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Stubborn inflation heats up more than expected · The Financial Exchange Show

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Speaker 1: a donation Today. Face is the Financial Exchange with Paul Lane,
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Speaker 1: and Mark Vandetti.
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Speaker 2: Welcome to this Wednesday edition of the Financial Exchange. Paul Lane,
1:15
Speaker 2: Mark Vendetti, and Tucker Silva here with you. We are
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Speaker 2: coming off the heels of an inflation report that was
1:21
Speaker 2: released this morning, and the markets are reacting pretty negatively
1:25
Speaker 2: across the board, with the S and P five hundred
1:27
Speaker 2: off close to a full percent, the Nasdaq also off
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Speaker 2: three quarters of a percent, and the Dow Jones is
1:33
Speaker 2: off over four hundred points at the moment we're about
1:37
Speaker 2: a half hour or so into training. We're also seeing
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Speaker 2: the US tenure treasury up about ten basis points today
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Speaker 2: at four point six five percent, and we have to
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Speaker 2: start off with the inflation air report. We've done a
1:50
Speaker 2: lot of talk on this program about tariffs and economic
1:53
Speaker 2: policies of the new administration very much so inflation has
1:57
Speaker 2: been put on the back burner, at least in terms
2:00
Speaker 2: of it seems like the financial community consensus in terms
2:04
Speaker 2: of what we're covering from news pieces and headline articles
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Speaker 2: out there. But today it is all about inflation. And
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Speaker 2: we did see a very startling inflation report, Mark, at
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Speaker 2: least in my view, that came out this morning at
2:17
Speaker 2: eight thirty just to jump into some of the numbers here.
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Speaker 2: A very hot report for the month of January, where
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Speaker 2: we saw CPI, the Consumer Price Index data increase by
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Speaker 2: a half percent month over month. We now have inflation
2:31
Speaker 2: running at about three percent year over year. Just to
2:35
Speaker 2: give listeners a sense, we were in the range of
2:37
Speaker 2: headline inflation year over year between two and a half
2:41
Speaker 2: to two point seven percent between August and November, so
2:44
Speaker 2: it did really seem like we were seeing a pretty
2:47
Speaker 2: nice cooling getting closer back to the fed's overall target
2:51
Speaker 2: of two percent during those summer and early fall months.
2:54
Speaker 2: But this most recent port, like I said, increasing to
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Speaker 2: three percent twelve months trailing. And some of the biggest
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Speaker 2: factors on this report mark that we'll get into here
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Speaker 2: is food is certainly one that you have to address.
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Speaker 2: We've covered a lot on this show, and I'm sure
3:09
Speaker 2: listeners have seen it. Going to the grocery store, egg
3:12
Speaker 2: prices have been up fifteen percent month over month. That's
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Speaker 2: capturing this data that was the largest increase since twenty fifteen.
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Speaker 2: Egg prices now stand up fifty three percent over the
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Speaker 2: last year. Food in general, excluding just the specific egg
3:26
Speaker 2: data was up about four point four percent month over month,
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Speaker 2: and then we also saw energy prices increasing one percent
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Speaker 2: month over month. And so for those of you who
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Speaker 2: listen to the program and would argue, well, gee, Paul,
3:40
Speaker 2: you and Mark always talk about stripping out the impacts
3:43
Speaker 2: of food and energy, even if you look at that data,
3:47
Speaker 2: which the FED focuses on the most, because food and
3:50
Speaker 2: energy can be pretty noisy on a month to month basis,
3:53
Speaker 2: if you strip those out and look at what's called
3:56
Speaker 2: core CPI data, which doesn't have the impacts of energy
3:59
Speaker 2: and food costs, that data was hot as well in
4:02
Speaker 2: terms of what we're seeing on the inflationary front, where
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Speaker 2: we saw a point four percent increase a month over
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Speaker 2: a month on that core CPI data, or three point
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Speaker 2: three percent year over year. So however you slice this mark,
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Speaker 2: it's a very hot inflationary report. It's really not a
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Speaker 2: very strong report for those people who were under the
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Speaker 2: impression that, you know, inflation was turning down.
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Speaker 3: The question is should it surprise us? Should it surprise
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Speaker 3: us that inflation, which is the average increase in the
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Speaker 3: prices for goods and services that we buy, that it
4:33
Speaker 3: remains i'll just say elevated higher, that is, than the
4:38
Speaker 3: Fed's two percent goal, and seemingly over the past few
4:42
Speaker 3: months increasing the trend is now upward. Should that surprise us?
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Speaker 3: That depends on your view of inflation of what drives it.
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Speaker 3: Researchers can calculate the economy's productive potential. It's an estimate,
4:57
Speaker 3: but it's the best we've got relative to the economy's
5:01
Speaker 3: productive potential. We're growing too fast or faster. You may say, well,
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Speaker 3: that's not a bad thing, right, We're exceeding our potential. No,
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Speaker 3: in the short term it isn't, but it puts upward
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Speaker 3: pressure on prices. Researchers also calculate a natural or normal,
5:16
Speaker 3: less formal a rate of unemployment. The current rate of
5:19
Speaker 3: unemployment is below what most researchers think is sustainable in
5:22
Speaker 3: the long term. So considering those two factors, and this
5:26
Speaker 3: is a very traditional economic way of looking at short
5:30
Speaker 3: term inflation. When you consider the economies running a little
5:33
Speaker 3: bit hot, it shouldn't surprize anybody. The prices remain elevated. Now,
5:36
Speaker 3: whose fault is it that the economy is running a
5:38
Speaker 3: little bit hot. Well, it's certainly not the new administration's fault.
5:40
Speaker 3: They've got to deal with this number. But they inherited
5:44
Speaker 3: slightly accelerating inflation, but so did the last administration. The
5:47
Speaker 3: last administration let it get away. They Biden inherited an
5:51
Speaker 3: increasing rate of inflation from Trump, not a surprise. Trump
5:54
Speaker 3: pumped a lot of stimulus into the economy.
5:56
Speaker 2: And perhaps stoked it further though with the.
5:58
Speaker 3: I was just going to say they compound it. They
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Speaker 3: were told not to by many prominent economists. Others were
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Speaker 3: on the other side of this. They made it worse.
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Speaker 3: The administration this time might be making the same mistake.
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Speaker 3: They are inheriting an economy that's running hot. They're going
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Speaker 3: to make inflation worse by decreasing the labor supply. That's
6:17
Speaker 3: what happens when you deport people or force them underground.
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Speaker 3: I'm not saying people are breaking the law shouldn't be deported.
6:23
Speaker 3: I'm saying, simply, it's a consequence of enforcing the law.
6:27
Speaker 3: Tariffs not just their actual effect, which we've yet to
6:31
Speaker 3: experience for the most part, but the expectation of tariffs.
6:35
Speaker 3: It pulls consumption forward. People are front running them. There
6:38
Speaker 3: are stories everywhere about people running out buying durable goods,
6:41
Speaker 3: expensive stuff that might be subject to tariffs. Now, I
6:43
Speaker 3: don't think there's any evidence of that necessarily here, but
6:46
Speaker 3: there's certainly evidence in inflation expectations, which also don't show
6:50
Speaker 3: up here but are an important part of the inflation process.
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Speaker 3: So Paul, I'll wrap up my little commentary here by
6:55
Speaker 3: simply pointing out that it is not a surprise that
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Speaker 3: inflation remains stubborn, seems unwilling to return to the very
7:03
Speaker 3: low and stable rates we were used to in the
7:06
Speaker 3: twenty tens. The economy's running hot. The danger is that
7:13
Speaker 3: policymakers compound it with continued I didn't even mention possibility
7:17
Speaker 3: additional fiscal stimulus. All these tax cuts are going to
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Speaker 3: put more money into the economy that's going to run
7:22
Speaker 3: up the deficit a little more in this short term
7:24
Speaker 3: push the economy further above its speed limit. That plus tariffs,
7:29
Speaker 3: plus the complicated dynamics that inflation expectations inject into the
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Speaker 3: whole process, suggest that both the FED and the administration
7:37
Speaker 3: need to take a step back and think about the
7:39
Speaker 3: possibility of an inflation breakout. I don't think the administration
7:42
Speaker 3: is thinking about that much this morning. It's primarily the
7:46
Speaker 3: Fed's problem, and this gives them something to chew.
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Speaker 2: On, just to go over some other details from this
7:52
Speaker 2: most recent report. We also saw shelter costs increased by
7:56
Speaker 2: about zero point four percent, So that is the gaze
7:58
Speaker 2: that they use to determine what is the cost for housing,
8:02
Speaker 2: whether it be through rent equivalents, homeowner rent equivalents for
8:06
Speaker 2: people who own properties, or just rent data that they
8:09
Speaker 2: agree in that number there, that was thirty percent of
8:12
Speaker 2: all the monthly items increase that we saw specific to
8:17
Speaker 2: shelter there, and I'll further some of Mark's points. We
8:20
Speaker 2: just recapped. This was a very negative report. There's really
8:23
Speaker 2: no way to slice it in any other direction. The
8:25
Speaker 2: markets are selling off a little bit on this news,
8:27
Speaker 2: and we are seeing interest rates rise but a lot. Yeah,
8:31
Speaker 2: it's really significant what we're seeing on the US ten
8:33
Speaker 2: year treasury front. Like I mentioned to begin the show,
8:35
Speaker 2: we now sit at four point sixty five percent on
8:38
Speaker 2: the US to treasury.
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Speaker 3: Well, I'm sorry, breaking news on market Watch. Trump again
8:43
Speaker 3: tell's fed after CPI report that interest rates should be lowered.
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Speaker 3: That's the exact. Forgive me, that's the exact. He didn't
8:49
Speaker 3: have to say anything. I don't know why you would
8:50
Speaker 3: choose to say that. It's the exact opposite conclusion. Sure,
8:53
Speaker 3: you can try that, like you can try two whoppers
8:56
Speaker 3: a day to lose weight. That ain't gonna work, though,
8:59
Speaker 3: and that's probably those comments are not helpful given the
9:03
Speaker 3: sell off we're already saying in fixed income today.
9:06
Speaker 2: It's the exact opposite of what you're supposed to do
9:08
Speaker 2: from an perspective. Yeah, it's just that that's bathlet And
9:12
Speaker 2: we're going to get into that a little bit with
9:13
Speaker 2: some of these other former Fed representatives having commentary that
9:18
Speaker 2: was printed ahead of this inflationary report in terms of
9:21
Speaker 2: what the Federal Reserve should look at going forward here.
9:24
Speaker 2: But to drill further down, just a couple last points
9:27
Speaker 2: on this idea of why are we seeing this elevated
9:30
Speaker 2: inflation and Mark, you did a good job of hitting
9:32
Speaker 2: a lot of these. But we have an unemployment rate,
9:34
Speaker 2: like you mentioned, that is low. It's historically in a
9:37
Speaker 2: very good place at four percent, that is, as you mentioned,
9:41
Speaker 2: lower than what the natural employment rate should be. We're
9:44
Speaker 2: also seeing on average hourly earnings wage growth. We're seeing
9:48
Speaker 2: that grew pretty substantially four point one percent year over
9:51
Speaker 2: year in the January report and close to a half
9:54
Speaker 2: percent increase, I believe month over month. We've had GDP
9:58
Speaker 2: growing at about two and a half percent over the
10:00
Speaker 2: course of twenty twenty four, off its pace in twenty three,
10:03
Speaker 2: but still strong economic growth and a lot of consumer
10:06
Speaker 2: spending fueling that economic growth. We saw consumer spending increase
10:10
Speaker 2: over four percent, the fastest since early twenty three, in
10:14
Speaker 2: the last CURD of twenty four. So to summarize, we've
10:16
Speaker 2: got a pretty strong economy through unemployment, through economic growth,
10:20
Speaker 2: and through some other figures here, and as a result
10:24
Speaker 2: of that, we're now seeing some hot inflationary data.
10:27
Speaker 3: In the early stages of the COVID recovery, there were
10:31
Speaker 3: negative factors negative in their impact sense not negative isn't
10:35
Speaker 3: subtracted from sense, that pushed up inflation. Supply chain snarled up,
10:39
Speaker 3: and then Russia decided to invade Ukraine, pushing up energy prices.
10:45
Speaker 3: Some of those negative factors reversed in twenty late twenty
10:49
Speaker 3: twenty two and twenty three, and they helped to bring
10:51
Speaker 3: inflation down. So it was bad luck on the upward
10:54
Speaker 3: part of the hill, good luck on the downward part
10:57
Speaker 3: of the hill. Our good luck may have run out
11:00
Speaker 3: now the Fed is faced much like they were during
11:02
Speaker 3: the nineteen seventies with high underlying inflation the result of
11:07
Speaker 3: too much demand. This is a classic economic problem. The
11:11
Speaker 3: question is is the Fed have the resolve to put
11:14
Speaker 3: the economy through some pain potentially to keep inflation from
11:18
Speaker 3: breaking out again?
11:19
Speaker 2: And I want to talk about that. We're going to
11:21
Speaker 2: lead into a quick break here, but when we come
11:23
Speaker 2: back from break, I do want to talk about what
11:25
Speaker 2: this report means to the Federal Reserve and what they
11:28
Speaker 2: should be looking at going forward. Here quick break, but
11:30
Speaker 2: right after this we'll be talking more about the Federal
11:32
Speaker 2: Reserve and this inflation report.
11:35
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Speaker 2: We come back from Bray continuing to break down the
12:45
Speaker 2: inflation report for the month of January that came out
12:48
Speaker 2: at eight thirty this morning, that was much hotter than anticipated,
12:52
Speaker 2: where consumer prices rose a half percent month over month
12:55
Speaker 2: in the month of January and now are running at
12:58
Speaker 2: an annual rate of three percent. And so it now
13:01
Speaker 2: begs the question mark, now that we have this inflationary
13:05
Speaker 2: data and now a trend even over the last three
13:09
Speaker 2: months of hotter than expected inflation, what the Federal Reserve
13:13
Speaker 2: will do. And there's some commentary out there from some
13:16
Speaker 2: very well versed people in the subject. In some news
13:19
Speaker 2: publications this morning, one in particular from Larry Summers, who
13:24
Speaker 2: is a former Treasury secretary who did in fact warn
13:29
Speaker 2: of the inflation risks in twenty twenty one before that
13:32
Speaker 2: one point nine trillion dollars stimulus package was passed. And
13:36
Speaker 2: in this piece here he basically goes over that we
13:39
Speaker 2: are in a position now where the labor market is strong,
13:43
Speaker 2: where we have a pretty resilient economy, that we might
13:46
Speaker 2: the Fed may be actually in the face of potentially
13:50
Speaker 2: increasing race later this year because there is this inflationary
13:53
Speaker 2: outlook that may not be as strong as others had thought.
13:58
Speaker 2: You also have a piece here from this one kind
14:01
Speaker 2: of it just gives me a chuckle. This was out
14:02
Speaker 2: of the Financial Times. Richard Claridia, who was a former
14:07
Speaker 2: member of the Federal Resort Board of Governors, had a
14:10
Speaker 2: piece basically saying that the market's a underestimating how much
14:12
Speaker 2: infationa will follow this year, which was just tough timing
14:15
Speaker 2: to do ten hours ahead of this report.
14:17
Speaker 3: We put those two pieces in this morning because they're
14:20
Speaker 3: they're both eminent economists. Summers is better known, but Clarita's
14:23
Speaker 3: focus is monetary policy and he was on the board
14:27
Speaker 3: Summers wasn't. But Summers is eclectic. He's written about in
14:30
Speaker 3: his opinions about everything widely respected. The point is nobody
14:34
Speaker 3: really knows. Summers is making a very traditional economic argument.
14:37
Speaker 3: It's one that we made in the last segment. It's
14:39
Speaker 3: useful keeping the so called Phillips curve, a phrase I
14:42
Speaker 3: use from time to time. We've all heard it and
14:44
Speaker 3: then forgotten it. It just says that unemployment, inflation or intention.
14:48
Speaker 3: It just says that you can't by increasing the rate
14:50
Speaker 3: of inflation indefinitely fool everybody into thinking the economy is
14:54
Speaker 3: actually really good. Eventually they just start to demand higher
14:56
Speaker 3: wages that goes into prices. This is what you had
14:59
Speaker 3: during the nineteen seventies. If you keep that construct in
15:02
Speaker 3: minded on employment and inflation or intention, you'll always look
15:05
Speaker 3: askance at pronouncements that inflation is just gonna come down
15:09
Speaker 3: magically despite the hot economy. Now you may say, what
15:12
Speaker 3: about the late nineties. We had four ish percent unemployment
15:17
Speaker 3: for a couple of years, very low inflation, and in retrospect,
15:21
Speaker 3: we now.
15:21
Speaker 1: Know that was kind of lucky.
15:22
Speaker 3: Productivity improvements are being driven by the Internet revolution. They
15:26
Speaker 3: allowed the FED to play a little fast and loose
15:29
Speaker 3: for a few years. Greenspan saw it at the time.
15:31
Speaker 3: He didn't raise interest rates prematurely or too much. The
15:34
Speaker 3: downside of that was, of course, the Internet bubble, which
15:37
Speaker 3: easy money helped to stoke. I guess my point here
15:40
Speaker 3: is that there's no free lunch. Policymakers shouldn't try to
15:43
Speaker 3: get too cute. I don't think Powell, to his credit
15:45
Speaker 3: over the past couple months, I might not have lowered
15:48
Speaker 3: as much as he's chosen to, but I don't think
15:50
Speaker 3: he's trying to be too cute.
15:51
Speaker 5: See about it.
15:52
Speaker 3: The danger is that you get it wrong because their
15:54
Speaker 3: information is almost as imperfect as the information that we
15:57
Speaker 3: have access to. They see the same data that we
16:00
Speaker 3: and this morning's report startling is maybe how you described it,
16:05
Speaker 3: whatever adjective you used, which I think totally on point.
16:08
Speaker 3: This probably cholted the Federal Open Market Committee members and
16:12
Speaker 3: they're now not even considering a rate cut absent some
16:15
Speaker 3: external emergency for the foreseeable future, and they're wondering if
16:20
Speaker 3: they've overstimulated.
16:23
Speaker 2: To further your point, that's one of the first things
16:25
Speaker 2: I looked at this morning, Mark, when this report came out,
16:28
Speaker 2: is the semi futures, which we talk about a lot
16:31
Speaker 2: in the show, which just give a sense for the
16:33
Speaker 2: probability being assessed for future rate cuts in subsequent Federal
16:37
Speaker 2: Reserve meetings. The next one that we're supposed to have
16:40
Speaker 2: scheduled where the Federal Reserve would make a decision on
16:43
Speaker 2: interest rate policy is March nineteenth, and now after this report,
16:47
Speaker 2: I don't know what this figure was before, but we
16:49
Speaker 2: sit at a ninety eight percent probability that rates will
16:52
Speaker 2: not be touched going out further to May seventh, so
16:55
Speaker 2: later in the spring, eighty six percent probability that there
16:58
Speaker 2: will be no change in rates. It really is not
17:01
Speaker 2: until July basically five six months from now where you
17:06
Speaker 2: even see a fifty to fifty chance that they would
17:10
Speaker 2: consider potentially a quarter basis points cut. So this inflationary
17:15
Speaker 2: report really for the moment, it reinforces the idea at
17:18
Speaker 2: least from this you know, again, take this this, These
17:21
Speaker 2: are just probabilities that we're looking at here, this idea
17:23
Speaker 2: to your point that the Federal Reserve is not going
17:27
Speaker 2: to be concerning rate considering rate cuts anytime.
17:29
Speaker 3: Another takeaway from this little segment here I talked about
17:32
Speaker 3: the inflation, unemployment trade off. If you remember nothing else,
17:35
Speaker 3: remember that it's a good framework for interpreting current events.
17:40
Speaker 3: Longer term interest rates are up a full percentage point
17:43
Speaker 3: since the FED started cutting. The Fed has cut short
17:45
Speaker 3: term interest rates, over which it exerts control through this
17:47
Speaker 3: money supply and creation of bank reserves. The Fed can't
17:51
Speaker 3: do a thing, for the most part, in normal circumstances.
17:54
Speaker 3: I should qualify that about longer term interest rates. Politicians
17:57
Speaker 3: can't do a thing. Well, qualify that too. They could
17:59
Speaker 3: be fiscally responsible. Helps to take pressure of longer term
18:02
Speaker 3: interest rates. We saw that in the nineteen nineties. But
18:05
Speaker 3: long term interest rates and consequently mortgage rates and other
18:08
Speaker 3: rates tied to longer term treasuries are up a percentage
18:12
Speaker 3: point or so since the FED started cutting. A good
18:15
Speaker 3: reminder that it's economic forces, not even the Federal Reserve,
18:20
Speaker 3: as powerful as it is, that drives longer term interest rates.
18:23
Speaker 3: Really important.
18:24
Speaker 2: Spiking today, really important point to make. There was this
18:27
Speaker 2: optimism from many home buyers out there that they would
18:30
Speaker 2: enter into this year with perhaps the chances of getting
18:33
Speaker 2: a six percent mortgage. I believe we sort of hit
18:36
Speaker 2: that low point some point in the fall. There six
18:38
Speaker 2: to six and a quarter percent on a thirty year
18:40
Speaker 2: fixed mortgage. Those dreams have you know, diminished for the
18:43
Speaker 2: time being where we've sat hovering around seven to seven
18:46
Speaker 2: and a quarter percent on thirty year fixed mortgages, and
18:49
Speaker 2: that speaks to the impact on longer term interest rates.
18:51
Speaker 2: The FED does not have control over those larger economic forces.
18:55
Speaker 2: Weigh on what the thirty year fixed mortgage look that
18:58
Speaker 2: look like in terms of their responses on the short
19:01
Speaker 2: end of the curve, that's where the FED really has
19:03
Speaker 2: the most impact. We're heading into the break here. Markets
19:06
Speaker 2: are still selling off, with the SMP off about a
19:08
Speaker 2: half percent, the Dow Jones off about three hundred and
19:11
Speaker 2: forty five points. When we come back from breakroo me
19:14
Speaker 2: talking with Todd Lutsky from Cushion Dolan. So get your
19:17
Speaker 2: estate planning questions ready here at eight eight eight two
19:21
Speaker 2: zero five two to two six y three quick break
19:24
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19:53
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19:56
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20:00
Speaker 4: It's our pulling back as Wall Street reacts to the
20:02
Speaker 4: consumer Price index posted earlier this morning for the latest
20:05
Speaker 4: on inflation, where consumer prices climb zero point five percent
20:10
Speaker 4: in January, slightly hotter than expectations of zero point three
20:14
Speaker 4: percent on an annual basis. The rate of inflation climb
20:17
Speaker 4: three percent, also higher than forecasts of two point nine percent.
20:22
Speaker 4: At the moment, the Dow is down by three quarters
20:25
Speaker 4: of a percent or three hundred and thirty seven points.
20:27
Speaker 4: Of Russell two thousand excuse me, s and P five
20:29
Speaker 4: hundred down by half a percent or thirty one points.
20:33
Speaker 4: The Nasdaq is down by about a third of a
20:35
Speaker 4: percent or sixty three points, and the Russell two thousand
20:38
Speaker 4: is down over one percent or thirty seven points. Ten
20:43
Speaker 4: year Treasure Real jumping today up by eleven basis points
20:46
Speaker 4: at four point sixty five percent, and crude oil down
20:50
Speaker 4: over one and a half percent, trading just above seventy
20:53
Speaker 4: two dollars a barrel. Super microcomputer shares jumping by over
20:57
Speaker 4: five percent after the AI server Acre significantly lifted its
21:02
Speaker 4: fiscal twenty twenty six sales outlook, where the company said
21:05
Speaker 4: that heavy adoption of its direct liquid cooling technology in
21:08
Speaker 4: data centers over the next twelve month twelve month should
21:13
Speaker 4: pave way for twenty billion dollars in revenue for its
21:16
Speaker 4: fiscal year. Meanwhile, Lift shares down by over seven percent
21:21
Speaker 4: after the ride sharing companies Booking's forecast for the current
21:24
Speaker 4: quarter disappointed. Lift also said users were taking fewer and
21:29
Speaker 4: shorter rides. Uber stock is also seeing sympathy losses on
21:33
Speaker 4: the news. On the other hand, door Dash shares are
21:36
Speaker 4: jumping by over two percent after the food delivery company
21:40
Speaker 4: said it grew its food delivery business in the previous
21:43
Speaker 4: quarter and projected better than expected growth ahead. Elsewhere As,
21:47
Speaker 4: CVS Health reported fourth quarter results that beat analysts expectations,
21:52
Speaker 4: while its full year guidance was in line with forecast.
21:55
Speaker 4: CBS shares are jumping by fifteen percent. Burger King parentcom
22:00
Speaker 4: company Restaurant Brands International beat earnings in revenue estimates for
22:03
Speaker 4: the fourth quarter. That stock, however, is pulling back slightly
22:07
Speaker 4: into negative territory, and after today's closing bell, we'll see
22:11
Speaker 4: earnings from Robin Hood, Cisco, and Reddit. I'm Tucker Silvan.
22:16
Speaker 1: That's Wallstreet Watch. This is ask Todd on the Financial
22:21
Speaker 1: Exchange Radio Network. If you have an existing estate plan
22:24
Speaker 1: or in the market for one, Todd Lutsky is here
22:26
Speaker 1: to answer your questions and help you plan for a
22:28
Speaker 1: later life. Ask Todd is presented by Cushing and Dolan,
22:32
Speaker 1: serving Massachusetts and New England for more than thirty five years,
22:35
Speaker 1: helping families with a state and tax planning, medicaid planning,
22:38
Speaker 1: and probate law. Visit Cushingdolan dot com. Now Here's Todd Lutsky.
22:46
Speaker 2: Every Wednesday, we're joined by Todd Lutsky from Cushion Dolan
22:50
Speaker 2: for a weekly segment of Ask Todd. For any of
22:53
Speaker 2: you out there who have any estate planning questions, whether
22:55
Speaker 2: it's regarding a state, taxes, Medicaid, probate, avoid and give
23:00
Speaker 2: our studio line of call it eight eight eight two
23:03
Speaker 2: zero five two to two sixty three. Again that number
23:06
Speaker 2: for any of your questions out there. Eight eight eight
23:08
Speaker 2: two zero five two to six ' three.
23:12
Speaker 5: Todd.
23:12
Speaker 2: How we doing today?
23:13
Speaker 5: I am never better in you doing quite well?
23:16
Speaker 1: Todd.
23:17
Speaker 2: Question for you for folks out there. One of the
23:20
Speaker 2: basic tackling blocks for an estatement and oftentimes is avoiding probate.
23:25
Speaker 2: And I was wondering if you could just kind of
23:27
Speaker 2: give the listeners a sense for what types of assets
23:30
Speaker 2: may be probatable and the impact it would have on
23:34
Speaker 2: their airs if their assets were to go to probate
23:37
Speaker 2: because they had not done a proper estate plan.
23:40
Speaker 6: Yeah, and I think I'm going to answer that in
23:42
Speaker 6: line with the guide that we're given away this month,
23:44
Speaker 6: which is back to the basics, because in that guide,
23:47
Speaker 6: one of the things that talks about a lot is
23:49
Speaker 6: the basic documents in addition to the trust that's involved
23:55
Speaker 6: in that particular guide, but it really spends the time
23:58
Speaker 6: we need on basic documents like a will, a healthcare proxy,
24:02
Speaker 6: a power of attorney, a living will, a hip, a form.
24:05
Speaker 6: These are basic docs that don't get as much attention.
24:08
Speaker 6: I say that because probate and the will go hand
24:12
Speaker 6: in hand, and since your question is on probate, I
24:15
Speaker 6: can tell you first and foremost that folks that do
24:19
Speaker 6: a will, please don't think that that's an estate plan.
24:23
Speaker 6: They think it is. They come in they say, I've
24:26
Speaker 6: got my estate planning all done. I got a will. Well,
24:30
Speaker 6: it's better than nothing. I can certainly tell you the
24:33
Speaker 6: will at least will ensure your assets go where you
24:38
Speaker 6: want them to. Go and how and when they're going
24:42
Speaker 6: to get there. However, I like to tell people that
24:44
Speaker 6: a wills won't because what it won't do is it
24:47
Speaker 6: won't avoid probate, which I'm going to get to them.
24:49
Speaker 6: I know I'm getting there, but it won't avoid probate.
24:52
Speaker 6: It also won't reduce your estate tax. So if you're
24:56
Speaker 6: married and you leave assets to each other in a
24:59
Speaker 6: simple will, you didn't do anything to reduce your estate
25:02
Speaker 6: tax liability, so not a probate avoidance deal, and not
25:07
Speaker 6: in estate tax savings. And if one of your goals
25:10
Speaker 6: is to protect assets from the cost of long term care,
25:13
Speaker 6: also a will won't do that. So those are generally
25:17
Speaker 6: things that are used to make up an entire estate plan,
25:21
Speaker 6: and the will misses all of them. Now, the big
25:24
Speaker 6: thing it misses is it's the only document that has
25:27
Speaker 6: to be filed at the probate court. And when you
25:29
Speaker 6: get into probate, you now are looking at about a
25:32
Speaker 6: year long process.
25:34
Speaker 5: Number one. Number two, it's costly, right, you got to
25:37
Speaker 5: file things.
25:38
Speaker 6: And it's not even the filing fees so much, folks,
25:40
Speaker 6: as it is likely you're going to hire a lawyer,
25:42
Speaker 6: and it's the legal fees that you're dealing with for
25:45
Speaker 6: the next year when you go through the process and
25:48
Speaker 6: it actually appoints an executor or a personal representative, who,
25:52
Speaker 6: by the way, has no power until you're actually appointed.
25:56
Speaker 6: So please don't think just because you're listed that you're
25:58
Speaker 6: automatically the pr You've got to go through filing a
26:02
Speaker 6: petition at the court notifying all the heirs at laws
26:05
Speaker 6: so they have an opportunity to object to you being appointed.
26:08
Speaker 6: And then finally when you get a return date to
26:10
Speaker 6: the court, now you're appointed. And only after you're appointed
26:14
Speaker 6: can you run to that bank or to that brokerage
26:16
Speaker 6: account and with the petition or the appointment from the
26:20
Speaker 6: court in one hand and the death certificate in the other,
26:24
Speaker 6: will you be able to finally access that money or
26:28
Speaker 6: sell a piece of property or move real estate. So
26:31
Speaker 6: it doesn't happen right away. So that's a good sixty
26:34
Speaker 6: to ninety days just to do that. And then of
26:36
Speaker 6: course there's inventories and accountings and on and on we go, folks.
26:40
Speaker 6: But I hope that gives you a little flavor of
26:43
Speaker 6: why you don't want to be there.
26:45
Speaker 2: I've seen it with clients that I've dealt with firsthand.
26:47
Speaker 2: Going through that probate process, like you mentioned, just a
26:50
Speaker 2: real administrative burdens, so it's important to try your best
26:53
Speaker 2: to avoid that. We're going to take a quick break here,
26:56
Speaker 2: but if you have any questions for Todd Lotsky here
26:58
Speaker 2: from Cushion Dolan, give our cell our studio line of
27:01
Speaker 2: call it eight eight eight two zero five two two
27:04
Speaker 2: sixty three. Again, anything in the estate planning realm, any
27:07
Speaker 2: questions you may have, give our studel line of call
27:09
Speaker 2: eight eight eight two zero five two to two six three.
27:12
Speaker 2: When we come back from break your questions Next with
27:14
Speaker 2: Todd Lutsky.
27:16
Speaker 1: Ask Todd with Todd Lutsky every Wednesday at ten thirty
27:20
Speaker 1: only here on the Financial Exchange Radio Network. You're listening
27:26
Speaker 1: to Ask Todd with Todd Lutsky on the Financial Exchange
27:29
Speaker 1: Radio Network.
27:43
Speaker 2: Coming back from break here, we're here with Todd Lutsky
27:45
Speaker 2: from Cushion Dolan. For any of your estate planning questions,
27:48
Speaker 2: give us a call at eighty eight two zero five
27:50
Speaker 2: two two sixty three. We're gonna go to our first caller,
27:53
Speaker 2: John and Waterbury, Connecticut. You're on with Todd Lutsky.
27:57
Speaker 7: Hi does Connecticut except written wills.
28:02
Speaker 6: Hand written wills. Well, I don't think it's the handwriting
28:09
Speaker 6: that matters. I think what matters is that it has
28:13
Speaker 6: the testamentary language that you need in it, Like it
28:18
Speaker 6: needs to have in the very beginning language that says
28:21
Speaker 6: I hereby revoke all former wills, right, all prior wills.
28:24
Speaker 6: So that needs to be in there. Whether that is
28:27
Speaker 6: typed or whether you hand wrote it, I don't believe matters.
28:32
Speaker 6: Now I'm going to give you that as sort of
28:34
Speaker 6: a with a grain of salt, because I don't know
28:37
Speaker 6: off the top of my head. I'm just going to
28:38
Speaker 6: give you what I think the legal requirements of a
28:40
Speaker 6: will are. I've never heard that a will has to
28:43
Speaker 6: be typed in order for it to be valid. I mean,
28:46
Speaker 6: think about wills that existed before we had typewriters. I
28:49
Speaker 6: mean they did, they were handwritten, and they worked. So
28:52
Speaker 6: I think you just need to make sure that the
28:54
Speaker 6: will has the testamentary language. That's number one. Number two
28:59
Speaker 6: probably is going to need at least two witnesses and
29:03
Speaker 6: likely a notary. So you got to have at the
29:05
Speaker 6: end the notary and the two witnesses, So that has
29:08
Speaker 6: to be in there. So I think if you can
29:10
Speaker 6: get those kinds of things, and usually there's a self
29:13
Speaker 6: proving affidavid language at the end as well. So as
29:17
Speaker 6: long as you've got that requirement or any other Connecticut,
29:21
Speaker 6: Because folks, I say this, every state might have a
29:24
Speaker 6: few different rules as to what makes up a valid
29:27
Speaker 6: will in that state, so please look to your state.
29:30
Speaker 6: But I do think as long as you have those
29:33
Speaker 6: requirements that make a will a will, then it's valid.
29:38
Speaker 6: Whether it's typed or handwritten, I don't think is the
29:42
Speaker 6: determining factor for making it a valid will. Great question though,
29:47
Speaker 6: and it does go back to this guide, which is
29:50
Speaker 6: back to the basics right.
29:52
Speaker 5: It does talk about all.
29:54
Speaker 6: Of the basic documents in detail, wills, healthcare proxies, powers
29:59
Speaker 6: of attorney, performs, living wills. It also gives you an
30:02
Speaker 6: idea about how to pick a lawyer. It talks about
30:06
Speaker 6: what to think about when you're doing your estate plan,
30:08
Speaker 6: how much you're worth, valuing your assets, family dynamics, you know,
30:13
Speaker 6: all things that you need to think about. And then
30:15
Speaker 6: it's basically my legal recommendation to a made up family
30:21
Speaker 6: with made up family dynamics and assets. And then I
30:25
Speaker 6: give the description as to exactly how to accomplish all
30:29
Speaker 6: of their estate planning needs culminating with an irrevocable trust.
30:33
Speaker 5: So get the guide.
30:34
Speaker 6: It'll help you get started at a bare minimum. And
30:37
Speaker 6: who knows when you put your family situation into this
30:41
Speaker 6: fact pattern, maybe this is actually a recommendation for you.
30:45
Speaker 6: Call and get the guide eight six six eight four
30:47
Speaker 6: eight five six nine nine or Legal Exchange Show dot com.
30:52
Speaker 6: Back to the Basics eight sixty six eight four eight
30:56
Speaker 6: five six nine nine or Legal Exchange Show dot com.
31:00
Speaker 2: We're gonna go to our second caller here, Mike in Boston.
31:04
Speaker 2: You're on with Todd Lutsky.
31:07
Speaker 8: How you doing, Todd. My name is Mike. I'm in Boston.
31:12
Speaker 8: My family, my parents put together a real estate portfolio
31:16
Speaker 8: which they put into irrevocable trusts. My father passed away
31:21
Speaker 8: and now it's my mom, my brother, and I and
31:24
Speaker 8: Spress Press. My brother and I do not get along
31:27
Speaker 8: in any way, and we're inheriting these properties in the trust,
31:32
Speaker 8: and we're both concerned about how the business, the real
31:38
Speaker 8: estate portfolio is run after my mom passes, and so
31:43
Speaker 8: I'm concerned about you know him, he's concerned about me.
31:50
Speaker 8: Is it important? Is my best option to put into
31:53
Speaker 8: place a what I'm calling a non biased trustee member
31:57
Speaker 8: to oversee the trust and kind of manage the funds,
32:00
Speaker 8: and and then the importance of getting AH an operating
32:05
Speaker 8: agreement to kind of each other account of.
32:08
Speaker 6: So let me ask you this is are all these
32:10
Speaker 6: docs are all these uh rental properties in an LLC?
32:15
Speaker 8: They're currently not, but the firm that we've hired is
32:18
Speaker 8: pushing to get them into LLCs.
32:20
Speaker 6: So I would think an LLC is a good idea.
32:22
Speaker 6: And I think the shares of and maybe multiple LLC's,
32:26
Speaker 6: I don't mean to say one, and then all of
32:29
Speaker 6: the shares themselves should be owned in these irrevocable trusts,
32:32
Speaker 6: if that's what they've chosen. Irrevocable, I don't. I don't
32:35
Speaker 6: know if that's the right way to go or not.
32:37
Speaker 6: But doesn't matter, because you're concerned more about what happens
32:40
Speaker 6: when they both pass and and the trust of course
32:43
Speaker 6: at that point will be irrevocable. I wouldn't jump to
32:46
Speaker 6: the conclusion that you need to get an independent trustee
32:49
Speaker 6: right away. If you the most important thing is that
32:52
Speaker 6: you guys decide, and you're going to have to talk
32:54
Speaker 6: to each other to decide what you want to do.
32:55
Speaker 6: You got to read the document to see does it
32:57
Speaker 6: say divide the property and pay it out to you
32:59
Speaker 6: kids and walk away. Does it say hold it in
33:02
Speaker 6: trust for your lives, in discretionary trust for your lives
33:06
Speaker 6: and then you got to run and manage the company.
33:08
Speaker 5: I don't know. You need to read the document to
33:10
Speaker 5: see what it says. If it says divide it, pay
33:14
Speaker 5: it out, walk away.
33:15
Speaker 6: Our trusts usually have language it says, look property sold
33:19
Speaker 6: unless you all want it. Well, if you both don't
33:21
Speaker 6: want them, then it's going to be sold. And if
33:24
Speaker 6: one wants it and one doesn't, then the one who
33:26
Speaker 6: wants it can buy out the one who doesn't at
33:28
Speaker 6: fair market value. So again, fighting or not, you're going
33:31
Speaker 6: to be able to at least get past that walk
33:33
Speaker 6: away with what you want.
33:35
Speaker 5: Right.
33:35
Speaker 6: Maybe they don't want to be Maybe one brother says,
33:37
Speaker 6: I just want the dough. Okay, Well you have to
33:40
Speaker 6: arrange to have it purchased and bought out. So I
33:43
Speaker 6: would look to try to not cause any more fighting.
33:46
Speaker 6: Just say, look, from a selfish standpoint, we're both working
33:49
Speaker 6: towards the same goal. You get what you're supposed to get.
33:52
Speaker 6: I get what I'm supposed to get and we don't
33:54
Speaker 6: have to work together. If we want to work together, yeah,
33:57
Speaker 6: I would have it in an LLC, and you guys
33:59
Speaker 6: should be managers of your own your own buildings, and
34:02
Speaker 6: you're in and sit back and collect rent and just say, hey,
34:05
Speaker 6: we're just going to not be friendly, but we're just
34:08
Speaker 6: going to be you know, business partners, and money will
34:10
Speaker 6: come in and half will go to each of you
34:12
Speaker 6: and and that'll be the end of it. So I
34:14
Speaker 6: don't think there's a separate agreement you can have that
34:17
Speaker 6: says you're not going to fight, so that that isn't
34:19
Speaker 6: gonna work. I think you just need to work through
34:22
Speaker 6: it and look at what the document says first and
34:24
Speaker 6: foremost and and take it from there. But I do
34:27
Speaker 6: like the fact that they've done some some planning, so
34:30
Speaker 6: I hope that helps a little.
34:31
Speaker 2: We're gonna go to our last caller here, Mary and Waltham.
34:34
Speaker 2: You're on with Todd Lusky.
34:37
Speaker 7: Hello, my opponent is ringing. I hope it doesn't disturb via.
34:40
Speaker 7: I'm calling actual on my brother's piet.
34:43
Speaker 5: He goes with his.
34:44
Speaker 7: Wife, but they don't get along, and two of their
34:46
Speaker 7: three adult sons both with them, but he wants to
34:49
Speaker 7: have a separate will so that you know, if he
34:52
Speaker 7: passes first, the house could be possibly split too, so
34:57
Speaker 7: that the wife doesn't get the whole asset. Wants some
35:00
Speaker 7: to go to the wife and the three sons and
35:03
Speaker 7: the house these souls, because he said when these sons
35:06
Speaker 7: eventually inherited, they are not good with money and they
35:10
Speaker 7: would probably lose the house. So is there a way
35:12
Speaker 7: you can do a separate will when there's the house involved?
35:15
Speaker 6: So if they're marriage still and it sounds like they
35:18
Speaker 6: are married, correct, right, Yeah, so you can't technically disinherit
35:23
Speaker 6: your spouse. I mean, there's always a forced airship that
35:26
Speaker 6: allows them to get some amount. Now, as long as
35:29
Speaker 6: you provide an amount equal to the amount they would
35:32
Speaker 6: get under the forced share, it's probably gonna be okay.
35:35
Speaker 6: So do we do separate wills? Well, you always do
35:38
Speaker 6: separate wills when you're married, one for husband, one for wife.
35:42
Speaker 6: I think what they need is way more than a will.
35:44
Speaker 6: I think they need a trust, and I think the
35:46
Speaker 6: trust needs to be designed, you know, to take care
35:49
Speaker 6: of the spouse, but by the same token as you said,
35:53
Speaker 6: maybe you know, not just give it to her. If
35:56
Speaker 6: that's the case, and therefore provide for and I assume
35:59
Speaker 6: these are their own kids. It's not a second marriage, right, yes, right,
36:03
Speaker 6: So they're each going to want to take care of
36:04
Speaker 6: their kids anyway, so this will provide for it. And
36:06
Speaker 6: I probably would have language in the trust again, not
36:09
Speaker 6: just a will, but a trust that not only protects
36:12
Speaker 6: it from potential nursing home claims and taxes, but that
36:15
Speaker 6: it could hold it in trust for these children who
36:18
Speaker 6: might not be great with money, as you said, and
36:20
Speaker 6: if need be, the trustees could always sell the house,
36:23
Speaker 6: the money could go in, and then the money could
36:25
Speaker 6: be used to take care of these children with discretionary
36:28
Speaker 6: distributions for their needs, their health, their education, welfare support,
36:33
Speaker 6: you know, so that it stretches out the money a
36:35
Speaker 6: little bit so that it can be used to better
36:38
Speaker 6: their life rather than just you know, dump it in
36:40
Speaker 6: their hands, and then that could cause way more harm
36:43
Speaker 6: than good. So I think they're going to need to
36:45
Speaker 6: do a little bit more than separate wills. I think
36:48
Speaker 6: they should sit with a lawyer and learn how a
36:51
Speaker 6: trust can really take care of both of them. And
36:54
Speaker 6: they don't need to really be angry with each other
36:58
Speaker 6: when they're doing this estate plan because the common goal
37:00
Speaker 6: was the kids here.
37:01
Speaker 2: Absolutely, Todd, thanks so much for taking time with us
37:03
Speaker 2: this week. Happy early birthday to.
37:05
Speaker 5: You, Oh thank you. Always a pleasure.
37:08
Speaker 1: This has been Asked Todd on the Financial Exchange Radio network.
37:12
Speaker 1: Ask Todd with Todd. Lutsky has been presented by Cushing
37:15
Speaker 1: and Dolan, serving Massachusetts and New England for more than
37:17
Speaker 1: thirty years, helping families with the state and tax planning,
37:20
Speaker 1: Medicaid planning, and probate law. Call eight hundred three nine
37:23
Speaker 1: three four thousand and one or visit Cushingdolan dot com.
37:27
Speaker 1: The views expressed in this segment are solely those of
37:29
Speaker 1: Cushing and Dolan. Armstrong Advisory does not provide any legal
37:32
Speaker 1: or tax advice. Please consult with your legal or tax
37:34
Speaker 1: advisor on such matters. Cushing and Armstrong do not endorse
37:36
Speaker 1: each other and are not affiliated.