As-salamu alaykum everyone, we had a tough few days in the market recently and I'd like to answer the question whether or not we are going into a bear market or if this is a short-term trend that is likely to reverse. I'm going to look at arguments for and against the position that we may be going into a more durable bear market and as always we're going to look at the data that either supports or doesn't support that position. So without further ado let's get started. This is not financial advice so be sure to do your own due diligence before making any investing decisions. Is the market in general overvalued? I think a reasonable measure to look at is the Shiller P.E. ratio. This basically takes the average P.E. in the market, inflation adjusted and sees how it compares with the historical average. So if you look currently I don't think it's deniable that we are at an elevated Shiller P.E. level. Between let's say 1950s and 2000 this ratio typically oscillated between 10 and 20. In the new millennia we've typically been between 15 and 30. However at 35 I think it's safe to say that we're at elevated levels and if you look at the levels that we were at before the dot-com bubble burst now those levels were 45 so we're making our way to that level of overvaluation. That being said depending on your frame of reference whether you want to compare with the average Shiller P.E. ratio since the start of the millennia or in the last 50 years we have been at elevated levels since the early 2010s and yes we spiked and we fell back down again but if you were just trading based on this entering and exiting based on this then basically the last decade of appreciation you would have missed. Another sign that says that we may potentially be overvalued here is the fact that the market top that we saw the local top that we saw on January 3rd 2022 the other multiples for stocks were very similar to where we are right now the other valuation multiples so whether it's the P.E. ratios the price to sales ratio the price to book ratio the Buffett ratio which is the market cap to GDP so that looks at the overall economy all of these metrics seem very similar to where we were in January of 2022 which was the top and we had another 12 months of downward movement for the markets after that. So is this a repeat of 2022? I don't think so and the reason why I don't think so is because of this tweet right here by Jim Cramer where he says the last dip down was and a harbinger for more selling I'm kidding of course but he has been quite a reliable contraindicator you know maybe this is reason to be bullish but no my real reason to be bullish is because liquidity cycles are pointing upwards so the liquidity cycle has followed roughly with the lag or or or front running sometimes but roughly it has followed a four-year cycle and we do seem poised by not just the chart but also the explicit the explicit remarks by the central bank governors of the major economies globally it does seem that liquidity set to rise and the correlation between global monetary liquidity and risk assets such as the S&P 500 seems quite strong so over time you can see that the spikes in liquidity are often accompanied by spikes in the S&P 500 index they're also quite correlated with spikes in assets like bitcoin so this is the major I think indicator that is going to determine where we end up and whether the drops that we experience in the market are long-lived or not the major indicator the I think the most reliable metric is the level of liquidity globally and right now that is set to rise you've probably heard the wall street saying never fight the fed I think that's very true and the fed is set to cut rates in September we'll get a job reports we'll get a jobs report on Friday which will likely inform the fed's decision whether they do a quarter point or half a point but I think and the market is pricing in the fact that a cut is coming and this will be the first of multiple cuts by the fed so this is why I think this is more of a seasonal adjustment and if you look at historically for bitcoin for example in q3 has been the worst quarter q3 ends in September whereas the average return in q1 was 56 percent since 2013 in q2 was 26 percent in q3 it was only plus five percent and in q4 it's the best quarter for bitcoin with an average return of 88 percent in that quarter not only is q3 the worst quarter for bitcoin but September is especially bad so if you look at the average return in September it's negative close to five percent whereas in October it's plus 22 percent November plus 46 percent and December plus five percent so seasonally at least we do seem to be following what the trend suggests and I think it's important for investors at these times not to be spooked and to focus on the bigger picture recently Wall Street Journal had a piece where they mentioned that at least for fidelity the number of client accounts with at least 1 million reached a record for them in q2 of this year and it was up 31 percent from a year ago so they now have close to half a million accounts in fidelity that have at least 1 million dollars in them so this the investing in the stock market has been a great wealth producer for a very large number of people inshallah my goal is to get at least 1 000 pif members to 1 million net worth through investing that's the goal but I think that if you focus on this trend and the fact that the larger trend of devaluing fiat currency is going to cause assets like quality companies to rise in price then I think you'll be able to make better decisions in times like this where the level of anxiety is high in the market I should also point to the fact that household allocations to stocks as a share of their financial assets has reached record highs households are more and more inclined to keep their wealth in stocks now there's two aspects to this I think the first is the fact that households may be getting more information about stocks through social media they feel like they understand it better they feel more confident investing and perhaps that makes them allocate a larger percentage of their financial assets to stocks I also think that this may be signaling towards overvaluation in indexes and this has been spoken about by many famous investors so index investing has caught a lot of steam lately in the last few years that is it's become very popular and it's become the go-to financial advice that just park your money in indexes and over time you'll outperform most investment managers and I think this is true however the corollary to that is that indexes start to become and companies in those indexes start to become overvalued because if no one is picking stocks then there is no one is valuing stocks and investing based on that or a smaller minority of investors are doing that then you get cases of overvaluation in companies that are in indexes and you get opportunities in companies that are not in indexes so I think this could signal that there are a lot of companies out there that are perhaps not getting the attention that they deserve so you should never be too sure either way with regards to things like stocks and the stock market bearish or bullish but even with regards to September since everyone is saying September is historically a terrible month you never know what happens I am reminded of the this I think funny but oftentimes true quote the stock market will do whatever it has to do to embarrass the greatest number of people to the greatest extent possible never be too sure whether it's near-term projections medium-term projections or longer than that but I think that the correlation between liquidity levels and asset prices is undeniable has held up for many years now and it does seem both if you look at the data and if you look at the explicit remarks by the governors of the major central banks globally that liquidity levels are set to rise in the medium term maybe in the near term there's some turbulence in the market but the medium term I think the outlook for that is quite clear so if you look at the next six months to 12 months I think the outlook is quite clear and there may be a lot of opportunities now for stocks that are not heavily covered smaller cap stocks that investors may not be paying enough attention to that will do quite well in this period so with that if you'd like to follow our portfolios do become a pif member to see our move straight for trade if you have not already it's nice to see you and a question about the rate cut is it actually bearish actually if you look at and I posted this in our discord if you look at the history of rate cuts recession or no recession if you look at the 12 months following the rate cut they've on average been positive when there is a recession the S&P is up close to eight percent on average and then when there isn't a recession following a rate cut the S&P is up closer to 12 percent this is in the next 12 months so actually in the near term who knows what happens it's a coin toss basically but over the next 12 months the average is positive so I remain bullish and I don't think that there's necessarily any reason to panic I'll let you know if that position changes do leave if you enjoyed this live and until next time make sure to take care of yourself salaam alaikum and peace be upon you all