May 31, 2024 • 38 mins
Mike Armstrong and Marc Fandetti react to the Fed's preferred inflation measure coming in as expected. Matt Gagnon, CEO - Maine Policy Institute, joins the show to share his stance on the current state of the economy. A robust economy can't shield Biden from blame for higher prices. Commercial property meltdown clobbers pension funds.
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Episode Transcript
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K Boston is presented by Veterans DevelopmentCorporation. FACE is the Financial Exchange with
Mike Armstrong and Mark Fandetty. Welcometo the Financial Exchange. Happy Friday from
us here Mike Finndaddy, Mike Armstrongand Tucker Silva with you on an inflation
Friday. We got the PCE indexjust this morning at eight thirty am,
(01:27):
in case you went to sleep yesterdayat four thirty pm and then woke up
thirty seconds ago just for this show, which, by the way, that's
not sleep, that's a coma.Former President Trump has been indicted on thirty
four counts, excuse me, hasbeen charged on thirty four counts, and
we'll be addressing We'll be having aspeech at eleven am as it today,
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Tucker, Yeah, press conference,Trump Power at Trump Tower. So if
there's anything financial newsworthy that comes ofthat, which I would be surprised if
there were, then we will becovering it. But otherwise we'll move onto
the inflation story of the day,which has been bumping markets around a little
bit here. So as I mentionedthat data came out at eight thirty am,
(02:13):
markets opened at nine thirty am,and through early trading right now,
you've got two of three major indicesin positive territory. And so let's dive
right in here. Mark, thisis what's referred to as the Fed's preferred
measure of inflation. And we cantalk a little bit about why they prefer
this one over the CPI, butit's the Personal Consumption Expenditures Index. They
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put it together once a month.We're reading data now on the month of
April, and just headline numbers here. You saw year over year headline inflation
from this measure coming in at twopoint seven percent in the month of April.
That compares to the CPI reading ofthree point four percent. And then
month over month inflation data, whichhas been very consistent for the last three
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months, coming in at zero pointthree percent for the month of April.
What other data points in your mindkind of caught your eye here? And
you know, clearly markets aren't reallymoving one way or the other on this,
but not dramatically selling off. SoI've got to take that as not
a big surprise for me. No. No, I thought I thought they'd
overreact and respond more positively. Andby positively I mean stocks up and bonds
(03:21):
up, sure, equivalently, bondyields down. Sure. I say that
because income growth slowed, which Normallyyou think that's a bad thing, but
that's what the Fed's trying to doto tamp down inflation. One big contributor
is, i'll just call it demand, be a little general, sure,
and demand's got to slow. Theeconomy's got to slow probably for prices to
slow further. Another positive potentially iscore PC Inflation you've already pointed this out
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came down a little bit, thoughsome of that's due to rounding. So
called CORP is yeah, I know, so core takes out food and atal
all this good news as a roundingerror. It might be like by rounding,
I mean the month over month forso called core, which takes out
food and energy. Because they're jumpy, they can distort what's really going on
(04:06):
with inflation. Core came in atpoint two four nine. Point two four
nine gets rounded down to point two. If it had been one tenth higher,
it would have been rounded up topoint three, which has been for
the last two months, and wewould have been saying no change. And
if you annualize the last few months, would you do a lot? And
we like to do because again,it gives you a better sense for trend,
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which is what the FED has controlover, not the little jumps month
to month that are attributable to oneoffs that go away. If you annualize
that, you get like three pointsix is a three point four and a
half or so as opposed to threepoint two if you annualize the last three
months, I should say, ye, So that rounding does kind of make
a big difference. But psychologically pointtwo is more powerful than point you know
(04:50):
three argus, especially because the lastfew months have been point three. Yeah,
So it looks like progress there,as I mentioned, looks like progress
on income growth. Spending. Also, spending has been red hot if you
look at the trends, say relativeto pre COVID, because people built up
a lot of excess savings due tothe various rounds of stimulus and other factors
the lockdowns, for example, Sospending had been on a tear. Two,
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we probably need to see spending slowfurther, the economy slow further.
We got some news to that effectyesterday. Fourth quarter growth was kind of
languid. Sure, right, Sowell, normally you wouldn't be happy about
the economy slowing in this case ifyour goal is to get inflation down,
and that seems to be that's thewhole point of the FED of hiking rates.
Then yeah, this points in theright direction. Though, as you
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guys like to say on this show, one bit of data does not make
a trend. We need several ONTsmore. And I know, having read
what we're going to be talking abouttoday, that we have several other data
points that would possibly point in theother direction. Right, We've got data
coming from housing that things might bebottoming there, that some of the home
improvement retailers might be seeing a bitof a bottom in terms of their activity,
(05:58):
and so could that lead to matureinflation? I think is an open
question. You mentioned that I liketo look at these numbers on different kind
of annualized paces, and you're right. So when we talk about this data
point again, the PCE, thePersonal Consumption Expenditures inflation gauge was showing a
year over year inflation rate of twopoint seven percent. So that's the one
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that people most relate to, isthat you know, in April compared to
April of twenty three, prices weretwo point seven So that's not annualized,
that's past, that's year over year, just year over year inflation number.
I then like to take a lookat annualizing the last three and six months,
which for the last several months,as we mentioned, have been running
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hotter than that year over year number. So on that overall PCE number,
you've got a six month average onthere that's coming in at two point eight
percent, so just slightly higher,but a three month average speaking to really
just this year's faster pace coming inat three point six percent on the core
prices, again pretty similar. Butwhat it comes down to is that,
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yeah, on year over year numbers, when we're comparing April of twenty four
to April of twenty three, you'vegot inflation now coming in between on the
very low end on PCE two pointseven percent to a high of three point
six percent on core CPI. Soagain those measure completely different things, but
different measures of inflation are coming inanywhere between two seven to three six on
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a year over year basis. Ifwe're looking at just the last three months
and annualizing all those numbers, whichisn't a perfect way of doing it either,
but there is no perfect way ofdoing it, we're looking at a
low of three to two and ahigh of four point four and so I
think that speaks to a lot ofwhat we've talked about, which is this
year you're seeing this reacceleration in prices, albeit not at a terrifying level.
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We're not seeing annualized numbers that arerunning eight percent, but it you know,
it was a course reversal from whatwe saw towards the end of last
year, and I think that's whathas largely explained the slow down in expectations
for rate cuts. It's funny weobsess as we should, particularly on a
daily show, over monthly changes.Sure, but it took years in the
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nineteen eighties. Some of you willremember this. It took well into the
nineteen nineties to get expectations down toa level of inflation that the Fed,
though it didn't have a target atthe time, considered low and stable,
to the point where it didn't factorinto people's decisions. It's going to take
years for the trauma of the inflationof twenty twenty one and twenty twenty two
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to wane to the point where inflationis no longer the first, second,
or even third economic issue on people'sminds. We really have to be patient.
I'm not saying the FED is onnecessarily the right track here. I
tend to doubt that they've tightened enoughfor long enough. I don't know if
rates have to go higher, ifthey just have to stay where they are
today for much longer than markets seemto believe right now. But it's going
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to take years for the scars ofinflation to heal. We've got an article
later in the stack that talks aboutpeople remaining down on the economy. That's
why the half life of these painfulmemories is really long. Yeah, I
think I continue to call that out, and you know, make that important
point and everybody should recognize that too, which is the different bureaus that produce
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these numbers obsess over what's inflation beenover the last twelve months, and frankly,
that's what should matter for the FederalReserve. But no household or human
being in the world cares just aboutwhat happened to inflation on the last month,
over the last year. It's irrelevant, right. The way that you
relate to inflation is, Gee,it sure seemed like things were cheaper a
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few years ago when I went tothe grocery store. When do you mean
a few years ago? Well,I don't know, a few years ago
when I looked at my receipts afew years ago. It sure seemed a
lot cheaper to live my life.And that's the experience of the American public.
That is the one that people arecaring about and responding to right now,
which is inflation. Why does itseem so high? Well because yeah,
fo years ago prices were twenty percentlower than where they are right now.
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And that's the actual human experience.We've got to take quick break because
Matt Dannon is joining us next.Not only is he the chief executive officer
of the Main Policy Institute, buthe's also the morning show host with NewsRadio
WGAN in Portland. I talked tohim twice a week and he's going to
be joining us next here on theFinancial Exchange. Miss any of the show.
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Matthew Gangnon is the host of theWGAN Morning News, heard every weekday from
six to nine am on WGA,and he's also the chief executive of the
(11:35):
Main Policy Institute, a free marketpolicy think tank, and joins us today
talk about the state of I thinkthe state of the US and New England
and specifically main economies. Matth thanksfor coming on, appreciate it. You
bets pleasure to be here. Soyou and I talked twice a week and
we talk, you know, largelyabout the national scene. But i'd like
(11:56):
if you don't mind, you know, with your background in economics, with
your background Capital Hill, talk maybea bit to us about what you would
view as the biggest challenges facing thestate of Maine and maybe the New England
economy as a whole, if youdon't mind well, I mean, I
hate to be repetitive, but youwould find them to be very similar to
what the rest of the country atlarge is struggling and dealing with right now,
(12:18):
which is obviously very much tied intothe performance of the economy and specifically
inflation. I'm sure you you know, talk about this very frequently, Mike,
but ultimately there is this sort ofsplit personality that our economy is currently
living through. Right It looks likeon many metrics things are pretty good.
You have blow unemployment obviously, itlooks like growth is good, we're not
in recession, et cetera, andwages you know, being up and whatnot.
(12:41):
But then at the same time youhave this persistent inflation issue which has
left everyone with a sour feeling intheir mouth. And you know, polling
has reflected the fact that the majorityof people in the country actually believe that
we're actually in recession because they themselves, of course don't feel all that economically
secure, so that translates into avery conflicted kind of personality to the economy
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both nationwide but also the same thingis happening here in Maine. You know,
the biggest thing that we struggle with, in my opinion, is the
continuing labor force issue. You know, we have we have a significant shortage
of workers. You know, there'sdiscussions about exactly how to how to fix
that and whatnot, and all tiesto my in my opinion, to demographics.
Right, but it's not showing anysigns of life. It's not showing
(13:26):
any signs of really getting better,even with the economy performing in many ways
quite well with low unemployment. IfI'm not mistaken, the state of Maine,
correct me if I'm wrong, oldestaverage population in the country, Am
I right? Ye? By apretty significant clip too. Yeah, I
think we're north of forty five.Now what does that mean to you to
you know, when you look outat the you know, the development of
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Portland and the state as a whole, which obviously you know has a massive
tourism business during parts of the year. But what does that look like two
decades from now in terms of thereal estate market or other things that people
maybe not considering today. Well,it's pretty scary, and in my opinion,
it is a harbinger of a lotof the things that are too come
for a lot of the other statesin the country. If you look across
(14:07):
the country now, about half ofUS states actually have more deaths than births,
and that's something that we actually wewere the first state that actually experienced
that, and I think it wasback in twenty eleven. So we're kind
of leading the edge of that fora lot of the country right now.
And that's not a good thing forthe future of basically anything economic speaking,
right, GDP growth, Right,you know, you have to have more
(14:30):
people producing more things and participating inthe economy to continually grow. You know,
give you some with technical innovation,but you need human beings. Right.
The real estate market is going tobe greatly affected by that. Obviously,
the workforce shortage will only continue toexacerbate itself, particularly given the age,
because we have a very low laborforce participation rate. So you know,
(14:50):
you combine that with like less peopleand you're in a lot of dire
straits. In my opinion, Matt, I want to shift more to your
thing, you know, your workwith the the main policy Institute, the
premier free market policy think tank,and you know, you spent a decade
in DC, and I wonder whatyour thoughts are, and by the way,
trained economists, I mean, Iwonder what your thoughts are at this
(15:11):
stage on kind of the state ofpolitics and interaction with the idea of just
free market capitalism in general, becauseit seems to me that both sides of
the aisle have taken a pretty significantshift away from the free market ideas of
Reaganomics or you know, eighties andnineties politics when it came to how to
(15:33):
view this economy today. And Idon't know, am I misreading it any
of the political side of this,because it sure does seem like a big
step in a very different direction,whether you're talking about policies from the Biden
administration over the last few years,or you know, prior to that,
policies from the Trump administration. Ohyeah, no, it goes well beyond
one administration. I mean, ifyou go back a little time in history,
(15:54):
you go back to that period you'rementioning, right, the seventies,
eighties, nineties. You know,capitalism had its moment. It was something
that was basically seen widely popular acrossthe entire world. In the wake of
the Soviet Union's decline and ultimate disintegration, you had all these states in the
former Soviet republics, you know,sort of turning towards capitalism. You saw
a lot of growth happen in WesternEurope at the time, and it felt
(16:17):
like, through the nineteen nineties andearly two thousands, like it had triumphed
and like we just had figured outthat it was the better system. I
still believe that, of course,I don't want to be misunderstood when I'm
talking about here, But as thingsdeveloped in the following couple decades, there's
been a lot of problems that haveemerged in the developed world that are driven
by a number of factors that havegiven a feeling to much of the population,
(16:40):
particularly much of the young population,that capitalism has failed and that markets
are not the solution, and thatthere needs to be some sort of,
you know, growth of state controlto manage these unruly markets. And I
think a lot of that's tied inwith the general populist sentiment that you're seeing
across the country, where whereby peopleare mistrustful of elites and elite institutions,
the systems of government are not trustedthe way that they were, and so
(17:04):
the system that the United States operatesunder is sort of part of that gets
kind of baked into that. Soboth Republicans and Democrats have largely abandoned,
in my opinion, the fidelity tothe markets that really ultimately drove the prosperity
that this country experienced for you know, two three decades. Well, we're
we're getting that now, and it'lltake two three decades to see how it
shapes out and what the where thependulum swings on free market capitalism. Next,
(17:29):
I suppose Matt Gannon, as Imentioned, he's the host of WGAN
Morning News. He's the chief executiveofficer of the Main Policy Institute, joined
us today talk about the state ofthe US economy and New England economy specifically.
Matt really appreciate having you on,and I will be chatting with you
on Monday. Great gnat Wait,thanks a lot. The piece that he
(17:49):
mentioned there about there was one itemthat he mentioned about, you know,
the distrust of the economic system,and it owes towards another piece that we're
going to cover probably next Mark.But according to a poll done by The
New York Times, the Philadelphia Inquirerand the Siena College, about fourteen percent
(18:12):
said that the political and economic systemjust needed to be torn down entirely.
Now, I don't think anybody hasany idea what that means, and I'm
interested to hear how that question wasphrased. But to have, you know,
more than a tenth of the populationsaying that, hey, our entire
system of government and the economy isn'tworking for us and needs to just get
(18:33):
a reset, I think speaks tothis overall shift and nationalism sentiment, And
just I don't know if that's lowerhigh relative to sure what number of respondents,
what proportion of respondents would have answeredthat. Historically in the nineteen twenties
and thirties and forties, we hada communist party, they had nominees.
Yep, we have a socialist partytoday. Look, I guess what I'm
(18:57):
saying is there will always been peoplewho who have been disillusioned with the status
quo. Fourteen percent actually sounds alow to me. I would have said
twenty to thirty. When you thinkabout the populists on the far right and
the populists on the left, theyboth want to revamp the They couldn't tell
you. They couldn't define coherently whatthe economic system is in place. I
(19:17):
don't know that I could either,for that matter, But there are always
people out there who are disillusioned,feel left behind, or they're motivated by
I don't know, resentman or somethingI don't know. Quick break, We've
got Wall Street Watch coming up next. Like us on Facebook and follow us
(19:44):
on Twitter at TFE show. Breakingbusiness news is always first right here on
the Financial Exchange Radio Network. Timenow for Wall Street Watch. A complete
look at what's moving market so fartoday right here on the Financial Exchange Radio
Network. Well, markets were mostlyquiet and now we're seeing a little bit
(20:04):
of a tech cell off right now, and markets are in mixed territory as
well as red reacts to the corePCE index unveiled this morning, the Fed's
preferred measure of inflation, which camein line with expectations, climbing two point
eight percent on an annual basis,while on a monthly basis that inflation measure
row zero point two percent, alsoas expected. Right now, the Dow
(20:29):
is up by thirty three points,SMP five hundred down nearly half a percent
now or twenty three points and theNASDAC down just over one percent, or
one hundred and seventy one points.Russell two thousand is up by about a
third of a percent. Ten yeartreasure reel debt ten year treasure reel down
by five basis points, now atfour point four to nine percent. Incrude
Oil off about a half a percent, trading its seventy seven dollars and fifty
(20:52):
cents a barrel gap up by twentytwo percent after the retailer posted higher quarterly
sales, breaking its of underwhelming resultsand a sign that it's planned under new
leadership is heading in the right direction. Meanwhile, Dell posted better than expected
first quarter earnings and revenue. However, the PC and server maker warned it
is facing pressure on marg margins,sending that stock down by twenty percent.
(21:18):
Costco posted a slight beat on expectationsfor same store sales growth and net income.
That stock off by three percent andshares in Mango dB down by twenty
five percent after the data platform companycut its outlook as a result of a
slower than expected start to the year. On Tucker Silvan, that's Wallstree Watch.
(21:41):
So there's a piece from Bloomberg here, robust economy can't shield Biden from
blame for higher prices, and Ithink my only response there is nor should
it, But it does speak tothis. Good Now, your president,
you own it wasn't Jimmy Carter's faulteither. Yeah, I mean well,
yeah, let me go, letme go further with that statement, if
(22:02):
you don't mind, because it's Friday, we can have some historical free can
Yeah, Jimmy Carter was a bigpart of the solution. He appointed Paul
Voker. Reagan gets credit for disinflationfixing inflation, and I'm never wanted to
take credit away from Ronald Reagan,of course, but Jimmy Carter made some
not always sound at least early on, but ultimately tough and resolute decisions on
(22:26):
the FED, specifically put empowering itto fix the inflation problem, and he
lost in probably in large part.The hostage thing didn't help, the failed
rescue attempt, and the general feeblenessof his leadership probably didn't help a little
before my time, but that's myunderstanding. But ultimately he deserves a lot
of the credit for the disinflation,doesn't get any of it. So in
either case, today According to afew different polls, won more than half
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of registered voters in six battleground statesrated the economy as poor. In this
recent poll done by the New YorkTimes, Philadelphia Inquirer, and Siena College,
a hair pull that was done recentlyfound that a majority of Americans believe
that the United States was in arecession, and about half said they believed
the recession one I can understand,because nobody actually understands what a recession.
(23:11):
Very few people actually understand whatsion.I'm in a bad mood. But about
half said that they believed the stockmarket was down from last year. Inexplicable.
It's up obviously considerably. Now,I guess could make sense in that
I think close to half of Americansdon't own anything in the stock market,
don't have a four to one K, don't have any investment. Then you
(23:33):
answer I don't know to that question. Regardless, it speaks to challenges that
I think the Biden administration is goingto face coming up this fall. And
again I've heard these arguments that,you know, oh, Biden's not to
blame for inflation, and you knowthe economy is actually pretty strong. And
my counterpoint would be Look, thisis a guy that ran on tax increases,
(23:57):
and uh, you know, obviouslyyou know, largely against the Trump
administration, but you know, ina number of different ways, ran on
these different ideas of hey, I'mgoing to raise taxes, I'm going to
do this, I'm going to dothat. Obviously, yes, I'm going
to spend a whole bunch of moneyon infrastructure too. Was the economic policy
part of it. But if you'retrying to run away from the inflation problem,
(24:18):
then I think you have to addressthe fact that you spent trillions of
dollars of you know, taxpayer andborrowed money on this economy without any corresponding
tax increases that you had promised andreally you know, gone for here.
And is all of that to blamefor inflation? No, of course not.
Plenty of stuff that the Trump administrationdid is also to blame for inflation.
(24:40):
But of course, you know,you continued on you know, stimulus
checks and robust unemployment benefits and loanforgiveness well into twenty twenty two, when
we experience the worst inflation that we'veseen in four decades, is it you
bear some of the blame for that? You are the president thought it was
all supply chain snarl driven, andit was to a good extent. We
(25:04):
saw on yeah go down. Itwas. We saw inflation come down by
nearly six percentage points without any increasein unemployment. This is totally unprecedented historically.
What they overlooked though they were warned. Larry Summers was quite vocal in
twenty twenty one. If you passedthis billion, two trillion dollars stimulus package,
you're pushing up against serious supply constraintsyou're going to generate. Now,
(25:26):
inflation was already well underway YEP,in this spring of twenty twenty, when
you can look at month over monthPCE, the data we got this morning
or CPI, inflation was accelerating underTrump's policies. Of course they were.
He was shoveling stimulus into the economy. At the same time supply chains became
gummed up and living off of TEXcuts that have been passed in twenty nineteen.
(25:48):
So yeah, number different, Butinflation didn't make the headlines until Biden
became president. Therefore he owns it. That's how it works when you're chief
executive. COVID happened under Donald Trump. He just id to shut the economy
down. It was a reasonable thingto do. He owns the fourteen percent
unemployment, though nobody talks about it. It's remarkable how teflon he is economically.
Nobody talks about the fourteen percent unemployment, the several percentage point contraction in
(26:11):
GDP, and the inflationary policies thatstarted under Trump. And oh, by
the way, his Federal Reserve chairmansat by for a year and a half
while inflation crept up to near doubledigits. He should own that, but
nobody remembers it that way because Bidenwas at the helm and he, I
think rightfully is as a consequence,blamed, and his leadership is feeble.
(26:32):
He doesn't appear to be in command. There's nothing worse than appearing to be
I don't know, shall we sayaloof or unaware? And Biden kind of
epitomizes that. Yeah, so youhave this ownership go leading into the fall.
And like I said, I thinkthe experience of the average American is
not that inflation is now running threepercent a year of a year approximately,
(26:53):
right. Take the average of anumber of different reads on inflation and you
average out to three percent. That'snot Themerican experience. The American experience is
I remember what prices were like intwenty nineteen or twenty fifteen or twenty ten,
and I remember that they barely budged. I could get a big Mac
for the same price in twenty eighteenthat I could in twenty fourteen or thereabouts,
and these days, the same amountof time has gone by, and
(27:17):
I can't buy those things. Myspending power has greatly diminished over that period
of time. And that is whatAmericans live. That is, that is
the actual experience. And yeah,they might not remember that. Oh yeah,
Joe Biden wasn't presidents in twenty nineteen. But here's where we are.
The Fed could have stopped inflation sooner. The cost probably would have been solar
growth, maybe a recession. Theymade a policy choice. In retrospect,
(27:38):
they might have made a different choice. People probably dislike inflation. We've learned
if polls are any indication, politicalpolls more than they do an increase in
unemployment. It seems that way.Certainly seems that way. Let's take a
quick break. When we come back. Todd Lutsky from the law firm of
Cushing and Dolan is going to bejoining us next. That's here next on
the Financial Exchange business and financial newsfirst throughout the day, only here on
(28:03):
the Financial Exchange Radio Network. TheFinancial Exchange Show podcast drops every day on
Apple, Spotify, and iHeartRadio.Hit that subscribe button, then leave us
a five star review. You're listeningto the Financial Exchange Radio Network. Joining
(28:26):
us now is Attorney Todd Lutsky fromthe law firm of Cushing and Dolan.
Todd, thanks for always for comingon. Appreciate it. Always a pleasure.
So, Todd, I know youhave a guide out this month about
estate planning potholes and mistakes that yousee. And you know what I find
often sticks with people is good rulesof thumb, and I was wondering if
you had one when it comes tohow frequently to review in a state plan?
(28:49):
Right like I drafted a trust ora will a decade ago, you
know, how often should I bepulling that thing out and making sure somebody's
reviewing it and it still makes sense? You know, that's great. It's
certainly one of the potholes that wementioned to avoid in the guide, and
that is that you know you've doneyour state plan, you think you're done
well you're really never done. Iwould say, ye know, a rule
(29:11):
of thumb is maybe ten depending onthe size of your state. Of course,
ten to fifteen years. Ten yearsprobably isn't bad. Now if your
state's really large. When I talkabout ten million and up, you know
you probably want to call every everyNovember or December and just say what are
the rules? Any gifting ideas thingslike that. But generally speaking, I
think you know ten years. Andwhy I say that is in that ten
(29:37):
years because you know, mostly clientscome in there they can be older.
Right. Let's say you came inthough when you were in your you know,
early fifties. Yep, right,You've done your planning, and now
you're approaching sixty five. Well,you know you got to relook at your
retiring number one. Number two,You got to look at how your assets
(29:57):
have grown or not grown. Andnow are you concerned about a nursing home
where As before you might not havebeen, now you are. So maybe
it's time to switch from a revocabletrust to an ear of vocable trust.
But you need to look at yourplan to figure that out, right to
you know, I gotta be honest, like I look at and talk to
folks about estate planning in some way, shape or form, just because of
(30:18):
my work with clients in the financialadvice base almost daily, and even I
get pretty confused when I start hearingdifferent types of trust in terms that sound
like trusts thrown around, like aNominee realty trust or you know whether a
home is homesteaded and what exactly thatthat means for somebody, And maybe you
can just kind of start with Nomineerealty trusts, I guess, compared to
(30:41):
I don't know the other types oftrust that you talk about all the time
and problems that you see commonly.And that's really the key because one of
the issues, and I mentioned thistoo, is that you know, you
think you've done your estate plan becauseyou've got a Nominee realty trust. Well,
I don't think that means you've doneyour estate plan at all. So
dust it all, pick it upoff the shelf, and say, you
know what, a Nominee realty trustisn't really a trust at all. In
(31:06):
fact, it's a flow through entity. It's a principal agency relationship. And
in fact, basically what you've doneis whatever you put in that Nominee Realty
trust which by the way, isgenerally your home or some piece of property
real property. You look to theschedule of beneficiaries and that's really who owns
it right now, even though inyour head you think, oh, I
(31:30):
didn't give that to them till I'mdead, No, they own it right
now. You've actually made a completedgift. I mean, the kids might
not even know it, but ifthey got a divorce while you're living,
I'm going to assure you that thedivorcing attorney's going to discover it and realize
that it's a completed gift. So, you know, just all kinds of
bad things can happen if you havea nominee realty trust and you think that
(31:52):
the kids are the beneficiaries. Now, if you are, it's okay,
but that's just one pothole to avoidand it is not going to accomplish the
estate planning objectives that you have.So folks, there's so many things to
think about, and this guide itis the end of the month. You
know, potholes to avoid in theestate planning. If you've done your estate
(32:14):
plan already, get it, learnhow you might need to modify it.
If you haven't done your estate planning. These are things that you could look
at before you get started, soyou know you want to, you know,
make sure you avoid them. Maybeyour kids have gotten married and you
want to change it in divorce,proof it and credit or protected. Maybe
you've moved, maybe you've gotten adivorce. Maybe you're now changing residency.
(32:36):
Folks, figure out what your situationis like. Get the guide lots to
learn about it. It's the endof the month eight six six eight four
eight five six ninety nine. Goto our website Legal Exchange show dot com.
You can download it there one moretime eight sixty six eight four eight
five six nine nine or Legal exchangeshow dot com. Thank you, Todd,
(33:00):
appreciate it and I'm sure we'll talkto you again soon. Always a
pleasure to take care. The proceedingwas paid for and the views expressed are
solely those of Cushing and Dolan.Cushing and Dolan and or Armstrong Advisory may
contact you offering legal or investment services. Cushing and Armstrong do not endorse each
other and are not affiliated. Mark. I want to chat briefly about a
subject that I feel like has beenmaking the news almost every week, which
(33:22):
is commercial real estate and again,if you've been in a coma for the
last five years, you might notbe aware. But most I think are
that people are not going to theoffice quite as frequently as they used to.
And there's a whole bunch of reallywhat used to be very nice real
estate in places like Midtown Manhattan thatare empty in a in a lot of
(33:44):
cases, and are really having atough time finding the valuations that we're used
to borrow on these buildings. Andwe now have again one offs here and
there of losses piling up in someof these And there's a famous one that
occurred pretty recently that I wanted tobring up. Seventeen forty Broadway in New
(34:06):
York City, referred to as thethe Mony Building. So if you've heard
that Billie Idle song Mony Mony,it was apparently a cover done before that
of another song. It refers tothat building. And this thing was and
still is, you know, triplea building, very nice office space up
(34:27):
until a few years ago. Itwas leased primarily to L Brands, which
owned Victoria's Secret among other other brands, and you know, generally seen as
this really strong, least out buildingand to that point, you know,
they borrowed off of it and soldsome of the debt via mortgage backed securities.
(34:49):
Anybody remember that term from eight defaultsome big mortgage backed securities. I
think you might have heard of that, and these are these are commercial mortgage
backed securities. But in either case, this building, the debt on this
building was a three hundred eight milliondollar tranch and was triple A rated by
S and P. And what happenedrecently is that these top triple A rated
(35:13):
bonds, the top tranch of thesebonds, were backed by a loan on
this building and took a pretty bighit on this thing. As it turns
out, when the when the ownerwent bankrupt recently, a twenty six percent
hit on these A lot of thelower tranches of this debt got wiped out
entirely. And look, this hasnot turned into the crisis that many people
(35:35):
were predicting. It turns out.I think that lenders in this space really
do not want to own this thesebuildings and try and figure out what to
do with them, so they've beenwilling to refinance a lot of these things.
But I just have to ask,how on earth any rating agency takes
a look at something like this andsays, Oh, yeah, you've got
this building. It's all occupied bya single tenant who makes up seventy seven
(35:59):
percent center the space in this building. And yeah, that sounds like triple
A quality debt to me. Let'slet's go ahead and slap our highest possible
rating on this debt that is againhyper concentrated, not in one industry,
right, it's not hyper concentrated justyou know, commercial mortgage backed securities.
It's concentrated in one building and asingle tenant, and you were slapping a
(36:22):
triple A rating on that sort ofthing. I I is this not any
different from what we were dealing withwith the ratings agencies time and time again
back in eight when they were misappropriatelylabeling these these things as very high quality
debt. I think that problem wasdifferent. It was hard in that period
(36:44):
for the rating agencies to look throughthe structures to get a sense for where
the real risks were or to quantifythem. So this is worse. I
don't know if this is worse orbetter. The underlying tenant in this case
maybe triple A, maybe of highcredit worthy uh status? Right. L
Brands was an S and P fivehundred company like this is a big,
(37:04):
big tenant. Yeah, so Idon't know if this is common practice.
Does the bond get the rating ofthe tenant? So I don't know how
prevalent it is, right to behonest, Well, I know, to
me, the it reinforces the needto be well diversified. Individual investors generally
don't have to worry about that.I mean, this has been a problem
for a bunch of pension funds well, which is our problem too, And
(37:25):
it's also a problem for pension funds, including union pension funds and endowments and
public sector pension funds. Here inAmerica. They typically have allocations to real
estate. It's private real estate theydesignated as a diversifier or an inflation hedge.
The pandemic and the changes that itbrought about were probably unforeseeable, and
(37:45):
we're going to be working our waythrough this for several years. Thankfully,
the losses are being realized slowly.Yeah, that's what it seems like.
And that's the point that I wouldmake here, is that you know,
the doom scenario of all this debtcoming do does not seem like it's playing
out in some massive crisis. Instead. No, that's not how private markets
work. Yeah. Instead, thebanks are being very willing to negotiate and
refinance all this because quite honestly,New York Community Bank doesn't want to own
(38:08):
a bunch of these properties, haveto figure out what to do with them.
Let's take a quick break, buta whole lot more to cover in
the second hour of the show.Paul La Monica will be joining us in
the second hour, so stay tuned, folks, we'll be right back at it next
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K Boston is presented by Veterans DevelopmentCorporation. FACE is the Financial Exchange with
Mike Armstrong and Mark Fandetty. Welcometo the Financial Exchange. Happy Friday from
us here Mike Finndaddy, Mike Armstrongand Tucker Silva with you on an inflation
Friday. We got the PCE indexjust this morning at eight thirty am,
(01:27):
in case you went to sleep yesterdayat four thirty pm and then woke up
thirty seconds ago just for this show, which, by the way, that's
not sleep, that's a coma.Former President Trump has been indicted on thirty
four counts, excuse me, hasbeen charged on thirty four counts, and
we'll be addressing We'll be having aspeech at eleven am as it today,
(01:49):
Tucker, Yeah, press conference,Trump Power at Trump Tower. So if
there's anything financial newsworthy that comes ofthat, which I would be surprised if
there were, then we will becovering it. But otherwise we'll move onto
the inflation story of the day,which has been bumping markets around a little
bit here. So as I mentionedthat data came out at eight thirty am,
(02:13):
markets opened at nine thirty am,and through early trading right now,
you've got two of three major indicesin positive territory. And so let's dive
right in here. Mark, thisis what's referred to as the Fed's preferred
measure of inflation. And we cantalk a little bit about why they prefer
this one over the CPI, butit's the Personal Consumption Expenditures Index. They
(02:36):
put it together once a month.We're reading data now on the month of
April, and just headline numbers here. You saw year over year headline inflation
from this measure coming in at twopoint seven percent in the month of April.
That compares to the CPI reading ofthree point four percent. And then
month over month inflation data, whichhas been very consistent for the last three
(02:58):
months, coming in at zero pointthree percent for the month of April.
What other data points in your mindkind of caught your eye here? And
you know, clearly markets aren't reallymoving one way or the other on this,
but not dramatically selling off. SoI've got to take that as not
a big surprise for me. No. No, I thought I thought they'd
overreact and respond more positively. Andby positively I mean stocks up and bonds
(03:21):
up, sure, equivalently, bondyields down. Sure. I say that
because income growth slowed, which Normallyyou think that's a bad thing, but
that's what the Fed's trying to doto tamp down inflation. One big contributor
is, i'll just call it demand, be a little general, sure,
and demand's got to slow. Theeconomy's got to slow probably for prices to
slow further. Another positive potentially iscore PC Inflation you've already pointed this out
(03:46):
came down a little bit, thoughsome of that's due to rounding. So
called CORP is yeah, I know, so core takes out food and atal
all this good news as a roundingerror. It might be like by rounding,
I mean the month over month forso called core, which takes out
food and energy. Because they're jumpy, they can distort what's really going on
(04:06):
with inflation. Core came in atpoint two four nine. Point two four
nine gets rounded down to point two. If it had been one tenth higher,
it would have been rounded up topoint three, which has been for
the last two months, and wewould have been saying no change. And
if you annualize the last few months, would you do a lot? And
we like to do because again,it gives you a better sense for trend,
(04:29):
which is what the FED has controlover, not the little jumps month
to month that are attributable to oneoffs that go away. If you annualize
that, you get like three pointsix is a three point four and a
half or so as opposed to threepoint two if you annualize the last three
months, I should say, ye, So that rounding does kind of make
a big difference. But psychologically pointtwo is more powerful than point you know
(04:50):
three argus, especially because the lastfew months have been point three. Yeah,
So it looks like progress there,as I mentioned, looks like progress
on income growth. Spending. Also, spending has been red hot if you
look at the trends, say relativeto pre COVID, because people built up
a lot of excess savings due tothe various rounds of stimulus and other factors
the lockdowns, for example, Sospending had been on a tear. Two,
(05:13):
we probably need to see spending slowfurther, the economy slow further.
We got some news to that effectyesterday. Fourth quarter growth was kind of
languid. Sure, right, Sowell, normally you wouldn't be happy about
the economy slowing in this case ifyour goal is to get inflation down,
and that seems to be that's thewhole point of the FED of hiking rates.
Then yeah, this points in theright direction. Though, as you
(05:34):
guys like to say on this show, one bit of data does not make
a trend. We need several ONTsmore. And I know, having read
what we're going to be talking abouttoday, that we have several other data
points that would possibly point in theother direction. Right, We've got data
coming from housing that things might bebottoming there, that some of the home
improvement retailers might be seeing a bitof a bottom in terms of their activity,
(05:58):
and so could that lead to matureinflation? I think is an open
question. You mentioned that I liketo look at these numbers on different kind
of annualized paces, and you're right. So when we talk about this data
point again, the PCE, thePersonal Consumption Expenditures inflation gauge was showing a
year over year inflation rate of twopoint seven percent. So that's the one
(06:20):
that people most relate to, isthat you know, in April compared to
April of twenty three, prices weretwo point seven So that's not annualized,
that's past, that's year over year, just year over year inflation number.
I then like to take a lookat annualizing the last three and six months,
which for the last several months,as we mentioned, have been running
(06:40):
hotter than that year over year number. So on that overall PCE number,
you've got a six month average onthere that's coming in at two point eight
percent, so just slightly higher,but a three month average speaking to really
just this year's faster pace coming inat three point six percent on the core
prices, again pretty similar. Butwhat it comes down to is that,
(07:02):
yeah, on year over year numbers, when we're comparing April of twenty four
to April of twenty three, you'vegot inflation now coming in between on the
very low end on PCE two pointseven percent to a high of three point
six percent on core CPI. Soagain those measure completely different things, but
different measures of inflation are coming inanywhere between two seven to three six on
(07:25):
a year over year basis. Ifwe're looking at just the last three months
and annualizing all those numbers, whichisn't a perfect way of doing it either,
but there is no perfect way ofdoing it, we're looking at a
low of three to two and ahigh of four point four and so I
think that speaks to a lot ofwhat we've talked about, which is this
year you're seeing this reacceleration in prices, albeit not at a terrifying level.
(07:48):
We're not seeing annualized numbers that arerunning eight percent, but it you know,
it was a course reversal from whatwe saw towards the end of last
year, and I think that's whathas largely explained the slow down in expectations
for rate cuts. It's funny weobsess as we should, particularly on a
daily show, over monthly changes.Sure, but it took years in the
(08:11):
nineteen eighties. Some of you willremember this. It took well into the
nineteen nineties to get expectations down toa level of inflation that the Fed,
though it didn't have a target atthe time, considered low and stable,
to the point where it didn't factorinto people's decisions. It's going to take
years for the trauma of the inflationof twenty twenty one and twenty twenty two
(08:33):
to wane to the point where inflationis no longer the first, second,
or even third economic issue on people'sminds. We really have to be patient.
I'm not saying the FED is onnecessarily the right track here. I
tend to doubt that they've tightened enoughfor long enough. I don't know if
rates have to go higher, ifthey just have to stay where they are
today for much longer than markets seemto believe right now. But it's going
(08:56):
to take years for the scars ofinflation to heal. We've got an article
later in the stack that talks aboutpeople remaining down on the economy. That's
why the half life of these painfulmemories is really long. Yeah, I
think I continue to call that out, and you know, make that important
point and everybody should recognize that too, which is the different bureaus that produce
(09:18):
these numbers obsess over what's inflation beenover the last twelve months, and frankly,
that's what should matter for the FederalReserve. But no household or human
being in the world cares just aboutwhat happened to inflation on the last month,
over the last year. It's irrelevant, right. The way that you
relate to inflation is, Gee,it sure seemed like things were cheaper a
(09:39):
few years ago when I went tothe grocery store. When do you mean
a few years ago? Well,I don't know, a few years ago
when I looked at my receipts afew years ago. It sure seemed a
lot cheaper to live my life.And that's the experience of the American public.
That is the one that people arecaring about and responding to right now,
which is inflation. Why does itseem so high? Well because yeah,
fo years ago prices were twenty percentlower than where they are right now.
(10:05):
And that's the actual human experience.We've got to take quick break because
Matt Dannon is joining us next.Not only is he the chief executive officer
of the Main Policy Institute, buthe's also the morning show host with NewsRadio
WGAN in Portland. I talked tohim twice a week and he's going to
be joining us next here on theFinancial Exchange. Miss any of the show.
(10:26):
Catch up at your convenience by visitingFinancial Exchange Show dot com and clicking
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(10:50):
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(11:11):
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Matthew Gangnon is the host of theWGAN Morning News, heard every weekday from
six to nine am on WGA,and he's also the chief executive of the
(11:35):
Main Policy Institute, a free marketpolicy think tank, and joins us today
talk about the state of I thinkthe state of the US and New England
and specifically main economies. Matth thanksfor coming on, appreciate it. You
bets pleasure to be here. Soyou and I talked twice a week and
we talk, you know, largelyabout the national scene. But i'd like
(11:56):
if you don't mind, you know, with your background in economics, with
your background Capital Hill, talk maybea bit to us about what you would
view as the biggest challenges facing thestate of Maine and maybe the New England
economy as a whole, if youdon't mind well, I mean, I
hate to be repetitive, but youwould find them to be very similar to
what the rest of the country atlarge is struggling and dealing with right now,
(12:18):
which is obviously very much tied intothe performance of the economy and specifically
inflation. I'm sure you you know, talk about this very frequently, Mike,
but ultimately there is this sort ofsplit personality that our economy is currently
living through. Right It looks likeon many metrics things are pretty good.
You have blow unemployment obviously, itlooks like growth is good, we're not
in recession, et cetera, andwages you know, being up and whatnot.
(12:41):
But then at the same time youhave this persistent inflation issue which has
left everyone with a sour feeling intheir mouth. And you know, polling
has reflected the fact that the majorityof people in the country actually believe that
we're actually in recession because they themselves, of course don't feel all that economically
secure, so that translates into avery conflicted kind of personality to the economy
(13:03):
both nationwide but also the same thingis happening here in Maine. You know,
the biggest thing that we struggle with, in my opinion, is the
continuing labor force issue. You know, we have we have a significant shortage
of workers. You know, there'sdiscussions about exactly how to how to fix
that and whatnot, and all tiesto my in my opinion, to demographics.
Right, but it's not showing anysigns of life. It's not showing
(13:26):
any signs of really getting better,even with the economy performing in many ways
quite well with low unemployment. IfI'm not mistaken, the state of Maine,
correct me if I'm wrong, oldestaverage population in the country, Am
I right? Ye? By apretty significant clip too. Yeah, I
think we're north of forty five.Now what does that mean to you to
you know, when you look outat the you know, the development of
(13:46):
Portland and the state as a whole, which obviously you know has a massive
tourism business during parts of the year. But what does that look like two
decades from now in terms of thereal estate market or other things that people
maybe not considering today. Well,it's pretty scary, and in my opinion,
it is a harbinger of a lotof the things that are too come
for a lot of the other statesin the country. If you look across
(14:07):
the country now, about half ofUS states actually have more deaths than births,
and that's something that we actually wewere the first state that actually experienced
that, and I think it wasback in twenty eleven. So we're kind
of leading the edge of that fora lot of the country right now.
And that's not a good thing forthe future of basically anything economic speaking,
right, GDP growth, Right,you know, you have to have more
(14:30):
people producing more things and participating inthe economy to continually grow. You know,
give you some with technical innovation,but you need human beings. Right.
The real estate market is going tobe greatly affected by that. Obviously,
the workforce shortage will only continue toexacerbate itself, particularly given the age,
because we have a very low laborforce participation rate. So you know,
(14:50):
you combine that with like less peopleand you're in a lot of dire
straits. In my opinion, Matt, I want to shift more to your
thing, you know, your workwith the the main policy Institute, the
premier free market policy think tank,and you know, you spent a decade
in DC, and I wonder whatyour thoughts are, and by the way,
trained economists, I mean, Iwonder what your thoughts are at this
(15:11):
stage on kind of the state ofpolitics and interaction with the idea of just
free market capitalism in general, becauseit seems to me that both sides of
the aisle have taken a pretty significantshift away from the free market ideas of
Reaganomics or you know, eighties andnineties politics when it came to how to
(15:33):
view this economy today. And Idon't know, am I misreading it any
of the political side of this,because it sure does seem like a big
step in a very different direction,whether you're talking about policies from the Biden
administration over the last few years,or you know, prior to that,
policies from the Trump administration. Ohyeah, no, it goes well beyond
one administration. I mean, ifyou go back a little time in history,
(15:54):
you go back to that period you'rementioning, right, the seventies,
eighties, nineties. You know,capitalism had its moment. It was something
that was basically seen widely popular acrossthe entire world. In the wake of
the Soviet Union's decline and ultimate disintegration, you had all these states in the
former Soviet republics, you know,sort of turning towards capitalism. You saw
a lot of growth happen in WesternEurope at the time, and it felt
(16:17):
like, through the nineteen nineties andearly two thousands, like it had triumphed
and like we just had figured outthat it was the better system. I
still believe that, of course,I don't want to be misunderstood when I'm
talking about here, But as thingsdeveloped in the following couple decades, there's
been a lot of problems that haveemerged in the developed world that are driven
by a number of factors that havegiven a feeling to much of the population,
(16:40):
particularly much of the young population,that capitalism has failed and that markets
are not the solution, and thatthere needs to be some sort of,
you know, growth of state controlto manage these unruly markets. And I
think a lot of that's tied inwith the general populist sentiment that you're seeing
across the country, where whereby peopleare mistrustful of elites and elite institutions,
the systems of government are not trustedthe way that they were, and so
(17:04):
the system that the United States operatesunder is sort of part of that gets
kind of baked into that. Soboth Republicans and Democrats have largely abandoned,
in my opinion, the fidelity tothe markets that really ultimately drove the prosperity
that this country experienced for you know, two three decades. Well, we're
we're getting that now, and it'lltake two three decades to see how it
shapes out and what the where thependulum swings on free market capitalism. Next,
(17:29):
I suppose Matt Gannon, as Imentioned, he's the host of WGAN
Morning News. He's the chief executiveofficer of the Main Policy Institute, joined
us today talk about the state ofthe US economy and New England economy specifically.
Matt really appreciate having you on,and I will be chatting with you
on Monday. Great gnat Wait,thanks a lot. The piece that he
(17:49):
mentioned there about there was one itemthat he mentioned about, you know,
the distrust of the economic system,and it owes towards another piece that we're
going to cover probably next Mark.But according to a poll done by The
New York Times, the Philadelphia Inquirerand the Siena College, about fourteen percent
(18:12):
said that the political and economic systemjust needed to be torn down entirely.
Now, I don't think anybody hasany idea what that means, and I'm
interested to hear how that question wasphrased. But to have, you know,
more than a tenth of the populationsaying that, hey, our entire
system of government and the economy isn'tworking for us and needs to just get
(18:33):
a reset, I think speaks tothis overall shift and nationalism sentiment, And
just I don't know if that's lowerhigh relative to sure what number of respondents,
what proportion of respondents would have answeredthat. Historically in the nineteen twenties
and thirties and forties, we hada communist party, they had nominees.
Yep, we have a socialist partytoday. Look, I guess what I'm
(18:57):
saying is there will always been peoplewho who have been disillusioned with the status
quo. Fourteen percent actually sounds alow to me. I would have said
twenty to thirty. When you thinkabout the populists on the far right and
the populists on the left, theyboth want to revamp the They couldn't tell
you. They couldn't define coherently whatthe economic system is in place. I
(19:17):
don't know that I could either,for that matter, But there are always
people out there who are disillusioned,feel left behind, or they're motivated by
I don't know, resentman or somethingI don't know. Quick break, We've
got Wall Street Watch coming up next. Like us on Facebook and follow us
(19:44):
on Twitter at TFE show. Breakingbusiness news is always first right here on
the Financial Exchange Radio Network. Timenow for Wall Street Watch. A complete
look at what's moving market so fartoday right here on the Financial Exchange Radio
Network. Well, markets were mostlyquiet and now we're seeing a little bit
(20:04):
of a tech cell off right now, and markets are in mixed territory as
well as red reacts to the corePCE index unveiled this morning, the Fed's
preferred measure of inflation, which camein line with expectations, climbing two point
eight percent on an annual basis,while on a monthly basis that inflation measure
row zero point two percent, alsoas expected. Right now, the Dow
(20:29):
is up by thirty three points,SMP five hundred down nearly half a percent
now or twenty three points and theNASDAC down just over one percent, or
one hundred and seventy one points.Russell two thousand is up by about a
third of a percent. Ten yeartreasure reel debt ten year treasure reel down
by five basis points, now atfour point four to nine percent. Incrude
Oil off about a half a percent, trading its seventy seven dollars and fifty
(20:52):
cents a barrel gap up by twentytwo percent after the retailer posted higher quarterly
sales, breaking its of underwhelming resultsand a sign that it's planned under new
leadership is heading in the right direction. Meanwhile, Dell posted better than expected
first quarter earnings and revenue. However, the PC and server maker warned it
is facing pressure on marg margins,sending that stock down by twenty percent.
(21:18):
Costco posted a slight beat on expectationsfor same store sales growth and net income.
That stock off by three percent andshares in Mango dB down by twenty
five percent after the data platform companycut its outlook as a result of a
slower than expected start to the year. On Tucker Silvan, that's Wallstree Watch.
(21:41):
So there's a piece from Bloomberg here, robust economy can't shield Biden from
blame for higher prices, and Ithink my only response there is nor should
it, But it does speak tothis. Good Now, your president,
you own it wasn't Jimmy Carter's faulteither. Yeah, I mean well,
yeah, let me go, letme go further with that statement, if
(22:02):
you don't mind, because it's Friday, we can have some historical free can
Yeah, Jimmy Carter was a bigpart of the solution. He appointed Paul
Voker. Reagan gets credit for disinflationfixing inflation, and I'm never wanted to
take credit away from Ronald Reagan,of course, but Jimmy Carter made some
not always sound at least early on, but ultimately tough and resolute decisions on
(22:26):
the FED, specifically put empowering itto fix the inflation problem, and he
lost in probably in large part.The hostage thing didn't help, the failed
rescue attempt, and the general feeblenessof his leadership probably didn't help a little
before my time, but that's myunderstanding. But ultimately he deserves a lot
of the credit for the disinflation,doesn't get any of it. So in
either case, today According to afew different polls, won more than half
(22:49):
of registered voters in six battleground statesrated the economy as poor. In this
recent poll done by the New YorkTimes, Philadelphia Inquirer, and Siena College,
a hair pull that was done recentlyfound that a majority of Americans believe
that the United States was in arecession, and about half said they believed
the recession one I can understand,because nobody actually understands what a recession.
(23:11):
Very few people actually understand whatsion.I'm in a bad mood. But about
half said that they believed the stockmarket was down from last year. Inexplicable.
It's up obviously considerably. Now,I guess could make sense in that
I think close to half of Americansdon't own anything in the stock market,
don't have a four to one K, don't have any investment. Then you
(23:33):
answer I don't know to that question. Regardless, it speaks to challenges that
I think the Biden administration is goingto face coming up this fall. And
again I've heard these arguments that,you know, oh, Biden's not to
blame for inflation, and you knowthe economy is actually pretty strong. And
my counterpoint would be Look, thisis a guy that ran on tax increases,
(23:57):
and uh, you know, obviouslyyou know, largely against the Trump
administration, but you know, ina number of different ways, ran on
these different ideas of hey, I'mgoing to raise taxes, I'm going to
do this, I'm going to dothat. Obviously, yes, I'm going
to spend a whole bunch of moneyon infrastructure too. Was the economic policy
part of it. But if you'retrying to run away from the inflation problem,
(24:18):
then I think you have to addressthe fact that you spent trillions of
dollars of you know, taxpayer andborrowed money on this economy without any corresponding
tax increases that you had promised andreally you know, gone for here.
And is all of that to blamefor inflation? No, of course not.
Plenty of stuff that the Trump administrationdid is also to blame for inflation.
(24:40):
But of course, you know,you continued on you know, stimulus
checks and robust unemployment benefits and loanforgiveness well into twenty twenty two, when
we experience the worst inflation that we'veseen in four decades, is it you
bear some of the blame for that? You are the president thought it was
all supply chain snarl driven, andit was to a good extent. We
(25:04):
saw on yeah go down. Itwas. We saw inflation come down by
nearly six percentage points without any increasein unemployment. This is totally unprecedented historically.
What they overlooked though they were warned. Larry Summers was quite vocal in
twenty twenty one. If you passedthis billion, two trillion dollars stimulus package,
you're pushing up against serious supply constraintsyou're going to generate. Now,
(25:26):
inflation was already well underway YEP,in this spring of twenty twenty, when
you can look at month over monthPCE, the data we got this morning
or CPI, inflation was accelerating underTrump's policies. Of course they were.
He was shoveling stimulus into the economy. At the same time supply chains became
gummed up and living off of TEXcuts that have been passed in twenty nineteen.
(25:48):
So yeah, number different, Butinflation didn't make the headlines until Biden
became president. Therefore he owns it. That's how it works when you're chief
executive. COVID happened under Donald Trump. He just id to shut the economy
down. It was a reasonable thingto do. He owns the fourteen percent
unemployment, though nobody talks about it. It's remarkable how teflon he is economically.
Nobody talks about the fourteen percent unemployment, the several percentage point contraction in
(26:11):
GDP, and the inflationary policies thatstarted under Trump. And oh, by
the way, his Federal Reserve chairmansat by for a year and a half
while inflation crept up to near doubledigits. He should own that, but
nobody remembers it that way because Bidenwas at the helm and he, I
think rightfully is as a consequence,blamed, and his leadership is feeble.
(26:32):
He doesn't appear to be in command. There's nothing worse than appearing to be
I don't know, shall we sayaloof or unaware? And Biden kind of
epitomizes that. Yeah, so youhave this ownership go leading into the fall.
And like I said, I thinkthe experience of the average American is
not that inflation is now running threepercent a year of a year approximately,
(26:53):
right. Take the average of anumber of different reads on inflation and you
average out to three percent. That'snot Themerican experience. The American experience is
I remember what prices were like intwenty nineteen or twenty fifteen or twenty ten,
and I remember that they barely budged. I could get a big Mac
for the same price in twenty eighteenthat I could in twenty fourteen or thereabouts,
and these days, the same amountof time has gone by, and
(27:17):
I can't buy those things. Myspending power has greatly diminished over that period
of time. And that is whatAmericans live. That is, that is
the actual experience. And yeah,they might not remember that. Oh yeah,
Joe Biden wasn't presidents in twenty nineteen. But here's where we are.
The Fed could have stopped inflation sooner. The cost probably would have been solar
growth, maybe a recession. Theymade a policy choice. In retrospect,
(27:38):
they might have made a different choice. People probably dislike inflation. We've learned
if polls are any indication, politicalpolls more than they do an increase in
unemployment. It seems that way.Certainly seems that way. Let's take a
quick break. When we come back. Todd Lutsky from the law firm of
Cushing and Dolan is going to bejoining us next. That's here next on
the Financial Exchange business and financial newsfirst throughout the day, only here on
(28:03):
the Financial Exchange Radio Network. TheFinancial Exchange Show podcast drops every day on
Apple, Spotify, and iHeartRadio.Hit that subscribe button, then leave us
a five star review. You're listeningto the Financial Exchange Radio Network. Joining
(28:26):
us now is Attorney Todd Lutsky fromthe law firm of Cushing and Dolan.
Todd, thanks for always for comingon. Appreciate it. Always a pleasure.
So, Todd, I know youhave a guide out this month about
estate planning potholes and mistakes that yousee. And you know what I find
often sticks with people is good rulesof thumb, and I was wondering if
you had one when it comes tohow frequently to review in a state plan?
(28:49):
Right like I drafted a trust ora will a decade ago, you
know, how often should I bepulling that thing out and making sure somebody's
reviewing it and it still makes sense? You know, that's great. It's
certainly one of the potholes that wementioned to avoid in the guide, and
that is that you know you've doneyour state plan, you think you're done
well you're really never done. Iwould say, ye know, a rule
(29:11):
of thumb is maybe ten depending onthe size of your state. Of course,
ten to fifteen years. Ten yearsprobably isn't bad. Now if your
state's really large. When I talkabout ten million and up, you know
you probably want to call every everyNovember or December and just say what are
the rules? Any gifting ideas thingslike that. But generally speaking, I
think you know ten years. Andwhy I say that is in that ten
(29:37):
years because you know, mostly clientscome in there they can be older.
Right. Let's say you came inthough when you were in your you know,
early fifties. Yep, right,You've done your planning, and now
you're approaching sixty five. Well,you know you got to relook at your
retiring number one. Number two,You got to look at how your assets
(29:57):
have grown or not grown. Andnow are you concerned about a nursing home
where As before you might not havebeen, now you are. So maybe
it's time to switch from a revocabletrust to an ear of vocable trust.
But you need to look at yourplan to figure that out, right to
you know, I gotta be honest, like I look at and talk to
folks about estate planning in some way, shape or form, just because of
(30:18):
my work with clients in the financialadvice base almost daily, and even I
get pretty confused when I start hearingdifferent types of trust in terms that sound
like trusts thrown around, like aNominee realty trust or you know whether a
home is homesteaded and what exactly thatthat means for somebody, And maybe you
can just kind of start with Nomineerealty trusts, I guess, compared to
(30:41):
I don't know the other types oftrust that you talk about all the time
and problems that you see commonly.And that's really the key because one of
the issues, and I mentioned thistoo, is that you know, you
think you've done your estate plan becauseyou've got a Nominee realty trust. Well,
I don't think that means you've doneyour estate plan at all. So
dust it all, pick it upoff the shelf, and say, you
know what, a Nominee realty trustisn't really a trust at all. In
(31:06):
fact, it's a flow through entity. It's a principal agency relationship. And
in fact, basically what you've doneis whatever you put in that Nominee Realty
trust which by the way, isgenerally your home or some piece of property
real property. You look to theschedule of beneficiaries and that's really who owns
it right now, even though inyour head you think, oh, I
(31:30):
didn't give that to them till I'mdead, No, they own it right
now. You've actually made a completedgift. I mean, the kids might
not even know it, but ifthey got a divorce while you're living,
I'm going to assure you that thedivorcing attorney's going to discover it and realize
that it's a completed gift. So, you know, just all kinds of
bad things can happen if you havea nominee realty trust and you think that
(31:52):
the kids are the beneficiaries. Now, if you are, it's okay,
but that's just one pothole to avoidand it is not going to accomplish the
estate planning objectives that you have.So folks, there's so many things to
think about, and this guide itis the end of the month. You
know, potholes to avoid in theestate planning. If you've done your estate
(32:14):
plan already, get it, learnhow you might need to modify it.
If you haven't done your estate planning. These are things that you could look
at before you get started, soyou know you want to, you know,
make sure you avoid them. Maybeyour kids have gotten married and you
want to change it in divorce,proof it and credit or protected. Maybe
you've moved, maybe you've gotten adivorce. Maybe you're now changing residency.
(32:36):
Folks, figure out what your situationis like. Get the guide lots to
learn about it. It's the endof the month eight six six eight four
eight five six ninety nine. Goto our website Legal Exchange show dot com.
You can download it there one moretime eight sixty six eight four eight
five six nine nine or Legal exchangeshow dot com. Thank you, Todd,
(33:00):
appreciate it and I'm sure we'll talkto you again soon. Always a
pleasure to take care. The proceedingwas paid for and the views expressed are
solely those of Cushing and Dolan.Cushing and Dolan and or Armstrong Advisory may
contact you offering legal or investment services. Cushing and Armstrong do not endorse each
other and are not affiliated. Mark. I want to chat briefly about a
subject that I feel like has beenmaking the news almost every week, which
(33:22):
is commercial real estate and again,if you've been in a coma for the
last five years, you might notbe aware. But most I think are
that people are not going to theoffice quite as frequently as they used to.
And there's a whole bunch of reallywhat used to be very nice real
estate in places like Midtown Manhattan thatare empty in a in a lot of
(33:44):
cases, and are really having atough time finding the valuations that we're used
to borrow on these buildings. Andwe now have again one offs here and
there of losses piling up in someof these And there's a famous one that
occurred pretty recently that I wanted tobring up. Seventeen forty Broadway in New
(34:06):
York City, referred to as thethe Mony Building. So if you've heard
that Billie Idle song Mony Mony,it was apparently a cover done before that
of another song. It refers tothat building. And this thing was and
still is, you know, triplea building, very nice office space up
(34:27):
until a few years ago. Itwas leased primarily to L Brands, which
owned Victoria's Secret among other other brands, and you know, generally seen as
this really strong, least out buildingand to that point, you know,
they borrowed off of it and soldsome of the debt via mortgage backed securities.
(34:49):
Anybody remember that term from eight defaultsome big mortgage backed securities. I
think you might have heard of that, and these are these are commercial mortgage
backed securities. But in either case, this building, the debt on this
building was a three hundred eight milliondollar tranch and was triple A rated by
S and P. And what happenedrecently is that these top triple A rated
(35:13):
bonds, the top tranch of thesebonds, were backed by a loan on
this building and took a pretty bighit on this thing. As it turns
out, when the when the ownerwent bankrupt recently, a twenty six percent
hit on these A lot of thelower tranches of this debt got wiped out
entirely. And look, this hasnot turned into the crisis that many people
(35:35):
were predicting. It turns out.I think that lenders in this space really
do not want to own this thesebuildings and try and figure out what to
do with them, so they've beenwilling to refinance a lot of these things.
But I just have to ask,how on earth any rating agency takes
a look at something like this andsays, Oh, yeah, you've got
this building. It's all occupied bya single tenant who makes up seventy seven
(35:59):
percent center the space in this building. And yeah, that sounds like triple
A quality debt to me. Let'slet's go ahead and slap our highest possible
rating on this debt that is againhyper concentrated, not in one industry,
right, it's not hyper concentrated justyou know, commercial mortgage backed securities.
It's concentrated in one building and asingle tenant, and you were slapping a
(36:22):
triple A rating on that sort ofthing. I I is this not any
different from what we were dealing withwith the ratings agencies time and time again
back in eight when they were misappropriatelylabeling these these things as very high quality
debt. I think that problem wasdifferent. It was hard in that period
(36:44):
for the rating agencies to look throughthe structures to get a sense for where
the real risks were or to quantifythem. So this is worse. I
don't know if this is worse orbetter. The underlying tenant in this case
maybe triple A, maybe of highcredit worthy uh status? Right. L
Brands was an S and P fivehundred company like this is a big,
(37:04):
big tenant. Yeah, so Idon't know if this is common practice.
Does the bond get the rating ofthe tenant? So I don't know how
prevalent it is, right to behonest, Well, I know, to
me, the it reinforces the needto be well diversified. Individual investors generally
don't have to worry about that.I mean, this has been a problem
for a bunch of pension funds well, which is our problem too, And
(37:25):
it's also a problem for pension funds, including union pension funds and endowments and
public sector pension funds. Here inAmerica. They typically have allocations to real
estate. It's private real estate theydesignated as a diversifier or an inflation hedge.
The pandemic and the changes that itbrought about were probably unforeseeable, and
(37:45):
we're going to be working our waythrough this for several years. Thankfully,
the losses are being realized slowly.Yeah, that's what it seems like.
And that's the point that I wouldmake here, is that you know,
the doom scenario of all this debtcoming do does not seem like it's playing
out in some massive crisis. Instead. No, that's not how private markets
work. Yeah. Instead, thebanks are being very willing to negotiate and
refinance all this because quite honestly,New York Community Bank doesn't want to own
(38:08):
a bunch of these properties, haveto figure out what to do with them.
Let's take a quick break, buta whole lot more to cover in
the second hour of the show.Paul La Monica will be joining us in
the second hour, so stay tuned, folks, we'll be right back at it next
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