The Practical Islamic Finance Podcast

Don't be Larry

August 21, 2024 Rakaan Kayali

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Don't be Larry

In this episode we will cover:

  • Introduction and Bitcoin Update
  • Asset Overview: Easy vs Hard Money
  • Financial Disclosure and Membership Details
  • Gold vs Bitcoin Analysis
  • Investment Portfolio Insights (60/40 Portfolio)
  • Market Outlook and September Warnings
  • BitMEX CEO Prediction on Bitcoin
  • Historical Bitcoin Giveaway Story
  • Electric Vehicle (EV) Industry Challenges 
  • XPeng’s Financial Performance Overview
  • Challenges in the EV Business 
  • Tesla and Other EV Companies Comparison 
  • Q&A Session (Dogecoin, Tariffs, and More) 

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.

As-salamu alaykum everyone, I hope you are doing well. Today is Tuesday, August 20th, and Bitcoin is at $58,900. So we still haven't broken out of that narrow channel between $55,000 and $65,000 that we've been at for months now. But I do think help is on the way, we'll talk about that. And without further ado, so just to give you a heads up what we're going to do in this live, I'm going to tell you about a asset or assets that are relatively easy to make money with and other asset that is very hard to make money with. And we'll be doing a deep dive into a company. So without further ado, let's get started. Thank you Lubna for the like. If you do like these lives, then make sure to leave a like. I really appreciate that. And as always, this is not financial advice, just the musings of myself. So be sure to do your own due diligence before making any investing decisions. Wa'alaikum as-salamu alaykum, nice to see you, nice to see you Zuhair. All right, if you're not a member yet, be sure to become a PIF member, link to do so is in the description. We have a premium membership where we just share our picks and our portfolio trades, move for move, and we provide earnings updates on our portfolio companies as well as watchlist companies, buy below and sell above prices for watchlist companies as well. With Elite, we not just give members fish, we teach them how to fish. And so there's a course as part of that membership and that course is expanding inshallah. All right, so if we look at gold, gold is historically one of the easiest ways to earn money. You just hold on to it for as long as you possibly can. Now the modern equivalent of gold, at least as per Bitcoin enthusiasts, is Bitcoin, but it continues to perform rather well, especially if you're comparing it to cash, for example. So banks, reserve managers, that is, are stacking gold at record rates, and that's for good reason. So if you look at the gold versus dollar in the last five years, gold has appreciated, that's that blue line on the graph, has appreciated close to 70%, whereas with basket five other major currencies, you can see it's basically flat. That is, dollar is flat compared to that. With the, compared to the euro, again, it's flat. And if you held in yen, then you lost close to 40% of your purchasing power over the last five years when compared to holding the dollar. So the most profitable course of action was holding gold amongst these different options. Obviously holding Bitcoin was more profitable, we'll talk about that in a second. Now, for those who studied finance and perhaps taken a few investment courses, the traditional 60-40 portfolio, which put 60% of the portfolio in stocks, 40% in bonds, it turns out that this portfolio would have been outperformed if you switched, replaced bonds with gold. So, you know, for the Halal conscious investor who may be thinking, oh, well, I can't follow the 60-40 portfolio because I can't invest in bonds, they're interest bearing debt. Well, actually, if you invested in gold instead of bonds, you would have turned out ahead. So you can see returns here, 9.93 for stocks, gold 60-40 portfolio versus 9.73. And this is for the period 1973 to 2024. Now, I think that you'll do even better if you were to replace gold with Bitcoin, for example. Now, the volatility for the gold portfolio was higher. Sharpe ratio was a bit lower, but very comparable. And the bottom line for many investors are their returns and the stocks gold portfolio did outperform. And gold bargains today, they've reached a million dollars in price. So price of one gold bar, a million dollars. And as I'll say, my prediction is that gold bars today, Bitcoin tomorrow. So we will get a point in the future where one Bitcoin is one million dollars. And perhaps myself or someone else on YouTube will be sharing a slide telling their viewers that, hey, fun fact, Bitcoin has reached a million dollars. So I think the moral of this is that there's still a lot to go with Bitcoin in terms of appreciation. If you have some money that you can set aside and you're not worried about volatility and you can hold that money for long enough. Now, if we look at the markets, I do want to give you guys a heads up about something. So we had eight days of upward movement for the S&P, which was a record for the year. Today, we might not have that. We'll see. But something to keep in mind or watch out for the last two weeks of September have typically been the toughest weeks for markets. So, you know, if we get as many are expecting a rally in these next few weeks, two to three weeks, then I think it would behoove investors, if they're sitting on a lot of profits, to maybe trim some, take some profits before that really tough end of September period, at least historically. Obviously, allahu alam, but historically that has been the second half of September has been a tough period of time. So now the CEO of BitMEX has made a prediction that the U.S. Treasury is going to pump close to one trillion dollars in liquidity between now and the end of the year into the markets, which will send Bitcoin's price to a million dollars. And, you know, why not? I mean, we're creating money out of nothing. We're already up to our eyeballs in debt. So why not add another one trillion in order to make sure that the people that appointed you, in this case, the U.S. Treasury Secretary Janet Yellen, the people that appointed her stay in office. Unfortunately, this is where we are now. This does mean in the near term, if this pans out, that asset prices are going to appreciate in a big way. So something to keep an eye out for. And fun fact, which is not fun at all if you don't have it, and that is in 2010, there was a website that was giving out five Bitcoin per visitor for free. So you just have to visit the website and you get five Bitcoin, which is worth$300,000 today. So this speaks to the importance of being early on a specific trend. So this was my example today of any way, I think an easy way to make money. And now I'm going to tell you about a really hard way to make money. And this comes from a thread on X from the user AJ, and he does some really, I think, solid, has some solid insights into electric vehicle companies. So XPeng reported their, their earnings recently. And he's made some pretty astute observations, I think would speak to the difficulty of earning money in the car business, specifically in the EV business. So if you look at XPeng's revenue, so XPeng's revenue has increased dramatically. So 60% over year and percent compared to last quarter, which is good news if you're an XPeng investor. However, it's important to dig a little deeper. So as we saw yesterday with the valuation for the example between we were comparing GM and Tesla, that's not enough. There's should have a checklist of things that you're looking at. So revenue growth and revenue, that's great. But looking at that and stopping is, I think, not the way to go. If you look at the average selling price, it dropped 11% quarter over quarter. So we went from, you know, $35,000 for the average unit sold to 31,000, but that's fine considering that the revenue increase. So I'm fine with that. This is not a red flag in any way. They're selling more affordable cars. And the fact of the matter is the top line for them is growing. That's great. However, the, and also adding to the good news is that the cheaper model has actually corresponded with a reduction in vehicle production costs. So they're not, so the top line margins aren't really compressing, which is great. Now, net net, this has helped XPeng to deliver the strongest vehicle gross profit in six quarters at 2000 per vehicle. So the gross profit, so top line, so total revenues minus cost of goods sold is$2,000 per vehicle sold. And that's a modest 3.8% jump quarter over quarter. So it was slightly below 2000. Now it's above 2000. Overall gross profit was up 35% quarter over quarter to 157 million after losing 32 million in last year's second quarter. So still we're, we're talking about good things here. Now, again, we're talking about overall profit. We're not talking about net. So we're still at the top of the income statement. So this is the highest gross profit ever. Exactly in four years or 16 quarters after XPeng generated the first gross profit. Now this is very profound. So they've actually reached a gross profit four years ago and their highest gross profit was achieved today. However, this is actually quite ominous for electric vehicle manufacturers for XPeng and for other electric vehicle manufacturers, Rivian, Lucid, others. And the reason why it's ominous is because they've been in gross profit positive territory for four years now. And as we're about to see, they still haven't generated a net profit. So if you look at so gross margins, it jumped to a new high of 14%. However, this is too, still too low to cover operating expenses. They're still not covering expenses. They're still burning money. It's still a net cash consuming operation. So as a result of the still low gross profitability, XPeng continues to make losses on an operating basis, which includes operating expenses and sales general and administrative expenses. Although XPeng's 48% year over year loss reduction is encouraging. The, the, the getting to break even has proven extremely difficult. Again, they've been operating at a gross profit for four years now, and they still can't get to a net profit. So after accounting for operating expenses, they still haven't gotten that bottom line to a positive number. So the operating profit is still, we're looking at negative 200 million. That's how much they're burning every quarter. XPeng's operating margin improved, but at negative 19.8%, XPeng continues to lose 20 cents basically on every dollar. So in order for it to generate $1 in revenue, XPeng spends $1.2. So this is a really hard way to earn money. Being in the EV business, being in, being in the auto business generally is really tough. Being in the EV business is especially tough. And as I showed you guys yesterday, no one is doing it profitably. If we're talking about pure EVs, no one is doing this profitably except for Tesla. BYD is profitable, but they rely a lot on hybrids. They sell a lot of hybrids. The only pure play EV company that is profitable at that bottom line is Tesla. So XPeng's operating losses remain stuck at the 180 to 190 million mark. Again, Rivian investors should take note of this. So if you're invested in any EV company, you should be looking at this and you should be terrified. For four years now, they aren't able, even though the gross profit is positive, for four years, they haven't been able to generate a net positive income. Pre-tax margin improved to negative 16.6%. Again, less negative than operating margin, thanks to some interest income on cash balances. XPeng does not provide cashflow statements. That's not good. This is a red flag. Without cashflow statement, we can't precisely calculate free cashflow. However, by looking at XPeng's balance sheet, we can see there was significant cash burn. So they were at 5.7 billion at the end of Q1. Now they're at 5.1 billion at the end of Q2. So they've burned through a bunch of cash. Although XPeng's performance has improved, the long and drawn out nature of performance improvements, despite scale increase, demonstrate the significant difficulty to achieve operational success, even long after gross profitability has been achieved. This is something that other EV companies and EV company investors really need to look long and hard into. And I think it behooves them to actually question, you know, is this the right business to even be invested in? Is this the right business to, is this the easy way to make money? As I always say, there are easy ways to make money. There are hard ways to make money. And it makes a lot more sense to pursue those businesses that are in easy, that are pursuing easy ways to make money and not the ones that are extremely hard. So with that, let's take questions. If you like these types of breakdowns, become an elite member. We'll be doing them regularly, inshallah, for different assets. Asim Arwas has mentioned fourth like, that's great. Thank you. Thanks, Lubna. It's my pleasure. Chocolate says valuable musings. I appreciate that. Dola says, like your share. Well, thank you. I appreciate that. It's really light and airy and good for a summer. Any thoughts on why Dogecoin is stuck? Well, Dogecoin is stuck as is Bitcoin, as is a lot of crypto. I think if we do see a liquidity injection, you know, on the tune of, or at the scale that we are expecting, all of these assets are going to fly a million or 100k. So the end of year prediction for that particular person, the BitMEX CEO, for Bitcoin would be 100k. But I do think it will reach a million after that. Abdullah says, all problems because of Reba. Yeah, I think that's a major contributor here. Amir says, great video. From where do you get your coin charts? So I think X has a wealth of information. So X is a good source. TradingView is another good source. There are other services like Bit and what's it called, specific to Bitcoin and like on-chain activity. So they're just a Google search away. Rashad says, what do you think about the extra 9% tariff on Chinese EV? I'm generally not a fan of tariffs, but I think that, you know, China is the best vehicle manufacturer on earth. They are, they have the most competitive companies on earth. And I think, you know, in a free market, basically none of the American companies would survive unless they are, you know, ultra high end Tesla. So yeah, I think that's a tariff out of necessity. Excuse me. Other than buying with cash upfront, what would you suggest the best way to buy cars nowadays? I don't know Halal financing for vehicles. Is it logical for someone at the wealth building phase to put money into dividend portfolio? Yeah, I think you have to ask yourself, you know, what your tolerance is for risk and losses. Obviously as a PIF member, you know, the growth portfolio, emerging growth, crypto, a lot more volatility there. And some people can't stomach that. So if that's your personality, then maybe just park in dividend and be done. Hamad Saad says, Assalamu alaikum. PLL at this price, is it a good price to buy? So if you have any like specific positioning questions, price questions, those are for PIF members, not for a public forum. You can go to our watch list. If you are a PIF member and see the prices that are up to date regarding buy below and sell above. What are some of the metrics one can look at to determine success of layer one cryptocurrencies such as Solana? Well, look at adoption, look at usage, you know, ultimately, and this is what you really want to impart on your children as well. You want them, you want to impart on them the following idea, which is that they need to think about how do they create value, not how do they earn money. So focus your mind and focus the mind of your loved ones, the ones that you care about their prosperity, focus on creating value. And then the money comes from that. But the first thing you want to ask is, how can I create value? If you want to be well off, if you want to live a comfortable life, always be asking yourself, how can I be useful to others? Now, in terms of when you're analyzing an asset or layer one asset, for example, you want to ask yourself, how much benefit, how much value is it providing people? And to do that, you can look at how many people are using it and how many transactions per day are they using it for. And that is a proxy for how much value people are using it or how much value people are getting from it. Are you going to be buying more Bitcoin soon? Probably, we'll see. How to do short selling. So short selling, how to do short selling in a halal way. So I think short selling fundamentally is not comfortable with it, but there may be other ways that one can benefit from the decline in an asset's price in a halal way. And we'll, perhaps we'll talk about that in our elite membership, specifically as it relates to puts and how to deal with them in a halal way. All right. Thank you all for coming. I really appreciate it. Leave a like. Thank you for those who have already left a like. I really appreciate it. And if there are any topics that you'd like me to dive into in a future live, then do leave those in the comments. Until next time, make sure to take care of yourself. As-salamu alaykum and peace be upon you all.