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With inflation decelerating does that bring confidence back to consumers? · The Financial Exchange Show

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Speaker 2: Kicking off our Wednesday show here this morning at eight
1:13
Speaker 2: thirty am, we got the inflation data from the Consumer
1:16
Speaker 2: Price Indext the CPI as it's called in the biz's Chuck,
1:20
Speaker 2: Mark and Tucker with you here and Mark, when we
1:24
Speaker 2: look at the numbers that we saw on the surface,
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Speaker 2: pretty pretty good, you know, I mean again not great,
1:31
Speaker 2: but you know, improving certainly from the somewhat horrendous January
1:36
Speaker 2: numbers that we saw. Inflation coming in at point two
1:38
Speaker 2: percent both on the headlining core the unrounded number was
1:42
Speaker 2: point two three, I believe, and so you've seen some
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Speaker 2: improvement there, but you still have some areas a that
1:49
Speaker 2: are showing some stickiness. Be You've got some things in
1:52
Speaker 2: this report that probably aren't going to be repeated month
1:54
Speaker 2: after month. And see the components in here that tend
1:59
Speaker 2: to feed in into pc remain elevated PCE inflation. If
2:03
Speaker 2: you're new to the show, it is the Fed's preferred
2:06
Speaker 2: measure of inflation. All other inflation metrics are simply you know,
2:11
Speaker 2: sparkling inflation. Only one can be the Champagne of inflation.
2:14
Speaker 2: And so when you look at this, it's something where
2:18
Speaker 2: you say, yep, there's some continued progress on the inflation
2:21
Speaker 2: side of things. But here's the huge caveat that's out there.
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Speaker 2: The February data is pretty much taken from before a
2:30
Speaker 2: time when a lot of the tariffs that have now
2:32
Speaker 2: gone into place were in effect, and doesn't incorporate the
2:36
Speaker 2: potential for additional tariffs that are set to go into
2:39
Speaker 2: effect on April second. And so you combine all those
2:42
Speaker 2: different things, and the fascinating market move on this is Hey,
2:45
Speaker 2: even though that numbers came in a little bit better
2:47
Speaker 2: than expected, US bond market selling off just a touch,
2:51
Speaker 2: not a lot, But you got the ten year up
2:52
Speaker 2: about two point eight basis points, the five years up
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Speaker 2: three basis points, the thirty years up two point three
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Speaker 2: basis points. So the warm welcome that you would expect
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Speaker 2: where you say, hey, inflation's cooler. Great, That means people
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Speaker 2: should be flocking to bonds because it's not a concern. Instead,
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Speaker 2: you've got a little bit of a move in the
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Speaker 2: opposite direction, but nothing huge to be To be fair, let's.
3:13
Speaker 3: See what measures that filter out outliers, whether they come
3:17
Speaker 3: from food, energy, transportation, or some other sector. Measures like
3:21
Speaker 3: median and trimmed mean that better home in on the
3:24
Speaker 3: home in on the persistent component of inflation. Let's see
3:27
Speaker 3: what they say, they'll be out in a little bit.
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Speaker 2: They didn't around like eleven or eleven thirty Cleveland Fed
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Speaker 2: puts in there never.
3:33
Speaker 3: Those guys get into work.
3:34
Speaker 4: I don't know.
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Speaker 3: I don't know what the process is. It's it's it's
3:36
Speaker 3: it's it's mid morning. They have to they have to
3:38
Speaker 3: calculate it. I guess it takes a little bit.
3:40
Speaker 2: Why does it take so long to do that? I mean,
3:43
Speaker 2: it's it's.
3:43
Speaker 4: I'm with you.
3:44
Speaker 3: It should be you added to your six not that
3:46
Speaker 3: hard to do well. It doesn't see to me there
3:51
Speaker 3: are easy ways to do it. But to the PhD
3:54
Speaker 3: econments at the Cleveland Fed, who probably want to get
3:57
Speaker 3: it right and then have to have it proofed, it's
4:00
Speaker 3: I guess there's a longer process. The point I was
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Speaker 3: gonna make is, let's see what that says. Because it
4:05
Speaker 3: didn't raise the five alarm fire that the past couple
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Speaker 3: months month overchange did. And I rely most researchers rely,
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Speaker 3: and thus I do more on median and other measures
4:15
Speaker 3: that cut out the extremes. Trimmed mean is another. If
4:18
Speaker 3: you're familiar with these anyway. There are a bunch of them.
4:21
Speaker 3: Medians the easiest to explain and no less right than
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Speaker 3: any of the others. Let's see what it says there
4:27
Speaker 3: are Sometimes I go into my inflation unemployment trade off
4:30
Speaker 3: spiel and I talk about something called the Phillips curve
4:33
Speaker 3: that most economists still believe in in some form. Let's
4:36
Speaker 3: put that fundamental approach aside for now and just look
4:39
Speaker 3: at the month over month change. Zero point two percent
4:42
Speaker 3: is good, right, there's intertia, there's persistence in inflation changes.
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Speaker 3: So if we get a few low prints, that would
4:49
Speaker 3: suggest to me because because of the persistence, a low
4:55
Speaker 3: change tends to be followed, that is to say, by
4:58
Speaker 3: another low change. You could also call it to nurses.
5:00
Speaker 3: Some people do. That would be a good thing. I'm
5:02
Speaker 3: just gonna I'm not gonna look into the components and
5:04
Speaker 3: try to blame this or that underlying contributor. I don't
5:09
Speaker 3: like that approach. It doesn't do really, it doesn't do
5:12
Speaker 3: much as is in terms of forecasting accuracy over simpler approaches.
5:16
Speaker 3: So I'm just gonna take today's report at face value
5:18
Speaker 3: and say, oh, this is this is not bad news.
5:21
Speaker 2: Yes, but eggs.
5:24
Speaker 3: Yeah, eggs didn't show up well in food didn't it did?
5:29
Speaker 2: Uh? Printed another mean, look it was another ten point
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Speaker 2: four percent jump on that side of things.
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Speaker 1: What was that?
5:35
Speaker 3: What did I mean then? Like month over month relatives?
5:37
Speaker 3: What was I talking? Always have food went What I
5:39
Speaker 3: was saying what I meant to say was overall though,
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Speaker 3: food went down.
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Speaker 2: Correct. And this is part of the reason why, yes, yes, yes,
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Speaker 2: you can't just look at one item and be like, oh,
5:48
Speaker 2: that's driving in funation. Correct, because if people are spending
5:51
Speaker 2: more money on eggs absent a corresponding increase in income,
5:55
Speaker 2: which look, we all have seen like the story stories
5:59
Speaker 2: about you know, while house now charging a search charge
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Speaker 2: on eggs, and plenty of you know restaurants charging a
6:03
Speaker 2: shurch charge on egg based you know whatever, you know
6:06
Speaker 2: omelets and this and that. Does anyone does anyone work
6:10
Speaker 2: for a boss who said, you know, what price of
6:12
Speaker 2: eggs is up, here's some extra egg money for you know,
6:15
Speaker 2: And so what you see on the grocery side of things,
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Speaker 2: just as an example is, hey, if people are spending
6:20
Speaker 2: more on eggs, they can't spend as much on other stuff,
6:24
Speaker 2: and so other prices come down to offset that because
6:27
Speaker 2: you gotta clear the inventory of brought worst, and you
6:30
Speaker 2: gotta clear the inventory of lettuce and stuff like that.
6:33
Speaker 2: And so as an example, when you and again, this
6:36
Speaker 2: is not like a one to one thing. It's not like, oh,
6:38
Speaker 2: this is out always works. Bacon prices down two point
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Speaker 2: three percent for the month, Like is it specifically because
6:46
Speaker 2: of eggs?
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Speaker 4: I don't know.
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Speaker 2: Eggs and bacon go together. So if you're spending more
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Speaker 2: on eggs, maybe like, hey, I'll forgo the bacon this
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Speaker 2: month because I'm just gonna do the eggs for breakfast.
6:54
Speaker 2: I'm not gonna have the bacon this time. No other
6:57
Speaker 2: just random things that you see that. Again, it's it's
6:59
Speaker 2: not like this correlates with like anything in particular. Apples
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Speaker 2: down point eight percent for the month. Why I have
7:08
Speaker 2: no idea. I'm not an apple specialist, not what I do.
7:12
Speaker 2: Potatoes down point two percent. The roots are strong, you
7:16
Speaker 2: know whatever you're seeing. The point that I think Mark
7:20
Speaker 2: and I are both getting at is one price alone
7:23
Speaker 2: does not make inflation. It's you have to have a
7:27
Speaker 2: whole convergence of you know, kind of macro factors in
7:30
Speaker 2: order to lead to it. And this is why oftentimes
7:33
Speaker 2: when you see one price going up significantly, it doesn't
7:35
Speaker 2: reflect inflation in the broader index because other stuff has
7:38
Speaker 2: to come down because demand gets sucked out of that
7:41
Speaker 2: towards where the prices are higher.
7:43
Speaker 3: That some That somewhat depends on whether those other prices
7:45
Speaker 3: are flexible, the.
7:46
Speaker 2: Whole holastic, the demand.
7:47
Speaker 3: The reason the FED can affect the real economy is
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Speaker 3: that prices are sticky. If prices weren't sticky and the
7:53
Speaker 3: FED said we're gonna print more money, prices would just
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Speaker 3: go up. It wouldn't affect the real GDP.
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Speaker 2: Sure, so you.
7:58
Speaker 3: Economist struggle for a long time with an explanation for this.
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Speaker 3: I think the leading explanation now is price stickiness. Some
8:04
Speaker 3: would disagree, but they're a small minority. I think at
8:07
Speaker 3: this point, let's take a quick break.
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Speaker 2: I think that's enough on inflation, because quite honestly, in inflation, A,
8:13
Speaker 2: this is backwards looking, and B I think there's This
8:17
Speaker 2: is probably the least anticipated inflation report that I can remember. Like,
8:20
Speaker 2: no one's been talking about the setting into it. There
8:22
Speaker 2: are some other things going on, some more stuff going
8:25
Speaker 2: on exactly, So when we come back, we're going to
8:27
Speaker 2: be talking about what the EU is doing in response
8:29
Speaker 2: to US steel and aluminum tariffs that took effect to
8:32
Speaker 2: twelve oh one am this morning. How's the EU responding?
8:36
Speaker 2: We will let you know.
8:39
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Speaker 2: All right, So twelve oh one am today, blanket twenty
9:54
Speaker 2: five percent tariffs on all steel and aluminum imported into
9:57
Speaker 2: the United States was put in place by or we're
10:01
Speaker 2: put in place by the Trump administration. The EU announced
10:06
Speaker 2: retaliatory tariffs early today, and this is going They're going
10:10
Speaker 2: to begin at the beginning of April, and they're going
10:13
Speaker 2: to target a whole bunch of different US products that
10:16
Speaker 2: get exported whiskey, boats, motorcycles. There's a second set that
10:22
Speaker 2: is going to be likely coming in mid April after
10:26
Speaker 2: they have further internal consultation, and so it basically they're
10:30
Speaker 2: trying to say, look, the US imports somewhere in the
10:35
Speaker 2: ballpark of twenty eight billion dollars a year of these
10:38
Speaker 2: medals from the EU, and so they're trying to match
10:40
Speaker 2: the dollar value of what they are retaliating with. This
10:46
Speaker 2: is this is where you start to get to the
10:48
Speaker 2: ugly stuff, where it's just, you know, tit for tat,
10:50
Speaker 2: and you can't plan for you don't know what the
10:54
Speaker 2: resolution is going to be because ultimately this is a
10:57
Speaker 2: game of chicken and who blinks first, and you don't
10:59
Speaker 2: know when that's going to happen, and you don't know
11:01
Speaker 2: the exact resolution that you get to.
11:03
Speaker 3: I think what's missing here, and no leader at the
11:07
Speaker 3: national level has provided this for a long time, is
11:11
Speaker 3: straight talk to the American people about why the economic
11:14
Speaker 3: pain is worth it. The administration's new line about tariffs
11:19
Speaker 3: and other things is that we need to transition the economy.
11:23
Speaker 3: I don't know what that means, transition to what we've
11:26
Speaker 3: been growing at about three percent real that is after
11:29
Speaker 3: inflation for the past couple of years. I'm not a
11:32
Speaker 3: big fan of Biden's policies fiscally conservative, but just putting
11:37
Speaker 3: it out there so that people know I'm not an
11:39
Speaker 3: apologist or something or trying to defend the last guy.
11:41
Speaker 3: I'm not, and he never fully explained why he was
11:45
Speaker 3: doing what he was doing either. I think you need
11:47
Speaker 3: to look the American people in the eye and explain
11:50
Speaker 3: why the suffering will be worth it. So we're hearing
11:52
Speaker 3: this is going to be pain. We're hearing we're transitioning
11:55
Speaker 3: to what that could mean a lot of things. There
11:57
Speaker 3: could be, as we've talked about a lot, both here
11:59
Speaker 3: and in eternally, Chuck, good reason for imposing tariffs on
12:03
Speaker 3: China completely national security reasons. Absolutely, Every president in the
12:06
Speaker 3: modern era has used tariffs, not so whimsically as the
12:10
Speaker 3: current administration seems to be applying them, but every administration
12:13
Speaker 3: has used them. They're a reasonable tool. You can and
12:15
Speaker 3: honest people can disagree about them. But I think we
12:18
Speaker 3: need to know what we're transitioning to, how much pain
12:20
Speaker 3: is expected, and why it will be worth it. That
12:24
Speaker 3: would assuage market spheres too. When stocks go down, that
12:28
Speaker 3: means investor's verdict is this is not going to contribute
12:32
Speaker 3: to long term growth.
12:33
Speaker 2: Gohead so well, and I think part of it is
12:37
Speaker 2: answering the question of, Okay, when do you know that
12:40
Speaker 2: these have run their course and that you've made that adjustment,
12:44
Speaker 2: Because I think part of this is, you know, you
12:46
Speaker 2: have the chatter about, well, we want to bring manufacturing
12:49
Speaker 2: back to the United States, and okay, let's start with
12:53
Speaker 2: that as a premise. A couple of things. The first is,
12:57
Speaker 2: look the stuff between the US Canada and right now,
13:02
Speaker 2: if we're being completely honest, fundamentally can't be about bringing
13:06
Speaker 2: manufacturing back to the US because you can't build a
13:09
Speaker 2: factory in a day. I mean, we had tariffs yesterday
13:11
Speaker 2: that were like in theory, about to go into effect
13:14
Speaker 2: for six hours and then they were pulled back. So
13:17
Speaker 2: it's it's clear that that is not what's going on
13:21
Speaker 2: with Canada and Mexico. Is that fair because you've had
13:25
Speaker 2: things pulled back within the Spanish days and hours frustration,
13:29
Speaker 2: and so that can't be something where you're saying we're
13:32
Speaker 2: going to bring manufacturing back from Canada if you revoke
13:35
Speaker 2: the tariff six hours after, no one's going to build
13:37
Speaker 2: a factory not knowing what the tariff policy is going
13:39
Speaker 2: to be four years from now.
13:40
Speaker 3: What does it mean to bring manufacturing back during go ahead?
13:44
Speaker 2: No, no, go for it?
13:45
Speaker 3: Does it mean adding jobs? We added several hundred thousand
13:49
Speaker 3: manufacturing jobs the under the last Guy Biden. We lost
13:52
Speaker 3: manufacturing jobs under Trump one because of the recession. Was
13:56
Speaker 3: Trump one's policies were they a failure because we lost
13:59
Speaker 3: manuf facturing jobs or was it due to special factors
14:02
Speaker 3: that we're going to ignore I just don't know where
14:05
Speaker 3: the goalposts are. I don't know what the metric is
14:08
Speaker 3: we're using to define success, and therefore it's hard to
14:11
Speaker 3: know when when we're going to remove these tariffs, which
14:16
Speaker 3: we all admit cause pain, or everyone seems to admit.
14:20
Speaker 3: Hard to know because we don't know what the standard is.
14:23
Speaker 2: If you look in let's just look at manufacturing jobs.
14:25
Speaker 2: Just as an example, US manufacturing jobs peaked in nineteen
14:29
Speaker 2: seventy nine with about twenty million jobs. Now, I don't
14:32
Speaker 2: know exactly how big the labor force. Actually, I can.
14:35
Speaker 2: I can get that data. So let me get you
14:37
Speaker 2: the labor force size. So the US labor force, where
14:43
Speaker 2: is it? Here we go, there's a good one, okay.
14:46
Speaker 2: The time in nineteen seventy nine, the US labor force
14:48
Speaker 2: was one hundred and five million people, so manufacturing made
14:51
Speaker 2: up about twenty percent of the labor force. One in
14:54
Speaker 2: five workers in the United States was employed in manufacturing them. Today,
14:59
Speaker 2: manuf facturing is twelve point seven million people and the
15:02
Speaker 2: labor force is one hundred and seventy million, So basically
15:06
Speaker 2: like seven percent of all people in the labor force
15:09
Speaker 2: today are working in manufacturing job.
15:12
Speaker 3: It's been going steadily down with that proportion. It nothing's
15:15
Speaker 3: interrupted it virtually no.
15:16
Speaker 2: The one thing that you can say on this is
15:19
Speaker 2: there has been a recent uptick off the bottom that
15:23
Speaker 2: we saw in you know, after the Great Financial Crisis.
15:26
Speaker 2: There's been no further degradation in the number of manufacturing
15:30
Speaker 2: jobs since then. We've actually added about one and a
15:33
Speaker 2: half million manufacturing jobs since March of twenty ten. So
15:38
Speaker 2: I think that when you look at this a couple
15:40
Speaker 2: of things. The first is, if you want to get
15:42
Speaker 2: to a similar proportion of manufacturing in the United States
15:47
Speaker 2: as you had back in nineteen eighty, you're talking about
15:51
Speaker 2: needing twenty two million more people to go work in manufacturing.
15:56
Speaker 2: You got to triple the number of people that you
15:59
Speaker 2: have in manufact acting today. And so the first question
16:02
Speaker 2: that I ask on this is where are those workers
16:06
Speaker 2: going to come from? Because this, again, this is about
16:09
Speaker 2: manufacturing jobs. It's not just about making stuff. It's I've
16:13
Speaker 2: read and listened to Robert Litthheiser's book, and Lightheiser again
16:17
Speaker 2: is he puts together his compelling case is being able
16:22
Speaker 2: to make something is something that a you know, gives you,
16:27
Speaker 2: you know, the ability to earn higher wages because of
16:29
Speaker 2: the skill that's required and gives you personal satisfaction. Like
16:32
Speaker 2: this is the core of what he says out of this.
16:35
Speaker 2: I'm not going to come down whether or not it's.
16:37
Speaker 3: No, I'm not. I'm just saying, you know what, it
16:38
Speaker 3: reminds me. I remember the Jeffersonian agrarians who wanted everybody
16:42
Speaker 3: to be a yeoman farmer. They romanticize about fifty years again, it's.
16:45
Speaker 2: Fine, I'm not saying. I'm just not commenting on, you.
16:48
Speaker 3: Know, but you can't. You can't not comment on the
16:51
Speaker 3: merits of it because it's on its face silly.
16:53
Speaker 2: I'm commenting more on Let's talk about what they are trying, Like.
16:58
Speaker 3: Was that what they're trying to do?
16:59
Speaker 2: Though?
16:59
Speaker 3: Bring us back to those younail you read his book.
17:02
Speaker 2: The first three chapters of Wlitthheiser's book that came out
17:05
Speaker 2: last year were about this, like specifically, why do I
17:10
Speaker 2: believe this? And I think this is important because if
17:13
Speaker 2: you're talking about, like what are the metrics for success?
17:16
Speaker 2: There are two different ways that you can look at it.
17:18
Speaker 2: It's either more people being employed in the manufacturing sector
17:23
Speaker 2: or just more stuff being produced but not necessarily by
17:26
Speaker 2: more people. Greater efficiency in manufacturing.
17:29
Speaker 3: Which is what we've had by the way manufacturing production
17:31
Speaker 3: has been.
17:31
Speaker 2: And this is where I think it also gets a
17:33
Speaker 2: little bit confusing, because the Secretary of Commerce last week
17:37
Speaker 2: was being asked in a couple different interviews, Hey, why
17:40
Speaker 2: you know, how's this manufacturing going to come back? And
17:42
Speaker 2: he was talking about, well, it's going to be a
17:43
Speaker 2: lot of automation in factories, which goes exactly against what
17:46
Speaker 2: Litthheiser said. So this gets again it kind of what
17:49
Speaker 2: is the goal here? Is it to make more stuff
17:52
Speaker 2: in the US because you want greater security and stability,
17:56
Speaker 2: or is it to get more manufacturing jobs because you
17:58
Speaker 2: believe those are better paying, better jobs for people.
18:01
Speaker 3: I think when you base policy on forgive me but
18:04
Speaker 3: crackpot economic theory, you get all these divergent and incoherent
18:09
Speaker 3: views that, to me is the fundamental issue. None of
18:11
Speaker 3: this stuff makes sense or as consistent as you just
18:14
Speaker 3: pointed out.
18:15
Speaker 2: But the place that you get to on this when
18:16
Speaker 2: you're looking just at the numbers is the reason for offshoring.
18:22
Speaker 2: The reason why the US lost ten million manufacturing jobs.
18:25
Speaker 2: It's because it was cheaper. There's no other reason. It's
18:29
Speaker 2: not because we love putting stuff on boats from China
18:32
Speaker 2: and shipping it across the Pacific Ocean. It's not because
18:36
Speaker 2: we'd love to have, you know, all of our avocados
18:40
Speaker 2: imported from Mexico's because it's freaking cheaper. And so if
18:44
Speaker 2: you're going to reverse that, how do you deal with
18:47
Speaker 2: the higher cost? Because if companies could manufacture more cheaply
18:51
Speaker 2: here where they don't have to navigate currencies and you know,
18:54
Speaker 2: trade and potential tariffs and this and that, they'd rather
18:57
Speaker 2: do it here, way, way less complicated.
19:01
Speaker 3: Now, it's not just corporate profits. By the way, we're
19:03
Speaker 3: all better off free trade. It's called comparative well advantage.
19:07
Speaker 2: Let's this is the thing when we talk about we're
19:09
Speaker 2: all those fifteen million people that lost manufacturing jobs. This
19:14
Speaker 2: is the crux of the like and not just the
19:16
Speaker 2: manufacturing jobs, but the stuff that supported it. There is
19:20
Speaker 2: a large group of people in the United States that
19:22
Speaker 2: is not better off because of what happened. But how
19:25
Speaker 2: do we manage this is the question. Let's take a
19:29
Speaker 2: quick break here. When we come back, we got Wall
19:31
Speaker 2: Street watch and ask Todd Next.
19:41
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19:48
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19:54
Speaker 1: Watch a complete look at what's moving markets so far
19:57
Speaker 1: today right here on the Financial Exchange Radio Network.
20:01
Speaker 5: Markets are mixed territory, giving back some of their earlier
20:04
Speaker 5: gains as Wall Street digests the latest gauge on inflation,
20:07
Speaker 5: the Consumer Price Index, where consumer prices climb two point
20:11
Speaker 5: eight percent on an annual basis in February, softer than
20:15
Speaker 5: forecasts of two point nine percent. Investors also continue to
20:19
Speaker 5: sift through more tariff developments. Right now, the Dow is
20:23
Speaker 5: off by about a half a percent, or two hundred
20:25
Speaker 5: and five points, SMP five hundred is up by two
20:29
Speaker 5: tenths of a percent or eleven points, and the Nasdaq
20:32
Speaker 5: is up by eight tenths of a percent or one
20:34
Speaker 5: hundred and thirty four points. Rusted thousand edging two points higher,
20:38
Speaker 5: Tenure treasure Field is up by one basis point at
20:41
Speaker 5: four point two nine percent, and crude oil is up
20:46
Speaker 5: one and two thirds of a percent, rating just above
20:49
Speaker 5: sixty seven dollars a barrel. According to Reuters, Taiwan Semiconductor
20:53
Speaker 5: has approached Nvidia and other US chip companies about taking
20:57
Speaker 5: stakes in a joint venture that would operate Intel's factories.
21:01
Speaker 5: Intel jumping nearly four percent on the news. Meanwhile, amid
21:05
Speaker 5: disappointing sales data and concerns of CEO Elon Musk's role
21:09
Speaker 5: in the Trump administration, Tesla's shares rebounding over seven percent today.
21:14
Speaker 5: Overall this year, the stock has shed about thirty five percent. Elsewhere,
21:19
Speaker 5: stitch Fix down by seven percent after the online style
21:22
Speaker 5: and company hiked its fiscal year revenue outlook and reported
21:26
Speaker 5: a narrow quarterly loss in the latest quarter. Groupon posted
21:30
Speaker 5: better than expected fourth quarter revenue and full year revenue
21:34
Speaker 5: revenue guidance, setting shares in the digital marketplace up by
21:38
Speaker 5: thirty two percent. CrOx was upgraded by Loop Capital to
21:41
Speaker 5: buy from hold, where the firm said the stocks evaluation
21:44
Speaker 5: is attractive and has an entrance opportunity with the recent
21:48
Speaker 5: market volatility. Croc shares up by three percent. Pepsi downgraded
21:52
Speaker 5: to hold from buy A Jeffrey, citing the stock's limited
21:55
Speaker 5: upside given struggles in its US beverage business. Pepsi shares
21:59
Speaker 5: down by two percent and after today's closing bell, we'll
22:02
Speaker 5: see earnings from Adobe. I'm Tucker Silvan that's Wall Street Watch.
22:07
Speaker 1: This is Ask Todd on the Financial Exchange Radio network.
22:11
Speaker 1: If you have an existing estate plan or in the
22:13
Speaker 1: market for one, Todd Lutsky is here to answer your
22:16
Speaker 1: questions and help you plan for a later life. Ask
22:19
Speaker 1: Todd is presented by Cushing and Dolan, serving Massachusetts and
22:22
Speaker 1: New England for more than thirty five years, helping families
22:25
Speaker 1: with a state and tax planning, Medicaid planning, and probate law.
22:29
Speaker 1: Visit Cushingdolan dot com. Now here's Todd Lutsky.
22:34
Speaker 2: As promised, We're now joined by the one and only
22:37
Speaker 2: Todd Lutsky from the law firm of Cushing and Dolan.
22:41
Speaker 2: Segment is Asked Todd because this is your opportunity to
22:44
Speaker 2: ask Todd your questions about your state plan or about
22:48
Speaker 2: a family member's of state plans. So we got the
22:51
Speaker 2: phone lines open at eight eight eight to zero five
22:54
Speaker 2: two two six three. That number again is eight eight
22:58
Speaker 2: eight to zero five. Usually only enough time to get
23:02
Speaker 2: through two or three calls, so get calling to make
23:04
Speaker 2: sure your question gets heard by Todd. Eight eight eight
23:08
Speaker 2: to zero five two two six three. That number again
23:13
Speaker 2: is eight eight eight to zero five two two six
23:16
Speaker 2: three mister Lutsky, how are you doing today?
23:20
Speaker 4: I am doing great, and I'm gonna ask you, Yeah,
23:24
Speaker 4: how are you doing?
23:24
Speaker 2: I'm good? Oh yeah, I just I just took on
23:27
Speaker 2: a new role, actually a new role. It's a it's
23:30
Speaker 2: a pretty senior position at old McDonald's farm. Oh yeah,
23:34
Speaker 2: I'm the cieio. Oh yeah, that's good. Yeah, it's a
23:37
Speaker 2: new role. It's uh, it's pretty exciting stuff for me, Todd.
23:40
Speaker 2: I want to talk to you a little bit about
23:42
Speaker 2: a comparison of life estates versus irvocable trust when it
23:47
Speaker 2: comes to you know, give me I guess pros of
23:53
Speaker 2: life estates versus irvocable trusts? First, what are the advantages
23:56
Speaker 2: that a life estate confers versus an airvocable trust?
24:00
Speaker 4: So when you compare the two, I mean, I'm ultimately
24:03
Speaker 4: going to lean towards there being almost no comparison.
24:07
Speaker 2: I don't want to hear that right now.
24:08
Speaker 4: I know.
24:09
Speaker 2: I'll give you the what's the good of the life
24:12
Speaker 2: estate relative to the irrevocable trust?
24:15
Speaker 4: So if you have a life estate, right, and by
24:18
Speaker 4: the way, I'm going to explain it the way most
24:20
Speaker 4: people create it, because there's two ways to do it,
24:22
Speaker 4: but most people will create a life estate where they've
24:26
Speaker 4: taken their house and they've given it to the kids,
24:30
Speaker 4: and they've reserved the right to live there. Let's just
24:33
Speaker 4: say that. So if you're listening, folks, and you've done this,
24:35
Speaker 4: you know you've done it, you know who you are.
24:38
Speaker 4: So now you say, what have I done? What are
24:40
Speaker 4: the pros? He wants me to stick with the pros
24:43
Speaker 4: for a minute, the pros of doing that which don't
24:46
Speaker 4: involve the irrevocable trust at all. In this arrangement, you
24:50
Speaker 4: will have started a five year waiting period, and in
24:53
Speaker 4: five years, if it's on your house, please don't do
24:56
Speaker 4: a life estate on some other property, like a rental
24:59
Speaker 4: or something. Why well, because if it's not your primary
25:03
Speaker 4: residence and you get sick and go to the nursing home,
25:06
Speaker 4: then the value associated with your life interest remains at
25:12
Speaker 4: risk for the nursing home. But if it's your primary residence,
25:17
Speaker 4: then the value associated with the life estate is not
25:21
Speaker 4: at risk because the primary residence is a special asset
25:26
Speaker 4: that if you check a box and say I tend
25:28
Speaker 4: to return home, they'll make it non countable, so it
25:32
Speaker 4: still has the value same as if you did it
25:34
Speaker 4: with another building. But the difference is, because it's this
25:37
Speaker 4: special asset, it will be non countable when you're applying
25:42
Speaker 4: for medicaid. Okay, so now we've got the life estate,
25:46
Speaker 4: and I know that I've started my five year waiting period,
25:49
Speaker 4: and in five years I can feel comfortable that my
25:53
Speaker 4: entire house, not just a life estate, the entire house
25:57
Speaker 4: is protected from the cost of long term care. Well
25:59
Speaker 4: that's a pretty good thing, I would think. Second thing,
26:04
Speaker 4: the good news, if there is any is it avoids probate.
26:07
Speaker 4: So when I die, right when you die, if you
26:10
Speaker 4: have a life estate interest, the property just poof magically
26:13
Speaker 4: goes away and the remainderman, the kids, will now be
26:17
Speaker 4: the one hundred percent owner. Well, that's also helpful, I
26:20
Speaker 4: would think. And three, and maybe this is the last
26:24
Speaker 4: benefit is when you pass away, had you never sold
26:28
Speaker 4: the property, which is a whole other problem, but we
26:30
Speaker 4: won't talk about that now. When I pass away, the
26:35
Speaker 4: full value, not just the value of the life estate,
26:37
Speaker 4: but the full value of the property will be pulled
26:40
Speaker 4: back in to my gross estate, not my probate estate,
26:45
Speaker 4: causing there to be a full step up in basis
26:48
Speaker 4: for capital gains tax purposes. So when the kids who
26:52
Speaker 4: now own the property because a life estate vanished on
26:55
Speaker 4: my death, they have it with a brand new basis
26:59
Speaker 4: equal to fair market value. So if they sell it
27:03
Speaker 4: shortly after my death, there would be no capital gain
27:06
Speaker 4: sacks to be paid, so that that also was a
27:09
Speaker 4: pretty good benefit.
27:10
Speaker 2: Talking with Todd Lutsky from Cushing and Dolan. Still room
27:12
Speaker 2: on the phone lines at eight eight eight to zero
27:15
Speaker 2: five two two sixty three. That is the number to
27:18
Speaker 2: call to ask Todd your estate planning questions live on
27:22
Speaker 2: air right now eight eight eight to zero five two
27:26
Speaker 2: two six three. We're gonna take a quick break here,
27:29
Speaker 2: but when we come back, we are gonna get to
27:32
Speaker 2: your questions with Todd. Eight eight eight to zero five
27:36
Speaker 2: two two sixty three is the number. One more time,
27:40
Speaker 2: call Todd right now at eight eight eight to zero
27:43
Speaker 2: five two two six three.
27:46
Speaker 1: Ask Todd with Todd Lutsky every Wednesday at ten thirty
27:50
Speaker 1: only here on the Financial Exchange Radio Network. You're listening
27:56
Speaker 1: to Ask Todd with Todd Lutsky on the Financial Exchange
27:59
Speaker 1: Rate you network.
28:08
Speaker 2: Still a bit of room on the phone line, So
28:10
Speaker 2: if you got a question for Todd eight eight eight
28:13
Speaker 2: two zero five two two six three, got room for
28:16
Speaker 2: one more if anyone's interested. Eight eight eight two zero
28:20
Speaker 2: five two two sixty three is the number to call
28:22
Speaker 2: to ask Todd your state planning questions. We go now
28:25
Speaker 2: to John in Amesbury. John, what is your question for Todd? Letsky?
28:31
Speaker 6: Okay, Well, I have a home and I have a
28:33
Speaker 6: camp in New Hampshire. The home I plan on selling,
28:37
Speaker 6: let's say within the next two years, maybe longer, but
28:41
Speaker 6: the camp I would like to put in a you know,
28:44
Speaker 6: irrevocable trust and give it give it to the kids.
28:49
Speaker 6: Is there is there a problem, you know, session in
28:51
Speaker 6: case anything happened I needed to go into the nursing.
28:54
Speaker 6: Is there a problem with that? Because I imagine it
28:57
Speaker 6: is not considered my primary resident right now, but once
29:01
Speaker 6: I sell the house, I plan on moving into that.
29:04
Speaker 4: So a couple of questions, John, are you married?
29:08
Speaker 1: Yes?
29:08
Speaker 4: Okay? So I would tell you first and foremost one, Yes,
29:14
Speaker 4: you can put the camp into an irrevocable trust. When
29:18
Speaker 4: I was discussing earlier the life estate, that was just
29:21
Speaker 4: how it works with a life estate for your home, right,
29:24
Speaker 4: I would just put the whole camp in. I would
29:27
Speaker 4: even put your whole home in and not reserve a
29:29
Speaker 4: life state. You don't need to reserve a life state.
29:31
Speaker 4: In fact, the life estates are not something that I
29:34
Speaker 4: do very often. They're just done sometimes right generally, you
29:40
Speaker 4: don't even need to reserve one. Just put the whole
29:43
Speaker 4: darn property. And I like that a whole lot better
29:47
Speaker 4: than doing a life estate at all. And so let's
29:51
Speaker 4: first talk a minute about your home. I mean, the
29:54
Speaker 4: home is a valuable asset. It's worth some money if
29:56
Speaker 4: you sell it. There's no reason not to put the
29:58
Speaker 4: home in if per protecting either the home or the
30:03
Speaker 4: future money from the sale of the home from probate
30:08
Speaker 4: in taxes and nursing homes is on your mind, just
30:12
Speaker 4: like with the camp in New Hampshire. So both of
30:16
Speaker 4: those can go into an irrevocable trust. Depending on how
30:20
Speaker 4: much you're worth. We might need one for husband and
30:22
Speaker 4: one for wife, or we can just do you know,
30:25
Speaker 4: just do one if the estate is under like two
30:29
Speaker 4: million dollars. So that's the Massachusetts exemption amount. Now why
30:34
Speaker 4: I say that is because a lot of people don't
30:37
Speaker 4: understand the irrevocable trust, and so they think I'm putting
30:42
Speaker 4: my house in the irrevocable trust. And I can't sell
30:44
Speaker 4: it in two years or three years or four years
30:45
Speaker 4: whenever you want to sell it. That's incorrect. You can
30:49
Speaker 4: sell it any time you want to sell it. In fact,
30:50
Speaker 4: you direct the sale and the trust actually does the selling.
30:55
Speaker 4: So what would happen is the house would go out
30:58
Speaker 4: and the money would come in. And we make these
31:01
Speaker 4: trusts grant or trusts for income tax purposes, so you
31:04
Speaker 4: still get your same capital gains exclusion associated with the
31:09
Speaker 4: sale of selling your primary residence. And that's why I
31:11
Speaker 4: asked you. If you're married, the first five hundred thousand
31:14
Speaker 4: dollars of gain not proceeds gain is tax free, even
31:21
Speaker 4: if it's owned inside this irrevocable trust. So by putting
31:26
Speaker 4: it in, you start your five year waiting period. And
31:29
Speaker 4: even if you sell it three years from now down
31:31
Speaker 4: the road because you're ready to move up to New
31:33
Speaker 4: Hampshire and maybe move into the camp, no problem. The
31:39
Speaker 4: money is now in the trust protected. And I think
31:42
Speaker 4: most importantly what people don't realize is you did not
31:47
Speaker 4: reset that five year waiting period. So now the money
31:51
Speaker 4: that's in the trust will be protected in two more years.
31:54
Speaker 4: So if I sold it in three the money's protected
31:56
Speaker 4: in two more years, so wonderful flexibility for you. And
32:01
Speaker 4: then you move into the main the camp in New
32:04
Speaker 4: Hampshire rather and meanwhile that's been sitting in the trust
32:08
Speaker 4: for three years and two more years the camp will
32:11
Speaker 4: be protected and then you can live in the camp.
32:13
Speaker 4: You can you know, run the camp. You can collect
32:15
Speaker 4: the revenue, the income from the camp and live out
32:18
Speaker 4: your life. That's fine. And if you're in New Hampshire,
32:20
Speaker 4: you don't even have to worry about the Massachusetts state
32:22
Speaker 4: tax at the time. So I think you're on the
32:25
Speaker 4: right track here, John, I would get some guidance. I
32:28
Speaker 4: think the irrevocable trust is the way to go for
32:31
Speaker 4: you and your family. And I think it's going to
32:33
Speaker 4: help you with not only taxes, probate and protection from
32:36
Speaker 4: the nursing home and lastly get it to your family.
32:40
Speaker 4: I think the way you want it to get there,
32:42
Speaker 4: you can control it even after you're gone. So folks,
32:44
Speaker 4: great idea, John on that one. I hope that helps
32:47
Speaker 4: a lot of people in their thinking because that's an
32:51
Speaker 4: irrevocable trust discussion. But the guide we're giving away is
32:55
Speaker 4: all about life estates, right, and again this is where
32:58
Speaker 4: people think a short ut might be a better way
33:02
Speaker 4: to do then to do your state planning.
33:05
Speaker 1: Right.
33:05
Speaker 4: Oh, it's quicker, it's faster, it's cheaper, it's easier. I
33:09
Speaker 4: don't think it's any of those quite frankly, but people
33:12
Speaker 4: do it. So if you've done a life estate and
33:14
Speaker 4: you want to really understand what you've did, get the guide.
33:18
Speaker 4: If you've not done a life estate and you're thinking
33:20
Speaker 4: of either giving away your house completely or setting up
33:24
Speaker 4: a life estate by giving it to your children, get
33:27
Speaker 4: the guide. And also it explains how to set up
33:30
Speaker 4: a life estate using a trust, which is better or
33:32
Speaker 4: I should say, less bad than the first approach. There's
33:36
Speaker 4: tax issues, there's control issues. Get the Guide eight six
33:40
Speaker 4: six eight four eight five six nine nine or Legal
33:44
Speaker 4: Exchange Show dot com again eight six six eight four
33:48
Speaker 4: eight five six nine nine or Legal Exchange Show dot com.
33:53
Speaker 2: Todd talking about taxes as it relates to the use
33:56
Speaker 2: of an irvocable trust, How does an irrevocable trust impact
33:59
Speaker 2: in income taxes on a yearly basis?
34:02
Speaker 4: Yeah, And I think that's important because we kind of
34:04
Speaker 4: talked a little bit about that. When John called right,
34:07
Speaker 4: it was that idea of well, you know, I've got
34:09
Speaker 4: my house and I might not want to put it
34:11
Speaker 4: in the trust because I'm going to be selling it. Folks,
34:14
Speaker 4: no reason not to do that. And if one of
34:16
Speaker 4: the reasons you were thinking was taxes, that's incorrect because
34:22
Speaker 4: these trusts are grant or trust, which in English means
34:27
Speaker 4: you mom and dads of the world are John's of
34:30
Speaker 4: the world are the owner for income tax purposes. So
34:34
Speaker 4: what that means is the tax the trusts are income
34:38
Speaker 4: tax neutral. Let me give you an example. Let's say
34:42
Speaker 4: we put into the trust, you know, a million dollar
34:46
Speaker 4: investment portfolio and a rental property. Well, that's going to
34:51
Speaker 4: be kicking out a lot of income rent interest dividends. Right. Well,
34:55
Speaker 4: every year we're going to have to do something right
34:57
Speaker 4: from a tax perspective, and in fact, we're coming up
35:00
Speaker 4: on tax season, so everybody who's got one of these
35:02
Speaker 4: needs to think about this. All the income that is
35:05
Speaker 4: generated by that trust is going to be reported on
35:09
Speaker 4: a Form ten forty one. It's an income tax return.
35:11
Speaker 4: So I guess answer your question. The only issue is
35:14
Speaker 4: with these trusts, you do have to file an extra return.
35:17
Speaker 4: That's about the biggest downside. Because there's zero tax due
35:21
Speaker 4: at the trust level, everything will just flow out and
35:24
Speaker 4: be picked up on your personal income tax return and
35:28
Speaker 4: you pay the same tax.
35:30
Speaker 2: What about when you die? And what I mean by
35:33
Speaker 2: that is, normally person passes away assets that are owned
35:39
Speaker 2: by them in after tax accounts or assets that are
35:41
Speaker 2: you know, real estate, whatever it is, receives a step
35:44
Speaker 2: up in cost basis to the date of their passing.
35:47
Speaker 2: If an asset is owned by one of these irrevocable trusts,
35:52
Speaker 2: does that still happen?
35:53
Speaker 4: And that is very important because a lot of assets
35:56
Speaker 4: that are in there have grown over time. Lots of
35:59
Speaker 4: times people do put their houses in that they might
36:01
Speaker 4: have bought forty years ago, put that vacation property in
36:05
Speaker 4: that has really spiked in value. So very important that
36:08
Speaker 4: you get to step up. And many people, even accountants
36:11
Speaker 4: that read these right off the bat, their first question is, oh,
36:14
Speaker 4: since it's an irrevocable trust, did you make a gift?
36:17
Speaker 4: Is it not going to be included in your state?
36:19
Speaker 4: Are you not going to get this step up in basis?
36:21
Speaker 4: The quick answer is these trusts are designed to cause
36:24
Speaker 4: the gift, to cause the transfer to be included in
36:27
Speaker 4: the that you transfer to the trust is an incomplete
36:31
Speaker 4: gift for gift tax purposes, which means you don't have
36:35
Speaker 4: to file a gift tax return. And number two, because
36:38
Speaker 4: you've retained an income interest for life, the right to
36:42
Speaker 4: live there, the right to collect income interest. It's fully
36:45
Speaker 4: included in your gross estate, but not your probated state,
36:51
Speaker 4: so you avoid the probate. But the inclusion allows the
36:55
Speaker 4: asset to get a full step up in basis, just
36:58
Speaker 4: like if you had died owning it in your own name.
37:01
Speaker 2: Todd Lutsky, I appreciate you joining us today. Thank you
37:04
Speaker 2: so much for the time.
37:05
Speaker 4: It's always my pleasure. Thank you.
37:08
Speaker 1: This has been Ask Todd on the Financial Exchange Radio network.
37:12
Speaker 1: Ask Todd with Todd Lutsky has been presented by Cushing
37:15
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
37:29
Speaker 1: Cushing and Dolan. Armstrong Advisory does not provide any legal
37:31
Speaker 1: or tax advice. Please consult with your legal 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.