📰 This Week…

• The Federal Reserve leaves interest rates unchanged

• South Florida real estate may be very overvalued

• Lawmakers are evaluating restrictions on real estate investments

• UMG and TikTok reach a new agreement

• An AI company you’ve likely never heard of is now worth $19B

• Sam Altman’s latest investment

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: 7.22%

  • (+0.7% WoW, +6% MoM, +13% YoY)

• Single Family Home Price Index: 423 

  • (+1.2% MoM, +7% YoY)

  • April report, data is through February

• Commercial Real Estate Index: 121.8 

  • (+0% MoM, -17% YoY)

💸 Economy

• The federal reserve held interest rates steady. Powell said they need to see more evidence inflation is cooling before cutting rates. He also indicated that a rate hike was unlikely. They will be slowing down on how quickly they reduce their balance sheet.

• It’s a tough job market right now. If you’re a high earner. Based on analysis from Vanguard. For earners making above $96K, the hiring rate has reached the lowest level in 10 years.

• The number of job openings declined in March. At 8.5 million openings, that’s the lowest reading in about 3 years.

• Wells Fargo argues the US economy is stronger than it looks. The quarterly GDP number is masking strong growth in consumer spending on services. A strong, spending consumer can continue to drive economic growth.

• QI Research disagrees. They are concerned about rising layoffs. There have also been many negative revisions to previous jobs reports. So, things may not have been as strong as it seemed.

Bottom Line: The economy is a mixed picture. There are some warning signs of future challenges. The Federal Reserve is moving cautiously and slowly.

🏠 Real Estate

• New data is in from Redfin. House prices aren’t falling in any major US metro area. The last time that happened was July of 2022. Price increases are driven by the low number of homes for sale.

• South Florida’s real estate may be overvalued by 35%. That’s according to a new study from a pair of universities. Low inventory and high demand have driven up prices in recent years. Other pandemic boom towns have also seen price corrections.

• Rising insurance prices may put a damper on further home price gains. Based on a report from Insurify, premiums increased ~20% between 2021 and 2023. They expect another 6% increase this year.

• Adjustable-Rate Mortgage loans (ARM) are on the rise. Buyers are turning to ARM loans to help improve affordability. These loans are now about 8% of total mortgage volume this year.

• Lawmakers across the country are exploring ways to make it more affordable to buy a home. A number are looking to place purchasing limitations on investment groups. One proposal limits a single company to 50 homes at most. Companies holding more would be forced to sell under the bill.

• How do you get the best mortgage rate? A credit score above 800 could lower rates by 20 basis points. That’s the difference between a 7.5% loan and a 7.3% loan. Based on data from Optimal Blue, banks or mortgage companies are not the best places for loans. A not-for-profit Credit Union will likely offer the lowest rates.

• Will the push to return to the office fizzle out? One argument suggests it might - right after companies’ expensive leases expire. There may be billions of square footage worth of office space leases that will expire by 2028.

Bottom Line: The housing market is still working through the changes brought about by the pandemic. Low inventory has kept prices high.

🎵 Music Royalties

• TikTok and UMG have reached an agreement to end their dispute. There’s not a lot of specifics available. Artists should see more money. They should also have better data and monetization tools on TikTok. There will also be more steps taken to protect artists from AI and remove “deepfake” songs from TikTok.

• Blackstone has topped Concord’s offer to buy the Hipgnosis Songs Fund. The new offer is for ~$1.6B, or 5 cents per share more than Concord’s.

• Spotify’s new policies for what is eligible to earn music royalties went into effect last month. This month, artists and rights holders will start seeing the effect of this.

Bottom Line: UMG’s songs will be back on TikTok. The social media platform should be a bit more artist-friendly going forward.

💡 Startups

• Morgan Stanely thinks more technology IPOs are coming. They expect at least 10 more this year. They are also expecting an increase in IPO activity in 2025.

• Anthropic’s CEO thinks training future generations of AI could cost $10B. That would greatly limit the number of companies that could compete to develop AI models.

• AMD expects lower margins from its AI chips, due to continued investment costs. The company is also struggling to scale supply of the products to meet the current demand.

• AI’s growing need for computer processing power could slow down progress. There’s just not enough data centers built to keep up with the growing demand.

• CoreWeave is a cloud computing provider. They specialize in offering the type of computing needed for AI applications. Riding the AI wave has just netted them an additional $1.1B in funding. That’s on top of about $3B in debt and equity funding they already raised in the past year. The latest funding round nearly tripled the company’s valuation (now $19B)… in five months.

• OpenAI is the subject of a new privacy complaint in Europe. The core issue is ChatGPT providing inaccurate information about individuals. OpenAI also reportedly refused requests to change or remove the inaccurate information.

• Sam Altman (CEO of OpenAI) and other top venture capital firms invested $20M in Exowatt. The company is trying to develop a renewable energy source for AI’s power-hungry tasks. Their product stores the sun’s energy as heat. They then use that heat to power an engine to generate electricity.

Bottom Line: More technology IPOs in 2024 and 2025. AI dominates startup news. However, AI faces a lot of challenges. There's cost and supply concerns for research, development, data centers, specialized hardware, and energy. Plus, increasing legal and governmental challenges and sky-high expectations.

While money pours into AI companies, it’s important to remember these challenges. Most startups fail. AI has shown amazing potential as a product - but that doesn’t guarantee it will be a successful business. The operational cost and challenges of AI may simply be too much for many companies to bear.

📋 Help Us Improve

If you haven’t already completed our subscriber survey, please do so!

This will help us make the newsletter be a more helpful resource to all of you.