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Money Monday with Brian James · Brian Thomas

0:00
Speaker 1: Station eight o six on a Monday. I hope you
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Speaker 1: know what that means. It's that time talking money matters.
0:08
Speaker 1: It's money Monday with all Worth Financials. Brian James appreciate
0:11
Speaker 1: all Worth loading out every Monday to talk about financial matters.
0:13
Speaker 1: I hope you had a wonderful weekend. You're ready for
0:15
Speaker 1: the holidays, Brian, we are. Yeah, We've got all local.
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Speaker 1: We're a good West side Cincinnati family.
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Speaker 2: So nobody ever left town very far, so we just
0:23
Speaker 2: got a lot of places they hit over the next
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Speaker 2: few weeks.
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Speaker 1: H Yeah, I'm sure you're looking forward to it. I know,
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Speaker 1: I am. It's nice to excel a little bit and
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Speaker 1: try to enjoy something so much gloom and doom in
0:31
Speaker 1: the news these days. Just I'm glad the holidays are
0:34
Speaker 1: fast approaching for that reason alone. If there are any
0:37
Speaker 1: other I gotta ask you. This Federal Reserve cut interest
0:40
Speaker 1: rates by a quarter point and there was apparently dissension
0:44
Speaker 1: among the ranks. We had Chicago's Fed president and the
0:47
Speaker 1: Kansas City Fed saying no, no, you need a whole rate steady.
0:50
Speaker 1: The Fed Governor, Stephen Moran said they've fifty percent basis
0:54
Speaker 1: point cut, so point five and it came in at
0:56
Speaker 1: point twenty five. What's the argument about Brian James. What
1:00
Speaker 1: seems to be the problem here reaching a consensus?
1:03
Speaker 3: Well, you know that people have different opinions is really
1:06
Speaker 3: all this thing.
1:07
Speaker 2: It really turns out we don't just move in lockstep
1:09
Speaker 2: go figure. So, yeah, there were three descents this time around.
1:12
Speaker 2: There were two that wanted to keep rates exactly where
1:15
Speaker 2: they were, with concerns about elevated inflation, which is really,
1:18
Speaker 2: you know, inflation has just never gone away. I don't
1:20
Speaker 2: know that it's necessarily new inflation, it just hasn't gotten back.
1:22
Speaker 3: To where we want.
1:23
Speaker 2: And then another one wanted a steeper cutout about a
1:26
Speaker 2: half percent. That one was concerned about a slowing labor market,
1:30
Speaker 2: in other words, we want This person wanted to basically
1:33
Speaker 2: kind of goose the system to sit, to entice businesses
1:36
Speaker 2: to invest more and then re energize the hiring market.
1:40
Speaker 2: So there's more new projections out there, some of them
1:43
Speaker 2: painting a more optimistic, bigger picture, and so they did
1:48
Speaker 2: increase their GDP forecast for twenty six to two point
1:51
Speaker 2: three percent from one point eight.
1:53
Speaker 3: So obviously that's good.
1:53
Speaker 2: They're seeing better times ahead and reducing the twenty six
1:57
Speaker 2: inflation projections to two point four percent.
2:00
Speaker 3: Two point six so as we're sitting here right now.
2:02
Speaker 2: Oh and also they kept unemployment the unemployment projections at
2:05
Speaker 2: four point four for next year. So as we're sitting
2:07
Speaker 2: here right now, it seems to be we are leaning
2:10
Speaker 2: toward the opinion of the general opinion of the Fed
2:13
Speaker 2: governors is positive. We're seeing better things coming with regard
2:16
Speaker 2: to both inflation and economic growth. But yes, like you said,
2:20
Speaker 2: we do still have some descent among the ranks.
2:22
Speaker 1: Okay, and I certainly get to this sounds kind of
2:24
Speaker 1: joke a little bit there, But let me ask you this.
2:26
Speaker 1: You mentioned the economic forecast, and I was glad you did,
2:29
Speaker 1: because they project where they think the economy is going,
2:32
Speaker 1: inflation and and employment and all that is. Are there
2:36
Speaker 1: any statistics about how accurate they are with these forecasts,
2:39
Speaker 1: because you know, someone wrote down accurate. Is this science
2:43
Speaker 1: or alchemy? That will be me?
2:45
Speaker 3: Really?
2:45
Speaker 1: What's behind this? And has anybody checked their overall accuracy
2:48
Speaker 1: rate over the years.
2:49
Speaker 2: Well, I think they've kind of They run hot and cold,
2:52
Speaker 2: and we get excited about them when they're super accurate.
2:53
Speaker 3: We get excited about.
2:54
Speaker 2: Them when they're not accurate at all when they're in
2:56
Speaker 2: the When they're kind of in the middle, we don't
2:58
Speaker 2: pay attention a whole lot. So but yeah, these are
3:03
Speaker 2: generally considered to be directionally useful but numerically wrong. So,
3:06
Speaker 2: for example, in twenty one and twenty two, the FED
3:09
Speaker 2: repeatedly projected inflation was going to fall quickly, only to
3:12
Speaker 2: see it spike to forty year highs. Remember transitory inflation,
3:15
Speaker 2: Well that wasn't exactly transitory. And over the last fifteen
3:19
Speaker 2: fifteen years, we've repeatedly predicted slower GDP.
3:22
Speaker 3: Growth than what has actually occurred.
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Speaker 2: Twenty thirteen to twenty nineteen growth was consistently ahead of
3:27
Speaker 2: FED estimates. So now the FED hasn't been any more
3:29
Speaker 2: accurate really than many other resources in terms of projecting
3:33
Speaker 2: all this. And part of me wants to believe that
3:35
Speaker 2: this might be because it's gonna hurt a lot more
3:38
Speaker 2: if we tell everybody everything is wonderful, because people will
3:41
Speaker 2: tend to take that and multiply it by ten, and
3:43
Speaker 2: so it is reasonable to me that they might be
3:47
Speaker 2: hesitant to really kind of light that light things on
3:50
Speaker 2: fire too quickly, and therefore they kind of lean toward
3:53
Speaker 2: urging caution a little more often.
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Speaker 1: Well, with hindsight, it should. Do you think they're lamenting
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Speaker 1: the fact they didn't put the brakes on a little
3:59
Speaker 1: bit sooner considering the trillions of dollars that were infused
4:02
Speaker 1: into the economy through all these massive government spending programs
4:06
Speaker 1: during the COVID time.
4:07
Speaker 3: Oh, for sure.
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Speaker 2: I mean, because we had unbridled spending and we didn't
4:11
Speaker 2: have a whole lot of oversight over the whole thing.
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Speaker 2: But yeah, I think at the time there was just
4:15
Speaker 2: out and out panic among you know, the decision makers
4:18
Speaker 2: from a standpoint of we don't know what this is,
4:20
Speaker 2: we don't know how long this is going to last.
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Speaker 3: We just know we have to do something big and
4:23
Speaker 3: something quick.
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Speaker 2: And I think and then a lot a lot of
4:25
Speaker 2: cases that got us back to things we've seen in
4:27
Speaker 2: the past where we've done a lot of spending like
4:29
Speaker 2: that with really out any any handcuffs on it, and
4:34
Speaker 2: that gets us the inflation that we've gotten. We saw
4:36
Speaker 2: that in the late seventies early eighties when we were
4:39
Speaker 2: when we basically cut interest rates too low during the
4:42
Speaker 2: Nixon administration, and that begat a bunch of inflation over
4:45
Speaker 2: the next several several years, leading to really really high
4:48
Speaker 2: interest rates in the late eighties, well the early eighties.
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Speaker 1: It is one of the big question marks the scenes
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Speaker 1: to be swirling about all this. And one of the
4:54
Speaker 1: reasons I think they lowered the interest rate by our
4:56
Speaker 1: quarter point is because of the concern over the labor market. See,
5:00
Speaker 1: we used to be a rather moving target these days,
5:02
Speaker 1: and I've read a number of articles where there's like
5:04
Speaker 1: question marks over waitment. What is the true state of
5:07
Speaker 1: the labor market. It seems that there's a lot of
5:09
Speaker 1: people that are supposed to be in the know that
5:12
Speaker 1: aren't quite in the know on that. But all the
5:15
Speaker 1: arras seem to point to a deteriorating labor market. If
5:19
Speaker 1: for no other reason, We're going to talk about artificial
5:21
Speaker 1: intelligence in the next segment. This may be a bubble coming,
5:23
Speaker 1: but AI is in fact replacing a lot of jobs,
5:26
Speaker 1: and does it seems like that that trajectory is not
5:29
Speaker 1: going to go anywhere anytime soon.
5:31
Speaker 2: Yeah, And we do have some jobs data coming out here,
5:35
Speaker 2: and we have to look with a little bit of
5:38
Speaker 2: a cross eye at the at the data we're getting
5:40
Speaker 2: because who knows what we're seeing anymore? Because we're kind
5:43
Speaker 2: of swapping this in for that and that kind of thing.
5:45
Speaker 2: But in any case, where we are right now, the
5:47
Speaker 2: November payroll payroll comes out this week, but we still
5:51
Speaker 2: got some good information this week anyway. So August was
5:54
Speaker 2: the last time the Jolts survey was updated, and that
5:57
Speaker 2: showed opening job openings near multi year lows. And after
6:02
Speaker 2: the government reopened, there was a jump in September to
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Speaker 2: seven point six million from seven point two and October
6:08
Speaker 2: data is inching higher to seven point six So most
6:11
Speaker 2: of these increases are coming from lower skill service jobs
6:14
Speaker 2: and those are still dealing with seasonal quirks. So we
6:17
Speaker 2: obviously we're in the holiday so you're gonna see a
6:18
Speaker 2: little bit of fuzziness there. But all this data tells
6:21
Speaker 2: us that workers are feeling a little bit less confident
6:23
Speaker 2: about leaving that current job to find a new one
6:26
Speaker 2: without already having secured something. You know, when these indexes
6:30
Speaker 2: look a little bit different, that's when people feel like, Okay,
6:32
Speaker 2: the job market is healthy, so I'm going to go
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Speaker 2: ahead and leave this job that's making me miserable and
6:36
Speaker 2: I'll find something else later. Well, we're not seeing this
6:38
Speaker 2: is the quis rate I'm referring to. So people are
6:41
Speaker 2: hanging on to older jobs without you know, having found
6:46
Speaker 2: a new one yet, So a little bit of insecurity there.
6:48
Speaker 1: So I hear what you're saying, no reason to doubt that.
6:51
Speaker 1: But I keep again reading a bunch of articles about
6:54
Speaker 1: how concerned people are that are looking to hire people
6:56
Speaker 1: they can't find qualified people for the job, or the
6:59
Speaker 1: people that they find are not well, not very good workers.
7:02
Speaker 1: So there seems to be a demand out there for workers.
7:05
Speaker 1: But I guess not in all sectors you mentioned the
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Speaker 1: lower level sectors, or are there other areas that have
7:11
Speaker 1: been impacted one way or the other.
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Speaker 2: Well, I think there's just a heel. Like you said,
7:14
Speaker 2: there's a huge disconnect. It would be wonderful to get
7:16
Speaker 2: all these people in the same room. The people who
7:18
Speaker 2: are saying there aren't enough jobs available. This is the
7:19
Speaker 2: people whore saying there aren't enough workers available. I would
7:22
Speaker 2: like to get them into one big, giant hotel conference
7:24
Speaker 2: room and maybe just kind of have a big job
7:27
Speaker 2: fare and see how that goes. But I have a
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Speaker 2: feeling this is more of a discrepancy of employers not
7:34
Speaker 2: wanting to give the perks that people still feel should
7:37
Speaker 2: be involved in a job such as a flexible work schedule, hybrid.
7:40
Speaker 3: And remote work, those kinds of things.
7:41
Speaker 2: And then of course there we'll never see the eye
7:43
Speaker 2: to eye on what the compensation should be in general.
7:46
Speaker 2: So to me, all of that speaks more to a
7:49
Speaker 2: lack of willingness to compromise on both sides than it
7:53
Speaker 2: does complete blindness to the other side.
7:55
Speaker 1: All right, and the all important question the quarter point drop,
8:00
Speaker 1: is that going to translate into lower mortgage rates.
8:03
Speaker 2: Well it should, But at the same time, there's a
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Speaker 2: lot of people out there, Brian who bought houses and
8:08
Speaker 2: wound up with a eight eight and a half percent
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Speaker 2: mortgage something like that, And so we're gonna see those
8:13
Speaker 2: folks who are obviously seeing.
8:14
Speaker 3: An opportunity to refinance.
8:16
Speaker 2: Sure, but that also was putting, that was pushing, you know,
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Speaker 2: those higher registrates were keeping people from moving at all, deciding,
8:22
Speaker 2: you know, we'll push it out another couple three years. Well,
8:24
Speaker 2: now that interest rates are falling a bit, I think
8:26
Speaker 2: we might see the demand for housing pop back up
8:30
Speaker 2: just a little bit, because people who would would have
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Speaker 2: moved otherwise over the last couple three years held off,
8:35
Speaker 2: and now things are more a little more favorable for
8:37
Speaker 2: them to do so.
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Speaker 1: And under those circumstances, don't we still have an inventory
8:41
Speaker 1: problem because I got the impression that we're kind of
8:44
Speaker 1: short on housing supply.
8:46
Speaker 3: Yeah, and I think there's there's a lot to be
8:48
Speaker 3: said too. We're also moving into a slower time of
8:50
Speaker 3: year where people just don't want to move. So if
8:52
Speaker 3: I have the.
8:52
Speaker 2: Cold out, it's exactly, I don't want to go get
8:54
Speaker 2: the paper, let alone move everything. I know.
8:57
Speaker 3: So, yeah, we're entering in that time of year.
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Speaker 2: And yeah, so there are fewer houses hitting the market.
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Speaker 2: I don't see cracks in the foundation or anything like that,
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Speaker 2: just kind of a downswing in the overall activity.
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Speaker 1: All right, fair enough, We'll continue with Brian James speaking
9:11
Speaker 1: of artificial intelligence Wall Street seeing an AI bubble coming.
9:15
Speaker 1: What's that mean for us generally speaking? We'll learn about
9:18
Speaker 1: that with Brian James. Stick around me right back fast
9:20
Speaker 1: and pro roofing a reputable company that pre.
9:23
Speaker 3: The talk station.
9:29
Speaker 1: It's eight nineteen at fifty five KRC, the Talk Station,
9:33
Speaker 1: Happy Monday, Brian James.
9:35
Speaker 3: All were financials.
9:36
Speaker 1: Brian James going through the Money Monday segment, and we're
9:39
Speaker 1: going to talk about owner We're going to see another
9:41
Speaker 1: tech bubble in the form of an AI bubble. Brian James,
9:44
Speaker 1: Billions of dollars being thrown a fit at artificial intelligence
9:47
Speaker 1: and a real game changer in terms of our energy needs.
9:50
Speaker 1: And maybe we'll have a reform in terms of where
9:53
Speaker 1: we get our energy from, notably small nuclear reactors. Please,
9:56
Speaker 1: Dear God, let us have those. But is this a
9:59
Speaker 1: bubble getting ready to pop? The whole world's competing on
10:02
Speaker 1: this stage.
10:02
Speaker 2: Well, yeah, there's and this is AI has been a catalyst,
10:06
Speaker 2: just like lots of other technological headlines over the last
10:09
Speaker 2: thirty years. I remember remember when the Internet was very
10:11
Speaker 2: first a brand new thing in the late nineties and
10:13
Speaker 2: early two thousands. Well, obviously that was not a flash
10:16
Speaker 2: in the pan, and it'd be got more bubbles. But
10:18
Speaker 2: what we're concerned about here right now is you're seeing
10:20
Speaker 2: a lot of sell offs on Nvidia, some of the
10:22
Speaker 2: big names. An Oracle stock that has plunged after they
10:25
Speaker 2: were they hit about three hundred and twenty bucks a share,
10:27
Speaker 2: Now they're down to about one hundred and eighty eight.
10:29
Speaker 2: A big step back for Oracle that was from October
10:33
Speaker 2: to now, and just over a lot of AI spending
10:36
Speaker 2: a weakening sentiment for firms tied to these platforms like
10:40
Speaker 2: like open ai, and that's open Ai is the one
10:41
Speaker 2: behind chat GPT.
10:42
Speaker 3: Of course, the Microsoft is doing a lot of money
10:44
Speaker 3: them as well.
10:45
Speaker 2: And so I think investors are looking at the kind
10:48
Speaker 2: of debating, okay, for twenty twenty six, how do I
10:50
Speaker 2: want to be positioned?
10:51
Speaker 3: Do want to do?
10:52
Speaker 2: I want to stay as exposed given the run up
10:55
Speaker 2: that all these stocks have had, and given the fact
10:57
Speaker 2: that we really haven't had much of a shakeout. Remember
11:00
Speaker 2: back two thousand and one, two thousand and two, that
11:02
Speaker 2: was the shakeout of the original Internet bubble, and that's
11:05
Speaker 2: when the winners and losers were first chosen. That has
11:08
Speaker 2: not happened yet in the AI space, and I think
11:10
Speaker 2: investors might be starting to look to that saying, okay,
11:12
Speaker 2: it's really time for time for things to kind of
11:14
Speaker 2: move to a little bit of a ranked order in
11:17
Speaker 2: terms of who's going to survive and who's not.
11:18
Speaker 1: Well, it's like crypto in a way, isn't it. There's
11:20
Speaker 1: like eight gajillion different cryptos out there, and you know,
11:24
Speaker 1: I guess one of them, maybe or more, are going
11:27
Speaker 1: to emerge as the top contenders and the other one's
11:29
Speaker 1: going to fall by the wayside? Am I close on that?
11:31
Speaker 3: Well?
11:31
Speaker 2: I mean I think I think the difference there is
11:33
Speaker 2: Crypto is more speculatively based. I mean it's it's these
11:37
Speaker 2: companies that are pursuing AI have different patented technologies, different
11:40
Speaker 2: approaches to things, versus crypto, which is ninety percent what
11:44
Speaker 2: does the herd want.
11:44
Speaker 3: To buy to me? I got you so?
11:46
Speaker 2: But yeah, so I think it's going to be a
11:47
Speaker 2: little different than that. This will be more traditional. Let's
11:49
Speaker 2: look at the business plans and the opportunity strengths and
11:52
Speaker 2: weaknesses and all that of each individual company again versus
11:54
Speaker 2: just speculative types of assets.
11:56
Speaker 1: All right, Well, I guess in terms of exposure, I presumed,
12:02
Speaker 1: since I have, you know, these managed funds and they're
12:04
Speaker 1: filled with all kinds of different stocks, that anybody who's
12:07
Speaker 1: got that kind of financial portfolio is exposed on some level.
12:10
Speaker 1: I presume that some of my investments are in these
12:12
Speaker 1: AI companies.
12:13
Speaker 3: Right. Oh, it's hard, It's impossible to avoid. There's no way.
12:16
Speaker 2: Yeah, even if you don't have anything that strictly is
12:19
Speaker 2: itself involved in AI, it's a virtual guarantee that a
12:22
Speaker 2: lot of the companies you've invested in via those mutual
12:24
Speaker 2: funds and exchange traded funds are somehow themselves benefiting from AI.
12:28
Speaker 2: There are a lot of savings and a lot of
12:31
Speaker 2: efficiencies to be gained by allowing to allowing computers to
12:34
Speaker 2: do more thinking pros and cons for sure, but we
12:36
Speaker 2: can't pretend that these aren't these.
12:38
Speaker 3: Aren't powerful tools.
12:39
Speaker 2: So AI is going to filter its way into every
12:42
Speaker 2: part of every industry just simply because of those efficiencies
12:46
Speaker 2: that can be gained. If you own the S and
12:48
Speaker 2: P five hundred, then a huge chunk of that the
12:50
Speaker 2: largest holdings in there. And I feel like we've beaten
12:52
Speaker 2: this to death on the radio waves here this last
12:54
Speaker 2: several months. But a very very large chunk of the
12:57
Speaker 2: S and P five hundred is focused in the technology
12:59
Speaker 2: sect and just a handful of country companies. Because of
13:03
Speaker 2: the way it's built, the S and P five hundred
13:05
Speaker 2: is capitalization weighted. That means the bigger the company, the
13:09
Speaker 2: more it makes up of the index. So as we
13:11
Speaker 2: all know, technology is ruling the day at the moment,
13:14
Speaker 2: so those tech companies are absolutely huge. If you have
13:16
Speaker 2: the S and P five hundred index fund that's a
13:19
Speaker 2: good fund, but.
13:20
Speaker 3: Don't assume that you're completely diversified.
13:22
Speaker 2: It's largely going to be driven by what technology does,
13:24
Speaker 2: which that's just driving the market these past couple decades.
13:27
Speaker 1: I guess it is now I'm guessing this is I
13:31
Speaker 1: hate using the phrase piece of God, but it often
13:33
Speaker 1: is like the passes all human understanding, and for Brian Thomas,
13:36
Speaker 1: it passes my understanding. Now, there are different types of
13:39
Speaker 1: artificial intelligence, the mechanism, the how it works, components behind
13:45
Speaker 1: the scenes of computer number crunching, whatever it's doing. And
13:48
Speaker 1: somebody is going to emerge as the predominant force at
13:51
Speaker 1: some point, right other one is going to be better
13:53
Speaker 1: than the other. So there's the tech component of it.
13:55
Speaker 1: But then there's also the hardware part. Isn't Navidia don't
13:59
Speaker 1: they manufacture the chips?
14:01
Speaker 3: Correct? Yeah, there's a lot of components to this.
14:03
Speaker 2: There there are, you know, and I think back always
14:05
Speaker 2: us example, I think back to the gold Rush. The
14:07
Speaker 2: gold Rush was not at all about people digging gold
14:10
Speaker 2: out of the ground. In terms of who made the money.
14:12
Speaker 2: It was the companies that realized that there was a
14:14
Speaker 2: movement happening among society. A lot of people were moving
14:17
Speaker 2: out west to go dig in the dirt. So the
14:19
Speaker 2: companies that made a lot of money were Levi's because
14:22
Speaker 2: they they invented clothing that was durable and would hold
14:26
Speaker 2: up for that kind of thing. They were the Studebaker
14:28
Speaker 2: company that ultimately became the automotive company that we know of.
14:32
Speaker 3: They sold shovels. Go figure, that's a good idea.
14:34
Speaker 2: Wells Fargo, that's where the stage coach came from. For
14:37
Speaker 2: for all these businesses doing doing business out there on
14:39
Speaker 2: the frontier, out on the fringes, somehow that money had
14:42
Speaker 2: to get back to the to the financial centers. That's
14:44
Speaker 2: where the stage coach came from. So it's same thing
14:46
Speaker 2: is happening here. And Vidia makes the chips that will
14:49
Speaker 2: support the demand that's out there. In Vidia is not
14:52
Speaker 2: out there putting AI into companies and consulting with them
14:57
Speaker 2: on how to use it. They're just creating the hardware
14:59
Speaker 2: because they know that demand is going.
15:00
Speaker 3: To be there for it. Are are they unique?
15:03
Speaker 1: Because that's all the only company I hear about in
15:05
Speaker 1: terms of chips, and I know there's got to be
15:07
Speaker 1: more of them out there, But does Navidia have any
15:08
Speaker 1: competitors along there? At their level. Yeah.
15:12
Speaker 3: Yeah, so in Vidia, it is not a new company.
15:14
Speaker 2: It's a new name to people who don't who haven't
15:16
Speaker 2: necessarily paid much attention to the technology industry. But in
15:18
Speaker 2: Vidia has been a graphics company for decades, right, right,
15:21
Speaker 2: So this.
15:22
Speaker 3: Is not They're not a you know, new on the scene.
15:25
Speaker 2: But they have the right technology and the right patents
15:28
Speaker 2: to make this, to make the chips that are that
15:32
Speaker 2: that happen to be appropriate for graphical processing units. They
15:36
Speaker 2: also happen to be the best brains for artificial intelligence.
15:39
Speaker 2: So some of it is knowledge and some of it
15:40
Speaker 2: is right place, right time. But but they quickly got there,
15:44
Speaker 2: and they had the ability to scale it up in
15:47
Speaker 2: order to basically provide enough supply for all the demand
15:50
Speaker 2: that's out.
15:51
Speaker 1: There, all right, And of course we have that you know,
15:55
Speaker 1: critical question of whether they're going to be allowed to
15:57
Speaker 1: sell chips that China and China's benefiting from official intelligence too.
16:00
Speaker 1: The question is do we need to fund or help
16:02
Speaker 1: our our foes if we may, in a geopolitical sense
16:05
Speaker 1: refer to them along with their technology. So there's all
16:08
Speaker 1: that that goes along with it.
16:10
Speaker 2: Yeah, that's true, and there is competition out there right.
16:13
Speaker 2: This doesn't mean that AMD and Intel have just kind
16:15
Speaker 2: of gone away and vanished. They are still out there,
16:17
Speaker 2: but in Vidia is the one again just has the
16:20
Speaker 2: best technology to produce these things at scale. And there
16:23
Speaker 2: is you know, there wasn't remember it wasn't that long
16:26
Speaker 2: ago that China came out with a competitor that turned
16:28
Speaker 2: out to be a little bit, a little bit fake,
16:30
Speaker 2: a little bit plastic. But there are certainly other organizations
16:34
Speaker 2: other countries out there looking for more you looking for
16:37
Speaker 2: more efficiencies there that will compete with in Nvidia, and
16:40
Speaker 2: Vidia just has that they have much more of the
16:42
Speaker 2: vertical of producing all these types of things.
16:44
Speaker 3: So that's why they're the leader right now.
16:46
Speaker 1: All right, we'll continue with Brian James. What is the
16:48
Speaker 1: required minimum distribution? When is the deadline and what you
16:50
Speaker 1: need to know about that. That's coming up next. More
16:52
Speaker 1: with Brian James and Money Monday. After these brief words
16:55
Speaker 1: fifty five KRC.
16:57
Speaker 3: This is a station.
17:00
Speaker 1: A twenty nine to fifty five fir CED talks station,
17:02
Speaker 1: Happy Monday, Money Money with Brian James. We're gonna talk
17:05
Speaker 1: about required minimum distributions.
17:07
Speaker 3: Question.
17:07
Speaker 1: This is for folks with retirement accounts like four to
17:10
Speaker 1: one k's, and as I understand it, at seventy three
17:13
Speaker 1: you have to start taking this required minimum distribution. In
17:17
Speaker 1: other words, you might not need the money for your
17:20
Speaker 1: day to day living expenses or whatever. You might be
17:22
Speaker 1: well off independent of your retirement account, but you have
17:24
Speaker 1: to start taking a distribution. What is the reason or
17:28
Speaker 1: policy behind the mandate that at age seventy three you
17:31
Speaker 1: have to start doing this before we get into the
17:33
Speaker 1: dates and all that, Brian James.
17:34
Speaker 2: Jure, Well, yeah, this refers to not only four to
17:37
Speaker 2: one k's as you mentioned, but also iras four h
17:40
Speaker 2: three b's really any kind of tax sheltered account that
17:42
Speaker 2: would have originated from your employment by some other company
17:45
Speaker 2: out there. And the thought is the reason for this
17:48
Speaker 2: is the IRS is basically saying, Okay, the gravy train
17:51
Speaker 2: has come to a halt. You've never paid taxes on
17:53
Speaker 2: these pre tax dollars. This only affects pre tax accounts.
17:56
Speaker 2: We're not talking about roth, we're not talking about after tax.
17:59
Speaker 2: So what they're basically saying is that you've contributed this
18:02
Speaker 2: to maybe thirty forty years, you deducted it on the
18:05
Speaker 2: way in it has grown completely tax free to something
18:08
Speaker 2: when you turn age seventy three, it's also or seventy five,
18:11
Speaker 2: depending on how old you are right now. If you
18:13
Speaker 2: haven't reached that age as of yet as of by
18:15
Speaker 2: twenty thirty, then it'll be seventy five.
18:17
Speaker 3: But for most people now seventy.
18:18
Speaker 2: Three, then the IRS says you do have to start
18:21
Speaker 2: taking taxable distributions. Doesn't matter what you do with the money.
18:25
Speaker 2: What it really means is that you just have to
18:27
Speaker 2: start paying taxes on little bits of it. There's a
18:29
Speaker 2: calculation you have to go through, and there's a table
18:32
Speaker 2: in the IRS records that you'll use to do the calculation,
18:36
Speaker 2: or just have your IRA custodian or four to one
18:38
Speaker 2: K custodian do it for you. But essentially a good
18:41
Speaker 2: ballpark is about four to five percent of the of
18:44
Speaker 2: the accounts. So maybe if you've got one hundred thousand
18:46
Speaker 2: and one of these accounts, you might have to take
18:47
Speaker 2: out something like four to five thousand. That's not the taxes,
18:51
Speaker 2: that is the distribution. That is what will be taxed.
18:54
Speaker 2: So if you're in a twenty percent bracket, you might
18:55
Speaker 2: owe eight hundred thousand bucks on that. So but the
18:58
Speaker 2: whole point to answer your question, is basically that this
19:01
Speaker 2: can't be a permanently tax sheltered pile of money. Does
19:05
Speaker 2: have to get taxed at some point, and that's where
19:07
Speaker 2: that's where they decided to start it decades ago.
19:09
Speaker 1: Okay, well, there is a thing called an inherited IRA,
19:13
Speaker 1: for example, and is that a taxable event when it's
19:17
Speaker 1: passed along to airs or is this are they subject
19:19
Speaker 1: to a separate requirementium distribution.
19:21
Speaker 2: Yeah, as with anything, there are lots of moving parts
19:23
Speaker 2: of this. So what you're referring to is somebody that
19:26
Speaker 2: that you know, some benefactor of mine, passed away. They
19:29
Speaker 2: themselves had one of these four oh one k ira
19:33
Speaker 2: tax deferred accounts. And so generally speaking, here's what's commonly
19:37
Speaker 2: known nowadays, as of the Secure Act of twenty twenty.
19:40
Speaker 2: If I inherit an IRA from someone who passed after
19:45
Speaker 2: twenty twenty, then I have ten years to drain that account.
19:48
Speaker 2: I can drain it all day one, nothing stops me.
19:50
Speaker 2: I can drain it all on day three, six hundred
19:53
Speaker 2: and fifty at the end of the ten years. But
19:55
Speaker 2: the point of that is that I now will have
19:57
Speaker 2: to pay income taxes on every nickel of it, all
19:59
Speaker 2: at once. Usually the best way to do that is
20:01
Speaker 2: to find a way combine it with your other sources
20:03
Speaker 2: of income to figure out what brackets you're going to hit,
20:05
Speaker 2: and then figure out the right years to take it,
20:07
Speaker 2: because most people within a decade will have some high
20:11
Speaker 2: tax years and some low tax years. Now there's moving
20:13
Speaker 2: parts to that too, though, Brian. If the person who
20:16
Speaker 2: passed away, this is a new rule as of this year,
20:18
Speaker 2: if the person who passed away was themselves of required
20:21
Speaker 2: minimum distribution age, which which could have been any that
20:24
Speaker 2: might have been seventy and a half several years ago,
20:27
Speaker 2: then you will even though there's still the ten year rule,
20:30
Speaker 2: you do still have to take a minimal amount out.
20:32
Speaker 2: So make sure if you're in that situation that you're
20:34
Speaker 2: that you're on top of that.
20:36
Speaker 1: Okay, Now, the downside risk if you fail to do
20:40
Speaker 1: the require minimum distribution by the all important deadline. What
20:45
Speaker 1: kind of penalty you are going to the face with the
20:46
Speaker 1: on this one.
20:47
Speaker 3: A fat one, although not as fat as in the past.
20:50
Speaker 2: If you fail to take this full RMD by December
20:52
Speaker 2: thirty first, the penalty is generally twenty five percent of
20:55
Speaker 2: the amount that wasn't withdrawn. That's a huge chunk used
20:58
Speaker 2: to be fifty percent and there was no forgiveness for it,
21:01
Speaker 2: but now if you correct it within two years with
21:03
Speaker 2: an IRS form, the penalty can be reduced to ten percent.
21:07
Speaker 2: Penalties are penalties, though, let's just avoid them. Just make
21:10
Speaker 2: sure you know understand what your obligations are and try
21:13
Speaker 2: to get it done by December thirty. First, you do
21:15
Speaker 2: have a get out of jail free card in your
21:17
Speaker 2: very first year. You have until tax time the following year.
21:22
Speaker 2: Because a lot of people don't find out, they don't
21:24
Speaker 2: understand until they've done their taxes that they should have
21:27
Speaker 2: taken a distribution.
21:28
Speaker 3: But that's only for the first year, and I.
21:30
Speaker 2: Would not recommend taking advantage of that because that is
21:32
Speaker 2: still going to cause you to have to take two distributions,
21:35
Speaker 2: the one to make up for missing the first year,
21:38
Speaker 2: which in that case is penalty free, but you also
21:40
Speaker 2: have to take the one for the second year, so
21:42
Speaker 2: that could push you into a higher bracket.
21:44
Speaker 1: Fair enough, I guess for the folks that don't need
21:47
Speaker 1: to tap into the retirement accounts, I guess they're in
21:50
Speaker 1: decent enough financial situation. I guess you know, it might
21:52
Speaker 1: be a good idea to pass it along to your children.
21:55
Speaker 1: I mean, let that money work for them while they're alive,
21:57
Speaker 1: and while you're still alive, and you can see the
21:59
Speaker 1: fruits of the your labor in your to their benefit.
22:01
Speaker 2: Oh for sure, there's lots of things that you can
22:03
Speaker 2: be thinking about there. The irs, like I said, doesn't
22:06
Speaker 2: care what you do with these dollars. A lot of
22:08
Speaker 2: people Brian will simply say, Okay, well I got to
22:09
Speaker 2: pull that money out. It simply can't be sheltered anymore,
22:12
Speaker 2: that small proportion of it, and so therefore I'm going
22:15
Speaker 2: to take it out and I'm gonna immediately stick it
22:16
Speaker 2: over in my account.
22:18
Speaker 3: Well, no, you can't do that. You can't put it
22:20
Speaker 3: into a raw Oh well, okay, let this gets a
22:23
Speaker 3: little complicated.
22:23
Speaker 2: You can do roth conversions, but they have to happen
22:27
Speaker 2: after your rm D comes out. Therefore, if my RMD
22:30
Speaker 2: comes out, and my RMD my required minimum is five thousand,
22:33
Speaker 2: and I want to convert ten thousand, well then I
22:35
Speaker 2: take five out. It cannot go anywhere else, pay taxes
22:38
Speaker 2: on that, and then after that has happened, I can
22:40
Speaker 2: convert my ten thousand, hundred thousand or whatever. But remember
22:43
Speaker 2: your RMD is already going to push up your income bracket,
22:46
Speaker 2: so therefore conversions are going to make that even worse.
22:49
Speaker 2: If you're wanting to do roth conversions, the best time
22:51
Speaker 2: to do it is before you have these require minimum
22:53
Speaker 2: distributions kicking in.
22:54
Speaker 1: Do you as a financial planner? Is it person contingent
22:59
Speaker 1: about whether or not you do a conversion? Because if
23:01
Speaker 1: I converted my four oh one K, I'd have to
23:03
Speaker 1: pay at my tax bracket the taxes that are due.
23:06
Speaker 1: I understand that, but is it a good thing to
23:09
Speaker 1: do that for somebody and the terrible thing for somebody
23:11
Speaker 1: else to do I mean, it is.
23:13
Speaker 2: Very much not a black and white everybody should figure this. Yeah,
23:17
Speaker 2: you are very much making a sacrifice right now. I
23:19
Speaker 2: have a lot of people that'll come in and say,
23:20
Speaker 2: here's my four to one K. I got a half
23:21
Speaker 2: million dollars. I want to convert that into a rock.
23:23
Speaker 2: As if I sign a form and it suddenly poof
23:25
Speaker 2: tax free doesn't work that way. You need to take
23:28
Speaker 2: in that case a half million dollars worth of taxable income,
23:31
Speaker 2: which is going to be a fat voluntary check written
23:33
Speaker 2: to the IRSA in exchange for the rest of your
23:36
Speaker 2: life of tax free growth. I can show you mathematically
23:38
Speaker 2: how that's a good idea, but I'm not the one
23:40
Speaker 2: who has to write the fat check to the irs.
23:41
Speaker 2: It's very much a philosophical thing. My role is to
23:44
Speaker 2: make sure people understand the pros and cons of it.
23:46
Speaker 2: It will be a very valuable strategy, though.
23:48
Speaker 1: I am one that am always worried about when I
23:50
Speaker 1: start taking out my four oh one k distributions, that
23:52
Speaker 1: they're going to come up with some just outrageous tax
23:55
Speaker 1: scheme because we run this country into the toilet with
23:57
Speaker 1: our debt, and they're going to say, well, there's trillions
23:59
Speaker 1: of dollars walcked away in four to one case, let's
24:02
Speaker 1: tax them at a much higher rate because we got
24:04
Speaker 1: a crisis on our hands.
24:06
Speaker 3: Right exactly, and that that's that could happen.
24:09
Speaker 2: I don't worry too much about double taxation in these
24:12
Speaker 2: accounts because the people who will have made that choice
24:14
Speaker 2: will have to run for reelection having been, you know,
24:17
Speaker 2: having just double taxed everybody and broken a promise that
24:20
Speaker 2: had been in place for decades by that point.
24:21
Speaker 1: Fair enough on that. I'll try to hang my hat
24:23
Speaker 1: and get some comfort from those comments. Brian James appreciate
24:26
Speaker 1: what you do. Thanks to all Worth again for learning out.
24:28
Speaker 1: We'll do this again next week. Have a wonderful week,
24:30
Speaker 1: my friend, you too, Stay warm, you too coming up
24:33
Speaker 1: Doctor Ridikahraman not in from the v