🗞️ Last Week In Alternatives (Summary)

👋 Welcome back. I hope everyone had a good holiday period.

💸 Economy

I think there are two major stories going into next week.

The Pause - It is widely expected that the Federal Reserve will pause their interest rate cuts this week.

While inflation has moderated, the latest CPI readings showed prices increased 2.9% yearly. That’s actually an increase over recent readings and the highest it’s been since July. There were also far more jobs added in December than expected (256,000 vs 153,000). This suggests the economy might be too hot to support further cuts.

Meet The New Boss, Same As The Old Boss - Last week, Donald Trump returned to the White House. The new administration has promised to significantly shake up the government.

The wide range of policies, executive orders, and threats being discussed will have a large impact on the US economy. It’s just not exactly clear what that will be. It’s also not clear which policies will get passed, which threats are just negotiating tactics, or which provisions will be struck down in court challenges.

That means the future could see a lot of inflation. Or it could see a jump in profitability and productivity. That uncertainty means we should be prepared for many different scenarios. If inflation and interest rates go back up, what happens to your portfolio? If there’s a boom in corporate profits, do you have any positions that would benefit?

🏠 Real Estate

Paradise Lost

Los Angeles has been battling a series of devastating wildfires. The damages are expected to be in the tens of billions of dollars. The effects to the people of LA and the California property market are already taking a toll.

But it won’t just be California that’s affected. Insurers will need to make up for their losses in this disaster. They’ll look to do that wherever they can across the country.

States that have less restrictions on how, when, and why insurers can raise rates are more at risk. A study found that states with looser insurance regulations saw their premiums rise 3-6.5 points higher in the two years following a major disaster than states with stricter regulations.

Property Tax Pushback

After property values surged in the post-COVID period, property taxes also saw significant increases as well. Homeowners have been pushing back on market adjustments for existing homes. It’s working too.

In November Georgians passed a measure that limits the yearly rate of increases. A number of other states passed measures that would expand tax exemptions and provide favorable treatment to groups like veterans. Even city councils have voted down increases.

This has a few effects for investors.

First, a trend that limits property tax increases could help produce more consistent income. Second, studies suggest that high taxes result in less expensive houses. There may also be a “lock in” effect where long-time homeowners don’t want to sell and lose their below-market tax rates.

In other words, these changes may result in lower inventory levels and higher home prices.

💡 Startups

DeepSeek is the buzz of the AI town right now. Earlier this week, the Chinese technology company publicly debuted their AI model. The model, R1, is said to perform on-par or better-than other leading models like Open AI’s GPT o1 model.

The biggest feature of R1 is its efficiency. It reportedly costs about 90-95% less to run. The latest model is rumored to be based on a model that took less than $6M to the train. OpenAI’s GPT-4 reportedly cost more than $100M to train. And it’s open source.

🎵 Music Royalties

Deezer’s Makes Royalty Changes

Deezer developed a tool to detect AI music on their streaming platform. They found that about 10% of all songs were AI-generated. Removing these tracks from the platform, it should direct more royalty earnings to human creators.

Deezer also signed a deal with a French PRO to change how they calculate royalty distributions. Under this agreement, the streaming platform will:

• Increase royalties to songs actively sought by users

• Increase royalties to songs created by artists with at least 1,000 streams per month from 500 different Deezer subscribers

• Limit the effect a single subscriber can have on the overall royalty payout calculations

• Demonetize tracks that are just noise and sounds (such as white noise, rainfall sounds, etc… that may be used for sleeping)

• Remove tracks that have no streams in a one-year period

These changes are generally aimed at reducing fraud, directing more funds at human creators, and defending against a flood of AI slop. On the other hand, it could hurt the earnings potential of newer artists or very small independent ones.

English Loses Dominance

Listeners around the world are consuming less English-language music. They’re instead spending more time listening to songs in their native languages.

Improvements in technology and music streaming has made it easier to create, produce, and distribute music. That’s helping local artists create new hit tunes. While popular locally, the catchiest songs can also spread to become successful internationally.

All of this means increased competition for US-English tracks.

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Sources:

Economy - Forbes, CNN

Real Estate - The Wall Street Journal, Slate

Startups - Forbes, CNBC, VentureBeat

Music Royalties - Billboard (article 1, article 2, article 3)