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Businesses are already feeling shutdown pain · The Financial Exchange Show

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Speaker 1: a donation today. This is the Financial Exchange with Chuck
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Speaker 1: Zada and Mark Fandetti.
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Speaker 2: Chuck and Mark with you here today, and we kick
1:16
Speaker 2: things off with a piece from the Wall Street Journal.
1:19
Speaker 2: It's titled the Unofficial Jobs Numbers are In and it's
1:25
Speaker 2: rough out there, and there are a couple different pieces
1:27
Speaker 2: that I want to talk about with this. The first is, yes,
1:30
Speaker 2: we don't get a new jobs report every month right
1:33
Speaker 2: now while the government shut down continues. This means that
1:38
Speaker 2: every bank and private equity firm out there is trying
1:43
Speaker 2: to come out with their alternative numbers of hey, here's
1:46
Speaker 2: how many jobs were created in the month of September. Now, look,
1:51
Speaker 2: we did this kind of as an exercise on our
1:54
Speaker 2: Friday show just because look, we had, you know, a
1:57
Speaker 2: day where there's supposed to be a job report, and
2:00
Speaker 2: so Mike and I both like conveniently, we're like, hey,
2:02
Speaker 2: let's feed this into you know, an AI and see
2:04
Speaker 2: what it says job growth would have been. And we
2:07
Speaker 2: did just to illustrate like the process by which you know,
2:11
Speaker 2: people in businesses in the FED try to figure this out.
2:14
Speaker 2: They've got their existing models. They say, Okay, let's plug
2:16
Speaker 2: in some inputs and here's where we think it is. Ultimately,
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Speaker 2: I think the world could use way fewer people releasing
2:25
Speaker 2: their unofficial jobs numbers because they all do have different methodologies,
2:30
Speaker 2: they all do have different models, they all have different
2:34
Speaker 2: inputs and things like that, and so all of them saying, hey,
2:38
Speaker 2: here's how many jobs were added for this month. Well
2:40
Speaker 2: what have your models said in like previous months, like
2:42
Speaker 2: we've never talked about them, and so trying to use
2:45
Speaker 2: these numbers as a stand in for the jobs report.
2:49
Speaker 2: I think it's quite honestly, like just kind of not
2:51
Speaker 2: where we need to be going. It's it's just enough
2:54
Speaker 2: is enough. I don't need to know that. You know,
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Speaker 2: Carlisle Group thought there were fourteen thousand jobs created for
3:00
Speaker 2: the month, and Goldman Sachs thought there were you know
3:02
Speaker 2: x number. Hey, let's just look at the other data
3:05
Speaker 2: that's out there, and when we finally get jobs reports
3:09
Speaker 2: coming back out, we'll deal with them then. But until
3:11
Speaker 2: then we can report on Hey, the you know ADP
3:15
Speaker 2: survey actually showed this or indeed shows this level of hiring,
3:19
Speaker 2: or paycheck shows this level of hiring, because those are
3:22
Speaker 2: actual data sets about you know, hey, we're tracking this
3:26
Speaker 2: and we're measuring this. Not well, we estimate that the
3:30
Speaker 2: government jobs report would have showed blank. I don't need
3:34
Speaker 2: someone telling me what they think the government jobs report
3:37
Speaker 2: would have showed. I don't think that's useful to anyone.
3:40
Speaker 3: Yeah, I'm not I haven't done it myself, but I'm
3:43
Speaker 3: sure many people do use data from other sources to
3:46
Speaker 3: fit a so called model and come up with a
3:48
Speaker 3: way to estimate payrolls changes. Sure, the problem is the
3:52
Speaker 3: relationships among Like with any fitting exercise, you always asked,
3:56
Speaker 3: do I have the right variables trying to explain or
3:59
Speaker 3: forecast the variable of interest? And are the relationships stable?
4:04
Speaker 3: We know the answer to those questions are no, because
4:08
Speaker 3: no one has come up with a good way of
4:09
Speaker 3: forecasting payrolls to this point. It's not like people haven't
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Speaker 3: been trying, so it's probably very hard to do chat, right.
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Speaker 2: I Mean, the only thing that I would be interested in,
4:18
Speaker 2: quite honestly, is if like three billionaires went out and said, Hey,
4:24
Speaker 2: we're gonna spend a boatload of money coming up with
4:26
Speaker 2: three distinct ways to try to you know, interview and
4:30
Speaker 2: survey people, and we're gonna spend a bunch of cash
4:33
Speaker 2: doing this, and we're gonna try to, you know, figure
4:35
Speaker 2: out what's happening. Okay, I'd be interested in that, because
4:38
Speaker 2: that's not just trying to look at different data inputs
4:42
Speaker 2: coming in. That's trying to actually like create some kind
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Speaker 2: of survey and spend a boatload of money doing so.
4:48
Speaker 2: I'd be interested in that. Beyond that, Hey, I'm looking
4:51
Speaker 2: at the Indeed Jobs Posting Index, which is something, by
4:53
Speaker 2: the way, that we talk about quite often. It shows
4:56
Speaker 2: that in the last ten days from September twenty third
5:00
Speaker 2: through October third, the number of job openings declined by
5:04
Speaker 2: about one percent on Indeed. Okay, that's something that I
5:08
Speaker 2: can just say exists as is. I don't have to think,
5:11
Speaker 2: go and extrapolate that and say why all that means
5:14
Speaker 2: the hiring decreased by No, it's it's okay to just
5:18
Speaker 2: talk about data sets as well.
5:20
Speaker 3: It's okay for us. It's not okay for a serious
5:22
Speaker 3: researcher though, they'd have to You have to go to
5:24
Speaker 3: your boss with something. You have to say, updated my
5:26
Speaker 3: model last month, and here's where I think payrolls would
5:28
Speaker 3: fall with a certain amount of confidence. I mean, it's
5:30
Speaker 3: okay for us, but.
5:31
Speaker 2: Sure, you know, but I don't. I don't think that
5:33
Speaker 2: that research that they're doing is valuable to disseminate to
5:38
Speaker 2: the public because the public's not going to understand what
5:40
Speaker 2: it means.
5:41
Speaker 3: If a hedge fund and they put considerable resources, lots
5:43
Speaker 3: of PhDs into working on problems, is if they came
5:46
Speaker 3: up with a good way to forecast payrolls with less
5:49
Speaker 3: error than say the Preble, they wouldn't be telling us
5:52
Speaker 3: they You would not be exactly you and I wouldn't
5:55
Speaker 3: know about it.
5:55
Speaker 2: We talk about this a lot. Actually, it's one of
5:57
Speaker 2: my dietary We talk about the sources of alpha in markets.
6:04
Speaker 2: It is private information, not material, non public information, which
6:08
Speaker 2: is you know, obviously illegal to trade on, but private information.
6:13
Speaker 2: A model that you've built that you don't share with
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Speaker 2: anyone because it estimates, you know, the the jobs report better,
6:20
Speaker 2: a model that you've built that shows how you know,
6:24
Speaker 2: the amount of rain in Saskatchewan impacts soybean prices coming
6:28
Speaker 2: out of Iowa, like the These are the things that hey,
6:32
Speaker 2: if you actually have something that works, you don't tell
6:36
Speaker 2: people about it. And so you know, all of these
6:40
Speaker 2: reports of well so and so estimates the job growth
6:43
Speaker 2: was this and that, Well, if if they really thought
6:46
Speaker 2: this gave them an edge they wouldn't be telling you.
6:51
Speaker 2: There's a whole bunch of things.
6:52
Speaker 3: So you know, there's no I wouldn't, we wouldn't.
6:54
Speaker 2: There's a whole bunch And and this is also like
6:57
Speaker 2: when you see different things that are reported in the press.
7:00
Speaker 2: Oh so and so thinks that markets are going to
7:01
Speaker 2: do this and that why would they be telling you?
7:07
Speaker 2: There are two reasons why they're telling you. Number one
7:10
Speaker 2: is it doesn't matter to their performance. Number two is
7:14
Speaker 2: it does and they've already pre positioned themselves.
7:16
Speaker 4: You know.
7:17
Speaker 2: You think about the hedge fund guys who go on
7:19
Speaker 2: you know, CNBC and Bloomberg and say, well, you know what,
7:22
Speaker 2: we think this could happen, and then at the end
7:24
Speaker 2: it's hey, you know they disclose that they have a
7:26
Speaker 2: longer short position in whatever it might be right and
7:30
Speaker 2: this is fine, you know, we say so I think.
7:33
Speaker 2: I think ultimately, when we're looking at the jobs numbers,
7:39
Speaker 2: I do not have a proprietary model to you know,
7:42
Speaker 2: project where the job's numbers are going to be. But
7:45
Speaker 2: I look at a bunch of different indicators and say, yeah,
7:48
Speaker 2: this means something good, this means something bad. If I
7:51
Speaker 2: get a bunch of things pointing good or bad. Okay,
7:53
Speaker 2: that just you know gives me a little confidence in
7:55
Speaker 2: one direction. And I think for ninety nine point nine
7:59
Speaker 2: percent of US that's fine.
8:02
Speaker 3: Depends on what you need the data for.
8:04
Speaker 2: From ninety nine point nine percent of US mark.
8:07
Speaker 3: It's fine, yes, fine for this show.
8:09
Speaker 2: For the point one percent that needs you know. For
8:12
Speaker 2: the point one percent that needs you know something more
8:14
Speaker 2: because their job depends on it, it's not fine, and
8:17
Speaker 2: they can go and do their own work. But I
8:20
Speaker 2: just I don't think we need every bank saying well,
8:23
Speaker 2: this is what the job's report would have showed this month.
8:26
Speaker 3: I understand why they're doing that, though part of it
8:28
Speaker 3: is the PhDs in the background, who need to demonstrate
8:32
Speaker 3: that they're adding value. So they run to their boss
8:35
Speaker 3: and say, I did a forecast using the variables that
8:38
Speaker 3: we normally use, and you can publish this because it's
8:40
Speaker 3: vague enough that we're not giving away our secret sauce.
8:44
Speaker 3: You could argue that they're trying to perform a public service,
8:47
Speaker 3: or you could argue more skeptically, and we should be
8:50
Speaker 3: skeptical that they're taught that they're doing something to boost
8:53
Speaker 3: their so called book. Like you said, it's like when
8:55
Speaker 3: a manager says, I like gold right now. It's because
8:57
Speaker 3: they own a ton of it and they want you
8:59
Speaker 3: to pile in and they can pass the the the
9:02
Speaker 3: the bag along to the greater fool. That's a bad
9:04
Speaker 3: example to smirch gold. I'm just I just came up
9:09
Speaker 3: with a hot assay class.
9:10
Speaker 1: That's all.
9:10
Speaker 2: No, I get what your skepticism is warranted. To take
9:13
Speaker 2: a quick break. When we return, we'll talk about whether
9:17
Speaker 2: we're starting to see any impacts nationwide in the economy
9:20
Speaker 2: from the ongoing government shutdown.
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10:28
Speaker 2: A couple different pieces in the Wall Street Journal. One title,
10:30
Speaker 2: the shutdown is already squeezing these businesses. The second one
10:35
Speaker 2: much easier just to get through thin air traffic staffing
10:37
Speaker 2: spurs delays at US airports. This, by the way, the
10:40
Speaker 2: air traffic control and TSA issue is the one that
10:44
Speaker 2: eventually ended up ending the twenty eighteen shutdown as we
10:48
Speaker 2: started to see delays stacking up. And look, once you see,
10:52
Speaker 2: you know, things becoming visible to a broad portion of
10:55
Speaker 2: the US population. Generally, the federal government says, okay, like
10:59
Speaker 2: we don't really like this, Like let's figure this out
11:01
Speaker 2: and get back to work. But in terms of the
11:04
Speaker 2: businesses that are you know, being impacted by the shutdown
11:10
Speaker 2: right now, a couple different interesting cases that you can
11:14
Speaker 2: talk about here. Number one, you've got a medical device
11:17
Speaker 2: company in California that just as an example, they had
11:21
Speaker 2: to postpone a spin off because the regulators who would
11:25
Speaker 2: approve the spinoff aren't working right now. They're not essential personnel,
11:30
Speaker 2: so they can't go through their spin off. There, you've
11:34
Speaker 2: got another company here that is and a bunch of
11:38
Speaker 2: electricians that are a government contractor they cannot they're not
11:44
Speaker 2: having their new government contract signed because the people that
11:47
Speaker 2: sign said contract are non essential personnel, and so they're
11:51
Speaker 2: trying to keep their staff employed while they wait for
11:54
Speaker 2: that new contract. So you've got kind of these sporadic
11:58
Speaker 2: areas where there's a very real and significant impact. This
12:03
Speaker 2: despite the fact that I think, quite honestly, for the
12:05
Speaker 2: vast majority of us out there, like, quite honestly, I
12:10
Speaker 2: get up and I go to work just like I
12:12
Speaker 2: do any other day, and I don't really see anything different.
12:16
Speaker 2: But for probably anywhere between three and five million Americans
12:23
Speaker 2: out there, including you know, some of you that are listening,
12:25
Speaker 2: you're probably dealing with anything from you know, minor inconveniences
12:28
Speaker 2: to major disruptions because you may be employed in the
12:33
Speaker 2: federal government or in a tangentially related company, and as such,
12:38
Speaker 2: you've got some real disruptions and questions about Hey, you know,
12:41
Speaker 2: am I going to get paid in a week or so.
12:44
Speaker 2: Is this going to, you know, cause me to miss
12:47
Speaker 2: a mortgage payment or a rent payment. These are very
12:50
Speaker 2: real questions, and so I know that for a lot
12:52
Speaker 2: of us, you know, most of you listening are not
12:55
Speaker 2: government contractors. You're not you know, seeing this impact you
12:58
Speaker 2: on a daily basis. You're getting to the point now
13:01
Speaker 2: as this drags into its eighth day where there are
13:04
Speaker 2: against several million people in the United States that on
13:08
Speaker 2: the verge of having their livelihoods impacted if they haven't
13:11
Speaker 2: been already.
13:12
Speaker 3: Like it or not, and I don't like it, but
13:14
Speaker 3: this is not about editorializing. The government drives a lot
13:17
Speaker 3: of economic activity. It's an important stabilizer. It's a source
13:21
Speaker 3: of sustenance for millions, as you say, of Americans. And
13:24
Speaker 3: as much as for ideological reasons, I don't mind the
13:28
Speaker 3: government shut down once in a while. This particular shutdown
13:30
Speaker 3: is not about the deficit or cutting spending. It's over policy,
13:34
Speaker 3: so that ain't gonna Fiscal reforms are not going to
13:36
Speaker 3: come of this. I would say, hold their feet to
13:38
Speaker 3: the fire if they were. It seems just disruptive and
13:41
Speaker 3: unnecessary at this point, and it will have an impact
13:45
Speaker 3: on the economy. It'll probably be a blip and it'll
13:48
Speaker 3: be made up for when the government reopens. It just
13:52
Speaker 3: infuses chaos into too many processes with no prospect of
13:57
Speaker 3: any kind of long run payoff unfortunately.
14:00
Speaker 2: Yeah, and again we're now into the eighth day here
14:05
Speaker 2: of this shutdown. If you look at the online betting
14:09
Speaker 2: portals that allow people to wager on this, you're now
14:13
Speaker 2: the length that we are up to is about twenty
14:16
Speaker 2: three twenty four days that are being bet on. That's
14:19
Speaker 2: kind of the longer point it is.
14:21
Speaker 3: The longer drags on, the less likely it will get resolved.
14:24
Speaker 2: According to these Yeah, I think quite honestly, there are
14:28
Speaker 2: two dates that you're looking at on this. The first
14:30
Speaker 2: is a week from now. The next government payroll is
14:34
Speaker 2: the night of the fourteenth, and so, hey, do you
14:37
Speaker 2: want a resolution so that those workers are being paid
14:40
Speaker 2: on schedule so by next you know, Wednesday, is one
14:43
Speaker 2: that we'd be looking at. And the next one is
14:45
Speaker 2: end of the month when you have a second missed
14:47
Speaker 2: payroll for government workers that you potentially be looking at.
14:52
Speaker 5: Again.
14:52
Speaker 2: The last shutdown that we had it was the longest
14:54
Speaker 2: that we've seen, that was thirty four days at the
14:57
Speaker 2: end of end of twenty eighteen, and ultimately what drove
15:03
Speaker 2: it was, Hey, you had a bunch of TSA workers
15:06
Speaker 2: and a bunch of air traffic controllers that said, no,
15:08
Speaker 2: we're not showing up if we're not getting paid, and
15:11
Speaker 2: you know, combination of hey, like, we need to get
15:14
Speaker 2: paid because there are bills that we have to pay
15:17
Speaker 2: and the other pieces no, like we're not just going
15:19
Speaker 2: to you know, go along with this is basically what
15:22
Speaker 2: they said. So that's when you saw the resolution there
15:26
Speaker 2: to this point. In terms of the you know, the
15:28
Speaker 2: broader economic impact from you know, these these businesses that
15:32
Speaker 2: can't go through their normal operations, the estimates that we
15:35
Speaker 2: see are anywhere from around point one two point two
15:38
Speaker 2: percent per week. I tend to err on the lower
15:41
Speaker 2: side of that based on you know, the estimates that
15:43
Speaker 2: I've seen, so GDP for every week this shutdown goes
15:47
Speaker 2: on would typically be reduced by about point one percent,
15:50
Speaker 2: which given the clip that you know, the estimates have
15:53
Speaker 2: Q three growing at, wouldn't be enough to inherently, you know,
15:56
Speaker 2: throw the US into a recession on its own. But
16:00
Speaker 2: you know, with some of the other questions that are
16:02
Speaker 2: out there on the labor market and other pieces. It
16:05
Speaker 2: could result in, you know, more of a slow down
16:08
Speaker 2: if you know, some of this marginal demand ends up
16:11
Speaker 2: causing non government related companies to then you know, and
16:16
Speaker 2: you know, laying off workers and things like that as well.
16:18
Speaker 3: So they'll be make up spending. Suppose this lasted for
16:21
Speaker 3: I don't know, worst case sixty ninety days, Sure they'll
16:24
Speaker 3: be makeup spending in the first quarter. So they'll be
16:27
Speaker 3: a boost to GDP. It'll just swing in the opposite direction.
16:29
Speaker 3: You've got rebates from accelerate. Rebates may not be the
16:34
Speaker 3: right term, but there are tax breaks that will be
16:37
Speaker 3: a front end loaded as I understand it. For the
16:39
Speaker 3: most recent tax bill. It is hitting in the first quarter. Yes,
16:42
Speaker 3: Fed stimulus. The Fed has been easing policy. They started
16:45
Speaker 3: easing policy. It'll now be a few quarters by.
16:48
Speaker 2: The day in the first quarter.
16:49
Speaker 3: Rolls around, So you have multiple sources of demand stimulus
16:52
Speaker 3: hitting in the first quarter. Well, of course, everything in
16:55
Speaker 3: my life comes back to the FED and are they
16:58
Speaker 3: doing the right thing? And in this I want criticize them.
17:00
Speaker 3: I'll just point out that this makes things a little
17:02
Speaker 3: extra challenging. You've got multiple sources pushing demand up and
17:07
Speaker 3: sources pushing pushing policy, sources pushing labor supply down. At
17:12
Speaker 3: the same time, this creates inflationary pressure. Is my little
17:15
Speaker 3: observation about the timing of all this stuff.
17:20
Speaker 2: The other piece that you know, like I struggle to
17:22
Speaker 2: look at, like, let's say this, Let's say this does
17:24
Speaker 2: go on longer. Let's say it's forty five sixty days. Yes,
17:29
Speaker 2: you've got that makeup spending that happens on the back
17:31
Speaker 2: end once the government workers get paid out. But what
17:34
Speaker 2: if the loss of demand created by them not spending
17:38
Speaker 2: in the interim results in non government employment dropping because
17:42
Speaker 2: companies say, maybe, you know, hey, like we've seen a
17:45
Speaker 2: drop in demand for you know, you example, you run
17:50
Speaker 2: a I don't know, a coffee shop near Logan Airport
17:54
Speaker 2: and you go through, you know, three four weeks of
17:57
Speaker 2: week demand, you say, hey, Sally, Jim, don't in you know,
18:00
Speaker 2: two days next week, and then that causes you know,
18:04
Speaker 2: a ripple effect from there and things along those lines.
18:06
Speaker 2: Are those things that happen as this goes on longer.
18:09
Speaker 2: Maybe we've never seen one that long. I still think
18:12
Speaker 2: the most likely thing is a resolution either next week
18:16
Speaker 2: or end of October. I have a hard time seeing
18:19
Speaker 2: this dragging into November.
18:22
Speaker 6: But.
18:24
Speaker 2: I've been known to be wrong occasionally, hopefully not too often,
18:28
Speaker 2: but occasionally it can happen.
18:30
Speaker 3: Yeah, who's gonna flinch. I don't know that's that's political,
18:33
Speaker 3: but it depends on whose pain point is reached first.
18:39
Speaker 2: So this is this is again kind of where we
18:42
Speaker 2: are in terms of the economic impacts to this point. Broadly,
18:47
Speaker 2: there's not much there, but obviously if you are employed
18:49
Speaker 2: by the federal government or in an adjacent business, you
18:53
Speaker 2: could personally be seeing some significant disruptions that have you
18:56
Speaker 2: a little bit nervous about where things go from here.
18:59
Speaker 2: But the broader economic impact estimated to be around point
19:03
Speaker 2: one percent of GDP for every week that this goes on.
19:06
Speaker 2: And we'll just have to see how things develop from
19:09
Speaker 2: here as we go and whether we get a resolution
19:14
Speaker 2: in the next week or two, We'll just have to
19:17
Speaker 2: wait and see on that. Right now, let's take a
19:20
Speaker 2: quick break. When we come back, we've got Wall Street watch,
19:24
Speaker 2: and then Todd Lutsky from Cushing and Dolan joined us
19:27
Speaker 2: for Ask Todd. Get your estate planning questions ready for Todd.
19:44
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19:51
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19:57
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20:00
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20:03
Speaker 4: Well after the SMP five hundred snapped its seven day
20:06
Speaker 4: winning street, markets today are in positive territory as the
20:09
Speaker 4: government shutdown continues into its second week. Right now, the
20:13
Speaker 4: Dow is up by about a quarter percent, or one
20:15
Speaker 4: hundred and six points, SMP five hundreds up four tenths
20:18
Speaker 4: of one percent, or twenty nine points higher, Nasdaq up
20:22
Speaker 4: seven tenths of one percent or one hundred and sixty
20:25
Speaker 4: three points. For US two thousand is also up four
20:28
Speaker 4: tenths of one percent ten Your Treasure reeled down one
20:31
Speaker 4: basis point at four point one one one percent, and
20:35
Speaker 4: crude oil up just over one percent higher today training
20:38
Speaker 4: sixty two dollars and forty eight cents a barrel. Well
20:41
Speaker 4: after it's two and a half percent loss yesterday, Oracle
20:45
Speaker 4: shares a rebounding about one percent today. Oracle's recent pullback
20:49
Speaker 4: was driven by a report by The Information saying the
20:53
Speaker 4: company's margins from its cloud business were weaker than analysts
20:56
Speaker 4: were forecasting, and that Oracle is losing money on some
21:00
Speaker 4: of its deals to rent out in Nvidia chips. Meanwhile,
21:03
Speaker 4: Equifax shares are rising over two percent after the company
21:06
Speaker 4: said it would cut prices for mortgage scores. This comes
21:10
Speaker 4: after fair Isaac last week said it would sell credit
21:13
Speaker 4: scores directly to mortgage lenders bypassing credit bureaus like Equifax. Elsewhere,
21:19
Speaker 4: Tesla unveiled stripped down versions of its best selling SUV
21:22
Speaker 4: and Sedan. However, the lower prices don't quite cover the
21:25
Speaker 4: recently expired seventy five hundred EV tax credit. The standard
21:31
Speaker 4: Model three costs about thirty seven thousand dollars, while these
21:34
Speaker 4: Standard Model Y costs about forty thousand dollars. Tesla stock
21:38
Speaker 4: is edging higher. Ast Space Mobile announced to deal with
21:41
Speaker 4: Verizon to provide its customers will sell service from Space
21:45
Speaker 4: beginning in twenty twenty six, sending that stock up eight percent,
21:50
Speaker 4: Verizon down modestly, and third quarter earning season kicks off
21:53
Speaker 4: tomorrow morning with PEPSI and Delta ahead of the opening bell.
21:58
Speaker 4: I'm Tucker Silva and that is Walstree.
22:00
Speaker 5: Watch.
22:02
Speaker 1: This is ask Todd on the Financial Exchange Radio Network.
22:05
Speaker 1: If you have an existing estate plan or in the
22:08
Speaker 1: market for one. Todd Letsky is here to answer your
22:10
Speaker 1: questions and help you plan for a later life. Ask
22:13
Speaker 1: Todd is presented by Cushing and Dolan, serving Massachusetts and
22:16
Speaker 1: New England for more than thirty five years, helping families
22:19
Speaker 1: with a state and tax planning, medicaid planning, and probate law.
22:23
Speaker 1: Visit Cushingdolan dot com. Now here's Todd Lutsky ask Problems.
22:29
Speaker 2: We're now joined by Todd Lutsky from Cushing and Dolan.
22:33
Speaker 2: It's your chance to ask Todd your estate planning questions.
22:36
Speaker 2: That's why the segment is named Ask Todd. Phone lines
22:40
Speaker 2: wide open right now at eight eight eight to zero
22:43
Speaker 2: five two two six three, So get calling early and
22:46
Speaker 2: often to make sure you've got a chance to ask
22:48
Speaker 2: Todd your estate planning questions. That number is eight eight
22:52
Speaker 2: eight to zero five two two six three. Remember we
22:56
Speaker 2: can only get through two to three of these, so
22:58
Speaker 2: make sure that you get your calls in again. Eight
23:01
Speaker 2: eight eight two zero five two two six three. That
23:05
Speaker 2: is the number to call to ask Todd your state
23:07
Speaker 2: planning questions, live on air. Mister Lutsky, how are you
23:11
Speaker 2: doing today?
23:12
Speaker 5: I am doing great? How about you doing well.
23:15
Speaker 2: Do you know what's green and lightweight?
23:17
Speaker 5: Green and lightweight?
23:19
Speaker 2: Yeah? No, like green.
23:21
Speaker 5: Yeah, that's true, that would be true.
23:24
Speaker 2: Todd, want to talk to you a little bit about
23:26
Speaker 2: gifting as part of an estate planning strategy. Okay, A
23:30
Speaker 2: lot of times we talk about the perils of gifting assets.
23:34
Speaker 5: There's plenty.
23:34
Speaker 2: I want to be optimistic today. Yeah, when can gifting
23:39
Speaker 2: actually fit into an estate plan and what tools are
23:42
Speaker 2: needed in order to make it as effective as it
23:45
Speaker 2: can possibly be.
23:48
Speaker 5: So i'd say gifting when you're there's there's so many
23:51
Speaker 5: things entwined in that question that people don't even realize
23:55
Speaker 5: how many issues you just brought up. But gifting can
23:58
Speaker 5: make sense.
23:58
Speaker 2: We do have a time limit.
23:59
Speaker 5: There's a lot to think about. You're absolutely right. So
24:02
Speaker 5: one I think you got to look at the size
24:04
Speaker 5: of your state, right, sure do I you know? Right
24:07
Speaker 5: now with the federal exemption come January one being fifteen
24:10
Speaker 5: million dollars each if you're married, So now you can
24:13
Speaker 5: shelter thirty million dollars without doing any gifting at all
24:17
Speaker 5: from mistate taxes. So that kind of eliminates the need
24:20
Speaker 5: for a lot of people to say I need to
24:22
Speaker 5: gift away assets to what to save federal death taxes. Right,
24:27
Speaker 5: that takes a lot of people off the table. I
24:29
Speaker 5: don't need to because I'm under that. Well, if I'm
24:32
Speaker 5: under that, then I only want to gift away assets
24:34
Speaker 5: because I have what a Massachusetts let's say, or your state,
24:38
Speaker 5: but a Massachusetts estate tax that I have to worry about.
24:42
Speaker 5: Why do I worry about that? Because that's over. If
24:45
Speaker 5: I'm married, I can only shelter four million dollars in
24:48
Speaker 5: assets with the same basic estate planning that can shelter
24:52
Speaker 5: thirty million dollars federally. Okay, well, maybe I should start
24:56
Speaker 5: thinking about gifting away some assets to save massachue use
25:00
Speaker 5: It's taxes. Oh but hold the horses. Why because what
25:04
Speaker 5: am I going to give away? Well, I don't want
25:06
Speaker 5: to give away anything with a very low cost basis,
25:11
Speaker 5: which translates into a large built in capital gain associated
25:17
Speaker 5: with that asset. Why. Well, if I give away any
25:19
Speaker 5: of those assets like stock portfolios, like real estate that
25:24
Speaker 5: I've rented over the years and maybe depreciated it to zero,
25:29
Speaker 5: or even a vacation home that just has grown in
25:32
Speaker 5: value over the years, if I give that away, then
25:36
Speaker 5: what am I saving oh, well, Massachusetts is about ten
25:39
Speaker 5: twelve percent on average for the estate tax. Okay, well,
25:43
Speaker 5: I'll lower my estate and save ten twelve percent. But
25:47
Speaker 5: I've given away an asset that has a built in
25:50
Speaker 5: gain associated with it, which will be taxed at almost
25:54
Speaker 5: thirty percent, not factoring in depreciation recapture. Well, I don't
25:59
Speaker 5: want to give away something to save ten percent, but
26:02
Speaker 5: trap thirty percent tax capital gains tax doesn't make sense.
26:06
Speaker 5: So there's a lot to think about in what you're giving. Now,
26:10
Speaker 5: if I have cash, that's different. Okay, well, cash is cash.
26:13
Speaker 5: I can give that away and it won't hurt me
26:16
Speaker 5: as much. Remember, there's no gift tax in the state,
26:19
Speaker 5: but there's a federal gift tax if you exceed the
26:22
Speaker 5: present interest exclusion of nineteen thousand dollars per year per person.
26:26
Speaker 5: So those are freebies and you can just give those away.
26:29
Speaker 5: And as you might imagine, we are limited in time.
26:32
Speaker 5: But there's also how do we gifted? Do we use
26:34
Speaker 5: gifting trusts to?
26:35
Speaker 1: You know?
26:36
Speaker 5: So many things to think about, Chuck, But I'm glad
26:39
Speaker 5: you at least, you know, sort of sparked that curiosity
26:43
Speaker 5: for people.
26:44
Speaker 2: Talking with Todd Lotski from Kushingan Dolan. We still got
26:46
Speaker 2: a little bit of room on the phone line, so
26:48
Speaker 2: get calling at eight eight eight to zero five two
26:51
Speaker 2: two six three so you can ask Todd your estate
26:54
Speaker 2: planning questions. The number again is eight eight eight to
26:58
Speaker 2: zero five to two sixty three. Let's take a quick
27:01
Speaker 2: break here, and when we come back, we are going
27:04
Speaker 2: to get right to your questions with Todd Lotsky. That
27:06
Speaker 2: phone number one more time eight eight eight two zero
27:10
Speaker 2: five two two six three.
27:13
Speaker 1: Ask Todd with Todd Lutsky every Wednesday at ten thirty
27:17
Speaker 1: only here on the Financial Exchange Radio Network. You're listening
27:23
Speaker 1: to Ask Todd with Todd Lutsky on the Financial Exchange
27:27
Speaker 1: Radio Network.
27:33
Speaker 2: All right, right to your calls with Tod Letsky. First up,
27:36
Speaker 2: we got Dan in PbD. Dan, you're on with Todd.
27:41
Speaker 7: Good morning, Todd. I have a revocable trust right now? Okay,
27:46
Speaker 7: if I switched to an irrevocable trust the two thousand,
27:52
Speaker 7: two million dollar exemption, What does zecho, do I get
27:59
Speaker 7: an exemption for that two million if I put it
28:02
Speaker 7: in that irrevocable trust.
28:03
Speaker 5: Well, sure, it would depend on the type of irrevocable
28:06
Speaker 5: trust that we do. So let me just ask you this.
28:08
Speaker 5: Are you married?
28:11
Speaker 7: Well?
28:12
Speaker 6: I was?
28:12
Speaker 5: And do you do you have children?
28:16
Speaker 6: Yes? Three?
28:17
Speaker 5: Okay? So is the value of your estate way over
28:21
Speaker 5: that two million dollar number or under it?
28:24
Speaker 7: No, it's over how much over I would say another two?
28:30
Speaker 5: All right? So you're at four million. Was there any
28:32
Speaker 5: planning done when your wife passed?
28:36
Speaker 1: No?
28:36
Speaker 8: All right.
28:36
Speaker 5: So that's part of the problem, is the fact that
28:38
Speaker 5: we weren't able to shelter anything on the first death.
28:42
Speaker 5: Now with a four million dollar estate, just for everybody
28:44
Speaker 5: else's edification as well as yours. If it was a
28:47
Speaker 5: four million dollar estate and planning had been done, meaning
28:50
Speaker 5: trusts were in place, like that revocable trust that you
28:53
Speaker 5: mentioned that you have. Did your wife have one of
28:56
Speaker 5: those when she passed? Or no?
28:58
Speaker 7: Yes she did?
28:59
Speaker 5: Oh okay, so you did have planning done. So now
29:02
Speaker 5: you need to say how much of that four million
29:05
Speaker 5: is sheltered in your wife's trust so that it's not
29:08
Speaker 5: going to be taxed when you die? Do we know?
29:13
Speaker 5: So let's assume that your wife's trust had roughly two
29:16
Speaker 5: million dollars in it. Well, that two million dollars would
29:19
Speaker 5: be sitting in now an irrevocable trust for the benefit
29:21
Speaker 5: of you in what was called a remainder share, and
29:25
Speaker 5: there would be no tax due when your wife died
29:27
Speaker 5: because it was two million or less. And that two million,
29:30
Speaker 5: no matter what it grows to, would not be taxable
29:32
Speaker 5: in your estate when you pass. So if you pass tomorrow,
29:36
Speaker 5: assuming my hypothetical fact pattern is accurate, you'd be worth
29:41
Speaker 5: two million. If you're worth two million and you have
29:44
Speaker 5: either the revocable trust that you are currently speaking about
29:47
Speaker 5: or the newly created irrevocable trust, you'd still be able
29:52
Speaker 5: to shelter your two million, thereby eliminating Massachusetts estate tax entirely. Now,
30:00
Speaker 5: to your point, regardless of what your wife has done,
30:04
Speaker 5: at least your two million probably should be put into
30:08
Speaker 5: an irrevocable trust so that you can get it protected
30:11
Speaker 5: from the cost of long term care at the same
30:14
Speaker 5: time not giving up your two million dollar exemption, So
30:18
Speaker 5: you will keep your two million dollar exemption to shelter
30:22
Speaker 5: it for a state taxes. And you also might want
30:24
Speaker 5: to get some guidance on thinking about your wife's trust
30:28
Speaker 5: and see how you can change that to make it
30:32
Speaker 5: also nursing home protected without creating an estate tax problem
30:38
Speaker 5: for you. So you're on the right track. You absolutely
30:41
Speaker 5: could get stuff done there and go ahead and make
30:43
Speaker 5: that change. Folks. That was interesting because that's more about
30:48
Speaker 5: estate planning. But some people do gifting to try and
30:52
Speaker 5: reduce their estate for a state taxes. As Chuck had
30:54
Speaker 5: asked me earlier. You know, gifting is not easy. There's
30:57
Speaker 5: so many things, as we talked about it, whether they're
31:00
Speaker 5: there as a gift tax and we have estate taxes
31:03
Speaker 5: we have to consider. We have to consider income taxes
31:05
Speaker 5: and basis. We have to consider if we want to
31:08
Speaker 5: give away an asset and retain control over it, enjoy it.
31:11
Speaker 5: So those are spousal lifetime access trusts, you know, do
31:14
Speaker 5: we want to understand what owning assets jointly do from
31:18
Speaker 5: even a medicaid perspective, a nursing home perspective. So so
31:22
Speaker 5: much to think about when you're giving away assets. So
31:25
Speaker 5: get the guide Learning about Making the Most of Gifting
31:28
Speaker 5: Assets eight six six eight four eight five six nine
31:33
Speaker 5: nine or Legal Exchange Show dot Com again eight six
31:37
Speaker 5: six eight four eight five six nine nine or Legal
31:41
Speaker 5: Exchange Show dot com to get your guy.
31:44
Speaker 2: Todd got another one for you here. Let's go to
31:46
Speaker 2: Rick in Foulmouth. Rick, what's your question for Todd Alotski.
31:50
Speaker 8: Hey, good morning, Todd.
31:51
Speaker 5: How were you good?
31:53
Speaker 8: Hey Todd, about a year and a half ago, you
31:55
Speaker 8: set up a near revocable trust for my wife and
31:57
Speaker 8: I and did a great job.
31:59
Speaker 5: Well, thank you.
32:00
Speaker 8: We were talking about it the other day and she
32:03
Speaker 8: her and I have a little misunderstanding on part of it.
32:06
Speaker 8: And it's got to do with the savings account. Okay,
32:09
Speaker 8: we put it in my name and you had gotten
32:12
Speaker 8: me a SA duly day.
32:14
Speaker 5: We put it in your trust, not your name, that's correct,
32:17
Speaker 5: it might trust. Okay, your trust got it?
32:19
Speaker 8: Now can I withdraw funds from that?
32:24
Speaker 5: So give me a let's use a number, like how
32:26
Speaker 5: much is in there?
32:27
Speaker 8: Okay, it's like three hundred thousand.
32:29
Speaker 5: So you got three hundred thousand and basically a bank
32:31
Speaker 5: account in the name of the trust. Correct.
32:33
Speaker 8: Correct, So you can.
32:34
Speaker 5: Invest that money anyway you want. If you don't like
32:37
Speaker 5: the bank, you can put it in an investment account,
32:39
Speaker 5: earn interest in dividends. Any interest and dividends that it earns,
32:44
Speaker 5: you can take directly, so you can have it. And
32:46
Speaker 5: let's say you went to a brokerage house, set it up,
32:48
Speaker 5: invested it. You can take that money directly and put
32:51
Speaker 5: it into your personal bank account, not the trust bank account,
32:55
Speaker 5: anytime you want. It's the three hundred thousand dollars principle
32:58
Speaker 5: that's protected and you can can't take it directly. There
33:02
Speaker 5: is a way to get it in directly, but before
33:05
Speaker 5: you start accessing it indirectly, I would tell you please
33:09
Speaker 5: spend money that you have outside the trust first, like
33:13
Speaker 5: IRA money either you or your wife, or any other
33:16
Speaker 5: investments that you left outside the trust, because we never
33:19
Speaker 5: put everything in right, so spend those first. Why because
33:24
Speaker 5: those are at risk for the nursing home, whereas what's
33:27
Speaker 5: in the trust is not. So if you do need
33:30
Speaker 5: to access that money though, there is a way to
33:32
Speaker 5: get it and certainly happy to help you with that.
33:34
Speaker 5: You can give me a ring off air and we
33:36
Speaker 5: can get you that information. So hopefully that helps clarify
33:41
Speaker 5: your situation.
33:42
Speaker 2: Tod got another for you with Tony in Falmouth. Tony,
33:46
Speaker 2: you are on with Tom Lunsky. Tony are you there,
33:53
Speaker 2: lost Tony?
33:53
Speaker 6: Hello?
33:54
Speaker 5: Oh there's Tony.
33:55
Speaker 6: Yes, yes, Scott, thank you for your time. My sister
33:59
Speaker 6: and I recently inherited our mother's condo and we've already
34:03
Speaker 6: sold it and we're going to end up with roughly
34:06
Speaker 6: two hundred thousand dollars each. And my question is is
34:10
Speaker 6: this a taxable event?
34:12
Speaker 5: So when you say you inherited your mother's condo, she
34:17
Speaker 5: did not need it to you folks while you were alive. Correct, well,
34:22
Speaker 5: she was alive.
34:24
Speaker 6: She had it in her will that we would get it.
34:27
Speaker 5: Great, that's exactly what I want to hear. So if
34:30
Speaker 5: if she died owning it, and then the deed went
34:34
Speaker 5: from her at death or from her estate to you
34:38
Speaker 5: and your sister, then you inherited the property and it
34:42
Speaker 5: was not gifted to you during life, which is all
34:44
Speaker 5: about this guide, right, don't just give things away. It
34:47
Speaker 5: sounds like your mom did the right thing. She didn't
34:49
Speaker 5: give it away, and so she passed away owning it.
34:53
Speaker 5: Then you then it was included in her estate for
34:56
Speaker 5: estate tax purposes, passed to the k kids. So if
35:01
Speaker 5: the property at the date of your mom's death was
35:04
Speaker 5: worth four hundred thousand dollars and you sell it for
35:08
Speaker 5: four hundred thousand dollars, you kids will have gotten something
35:11
Speaker 5: known as a step up in cost basis, which means
35:15
Speaker 5: that your cost of that property is four hundred thousand
35:19
Speaker 5: dollars even though you paid nothing for it. So now
35:23
Speaker 5: if you sell it for four four hundred fair market
35:26
Speaker 5: value minus four hundred thousand dollars stepped up cost basis
35:31
Speaker 5: equals a capital gain of zero. And so their answer,
35:35
Speaker 5: the long winded answer to your question, is no capital
35:39
Speaker 5: gains tax on the sale. So hopefully that's helpful.
35:44
Speaker 2: Todd appreciate you joining us today. I know you gave
35:46
Speaker 2: a bunch of information there on gifting and answered some
35:49
Speaker 2: great questions from our listeners. There anything else on the
35:54
Speaker 2: gifting side that you want to touch on. We got
35:57
Speaker 2: about a minute or so still to go here.
35:59
Speaker 5: Yes, yes, I think back to you know, to Tony's
36:02
Speaker 5: point is that the everything was done, you know, good
36:06
Speaker 5: for the mother the way she did it, although the
36:08
Speaker 5: one thing that maybe we could have improved on there
36:11
Speaker 5: was I guess we're fortunate and happy that she didn't
36:14
Speaker 5: end up in a nursing home, but you know, if
36:16
Speaker 5: she did, then there might not have been any you know,
36:20
Speaker 5: house left to get a step up. So people always say,
36:22
Speaker 5: how come on, I put assets in an irrevocable trust,
36:24
Speaker 5: I get a step up in basis, Well, I can
36:26
Speaker 5: get the same step up by just dying owning it.
36:28
Speaker 5: That's true, But why is there still a benefit. Why
36:32
Speaker 5: do I mention that as a benefit with the irrevocable trust. Well,
36:35
Speaker 5: because at least in the irrevocable trust, I know there
36:38
Speaker 5: will be a house there to pass on to the family,
36:43
Speaker 5: to get that step up in basis so they can
36:46
Speaker 5: sell it with capital gains tax. Whereas here if unfortunately
36:49
Speaker 5: Tony's mother, if she had gone into a nursing home,
36:52
Speaker 5: you know, there could have been a very different outcome
36:56
Speaker 5: because there may not have been that house, you know,
36:58
Speaker 5: still there.
36:59
Speaker 2: Mister wank you thank you so much for joining us today.
37:02
Speaker 2: We appreciate the time.
37:04
Speaker 5: Always a pleasure. Thank you.
37:06
Speaker 1: This has been asked ond on the Financial Exchange Radio Network.
37:10
Speaker 1: Askedd with Todd Lutsky has been presented by Cushing and Dolan,
37:13
Speaker 1: serving Massachusetts and New England for more than thirty years,
37:16
Speaker 1: helping families with the state and tax planning, Medicaid planning,
37:19
Speaker 1: and probate law. Call eight hundred three nine three four
37:21
Speaker 1: thousand and one or visit Cushingdolan dot com. The views
37:25
Speaker 1: expressed in this segment are solely those of Cushing and Dolan.
37:27
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37:30
Speaker 1: Please consult with your illegal or tax advisor on such matters.
37:32
Speaker 1: Cushing and Armstrong do not endorse each other and are
37:34
Speaker 1: not affiliated.
37:36
Speaker 2: Buns to come in the second hour of our show,
37:38
Speaker 2: including we're gonna be touching on gold and the recent
37:41
Speaker 2: rally that has it north of four thousand dollars, an ounce,
37:45
Speaker 2: talk a little bit about the housing market and what
37:47
Speaker 2: we are seeing there, and then also can be continue
37:53
Speaker 2: to touch on what we are seeing in Ai and
37:56
Speaker 2: the spending boom there that is driving just a ton
38:00
Speaker 2: of economic activity both in the United States and around
38:04
Speaker 2: the globe. Quick break now, but our two it's coming
38:08
Speaker 2: up in just a little bit.