🎙️ So Long, Negative Rates

“We need bigger GPUs.”

That’s what Nvidia CEO Jensen Huang said Monday at the company’s developer conference. Nvidia shares are up fivefold, and sales have more than tripled since OpenAI’s ChatGPT kicked off the AI boom in late 2022.

But obviously, Nvidia isn’t resting on its laurels. The way Huang talks, you might think they’re just scratching the surface amid the AI revolution. He announced a new generation of AI chips and software for AI models.

After all, Nvidia is basically the modern-day version of John D. Rockefeller’s Standard Oil Company: Nvidia’s high-end GPUs are critical for training and deploying AI models, and companies like Microsoft and Meta have spent billions buying the “chips.”

🤔 Could this still be the start?

— Matthew & Shawn

Here’s today’s rundown:

Today, we'll discuss the biggest stories in markets:

• Japan raises rates for the first time in 17 years

• The great realtors’ reckoning

This, and more, in just 5 minutes to read.

Chart of the Day

In The News

✌️ The World Says Goodbye to Negative Interest Rates

It’s over, it’s finally over. Nearly 150,000 hours (17 years) have passed since the Bank of Japan last hiked interest rates, enough time to watch Game of Thrones from start to finish more than 2,127 times.

On Tuesday, Japan’s central bank voted 7-2 to raise short-term rates from -0.1% to between 0 and 0.1%. It’s not much, but it’s something.

• The last time the BOJ hiked rates in 2007, the Billboard 100’s top songs included Beyonce’s Irreplaceable, Nelly’s Say It Right, and I Wanna Love You by Akon featuring Snoop Dogg — times have changed.

What it means: With this week’s hike, the world bids goodbye to the unintuitive phenomenon of negative interest rates, where saving cash actually generates a negative return.

Despite Japan's big policy shift, though, markets were expecting more, specifically plans for more rate hikes going forward. But BOJ officials stopped short of giving that guidance, which spurred a selloff in the yen versus the U.S. dollar.

• Only almost two decades later, the BOJ is claiming victory, saying that artificially low interest rates and quantitative easing programs—where the central bank supported asset prices by directly buying stocks and bonds—succeeded in reliably bringing inflation up to 2% (the conventional target for economically healthy inflation).
  

• Said one BOJ official more technically, “The large-scale monetary easing policy served its purpose.”

Why it matters:

Japan finds itself in a brave new world, one where market forces and uninhibited laws of supply and demand will increasingly impact its currency, financial markets, and economy. But it’s just dipping its toe in.

The Bank of Japan has accrued a massive amount of financial assets from years of economic stimulation through monetary policy.

• Its balance sheet is now 127% the size of Japan’s entire economy, 4x the Federal Reserve’s assets-to-economy ratio.

What else is changing: In addition to rate hikes, the BOJ will abandon another esoteric financial buzzword: “yield curve control.”

That is, an eight-year-long policy to restrict the prices that Japanese government bonds across the board are allowed to trade at.

• Instead of just focusing on short-term bonds, the BOJ set price/yield targets for bonds maturing in several years and decades — a step further than most other central banks.

The takeaway? Japan is an extreme case of monetary policy; innovation born out of desperation for a country much further down the demographic and debt spiral rabbit hole. But the BOJ’s moves, such as paving the way for other central banks to implement quantitative easing in crises, often foreshadow things to come for the rest of the world.

• If Japan is truly re-emerging from its long economic freeze, allowing it to once again safely raise interest rates, its experience is a valuable, ongoing case study for others to reference should they face a similar “deflation slump,” as Bloomberg puts it.

Read more

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🏠 Realtors Reckon With a Seismic Shift

As artificial intelligence revolutionizes industries, the future of real estate transactions is unclear. But already, the profession is facing rapid change. 

According to The Wall Street Journal, over a million people who broker home buying and selling in America are re-examining their careers. 

Last week, the National Association of Realtors (NAR) settled legal claims that the industry conspired to keep commissions artificially inflated. Realtors across the country said they’re trying to judge how disruptive the ruling will be since commissions are expected to fall 25% to 50%. 

• Many realtors told The Wall Street Journal one of three things: the business won’t change; new payment models will work; or they’ll try a new career, such as renovations or flipping houses “rather than running around like a chicken with my head cut off looking for a place for a buyer and getting pushback for wanting to get paid for it,” as one realtor put it. 

The NAR deal, effective this summer, may impact agents representing home buyers by reducing commissions and lowering demand for buyers’ agents.

• The deal could lead to new payment models, like flat-fee structures or hourly rates for buyers’ agents. Another possibility: a fee-for-service model, charging for specific services like writing offers or home inspections. (Some believe this is also where the wealth management/advisory business is headed, away from the typical 1% annual fee.)
  

• The National Association of Realtors (NAR) has grown to nearly 1.5 million members, up from fewer than one million in 2012.

Many agents entered the market during the pandemic, exacerbating the challenge of a competitive market with more agents than homes for sale by early 2021.

Why it matters:

The impending changes in the NAR deal are significant, particularly for agents representing home buyers, as it could reduce their commissions. This adjustment might also reshape the demand for buyers’ agents, potentially impacting their livelihoods.

Traditionally, buyers didn’t pay agents; the seller covered the buyer’s agent commission, which was factored into the house price. But now, if buyers have to pay commissions, it could limit market access, especially for those unable to pay cash.

• This news could mitigate the challenges of housing affordability for individuals or families already struggling with it. It could also increase homeownership for lower-income individuals or first-time buyers, demographics that have struggled in the past four years.
  

• It's uncertain if home sale prices will decrease if sellers refuse to pay commissions to buyers’ agents, but many analysts believe they will gradually fall due to fewer realtor commissions.  

Read more

More Headlines

🎬 George Lucas backs Bog Iger in Disney proxy fight

👀 The world’s biggest pension fund is considering an investment in bitcoin

💰 YouTube sensation “Mr. Beast” inks deal with Amazon MGM Studios for exclusive series 

🤔 CNN analysis: Wait, is TikTok really Chinese?

🏗️ New home construction in the U.S. surged last month

☕️ Starbucks is ending its experiment with the Metaverse

Quick Poll

Yesterday, we asked: Will higher cocoa prices affect your chocolate consumption?

— Someone scaling back said, “Yes, I will spend smartly.” Another noted, “It’s a luxury and not so good for me, so I’ll use the price increases to try to convince myself to scale back.”

— As for the chocoholics (like us), “I’ll keep making regular purchases of the dark chocolate that I can find.” Another: “There is no upper limit. Give me chocolate, or give me death!”

Recommended Reading: Carbon Finance

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