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Is the Fed worried that inflation is ramping up again? · The Financial Exchange Show

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Speaker 2: Chuck Market Tucker with you, and if you are on
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Speaker 2: the road to wherever you are going to be spending Thanksgiving,
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Speaker 2: hopefully there's no traffic, but if there is, you get
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Speaker 2: us to listen to for the next couple hours here
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Speaker 2: as you head towards your Thanksgiving destination. Mark, as we
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Speaker 2: kick things off today, we do have a little bit
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Speaker 2: of economic data that we'll get to as we go
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Speaker 2: forward here, but ultimately I also just want to talk
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Speaker 2: a little bit about where this market is right now
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Speaker 2: and just kind of set the stage for again the
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Speaker 2: last month of the year, but more importantly, you know,
1:47
Speaker 2: starting to build towards twenty twenty five, just because again
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Speaker 2: everyone's kind of looking ahead now with a new administration
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Speaker 2: coming in. It's all about, hey, what are the policies
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Speaker 2: that you're going to get that potentially impact the US
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Speaker 2: economy here and so we have a market that yesterday
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Speaker 2: did finally close at a new all time high after
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Speaker 2: a couple weeks of nothing big, but just you know,
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Speaker 2: some little waivers here and there that we saw in markets.
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Speaker 2: The S and P five hundred, closing above six thousand
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Speaker 2: yesterday and sitting here today still above six thousand, and
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Speaker 2: this continues to be a market that is expensive. But
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Speaker 2: we've noted before that markets being expensive is simply not
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Speaker 2: something that tells you about how they are going to
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Speaker 2: perform in the short term, even though you know clearly
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Speaker 2: in the long run it can impact, you know, future
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Speaker 2: growth of stocks, just because so much that growth might
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Speaker 2: be priced in already.
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Speaker 3: Yeah, it'll be the second straight year if the twenty
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Speaker 3: seven some odd percent gain on the broad market Proxys
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Speaker 3: and P five hundred index of leading US companies, If
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Speaker 3: that year to date through yesterday gain again up about
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Speaker 3: twenty seven percent. If that holds, it'll be the second
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Speaker 3: consecutive year of twenty plus RETI turns for the first
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Speaker 3: time since the late nineteen nineties when we had a
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Speaker 3: string of them. So it is pretty extraordinary. It's also
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Speaker 3: the case, Chuck, is you point out that stocks, when
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Speaker 3: measured relative to the last roughly decades worth of inflation
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Speaker 3: adjusted earnings, are quite pricey expensive. There are a lot
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Speaker 3: of ways to measure price relative to earnings, but a
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Speaker 3: good way is that smooth measure, sometimes called the Shiller
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Speaker 3: PE or the cyclically adjusted pe so called cape. Stocks
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Speaker 3: are pricing. No matter how you define earnings in your
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Speaker 3: price to earnings calculation, is that justified? As you again
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Speaker 3: pointed out, time will tell. If the economy remains strong,
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Speaker 3: it has been strong, that economic backdrop has been supportive
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Speaker 3: of earnings and thus equity prices. If it stays strong,
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Speaker 3: high pees might not be cause for concern. If it
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Speaker 3: gets wobbly, then in retrospect, they will have been a
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Speaker 3: warning sign.
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Speaker 2: When we look at yesterday what we got from the
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Speaker 2: Fed minutes, I know that these are, you know, again
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Speaker 2: talking about a meeting that occurred nearly four weeks ago
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Speaker 2: or nearly three weeks ago. They might already be out
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Speaker 2: of date at this point. Anything that you gleaned from
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Speaker 2: those meeting minutes as far as how the Fed may
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Speaker 2: be thinking about this economy right now and how it
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Speaker 2: may have evolved over the last couple of months.
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Speaker 3: Not really. I didn't read the minutes, I only read
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Speaker 3: a summary. But as they've stated repeatedly over the past
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Speaker 3: several years, they remain persuadable based on changes in economic news.
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Speaker 3: Said differently, more succinctly, they remained data dependent. The economy
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Speaker 3: has been strong in a statistical sense. I know there
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Speaker 3: are people who quibble or who bristle when they hear that,
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Speaker 3: what do you mean. I know a lot of people
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Speaker 3: are unemployed. We're not talking about everybody's lived experience here.
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Speaker 3: We're just talking about on average, strong growth. We got
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Speaker 3: that reiterated this morning. GDP annualized two point eight percent
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Speaker 3: after inflation last quarter. That's really strong for this century.
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Speaker 3: That would have been average for the last It's quite
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Speaker 3: strong for this century. It's been a good couple of
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Speaker 3: years for GDP and other economic measures.
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Speaker 4: Too.
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Speaker 3: Fed watches these closely. Trying to balance inflationary pressures, which
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Speaker 3: are the result of too much growth. Sounds like you
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Speaker 3: can't have too much of a good thing, but you
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Speaker 3: actually can't. Tries to balance those pressures with the societal
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Speaker 3: objective of keeping unemployment low, and they those two objectives, Chuck,
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Speaker 3: as we talk about, a lot are in perfect tension.
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Speaker 4: They have a tough job mark.
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Speaker 2: One of the things that the incoming administration is talking
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Speaker 2: about is look trying to build towards additional growth. It's
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Speaker 2: something that I think is front and center when you
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Speaker 2: talk about the incoming Trump administration. What's realistic as far
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Speaker 2: as how the US economy can grow in the long run,
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Speaker 2: and what are the governing factors that play into, you know,
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Speaker 2: how fast an economy can or cannot grow.
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Speaker 3: First, I think we can disregard all the hyperbole coming
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Speaker 3: out of the incoming administration about four or five percent
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Speaker 3: economic growth. Trump said the same thing last time. I
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Speaker 3: think that's just a concept for him, and I'm willing
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Speaker 3: to chalk that up to him being him, because that's preposterous.
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Speaker 3: You're not going to get there. You asked exactly the
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Speaker 3: right question, what are the drivers of long term economic growth?
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Speaker 3: And this is common now. You hear from quarter to
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Speaker 3: quarter we talk about spending, we talk about investment. We
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Speaker 3: talk about spending consumer and government plus investment that equals GDP.
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Speaker 3: You may hear that from time to time. That's true
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Speaker 3: in an accounting sense, But in the long term, the
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Speaker 3: economy's capacity is dictated by how much the labor force grows,
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Speaker 3: how many people there are doing things, and how productive
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Speaker 3: they are, how much output they can generate in an hour.
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Speaker 3: That's literally just productivity, and the sum of those two
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Speaker 3: things equals the more or less. I'm simplifying a little
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Speaker 3: over simplifying a bit here, but more or less equals
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Speaker 3: the economy speed limit. You can find this online. The CEO,
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Speaker 3: the CBO Congressional Budget Office updates their estimates at least
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Speaker 3: once a year, maybe more often, of the economy's productive potential.
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Speaker 3: Of its potential GDP, it's one point eight percent right now.
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Speaker 3: So a quick rule of thumb is, if the economy
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Speaker 3: is growing faster, then CBO and other researchers confirm potential
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Speaker 3: GDP in about that range. If it's growing faster, that
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Speaker 3: translates into upward pressure on inflation, and we could tie
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Speaker 3: that into the report we got this morning that shows
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Speaker 3: underlying or core inflation remaining elevated about a three and
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Speaker 3: a half little more than three and a half percent
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Speaker 3: annualized rate.
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Speaker 2: So when you talk about and administrate that's coming in
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Speaker 2: where look, the first Trump term that we saw playbook
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Speaker 2: was Hey, I want to generate more growth. I'm going
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Speaker 2: to cut taxes, rollback regulations and attempt to do so.
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Speaker 2: And we did see some faster growth as a result
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Speaker 2: of that. Briefly, yeah, when you look at this setup
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Speaker 2: that we have here where growth is already kind of
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Speaker 2: above that speed limit and inflation on the core level.
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Speaker 2: Remember when we talk about inflation having improved this year, Yes,
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Speaker 2: even the core numbers have improved, but the headline has
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Speaker 2: largely been helped by the fact that energy prices have
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Speaker 2: been falling over the last twelve months, and that's not
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Speaker 2: included in the core number. How does an administration now
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Speaker 2: that is focused on growth try to accelerate growth at
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Speaker 2: a time when inflation is already still a little bit
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Speaker 2: hotter than people would like to see.
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Speaker 3: Yeah, it's hard to do without growing, say the productive
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Speaker 3: capacity of the economy, increasing the labor supply, or increasing capital,
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Speaker 3: more factories, or making those two things together, labor and
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Speaker 3: capital more productive, getting more out of one unit of each.
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Speaker 3: I'm oversimplifying, but that's one way to think about it.
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Speaker 3: Technology helps us do that. So absent Chuck an ai
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Speaker 3: miracle that makes us all more productive, makes us all
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Speaker 3: able to produce more in an hour of work, absent
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Speaker 3: big growth in the labor supply, and the incoming administration
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Speaker 3: is talking about just the opposite. They want to shrink
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Speaker 3: the labor supply by deporting people. Now they're not here legally,
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Speaker 3: so there's maybe a good political argument for making them
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Speaker 3: pay the price. But the economic consequences are clear. These
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Speaker 3: policies taken all together, are stagflationary. They're likely to slow,
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Speaker 3: not increase growth, and they're likely to increase price pressure,
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Speaker 3: not reduce it. And Kevin Hasset, incidentally the President's incoming
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Speaker 3: National Economic Council Chairman. The way his title is referred to, yeh,
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Speaker 3: he know. He is an accomplished academic economist and researcher.
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Speaker 3: He knows these things. But again, there are political considerations
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Speaker 3: and there are economic considerations.
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Speaker 2: Let's take a quick break here. When we come back. Look,
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Speaker 2: we're heading right into the main holiday shopping season. We'll
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Speaker 2: talk a little bit about what households are looking for
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Speaker 2: in terms of deals as they get ready to stock up.
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11:29
Speaker 2: The National Retail Federation expects holidays spending DERIVESE between two
11:33
Speaker 2: and a half and three and a half percent this
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Speaker 2: year compared to three point nine percent last year, so
11:38
Speaker 2: expecting a more muted holiday shopping season. And we get
11:42
Speaker 2: this piece from Bloomberg talking about some of the things
11:44
Speaker 2: people are doing in order to try to keep their
11:46
Speaker 2: budgets in line. You've got someone from Portland, Oregon, who
11:50
Speaker 2: drove three hours each way to purchase a pre owned
11:53
Speaker 2: rowing machine at a third of the cost of buying
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Speaker 2: a new one. You've got people hutting back on budgets,
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Speaker 2: you know, looking for all kinds of different deals. What
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Speaker 2: kind of stuff are you here and what are you
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Speaker 2: seeing out there? As far as the holiday shopping.
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Speaker 3: Season, I haven't heard about anybody driving three hours for
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Speaker 3: a used rowing machine.
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Speaker 4: Why wouldn't you row for it?
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Speaker 3: He had just gotten on a bike. He wouldn't have
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Speaker 3: to buy the machine. Yeah, I don't know, Chuck, This
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Speaker 3: is this is anecdotal. Some of the stories are amusing.
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Speaker 3: Some of them make you scratch your head and wonder, jeez,
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Speaker 3: what's the opportunity cost of this person's time? As my
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Speaker 3: dad would have said, why don't you get a job
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Speaker 3: and make more money. You seem to have some time
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Speaker 3: on your hands.
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Speaker 4: I don't know.
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Speaker 3: Everybody's situation is different, and there's not really much you
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Speaker 3: can glean from this that's generalizable. They do mention larger,
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Speaker 3: larger outfits Walmart and Target extending Black Friday deals, et cetera,
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Speaker 3: et cetera. That doesn't strike me as news or new.
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Speaker 2: No, it feels like that's been happening for years at
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Speaker 2: this point in terms of Hey, it basically gets to
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Speaker 2: not even Halloween, it'll get to Columbus Day and it's like, oh,
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Speaker 2: here's our pre Black Friday sale, and it's like, well,
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Speaker 2: if you're gonna have stuff on sale for the last
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Speaker 2: three months of the year, is it really on sale
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Speaker 2: then or is that just the price? You know, it's what's.
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Speaker 3: Yeah, and you're just pulling stuff forward, right, You're not
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Speaker 3: this This doesn't boost growth. I don't think these little
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Speaker 3: gimmicks because we're all so accustomed to them and have
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Speaker 3: learned how to game them.
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Speaker 2: Doesn't it also feel I just want to read a
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Speaker 2: quote here as well. One example is Jamie Johnson Duplessi,
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Speaker 2: who is a nonprofit director in Atlanta who's planning and
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Speaker 2: spinning between two hundred and fifty and five hundred dollars
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Speaker 2: on each of her children's gifts this year, down from
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Speaker 2: a thousand to fifteen hundred in previous years. It feels like, again,
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Speaker 2: it feels like a big amount of money just to she.
13:51
Speaker 3: Getting a bitcoin.
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Speaker 4: Well, it wouldn't be much of a bitcoin.
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Speaker 2: It wouldn't be much of one, you know, yeah, exactly
13:59
Speaker 2: of a bitcoin. But so also some of these anecdotes,
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Speaker 2: I think for you know, most people, it's kind of like, well,
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Speaker 2: that's not really realistic to begin with. I don't think
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Speaker 2: I think you see many families you know that are
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Speaker 2: around the median income of you know, seventy thousand dollars
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Speaker 2: a year in the US, being like, yeah, we're gonna
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Speaker 2: spend you know, fifteen hundred dollars on our kids Christmas gifts.
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Speaker 2: There's just not that money, that much money floating around
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Speaker 2: the budget typically. So I think that that's you know, again,
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Speaker 2: when we talk about these anecdotes, I think you have
14:25
Speaker 2: to put them in context somewhat here. But the other
14:28
Speaker 2: thing that is interesting, just from a a timing perspective
14:33
Speaker 2: on this Thanksgivings tomorrow, it is the it is the
14:37
Speaker 2: latest that it can fall on the calendar. It can't
14:40
Speaker 2: fall any later than the twenty eighth. Normally you see
14:42
Speaker 2: it somewhere between, like the twenty second and twenty fourth
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Speaker 2: is where it typically ends up falling. And so you
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Speaker 2: do have retailers. Part of the reason they've been saying
14:52
Speaker 2: that they're pushing their sales earlier is because you have
14:55
Speaker 2: one less week between Thanksgiving and Christmas, and so they're
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Speaker 2: they're saying, hey, like, we're tr trying to make up
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Speaker 2: for this because the you know, the landmarks in time
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Speaker 2: that people have to start shopping. One of the key
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Speaker 2: ones is different this year, and I do think there's
15:10
Speaker 2: some truth to that, just because again, like I was
15:13
Speaker 2: looking at pictures from last year right now, and like
15:15
Speaker 2: my house was already decorated for Christmas, and granted, like
15:18
Speaker 2: we started setting up this week just because I normally
15:22
Speaker 2: have a hard and fast rule. Hey no, you know,
15:24
Speaker 2: don't don't skip a holiday, don't go ahead. But ultimately,
15:27
Speaker 2: I don't want to be setting up, you know, all
15:29
Speaker 2: the Christmas stuff on like the seven to be like, great,
15:31
Speaker 2: We've got this up for like two and a half
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Speaker 2: weeks and now we got to take it down again.
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Speaker 4: So Chuck, you.
15:35
Speaker 3: Spend more time than most on average putting up Christmas decorations.
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Speaker 3: Is that fair? Am I getting too personal?
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Speaker 4: No? No, it's uh, were you?
15:42
Speaker 3: It's more of a process.
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Speaker 2: It's it's about a week to a week and a
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Speaker 2: half for us to get this all done. We're about
15:52
Speaker 2: seventy percent there, I would say, at the moment. But
15:56
Speaker 2: we're we're we're kind of Griswaldian in our nature. I
16:01
Speaker 2: think we're we're we're gonna be running somewhere in the
16:05
Speaker 2: ballpark of fifteen th eighteen thousand lights this year in these.
16:09
Speaker 3: Holy permit for that.
16:11
Speaker 2: No, but the Okay, so you've got this family talking about, hey,
16:16
Speaker 2: like we're you know, we spend like way too much
16:18
Speaker 2: on our you know, kids Christmas gifts. Admittedly, we spend
16:22
Speaker 2: too much on our electric bill in December. It's it's
16:25
Speaker 2: a problem. The electric bill does triple in the month
16:29
Speaker 2: of December?
16:30
Speaker 3: Does does does traffic pile up? Do people go out
16:32
Speaker 3: of their way to see your house?
16:34
Speaker 1: Is it?
16:34
Speaker 3: Is it a destination?
16:35
Speaker 4: I'm not.
16:35
Speaker 3: I'm not suggesting our listen, go to your house.
16:38
Speaker 2: No, of course, No, it's uh, it's not really further
16:41
Speaker 2: people quite honestly.
16:43
Speaker 5: Yeah, music sinking to your lights or any No.
16:45
Speaker 2: I no, see, I don't believe in any of the cheese.
16:48
Speaker 4: I don't believe in that that's good.
16:51
Speaker 2: Predominantly white lights, not a whole bunch of you know, uh,
16:54
Speaker 2: rainbow ones. Like it's you know, trying to keep it,
16:57
Speaker 2: you know, relatively classy for you know, fifteen thousand lights
17:00
Speaker 2: and things like that. But ultimately it's something where we
17:06
Speaker 2: just kind of like doing it. It's also just been
17:08
Speaker 2: an accumulation year after a year where okay, like we
17:12
Speaker 2: did this last year, Hey, let's get a few hundred
17:14
Speaker 2: more lights. And do this this year. It's not like
17:16
Speaker 2: we suddenly woke up one day and we're like, hey,
17:19
Speaker 2: we're just gonna go and you know, try to figure
17:21
Speaker 2: out how to cover every square into the house and
17:22
Speaker 2: Christmas lights. It was much more, Yeah, let's let's add
17:26
Speaker 2: to this this year, let's do that. And so it's
17:28
Speaker 2: it's kind of this gradual thing that builds up. And
17:30
Speaker 2: the other thing that I will say, just from a
17:32
Speaker 2: budget perspective, you do figure out, Okay, how do we
17:35
Speaker 2: make it so that we don't have to be buying
17:37
Speaker 2: a whole bunch of new ones and replacing them. So
17:39
Speaker 2: you get pretty good at figuring out, you know, where
17:41
Speaker 2: you have dead bulbs and how to replace them early
17:43
Speaker 2: so that you're not having to get entire new you know,
17:45
Speaker 2: entirely new strings and stuff like that. So you do
17:49
Speaker 2: some work to make sure that you're staying on top
17:50
Speaker 2: of it as well.
17:52
Speaker 3: Yeah, you're you're you're very committed. It's impressive.
17:55
Speaker 2: It's uh, yeah, it's it's something that we we spend
17:59
Speaker 2: a little bit too much time on, but ultimately, hey,
18:02
Speaker 2: look we have fun with it, and I think look
18:04
Speaker 2: heading into the holiday season, I don't know, we're all
18:08
Speaker 2: so serious so much of the time, and look if
18:11
Speaker 2: if you can find some ways to have a little
18:13
Speaker 2: bit of fun, and especially you know, now having a
18:15
Speaker 2: couple of kids and you know they're starting to like
18:17
Speaker 2: doing it as well and stuff like that. I don't know,
18:21
Speaker 2: you gotta have a little bit of fun with it.
18:22
Speaker 2: And so this I think is just kind of how
18:24
Speaker 2: we end up doing it. So we're, uh, yeah, we're
18:29
Speaker 2: We've been setting up for the last week or so
18:31
Speaker 2: for Christmas, even though Thanksgiving has yet to happen. But
18:33
Speaker 2: I blame that on the calendar this year more than
18:37
Speaker 2: anything else. Let's see, so we've talked about Black Friday deals. Yeah,
18:43
Speaker 2: I think that's kind of all we have on that
18:45
Speaker 2: side of things. Taking a look at markets. I know
18:48
Speaker 2: we're going to be doing Wall Street Watch in just
18:52
Speaker 2: a little bit, but we've got things pretty mixed at
18:54
Speaker 2: the moment. We'll see if we can hold these levels
18:56
Speaker 2: at or near all time highs here still well, you know,
19:00
Speaker 2: trying to get a little bit more momentum. Remember, we've
19:02
Speaker 2: still kind of just been chopping around for the last
19:04
Speaker 2: four weeks without any clear direction, and today with the
19:08
Speaker 2: S and P being down, still can't really get too
19:11
Speaker 2: much followed through to the upside, at least for the
19:13
Speaker 2: broad indices at the moment. Let's take a quick break
19:17
Speaker 2: right now, though. When we come back, we are going
19:20
Speaker 2: to get right to Wall Street Watch, and then after
19:23
Speaker 2: that we're gonna be joined by Todd Lutsky from Cushing
19:26
Speaker 2: and Dolan for Ask Todd, get your estate planning questions ready.
19:29
Speaker 2: It's coming up after this.
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
19:49
Speaker 1: on the Financial Exchange Radio Network. Time now for Wall
19:54
Speaker 1: Street Watch. A complete look at what's moving market so
19:57
Speaker 1: far today right here on the Financial links Change Radio Network.
20:01
Speaker 5: Markets our mixed territory as investors react to the core
20:04
Speaker 5: PCE index this morning, the FEDS preferred measure of inflation,
20:08
Speaker 5: which came in line with expectations. Right now, the Dow
20:12
Speaker 5: up by seventy eight points, SMP five hundred is down
20:15
Speaker 5: a quarter percent, and the Nasdaq is down by three
20:18
Speaker 5: quarters of a percent. Ten year treasure reeled down by
20:20
Speaker 5: three basis points at four point two six percent, and
20:24
Speaker 5: crude oil up about a quarter percent higher, trading just
20:27
Speaker 5: below sixty nine dollars a barrel. Dell Technology is sinking
20:32
Speaker 5: by twelve percent after the PC maker offered a disappointing
20:35
Speaker 5: outlook for the fourth quarter, where Dell executive executives said
20:39
Speaker 5: consumers were proving slow to upgrade PCs. However, the company
20:44
Speaker 5: did cite AI adoption as grounds for hope. Another computer maker,
20:48
Speaker 5: and HP, also posted earnings guidance that came in below forecasts,
20:53
Speaker 5: sending that stock down by twelve percent as well. Meanwhile,
20:56
Speaker 5: cybersecurity company Crowdstrikes swung a quarterly loss following one the
21:00
Speaker 5: worst computer outages ever a few months ago. However, the
21:04
Speaker 5: company hiked it's full your outlook and posted higher revenue.
21:08
Speaker 5: Shares in CrowdStrike currently down by five percent. Elsewhere, Workday
21:12
Speaker 5: shares down by seven percent after the HR software company
21:16
Speaker 5: offered a light fourth quarter guidance. Another software company is
21:19
Speaker 5: seeing losses on the day on Autodesk after its quarterly
21:23
Speaker 5: revenue missed analysts expectations. That stock also down by seven percent,
21:29
Speaker 5: and shares an Urban Outfitters jumping by fifteen percent after
21:32
Speaker 5: the retailer posted in earnings and revenue beat. I'm Tucker Silvan,
21:36
Speaker 5: that's Wall Street watch?
21:38
Speaker 1: This is, asked Todd on the Financial Exchange Radio network.
21:42
Speaker 1: If you have an existing estate plan or in the
21:44
Speaker 1: market for one, Todd Letsky is here to answer your
21:47
Speaker 1: questions and help you plan for a later life. Ask
21:49
Speaker 1: Todd is presented by Cushing and Dolan, serving Massachusetts and
21:53
Speaker 1: New England for more than thirty five years, helping families
21:56
Speaker 1: with a state and tax planning, medicaid planning, and probate laws.
22:00
Speaker 1: Is it Cushingdolan dot com. Now here's Todd Lutsky.
22:05
Speaker 2: We're now joined by Todd Lutsky from the law firm
22:08
Speaker 2: of Cushing and Dolan for Ask Todd. This is your
22:11
Speaker 2: chance to ask Todd your estate planning questions. And so
22:15
Speaker 2: we got the studio lines open at eight eight eight
22:18
Speaker 2: to zero five two two six three. That number again
22:23
Speaker 2: is eight eight eight two zero five two two six three.
22:26
Speaker 2: Todd's gonna help to answer some of your estate planning questions.
22:29
Speaker 2: So if there's been one that's been on your mind,
22:32
Speaker 2: this is your chance to speak with Todd live on
22:35
Speaker 2: air right now. That number is eight eight eight to
22:39
Speaker 2: zero five two two sixty three. Again eight eight eight
22:43
Speaker 2: two zero five two two six three. Mister Lutsky, how
22:45
Speaker 2: are you today?
22:46
Speaker 4: I am doing great as we head into the holidays.
22:49
Speaker 4: How are you, uh, doing pretty well?
22:50
Speaker 2: I learned something new yesterday. Actually, yeah, do you know
22:53
Speaker 2: where they signed the Declaration of Independence?
22:56
Speaker 4: Yeah? At the bottom. That's that, that is true at
23:00
Speaker 4: the bottom.
23:01
Speaker 2: Yeah, it's amazing, fantastic, Todd. Let's talk a little bit
23:04
Speaker 2: about gifting. We now have, you know, fewer than thirty
23:09
Speaker 2: days to go until Christmas, so gifting's on everyone's mind.
23:12
Speaker 2: We already did a Black Friday segment earlier today. A
23:15
Speaker 2: lot of times we talk about gifting a house er,
23:18
Speaker 2: we might talk about gifting money. I want to talk
23:20
Speaker 2: about kind of something in between all those, which is,
23:23
Speaker 2: let's say that you're someone who has a highly appreciated
23:26
Speaker 2: financial asset, a stock or something along those lines. Pros
23:31
Speaker 2: and cons of gifting that either to an individual or
23:35
Speaker 2: to a charity during the course of your lifetime.
23:39
Speaker 4: Well, that's two very very different things, right, So whenever
23:43
Speaker 4: you think about let's take charity first. Right, when you
23:45
Speaker 4: think about charitable giving, and if it's a if it's
23:49
Speaker 4: a highly appreciate you're saying investment, right, not like not
23:52
Speaker 4: like a piece of property, right, like a stock. Yeah, okay,
23:57
Speaker 4: So when we talk about that, like, if you want
24:00
Speaker 4: to give that away to a charity. You know, you
24:02
Speaker 4: could probably set that up in what we call a
24:05
Speaker 4: charitable remainder trust. Whereas that way, when you put it
24:10
Speaker 4: in there and sell it in there, the gain right
24:15
Speaker 4: because it's highly appreciated, So there's income tax issues associated
24:18
Speaker 4: with giving, and that's why we're doing this right, So
24:21
Speaker 4: the gain associated with that would be taxed over time,
24:26
Speaker 4: the full amount of the money could be invested versus
24:29
Speaker 4: losing potentially twenty eight point eight percent federal and state
24:33
Speaker 4: at least here in mass when you liquidate that asset
24:37
Speaker 4: and so, and you'd have that much less right to invest.
24:41
Speaker 4: This way, you have the full amount to invest and
24:44
Speaker 4: the money can be generated, generating a nice cash flow
24:49
Speaker 4: for you. So a charitable remainder trust allows you to
24:52
Speaker 4: get a stream of income your whole life, and then
24:55
Speaker 4: when you die, the balance goes to charity. So great,
24:58
Speaker 4: it's included in your eight still, so if it grew,
25:01
Speaker 4: you don't care because when it goes to charity, you
25:04
Speaker 4: get an offsetting charitable estate tax deduction. So wonderful news there.
25:10
Speaker 4: And meanwhile, your whole life, you got to live off
25:12
Speaker 4: that income stream and you got to have more invested
25:16
Speaker 4: to generate a higher income for you. Now that's one idea.
25:21
Speaker 4: You could give it away to children without charities or
25:24
Speaker 4: to family members. Problem with that is you likely don't
25:28
Speaker 4: have use of it anymore. It's let's face it, it's
25:31
Speaker 4: not yours. Right. You gave it away, sure, and more importantly,
25:35
Speaker 4: you gave them the built in gain. So if you
25:39
Speaker 4: give away that highly appreciated asset when they go to
25:43
Speaker 4: sell it, they are gonna be stuck with that gain
25:47
Speaker 4: and they're gonna have to pay twenty eight point eight
25:49
Speaker 4: percent give or take right on the tax liability. Whereas
25:52
Speaker 4: if you decided to hang onto that asset and let
25:55
Speaker 4: them inherit it, then they would get the asset with
26:00
Speaker 4: a step up in basis, eliminating the built in gain.
26:05
Speaker 4: And instead of lowering your estate by giving away that asset,
26:09
Speaker 4: maybe you've got high basis assets, stocks that you just
26:12
Speaker 4: bought or cash. Cash is always king. Give that away
26:17
Speaker 4: and that's what you use to reduce the estate for
26:20
Speaker 4: estate taxes while keeping the highly high bay or the
26:25
Speaker 4: low basis asset, the highly appreciated asset so that you
26:29
Speaker 4: eliminate the built in gain. So you're winning on the
26:32
Speaker 4: estate tax front and the income tax front when you
26:36
Speaker 4: take a minute and figure out what to gift, if anything.
26:40
Speaker 2: Talking with Todd Lotski from the law firm of Cushing
26:43
Speaker 2: in Dolan. This segment is called Ask Todd because it
26:46
Speaker 2: is your chance to ask Todd your questions. We still
26:49
Speaker 2: have a little bit of room on the phone lines
26:52
Speaker 2: here at eight eight eight two zero five two two
26:56
Speaker 2: six three. That number again is eight eight eight zero
27:00
Speaker 2: five two two sixty three for your chance to ask
27:03
Speaker 2: Todd your estate planning questions. We're gonna take a quick
27:07
Speaker 2: break here, but again right to your questions when we
27:10
Speaker 2: come back. Still some room on the phone line, so
27:12
Speaker 2: if you've got a pressing one, this is your chance
27:15
Speaker 2: eight eight eight to zero five two two sixty three
27:18
Speaker 2: your questions when we return.
27:21
Speaker 1: Ask Todd with Todd Lutsky every Wednesday at ten thirty
27:25
Speaker 1: only here on the Financial Exchange Radio Network. You're listening
27:30
Speaker 1: to Ask Todd with Todd Lutsky on the Financial Exchange
27:34
Speaker 1: Radio Network.
27:40
Speaker 2: All right, as promised, we're gonna get right to your
27:43
Speaker 2: calls with Todd Lunsky. First up, we've got Joe in Bedford. Joe,
27:49
Speaker 2: it's your question for Todd.
27:52
Speaker 6: I have irrevocable trust with medicaid planning. Okay, my house
27:58
Speaker 6: is pod of the trust and I'm could be selling
28:01
Speaker 6: the house shortly. Is there any way I can get
28:04
Speaker 6: some of the money out of the trust to use
28:07
Speaker 6: for other expenses?
28:10
Speaker 4: So, Joe, I don't know. Obviously, did we do this
28:14
Speaker 4: trust for you at Cushing and Dolan or is this
28:17
Speaker 4: done by some other attorney?
28:19
Speaker 6: No, you did it.
28:20
Speaker 4: Oh, then I can speak to it because I wrote it,
28:23
Speaker 4: so I know what it says. So good news all
28:26
Speaker 4: the way around. One, certainly you can sell it, and
28:30
Speaker 4: what will happen? And by the way, I'd strongly encourage
28:33
Speaker 4: you to use our firm to represent you at the sale.
28:37
Speaker 4: Only reason I say that is so many other people
28:40
Speaker 4: just could mess up your five year waiting period if
28:43
Speaker 4: you don't get the right advice from you know, another
28:46
Speaker 4: attorney who maybe is not a trust attorney. Not that
28:48
Speaker 4: they're doing anything wrong, they just don't understand trust. So uh,
28:52
Speaker 4: that's just my advice. So what will happen is the
28:54
Speaker 4: house will likely go out of the trust to the
28:57
Speaker 4: buyer and in will come all the money. Okay, assuming
29:02
Speaker 4: there's no life estate, so in will come all the money? Now,
29:06
Speaker 4: because this is a grand or trust. I've treated your
29:10
Speaker 4: It treats you as if you are the owner for
29:12
Speaker 4: income tax purposes. So is this your primary residence Joe?
29:18
Speaker 6: Yes?
29:19
Speaker 4: And so do you think the game? Are you married?
29:24
Speaker 6: Yes?
29:25
Speaker 4: Good? Good? And so do you think the gain on
29:28
Speaker 4: this house when you sell it fair market value minus
29:32
Speaker 4: cost plus improvements is more than or less than five
29:37
Speaker 4: hundred thousand dollars of gain?
29:40
Speaker 6: It'll probably be a bit more than five hundred.
29:43
Speaker 4: Okay, so good news. If it's a bit more than
29:46
Speaker 4: five hundred. Because this is a grand tour trust, make
29:49
Speaker 4: sure you tell your tax preparer that and they in
29:53
Speaker 4: case they don't know it, that this is a grand
29:56
Speaker 4: tour trust. So you are entitled to that five one
30:00
Speaker 4: hundred thousand dollars Code Section one twenty one capital gains
30:04
Speaker 4: exclusion associated with the sale of your home. Okay, your
30:08
Speaker 4: primary residents. So if, for example, you calculate the gain
30:12
Speaker 4: to be six hundred thousand dollars, remember that's not fair,
30:16
Speaker 4: that's not proceeds, that's just gain. If it's six hundred
30:21
Speaker 4: thousand dollars, you get a five hundred thousand dollars exclusion
30:25
Speaker 4: and you only pay tax on the one hundred, so great,
30:28
Speaker 4: big win for you guys. Now the money, if you
30:32
Speaker 4: do this right, the money will be sitting inside the trust.
30:35
Speaker 4: And by the way you direct this whole sale, you
30:37
Speaker 4: tell the trustee to sell it. No problem. Now, of
30:40
Speaker 4: course I don't know if you have another house or not,
30:42
Speaker 4: but technically I guess you're homeless, so it sounds funny.
30:45
Speaker 4: But you can then take the house or take the
30:47
Speaker 4: money and buy another house and downsize. Even if you
30:50
Speaker 4: want to. Out would go the money and in would
30:53
Speaker 4: come a new house. Again, no borrowing, and that would
30:57
Speaker 4: not restart the five year waiting period. So that's all
31:00
Speaker 4: that said. Now you asked me about getting it out, Okay, Todd, Well,
31:04
Speaker 4: what if I'm going to just use that money, invest
31:06
Speaker 4: it and rent it and rent somewhere and collect the money,
31:09
Speaker 4: collect the income. So first and foremost, you get all
31:11
Speaker 4: the income directly, So if it's generating interest and dividends,
31:15
Speaker 4: you get it. Now, if you want to reach into
31:18
Speaker 4: the principle and take out some of the money, you
31:21
Speaker 4: probably cannot do that directly. But you are allowed to
31:25
Speaker 4: make distributions out of the trust to a class consisting
31:29
Speaker 4: of and it would be defined if you had children,
31:31
Speaker 4: we probably said equally to you, you know, to any
31:35
Speaker 4: child or grandchild, and then you just have to ask
31:38
Speaker 4: that child or grandchild if they would gift it back
31:41
Speaker 4: so you can get it out in a two step approach.
31:44
Speaker 4: Remember they don't have to, but at least once you
31:47
Speaker 4: gift it to them, they can gift it back to
31:49
Speaker 4: you and you can have that put back into your
31:53
Speaker 4: pocket to go spend on these other expenses. So hope
31:56
Speaker 4: that helps a little bit. And again it just really
31:58
Speaker 4: shows the flexibility of these irrevocable trusts that we have
32:03
Speaker 4: talked about over the years. Speaking of flexibility, you might
32:07
Speaker 4: want to think about gifting your assets, and if you're
32:10
Speaker 4: going to gift them, you need to know how to
32:12
Speaker 4: do it, why to do it, when to do it right. Remember, folks,
32:16
Speaker 4: you don't think about it, but when you make a gift,
32:18
Speaker 4: it causes creditor problems. Right, if you throw a person's
32:21
Speaker 4: name on a house, you got creditor problems, or on
32:24
Speaker 4: a joint bank account, you could have creditor problems. We
32:27
Speaker 4: just talked about gifting away low basis assets in the
32:30
Speaker 4: earlier part of the segment. Don't do that. Gift high
32:33
Speaker 4: basis assets you don't even think about it. You might
32:35
Speaker 4: set up a life estate and did you make a
32:38
Speaker 4: gift ll you did, there could be ramifications on that
32:42
Speaker 4: right when you add kids' names to joint bank accounts. Folks.
32:46
Speaker 4: There's so many things to think about. And for higher
32:48
Speaker 4: net worth people, there's ways of leveraging your gifts by
32:52
Speaker 4: taking advantage of discounts on non voting shares of LLCs
32:55
Speaker 4: and the like. This guide gives you all the examples
32:59
Speaker 4: on how to gift, what to gift, and lastly, if
33:02
Speaker 4: to gift, maybe you don't even want to do it,
33:04
Speaker 4: and certainly if you're gonna gift, put it in in
33:07
Speaker 4: trust rather than in the hands of these beneficiaries. Folks,
33:11
Speaker 4: so many things to think about. It's right near the
33:14
Speaker 4: end of the month, especially with the holidays, so this
33:16
Speaker 4: is probably gonna be getting closer and closer to the
33:18
Speaker 4: last chance to get it eight six six eight four
33:21
Speaker 4: eight five six nine nine or Legal Exchange Show dot
33:25
Speaker 4: com again, making the most of Gifting Assets eight six
33:29
Speaker 4: six eight four eight five six nine nine or Legal
33:34
Speaker 4: Exchange Show dot Com.
33:36
Speaker 2: Todd, I've got another one here for you. Let's go
33:38
Speaker 2: to Randall in Maine. Randall you are on with Todd Lutsky.
33:43
Speaker 7: Hello, Todd, So this isn't exactly a mistake question. I'm retired,
33:48
Speaker 7: I'm currently collecting Social Security. I've been a landlord for
33:52
Speaker 7: almost forty years, currently only just two properties. I was
33:56
Speaker 7: recently told that I could sell the property and do
34:00
Speaker 7: a ten thirty one to a real estate investment. Is
34:07
Speaker 7: that something I'm allowed to do? I mean, is that
34:09
Speaker 7: a tense? I didn't know I could do a ten
34:12
Speaker 7: thirty one to a real estate investment.
34:14
Speaker 4: Well, I don't necessarily know what they're exactly talking about
34:17
Speaker 4: on the repurchase side. So there are these things called
34:21
Speaker 4: I don't know, are there Delaware statutory trust DSTs? I
34:24
Speaker 4: hear those offered a lot. Maybe this is what you're
34:28
Speaker 4: buying into. Is some kind of a reate, some kind
34:30
Speaker 4: of a real estate investment trust, you know, like fund
34:34
Speaker 4: or something. So as long as you're buying into something
34:37
Speaker 4: that qualifies as a real estate holding. And again I
34:42
Speaker 4: can't comment on the real estate holding piece that you're
34:46
Speaker 4: describing because I don't really know what it is. But
34:49
Speaker 4: I can tell you that yes, ten thirty one exchanges
34:54
Speaker 4: you are allowed to do. And for everybody who doesn't
34:57
Speaker 4: understand them. If you have this property as Randall does,
35:03
Speaker 4: and there's probably a lot of built in gain because
35:05
Speaker 4: he's been renting, he said, for years. He's been renting it,
35:08
Speaker 4: so he's probably depreciated the cost basis down to close
35:13
Speaker 4: to zero. And if he's done that, selling it would
35:16
Speaker 4: incur a large capital gain, And unlike selling your primary residence,
35:21
Speaker 4: there's no exclusion. You're paying the tax. So if you say,
35:26
Speaker 4: you know what, I'd rather buy another piece of property
35:29
Speaker 4: and defer the gain maybe until I die, and then
35:33
Speaker 4: get a step up in basis as we just discussed,
35:35
Speaker 4: and wipe out that gain. This is the way to go.
35:39
Speaker 4: You sell your property that you want to get rid of,
35:43
Speaker 4: and you identify what they call replacement property. Now you
35:48
Speaker 4: must have to identify the property within forty five days
35:51
Speaker 4: of the sale, and if it's a deferred exchange, you
35:55
Speaker 4: have to buy the new property or what they call
35:58
Speaker 4: the replacement property, within one hundred and eighty days of
36:03
Speaker 4: the sale. Okay, so those are your timetables. But yes,
36:07
Speaker 4: then when you sell and buy, as long as you
36:11
Speaker 4: reinvest all the money, the gain remains built into the
36:15
Speaker 4: new property, but you don't have to pay any capital
36:17
Speaker 4: gains tax. It's deferred, and it's a wonderful way of
36:21
Speaker 4: getting a new asset and then saying I'm going to
36:24
Speaker 4: collect rent off my new asset, and you know what,
36:27
Speaker 4: I'm happy with this. I'll just do my estate planning,
36:30
Speaker 4: maybe put it into a maybe an irrevocable trust if
36:33
Speaker 4: I want to protect it from the nursing home and
36:36
Speaker 4: get that clock running and save it for my family.
36:39
Speaker 4: And when they inherit it, they will get it with
36:43
Speaker 4: a brand new basis, eliminating all the built in gain
36:47
Speaker 4: that you've built up over the years. So that is
36:50
Speaker 4: a wonderful way to go for some people if they
36:53
Speaker 4: want to continue to be landlords. And Randall, yes, you
36:56
Speaker 4: would be eligible to do that, so please look into it.
36:59
Speaker 4: Hope that helps folks, and I hope everybody has a
37:02
Speaker 4: happy Thanksgiving.
37:03
Speaker 2: Mister Lutsky, thank you so much for joining us to
37:06
Speaker 2: have a happy Thanksgiving as well.
37:07
Speaker 4: Thank you always a pleasure.
37:10
Speaker 1: This has been asked Todd on the Financial Exchange Radio
37:13
Speaker 1: network Aske Todd with Todd. Lutsky has been presented by
37:16
Speaker 1: Cushing and Dolan, serving Massachusetts and New England for more
37:19
Speaker 1: than thirty years, helping families with the state and tax planning,
37:22
Speaker 1: Medicaid Planning and Probate law. Call eight hundred three nine
37:25
Speaker 1: three four thousand and one or visit Cushingdolan dot com.
37:28
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37:30
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37:33
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37:35
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37:37
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