4/29/25 Recession Fears, Tariff Concerns & AI: A CPA's Perspective on Preparing for the Future

The Moneywise Radio Show and Podcast Tuesday, April 29th BE MONEYWISE. Moneywise Wealth Management I "The Moneywise Guys" podcast call: 661-847-1000 text in anytime: 661-396-1000 website: www. MoneywiseGuys.com facebook: Moneywise_Wealth_Manageme instagram: MoneywiseWealthManagement Guest: John Duffield, CPA/MST website: www.bakersfieldaccountants.com/ phone: 661-488-7000

• 0:00Speaker 00

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• 0:40Speaker 00

  Now, let's start the Money Wise Show.

• 0:43Speaker 03

  Oh, cool. Welcome to the Money Wise Show. We are live from the Gero Ellis padded radio room off Stockdale Highway on ESPN Bakersfield, 1230 a.m., 101.1 FM, and always streaming at MoneyWiseGuys.com. You can text or call into the show 24 hours a day at 661-396-1000. Today, we're your hosts. I'm Sharad Waite and...

• 1:05Speaker 04

  I'm John Duffield, CPA.

• 1:07Speaker 03

  John, hey Duffy, thanks for being here.

• 1:10Speaker 04

  Excited to be here.

• 1:11Speaker 03

  It's always so great having you on. I mean, I love it when we have a guest who is a real professional, a real expert in their field, and you certainly are, being not only a CPA but a master's in tax. And we went over this last time, almost 40 years now in the business.

• 1:29Speaker 04

  Glad you have to do that.

• 1:30Speaker 03

  Yeah, well, hey, you just own it, man.

• 1:33Speaker 04

  I don't know, you know, I don't know. I mean, I am proud that I'm still alive and still, you know, kind of in the profession, right?

• 1:40Speaker 03

  Very much in it.

• 1:40Speaker 04

  But you just called me just older than dirt, is what you did.

• 1:43Speaker 03

  Oh, come on. You're not older than dirt. You are a very well seasoned consultant, advisor.

• 1:54Speaker 04

  Seasoned, you're going to start using those words, Ed.

• 1:58Speaker 04

  You know, Sherrod, I gotta tell you something. I, uh, I think, you know, I've told you before, I'm one of those guys that's gonna probably work forever, right? And, and I'm not gonna die at my accounting desk, but I'm gonna work forever.

• 2:10Speaker 03

  It'll be close.

• 2:11Speaker 04

  Yeah, well, I'll be doing something, right?

• 2:12Speaker 03

  Cause you like what you do. You've enjoyed, and you, and you, being the owner of your company, I think has a big play in that.

• 2:18Speaker 04

  I definitely do, but, but I've got an itch to, you know, maybe, maybe after I'm 75, I'm gonna go start something else and, and, uh, you know, do something different. And, but, you know, I had a client in this morning and we were talking, they retired, both he and his wife have now retired. And, uh, the, the husband retired a couple of years ago, the, the wife retired just recently. And they were talking about retirement and, and yet they said now they're starting to struggle with some health issues and, and, uh, you know, all the, all the movement isn't what it used to be.

• 2:48Speaker 03

  Yeah.

• 2:49Speaker 04

  And so then you get to fight that battle. And so you get to, you know, the weird part about it is you get to this stage of your career, you've kinda, you've kinda got it figured out to some degree and having some degree of success and, you know, things are taken care of. And then you start falling apart.

• 3:03Speaker 03

  Well, there is, there is an interesting demographic change that's happening where people are not, they're not doing the traditional retirement as, as a lot of people think where, you know, you save a bunch of money, you have a nest egg and you grow that nest egg enough to the point that you can just quit your job and then you're just golfing every day or, or you're doing whatever hobby. Like, that's, that's pretty rare. For the most part, people stay working or at least part-time or doing something, you know, side hustle, consulting. That's what we see a lot. People just, you know, continue to consult or, you know, do something, but they stay active and they are now shifting, especially the younger

• 3:46Speaker 03

  generation is shifting more where lifestyle is so much more important to them, like how much time they have off and their ability to go on vacations and things like that. And so you're, they're kind of, that's already baked into their retirement plan basically is, I don't need to save as much. I can take more time off.

• 4:02Speaker 04

  Yeah. So, so I gotta ask you a weird question. And I don't know where we're going today. I don't know what our topic is, but you know, right now, we're kinda all over the board. But let me ask you this question because this is what you do. How many of those people, um, that were talking about retirement and then they decide to continue to work to some degree or whatever it is? Is that because they just choose to, you know, because they want to be busy? Or is it because the fact that they don't have enough money to really retire the way that they want to retire?

• 4:34Speaker 03

  I think, I think what's happened, what's happening mostly is people recognize or feel early on that there's no way for them to save enough money to get to the point where they're independently, like they're financially independent. And so like, especially like our kids, like you're my, my, my, our boys are close to the same age. So they're younger, just starting out in their career. It's, there's a lot of like cynical cynicism or pessimism about the, you know, the long-term future of the economy or of their job, you know, there's, and jobs are changing a lot more than they were when you and I first started our careers.

• 5:17Speaker 03

  It's like, it's rare that you start with a company and that's what you do for, you know, your whole life.

• 5:21Speaker 04

  Absolutely.

• 5:22Speaker 03

  And so that what that, what that's done is I think is it's like, I think a lot of the younger generation has been forced into just accepting that they're never going, they're never going to have that traditional retirement. And so, um, you know, they're kind of forced into like trying to enjoy life a little bit more while they can.

• 5:40Speaker 04

  Yeah, you know, and listen, you know, I have a different mentality and, and, you know, my, my mentality is, is that they just don't want it bad enough to some degree, right? And because, you know, because I think that, you know, if it's not, I'm not suggesting it's easy for, for sure. But, you know, if somebody wants to be successful, the, the opportunity's there. It's just, it's just about making the, just about how, you know, making the commitment and how hard are you willing to push or drive to get where you want to go?

• 6:11Speaker 03

  Well, and how much of that is generational, like how much what, meaning when you and I were growing up, we felt like there was possibility. I, I remember feeling this way when I was, you know, going to college. I was like, man, the sky's the limit, you know, I can do what I want to do and I'm going to make it, you know? In one way or another, I'm going, I'm going to, you know, I I want to be, you know, financially secure and I felt like my prospects were there, like were wide open. But it just seems like there's, maybe it's just the negative news media bias, you know, that's just flooded. You know, everybody that they just, not everybody, but a lot of the younger generation just feeling like there's nowhere to go.

• 6:51Speaker 03

  And then it gets complicated with AI and some of these technologies that they're like, what, you know, these robots are taking over.

• 6:58Speaker 04

  Yeah, yeah, yeah. Actually, I was listening to a, a podcast on robotics while I was driving over here and, and. It's a thing and it's coming, but you know, and, and I, I don't know, I hate to say this, but part of me is, is definitely if, you know, has some level of, of. Concern or fear, whatever the right word is for, for, you know, for the youth, if you will, including my sons and, and.

• 7:21Speaker 03

  You and I have talked about this before when you've been on the show. Well, we got a question yesterday from a listener asking about AI. You know, taking over in our industry and the financial advisory industry and in the CPA world.

• 7:33Speaker 04

  Yeah.

• 7:34Speaker 03

  Maybe share again, kind of your thoughts on where it's going.

• 7:37Speaker 04

  Listen, fascinating. And I don't know if I said this on the radio show last time I was here, but, but let me repeat this. So, you know, I, I. I, I use a handful of different AI bots. In fact, now what I've gotten in the habit of doing, Sherrod, is I type a word document, okay? With a very long prompt, very, very long question or, or, you know, fact base. And then I, I put it into, you know, the top three or four, right? I use Claude, I use Grok, I use.

• 8:05Speaker 03

  Chat GPT.

• 8:05Speaker 04

  I don't, lately I haven't been using Chat GPT. I use Perplexity, uh, which is a phenomenal research, uh, bot, you know, AI. Tool. And then I kind of go get that response, right? Anyway, so Claude, I, I had a singular debate with Claude.

• 8:22Speaker 03

  Yeah.

• 8:22Speaker 04

  And so what I did with Claude is I said, hey Claude, I'm older than dirt, you know, as we labeled me, right? And so I gave it the full breakdown of our accounting firm, local accounting firm, you know, we got a staff of 13 and, you know, this is who we serve and this is what we do. And. Yeah, I gave it the full fact pattern and I said, Claude, I have some. Fear that machine learning and AI and all these things are going to come after my profession. Right. And you know, I've read or seen that, you know, my profession is one of the top 20 at risk. And so I asked it this question. I said, I want you to tell me when my industry peaks.

• 8:57Speaker 03

  Yeah.

• 8:58Speaker 04

  And it's the perfect time to exit.

• 9:00Speaker 03

  Right.

• 9:01Speaker 04

  My profession. Guess what it said, Sharon?

• 9:04Speaker 03

  Yesterday.

• 9:05Speaker 04

  Between 20.

• 9:08Speaker 03

  Yesterday. That's horrible.

• 9:09Speaker 04

  Well, that's, no, no, no, that's funny. Here, I got to the second part of the conversation. It said between the year 2027 and 2029.

• 9:17Speaker 03

  Oh dang. Yeah, that seems like, that's what I would think. It was, it's right. It seems like it's right around the corner.

• 9:22Speaker 04

  Yeah, it is right around the corner. And so I said, and by the way, but it was, this is, it was patronizing me. Though it said, hey, no, it was, it was patronizing me. And it said, it's very, you know, it's very wise of you to be asking these questions. And, and based on your ability to, you know, to, to outperform your peers in the industry and blah, blah, blah, blah, blah. Yeah. And so I responded back. I responded back and I said, hey, thank you very much for that. But I think this, you know, I think AI tools are, are way more advanced and, and are way more capable than, you know, than you're given a credit for. And it came back and said, yeah, you're right.

• 10:02Speaker 04

  Right. So it's like, get off your butt.

• 10:04Speaker 03

  So do you, do you use it in your tax preparation?

• 10:10Speaker 04

  Not, not, well, so we, we use some sort of machine learning, right? We use an optical character recognition tool. That scans tax documents and, and populates to some degree, right? And it's not, it's not a strong product that, you know, a perfect product doesn't exist yet. And we're not using it so much in tax preparation, but we are very much using it in tax research. Okay? And so, you know, you know.

• 10:37Speaker 03

  Finding answers to.

• 10:38Speaker 04

  Yeah, complicated tax questions. Yeah. I got, I got a client that's selling a, about a $2 million, you know, or, or orange orchard. Doing a 1031 exchange into some, you know, some. Some apartment complexes, if you will, and wanted to know some specific details about that. I used I used it today. And yeah, so just to go get some kind of confirmation, um, you know, some of the topics. So listen, hu- huge impact. There's just no doubt about it. It's um, the world as we know it is about to change and and change drastically. Um, between AI robotics, robotics is going to be a big thing. It's it's it's it's coming, you know, those humanoid robots are coming.

• 11:22Speaker 03

  Yeah, and what you have now are the are the agents or the agentic models, like all of them like Claude and ChatGPT. I think all of them have them or at least are starting to roll them out where essentially you've got your you've got your own AI bot. It's an agent that can like, you know, just schedule your your travels, you know, book your hotel, make calls. You know, go to websites, register you, take care of everything like that. Like, that's that's pretty insane.

• 11:51Speaker 04

  Yeah, you know, one of the things I said to Claude is I said, Claude, one of my hopes is is is is that, you know, the general population's either unwillingness or inability to use some of these tools, to adopt these tools, right? So that makes out that curve, puts that curve out a little bit farther than it would have been otherwise. The other interesting thing is um, in a follow up conversation, I said, hey, what do you anticipate the fall natural falloff in percentages? You know, you know, like what what percentage decline after that 2027 to 2029 period?

• 12:30Speaker 04

  And so it said, hey, these are the fall offs we anticipate in this, you know, in this these services, you know, on a year to year basis. It was basically about a 10 to 15% kind of degradation um, from about 2027 to about 2032, something to that effect, but then it started to get, you know, gaining speed.

• 12:52Speaker 03

  And what does it get down to?

• 12:54Speaker 04

  It was like you're losing 20 to 25% of the revenues a year from these.

• 12:58Speaker 03

  Yeah, for like a five to 10 year period and then and then, but ultimately there's going to be. So what do you think will happen? Do you think that it'll get down to whether there'd just be a very small percentage of the population that still goes to?

• 13:13Speaker 04

  Well, yeah, I think, no, I don't, I think the accounting industry still exists, but the role is going to change drastically. And so, you know, I think that line level data entry person, that's the one that's at risk the fastest, obviously, right? And then, you know, the consultative type, that top level, you know, person that can, you know, can think and feel and help a client kind of interpret and work through the anxiety with decision making and some of those things. That's the last person to go, right? And so, we're just going to use these tools that are going to be available to speed up the process. And so, what I think is, I think, you know, the typical accounting firm is

• 13:58Speaker 04

  going to serve, potentially either have to serve more clients, right? But at maybe what could be potentially be a lower fee per client, potentially because of, because these AI agents or machine learning kind of speeds up the process.

• 14:14Speaker 03

  Well, it could be a solution to the problem in the tax CPA world, which is the lack of candidates. You know, people aren't getting accounting degrees much these days.

• 14:27Speaker 04

  Well, I told you that statistic, by the way, and I haven't researched this yesterday, but my most recent, you know, search was, get this statistic, 77% of all current licensed CPA, Certified Public Accountants, were retirement eligible in 2020. So three out of four.

• 14:48Speaker 03

  Are over 65 or 66.

• 14:50Speaker 04

  Correct. They were eligible for retirement in 2020. That was five years ago, right? And so, you're about to have this huge exodus of those CPAs here, and, you know, probably in the next five to seven years, something to that effect. So, that's the good news in some respects, because you've got a bunch of people going away. At the same time, you've got AI tools kind of taking some of our work away from us.

• 15:13Speaker 03

  Yeah, it's going to be, it's fascinating. Like, I'm glad that we're in that stage, and I say we, you and I, are in that, in our later career stage, because it'd be terrifying, you know? Imagine a 19-year-old kid that's going to college, that's going, you know, looking at these statistics.

• 15:30Speaker 04

  Well, I candidly, I gotta tell you, I don't, I don't care about me. And, well, no, no, let me tell you what I mean. Is, is I could walk away tomorrow. And, and I could retire tomorrow. So it's, you know, it's, it's, I'm not going to work every day because I'm trying to earn another three dollars to put in my retirement account. You know, that's not, that's not what's motivating me. And so, but you know, I, I like you have three sons. Thirty, twenty-eight, twenty-six. And I'm, I'm concerned for them. I really, honestly, and I mean deeply concerned for.

• 16:04Speaker 03

  And your grandbabies.

• 16:05Speaker 04

  Yeah, for what that look, well, let's start, you know, let's, yes. You know, first things first, I've got enough to worry about.

• 16:12Speaker 03

  Now you don't want to be called grandpa.

• 16:13Speaker 04

  Well, no, I am grandpa, but you know, I'm, I'm worried about my, the immediate path first, right? And so, you know, I've got enough to worry about. But, and I got three, I got three boys that are motivated hustlers. You know what I mean? And, and I, I, I think they're, you know, they're gonna do better than a lot of kids out there because they push. I, I'm on them. You know what I mean? They grew up with me and, and having to deal with me, but they, to some degree, they've got that same mindset.

• 16:40Speaker 03

  Yeah, and, and yesterday we had Richard Gerhart from Current Economic Development Corporation on. George Chapman, sorry, Richard Chapman. And we talked about this a little bit about AI and the, the, many studies say that it's a net gain in jobs. So it's gonna eliminate certain jobs, but it's gonna create a whole new slew of jobs that does require just a higher level of critical thinking. And, or specialty, like, you know, like robot repair person. You know, like you're gonna, that's gonna be a booming industry. People that just have mechanical engineering degrees or just, you know, training and those types of, of.

• 17:20Speaker 04

  Well, I find it hard to, I find it hard to believe that we've got a net gain in jobs.

• 17:25Speaker 03

  Yeah.

• 17:25Speaker 04

  And I mean, I'm assuming that robotics does not fall into that same category as AI.

• 17:32Speaker 03

  Uh, well, um, well, that's a good question. Maybe it doesn't, you know, because yeah, now that the robots can build the cars and, you know.

• 17:41Speaker 04

  Oh, yeah. Listen, when you, when you, listen, when you lump in together AI and then robotics, and then things like, you know, driverless technology and everything else. I mean, it's, it's, you know, and, and just, just general robotics, including automation and things like that. I, I find that really difficult to believe there's not a significant.

• 18:05Speaker 03

  You may be right. Talking about AI with imposable thumbs is a scary thought. We're gonna take our first break of the day. We come back, John, a lot more to talk about with you. I'd like to get an update on the IRS and a lot of talk about the IRS cuts and chances for audits going way down. Plus, we'll talk about some of these headlines. Don't go anywhere with Money Wise.

• 18:25Speaker 00

  Have you been putting off your finances? Seize the day. Call the Money Wise office at 661-847-1000, or email [email protected] for more information.

• 18:40Speaker 03

  Welcome back. We're Money Wise. We're your hosts. I'm Sharad Waite here with John Duffield, CPA, tax extraordinaire, stump the Duffy, 661-396-1000.

• 18:50Speaker 04

  Every day.

• 18:51Speaker 03

  We were just still talking about AI and robots over the break. Uh, you know, it's just a really fascinating world. It's, it's exciting and both frightening to have a technology that can be so disruptive, but also is just in our own careers, we were geeking out about how it helps, how it helps us all. It's the amount of data that you can upload that, you know, you can get, I think, up to a thousand-page PDF, at least with ChatGPT, the paid version.

• 19:18Speaker 04

  Paid version.

• 19:19Speaker 03

  And it can, and it can analyze it, you know, fairly quickly. And then this is what we've done with our procedures, policy and procedures manual and our compliance manuals. We just have it, you know, in our, in our, uh, our AI folder. And then we can just ask it questions, you know, how do we handle this? And how is this viewed? And it's super great, you know, for compliance. And just be able to access information very quickly. It's really exciting.

• 19:46Speaker 04

  Yeah, it's one kind of weird question. You asked me what AI bots I use.

• 19:51Speaker 03

  Yeah.

• 19:51Speaker 04

  And one of my like a lot is perplexity. Okay.

• 19:55Speaker 03

  I've never heard of that.

• 19:56Speaker 04

  Oh, yeah. We'll open it right now and ask you the question because I got to tell you, you're going to be, you're going to, you're going to, it's going to be fascinating to you in some, in many respects.

• 20:04Speaker 03

  How is it different than the other bots?

• 20:07Speaker 04

  Well, so perplexity and perplexity was the first to do this based on what I determined so far is that perplexity will come back and it'll give you responses to whatever query you've put into it. But it actually cites its sources for all of its answers. And so at the end of every response, it'll, it'll have a hyperlink. And so if its sources have come from some web based content, something that would be, be available to any of us on the internet somewhere. There's a hyperlink at the end of the, at the sentence or paragraph and you click on that and it kicks you to that page.

• 20:44Speaker 03

  To where the source came from.

• 20:45Speaker 04

  Where the source came from.

• 20:46Speaker 03

  Yeah.

• 20:46Speaker 04

  Now, if it doesn't have the source, then of course it just formulates its own opinion or whatever.

• 20:51Speaker 03

  So it looks like it's a, um, uh, it uses, this is interesting because these companies now are coming out with their own models, basically. Their own large language models, but they're using engines. There's only a few companies that have engines and perplexity uses GPT engines. Uses GPT four for its engine, but it's, you know, they've just created the model.

• 21:13Speaker 04

  Their own model.

• 21:14Speaker 03

  Their own model that does this, for example, has these differentiators.

• 21:18Speaker 04

  I think now Grok or X dot AI, you know, I think it's starting to kind of also now cite references like, like perplexity does.

• 21:27Speaker 03

  I know GPT does.

• 21:28Speaker 04

  Yeah.

• 21:28Speaker 03

  At least my version does.

• 21:30Speaker 04

  Yeah, I think, uh, if I'm, if I'm not mistaken, perplexity was one of the first ones to do that, but, um, love, love that ability, right? So you can go see all the different data sources where it came from and then jump to, you know, jump to articles. A client and I were actually talking about a health issue and kind of an unusual condition and we, you know, we. Literally sat in my conference room in perplexity and plugged this all in there. And then it would kick to like five or six or eight different. You know, articles, but was interesting. It was, oh, this one was by Cedar Sinai or whatever that had specific departments that dealt with her particular.

• 22:09Speaker 03

  Oh, interesting.

• 22:10Speaker 04

  You know, her particular condition. And so, you know, it kind of said, hey, go look over here and, and we're kicking them to webpages or department pages. You know, that we have, we have those things. And so it's pretty, pretty neat.

• 22:21Speaker 03

  It's so much, it's just a huge improvement over the, you know, the traditional search engine, search engine or.

• 22:30Speaker 04

  A lot of it was there, but you just had to find it, right? Yeah, you had to go find that information yourself. And, you know, usually, you know, we, we all go to the top five or 10 or top one results. It shows up on a webpage, which may or may not be the absolute authority on, on, on the concept.

• 22:47Speaker 03

  Yeah. And then you got to go through and sift through that information. Um, I want to talk about the markets a little bit because I know you follow the markets and, you know, surprisingly today, the S and P and the Dow both ended up in positive territories. It's the fifth straight day. This is the longest winning streak of the year. You can believe that. We haven't had a five day winning streak this year. Um, and tomorrow is President Trump's 100th day. And how would you, maybe you already know this, but how would you, how do you think he, he is ranked? In terms of the stock market performance in the first hundred days?

• 23:26Speaker 04

  Well, I think he's ranked poorly. Um, if I.

• 23:30Speaker 03

  How bad?

• 23:31Speaker 04

  Well, I, I think it one of the lowest is I think this is, I think this is sentiment, right? This is.

• 23:37Speaker 03

  No, I'm talking about just stock performance, just the, the S and P 500 in the first hundred days of a president's.

• 23:46Speaker 04

  So you're talking about actual, not, not, not consumer perspective, but just actual performance? I don't know the answer to that. Probably terrible.

• 23:55Speaker 03

  It is, it is terrible. You have to go back to Nixon. And Nixon's second term, after 100 days, had a loss of about 9%. So far, Trump's first 100 days is down 7 point, about 8%.

• 24:13Speaker 04

  Okay.

• 24:14Speaker 03

  So it, it's, you know, it's pretty bad. You know, you gotta go back to the 60s. And, and Nixon, by the way, is the worst on, I think the worst going back to FDR, back to Truman. So this is, this would be the second worst 100 days of any, of, of any president other than Nixon.

• 24:34Speaker 04

  Yeah. Let me, and, and I don't know, kind of weird perspective. I'm convinced, and I think I've told you this before, that we were in a recession already, okay? Of some sort. Now Kathy Wood's called it a rolling recession, alright?

• 24:51Speaker 03

  What's that?

• 24:52Speaker 04

  So a rolling recession is when it's hitting a number of different industries individually, but not necessarily enough that, that the overall GDP calculation turns negative.

• 25:07Speaker 03

  I see.

• 25:08Speaker 04

  Okay?

• 25:09Speaker 03

  Yeah.

• 25:10Speaker 04

  So, so, you know, this takes some individual components, and yeah, those industries are in recessions, which you'd go, well, yeah, that happens all the time, right? Not, not everybody gets to thrive all the time.

• 25:18Speaker 03

  Yeah.

• 25:19Speaker 04

  But there was a number of different industries, sub-industries, that were in recessions, but the overall headline number, still not in a recession, okay?

• 25:28Speaker 03

  We'll, we'll know a lot tomorrow. The GDP number comes out, first quarter GDP numbers come out tomorrow, as well as consumer price expenditures, the, the, the main inflation gauge that the Fed follows. That all comes out tomorrow. This is actually a very busy week. I think out of the S and P 500, 180 companies are expected to report their quarterly results, including the big tech companies like Amazon, Apple, Microsoft, Meta, even other big, big large cap like Coca-Cola, Eli Lilly, Chevron.

• 26:03Speaker 04

  Have you looked at Atlanta's Fed GDP now estimate?

• 26:07Speaker 03

  No, it's like negative or flat.

• 26:11Speaker 04

  No, no, negative, negative. It started off the year where it was positive up until February and then it bailed off a cliff. And so, no, it's anticipating that the first quarter is going to be end up negative. And we are in fact in a recession. So.

• 26:28Speaker 03

  The only good, the only good that comes from having these types of negative is that you know that at some point there'll be a bottom.

• 26:35Speaker 04

  Sure.

• 26:36Speaker 03

  You know, because the markets always have rebounded. You know, we've always had bad years and we've had good years. The good years have far outnumbered the bad years.

• 26:44Speaker 04

  I just find it interesting that a lot of kind of the current market conditions are all blamed on

• 26:52Speaker 04

  the tariffs, right? This conversation around tariffs.

• 26:54Speaker 03

  Yeah.

• 26:55Speaker 04

  But, but I think, you know, candidly, I think if you would have taken tariffs off the table, and I think some of this underperformance would have been mixed in here anyways, right?

• 27:06Speaker 03

  Oh, yeah, certainly some of it.

• 27:07Speaker 04

  I mean, we had, we've had an inverted yield curve, you know, for a long time. We've had all these things. We had the Fed raise rates drastically.

• 27:15Speaker 03

  Yep.

• 27:15Speaker 04

  Right? Couple of years ago, and some substantial increases in the Fed funds rate, which is, which, you know, it is, it tends to be recessionary by its own, by its own design, right?

• 27:26Speaker 03

  Yeah, there was talks of a soft landing or a recession for, you know, a couple of years.

• 27:32Speaker 04

  Yeah.

• 27:32Speaker 03

  And we'll see. It'll be interesting to see if we get, you know, if we have a negative first quarter, which we've still got to repeat that the second quarter. But there's also some.

• 27:40Speaker 04

  You taking bets?

• 27:41Speaker 03

  Well, have you heard of this?

• 27:44Speaker 04

  Stevie, you taking bets?

• 27:47Speaker 03

  The Zweig Breath Thrust. It's a, it's a, it's a technical indicator that came from a author. His name is, his last name is Zweig, Z W E I G. He, Martin Zweig, or I don't know if I'm Zweig, I don't know how you pronounce it. He's author of a famous investing book called Winning on Wall Street, came out in 1986. I'd actually never. Heard of this because there's, there's a thousand of these technical indicators.

• 28:20Speaker 04

  Sure.

• 28:20Speaker 03

  What's interesting about this one is that it's essentially an indicator that's trying to see when, when we have may, may have reached the bottom.

• 28:27Speaker 04

  Yep.

• 28:28Speaker 03

  And the way, and it's been correct 19 out of the 19 times.

• 28:32Speaker 04

  Wow.

• 28:32Speaker 03

  Um, and what it finds.

• 28:34Speaker 04

  So what does it say?

• 28:35Speaker 03

  So what it says is it looks at the, it takes a 10 day moving average and it looks at the total um, number of stocks that are advancing and over, over an index. Uh, and it compares those stocks that are advancing.

• 28:58Speaker 03

  Compared to, uh, uh.

• 29:02Speaker 04

  Decline or no?

• 29:03Speaker 03

  The, the total, the total number of stocks versus the total number of stocks that are advancing.

• 29:07Speaker 04

  Yeah, advanced decline line in some respects.

• 29:09Speaker 03

  Yeah. And so when, when it reaches this certain percentage within this 10 day span, meaning you've got now a more, a higher percentage of stocks that are advancing versus the, the broader index. Then it's been correct so far a hundred percent of the time. And what is interesting is the last time that this happened was in November of 2023. And that, that year we saw it, this, the, the stock market end up about 32%. What we find is that since this has been backtested, going back to World War II, that this happens on average about every four years.

• 29:51Speaker 03

  And the S and P 500 was higher 95% of the time a month after this indicator hit. It was higher 79% three months after the indicator hit. And it's almost always higher six to 12 months later with the median 12 month return being 24 and a half, 24.8%.

• 30:15Speaker 04

  Wow.

• 30:16Speaker 03

  So that's pretty, and the six month return being 13%. So another way of saying is that when this indicator has happened so far, 19 out of the last 19 times. The stock market's been up on average 20, almost 25%. And we just saw this recently happen back in November. Now, this is just one of a thousand indicators. And these indicators are only good until they're not, you know, like there's always, there can always be something that changes. And so it's, there's, there's no guarantees. But it does seem like at least if the tariff talk starts to back off, starts to tone down, then we have, we have less headwinds. Like, I don't know what else would be, you know, inflation's coming down, unemployment's still strong. You know, employment is strong.

• 31:01Speaker 03

  So, you know, it seems like, like you said, tariffs are like the biggest thing.

• 31:05Speaker 04

  Yeah. And, and if you ask me, you know, just to, you know, pick, you know, what's weird about me is I, I go back to the fact that I'm kind of this fundamentalist, right? Where I'm, I'm the accounting nerd, that, that things are supposed to make mathematical sense. And the stock, the stock market rarely makes mathematical sense, right? And so we have these, these price earnings ratios, for example, that are elevated. And I go from an accounting perspective, I go, oh, that doesn't make sense.

• 31:31Speaker 03

  It's impossible, yeah.

• 31:32Speaker 04

  It shouldn't, it shouldn't be that high, right? And so this doesn't make sense from an investment perspective, but, but definitely can be irrational and remain irrational. I've learned that the hard way. But if you're sitting here and asking me what I think, I actually think we're going to finish the year high, the end of the year higher. That's, that's my personal perspective. And, and I think that because I think a lot of the, you know, a lot of the kind of bad was washed out with some of the sell off that we had, you know, three weeks or a month ago, whenever it happened. And so, um, you know, I, I think kind of, you know, things do continue. I do see, you know, I watch, um, every now and then I'll peek at Truflation website. I'm, I know you look at that, yeah.

• 32:13Speaker 03

  Yeah, you've mentioned that before.

• 32:14Speaker 04

  Yeah, Truflation is kind of their own kind of real time inflation calculator. And, and that number, that, that inflation number has been trailing down. And there's a lot of people that think we're going to get some rate cuts here, you know, before the summer, maybe one or two. And so I, I think the markets will be excited about that. And I think they'll be excited about the fact of figuring out maybe these tariffs are, you know, some of it's all talk and no bite in, in reality. And so I, I think personally, I think things are going higher.

• 32:41Speaker 03

  I would be, if I had to bet, I would say that also.

• 32:45Speaker 04

  Yeah.

• 32:46Speaker 03

  I think that the, the, the politics and the showmanship of whatever's happening with the administration is eventually going to die down. Especially this tariff stuff. I think it's just, it just doesn't make any sense. Are you seeing, now again, kind of bring it back to what you, your, your, your concentration or your, a lot of your focus and your practice and your tax practices with small businesses.

• 33:08Speaker 04

  Correct, yeah.

• 33:09Speaker 03

  Are you seeing the impact or any impact from tariffs with this, with any of the small businesses?

• 33:14Speaker 04

  No, I mean, I've had conversations, but I'm not seeing him in the numbers yet, right? And so, you know, the interesting thing, um, you know, share looking at tax returns this last year. You know, I, I, I'm, I'm a guy that I always love to look at trends, right? And so I always look, one of the first things I do when I look at any business tax return is I look at, like in this example, the year 24 compared to 23. I always, I always lay them down side by side and I go, hey, what happened this year?

• 33:41Speaker 03

  Yeah, what's different?

• 33:42Speaker 04

  Yeah, what's different? What, what happened this year? And, and so I look at them, I, you know, one of the things that I did see really frequently is that revenues were down. Okay. So I'm looking at these small business clients and I'm seeing year over year, revenues are off a little bit. Okay, okay. Well, they're off, then that's, you know, recessionary to some, you know, some, some indication of recession.

• 34:02Speaker 04

  The tariffs, I've only had one conversation that said, hey, tariffs are impacting and it's a retail client. Look, a client that has a retail based business. And they've said, we are, we are retail, we buy products that are predominantly made in China. And these products are going up in price. And so something that might've cost us 50 cents before is now costing us a buck or whatever it is.

• 34:25Speaker 03

  Right.

• 34:26Speaker 04

  Yeah, they're absolutely seeing that, those tariffs.

• 34:28Speaker 03

  Yeah. My guess is you won't, we'll see how much, you know, a lot of these tariffs kind of were, were announced and then pulled back. And now we're back to a more reasonable, just right now, at least for this 90 day window at 10% flat. Except for China where it's 140 something percent tariff, which now in the last couple of days, I think one of the reasons why the stock market has been up over the last five days. Because they've started to back off and say, okay, we'll talk to China. You know, China can change this if they want to change it. And, and, but in the meantime, we still import a lot from China.

• 35:01Speaker 04

  Oh, absolutely.

• 35:02Speaker 03

  I've seen some even local businesses where they are putting a tariff surcharge. Like they're breaking down the cost and then they're putting the tariff charge on top of the cost. So they're saying this is what our normal cost is, but we're adding this. You know, on, you know, on top of it, just so you know, this is from the tariff.

• 35:20Speaker 04

  Yeah, the, what, what I think is a little bit, you know, interesting to me is, is that, and I'd love to talk to a bunch of business owners that could say how fast this has impacted them. But they just started talking about this a month ago, wasn't it?

• 35:33Speaker 03

  Right.

• 35:33Speaker 04

  So, so how has it impacted them so fast? It's not like product that was being manufactured in China that is all of a sudden showed up and now is at a higher price.

• 35:44Speaker 03

  Yeah, there's inventory, you know, that people don't pay tariffs on.

• 35:48Speaker 04

  Correct. They've just decided to mark it up.

• 35:50Speaker 00

  Is it more of the fear?

• 35:52Speaker 03

  It could be.

• 35:53Speaker 00

  You think it is more of just the fear or the headlines?

• 35:57Speaker 03

  That, that they're, that they're.

• 35:59Speaker 00

  That scaring business owners?

• 36:01Speaker 03

  Yeah, I think so.

• 36:02Speaker 04

  Yeah.

• 36:03Speaker 03

  I think so. Now there's talk, you know, about the port, the port of Los Angeles and how the, the shipping has slowed way down now. But like you said, it's been a month or less than a month. It's been only been a few weeks really, that there's been like this on again, off again, back on tariff. And it's mostly now with China. And my guess is we'll work out the deals with the rest of the countries.

• 36:23Speaker 04

  Yeah. Can I ask you a weird question?

• 36:24Speaker 03

  Yeah, yeah.

• 36:25Speaker 04

  Don't, don't you think that if we were to take a vote amongst, you know, every citizen of the United States, that they would say that it should be fair and equal trade with, with all other countries?

• 36:36Speaker 03

  Yeah, I'd say the majority would say we want free trade.

• 36:39Speaker 04

  Yeah, no tariff, no tariff, either no tariffs for anybody or same tariffs for everybody or whatever. Right? Wouldn't you agree with that?

• 36:44Speaker 03

  Yeah.

• 36:44Speaker 04

  I think everybody agrees with that.

• 36:46Speaker 03

  Yeah.

• 36:47Speaker 04

  It's just that that's not where we're at, right? That's not what, that's not where we've been historically. And so the question is, well, we, we'd love to get there, but how do you get there? So when, when the administration tries to go get there to some degree, then. There's all this, you know, everybody i- i- is upset about it, right? And the reason why they're upset is it's earnings adjustments. And, you know, everybody has to adjust and they're not used to having to adjust. They're not used to things being different. And so they're, they're scared. As Steven said, right? There's some level of fear about what adjustments they have to make to be able to operate their business. And so they go, okay, go back to the way it was. It was okay what they were doing to us, even though it was wrong.

• 37:26Speaker 03

  Well, there seems to be an obsession by the administration over the trade imbalance.

• 37:31Speaker 04

  Yeah.

• 37:31Speaker 03

  When I, I think it's a trade imbalance is a normal, natural, healthy aspect to, to.

• 37:38Speaker 04

  Well, it's healthy, but it's natural.

• 37:40Speaker 03

  Well, well, I think it's healthy. And, and we had Dr. Gerhart, economist from Cal State, talking about this. He says the textbook example that they give in the, in the classroom is there's a trade imbalance between you and the grocery store that you shop at. Right?

• 37:54Speaker 04

  Yeah, sure is.

• 37:54Speaker 03

  That's because that grocery store is much better providing.

• 37:57Speaker 04

  It's why I'm fat.

• 37:57Speaker 03

  Yeah.

• 37:59Speaker 03

  Yeah, that's why they'll take your money.

• 38:00Speaker 04

  Right.

• 38:00Speaker 03

  Right? It's like they're not giving you back.

• 38:03Speaker 04

  Something equal.

• 38:04Speaker 03

  Something equal. You're paying, you know, you're, you're, you're, you're engaging in this trade relationship, knowing that you had to pay them for these services. Because they're much better at curating all of the groceries and the things that you need to buy. Like, if any other scenario would be terrible. Uh, and I've given the example of you have the, the Swiss that are great at making watches and the Italians that are great at making pasta. The Swiss are going to import the pasta and the, and the Italians are going to import the watches.

• 38:32Speaker 04

  Sure.

• 38:33Speaker 03

  Because they're better at doing it. They can do it at cheaper and, and, and more efficient and a higher quality job. And that's a good thing that these two countries can trade those goods and services back and forth. And if it's free, then the consumer would benefit.

• 38:46Speaker 04

  Well, it's interesting because you have a country like China, which, you know, utilizes quote, quote, sweatshop labor, slave labor and all these things, right? So their labor costs are way lower than any, you know, than any other, you know, country in the world, I think. Um, probably some other Asian, uh, countries.

• 39:02Speaker 03

  Yeah.

• 39:03Speaker 04

  And, and so, so from that perspective, we know that there's going to be some sort of trade imbalance on certain products because of their, you know, their, their low, low cost labor pool and, and. You know, then to try to normalize that to some degree, it causes a lot of, a lot of consternation.

• 39:20Speaker 03

  Yeah, because we just can't make that stuff as cheaply here.

• 39:23Speaker 04

  Right.

• 39:23Speaker 03

  And some of those things we want to be able to make here, like we want to be able to make computer chips and maybe even, you know, some cars and things like that. But I don't know. It's just, I'm excited for it to like die down and get back to a little bit more normal, normal market, whatever that is.

• 39:41Speaker 04

  Does the phone ringing too much around here for Sherrod?

• 39:44Speaker 03

  It's not too bad. It's not too bad. We got good clients. You know, we invest long term. You know, we're not short-term investors here. So, you know, I'm a big, a big advocate for US, especially US stock market.

• 39:54Speaker 04

  Sure.

• 39:54Speaker 03

  It's proven to be incredibly resilient and the, the least ugly, you know, kid on the block. And so I'll continue to stand behind, you know, our ability to innovate

• 40:04Speaker 04

  Absolutely.

• 40:05Speaker 03

  and grow. We'll do this. We're going to take our final break of the day. We come back, we're going to finally talk to John Duffield about the IRS and what's happening with audits. We're money wise. Don't go anywhere.

• 40:15Speaker 00

  Are you curious to learn more about how you can be money wise? Check out the Money Wise website at MoneyWiseGuys.com to get more info about what we do.

• 40:28Speaker 03

  Welcome back. We're Money Wise. We're your hosts today. I'm Sherrod Waite here with John Duffield. Happy birthday, Willie. He's 92 today. Is that right? 92? Yeah, 92. Sherrod's birthday with Jerry Seinfeld, Michelle Pfeiffer, Uma Thurman, Dale Earnhardt. All our birthdays are today.

• 40:48Speaker 04

  Hmm. Happy birthday.

• 40:49Speaker 03

  Happy birthday. Yeah. All right, John. Finally, I want to ask you about, it's always a curious thing. We had the Inflation Reduction Act, which passed in 2022, was part, in part, billions of dollars were spent to expand the IRS's workforce.

• 41:11Speaker 03

  To about 80,000 full-time equivalents.

• 41:14Speaker 04

  Yep.

• 41:15Speaker 03

  And then it was going to increase to about 90,000 in 2024. Fast forward to the era of DOGE, the Department of Government Efficiency under Trump and advisor Elon Musk. They have already cut approximately 7,000 of the newly hired probationary employees. And a part of this action has also brought about a higher attrition, meaning the agency is anticipating losing about a third of its workforce this year, necessitating an onboarding of about 52,000 new employees just to maintain its operational capacity.

• 41:59Speaker 03

  All of this seems to me to say that we have, and I say we, the American public has a lot less likelihood of being audited or caught for tax evasion.

• 42:16Speaker 03

  Would you agree?

• 42:17Speaker 04

  Yeah, I think I would agree to that.

• 42:18Speaker 03

  And it's already, I always have to look it up because it's already astounding to me. The audit rate right now for somebody who makes less than $200,000 a year is about 0.3%.

• 42:31Speaker 04

  Yep.

• 42:32Speaker 03

  And if you make over 200, you make between 200 and 500,000 a year, it's about a half a percent. You make up to a million, it gets up to just under 1%. You have to make over 5 million before it starts getting up to a more sort of realistic audit rate of about between 4 and 8%, which is, you're nodding your head, so you're like, yeah, that's not right.

• 43:03Speaker 04

  Yeah, well, no, no, no, I'm nodding my head because I find it fascinating. You know, I kind of on topic but off topic. So I had a client that sold his business in 2022.

• 43:16Speaker 04

  Okay, and as part of that sale, unfortunately, ended up writing about a two and a half million dollar check, okay, to the, to the taxing authorities.

• 43:26Speaker 03

  Oh, boy. Because of the sale, the proceeds of the sale.

• 43:29Speaker 04

  Yeah, because of gain on the sale, right? And, and so, you know, I mean, normal, natural, whatever.

• 43:33Speaker 03

  Yeah.

• 43:34Speaker 04

  And so then we get an audit notice, okay?

• 43:36Speaker 03

  Oh, boy.

• 43:37Speaker 04

  And, and what was interesting, the audit notice was for them as individuals as opposed to the business where the sale happened, okay? So the sale happened at the business level, it was an S corporation, gain happened there, but it was actually the individual that received the audit notice. And, and so, we're like, are you kidding me? Did you not get enough, right?

• 44:00Speaker 03

  Yeah, we paid.

• 44:01Speaker 04

  You know, I, I mean, so I'm nodding my head, Sherrod, is, you know, somebody's, somebody's got income of five million to 10 million dollars and they're gonna go audit that like you're not getting enough tax out of that individual?

• 44:11Speaker 03

  Yeah.

• 44:11Speaker 04

  And I, I, I think that's, that's a wrong way to look at it from the IRS perspective. I'm assuming the IRS looks at it as though, on, on an hourly basis, they're, they're apt to get way more revenue out of that particular client.

• 44:24Speaker 03

  Yeah.

• 44:25Speaker 04

  Than they are somebody that's making 55 grand a year, right? There's, there's a lot more tax dollars at, at risk here, or, or at play.

• 44:32Speaker 03

  It would be those people that are over 5 million in annual income that could afford getting, the sophistication that would be involved and, you know.

• 44:43Speaker 04

  And, and good representation, too.

• 44:45Speaker 03

  Yeah, and good representation.

• 44:46Speaker 04

  Yeah.

• 44:47Speaker 03

  That's right.

• 44:47Speaker 04

  Well, yeah, good representation, because, you know, when, when, when that group of people, you know, they all of a sudden get audited, they hire tax attorneys and me, and, you know, we all go, you know, full, full, uh, full hands on deck, you know what I mean? And so, we, we, we gear up for that, that, uh, that, that project. So what's interesting about it, though, to kind of continue along that line, so we're all sitting there going, why is this person being audited? This is stupid.

• 45:12Speaker 03

  Yeah.

• 45:13Speaker 04

  You know, whatever, and so here's the audit. It was a brand new trainee that was doing the audit, okay? This particular individual was relatively new on the job, and, and, um, so we're still like, are you kidding me? Okay, let's, let's go through the, let's go through the process and whatever it is, what it is. And so we started gathering, you know, documents, some of the things being requested. And so then we reached out to the auditor and said, hey, we've got, you know, your, the documents from your audit request together. And they said, hey, hold on, um, we may not be completing that audit. Um, and then, well, when are we going to know and what are we doing? And, uh,

• 45:56Speaker 04

  we'll, we'll get back to here shortly. Well, it turns out they laid off that, that auditor and they laid off the auditor and killed the audit. They stopped the audit.

• 46:03Speaker 03

  Wow.

• 46:04Speaker 04

  Yeah.

• 46:05Speaker 03

  Well, you've got firsthand experience then of it being impacted.

• 46:08Speaker 04

  Oh, yeah. Yeah, yeah, yeah, yeah. We, we've seen it. I, I have had, I could tell you more than one story about somebody that went to work, was being trained and now is no longer there at a, on, on a local level.

• 46:19Speaker 03

  I, I can see like, you know, on the surface, people hearing this, these statistics about the chances of being audited and thinking, oh, good. You know, this is good. You know, now, now, you know, you know, it's going to be less strict, but it really is not good because it, it, it penalizes those people who are doing it right, who are following the law, you know, and, and doing things correctly. And, and it, it now.

• 46:46Speaker 04

  Well, I think that, you know, what's interesting part for me with audits is, is that I, I, we frequently have clients audit them and I go, why are you auditing this person? You know what I mean? Like it just doesn't make sense. And so, you know, when you have some glaring issues, like somebody loses money, right? They, you know, some business that generates two or three million dollars in revenues, but loses money every year. And, and then, you know, you go, okay, well, how do they do that? Or what's going on? You start to ask some questions, but there's sometimes we just get audits and they just don't make any sense whatsoever. And, and, um, you know, probably AI will change that, right? And, and maybe the algorithms get better or different. And so some of that changes. But, uh, yeah,

• 47:30Speaker 04

  I, I think we should anticipate somewhat, some lower degree of audits than we have had recently. We've, we've, listen, they, the IRS did, they actually did staff up. And we were having way more audits than we had had historically. There's that is that is no doubt about it. And so I suspect that number will start to decline again a little bit to whatever level.

• 47:50Speaker 03

  Were you seeing an improvement in the customer service, basically, or accessibility?

• 47:56Speaker 04

  Yeah, a little bit, little bit. Not, I mean, it's still not great, but yeah, but an increase or improvement? Yes.

• 48:02Speaker 03

  Yeah, so you're not on hold or you don't just get a dead, a dead phone call?

• 48:05Speaker 04

  It's still hard to get through, but it was better.

• 48:07Speaker 03

  Yeah.

• 48:08Speaker 04

  If you want, if you're asking me if it was better, yes.

• 48:11Speaker 03

  Yes.

• 48:11Speaker 04

  It was better.

• 48:11Speaker 03

  Yeah.

• 48:12Speaker 04

  That doesn't mean it was good, it's just better.

• 48:14Speaker 03

  Yeah, for sure. It's got a long ways to go.

• 48:17Speaker 04

  Yeah.

• 48:17Speaker 03

  I have clients that are still battling with the IRS with, you know, a lost check. I think you know about one of these situations where they essentially have record of receiving the check for the tax payment, but they haven't credited it.

• 48:30Speaker 04

  Oh, yeah.

• 48:30Speaker 03

  You know, and it's been, you know, like multiple years trying to get this thing worked out. It's so frustrating.

• 48:37Speaker 04

  Yeah.

• 48:38Speaker 03

  Well, John Duffield, thank you so much. Thanks for your time.

• 48:39Speaker 04

  Thank you for having me. I appreciate it. It's fun.

• 48:41Speaker 03

  That's John Duffield. He is CPA with Integra Accountancy Corporation. Look at that. I got it right this time.

• 48:47Speaker 04

  Thank you.

• 48:47Speaker 03

  Remember these three things. Be smart, be safe, and always be money wise.

• 48:53Speaker 02

  Securities offered through SCF Securities, Inc., member FINRA/SIPC. Investment advisory services offered through SCF Investment Advisors, Inc. SCF Securities, Inc. and Money Wise Wealth Management are independently owned and operated.