Rotation Underway?

As Salaam Alaykum everyone, I hope you are doing well. Jamal Mubarak inshallah today is Friday, July 12th and Bitcoin is at 57,700. Tesla has recovered, we're now at around 250 and iris energy recovered strongly today after yesterday's short report up close to 9% as of recording this. So I have a short one for you today, I'm just going to pull your attention towards something that is happening in the market right now, today is quite green across the board for our holdings, basically everything is up, I think even crypto is up. So I just want to make you aware of something that I think is happening and will be happening to a greater extent in this period that is upcoming. And then I'll let you be on your way, enjoy your weekend inshallah. Do leave a like, I really appreciate all the likes, I see them, thank you for leaving them. Do leave a like if you enjoy these lives and not financial advice, so be sure to do your own due diligence before making any investing decisions. So as we saw this week, we had the lowest inflation number a year over year since three years ago. So this was quite encouraging for the markets, we saw the probability for a September cut now increased to around 95%, at least this is what the market is pricing in. And even a July cut is not, you know, completely unreasonable at this point. The market is pricing in a 6% chance of that happening, certainly if we get readings that are even cooler than what we got them, that is something that is not out of the question, although, you know, probability as of today is low. So what I want you to bring to your attention is the fact that the, if you look at the hedge funds and how they position their clients money, it has been to a large extent short, small and medium cap companies. And this may come to bite them in the upcoming period as small and mid cap companies benefit a lot more than large cap companies when it comes to reductions in interest rates. And the reason for that is because as a smaller company, changes in interest rates and how much you have to pay for financing make a bigger deal for these companies' financials than they are for larger companies. Additionally, to whatever extent insolvency is priced into a company's value, that risk will diminish substantially as interest rates fall. So smaller mid cap companies tend to benefit a lot more than larger cap companies from a reduction in interest rates. And so the fact that so many of these companies are held short could cause a short squeeze for a lot of hedge funds that are caught off sides in this regard. And if you look at the valuations for large cap companies versus small cap companies, you can see that there are a lot more deals right now in mid cap and small caps than there are in larger caps. So if you see that red line, that's the forward PE for large cap companies in the S&P 500. That's currently approaching 22, whereas the mid cap and small caps, those are the forward PE, the price to earnings ratio, and keep in mind here, lower ratio means that the stock is cheaper, a higher ratio means it's more expensive. So for small caps, you have 14.9, for mid caps, you have 15.4 compared to a large cap forward PE of 21.6. So it's at least 30% off if you're comparing large caps to mid and small caps. So there are more deals to be had in these lower cap companies right now. And as I mentioned, they do stand to benefit a lot more if interest rates indeed do fall. Now, something to keep in mind here is that there is a possibility of a recession. I think the recession, if there is a recession, it will be a mild one, it won't be a severe one. There are a number of reasons why I think that including the AI early and the productivity increases that it is having, as well as immigration and the positive impact that that has with regards to the cost of labor in this country, at least. And so I do think that we may experience our recession, but it will be a mild one. That being said, you want to be positioned in companies that are resilient, even in the case of a recession. So the benefits that small caps or medium caps may accrue from a decrease in interest rates may be offset by a decrease in demand in this upcoming period. So you want companies that are, for example, I think small caps are mid caps that are in the healthcare industry, maybe more attractive than others that are in a more cyclical industry that has less resilient demand. So something to keep in mind. And secular trends may start to play out. Now, you've heard me talk about the demand for lithium and why I think the demand for lithium may be set to increase. And this is from BP's Energy Outlook, which they put out not too long ago. And they show that on a current trajectory, the demand for lithium should increase around eightfold by 2050 or 14 fold by 2050, if we actually stick to the net zero goals that we set in the Paris Accord. Now, commodities specifically, they do tend to benefit from decreases in interest rates in the US. And the reason for that is because commodities are typically priced in US dollars. When interest rates fall, the attractiveness of the US dollar or demand for the US dollar, I should say, falls as well. So you get a weaker US dollar and therefore, on a nominal basis, the price of commodities increases. Also, for lithium specifically, with regards to demand for lithium, it's largely driven by demand for batteries. Demand for batteries at this point is largely driven by demand for electric vehicles. And electric vehicles become a lot more affordable when interest rates go down, because payments for electric vehicles are typically of two components. You have the actual cost of the car, but plus the financing for the car. And so if the financing costs are going down, the cars become more attractive. And so demand for them could increase. So we may see a pickup in China in the price of demand for lithium. And from that, I pick up in the price for lithium, which should benefit lithium stocks, which is why I made an additional purchase as PIF members know, an additional purchase of Piedmont today for our growth portfolio. So I just wanted to bring this to your attention. The rotation that I think will happen in the markets in the upcoming period, we will in shall make another addition to our recently established small cap portfolio in this coming week. I'm still building the position in our initial pick, which I'm very excited about, which we made last week. So we'll build on that, but also we'll add another name in sha Allah. So if you'd like to follow our PIF portfolios to become a member, if you aren't already linked to do that, is in the description. So very quickly, I'm going to go to questions. While I come to them, chocolate, well, nice to see you as always. The unit says, what effect will Oryka potentially do in September have on Bitcoin price? Well, I think liquidity increasing will float all boats. Bitcoin not being an exception. Nice to see you. Some are like, I'm Juman Barak. Just wanted to pop in, leave a salam alike, while income salams are here. Nice to see you. Anyone else you recommend besides that stuff for long-term investment, that is invest and forget, right now are picks. Actually, I think our newest addition to our small cap portfolio, maybe a set it and forget it one. But there's still this saying invest and investigate. Yeah, I haven't reached the same level of comfort that I had for Tesla, but I think it's a potential one where you just kind of set it and forget it. Because there's a lot of exciting things going on there. Hi, off topic. But would you consider a coin called Foxy AI? I'm not familiar. Sorry, LES. Perhaps I'll look into it. The main plan is to help AI in robotics and their first step is to make a game using football as a theme. So nothing I've heard so far from what you said is inherently haram. Somehow, do you have any thoughts on Arlo technology? Perhaps I will next week. By the way, if you have ideas for different lives that you'd like to see, perhaps I go over a number of stocks and actually give you my take on each one of them in the live, then leave your thoughts in the comments. Thank you all for coming. Go and enjoy your weekend. Leave a like on your way out. Until next time, as-salamu alaykum and peace be upon you all.