📰 This Week…

• Weekly jobless claims data relaxes some concerns about the economy.

• Apartment buildings have their own loan problems.

• Are we past the peak of AI hype?

• The MLC is trying to do better at fighting streaming fraud.

And so much more!

📊 Markets

• Interest Rates, Federal Funds: 5.33%

  • Next FOMC meeting starts September 17

• 30 Year Mortgage Rates: 6.47%

  • (-3.9% WoW, -6.1% MoM, -7% YoY)

• Single Family Home Price Index: 424.6

  • (-0% MoM, +5.7% YoY)

  • July report, data is through May

• Commercial Real Estate Index: 123.6

  • (+0.0% MoM, -5.2% YoY)

💸 Economy

Bottom Line: Markets breathed a sigh of relief as weekly jobless claims unexpectedly improved. Consumers are still under pressure though, with credit card debt reaching an all-time high and delinquencies rising. Warren Buffet has increased Berkshire’s cash balance to new, unprecedented levels. A variety of policy and geopolitical factors may mean that inflation isn’t going to go away.

• An unexpected improvement to weekly jobless claims has helped to calm nerves about the health of the US economy. The drop provides support for a theory that last month’s increase in unemployment was related to bad weather. (Reuters)

• Consumer credit card debt continues to rise. Balances are up about 11% year-over-year. Delinquency rates have also risen in the past year. Though some are optimistic that rate cuts will allow consumers to start getting a better hold on their debt. (Inc.)

• Torsten Sløk is the Chief Economist at one of the largest asset managers. In addressing a question about his view of the economy over the next 3-5 years, inflation was a persistent theme. He notes deglobalization, the transition to renewable energy, heightened military spending, and a restriction of immigration as inflationary forces. Ultimately, inflation may be a persistent factor in monetary policy this decade. (Barron’s)

• Warren Buffet and Berkshire Hathaway are cashing out. The conglomerate now holds over $234B in Treasury bills - about $50B more than the Federal Reserve. The move to expand their cash position suggests they have a negative view on the value of stocks and the future prospects of the US economy. (CNBC)

🏠 Real Estate

Bottom Line: Insurance costs are likely to continue to rise in the future. As this happens, it might drive people away from areas at high risk for natural disasters like floods. The increased insurance cost might also hurt the value of homes in those areas.

On the commercial side, loans for apartment and multi-family units will be reviewed more carefully. This is after an increase in mortgage fraud in the space after interest rates started rising. Apartment loans are also increasingly at risk of distress. This is in part due to the volume of “fix-and-flip” loans given during the ultra-low interest rate era.

• High insurance costs could shape migration. Generally, more people have moved to fire- and flood-prone areas. That’s driven by migration to Texas and Florida. However, the most fire-prone areas of California have seen a decline in population. This suggests that persistently high and rising insurance costs could affect the decisions people make on where to live. (The Washington Post)

• David Burt was one of the investors that profited from betting against the housing market crash of 2008. He’s currently focused on climate change and insurance prices. He believes that 5-7% of US homes could lose half their value or more due to rising insurance costs. For example, if flood insurance costs increase $10K/year, those extra costs are going to hurt the home’s value. (Business Insider)

• Loans for apartments and other multi-family housing may soon face greater scrutiny. Fannie Mae and Freddie Mac are reportedly preparing to tighten lending standards. This is partially due to an increased focus on mortgage fraud from law enforcement. (The Wall Street Journal)

• Office space has been the focus of concern in commercial real estate. However, apartments are also having issues. There is about $81B in apartment loans at risk of becoming distressed. The riskiest area is around “CRE CLO” loans, which were given to fix-and-flip the apartment buildings. More than 10% of those loans are already in distress. (The Wall Street Journal)

💡 Startups

Bottom Line: After all the promise of AI, companies are struggling to build successful business models - even when they’ve built popular and useful tools. It’s also increasingly difficult to found an AI startup and get acquired. Big Technology companies are finding workarounds for regulatory scrutiny of their acquisitions.

A startup taking on Nvidia’s AI chip dominance pulled in a big fundraise. A total of 38 startups have become unicorns this year. It’s been a rough year for Advertising technology companies seeking funding. Also, a Chinese autonomous vehicle company is reportedly planning a US IPO.

• AI chip company Groq raised $640M at a $2.8B valuation. The company hopes to take a piece out of Nvidia’s market share. Nvidia’s chips perform both training and execution of the types of LLMs that power experiences like ChatGPT. Groq’s chips just focus on execution. This has led them to break speed records for open-sourced LLM models. (Fortune)

• TechCrunch has a list of all 38 startups that have become unicorns this year. The list is populated by many AI companies, but also includes a lot of other industries as well. Cybersecurity, FinTech, Healthcare, and more. (TechCrunch)

• Advertising technology companies are getting the cold shoulder this year. In 2024, they’re on pace to raise the lowest amount in more than 10 years. This is believed to be due to uncertainty around the future of the economy, greater regulatory scrutiny of advertising, and a lot of existing companies competing in the space. (Crunchbase News)

• Chinese autonomous vehicle startup WeRide is reportedly preparing for a US IPO. The company is believed to be seeking to raise up to $400M through US public markets. The company last raised funds in 2022 at a $5.11B valuation. (TechCrunch)

• It’s harder than ever to found an AI startup and get acquired. The costs for compute and talent are extremely high. BigTech is also under the microscope for AI acquisitions. Many of these companies are turning to weird work-arounds to avoid regulatory scrutiny. This includes an increasingly popular move of taking talent from the startup and a licensing/partnership agreement with the company without outright acquiring it. (Wired)

• Are we past the peak of AI hype? Many startups with lofty valuation have since been “acquired” by big technology companies like Google and Microsoft. It’s extremely difficult to build a useful AI tool. But what about monetizing it? Inflection, Adept, and Character AI are all significant startups that took the “exit” option from BigTech instead of trying to survive on their own business model. (Forbes)

🎵 Music Royalties

Bottom Line: The music industry continues to have interesting and complex integrations with technology. The MLC partnered with a third-party company to help improve fraud detection. TikTok videos featuring user-edited music may be a preview of the future of music engagement. UMG has formed a partnership with a company that claims they can help solve the issue with artist attribution and payment from AI-generated content.

• The Mechanical Licensing Collective is partnering with Beatdapp to improve their ability to prevent fraud. Beatdapp is an increasingly important company in fraud detection across the music industry. One of France’s agencies for supporting the music industry estimated 1-3% of all streams in the country were fraudulent. (Billboard)

• TikTok videos based on the US presidential election are showing a new music trend. Users are editing music in the videos - doing things like replacing lyrics with quotes from candidates. Or tweaking the pitches of candidate soundbites to fit within the composition. That shows a potential future where AI tools drive engagement through another dimension of content creation. (Billboard)

• Universal Music Group has a new partnership with ProRata.ai. ProRata is a company that hopes to solve the issue of artist compensation with AI-generated content. They allow AI platforms to provide attribution and compensation to the underlying music that was used in creating the AI-based content. (Billboard)

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