,
31:51
Speaker 7: let me now tell you a little bit about that's
31:53
Speaker 7: a medicaid. That's the irrevocable trust. The guide we're given
31:56
Speaker 7: away this month has both revocable trust and the irrevocable
32:03
Speaker 7: trust addressed in it, I say addressed in it. But
32:06
Speaker 7: how it's gonna explain to you how with a revocable trust,
32:11
Speaker 7: the marit'll share, the remainder, share, how they work, How
32:15
Speaker 7: the formula works to shelter estate taxes on the first death,
32:18
Speaker 7: gives you an example, tells you could put your own
32:21
Speaker 7: numbers in and run it through and see how you
32:23
Speaker 7: shelter your taxes. Tells you how to calculate to tax.
32:27
Speaker 7: It also does the state tax, so it gives you
32:30
Speaker 7: the new Massachusetts of state tax calculations in there. And finally,
32:35
Speaker 7: for all of you who want to do tax planning
32:39
Speaker 7: and nursing home planning, there's another example, but it's with
32:43
Speaker 7: the irrevocable trust, explaining similarly how those things are done.
32:48
Speaker 6: So something for everybody.
32:49
Speaker 7: It's that time of year, call and get the guide
32:52
Speaker 7: eight six six eight four eight five six nine nine
32:56
Speaker 7: or Legal Exchange Show dot com one more time eight
33:01
Speaker 7: four eight five six nine nine or Legal Exchange Show
33:05
Speaker 7: dot com todal.
33:07
Speaker 3: Let's talk a little bit about the current state of
33:10
Speaker 3: affairs for the federal state tax. I know that after
33:13
Speaker 3: next year that is currently set to drop back down
33:18
Speaker 3: to what's the level for twenty six, So for twenty six,
33:21
Speaker 3: it's supposed to drop back down to five million, four
33:25
Speaker 3: hundred and ninety thousand dollars.
33:27
Speaker 7: That's the that's the dropback indexed for inflation. So it's
33:33
Speaker 7: the indexed for inflation part that we're not aware of. Sure,
33:37
Speaker 7: I'm guessing we seem to think that other professionals have
33:41
Speaker 7: been guessing that's gonna move it to about seven million.
33:46
Speaker 6: So but but go ahead.
33:48
Speaker 3: Chuck, Are you hearing anything through the grapevine in terms
33:51
Speaker 3: of the likelihood of what ends up happening with the
33:54
Speaker 3: new administration coming into office and a Republican controlled Congress,
33:58
Speaker 3: as far as hey, are we likely just to see
34:01
Speaker 3: a continuation of the current level with its inflation adjustments.
34:04
Speaker 3: Do you see the federal exemption expanded?
34:07
Speaker 6: Again?
34:08
Speaker 2: What's what's kind of what you're hearing out there in
34:10
Speaker 2: terms of possibilities at least.
34:11
Speaker 7: Yeah, no, And that's a great question. That's a fair question,
34:14
Speaker 7: because that's what we're faced with, right And you know,
34:16
Speaker 7: so there's a couple of schools of thought. Initially, initially
34:20
Speaker 7: when when the election was over, it clearly looked like
34:22
Speaker 7: a red wave had hit, and so we're like, okay,
34:26
Speaker 7: we need to, you know, adjust the way we're going
34:28
Speaker 7: to pursue twenty twenty five and and you know, for
34:33
Speaker 7: higher net worth clients, for aggressive gifting or not. We
34:36
Speaker 7: said we might need to tailor that back, slow it
34:38
Speaker 7: down a little bit because we were thinking that the
34:42
Speaker 7: likelihood of them changing the or or not acting to
34:47
Speaker 7: prevent this from happening. Remember, folks, this is gonna happen
34:52
Speaker 7: unless they act. Okay, so that's a given. So we said, well,
34:55
Speaker 7: likely maybe they won't do that. Then about a month
34:59
Speaker 7: into this, now what are we a month and a
35:01
Speaker 7: half into this thing, We're starting to realize that the
35:04
Speaker 7: red wave was there, but not so much in the
35:08
Speaker 7: House of Representatives as we once thought. Fair, So that
35:12
Speaker 7: now is about what is it one maybe two vote.
35:16
Speaker 3: Republicans going to afford to lose two two and still
35:20
Speaker 3: pass something.
35:20
Speaker 7: So it's about a two vote difference now, which is
35:25
Speaker 7: very different than I think what we're looking at as
35:27
Speaker 7: possible in the teams at one point.
35:29
Speaker 6: So with a two vote.
35:31
Speaker 7: Different that now makes us rethink this exemption resetting once again.
35:36
Speaker 7: In other words, now, as far as I know it, right,
35:40
Speaker 7: the Constitution requires that any tax legislation or what they
35:44
Speaker 7: call revenue generating legislation must start in the House. So
35:51
Speaker 7: it's very possible that it may never find its way
35:54
Speaker 7: to the Senate if it can't get.
35:55
Speaker 6: Out of the House.
35:56
Speaker 7: So now with a tight situation like that in the House, yeah,
36:02
Speaker 7: I think you got to keep your eyes open to
36:04
Speaker 7: this possibility of resetting to seven million. As we all know,
36:07
Speaker 7: the debt is pretty high. The you know, we we
36:10
Speaker 7: we've got deficit spending. We've got to be careful and
36:13
Speaker 7: they need revenue.
36:14
Speaker 3: So have you heard any chatter about, you know it
36:18
Speaker 3: the the exemption amount increasing or is it just hey,
36:22
Speaker 3: you're just not sure and you're just trying to read
36:24
Speaker 3: the board at this point.
36:25
Speaker 7: Well, I I when you say increasing, I mean it's
36:28
Speaker 7: it's obviously scheduled to fall back, not increase.
36:31
Speaker 2: But I'm asking about the opposite.
36:32
Speaker 6: Yeah, I know.
36:33
Speaker 7: I think the best you can hope for would maybe
36:36
Speaker 7: be for the legislation to stay the same and and maybe,
36:40
Speaker 7: you know, maybe then continue whether it's whether it's indexing
36:43
Speaker 7: for inflation every year like it has been doing, because
36:46
Speaker 7: it's going to jump to five, you know, to thirteen
36:49
Speaker 7: nine in gen So those little incremental I think the
36:52
Speaker 7: best you could hope for is stay the same. I
36:54
Speaker 7: don't I don't think you're gonna be able to say
36:56
Speaker 7: all of a sudden, we're gonna now ramp it up
36:58
Speaker 7: and have a much higher.
36:59
Speaker 6: To stay tax. So that's my thought.
37:01
Speaker 2: Mister Lutsky, thank you for joining us today.
37:03
Speaker 6: Always a pleasure. Thank you.
37:06
Speaker 1: This has been Asked Odd on the Financial Exchange Radio Network.
37:10
Speaker 1: Ask Tod with Todd. Lutsky has been presented by Cushing
37:12
Speaker 1: and Dolan, serving Massachusetts and New England for more than
37:15
Speaker 1: thirty years, helping families with the state and tax planning,
37:18
Speaker 1: Medicaid planning, and probate law. Call eight hundred and three
37:21
Speaker 1: nine three four thousand and one or visit Cushingdolan dot com.
37:24
Speaker 1: The views expressed in this segment are solely those of
37:26
Speaker 1: Cushing and Dolan Armstrong advisor. He does not provide any
37:29
Speaker 1: legal or tax advice. Please consult with your legal or
37:31
Speaker 1: tax advisor on such matters. Cushing and Armstrong do not
37:33
Speaker 1: endorse each other and are not affiliated.
37:36
Speaker 3: Bunch that we have to still get to today on
37:38
Speaker 3: the show, including a major merger being discussed in Japan.
37:44
Speaker 3: We'll also talk a little bit about daylight savings time
37:47
Speaker 3: because man love talking about that.
37:51
Speaker 2: Gotta be honest with you.
37:53
Speaker 3: And then we'll also talk a little bit about the
37:56
Speaker 3: latest potential front in the uh trade and economic conflict
38:02
Speaker 3: between the US and China. We'll cover all that and
38:07
Speaker 3: more an hour two and just a little bit today