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Is the Fed cool with inflation at 3%? · The Financial Exchange Show

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  Speaker 1: and Mark Fandetti.
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  Speaker 2: Chuck Mark and not Tucker with you today, and we
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  Speaker 2: kicked things off here talking about a piece from the
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  Speaker 2: bloomy Berg. The piece is titled bets on outsize Fed
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  Speaker 2: cut gain steam as CPI databacks doves. I'll read a
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  Speaker 2: couple of little quotes from here. A largely benign US
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  Speaker 2: inflation report is bolstering the case for traders that the
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  Speaker 2: Federal Reserve will soon cut interest rates, with some seeing
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  Speaker 2: an increased possibility of an outsized reduction for weeks. Investorive
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  Speaker 2: piled in swaps, options and outright treasury longs to wager
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  Speaker 2: that subdued inflation will allow the Fed to lower borrowing
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  Speaker 2: costs in the coming months. There's some vindication for that view,
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  Speaker 2: with shorter term treasury yields dropping for the second day
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  Speaker 2: on Wednesday, while swaps traders lift to the odds of
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  Speaker 2: a September cut to more than ninety percent. And you've
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  Speaker 2: also started to see some ideas popping up that the
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  Speaker 2: Fed may cut more than twenty five basis points in September,
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  Speaker 2: which leads me to kind of question what everyone is
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  Speaker 2: looking at. And here's I guess where the rubber meets
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  Speaker 2: the road for me.
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  Speaker 1: Mark.
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  Speaker 2: I think that this inflation report, as I look at it,
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  Speaker 2: can be described as warm but not concerning to the
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  Speaker 2: point that there's, you know, something truly horrible happening from
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  Speaker 2: an inflation perspective. And what I mean by that, the
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  Speaker 2: one month numbers, if you annualize them, came in for
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  Speaker 2: overall inflation at two point four percent annualized. I think
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  Speaker 2: we'd all be pretty happy if inflation ran at two
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  Speaker 2: point four percent per year. I think that's just fine.
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  Speaker 2: There's nothing wrong with that. Is it two percent? No,
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  Speaker 2: But we've talked about this before. Inflation wasn't two percent
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  Speaker 2: in the nineties, and the nineties were a darn good
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  Speaker 2: decade to live and economically, and so things were fine.
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  Speaker 2: We'd be happy with two point four percent. Core inflation
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  Speaker 2: came at an annualized rate of three point nine percent,
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  Speaker 2: which I think we can look at and say, we
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  Speaker 2: would not be happy if we saw inflation running just
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  Speaker 2: under four percent year over year, which is what the
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  Speaker 2: core number suggests. Is hey, absent a ten percent decline
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  Speaker 2: and energy prices, which is what we've seen this year,
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  Speaker 2: you'd basically be running close to four percent inflation. If this,
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  Speaker 2: you know, were to come through month over month or
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  Speaker 2: month after month, and so you'd be unhappy with that.
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  Speaker 2: Core inflation X shelter comes in at four point eight
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  Speaker 2: percent annualized X shelter and used cars also at four
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  Speaker 2: point eight percent. Core services X shelter at six point
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  Speaker 2: eight percent annualized. And so basically what you see there
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  Speaker 2: is that, aside from gas prices coming down during the month,
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  Speaker 2: which you just can't count on, month over month, inflation
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  Speaker 2: was running meaningfully above the two percent target. The other
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  Speaker 2: piece that I look at, then, here's the trend in
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  Speaker 2: annualized rates for all of these numbers over one, three
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  Speaker 2: and six month period. So overall inflation headline came in
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  Speaker 2: at a two point four percent annualized rate for the
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  Speaker 2: month of July. The last three months, it's been at
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  Speaker 2: a two point three percent annualized rate. In the last
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  Speaker 2: six it's been at one to nine, which means there's
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  Speaker 2: been a steady uptick in the pace of you know,
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  Speaker 2: headline inflation then not meaning not huge, not crazy, one
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  Speaker 2: point nine to two four. I think we'd be happy
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  Speaker 2: anywhere in that range. Core inflation has gone from a
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  Speaker 2: six month UH annualized rate of two point four percent
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  Speaker 2: to a three month annualized rate of two eight to
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  Speaker 2: a one month annualized of three to nine again increasing
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  Speaker 2: core X shelter has gone one nine to two, eight
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  Speaker 2: to four eight, increasing core X shelter and use cars
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  Speaker 2: two two to three to one to four eight, increasing
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  Speaker 2: core services X shelter two seven to three, nine to
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  Speaker 2: six eight increasing. I guess this is all my way
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  Speaker 2: mark of saying, hey, yes, this inflation report didn't print
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  Speaker 2: anything that was, you know, dramatically out of line with expectations.
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  Speaker 2: But the expectations are also at a pace that is
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  Speaker 2: higher than I think we would all be comfortable with.
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  Speaker 2: And I think you could still make a case that, hey,
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  Speaker 2: if we get another bad jobs report in early September,
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  Speaker 2: you could certainly make a case that the feds should
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  Speaker 2: still be cutting them, given you know how they've approached
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  Speaker 2: the dual mandate historically and even in the last few years.
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  Speaker 2: But the idea that hey, yesterday's data was you know,
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  Speaker 2: a slam dunk to move forward with rate cuts, I
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  Speaker 2: don't know that that necessarily hits home with me. Your thoughts,
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  Speaker 2: well what you ought to be looking at.
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  Speaker 3: And there's really no excuse for the media not reporting
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  Speaker 3: on measures that trim outliars no matter where those outliers
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  Speaker 3: and the expenditure categories come from. Let me back up
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  Speaker 3: and say inflation is a composite, that it's an average.
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  Speaker 3: There are a lot of different what we call what
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  Speaker 3: are called expenditure categories. There's transportation, there's shelter. You talk
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  Speaker 3: about a lot of them, Mew and Mike Armstrong on
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  Speaker 3: the show. The average expenditure category increased month over month
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  Speaker 3: is inflation. There are good measures out there that trim
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  Speaker 3: extremes every month and do a better job of getting
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  Speaker 3: it the trend in inflation aka underlying inflation. We talk
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  Speaker 3: about those sometimes median, which is just an extreme form
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  Speaker 3: of trimmed mean. And we all know the concept of median.
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  Speaker 3: You look at them, it's literally the one in the middle.
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  Speaker 3: You look at median home prices, you look at median salaries,
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  Speaker 3: because we all know that averages get distorted by extremes.
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  Speaker 2: We don't care how much Jeff Bezos makes because.
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  Speaker 3: I was just gonna say, I was gonna use somebody else,
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  Speaker 3: but yeah, it's exactly that I was just gonna say.
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  Speaker 3: So we all know the concept of median. As it
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  Speaker 3: turns out, it's more than just common sense. The median
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  Speaker 3: is robust, and that's a technical term, but it's just
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  Speaker 3: a fancy way of saying median doesn't get faked by
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  Speaker 3: the occasional extremes month to month, the way that core
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  Speaker 3: ex food and energy can. So a long winded way
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  Speaker 3: of getting at my point here, which is researchers have
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  Speaker 3: known for a long time, like three decades, that median
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  Speaker 3: and other trimmed measures are better ways of getting at
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  Speaker 3: the trend in inflation. So where's the median right now?
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  Speaker 3: Where's it been last three six months? Well over three
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  Speaker 3: inflation's elevated. It's way above the Fed's goal. But to
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  Speaker 3: your point, Chuck, the FED has in the modern era,
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  Speaker 3: in anticipation of slowdowns, cut rates no matter where inflation
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  Speaker 3: was relative to target, because they view the greater risk,
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  Speaker 3: maybe the greater penalty, the greater stain on their reputation,
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  Speaker 3: or the greater political fallout coming from rising unemployment as
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  Speaker 3: opposed to slightly uncomfortable inflation. I think you're absolutely right.
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  Speaker 1: Now.
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  Speaker 2: The interesting thing to me on this is what they are.
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  Speaker 2: Two interesting things actually to me. The first is what
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  Speaker 2: does this way of looking at inflation mean for equity markets.
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  Speaker 2: And as an example, let's say that I run a
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  Speaker 2: business and I sell a product for one hundred dollars
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  Speaker 2: and I make ten dollars in profit, so I have
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  Speaker 2: a ten percent margin. Now, let's say that inflation hits
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  Speaker 2: and my costs go up, but I also want to
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  Speaker 2: maintain my margins. And so now, hey, my cost went
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  Speaker 2: from ninety dollars up to ninety nine because there is
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  Speaker 2: a ten percent rise in my input costs. But I'm
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  Speaker 2: pretty sure that I can pass that on. And so
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  Speaker 2: I say, you know what, I'm gonna sell for one
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  Speaker 2: hundred and ten. My margins are still ten percent. I'm
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  Speaker 2: getting eleven dollars in profit off of one hundred and
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  Speaker 2: ten dollars in goods. But my overall profit just went
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  Speaker 2: up by ten percent. I just went from making all
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  Speaker 2: else being equal in terms of volumes in this and
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  Speaker 2: that I just went from making ten dollars an item
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  Speaker 2: up to eleven. My earnings are going to be looking good,
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  Speaker 2: like I'm gonna be feeling pretty good about this, and
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  Speaker 2: so so ultimately, if you think about stocks from the
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  Speaker 2: perspective of again just something like price to earnings multiple.
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  Speaker 2: As an example, let's say that my earnings per share.
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  Speaker 2: In this example, we're ten dollars and now they're eleven. Hey,
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  Speaker 2: my earnings just went up by you know, ten percent.
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  Speaker 2: All else being equal, my stock price should move up
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  Speaker 2: similarly in order to be similarly valued.
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  Speaker 3: Yes, contract due to inflation. So I said, all else
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  Speaker 3: being equal, you know, fair point. And so here's the thing.
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  Speaker 3: Inflation is not the thing that usually kills stocks. What
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  Speaker 3: usually kills stocks is the response to inflation, because we
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  Speaker 3: say we need to beat the bag out of inflation,
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  Speaker 3: because inflation is death for politicians.
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  Speaker 2: It is, it is. People just don't like it. Like
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  Speaker 2: it causes social unrest, and generally the people that are
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  Speaker 2: in power when that happens end up being voted out
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  Speaker 2: or in. You disagree, well.
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  Speaker 3: I'll just go with what the textbooks say, which is good.
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  Speaker 3: Like sause, I was reading this recently. It's top of
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  Speaker 3: mind high involatile inflation, and that's pretty rare, right, we
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  Speaker 3: haven't had a high involidle inflation episode.
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  Speaker 2: Continue, we have to get to a break.
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  Speaker 3: Oh sorry, well, keep talking, keep talking. Mark is associated
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  Speaker 3: with investment uncertainty, growth uncertainty. These things are bad for
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  Speaker 3: growth and thus.
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  Speaker 2: But people don't like them. Like, ultimately, well, I.
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  Speaker 3: Was going to connect the growth to stock prices.
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  Speaker 2: When it comes to inflation, people don't like it. It's
• 10:25
  Speaker 2: the only thing like if you have ten dollars now
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  Speaker 2: and all of a sudden someone gives you eleven dollars,
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  Speaker 2: but you can still only buy the same things. You're
• 10:33
  Speaker 2: not worse off, but people are like this sucks.
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  Speaker 3: Yeah, I was going to connect it to economic growth.
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  Speaker 3: So higher inflation is associated with lower economic growth. So
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  Speaker 3: the research finds which is associated with lower earning. I mean,
• 10:44
  Speaker 3: you might get an initial pop, like some episodes of
• 10:46
  Speaker 3: hyperinflation have translated into higher equity prices off the bat, sure,
• 10:52
  Speaker 3: but that erodes pretty quickly and you get everything going here.
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  Speaker 2: But generally it's because our response to it is to, hey,
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  Speaker 2: we got to beat the heck.
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  Speaker 3: Adam, you talk about the US experience right like you
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  Speaker 3: think about us.
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  Speaker 4: Yes.
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  Speaker 5: Yeah.
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  Speaker 2: The reason why stocks get pounded in the US because
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  Speaker 2: of inflation is because we say, Okay, we're going to
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  Speaker 2: raise interest rates in order to fight it, because we
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  Speaker 2: don't want it here. No one likes it, like, no
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  Speaker 2: one enjoys inflation. Talk to anyone over the last five years,
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  Speaker 2: did anyone have a good time in twenty one or
• 11:19
  Speaker 2: twenty two. Not really, Everyone's like this kind of sucks,
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  Speaker 2: like this is brutal. And so the interesting question that
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  Speaker 2: I think is out there to me right now is, look,
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  Speaker 2: if we actually have a FED and a Treasury and
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  Speaker 2: just an administration that is going to say, hey, it's
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  Speaker 2: okay if inflation is printing three percent or three and
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  Speaker 2: a half percent annually, how do we have to recalculate
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  Speaker 2: how we think about equity markets, bond markets and what
• 11:49
  Speaker 2: it means for them. Is there a rethinking that we
• 11:53
  Speaker 2: need to do. Let's take a quick break and then
• 11:55
  Speaker 2: we'll talk about that a little bit more when we return.
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  Speaker 2: In the last segment, I mentioned there were two interesting
• 12:55
  Speaker 2: things that I wanted to talk about as it relates
• 12:57
  Speaker 2: to just how we're talking about inflation and potential rate
• 13:00
  Speaker 2: cuts right now. That The first was, look, you had
• 13:04
  Speaker 2: an inflation report yesterday that was still hotter than the
• 13:08
  Speaker 2: FED would like to see, and it all it did
• 13:10
  Speaker 2: was solidify support for rate cuts in September. Jim Bianco
• 13:15
  Speaker 2: of Bianco Research points out, the only time, and granted
• 13:19
  Speaker 2: we don't have a huge sample size here, because inflation's
• 13:21
  Speaker 2: generally been pretty tame most of the last forty years,
• 13:24
  Speaker 2: the only time in the last forty five years that
• 13:28
  Speaker 2: we have had the FED. If the FED cuts in September,
• 13:32
  Speaker 2: it'll be the only time in the last forty five
• 13:35
  Speaker 2: years that the FED has done so with core inflation
• 13:37
  Speaker 2: above three and having increased zero point three percent or more.
• 13:42
  Speaker 2: Over the last three months. So core inflation three months
• 13:45
  Speaker 2: ago was two point seven eight, it's now three point
• 13:47
  Speaker 2: zero five. This would be the only the second time
• 13:50
  Speaker 2: that the FED would be cutting in those circumstances. The
• 13:53
  Speaker 2: only other one was during Gulf War in ninety one,
• 13:56
  Speaker 2: when the US economy was entering recession and like things
• 14:00
  Speaker 2: were very dodgy.
• 14:02
  Speaker 3: Though that sounds right.
• 14:03
  Speaker 2: So we're in a period now where the FED seems
• 14:07
  Speaker 2: to have given the ok to, hey, core inflations at
• 14:09
  Speaker 2: three and we're going to cut rates, which really raises
• 14:12
  Speaker 2: the question of like, is that two percent inflation target dead?
• 14:16
  Speaker 2: The subsequent follow up that I have then, and this
• 14:19
  Speaker 2: is the second part that's interesting to me, is Mark,
• 14:22
  Speaker 2: what what's the conventional wisdom on why rate cuts are
• 14:28
  Speaker 2: stimulative to the economy.
• 14:30
  Speaker 3: I am a good conventional wisdom, foil.
• 14:33
  Speaker 7: Well.
• 14:33
  Speaker 3: They work through what what a research you would call
• 14:35
  Speaker 3: aggregate demand total demand. The FED has an impact on
• 14:39
  Speaker 3: the real economy because it can print I'm gonna oversimplify
• 14:41
  Speaker 3: a little bit here, so you tell me if this
• 14:43
  Speaker 3: is just sounds stupid. FED can print money and shove
• 14:46
  Speaker 3: it into the economy. I'm gonna ignore the mechanism of
• 14:48
  Speaker 3: interest rates, which is what they currently target, and when
• 14:51
  Speaker 3: they do that, initially, demand is why don't prices go?
• 14:55
  Speaker 2: Why? Why does demand go?
• 14:57
  Speaker 1: Like?
• 14:58
  Speaker 3: Tell me how some prices? Prices don't move right away?
• 15:00
  Speaker 3: You think everybody would just move their prices. And there
• 15:02
  Speaker 3: have been a few different there. Economists have a few
• 15:04
  Speaker 3: different models for looking at this. I'm not going to
• 15:06
  Speaker 3: get into each one, but suffice to say prices are
• 15:09
  Speaker 3: rigid in the short term. Maybe it's because people don't
• 15:11
  Speaker 3: recognize that the FED is just fire host a lot
• 15:13
  Speaker 3: of money into the economy.
• 15:14
  Speaker 2: How does it? How do they how do they fire
• 15:16
  Speaker 2: hose the money?
• 15:17
  Speaker 1: Like?
• 15:17
  Speaker 2: Why do like? Tell me though, like what actually happens?
• 15:21
  Speaker 2: Why does the Fed cutting rates put more money into
• 15:23
  Speaker 2: the economy?
• 15:24
  Speaker 3: The short answer is they lower the federal funds rate
• 15:29
  Speaker 3: by flooding the banking system with reserves. That allows banks
• 15:32
  Speaker 3: and what does that do to one another? It lowers
• 15:34
  Speaker 3: short term rates and allows banks to lend more money
• 15:38
  Speaker 3: at lower rates, I think, is the short answer.
• 15:41
  Speaker 2: How do they lend them? How do they lend the
• 15:43
  Speaker 2: money at lower rates? Where does that come from?
• 15:46
  Speaker 3: Literally banks loaning it to borrowers? I don't maybe I'm
• 15:50
  Speaker 3: missing the.
• 15:52
  Speaker 2: How does that get priced in though are we talking
• 15:54
  Speaker 2: short term rates move long term rates?
• 15:56
  Speaker 1: Like?
• 15:56
  Speaker 2: What what what happens that allow? Because because banks, when
• 15:59
  Speaker 2: we talk about like a third to your mortgage, banks
• 16:01
  Speaker 2: don't price a mortgage based off the edge.
• 16:03
  Speaker 3: Why I wouldn't use the thirty year mortgage in this example,
• 16:06
  Speaker 3: we don't. You don't know what longer term rates are
• 16:07
  Speaker 3: going to do in respect.
• 16:08
  Speaker 2: So like what types of where's the demand come from
• 16:10
  Speaker 2: from these lower rates, Like what types of productsment?
• 16:13
  Speaker 3: They're really trying to stimulate investment and therefore demand.
• 16:17
  Speaker 2: But even there, it still isn't companies just borrowing, Like
• 16:20
  Speaker 2: companies don't borrow overnight.
• 16:22
  Speaker 3: No banks loan to each other, so it lowers their
• 16:24
  Speaker 3: cost of capital, and they they're able to pass that along.
• 16:28
  Speaker 2: But typically where this ends up being reflected is somewhere
• 16:31
  Speaker 2: on the yield curve because companies have to borrow five
• 16:35
  Speaker 2: year business loans, seven year business companies don't borrow overnight.
• 16:39
  Speaker 2: Is what I'm getting.
• 16:40
  Speaker 3: At, right, But guide, sir, here's.
• 16:43
  Speaker 2: My question on this. Let's say that inflation is settled
• 16:46
  Speaker 2: in at three percent. Let's say that three percent is
• 16:49
  Speaker 2: the new norm for inflation. I don't know if it is.
• 16:52
  Speaker 2: I don't know if it isn't. I got five year
• 16:56
  Speaker 2: US Treasury bonds right now sitting at three point seven percent.
• 17:02
  Speaker 2: If I wrap my head around the fact that inflation
• 17:04
  Speaker 2: is anchored around three, which it may or may not be.
• 17:07
  Speaker 2: It might be higher, it might be lower. I don't know.
• 17:11
  Speaker 2: Am I cool lending to the US government at three
• 17:16
  Speaker 2: quarters of a percent above the inflation rate and calling
• 17:19
  Speaker 2: it a day?
• 17:22
  Speaker 3: Well, markets are you? And I may not be.
• 17:25
  Speaker 2: I'm not markets might be right now, I guess I'm
• 17:28
  Speaker 2: What I'm getting at is have markets actually internalize this yet?
• 17:34
  Speaker 1: Now?
• 17:34
  Speaker 3: Five year break even which you can infer from inflation
• 17:37
  Speaker 3: protected treasuries is two point four So markets are expecting
• 17:41
  Speaker 3: according to this measure. Again, it's an inference two point four,
• 17:45
  Speaker 3: not three percent. I think it's higher, like you said,
• 17:47
  Speaker 3: but markets don't seem to think so using this gauge.
• 17:50
  Speaker 2: So here's the interesting place that I guess my head
• 17:53
  Speaker 2: goes on this. And I don't know if this is
• 17:54
  Speaker 2: right or wrong. It's just as I try to think
• 17:56
  Speaker 2: about it, as you know, someone who might need to. Hey,
• 18:01
  Speaker 2: I've got money sitting in the bank. What interest rate
• 18:03
  Speaker 2: am I comfortable getting over what period? Of time. If
• 18:07
  Speaker 2: the FED is saying that they're cool with inflation at
• 18:10
  Speaker 2: three percent, which a cut in September implies pretty strongly,
• 18:17
  Speaker 2: what do I need to return over five years given
• 18:20
  Speaker 2: the fact that, hey, if inflations centered around three percent,
• 18:23
  Speaker 2: there's a decent chance over five years it could be two.
• 18:26
  Speaker 2: There's a decent chance over five years it could be four.
• 18:29
  Speaker 2: And so if that's kind of the new place that
• 18:31
  Speaker 2: we're anchored, what does it mean to the Fed's ability
• 18:36
  Speaker 2: to actually move interest rates beyond the short term rate
• 18:41
  Speaker 2: when they start cutting? You know, do we have something
• 18:45
  Speaker 2: where Okay, if we think the long term real growth
• 18:49
  Speaker 2: rate of the US is still in that two percent
• 18:52
  Speaker 2: range and inflation's now anchored around three, so we're in,
• 18:56
  Speaker 2: you know, again, kind of a five six percent nominal world.
• 18:59
  Speaker 2: Am I cool? Just getting three point seventy five percent
• 19:02
  Speaker 2: on a five year treasury? Am I okay with that?
• 19:08
  Speaker 2: And if not, if the long end moves in the
• 19:10
  Speaker 2: opposite direction that the Fed's expecting, does the FED actually
• 19:15
  Speaker 2: stimulate as much as they have in other cycles if
• 19:18
  Speaker 2: longer term rates aren't moving down? That's kind of my question.
• 19:22
  Speaker 3: We should talk about this after eleven.
• 19:24
  Speaker 2: Yeah, take a quick break. When we come back, we
• 19:27
  Speaker 2: got Wall Street Watch and ask Todd next.
• 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 Exchange Radio Network.
• 20:04
  Speaker 6: Well, markets on the rise today, A lot of green
• 20:07
  Speaker 6: on the board right now.
• 20:08
  Speaker 2: The Dow Jones is.
• 20:09
  Speaker 6: Up six tenths of a percent, or two hundred and
• 20:10
  Speaker 6: seventy three points, the S and P five hundreds up
• 20:13
  Speaker 6: just under two tenths of a percent or eleven point
• 20:16
  Speaker 6: eight five points, and the Nasdaq is up thirty two
• 20:18
  Speaker 6: points or point one five percent. Fast casual restaurant chain
• 20:24
  Speaker 6: Cava is down sixteen percent after revenue came in at
• 20:27
  Speaker 6: two hundred and eighty point six million dollars for the
• 20:30
  Speaker 6: second quarter, missing the consensus forecast of two hundred and
• 20:32
  Speaker 6: eighty five point six million. The company also missed expectations
• 20:36
  Speaker 6: for same source sales and lowered its forecast. However, Cova
• 20:40
  Speaker 6: earned sixteen cents per share in the quarter, exceeding Wall
• 20:43
  Speaker 6: Street's estimate of thirteen cents. Artificial intelligence infrastructure provider Core
• 20:47
  Speaker 6: We've is down fifteen percent despite it posting better than
• 20:50
  Speaker 6: expected revenue for the second quarter during an analyst call
• 20:54
  Speaker 6: with During an earnings call with analysts, the CFO said
• 20:57
  Speaker 6: that revenue growth remains capacity constrained as demand outstrips supply.
• 21:02
  Speaker 6: Circle shares of this stable coin issuer down four percent.
• 21:05
  Speaker 6: Circle said that it would offer ten million Class A
• 21:08
  Speaker 6: shares to the public, including two million of which that
• 21:11
  Speaker 6: could come from the company itself. Chile's parent Brinker International
• 21:15
  Speaker 6: is up seven tens of percent on better than expected
• 21:17
  Speaker 6: earnings beat. For the fiscal fourth quarter. Brinker earned two
• 21:22
  Speaker 6: dollars and forty nine cents per share excluding items, on
• 21:24
  Speaker 6: revenue of one point four three billion. Analyst survey expected
• 21:29
  Speaker 6: a profit of two point four five dollars per share
• 21:33
  Speaker 6: on revenue of one point three to nine billion. Haines
• 21:36
  Speaker 6: Haines Brand shares down five point five percent after surging
• 21:41
  Speaker 6: around twenty eight percent Tuesday session. Haines Brand said it
• 21:44
  Speaker 6: agreed to four point four billion dollar takeover deal by
• 21:47
  Speaker 6: Canada based Guilden Activewear. The Financial Financial Times first reported
• 21:52
  Speaker 6: on the deal yesterday, and finally, Paolo Alto Networks's stock
• 21:57
  Speaker 6: is up seven tens of percent on the heels of
• 21:59
  Speaker 6: a Deutsche Banks upgrade to buy from Hold. Deutsche said
• 22:03
  Speaker 6: Palo Alto has sold core business and solid core business
• 22:08
  Speaker 6: and management. I am ben Kitchen and that is Wall Street.
• 22:11
  Speaker 1: Watch. This is Ask Todd on the Financial Exchange Radio Network.
• 22:17
  Speaker 1: If you have an existing estate plan or in the
• 22:19
  Speaker 1: market for one, Todd Letsky is here to answer your
• 22:21
  Speaker 1: questions and help you plan for a later life. Ask
• 22:24
  Speaker 1: Todd is presented by Cushing and Dolan, serving Massachusetts and
• 22:27
  Speaker 1: New England for more than thirty five years, helping families
• 22:30
  Speaker 1: with a state and tax planning, Medicaid planning, and probate law.
• 22:34
  Speaker 1: Visit Cushingdolan dot com. Now here's Todd Lutsky.
• 22:39
  Speaker 2: As promised, Todd Lutsky from Cushing and Dolan joins us
• 22:44
  Speaker 2: now live on air. It's your chance to ask him
• 22:47
  Speaker 2: your estate planning questions live on air, which is why
• 22:50
  Speaker 2: we call the segment Ask Todd. Studio lines are open
• 22:53
  Speaker 2: at eight eight eight to zero five two two six three.
• 22:57
  Speaker 2: That number again is eight eight eight two zero five
• 23:01
  Speaker 2: two two sixty three. Usually can get through two to
• 23:04
  Speaker 2: three calls, so get calling early and often if you
• 23:08
  Speaker 2: want to make sure we get to you again. That
• 23:10
  Speaker 2: phone number is eight eight eight to zero five two
• 23:13
  Speaker 2: two six three. One more time it is eight eight
• 23:16
  Speaker 2: eight to zero five two two six three. Mister Lutsky,
• 23:21
  Speaker 2: how are you doing today?
• 23:22
  Speaker 7: I am never better? How are you not great? No,
• 23:26
  Speaker 7: it's always something with you.
• 23:28
  Speaker 2: Well, wife says she can. She's considering a divorce because
• 23:32
  Speaker 2: I care more about sports than our marriage.
• 23:34
  Speaker 7: Oh yeah, I'll tell you.
• 23:35
  Speaker 2: Well, here's the thing. We almost made it through seven seasons.
• 23:39
  Speaker 2: That's true. So is that that? Todd? I want to
• 23:43
  Speaker 2: talk to you a little bit about what's going on
• 23:46
  Speaker 2: when it comes to estate planning and estate taxes. How
• 23:51
  Speaker 2: do trusts help to mitigate issues with estate taxes, either
• 23:56
  Speaker 2: at the state or federal level. So it's funny.
• 24:00
  Speaker 7: I was just meeting with a client and they're always
• 24:03
  Speaker 7: wondering what we always hear that we should be doing this.
• 24:06
  Speaker 7: We hear it, but we haven't done it, you know.
• 24:08
  Speaker 7: And these folks come in and let's say they're worth
• 24:12
  Speaker 7: that was about eighteen million. Well yeah, uh, we should be.
• 24:16
  Speaker 2: Doing it right.
• 24:18
  Speaker 7: And remember it's giving away free money if you don't
• 24:24
  Speaker 7: do your planning is really what it comes down to.
• 24:28
  Speaker 7: And you're making a gift to the state in a
• 24:30
  Speaker 7: lot of ways. So that's the first much is taxes.
• 24:32
  Speaker 7: That's what you're asking about. So now federally, for a
• 24:35
  Speaker 7: lot of people, it might be well, no, it's not
• 24:37
  Speaker 7: a big deal, right because the federal exemption will is
• 24:39
  Speaker 7: at thirteen point nine million. It will soon be fifteen
• 24:42
  Speaker 7: million come twenty twenty six under the new act that passed.
• 24:47
  Speaker 7: But who knows, it's not permanent. We have a new
• 24:51
  Speaker 7: president in the future that a new regime could lower
• 24:55
  Speaker 7: the exemption. It's been all over the map, so you
• 24:57
  Speaker 7: always got to be planning for whatever that exemption is
• 25:00
  Speaker 7: to take advantage of it, because you never know what
• 25:02
  Speaker 7: it's going to be when you die, but you want
• 25:04
  Speaker 7: to make sure you get it and use it. And
• 25:06
  Speaker 7: by the way, these exemptions are the amount of assets
• 25:09
  Speaker 7: you can pass stay tax free. Go over this number
• 25:13
  Speaker 7: and you got to pay taxes.
• 25:15
  Speaker 2: If it's to.
• 25:16
  Speaker 7: Somebody other than a spouse, you can leave an unlimited
• 25:18
  Speaker 7: amount to a spouse, which of course is what they
• 25:20
  Speaker 7: want you to do, because if you don't do planning
• 25:22
  Speaker 7: and you die and you have everything jointly owned with
• 25:25
  Speaker 7: your spouse, everything just passes to your spouse. Hey, that
• 25:28
  Speaker 7: was easy. Yeah, but now your spouse has all the
• 25:30
  Speaker 7: assets and it might be larger number than that spouse's exemption,
• 25:35
  Speaker 7: and they don't mind waiting, and they get to pay
• 25:38
  Speaker 7: the tax on the survivor's death. So always want to
• 25:41
  Speaker 7: grab whatever the exemption is on the first death to
• 25:44
  Speaker 7: shelter as much as you possibly can. When I say shelter,
• 25:47
  Speaker 7: it means whatever's in the trust back to your point, Chuck,
• 25:51
  Speaker 7: whatever's in the trust that's potentially taxed on the first
• 25:56
  Speaker 7: death will not be taxed when the survivor dies. That's
• 26:01
  Speaker 7: how we shelter it, so there's less tax when the
• 26:04
  Speaker 7: survivor dies, and on the first death it's always designed
• 26:07
  Speaker 7: to never exceed. The shelter never exceeds whatever the exemption is,
• 26:12
  Speaker 7: so there's never gonna be any tax on the first death. Now,
• 26:16
  Speaker 7: having said that, federally, you might be saying, yeah, yeah, Todd,
• 26:20
  Speaker 7: So what it's a big number. What about mass Massachusetts
• 26:24
  Speaker 7: only has a two million dollar exemption. You could have
• 26:26
  Speaker 7: your home alone could be a million. Right, you have
• 26:28
  Speaker 7: a life insurance policy for a million. You're a two
• 26:30
  Speaker 7: million and you have only talked about two items, So
• 26:33
  Speaker 7: it sneaks up on you, right, So at some kinds
• 26:36
  Speaker 7: you have to At some point you have to realize
• 26:38
  Speaker 7: the trust will also shelter the same way I discussed
• 26:42
  Speaker 7: it for fed IT shelters for mass the two million,
• 26:47
  Speaker 7: so that the survivor, if they're worth less than two million,
• 26:51
  Speaker 7: no tax. So on a four million dollar Massachusetts a
• 26:53
  Speaker 7: state more reasonable? Right, more like, Hey, that's me. I
• 26:57
  Speaker 7: can eliminate mass tax with basic state planning using trust
• 27:01
  Speaker 7: on four million. So there are good reasons to do it.
• 27:05
  Speaker 2: Chuck talking with Todd Lutsky from the law firm of
• 27:07
  Speaker 2: Cushing and Dolan. This is your chance to ask your
• 27:11
  Speaker 2: estate planning questions live on air. Right now. Phone lines
• 27:14
  Speaker 2: still have some room at eight eight eight two zero
• 27:17
  Speaker 2: five two two six three. That number is eight eight
• 27:21
  Speaker 2: eight two zero five two two sixty three. We're gonna
• 27:25
  Speaker 2: take a quick break here, but when we come back,
• 27:27
  Speaker 2: it's gonna be right to your questions with Todd Lutsky again.
• 27:30
  Speaker 2: Still a little bit of room, so get calling at
• 27:33
  Speaker 2: eight eight eight to zero five two two sixty three
• 27:36
  Speaker 2: one more time. That number is eight eight eight two
• 27:39
  Speaker 2: zero five two two sixty three.
• 27:43
  Speaker 1: Miss any of the show. The Financial Exchange Show podcast
• 27:46
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• 27:50
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• 27:53
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• 27:58
  Speaker 1: the most comprehensive coverage of the economy and the trends
• 28:01
  Speaker 1: on Wall Street. He's the Financial Exchange Radio Network.
• 28:12
  Speaker 2: Alright, yes, promise, let's get right to your calls for
• 28:14
  Speaker 2: Tod Letsky. First up, we've got Phil on the Cape. Phil,
• 28:18
  Speaker 2: what's your question for Todd?
• 28:20
  Speaker 4: Yes, Todd, more than five years ago you made a
• 28:24
  Speaker 4: irrevocable trust for me. And now my question is if
• 28:28
  Speaker 4: I get cryptocurrency or gold bars, can I put that
• 28:33
  Speaker 4: in the trust? Or do I have to make a
• 28:35
  Speaker 4: new trust.
• 28:36
  Speaker 7: So I'll answer it this way. Yes, you can put
• 28:41
  Speaker 7: any kind of investment you want into these trusts, whether
• 28:45
  Speaker 7: it's gold, crypto, stocks, bonds, you know, real estate. It
• 28:49
  Speaker 7: can be added to the trust titled to the trust.
• 28:52
  Speaker 7: I do that for almost all assets. I help you
• 28:55
  Speaker 7: do that. So it will create a new five year
• 28:58
  Speaker 7: waiting period, but only for the new addition that you're
• 29:02
  Speaker 7: putting in the trust. It will not affect what we
• 29:04
  Speaker 7: did five years ago. My last caveat to your question is, well,
• 29:08
  Speaker 7: yes you can put crypto and gold in there. I
• 29:11
  Speaker 7: am not sure how you transfer crypto to the name
• 29:16
  Speaker 7: of the trust, but if you're involved in crypto, maybe
• 29:19
  Speaker 7: you know how, and we can get whatever paperwork you
• 29:21
  Speaker 7: need together to do that, and so that that would
• 29:25
  Speaker 7: be the answer. So yes, go ahead and contribute. And folks, okay, yeah.
• 29:30
  Speaker 2: Go ahead.
• 29:31
  Speaker 4: You definitely you definitely have to put in a new
• 29:34
  Speaker 4: five year waiting period, but only.
• 29:36
  Speaker 7: For the new addition. Only for the new addition. Okay, excellent,
• 29:43
  Speaker 7: And so folks, that's just And again he's got the
• 29:47
  Speaker 7: irrevocable trust in place, which is great. He's beyond the
• 29:49
  Speaker 7: five years. That's just one of the trusts that we're
• 29:53
  Speaker 7: talking about in our guide this month, which is the
• 29:56
  Speaker 7: top seven estate planning trust I've sort of over the
• 29:59
  Speaker 7: years thought about what these are that I see most
• 30:02
  Speaker 7: of the time, and I put together this guide. It
• 30:05
  Speaker 7: tells you not only how they work from an estate
• 30:07
  Speaker 7: tax standpoint, an income tax standpoint. They're irrevocable. They're revocable
• 30:13
  Speaker 7: trusts in here, Medicaid like the one Phil has an
• 30:16
  Speaker 7: irrevocable trust that protects from nursing homes. There's you know,
• 30:20
  Speaker 7: special needs trusts. If you have special needs children. There's
• 30:23
  Speaker 7: even the dreaded Nominee realty trust that a lot of
• 30:27
  Speaker 7: people have but really don't understand because it's not really
• 30:30
  Speaker 7: a trust, and it also explains the day to day
• 30:33
  Speaker 7: operations of how they work to not, you know, encumber
• 30:37
  Speaker 7: your life in any way. So if you haven't gotten
• 30:39
  Speaker 7: started in a state planning, this will help you get started.
• 30:42
  Speaker 7: If you've gotten started, maybe you want to adjust the
• 30:45
  Speaker 7: kind of trust you have. Something for everyone in this guide, folks,
• 30:49
  Speaker 7: call and get it eight six six eight four eight
• 30:52
  Speaker 7: five six nine nine or Legal Exchange Show dot com. Again,
• 30:57
  Speaker 7: Top seven Estate planning Trusts eight six six eight four
• 31:01
  Speaker 7: eight five six nine nine or Legal Exchange Show dot Com.
• 31:06
  Speaker 2: Let's stick with the Cape. Let's go to Dave on
• 31:09
  Speaker 2: the Cape. Now, Dave, what is your question for Todd Lunsky?
• 31:14
  Speaker 5: Hi, good morning, Tod. I've got several My wife and
• 31:17
  Speaker 5: I have several million dollars in irais what's the best
• 31:21
  Speaker 5: way to protect that pass that on to my kids?
• 31:23
  Speaker 7: So as a percentage of your overall estate, let's say
• 31:27
  Speaker 7: several means three of that of your overall estate. How
• 31:33
  Speaker 7: much is the IRA? Like if you're worth four million
• 31:35
  Speaker 7: you'll most of it's an ira That's what I'm trying
• 31:37
  Speaker 7: to find out.
• 31:39
  Speaker 5: Yeah, the majority. I've got five million in irays and
• 31:42
  Speaker 5: my real estate equity in two houses just a little
• 31:45
  Speaker 5: over a million. And that's like of your assets besides
• 31:51
  Speaker 5: equity in the house, ninety five percent of our investments
• 31:54
  Speaker 5: are in iras.
• 31:56
  Speaker 7: So six million dollar estate. And how old are you?
• 32:00
  Speaker 5: Sixty three?
• 32:02
  Speaker 7: So when your your question is, how do you protect
• 32:04
  Speaker 7: it from a nursing home?
• 32:07
  Speaker 5: No, I just like, what's the best way to pass
• 32:08
  Speaker 5: on my kids?
• 32:09
  Speaker 6: Yeah?
• 32:10
  Speaker 7: Great, great question. So so and I agree. I don't
• 32:13
  Speaker 7: think you need to be worried about nursing homes. I
• 32:16
  Speaker 7: think you're probably self insured when you talk about investing
• 32:19
  Speaker 7: five million dollars. The income that it generates alone will
• 32:22
  Speaker 7: be helpful. But estate tax wise, yes, you've got we've
• 32:26
  Speaker 7: got to avoid probate. We want to reduce significantly the
• 32:30
  Speaker 7: mass estate tax, at least federally. You're You're fine. And
• 32:33
  Speaker 7: so then the idea is how do I leave this
• 32:36
  Speaker 7: to them? Probably in your case, a revocable trust. Put
• 32:41
  Speaker 7: the houses in now, put the bank accounts in now,
• 32:45
  Speaker 7: leave the iras out for now. The designated beneficiary would
• 32:49
  Speaker 7: be each other, and then the contingent beneficiary would be
• 32:53
  Speaker 7: the new family revocable trust that we put together, so
• 32:56
  Speaker 7: that ultimately this five million will get into the trust. Yes,
• 33:00
  Speaker 7: it will shelter you allow us to shelter assets for
• 33:03
  Speaker 7: a state tax purposes, at least for mass federally. Again,
• 33:07
  Speaker 7: it's doing it, but it's not critical. Depending on exactly
• 33:10
  Speaker 7: how much we can get into the trust while you're
• 33:13
  Speaker 7: both alive, we may need to direct some of the
• 33:16
  Speaker 7: first to die ira to the trust rather than to
• 33:19
  Speaker 7: the spouse, But that's something we would find tune when
• 33:22
  Speaker 7: we're together or with whenever you're working with whoever you're
• 33:26
  Speaker 7: working with in the estate planning attorney world, you would
• 33:30
  Speaker 7: fine tune that. But the beauty is not only does
• 33:32
  Speaker 7: it avoid probate and help you shelter the estate taxes,
• 33:35
  Speaker 7: but with that kind of money, you can design the
• 33:37
  Speaker 7: trust so that when you die, the assets are going
• 33:39
  Speaker 7: to be sheltered for your kids from future creditors, future divorces.
• 33:43
  Speaker 7: I mean, this is a big enough dollar amount that
• 33:45
  Speaker 7: you might want to think about doing that, and so
• 33:48
  Speaker 7: the trust can live on even after you die and
• 33:51
  Speaker 7: really provide nicely for your family. So great, great question,
• 33:55
  Speaker 7: and I think you're on the right track, but I
• 33:57
  Speaker 7: do think you need to do some planning to save
• 33:59
  Speaker 7: the tax.
• 34:00
  Speaker 2: Got another one for you here, Todd. Let's go to
• 34:02
  Speaker 2: Dale in newbury Dale. What's your question for Todd Lutski.
• 34:06
  Speaker 8: Good morning, Todd. I'm seventy five, my wife at sixty two.
• 34:11
  Speaker 8: We have a house paid for worth about one point
• 34:14
  Speaker 8: two mil and we have one hundred one million in iras.
• 34:19
  Speaker 8: My question is, am I in the need for a
• 34:22
  Speaker 8: credit shelter trust?
• 34:25
  Speaker 7: So so your your when you say so, let's look
• 34:29
  Speaker 7: at two point two million dollar estate, right, Well, Massachusetts
• 34:33
  Speaker 7: remembers only only a two million dollar exemption, So yeah,
• 34:37
  Speaker 7: I mean I would I would want the credit shelter
• 34:39
  Speaker 7: if I'm going to do a trust for you anyway, right,
• 34:42
  Speaker 7: which which I'm going to ask you another question in
• 34:44
  Speaker 7: a minute, But if I was going to be doing
• 34:46
  Speaker 7: a trust for you anyways, I would want that trust
• 34:51
  Speaker 7: to include credit shelter Q tip language. So that again,
• 34:56
  Speaker 7: seventy five and sixty two, there's a long time before
• 34:59
  Speaker 7: both of you are gone, and we want to make
• 35:01
  Speaker 7: sure that on the first death we shelter what we can.
• 35:04
  Speaker 7: So there's no no not just reduced but zero mass
• 35:09
  Speaker 7: estate tax. So that would be yes on a credit
• 35:12
  Speaker 7: shelter trust. And then lastly I would just think about, well,
• 35:15
  Speaker 7: you know, if you both have kids, or you're trying
• 35:18
  Speaker 7: to leave assets to the next generation, you might want
• 35:20
  Speaker 7: to think about the type of trust you do, which
• 35:23
  Speaker 7: might be irrevocable if you want to protect the house
• 35:27
  Speaker 7: from the nursing home and maybe even some of the
• 35:30
  Speaker 7: IRA from the nursing home a little longer. I don't
• 35:32
  Speaker 7: have a discussion for that now, but there's a way
• 35:35
  Speaker 7: to do both. I would think the irrevocable trust approach
• 35:39
  Speaker 7: would be right for you. And yes, that trust would
• 35:41
  Speaker 7: include the q TIP language, so you can get asset
• 35:45
  Speaker 7: protection and estate tax planning at the same time. So yes,
• 35:50
  Speaker 7: you're on the right track as well. But I think
• 35:52
  Speaker 7: you need to seek out a lawyer to get it done.
• 35:54
  Speaker 2: Todd, I got one more for you. We're gonna have
• 35:55
  Speaker 2: to be quick. But Peter and Wooster, what's your question
• 35:58
  Speaker 2: for toddal A. Lotsky only got about a minute.
• 36:00
  Speaker 9: All right, So I thanks to taking Michael real quick.
• 36:03
  Speaker 9: I have a revocable trust. I'm sixty five years old,
• 36:06
  Speaker 9: I have two children that are basically named as in
• 36:10
  Speaker 9: the will and the trust. My question to you is,
• 36:13
  Speaker 9: I have a four to fifty seven fe plan that
• 36:16
  Speaker 9: I was instructed by my lawyer put into the trust
• 36:20
  Speaker 9: as the beneficiary. The trust is the beneficiary, but my
• 36:24
  Speaker 9: two daughters got it.
• 36:25
  Speaker 1: Uh.
• 36:26
  Speaker 9: My question to you is is that okay? Or should
• 36:30
  Speaker 9: I just basically name my two daughters as beneficiary.
• 36:34
  Speaker 7: Here here's the answer. Is really going to be up
• 36:36
  Speaker 7: to you, and here's why. If you are saying, Todd,
• 36:39
  Speaker 7: I'm okay with my daughters taking the money as they
• 36:44
  Speaker 7: want to take it from the front, you know, over
• 36:46
  Speaker 7: ten years, just name them. If it's a large enough number.
• 36:50
  Speaker 7: And you're saying I also want to make sure it's
• 36:52
  Speaker 7: protected from creditors, future divorces of the kids, et cetera.
• 36:56
  Speaker 7: Then name the trust and have that language built into
• 36:59
  Speaker 7: the trust. So it's really up to you how much
• 37:01
  Speaker 7: it is and how much protection you think you really
• 37:04
  Speaker 7: want for your children. So hopefully that answers the question,
• 37:08
  Speaker 7: and I think we're out of time.
• 37:09
  Speaker 2: Mister Watsky, thanks so much for joining us.
• 37:11
  Speaker 7: Always a pleasure.
• 37:13
  Speaker 1: This has been asked Todd on the Financial Exchange Radio network.
• 37:17
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• 37:19
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• 37:22
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• 37:25
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• 37:32
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• 37:33
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• 37:38
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