📰 This Week…

• IMF raises concerns about the US economy

• The housing market is stuck

• Companies want a piece of Nvidia’s market share

• The music industry is suing AI music companies

And so much more!

📊 Markets

• Interest Rates, Federal Funds: 5.33%

  • Next FOMC meeting starts July 30

• 30 Year Mortgage Rates: 6.86%

  • (-0.15% WoW, -2.4% MoM, +2.2% YoY)

• Single Family Home Price Index: 423.3

  • (+0% MoM, +6.3% YoY)

  • June report, data is through April

• Commercial Real Estate Index: 122.7

  • (+0.7% MoM, -6.6% YoY)

💸 Economy

Bottom Line: Some signs of longer-term troubles for the US economy emerged this week. A consistent labor shortage may cause inflationary pressure for years. The IMF is worried about the US debt load, lack of changes to prevent future banking failures, and increasing reliance on restrictive trade practices. These could reduce the US’s long-term growth. In the shorter term, some new data suggests cooling in the economy.

• The US and other developed economies continue to be short on labor. According to analysis from McKinsey, the number of available jobs per worker has increased 7X since 2010. This dynamic will allow workers to demand better compensation from employers. This may put continued pressure on inflation over the longer term. (Axios)

• The International Monetary Fund (IMF) criticized some aspects of the US economy in its latest report. They are concerned about the growing fiscal deficit in the US. This is being made worse by higher interest rates, which means future debt will be a greater burden. The IMF is also concerned about the banking failures that we saw in 2023 and the lack of progress to prevent more of them. Lastly, the increasing use of tariffs is a concern for future growth. (Business Insider)

• Spending on capital goods (excluding military) declined 0.6% in May. That missed economist’s expectations. It hints at slowing business spending and investment. (Reuters)

• Some are making the argument that high interest rates are making the economy run hotter instead of cooling it down. The contrarian take is that high interest rates and high-yield bonds are giving consumers more money to spend. Not just any consumers though - Baby Boomers. This generation with high savings can benefit from the “easy money” of higher interest rates. They’re also responsible for 20% of US consumer spending. (Bloomberg)

🏠 Real Estate

Bottom Line: An increase in home inventories may be kicking off a decline in prices going into the summer. Some believe we may be around the top of the market, with homes being about 25% overvalued. Inventories may remain low for years as people hold onto their low interest rate mortgages. Some believe this will end in a price correction or just stagnant growth in prices for the next few years. California is slowly getting closer to having more home insurance companies return to the state.

• The predicted summer slowdown in home prices may be starting. From late May to late June, 2/3 of homes sold above asking price. That’s the lowest it’s been in the past 4 years. The inventory of houses for sale is up 35% yearly, putting pressure on prices. (CNBC)

• The housing market is stuck - according to Bank of America. Too many people have very low interest rate mortgages and aren’t willing to give them up. The Federal Reserve is not anticipated to cut interest rates significantly for years. This means the inventory of houses for sale could be limited for the next 6-8 years. They don’t expect a meaningful increase in total home sales until 2027, at the earliest. (Fortune)

• California is making progress to improve its home insurance situation. The home insurance industry seems to support the state’s latest plan to get more insurers back in the state. The plan centers around allowing companies to use computer simulations to estimate wildfire risks. That estimation can then be used to calculate the insurance premiums. (The Sacramento Bee)

• This might be the top of the housing market. Multiple measures show housing prices as being around 25% overvalued. No crash is expected, but a slow, overvalued market is unlikely to see significant gains. The most likely path forward might be slow decline or no growth for a number of years. (The Wall Street Journal)

• Some analysts are calling for a more significant correction in prices though. The combination of maturing debt, still high interest rates, and lowered expectations for market performance might cause a drop in prices. Specifically, investment companies and real estate investment trusts may “panic sell” assets. (Business Insider)

💡 Startups

Bottom Line: Perplexity is set to haul in $250M in further funding to continue taking on Google. France’s success in building AI startups could be in jeopardy from their ongoing elections. OpenAI makes another acquisition. Companies continue to want to take a bite out of Nvidia’s market.

• Another day, another set of AI companies raising funds at huge valuations. Perplexity, an AI take on Google, is raising $250M with a reported valuation of $3B. The company was recently valued at “over $1B” in April. (Reuters, Barron’s)

• France has been working on cultivating technology startups for years. They succeeded with billions of investments flowing to French AI companies. Some are concerned that the country’s snap elections will disrupt that. A major change in the parties in power may affect the regulatory landscape for these companies. (Wired, CNBC)

• OpenAI has made another acquisition. They purchased Multi, a video conferencing startup aimed at developers. The company is shutting down their product as part of joining OpenAI. (Multi)

• Cerebas Systems, an AI chip company is reportedly preparing to IPO at the end of the year. The company aims to challenge Nvidia. They hope to benefit from companies’ desire to diversify away from Nvidia’s chips. (Business Insider)

• Etched raised $120M in funding to build a new type of AI chip. The company is betting that they can make specialized hardware to steal share from Nvidia. Nvidia’s products are “general purpose” which makes them very flexible. It also means they’re less optimized for AI workloads. An optimized chip could be far more efficient, but with far less flexibility - you can’t really use it for anything else. (CNBC)

• Some other large fundraises we heard about this week: ZeroEyes - $53M for AI gun detection. Route - $40M for package tracking. Aether Fuels - $34M for plane fuel from carbon waste. Local Kitchens - $40M for multi-brand kitchens. (Axios, Fortune, TechCrunch, TechCrunch)

• SpaceX may sell some insider shares at a $210B valuation. (MarketWatch)

🎵 Music Royalties

Bottom Line: The music industry sues the two biggest AI music companies over copyright infringement. Congress is considering a radio performance royalty again. JKBX makes it into the press again (we still don’t like their offerings).

• It’s here. The music industry is suing AI music companies Udio and Suno. This will be a high-stakes battle that may set precedents for other types of media as well (e.g. books). The companies responded as you would expect. They’re doing great things that help people, they stand behind their technology, and AI is here to stay. (Wired, Billboard)

• Music investment platform JKBX reports the yield on their offerings increased in 2023. About 12% of their offerings had yields of 5-9.6%. That’s compared to the 3.5% they had initially estimated. I would not take this as a reason to reconsider using the platform however. (Billboard)

• Congress is once again considering legislation that would force radio stations to pay performance royalties. This is an old, recurring battle. There seems to be a lot of skepticism that this bill will be different from previous attempts. (Billboard)

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