📰 This Week…

• New inflation data

• Consumer confidence surprisingly increases

• Price cuts on homes for sale reach a level not seen in 10+ years

• Banks might be more exposed to commercial real estate debt than expected

• Defending against drones is a sweet spot for the military and technology startups

• We know more about why Sam Altman was fired from OpenAI last year (before being reinstated)

• Sony Music wants more revenue from free streaming

• What are SAFE agreements?

And so much more!

📊 Markets

• Interest Rates, Federal Funds: 5.33% 

  • (+0% MoM, +10% YoY)

  • Next FOMC meeting starts June 11

• 30 Year Mortgage Rates: 7.03%

  • (-1% WoW, -2.6% MoM, +3.5% YoY)

• Single Family Home Price Index: 423.4 

  • (+0.1% MoM, +6.7% YoY)

  • May report, data is through March

  

  Federal Housing Finance Authority HPI Data

• Commercial Real Estate Index: 121.8 

  • (+0% MoM, -17% YoY)

💸 Economy

• US GDP grew at an annualized rate of 1.3% in Q1. That’s a 62% decrease from Q4 of 2023. Personal savings are down 16% year-over-year. (BEA)

• April’s inflation data was basically unchanged from March. That means that inflation isn’t growing faster. But, it also means it’s not growing slower either. Whether that’s a good thing or not depends on which perspective you take. (Forbes)

• Consumer confidence was surprisingly better in May. The reading improved 4.6% compared to April. That’s also after April’s reading was revised to a higher number than first reported. Consumer confidence has been declining this year. Economists had expected confidence to continue falling. (Reuters)

• One scientist is arguing that the US economy will be growing faster than China’s by the 2030s. The reason is the increasing percentage of older Chinese citizens. In 2023, 15.4% of the country was over 65 years old. Other large economies that reached similar demographics saw very slow growth afterwards. (Fortune)

Bottom Line: A round of good and “not bad” news for the US economy. Inflation is not accelerating. Consumers are feeling better. The U.S. stock markets have been strong. The economy continues to expand, though at a slower speed. The expansion is likely due to consumers spending more and saving less.

🏠 Real Estate

• It’s becoming a buyer’s market in housing. According to Compass’s CEO, 30% of houses for sale have had a price cut. That’s the most in over 10 years. (Fortune)

• People still aren’t buying homes though. April saw continued weakness in the Pending Home Sales Index. In the past 15 years, it’s the lowest reading since the peak of pandemic lockdown. (Axios)

• Sun Belt homes are due for price cuts, according to CoreLogic. In particular, the Palm Bay (FL), Atlanta (GA), Spokane (WA), Daytona Beach (FL), and Greenville (SC) areas are at risk. The firm believes there is a 70% chance prices will drop there by next year. (The Hill)

• Mortgage rates will remain around 7% all year. At least according to Freddie Mac and Fannie Mae. This is partially due to expectations that interest rate cuts will happen late in the year. (Business Insider)

• Malls continue to be challenged. Many “anchor” tenants are retail stores that are now struggling. That’s leaving malls with major vacancies and churn. In a look at Connecticut, malls across the state are experiencing the same challenges (CT Insider)

• Banks have 40% more exposure to commercial real estate (CRE) loans than widely believed. A new analysis focuses on “indirect” loans to the sector. Specifically, on loans to Real Estate Investment Trusts with CRE portfolios. Accounting for this results in greater exposure across banks nationally. (Business Insider)

Bottom Line: The housing market keeps changing. Things are shifting in buyer’s favor. Less homes are selling, and more homes have price cuts. Even popular areas like Atlanta and Daytona Beach may see prices fall over the next year. Mortgage rates aren’t likely to drop enough to shake things up. It’s still unclear how things will play out with commercial real estate. Banks could be a lot more exposed than previously thought though.

💡 Startups

• Big Technology companies are investing heavily in AI startups. This could be an effort to dodge regulatory concerns. Instead of buying the companies or launching their own products, Big Tech is just a major shareholder. (TechCrunch)

• Apple’s Vision Pro headset hasn’t sold well. That doesn’t seem to be holding Google back from Augmented Reality (AR). They company has formed a partnership with Magic Leap (an AR startup). AR and VR haven’t been hot for a while, but maybe there’s still potential for the space. (Reuters)

• There’s growing activity in the military and defense startup space. In particular, small technology companies are competing to create drone defense solutions. An estimated $3B in funding has been deployed over the past 2 years to companies in the space. (Fortune)

• A FinTech disaster has been unfolding this month. A startup called Synapse offered technology-based banking services to other companies. They’re now bankrupt. More than 100 other FinTech companies and millions of people are caught in the fallout. Mainvest closed. Companies discontinued banking and card services. Some users can’t access their funds. (CNBC, TechCrunch)

• Data privacy is becoming complex and Transcend is turning that into big business. Transcend has a platform that supports consumer data privacy. It also helps companies respond to user deletion requests and regulatory requirements. The company raised $40M in Series B funding. (Axios)

• OpenAI is working on the successor to GPT-4/4o. There’s no specific timeline for when it will be available. The company is also trying to assure the public that safety will be considered. (Forbes)

• Details of Sam Altman’s brief firing from OpenAI last year are emerging. Helen Toner, one of the board members who fired him, recently sat for an interview. Despite public speculation otherwise, honesty and transparency were the reason for his firing. Among other things, Helen recounts the first board learning about Chat-GPT from Twitter. (Fortune)

Bottom Line: AI investments by BigTech may just be a way to control the technology without the regulatory scrutiny of buying all the companies. The successor to GPT-4 is in the works while more details emerge about Sam Altman’s firing last year. BigTech is still interested in augmented reality. Silicon Valley startups are breaking into the military and defense space. The failure of “banking as a service” startup Synapse has crippled dozens of FinTech startups and hurt millions of people.

🎵 Music Royalties

• The CEO of Sony Music Group suggests they want more out of free music streaming services. He suggested ad-supported tiers also charge a small fee. Or they should have more limitations and restrictions. Changes to increase revenue from free listeners would increase payments for rights holders. (Billboard)

• Sony, among other companies, are looking to buy Queen’s music assets. Reports suggest the band is looking for a sum north of $1B in a potential deal. (Billboard)

Bottom Line: The music industry wants more revenue out of free streaming. There are far more free listeners than paid ones. But subscriptions make up a much larger part of earnings. Whether this materializes into any changes remains to be seen. With paid, ad-supported tiers coming to video streaming, music may follow.

🎓 Learning

What is a SAFE agreement?

• A financial instrument for simple fundraising

• Provides flexible conversion term that can be beneficial to early investors

• Has no debt-like obligations

  • Especially helpful for early-stage companies that might not have much revenue yet

• Helps increase the amount of investment opportunities

• A very high-risk investment

  • Investors could lose their entire principal

Take a look at our latest article to learn even more!

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