Smart Investing is the radio show where Brent and Chase try to make investing easier to understand. They demonstrate long-term investment strategies to help you find good value investments.
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6 days ago
6 days ago
May retail sales look stronger than headlines show
After seeing headlines from several media outlets, I was worried May retail sales were slowing to a problem point, but I would say they actually looked quite strong. Compared to April, sales did fall 0.9%, which was larger than expectations for a 0.6% decline. It’s important to point out though that consumer rushed to auto dealers in April to try and beat the tariffs. This led to a 3.5% decline in motor vehicle & part dealers when comparing sales in the month of May to April. Gas stations have also seen declining sales largely due to lower gas prices and actually fell 2% when compared to the previous month. Excluding these two categories, sales would have fallen just 0.1% when compared to April. While the month over month numbers point to a slowing consumer, when we look at the annual comparisons the numbers are impressive. Headline retail sales climbed 3.3% compared to last May, but if we exclude motor vehicle & parts dealers & gas stations, sales climbed 4.6%. It was largely impacted by the 6.9% annual decline at gas stations. Areas of strength in the report included nonstore retailers, which were up 8.3%, food services & drinking places, which were up 5.3%, and furniture and home furnishing stores, which were up 8.8%. Overall, I’d say this report still shows a healthy consumer. I am still looking for the consumer to slow, but I believe people still have the ability and desire to spend in this economy, which should allow for continued growth, albeit at a slower rate.
Why are big retailers looking at issuing stable coins of their own?
Stable coins seem to be the new buzzword for 2025. It seems at least once a week when I pick up the Wall Street Journal, I see something about stable coins. I recently read that Walmart and Amazon may be looking into using stable coins to get away from using traditional payment systems, which is costing billions of dollars in fees each year. This includes interchange fees that occur when customers make purchases using their credit cards. If you’re not sure what a stable coin is, briefly, it is a coin that is supposed to be backed by a one-to-one exchange ratio with dollars or other government currencies. In other words, reserves of cash and dollars would have to equal the value of the stable coins that were in the market. Who would be hurt most by this? Visa and MasterCard, who collect billions of dollars in fees from the merchants, would likely be most at risk. I believe if the stable coins were to become a reliable source of transactions, you will see huge declines in the stock prices of Visa and MasterCard. Merchants have tried in the past to somehow get around the card-based systems from Visa and MasterCard, but each time they have failed. I personally still don’t have a clear comfortable feeling or understanding of stable coins, which is true of many regulators and others as well, but it does appear new technology is coming and if Visa and MasterCard are replaced, I wonder who will get the benefit of those billions of dollars in transaction fees? Will it be the retailer or the consumers?
ChatGPT and Perplexity are hurting the Internet
You may not think about it, but Alphabet’s Google search engine is seeing huge declines. This is not just hurting Google, but it also hurts many companies who get their business from people searching on Google. This could have a major impact on companies like TripAdvisor as it gets 58% of its global visits from search. If people get the answer, they need right away from ChatGPT, there’s no need to continue searching and you’ll not see any other ads directing you to other sites that may want to do business with you. Many companies from Netflix to US travel and tourism companies are seeing declines in traffic to their websites by 10 to 20% from one year ago. For example, search referrals to top U.S. travel and tourism were down 20% year over year last month and news and media sites saw a decline of 17%. ChatGPT had 500 million weekly active users in March and that was up almost 70% from the 300 million they saw in December. The reason this is hurting Internet search is since you get your answer from one platform, you close the book and move on. You don’t need to do any more searches on other sites. Google‘s lawsuit for being a monopoly with the federal government will still not disappear even though things have changed as they are being penalized for what they have done in the past. I have noticed when I’m using Google now the AI search function now pops up. The big question is will this help Google retain their search business? This is extremely important considering more than half of Alphabet’s business still comes from Google search ads. For investors, you may want to be aware of how much business the company you’re investing in gets from search off the Internet because there could be a decline in the business if it is a large amount. One company that could benefit from the decline in search is Meta. This would come from the Facebook and Instagram platforms because that’s still a way for businesses to be online and in front of potential new customers and clients. There’s still some concern on copyright infringement from many companies and this could be something that really hurts the advancement of AI. Are you finding yourself using AI more and doing less Google searches?
Financial Planning: The “Widow’s Penalty”
When a spouse passes away in retirement, the surviving spouse typically transitions from filing taxes jointly to filing as a single taxpayer in the following year, a shift that often triggers what’s known as the “widow’s penalty.” This penalty arises because single filers face higher tax rates at lower income thresholds and receive a smaller standard deduction, which can significantly increase their tax liability even if their income stays the same. To make matters worse, household income often drops after a spouse’s death. For example, if both spouses are collecting Social Security, only the higher of the two benefits continues. This combination—less income and higher tax rates—can lead to a surprising and painful spike in effective tax burden and reduction in cashflow. To mitigate this risk, couples can take proactive steps such as performing Roth IRA conversions while both spouses are alive to lower future taxable income, carefully coordinating Social Security claiming strategies to maximize long-term benefits, and planning pre and post death retirement withdrawals to keep cashflow consistent. Thoughtful retirement planning can help soften the financial blow and preserve more wealth for the surviving spouse.
Companies Discussed: Adobe Inc. (ADBE), T-Mobile US, Inc (TMUS), Jack in the Box Inc. (JACK) & Celsius Holdings, Inc. (CELH)
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