The Practical Islamic Finance Podcast

History is Rhyming and this is GOOD

August 13, 2024 Rakaan Kayali

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History is Rhyming and this is GOOD
In this episode, we will cover:

  • Introduction and Market Update
  • Macroeconomic Data Overview
  • Inflation and Economic Slowdown
  • Investor Concerns and Unemployment Trends
  • Government Stimulus and Market Impact 
  • Geopolitical Concerns 
  • Market Volatility and Historical Trends 
  • Liquidity Picture and Future Outlook 
  • Bitcoin Mining and High-Performance Computing 
  • Q&A Session
  • Final Thoughts and Conclusion

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salam@practicalislamicfinance.com

ABOUT OUR PODCAST

Our podcast is about helping people ethically build wealth. We cover a broad range of topics including stock and crypto investing, product reviews, and general financial well-being.

DISCLAIMER

Anything you hear in this video is an opinion. It is not personalized financial advice. Make sure you do your due diligence before making any investment decisions.

As-salamu alaykum, I hope you are doing well. Today is Monday, August 12th, and Bitcoin is at 59,100. And today we're going to talk about how the world is not necessarily falling apart. And in fact, history is rhyming, and that is a good thing. There's a lot, I think, to be optimistic about. So without further ado, let's get started. As always, this is not financial advice, so be sure to do your own due diligence before making any investing decisions. And leave a like, I really appreciate that. We kind of fell below our 100 minimum likes in the last few lives. So, you know, unless there's something about the lives that you'd like me to change, then leave that in the comments. But if you are enjoying the lives, then do leave a like, I'd really appreciate that. All right, so the macroeconomic data that we're expecting for this week is actually quite rich. So tomorrow we have the producer price index. So that's going to tell us the inflation that producers are experiencing. Wednesday, we have the CPI, this perhaps the most important data point that we're going to get this week. And it's what the Fed likes to look at as, you know, part of a mosaic of data to determine whether it's going to cut or not. And on Thursday, we're going to get the initial jobless claims and retail sales. And so this is going to give us a more color on the state of the economy. If you'll recall last week, the market got a shock. One of the reasons was the nervousness about the economy and the slowdown that the data was suggesting and their probability of a recession being higher. I think initial jobless claims and retail sales will give us more color on the state of the economy. I do think that largely speaking, the inflation battle is, you know, and this can maybe be famous last words, but I think that inflation battle is to a large extent, not as front and center as it has been. I think really now the focus is shifting towards the economy. I think inflation is likely to continue to come down. Maybe we have some bumps in the road, but this is no longer the most important thing that investors are keeping an eye on. The market at this point is pricing in almost a certainty of Fed rate cuts. Now what the investors are keeping an eye on is the US unemployment rate. So if you look at 2007 and 2000, we saw an uptick in unemployment of around a half a percentage point in a six months period, which was followed by a gap up in the unemployment rate. And a lot of investors are nervous that this is going to happen again. We're going to see a gap up in the unemployment rate. Now that we've had the half a percentage point rise in unemployment in the last six months. So even though the unemployment rate right now isn't necessarily high, it is following a pattern that is making investors nervous. That being said, I think it's useful to remind the viewers, listeners that just because the economy slows down, that doesn't necessarily mean the markets don't do well. The reason for this is because the economic slowdown is typically followed by government stimulus policies. So if investors are expecting this and the market is forward looking, the market can still do rather well, even if the economy is slowing down. So the economy slowing down and the market going up are not mutually exclusive events. They could coincide and happen at the same time. So something to keep in mind. Now we're seeing investors go out of stocks and into more or less risky assets, for example, treasury. So you see treasury prices going up or the yields going down and the S&P is going down. So there is some rotation of capital happening. But again, I'm not really sure that's the best move considering, as I mentioned, just because there is a recession, that doesn't mean the market necessarily doesn't perform well. There are also some geopolitical concerns, activity that has kept some on edge. So recently we've seen, this I would consider good news, that Ukraine has scored a really huge breakthrough victory in its fight to defend its country. So they have breached Russian borders and this gives them a much better negotiating position and perhaps they are planning on actually flanking the attacking Russian forces and flanking the occupied area of Ukraine. Needless to say, this is a big event in the conflict. Perhaps it is a turning point. So far, more than 100,000 Russians have been displaced and I think many people around the world who were themselves displaced by Putin's policies and Russia's army are perhaps looking at this, following these events, with glee. And frankly, I don't blame them. Iran is still preparing for its, I guess, eventual retaliation against Israel. I can't really, to be honest, when it takes you days, weeks to respond to an attack, this tells me that you didn't have something ready and you're kind of digging deep into your pockets to see what you can come up with. Doesn't seem like you had an easy answer there. So I don't really think Iran, I mean, I could be mistaken. Iran has much to offer here. I mean, if you look at last time where there was this waiting period and then, you know, drones that took like four or five hours to reach it and everyone knew that they were coming and none of them reached Israel and then the ballistic missiles that it used killed no one. So I mean, I can't really think that this is necessarily a reason for, you know, mass panic or concern. You know, perhaps they just, you know, check off the box that, you know, we responded and that's it. Or maybe things turn, obviously, when you're dealing with, you know, violence, things are very unpredictable. So this could, you know, turn into something bigger, although, you know, from what I'm seeing right now, perhaps it does not. Now, the VIX has peaked in the last seven days and exceeded 50. Now, there's some good reason to be optimistic following a VIX, which is the market sphere index, exceeding 50. So if you look at the last 92 times that the VIX has crossed 50, in the next 12 months, the average return for the S&P 500 was 33%. One out of 92 times, 91 out of the last 92 times that the VIX peaked above 50, spiked above 50, the S&P was up 12 months later. So this is, you know, considering that the VIX has peaked a week ago above 50, that is a good sign, I think. Additional data that is, I think, reason for optimism is that the market has never been lower in the second half when delivering percent plus returns in the first half, excluding the period of the Fed Chair, Paul Volcker. So if we exclude that period, and granted, you know, this is not a clean data point because we are excluding a period, but that period was characterized by stagflation. So it was kind of an outlier. Let's not say this couldn't, you know, this pattern couldn't break, but typically when the first half, the S&P is up 10% plus in the second half, it is up as well. And in fact, as I mentioned, if you exclude that period of stagflation, it's been up all the time. It's never not been up in the second half. And I also think that if you were to compare the, you know, seasonality of this year's market with last year's seasonality, and you look at the trends that we've had, they're quite comparable. We did see a pullback last year, if you remember, mid-year, July, August, we saw a pullback. And then we continued to chop lower until October. And then we got to October and then it just took off like a rocket ship. There is nothing to say that a similar pattern doesn't play out this year as well. I think, you know, what we're seeing in terms of a pullback is historically quite expected at this time of year. If you go back to the chart I showed you, you can see that, you know, after following a year where the first half was up 10% plus, following that year, you can see July and August, or really August and September had the most trouble. But then once you get to October, November, December, and the strongest month being December, it was pretty much always up. So, you know, history is rhyming and that is a good thing. And then the overall picture, the bigger picture that I always like to remind you guys of is the liquidity picture globally. It does seem China has very accommodative monetary policy and, you know, the Bank of Japan folded, basically said, hey, we're not going to raise interest rates anymore. We know that in the US we're thinking about either 25 base points or 50 base points. And, you know, I've heard chatter of 75 base points, which I think would be overdoing it for, you know, the first rate cut that actually might cause investors to panic. But the liquidity picture is rising. I think it will continue to rise until the end of 2025. And that's really the most important metric here. I mean, you know, the stats and the charts that I show you guys, those are nice, but really the most important thing is the liquidity picture. And so I'm not really seeing that much cause for concern as of yet. And I won't be shy to tell you once I see that in terms of like the market. So I think it is a good time to dollar cost average and maybe, you know, one of the last chances that you get to buy some of these really great assets that we've identified. Speaking about one of the assets that we have in our portfolio, it's a very small position granted, but we did hold a trace amount of MOS in our growth portfolio and it was up 70% plus. Today, news that MOS in, as I mentioned, was getting into the AI and high performance computing markets. It announced a signing of a co-location agreement for 20 megawatts. And just to put that into context, Iris Energy has access to 3000 initial AI, HBC, artificial intelligence, high performance computing co-location agreement signed expected to generate cumulative revenue potential of 285 million through a six year initial 20 megawatt contract term. And they also signed a separate non-binding letter of intent to expand AI high performance computing co-location business to 144 megawatts. So seven times the initial size. So that caused the stock to rip. And I suspect that other Bitcoin miners are going to follow in these footsteps. We're going to see more and more co-location agreements. We're going to see more leaning into the high performance computing AI business. It makes a lot of sense. If you recall my latest live on Iris Energy, how we went through their earnings presentation and concluded that, you know, basically they have two business operations. Now, one of them, you know, making money in them is extremely hard. And that is the Bitcoin mining business. And the other is the high performance computing business. And making money in that is really easy. So if you're if you have common sense, you're going to say, hey, why am I investing so much into the hard business? Let me focus instead on the easy way to make money. And I think a lot of Bitcoin miners are going to be doing that. So with that being said, if you'd like to follow our portfolios, make sure to become a PIF member if you are not yet and join our community of very well-meaning and good people that are trying to do good and do well, trying to build wealth in a halal conscious way. And so we'd love to have you. With that, let's take some questions. Psycho said, should we all in Bitcoin now? Well, it's hard for me to say all in because that implies a high level of risk. That being said, I do think that and now I'm looking at Bitcoin, it's 58,900. I do think that, you know, we may not see these prices for much longer. I think we're going higher. I think we'll breach a hundred thousand this year. So do with that what you want. I think it will be a good investment. Recently, ARK Invest had an interview where they were saying their price target was one and a half million for Bitcoin by 2030. I think that's possible. How probable it is, I don't know, but it's possible. And the fact that it is possible, I think, you know, makes it a worthy asymmetric bet. Dalla says, salam alaikum. I was nice to see you. Do you expect recovery before the rate cuts? It's tough to say, Dalla. There's a lot of moving parts here in the near term with regards to news and, you know, the flow of news coming in. So it's really tough to predict these near term events. I mean, look at Russia, for example, and the fire and the nuclear reactor, these types of things you really can't, you know, foresee ahead of time. So it's tough to say. But what I can say is that virtually every time when there was a economic slowdown, there has been stimulus by the government. And so I do think that this time will not be any different, whether it is leading up to the election, which gives more incentive, or immediately after the election, where the elected party, you know, wants to get started on the right foot. I think the government will be very incentivized to repeat its behavior with the stimulus. And that will bode well for asset markets and asset prices. Yes, salam alaikum. Thank you for always giving us overviews and advice about the market. It's my pleasure. Yes, I'm glad you're enjoying it. Sam says, what are your favorite miners? And are you buying PLL at these prices? So my favorite miners I've mentioned here before, Bitdeer and IOS Energy. Bitdeer, I think, has an advantage with Bitcoin mining. I think IOS Energy has an opportunity to lean into their high performance computing and AI into that business and really do well for itself. In terms of buying PLL at these prices, I would say just follow our watch list that we have for PIF members, and they have the buy below and sell above prices at any given time. So follow those if I would buy at these prices or not. H says, salam alaikum. Thank you very much for that. Speaking of VIX and 12 month forecast, do you think PIF positions will need 12 months to recover starting from now? No, I don't think so. I think they'll end. I think they'll break their highs by the end of the year. So the high watermark that we've already reached this year, I think will be broken by the end of this year. Hamad Hussain says, salam alaikum. Do you think Elon Musk's comments, gaslighting remarks will have an impact on Tesla's future performance, especially if he keeps making such remarks? I don't think they're helpful. I'm not really sure how much they'll actually have an impact on Tesla itself. They can potentially, but so far I don't think they will. That can change obviously. He seems to say something wilder and wilder every day, which is not good. That being said, I do try to block out the noise and focus on the company and the company is on the right track. This is a very deluxe video. Well, thank you. Wow. One of my favorite subscribers. Appreciate it. Rashad says, we need more likes guys. Thanks Rashad, really appreciate it. Dalla says, I know you might've touched upon this before, but could you explain what is the major event that will make BTC double in the next four months? Well, I think the major influencer will be liquidity levels for BTC. So far it has been acting as a risk on asset. And so I think that, you know, as there becomes a clearer path forward for, you know, the economy and the markets and we're more, we resume risk on behavior in earnest, I think that will help Bitcoin very much. What is Solana projection price in the next five years? Well, I may talk, I may, I may dedicate a live soon for Solana. So we'll talk about that. Can you explain to me why Solana would be a good investment when it is itself inflationary and when it is itself had at least 12 major outages so far, along with it continued to be sold off by FTX. Well, I think that Solana, if you look at the trajectory that it's on in terms of utility, user adoption, apps built on the platform, the number of transactions per second that it's actually handling, not in theory, but in actuality, I think that this is the smart contract platform that is leading all others in terms of performance and adoption, as I've said. And, and it doesn't really matter whether an asset is inflationary on its own. It matters whether the demand for the asset outpaces the inflation rate or not. So you can have an asset that is deflationary, but still lose value or fall in price if demand for it is even less or falls even faster than supply does. So you have to take both sides of the equation. And even though Solana may be inflationary, you have to look at the demand for Solana and whether that outpaces the inflation rate or not. And I have to say Solana's inflation rate is quite low. And I think demand is outpacing it. That's my pleasure. Waalaikumsalam Taskeen. Thank you. Taskeen says, I genuinely enjoy these lives. Is there a particular time for these lives? That's something I'm working on. Inshallah, I'll get better. For now, there isn't. Hit the notification bell, Inshallah. Why is Tesla halal anymore? Well, quite simply, it's because Elon Musk is not Tesla. Tesla is not Elon Musk. There are hundreds of thousands, if not millions of people that are impacted by Tesla, the company, and obviously many thousands of employees in Tesla. And so you have to look at all of that and not just the CEO's tweets in order to determine a comfort level in the company. That's at least my method. I encourage everyone to do what they're most comfortable with. Is it wise to avoid BTC because of network fees and focus on miners instead? No, I don't think BTC is to be avoided because of network fees. Because fundamentally, I don't think BTC is a transactional asset as much as some investors or Bitcoin proponents try to make it out as if it is. I think the main utility of BTC is something that you hold on to for as long as you can as a savings. And so transaction fees, I mean, unless you're moving, transaction fees basically excluded from being sort of a day-to-day. I understand there's the Lightning Network and other things, but no one's using that unless they're filming a TikTok. But the main purpose of BTC is to buy and hodl. And so I don't think transaction fees severely impact that thesis. Why are prices of Bitcoin not going up significantly, even with the constant daily positive BTC ETF inflows? So there are a lot of things that will impact the price of Bitcoin. ETF inflows are one, but there are others. And I think right now, as I mentioned, BTC is being treated as a risk-on asset. And therefore, when the market is in a risk-on mood, the price will go up. When it's risk-off, the price will go down. And it does seem like right now the market is kind of nervous. I understand why. And therefore, the price of Bitcoin has suffered a bit. With that being said, we're still at close to 60,000, which is not bad. Yeah. So when in doubt, zoom out. All right. As I mentioned, leave a like. If you're not a PIF member yet, do become a member. A link to do so is in the description. And until next time, make sure to take care of yourself. As-salamu alaykum and peace be upon you all.