Latest / The Financial Exchange Show / Nvidia becomes the first $5T company thanks to the AI rally

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Nvidia becomes the first $5T company thanks to the AI rally · The Financial Exchange Show

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Speaker 1: heroes by visiting DAV five dot Boston and making a
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Speaker 1: donation today. This is the Financial Exchange with Chuck Zada,
1:06
Speaker 1: and Mark Fandetti.
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Speaker 2: Chuck, Mark and Tucker with you and gotta tell you
1:15
Speaker 2: pretty excited for today. We got an awful lot going
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Speaker 2: on in terms of we've got earnings, we've got a
1:26
Speaker 2: FED meeting, we've got in video becoming the first five
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Speaker 2: trillion dollar company ever.
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Speaker 3: Mark.
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Speaker 2: If you can't get excited about a day like today
1:35
Speaker 2: in financial markets, then financial markets aren't for you. They're
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Speaker 2: just not.
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Speaker 4: This is even a fun one here, even if it
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Speaker 4: makes you a little nervous, it should nevertheless have you
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Speaker 4: very engaged.
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Speaker 2: Well, it's look, I'm a I'm a big hockey fan,
1:49
Speaker 2: right and the Boston Bruins this year, the Bruins are
1:52
Speaker 2: my team, and they're not a good team, like making
1:55
Speaker 2: no bones about it, but they're engaging, Like, no matter
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Speaker 2: what you feel something watching these games this year, it's
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Speaker 2: either the first period of yesterday where they're down to
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Speaker 2: nothing in the first four minutes and you're like, my goodness,
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Speaker 2: I just I don't know if we're gonna make it
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Speaker 2: through October on this one, or the subsequent you know,
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Speaker 2: two periods after where they score five unanswered goals and
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Speaker 2: you're like, wow, I look at this, It's the best
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Speaker 2: thing ever to Goo. No, it's the same thing with
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Speaker 2: with markets today, Like you don't know what you're gonna get.
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Speaker 2: I mean, the general trend for the last six months
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Speaker 2: has been up into the right, but ultimately what you're
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Speaker 2: gonna get today is going to be pretty interesting and
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Speaker 2: pretty exciting. Like you're not gonna leave today feeling like
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Speaker 2: you didn't get your money's worth.
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Speaker 4: As long as it keeps going up obviously.
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Speaker 2: No, Like I'm saying, even if it goes down, I.
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Speaker 4: Don't think a lot of people would feel the same.
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Speaker 4: You don't feel the same emotion. It's you're engaged, but
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Speaker 4: it's it's it's appara.
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Speaker 2: But that's what I'm saying. I'm saying, like, if you
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Speaker 2: are a follower of markets, you're gonna come away from
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Speaker 2: today feeling something, and if you don't, you're doing it wrong.
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Speaker 2: I'm not saying you have to act on that feeling,
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Speaker 2: but what I am saying is like, you're gonna feel
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Speaker 2: something after today. I mean, look in Vidio, it's five
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Speaker 2: trillion dollars for the first time ever. And by the way,
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Speaker 2: happens on no News. It's not you know, new contracts
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Speaker 2: they signed, It's not this, It's not that.
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Speaker 3: It's just yeah, that's a good sign.
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Speaker 2: It's just happening. I mean again, you've got a company
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Speaker 2: that's this big, adding ten percent in two days doesn't
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Speaker 2: fill you with you know, the signs that this is
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Speaker 2: the most stable rally.
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Speaker 3: But whatever.
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Speaker 2: Like either way, Like, here's the thing, I have all
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Speaker 2: these different feelings attached to this. I'm sitting there and
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Speaker 2: I'm going, Okay, the stock just added fifteen percent over
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Speaker 2: the last week on nothing. Okay. Part of me goes, man,
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Speaker 2: that that that's that's not great. That's not what you
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Speaker 2: want to see.
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Speaker 5: Another part of me goes, wow, like this is amazing,
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Speaker 5: Like you're you just added seven hundred and fifty billion
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Speaker 5: dollars in market cap in a span of you know,
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Speaker 5: five trading days.
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Speaker 2: Holy cow, Like this is amazing. And I think it's
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Speaker 2: okay to feel all of those things simultaneously. I'm not
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Speaker 2: saying that you have to act on any of them,
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Speaker 2: but ultimately you got to admit, like what we're seeing
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Speaker 2: now is pretty spectacular. Like we've never seen stuff like
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Speaker 2: this before.
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Speaker 3: None of this.
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Speaker 4: If in video were a country, it would be like
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Speaker 4: the third biggest behind the US and China. Well, Japan
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Speaker 4: is a little over six and a half trillion, So
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Speaker 4: I'm exaggerating a bit. India might be a little bit bigger,
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Speaker 4: but it would be in the top several. If if
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Speaker 4: in Vidio were a country, in terms of market capital,
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Speaker 4: comparing market cap to you know, now I'm prepared actual,
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Speaker 4: I'm using market cap World Bank data for those countries. Sorry,
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Speaker 4: so I'm using market cap oh, in terms of yea
4:43
Speaker 4: size of their stock markets. Yes, I'm sorry, yes, the
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Speaker 4: size of their stock market if in video, if Vida,
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Speaker 4: I didn't say that very deftly. If in Video were
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Speaker 4: a country, its stock market is the way I should
4:54
Speaker 4: have said, it would be among the top several depending
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Speaker 4: on when you take the snapshot.
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Speaker 2: Another fascinating statistically.
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Speaker 4: Like, that's fascinating.
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Speaker 2: No, no, this one is in video right now. Its market
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Speaker 2: cap is greater than the entire S and P five
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Speaker 2: hundred industrial sector's market cap.
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Speaker 4: Yeah, that's mind blowing too.
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Speaker 2: I mean, like you you look at it, and by
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Speaker 2: the way, the S and P five hundred industrial sector, Like,
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Speaker 2: we're not talking companies that are, you know, anything to
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Speaker 2: sneeze at. You go through the list of companies in there,
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Speaker 2: you're talking ge Boeing, Raytheon Caterpillar, Deer Carrier. Who else
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Speaker 2: do we have in here? Eaton Corporation, Parker Hanafin, Union Pacific,
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Speaker 2: Norfolk Southern. I mean you're talking about like the country
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Speaker 2: does not work without these companies existing and doing what
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Speaker 2: they're doing. Like I I know that, you know, we
5:53
Speaker 2: might be like, well, you know, ultimately, like you know,
5:56
Speaker 2: you know what, what's the big deal? I mean, you
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Speaker 2: know Boeing has an add their act together in a while,
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Speaker 2: blah blah blah. Okay, well, if you're not producing new
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Speaker 2: seven thirty sevens, there still are problems in the United States,
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Speaker 2: and Video is greater than the market cap of all
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Speaker 2: those companies I just listed, and then another like fifty
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Speaker 2: or so that are still in that category. I mean,
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Speaker 2: it's it's just kind of wild when you when you look.
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Speaker 4: At it and you know it's expensive, but relative to
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Speaker 4: other semiconductor stocks, just looking at the Philly Semiconductor Index, Yeah,
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Speaker 4: for example, it doesn't look that outrageously. They could all
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Speaker 4: obviously be quite overvalued. God, the whole sectors just over
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Speaker 4: probably I should qualify that by saying probably.
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Speaker 2: But it's one of those things we say quite often,
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Speaker 2: like valuation people all the old school value investors come
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Speaker 2: in and they're like, well, you know, like look at this.
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Speaker 2: I don't know why they sound like this.
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Speaker 4: They're getting a crap kicked out of them every day.
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Speaker 3: That's why there are no news.
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Speaker 2: Everybodying no, No, one's twenty three years old is like, hey,
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Speaker 2: I'm going to be a value investor. Like that doesn't
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Speaker 2: happen today because you haven't had the pain and growth
7:03
Speaker 2: to back then. But all of the all the people
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Speaker 2: who grew up, you know, with with Peter Lynch and
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Speaker 2: this and that, it's well, I'm not saying he was bad.
7:13
Speaker 2: I'm saying like he was a great manager anyway. But ultimately,
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Speaker 2: like all the value investors are like, well, this is
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Speaker 2: too pricey, Like I'm gonna find something that's cheaper. And
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Speaker 2: quite honestly, valuation is a horrible way in this market
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Speaker 2: for the last fifteen years to make.
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Speaker 4: Yeah, we're talking about you two different uses. As always,
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Speaker 4: ask somebody when they throw a concept out there, what
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Speaker 4: are you using it for? Valuation is very useful if
7:36
Speaker 4: you're putting together a portfolio of securities and looking for
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Speaker 4: things that might be overlooked by other investors. It's a
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Speaker 4: useful starting point, it's quite us it's quite unhelpful if
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Speaker 4: you're using it as a market timing tool, which is
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Speaker 4: what you were saying. So they're two different at least
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Speaker 4: two different ways to use it well.
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Speaker 2: And also it's not something that reflects it's not something
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Speaker 2: that reflects the likelihood that that valuates changes in the
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Speaker 2: future either. Case in point, emerging market stocks. They have
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Speaker 2: been cheap for twenty years now.
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Speaker 4: Well, you gotta be careful there because I don't know
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Speaker 4: that you can compare. There are some investors Rob are
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Speaker 4: not was running money. I once asked him, the question
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Speaker 4: is this. He runs a from called research field. It's
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Speaker 4: pretty well known researcher. He's adamant that you can compare
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Speaker 4: these things across markets. Others and I took up their
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Speaker 4: cause equally adamant you cannot. I'm not convinced you can compare,
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Speaker 4: but yeah, will do. The point that I make, I
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Speaker 4: think they're wrong chief to do. That is what I'm saying.
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Speaker 2: I don't think you should still do.
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Speaker 4: I know.
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Speaker 2: I'm not saying that like you should or shouldn't, but
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Speaker 2: I'm saying, well, they're wrong.
8:36
Speaker 3: I see.
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Speaker 2: Or you want another example, look at energy stocks, they've
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Speaker 2: been cheap for a decade. They also haven't gone anywhere
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Speaker 2: for a decade. Yeah, you know, outside of you know
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Speaker 2: what they did in twenty twenty two. It's been something
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Speaker 2: where it's been basically a lost decade for energy investors.
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Speaker 3: Yeah.
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Speaker 4: Yeah, you have to ask why they're relative, why they
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Speaker 4: appear to be and qualify and relatively cheap totally.
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Speaker 2: Yeah, And so I think ultimately, you know, when you
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Speaker 2: look at this, it's something where I don't know what
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Speaker 2: is going to happen with Nvidia and the rest of
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Speaker 2: the semistocks over the next five ten years. No one does.
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Speaker 2: But what you can say right now is, hey, you've
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Speaker 2: got an awful lot of concentration in this area of
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Speaker 2: the market, and if things start to falter there, it
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Speaker 2: does mean you've got real problems with the broader market,
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Speaker 2: simply because with stocks so concentrated there, Even if the
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Speaker 2: rest of the market starts to lift itself, which you
9:40
Speaker 2: kind of look at it and you're like, well, how
9:42
Speaker 2: would it if those things are falling, it's just not
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Speaker 2: enough to overcome it. And we've seen that at several
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Speaker 2: points this year where when the big megacap companies start
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Speaker 2: to falter. You can't make it up through you know,
9:55
Speaker 2: insurance companies rallying. You can't make it up through you know,
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Speaker 2: utilities rallying. There's just not enough meat on that bone.
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Speaker 2: Let's take a quick break. When we return, let's talk
10:08
Speaker 2: a little bit about the US China meeting now tentatively
10:12
Speaker 2: scheduled for ten pm Eastern time today. We'll discuss expectations
10:17
Speaker 2: after this.
10:19
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11:24
Speaker 2: So we received notice earlier this morning that the specific
11:29
Speaker 2: time for the President Trump President g talk is going
11:35
Speaker 2: to be at ten pm Eastern tonight. So if you're
11:40
Speaker 2: like me and you go to bed at eight thirty five,
11:43
Speaker 2: you're not going to be staying awake for this one,
11:45
Speaker 2: but you'll wake up to, you know, whatever futures do
11:48
Speaker 2: as a response to it. Big things that are expected,
11:51
Speaker 2: and this is reporting from Bloomberg here. The fentanyl tariff
11:57
Speaker 2: expected to be discussed, and President Trump has indicated that
12:02
Speaker 2: there may be a reduction in that tariff that happens. Currently,
12:06
Speaker 2: that fentanyl related tariff stands at twenty percent. Wall Street
12:10
Speaker 2: Journal reporting that President Trump may consider cutting that to
12:15
Speaker 2: ten percent, and also some chatter that the President may
12:20
Speaker 2: allow China access to Nvidia's flagship line of semiconductors known
12:26
Speaker 2: as their Blackwell processors. And obviously this is something that
12:31
Speaker 2: you know, would be a pretty swift reversal based on
12:35
Speaker 2: you know, previous national security concerns related to this also
12:40
Speaker 2: some chatter about soybeans. Reportedly this morning there was an
12:45
Speaker 2: order placed by a Chinese company for about one hundred
12:48
Speaker 2: and eighty thousand tons of soybeans. That is still a
12:51
Speaker 2: drop in the bucket and obviously not you know, something
12:55
Speaker 2: that indicates any long term follow through, but it does
12:58
Speaker 2: appear that, you know, the wheels are being greased in
13:00
Speaker 2: advance of this, and so I would be shocked if
13:03
Speaker 2: we come away from this meeting tonight with any kind
13:07
Speaker 2: of negative headlines. The question, as it's been all year,
13:11
Speaker 2: is going to be, Okay, what's the follow through, because
13:14
Speaker 2: you know, kind of this is the fourth time we've
13:15
Speaker 2: been through this, and okay, like we've reached an agreement
13:18
Speaker 2: on rare earths, and then a month and a half
13:20
Speaker 2: later it's like, hey, there's a new problem with rare earths,
13:22
Speaker 2: and you know, you kind of want to see what's
13:25
Speaker 2: the actual follow through because the headlines have been impressive,
13:31
Speaker 2: but it seems like we keep getting back to the
13:33
Speaker 2: same spot every couple months.
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Speaker 1: Here.
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Speaker 4: To me, this is all theater. The trade deficit, if
13:38
Speaker 4: that's what you're interested in, is not a function of tariffs.
13:41
Speaker 4: There are countries with high tariffs that run a trade
13:43
Speaker 4: deficit where imports exceed exports. There are countries with low
13:47
Speaker 4: tariffs that have a large trade deficit. They import more
13:50
Speaker 4: than they export. Economists don't get worked up about this
13:53
Speaker 4: because the trade deficit is neutral. The trade deficit is
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Speaker 4: a function of investment opportunity. Here the flip side of it,
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Speaker 4: it is of the so called current account, which we
14:03
Speaker 4: call the trade deficit. Casually, is that.
14:06
Speaker 2: The capital account.
14:07
Speaker 4: We import a lot of capital people, foreigners by treasuries,
14:11
Speaker 4: foreigners by real estate. Foreigners own about twenty five percent
14:14
Speaker 4: of US equities, thirty three percent of US treasuries, for example.
14:18
Speaker 4: The capital they get to make those purchases comes from
14:21
Speaker 4: the imports that we buy. We send dollars abroad. Those
14:24
Speaker 4: dollars come back in the form of investment. If you
14:27
Speaker 4: want to eliminate the trade deficit, you'd have to eliminate
14:29
Speaker 4: that foreign investment. That would push down stocks because they're
14:32
Speaker 4: a quarter of all stock investors. That would push up
14:34
Speaker 4: interest rates because they own a third of the US
14:37
Speaker 4: treasury market. The US economy would grow more slowly as
14:40
Speaker 4: a result. So when the president who he doesn't he
14:43
Speaker 4: fundamentally does not understand trade, he talks about all this
14:47
Speaker 4: investment coming in and at the same time shrinking the
14:49
Speaker 4: trade deficit. You can't do those two things. If you
14:52
Speaker 4: get a trillion dollars in new investment, as Asian countries
14:56
Speaker 4: are allegedly committing to, that will expand the trade deficit
15:01
Speaker 4: by the same amount.
15:02
Speaker 3: It has to dollar.
15:04
Speaker 4: Those dollars have to be recycled. It's called the balance
15:06
Speaker 4: of payments, and one of the cardinal rules of balance
15:09
Speaker 4: of payments balance of payments accounting is that the balance
15:12
Speaker 4: of payments has to balance. You send a dollar abroad,
15:14
Speaker 4: it comes back in the form of investment or to
15:16
Speaker 4: buy a US export abroad. But as we know, we
15:20
Speaker 4: import more than we export. The difference comes back. So
15:23
Speaker 4: you cannot both have these massive foreign investments that the
15:26
Speaker 4: President keeps touting. He says fifteen trillion, then twenty trillion,
15:30
Speaker 4: then twenty five trillion. If that were to happen, the
15:32
Speaker 4: trade deficit would expand by the same amount. So it's
15:35
Speaker 4: a little frustrated.
15:36
Speaker 2: Unless we curtailed our own spending domestically.
15:40
Speaker 4: We'd have to increased increase savings. That could either be
15:43
Speaker 4: done by US as people increasing savings, reducing the federal
15:46
Speaker 4: budget deficit that is increasing national savings.
15:49
Speaker 2: There are some.
15:52
Speaker 4: Accounting adjustments on the margin interest from abroad factor payments
15:56
Speaker 4: from abroad that I'm leaving out of this discussion, but
15:58
Speaker 4: broadly speaking, it is ideally true. It must be true
16:01
Speaker 4: that the trade deficit is offset by the financial account
16:04
Speaker 4: or capital account surplush can't have both.
16:07
Speaker 2: Piece from Bloomberg opinion is the Fed's inflation target still
16:11
Speaker 2: two percent?
16:12
Speaker 4: No doesn't appear to be now because we haven't hit it,
16:16
Speaker 4: and they're easy.
16:17
Speaker 2: No, it doesn't seem like it. And I'm not saying
16:20
Speaker 2: that that's good or bad. I'm just saying that it is.
16:24
Speaker 2: And ultimately the proof is going to be in the
16:25
Speaker 2: pudding over the next two to three years in terms
16:28
Speaker 2: of whether this turns out to be the right decision
16:31
Speaker 2: or not.
16:32
Speaker 4: Look, most economists think the target should be at two,
16:34
Speaker 4: somewhere between two and five. There are more rubbish people
16:37
Speaker 4: who say make it five. You don't want to hit
16:39
Speaker 4: the zero lower bound like we did in O eight.
16:41
Speaker 2: There are people that are saying five percent should be
16:43
Speaker 2: an approval for a long time.
16:44
Speaker 4: There are plenty of respected researchers who say anywhere in
16:47
Speaker 4: the low single digits is just fine.
16:49
Speaker 2: Interesting.
16:49
Speaker 4: Oh yeah, yeah, yeah, yeah, it's not like a radical,
16:51
Speaker 4: wild eyed view because you don't want to hit the
16:53
Speaker 4: so called zero lower bound where the Fed can't lower
16:55
Speaker 4: interest rates be below the nominal rate kinkle below zero.
16:59
Speaker 4: So if you start it, you get a lot more
17:00
Speaker 4: room to ease. That's one argument. The other argument is
17:03
Speaker 4: you can keep real wages, you.
17:05
Speaker 2: Can learn we're talking five for inflation, yeah, funds rates.
17:09
Speaker 4: Yeah, five for CPI inflation.
17:10
Speaker 3: Oh sure.
17:11
Speaker 4: There are plenty of respective researchers. They're more of a
17:13
Speaker 4: more liberal bent. I'm because I'm a free market nut job.
17:16
Speaker 4: I would prefer very low inflation. Somewhere in one to
17:19
Speaker 4: two sounds right to make sure. But there are people
17:21
Speaker 4: who are a lot obviously smarter and more studied in
17:23
Speaker 4: this area that think five is fine too. Look, any
17:26
Speaker 4: rate of inflation, once the economy adjusts to it, is
17:29
Speaker 4: consistent with full employment hitting potential GDP. None of those
17:33
Speaker 4: things are rule you don't want as erratic inflation, inflation
17:36
Speaker 4: that keeps people guessing and in flat would be bad.
17:39
Speaker 2: Fires. Large adjustments to policy on a regular basis, Yeah.
17:43
Speaker 4: That's disruptive as long as it's steady. It's anything in
17:46
Speaker 4: the low single digits, even I'd have to admit is
17:48
Speaker 4: probably fine. There's there's nothing inherently bad about four percent
17:52
Speaker 4: versus two. But when the FED is committed to do
17:55
Speaker 4: and they say, well, we can't hit it, or we
17:56
Speaker 4: don't feel like hitting it, let's let it drift up,
17:58
Speaker 4: it leaves everybody guessing they should explicitly say where they
18:02
Speaker 4: within a range, maybe where they wanted to fall.
18:04
Speaker 2: And we've said before, look, there you've had. Even in
18:07
Speaker 2: recent history, the nineteen nineties saw a pretty darn close
18:10
Speaker 2: to three percent inflation over the course of them. Most
18:13
Speaker 2: people look back at the nineteen nineties and say, yeah,
18:16
Speaker 2: there's a pretty darn good economy. So it's not to
18:19
Speaker 2: say that you need to inherently get to two percent.
18:23
Speaker 2: But I think what we've become accustomed to, at the
18:25
Speaker 2: very least over the last forty years is in place
18:29
Speaker 2: inflation that generally has run in the low to mid twos.
18:33
Speaker 2: You know that the nineties were kind of the outlier,
18:35
Speaker 2: and most of that was concentrated in the first half
18:38
Speaker 2: of the decade, largely due to energy prices as a
18:42
Speaker 2: result of the Gulf War. But ultimately you can still
18:47
Speaker 2: look at the nineteen ninees and say, yeah, inflation was
18:49
Speaker 2: pretty close to three percent for that decade, and it
18:52
Speaker 2: was not a huge problem because there was still so
18:56
Speaker 2: much real economic growth that was occurring to productivity increases
19:01
Speaker 2: and population growth. Today you don't have the population growth
19:05
Speaker 2: piece that's going on, and so you're more reliant on
19:08
Speaker 2: productivity increases to generate real growth, you know, in the
19:11
Speaker 2: absence of that. And so I think ultimately I don't
19:17
Speaker 2: have you know, the right answer on this, because I
19:19
Speaker 2: don't think there is a right answer for like, oh,
19:21
Speaker 2: what's what should the rate of inflation?
19:23
Speaker 4: People low and stable?
19:26
Speaker 2: There's no heart and fast number. Let's take a quick break.
19:29
Speaker 2: When we come back, it's Wall Street Watch and ask Todd.
19:41
Speaker 1: Like us on Facebook and follow us on Twitter at
19:44
Speaker 1: TFE show. Breaking business news is always first right here
19:48
Speaker 1: on the Financial Exchange Radio Network. Time now for Wall
19:53
Speaker 1: Street Watch. A complete look at what's moving markets so
19:56
Speaker 1: far today right here on the Financial Exchange Radio at work.
20:01
Speaker 6: Well, it's FED meeting day and markets are extending gains
20:03
Speaker 6: from their fresh record highs. FED Chairman Jerome Powell will
20:06
Speaker 6: hold a press conference at two thirty this afternoon after
20:09
Speaker 6: the expected quarter point rate cut. However, the big news
20:13
Speaker 6: on the day surrounds Nvidia, where the chip and ai
20:16
Speaker 6: giant has officially crossed five trillion dollars in market cap,
20:20
Speaker 6: the first company to do so, and video shares of
20:23
Speaker 6: climbing nearly five percent on the day. Right now, the
20:27
Speaker 6: Dow is up by half a percent, or two hundred
20:30
Speaker 6: and fifty points. SMP five hundred is up a third
20:33
Speaker 6: of a percent or twenty one points, NASDAC up seven
20:36
Speaker 6: cents of one percent or one hundred and sixty eight
20:39
Speaker 6: points higher. Rust of two thousand is edging higher mostly
20:42
Speaker 6: flat tenure, treasury yield is right around four percent, and
20:47
Speaker 6: crude oil is up over half a percent higher training
20:51
Speaker 6: sixty dollars in fifty cents a barrel. Boeing posted mixed
20:55
Speaker 6: quarterly results. While its revenue beat estimates, the aerospace company
20:59
Speaker 6: logged a steeper loss than anticipated. Boeing also said it
21:04
Speaker 6: at increased seven thirty seven production to thirty eight airplanes
21:07
Speaker 6: a month. Shares are in Boeing are down over two percent. Meanwhile,
21:11
Speaker 6: shares in Caterpillar surging thirteen percent after the maker of
21:15
Speaker 6: construction machinery beat third quarter forecasts. Elsewhere, five Serve shares
21:20
Speaker 6: are tanking forty three percent after the financial services tech
21:24
Speaker 6: company reported as substantial third quarter earnings and revenue. Miss
21:29
Speaker 6: Mandoalese cut its twenty twenty five guidance with a snack
21:32
Speaker 6: maker site at high cocoa prices and transportation costs, and
21:36
Speaker 6: also noted Americans were buying fewer snacks. That stock is
21:39
Speaker 6: retreating by three percent. Booking Holdings b quarterly forecasts as
21:44
Speaker 6: travel demand stabilized. The online travel agency also hiked its
21:48
Speaker 6: annual revenue growth. Outlook shares are down by one percent.
21:51
Speaker 6: In after today's closing bell, the kickoff two big tech
21:55
Speaker 6: earnings begins. We're Alphabet, Meta and Microsoft. We'll all report
22:00
Speaker 6: Howard their third quarter results on Tucker Silvan. That is
22:04
Speaker 6: Wall Street Watch.
22:06
Speaker 1: This is Ask Todd on the Financial Exchange Radio Network.
22:10
Speaker 1: If you have an existing estate plan or in the
22:12
Speaker 1: market for one, Todd Lutsky is here to answer your
22:15
Speaker 1: questions and help you plan for a later life. Ask
22:17
Speaker 1: Todd is presented by Cushing and Dolan, serving Massachusetts and
22:21
Speaker 1: New England for more than thirty five years, helping families
22:24
Speaker 1: with a state and tax planning, medicaid planning, and probate
22:27
Speaker 1: law visit Cushingdolan dot com. Now here's Todd Lutsky.
22:33
Speaker 2: As promised, Todd Lunsky now joins us from the law
22:36
Speaker 2: firm of Cushing and Dolan. We got phone lines open
22:40
Speaker 2: because the segment is ask Todd. It's your chance to
22:44
Speaker 2: ask Todd your estate planning questions and he'll actually answer them. Yeah,
22:49
Speaker 2: it's not just you asking, it's him answering as well.
22:52
Speaker 2: Phone lines are wide open right now at eight eight
22:54
Speaker 2: eight two zero five two two six three. That is
22:58
Speaker 2: the number to call to ask Todd your estate planning
23:01
Speaker 2: questions again. It's eight eight eight two zero five two
23:05
Speaker 2: two six three. We can normally get through two to
23:07
Speaker 2: three questions, So get calling early, get calling often to
23:11
Speaker 2: make sure we get to your question for Todd again.
23:15
Speaker 2: That number is eight eight eight to zero five two
23:20
Speaker 2: two six three. Mister Lutsky, How are you doing today?
23:23
Speaker 3: I am doing just fine. How you been? Uh good?
23:26
Speaker 2: I had a busy day yesterday.
23:28
Speaker 3: Yeah, what are you doing?
23:29
Speaker 2: I was shopping for cherries and a new microphone stand.
23:32
Speaker 3: I don't know how cherry's and a microphone stand go together.
23:35
Speaker 3: Bought it being bought a boom, Oh there you go.
23:37
Speaker 2: Yeah, it was good Todd want to talk to you
23:39
Speaker 2: a little bit about gifting strategies. When is it appropriate
23:44
Speaker 2: to incorporate annual gifting into an estate plan? What role
23:49
Speaker 2: can that fill? And when do you start to see
23:51
Speaker 2: that talked about. Is something that makes sense for someone?
23:54
Speaker 3: Yeah, I think that's fair question, because this gifting guide
23:58
Speaker 3: really explains that. But I mean, just because we have
24:03
Speaker 3: this ability to gift away thirteen point nine million dollars, which,
24:09
Speaker 3: by the way, that is our federal estate tax exemption.
24:11
Speaker 3: You've heard us talk about that many times. It is
24:14
Speaker 3: also our gift tax exemption. Right. You get to use
24:17
Speaker 3: up that exemption either by dying, which is not usually
24:20
Speaker 3: on the to do list, or by gifting before you
24:24
Speaker 3: lose it. That's when tax laws change, right. So, but
24:28
Speaker 3: just because you can gift away thirteen point nine million
24:31
Speaker 3: and pay no federal gift tax. And remember, there's no
24:33
Speaker 3: state gift tax in any state except our neighbor, Connecticut
24:38
Speaker 3: is the only one that I'm aware of that has that.
24:39
Speaker 3: So otherwise you don't worry about state gift tax. But
24:43
Speaker 3: I don't want to just gift because there's capital gains
24:47
Speaker 3: taxes that you have to worry about, not just death taxes. Right,
24:52
Speaker 3: So if I'm going to gift away an asset, I
24:54
Speaker 3: first want to make sure that I'm getting a federal
24:59
Speaker 3: state tax benefit, meaning if I'm under thirteen point nine
25:04
Speaker 3: million or married and double that exemption. Right, was that
25:09
Speaker 3: like twenty eight million in change? Almost, so it's called
25:13
Speaker 3: twenty seven and change. I probably don't need to gift
25:18
Speaker 3: to save federal estate taxes. And remember the federal estate
25:23
Speaker 3: tax rate is forty percent of the amount over the exemption.
25:28
Speaker 3: All right, Well, if I'm not saving that and I'm
25:31
Speaker 3: only saving the state estate tax, and I'll just use
25:34
Speaker 3: Massachusetts as an example, I'm only saving say ten to
25:38
Speaker 3: twelve percent, and I end up giving away assets that
25:42
Speaker 3: have capital gain built into them. I bought a house
25:45
Speaker 3: a long time ago, you know the drill. I got
25:48
Speaker 3: a rental property that I appreciated to zero and now
25:52
Speaker 3: it's worth a million dollars. Well, I get a million
25:54
Speaker 3: dollars of gain built into this property if I give
25:56
Speaker 3: it away and I'm not saving the forty percent and
25:59
Speaker 3: I'm only saving the twelve twelve percent, but I trapped
26:01
Speaker 3: almost thirty percent long term capital gain in that item,
26:05
Speaker 3: so that my children will pay that when they sell it.
26:09
Speaker 3: I'm not sure that's helpful, right. Twenty eight thirty percent
26:13
Speaker 3: versus ten percent not a good math situation. So think
26:17
Speaker 3: about what you gift and why you're gifting. If it's
26:20
Speaker 3: just to save a state taxes, might want to double
26:23
Speaker 3: think it.
26:24
Speaker 2: Talking with Todd Lotsky from Cushing and Dolan, still have
26:27
Speaker 2: room on the phone lines at eight eight eight to
26:30
Speaker 2: zero five two two sixty three. That is the number
26:33
Speaker 2: to call it ask Todd your estate planning questions. We
26:37
Speaker 2: are going to take a quick break right now, but
26:39
Speaker 2: when we come back, it's going to be right to
26:41
Speaker 2: your questions with Todd. Eight eight eight to zero five
26:46
Speaker 2: two two sixty three is the number again, it is
26:50
Speaker 2: eight eight eight to zero five two two sixty three.
26:53
Speaker 2: Quick break, Then your questions with Todd.
26:56
Speaker 1: Ask Todd with Todd Letsky every Wednesday at tenth only
27:00
Speaker 1: here on the Financial Exchange Radio Network. You're listening to
27:06
Speaker 1: Ask Todd with Todd Lutsky on the Financial Exchange Radio Network.
27:17
Speaker 2: All right, let's get right to your questions with Todd Lutsky.
27:20
Speaker 2: First in the queue, we got Marty in Framingham. Marty,
27:24
Speaker 2: what is your question for Todd? Marty?
27:29
Speaker 3: Are you there.
27:30
Speaker 7: Yes, yes, I am, thank you for taking my call.
27:35
Speaker 7: My home in Midfield had of fire. It was totaled
27:39
Speaker 7: although it was fully insured. It's going to cost me
27:42
Speaker 7: about another two hundred thousand dollars to put build a
27:46
Speaker 7: house back the way we want it. I've got the
27:49
Speaker 7: money set aside that the insurance company is giving me,
27:52
Speaker 7: but it's going to cost me another two hundred thousand
27:54
Speaker 7: dollars of revocable money or other money to get the
28:00
Speaker 7: house the way we want. The question is, I don't
28:03
Speaker 7: want to interrupt the integrity of the irrevocable trust which
28:06
Speaker 7: has been in been in for like seven to ten years.
28:12
Speaker 7: So how do I fund it without interrupting that irrevocable trust.
28:17
Speaker 3: So it seems to me that since the insurance company
28:23
Speaker 3: paid you, that means that when you set up the trust,
28:27
Speaker 3: you told the insurance company to add the trust as
28:30
Speaker 3: an additional insured. Correct, Yes, so, because so, because you
28:38
Speaker 3: told the trust to add the or since you told
28:41
Speaker 3: the insurance company to add the trust as an additional insured,
28:45
Speaker 3: you should go back to the insurance company and tell
28:48
Speaker 3: them to issue the check pay to the order of
28:51
Speaker 3: the trust, not you, And that way it goes directly
28:55
Speaker 3: into the trust, and there's no resetting the five year clock.
28:58
Speaker 3: In other words, it should be no different than when
29:01
Speaker 3: you sell a house. Right, if the trust owned the
29:03
Speaker 3: property and you decided to sell and buy another house,
29:07
Speaker 3: which we all know you can do, out would go
29:10
Speaker 3: the house to the buyer, and in would come a
29:13
Speaker 3: check made payable to the trust, because the trust then
29:17
Speaker 3: would receive the money, and then that money would not
29:21
Speaker 3: receiving that money would not reset the clock. In other words,
29:25
Speaker 3: if the house went in seven years ago, to take
29:27
Speaker 3: your example, and now that house is one hundred percent
29:31
Speaker 3: protected from the nursing home, and you sell the house
29:35
Speaker 3: and get money in the trust, that money is one
29:39
Speaker 3: hundred percent protected from the nursing home, and the buying
29:42
Speaker 3: and selling does not reset the clock. Okay, that's crystal clear. However,
29:48
Speaker 3: in this case, if you've lost the house, which is
29:50
Speaker 3: kind of like a sale, it's gone, and in exchange
29:53
Speaker 3: for that being gone, the trust is going to get
29:56
Speaker 3: paid what it's going to get paid the insurance. So
29:59
Speaker 3: now in comes the money directly into the trust. Well, well,
30:02
Speaker 3: there may be no house there anymore like a sale,
30:05
Speaker 3: but there's money there. Well, that money should not reset
30:08
Speaker 3: the clock. And then you can use that money to
30:10
Speaker 3: start paying the contractor to build the new property. Now
30:15
Speaker 3: as to the additional two hundred thousand dollars that you need, well,
30:20
Speaker 3: if that's not already in the trust like you have
30:22
Speaker 3: maybe you put a portfolio in or an investment account
30:25
Speaker 3: in or something like that. If that money is not
30:28
Speaker 3: already in the trust, well then yeah, you're you're going
30:32
Speaker 3: to have to contribute that money to the trust to
30:34
Speaker 3: build the finished building the house. So worst case scenario here,
30:39
Speaker 3: I see that there might be a new five year
30:41
Speaker 3: look back period waiting, but only for the new addition,
30:44
Speaker 3: only for the new two hundred thousand that you put
30:46
Speaker 3: in the trust. So does that help a little?
30:49
Speaker 7: Yes, sir, it does.
30:51
Speaker 3: So get that changed with the go get that check
30:54
Speaker 3: reissued by the insurance company. That's what I would do,
30:57
Speaker 3: So hopefully that helps in folks. You know, I'm so
31:01
Speaker 3: glad to hear that he did his planning and have
31:03
Speaker 3: the house you know, where it belongs. And but for
31:06
Speaker 3: other folks that haven't done all their planning yet and
31:09
Speaker 3: are thinking about just oh, I'll just do a quick fix,
31:12
Speaker 3: I'll give away my assets, well you can, that's what
31:16
Speaker 3: the law says might not be the right thing to do.
31:19
Speaker 3: So there's a guide called making the most of gifting assets.
31:22
Speaker 3: Sometimes you want to give things to irrevocable trusts rather
31:25
Speaker 3: than children. Outright, you got to think about what kind
31:28
Speaker 3: of asset I give A high basis asset versus a
31:31
Speaker 3: low basis asset. Maybe for higher net worth people we
31:34
Speaker 3: want to give away a lot of assets. Well, I
31:36
Speaker 3: don't want to give them away and not enjoy it.
31:37
Speaker 3: I work my whole life for it. Well, spousal lifetime
31:41
Speaker 3: access trust might be the way to give away assets
31:44
Speaker 3: and retain some ability to control and enjoy what you
31:48
Speaker 3: gave away. Right, think about pool trusts, think about special
31:51
Speaker 3: needs trust. So there's all kinds of ideas and ways
31:55
Speaker 3: to gift or maybe not gift at all, and that
31:59
Speaker 3: might be the right answer for a lot of people.
32:01
Speaker 3: Call and get the guide. Folks, we're getting near the
32:03
Speaker 3: end of the month. It's gonna go back in the
32:05
Speaker 3: vault eight six six eight four eight five six nine
32:09
Speaker 3: nine or Legal Exchange Show dot com again eight six
32:12
Speaker 3: six eight four eight five six nine nine or Legal
32:17
Speaker 3: Exchange Show dot Com.
32:19
Speaker 2: Got another one for you here. Let's go to Dan
32:21
Speaker 2: in Florida. Dan, what is your question for Todd Lutsky?
32:26
Speaker 8: Todd, First of all, I'm a Massachusetts resident, okay, and
32:32
Speaker 8: I'm trying to shell to my holdings from the mass tax.
32:39
Speaker 8: Does an irrevocable trust do that?
32:41
Speaker 3: So it depends on the kind of irrevocable trust. So
32:46
Speaker 3: let me explain. First of all, are you married?
32:50
Speaker 8: No, I was married, she passed away.
32:53
Speaker 3: Okay, So how much are you worth in total? Round number?
32:59
Speaker 8: Uh boy? Four million?
33:00
Speaker 3: All right, and I'm assuming there was no planning done
33:03
Speaker 3: when your wife passed?
33:07
Speaker 1: No?
33:08
Speaker 3: Trust?
33:08
Speaker 8: We both had. We both had revocable trusts.
33:12
Speaker 3: Wonderful. How much of the four million dollars was in
33:15
Speaker 3: your wife's revocable trust when she died?
33:20
Speaker 8: None?
33:21
Speaker 3: Oh, So this is exactly what we talk about all
33:25
Speaker 3: the time. Right on the radio. We tell people funding
33:28
Speaker 3: a trust is so darn important. Right. If you don't
33:32
Speaker 3: fund a trust, it really is just a waste. It's
33:35
Speaker 3: a bunch of paper doing nothing for you, which is
33:38
Speaker 3: why we stress funding it. And I'm going to say,
33:41
Speaker 3: obviously it's it's you know, water under the dam. I
33:44
Speaker 3: get it, But at this point I just want to
33:46
Speaker 3: help other people learn. So because nothing was in that trust.
33:50
Speaker 3: My hope for you Dan on this one was you
33:54
Speaker 3: were going to tell me, oh, yeah, we managed to
33:56
Speaker 3: put about two million dollars worth of assets in my
33:58
Speaker 3: wife's trust. Well, if you had done that, I would
34:02
Speaker 3: imagine that that trust is designed to hold a remainder
34:05
Speaker 3: share in a marital share, and then that two million
34:08
Speaker 3: dollars would be tucked away in your wife's trust subject
34:12
Speaker 3: to tax when she died. She has a two million
34:15
Speaker 3: dollar estate tax exemption, so there's no tax to and
34:21
Speaker 3: then when you die, you would only be taxed on
34:23
Speaker 3: what you own in your trust, which would be the
34:26
Speaker 3: other two million. And now, like magic, if you died,
34:30
Speaker 3: you're under the two million because the assets tucked away
34:34
Speaker 3: in your wife's trust would be sheltered from a state
34:37
Speaker 3: taxes and not included in your estate when you die,
34:42
Speaker 3: even though you would be controlling and enjoying perhaps what's
34:47
Speaker 3: in that wife's trust bucket. And then when you die,
34:51
Speaker 3: you're under two million and lo and behold, you pay
34:53
Speaker 3: Massachusetts zero estate taxes. So, folks, that's for everybody who
34:57
Speaker 3: hasn't done their planning yet, or have done their pl
35:00
Speaker 3: planning and didn't fund one trust. Please learn from this
35:04
Speaker 3: call what we can do in the future. Now. I
35:07
Speaker 3: turned to you, Dan, and I say, well, I mean
35:10
Speaker 3: you got four million dollars worth of stuff. At least
35:13
Speaker 3: you got to step up in basis. How long ago
35:16
Speaker 3: did your mom died? Here? I'm sorry, your wife died
35:20
Speaker 3: two years ago, so it's not horrible. So two years ago,
35:26
Speaker 3: you know you got if you own things jointly when
35:29
Speaker 3: she died, and I'm assuming you did, right, we didn't.
35:34
Speaker 8: You didn't own the second marriage. It was a second marriage,
35:37
Speaker 8: and she had her russ, I had mine, I see.
35:41
Speaker 3: But nothing was in her trust. So how are the
35:43
Speaker 3: assets owned? Did you we own? Everything was in her
35:46
Speaker 3: name alone?
35:49
Speaker 8: Yes, she owned her own house. I owned a couple
35:51
Speaker 8: of houses that they were bolt in my name and
35:54
Speaker 8: her hers was in her name.
35:56
Speaker 3: And did her stuff go to her side of the
35:58
Speaker 3: family or did she take you with any of it.
36:02
Speaker 8: And went to her side of the family.
36:04
Speaker 3: Oh okay, So the four million you have is just
36:06
Speaker 3: your assets?
36:08
Speaker 8: Yes?
36:09
Speaker 3: Oh okay. So again the explanation is still very helpful
36:12
Speaker 3: for people. But in your case, you're worth four million.
36:15
Speaker 3: You know again, we're thinking about do we need to
36:17
Speaker 3: make a gift. Well, I don't know. You have to
36:19
Speaker 3: really analyze your assets. We just did that example that
36:22
Speaker 3: maybe giving away assets now just to save ten percent
36:25
Speaker 3: on the amount over two million or twelve percent on
36:28
Speaker 3: the amount over two million might not be the most
36:30
Speaker 3: tax effiicient thing to do. But if you have cash CDs,
36:34
Speaker 3: you know, kicking around, and you want to set up
36:37
Speaker 3: a gifting trust for your children, and you don't mind
36:40
Speaker 3: giving it away, that would be an easy fix because
36:42
Speaker 3: there's no loss of a step up in basis with cash,
36:45
Speaker 3: and that money can be tucked aside outside your estate
36:49
Speaker 3: for a state tax purposes, thereby reducing your state tax liability.
36:53
Speaker 3: But just sticking them in an irrevocable medicaid trust to
36:56
Speaker 3: protect them from the nursing home would not reduce your
36:59
Speaker 3: estate taxes, but night might not be bad planning for
37:02
Speaker 3: you to protect your assets for your children. Sorry, out
37:05
Speaker 3: of time, but I hope that gives you a little
37:06
Speaker 3: something to think.
37:07
Speaker 2: About, mister Lutsky. Thank you so much for the time today.
37:09
Speaker 3: Always a pleasure.
37:11
Speaker 1: This has been asked Odd on the Financial Exchange Radio
37:15
Speaker 1: network Ask Todd with Todd. Lutsky has been presented by
37:17
Speaker 1: Cushing and Dolan, serving Massachusetts and New England for more
37:20
Speaker 1: than thirty years, helping families with the state and tax planning,
37:23
Speaker 1: Medicaid planning, and probate law. Call eight hundred three ninety
37:26
Speaker 1: three four thousand and one or visit Cushingdolan dot com.
37:30
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37:32
Speaker 1: Cushing and Dolan. Armstrong Advisory does not provide any legal
37:35
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37:37
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