WE - Wall Street Lunch: Deepfake Music Dilemma

2023-08-09 12:07:00 ET

Summary

• Universal Music, Google strike deal for AI deepfake songs.
• Traders await 10-year treasury notes auction; Chinese ETFs in spotlight after deflation, possible U.S restrictions.
• Current strong market conditions are only pushing out a downturn -.Canaccord Genuity.

Listen below or on the go on Apple Podcasts and Spotify

Universal Music and Google in talks for artists to get paid for AI deepfakes . (0:15) WeWork could run out of cash by early 2024. (3:16) Is the stock market just delaying a recession ? (4:21)

This is an abridged transcript of the podcast.

Our top story in today’s session –

Universal Music (UMGNF) is looking to protect its musicians from the threat of deepfakes by striking a deal with Google (GOOG) (GOOGL) to license voices and tunes for AI-generated songs.

Both companies are in talks about a deal, the FT reports.

Deepfakes mimic voices, lyrics, or sounds, usually without consent. Talks are at an early stage, and no product launch is expected soon, the FT says, citing sources.

The negotiations are aimed at making a tool for users to create deepfake tracks legitimately and paying the copyright owners. Artists would be given a choice to opt in.

Deutsche Bank says it looks like "UMG is acting to turn AI into an opportunity and increase potential areas of monetization for its catalog."

Warner Music (WMG) is also said to be in talks with Google.

Universal has been at the forefront of demanding copyright protection amid the AI wave. General counsel Jeffrey Harleston told lawmakers: "An artist's voice is the most valuable part of their livelihood, and to steal it - no matter the means - is wrong."

Now a look at today’s trading –

Stocks are mixed, and investors may be keeping some powder dry ahead of the CPI numbers on Thursday.

The Dow (DJI) is slightly higher, with the S&P (SP500) flat and the Nasdaq (COMP.IND) lower.

Rates are little changed as traders wait for the afternoon auction of $38 billion in 10-year Treasury Notes. The 10-year yield (US10Y) is off slightly around 4%.

This week’s auctions are in the spotlight after the government announced a boost in funding requirements, with concerns on how the market would receive higher supply. Solid demand in Tuesday’s 3-year (US3Y) auction kept yields down and helped stocks recoup some losses.

ING says it remains "of the opinion that the 10-yr sits more naturally at above 4%, at least for now. The 10-yr should trade at a 20–30 bp premium to the forward discount for the funds rate low, and that's only just below 4%."

Among active stocks –

China ETFs (FXI), (KWEB), and (CQQQ) are in the spotlight , not only because China slipped into deflation territory according to its most recent CPI. The Biden administration is expected to issue new restrictions on American investments in certain advanced industries in China.

The measures would bar private equity and venture capital firms from making investments in sectors like advanced semiconductors, AI, and quantum computing.

Roblox (RBLX) tumbled after missing profit expectations. A Q2 loss of $0.46 missed expectations by 2 cents. Bookings, the measurement for the company’s top line, came in at $780.69 million. That was ahead of some consensus figures but shy of others.

Wendy’s (WEN) fell short on U.S. comps as it released results . Same-restaurant sales were up 5.1% for the quarter overall, with U.S. same-restaurant sales up 4.9% vs. a +5.8% consensus. International comparable sales were up 7.2%. Systemwide sales rose 6.9% in Q2.

In other news of note –

WeWork (WE) shares fell below 20 cents after the company raised doubts about its future when it reported earnings last night.

The company said that as a result of its "losses and projected cash needs, combined with increased member churn and current liquidity levels, substantial doubt exists about the company’s ability to continue as a going concern."

Q2 results showed shrinking cash and cash equivalents and declining memberships. The company also announced several changes to the board.

SA analyst WYCO Researcher, who writes about distressed companies, points out that warning is not the same type of statement made in annual reports by auditors, with the latter being "much more serious." But they note that WeWork’s plan to remedy the situation by negotiating more favorable lease terms, reducing churn, controlling expenses, and looking for more capital is just the "same old, same old that got them into this serious problem."

WYCO says if the company continues the same burn rate, WeWork will run out of cash early next year.

In the Wall Street Research Corner –

Canaccord Genuity says current strong market conditions are only pushing out a downturn .

Tony Dwyer says that while investors now expect a soft landing, the "better economic performance now reinforces a recession over the coming quarters rather than canceling it because it keeps the Fed’s rates higher for longer."

He adds that core inflation has dropped from its peak but still remains above the Fed target of 2%.

J.P. Morgan global strategist Marko Kolanovic is also skeptical of the soft landing.

His objections include developed market central banks unlikely to ease in the near term, ongoing QT, high multiples, and rising defaults with credit conditions tightening, "suggesting that a credit cycle has already emerged."

He remains underweight in equities and credit with an overweight in commodities as risk exposure. But he noted that his defensive stance this year has led to significant losses in the model portfolio.

Kolanovic says he remains positive on Growth (IWF) vs. Value (IWD), but given that "Tech (QQQ) (XLK) (XLC) (XLY) is now trading stretched, unless there is a continued broadening in leadership, the overall index could struggle to advance further in 2H."

Pure "Defensives (XLV) (XLU) (XLP) might look the best for 2H as Cyclicals (XLF) (XLI) (XLB) (XLE) (XLY) look too far ahead."

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