The Practical Islamic Finance Podcast

A Clear Choice

August 13, 2024 Rakaan Kayali

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A Clear Choice
In this episode, we will cover:

  • Introduction & Bitcoin Update
  • Market Overview
  • PPI Numbers Analysis
  • Upcoming CPI Report
  • PPI Numbers Breakdown
  • Fed Rate Cut Expectations
  • Stock Market Performance
  • Trade Services Inflation
  • Consumer Strength in Earnings Reports
  • Top Performing Assets Over the Years
  • Investment Strategy Insights
  • Bitcoin Price Predictions
  • Q&A Session
  • Conclusion

CONTACT US

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.

Assalamu alaikum everyone, I hope you are doing well. Today is August 13th, Tuesday, and Bitcoin is at 60,600. So we have recovered from yesterday. Today was generally a good day in the markets, and we'll talk about why in a second. Without further ado, let's get started. Now financial advice, be sure to do your own due diligence before making any investing decisions. So the PPI numbers came out today. This is the producer price index, and it basically tells us how prices are impacting producers and whether they are increasing or decreasing for producers. And this is typically a good indicator for how CPI is going to turn out. So higher producer prices typically translates to higher consumer prices, and the opposite is true. Lower producer prices typically translates to lower consumer prices. So we will get to consumer prices, the CPI tomorrow, and that's one of the favorite measures that the Fed likes to look at to determine whether or not it's going to cut rates or not. And so the PPI coming out cooler than expected. So 0.1 month over month, expected was 0.2. Core was unchanged month over month, expected was an increase of 0.2. If we look on a year over year basis, 2.2 is what we got, expected was 2.3. Core 2.4 is what we got, expected was 2.6. So overall cooler numbers for the producer price index, which is positive if we're just looking at inflation and basing our outlook on that one factor. So the question now becomes, will the Fed, since it seems like a certainty that a cut will happen in September and their September 18th meeting, the question becomes, is it 25 basis points or 50 basis points? To be completely frank, I don't really think that, you know, 25 or 50 is going to impact the markets or I should say impact the economy immediately in a big way. I think that just as we had a lag with the economy slowing down after raising rates, there will be a lag when rates are cut. However, the market is forward-looking and so the market may react positively even if the economic impact of the move is, you know, not that profound. So we had a green day for stocks and basically a lot of the usual suspects, Microsoft, Nvidia, Apple, they were in the green. Tesla was up close to 5%. And so as I mentioned, I think, you know, even if the economy stays slow for a while, so long as the anticipated impact of upcoming moves and policy decisions are stimulatory, the market may remain positive. Now, something that perhaps may have been missed on a lot of people that were just looking at the sort of headlines from today's report is the trade services inflation number. And that's that red line. And that basically tells you the margins for the producers, specifically in the trade services area. So things like transportation, financial services, these would go under trade services. They're around 10% of GDP. And actually what we saw in this particular sector was that margins were shrinking. And so, you know, this may end up bubbling to the surface in the next round of earnings report for reports for companies in these sectors. So something to keep an eye out on. And in fact, it was the second lowest reading for the trade services PPI ever. So again, this kind of tells you that at least in this particular sector, companies are hurting. And it does seem like they are, perhaps they were in the past able to pass on some of their costs to consumers, but they've reached a point where they cannot continue to do so. And the margins are shrinking for them. That being said, if you look at the earnings transcripts from recent round of earnings reports, and you look at, you know, consumer strength and how much that was mentioned, if you look at the numbers actually continues to be near all time highs. So companies, you know, perhaps trade services is being hit the hardest, but companies, if we look more generally, have been reporting consumer strength and haven't really been reporting too frequently on consumer weakness. So that is an encouraging sign. Now, amidst all of the noise, I like to sift through it all and just give you as clear a signal as possible. And I think this chart does the trick for us. So this chart basically has an ordering of the highest yielding assets by year. And you can see the top row is for most year is orange, and that is Bitcoin. So Bitcoin in 2013, 15, 16, 17, 19, 20, 21, 23, it was the top performing asset. The second most frequently top in second place, I would say, or the asset that most frequently held second place would be the S&P 500. And if you, by the way, if you want to know in relation to each other, you know what the returns were, the difference is quite stark. So for Bitcoin, it was 124% average annual return for that one asset, whereas for the S&P 500, it was 13%. So quite a big difference, even though we're just looking at one and two. In third place, you had the high yield bonds. These were the third highest yielding assets. Emerging markets was in fourth place. Gold was in fifth place. So for all who ask about gold, is now the time to buy gold? Are we missing out on a rally in gold? Well, at least historically speaking, gold has performed rather modestly compared to other assets. My investments as PIF members know are focused on Bitcoin derivatives, very small amounts of Bitcoin. I will change that obviously, but coin derivatives, so leveraged plays on Bitcoin and equities. And I think, you know, small caps will perhaps outperform moving forward here. And in the last places for asset returns were investment grade bonds. So these are basically debt. And the difference between high yield and investment grade bonds is that high yield is more risky. Investment grade bonds are less risky. And commodities was the least returning asset class to be invested in. So if you're heavily exposed to commodities, this is something to watch out for. Now, the fluctuations in commodities tend to be quite violent. So for example, even though commodities had the least average return, they didn't have the highest return in 2022. So every now and then, commodities will spike. But for a long term play, I think commodities is a lousy place to be. So if you have an idea for a commodity play, I would be in and out once that thesis plays out. But I wouldn't hold on to it longer term. Now, as it relates to Bitcoin, and because I was asked, hey, should I go all in into Bitcoin yesterday on this slide, let's look at where we are. So the projected, so this was as of the 11th of August, today we're the 13th. So the projected price for Bitcoin was 63,000. As of right now, it is 60,600. So we are on track. We're on schedule as per the stock to income model, which has become my favorite model for predicting the price of Bitcoin. And I do like to reference where we are right now and where the model is telling us we should be as a way to provide some validation for the model. Because if it's basically nailing based on its projection, where we are right now, plus or minus a small margin of error, then this bodes well for the credibility of this model. Now, what is this model saying? Where should we be 12 months from now? So if we look at this model and where it says we should be August 14th, 2025, it projects that the price of Bitcoin would be at 275, with the lower bound at 137 and upper bound at 550. So I think that this is not too farfetched. These numbers seem right to me in terms of lower and upper bound and projection for the price. So what this is suggesting is that, you know, there may be, even though we're at 60,000 right now, there may be another 2 to 5x in, if we just look at the average and the lower bound, 2 to 5x in terms of return on the price of Bitcoin in these next 12 months. So if that is something that floats your boat, then I think that it may be a wise place to put your money. That being said, this is not financial advice. This is just me thinking out loud and sharing with you my thoughts. So 2 to 5x is pretty good return in 12 months. So my entire goal of sharing this is to motivate you to do your due diligence and inshallah make the right moves. And with that being said, if you'd like to follow our moves, move for move, and what we're investing in at any given time, then be sure to become a PIF member if you aren't already. A link to do so is in the description. Quickly, we'll go to questions. Sykos says, Assalamu Alaikum. Walaikum Assalam. Tell us about Boron because I think we're at the last step before Boron. Well, I did speak a bit about what I thought the Boron would imply the price of Bitcoin to be. So hopefully that was useful. Heba says, Assalamu Alaikum. Walaikum Assalam. Salim says, historically speaking, usually when a rate cut happens, it's bearish for the market. Do you see market dipping when interest rate cut happens? And if so, how much correction are you predicting? Well, I think the rate cuts right now are quite expected. They are not expected. So I can't imagine like a violent reaction to the rate cuts if they come in within expectations. So 25 to 50 base point rate cut, I don't think will be alarming to the market. I don't think that we're going to see that big of a reaction because it is expected. Now, if FED meets and, you know, does a 100 base point rate cut, then the market is going to freak out and think to itself, you know, this must be really bad. Otherwise, why are they doing this? But so long as we're within expectations, I think we should be fine, inshallah. Chakla Wallah says, Assalamu Alaikum. Walaikum Assalam, Chakla. Nice to see you as always. Midas Rashid said, if you could only make one stock or ETF investment for the rest of your life, what would it be? That's a good question, actually. If I was sure that it would never become uncomfortable for me, then I would invest in Tesla. If Michael Saylor prediction of base case for Bitcoin to be 4.3 million by 2045, actually possible? Yes, it is. Assalamu Alaikum. Walaikum Assalam. Do you think a winner takes all scenarios going to take place? The more miners flip to high performance computing? No, I think there will be an equilibrium struck. So as more miners divert resources to high performance computing, Bitcoin mining will become more attractive. And so there will eventually be an equilibrium struck there. But right now, I think clearly there's more money to be made in high performance computing. So I think advantage goes to miners that can perhaps switch between the two. When one becomes more profitable, they do that. And then they go back to Bitcoin mining when the latter becomes more profitable to do. So if a miner has the flexibility to do that, and I don't see why not. I don't think they are necessarily fundamentally different. There's a reason why Bitcoin miners are being tapped for the data center business. There's some adjustments that need to be made, granted, and there is some advantages to focusing on one and not the other. But fundamentally speaking, I think you're providing compute. And so miners that are versatile enough to cater to both needs, I think will do very well. Manmohsen says, Assalamu Alaikum. Walaikum Assalam. Khan says, Assalamu Alaikum. What is your analysis on Rendercoin for long term? Actually, it's funny you mentioned that. So I had a brother reach out that I'm speaking with. He reached out, you know, telling me about Rendercoin. I was asking him some questions. We'll probably have a detailed analysis for PIF members, inshallah, this week. And perhaps we'll make a move on, or at least we'll let them know whether we're going to make a move or not, inshallah, this week. What do you think about Iron? Well, I think its stock is not doing great recently, but I still think it's going to bounce back, inshallah. We've gone through this before. And so, you know, this isn't our first rodeo with the stock. I'm just very happy that we took profits when we did take profits. Osa says, Jazakallah. Walaikum, inshallah. Chocolate says, do you foresee any issues for Bitcoin due to Democrats demonization of it? They've coined investors as crypto bros. Yeah, so there's obviously, I think, more, I think the market will, the crypto market will view a Republican victory more favorably than a Democratic one. Although we have been starting to hear some chatter from Democrats that is more open to crypto, which is not unexpected considering they want to compete. And I think the electorate is either neutral about the issue or supportive of crypto. And so they don't want to lose votes because of crypto. So we'll see where they land. I don't really think any of these politicians have any principles whatsoever. They'll just say what needs to be said in order to be elected. So, but I think that the populace in the United States is very pro-crypto, as I mentioned, either neutral or pro-crypto. The people who are pro-crypto are very pro-crypto. And so I think that, you know, either party will probably, you know, cater to that demographic. There's not much to win. There's not much to gain from being anti-crypto. I don't think that's going to get you any votes. And therefore, I don't think any party is going to embrace that or would like that to be their image. Salam Aleykum Toski, nice to see you. All right, guys, thank you all. And don't forget to leave a like. That's our gentleman's agreement. And I really appreciate, I should say, gentlemen and, or brothers and sisters agreement. And I do appreciate everyone who's leaving likes. We did smash past the likes yesterday, which was awesome. And I really like the ratio of like views to likes that we have is amazing. Like, even if we have like 500 views, I think we exceeded 100 likes when we reached 500 views. So that means one in every five of you is leaving a like, which is awesome. I mean, I don't think there are many communities on YouTube that have that kind of ratio. So I'm just really thankful to all of you. I really appreciate it. So yeah, until next time, make sure to take care of yourself. Salam Aleykum and peace be upon you all.