📰 In This Edition…

• We could be entering into the “Roaring ‘20s” according to UBS

• 20% of homebuyers are now considering this in their purchase decisions

• OpenAI closes the largest private fundraise ever

• TikTok picks a licensing contract fight with another part of the music industry

And so much more!

🗞️ Last Week In Alternatives (Summary)

💸 Economy

Jerome Powell anticipates The Fed will cut interest rates twice before the end of the year. These anticipated cuts would lower the Federal Funds rate to 4-4.5% from 4.5-5%. He also still believes we are on track for a “soft landing” for the US economy.

While rates continue to decline, there may be too many sources of inflation for them to return down to 2019 levels. Powell isn’t the only one excited about the prospects for the US economy. UBS thinks there’s a 50% chance we have another coming of the “Roaring ‘20s” with a mix of strong, consistent economic growth and 2-3% annual inflation.

🏠 Real Estate

Insurance companies lost money in 18 states in 2023 (up from 8 in 2013) and natural disasters are getting more expensive. In response, insurers have raised premiums, raised deductibles, reduced coverage, and dropped customers. This, as well as policies not covering mud slides, and few people having flood insurance will greatly limit insurance payouts for Hurricane Helene’s damages.

Florida’s insurer of last resort is trying to offload 600 thousand policies to private companies. Insurance premiums went up 21% in Texas in 2023. That increase has lawmakers considering more restrictions on price increases. California home sellers are now having to let buyers walk away from purchases if they can’t find insurance.

Texas may start seeing a reversal of its recent population growth. Cost of living is a key reason. Average home insurance premiums are now $4,647 a year, in addition to high property taxes, and other rising costs. Miami is the most “at risk” city for a housing bubble.

A full 20% of homebuyers now consider how the home and neighborhood would be for their pet in their purchasing decisions. Existing home sales are at the lowest levels in 30 years.

💡 Startups

Gavin Newsom killed California’s AI safety bill. As more small startups throw in the towel, there’s now less competition for building new models that power AI tools. That benefits the large and established players. Speaking of which, OpenAI just had the largest private funding round ever, pulling in $6.6 billion at a $157 billion valuation. AI chip startup Cerebras filed for IPO as they try to take on Nvidia’s GPU as the hardware of choice for the industry.

🎵 Music Royalties

Pink Floyd got $400 million from Sony. WMG and Meta have a new licensing agreement. It brings WhatsApp into the fold for the first time, makes some strides on unauthorized AI content, and contains some promotion for their artist and songwriters. Though I do wonder if that extra promotion will come at the expense of independent artists.

Speaking of independent artists, TikTok is being very aggressive with them in licensing renewal discussions. Merlin is basically a way for 30,000 independent labels to bargain together for better terms. And to make it easier to license independent music (30 thousand legal agreements is a lot). TikTok is refusing to negotiate with Merlin, insisting instead they want to work with all 30,000 individually. There’s concern that some labels will peel off and negotiate individually. That could start a process that lowers the bargaining power of Merlin across the music industry. That would cause even more labels to peel off in a cycle that could jeopardize the future earning capabilities of smaller artists.

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📊 Markets

• Interest Rates, Federal Funds: 4.83%

  • Next FOMC meeting starts November 6

• 30 Year Mortgage Rates: 6.12%

  • (+0.7% WoW, -3.6% MoM, -18.2% YoY)

• Single Family Home Price Index: 424.6

  • (+0.1% MoM, +4.5% YoY)

  • September report, data is through July

• Commercial Real Estate Index: 125.5

  • (+1.54% MoM, -3.1% YoY)

💸 Economy

• Jerome Powell (Fed Chairman) spoke last Monday. He currently expects to perform two quarter point interest rate reductions this year. That is less than markets had been pricing in after the larger reduction in September. (Barron’s)

• A Bank of America executive thinks we won’t see interest rates return to 2019 levels. There is more inflationary pressure in the global economy, so rates will have to remain higher. (Business Insider)

• UBS is extremely optimistic about the future of the US economy. They see a 50% chance that GDP surges during the rest of the decade giving us another “Roaring ‘20s.” In this scenario, GDP consistently grows 2.5% or more with inflation holding in the range of 2-3%. (Business Insider)

• America is underprepared for the rising frequency and cost of natural disasters. Major hurricanes like Helene will stretch the budgets of FEMA. Billion dollar disasters are becoming more common and weather less predictable. Beyond that, there are still significant gaps in insurance coverage. Only 5% of flood insurance policies are outside of coastal areas. (The Atlantic)

🏠 Real Estate

• Those affected by Hurricane Helene may be in for a nasty insurance surprise. In response to increasing losses from storms and natural disasters, insurance carriers have made policies much stricter. The policies are likely to have high deductibles and coverage limits for exactly the types of damage a hurricane will cause. Some may see reduced payouts based on the age of their roof. Deductibles for wind damage can be as high as 5% of the home’s value. Insurance is still projected to cover $5-$15 billion in damages. (The Wall Street Journal)

• Analysis performed by the New York Times suggest that insurers are losing money in more states. Their estimate was 18 states in 2023, which is more than double the 8 from 2013. That’s a big part of why average premiums have climbed 20% from 2021 to 2023. (Wired)

• Florida’s “insurer of last resort” is offloading 600 thousand policies to the private market. Since most people end up at the last resort… as a last resort, I have to imagine that these customers are about to see prices that would not have been allowed otherwise. (Newsweek)

• After the drop in mortgage rates, an estimated 4.2 million mortgages could benefit from a refinance. With rates projected to continue falling through 2025, this could help the finances of many households. (Fast Company)

• UBS believes that the risk of a housing bubble has decreased again this year, but not everywhere. Miami now ranks at the top of their “bubble risk” list. According to the firm, the average house price was $346,000 in 2019 and sits at $580,000 today. Prices have continued rising in recent quarters as well. (Fortune)

• Younger generations are increasingly adopting pets. They also increasingly see their pets as a part of their family. That is slowly having an effect on urban environments and real estate. The National Association of Realtors estimates that 20% of homebuyers now consider how well-suited a potential home and neighborhood are to their pets in their purchasing decision. Safe neighborhood with great schools, but no parks nearby? Maybe not as appealing anymore. (Business Insider)

• Texas is becoming a less-appealing destination. Fewer people are considering moving to Texas and more people are considering moving away. Weather, politics, and an increased cost of living are weighing down on the Lone Star State’s appeal. Natural disasters have helped push the average home insurance premium to an estimated $4,647 a year. That’s a full 1.33% of a median priced home per year. (Business Insider)

• It’s been a bad year for existing home sales. Redfin estimates that only 2.5% of homes have a new owner. That’s the lowest number the company found - going all the way back to the early 1990s. (Redfin)

• Last year, Texas insurance premiums went up 21%. Now lawmakers are considering making changes to how companies adjust insurance prices. Measures being discussed aim to add more oversight and, potentially, restriction on large premium increases. This would be a move closer to what’s in place in California. (Houston Chronicle)

• In California, sellers are increasingly allowing buyers to walk away from or renegotiate accepted offers if they aren’t able to find suitable insurance options. (San Francisco Chronicle)

💡 Startups

• Cerebras is one of several startups working to build super-fast AI chips. These special purpose computer chips are designed specifically for LLMs and AI. They’re generally faster at these tasks than Nvidia’s GPUs. Cerebras announced last week that they had filed for an IPO. (Fortune)

• Developing new large language models (LLMs) that power AI applications like ChatGPT has gotten too expensive. Startups that had been working on developing new models continue to give up. Even large companies aren’t working to develop them. This reduced competition is a benefit for the larger, more-established companies like OpenAI. (Fortune)

• Are you worried that legislators will reign in AI development before it reaches its full potential? So is Gavin Newsom. The governor of California vetoed what could have been the nation’s first AI safety bill. (Billboard)

• Defense technology companies have a difficult supply chain challenge. They can’t use parts, materials, and components from China. That’s especially tough since most electronics rely on exports from the country. Even when they succeed in finding alternative suppliers, the weaker supply chain could always be a threat to business. (The Wall Street Journal)

• Fundraise news:

  • Poolside - AI coding platform. $500 million at a $3 billion valuation. (TechCrunch)

  • OpenAI - AI tools, creator of ChatGPT. Raised $6.6 billion at a $157 billion valuation. (Fortune)

  • 11x.ai - AI agents working as Sales Development Representatives. Raised $50 million at a $350 million valuation. (TechCrunch)

  • Joby Aviation - Electric, flying taxis. $500 million raised from Toyota. (TechCrunch)

  • Impulse - Spacecrafts for last mile delivery/placement of in-orbit objects. Raised $150 million. (CNBC)

🎵 Music Royalties

• TikTok continues to fight with the music industry. Merlin is an industry group that represents thousands of smaller labels. The idea behind it is that by banding together, they can collectively bargain for better deals than if they negotiated individually. It’s a big collective too, with over 30,000 labels. TikTok is not negotiating with them for a licensing renewal. Instead, TikTok insists that it wants to negotiate with each member label individually. Without the power and resources of a 30,000-strong collective of labels, individual indie labels would almost assuredly come away with worse terms. (Billboard)

• Pink Floyd sold their recorded music to Sony for $400 million. Their publishing catalog was not included in the deal. (Billboard)

• Warner Music Group and Meta have reached a new licensing agreement. The new deal now includes WhatsApp, promises of collaboration around AI-generated music content on Meta platforms, and increased promotion of WMG artists. (Billboard)