Latest / The Financial Exchange Show / Is the oil market in jeopardy if Israel-Iran conflict intensifies?

Transcript

Is the oil market in jeopardy if Israel-Iran conflict intensifies? · The Financial Exchange Show

0:00
Speaker 1: The Financial Exchange is produced by Money Matters Radio and
0:02
Speaker 1: is hosted by employees of the Armstrong Advisory Group, a
0:05
Speaker 1: registered investment advisor. All opinions expressed are solely those of
0:08
Speaker 1: the hosts. Do not reflect the opinions of Armstrong Advisory
0:11
Speaker 1: or anyone else. Investments can lose money. This program does
0:14
Speaker 1: not offer any specific financial or investment advice. Please consult
0:17
Speaker 1: your own financial, tax, and estate planning advisors before making
0:20
Speaker 1: any investment decisions. Armstrong Advisory and the advertisers heard on
0:23
Speaker 1: this program do not endorse each other or their services.
0:26
Speaker 1: Armstrong and Money Matters Radio do not compensate each other
0:28
Speaker 1: for referrals and are not affiliated. This is the Financial
0:34
Speaker 1: Exchange with Chuck Zada and Mark fan Daddy, your exclusive
0:38
Speaker 1: look at business and financial news affecting your day, your city,
0:42
Speaker 1: your world. Stay informed and up to date about economic
0:46
Speaker 1: and market trends plus breaking business news every day. The
0:50
Speaker 1: Financial Exchange is a proud partner of the Disabled American
0:53
Speaker 1: Veterans Department of Massachusetts. Help us support our great American
0:57
Speaker 1: heroes by visiting DAV five K Boston and making a
1:01
Speaker 1: donation today. This is the Financial Exchange with Chuck Zada,
1:06
Speaker 1: and Mark Fandendi.
1:10
Speaker 2: Chuck, Mark and Tucker with you here. And it is
1:13
Speaker 2: a Fed day today. The Federal Reserve has a meeting
1:17
Speaker 2: that is going to announce their interest rate decision at
1:23
Speaker 2: two pm. They're also going to be giving us their
1:25
Speaker 2: summary of economic projections, which is always fun to look
1:29
Speaker 2: at just to get a sense of what the Fed
1:31
Speaker 2: is thinking about now the rest of this year, in
1:33
Speaker 2: the subsequent year's shape up. And then at two thirty
1:36
Speaker 2: j Powell is going to be doing his press conference,
1:40
Speaker 2: where he'll take questions from a number of reporters and
1:44
Speaker 2: we'll look to see if he says anything more meaningful
1:47
Speaker 2: than the last couple of times, where it's basically been yeah,
1:50
Speaker 2: we're at a holding pattern. We're waiting to see, you know,
1:52
Speaker 2: what comes out of this. I suspect we probably get
1:55
Speaker 2: more of the same on that front. I don't think
1:58
Speaker 2: there's quite enough data for him to be able to
2:00
Speaker 2: say anything more meaningful right now, but certainly I'm open
2:03
Speaker 2: to being surprised if he does. But we're going to
2:07
Speaker 2: start today's show, I'm talking a little bit more in
2:10
Speaker 2: depth just about what is going on in the Middle East,
2:14
Speaker 2: just because this is still a major driver of market
2:20
Speaker 2: action today, and I think that this is going to
2:24
Speaker 2: be something that is a market mover over the coming
2:28
Speaker 2: days and weeks as we look to see what the
2:32
Speaker 2: next phase is here. And what I mean by the
2:34
Speaker 2: next phase is when this kicked off on Thursday night. Effectively,
2:41
Speaker 2: we've seen the same thing for the last five or
2:44
Speaker 2: six days now, which has been Israel conducting a series
2:49
Speaker 2: of strikes into Iran using an air force that is
2:53
Speaker 2: basically operating unimpeded. After destroying a significant amount of the
2:57
Speaker 2: defense capability of the Iranian anti aircraft units. Iran has
3:05
Speaker 2: been responding through a series of ballistic missile barrages that
3:10
Speaker 2: have been taking place a few times a day. Those
3:13
Speaker 2: barrages have been getting smaller, lending some to believe that hey,
3:17
Speaker 2: Iran might be running out not so much of missiles,
3:19
Speaker 2: but certainly the launchers that are being targeted by Israel.
3:21
Speaker 2: It seems like they are having issues being able to
3:25
Speaker 2: keep those operating effectively since you know they're being destroyed.
3:28
Speaker 2: But ultimately, the question that's out there that every significant
3:34
Speaker 2: geopolitical analyst is asking is okay, like, what comes next?
3:37
Speaker 2: Because generally you can't win any type of conflict just
3:43
Speaker 2: by lobbing stuff back and forth or flying you know,
3:46
Speaker 2: air force missions back and forth. If you have larger goals,
3:50
Speaker 2: you typically have to do something else. And is that
3:54
Speaker 2: actually going to happen here, given you know what you
3:58
Speaker 2: have from this standpoint of you know, Iran's geography, its population,
4:03
Speaker 2: all these different things. And so I think we're just
4:06
Speaker 2: kind of in wait and semo to see where this goes,
4:08
Speaker 2: because it's hard to see the status quo being maintained
4:12
Speaker 2: for much longer than it's been. That there has to
4:15
Speaker 2: be something that comes next, and no one really knows
4:19
Speaker 2: exactly what that is. And that means that for markets,
4:22
Speaker 2: both energy markets and you know, equities and bonds, that
4:25
Speaker 2: there's a whole lot of different options out there as
4:28
Speaker 2: far as where this can go.
4:29
Speaker 3: I guess before we get involved, assuming we do, and
4:32
Speaker 3: the president's being coy about that, I.
4:34
Speaker 2: Don't know that you can assume that the US does
4:36
Speaker 2: or does not. Yeah, so the president's an open question
4:39
Speaker 2: is being cooi.
4:40
Speaker 3: If we do, I'd like to hear rationale articulated in advance.
4:45
Speaker 3: What are the objectives and what would what would constitute
4:50
Speaker 3: satisfaction of those objectives? Israel historically has done a good
4:54
Speaker 3: job of in a very small amount of time taking out.
4:59
Speaker 2: Nuclear enrichment facilities.
5:03
Speaker 4: And thank you.
5:03
Speaker 2: That's the exact word.
5:04
Speaker 3: I was looking for the exact phrase in Iraq in
5:07
Speaker 3: nineteen eighty one. In Syria, I believe in two thousand
5:09
Speaker 3: and seven, if you look at past crises Yam Kapor War,
5:15
Speaker 3: the sixties or late nineteen sixties, Israel is operating with
5:20
Speaker 3: their historical customary efficiency year. This strikes seem quite targeted,
5:25
Speaker 3: quite limited. God willing, things won't expand. But if we
5:29
Speaker 3: do get involved again, what I think I'd like to hear,
5:31
Speaker 3: what presumably markets would like to hear, maybe the FED
5:33
Speaker 3: would like to hear it too, is exactly what our
5:35
Speaker 3: objectives are. So then we can start to gauge how
5:37
Speaker 3: long it will take to achieve them.
5:39
Speaker 2: And I think part of the big things that you
5:41
Speaker 2: worry about in this conflict are there are two of them.
5:46
Speaker 2: The first is, does a desperate Iranian government, you know,
5:50
Speaker 2: have some kind of basically involuntary spasm where they do
5:53
Speaker 2: something that they otherwise wouldn't and cause you know, significant
5:56
Speaker 2: problems in the region or worldwide, depending on how they
5:59
Speaker 2: decide to respond. Obviously, the straight of horm moves is
6:02
Speaker 2: something that we've talked about with regards to energy prices.
6:05
Speaker 2: But you got the potential for you know, the Iranian
6:07
Speaker 2: counter attacks to come through cyber attacks and things like that.
6:11
Speaker 2: There's a wide range of ways that this can you know, happen,
6:15
Speaker 2: and obviously you look for, hey, is there any way
6:18
Speaker 2: that other you know, countries get sucked into this and
6:21
Speaker 2: it becomes a larger conflict, and certainly you hope that
6:24
Speaker 2: that is not the case either. So to this point,
6:28
Speaker 2: the impact on markets, I think has largely been limited
6:31
Speaker 2: in my opinion, to what we're seeing with oil prices,
6:35
Speaker 2: which have moved up considerably and are continuing to do
6:38
Speaker 2: so today with West Texts Intermediate up another seventy three
6:41
Speaker 2: cents or about one percent. So you know, since this started,
6:47
Speaker 2: which was again basically last Thursday, oil prices up about
6:52
Speaker 2: ten percent. But even before that, maybe they were sniffing
6:57
Speaker 2: this out a little bit because you had a ten
6:58
Speaker 2: percent rise in you know, a couple of weeks before that,
7:00
Speaker 2: so oil prices as a whole up twenty percent. Now
7:04
Speaker 2: you're not seeing it fully reflected in gas prices at
7:07
Speaker 2: the moment, but gas prices have risen about two percent
7:11
Speaker 2: over the last several days now, and based on what
7:16
Speaker 2: I'm seeing from gas price experts, most notably the folks
7:20
Speaker 2: over at gas Body, they expect the national average for
7:24
Speaker 2: gas prices to move up somewhere into the three twenty
7:29
Speaker 2: five to three forty range, which would be a sizeable
7:32
Speaker 2: shift from where we were previously. We'd kind of been
7:35
Speaker 2: in that three ten to three point fifteen range nationally
7:38
Speaker 2: for much of the last few months, and so this
7:40
Speaker 2: would represent, you know, a four to ten percent jump
7:44
Speaker 2: in gas prices right as you're heading into a busy
7:46
Speaker 2: summer driving season. So that has potential impacts on the
7:50
Speaker 2: US economy that's already trying to deal with these additional
7:53
Speaker 2: costs coming through from tariffs. If you now have additional
7:56
Speaker 2: costs on the energy side of things, it's another thing
8:00
Speaker 2: for the American economy to try to absorb.
8:02
Speaker 3: And this is problematic for the FED. The effects might
8:06
Speaker 3: be fleeting, but they can they can become entrenched through
8:12
Speaker 3: expectations which are already elevated because of the effect or
8:17
Speaker 3: the anticipated effect of tariffs, much like the nineteen seventies
8:21
Speaker 3: underlying inflation. I'll just call it core. You could call
8:25
Speaker 3: it trend is elevated, which is why the FED hasn't
8:30
Speaker 3: cut yet, and which is why they probably won't cut today.
8:33
Speaker 3: When you couple elevated underlying inflation with increasing inflation expectations,
8:39
Speaker 3: you get the ingredients of prolonged, persistent high inflation, which
8:45
Speaker 3: is prone to become very high inflation during periods of say,
8:49
Speaker 3: commodity shocks in this case, oil price shocks. Just another
8:53
Speaker 3: reason why the FED would probably be wise to hold
8:57
Speaker 3: firm today, hold their short term rate target steady at
9:00
Speaker 3: four and a quarter percent. But I could see an
9:02
Speaker 3: argument for easing a little bit too, given the state
9:05
Speaker 3: of labor markets, which we're going to talk about.
9:07
Speaker 2: Yeah, it's and and why don't we take a quick
9:09
Speaker 2: break here and then we'll talk a little bit about
9:11
Speaker 2: the FED, because I do think there's a lot to
9:13
Speaker 2: talk through there, So quick break and then FED talk
9:16
Speaker 2: right after this.
9:17
Speaker 1: The Financial Exchange streams live on YouTube. Subscribe to our
9:21
Speaker 1: page and stay up to date on breaking business news
9:24
Speaker 1: All morning. Long Face is the Financial Exchange Radio Network.
9:29
Speaker 1: Thanks to us six one seven, three six two thirteen
9:32
Speaker 1: eighty five with your comments and questions about today's show
9:35
Speaker 1: and let us know what you think about the stories
9:37
Speaker 1: we are covering. This is the Financial Exchange Radio Network.
9:46
Speaker 5: This segment of the Financial Exchange is brought to you
9:48
Speaker 5: in part by the US Virgin Islands Department of Tourism.
9:51
Speaker 5: The US Virgin Islands are Saint Croix, Saint Thomas, and
9:54
Speaker 5: Saint John and are consistently voted one of the top
9:57
Speaker 5: curve being vacation destinations and enjoy world class cuisine, Pristine
10:01
Speaker 5: Beach's rich history and a vibrant nightlife. Book your trip
10:05
Speaker 5: now to visit America's Caribbean bardise the United States Virgin Islands.
10:09
Speaker 5: For reservations and more information, go to visit USBI dot com.
10:13
Speaker 5: That's visit USBI dot com.
10:16
Speaker 2: So we got the Fed giving their basically policy this
10:21
Speaker 2: afternoon on interest rates, as well as a bunch of
10:24
Speaker 2: economic projections. And in the last segment, Mark you mentioned
10:28
Speaker 2: the look when you've got you know, the potential for
10:29
Speaker 2: higher oil prices. Yes, that could be transitory, but it
10:33
Speaker 2: factors into you know a number of different areas and
10:35
Speaker 2: potentially you know, becomes embedded not through energy prices, but
10:39
Speaker 2: other mechanisms that you know affect pricing in the future. Yeah,
10:44
Speaker 2: the piece that I can't get past right now, and
10:48
Speaker 2: where I'm increasingly leaning, especially after the data from this
10:53
Speaker 2: morning on building permits and housing starts, which the permit's
10:57
Speaker 2: data was not great. Permits drop two percent on an
11:00
Speaker 2: annualized basis from one point four to two million down
11:03
Speaker 2: to one point three to nine Okay, like that's not great,
11:07
Speaker 2: but sometimes that happens. The one that is borderline awful
11:14
Speaker 2: is what we saw on housing starts, which fell from
11:16
Speaker 2: an annualized pace of one point three nine million to
11:19
Speaker 2: one point two five million, a nine point eight percent
11:23
Speaker 2: monthly decline in housing starts and the worst annualized housing
11:28
Speaker 2: start number since early twenty twenty, when we were in
11:32
Speaker 2: the middle of the pandemic. So, like some objectively bad
11:36
Speaker 2: data on housing, the labor market data is not showing
11:40
Speaker 2: the labor market breaking, but there are some cracks that
11:42
Speaker 2: are appearing that are potentially concerning if they go too
11:45
Speaker 2: much further. And so the challenging piece here for the
11:51
Speaker 2: FED is you've got a bunch of things out there
11:54
Speaker 2: that are potentially inflationary and problems for them on the
11:58
Speaker 2: upside to inflation. But there's also a case to be
12:02
Speaker 2: made that those things could be short term in nature,
12:05
Speaker 2: whereas when the labor market goes, it usually goes, and
12:10
Speaker 2: so I'm kind of starting to lean pretty heavily now
12:14
Speaker 2: towards the camp of Look, I know that there's this
12:18
Speaker 2: inflation piece that they need to worry about, and certainly
12:20
Speaker 2: the inflation problem is not gone, but it's starting to
12:25
Speaker 2: feel and look like, hey, we can't do anything until
12:29
Speaker 2: there's a recession already here if it shows up on
12:32
Speaker 2: the labor side of things, and by that point it
12:35
Speaker 2: might be too late, which is kind of my concern.
12:38
Speaker 3: That's the perennial You just describe the Fed's perennial challenge
12:42
Speaker 3: from time immemorial. It's not always as stark as it
12:46
Speaker 3: seems right now, but the FED is always trying to
12:47
Speaker 3: balance the two forces that you just mentioned, forces that
12:52
Speaker 3: tend to push prices up. Generally, that happens when the
12:56
Speaker 3: economy is running ahead of its natural limits, which it
13:00
Speaker 3: might be right now. We don't know. We don't know
13:03
Speaker 3: what its limits are, or exactly we don't know either
13:06
Speaker 3: variable in that equation out what its limits are, what
13:08
Speaker 3: the true productive capacity of the economy is, or exactly
13:11
Speaker 3: what it's growing at right now. We can estimate those
13:13
Speaker 3: two things and estimate suggests that the economy is growing
13:16
Speaker 3: above its potential or natural if you like rate. The
13:20
Speaker 3: other side is, of course, the inflation part of the equator.
13:24
Speaker 2: Can we talk about that. Can we talk about whether
13:26
Speaker 2: we think the economy still is growing above its potential rate?
13:28
Speaker 2: Because I was looking at this just ten minutes ago,
13:31
Speaker 2: which is why it's top of mind for me. Q
13:34
Speaker 2: one data for GDP was negative point two. We've talked
13:36
Speaker 2: about why this was largely due to a surgeon imports
13:39
Speaker 2: that adjusts that affects how that's measured. Q two GDP
13:43
Speaker 2: is running at three five because that surgeon imports has reversed. Obviously,
13:47
Speaker 2: I look at it and I just say, hey, look,
13:49
Speaker 2: treat the first half as you know, one half instead
13:51
Speaker 2: of two quarters, and you get to Okay, GDP in
13:54
Speaker 2: the first half probably ran one seven to one nine,
13:58
Speaker 2: somewhere in that range.
14:00
Speaker 3: Yeah, that's close enough to trend for me that.
14:02
Speaker 2: It doesn't really suggest an economy that's running too hot
14:04
Speaker 2: at this point, I guess is where.
14:06
Speaker 3: If we're at trend, though, that should keep the inflation
14:08
Speaker 3: rate constantly. That is like the definition of the natural
14:11
Speaker 3: rate of output.
14:12
Speaker 2: It is, but this is coming off of and again
14:16
Speaker 2: I was just looking at the statu So it's nice
14:18
Speaker 2: center for me. Q two of last year was three percent,
14:21
Speaker 2: Q three was three to one. Q four of last
14:24
Speaker 2: year was two four So you've got a deceleration that's
14:27
Speaker 2: potentially being built in over four or five months. Sure,
14:30
Speaker 2: and that suggests that, hey, if that continues, your below
14:34
Speaker 2: trend by the second half of the year.
14:36
Speaker 3: Yeah, a deceleration in economic growth is not the same
14:38
Speaker 3: thing as disinflation. In fact, in recessions in the modern era,
14:42
Speaker 3: inflation tends to not do anything which is kind of
14:45
Speaker 3: strange or at least not come down by a lot,
14:48
Speaker 3: because it's driven by other.
14:50
Speaker 2: Except in two thousand and eight when it was just
14:51
Speaker 2: a file and even that oil prices collapse in virtual depression. Yeah.
14:56
Speaker 3: Sure, so there are exceptions, but on average, recessions have
14:59
Speaker 3: not and have not been meaningfully disinflation. Eary prices have not,
15:05
Speaker 3: price have not come down. Certainly that that would be
15:08
Speaker 3: the actual deflation almost unheard of in the modern era.
15:11
Speaker 3: So the FED is trying to balance these forces. Underlying
15:14
Speaker 3: inflation remains elevated inflation expectations, even though there are differences
15:20
Speaker 3: in some of the surveys. They have gone up, no
15:25
Speaker 3: matter how you measure it, including using financial market instruments.
15:29
Speaker 3: That means the real FED funds rate, which is the
15:33
Speaker 3: stated rate minus the rate of expected inflation, has come down.
15:36
Speaker 3: So policy as eased. Financial conditions are as loose as
15:40
Speaker 3: they've been at any point in this economic cycle, as
15:44
Speaker 3: measured by the Chicago Fed's National Financial Conditions Index. So
15:48
Speaker 3: it's not obvious to me the Fed needs to ease,
15:51
Speaker 3: though I could see the case for at least hinting
15:54
Speaker 3: strongly at quick and sharp easing should it become clear
15:58
Speaker 3: that the economy is because we know that monetary policy
16:02
Speaker 3: takes time to affect the real economy. When you lower rates,
16:06
Speaker 3: firms and people then take that into account and gradually
16:12
Speaker 3: adjust their decisions accordingly. So, other than its effect on
16:15
Speaker 3: asset prices, which would be instantaneous, it'll take time for
16:18
Speaker 3: a FED funds cut to work its way through the
16:20
Speaker 3: real economy. So I'm not saying there's not a case
16:22
Speaker 3: for it. I'm just saying it's not a particularly clear case,
16:25
Speaker 3: at least not at this point.
16:26
Speaker 2: The other piece that I wonder about now, just given
16:29
Speaker 2: you know, inflation being where it isn't concerns about you know,
16:32
Speaker 2: any either energy related or terriorf related inflation that pops
16:35
Speaker 2: up in the second half of the year, there's a
16:40
Speaker 2: case to be made even if the Fed cuts, does
16:44
Speaker 2: it move rates as much as the market would hope.
16:49
Speaker 2: And what I mean by that is when the Fed
16:51
Speaker 2: cuts interest rates, they to anyone listening that they don't
16:54
Speaker 2: cut mortgage rates, like the Fed does not set mortgage
16:57
Speaker 2: rates or you know, long term treasury rates. The FED
16:59
Speaker 2: cuts their overnight lending rate. The market typically prices this
17:05
Speaker 2: in and generally when the Fed is embarking on a
17:08
Speaker 2: cutting cycle, the longer term rates that we have out there,
17:12
Speaker 2: ten year treasury, thirty year treasury, they do come down
17:15
Speaker 2: in sympathy. Not as much, but they often move down.
17:18
Speaker 2: The amount can vary based on the specific cutting cycle
17:21
Speaker 2: and economic circumstances, but generally, hey, if the FED cuts
17:26
Speaker 2: by three percent, you know, over a cutting cycle, the
17:29
Speaker 2: long end doesn't just stay where it is.
17:31
Speaker 3: It doesn't, but its reaction depends.
17:33
Speaker 2: If you'd ask me if and this is what I'm
17:34
Speaker 2: getting at well, is in an environment where you have
17:38
Speaker 2: concerns about inflation, where you're running persistent six to seven
17:43
Speaker 2: percent deficits, that could expand to ten to twelve percent
17:46
Speaker 2: in a recession, does the long end of the yield
17:50
Speaker 2: curve have much room to move down? And if no,
17:56
Speaker 2: what's the actual impact of the FED cutting cycle.
17:59
Speaker 3: Yeah, the the reason why long rates may not go
18:02
Speaker 3: down is that expected future short rates go up. That's
18:06
Speaker 3: one explanation of what drives long term rates, the expectations theory,
18:10
Speaker 3: if you like, of the so called term structure. The
18:12
Speaker 3: other is the so called term premium, the risk premium
18:15
Speaker 3: associated with holding a government bond for a long period
18:18
Speaker 3: of time. If inflation becomes more uncertain or the credit
18:21
Speaker 3: worthiness of the US government, as you just pointed out,
18:24
Speaker 3: is increasingly called into question, you'll have to compensate long
18:27
Speaker 3: term bond holders buy more. It's not at all clear
18:29
Speaker 3: to me that longer term rates and thus mortgage rates
18:32
Speaker 3: will come down if the FED cuts rates.
18:35
Speaker 2: So there's some real questions on that side. And that's
18:37
Speaker 2: another thing that I have in my mind where I'm like, Okay,
18:40
Speaker 2: like the FED to maybe start cutting now, because there's
18:44
Speaker 2: some concerning signs out there. But I'm not sure that
18:49
Speaker 2: the cutting cycle behaves the same way that previous ones have.
18:53
Speaker 2: And part of that is just because this entire business
18:55
Speaker 2: cycle hasn't behaved the way previous ones have. You think
18:58
Speaker 2: about all the things that have broken in this business
19:01
Speaker 2: cycle that we used to rely on as economic indicators
19:04
Speaker 2: that you've kind of just been like, well, that's that's
19:07
Speaker 2: not you know, viable right now. Ism manufacturing has been
19:11
Speaker 2: useless for three years. We had the so rule trigger
19:14
Speaker 2: last year and mean nothing for the labor market. You know,
19:19
Speaker 2: like things that have kind of been held up as well,
19:21
Speaker 2: like these are you know, kind of important things. They
19:25
Speaker 2: haven't reflected in this cycle. What if the FED cuts
19:28
Speaker 2: and bonds don't behave the way they have previously. Also,
19:32
Speaker 2: it's just something out there in my head. Quick break
19:34
Speaker 2: here when we come back, we got Wall Street Watch
19:36
Speaker 2: and Todd Letsky joined us as well.
19:41
Speaker 1: Like us on Facebook and follow us on Twitter at
19:44
Speaker 1: TFE show. Breaking business news is always first right here
19:48
Speaker 1: on the Financial Exchange Radio Network. Time now for Wall
19:53
Speaker 1: Street Watch a complete look at what's moving market so
19:56
Speaker 1: far today right here on the Financial Exchange Radio Network.
20:01
Speaker 5: Markets aren't positive territory, with geopolitical tensions increasing as the
20:05
Speaker 5: US ways possible military action with Iran. Wall Street also
20:09
Speaker 5: waste a conclusion to the FEDS meeting at two o'clock
20:12
Speaker 5: this afternoon, where rates are expected to remain steady. Fitz
20:16
Speaker 5: Sherman Jerome Paul will hold a press conference at two
20:18
Speaker 5: point thirty to further elaborate the Central banks decision and
20:22
Speaker 5: economic outlook. Right now, the Dow is up by six
20:25
Speaker 5: tenths of one percent, or two hundred and sixty one points,
20:29
Speaker 5: SMP five hundred up just over half a percent higher,
20:32
Speaker 5: thirty four points, NASDAC up by two thirds of a percent,
20:35
Speaker 5: Russell two thousand up by seven tenths of one percent,
20:38
Speaker 5: Tenure Treasure heeled down by one basis point now at
20:41
Speaker 5: four point three seven percent, and crude oiled down over
20:44
Speaker 5: one and a half percent lower, trading at seventy three
20:47
Speaker 5: dollars in sixty cents a barrel. Amazon said it plans
20:50
Speaker 5: to cut its workforce in the coming years, where CEO
20:53
Speaker 5: Any Jazzi noted too employees that Generative AI should change
20:57
Speaker 5: the way its work is done, resulting in overduction to
21:00
Speaker 5: its corporate workforce. Amazon up by one percent. Meanwhile, job
21:04
Speaker 5: cuts elsewhere where toymaker has bro laid off three percent
21:08
Speaker 5: of its workforce, or about one hundred and fifty employees,
21:11
Speaker 5: as part of a multi year restructuring. The maker of
21:14
Speaker 5: Monopoly worn back in April that tariffs could ultimately lead
21:18
Speaker 5: to layoffs and excuse me, Hasbro shares are up by
21:21
Speaker 5: one percent. Elsewhere, investigators believe Air India Flight one seventy
21:26
Speaker 5: one had an emergency power generator operating when it crashed
21:29
Speaker 5: last week, raising questions if the plane's engines functioned properly
21:33
Speaker 5: during takeoff. Boeing shares are flat, and furniture maker Lazy
21:37
Speaker 5: Boy reported mixed quarterly results and said it expects tariffs
21:41
Speaker 5: in a weak housing market to continue weighing on consumers.
21:45
Speaker 5: Lazy Boy shares are up by one percent. I'm Tucker Silvan.
21:49
Speaker 1: That is Wall Street Watch. This is Asked Todd on
21:54
Speaker 1: the Financial Exchange Radio Network. If you have an existing
21:57
Speaker 1: estate plan or in the market for one, Todd, let's
21:59
Speaker 1: get here to answer your questions and help you plan
22:02
Speaker 1: for a later life. Ask Todd is presented by Cushing
22:05
Speaker 1: and Dolan, serving Massachusetts and New England for more than
22:07
Speaker 1: thirty five years, helping families with a state and tax planning,
22:11
Speaker 1: medicaid planning, and probate law. Visit Cushingdolan dot com. Now
22:16
Speaker 1: Here's Todd Lutsky.
22:19
Speaker 2: As promised from now joined by the one and only
22:22
Speaker 2: Todd Lotsky from the law firm of Cushing and Dolan,
22:26
Speaker 2: we got the phone lines open for you to ask
22:28
Speaker 2: Todd your estate planning questions. Eight eight eight to zero
22:32
Speaker 2: five two two sixty three is the number. A reminder,
22:35
Speaker 2: we typically can get through about two or three questions,
22:37
Speaker 2: so get calling to make sure that we can get
22:40
Speaker 2: to your question again. That number is eight eight eight
22:44
Speaker 2: to zero five two two six three. To ask Todd
22:47
Speaker 2: Lotsky your questions about your estate plan that number again
22:51
Speaker 2: is eight eight eight to zero five two two sixty three.
22:56
Speaker 2: In reminder, we have limited time to ask Todd your
22:59
Speaker 2: questions is Jowlotsky. How are you doing today?
23:02
Speaker 4: I am doing wonderful.
23:03
Speaker 1: How are you?
23:04
Speaker 4: I'm okay, yeah, just okay. Well, there's nothing to do
23:07
Speaker 4: with Oklahoma.
23:08
Speaker 2: Does I went to a glass blowing class yesterday, glass blowing? Yeah?
23:14
Speaker 6: Yeah?
23:14
Speaker 4: What were you doing there?
23:15
Speaker 7: Well?
23:15
Speaker 2: I accidentally inhaled. Oh I got stomach pain.
23:19
Speaker 4: Now yeah, I'd imagine.
23:21
Speaker 2: Yeah, so it's not great, Todd. I want to talk
23:24
Speaker 2: to you about irrevocable trusts. Okay, it's kind of like magnets.
23:29
Speaker 2: How do they actually work? Like, what what's the mechanism
23:33
Speaker 2: by which an irrevocable trust protects assets from long term
23:36
Speaker 2: care costs?
23:37
Speaker 4: Yeah, so a little from a more of a specific standpoint, right,
23:42
Speaker 4: because there's so many things that you can do, so
23:46
Speaker 4: few things that you can't. So when I say how
23:49
Speaker 4: does it work? Or when you say how does it work,
23:51
Speaker 4: it's a very broad question. But let's narrow it down
23:53
Speaker 4: to what you were saying, is is I know what
23:55
Speaker 4: is that the one mechanism that that truly you know,
24:01
Speaker 4: provides the protection I guess is what you're saying from
24:04
Speaker 4: from the nursing home. And there's language right when you
24:07
Speaker 4: when you when you draft these trusts. The drafting is
24:11
Speaker 4: the key, the language in there. Right, So there's a
24:15
Speaker 4: regulation that says if there are any circumstances within the
24:22
Speaker 4: four corners of the document that allow the principle to
24:29
Speaker 4: be paid out two or for the benefit of the donor,
24:37
Speaker 4: then the nursing home can get them. So it seems
24:40
Speaker 4: simple enough, sure to draft around that, and and to
24:44
Speaker 4: draft around that you need to have a specific language
24:46
Speaker 4: that says there is no the trustee shall have no
24:51
Speaker 4: power to distribute directly to the donor in any way,
24:59
Speaker 4: and you could go on and further make it, you know, irrevocable, unchangeable,
25:03
Speaker 4: whatever you want to put to make it clear that
25:06
Speaker 4: the trustee cannot distribute directly to the donor.
25:12
Speaker 2: TOUD. When we look at the current legislative landscape, big
25:17
Speaker 2: tax builds making its way through Congress right now, any
25:20
Speaker 2: signs that anything related to estate planning might be included
25:23
Speaker 2: in there that could affect how folks plan. I know
25:25
Speaker 2: there still are you know, a lot of evolutions that
25:27
Speaker 2: can happen, but.
25:28
Speaker 4: Oh yeah, yeah, I think there's a couple of things.
25:31
Speaker 4: I mean, I think the estate tax side of things
25:33
Speaker 4: is probably going to stay the same if I had
25:36
Speaker 4: to guess, meaning that the exemptions won't fall. But from
25:42
Speaker 4: a medicaid perspective, yes, you've heard already that they're trying
25:46
Speaker 4: to cut Medicaid and Medicare and different things around those
25:53
Speaker 4: entitlement statutes. And that may be true. I don't know
25:56
Speaker 4: what the scale is on that. But at the end
25:59
Speaker 4: of the day, I do not see a change coming
26:03
Speaker 4: with regard to the use of these irrevocable Medicaid trusts
26:06
Speaker 4: on how they work. In other words, I don't see
26:08
Speaker 4: anything saying that's going to be a longer than five
26:10
Speaker 4: year waiting period. I don't see anything that says all
26:13
Speaker 4: of a sudden, they don't work. So I think that
26:17
Speaker 4: the planning side for medicaid is steady as you go.
26:22
Speaker 4: But you know, jump in, get it done.
26:24
Speaker 2: Talk with Todd Lotski from the law firm of Cushing
26:27
Speaker 2: and Dolan. We call the segment Asked Todd because you
26:30
Speaker 2: get to ask Todd your estate planning questions. We still
26:34
Speaker 2: have room on the phone lines at eight eight eight
26:37
Speaker 2: to zero five two two sixty three. That is the
26:40
Speaker 2: number to call to ask Todd your questions right now,
26:43
Speaker 2: live on air again eight eight eight to zero five
26:48
Speaker 2: two two six three. A reminder, we do have limited space,
26:51
Speaker 2: so make sure that you get calling so that we
26:53
Speaker 2: can get to your question. That number again is eight
26:57
Speaker 2: eight eight to zero five to two six three. We're
27:01
Speaker 2: gonna take a quick break here, but when we come back,
27:04
Speaker 2: it's right to your questions with Todd. That phone number
27:07
Speaker 2: one more time is eight eight eight two zero five
27:11
Speaker 2: two two sixty 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.
27:35
Speaker 2: All right, Todd, we got some calls for you. Let's
27:37
Speaker 2: go first to Loretta on the Cape. Loretta, you are
27:40
Speaker 2: on with Todd Watsky.
27:41
Speaker 7: Oh, thank you, Todd. I'm a client with Pushing and
27:46
Speaker 7: Dolan and I have been so many years, long before
27:50
Speaker 7: you were even with the firm, and my question is
27:55
Speaker 7: how often should this trust be reviewed?
28:00
Speaker 4: Well, if if, if you've been a client longer than
28:04
Speaker 4: I've been with the firm, that's more than thirty years.
28:06
Speaker 4: So that's that's amazing. So first of all, great, but
28:12
Speaker 4: I would say, yeah, not more than once every thirty years.
28:16
Speaker 4: So is the kind of trust you have revocable or irrevocable?
28:21
Speaker 7: Irrevocable?
28:22
Speaker 4: So if it's irrevocable and you've done it that long ago,
28:25
Speaker 4: I suspect that in your case, the size of the
28:28
Speaker 4: estate is what sort of dictates the amount of time
28:32
Speaker 4: that you need to review it. So you know, I
28:35
Speaker 4: don't know really anything about the size of your state now,
28:37
Speaker 4: but I'm guessing it's probably less than two million dollars
28:40
Speaker 4: in assets.
28:43
Speaker 7: I think it's gone up. Maybe I would say Underscremaden,
28:50
Speaker 7: but a little higher than two.
28:52
Speaker 4: Okay, So either way, that's still fine. I would say then,
28:55
Speaker 4: based on the size of your state and the fact
28:57
Speaker 4: that it's irrevocable, it's likely designed to protect assets from
29:01
Speaker 4: the cost of long term care and probate. And because
29:04
Speaker 4: the estate tax exemption in mass has gone up to
29:07
Speaker 4: two million dollars and you've got the irrevocable trust in
29:10
Speaker 4: place more than five years ago, you're probably still okay.
29:14
Speaker 4: So this was a great review and a great lesson
29:16
Speaker 4: for everybody else when you're thinking about calling and finding
29:19
Speaker 4: out whether you should review your document. In this case,
29:22
Speaker 4: this is all it took was a few minutes to
29:24
Speaker 4: sort of realize where you are, what the size of
29:26
Speaker 4: your estate is, and if there's been any family changes.
29:29
Speaker 4: So if there's not been any other family changes on
29:31
Speaker 4: your front, then I think you're probably good to go
29:35
Speaker 4: with the trust plan that you have based on the
29:38
Speaker 4: current legislation and estate tax situation. So hopefully that was helpful.
29:42
Speaker 4: Thanks for the call, folks. That's a great question though,
29:46
Speaker 4: when people want to call and think about reviewing their
29:49
Speaker 4: estate plan. But interestingly enough, this caller had an irrevocable
29:54
Speaker 4: Medicaid trust in place, which is exactly what our guide
29:56
Speaker 4: is this month, folks. It's one of my favorite because
29:59
Speaker 4: it does, for thirty years give all my most frequently
30:03
Speaker 4: asked questions about these trusts. What can I put in?
30:06
Speaker 4: What can I take out? Can I put my house in?
30:08
Speaker 4: Can I sell? Can I move? How do I have
30:10
Speaker 4: to file income taxes? Are there any you know? What
30:12
Speaker 4: are the negatives? I mean, it goes on and on
30:14
Speaker 4: and answers all in a question answer format for you.
30:18
Speaker 4: So if you've ever wondered whether an irrevocable trust is
30:20
Speaker 4: right for you, after you read this guide, you're gonna
30:23
Speaker 4: know whether it's right for you. So call and get
30:25
Speaker 4: it eight six six eight four eight five six nine
30:29
Speaker 4: nine or Legal Exchange Show dot Com again eight six
30:33
Speaker 4: six eight four eight five six nine nine Legal Exchange
30:37
Speaker 4: Show dot Com.
30:38
Speaker 2: Tod, we get another one here for you. Let's go
30:40
Speaker 2: to John in Plymouth. John, what's your question for Todd Alutsky?
30:46
Speaker 6: Yeah, good morning. My question, Todd is there's got to
30:52
Speaker 6: be a downside to irovocalist priest Right. I've been listening
30:55
Speaker 6: to the show for a long time, and it seems
30:57
Speaker 6: like there's a constant bush or you know, irrevocable versus revocable.
31:02
Speaker 6: What's the downside? And the second question is what is
31:06
Speaker 6: there a percentage of people that actually end up in
31:08
Speaker 6: long term healthcare? I don't suspect it's too high.
31:12
Speaker 4: Well, I think to answer, so I'll start with the
31:15
Speaker 4: last one, because percentages I never pay attention to because
31:17
Speaker 4: they're always you know, you can make a percentage anything
31:20
Speaker 4: you want it to be, and you can make it
31:21
Speaker 4: sort of work for you any way you want. I
31:24
Speaker 4: don't really know how many people end up. I can
31:26
Speaker 4: tell you that nursing homes are pretty full. That that's
31:30
Speaker 4: really all I can tell you. I don't I can't
31:31
Speaker 4: give you a percentage, but but I do know they're
31:34
Speaker 4: pretty full. Uh So, so yes, I think I think
31:37
Speaker 4: people do go in there, and you know, it's it's
31:39
Speaker 4: it's a great question. The downside it's hard to say.
31:43
Speaker 4: If you've been listening a long time and you haven't
31:45
Speaker 4: heard a downside, it's because there really are very very
31:49
Speaker 4: few of them right to speak about. In fact, when
31:53
Speaker 4: I try to explain, and it's it's hard on the radio,
31:55
Speaker 4: I get it. But when I try to explain an
31:58
Speaker 4: irrevocable trust and by the way, not all irrevocable trusts.
32:02
Speaker 4: So I assume you're talking John specifically about these medicaid
32:06
Speaker 4: irrevocable trusts, because irrevocable gifting trusts right that are designed
32:10
Speaker 4: to get assets out of your estate or other reasons
32:14
Speaker 4: that you might do an irrevocable trust. There are irrevocable
32:18
Speaker 4: trusts that are more rigid and more inflexible than this one.
32:23
Speaker 4: So I don't want you to think that they're all
32:26
Speaker 4: as flexible as this one. So these medicaid irrevocable trusts
32:30
Speaker 4: really do not have an income tax downside. They allow
32:34
Speaker 4: you to manage and invest your assets, They allow you
32:36
Speaker 4: to live in your home, they allow you to rent
32:39
Speaker 4: and collect the rent and sell and buy another house.
32:42
Speaker 4: And so there are very very few downsides with them.
32:47
Speaker 4: And when I explain to the client that you know,
32:50
Speaker 4: when we start the conversation, I'm going to say you're
32:52
Speaker 4: about ninety eight percent in control. You know, about two
32:55
Speaker 4: percent would be you know, your ability to get assets
32:58
Speaker 4: out directly. Oh, and make sure that when you when
33:01
Speaker 4: you transfer property in that if it's encumbered. So one
33:03
Speaker 4: of the downsides that you can't borrow. I guess that's
33:06
Speaker 4: it you can't borrow again after it's in the trust.
33:08
Speaker 4: But most of my clients at this point in their
33:10
Speaker 4: life either have a mortgage that they don't plan on
33:12
Speaker 4: refinancing what you can keep, or they are are not
33:17
Speaker 4: gonna get a new mortgage anytime soon. So hopefully that
33:20
Speaker 4: helps John. I think it's worth exploring though in a
33:23
Speaker 4: longer meeting then I can give you.
33:26
Speaker 2: On the phone, Todd, I've got another John for you.
33:29
Speaker 2: Let's go to John in Weymouth who has been waiting patiently. John,
33:33
Speaker 2: you are on with Todd Wotski.
33:35
Speaker 8: Yes, hi, Hi guys. A quick question I have. I
33:40
Speaker 8: don't have anything. I've given everything away, it's gone to
33:43
Speaker 8: Stare or whatever. All I have now is my CA
33:47
Speaker 8: in a in a lot of money in an irara
33:50
Speaker 8: and trying to protect that money from a nursing home
33:54
Speaker 8: if that happens.
33:56
Speaker 4: Yeah, So pretty easy question on this one. And so
33:59
Speaker 4: while I one don't think it's a great idea that
34:01
Speaker 4: you gave everything away, but you've done it so that
34:04
Speaker 4: that's over. But iras, unfortunately, are one asset that you
34:09
Speaker 4: cannot protect overnight, and you cannot protect really in advance
34:14
Speaker 4: of going to the nursing home. Now, are you married, John, No?
34:18
Speaker 8: Single and it's a roth.
34:20
Speaker 4: Oh, if it's a wroth, that's different. So if it's
34:23
Speaker 4: a wroth and you don't mind it not being a
34:29
Speaker 4: wroth anymore, then you can take the money out of
34:33
Speaker 4: the wroth because there's no income tax on the withdrawal,
34:37
Speaker 4: and then you can set up a trust put the
34:39
Speaker 4: assets in these irrevocable medicaid trusts. Probably I wouldn't put
34:43
Speaker 4: it all in, but you could put some in and
34:46
Speaker 4: get a five year clock started and still be very
34:48
Speaker 4: much in control of those assets and enjoy those assets
34:52
Speaker 4: while they're in that trust, but at least get it
34:55
Speaker 4: protected again. Taking it out is non income taxable, but
34:59
Speaker 4: when you put it in the trust, you can invest
35:03
Speaker 4: in any way you want, but not in a wrath.
35:05
Speaker 4: So the downside would be that it is going to
35:08
Speaker 4: grow income tax a bull.
35:12
Speaker 2: But at your rate.
35:12
Speaker 4: So there you have it. That's that's probably the best
35:15
Speaker 4: answer for you on that, Todd.
35:17
Speaker 2: When we're talking about these irrevocable trusts. Any other things
35:20
Speaker 2: that you want to add, as far as you know,
35:23
Speaker 2: just big items that you think people should know that
35:25
Speaker 2: are relevant with how they operate.
35:28
Speaker 8: Uh.
35:28
Speaker 4: Yeah, you know, I think, I think operationally, I think
35:31
Speaker 4: the good The first question you mentioned is like he was,
35:33
Speaker 4: John was mentioning IRA's right. They cannot go into the trust.
35:36
Speaker 4: So that's one item that you can't just put in
35:38
Speaker 4: there anyway. But I think operationally, One thing I would
35:42
Speaker 4: like to just explain is a rental property in the
35:45
Speaker 4: time we are, because that's one that that a lot
35:47
Speaker 4: of people have and a lot of people want to
35:51
Speaker 4: protect because it's it's like your house, it's like your
35:54
Speaker 4: vacation home. It tends to be your one of your
35:56
Speaker 4: bigger assets. And they always wonder if I can I
35:59
Speaker 4: put it in there, and if I do, what's going
36:00
Speaker 4: to happen. Well, if you put it in there, you
36:02
Speaker 4: still want the income, Well, the trust says that all
36:05
Speaker 4: the income belongs to you, So you can put your
36:08
Speaker 4: house in there and you can still live off the
36:09
Speaker 4: rental income, which is great because that's what you're doing. Meanwhile,
36:13
Speaker 4: you've started a five year waiting period on that house,
36:16
Speaker 4: on that rental property, and soon it will be protected
36:18
Speaker 4: from the cost of long term care, avoiding probate, and
36:21
Speaker 4: available for your children when you pass. And so then
36:24
Speaker 4: people would always come back and say Okay, I kind
36:26
Speaker 4: of get that, and you have to deposit the rent
36:28
Speaker 4: in the trust, and then the trust pays out the
36:30
Speaker 4: rent to your personal account and you're living on it.
36:33
Speaker 2: It's exactly right.
36:35
Speaker 4: And then at the end of the day they always say, well,
36:36
Speaker 4: what about my income tax? Am I gonna have a
36:38
Speaker 4: big income tax on this? No, another non negative to
36:42
Speaker 4: this trust. So for the first John caller, I make
36:45
Speaker 4: it a grant or trust for income tax purposes. So
36:49
Speaker 4: at the end of the year you file a income
36:52
Speaker 4: tax return for the trust, but all the income gets
36:55
Speaker 4: picked up on your personal return, just like it used
36:58
Speaker 4: to before you had the trust. So these trusts are
37:01
Speaker 4: income tax neutral.
37:03
Speaker 2: Mister Lutsky, appreciate you join us today. Thanks so much
37:06
Speaker 2: for all the information.
37:07
Speaker 4: Always a pleasure.
37:09
Speaker 1: This has been asked on on the Financial Exchange Radio network.
37:13
Speaker 1: Askedd with Todd Lutsky has been presented by Cushing and Dolan,
37:16
Speaker 1: serving Massachusetts and New England for more than thirty years,
37:19
Speaker 1: helping families with the state and tax planning, Medicaid planning,
37:22
Speaker 1: and probate law. Call eight hundred three nine three four
37:24
Speaker 1: thousand and one or visit Cushingdolan dot com. The views
37:28
Speaker 1: expressed in this segment are solely those of Cushing and Dolan.
37:30
Speaker 1: Armstrong Advisory does not provide any legal or tax advice.
37:33
Speaker 1: Please consult with your illegal or tax advisor on such matters.
37:35
Speaker 1: Cushing and Armstrong do not endorse each other and are
37:37
Speaker 1: not affiliated.
37:39
Speaker 2: Still a bunch to get to As we continue through
37:41
Speaker 2: the show, We're going to be talking about where markets
37:43
Speaker 2: currently stand at the moment and what's next for them.
37:47
Speaker 2: We'll also talk a little bit about artificial intelligence. Couple
37:50
Speaker 2: good stories on that front there, and some other nuggets
37:55
Speaker 2: that we pulled from yesterday's retail sales data. What is
37:58
Speaker 2: what are retail sales telling us about the current state
38:02
Speaker 2: of US households and what they are prioritizing their spending on. Oh,
38:07
Speaker 2: we got some thoughts on that quick break here hour two,
38:11
Speaker 2: Just a bit