In This Issue

1. The Economy - Is Stagflation Here?

2. Real Estate News Roundup

3. Music Royalty New Roundup

4. Startup News Roundup

5. Site/Newsletter Updates & Commentary

ECONOMY
Stagflation?

An inflation gauge known to be a favored measure of the federal reserve (PCE) came in hotter than expected for March. While inflation cooled nicely in 2023, it has ticked back up in 2024.

This greatly clouds the future economic outlook.

It complicates the Federal Reserve’s job. It also makes it less likely that interest rates are cut significantly this year… which also makes it less likely that inflation cools without causing a recession.

Jaime Diamond, the CEO of the largest bank in the United States, recently stated he believes there’s only around a 35% chance that we achieve a “soft landing.” Or in other words, there’s a 2-in-3 chance that a painful recession will be required in order for inflation to be tamed.

To make matters worse, economic growth has slowed down. It’s not just GDP that’s showing signs of weakness.

• The 40 basis point increase in jobless rate (now 3.8%) represents nearly a 12% increase in the past year. Some forecasters believe that indicates we’re already in a recession, more layoffs are coming, and the jobless rate could climb up to 5% this year.

• That’s alongside a bunch of potentially ominous metrics:

  • Declining full time employment (though an increase in part time jobs).

  • Low readings from the Leading Economic Index

  • The yield curve remains inverted

  • A decline in the quit rate (people voluntarily leaving a position, typically for a new one)

  • Lower higher intentions from small businesses

• Luxury goods companies are seeing headwinds from a decline in spending from outside the ultra wealthy.

• Amazon suspended their sponsorship of new green card applications for foreign workers for the rest of 2024. A step that suggests the company is taking a cautious approach to the labor market.

The Danger Of This Setup

This recipe has people once again talking about entering into a period of “stagflation.” The term is a combination of “stagnation” and “inflation.” It describes a low-growth environment with high inflation.

That’s a particularly dire combination because it leaves few good options for mitigation. Typically when the economy weakens, fiscal and monetary policy respond with measures to stimulate the economy.

But if inflation is high, they can’t - not without potentially making inflation even worse.

Taming inflation typically requires the opposite - restrictive policies that slow down economic activity.

But, if the economy is already shrinking, then that’s also dangerous - it could trigger a very deep and long-lasting recession.

On the other hand, this is not the first round of predictions for stagflation to emerge. There were many previous calls that proved to be incorrect as inflation came down significantly in 2023.

Regardless of whether we will have stagflation or not, it seems increasingly likely that interest rates will remain higher for longer.

Other News

TikTok has been banned in the US - kind of. The bill gives the social media platform one year to separate from its Chinese parent company or face a ban. Unsurprisingly, TikTok has vowed to take the fight into the courts.

ALTERNATIVE INVESTMENT NEWS ROUNDUP
🏠 Real Estate

Market Metrics

• 30 Year Mortgage Rate: 7.17%

  • Up 7 basis points, a ~1% increase, week-over-week

  • Up 38 basis points, a ~5.6% increase, month-over-month

  • Up 74 basis points, a ~11.5% increase, year-over-year

• Single Family Home Prices: +6.3% (year-over-year)

  • Prices were down -0.1% month-over-month, the first decline since August 2022

  • The index is updated monthly, with a lag. These figures are based on data from January 2024.

  • The next FHFA HPI report will be available at the end of April, covering data from February.

• Commercial Real Estate: -7% (year-over-year)

  • 0% month-over-month

  • Based on the April 2024 reading

Residential Real Estate

• Boomers aren’t downsizing, keeping many large houses off the market. The reasons are varied but are effectively due to a lack of incentives and an increase in household wealth as house prices have swelled.

  • Some commentators believe that downsizing would actually hurt the housing market for many as more buyers would be competing for smaller and more affordable homes.

• March saw just over 4% fewer existing homes sold when compared with February. The median sale price was about 5% higher than the previous year, according to data from the National Association of Realtors.

• The rate of construction for new homes fell significantly in March. About 15% fewer projects were started compared to February.

  • Uncertainty around interest rates, the job market, and the availability of buyers that can afford new homes are all factors driving the pullback.

• Luxury real estate is doing great. Prices are up 9% in the last quarter according to Redfin. Affluent buyers are able to make all-cash purchases, avoiding the impact of high interest rates. A staggering 47% of luxury home buyers purchased their home just with cash.

Commercial Real Estate

• Major technology companies are downsizing their office space requirements. While perhaps not a surprise given they make many of the tools that enable remote work to begin with, it’s another blow for commercial real estate.

  • The Wall Street Journal has an example of the impact this can have.

    • An office building in Seattle grew in value from $77M in 2011 to $206M in 2019, after Amazon moved into the majority of the building in 2013.

    • With the company moving out after this year’s end, the building is expected to sell for somewhere near $50M.

  • An empty office building in downtown San Francisco, a city synonymous with Big Tech, just sold for about 90% off its 2016 acquisition price.

• ATTOM, a real estate data provider, reported that foreclosures of commercial real estate properties in April were over double what they were in the prior year.

  • Monthly foreclosures have now reached heights not seen since mid-2015.

🎵 Music Royalties

Spotify

• A couple of notes from Spotify earnings:

  • Spotify reported slowing subscriber growth as they pull back on marketing spend in a bit to improve profitability.

  • With 615 million active users, the streaming service is a significant source of music royalty revenue.

  • Analysts project continued growth for the platform over the long term - potentially hitting 900 million users by 2028.

  • The more revenue Spotify generates, the more money is available to be paid out to the artists.

• The company is also making a bid to skimp on royalties owed to songwriters.

  • While price hikes to their subscription tiers should mean more revenue for artists and rightsholders, Spotify will also be bundling in audiobooks for premium users.

  • Based on reporting from Billboard, the company believes they can effectively use this as a loophole. The audiobook access could make their subscription a “bundled service,” which has a lower mechanical royalty rate.

  • Music publishers are already upset and ready for a fight.

Recurring Topics

New developments about topics and stories that we continue to keep an eye on.

UMG & TikTok

TikTok and UMG are reportedly talking again. But there’s been no reports on whether any progress has been made on reaching a new agreement between the two parties.

Even if progress was made, it seems likely TikTok will divert their attention to fighting the new law requiring it to separate from its Chinese parent company ByteDance.

Hipgnosis Songs Fund

The Hipgnosis Songs Fund (HSF) may be coming to an end. After courting offers from both Blackstone and Concord, HSF’s board recommended shareholders approve a $1.51B offer ($1.25 per share) from Concord to purchase the fund.

New offers can still be submitted up until the shareholder vote on the takeover bid expected in June.

Concord also previously acquired Round Hill Music Royalty Fund, which was another publicly traded music royalty fund.

Notable Sales

Primary Wave Music is acquiring the publishing catalog and songwriter’s royalty rights for public performance from Neil Finn. Finn is a member of the ARIA Hall of Fame and is considered one of the best contemporary songwriters. A specific acquisition price was not published, but Variety describes it as a “multi-million-dollar deal.”

💡 Equity Crowdfunding & Startups

IPOs

• Rubrik’s IPO went well. The cybersecurity company saw shares rise 21% in their initial trading day.

• Ibotta, a digital marketing company that helps consumers save money while shopping, also had a successful debut on public markets. The stock rallied 27% in initial trading with the company raising $577 million.

Other

• Blogging and social media platform, Medium is reportedly on track to become profitable. This is due to cost cutting, in particular from cloud computing. The company was able to cut about half of their AWS costs.

  • This trend is not just isolated to pre-IPO startups. Over 80% of CIOs plan to move workloads off the cloud before the 4th of July fireworks hit.

🌐 SITE/NEWSLETTER
Frequency Change

Things have changed a lot since I first started the newsletter. One of those is moving our cadence from once per month to twice a month updates.

Starting from next week, I’m planning to try moving to a weekly email. There’s enough news that we’re keeping track of that our bi-weekly newsletter is getting long. In fact, several of the recent editions I cut content from because there was just too much.

 POLL