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AI Jitters Return: Is the Magnificent Seven Losing Its Grip? · The Financial Exchange Show

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Speaker 1: Paul Lane and Mark Vandetti.
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Speaker 2: Welcome, Welcome, welcome to this Wednesday edition of the Financial Exchange.
1:14
Speaker 2: Hopefully most everyone out there listening to the New England
1:18
Speaker 2: area has shoveled themselves out. Quick check on Tucker no
1:22
Speaker 2: longer at a hotel. Right back home, sweet home. Yeah,
1:25
Speaker 2: still awaiting power, no power, no power. But hopefully we
1:29
Speaker 2: whacked the end of the week. Perhaps the power I
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Speaker 2: don't know.
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Speaker 3: I don't know.
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Speaker 2: It could be a year.
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Speaker 4: I'll continue to check in with the fact that the
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Speaker 4: power still goes out is kind of mind boggling in
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Speaker 4: the twenty first century. While AI is just making these
1:41
Speaker 4: incredible strides, it's in technology, it's as well we can't
1:44
Speaker 4: keep the power on anyway.
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Speaker 2: We start today's show markets in relatively positive territory. The
1:51
Speaker 2: big headline this afternoon will be in video who will
1:55
Speaker 2: report their earnings after the bell. Will also have a
1:59
Speaker 2: couple other earning supports that will be keyed on. We
2:01
Speaker 2: did get some earnings data over the last few days
2:04
Speaker 2: from some of the retailers in the home improvement space.
2:07
Speaker 2: We had Lows come out with their earnings and then
2:09
Speaker 2: Home Depot earlier this week. The biggest news of the
2:12
Speaker 2: week was probably On Monday, a little known research lab
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Speaker 2: came out with a report that was sort of presenting
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Speaker 2: a dystopian view on AI and what it could mean,
2:22
Speaker 2: and just really pointed to how jittery markets can be.
2:25
Speaker 2: Is after the release of that report, we saw a
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Speaker 2: lot of the major industies down about a full percent.
2:31
Speaker 2: They did rally back a bit on Tuesday, but we
2:34
Speaker 2: head into today's show on Wednesday still sort of discussing
2:37
Speaker 2: the same things, and I sort of want to start
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Speaker 2: the program with sort of just taking a look at
2:42
Speaker 2: where the markets sit year to date. And what's really
2:45
Speaker 2: interesting to me, Mark is so much of the accretion
2:49
Speaker 2: that we've seen for portfolios over the last few years
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Speaker 2: has come on the backs of the Magnificent seven, and
2:54
Speaker 2: we've talked about the Mad Nauseum at this show that
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Speaker 2: has been really the fulcrum for the stock market growth
3:00
Speaker 2: we've seen the last few years. But this year, and
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Speaker 2: granted we're only two months in, so it's a small
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Speaker 2: sample size. The equal weight S and P five hundred
3:08
Speaker 2: benchmark out there, which has all the five hundred companies
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Speaker 2: equally weighted rather than the traditional S and P five
3:15
Speaker 2: hundred that we talk about so frequently, and how it's performing,
3:18
Speaker 2: which has weights that the differentiate based on the size
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Speaker 2: of the companies that S and P five hundred is
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Speaker 2: overly concentrated in the big names that we talk about
3:27
Speaker 2: so frequently, the NVIDIAs, the Googles, the Microsofts of the world.
3:31
Speaker 2: But the equal weight index year to data is up
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Speaker 2: about six and a quarter percent compared to the S
3:37
Speaker 2: and P five hundred, which is relatively flat, just slightly
3:40
Speaker 2: up close to about a percent year date. And it
3:43
Speaker 2: speaks to this dichotomy of what we've seen in the
3:46
Speaker 2: first two months of the year, where we've seen a
3:48
Speaker 2: very strong earning season for Q four, which companies in
3:52
Speaker 2: the S and P five hundred have grown their earnings
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Speaker 2: by thirteen percent. That was six percentage points better than anticipated.
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Speaker 2: Yet this market has a heavy tilt and concentration to
4:04
Speaker 2: the technology sector, which makes up about a third of
4:07
Speaker 2: the S and P five hundred. And then if you
4:08
Speaker 2: go down the line to some of the other more
4:11
Speaker 2: heavily weighted sectors such as financials and communication services, which
4:16
Speaker 2: encompasses companies that are pretty close to tech. If you
4:19
Speaker 2: call Meta and Google, they can be very closely associated
4:24
Speaker 2: with tech companies. Those are a significant part of the
4:26
Speaker 2: communication services. But you've had these other sectors like energy
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Speaker 2: and materials and industrials perform quite well, but they just
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Speaker 2: don't hold a lot of way in the index. And
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Speaker 2: that's where we sit today.
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Speaker 3: Will maybe that's where we give it time.
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Speaker 2: That's where we sit today, where the market year to
4:44
Speaker 2: date relative flat. Don't get me wrong, we had a
4:46
Speaker 2: tremendous year last year, So I'm not saying this is
4:48
Speaker 2: some huge issue, but it is noteworthy where that equal
4:52
Speaker 2: weight S and P five hundred benchmark has so dramatically
4:56
Speaker 2: underperformed in years past, but this year it's actually holding
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Speaker 2: its own.
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Speaker 3: Yeah, it's got more, it's smaller on average, and it's
5:04
Speaker 3: more value oriented on average. Now that's jargon. I need
5:06
Speaker 3: to stop and briefly explain, and don't let me carry on,
5:10
Speaker 3: just you know, interrupt if I go on or on.
5:14
Speaker 3: If you were building a stock portfolio from scratch, and
5:17
Speaker 3: there were say ten stocks available in the whole world,
5:20
Speaker 3: how would you would you buy one tenth of each?
5:23
Speaker 3: How would you wait them? This was a question that
5:25
Speaker 3: researchers grappled with for decades. The consensus and this is
5:31
Speaker 3: based on theory, but it's also quite practical and easy
5:36
Speaker 3: to implement. The idea is you buy them in proportion
5:39
Speaker 3: to how big they are, which is defined by the
5:43
Speaker 3: value of their stock outstanding. It's a market capitalization weighted
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Speaker 3: approach the S and P, and we say market cap
5:50
Speaker 3: weighted for short. So there's a little explanation for the
5:53
Speaker 3: jargon behind index construction for indices like the S and
5:56
Speaker 3: P five hundred GUS.
5:57
Speaker 2: And market CAB. The simple way I like to explain
5:59
Speaker 2: it is, I mean, first of all, it's the number
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Speaker 2: of shares outstanding for a given company times the price
6:03
Speaker 2: that gets you there.
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Speaker 3: How much is worth?
6:05
Speaker 1: Right?
6:05
Speaker 2: But how much is worth? Is really what I like
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Speaker 2: to focus on with clients is just to explain that, hey,
6:09
Speaker 2: if Mark and I wanted to go out and buy
6:11
Speaker 2: in Nvidia, well the starting point should be about four
6:13
Speaker 2: point seven trillion, because that's what their market cap is today.
6:16
Speaker 2: But you better believe it it's.
6:17
Speaker 3: Relative, because how much in Vidia should I own relative
6:20
Speaker 3: to Exon Mobile or Microsoft or Oh.
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Speaker 2: I just meant if we wanted to buy them outright,
6:25
Speaker 2: and I just jokingly.
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Speaker 3: You know, we had two companies and we want we
6:29
Speaker 3: want to own as much as the stock as we could.
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Speaker 3: How would you wait them, would you buy an equal
6:33
Speaker 3: amount of each that's the equal weighted approach that you
6:36
Speaker 3: cited earlier, or would you buy them in proportion to
6:38
Speaker 3: what investors think they're worth. That's the market capitalization weighted
6:42
Speaker 3: approach followed more or less buy S and P in
6:45
Speaker 3: its construction of all its indusies. We talk about the
6:48
Speaker 3: S and P five hundred. That's large gap, but there's
6:50
Speaker 3: a four hundred for small cap, excuse me for MidCap,
6:53
Speaker 3: and a six hundred for small gap, and have fifteen hundred.
6:56
Speaker 3: There's a bunch. There's the Rustle one thousand family of indicies,
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Speaker 3: there's the foot see fit right, they all they all
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Speaker 3: follow the market cap weighted approach, unlike the Dow Jones,
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Speaker 3: which is price weighted. So different animal entirely. So, the
7:10
Speaker 3: weight of a company in the index is not decided
7:13
Speaker 3: upon by the index providers, decided upon by by us
7:16
Speaker 3: how much we're willing to bid up a stocks price,
7:19
Speaker 3: which is in turn presumably driven by what we think
7:21
Speaker 3: of its prospects. So, to bring this back to the
7:25
Speaker 3: point you made about equal weight versus say, market cap weight.
7:29
Speaker 3: If you think about what an equal weighted index approach
7:32
Speaker 3: does is it owns less of the biggest companies right right,
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Speaker 3: just it has to, so that gives it its small
7:38
Speaker 3: cap bias.
7:39
Speaker 2: Sorry guy, Yeah, the size of Nvidia or the size
7:43
Speaker 2: of Lows or Visa or McDonald's are all equal within
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Speaker 2: that yes, five hundredth of each, rather than the S
7:52
Speaker 2: and P five hundred which we talk about so frequently,
7:54
Speaker 2: where in Vidia is somewhere like seven or eight percent
7:57
Speaker 2: of the whole thing there. So that's been the interesting
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Speaker 2: sort of start to the year. The other sort of
8:04
Speaker 2: noteworthy piece just tracking markets has been how the AI
8:07
Speaker 2: trade has evolved. Where it seemed like for last year
8:11
Speaker 2: in video was truly the bell weather of AI optimism
8:15
Speaker 2: or pessimism, depending on how they came out with their
8:17
Speaker 2: quarterly earnings, And it seemed like as they came out
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Speaker 2: with strong earnings, it sort of lifted all boats in
8:23
Speaker 2: that sector. It seemed as if the enthusiasm regarding AI companies,
8:28
Speaker 2: all of them would move in a positive territory where sorry,
8:32
Speaker 2: do you do you agree with you?
8:33
Speaker 1: Absolutely?
8:33
Speaker 3: I want to introduce some more jargon because sometimes you
8:35
Speaker 3: hear the term beta thrown around and people wonder what
8:38
Speaker 3: does that mean. Well, it's the Greek letter for it's
8:40
Speaker 3: the equivalent Greek of B, and it looks like a bee.
8:44
Speaker 3: What is the significance of beta? It's that tide lifting
8:48
Speaker 3: all boats approach. And you can even think of beta
8:51
Speaker 3: B as being analogous to boats going up, So B
8:55
Speaker 3: for boat, B for beta the tide lifts all the boats.
8:58
Speaker 3: How much does your stock go up? Whatever happens to
9:00
Speaker 3: be when all boats when the tide goes up, you
9:04
Speaker 3: say it has a beta of one if it tends
9:06
Speaker 3: to rise one for one with the market market goes
9:08
Speaker 3: up one percent, IBM goes up one percent, for example,
9:11
Speaker 3: IBM actually as a beta historically a little less than that.
9:14
Speaker 3: Maybe not the best example, but anyway, tech stocks tend
9:16
Speaker 3: to be higher beta, right yep, they tend to go
9:19
Speaker 3: up by more than the market when the market goes up,
9:21
Speaker 3: and maybe consumer staple stocks lower beta right less than
9:25
Speaker 3: the market when the market goes up. So, just to client,
9:27
Speaker 3: since we're doing jargon or demystification, or at least I
9:31
Speaker 3: am today, I thought i'd mention that.
9:33
Speaker 2: So where we sit now is that was sort of
9:36
Speaker 2: last year's paradigm where it seemed as if hey, any
9:39
Speaker 2: positive news on the AI front, it lifted all of
9:42
Speaker 2: these respective boats. In the tech sector where we sit
9:45
Speaker 2: this year, it has been a story much more of
9:48
Speaker 2: the sort of ciphering out of who is going to
9:51
Speaker 2: be the individual winner or loser of this technology revolution,
9:55
Speaker 2: And obviously the ones that have been most beat up
9:57
Speaker 2: most significantly is those companies that are or in the
10:00
Speaker 2: software space. There is fears that loom out there that
10:04
Speaker 2: the ability of artificial intelligence to write code to create
10:07
Speaker 2: some of these software programs that you may use on
10:10
Speaker 2: your day, day to day job or may have encountered
10:13
Speaker 2: in the past where there it be TurboTax under into
10:15
Speaker 2: its umbrella or salesforce for your client relationship management software
10:20
Speaker 2: at work, that this new technology could be able to
10:23
Speaker 2: do that more easily. That has led to significant selloffs
10:28
Speaker 2: in one stock or another on a given day. And
10:31
Speaker 2: so as we head into in Video's earnings coming out
10:34
Speaker 2: at the end of the day today at four o'clock,
10:38
Speaker 2: there is perhaps mention less emphasis on the numbers that
10:42
Speaker 2: are going to come out with It will be interesting
10:43
Speaker 2: to see how the market reacts. But really we sit
10:46
Speaker 2: in a point in time now where it seems like
10:48
Speaker 2: on any given day there is a tremendous amount of
10:50
Speaker 2: jitters for the market, trying to look to see what
10:53
Speaker 2: direction these individual winners and losers may trend with artificial intelligence.
10:59
Speaker 2: We're going to take a quick break here on the
11:01
Speaker 2: Finished Exchange. When we come back, when we talking a
11:04
Speaker 2: little bit more about the AI frenzy and some of
11:06
Speaker 2: the investors out there that are shorting some of the
11:09
Speaker 2: big names in the AI space. That's right after this
11:11
Speaker 2: break here on the Finished Exchange.
11:13
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12:27
Speaker 2: Peace. Here in the Wall Street Journal, skeptical investors are
12:30
Speaker 2: hunting for ways to short the AI frenzy. A little
12:33
Speaker 2: bit of a misleading headline in that when you sort
12:36
Speaker 2: of dive through the details of this piece, I don't
12:39
Speaker 2: know if the AI frenzy is being overly shorted. Some
12:43
Speaker 2: examples cited in this piece are there's a way that
12:46
Speaker 2: you can track what companies are being shorted, and again,
12:50
Speaker 2: to further the explanation on financial jargon, shorting is just
12:54
Speaker 2: basically betting on a stock to go down in value.
12:57
Speaker 2: You borrow shares with the whole that you return it
13:01
Speaker 2: and the price of it is lower than where you
13:04
Speaker 2: borrowed those shares. But long and short of it, you
13:06
Speaker 2: think the stock is going to go down, it can
13:09
Speaker 2: be very dangerous because your losses are unlimited, because a
13:14
Speaker 2: stock theoretically could just keep going up and up and
13:17
Speaker 2: up and put you in a very difficult position. Often
13:20
Speaker 2: it is utilized by hedge fund managers and other sophisticated
13:25
Speaker 2: investment firms as a hedging mechanism or there's many different
13:28
Speaker 2: iterations that you can take with it, but this piece
13:31
Speaker 2: in particular focus on hedge fund managers who may be
13:33
Speaker 2: shorting some of these larger companies. The shorting got really
13:38
Speaker 2: popular when the meat stock rage was all that we
13:42
Speaker 2: would talk about on the markets in twenty one, where
13:45
Speaker 2: Game stock was an example of a company that investors,
13:48
Speaker 2: retail investors found out was heavily shorted by some of
13:51
Speaker 2: these head funds professionals, and they just decided they were
13:53
Speaker 2: going to continue to buy it, and that can create
13:55
Speaker 2: what's called a short squeeze, and it just makes the
13:58
Speaker 2: stock continue to rise sort of in this meteoric fashion.
14:01
Speaker 2: The companies that we're talking about here that are mentioned
14:05
Speaker 2: to be shorted include much larger names like Oracle and
14:09
Speaker 2: Nvidia and others. But the way that you can track
14:12
Speaker 2: the amount of shorting within a company is called it's
14:14
Speaker 2: short interest and if you look at Oracles, for example,
14:17
Speaker 2: they cite that perhaps now two percent of it as
14:20
Speaker 2: of January thirtieth is short that's up from about one
14:24
Speaker 2: and a half percent a year earlier. So these levels
14:27
Speaker 2: of shorting are still very small relative to the larger
14:31
Speaker 2: shorter interest you might see on much smaller name companies
14:34
Speaker 2: out there that have much more dismal business prospects than
14:38
Speaker 2: something that is as significantly in size as Oracle. But
14:43
Speaker 2: in general, it is an area that there's tremendous amount
14:47
Speaker 2: of angst, and as a result, you do have companies
14:51
Speaker 2: looking for ways to whether it's hedge their bets or
14:54
Speaker 2: look for potential opportunities to make a profit by short
14:59
Speaker 2: in the a trade. All also mentioned this idea of
15:01
Speaker 2: looking for AI companies in their debt that they're issuing,
15:05
Speaker 2: so rather than buying stock in the company or barring
15:08
Speaker 2: stock in the company hoping it's going to go down.
15:10
Speaker 2: Also scrutinizing the idea of, you know, the debt shorting
15:14
Speaker 2: that as well.
15:15
Speaker 3: Yeah, we talked earlier about the best way to build
15:18
Speaker 3: an index fund, and I don't mean best as in
15:21
Speaker 3: best for everybody. I mean best is in on average,
15:25
Speaker 3: something everybody could participate in, and we talked about market cap
15:28
Speaker 3: weight weighted indicies. One of the reasons why they become
15:31
Speaker 3: so popular is that they're a good benchmark, not just
15:33
Speaker 3: for you and I investing through our four oh one
15:35
Speaker 3: K plans, who just we just want to participate in
15:38
Speaker 3: economic growth through earnings and stock appreciation hopefully over time.
15:43
Speaker 3: There are some manager there are some investors and investment
15:46
Speaker 3: managers out there who want to beat the index. Right,
15:48
Speaker 3: So you could do that by equal waiting, like you
15:50
Speaker 3: talked about in the last segment. That is a different
15:52
Speaker 3: then market capitalization weighted approach by definition, and it has
15:56
Speaker 3: the potential to outperform or under perform the market. Short
15:59
Speaker 3: Selling is there's another way you could beat the end.
16:01
Speaker 3: There are managers who short sell, I should say, who
16:05
Speaker 3: do so to try to beat the index. So it's
16:07
Speaker 3: just another sort of tool in some people's tool kit.
16:11
Speaker 2: Right exactly. And again here I don't want to make
16:14
Speaker 2: it seem as if there is significant short positions out there,
16:17
Speaker 2: but it is a strategy that is being deployed by
16:21
Speaker 2: some of the traders out there and perhaps could create
16:23
Speaker 2: more volatility in the space if it doesn't.
16:26
Speaker 3: Like you said, a short as interest grows, the impact
16:30
Speaker 3: of a so called short squeeze, when the stock price
16:32
Speaker 3: starts to go up and you realize, oh my god,
16:34
Speaker 3: I have to give this security back buy it back
16:37
Speaker 3: at a higher price than I paid, can push the
16:41
Speaker 3: price up very Just as we're all used to sharp
16:44
Speaker 3: drops in stocks, you can also see sharp rises. And
16:47
Speaker 3: people always point to short squeezes as being the culprit,
16:50
Speaker 3: so they could be destabilizing. The interesting question is when
16:53
Speaker 3: you see short interest grow, is that a bullish or
16:56
Speaker 3: a bearish sign? If you're a contrarian, you think, well,
16:59
Speaker 3: the more people that are pine into this so called
17:01
Speaker 3: short trade, the more hedge fund managers who can short
17:06
Speaker 3: and use derivatives and stuff like that is distinguished from
17:08
Speaker 3: the strategies that most of us use. The more they're
17:12
Speaker 3: piling into a short trade, do you say, pursue a
17:16
Speaker 3: contrarian route and bet against that just by buying it?
17:19
Speaker 2: Yep, Yeah, all interesting components. The market works, and either
17:24
Speaker 2: do I workday guides for subscription revenue growth to slow
17:29
Speaker 2: mid AI worries. This is a company that has been
17:32
Speaker 2: catching some of the shrapnel from the software self. In general,
17:37
Speaker 2: I would say workday into it as well as Gartner.
17:40
Speaker 2: Those are three of the big names that are all
17:42
Speaker 2: down thirty five percent plus year to date. Workday just
17:45
Speaker 2: came out with their earnings and came in with lesser
17:48
Speaker 2: than anticipated subscription revenue growth. So what Workday does is
17:52
Speaker 2: they have HR systems that they will sell to companies
17:56
Speaker 2: for all sorts of things like payroll and employee headcount
17:59
Speaker 2: and just different procedures that are needed to be completed
18:02
Speaker 2: on the HR side of things. The CEO came out
18:05
Speaker 2: and said that of course he's going to say this,
18:08
Speaker 2: that AI doesn't loom as a huge disruption to their business,
18:11
Speaker 2: that it's oversimplifying it to just say that because AI
18:14
Speaker 2: can write code, that it's going to be able to
18:17
Speaker 2: replicate the software, the complex software and security parameters that
18:21
Speaker 2: work Day has. But nonetheless they've been caught in the
18:23
Speaker 2: crossfire of sort of this sell off. The stock is
18:26
Speaker 2: down about three percent today on the news that they
18:30
Speaker 2: were going to come in lighter for this year this
18:32
Speaker 2: year's fiscal revenue numbers. But it does speak to again
18:36
Speaker 2: the trend that we've seen that in the software space
18:39
Speaker 2: there's been almost indiscriminate selling and probably what the case
18:43
Speaker 2: will be is that there will be some companies that
18:45
Speaker 2: will be challenged for future growth because some of the
18:47
Speaker 2: developments and our official intelligence, but some of this is
18:49
Speaker 2: probably overdone too, where Salesforce and others have seen these
18:54
Speaker 2: significant selloffs but really all on the premise of new
18:58
Speaker 2: technology perhaps impacting their future earnings, but not something that
19:02
Speaker 2: is concrete by any means. Taking a look around at markets,
19:06
Speaker 2: we've got the Dow Jones up about seventy points at
19:09
Speaker 2: the moment, or zero point one percent. The S and
19:12
Speaker 2: P five hundred is up about a half percent, and
19:15
Speaker 2: the Nasdaq is rallying ahead of Nvidia's earnings at the
19:18
Speaker 2: close of the market day up over one percent. We'll
19:22
Speaker 2: have more on the market right after this break with
19:26
Speaker 2: Wall Street Watch, and also get your estate planning questions ready.
19:29
Speaker 2: We're gonna have our weekly segment with Todd Lutsky from
19:32
Speaker 2: Cushion Dolan as Tod right after this break.
19:40
Speaker 1: Like us on Facebook and follow us on Twitter at
19:42
Speaker 1: TFE show. Breaking business news is always first right here
19:47
Speaker 1: on the Financial Exchange Radio Network. Time now for Wall
19:52
Speaker 1: Street Watch a complete look at what's moving market so
19:55
Speaker 1: far today right here on the Financial Exchange Radio Network.
20:00
Speaker 4: Markets aren't positive territory as Wall Street eagerly awaits a
20:03
Speaker 4: significant earnings report from AI and chip giant Nvidia do
20:07
Speaker 4: out after today's closing bell. Right now, the Dow up
20:11
Speaker 4: about a quarter percent, or one hundred and fourteen points,
20:14
Speaker 4: SMP five hundred up half a percent, NASDAC up over
20:18
Speaker 4: one percent higher, two hundred and thirty points, RUSS two
20:21
Speaker 4: thousand dipping into negative. Territory mostly flat, Tenure Treasure reeled
20:25
Speaker 4: up one basis point at four point zero five percent,
20:28
Speaker 4: and crewde Oil mostly flat, trading at sixty five dollars
20:32
Speaker 4: in sixty cents a barrel. Lowe's Beach Street forecast for
20:37
Speaker 4: its fourth quarter revenue and earnings as the home improvement
20:39
Speaker 4: retailer sales grew more than ten percent year over year. However,
20:45
Speaker 4: lows noted it was seeing pressure from economic uncertainty and
20:48
Speaker 4: a frozen housing market, sending shares down by over four percent. Meanwhile,
20:53
Speaker 4: computer maker HP also b quarterly earnings expectations. However, the
20:58
Speaker 4: company warned that its annual results would be near the
21:01
Speaker 4: low end of prior guidance, partly due to rising chip costs.
21:05
Speaker 4: That stock is up nearly one percent Elsewhere. TJX report
21:09
Speaker 4: is stronger than expected quarterly results, but guided for growth
21:13
Speaker 4: to slow slightly in the coming year. Shares and TJX
21:17
Speaker 4: are up nearly one percent after tumbling fourteen percent yesterday.
21:22
Speaker 4: World Pool stock is trading modestly lower after David Tepper,
21:26
Speaker 4: billionaire founder of hedgehront app Looza Management, sent a critical
21:30
Speaker 4: letter to the appliance maker's board, accusing the company of
21:33
Speaker 4: destroying shareholder value and called for sweeping changes to its
21:37
Speaker 4: strategy and leadership and Workday Shares of sinking two percent
21:42
Speaker 4: after the AI powered workplace platform disappointed with its first
21:47
Speaker 4: quarter subscription revenues outlook, adding fuel to AI concerns. I'm
21:53
Speaker 4: Tucker Silva and that is Wall Street Watch.
21:57
Speaker 1: This is Ask Todd on the Financial Exchange Radio Network.
22:01
Speaker 1: If you have an existing estate plan or in the
22:03
Speaker 1: market for one, Todd Lutsky is here to answer your
22:05
Speaker 1: questions and help you plan for later life. Ask Todd
22:08
Speaker 1: is presented by Cushing and Dolan, serving Massachusetts and New
22:11
Speaker 1: England for more than thirty five years, helping families with
22:15
Speaker 1: a state and tax planning, Medicaid planning, and probate law.
22:18
Speaker 1: Visit Cushingdolan dot com. Now Here's Todd Lutsky.
22:24
Speaker 2: As we do every single Wednesday, we are joined by
22:27
Speaker 2: Todd Lutsky from Cushion Dolan to answer any of your
22:30
Speaker 2: questions in the estate planning realm. If you have a
22:33
Speaker 2: question for Todd, get our studio line a call it
22:35
Speaker 2: eight eight eight two zero five two two sixty three.
22:39
Speaker 2: Again that number for any of your estate planning questions
22:41
Speaker 2: for Todd Lusky eight eight eight two zero five two
22:45
Speaker 2: two six three. Todd, thank you so much for joining us.
22:49
Speaker 2: How you doing today?
22:50
Speaker 5: I am never better in you doing.
22:52
Speaker 2: Greats minus all the snow that we've had.
22:55
Speaker 5: But that's what it's going again. Yeah, just in case
22:57
Speaker 5: you want, roll never stops.
23:00
Speaker 2: Question for you is state planning and the grind never
23:03
Speaker 2: stops either. And one question I have is oftentimes I'll
23:07
Speaker 2: talk to clients about when is the appropriate time to
23:09
Speaker 2: consider doing trust work and what age is appropriate, and
23:14
Speaker 2: you can talk about that a little bit too. But
23:16
Speaker 2: another set of documents, separate from the trust side of things,
23:19
Speaker 2: are sort of your what you'd call the estate basic
23:22
Speaker 2: planning documents, living well, healthcare proxy, and power of attorney.
23:27
Speaker 2: Those documents I often tell younger folks if they're getting married,
23:31
Speaker 2: that's something to consider right away. Do you have a
23:32
Speaker 2: general framework for the considerations on sort of those basic
23:36
Speaker 2: documents versus when you go up to that elevated, more
23:39
Speaker 2: sophisticated documents of putting a trust in place when you
23:42
Speaker 2: talk to clients.
23:42
Speaker 5: Yeah, yeah, And I think that really does strike a
23:45
Speaker 5: chord with the guide we're giving away, which is back
23:47
Speaker 5: to the basics, because you've got to understand the whole process,
23:50
Speaker 5: and it's not always for everybody. So let's just take
23:53
Speaker 5: an example. Start like you said there, Let's just say
23:56
Speaker 5: you're single, noe kids, just starting out in life. Well,
24:00
Speaker 5: you know, probably have a bank account, an investment account
24:02
Speaker 5: in a new four oh one k. You know, I'm
24:05
Speaker 5: going to say this might be the only time you
24:06
Speaker 5: probably don't need a plan. I'm going to say you
24:08
Speaker 5: don't need anything. I think put designated beneficiary on there,
24:11
Speaker 5: like you know, for you, Paul, if it would just
24:13
Speaker 5: start now, it would be, you know, just put your
24:16
Speaker 5: your probably a beneficiary, your your siblings. You could put
24:19
Speaker 5: your parents, but likely you'd want to make it go
24:22
Speaker 5: down a generation, so you might just leave your parents
24:24
Speaker 5: and something simple like that. I don't think you need
24:27
Speaker 5: to go out of your way. I think then if
24:28
Speaker 5: you enter into a situation where now you're married, and
24:32
Speaker 5: let's say you have children, So now you're still both
24:35
Speaker 5: a young couple, but you're married with children, that's the
24:39
Speaker 5: game changer, right, So as soon as you have the children,
24:42
Speaker 5: I don't think it's so much the size of the
24:44
Speaker 5: estate that matters. In other words, but by the same token,
24:48
Speaker 5: you might have, you know, a million dollar life insurance policy,
24:50
Speaker 5: you might have bought your first home. You know, those
24:52
Speaker 5: two assets alone could put you up there in terms
24:56
Speaker 5: of the value of your state. But it's probably not
24:58
Speaker 5: driven by that. It's just going to be all my
25:00
Speaker 5: bank accounts, all my investment accounts, my house, whatever I've got,
25:04
Speaker 5: I want to make sure now gets to my minor
25:08
Speaker 5: child or children, as the case may be. So in
25:11
Speaker 5: order for that to happen, a trust really does need
25:14
Speaker 5: to come into play. And so not so much just
25:17
Speaker 5: because I'm trying to avoid probate or reduce my estate
25:21
Speaker 5: taxes because I may not have that much. But if
25:24
Speaker 5: I die, don't want some person owning all my stuff.
25:28
Speaker 5: Two things there. One, yes, the will, the basic documents
25:31
Speaker 5: that you mentioned earlier, Paul, You're gonna need the will
25:34
Speaker 5: because the will now becomes one of the most important
25:37
Speaker 5: documents when it's usually not when you're doing your estate planning,
25:41
Speaker 5: but when you have a minor child, you got to
25:43
Speaker 5: appoint a guardian, and that's how you appoint the guardian
25:46
Speaker 5: through the will. So you may want the custody of
25:50
Speaker 5: your child to be held by one person, but I
25:54
Speaker 5: might not want that person in control of my money.
25:58
Speaker 5: So now you take all your other ass and you
26:00
Speaker 5: put them into a revocable trust would probably be the
26:04
Speaker 5: kind you would be using at this age, a revocable trust,
26:07
Speaker 5: and list a trustee who might be different than your guardian.
26:11
Speaker 5: Make the guardian come to the trustee to get the
26:14
Speaker 5: money to take care of the child, and the language
26:17
Speaker 5: and the trust will be dictating how and when that
26:20
Speaker 5: money comes out, and the trustee will be the one
26:23
Speaker 5: making that distribution. So really a game changer when you
26:27
Speaker 5: have you know that, and then if you jump ahead
26:30
Speaker 5: to just either being you know, let's say you've approached
26:33
Speaker 5: sixty sixty five, Well, now you probably have more assets,
26:37
Speaker 5: you might have grandchildren, but more importantly, you might be
26:39
Speaker 5: thinking about switching from a revocable trust to an irrevocable trust,
26:44
Speaker 5: because I want to do some nursing home planning in
26:46
Speaker 5: addition to the state tax savings, bloodline planning, probate avoidance,
26:51
Speaker 5: things like that. So it's really a process. Family dynamics drive,
26:55
Speaker 5: what kind of plan you do, all kinds of things.
26:57
Speaker 2: A lot to consider there. If you have any questions
27:00
Speaker 2: in the estate playing realm, whether it be regarding trusts
27:02
Speaker 2: or some of the more basic documents or anything in
27:04
Speaker 2: the tax realm, also give our studio line a call
27:07
Speaker 2: at eight eight eight to zero five two two sixty three.
27:11
Speaker 2: We'll be taking your questions with Todd Lotsky. Again. That
27:13
Speaker 2: number for our studio line for any of your questions
27:16
Speaker 2: on the estate planning realm with Todd Lusky eight eight
27:18
Speaker 2: to zero five two to six three. We're gonna take
27:22
Speaker 2: a quick break here on the Financial Exchange when we
27:25
Speaker 2: come back your questions with Todd Lusky right after this.
27:29
Speaker 1: Ask Todd with Todd Lutsky every Wednesday at ten thirty
27:32
Speaker 1: only here on the Financial Exchange Radio Network. You're listening
27:38
Speaker 1: to Ask Todd with Todd Lutsky on the Financial Exchange
27:41
Speaker 1: Radio Network.
27:49
Speaker 2: We are back in studio with Todd Lutsky from Cushion Dolan.
27:52
Speaker 2: If you have any questions about your estate plan or
27:55
Speaker 2: trusts or anything in that realm, give our studio line
27:59
Speaker 2: a call at eight eight eight two zero five two
28:02
Speaker 2: two six y three. Again that studio line phone number
28:05
Speaker 2: for any of your questions for Todd Lutsky eight eight
28:07
Speaker 2: eight to zero five two to six three. We're going
28:10
Speaker 2: to hit the phones and kick it to John in Waterbury, Connecticut.
28:14
Speaker 2: You were on with Todd Lutsky.
28:16
Speaker 6: Hi, does gifting avoid the five year look back in Connecticut?
28:24
Speaker 5: So you know, that's a great question because many people
28:28
Speaker 5: confuse these two things. First and foremost, let's describe what
28:32
Speaker 5: the look back is for people who aren't aware of
28:35
Speaker 5: what it is. What I believe you're referring to, John
28:38
Speaker 5: is the ability to take an asset and for less
28:42
Speaker 5: than fair market value transfer the asset somewhere where the
28:46
Speaker 5: nursing home can no longer get it. And if you
28:49
Speaker 5: do that, that's called a disqualifying transfer. And yes, you
28:52
Speaker 5: have to stay out of the nursing home for five
28:54
Speaker 5: years in order for us to sort of cleanse that
28:57
Speaker 5: transfer and make the asset detected. Another question you asked
29:02
Speaker 5: is does that five year rule apply to Connecticut? In fact,
29:05
Speaker 5: it applies to every state. It's a federal rule, not
29:10
Speaker 5: a state rule. At least there's not a state that
29:12
Speaker 5: I'm aware of that does not do it. Medicaid is
29:15
Speaker 5: a federal statute implemented by each state. So yes, the
29:20
Speaker 5: five year rule applies to you. Now people know what
29:22
Speaker 5: the five year rule is, but I also want to
29:25
Speaker 5: take it one step further because sometimes people confuse this
29:30
Speaker 5: with the estate tax gifting rules. And I know you
29:33
Speaker 5: might not have asked about that, John, but I can't
29:35
Speaker 5: help but just educate people on it. Some people think that, well,
29:40
Speaker 5: if I just gifted away to my children, then I
29:43
Speaker 5: don't have a five year waiting period, But if I
29:45
Speaker 5: gift it to a trust, then I do have a
29:47
Speaker 5: five year waiting period. No, the five year waiting period
29:50
Speaker 5: applies to any kind of a transfer to anybody or
29:54
Speaker 5: a trust if it's for less than fair market value
29:57
Speaker 5: in exchange. So you can't avoid that number two. Some
30:03
Speaker 5: people will say, oh, wait a minute, I heard that
30:06
Speaker 5: I can give away nineteen thousand dollars per year per
30:11
Speaker 5: person to anybody I want, and I don't have to
30:14
Speaker 5: pay a gift tax. So if I do that, I
30:16
Speaker 5: just all avoid my five year waiting period as well
30:20
Speaker 5: mutually exclusive rules. Here, folks, there's a difference between medicaid
30:26
Speaker 5: rules and IRS rules. For Medicaid purposes, you give away
30:30
Speaker 5: one dollar and you have a five year waiting period.
30:34
Speaker 5: For IRS purposes, you're allowed to give away nineteen thousand
30:38
Speaker 5: dollars and not file a gift tax return at all
30:41
Speaker 5: and not pay. You don't have to report, you don't
30:44
Speaker 5: have to file. It's just a freebie. Two separate rules,
30:47
Speaker 5: mutually exclusive. So folks, hope that helps a little bit
30:52
Speaker 5: in that example. But by the same token, one of
30:55
Speaker 5: the things that you can do when you're getting your
30:56
Speaker 5: estate plan together is get this guide. Because folks like
31:00
Speaker 5: John that maybe are thinking about doing an estate plan,
31:03
Speaker 5: he wants to protect his assets from the nursing home.
31:06
Speaker 5: This guide back to the basics will help you kick
31:09
Speaker 5: off your estate plan. Gives you questions about what to
31:12
Speaker 5: think about, like what Paul was asking us earlier, age,
31:15
Speaker 5: family dynamics, value questions to be armed with before you
31:20
Speaker 5: get to your estate planning. Attorney talks all about the
31:23
Speaker 5: basic documents from wills to powers of attorney and explains
31:27
Speaker 5: how in this case anyway an irrevocable trust happens to
31:30
Speaker 5: work two of them. I put together a four million
31:33
Speaker 5: dollar hypothetical estate plan and then basically give my engagement
31:37
Speaker 5: letter outlining this entire plan puts your numbers to it.
31:41
Speaker 5: See if this guide will help you do this estate
31:44
Speaker 5: plan for you, or in any event, at least help
31:47
Speaker 5: you kick off the estate plan for yourself in one
31:51
Speaker 5: way or another. It's getting close to the end of
31:54
Speaker 5: the month, folks, so get the guide back to the
31:56
Speaker 5: basics eight six six eight four eight five six nine
32:00
Speaker 5: nine or Legal Exchange Show dot com. You can download
32:03
Speaker 5: it there again eight six six eight four eight five
32:07
Speaker 5: six nine nine or Legal Exchange Show dot com and
32:11
Speaker 5: for more information go to our Instagram page, Cushing Dolan.
32:14
Speaker 2: We're gonna go back to the phones here to Sue
32:17
Speaker 2: in mashby Sue. You're on with Todd Lusky.
32:22
Speaker 7: Hello, how are you good?
32:23
Speaker 5: How are you lovely weather?
32:28
Speaker 7: I'm calling up because I'm just trying to decide on
32:32
Speaker 7: a trust. My husband has passed away and now it's
32:35
Speaker 7: just me. So I was looking at a few things.
32:38
Speaker 7: I don't like yourrevocable because you help you lose your control.
32:41
Speaker 7: Is that correct?
32:42
Speaker 5: Yeah? Incorrect? So many people think that. So you're not alone.
32:46
Speaker 5: There are many kinds of irrevocable trusts, the kind I
32:49
Speaker 5: think you're thinking about, depending on your net worth, assuming
32:52
Speaker 5: for now you're worth less than let's say four million.
32:55
Speaker 5: If that's the case, then no, the kind of trust
32:58
Speaker 5: we would probably be thinking about for you, you actually
33:01
Speaker 5: would end up keeping about ninety eight percent control. There's
33:04
Speaker 5: what I like to tell you, but when I'm done
33:06
Speaker 5: explaining it in detail, you'd be amazed and you'd say, Wow,
33:09
Speaker 5: I don't feel like I gave up any Again, different
33:12
Speaker 5: rules for different people and different levels of net worth.
33:15
Speaker 5: So you're right, there are irrevocable trusts out there that
33:19
Speaker 5: you do lose control over and that you do are
33:21
Speaker 5: more rigid. But there's also kinds that are drafted that
33:25
Speaker 5: aren't like that.
33:27
Speaker 7: So is it what would be the minimum amount for
33:30
Speaker 7: this particular one that you're thinking four million would be
33:32
Speaker 7: two million?
33:33
Speaker 5: No? No, I'd say, if you have a house and
33:35
Speaker 5: you have some money and you want to protect it
33:36
Speaker 5: for your family, that's up to you. In other words,
33:38
Speaker 5: the size doesn't matter so much. It's just that if
33:41
Speaker 5: you get to a larger level, you probably don't need
33:43
Speaker 5: nursing home planning. But if you you know, if you're
33:46
Speaker 5: you know, say you have a million dollar home or
33:48
Speaker 5: a half a million dollar home and half a million
33:50
Speaker 5: dollars in your in your investment portfolio, and you want
33:53
Speaker 5: to protect your house. It might be good enough just
33:55
Speaker 5: to protect your house. So hopefully that helps you little.
33:59
Speaker 5: I think you should probably just reach out to an
34:01
Speaker 5: estate planning elder law lawyer and learn more than we
34:04
Speaker 5: can give you on the radio about how these irrevocable
34:07
Speaker 5: trusts work. I think you'll be a mazed plust. The
34:09
Speaker 5: guide actually has that in there as well.
34:12
Speaker 2: We're gonna go to our third caller here, Charlie in Austinville.
34:16
Speaker 2: You're on with Todd, So Todd.
34:19
Speaker 5: Hi.
34:20
Speaker 6: Also a couple of years, I've been working on doing
34:23
Speaker 6: a lot of gifting and such to minimize my exposure
34:26
Speaker 6: in Massachusetts the state tax. Okay, I heard that there's
34:30
Speaker 6: also a new piece of legislation that if I purchased
34:35
Speaker 6: a property outside of Massachusetts, if not considered part my
34:39
Speaker 6: estate calculation from mass Is that true?
34:41
Speaker 5: That's very true. So many people don't think that that's
34:44
Speaker 5: the case. But when you die in Massachusetts, if you're
34:49
Speaker 5: a resident of mass then property you own in another
34:54
Speaker 5: state is not taxed in mass So if I bought
35:00
Speaker 5: a vacation home down in Florida, but I live in
35:03
Speaker 5: mass when I die, that vacation home is not factored
35:07
Speaker 5: into my mass estate tax. So for example, if my
35:10
Speaker 5: estate is worth four million, but the property I bought
35:14
Speaker 5: in Florida is a two million dollar home on the beach,
35:17
Speaker 5: well my estate for Massachusetts is two million, not four.
35:23
Speaker 5: So yeah, you don't have to be given stuff away,
35:25
Speaker 5: and I don't think you probably should be giving stuff away,
35:29
Speaker 5: And so does that help?
35:32
Speaker 6: It does help. One other quick question, what is the
35:36
Speaker 6: decision point that you advise your client to do a
35:39
Speaker 6: disclaimer on inheritance?
35:42
Speaker 5: You mean someone died and you're getting the money.
35:45
Speaker 6: Yeah, but you actually I think the word is disclaim
35:48
Speaker 6: or you basically don't accept it.
35:50
Speaker 5: No, No, But what I'm asking is I understand what it is.
35:53
Speaker 5: I just want to make sure we were on the
35:54
Speaker 5: same page. So let's say your mom died and your
35:57
Speaker 5: mom left you two million dollars and you want to
35:59
Speaker 5: disclaim it. That's what you're saying. So you know, I
36:03
Speaker 5: think it's all going to be a function of how
36:05
Speaker 5: big your estate is. Remember, you know you may or
36:09
Speaker 5: may not want it. If if your estate's already well
36:12
Speaker 5: over the federal exemption, I guess I don't want to
36:14
Speaker 5: be any wealthier, then yeah, maybe I disclaim it. But
36:17
Speaker 5: you got to find out where it goes when you
36:19
Speaker 5: disclaim it. It's not just that easy. You can't direct
36:21
Speaker 5: where it goes. So you'd have to look at their
36:23
Speaker 5: estate plan and say, I disclaim it. But the estate
36:26
Speaker 5: plan then will treat you as if you're dead and
36:29
Speaker 5: leave it accordingly into that estate plan. So be careful,
36:33
Speaker 5: make sure it goes where you want it to go.
36:35
Speaker 5: And again, you know, if your Massachusetts estate is you know,
36:39
Speaker 5: four million, and you're married and you're getting more than that,
36:42
Speaker 5: I don't know what the number is that you would
36:44
Speaker 5: want to disclaim it, because remember you might not have
36:46
Speaker 5: a federal estate tax, but you get a step up
36:49
Speaker 5: in basis it's still your asset. You know. Being a
36:51
Speaker 5: little bit in you know, in mass isn't isn't always
36:55
Speaker 5: a huge problem because the rate is lower. So random
36:59
Speaker 5: there on that one in terms of how much. But
37:01
Speaker 5: thanks for the call, and I hope that that helped
37:03
Speaker 5: out a little.
37:04
Speaker 2: Todd, thanks so much for the time. This week has
37:06
Speaker 2: always really appreciate a lot of great information.
37:07
Speaker 5: There always a pleasure.
37:09
Speaker 1: This has been asked Todd on the Financial Exchange Radio network.
37:13
Speaker 1: Ask Todd with Todd. Lutsky has been presented by Cushing
37:16
Speaker 1: and Dolan, serving Massachusetts and New England for more than
37:18
Speaker 1: thirty years, helping families with the state and tax planning,
37:21
Speaker 1: Medicaid planning, and probate law. Call eight hundred three nine
37:24
Speaker 1: three four thousand and one or visit Cushingdolan dot com.
37:28
Speaker 1: The views expressed in this segment are solely those of
37:30
Speaker 1: Cushing and Dolan. Armstrong Advisory does not provide any legal
37:32
Speaker 1: or tax advice. Please consult with your illegal or tax
37:34
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37:37
Speaker 1: each other and are not affiliated.