Hardly anyone understands what is causing the state of the economy but it is quite simple.  Actually, I believe that all economics is quite simple but economists confuse us with their special language and statistics.  The economy is not recovering well enough to create the jobs that are required.  This is because we are going through a demographic hole.  A demographic hole is created when a large generation (baby boomers) cools off their spending and the next generation (generation X they are called) is a smaller group.  You see, people follow a pretty predictable economic pattern when viewed as a large group.  When we are young and carefree, we spend money (what little we may have) on consumables like food and beer (or wine here).  As we start to form a household, around age 27 or so, we accumulate things like housing and children.  That’s when we start to impact the economy and begin to create economic growth.  Well, as baby boomers,which was a large group, we did it in a big way. Naturally, that made the economy expand.  Now it is the turn of the generation X crowd to do the same and indeed they are.  But there is a problem.

Generation X (ages 30 to 45 or so) is a smaller group than the baby boomers.  About 12 million fewer! That means there are fewer customers to buy stuff.  That is the reason the economy is not recovering very fast, if at all.  Let me repeat that.  Not as many customers!  Sounds depressing because there is nothing anyone or any policy can do to change that.  It may even get worse.  That’s the bad news.  But I told my daughters do not despair.  Just understand that we will not recover for a while so relax and work on what will become the next advancing economy.  You see, their generation (the millennial, or generation Y) is actually a bigger generation than the large baby boom generation was.  To prepare for that next large wave of economic growth, I told them to pay attention to the needs and desires of their own generation.  Sell them what they want or need and you will have 20 years of good economic times!  Patience.

One time Milt had me engrave John Wooden’s  Pyramid of Success.  That was the first time anyone ever made a permanent version of his masterpiece.  I think the work I did 42 years ago on that pyramid still stands at UCLA.

My boss, Milt, was the kind of boss who took me along to present the plaque to Mr. Wooden.  That was a great day for me, especially looking back at it now.  What a wonderful person to spend a half hour with. 

The second time I got to meet Wooden was to present an athlete of the week pewter mug to Lew Alcindor. Jr.  (Kareem Abdul- Jabbar).  Believe it or not, we are almost exactly the same age!  Why in the world we presented college athletes a beer mug each week is my question now. It seemed ok to me when I was 21. Incidentally, my own daughter Kristen is now a student at UCLA. (proud father.)

Two things stand out to me as I remember those occasions.  

• The first of course was what a nice guy Mr. Wooden was.  Everybody either called him Mr. Wooden, or just coach.
• The second is something I still try to practice today.  That was that Milt Smith, my mentor and boss, asked me to join him to present the plaque I engraved to Mr. Wooden.  He didn’t have to bring me, the lowly engraver, along on those trips, but he thought it would be nice for me to meet someone he knew well and admired.  Now there was a man ahead of his time and someone worth emulating! 

 I learned last night that Warren Warner Jr’s son, Warren Warner III passed away after a very tough battle with bacterial meningitis.   Warren Warner is a partner at another local CPA firm, Brown, Holder and Alfaro.  Our hearts go out to Warren, his family, and the whole team at his CPA firm.  Warren Warner III graduated from Justin- Siena with my daughter Kristen in 2008.  He was just 19 years old.  My daughter knew him well and when I heard the news I went through her yearbook to revisit what he had written to her.  He wrote that he hoped that our (Warren Warner Jr. and I) friendly competition in the accounting business would last forever.  I cried last night.

As both of our firms have been caught up in the rush to get as much finished by April15th as we can, I somehow have to keep working for our customers best interests, but I must be honest.  A calendar deadline just doesn’t seem quite as important to me today. 

Don’t forget to tell someone that you love them today.

After the conference we spent two days in Old San Juan.  This is quite a city with real Caribbean history.  Here we took a two hour Segway Tour.  For those that don’t keep up with interesting gadgets, these are the two wheel scooters that you stand on and gyroscopes keep it upright.  You simply lean forward and it goes forward.  Lean back and it stops or goes backward.  Push the handle left or right and it turns.  Great fun and a great way to get around a city causing zero pollution.  It’s also a hoot to ride around on! 

The owner of the Segway Tour Company, Jose, was our guide to the city and he was great.  It was a slow day for him so it was just Kathi and I which made it very special for us.  Jose had the most fantastic knowledge of the city and its history and was very personable and fun as well.  If you ever find yourself in old San Juan be sure to take this tour with Jose.  You will have a great time and because of Jose, will learn the true history of a fascinating place, and of course get to ride a Segway.

I asked Jose how business was lately and he said it was still doing pretty well even though the cruise ships that start and stop in San Juan are off about 25%.  Not much different than here but Jose had a great observation about it.  His business was still doing  well and he knew why. 

His tour was the best it could be and he made sure that it would always be seen as the best by delivering a unique and quality experience.   He then went on to say that times like this weed out the businesses that aren’t that well run and that the best run businesses would survive and be stronger.  He gave us an example as we talked about the restaurants we visited in old San Juan.  We made our choices by consulting a web site, Tripadvisor.com.  This was also how we found Jose’s tour.  We had some truly great meals and the restaurants were pretty full.  This was not true of other restaurants. They were really struggling.  They probably just assumed it was because of the poor economy when in fact it was because they just weren’t good enough. 

 In times like these, quality and attention to your customer’s needs will surely mean the difference between survival and failure.  Just ask Jose, he knows!

The thing we need most from our leaders, whether in business or politics is Clear Vision.  What we often get instead is a muddled lack of clarity and indecision.  That’s what bothered me about Tuesday’s speech.  I heard no real vision or plan, maybe you did, but I did not.  What this country needs most right now is the same thing that business needs in times of difficulty.  Clear Vision.  I wanted President Obama to layout clearly why we should give our full support to fixing Afghanistan by fighting a civil war there and what the real dangers are to either staying or bringing our troops home. I’m not sure that any outside country has ever successfully fought a civil war within another country, ever.  Both sides of the civil war will end up hating the outside country no matter who wins.

It is vital, in business, especially in difficult times such as these, that leaders explain a clear strategy, with goals, that can be monitored and measured for success.  Explaining why a strategy has the best chance of success and the dangers of not doing it often becomes the real reason behind success.  Once your message is clear and decisive others will follow and success can be achieved.  The lack of Clear Vision, or the inability to communicate that vision, has doomed many fine enterprises.

They can make these kinds of inflation-related (or deflation) adjustments to the tax rate tables without having to go before the legislature.  

If you have made the same salary this year as last year, first celebrate, and then get ready to pay more California income tax.

This is the same sort of let’s-beat-a-dead- horse- while- it’s down thinking that has lead the IRS to come after wineries for LIFO adjustments at a time when they are already struggling.

According to the state’s official announcement, we’ll be losing in the following areas when we go to file our 2009 California income tax return :

• The standard deduction will decrease 
• The personal exemption credit amount for single, separate, and head of household filers will decrease
• The dependent exemption credit goes down to $98 this year, from $309 last year
• Other tax credits affected by indexing include the Joint Custody Head of Household Credit, Dependent Parent Credit, and Qualified Senior Head of Household Credit

Here is the official announcement from the state of California about the change: http://www.ftb.ca.gov/aboutftb/press/2009/release_46.shtml

And don’t get me started about California’s new Use Tax return filing requirements. 

After fuming about this issue for a couple of days, I decided to help gather my fellow CPAs together and see what we could do to stop the IRS in their tracks. It seems the IRS has decided to come after some wineries for using LIFO  to value their inventory. 

Last week , with the help of the Napa Valley Vintners Association, we brought Washington Insider, Dean Zerbe, to St. Helena to share his insights into the workings of Congress. Dean was the top tax counsel for Senator Charles Grassley, of Iowa.  One of the things Dean discussed was Congress’s consideration of a bill to eliminate the use of LIFO inventory for tax purposes.  This law change would have huge negative tax consequences for wineries using LIFO accounting.

So here’s where my blood began to boil.

You mean to tell me that not only is the IRS going to impose costly, time-consuming audits on wineries using LIFO but this is going to happen at the same time Congress is voting to eliminate the calculation entirely? So first we are going to have to help our customers prove the correctness of their LIFO calculations and then we are going to have to help them figure out how to recognize additional income from eliminating the adjustment?  These audits, at a time of legislative uncertainty are a costly, unnecessary burden for our customers, at a time when they have enough economic challenges to handle, and we just won’t accept that without a fight. 

We’ll keep you posted on the results of our meetings, but in the meantime, you need to start writing your Congressman about the impact of the elimination of LIFO accounting on your business.

…and only half of what you see.

 Just ask CNBC’s Jim Cramer of Mad Money. In last night’s episode of the The Daily Show with Jon Stewart, among other things, Cramer tried to explain why he recommended his viewers buy Bear Stearns just days before the company’s collapse.

90% of economic activity is based on psychology. How we feel and what we think dictates what happens with the stock market, how much we save, when and what we buy, and whether or not we take that vacation. We’ve seen the impact locally of a widespread decline in consumer confidence and it’s time we start changing that trend.

What’s happening in the world of print media isn’t helping matters. As newspapers struggle to stay afloat, you find fewer reporters on staff, which means there is less time for research. You will find reporters drawing conclusions from a single incident with no one doing anything more than cursory fact checking. Where there used to be incentives to provide balanced coverage of the facts, newspapers today are more interested in sensational headlines that drive more revenues. And negative news is sensational.

Consider this recent article from The LA times titled “Cult Wines at Mass-Market Prices”.  When you read the article, it becomes apparent that the headline was drawn from the feedback of one restaurant owner who was able to purchase a previously unavailable unnamed “cult” wine from his distributor. The bulk of the article is actually about opportunities for consumers to get more value for their wine investment.

We are receiving more and more information via online media, which means that anyone with a keyboard and access to WordPad can publish their opinions on any subject. And we don’t demand accuracy from these writers. Of course, by making information public, writers are subjecting themselves to public corrections, but that happens rarely. And there is no one charged with even spell-checking what is written, much less fact-checking.

Don’t let others tell you how your business is doing. And don’t make rash decisions about discounting your premium wines. Instead make informed decisions, using information that you have available from any of the following sources: your own systems, the Financial Scorecards we provide, the Napa Valley Vintner’s Association, the Napa Valley Grape Growers Association, your banker, and your peers.

And let’s keep spreading the word about how wonderful it is to be in the Napa Valley in the spring. 

 Why is the tax credit side of the stimulus bill not going to help our country?

Three easy to understand words. They are “too darn complicated”. The purpose of tax credits is to help people do something for the economy or spend money that they otherwise might not spend. Tax credits can do that job pretty well with one important caveat. They must be simple enough to understand so it is easy for the recipients to calculate the benefits of spending the money. Unfortunately, Congress and the President must not have understood this basic requirement.

 We’ve tried to help them out by translating their message into plain english.