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How are markets weathering the storm of DeepSeek and China tariffs? · The Financial Exchange Show

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Speaker 1: donation today. This He's the Financial Exchange with Chuck Zada
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Speaker 1: and Paul Lane.
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Speaker 2: Wednesday here on the Financial Exchange, just chuck, Paul and
1:13
Speaker 2: soccer with you? Is Paul short for anything.
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Speaker 3: New? Still know you've done this like one hundred times.
1:23
Speaker 2: I know, so I do it like every few months
1:25
Speaker 2: just because I know that it gets under your skin
1:27
Speaker 2: for some reason, because it's just regurgitated materials. You pissed there.
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Speaker 3: I know. I know.
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Speaker 2: I apologize for starting the show off on that foot.
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Speaker 2: I didn't mean to do well. I meant to do
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Speaker 2: it to you, but in hindsight I shouldn't have. But
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Speaker 2: I pulled it out of the bag just to keep
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Speaker 2: you on your toes every now and then quote me
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Speaker 2: on that. Thank you, Paul. In any case, let's talk
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Speaker 2: a little bit about what we're seeing in markets right now.
1:49
Speaker 2: There's a piece here from Barons. It's titled Stocks of Weathered,
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Speaker 2: Deep Seek and China Tariff's market resilience is being tested
1:56
Speaker 2: and ultimately, look, we've talked about for the last two years,
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Speaker 2: Paul going on like almost two and a half now,
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Speaker 2: that despite everyone wanting to proclaim an imminent recession, this
2:12
Speaker 2: has been a resilient economy and as a result, a
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Speaker 2: resilient market. So I think that when we look at
2:18
Speaker 2: this in terms of the resilience that we're seeing in markets,
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Speaker 2: ultimately it boils down to two things, in my opinion.
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Speaker 2: The first is the AI industry in the United States
2:30
Speaker 2: and the spending and the growth that's happening on that side,
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Speaker 2: because that basically through last July that was market leadership.
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Speaker 2: The second piece is consumer spending, which has consistently been
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Speaker 2: robust and in particular in the last five or six months,
2:46
Speaker 2: has been really really good. Despite concerns about you know,
2:49
Speaker 2: the unemployment rate rising in the third quarter of last year,
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Speaker 2: we never saw any impact to consumer spending to the downside.
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Speaker 2: And it showed up in GDP, it showed up in
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Speaker 2: earnings reports, it it showed up everywhere. And so I
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Speaker 2: think where I get to on this is, look, both
3:07
Speaker 2: of these things, potentially over the next six to twelve months,
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Speaker 2: are threat to each of those things that have carried
3:14
Speaker 2: the US economy. If it turns out there is a
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Speaker 2: way to build a better mouse trap that doesn't involve
3:19
Speaker 2: buying exponentially more chips from Nvidia each and every year,
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Speaker 2: we got a little bit of problem with market leadership.
3:27
Speaker 2: If it turns out that tariffs on imported Chinese goods
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Speaker 2: start changing consumer spending habits, and if we start seeing
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Speaker 2: people adjusting, you know, how much they're spending, you know,
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Speaker 2: in different parts of the economy, could be an issue there.
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Speaker 2: To this point, we have no data suggesting any of that,
3:45
Speaker 2: because both of these things are new in the last
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Speaker 2: two weeks.
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Speaker 4: Yeah, I think really what's happened is while these threats
3:51
Speaker 4: have loomed and cause short term i'd say market volatility,
3:55
Speaker 4: you know, marginal volatility. If you look back at the VIX.
3:58
Speaker 4: We were talking about this a little bit and yesterday show,
4:00
Speaker 4: it's not as if it's spiked as significantly as some
4:03
Speaker 4: of the periods of time that we saw in August
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Speaker 4: and early in the fall in terms of when we
4:08
Speaker 4: say the vics the fear gage to just sort of
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Speaker 4: assess what investors are seeing out there, and part of
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Speaker 4: it is because those two things that you mentioned. Consumption
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Speaker 4: has been resilient these tariffs. While we've talked about them
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Speaker 4: a lot, oftentimes out outside of the Chinese ones which
4:23
Speaker 4: which did go into effect, there has been a lot
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Speaker 4: of back and forth and we haven't felt they haven't
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Speaker 4: been instituted and felt the financial ramifications of those, So
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Speaker 4: that's why it seems as if the market has held ground.
4:35
Speaker 4: We'll talk a little bit about deep Seek and AI
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Speaker 4: because that really ties in with some of the stories
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Speaker 4: that we're going to cover on some of the earnings reports.
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Speaker 4: But the short point there before we go into more detail,
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Speaker 4: would be there is after that initial report got published,
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Speaker 4: some skepticism as to and there's been some significant research
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Speaker 4: done to point to the fact that while some of
4:56
Speaker 4: the training costs may have been lower on the model
4:58
Speaker 4: for deep Seek, their was a significant amount of capital
5:02
Speaker 4: investment to fund that initiative. And that ties into Nvidia
5:06
Speaker 4: and the need for its GPUs, which still seems to
5:09
Speaker 4: be the case. And we'll get into that.
5:11
Speaker 2: And when we talk about markets and their resilience, ultimately
5:14
Speaker 2: it boils down to, hey, what do future earnings look
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Speaker 2: like and what's the likelihood of hitting those future earnings projections?
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Speaker 2: And there have been you know, again a couple questions here,
5:25
Speaker 2: but you don't know anything two weeks after either of
5:29
Speaker 2: these things happened, the imposition of tariff additional tariffs on
5:32
Speaker 2: China or the revelations of you know, Deepseek's new models.
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Speaker 2: So I'm of the opinion it's probably going to take
5:39
Speaker 2: three to six months on both of these to figure
5:41
Speaker 2: out where things go. And yeah, there's you know, potentially
5:46
Speaker 2: some issues on both of these, but more often than not,
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Speaker 2: you say, Okay, now that we know about these issues,
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Speaker 2: we can figure out ways around them. The consumer spending
5:57
Speaker 2: one is one though, that when hey, if it becomes
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Speaker 2: somewhat of a self fulfilling prophecy, and that if you know,
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Speaker 2: consumers start pulling back because they're nervous about something, then
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Speaker 2: that results in companies pairing back their expectations, maybe laying
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Speaker 2: people off, and then you have more. So that's why
6:15
Speaker 2: when you see unemployment go up, it doesn't move up
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Speaker 2: slowly over a period of five years. It moves up
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Speaker 2: quickly over a period of one to one and a half.
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Speaker 2: So there's nothing that we're seeing in any data right
6:28
Speaker 2: now that is cause for concern. But we've got some
6:32
Speaker 2: new developments that have you know, come into play over
6:34
Speaker 2: the last couple of weeks, and we'll have to see
6:37
Speaker 2: how they play out over the next few months. I
6:39
Speaker 2: know that's kind of the boring thing to say, wompomp,
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Speaker 2: but that's kind of what I think our show does.
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Speaker 2: Is when everyone freaks out about something. Okay, most of
6:52
Speaker 2: the time you can, like, you know, look at it
6:54
Speaker 2: a little bit more rationally and it's not that big
6:56
Speaker 2: of a deal.
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Speaker 4: So the market's up two point seven percent, you know,
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Speaker 4: m yeah, yeah year to date off of is that
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Speaker 4: is that good? No? I know, I know, I'm with you.
7:06
Speaker 4: It's like off the heels of a twenty three or
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Speaker 4: twenty four percent you know, gained last year. Right, So
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Speaker 4: I'm not not to you specifically, but to some of
7:13
Speaker 4: the articles that we cover, Like, there have not been losses.
7:16
Speaker 4: There have been there's been some volatility, but I think
7:18
Speaker 4: it's important to point out that we had a significant
7:21
Speaker 4: great year last year from the market two years, yeah,
7:24
Speaker 4: two years, just outstanding years. Our valuations high. Absolutely, that
7:29
Speaker 4: is a concern that loans out there. There are these
7:30
Speaker 4: other things. But to date, even though there's been ups
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Speaker 4: and downs, we are still up. I think that's worth
7:36
Speaker 4: pointing out because the doom and gloom headlines will we'll
7:39
Speaker 4: get you from time to time.
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Speaker 2: This is gonna sound kind of weird. I like, it's
7:43
Speaker 2: not gonna make sense initially, but markets have been really
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Speaker 2: resilient even though investors have not. And what I mean
7:50
Speaker 2: by that is investors today are soft, Like we we
7:56
Speaker 2: go through like a three day sell off and you
7:59
Speaker 2: get like the CNBC markets in turmoil, you know, Cairn
8:03
Speaker 2: that pops up. It's like, guys, did we not all
8:07
Speaker 2: live through March of twenty twenty? Did we not all
8:09
Speaker 2: live through all of two thousand and eight? Did we
8:12
Speaker 2: not live through any of these things? Like market volatility happens?
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Speaker 2: And if we're gonna throw a fit every time the
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Speaker 2: market goes down five percent, then.
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Speaker 4: There's gonna be a lot of fits, a lot of fits.
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Speaker 4: That's what it feels like. It's just a lot more
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Speaker 4: of these stories where there's not actual decreases to back
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Speaker 4: some of them up from a stock market self perspective
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Speaker 4: now to say there couldn't be.
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Speaker 2: But you get this piece here, Deep Seek and tariffs
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Speaker 2: have royal the market. Okay, let's just be clear on something.
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Speaker 2: Deep Seek. To the best of my knowledge, the first
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Speaker 2: time it impacted markets at all was last Monday.
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Speaker 3: Yes, correct, yes.
8:52
Speaker 2: Now, last Monday. I did a little bit of research
8:55
Speaker 2: on this just to make sure. Last Monday was January
8:58
Speaker 2: twenty seventh. On January twenty seventh, the S and P
9:03
Speaker 2: five hundred closed its six thy twelve sixty twelve, which
9:08
Speaker 2: is today, by the way, where at sixy fourteen. So
9:11
Speaker 2: the tariffs which have been talked about since then have
9:15
Speaker 2: moved markets less than five hundredths of a percent. And
9:21
Speaker 2: the S and P five hundred right now is at
9:23
Speaker 2: the same place it was at, by the way, back
9:27
Speaker 2: on November eighth, two days after the election, when it
9:31
Speaker 2: hit six thy twelve. That was the Hyatt hit that day,
9:34
Speaker 2: and at the exact same place is then. So it's
9:38
Speaker 2: been one two three. Sorry I didn't have to do
9:40
Speaker 2: some math there. It's been three months now since then
9:44
Speaker 2: and markets have not budged. Does that strike you as
9:48
Speaker 2: a royling? No, I am unroyaled. I am unroyaled. And
9:55
Speaker 2: you know for people who are like, well, it's been
9:57
Speaker 2: a bumpy ride to get here. The S and P
9:58
Speaker 2: five hundreds low is fifty seven to seventy three in
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Speaker 2: that time. Okay, if you do the math, and I did,
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Speaker 2: that's a four percent drop from right here, not even
10:09
Speaker 2: a five percent drop, a four percent drop. So the
10:12
Speaker 2: S and P has been worse than you, down four
10:15
Speaker 2: percent on one day, by the way, that was on
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Speaker 2: January thirteenth. I don't know what happened then, but that's
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Speaker 2: when I was trying to think, like, what did we go?
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Speaker 3: Do you even remember that?
10:23
Speaker 2: I don't even know. But the S and P five
10:27
Speaker 2: hundred has been four percent lower than this and about
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Speaker 2: one and a half percent higher. It's been in a
10:33
Speaker 2: five and a half percent range for the last three months,
10:39
Speaker 2: roiling markets.
10:41
Speaker 5: The thirteenth was the Job's report, good news, bad news.
10:45
Speaker 2: Okay, sure, still don't remember it. Yeah, it's like, doesn't
10:49
Speaker 2: that feel like that was just ages ago?
10:50
Speaker 3: At this point, January was a long month.
10:52
Speaker 2: Like the last week and a half, it's just been
10:55
Speaker 2: every day we've been, you know, moving from deepseek to
10:57
Speaker 2: tariffs to well, I don't know what we're going to
11:00
Speaker 2: see tomorrow, you know, like tomorrow it's gonna be like
11:03
Speaker 2: all the soup in the US is bad or something like.
11:06
Speaker 2: It's it's just it's it's wild right now. So let's
11:09
Speaker 2: take a quick break when we come back. We did
11:10
Speaker 2: get some tech earnings yesterday. Let's talk about Google because
11:13
Speaker 2: they had some notable things on that AI theme, and
11:16
Speaker 2: so we'll discuss that when we return.
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Speaker 2: Alphabet, the company formerly known as Google, reported earnings after
12:30
Speaker 2: the bell yesterday and big thing is they they missed
12:34
Speaker 2: on revenue. Their guidance was a little bit light, and
12:37
Speaker 2: they also guided that their capex was going to be
12:40
Speaker 2: twenty five percent higher than they had previously estimated. And
12:45
Speaker 2: so as a result, Google stock or alphabet stock or
12:48
Speaker 2: whatever we're calling it these days. Is I say these days?
12:51
Speaker 2: Didn't they rebrand it like twelve years ago now or something?
12:54
Speaker 3: But Meta still has taking a little time.
12:56
Speaker 2: On Meta, I can at least get behind because there
12:58
Speaker 2: it's at least, hey, we're making a concerted effort to
13:01
Speaker 2: try to build the metaverse, and you know it's not working.
13:05
Speaker 3: But we're han't heard check ins.
13:07
Speaker 2: We're committed to the bit, you know, like at least
13:10
Speaker 2: they're spending a ton of money each year. Google is
13:14
Speaker 2: not trying to write an alphabet no, like, and it's
13:17
Speaker 2: just a horrible name. Anyways, your name is alphabet Like?
13:19
Speaker 1: What is that?
13:20
Speaker 2: What does that even mean? Like you're a bunch of linguists, Like,
13:24
Speaker 2: what's happening? So when spending goes up and revenue comes,
13:29
Speaker 2: you know, in light generally you see your stock go down.
13:33
Speaker 2: But what makes this kind of confusing to me is
13:37
Speaker 2: Meta gave the exact same quarter last week. Their revenue
13:42
Speaker 2: was light, their guidance was light, and their CAPEX was
13:45
Speaker 2: higher than expected, and Meta stock didn't get hit. And
13:48
Speaker 2: so I'm just trying to reconcile these two things because
13:51
Speaker 2: this is what I would have expected to happen to
13:53
Speaker 2: Meta stock, like down eight to ten percent, and instead
13:57
Speaker 2: I think it was up like two percent after they
13:59
Speaker 2: reported earnings. And so I guess my question is less
14:03
Speaker 2: about what happened with Google. I get it, They're trying
14:06
Speaker 2: to spend a bunch of money on AI and their
14:07
Speaker 2: core products are just you know, not growing gangbusters anymore.
14:12
Speaker 2: I guess maybe the one thing here is specifically Google's Cloud.
14:15
Speaker 3: That's that's where I was gonna get that.
14:17
Speaker 4: Yeah, I mean that's the only, not the only, that
14:20
Speaker 4: is one of the structural differences between Google and Meta
14:23
Speaker 4: in terms of where they derive revenue from. Where the
14:26
Speaker 4: cloud sales growth was thirty percent in Q four from
14:30
Speaker 4: a year ago. It was in Q three that same
14:32
Speaker 4: sales growth that they saw from cloud was thirty five percent,
14:35
Speaker 4: So that coming in lighter, it seems like, is the
14:37
Speaker 4: only thing to point to in terms of why the stock.
14:40
Speaker 4: I believe it was off seven percent earlier today I
14:43
Speaker 4: don't know if that is eight eight now why the
14:45
Speaker 4: stock is off yet about eight and a half percent
14:48
Speaker 4: at the moment, they were looking to see a little
14:50
Speaker 4: bit more growth there. They're running into a similar problem
14:53
Speaker 4: that Microsoft, is that the supply is not requisite enough
14:58
Speaker 4: to meet the demand for cloud gross That was one
15:01
Speaker 4: of the things that they did mention over the course
15:02
Speaker 4: of the call. Advertising revenue has been a little bit
15:05
Speaker 4: more muted, So it seems like that's where a lot
15:08
Speaker 4: of the scrutiny has been is on that cloud computing,
15:11
Speaker 4: which Meta doesn't, you know, delve into those markets. So
15:14
Speaker 4: that's perhaps why Google's taken on the chin a little
15:17
Speaker 4: bit more. I did think that the Capax piece sort
15:21
Speaker 4: of reiterates the piece that I was talking about earlier
15:24
Speaker 4: in the show, this idea that the initial blowback from
15:27
Speaker 4: deep Seek was a close to twenty percent sell off
15:30
Speaker 4: and in video stock, with concerns that perhaps not as
15:33
Speaker 4: many of their chips GPUs will be required to do
15:36
Speaker 4: this type of AI computing and to run all these models.
15:40
Speaker 4: You've got Meta coming out saying they're going to spend sorry, Meta,
15:43
Speaker 4: sixty five billion. Microsoft is going to spend ninety billion
15:46
Speaker 4: this year in capital expenditures, and Google, as we mentioned,
15:48
Speaker 4: is going to spend nineteen percent of its revenue in
15:51
Speaker 4: twenty twenty five about seventy five billion on capex, So
15:55
Speaker 4: all of these are the biggest customers out there. We
15:57
Speaker 4: talked about that a lot ray check of in video
16:00
Speaker 4: reinforcing this idea that they're going to continue to spend it.
16:04
Speaker 4: I did see that I think in video is up
16:05
Speaker 4: at least three and a half percent today, which could
16:09
Speaker 4: be not three percent, could not be directly tied to this,
16:12
Speaker 4: but it does seem like the more we delve into
16:14
Speaker 4: that deep seek story, the infrastructure costs did need those GPUs.
16:18
Speaker 4: Now the training costs, that's another story. Perhaps those could
16:21
Speaker 4: be a lesson burden, but certainly seems to be continued
16:25
Speaker 4: demand for the GPUs to at least build out these.
16:27
Speaker 2: Models you mentioned in video. On the other hand, AMD
16:31
Speaker 2: who is also a chip maker, the vast majority of
16:34
Speaker 2: their revenue and profits not derived from AI. They do
16:36
Speaker 2: a whole bunch of different things, but they do have,
16:40
Speaker 2: you know, an AI business that they are trying to build,
16:43
Speaker 2: and they gave a pretty disappointing outlook in terms of
16:48
Speaker 2: their data center business. When you hear data center. In
16:52
Speaker 2: this context, it's largely talking about AI and they said
16:55
Speaker 2: that the division will grow by a quote strong double
16:59
Speaker 2: digits this year. But obviously you've seen you know, in
17:03
Speaker 2: video's revenue from that area doubling year after year for
17:06
Speaker 2: the last couple of years. And so AMD stock down
17:09
Speaker 2: about ten percent in trading today. And this is you know,
17:13
Speaker 2: one that has undergone a sharp reversal over the last
17:16
Speaker 2: you know, nine or ten months.
17:17
Speaker 6: Right now.
17:18
Speaker 2: This was a stock that was trading at two hundred
17:20
Speaker 2: and ten dollars a share on March tenth of last year.
17:22
Speaker 2: It's one oh seven right now. So it's been cut
17:24
Speaker 2: in half basically over the last ten months. And look,
17:31
Speaker 2: I'm not everyone's saying this, but if you think it
17:35
Speaker 2: can't happen to in video, it can. And it's not
17:39
Speaker 2: to say that it will. But there was all this
17:41
Speaker 2: optimism that AMD was going to capture this business and
17:44
Speaker 2: they just haven't to this point. Maybe, you know, there's
17:47
Speaker 2: gonna be more pie for them to eat up and
17:48
Speaker 2: maybe they'll be able to figure out how to capture it.
17:51
Speaker 2: But AMD, it's hard to say that they're struggling when
17:56
Speaker 2: you're still talking about the growth that they're seeing, you know,
17:59
Speaker 2: revenues twenty five billion dollars, net income is a couple
18:03
Speaker 2: billion dollars free cash flows positive their margins. Here's the
18:07
Speaker 2: big difference between them and in video they're operating margins
18:11
Speaker 2: are about five and a half percent, in videos are
18:13
Speaker 2: sixty two. Yeah, Like, that's the whole ballgame is in
18:16
Speaker 2: Vidio is basically just printing profit because no one else
18:20
Speaker 2: is able to charge the prices they do for what
18:22
Speaker 2: they're putting out. And that's that's the whole ballgame.
18:26
Speaker 3: But emphasize your point.
18:27
Speaker 4: When you have margins that large in an area that
18:30
Speaker 4: everyone's constfter it exactly. There's constant innovation and there's a
18:34
Speaker 4: constant drive to lower costs as much as possible. And
18:36
Speaker 4: we saw that with some of the training model stuff.
18:38
Speaker 4: There are people and other companies out there, some that
18:41
Speaker 4: we just spoke about, Google and Meta and others that
18:43
Speaker 4: are they're chasing after that, and the competition is going
18:47
Speaker 4: to be steep. And Vidio had a decade head start
18:49
Speaker 4: basically in this GPU business. But the longer these margins
18:53
Speaker 4: in place, like you said, yeah, the more competition's coming
18:55
Speaker 4: after them for those margin dollars.
18:57
Speaker 2: Yeah, I think I know that Microsoft has announced their
19:00
Speaker 2: trying to develop some chips in house.
19:02
Speaker 4: Google has the TPUs, and there's Kuda is one of
19:07
Speaker 4: the development models that in video has to strengthen mode.
19:10
Speaker 4: There's there's gonna be challengers to that too.
19:12
Speaker 2: Yep, the company that would be kind of interesting there.
19:15
Speaker 2: Apple's done a lot of work in the last decade
19:17
Speaker 2: building out their own silicon for you know, phones and stuff.
19:22
Speaker 2: Part of me wonders, hey, do they ever want to,
19:23
Speaker 2: like try to get into the business of designing chips
19:26
Speaker 2: for AI even though they're not, you know, developing the
19:29
Speaker 2: AI platforms? Be kind of interesting. Quick break here Wall
19:33
Speaker 2: Street watch and ask todd our next.
19:41
Speaker 1: Like us on Facebook and follow us on Twitter at
19:43
Speaker 1: TFE show. Breaking business news is always first right here
19:48
Speaker 1: on the Financial Exchange Radio Network. Time now for Wall
19:53
Speaker 1: Street Watch a complete look at what's moving markets so
19:56
Speaker 1: far today right here on the Financial Exchange Radio Network.
20:00
Speaker 5: Markets are in negative territory as wolstret reacts to a
20:03
Speaker 5: new flurry of fourth quarter earnings, including disappointing results from Alphabet.
20:08
Speaker 5: At the moment, the Dow is down by only fifteen points.
20:11
Speaker 5: SMP five hundred is down about a quarter percent, so
20:14
Speaker 5: the Nasdaq is off over half a percent, Russell two
20:17
Speaker 5: thousand actually up over half a percent at the moment.
20:20
Speaker 5: Tenure Treasure reeled down by eight basis points, now at
20:23
Speaker 5: four point four to two percent, and crude oil down
20:27
Speaker 5: about one and a half percent, trading just above seventy
20:30
Speaker 5: one dollars a barrel. Alphabet down by over eight percent
20:33
Speaker 5: after the tech giant reported a slow down on Google's
20:36
Speaker 5: cloud computing sales, resulting in a drag in the company's
20:39
Speaker 5: overall revenue growth to its lowest level since twenty twenty three.
20:44
Speaker 5: Sticking with tech, where AMD is down by ten percent
20:47
Speaker 5: after the chip maker posted a big jump in revenue
20:50
Speaker 5: in its data center business. However, the results came short
20:53
Speaker 5: of analyst forecasts. Meanwhile, Disney posted impressive quarterly results this morning,
20:58
Speaker 5: where the media giant topped street expectations for revenue, net income,
21:02
Speaker 5: and streaming profits. Disney also had a strong box office showing,
21:06
Speaker 5: with Mwana II lifting its studio business during the quarter.
21:11
Speaker 5: More on Disney in the second hour of the show. Elsewhere,
21:14
Speaker 5: Uber down by eight percent after the ride handling and
21:16
Speaker 5: food delivery companies quarterly operating income significantly fell short of expectations.
21:22
Speaker 5: Ozebic and wegaby maker Novo Nordis forecast sales growth would
21:27
Speaker 5: slow this year, but posted stronger than expected net profit
21:31
Speaker 5: and sales for the quarter that stock jumping by nearly
21:34
Speaker 5: five percent and Chipotle shares down by two percent after
21:37
Speaker 5: the burrito chain cut its sales outlook for the year.
21:42
Speaker 5: I'm Tucker Silva and that's Wall Street Watch.
21:45
Speaker 1: This is Asked Todd on the Financial Exchange Radio Network.
21:49
Speaker 1: If you have an existing estate plan or in the
21:51
Speaker 1: market for one, Tod Letsky is here to answer your
21:54
Speaker 1: questions and help you plan for later life. Ask Todd
21:57
Speaker 1: is presented by Cushing and Dolan, serving Massachusetts in New
22:00
Speaker 1: England for more than thirty five years, helping families with
22:03
Speaker 1: a state and tax planning, Medicaid planning, and probate law.
22:06
Speaker 1: Visit Cushingdolan dot com. Now here's Todd Lutsky.
22:12
Speaker 2: As promised, We're now joined by Todd Lutsky from the
22:14
Speaker 2: law firm of Cushing and Dolan. The segment is Asked Todd,
22:17
Speaker 2: and it is your opportunity to ask Todd your estate
22:20
Speaker 2: planning questions. Phone lines wide open right now at eight
22:24
Speaker 2: eight eight to zero five two two six three. We
22:27
Speaker 2: can normally get through about two to three calls, so
22:31
Speaker 2: if you got a call, make sure you get in
22:34
Speaker 2: early so that we can get to you. Eight eight
22:36
Speaker 2: eight to zero five two two sixty three. Again, this
22:39
Speaker 2: is your opportunity to ask Todd Lutsky your state planning
22:42
Speaker 2: questions live on air eight eight eight to zero five
22:47
Speaker 2: two two sixty three. One more time. That number is
22:50
Speaker 2: eight eight eight to zero five two two six three.
22:54
Speaker 2: Mister Lutsky, how are you doing today?
22:58
Speaker 6: Never better? How are you? Uh?
23:00
Speaker 2: Pretty good?
23:00
Speaker 6: Uh?
23:00
Speaker 2: Oh, I got a question for you. What do you
23:03
Speaker 2: call a monk who walks everywhere in bare feet, has
23:07
Speaker 2: poor bone density and really bad breath.
23:11
Speaker 6: That's a lot of things I can't even think of
23:12
Speaker 6: all those. I can't even follow this, So I'm just
23:14
Speaker 6: gonna say I don't know a super callous, fragile mystic
23:17
Speaker 6: hex by halitosis. Wow, I know it's wild. I can't
23:25
Speaker 6: even remember that.
23:25
Speaker 2: Let's talk a little bit about estate planning. When we
23:29
Speaker 2: talk about someone who's maybe at the beginning of the
23:32
Speaker 2: estate planning process, yeah, probably a little bit intimidated. How
23:36
Speaker 2: do they decide which estate planning tools are actually the
23:39
Speaker 2: right ones for their specific situation.
23:43
Speaker 6: So a couple of things. When when we talk about it,
23:45
Speaker 6: I always like to this is why we call it
23:47
Speaker 6: the guide is back to the basics, right, it's thinking
23:49
Speaker 6: about how do we get started? I would say the
23:53
Speaker 6: very first thing you should do is take a look
23:56
Speaker 6: at your assets and value them. Figure out out what
24:01
Speaker 6: it is you own and what you roughly think it's worth,
24:05
Speaker 6: because it's the value of the estate that really drives
24:10
Speaker 6: the type of a state plan that you're going to do. Okay,
24:14
Speaker 6: so let me try to expand on that a little.
24:17
Speaker 6: You know, when I say how you own it? Right,
24:20
Speaker 6: if you own it, it's it's an asset. It doesn't
24:22
Speaker 6: mean it's a probate asset. It just means that it's
24:25
Speaker 6: a gross estate asset, very different. You could have zero
24:28
Speaker 6: probate assets, but all are still part of your gross estate.
24:34
Speaker 6: I think the bigger question is when I say value it, intuitively,
24:39
Speaker 6: what am I valuing? Right? What is included? Not everybody
24:43
Speaker 6: thinks about this, right, but obviously your your bank accounts
24:46
Speaker 6: and your brokerage accounts. That comes to mind, right, because
24:49
Speaker 6: it's money, and you say, yeah, I feel it, I
24:51
Speaker 6: see it. You know what they don't think about real estate.
24:55
Speaker 6: They say, oh, yeah, I got a million dollar home. Oh,
24:57
Speaker 6: but I don't feel like I'm worth a million dollars
24:59
Speaker 6: because it's it's real estate. You know, I don't. I
25:01
Speaker 6: don't count that. Oh, but the government does, so you
25:04
Speaker 6: got to count that as an asset of the estate.
25:08
Speaker 6: Another thing people don't think about roth iras. They say, oh,
25:11
Speaker 6: you know roths are income tax free. Well yeah they are,
25:15
Speaker 6: but they're estate taxable when you die, so please count them.
25:19
Speaker 6: You know, even regular iras, they are, you knowes, state
25:22
Speaker 6: taxable when you die, so please count them as part
25:25
Speaker 6: of your estate. And you know. One of the other
25:28
Speaker 6: things that that almost everybody forgets life insurance, right, Oh,
25:35
Speaker 6: life insurance. Isn't that income tax free? Well it is, yeah,
25:38
Speaker 6: when when you die, if your spouse gets it, it's
25:41
Speaker 6: income tax free. Never mind a spouse whoever gets it,
25:45
Speaker 6: it's income tax free to the person who gets it.
25:50
Speaker 6: But the government values everything right when you die. The
25:53
Speaker 6: moment you die, that's when they value it, because you
25:55
Speaker 6: might say, well, you know, I got this term insurance
25:57
Speaker 6: policy and it has zero cash sereut undervalue today because
26:01
Speaker 6: I'm living. The next day I die, Well, it's worth
26:06
Speaker 6: a million dollars. If that's the face value, that's when
26:08
Speaker 6: the government values it. So now one item right, you
26:12
Speaker 6: could be sitting here saying, well, jeez, I'm not worth
26:14
Speaker 6: a million dollars. Oh wait, to have a million dollar
26:16
Speaker 6: life insurance policy. You're all of a sudden worth a
26:19
Speaker 6: million dollars and you haven't talked about any other assets yet.
26:24
Speaker 6: That one asset could put you at a million dollars.
26:28
Speaker 2: Talking with Todd Lutski from the law firm of Cushing
26:31
Speaker 2: and Dolan. Again. The segment is called Ask Todd because
26:34
Speaker 2: it's your opportunity to ask Todd your estate planning questions.
26:38
Speaker 2: We do have space on the phone line still at
26:40
Speaker 2: eight eight eight to zero five two two sixty three.
26:44
Speaker 2: That is the number to call to ask Todd your
26:47
Speaker 2: estate planning question live on air again. That number is
26:50
Speaker 2: eight eight eight to zero five two two sixty three.
26:55
Speaker 2: We're gonna take a quick break right now, but when
26:58
Speaker 2: we come back, it's gonna be right to your calls
27:00
Speaker 2: with Todd. That phone number is eight eight eight two
27:04
Speaker 2: zero five two two six three. One last time, eight
27:07
Speaker 2: eight eight to zero five two two sixty three. Your
27:11
Speaker 2: calls with Todd when we return Ask Todd.
27:14
Speaker 1: With Todd Lutsky every Wednesday at ten thirty only here
27:18
Speaker 1: on the Financial Exchange Radio Network. You're listening to Ask
27:24
Speaker 1: Todd with Todd Lutsky on the Financial Exchange Radio Network.
27:34
Speaker 2: All right, all right, all right, let's get right to
27:36
Speaker 2: your calls with Todd Lutsky. First in the queue, we've
27:41
Speaker 2: got Mike from Drake and Mike, what's your question for Todd.
27:45
Speaker 7: I have a grandfather who passed away. He left everything
27:51
Speaker 7: and as well, basically come is coming to me and
27:54
Speaker 7: my wife. There's only one thing. One thing. There was
27:58
Speaker 7: a bank account that was left in a trust to
28:00
Speaker 7: my father in law. My father in law has now
28:04
Speaker 7: had had passed before my my grandfather had passed away.
28:08
Speaker 7: My grandfather had dementia. My question is where will that
28:12
Speaker 7: money go now that was in that trust from Bank
28:15
Speaker 7: of America. Will that go back into my grandfather's estate
28:18
Speaker 7: or does that go to my my father in law
28:21
Speaker 7: who remarried another woman.
28:23
Speaker 6: Okay, so you just added a third factor that really
28:26
Speaker 6: that really threw me off. So let let me just
28:27
Speaker 6: try to recap and please please try to help me
28:30
Speaker 6: what I ask you these questions. So the first, the
28:33
Speaker 6: first one is there's you're the grandchild of the grandfather
28:37
Speaker 6: who died and left a will leaving assets to you
28:41
Speaker 6: and your wife, So that that piece is clear, right,
28:43
Speaker 6: we understand that that went to you, right yep? Okay,
28:47
Speaker 6: that's not an issue. In addition to that, you said
28:50
Speaker 6: that your stepfather or no, your your father in law,
28:55
Speaker 6: my father in law, your father in law had a
28:59
Speaker 6: trust in place a bank account, in a trust or
29:02
Speaker 6: or did the account say in trust for.
29:06
Speaker 7: In trust for?
29:07
Speaker 6: So there was no actual establishment of an actual trust.
29:13
Speaker 6: It just simply is more of a designated beneficiary on
29:16
Speaker 6: the account, correct, I believe?
29:19
Speaker 1: So?
29:20
Speaker 6: Okay, So it said in trust for.
29:22
Speaker 7: Who it would be his name Harry?
29:26
Speaker 6: No, No, no, soho's who's Harry's not the father in law?
29:30
Speaker 8: Right, yes he is.
29:32
Speaker 6: So the father in law had an account and the
29:36
Speaker 6: account said when I die, when father in law dies,
29:40
Speaker 6: the assets in the tru goes to who.
29:43
Speaker 7: No, when grandfather passed away it would go to it
29:47
Speaker 7: was the trust was in the grandfather's and when he
29:50
Speaker 7: passed away it went to my father in law, which
29:53
Speaker 7: my father in law had passed away before my grandfather.
29:57
Speaker 6: Okay, so let's now I'm just trying to get to
29:59
Speaker 6: the bottom of this, right, this, This is what's complicated
30:02
Speaker 6: about a lot of these questions. So grandfather again had
30:06
Speaker 6: one bank account that had in trust for father in
30:10
Speaker 6: law correct, correct, Correct, And father in law died before
30:15
Speaker 6: grandfather correct, Okay, and that account still existed when grandfather died.
30:24
Speaker 7: Correct.
30:25
Speaker 6: And so if it said in trust for someone who's
30:28
Speaker 6: deceased and there was no alternate beneficiary listed, then what
30:34
Speaker 6: happens is that would be end up in the probate
30:38
Speaker 6: estate of the father in law. So I'm sorry, not
30:42
Speaker 6: of the father in law, it would lapse as to
30:43
Speaker 6: the father in law. It would end up in the
30:45
Speaker 6: probate estate of the grandfather. So then the grandfather would
30:50
Speaker 6: die owning an asset with no beneficiary but in his name.
30:53
Speaker 6: So his will should direct where that goes. So then
30:58
Speaker 6: that would end up going to you, because his will
31:02
Speaker 6: said everything that's a probate asset goes to you. Remember
31:07
Speaker 6: that item initially would not have been a probate asset
31:09
Speaker 6: because of the designated beneficiary listed. That's what keeps it
31:14
Speaker 6: out of probate. But if that beneficiary does not exist,
31:19
Speaker 6: then it's as if there is no designated beneficiary. So
31:23
Speaker 6: then it would end up a probate asset. Now his
31:26
Speaker 6: will says where it goes, so I think it goes
31:30
Speaker 6: to you. If his you and your wife. If his
31:33
Speaker 6: will says, I leave all my probate assets to my
31:38
Speaker 6: grandson and his wife. So there you go. That's my answer,
31:43
Speaker 6: and I think that's where it's going to go. But
31:46
Speaker 6: you might have to do some probate work for your
31:48
Speaker 6: grandfather's estate. Folks, lots of stuff going on in a
31:52
Speaker 6: question like that, and again I think it's partly because
31:55
Speaker 6: of the lack of planning that was done right. If
31:58
Speaker 6: you don't do your planning, you run into these kinds
32:00
Speaker 6: of problems. Learn how to do your planning. Get the
32:03
Speaker 6: guide back to the basics. It's basically a recommendation. It's
32:07
Speaker 6: a it's an my engagement letter to a made up
32:10
Speaker 6: family with a bunch of assets, and it talks about
32:13
Speaker 6: the will, the healthcare, the power of attorney. The hippa
32:16
Speaker 6: really explains documents that we always cursory, give a cursory
32:20
Speaker 6: example of what they are. And it also you can
32:23
Speaker 6: put your fact pattern with this and learn it. In
32:26
Speaker 6: this one, it recommends an irrevocable trust or two for
32:30
Speaker 6: this family. See if this recommendation works for you. If not,
32:34
Speaker 6: learn by getting the guide it will at least teach
32:37
Speaker 6: you how to begin thinking about getting your estate plan
32:41
Speaker 6: in order. One of my favorite guides Folks eight sixty
32:43
Speaker 6: six eight four eight five six nine nine or Legal
32:48
Speaker 6: Exchange Show dot com Back to the Basics eight sixty
32:51
Speaker 6: six eight four eight five six nine nine or Legal
32:56
Speaker 6: Exchange Show dot com.
32:58
Speaker 2: Todd, I've got another caller for you.
32:59
Speaker 1: Here.
32:59
Speaker 2: We got Steve in Bridgewater. Steve, you are on with
33:03
Speaker 2: Todd Lutsky.
33:06
Speaker 8: Hi, guys, how are you doing great? You all right?
33:11
Speaker 8: Doing good? A life of State? My mother had a
33:15
Speaker 8: life estate. I was the remain de man. Okay, she
33:19
Speaker 8: passed away in twenty twenty four. For a cost basis?
33:25
Speaker 8: Would I do a cost basis when the life of
33:29
Speaker 8: state was first created? Or when she passed away?
33:33
Speaker 6: Do you still own the house or did you sell it?
33:37
Speaker 8: Sold it already?
33:39
Speaker 6: So you sold it?
33:40
Speaker 8: When?
33:40
Speaker 6: Did you sell it.
33:43
Speaker 8: In December of twenty twenty four? She passed away in
33:47
Speaker 8: April of twenty twenty four.
33:49
Speaker 6: Okay, So that's why I needed to know those specifics.
33:53
Speaker 6: So here's here's the answer. One the house, I'm going
33:57
Speaker 6: to expand. So people understand, first of all, what is
34:00
Speaker 6: life estate.
34:00
Speaker 2: Right.
34:00
Speaker 6: A life estate is when you give something away like
34:03
Speaker 6: a house your primary residents, Please don't do it with
34:06
Speaker 6: any asset, and retain the right to live there. Right.
34:10
Speaker 6: So by doing that, retaining the right to live there,
34:13
Speaker 6: you avoid probate when she dies, and you've protected it
34:18
Speaker 6: from the cost of long term care. I don't love
34:19
Speaker 6: the arrangement because there's a lot of negatives that go
34:22
Speaker 6: with it, but in this case we don't need to
34:23
Speaker 6: go down that road because Mom has passed already, so
34:26
Speaker 6: none of the negatives happened. So we now though, by
34:29
Speaker 6: keeping that retained interest, that right to live there, that
34:34
Speaker 6: causes that asset to be included in Mom's estate on
34:38
Speaker 6: the date of death. So in April of twenty twenty four,
34:43
Speaker 6: the full value, not just the value of the life estate,
34:47
Speaker 6: but the full value of the property needs to be
34:51
Speaker 6: included in her gross estate, not her probate estate. So
34:56
Speaker 6: it's not a probate issue to determine whether or not
34:59
Speaker 6: an a state tax return is due. So on the
35:02
Speaker 6: date of death April, what do you think that house
35:05
Speaker 6: was worth?
35:05
Speaker 8: Steve four fifty.
35:09
Speaker 6: Okay, So if we've got a four hundred and fifty
35:12
Speaker 6: thousand dollars value on the house. That means that the
35:15
Speaker 6: cost basis to Steve is four hundred and fifty thousand dollars. Now,
35:21
Speaker 6: between April and December, this may have increased in value.
35:26
Speaker 6: How much did you sell it for? Ah, for forty
35:31
Speaker 6: oh even better. So in this case you cannot generate
35:35
Speaker 6: a loss. I know, as much as you might be
35:37
Speaker 6: thinking that's great, No, you can't generate a loss. But
35:41
Speaker 6: in this case you will have zero gain to report
35:46
Speaker 6: on your income tax return, right because when you report it,
35:49
Speaker 6: you'll show the sale four forty or for four to forty,
35:54
Speaker 6: you'll show the cost basis of four forty. And by
35:57
Speaker 6: the way, when you say you thought it was worth
35:59
Speaker 6: four ft, if you sell it within nine months of
36:02
Speaker 6: the date of death roughly where you are, even within
36:04
Speaker 6: a year of date of death, it's the sale price
36:06
Speaker 6: that is the cost basis. So in this case you've
36:10
Speaker 6: got to step up in basis. Your cost is four forty,
36:13
Speaker 6: your proceeds are four to forty, Your gain you report
36:17
Speaker 6: as zero, and you keep all the money. No federal,
36:20
Speaker 6: no state death tax. So that's how you calculate cost
36:23
Speaker 6: basis in a situation like this, and that's a great
36:26
Speaker 6: thing to have. Folks. Whenever you're dealing with real estate,
36:30
Speaker 6: you always want to think about not giving away an
36:33
Speaker 6: asset like that and keeping it so that when the
36:36
Speaker 6: beneficiaries get it, in fact, if they don't want it,
36:39
Speaker 6: they can sell it and not have the capital gains
36:42
Speaker 6: tax to pay. And if it happens to be a
36:44
Speaker 6: rental property and you get a step up in basis
36:47
Speaker 6: and you keep the property, then you have the ability
36:51
Speaker 6: to offset the rent through depreciation over the next twenty
36:55
Speaker 6: seven and a half years. So wonderful things step up
36:58
Speaker 6: in basis folks. Learn learn about step up in basis.
37:01
Speaker 6: Also in the guide, mister Lutsky, thank you for joining
37:04
Speaker 6: us today. Always a pleasure.
37:07
Speaker 1: This has been Asked Odd on the Financial Exchange Radio network.
37:11
Speaker 1: Ask Todd with Todd. Lutsky has been presented by Cushing
37:14
Speaker 1: and Dolan, serving Massachusetts and New England for more than
37:16
Speaker 1: thirty years, helping families with the state and tax planning,
37:19
Speaker 1: Medicaid planning, and probate law. Call eight hundred and three
37:22
Speaker 1: nine three four thousand and one or visit Cushingdolan dot com.
37:26
Speaker 1: The views expressed in this segment are solely those of
37:28
Speaker 1: Cushing and Dolan. Armstrong Advisory does not provide any legal
37:30
Speaker 1: or tax advice. Please consult with your illegal or tax
37:33
Speaker 1: advisor on such matters. Cushing and Armstrong do not endorse
37:35
Speaker 1: each other and are not affiliated