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Is the Market Rotating — or Quietly Unraveling? · The Financial Exchange Show

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Speaker 1: a donation today. This is the Financial Exchange with Chuck
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Speaker 1: Zada and Mark Fandetti, Chuck.
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Speaker 2: Mark and Tucker with you here today and as we
1:17
Speaker 2: kick things off, quite honestly, not much going on today.
1:22
Speaker 2: It's a there's nothing in the way of economic data,
1:25
Speaker 2: there's nothing in the way of earnings, and so ideally
1:31
Speaker 2: you shouldn't really get anything that surprises the market. But
1:33
Speaker 2: quite honestly, it's not going to be a day with
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Speaker 2: a lot of intrigue and excitement out there just because
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Speaker 2: there's there's nothing that's really happening. Broadly, you do have
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Speaker 2: a little bit of a rally that is continuing from yesterday,
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Speaker 2: and this gets us into what is our top story today,
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Speaker 2: which is, look, this is a market that has for
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Speaker 2: the last four or five months now, I'll say four
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Speaker 2: months since late October, just has not really been able
2:07
Speaker 2: to go anywhere. And I mean that in the nicest
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Speaker 2: possible way. It hasn't really gone up, it hasn't really
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Speaker 2: gone down. It's just sitting there. And there's been some
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Speaker 2: little wobbles. We had like a five and a half
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Speaker 2: percent wobble in November. We've had some smaller two to
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Speaker 2: three percent wobbles every month since then, but ultimately the
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Speaker 2: S and P five hundred right now is it's sixty
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Speaker 2: eight ninety six. On October twenty seventh, it was at
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Speaker 2: sixty nine to twenty. So in four months it's moved
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Speaker 2: a third of a percent, which is not really worth
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Speaker 2: the cost of the dry cleaning for that time period
2:46
Speaker 2: to like get out and like go to work every day.
2:48
Speaker 2: It's just not like you're not really getting your value
2:52
Speaker 2: for that freshly pressed shirt. But ultimately, this is the
2:56
Speaker 2: market that we have to deal with right now, and
2:58
Speaker 2: so you've got a few things that are going on
3:01
Speaker 2: that I do think. Here's the thing, despite the index
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Speaker 2: being just horrifically boring for the last four months, under
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Speaker 2: the surface, it is.
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Speaker 3: Freaking wild right now.
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Speaker 2: And I'm just looking at the last three months now,
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Speaker 2: just because I just have three month performance data that's
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Speaker 2: easily accessible for me. On this front, for the last
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Speaker 2: three months, Microsoft is down twenty two percent, Amazon's down
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Speaker 2: twelve percent, Oracles down thirty, Pollenteers down twenty, AMD's down
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Speaker 2: twenty The entire like software apparatus of the tech sector
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Speaker 2: is down anywhere from fifteen to forty two percent. So
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Speaker 2: that's like the bad that you've got. The good is, Hey,
3:53
Speaker 2: caterpillars up thirty eight percent. You've got Verizon up eighteen,
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Speaker 2: Walmart's up twenty four, Mobiles up twenty four, Jay and
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Speaker 2: Jay's up twenty four. So under the surface, here's what's
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Speaker 2: really like remarkable about this market is just there's just
4:08
Speaker 2: this torque under the surface, this dispersion that's pulling it
4:12
Speaker 2: in all different directions. And in fact, the fine folks
4:17
Speaker 2: at Namura put together this this chart, the statistic that's
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Speaker 2: been making the rounds, and it made the rounds to me.
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Speaker 2: But if you look at the last one month for
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Speaker 2: the S and P five hundred, I don't know the
4:28
Speaker 2: exact date that this was of, it was late last week.
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Speaker 2: The SMP had not moved over the prior month, but
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Speaker 2: the average stock during that time had moved ten point
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Speaker 2: eight percent. I want you to let that sink in again,
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Speaker 2: not ten point eight percent down or up, but like
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Speaker 2: in either direction, so not one or the other. The
4:47
Speaker 2: S ANDP over that the time period that this was
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Speaker 2: measured was flat, but the average stock within it had
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Speaker 2: moved ten point eight percent during that time. The spread
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Speaker 2: between how much the index has moved and how much
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Speaker 2: the average stock has moved is in the ninety ninth
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Speaker 2: percentile over the last thirty years. The only times that
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Speaker 2: you have seen this previously were the unwinding of the
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Speaker 2: tech bubble and the popping of the Great Financial Crisis
5:12
Speaker 2: bubble was that really that wasn't really a bubble, that
5:15
Speaker 2: was a housing bubble that turned into the Great Financial Crisis.
5:19
Speaker 2: So whenever I see something like that, I do say, look,
5:23
Speaker 2: this is something that is really unique. And unfortunately, like
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Speaker 2: the subsequent track record in you know, the next you know,
5:30
Speaker 2: twelve to eighteen months is not really great in either
5:32
Speaker 2: of those scenarios. Do we see something similar here or
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Speaker 2: has it already passed? And the case for it having
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Speaker 2: already passed is this which again is a kind of
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Speaker 2: wild stuff that we're seeing. Sorry, Mark, I'll let you
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Speaker 2: talk in just a second. I'm just I'm a building,
5:49
Speaker 2: but not not a lawyer. Actually, I'm just a you know.
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Speaker 3: A person.
5:55
Speaker 2: There have been one hundred and fifteen stocks through last Friday.
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Speaker 2: There were one hundred and fifteen s and p five
6:00
Speaker 2: hundred stocks that had fallen at least seven percent in
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Speaker 2: a single day during the previous eight trading sessions. The
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Speaker 2: average draw down during periods in which this has occurred
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Speaker 2: since two thousand is thirty five percent for the S
6:17
Speaker 2: and P five hundred thirty four. Sorry I rounded up briefly.
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Speaker 2: So normally when you see this many stocks that have
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Speaker 2: fallen at least seven percent in a single day. In
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Speaker 2: the last call it week and a half, the index
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Speaker 2: is thirty five percent off its high, thirty four percent
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Speaker 2: off its high. At the time of this publication, the
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Speaker 2: S and P five hundred was down two. So couple
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Speaker 2: things like to untangle here. The first is, hey, usually
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Speaker 2: once you've had that level of volatility and stingle single stocks,
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Speaker 2: the worst is usually pretty close to being over because
6:53
Speaker 2: there's usually a policy response because the index has been
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Speaker 2: bludgeoned and beaten up in everything, and you say, okay,
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Speaker 2: like it's time for a policy response here. Given the
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Speaker 2: lack of the policy response, does that mean that the
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Speaker 2: worst is or isn't over?
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Speaker 3: Like, I don't know.
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Speaker 2: Again, we've never seen anything like this where this many
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Speaker 2: stocks have fallen by this much in a single day
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Speaker 2: and the index is just sitting there two percent off
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Speaker 2: it's high. Like this is kind of wild because what's
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Speaker 2: been happening is the money's been leaving those names that
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Speaker 2: have been beaten up, and it hasn't been fleeing equities.
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Speaker 2: It's been going to consumer staples or utility is or
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Speaker 2: energy or international. It's been moving throughout the equity markets,
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Speaker 2: not going to cash or to bonds. And so that's
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Speaker 2: kind of the remarkable thing that you have here is
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Speaker 2: all of these stocks, like so many of these have
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Speaker 2: just gotten beaten up in the last week and a half,
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Speaker 2: and yet the index is just holding steady as a rock.
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Speaker 2: And so I think the question that I have is, look,
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Speaker 2: what changes this to the downside, Because it's tough for
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Speaker 2: me to see things getting too much worse on like
7:56
Speaker 2: an individual stock level. What changes to the outside that
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Speaker 2: makes this market fall apart? Like that's kind of a
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Speaker 2: tough case to make other than just market mechanics breaking it.
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Speaker 2: But also, hey, if tech isn't going to be the
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Speaker 2: leadership anymore, which year to date it's not. Microsoft's down
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Speaker 2: here to date, Amazon is, Tesla is, Google is, Meta is,
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Speaker 2: Broadcom is and videos up one percent. Like, that's not
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Speaker 2: market leadership. Tech's not going to lead. It's pretty clear
8:21
Speaker 2: the index isn't gonna, you know, follow Verizon to the
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Speaker 2: promised land. So what's really interesting right here is there's
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Speaker 2: a ton of movement under the surface, but it's tough
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Speaker 2: to make a really compelling case for things to either
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Speaker 2: fall apart or surge ahead. Here you maybe can mark,
8:38
Speaker 2: let's go to break anyway. Minutes later, are we doing it?
8:42
Speaker 2: Are we doing an opening monologue?
8:44
Speaker 3: This is fine.
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Speaker 4: I'm getting a lot of work done. This is this
8:46
Speaker 4: is fine.
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Speaker 3: My email fusion in the last eight minutes.
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Speaker 4: Yeah, I learned German brought an opera. Look the market
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Speaker 4: was and it remains unhealthily not really abjective, but you know,
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Speaker 4: whatever make it. Yeah, yeah, concentrated. So this is the
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Speaker 4: best possible way to unwine that sort of concentrated state
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Speaker 4: that everybody was hammeringing about. This is I would not
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Speaker 4: if you told me this. If you would described what
9:20
Speaker 4: you just described and then said, what markets will actually
9:23
Speaker 4: be flat to slightly up, very very slightly up you
9:25
Speaker 4: to date, I would have said, no, if tech crashes,
9:28
Speaker 4: it hasn't crashed. Some stocks have crashed. You pointed that
9:30
Speaker 4: out software house, right, If you had told me six
9:35
Speaker 4: months ago that was going to happen, I would have
9:36
Speaker 4: said that would be very bad for the market as
9:38
Speaker 4: a whole. But as you as you said, other sectors
9:40
Speaker 4: have stepped up, so to speak. I think it's pretty remarkable,
9:44
Speaker 4: but also be wonderful. If this is how swollen valuations
9:49
Speaker 4: excessive in historical terms price to earnings and price to
9:52
Speaker 4: whatever ratios gets resolved, it would be unusually rare. It
9:56
Speaker 4: would be a miraculous disvalue euation, something like that. We
10:02
Speaker 4: had the miraculous disinflation a couple of years ago. Everybody,
10:06
Speaker 4: because it's always happened, thought that bringing inflation down would
10:09
Speaker 4: cost output, would raise unemployment. Didn't happen. Everybody thinks bringing
10:14
Speaker 4: valuations down will require stock prices on average, which is
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Speaker 4: what an index measures stock price is on average. I'm
10:21
Speaker 4: choosing that phrase very advisedly. Would because it's compressed. Compressing
10:30
Speaker 4: or compression of valuations is always required stock prices to
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Speaker 4: go down on average. But so far now valuations haven't
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Speaker 4: come down a lot, if at all. But this is
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Speaker 4: one path to sort of an orderly correction and valuations.
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Speaker 2: It'd be wild if we had something like this on
10:48
Speaker 2: the back of what we saw with inflation a couple
10:51
Speaker 2: of years ago. And again, I think this is just
10:54
Speaker 2: a great reminder that markets are not bound by the
10:57
Speaker 2: laws of physics. They are living breathing organisms, and they
11:02
Speaker 2: can change and evolve over time. You might not be
11:05
Speaker 2: able to teach an old dog new tricks, but you
11:08
Speaker 2: can't teach a market new ones.
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Speaker 3: Apparently.
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Speaker 2: Now, we'll see how this unfolds over the next you know,
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Speaker 2: a few months or so. This may still yet be
11:16
Speaker 2: a precursor to, you know, some negative action that we
11:19
Speaker 2: have typically seen during similar types of under the surface movement. Sure,
11:24
Speaker 2: but like, I don't know that that's a given necessarily.
11:28
Speaker 2: I just think we're in it. We're in a dangerous
11:30
Speaker 2: spot for markets, but I've yet to see anything conclusive
11:36
Speaker 2: being like, yeah, like it's it's going to fall apart,
11:38
Speaker 2: Like I can't get there definitively. Let's take a quick
11:42
Speaker 2: break here. When we return, let's talk a little bit
11:46
Speaker 2: about the AI space. A lot of fear that, uh,
11:50
Speaker 2: you know, AI is spending too much money. We'll discuss
11:53
Speaker 2: whether or not that's the case after this.
11:56
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13:02
Speaker 2: Mark we got a piece in Barans here AI spending
13:04
Speaker 2: fears may be overdone? Is the tech selloff reshapes the market. Also,
13:09
Speaker 2: Bank of America survey shows investor roriy over Kapex race
13:12
Speaker 2: at record high. So what I do enjoy is again
13:18
Speaker 2: I love to toot our own horn. A lot of
13:20
Speaker 2: people say that they don't.
13:22
Speaker 3: I do. I'm a tutor, you know, loud and proud.
13:26
Speaker 4: I've heard that.
13:27
Speaker 3: My kid says that there you go. So here's the thing.
13:32
Speaker 2: Way back in the fall, we started talking about the
13:35
Speaker 2: idea might have even been August. We started talking about
13:38
Speaker 2: the idea of hey, when you're talking about spending this
13:41
Speaker 2: level of money, eventually that's going to hit your income statement,
13:44
Speaker 2: your cash flow and all of that. And lo and behold,
13:47
Speaker 2: as we've entered into twenty twenty six, everyone looking at
13:50
Speaker 2: AI is starting to worry about these things. So we
13:54
Speaker 2: don't always get everything right, but I do like to
13:57
Speaker 2: believe that we're consistently anywhere from a couple weeks to
14:00
Speaker 2: a few months early on a lot of major themes.
14:03
Speaker 2: And this is one that we were talking about before
14:06
Speaker 2: most people were, which makes me feel really good that we're,
14:09
Speaker 2: you know, providing good information. I don't know that we
14:11
Speaker 2: can actually do anything with the information, but it's there,
14:14
Speaker 2: like we we noted that this is a potential problem.
14:17
Speaker 2: So now people are saying, well, maybe it's not as
14:19
Speaker 2: big of a problem. And I'm wondering if we've entered
14:22
Speaker 2: like the bargaining phase of the five stages of grief
14:25
Speaker 2: because the math still maths and looks like a problem
14:29
Speaker 2: unless you can grow revenue really quickly in these products.
14:34
Speaker 4: Yeah, why would the logic that was sort of valid
14:38
Speaker 4: and compelling a few months ago. Look, there's only a
14:41
Speaker 4: finite amount. I keep coming back to the high level
14:44
Speaker 4: macroso to speak, which is a synonym for like the
14:47
Speaker 4: whole economy or the world economy, depending on the context.
14:51
Speaker 4: Six hundred billion dollars is is that in? I keep forgetting?
14:56
Speaker 4: Is that in additional investment this year?
14:58
Speaker 3: Yes?
14:58
Speaker 2: Or six hundred billion in it's actually six and sixty
15:01
Speaker 2: billion in kemps.
15:02
Speaker 4: Okay, so that's new. That's on top of what they
15:04
Speaker 4: spent last year. Ye okay, So.
15:06
Speaker 2: We're talking about like four trillion dollars over five years.
15:10
Speaker 4: Okay, So these these amounts, you have to have some
15:12
Speaker 4: sense for what is happening in the overall economy and
15:15
Speaker 4: what's typical. Four to five hundred billion in an an
15:19
Speaker 4: incremental investment would be typical if you look at gross
15:21
Speaker 4: private domestic investment, which is part of GDS.
15:23
Speaker 3: Not all in the US, to be clear.
15:26
Speaker 4: Yeah, okay, so thank you for so some of this
15:28
Speaker 4: is overseas, but anywhere from like twenty to thirty percent
15:32
Speaker 4: is still overseas.
15:33
Speaker 3: But we're talking a big chunk.
15:35
Speaker 4: We're talking about like nearly all of the investment that
15:38
Speaker 4: typically takes place in every sector. So this is going
15:41
Speaker 4: to suck up a huge amount. Now suppose it's suppose
15:43
Speaker 4: it's the die is cast on this, this this, this
15:47
Speaker 4: investment has to happen. Where's the capital going to come from? Now,
15:50
Speaker 4: there's no shortage of capital slashing around out there, financial
15:52
Speaker 4: conditions are loose, the stocks are at all time eyes
15:56
Speaker 4: easy for companies to raise money. But this all l
15:59
Speaker 4: s Equel has to put upward pressure on interest rates.
16:02
Speaker 4: And you could tie the FED into this discussion and
16:04
Speaker 4: talk about how it makes their job harder because this
16:07
Speaker 4: pushes up the so called neutral rate of interest rate
16:09
Speaker 4: that balances unemployment and inflation, which is an important concept
16:12
Speaker 4: for the FED. It's a good problem to have, I guess,
16:16
Speaker 4: assuming the technology pans out. But the demands are considerable.
16:21
Speaker 2: So the question that I think is worth asking at
16:26
Speaker 2: this point, and the one that markets are trying to
16:27
Speaker 2: sort out now finally after a few years, is who
16:31
Speaker 2: are the actual losers going to be from AI? Because
16:34
Speaker 2: for the first three years of the AI trade. It's
16:37
Speaker 2: basically been hey, if you mentioned AI, you're a winner.
16:42
Speaker 3: You know.
16:42
Speaker 2: It's you get a stock price jump, and you get
16:45
Speaker 2: a stock price jump, and you get a stock price jump.
16:48
Speaker 2: That's what markets have been doing. As long as you
16:50
Speaker 2: spend and say that you're gonna roll out AI, you've
16:53
Speaker 2: been a winner. And now for the last few months,
16:55
Speaker 2: markets are starting to look more critically at this, in
16:58
Speaker 2: particular in the last couple of weeks, and it's trying
17:02
Speaker 2: to sort out who, you know, the actual winners are
17:04
Speaker 2: and who the losers will be and where I think
17:09
Speaker 2: I'm landing right now, And again this can change because
17:14
Speaker 2: I'm not always right, like occasionally, not occasionally, quite often
17:18
Speaker 2: we're wrong about stuff. But right now where I tend
17:22
Speaker 2: to land is the models that are being built. Whether
17:27
Speaker 2: it's Claude, whether it's Chat, GPT, Gemini, Copilot, whatever these
17:32
Speaker 2: models are, they're all converging towards basically the same thing.
17:37
Speaker 2: They're becoming commoditized. Yes, And as that commoditization happens, one
17:41
Speaker 2: of the other things that you see then is Okay,
17:43
Speaker 2: we've got to drive down the cost of our model
17:45
Speaker 2: in order to make it cheaper and I think that
17:48
Speaker 2: we're probably within a year or two of a lot
17:50
Speaker 2: of these models being able to be hosted locally rather than.
17:55
Speaker 3: In the cloud.
17:56
Speaker 2: Like I think we're getting pretty close, quite honestly, just
17:59
Speaker 2: being able for you have like a decent computer, to
18:01
Speaker 2: being able to run one on it with the advantages
18:04
Speaker 2: of that privacy. You know, you build your own open
18:08
Speaker 2: source model, run it on your computer. You don't have
18:09
Speaker 2: to send any of your data anywhere.
18:11
Speaker 4: Like it's it's so, how do they learn at that
18:14
Speaker 4: point if we're all doing our own thing.
18:16
Speaker 2: It's the the training is done to begin local, No,
18:21
Speaker 2: the training can be done in terms of in that
18:24
Speaker 2: not mainframe, but in that cloud based environment, and then
18:26
Speaker 2: they send it. Okay, here's the training that's been done.
18:30
Speaker 2: You load it onto your computer and you run it there.
18:32
Speaker 2: The inference happens locally, the inference being the generation, but
18:36
Speaker 2: the training has been done in a centralized way. Or
18:38
Speaker 2: it might even be to the point where you could say, yeah,
18:41
Speaker 2: here's you know, this open source model where I can
18:44
Speaker 2: modify the weights and play around with it and see
18:46
Speaker 2: how I want to do it, and you can take
18:48
Speaker 2: that and make it how you.
18:49
Speaker 3: Want it to be.
18:51
Speaker 2: From a pre trained model with some slight modifications. Okay,
18:54
Speaker 2: we're getting kind of in the weeds and everything.
18:56
Speaker 3: I know. I'm just wondering where I get to.
18:58
Speaker 2: The models I think are going to be commoditized, which
19:00
Speaker 2: is not great if you're spending six hundred billion dollars
19:02
Speaker 2: a year. The product, I think is going to be
19:06
Speaker 2: commoditized in a few key areas. We can talk about
19:09
Speaker 2: what those are later. I think there's a lot of
19:11
Speaker 2: meat on that bone, and I think this is going
19:13
Speaker 2: to end up very similar to the Internet in some
19:15
Speaker 2: respects in that the ultimate beneficiaries are going to be
19:18
Speaker 2: the end users, with the middleman and the producers of
19:23
Speaker 2: kind of that raw infrastructure not really being in a
19:27
Speaker 2: great spot.
19:28
Speaker 3: Let's take a quick break here.
19:29
Speaker 2: When we come back, it's Wall Street Watch and ask
19:32
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Speaker 1: on the Financial Exchange Radio Network. Time now for Wall
19:53
Speaker 1: Street Watch, a complete look at what's moving markets so
19:56
Speaker 1: far today right here on the Financial Exchange Radio Network.
20:03
Speaker 5: Well after yesterday's volatile swings, markets today are rallying as
20:08
Speaker 5: AI impacted stock's clawback recent losses. Energy markets are also
20:13
Speaker 5: garnering attention amid more tensions between the US and Iran.
20:17
Speaker 5: Right now, the Dow is up nearly six tenths of
20:20
Speaker 5: one percent, or two hundred and eighty five points, Hire
20:22
Speaker 5: SMP five hundred, up about three quarters of a percent
20:25
Speaker 5: or fifty points higher. NASDAC up over one percent or
20:29
Speaker 5: two hundred and forty five points. Hier Russell two thousand
20:32
Speaker 5: is up one point four percent, Tenure Treasure Reeled is
20:36
Speaker 5: up two basis points at four point zero eight one percent,
20:40
Speaker 5: and crude oil up three percent higher, trading just above
20:44
Speaker 5: sixty four dollars a barrel. Meta ANNOUNCEAID has expanded its
20:48
Speaker 5: partnership with Nvidia to use millions of the company's AI
20:51
Speaker 5: chips for its data center buildout. In a statement, Meta
20:54
Speaker 5: CEO Mark Zuckerberg said that the expanded partnership continues his
20:58
Speaker 5: company's push to liver personal super intelligence to everyone in
21:03
Speaker 5: the world. Meta shares are flat, while and Video stock
21:06
Speaker 5: is up over two percent. Sticking with the chip sector,
21:10
Speaker 5: where Analog Devices posted stronger than expected quarterly results and guidance,
21:15
Speaker 5: where it's revenue jumped thirty percent last quarter, shares are
21:19
Speaker 5: rising by about five percent. Meanwhile, cybersecurity firm Palo Alto
21:24
Speaker 5: Networks posted better than expected quarterly results and lifted its
21:28
Speaker 5: annual revenue outlook. Wherever, the company's earnings per share guidance
21:32
Speaker 5: for the current quarter disappointed, sending the stock down by
21:35
Speaker 5: seven percent. Elsewhere, Berkshire Hathaway disclosed a new position in
21:39
Speaker 5: The New York Times, sending shares in the media company
21:42
Speaker 5: by up over half a percent. And home builder Toll
21:46
Speaker 5: Brothers reported stronger than expected quarterly results, boosted by a
21:50
Speaker 5: jump in land sales revenue. Tolls stock is.
21:54
Speaker 3: Climbing over one percent higher.
21:58
Speaker 5: I'm Tucker Silva and that is Wallstree.
22:00
Speaker 3: Watch.
22:01
Speaker 1: This is Ask Todd on the Financial Exchange Radio Network.
22:05
Speaker 1: If you have an existing estate plan or in the
22:07
Speaker 1: market for one, Todd Lutsky is here to answer your
22:10
Speaker 1: questions and help you plan for a later life. Ask
22:12
Speaker 1: Todd is presented by Cushing and Dolan, serving Massachusetts and
22:15
Speaker 1: New England for more than thirty five years, helping families
22:19
Speaker 1: with a state and tax planning, medicaid planning, and probate law.
22:22
Speaker 1: Visit Cushingdolan dot com. Now Here's Todd Lutsky.
22:28
Speaker 2: And as promised, we're now joined by the one and
22:31
Speaker 2: only Todd Letsky from the law firm of Cushing and Dolan.
22:34
Speaker 2: We got the phone lines wide open for your phone calls,
22:38
Speaker 2: so make sure you get calling. Eight eight eight two
22:40
Speaker 2: zero five two two sixty three is the number to
22:43
Speaker 2: ask Todd your estate planning questions live on air right now.
22:49
Speaker 3: Again eight eight.
22:49
Speaker 2: Eight two zero five two two sixty three is the
22:52
Speaker 2: number we can usually get through two or three year calls,
22:55
Speaker 2: So make sure you get dialing in to get your
22:58
Speaker 2: spot in line because Todd tends to be in high demand.
23:02
Speaker 3: Again.
23:03
Speaker 2: Eight eight eight two zero five two two sixty three
23:07
Speaker 2: is the number, mister Lutsky.
23:09
Speaker 3: How are you doing today? I am never better and
23:11
Speaker 3: you I'm good.
23:13
Speaker 2: Did uh did you hear that the duck finally quacked?
23:17
Speaker 4: No?
23:17
Speaker 3: No, I didn't hear that. Confess to all its quimes.
23:20
Speaker 2: Oh yeah, that's that's funny now it was actually foul play.
23:25
Speaker 3: Yeah, it's not good, Todd.
23:26
Speaker 2: I want to talk a little bit about, uh, someone
23:29
Speaker 2: who might not have put together in a state plan.
23:31
Speaker 6: Yeah.
23:33
Speaker 2: Does the type of assets or accounts that someone owns
23:39
Speaker 2: impact or influence the type of planning that they do.
23:43
Speaker 6: Uh, it can. Yeah, the type of assets make a
23:46
Speaker 6: big difference. How so, so let's let's put let's pick
23:50
Speaker 6: some assets to to sort of pick on first. I
23:53
Speaker 6: would say, when you're listing assets, and by the way,
23:56
Speaker 6: that's the first thing you should do when you're thinking
23:58
Speaker 6: about your state plan, list all your ass so you
24:01
Speaker 6: know what you're dealing with. But let's say someone comes
24:03
Speaker 6: in and they've got you know, you know, five rental properties.
24:06
Speaker 1: Four.
24:07
Speaker 6: A rental property doesn't have to be multiple sure, so
24:10
Speaker 6: in mind they might have a home and a vacation
24:12
Speaker 6: home in this and that. But let's just stick on
24:14
Speaker 6: the real estate side. Once they throw in rental properties
24:18
Speaker 6: in the mix of their planning, not only are you
24:21
Speaker 6: going to then say, okay, well, you still need to
24:23
Speaker 6: do your basic estate plan, your will, your trust, your
24:26
Speaker 6: health care proxy, your power of attorney, all the basic
24:28
Speaker 6: documents are still going to apply to an individual like that.
24:34
Speaker 6: But in addition to that, I'm going to say, okay,
24:37
Speaker 6: so the objectives are avoid probate, you know, reduce or
24:43
Speaker 6: eliminate your estate taxes, provide a bloodline plan to your
24:47
Speaker 6: family however you want to leave that, And then decide
24:50
Speaker 6: how much control you want to keep. Okay, so those
24:52
Speaker 6: are your basic ideas. Then I'm going to add, well,
24:57
Speaker 6: since you happen to have a rental property or rental properties,
25:03
Speaker 6: are you at all concerned about protecting those assets or
25:07
Speaker 6: protecting yourself from potential creditors associated with those properties? For instance,
25:15
Speaker 6: the slip and fall, the party where someone falls off
25:17
Speaker 6: the balcony, you name it, and someone gets hurt on
25:22
Speaker 6: the property, if you continue to own that property the
25:26
Speaker 6: way you own it generally speaking your own name, or
25:30
Speaker 6: even if you just say I want to do the
25:33
Speaker 6: basic estate planning and then put that rental property into
25:38
Speaker 6: the trust that you're doing, you have not changed your
25:41
Speaker 6: credit or exposure. Example, if someone gets hurt under those
25:45
Speaker 6: circumstances on the property, they are going to sue the
25:49
Speaker 6: property owner, which is you, and they are going to
25:52
Speaker 6: go after all of your assets, not just that building.
25:58
Speaker 6: Whereas if instead you put that building into a limited
26:01
Speaker 6: liability company and then you take the shares of that
26:05
Speaker 6: limited liability company and place them into the revocable trust,
26:10
Speaker 6: now when somebody gets hurt on that property and sues,
26:14
Speaker 6: they will not sue the shareholder, which is you. They
26:17
Speaker 6: will sue the entity, and the entity has a building
26:21
Speaker 6: in it and guess what, most of the time, the
26:24
Speaker 6: individual creditor doesn't want the building. They want the money, sure,
26:28
Speaker 6: And so now they're going to settle with your homeowner's
26:31
Speaker 6: insurance or umbrella carrier and figure out how to resolve this.
26:35
Speaker 6: And you don't care. You're happy you got to keep
26:37
Speaker 6: the building and the lawsuit was handled by your insurance company.
26:42
Speaker 2: Talking with Todd Lonski from the law firm of Cushing
26:45
Speaker 2: and Dolan's still room at the phone on the phone
26:47
Speaker 2: lines for your estate planning questions. Phone number is eight
26:51
Speaker 2: eight eight two zero five two two sixty three, and
26:54
Speaker 2: you get to ask Todd your questions live on air
26:58
Speaker 2: right now. That number is eight eight eight to zero
27:02
Speaker 2: five two two six three. We're gonna take a quick
27:05
Speaker 2: break here, but when we come back, we'll get some
27:08
Speaker 2: of your questions with Todd. That phone number again is
27:11
Speaker 2: eight eight eight to zero five two two six three.
27:16
Speaker 1: Ask Todd with Todd Lutsky every Wednesday at ten thirty
27:20
Speaker 1: only here on the Financial Exchange Radio Network. Todd Letsky
27:26
Speaker 1: answers your questions about a state and elder life planning
27:29
Speaker 1: every Wednesday at ten thirty right here on the Financial
27:32
Speaker 1: Exchange Radio Network.
27:40
Speaker 3: Talking with Todd Lutsky.
27:42
Speaker 2: We still have room on the phone lines for your
27:44
Speaker 2: estate planning questions at eight eight eight to zero five
27:48
Speaker 2: two two six three. Again, that number is eight eight
27:52
Speaker 2: eight to zero five two two six three. Let's go
27:56
Speaker 2: to Norman in Portland. Norman, what's your question for Todd?
28:01
Speaker 7: Right? Well, I think you was just describing me. I
28:06
Speaker 7: got a house that I'm renting in Massachusetts, but I
28:10
Speaker 7: live in Maine. I was wondering, is that a special
28:16
Speaker 7: difficulty being out of state?
28:19
Speaker 6: No, No, it's not any difficult, more difficult at all.
28:23
Speaker 6: What I can tell you, though, is, and since you
28:26
Speaker 6: do live out of state, and I think this is
28:28
Speaker 6: a great question for everybody else who's listening right now,
28:32
Speaker 6: I understand living out of state, there's one other issue
28:35
Speaker 6: you might not have been thinking about, and that is
28:39
Speaker 6: I'll describe it this way. I did a seminar once
28:41
Speaker 6: for somebody called So you think you've changed your residency,
28:45
Speaker 6: It's not always so easy. And so when you are
28:48
Speaker 6: a non resident in Massachusetts and you own real estate
28:53
Speaker 6: in Massachusetts in your own name, Massachusetts will tax you
28:58
Speaker 6: when you die as a non resident on the value
29:03
Speaker 6: of the property you own in mass So, for example,
29:07
Speaker 6: if you had two million dollar property in mass and
29:10
Speaker 6: your entire estate, all the stuff you own on your
29:14
Speaker 6: own in Maine, wherever else, let's say adds up to
29:16
Speaker 6: four million. So your entire estate is four million, but
29:20
Speaker 6: two million of it is Massachusetts property. They will divide
29:24
Speaker 6: that out, so that's fifty percent, right, and then they
29:28
Speaker 6: will calculate the tax in mass on four million your
29:32
Speaker 6: entire estate, and then hit that number with fifty percent.
29:37
Speaker 6: So they'll take fifty percent of the tax on four million.
29:40
Speaker 6: So you need to be mindful that you don't want
29:42
Speaker 6: to be paying Massachusetts a state tax even though you're
29:46
Speaker 6: a non resident. So one we got to do an LLC.
29:49
Speaker 6: How do we prevent this taxation by Massachusetts on non
29:54
Speaker 6: residents that own property in mass You take the property
29:58
Speaker 6: and you put it into an LLC. Once it's in
30:01
Speaker 6: an LLC, you've effectively converted the Massachusetts real estate to
30:06
Speaker 6: what they call an intangible. What do I mean intangible?
30:10
Speaker 6: It's a stock certificate, it's an intangible. You don't own
30:13
Speaker 6: real estate in mass anymore. And so then mass cannot
30:17
Speaker 6: tax non residents on intangibles, and so now you avoid
30:23
Speaker 6: the Massachusetts a state tax. So that's not why you called,
30:27
Speaker 6: but that's another reason you should be doing this. Now,
30:32
Speaker 6: the creditor reason you should be doing this is if
30:37
Speaker 6: somebody gets hurt, right, so we simply put this into
30:40
Speaker 6: an LLC for you here in mass and the operating
30:44
Speaker 6: agreement will be here in mass. You shouldn't have to
30:47
Speaker 6: file in Maine because you don't own the property in Maine.
30:52
Speaker 6: You just have to file in Mass. And now if
30:55
Speaker 6: somebody gets hurt on the property, they will sue the
30:58
Speaker 6: entity here in They will not sue you as the
31:03
Speaker 6: shareholder or hopefully your trust as the shareholder. And again,
31:07
Speaker 6: the reason you want to put the shares of the
31:09
Speaker 6: LLC into the trust is because you want to make
31:12
Speaker 6: sure you avoid probate when you pass on all assets,
31:16
Speaker 6: right and in all states. So you certainly don't want
31:20
Speaker 6: to have to go to probate in mass and basically
31:22
Speaker 6: file in Maine and do an ancillary probate in Mass.
31:26
Speaker 6: So seemingly simple question, but hopefully I gave you a
31:29
Speaker 6: lot of information in folks, I hope I helped you
31:32
Speaker 6: a lot of you out. If you're someone listening, who
31:35
Speaker 6: has property out of state or has property in state,
31:39
Speaker 6: but you've moved out of state to avoid Massachusetts estate tax. Folks.
31:45
Speaker 6: That said, a lot of people haven't even done their
31:47
Speaker 6: estate planning. So how do we kick off your estate
31:50
Speaker 6: plan this year? How do we get your estate planning going?
31:53
Speaker 6: The guide called back to the Basics will really help you.
31:56
Speaker 6: That's where given away this month. It basically lays out
31:59
Speaker 6: things that think about before you go to the lawyer.
32:02
Speaker 6: You know, how old am I? What's the family dynamics,
32:04
Speaker 6: as Chuck asked me earlier, what's the value of the
32:07
Speaker 6: assets that I have?
32:09
Speaker 3: You know?
32:09
Speaker 6: And then the guide continues to basically give an estate plan.
32:13
Speaker 6: My it's an engagement letter basically that I put together
32:16
Speaker 6: for a four million dollar client, advising them how the
32:19
Speaker 6: will works, how the trust works, how the living will
32:22
Speaker 6: the healthcare proxy work. In this case, we've recommended an
32:26
Speaker 6: irrevocable trust, so you'll learn all about how that irrevocable
32:29
Speaker 6: trust works, along with the basic documents as well. Folks,
32:33
Speaker 6: get your estate plan in order today. Get the guide
32:36
Speaker 6: Back to the Basics eight sixty six eight four eight
32:40
Speaker 6: five six nine nine or Legal Exchange Show dot Com
32:44
Speaker 6: again eight six six eight, four eight, five six nine
32:47
Speaker 6: nine or Legal Exchange show dot com and you could
32:51
Speaker 6: go to our Instagram page Cushing Dolan PC for more information.
32:55
Speaker 2: Todd, when we talk about family dynamics influencing an estate plan,
33:00
Speaker 2: can you give a little bit more color as to
33:02
Speaker 2: exactly what may come into play on that front.
33:06
Speaker 3: Yeah.
33:06
Speaker 6: I think when we start asking clients about family dynamics,
33:10
Speaker 6: where meaning, you know, do we have you know, somebody
33:12
Speaker 6: who might be you know, drug addicted or alcohol addicted
33:16
Speaker 6: somehow that's a lifelong thing you have to deal with.
33:19
Speaker 6: What if you have children who are you know, you
33:21
Speaker 6: know they're level headed, but they're horrible with money, or
33:24
Speaker 6: they just spend money like there's no tomorrow. They don't
33:26
Speaker 6: know how to deal with finances, Well, that's important. What
33:29
Speaker 6: if you have somebody who is a disability, has a
33:34
Speaker 6: disability as a special needs child, or or became disabled
33:37
Speaker 6: later in life and is getting some kind of governmental benefits, Well,
33:40
Speaker 6: we want to make sure that we don't you know,
33:43
Speaker 6: lose those governmental benefits. So when you're setting up the trust,
33:47
Speaker 6: you know, and another thing to think about is just
33:50
Speaker 6: in general, if you don't have any of those things,
33:52
Speaker 6: what about you know, someone who's got married, has kids,
33:57
Speaker 6: and you're just worried about that relationship. You're word about
34:00
Speaker 6: a future divorce from your children after you die. I mean, folks,
34:06
Speaker 6: family dynamics come in all kinds of flavors, and you
34:11
Speaker 6: with these trusts. We talk a lot about state taxes
34:14
Speaker 6: and probate and I get all that, but remember the
34:17
Speaker 6: family behind the estate plan is critical. And so these
34:20
Speaker 6: trusts can live on after you die, long after you die,
34:25
Speaker 6: and provide for your children, your grandchildren, even your great
34:29
Speaker 6: grandchildren sometimes, and so you can really control things from
34:33
Speaker 6: the grave. So you know, the way you set up
34:35
Speaker 6: the trust might be with that disabled child, I don't
34:38
Speaker 6: want to leave it out right. I want to leave
34:40
Speaker 6: it in trust. I want to have it so that
34:42
Speaker 6: the child can continue to get the governmental benefits, but
34:45
Speaker 6: at the same time be able to enjoy what we're
34:50
Speaker 6: leaving them. In other words, you don't have to disinherit
34:53
Speaker 6: that particular child in order to provide for them. In addition,
35:00
Speaker 6: what if I've got you know that special needs or
35:03
Speaker 6: not that I've got a drug related child, Well again,
35:06
Speaker 6: this person or a spendthrift. I don't want to leave
35:10
Speaker 6: this money out right. To the child because they'll just
35:12
Speaker 6: blow it. But I want to have it in trust
35:13
Speaker 6: so that it comes out over time, you know, and
35:16
Speaker 6: it provides for them for not only during their life,
35:21
Speaker 6: but maybe even into retirement.
35:23
Speaker 2: Is it generally accurate to say then that, regardless of
35:28
Speaker 2: the specific concern that you may have about a family
35:32
Speaker 2: member or family members and how they may inherit certain assets, yeah,
35:37
Speaker 2: there's typically a legal tool available to help alleviate that
35:41
Speaker 2: concern to a certain extent.
35:43
Speaker 3: You just might not know what it is.
35:44
Speaker 6: Yeah, I think, And to be safe, you can use
35:48
Speaker 6: a general language that we do or we I mean,
35:51
Speaker 6: I think generally speaking, there's never any harm done if
35:56
Speaker 6: you draft something with a lot of flexibility that actually
36:00
Speaker 6: holds the document holds the assets in trust, rather than
36:03
Speaker 6: gives it out right. As a general rule, even if
36:05
Speaker 6: the kids are you know, great level headed, you still
36:07
Speaker 6: worry about future creditors. And a future creditor could be
36:11
Speaker 6: any creditor. It doesn't have to be a divorce, but
36:14
Speaker 6: certainly divorce resonates with people. So to me, even if
36:18
Speaker 6: you don't think that, there's a lot of other, you know,
36:21
Speaker 6: standout reasons to provide the trust to live on sure,
36:26
Speaker 6: why not just put it in a sole discretionary payout
36:29
Speaker 6: trust so that the kids don't own it right away. Therefore,
36:33
Speaker 6: if something comes up later after you're dead, it's protected.
36:37
Speaker 6: Yet it's drafted in a way where you know, they're
36:40
Speaker 6: the trustees, they're managing it, they're investing it, they're buying
36:43
Speaker 6: and selling property. Uh, but just not owning it so
36:48
Speaker 6: that if something comes up later on, then the asset
36:51
Speaker 6: is protected from that particular creditor or more likely than not,
36:56
Speaker 6: a divorce. So I think just giving it out rights
37:00
Speaker 6: never a great idea.
37:02
Speaker 2: Mister Lutski, thank you so much for joining us today.
37:05
Speaker 2: We really appreciate it.
37:06
Speaker 6: Always a pleasure. Thanks for having me.
37:08
Speaker 1: This has been Aske Todd on the Financial Exchange Radio network.
37:12
Speaker 1: Ask Todd with Todd Lutsky has been presented by Cushing
37:14
Speaker 1: and Dolan, serving Massachusetts and New England for more than
37:17
Speaker 1: thirty years, helping families with the state and tax planning,
37:20
Speaker 1: Medicaid planning, and probate law. Call eight hundred three nine
37:23
Speaker 1: three four thousand and one or visit Cushingdolan dot com.
37:27
Speaker 1: The views expressed in this segment are solely those of
37:28
Speaker 1: Cushing and Dolan. Armstrong Advisory does not provide any legal
37:31
Speaker 1: or tax advice. Please consult with your illegal or tax
37:33
Speaker 1: advisor on such matters. Cushing and Armstrong do not endorse
37:36
Speaker 1: each other and are not affiliated.