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Fed easing too much is a big gamble · The Financial Exchange Show

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Speaker 1: Zada and Mark Fandetti.
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Speaker 2: Chuck, Mark and Tucker with you here. As we continue
1:15
Speaker 2: through the week and this morning, we continue to get
1:17
Speaker 2: more economic data with the Producer Price Index out at
1:22
Speaker 2: eight thirty am Eastern, and what we saw there was
1:26
Speaker 2: some better than expected UH numbers overall, when you look
1:31
Speaker 2: at the headline number coming in with actually a point
1:35
Speaker 2: one percent decline for the month versus expectations of a
1:39
Speaker 2: point three percent increase. Core number coming in at a
1:42
Speaker 2: point one percent decline for the month as well with
1:44
Speaker 2: a point three percent increase expected. And ultimately what we're
1:51
Speaker 2: seeing is not really much movement in the bond market
1:54
Speaker 2: for the reason that basically PPI is. You know, first
2:00
Speaker 2: of all, no one really understands what it does, if
2:02
Speaker 2: we're being honest, a lot of people can even think
2:04
Speaker 2: it means something that it doesn't. But the other piece
2:07
Speaker 2: is the reason why people care about PPI is simply
2:12
Speaker 2: because there are some items in it that are passed
2:16
Speaker 2: throughs to the personal consumption Expenditures inflation data, the PCEE data,
2:22
Speaker 2: which the Fed does pay close attention to, and in
2:26
Speaker 2: this report, the pce passed throughs were not as muted
2:30
Speaker 2: as the overall headline or core numbers, and so as such,
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Speaker 2: it doesn't really change the projection for PCE, which is
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Speaker 2: what matters when you're trying to determine what FED policy is.
2:43
Speaker 2: So this is why, Hey, despite this, you know, much
2:46
Speaker 2: cooler than expected number, the tenure treasury is off half
2:50
Speaker 2: a basis point. I'm sorry, is seeing its yield move
2:54
Speaker 2: down half a basis point today, And there's just not
2:57
Speaker 2: a ton of movement on the back of this. So
3:01
Speaker 2: I think you can look at this and say, yeah,
3:02
Speaker 2: it's good that this reading came in cooler than expected,
3:06
Speaker 2: but it's not going to have a huge influence on
3:09
Speaker 2: FED policy simply because the stuff that does influence FED
3:12
Speaker 2: policy didn't come in as cool as the rest.
3:14
Speaker 1: Of the report.
3:16
Speaker 3: Man, nice summary.
3:17
Speaker 2: Other takeaways from this and not other takeaways, but just
3:20
Speaker 2: other other items that are you know, questions that I
3:23
Speaker 2: think are worth asking. If we look at this report
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Speaker 2: and remember what producer price index. What the producer price
3:30
Speaker 2: index measures is it's a backwards view of the CPI
3:37
Speaker 2: where the CPI measures, Hey, how much did you pay
3:39
Speaker 2: for something? This measures what did producers receive for something?
3:44
Speaker 2: Wholesalers what did they receive for something? And So the
3:47
Speaker 2: question that I think is worth asking is okay, given
3:51
Speaker 2: some of the upward input cost pressures that we're seeing,
3:55
Speaker 2: and you can see them in this report. By the way,
3:56
Speaker 2: if you look at intermediate goods prices as opposed to
4:00
Speaker 2: final goods prices, you see intermediate goods prices rising in
4:04
Speaker 2: this report while final goods fall. The question that you
4:07
Speaker 2: ask is why are end buyers not paying more at
4:14
Speaker 2: the same pace that intermediate buyers are paying And it
4:18
Speaker 2: raises a question of, hey, is there a demand issue?
4:22
Speaker 2: But also when I look out there at the demand
4:24
Speaker 2: side of the equation, you know, for consumer spending, credit
4:27
Speaker 2: card data continues to be very good. Retail data has
4:31
Speaker 2: been better the last couple months. Bank data is not
4:34
Speaker 2: really showing anything that is out of line. And so
4:39
Speaker 2: part of me like, on one hand, you look at
4:41
Speaker 2: the jobs data and you say, yeah, based on what
4:44
Speaker 2: we're seeing in the labor market, there's a convincing case
4:46
Speaker 2: that the FED should begin a cutting cycle. On the
4:49
Speaker 2: other hand, you look at the demand stuff, which is,
4:53
Speaker 2: you know, typically demand starts to move before the labor
4:56
Speaker 2: market cracks. Labor market tends to be a lagging indicator,
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Speaker 2: and you look at you know, the demand side of
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Speaker 2: the equation, and you're like, there's not really much that's
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Speaker 2: a huge problem there. There's there's been nothing confirming demand
5:08
Speaker 2: weakness on that side, and so I think, quite honestly,
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Speaker 2: I have a hard time getting a handle on exactly
5:15
Speaker 2: where this economy is moving right now, and so because
5:19
Speaker 2: of that, I kind of just say, yeah, until proven otherwise,
5:22
Speaker 2: it's just in a slow growth environment where GDP might
5:27
Speaker 2: end up coming in again kind of as a lot
5:29
Speaker 2: of people are projecting maybe between like one and two
5:31
Speaker 2: percent this year, and there's nothing exciting to the upside
5:35
Speaker 2: where you're growing, you know, the fastest economy. Ever, there's nothing,
5:38
Speaker 2: you know, horrible where this is the you know, some
5:40
Speaker 2: deep recession that is suddenly emerging. It just kind of
5:44
Speaker 2: looks like muddling through because you don't have a ton
5:46
Speaker 2: of stuff pointed convincingly in one direction right now.
5:51
Speaker 3: The FED works through demand. It has control over the
5:56
Speaker 3: supply of money. It uses that to target a short
6:00
Speaker 3: term interestrate called FED funds, that's the one we always
6:03
Speaker 3: talk about, which in turn sets a floor under bank
6:07
Speaker 3: lending rates, which in turn determines how much banks lend,
6:11
Speaker 3: affirms and people.
6:12
Speaker 4: The FED you could think of the FED as.
6:14
Speaker 3: Controlling a variable you like to talk a lot about chuck,
6:17
Speaker 3: and with good reason. Nominal gdp't it's not perfect. But
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Speaker 3: the FED, for our purposes, we could say controls nominal GDP.
6:26
Speaker 3: How fast do you now? There was a time when
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Speaker 3: economs were very excited about the idea of nominal GDP targeting.
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Speaker 3: That doesn't get talked about that much anymore. There are
6:34
Speaker 3: lots of implementation challenges there, but it's a legitimate thing
6:39
Speaker 3: to talk about the FED targeting nominal GDP, and it's
6:41
Speaker 3: a useful construct. So the question is is the FED
6:44
Speaker 3: growing nominal GDP too fast, too slow, or just right?
6:49
Speaker 3: What is it growing relative too well? Whenever you hear demand,
6:52
Speaker 3: you should be asking what about supply supply? Aggregate supply
6:57
Speaker 3: More technically, and you could think about nominal GDP as
6:59
Speaker 3: aggregate demand. Aggregate supply is just potential GDP. That's labor
7:03
Speaker 3: force growth times how much those people are producing per
7:07
Speaker 3: hour productivity plus whatever. The fed's inflation target is two percent.
7:11
Speaker 3: If you do a back of the envelope, you get
7:13
Speaker 3: to about four to five. That's the growth in the
7:17
Speaker 3: economy's supply productive capacity. Potential GDP said different.
7:21
Speaker 2: It alwayst like for the last ten to fifteen years.
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Speaker 3: That's kind of yeah, the potential GDP has come down
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Speaker 3: because that's determined by structural forces.
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Speaker 2: Which not giving many kids.
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Speaker 3: Demography is important, immigration is important to that with you
7:33
Speaker 3: and Mike Armstrong talk a lot about on this show.
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Speaker 3: So the question is does the FED need to boost
7:38
Speaker 3: nominal GDP? Is it that which is slowing down? And
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Speaker 3: I think you just in your setup to this segment
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Speaker 3: illustrated perfectly that no, it's not. We don't really have
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Speaker 3: a nominal GDP problem. It seems we may have a
7:50
Speaker 3: supply side problem. Go ahead.
7:53
Speaker 2: I didn't say, oh sorry.
7:54
Speaker 3: I always assume that I should be stopping somewhere and
7:58
Speaker 3: coming up for air. So what we have a supply
8:00
Speaker 3: side problem, in which case, if the FED pushes demand
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Speaker 3: too hard when supply is going in the opposite direction.
8:08
Speaker 3: Think of a supply side problem as being equivalent to stagflation,
8:12
Speaker 3: when supply is shrinking, the prices are going up, the
8:16
Speaker 3: economy is slowing. I FED can't do anything to combat
8:20
Speaker 3: that in the short term anyway. This is why they're
8:23
Speaker 3: in quite a pickle.
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Speaker 2: And I think that the problem is you try to
8:28
Speaker 2: reconcile the different things that would indicate nominal GDP and
8:31
Speaker 2: where it's going. And on one hand, the one that
8:34
Speaker 2: I love to use is aggregate payrolls because I think
8:37
Speaker 2: it's a good proxy for, hey, how much stuff can
8:41
Speaker 2: people buy? And given that you know consumer demand is,
8:45
Speaker 2: you know, big part of the economy. You sit there
8:46
Speaker 2: and you say, okay, okay, you're seeing some signs that
8:49
Speaker 2: that might be weakening a little bit. But on the
8:52
Speaker 2: other hand, the actual spending data isn't messing with this,
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Speaker 2: and we're seeing consumer spending continuing to move along. Actually
9:00
Speaker 2: the last couple months, it's kind of an accelerating clip.
9:04
Speaker 2: The other piece is when you look at FIKER receipts,
9:07
Speaker 2: so the amount of Social Security tax that's withheld from
9:10
Speaker 2: paychecks and things like that, those are actually increasing at
9:15
Speaker 2: a faster pace the last couple months as well, which
9:18
Speaker 2: like nothing's really pointing in the same direction. And so
9:22
Speaker 2: this is why the next few months, it's the thirty
9:25
Speaker 2: year in a row where this has been the case.
9:26
Speaker 2: We're heading into the fall saying this is gonna tell
9:30
Speaker 2: us where we're going, because one of two things is
9:32
Speaker 2: going to happen. Either the fight of withholding and the
9:37
Speaker 2: retail sales and the credit card data is going to
9:40
Speaker 2: worsen over the next few months, and that says, okay,
9:43
Speaker 2: the economy is slowing, or the jobs picture, like the
9:48
Speaker 2: aggregate payrolls data and the jobs picture has to start
9:51
Speaker 2: to improve because if you're actually seeing FIKA withholding up
9:56
Speaker 2: seven percent year over year for like six months in
9:58
Speaker 2: a row, people are going to be spending that money.
10:01
Speaker 2: Why are you cutting your workforce into more consumer spending,
10:05
Speaker 2: And so you start to see hiring pick up again.
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Speaker 3: The FED has to act in advance of any perspective
10:11
Speaker 3: slow down because monetary policy takes time to work its
10:15
Speaker 3: way into the economy because of the channels through which
10:18
Speaker 3: it gets transmitted into the economy. But it is taking
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Speaker 3: a gamble here in easing, perhaps aggressively, because we don't
10:25
Speaker 3: know that the economy is no weakening. We do know
10:28
Speaker 3: that inflation is elevated underlying inflation to trend in inflation.
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Speaker 3: That is, it's well above their target. We can quibble
10:36
Speaker 3: about whether their target should be two percent, but it is,
10:39
Speaker 3: and we do know that the supply side of the
10:41
Speaker 3: economy is probably being buffeted by shocks from tariffs and
10:45
Speaker 3: from deportation policy. You could say you like those policies.
10:48
Speaker 3: I'm not judging them. I'm saying simply they serve to
10:51
Speaker 3: constrict supply. So think about supply move think about supply shrinking,
10:56
Speaker 3: That is, stagflation area reduces potential output at the same
11:00
Speaker 3: time putting upward pressure on prices. If the FED pushes
11:04
Speaker 3: too hard on the gas, or any harder than it's
11:06
Speaker 3: pushing today on the gas, financial conditions are quite loose,
11:10
Speaker 3: you run the risk of a repeat of the seventies,
11:12
Speaker 3: perhaps without the oil price shocks. People peer parallels to
11:16
Speaker 3: the seventies. They automatically think of the twin peaks of
11:18
Speaker 3: inflation in seventy three, seventy four and then seventy nine
11:21
Speaker 3: to eighty one, them overlapping decades. A little bit here.
11:24
Speaker 3: Those were unique due to Opek. But take those out,
11:27
Speaker 3: and you still have very high underlying inflation throughout the
11:30
Speaker 3: course of the decade. Because the FED did. The FED
11:33
Speaker 3: made what the same mistakes that it seems to be
11:36
Speaker 3: making now, mistaking a supply problem for a demand problem.
11:39
Speaker 3: Said differently, over estimating the economy's productive capacity. You get
11:45
Speaker 3: that nagging feeling, or at least I do.
11:47
Speaker 2: Let's take a quick break. When we return, let's talk
11:50
Speaker 2: a little bit about what Jamie Diamond has to say
11:52
Speaker 2: about the US economy.
11:53
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13:03
Speaker 2: Jamie Diamond had an interview with CNBC yesterday and he said, quote,
13:10
Speaker 2: the economy is weakening. Whether that's on the way to
13:13
Speaker 2: recession or just weakening, I don't know. Okay, what else.
13:22
Speaker 3: I've stopped When a headline says Jamie Diamond says something
13:25
Speaker 3: I stopped reading.
13:26
Speaker 2: This was gonna be the next place that I go.
13:28
Speaker 6: Yeah, sorry, Jamie Diamond. It's not what he does. He's
13:33
Speaker 6: not a macro forecaster. His bones were cut as a
13:37
Speaker 6: risk manager in the banking industry, and when you're a
13:39
Speaker 6: risk manager, you're always on the lookout for what could
13:42
Speaker 6: go wrong. And I think that just when he talks,
13:45
Speaker 6: he has, you know, kind of a way of saying
13:48
Speaker 6: that pretty strongly, like here's like something that could go wrong.
13:52
Speaker 6: Back in twenty twenty two, he said, you know, there
13:54
Speaker 6: was a hurricane coming for the US economy.
13:56
Speaker 2: That hurricane never hit land. Basically like every fall he
14:00
Speaker 2: comes out and is like, there's something bad that's going
14:03
Speaker 2: to happen in the US economy, and every fall it
14:05
Speaker 2: doesn't happen. I'm not saying that this time won't be different.
14:09
Speaker 2: You know, maybe it could be, but I don't think
14:11
Speaker 2: there's that much signal in how Diamond talks about the
14:15
Speaker 2: economy as it relates to where the economy actually goes.
14:19
Speaker 3: Now, he's always pretty non specific. I think he suffers
14:23
Speaker 3: from the same you know, hubrists that a lot of
14:25
Speaker 3: very successful people do. They start to assume that they
14:29
Speaker 3: are divinely favored or something and that they can a
14:34
Speaker 3: pine on anything. They become philosophers as they get older.
14:37
Speaker 3: Ray Dalio is a good example of this. He writes
14:39
Speaker 3: books covering topics that a lot of people have thought
14:42
Speaker 3: about for decades, doesn't cite any previous work. He just
14:45
Speaker 3: likes to pontificate.
14:47
Speaker 2: I used to think Dahlio is the smartest guy in
14:48
Speaker 2: the room, and now it just I think he's just
14:52
Speaker 2: in the room. He's not. He's a guy in the room.
14:55
Speaker 2: He's fine. Like, I'm not saying he should be listening
14:57
Speaker 2: to The guy has made hundreds of billions of It's
15:00
Speaker 2: more than I ever have. So Like, the guy understands
15:03
Speaker 2: markets in the economy. I'm not saying he doesn't, but
15:06
Speaker 2: I don't think he has any unique insight as to
15:09
Speaker 2: what's actually going on in the economy.
15:14
Speaker 3: Yeah, he just doesn't cite previous work he starts. It's
15:17
Speaker 3: embarrassing to listen to him sometimes because he talks about
15:20
Speaker 3: things as if he's the first person ever stumble on
15:23
Speaker 3: the topic, and it's been pretty well explored, and a
15:27
Speaker 3: lot of his assumptions about the way the economy works
15:29
Speaker 3: are things that wouldn't get you a passing grade in
15:34
Speaker 3: an undergraduate econcourse. And I'm not saying economists know exactly
15:39
Speaker 3: obviously what the future holds.
15:40
Speaker 4: They don't.
15:40
Speaker 3: They're terrible at making predictions, but they're really good at
15:43
Speaker 3: describing relationships generally and talking about how the economy works,
15:47
Speaker 3: much like your doctor is good at telling you how
15:50
Speaker 3: your body works and how things are likely to say,
15:53
Speaker 3: interact with other things you are doing, but bad at
15:57
Speaker 3: making forecasts other than very general forecasts.
16:01
Speaker 2: Lisa Cook, at least for now, is going to be
16:03
Speaker 2: able to maintain her seat on the Federal Reserve Board
16:07
Speaker 2: of Governor's Judge Cobb in d C granted Cook's request
16:13
Speaker 2: for a temporary restraining order to stay on the board
16:17
Speaker 2: for now, and basically this is likely to be appealed
16:22
Speaker 2: by the Trump administration in pretty short order, I would
16:25
Speaker 2: imagine before the end of the day at the very least,
16:28
Speaker 2: you know, by tomorrow. And this is something that is
16:33
Speaker 2: going to make its way to the Supreme Court pretty
16:34
Speaker 2: quickly in my opinion, And again I don't think you
16:38
Speaker 2: know exactly what is going to happen here, just because
16:43
Speaker 2: again I am not the I'm not a pre eminent
16:47
Speaker 2: legal scholar, and I don't possess any you know, specific
16:51
Speaker 2: information about you know, exactly how the Supreme Court is
16:55
Speaker 2: going to rule in this, But based on what they've
16:57
Speaker 2: said earlier this year, it would seem more likely than
17:00
Speaker 2: not that at least at this point, based on what
17:04
Speaker 2: is alleged not proven, and also based on the timeline
17:07
Speaker 2: laid out by the judge, something that happened prior to
17:10
Speaker 2: Cook joining the FED, it would seem to me that
17:14
Speaker 2: it's pretty likely that Cook is able to retain her
17:17
Speaker 2: seat on the board for now, that that might not
17:19
Speaker 2: be permanent depending on how things evolve over the next
17:22
Speaker 2: six to twelve months with that investigation and other follow
17:25
Speaker 2: ups and things like that.
17:26
Speaker 3: I think it's just a matter of time before the
17:29
Speaker 3: White House gets its way on monetary policy. So this
17:33
Speaker 3: might be a short term victory for people that favor
17:36
Speaker 3: FED independence, or at least find the idea of the
17:40
Speaker 3: President removing somebody maybe on flimsy on a flimsy pretext,
17:44
Speaker 3: and I don't know that it's flimsy in this case. Obviously,
17:46
Speaker 3: if she falls, I don't want to get into that,
17:48
Speaker 3: but you can't avoid veering into it slightly because she
17:52
Speaker 3: may have broken the law, in which case.
17:54
Speaker 2: A few different things can be true.
17:55
Speaker 1: Here.
17:56
Speaker 2: It's very possible that she broke the law. It's very
17:58
Speaker 2: possible that she might be too big of a distraction
18:02
Speaker 2: to be able to serve on the FED board. But
18:04
Speaker 2: it's also possible that because of the circumstances of how
18:06
Speaker 2: this happened, in the timing and everything, then it might
18:09
Speaker 2: not be grounds for removal from that position.
18:14
Speaker 6: Yeah.
18:14
Speaker 2: I hold all of these different views at the same
18:18
Speaker 2: time and still get to a point where you say,
18:21
Speaker 2: I don't know exactly how this is going to end
18:23
Speaker 2: up playing out in the long run.
18:25
Speaker 3: I don't think this is how the issue of FED
18:26
Speaker 3: independence should be adjudicated. And I don't mean as in
18:29
Speaker 3: her case getting educated, I mean what do we want
18:32
Speaker 3: as a society, as a polity in terms of our
18:36
Speaker 3: federal Reserve and its relationship to politicians. It's time to
18:39
Speaker 3: have that discussion. We need to start sort of denvo
18:42
Speaker 3: what is the FED? What does it do. Who do
18:44
Speaker 3: we want pulling the levers. There's a legitimate argument to
18:46
Speaker 3: be made that the president should get his way when
18:49
Speaker 3: it comes to monetary policy. I don't think I agree
18:51
Speaker 3: with it, but I'm sort of sympathetic, and then let
18:53
Speaker 3: the chips fall. If he's an incompetent monetary policy maker,
18:57
Speaker 3: then he'll suffer at the polls or his party will.
19:00
Speaker 3: That may seem strange coming for me because I sort
19:03
Speaker 3: of you fed independence as sacrisanct, but I also acknowledge
19:05
Speaker 3: that this is a democracy. My point is we need
19:08
Speaker 3: to be having this conversation, and ultimately Congress has to
19:10
Speaker 3: settle the issue. It shouldn't be shouldn't come down to
19:12
Speaker 3: what the Supreme Court decides in the case of one governor.
19:15
Speaker 3: There are bigger things at stake here.
19:18
Speaker 2: I don't love the this is a democracy argument. By
19:23
Speaker 2: that extension, shouldn't we all vote on FED policy?
19:25
Speaker 3: Then we do indirectly through the elected representatives.
19:28
Speaker 2: Well, then shouldn't we do it directly like we Eventually
19:31
Speaker 2: you get to a point where we just can't vote
19:33
Speaker 2: on everything. Let's take a quick break. When we come back,
19:36
Speaker 2: it's Wall Street.
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20:00
Speaker 5: Markets in mixed territory after the first of two inflation
20:04
Speaker 5: readings were posted or going to be posted this week.
20:07
Speaker 2: This morning, we saw the.
20:08
Speaker 5: Producer Price Index, where it revealed wholesale prices fell zero
20:13
Speaker 5: point one percent last month, better than expectations of a
20:16
Speaker 5: zero point three percent increase. Tomorrow morning, we'll get a
20:20
Speaker 5: look at the all important consumer Price Index. Right now,
20:23
Speaker 5: the Dow is down by three tenths of one percent.
20:26
Speaker 5: S and P five hundred is up just over half
20:28
Speaker 5: a percent higher, NASDAC up half a percent as well.
20:31
Speaker 5: Russell two thousand is up four tenths of one percent.
20:35
Speaker 5: Ten year treasure Reel is down one basis point at
20:37
Speaker 5: four point zero five to nine percent in crude oil
20:41
Speaker 5: is up just over one percent higher, trading at sixty
20:43
Speaker 5: three dollars and forty four cents a barrel. Oracle surging
20:48
Speaker 5: forty percent after the software company forecasted huge gains in
20:53
Speaker 5: cloud infrastructure revenue, where CEO Software Katz said she expects
20:59
Speaker 5: several more multi billion customers dollar customers in the next
21:04
Speaker 5: few months. Meanwhile, memestock in video game retailer game Stop
21:08
Speaker 5: is climbing seven percent after it reported a jump in
21:11
Speaker 5: quarterly profit and said the value of its bitcoin holdings
21:15
Speaker 5: topped half a billion dollars in the previous quarter. Elsewhere,
21:19
Speaker 5: we Go Vi and Ozembic maker Novo Nordis said it
21:22
Speaker 5: plans to cut nine thousand jobs. The company also cut
21:25
Speaker 5: its guidance for the second time in six weeks. That
21:29
Speaker 5: stock is actually up nearly one percent. Chewy shares retreating
21:33
Speaker 5: sixteen percent after the online pet products retailer posted a
21:37
Speaker 5: decline in quarterly profit. Online brokerage Robinhood announced it will
21:42
Speaker 5: launch its own social media network that will allow users
21:45
Speaker 5: to post their trades. Robinhood stock is up three percent,
21:49
Speaker 5: and online payments provider Klarna is set to IPO at
21:52
Speaker 5: forty dollars a share, above the expected range. I'm Tucker
21:57
Speaker 5: Slova and that is Wall Street Watch.
22:00
Speaker 1: This is ask Todd on the Financial Exchange Radio network.
22:04
Speaker 1: If you have an existing estate plan or in the
22:06
Speaker 1: market for one, Todd Letsky is here to answer your
22:08
Speaker 1: questions and help you plan for a later life. Ask
22:11
Speaker 1: Todd is presented by Cushing and Dolan, serving Massachusetts and
22:14
Speaker 1: New England for more than thirty five years, helping families
22:17
Speaker 1: with estate and tax planning, medicaid planning, and probate law.
22:21
Speaker 1: Visit Cushingdolan dot com. Now here's Todd Lutsky.
22:27
Speaker 2: Todd Lotskey joins us now for Ask Todd. Which is
22:31
Speaker 2: your chance to ask Todd your estate planning questions live
22:34
Speaker 2: on air right now. Phone lines are wide open, all
22:39
Speaker 2: clear for you. Eight eight eight to zero five two
22:43
Speaker 2: two sixty three. That is the number to call to
22:45
Speaker 2: ask Todd your estate planning questions right now on air again.
22:50
Speaker 2: Eight eight eight to zero five two two sixty three
22:54
Speaker 2: is the number. One more time it is eight eight
22:58
Speaker 2: eight to zero five two two six three. A reminder,
23:01
Speaker 2: we can usually get through a couple of calls, so
23:03
Speaker 2: make sure that you call early in order to get
23:06
Speaker 2: in line to speak with Todd right now. That number
23:10
Speaker 2: again is eight eight eight two zero five two two
23:15
Speaker 2: six three. Mister Lutsky, how are you doing today?
23:18
Speaker 4: I am doing great? How about yourself?
23:20
Speaker 2: Good? I was out at the bar the other night. Yeah,
23:23
Speaker 2: and this Mobias Strip walked in and it was it
23:27
Speaker 2: was crying, and the bartender said, hey, what's what's what's
23:30
Speaker 2: wrong buddy? And the Mobia strip goes, where do I
23:32
Speaker 2: even begin? And it was it was just it was
23:36
Speaker 2: very sad, very sad. Todd, I want to talk to
23:38
Speaker 2: you about uh estate taxes within the concept of naming beneficiaries. Yeah,
23:45
Speaker 2: is there anything that people can do as it relates
23:48
Speaker 2: to beneficiaries, either on investment accounts, insurance products, or anything
23:52
Speaker 2: else that can help with estate taxes as far as
23:56
Speaker 2: how they're naming those bennies?
23:58
Speaker 4: Yeah, I think you need to think about out a lot.
24:01
Speaker 4: You have to think about all of you of your
24:04
Speaker 4: assets really, so when you're doing your estate plan, you know,
24:07
Speaker 4: if you're dealing with a and by the way, the
24:09
Speaker 4: answer will vary depending on whether it's a revocable trust
24:13
Speaker 4: situation or an irrevocable trust situation, so there can be
24:16
Speaker 4: some differences. But you know, like if you're funding your
24:20
Speaker 4: revocable trust, you probably want to change the owner, not
24:24
Speaker 4: necessarily the beneficiary, right, So the owner on your bank accounts,
24:28
Speaker 4: the owner on your investment accounts, the owner on I
24:32
Speaker 4: guess that's it. Brokerage, investment accounts, bank accounts, CDs. The
24:36
Speaker 4: owner can be the trust don't really need to get
24:40
Speaker 4: into beneficiaries really, because you want it to be owned
24:44
Speaker 4: by the trust, and then the language of the trust
24:48
Speaker 4: is going to sort of dictate where those assets go. So,
24:53
Speaker 4: for example, I had a client was convinced all they
24:56
Speaker 4: needed they were not married, but they had certain people
24:58
Speaker 4: that they wanted to take care of in certain nieces
25:01
Speaker 4: and nephews, et cetera whole laundry list of people, and
25:04
Speaker 4: they said, all we really need to do is name beneficiaries.
25:06
Speaker 4: We don't need to bother because you know we're not
25:08
Speaker 4: we're married, but we don't we don't have any kids.
25:11
Speaker 4: I said, well, then you're gonna have to run around
25:12
Speaker 4: and make sure that you know if you spend money
25:14
Speaker 4: out of one account and then spend money out of
25:16
Speaker 4: another account, and then that particular person who was a
25:18
Speaker 4: beneficiary on that account doesn't get anything, and you got
25:20
Speaker 4: to keep track all the time of where the money is.
25:23
Speaker 4: I mean, that's just not helpful. But if you just
25:27
Speaker 4: put all those assets in a revocable trust, now spend
25:31
Speaker 4: whatever you want to spend, because everybody in the trust
25:35
Speaker 4: will benefit from every dollar that's in there, from every account, right,
25:40
Speaker 4: and it's great. And you don't even name dollar amounts.
25:42
Speaker 4: You name percentages. So if the tide rises, everybody gets
25:46
Speaker 4: a little more. The tide shrinks, everybody gets a little less.
25:49
Speaker 4: So it's a wonderful way of doing it. It's easy,
25:52
Speaker 4: it's simple. Change the owner. Don't need to worry about
25:55
Speaker 4: the beneficiary. Not for iras, not for four oh one
26:00
Speaker 4: or any qualified retirement account. And now, by the way,
26:05
Speaker 4: for an irrevocable trust, it's similar to the extent I'm
26:08
Speaker 4: putting things in the trust, I don't need to name
26:12
Speaker 4: a beneficiary. I need to just change the owner. However,
26:17
Speaker 4: for iras and or life insurance, you want to think.
26:23
Speaker 4: If you're concerned about protecting assets from the nursing home,
26:26
Speaker 4: then you need to think about naming the beneficiary of
26:30
Speaker 4: those items something so revocable or irrevocable. The beneficiary of
26:36
Speaker 4: an IRA is generally a spouse, and the contingent is
26:40
Speaker 4: generally kids or a trust. You can name a trust
26:43
Speaker 4: a beneficiary when you die. If you're concerned about nursing
26:46
Speaker 4: home planning and you want to protect the asset from
26:50
Speaker 4: a nursing home, then there are ways and times and rules,
26:53
Speaker 4: but you can name the estate the beneficiary of the
26:57
Speaker 4: IRA first ahead of the spouse, and get all kinds
27:01
Speaker 4: of other nursing home planning benefits at so much to
27:05
Speaker 4: talk about. It was a great question, Chuck, but I
27:06
Speaker 4: can't even that just tip tip of the iceberg.
27:09
Speaker 2: Talking with Todd Lutsky from Kushian Dolan. You've got questions
27:13
Speaker 2: for Todd. This is your chance to ask them. Eight
27:16
Speaker 2: eight eight to zero five two two sixty three is
27:19
Speaker 2: the number. We do still have room on the phone lines,
27:22
Speaker 2: So get calling to ask Todd your questions right now
27:25
Speaker 2: because we're going to take a quick break and then
27:27
Speaker 2: is right to your questions with Todd. That number is
27:30
Speaker 2: eight eight eight to zero five two two six three.
27:35
Speaker 2: One last time, that is eight eight eight to zero
27:38
Speaker 2: five two two six three.
27:41
Speaker 1: Ask Todd with Todd Lutsky every Wednesday at ten thirty
27:45
Speaker 1: only here on the Financial Exchange Radio Network. You're listening
27:51
Speaker 1: to Ask Todd with Todd Lutsky on the Financial Exchange
27:55
Speaker 1: Radio Network.
28:10
Speaker 2: All right, let's get right to your questions with Todd.
28:13
Speaker 2: Let's be first up. We've got Anna in Massachusetts. Anna,
28:17
Speaker 2: what's your question?
28:17
Speaker 7: For Todd, I'd like to know when both spouses have
28:23
Speaker 7: irrevocable trust and the first spouse that, how does does
28:30
Speaker 7: the second spouse have access to the past or the
28:35
Speaker 7: deceasedous assets? How does that work?
28:38
Speaker 4: So are you are you suggesting that we have a
28:41
Speaker 4: married couple and they're doing one joint irrevocable medicaid type
28:46
Speaker 4: trust nursing home protection trust or are we doing two
28:49
Speaker 4: separate trusts, one for husband and wife.
28:51
Speaker 7: Each spouse has their own irrevocable trust, got it?
28:58
Speaker 4: And and is the irrevocable trust designed to protect assets
29:01
Speaker 4: from the nursing home? I assume right.
29:04
Speaker 7: I don't know about that. It's just I don't want
29:07
Speaker 7: to care about that. I just want to know when
29:09
Speaker 7: the first stout said, if I die tomorrow, does my
29:14
Speaker 7: husband have access to the assets in my trust?
29:18
Speaker 4: Okay? So first and foremost, just to help everybody understand
29:22
Speaker 4: that you would never do an irrevocable trust for you know,
29:27
Speaker 4: to keep control over it if you're giving things away
29:30
Speaker 4: outside of your state. So I assume the value of
29:32
Speaker 4: this estate is probably under five million dollars correct?
29:36
Speaker 7: Yes?
29:36
Speaker 4: Okay, So then you folks would be doing probably if
29:41
Speaker 4: you don't care about nursing home. It would be a
29:43
Speaker 4: revocable trust, and it would be joint. But to your question,
29:47
Speaker 4: even if it's a joint revocable trust while you're living,
29:51
Speaker 4: and that that was your question, you're both in control.
29:53
Speaker 4: But then let's say your husband dies, and then how
29:57
Speaker 4: would you have access to the assets that are in
29:59
Speaker 4: this world? Once joint revocable trust that now automatically becomes irrevocable.
30:06
Speaker 4: That's correct. So as soon as one dies, it becomes irrevocable,
30:10
Speaker 4: and the surviving spouse, let's say it's you, and it
30:14
Speaker 4: would be considered, would become the trustee. So now you
30:19
Speaker 4: are the sole trustee, when before it was you and
30:22
Speaker 4: your husband. And so now that you're the sole trustee,
30:25
Speaker 4: you read the language of the trust to determine the
30:28
Speaker 4: access that you have. So with a revocable trust that
30:31
Speaker 4: is now irrevocable, there'd be two buckets in there, probably
30:35
Speaker 4: two maybe three buckets, a marital share, a state marital share,
30:40
Speaker 4: and a remainder share. And then these buckets are going
30:43
Speaker 4: to be filled with the assets that were in the
30:46
Speaker 4: overall joint trust. So if you had three million dollars
30:49
Speaker 4: of stuff in the trust when you were alive. That
30:52
Speaker 4: three million dollars is now sprinkled between these three buckets,
30:56
Speaker 4: call them A, B, and C, the trustee of which
31:00
Speaker 4: is Anna. So you're in charge, Anna, and then you
31:03
Speaker 4: need to read the language. So if it's three million dollars,
31:06
Speaker 4: I can tell you that two million would be in
31:08
Speaker 4: the sea bucket and one million would be in the
31:11
Speaker 4: B bucket, and the A bucket would be empty. That
31:15
Speaker 4: is driven by the value by the estate tax laws
31:19
Speaker 4: that are that are in place. So in Massachusetts you
31:22
Speaker 4: can shelter two million each. That's why the two million
31:26
Speaker 4: ended up in the sea bucket because it equals the
31:28
Speaker 4: mass exemption and the amount over the two million. But
31:33
Speaker 4: under the thirteen excuse me, the thirteen point nine million
31:39
Speaker 4: would end up in the B bucket. So that's why
31:41
Speaker 4: the one million is there. Now, Anna, you're probably saying, Okay,
31:46
Speaker 4: there's three million dollars there, Todd, but what can I
31:49
Speaker 4: do with it? Well, you're in charge. You get to
31:52
Speaker 4: take the in, you manage it, you invest it, you
31:54
Speaker 4: buy and sell stocks and bonds, you buy and sell
31:57
Speaker 4: real estate, and you can take out all the income
32:00
Speaker 4: because the trust says you're entitled to the income and
32:03
Speaker 4: it says you can take out the three million dollars,
32:05
Speaker 4: which is principal, but you're supposed to take it as
32:09
Speaker 4: you need it to maintain your standard of living that
32:12
Speaker 4: you enjoyed when your husband was alive. Follow those rules.
32:15
Speaker 4: The assets are still yours, but the design of the
32:18
Speaker 4: trust will shelter the assets from a state taxes. So
32:22
Speaker 4: big answer to your question. But I wanted you to hope.
32:25
Speaker 4: Hope that helps. Hope, that helps everybody. But folks, that's
32:29
Speaker 4: not the only items we talk about. That's great for
32:31
Speaker 4: what's in the trust, but the guide we're giving away
32:34
Speaker 4: deals with life insurance and iras, which are a little
32:37
Speaker 4: more complicated because they can't go into the trust right away.
32:41
Speaker 4: So if you're concerned about nursing home planning and you're married,
32:46
Speaker 4: right this guide is for you because it offers guidance
32:51
Speaker 4: on how to protect an IRA well, basically naming the
32:55
Speaker 4: estate the IRA beneficiary is going to help you with
32:59
Speaker 4: not only life insurance, but with iras. It will provide
33:05
Speaker 4: nursing home protection, it will shelter from the costs of
33:10
Speaker 4: estate taxes, and it will be done without providing adverse
33:14
Speaker 4: income tax consequences. And that's the real wild card with IRA.
33:19
Speaker 4: So learn how to do this. Folks. If you're doing
33:21
Speaker 4: a state planning and concerned about the nursing home, call
33:24
Speaker 4: and get this guide eight six six eight four eight
33:28
Speaker 4: five six nine to nine or Legal Exchange Show dot
33:32
Speaker 4: com eight six six eight four eight, five six nine
33:36
Speaker 4: nine or Legal Exchange Show dot Com.
33:39
Speaker 2: Let's go now to Norman in Portland. Norman, what is
33:43
Speaker 2: your question for Todd Lutsky?
33:47
Speaker 8: Oh? Hi, I was wondering how I tell if the
33:51
Speaker 8: transfer on disk uh language has been transferred to the
33:57
Speaker 8: financial institutions that are in my revocable trust. And the
34:03
Speaker 8: lawyer said the girl Friday would do it, and I'm
34:07
Speaker 8: just wondering if she ever did. And I guess I
34:11
Speaker 8: should just call. But is that what you do?
34:14
Speaker 1: Well?
34:15
Speaker 4: Let me let me ask you a couple of questions
34:16
Speaker 4: so I can follow this. So, Norman, are you are
34:19
Speaker 4: you married?
34:21
Speaker 8: Oh?
34:21
Speaker 7: Yes?
34:22
Speaker 4: And you did a revocable trust you and your wife? Yes, okay,
34:27
Speaker 4: And the revocable trust needs to have assets put in it.
34:30
Speaker 4: That's what you're just so everybody understands what we're talking about.
34:33
Speaker 4: We're suggesting that you fund the trust with your brokerage account,
34:38
Speaker 4: with your bank account, and I totally agree. And funding
34:42
Speaker 4: the trust, I would stay if it's a revocable trust,
34:46
Speaker 4: like what Chuck was asking earlier in the show, I
34:48
Speaker 4: would stay away from transfers on death. There's no need
34:52
Speaker 4: to do that, right, why not just change the owner
34:56
Speaker 4: on the on the account, on the bank account, on
34:59
Speaker 4: the broker account, make the owner the name of the trust.
35:03
Speaker 4: So like if I've done a trust and I'm married,
35:05
Speaker 4: and it's a joint revocable trust, the name on my
35:08
Speaker 4: brokerage account will be Lotsky Family Trust, bank account Lotski
35:13
Speaker 4: Family Trust, and then you don't have to worry about
35:16
Speaker 4: who the beneficiary is because the trust owns it, and
35:20
Speaker 4: the trust's language will say where all the assets of
35:24
Speaker 4: the trust go when you die. Right, so if we
35:27
Speaker 4: both die, my wife and I, everything is equally to
35:30
Speaker 4: our kids. Well, everything that's owned by the trust will
35:34
Speaker 4: be divided amongst the children, and you're completely covered. So
35:38
Speaker 4: that's probably my advice, And yes to your question, Yeah,
35:41
Speaker 4: call them, ask them if they did it, or send
35:44
Speaker 4: a statement to you. The next statement you get, take
35:46
Speaker 4: a look at it and see if it says, you know,
35:49
Speaker 4: Norman Family Trust or whatever the name is. On your trust.
35:53
Speaker 4: If it says that, then you know that particular asset
35:57
Speaker 4: is in that trust.
36:00
Speaker 2: Todd, we were talking earlier about beneficiaries. Any last items
36:04
Speaker 2: that you want to add as it relates to that
36:07
Speaker 2: earlier conversation we were having.
36:09
Speaker 4: Yeah, and again it's kind of good to talk about
36:12
Speaker 4: the Norman case, right. He was just talking about doing that, right,
36:15
Speaker 4: So that's that's how you do it for revocable trusts,
36:18
Speaker 4: and we talked it's similar for an irrevocable trust, but
36:21
Speaker 4: kind of like you know, I think that the wild
36:23
Speaker 4: card is is what this guide is really all about,
36:26
Speaker 4: and it's the iras of the world and the life
36:29
Speaker 4: insurance policies of the world. So folks, when you're dealing
36:32
Speaker 4: with those, if you're thinking about nursing home protection, instead
36:36
Speaker 4: of making the life insurance policy, you know the benefit.
36:40
Speaker 4: You never change the owner, you don't need to, but
36:43
Speaker 4: you change the life insurance beneficiary. Instead of putting it
36:47
Speaker 4: in the trust, you might put it into the estate
36:51
Speaker 4: of kind of what we were talking about, and that
36:53
Speaker 4: way it will flow into this testamentary trust and be
36:56
Speaker 4: protected for the surviving spouse from nursing home, but at
37:00
Speaker 4: the same time allow access to it and shelter it
37:04
Speaker 4: for a state taxes, So those are the tricky assets.
37:07
Speaker 2: Mister Lutski, thank you so much for joining us today.
37:10
Speaker 4: Always a pleasure.
37:12
Speaker 1: This has been asked Todd on the Financial Exchange Radio
37:15
Speaker 1: network Aske Todd with Todd. Lutsky has been presented by
37:17
Speaker 1: Cushing and Dolan, serving Massachusetts and New England for more
37:20
Speaker 1: than thirty years, helping families with the state and tax planning,
37:23
Speaker 1: Medicaid planning and probate law. Call eight hundred three nine
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Speaker 1: three four thousand and one or visit Cushingdolan dot com.
37:30
Speaker 1: The views expressed in this segment are solely those of
37:32
Speaker 1: Cushing and Dolan. Armstrong Advisory does not provide any legal
37:35
Speaker 1: or tax advice. Please consult with your illegal or tax
37:37
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