The Kiss of Death for Markets

Assalamu alaikum everyone, I hope you are doing well. This week we had some economic data come out that was concerning. I'm not going to sugarcoat it for you. I'm not going to say everything is great. I'm not going to tell you that there is no reason for concern. There is reason for concern and more than concern, I think there's reason for us to be very deliberate about our next moves and make sure that we have a strategy to deal with what appears to be coming around the corner. So let's talk about the data points that I think are of note that came out this week and at the end I'm going to tell you how I think about the future and what my strategy is to deal with it inshallah. So without further ado, not financial advice, make sure to do your own due diligence before making any investing decisions and if you appreciate these lives, make sure to leave a like. I'd really appreciate that. So the first piece of big news came out yesterday with regards to GDP growth in the United States being slower than expected. It came out at 1.6 percent for the first quarter whereas expectations were around the mid twos and you know in the first quarter we had some hotter than expected inflation numbers but the thing that we fell back on was the fact that the economy seemed to be doing rather well. Unemployment certainly suggested that the economy was doing quite well. Now we're getting signs that perhaps the economy isn't doing as well as we expected and perhaps this is telling us or previewing for us what is to come. The second piece of economic data that was concerning was the fact that inflation rose 2.8 percent in March from a year ago. Keep in mind this is the number that came out today is the number that the Fed focuses on. We were hoping for something like 2.6. We got 2.8. Remember the target for the Fed is 2 and so the Fed is not happy with inflation. It is stickier than the Fed perhaps anticipated and we've gotten hotter than expected readings basically since the year started and so there doesn't seem to be much progress being made here. In the midst of all of this, this is why the markets can be very crazy and it's a fool's errand to try and predict what's going to happen the next day or the next week but it's important to have a longer term understanding of what is likely to happen. So the fear gauge of the market, the VIX index, actually fell and had its biggest fall that we've seen for a long time in months this week despite what I just mentioned with regards to the disappointing economic numbers both GDP and inflation. Now perhaps this is because these numbers came at the end of the week and perhaps we'll have some reckoning next week but this week the indexes were largely very positive. In fact we've had one of the best weeks we've had in months. The possibility for or the probability for a June rate cut is now the lowest it's ever been since there was optimism of a rate cut in June and now we're at only an 11% chance, a 1 in 10 chance basically, that we get a rate cut in June. The majority of the market is betting close to a 90% chance that we don't get a rate cut in June. Now that being said I do think considering we are in an election year and despite the Fed insisting that it's not politically motivated at all there's a higher than not chance I think that we get some sort of easing in monetary policy before the election. Now that's with regards to rate cuts. What about rate hikes? I mean considering inflation doesn't seem like it's going in the right direction. We don't seem to be making progress towards the 2% target. Will we see rate hikes? Well I don't think that's likely either. For one you have credit card delinquencies at their highest rate that we've seen in a long time. You have spending slowing that is an additional number that came out this week so consumer spending has slowed and savings fell so consumers are spending out of their savings and that's obviously not sustainable. So you have delinquencies high, you have savings low, eventually the consumer is going to hit a wall and just not be able to spend as much. Raising interest rates would really break the consumer and break the economy. There's really no room for rate hikes and you can this just happened actually right before I went live. Republic Bank in Philadelphia actually or Republic First Bank and I've actually mentioned this before in previous lives that there is a banking problem here. A lot of banks, a lot of smaller banks have balance sheets that are not enviable because they have a lot of treasury notes, treasury bills that have depreciated in price. They stacked these notes and bills when interest rates were low. Now that interest rates have gone higher the value of these bills with low interest rates has gone down and their assets and liabilities are out of whack because of this and so a lot of these banks especially the smaller ones are really susceptible to a bank run especially nowadays with technology being what it is a bank run doesn't necessitate people you know lining up in front of the bank to get their money out. All they have to do is whip out their phones and try and get their money out of said bank and you have a bank run. So this can happen in an instant and if the if the Fed were to raise rates hundreds of banks would be that much closer to basically the same fate that Republic Bank faced today and that's not something that I think the Fed the United States can afford. So we're in a tough spot right now. The Fed is in a very unenviable spot wherein they can't really cut rates because inflation is where it is. They can't really raise rates because the economy is showing signs of stress and not only that the interest payments on the U.S. government debt have reached that we've never seen before and you can see here that if we were to assume rates stayed the same as they are right now in April of 2025 we'd have a 1.7 trillion dollar interest payment to pay whereas if we were to see a cut in interest rates 150 basis points one and a half percentage points that interest bill would be 1.2 trillion so a difference of 500 billion. So you know there is some urgency with regards to interest rate cuts. The Fed if anything is looking for any reason any room to do an interest rate cut so but the but the numbers are not giving it this reason then the inflation numbers are not are stubbornly not giving it any reason to do interest rate cuts. So what what is the strategy for the upcoming period? So number one I would say if you're off a lot on a certain position well actually let me reword that here's what I'll do and then you do your own due diligence but I'm frequently taking profits whenever I see a a opportunity to do so. I have cash that's set on the side right now that's close to 20 percent of my portfolio just in cash and I'm concentrating on winners. My portfolios have never been as concentrated as they are right now and that's because I just don't think it's gonna work out well for people who are invested in the broader market. There will be some winners in this coming period but there's going to be a lot of losers too and if you're just investing in the broader market I think you're going to have a tough time just keeping up with money supply. I don't think the the strategy of just buying the market that has worked for the last two decades extremely well I don't think that's necessarily the right strategy moving into the period that we're moving into. Now markets may sell off out of fear. The silver lining here is that the slowdown in the growth in GDP and the cracks that are appearing in the economy suggest that the Fed may be closer to rate cuts than they were you know before this data came out and the more fear the more potential there is to profit. It doesn't take you know an investment guru to know that when someone is selling out of fear out of panic it's much easier to get a good deal on when you're buying from them and you know the same holds with public markets. When the public is panicked, when it's fearful, you'd much rather be the buyer in that situation than the seller. A lot of people made a lot of money buying when the 2008-2009 financial crisis hit. A lot of millionaires were minted during that time so I hope that you have the right mentality going into this wherein you're a contra investor right where you're not following the herd you are taking the contrarian position and buying from panic sellers and selling when FOMO takes over the markets. And I think there's a merit to biasing your investments towards the things that are essential. Healthcare, stocks, utilities, other essential products and services and companies that have clear and defensible technological advantages. Those are the companies that you want to be concentrated in. And I think the thesis for Bitcoin and things that are scarce like Dogecoin, I think the thesis for Dogecoin is stronger than ever and people just haven't realized it yet. The people who still can't get past the Doge meme association I think are mistaken. Increasingly I'm thinking you know things that are proof of work that have scarcity enforced by decentralization and code and have good amounts of decentralization. I think a lot of people may actually flee to these types of assets. Bitcoin obviously being one of them but you saw from the transaction fees that we experienced recently on the Bitcoin network this can never be a daily transfer of value, a daily crypto that you use in transactions. But something like Dogecoin which has much lower transaction fees I think is more likely to be something like a currency. And with the dollar, the future of the dollar being perhaps as bleak as it's ever been considering the amount of printing that needs to happen in order to pay off the debt and the inflation that is quite stubborn that we've experienced for the dollar. I think the argument for alternative currencies is stronger than it's ever been. Now I don't think that these alternative currencies are going to save the system but they can save you as an investor with a certain allocation towards these scarce assets. Again do your own due diligence not investment advice but this is at least what I'm doing. That being said I think it's more important than ever to be part of a community when you are investing so that you can balance ideas off of them, share your ideas and learn from others who are doing very deep due diligence about different assets like we're doing at PIF. So consider becoming a PIF member it's probably the most essential it's ever been to be part of a community such as what we have at PIF. So with that being said let's go to questions. I will be doing a breakdown of Enphase inshallah. Change my camp no cut this year perhaps and this is not out of the question. Interactive broker cash account is it permissible? Yeah I'm fine with cash accounts. What do I think about meme coin pepe? I'm not a fan of meme coins that are not proof of work. I think proof of work is an essential component for something to maintain its scarcity over time. And with that if you haven't left a like do leave a like and until next time make sure to take care of yourself. Assalamu alaikum and peace be upon you all.