Alternative Investing Report - December 19, 2024

*as of 12/18; Sources: S&P, BTC, FTSE, DJRE, CL50

In line with expectations, the Federal Reserve elected to cut the overnight borrowing rate by another quarter-point, the third straight cut that in total caused the rate to fall by a full percentage point. However, it now looks as if the Fed only intends to cut rates twice in 2025, as opposed to the four times it previously indicated. The Fed now expects two further cuts in 2026 and one in 2027 to bring the rate down to 3%.

➨ TAKEAWAY: The quarter-point cut had already been priced into the markets, but the prospect of fewer future cuts led to a fall in the equities market, with the S&P 500 down almost 3% and the Dow down 2.6%. Crypto markets reacted negatively as well, with Bitcoin falling 5.5% and Ethereum 6%. Mortgage rates are unlikely to fall, and now look to remain above 6% through at least the end of 2025. With the general economy performing well and inflation remaining above the 2% target, there isn’t as much urgency to cut interest rates, so investors in asset classes which perform better in lower interest rate environments will have to wait a bit longer.

In the newest episode of Smart Humans, Slava Rubin talks with Nectar co-founder and CEO Derrick Barker about investing into real estate debt, how to underwrite multifamily buildings and picking the next hot real estate market.

Databricks, the AI software startup, set a new record for the biggest VC funding round ever, raising $10 billion at a $62 billion valuation, both numbers higher than what they had been targeting. Their last valuation was $43 billion, only months ago in September. The company has hit over $3 billion in annualized revenue, and their sales increased by 60% in the last quarter.

➨ TAKEAWAY: The previous record was set by OpenAI’s October $6.6 billion funding round, and barely lasted two months. Databricks CEO Ali Ghodsi still says the company might IPO in 2025 or 2026 but doesn’t see the urgency, given that this funding round was initially supposed to be $3 billion to $4 billion. This fundraise will both let early employees cash out and let Databricks expand rapidly. Ultimately, if big, late-stage companies can raise rounds like this, the pressure to go public lessens.

📜 Ten Commandments tablet: Dated to 300-800 CE, the oldest known complete inscribed tablet of the Ten Commandments sold for $5.04 million, well above the $1 million - $2 million pre-auction estimate.

💵 2025 private equity outlook: Pitchbook predicts that private equity will see a decline in fundraising in the coming year and that PE-backed companies will make up a greater share of the IPO market as they look to return capital to LPs.

🪙 Luxury brands accepting crypto: As Bitcoin grows in value and notoriety, luxury brands such as Gucci, LVMH and Balenciaga are beginning to accept crypto payments as they try to appeal to younger and newly wealthy crypto investors.

🏡 Homeowners’ equity: The total value of equity in U.S. homes is now $35 trillion, up $2.6 trillion in the last year, while the ratio of equity to home value is at 72.5%, the second highest level since 1960.

🚀 Perplexity funding round: The AI startup closed their latest funding round, raising $500 million at a post-money valuation of $9 billion, triple the $3 billion valuation it had in June.

🏢 CRE Fear and Greed index: The Burns + CRE Daily index rose three points to 56, putting it firmly into expansion territory, as 50% of investors are planning to expand their CRE holdings in the next six months, with multifamily and industrial leading the way.

Nvidia launched its newest product, the Jetson Orin Nano Super Developer Kit, a handheld AI supercomputer, which can perform 70 trillion operations per second. At a price point of $249, half the price of its predecessor, the company is targeting a larger market of AI hobbyists and enthusiasts. It allows anyone to create their own large language models (LLMs), build AI agents, or deploy AI-based robots, making the technology much more accessible to the general public.