TheChek News Flow

Elon Musk’s xAI lands $6B in new cash to fuel AI ambitions

xAI, Elon Musk’s AI company, has raised $6 billion, according to a filing with the U.S. Securities and Exchange Commission on Thursday.

Investors gave a minimum of $77,593, per the filing (97 participated, but the document doesn’t reveal their identities). xAI later announced (confirming some earlier reporting) that Andreessen Horowitz , Blackrock, Fidelity, Kingdom Holdings, Lightspeed, MGX, Morgan Stanley, OIA, QIA, Sequoia Capital, Valor Equity Partners, Vy Capital, Nvidia, AMD, and others numbered among them.

The new cash brings xAI’s total raised to $12 billion, adding to the $6 billion tranche xAI raised this spring. CNBC reported in November that xAI was aiming for a $50 billion valuation — double its valuation of six months prior.

According to the Financial Times, only investors who’d backed xAI in its previous fundraising round were permitted to participate in this one. Reportedly, investors who helped finance Musk’s Twitter acquisition were given access to up to 25% of xAI’s shares.

Ramping up AI

Musk formed xAI last year. Soon after, the company released Grok, a flagship generative AI model that now powers a number of features on X, including a chatbot accessible to X Premium subscribers and free users in some regions.

Grok has what Musk has described as “a rebellious streak” — a willingness to answer “spicy questions that are rejected by most other AI systems.” Told to be vulgar, for example, Grok will happily oblige, spewing profanities and colorful language you won’t hear from ChatGPT.

Musk has derided ChatGPT and other AI systems for being too “woke” and “politically correct,” despite Grok’s own unwillingness to cross certain boundaries and hedge on political subjects. He’s also referred to Grok as “maximally truth-seeking” and less biased than competing models, although there’s evidence to suggest that Grok leans to the left.

Over the past year, Grok has become increasingly ingrained in X, the social network formerly known as Twitter. At launch, Grok was only available to X users — and developers skilled enough to get the “open source” edition up and running.

Thanks to an integration with the open image generator Flux, Grok can generate images on X (without guardrails, controversially). The model can analyze images as well, and summarize news and trending events (imperfectly, mind).

Reports indicate that Grok may handle even more X functions in the future, from enhancing X’s search capabilities and account bios to helping with post analytics and reply settings.

xAI is sprinting to catch up to formidable competitors like OpenAI and Anthropic in the generative AI race. The company launched an API in October, allowing customers to build Grok into third-party apps, platforms, and services. And it just launched a standalone Grok iOS app to a test audience.

Musk asserts that it hasn’t been a fair fight.

In a lawsuit filed against OpenAI and Microsoft, OpenAI’s close collaborator, attorneys for Musk accuse OpenAI of “actively trying to eliminate competitors” like xAI by “extracting promises from investors not to fund them.” OpenAI, Musk’s counsel says, also unfairly benefits from Microsoft’s infrastructure and expertise in what the attorneys describe as a “de facto merger.”

Yet Musk often says that X’s data gives xAI a leg up compared to rivals. Last month, X changed its privacy policy to allow third parties, including xAI, to train models on X posts.

Musk, it’s worth noting, was one of the original founders of OpenAI, and left the company in 2018 after disagreements over its direction. He’s argued in previous suits that OpenAI profited from his early involvement yet reneged on its nonprofit pledge to make the fruits of its AI research available to all.

An xAI ecosystem

xAI has outlined a vision according to which its models would be trained on data from Musk’s various companies, including Tesla and SpaceX, and its models could then improve technology across those companies. It is already powering customer support features for SpaceX’s Starlink internet service, according to The Wall Street Journal, and the startup is said to be in talks with Tesla to provide R&D in exchange for some of the carmaker’s revenue.

Tesla shareholders, for one, object to these plans. Several have sued Musk over his decision to start xAI, arguing that Musk has diverted both talent and resources from Tesla to what’s essentially a competing venture.

Nevertheless, the deals — and xAI’s developer and consumer-facing products — have driven xAI’s revenue to around $100 million a year. For comparison, Anthropic is reportedly on pace to generate $1 billion in revenue this year, and OpenAI is targeting $4 billion by the end of 2024.

Musk said this summer that xAI is training the next generation of Grok models at its Memphis data center, which was apparently built in just 122 days and is currently powered partly by portable diesel generators. The company hopes to upgrade the server farm, which contains 100,000 Nvidia GPUs, next year; in its press release, xAI said it plans to fully double that number. (Because of their ability to perform many calculations in parallel, GPUs are the favored chips for training and running models.)

In November, xAI won approval from the regional power authority in Memphis for 150MW of additional power — enough to power roughly 100,000 homes. To win the agency over, xAI pledged to improve the quality of the city’s drinking water and provide the Memphis grid with discounted Tesla-manufactured batteries. But some residents criticized the move, arguing it would strain the grid and worsen the area’s air quality.

Tesla is also expected to use the upgraded data center to improve its autonomous driving technologies.

xAI has expanded quite rapidly from an operations standpoint in the year since its founding, growing from just a dozen employees in March 2023 to over 100 today. In October, the startup moved into OpenAI’s old corporate offices in San Francisco’s Mission neighborhood.

xAI has reportedly told investors it plans to raise more money next year.

It won’t be the only AI lab raising immense cash. Anthropic recently secured $4 billion from Amazon, bringing its total raised to $13.7 billion, while OpenAI raised $6.6 billion in October to grow its war chest to $17.9 billion.

Megadeals like OpenAI’s and Anthropic’s drove AI venture capital activity to $31.1 billion across over 2,000 deals in Q3 2024, per PitchBook data.

Contraction poses challenge for Prime Minister Sir Keir Starmer’s Labour government

The UK’s listed housebuilders are on track to build the fewest new homes for sale in a decade, as planning rules and high mortgage rates hold the market back despite the new Labour government’s push to increase housing supply. 

The sector, excluding Vistry which focuses on affordable and rental housing, is forecast to complete just over 50,000 homes this year, the lowest level of output since 2013, according to Financial Times analysis of figures for seven companies compiled by Investec. 

“The listed players are broadly delivering their lowest completions for a decade,” said Aynsley Lammin, analyst at Investec. He said “both demand and supply factors” — including high mortgage rates making purchases harder for first-time buyers — were behind the slump. 

The housebuilding contraction poses a huge challenge for Prime Minister Sir Keir Starmer’s Labour government, which has launched sweeping planning reforms in an effort to boost the construction of new homes to the highest level in more than 50 years. 

The reforms have been welcomed by the construction sector but shares in UK housebuilders have fallen by about a fifth since the Labour government’s first Budget in October, which raised fears of resurgent inflation and borrowing costs staying higher for longer.

Big housebuilders such as Barratt, Persimmon and Taylor Wimpey are highly sensitive to interest rates because most of their customers rely on mortgages, and many are first-time buyers who are stretching their budgets to the maximum. 

Mortgage rates have stayed higher than expected this year, above 5 per cent on average according to financial information provider Moneyfacts. 

Output across the seven listed housebuilders slipped by 3 per cent this year. It follows a drop of one-fifth in 2023 in the aftermath of the Conservatives’ mini-budget in September 2022, which led to a surge in mortgage rates and slammed the brakes on the property market.

The downturn in new home completions by these companies — which also include Bellway, Berkeley, Crest Nicholson and MJ Gleeson — is part of a wider contraction in housing output. Data tracking the total supply of new dwellings showed 5 per cent fewer homes completed in the first nine months of 2024, compared with the same period a year before. 

As sales have declined, housebuilders have pulled back from buying land and opening new sites, reducing their output and trying to avoid having to cut the price of their homes. 

Many in the sector are hopeful that 2025 will be the start of a recovery, with mortgage rates expected to fall gradually and the possibility of Labour’s pro-building reforms starting to bear fruit.

“The 2024 Labour government is the most pro-housebuilding government we can remember,” said Anthony Codling, RBC analyst. “The UK housebuilders have been oversold since the Budget.” 

Analysts and industry groups have warned that Labour is likely to miss its target of 1.5mn new homes unless it can find ways to help more overstretched first time buyers afford a home — and provide much greater funding to affordable housing. 

But some industry executives are still bullish. “I get fed up with the moaners,” Bellway chief executive Jason Honeyman told the FT on an October results call.

“People wanted to complain about the old government, who didn’t want any new homes. And now they want to complain about the new government, who want to build too many,” he said. “It’s ambitious . . . The housebuilding sector takes a while to start building again”.

EU burns through gas storage at fastest rate since energy crisis

Colder weather and lower seaborne imports increase reliance on stored gas

The EU is emptying its gas storage facilities at the fastest pace since the energy crisis three years ago as colder weather and a decline in seaborne imports raise demand.

The volume of gas in the bloc’s storage sites has dropped about 19 per cent from the end of September, when the refilling season ends in gas markets, to mid-December, according to data from Gas Infrastructure Europe, an industry body.

The previous two years only saw single-digit drops over the same period, when higher than normal temperatures ensured that storage remained relatively full well into the winter heating season, and industries curbed demand due to higher prices.

“Europe has had to rely much more on its underground stores so far this winter than in the past two years to make up for lower liquefied natural gas imports and to meet stronger demand,” said Natasha Fielding, head of European gas pricing at Argus Media, a pricing agency.

Europe has also faced more competition for LNG imports from Asian buyers, who have been drawn by prices that are lower than in recent years. That has led to a slowdown in imports and the need to draw more on the stored reserves.

The last time the continent’s gas stores were emptied this fast by mid-December was in 2021, when Russia began cutting pipeline gas supplies ahead of its full-scale invasion of Ukraine.

The EU’s storage levels are now at 75 per cent, marginally above the average of the previous 10 years, before western European governments began trying to lessen their dependence on Russian imports. Storage levels were close to 90 per cent as of mid-December last year.

European gas prices are about 90 per cent below the above-€300 per megawatt hour seen during the energy crisis in the summer of 2022. However, emptying storage facilities during the winter could make refilling harder and more expensive next year.

Traders are already trading gas for delivery next summer at a higher price than for delivery in the winter that follows, a sign of the increasingly steep cost of replenishing stockpiles.

EU countries need to fill their storage to 90 per cent of capacity by the start of November under the European Commission’s mandatory refilling target, although some countries have lower targets.

A significant portion of its gas supplies now comes in the form of LNG, which has become increasingly politicised in recent weeks. US president-elect Donald Trump has warned the EU that it must commit to buying “large scale” amounts of US oil and gas or face tariffs, while Qatar has threatened to stop its LNG shipments if member states strictly enforce new legislation that will penalise companies which fail to meet set criteria on carbon emissions, human and labour rights.

The US is the largest supplier of LNG to the EU, and Qatar the third largest.

Another reason for the fast withdrawal was due to Europe experiencing spells of colder weather, as well as the so-called Dunkelflaute — days when neither solar panels nor wind turbines generate any power — which increased gas demand for power generation.

Demand for industrial gas in nine north-west European countries this year has “recovered from the lows of 2023“, rising 6 per cent on the year for January to November, according to Anne-Sophie Corbeau, global research scholar at the Center on Global Energy Policy at Columbia University.

Some countries have depleted their stocks faster than others. The Netherlands saw a 33 per cent drop in gas volumes stored since the start of winter, while France saw a 28 per cent fall.

Russian gas that flows through Ukraine to Europe is also expected to stop at the end of next year as a transit deal expires. The route accounts for about 5 per cent of the EU’s gas imports.

“There doesn’t seem to be a major concern” around the potential halt of Russian gas through Ukraine, said Andreas Guth, secretary-general of Eurogas, an industry body. “That being said . . . every marginal volume [of gas] is of course going to make a difference in the filling season.”

Germany’s own ‘magnificent seven’ help Dax defy bleak growth outlook

Software provider SAP responsible for two-fifths of all Frankfurt gains in year of political tumult

A handful of companies dubbed Germany’s answer to the US “magnificent seven” have driven a strong rally in the country’s stock market this year, defying the gloom enveloping the domestic economy.

Frankfurt’s Dax, an index of 40 blue-chips, has risen 18.7 per cent this year, beating the benchmarks in France and the UK, and far outstripping the region-wide Stoxx Europe 600 index’s 4.8 per cent gain.

The performance comes in spite of weak domestic growth and political turmoil, with Germany’s unpopular coalition government collapsing in November after the parties were unable to reach an agreement over reforms to a fiscal “debt brake”, and the country now heading for a snap election in February.

Meanwhile, the economy is expected to expand by just 0.6 per cent in 2025, down from 1.2 per cent predicted midway through the year, according to economists polled by Consensus Economics. This marks the largest reduction in forecast growth over the period of any major industrial economy.

The Dax’s performance “has been a surprise”, said Timothy Lewis, a portfolio manager at JPMorgan Asset Management, and “serves as a great example of the adage that stock market and economic performance are not one and the same”.

Dax constituents derive less than a quarter of their earnings from within Germany, which has helped provide a buffer against tremors that have, for instance, seen automotive giant Volkswagen set out plans to lay off tens of thousands of workers and shutter several factories.

This year’s bumper stock market returns have largely been driven by seven companies: software giant SAP, defence stock Rheinmetall, industrial conglomerate Siemens, Siemens Energy, Deutsche Telekom, and insurers Allianz and Munich Re. 

SAP alone accounts for nearly 40 per cent of the Dax’s gains, with its shares up more than 70 per cent on the back of its transitioning of business customers to the cloud. It makes up a greater proportion of the index than the auto sector, including Volkswagen and Mercedes-Benz, both of which are in the red this year.

SAP has benefited from the market’s huge appetite this year for stocks with exposure to artificial intelligence. To that end, it has moved its earnings publication times from European mornings to after the US market close, to give it more exposure to North American investors and analysts. In October it replaced Dutch semiconductor equipment manufacturer ASML as Europe’s largest technology company.

“Technology stocks have been the story of this year and unfortunately in Europe we only have two major players: ASML and SAP,” said Marc Halperin, co-head of European equities at asset manager Edmond de Rothschild. “The icing on the cake is AI.”

The seven companies that have powered gains in the Dax have benefited from a variety of tailwinds, with defence company Rheinmetall climbing 107 per cent this year on the back of rising expectations of more defence spending in Europe, while Siemens Energy has gained 329 per cent due to growing demand for renewable power.

Guillaume Jaisson, a macro strategist at Goldman Sachs, said the market was telling “two different stories”, with the market leaders — which he compared to Wall Street’s magnificent seven technology stocks — powering ahead of a swath of exporters vulnerable to a weak Chinese consumer and potential US tariffs.

A weaker euro has also boosted Germany’s export-focused market, with the dollar climbing from €1.11 to €1.04 since the end of September.

Some investors and analysts are concerned about the benchmark’s growing dependence on a small number of stocks.

“It risks an unstable market,” said Arne Rautenberg, a portfolio manager at Union Investment, who believes the market is vulnerable to an earnings shock from SAP.

The election of a new government and potential changes to Germany’s debt brake, US president-elect Donald Trump’s plans for trade tariffs, or China’s stimulus for its domestic economy could “change things very quickly” for the market, he added.

Halperin added that he had recently moved to a position on SAP that was smaller than the benchmark as earnings expectations started to climb to the lofty heights of US peers.

The narrowness of the Dax rally has become more acute in recent years, with the trend taking hold in the wake of the pandemic and mirroring the US where there are fears about the role of a few large technology companies in driving returns on the back of AI demand.

Chipmaking giant Nvidia for example accounts for nearly a quarter of the benchmark S&P 500’s gains this year.

But many fund managers remain bullish on the prospects for German stocks trading at wide discounts to their US counterparts and deriving a significant portion of their revenues from outside their local market.

Marc Schartz, a portfolio manager at Janus Henderson, said the Dax’s concentration was “pretty extreme” but spread across energy, telecoms and insurance, unlike the US, which is solely concentrated in technology stocks. “Having a more diverse set of companies driving the markets isn’t a bad thing,” he said.

“The businesses we invest in are all pan-European. It’s just by chance that they’re listed in a certain postcode,” Schartz added. 

Sharp deviations have appeared in expected returns of two leveraged funds amid surge in bets

The sheer popularity of betting on the bitcoin-buying juggernaut MicroStrategy has led to rare growing pains in a corner of the $15tn global exchange traded fund industry.

The rapid growth of the ETF sector — with assets surging by 30 per cent in the past year alone — has thus far led to precious few structural problems, with the vast majority of funds working entirely as planned.

However, investors in two US-listed leveraged MicroStrategy ETFs targeting twice the daily return of the white-hot software company — which has raised almost $20bn from investors this year to buy bitcoin — have often received returns markedly at variance from what they might have expected in recent weeks.

On November 21, for instance the T-Rex 2x Long MSTR Daily Target ETF (MSTU) lost 25.3 per cent, according to data from FactSet. As bad as that might sound, the fall was actually 7 percentage points less than it should have been, given that MicroStrategy tumbled more than 16 per cent that day.

While this was a partial reprieve for investors, on other days they have lost out. On November 25, for example, MSTU lost 11.3 per cent, on a day when MicroStrategy only fell 4.4 per cent and MSTU should only have been down by 8.7 per cent, according to FactSet data.

Its rival fund, Defiance ETFs’ Daily Target 2x Long MSTR ETF (MSTX), has also exhibited noticeable tracking error on particular days, the most glaring of these being November 25, when it lost 13.4 per cent — 4.7 percentage points more than it should have.

As the first chart shows, both MSTX and MSTU, which launched in August and September, respectively, tracked their expected returns fairly accurately until mid-November, since when significant tracking error has crept in.

The central issue appears to be the growing size of these ETFs, which have piggybacked on rising enthusiasm for bitcoin since Donald Trump’s presidential election victory.

MicroStrategy is a leveraged play on bitcoin, given the company is the world’s largest corporate owner of bitcoin, with its debt-fuelled $43bn stash of the cryptocurrency helping send its shares spiralling 430 per cent this year.

Enthusiasm for a leveraged play on a leveraged play on a volatile cryptocurrency had led to a flood of buying, with MSTU’s daily assets in the $2bn-$3bn range and MSTX almost as large.

This in turn appears to have exceeded the supply of total return swaps that the ETFs’ prime brokers are willing to offer. These swaps — which involve a broker paying the exact daily return of an asset in return for a fee — offer very precise tracking.

This has led them to also deploy call options — giving the buyer the right to buy an asset at a specified price within a specific period — which do not always track the desired exposure as closely.

Tuttle Capital Management, the adviser and portfolio manager of MSTU, declined to comment, but Sylvia Jablonski, chief executive of Defiance ETFs, told the FT that MSTX had used a combination of swaps and options since launch, utilising “the most efficient product that allows us to achieve our target leverage”.

Jablonski argued that “it is not necessarily the case that options would provide less accurate tracking than swaps”.

Some disagree, though. Elisabeth Kashner, director of global fund analytics at FactSet and a former options trader, said “swaps are preferable: they can be one to one. The greater the volatility the less perfect the options hedge.”

Dave Mazza, chief executive of Roundhill Investments, a rival issuer of ETFs, including a leveraged Magnificent Seven fund and covered call strategies that also utilise derivatives, believed the problems stemmed from the sheer size of MSTU and MSTX.

“This isn’t an ‘ETF’ problem or even a ‘leveraged ETF’ problem — this is a MicroStrategy ETF problem,” Mazza argued.

“The two ETFs indirectly own exposure worth upwards of 10 per cent of MicroStrategy’s market cap, which is something we’ve never seen before in levered ETFs, let alone traditional ETFs.

“Simply put, MicroStrategy is too small a company to accommodate the AUM and trading volume in these products. At this point, these ETFs have already reached the ‘breaking point’.”

Mazza believed the elevated level of risk inherent in a volatile stock such as MicroStrategy was also a factor.

“If a leveraged fund is unable to achieve 2x exposure via swaps, it’s an indication that the trading community views it as a poor risk-reward decision to write additional swap exposure for the fund,” he said.

“Long options are a much less precise tool for achieving exposure, but they are also a tool that doesn’t require a counterparty to take on credit risk to the funds. While this could theoretically happen for any leveraged or inverse ETF, to our knowledge it has not because most are index based or focused on larger securities.”

Kenneth Lamont, principal of research at Morningstar, drew allusions to two previous hiccups in the ETF landscape that also revolved around size. Last year Leverage Shares was unable to generate the full leverage for its popular 3x Tesla ETP for a short period due to an inability to borrow enough money to buy the necessary shares.

Two years earlier, BlackRock had been forced to switch the underlying index for its iShares Global Clean Energy ETF (ICLN) to a broader measure following a surge in assets, forcing it to radically revamp the portfolio.

Lamont said the MicroStrategy-related glitch “is not a case of the wheels falling off, it’s more of a stuttering engine”.

Nevertheless, he added “we would hope it’s incidents like this that would improve products in the future, send out a warning to other players in the industry, and perhaps improve things for everyone”.

If any ETFs in the future run into problems because of their rapid growth, “it means that they were not well built for success”, Lamont added.

Kashner suggested one simple solution to the problem, however: these ETFs could simply close to the creation of new units whenever their swap lines are fully exhausted, even though this is discouraged by the US Securities and Exchange Commission.

“If they had chosen to close to creation they would track perfectly. They would act more like a closed-end fund at that point,” Kashner said, meaning that the share price and net asset value would not necessarily align.

“The fund companies, T-Rex and Defiance, face a choice and it’s a suboptimal choice. They can limit their growth or they can live with the limited accuracy and so far they have chosen to prioritise growth over accuracy,” Kashner added.

Ballooning expenses rewrite the math of homeownership

Soaring costs for home insurance and property taxes are busting homeowners’ budgets.

Insurers have pushed big rate increases because of losses from natural disasters and rising costs to repair homes. Surging home values in recent years, meanwhile, have lifted property taxes for many homeowners.

These ballooning expenses are rewriting the math of homeownership. In September, 32% of the average single-family mortgage payment went to property taxes and home insurance, the highest rate ever for data going back to 2014, according to Intercontinental Exchange.

The analysis is based on borrowers who use escrow accounts to pay their taxes and insurance as part of their monthly mortgage payments.

For a small but increasing share of households, the burden is far more significant. In five major metro areas—Rochester and Syracuse, N.Y.; Omaha, Neb.; New Orleans and Miami—at least a quarter of borrowers spend more than half their monthly mortgage payment on taxes and insurance, according to ICE.

These metro areas have high property taxes or pricey home insurance relative to typical home costs, or both.

Nationwide, taxes and insurance make up more than half of the monthly mortgage payment for 9% of single-family mortgages. That is up from less than 4% at the end of 2014.

Rising taxes and insurance premiums intensify the lack of affordability home buyers already face because of record-high home prices and elevated mortgage rates. Those deterrents have led many home shoppers to give up this year, putting sales of existing homes on pace for their worst year since 1995.

But while mortgage rates fluctuate, climbing property taxes and insurance costs show no sign of reversing.

These costs also pose a growing and often unexpected burden for homeowners, even those who purchased or refinanced when mortgage rates were near historic lows.

Those most at risk are older homeowners on fixed incomes, said Joshua Stewart, director of federal policy and advocacy for Fahe, a network of more than 50 nonprofit housing organizations across six states.

“Even if their mortgage payment went away 10, 15, 20 years ago, they’ve done the math for their retirement based on increases of some kind, but not these massive ones,” Stewart said. “That really eats into their housing burden.”

Some homeowners are questioning their purchases after feeling the pinch of higher costs. When Lisa and Michael Landry bought their New Orleans home in 2015, their property taxes, home insurance and flood insurance cost about $725 a month.

Now they pay $2,448 a month for property taxes and wind and hail insurance. That exceeds the monthly payment for principal and interest on their mortgage, which has a fixed 3.5% rate. They pay another $2,000 a year for flood insurance and home insurance for other perils.

They can afford the rising costs as long as he is working, but they will likely need to move once Michael Landry, who is 70, retires.

“Had I known what I know today, we would not have moved here,” he said.

An increase in home-insurance premiums makes it more likely that a borrower will fall behind on mortgage payments, according to a recent working paper by researchers at New York University, Rice University and the Federal Reserve Bank of Dallas.

The jump in home-insurance premiums between mid-2022 and mid-2023 led to an additional 149,000 mortgages becoming delinquent than would otherwise have happened, said Stephanie Johnson, an assistant professor of finance at Rice and one of the paper’s authors.

Janet Raggi, who is retired, said she is selling her home in Bradenton, Fla., because her property tax, home insurance and homeowners’ association costs have all risen since she moved in four years ago.

But the three-bedroom house has sat on the market for more than a year. Raggi said the high mortgage rates and recent hurricanes in Florida have deterred buyers.

Raggi wants to move back to Nevada for a lower cost of living. “We got a great house for a great price with great interest rates, and now that’s all turned on its head,” she said. “I’m looking to get out.”

Homeowners with mortgages are typically required to purchase home insurance, but some without mortgages are opting to go without, especially in places where costs have risen sharply. While that could save them money, it could also make it prohibitively expensive to rebuild if their homes are damaged by natural disasters.

About 6.8% of homeowners reported going without home insurance in 2023, down from 7.4% in 2021, according to an analysis of Census Bureau data by Sharon Cornelissen, director of housing at the Consumer Federation of America.

But the proportion of uninsured owners rose in some major metro areas, especially in Miami, where 21.2% of homeowners went without home insurance in 2023, up from 14.5% in 2021.

Home prices currently hover around all-time highs, but rising property tax and insurance premiums could eventually translate to lower prices in some areas, said Andy Walden, Intercontinental Exchange’s vice president of research and analysis.

“It creates an environment where you have less of your budget” to spend on the mortgage itself, he said. “That drives down the price that people are willing to pay.

Homeowners who bought in the past two years at higher mortgage rates might already be stretched thin in terms of what they can afford, Walden said. Those borrowers likely plan to refinance if rates go down, but they might not be able to qualify for a new loan if their tax or insurance costs have risen significantly, he said.

Christopher Moynihan got a pay raise last year when he moved with his family from Utah to Nebraska to take a new job. Nearly the entire increase has been eaten up by higher expenses, he said.

Their current mortgage rate is more than double the rate they had on their prior home, and property taxes and home insurance account for 34% of their new mortgage payment.

“It was kind of a bitter pill to swallow,” he said.

One crew member airlifted to a hospital in Graz by helicopter

An Airbus AIR -0.57%decrease; red down pointing triangle jet operated by Swiss International Air Lines made an emergency landing in Austria due to engine problems and smoke in the cabin and cockpit, the airline said.

Flight LX1885, a narrow-body Airbus A220-300 flying from Bucharest to Zurich with 74 passengers and five crew members onboard, diverted to Graz after experiencing engine issues and smoke, the Lufthansa Group LHA -0.19%decrease; red down pointing triangle subsidiary said late Monday.

One crew member was airlifted to a hospital in Graz by helicopter, while the remaining four crew members received medical care. Twelve passengers were also treated for medical issues, the airline said.

Swiss stated that it is in close contact with authorities and is working to determine the cause of the incident. The aircraft has been removed from the runway, the airline added.

Saks Finalizes $2.7 Billion Deal to Buy the Neiman Marcus Group

The deal creates a luxury retail empire in the U.S. and also raises questions over possible consolidations, executive changes and relationships with vendors.

A new luxury retail empire has been created.

Late Monday afternoon, Saks Global disclosed that it has finalized its acquisition of Neiman Marcus Group for a total enterprise value of $2.7 billion, as has been expected. The agreement by Saks to buy the Neiman Marcus Group was revealed in July 2024.

Saks Global now includes Neiman Marcus, Bergdorf Goodman, Saks Fifth Avenue and Saks Off 5th, and represents a total volume of approximately $10 billion.

Richard Baker, executive chairman of Saks Global, said in a statement, “This milestone transaction marks a transformative moment for Saks Global and the luxury retail industry. By uniting Neiman Marcus, Bergdorf Goodman and Saks Fifth Avenue, we have created an unparalleled multibrand luxury portfolio with tremendous growth potential. With data and innovation at our core and a portfolio of prime real estate, we aim to redefine the luxury shopping experience.”

Along with the announcement of the closing, Saks disclosed several fundamental changes in how Saks Global will operate and integrate the Neiman Marcus Group, as well as a flurry of executive changes at the top rungs of the enterprise and executive departures.

Saks and Neiman Marcus will be managed by one team, whereas Bergdorf Goodman will be managed separately, according to Marc Metrick, who takes on the role of chief executive officer of the Saks Global Operating Group.

Also, Ian Putnam will serve as CEO of Saks Global Properties & Investments. Both Metrick and Putnam will report to Baker.

Emily Essner, forrmerly chief marketing officer at Saks, has been promoted to a new role – president and chief commercial officer, in which she will oversee the merchandising, marketing, commercial analytics and e-commerce for Saks and Neiman Marcus. “She’s got all things consumer related,” Metrick told WWD in an interview Monday evening. “Her team will be supporting the Saks and Neiman’s stores and websites.”

Tracy Margolies, who was chief merchandising officer for Saks, has been appointed president of Bergdorf Goodman. She succeeds Darcy Penick. Margolies, who before joining Saks worked at Bergdorf’s, has been “a key partner of mine,” Metrick said. “Tracy’s deep expertise and track record of leading results-driven strategies will propel Bergdorf Goodman into the future while honoring its unique legacy. I am confident she is the right person to lead this storied business’ next chapter and look forward to what Bergdorf Goodman will accomplish under her leadership.

“We are going to do things very differently,” Metrick added. “You will not see some of the same traditional roles, like chief merchant. Saks Global plans to break the mold in how we go to market and how its business runs.”

Metrick also underscored that Saks Global will adopt AI “in the right places for greater personalization and to maximize the customer experience.”

Others leaving Neiman’s as a result of the acquisition include Geoffroy van Raemdonck, NMG’s CEO; Ryan Ross, president of Neiman’s and head of NMG customer insights; Lana Todorovich, chief merchandising officer at Neiman’s, and Katie Anderson, NMG’s chief financial officer.

“The big takeaway first is that we believe there is a ton of talent at Neiman Marcus Group,” Metrick said. “When we get into the integration as we move forward, there will be a lot of cross pollination between the companies.”

He pointed out that Bill Bine, NMG’s former chief supply chain officer, will fill the new role of chief transformation officer of Saks Global. “A highly strategic, results-oriented executive, Bill’s significant experience leading large-scale business transformation and operations in retail will be instrumental to our integration journey,” said Metrick.

Also, some changes in how the deal to buy Neiman’s ended up being structured were disclosed. Sources had said that Baker was rushing to button down financing for the deal, even within the last few weeks. Part of the issue was the high interest rate being charged on the initial loans Baker was being provided in the deal – sources said it was initially set at 11 percent and with interest rates coming down he was anxious about finding cheaper financing.

Earlier this month, Saks issued a $2.2 billion bond, replacing the higher rate financing that would have come from private equity giant Apollo. But Amazon and Salesforce continue as investors, along with Authentic Brands Group as well as G-III Apparel Group, which more recently came in as investors. Saks did not specify how much each of the four companies contributed.

Saks, for several seasons now, has been delinquent on payments to many vendors. But Metrick told WWD that the transaction “recapitalizes the company and puts us in a much better cash position and much better position operating the business.”

Metrick also said that starting in January, “We will begin the process to work through the delayed payments. It will begin the first week of January. That’s when the process starts.”

Sources said Saks in some cases is months behind in payments and that in many instances major vendors would ship merchandise to the retailer only if they received some payment, or payment up front. While most of the leading luxury brands operate at Saks under concessions, other companies in fashion and beauty were facing pressure. Some beauty companies declined to ship to Saks stores, only agreeing to ship to orders from Saks.com.

In his memo to the team on Monday, a copy of which was obtained by WWD, Baker wrote: “I’m pleased to share that with the closing of the transaction, Saks Global has greater financial stability with less leverage and a newly-funded revolving line of credit, providing significant levels of available liquidity. This financial structure enables us to make investments to better serve our customers and be a better partner to our vendors.

“With the closing of the NMG transaction, HBC’s Canadian business has been recapitalized as a standalone entity, separate from Saks Global, with significantly reduced leverage,” Baker wrote. “HBC will continue to operate Hudson’s Bay stores and TheBay.com, as well as continue to own or lease a 2 billion (Canadian) dollar real estate portfolio, either entirely or with its joint venture partner, RioCan Real Estate Investment Trust. With a new financial structure, HBC’s Canadian business will be set to execute on its business plan and best serve its loyal Canadian customers.”

Metrick also issued a memo, a copy of which was obtained by WWD, in which he wrote, “Bringing these iconic brands together is a significant step forward for luxury retail. As one company, we have an opportunity to transform the way we serve consumers, blending art and science to ensure each customer’s experience is unmistakably their own. With deep relationships across the industry, cutting-edge personalization and strategic technology partnerships, we are poised to drive innovation and growth. I look forward to working with the many talented leaders and employees from NMG and across Saks Global as we embark upon our journey to bring these businesses together.”

While the deal creates a luxury retail empire in America, it raises various questions about potential consolidations involving functions, stores and personnel. Asked about consolidations, Metrick replied, “This is about transformation, not consolidation. It’s about growth…There are redundant functions that are going to be rationalized. It will be a process we go through over time.”

As previously reported, Saks plans to close its store on Worth Avenue in Palm Beach, Fla., next year, and is closely reviewing the Saks and Neiman Marcus store fleets.

Other Neiman’s executives departing the business are Eric Severson, chief people, ESG and belonging officer; Ann Marie Janke, chief technology and information officer; Tiffin Jernstedt, chief communications officer, and Tom Mattei, chief legal officer, corporate secretary, chief compliance officer.

In January, Metrick is scheduled to host a Saks Global town hall for the newly combined organization. Details will be revealed soon.

Under the combined organization, Metrick has 11 senior officials reporting to him, including Bine, Margolies, and Essner as well as Kim Miller, president of Saks Off 5th; Rob Brooks, chief operating officer; Larry Bruce, president of stores for Saks and Neiman’s; Sarah Garber, chief people officer; Sarah Garber, chief people officer; Mike Hite, chief technology officer; Caroline McMurray, vice president of strategy; Jeff Pedersen, chief financial officer, and Andrew Woodworth, chief legal officer.