📰 This Week…

• The Federal Reserve finally cuts interest rates

• More houses are taking 60+ days to sell

• AI startups with lots of tech, but little revenue are facing more challenges raising new funds

• Roblox and Distrokid have a new partnership

And so much more!

I’m finally back to the weekly newsletter after a mix of travel and illness disrupted the regular content schedule. This edition has news from this week, as well as a few stories we missed earlier this month.

📊 Markets

• Interest Rates, Federal Funds: 4.83%

  • Next FOMC meeting starts November 6

• 30 Year Mortgage Rates: 6.08%

  • (-0.16% WoW, -4.3% MoM, -16.8% 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

Bottom Line: The Fed cut interest rates to 4.75-5%. The 50 point cut was on the larger side. Markets are already expecting them to do it again in the next meeting. That would be a fairly aggressive rate cut path. It’s also far more aggressive than what was expected even a few months ago. Markets have been too optimistic on interest rate decisions before, so I am somewhat skeptical on this one. Though it’s possible The Fed sees more urgent concerns around the economy.

Inflation continues to trend towards target. That’s what is giving The Fed the opportunity to start cutting rates. Another prominent member of the financial community has abandoned their call for a recession this year and is now closer to being in the “soft landing” camp.

• The Federal Reserve cut interest rates by 50 basis points. The Federal Funds rate now sits at 4.75-5%. This is the first time The Fed has cut rates since spring of 2020. (CNBC)

• The September interest rate cut was expected, though the 50 point “jumbo” cut was a surprise to some. Now, markets are increasingly expecting further interest rate cuts of the same size in the November meeting. (Forbes)

• Evercore ISI’s well-respected chairman no longer expects a recession this year. He now thinks a “soft landing” scenario for the economy is more likely. (Barron’s)

• The Person Consumption Expenditures (PCE) Index is a different measure of inflation. PCI is the measure most commonly reported. In August, PCE increased 2.2% yearly, while “Core” PCE increased 2.7% yearly. Both numbers continue to trend closer to The Federal Reserve’s 2% target. (Axios)

🏠 Real Estate

Bottom Line: Reduced mortgage rates have increased refinancing activity. However, most homeowners have mortgages under 6%. So, rates will need to fall further before more sellers are drawn into the market. The homes that are on the market are increasingly taking longer to sell. Now almost half of home sales take at least 60 days.

Austin’s population and real estate prices boomed after the pandemic. They also crashed more sharply when interest rates started rising. Unlike other metros, they haven’t really bounced back either. For the most part, this seems related to an increase in new construction. That aligns with one of our earlier articles where we found that real estate appreciation wasn’t as closely related to population growth as you might expect.

• August saw 48% of homes take 60 or more days to sell. That’s the slowest the housing market has moved since the pandemic. The portion of houses taking this long to sell has also increased for 5 months in a row. Existing home sales also declined to the lowest levels since May of 2020. (Business Insider)

• According to a Redfin survey 89% of homeowners have a mortgage rate below 6%. Mortgage rates will likely have to fall further before home inventory levels increase. (Business Insider)

• From a pricing perspective, Austin has been one of the worst-performing major housing markets of the past few years. This is despite strong population growth. One of the main causes seems to be how aggressively developers responded to the increase in demand. Builders increased housing supply by 76,000 units (over 8%) in just a few years. (Business Insider)

• As interest rates have declined in recent months, mortgage activity is picking up. Refinance applications were up 24% week-over-week and 127% yearly. (CNBC)

💡 Startups

Bottom Line: The AI industry continues to evolve. AI startups with technology, but without revenue are facing a tougher fundraising environment. Investors still seem excited about “AI agent” companies that produce software capable of greater autonomy than chatbots. OpenAI is switching to a for-profit company, while losing senior talent in the process. OpenAI is also looking to raise billions again, highlighting concerns about how expensive it is to support and develop AI products. Google may have spent $2.7B basically to re-hire one key AI researcher.

Meta showed off a new set of augmented reality glasses that could be their attempt to replace smartphones. The amount of startups shutting down continues its multi-year increase, up 58% yearly in 2024. Some are concerned about defense technology’s exit opportunities and governments’ slow uptake of new technology.

• We may have reached the peak of AI hype. VCs are starting to show some restraint in their AI investments. Companies without much revenue or few paying customers increasingly have to raise flat or down rounds. In 2024, down rounds accounted for about 11.4% of fundraises. (Business Insider)

• The number of startups that have shutdown is up 58% year-over-year. (Axios)

• Meta recently showed off project Orion - a pair of smart glasses that still seem a long way from being a viable commercial product. However, it does show the company’s commitment to augmented reality. It also, potentially, shows their ambition to replace smartphones. (TechCrunch)

• OpenAI is undergoing a big shake-up. The company is formally moving to become a for-profit company. At the same time, they’ve seen a string of high-profile departures. They’ve lost their CTO, a Chief Research Officer, and a Vice President of Research. (The Wall Street Journal)

• News that OpenAI is once again looking to raise billions of dollars highlights the cost of developing and competing in AI technologies. If the largest and most successful startups need constant cash infusions to keep going, will smaller companies be able to survive? (Business Insider)

• Was Google’s $2.7B pseudo-acquisition of Character.AI really just to rehire one person? In that deal one of the authors of a foundational research paper for the current AI technology agreed to rejoin the company. If true, that speaks to the insane value being given to the best minds in AI. (The Wall Street Journal)

• While defense technology companies have received a lot of recent funding, there are concerns about the future of the industry. Governments are notoriously slow to try, buy, and deploy new things. Beyond that, some are worried that the exit opportunities are too limited. (Sifted)

• “AI agents” is one of the hot spots of AI investment currently. As opposed to chatbots that simply respond to requests, agents take more actions on their own with less supervision. Deal volume is reportedly up over 80% yearly in this sub-sector of the AI industry. (Fortune)

• Jony Ive is a very well-respected product designer from his time at Apple. He’s now working on a new startup alongside OpenAI. Their goal is to make an AI device that sounds like it may be targeted as an alternative to the iPhone. (TechCrunch)

• Fundraise news:

  •  Glean - AI search for corporate documents and communication. Raised $260M at a $4.6B valuation. (CNBC)

  • OpenAI - Generative AI leader, creator of ChatGPT. Reportedly working to raise over $1B at a $150B+ valuation. (CNBC)

  • Wiz - Cybersecurity company that reportedly rejected attempts from Google to acquire the company for $23B. Considering allowing share sales of $500M-$700M at a $20B valuation. (Inc.)

  • EGYM - A deeply integrated, connected gym and fitness company. Raised $200M at a $1.2B valuation. (TechCrunch)

  • Ujet - An AI customer service platform. Raised $76M at a $500M valuation. (Crunchbase News)

  • Black Forest Labs - An AI image generator. Reportedly raising $100M at a $1B valuation. (TechCrunch)

  • Second Front - A platform that makes it easier for companies to launch software in sensitive government networks. Raised $70M at a $750M valuation. (Forbes)

  • Hinge Health - Virtual physical therapy for some types of pain. Preparing for a 2025 IPO. Last valued at $6.2B in 2021. (Business Insider)

🎵 Music Royalties

Bottom Line: In a legal first, someone has been indicted for streaming fraud. The alleged scheme involved thousands of AI-generated songs and bots to generate streams. The CEO of the AI music company and the founder of Indiehitmaker are also credited in some of the songs in the indictment. BMI is also suing SiriusXM over royalty payment rates.

Music grew about 4% in the first half of 2024. Roblox has its first partnership with a music distribution company. That potentially marks progress for music companies trying to monetize video game audiences. Congress is evaluating PROs over concerns about their transparency and accuracy in distributing royalties.

• A musician has been indicted for streaming fraud. This is the first criminal case of its kind. Federal investigators allege that musician Michael Smith used a complex setup of bots and AI music to steal millions. (RollingStone)

• But wait, there’s more. The CEO of the AI-music company Smith used (Boomy) is credited as a co-writer on hundreds of his songs. Warner Music Group is also one of Boomy’s largest investors. The founder of Indiehitmaker is apparently also credited on some of the same songs. In short, this is a total mess. The legal proceedings could be quite interesting. (Billboard)

• BMI is suing SiriusXM. Since Sirius’ business has grown and evolved to include more digital streaming, BMI is expecting higher royalty rates. The companies failed to reach a new agreement after two years of negotiation. (Billboard)

• Video game Roblox and Distrokid have a new partnership. Artists that use Distrokid can make their music officially available in the game. Roblox will also develop a music chart, display information about the song, and allow users to save songs. However, they won’t pay any royalties. Music companies want to reach video game audiences, but video game companies mostly don’t want to deal with complex licensing deals. (Billboard)

• Congress is looking into Performance Rights Organizations (PROs). Their concerns are around the transparency of their music royalty distribution operations. They’re also worried about how effectively the organizations get royalties to the right people, especially for small and independent artists. (Billboard)

• The first half of 2024 saw music revenue increase 3.9% year-over-year. This growth was mostly from streaming and vinyl sales. (Billboard)

• TikTok announced they will be shutting down their music streaming service TikTok Music in November. (Billboard)

• Johnson & Johnson is the latest company to get sued over using unlicensed music in promotional videos. (Billboard)

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