The Practical Islamic Finance Podcast

The End 😁

Rakaan Kayali

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The End 😁

In this episode, we will cover:

  • Intro & Market Update
  • Market Rotation: MAG-7 vs. The Rest
  • The End of Quantitative Tightening?
  • Interest Rate Cuts: When & How Many?
  • Gold vs. S&P 500: Surprising Returns
  • Tesla’s Future & Elon Musk’s Role
  • Closing Thoughts 

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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. We got another green day in the market today, which is great. We'll take it. The VIX was down five point seven percent. That's the volatility index. The dollar index was down a bit. That's good for risk assets. The Russell was up one point two six percent. The S&P was up point six four percent. Dow Jones was up point eight four percent. The Nasdaq was up point five five percent. So nothing to write home about in terms of green, but green nonetheless. And I'll take it, especially in light of the few weeks that we've had and the performance and the pullback that we've experienced during those weeks. Now, it is important to remember, when in doubt, always zoom out. It is important to remember that if you take the pullback that we've experienced recently and you put it into context, we've basically just round-tripped the Trump gains that we experienced. So if you look basically in the last six months, the S&P, that's what I'm showing on the screen right now. The S&P is basically flat over the last six months. We're basically where we were. So we were at fifty six hundred. we're at fifty six hundred right now on the smp so just putting things into context the world is uh not falling apart as you know some headlines often uh make it seem now in terms of the theme of this live which is the end I will tell you the end of what but first let's look at the leaderboard and the loser board I guess and that paints a very important picture which is that there is a rotation happening you can see basically the entire market was different shades of green except for the mag seven basically the biggest uh winners of the last few years amazon tesla google meta nvidia They are all down, whereas the rest of the market is up. So perhaps a rotation is happening now between those winners that have become, in many respects, overvalued. I would exclude Tesla, but many of which have become overvalued. And I would actually exclude Nvidia as well. I think Nvidia is a really good competitor. Really good price right now, really good value. But a rotation is happening from the MAG-VII to the S&P-D-D-D-D-D-D-D-D-D-D-D-D-D-D-D-D-D-D-D-D-D-D-D-D-D-D-D-D-D-D-D-D-D-D-D-D-D-D-D-D-D-D-D-D-D-D-D-D-D-D-D-D-D-D-D-D-D-D-D-D-D-D-D-D-D-D-D-D-D-D-D-D-D-D-D-D-D-D-D-D-D-D-D-D-D-D-D-D-D-D-D-D-D-D-D-D-D-D- Now, the end of what you may ask, the end of QT is what I was referring to. So quantitative tightening. And in fact, something you may not know is that we've been in quantitative tightening. That is the Fed taking liquidity out of the market since twenty twenty two. And it does that by simply letting the bonds that it holds on its balance sheet expire. And so. According to PolyMarket, there's essentially a hundred percent chance that QT is ended by May of this year. And so if an end of QT coincides with rate cuts, and we'll talk about that in a second, this could paint a really good picture for the markets leading into the second half of this year. Now, this is assuming, of course, this new administration doesn't do something completely bonkers. This is keeping investors on edge, not really allowing them to you know, back up the truck on some of the prices that we're seeing in the market. But the macro nonetheless is pointing towards a pretty strong second half of this year. And maybe we get a strong rebound even before then. Retail sales came in today and they were below expectations, which bodes well for the probabilities of an interest rate cut. However, if we dig a bit deeper into the numbers, even though the actual was point two, the expected was an increase of point six. If you exclude autos, They actually came in at point three, which is in line with expectations. So this is perhaps why the probability for a rate cut in June didn't really move much. This is the closest meeting where the probability for a rate cut actually is more than fifty percent. So in March, where I mean, rather in May, The probability is less than fifty percent for a rate cut. But in June, you have a fifty five point nine percent chance of a twenty five base point cut. If you look a week ago, that probability was forty nine point seven percent. So it didn't move up, but not by a lot. And one of the reasons why I'm very confident that we will get some aggressive cuts this year, I think probably two or three, is that the interest payments that the U.S. government now has to pay exceed its defense budget. So we're now at one point two trillion. in annual interest payments that need to be made. And there's about seven trillion, seven to nine trillion that needs to be refinanced in the second half of this year. And interest rates need to come down in order for the government to refinance at lower rates and keep this interest expense in check as much as possible. So there's hundreds of billions of dollars on the line here annually with regards to the interest rates and where they end up by the second half of this year. And that's why I'm confident that we will get interest rate cuts this year and probably sooner than is currently being priced in the market. or at least the probabilities will change and um you know if you recall a few weeks ago I was talking about september the market pricing in september being the being the timing for the first interstate cut now we're not now talking about june june may become more of a certainty and maybe may is becomes you know in the cards as well now Speaking of zooming out and another reason to be bullish and not think that the world is coming to an end, if you look at the intra-year drawdowns and their magnitude, historically speaking, what we've experienced in twenty twenty five is really nothing. We've had eight point six percent drawdown. If you look at twenty twenty four, the biggest drawdown we had was eight point five percent. In twenty twenty three, the biggest drawdown was ten point three percent. In twenty twenty three, the S&P ended the year twenty six percent higher. In twenty twenty four, it ended the year twenty five percent higher. So just because we've experienced this drawdown doesn't mean the bull case for the year is not in place. And in fact, we're seeing investors, you know, understanding this, they continue to buy the dip. If you look at the weekly inflows into equities, this is the third largest weekly inflows into equity this year. basically ever. If you look at January of, you can see the spike and inflows into equities. And obviously we had a pretty bullish period after that. And then if you look at September, Investors also got that right because we had a strong twenty twenty three, a strong twenty twenty four. And here we are at another peak. March twenty twenty five. Investors still maintain strong confidence in equities. And I think for good reason. There are a lot of good deals out there, especially today. If you look at the thank you, middle class investing Ramadan Mubarak. If you look at the central banks. And what they are doing, they are doing buying of their own. They're not staying in fiat. So we've had record central bank buying. which has lifted the gold price to record levels. It's actually been in the S&P. It's actually been quite a good hedge. And if you look at the performance of gold since the beginning of this century, since two thousand until now, it's especially considering the the recent rally that gold has been on it far outpaced the s p with an average ten percent annualized return gold has versus the s p the annualized return so if you take the ups and the downs the annualized return is around five percent considering where we are right now. So conventional wisdom tells you the S&P beats gold more times than not. However, since the beginning of this year, and obviously if you change your start date, you're going to change the outcome here. Obviously, and if you look at, you know, twenty four, twenty five, obviously the S&P did a lot. I'm sorry, twenty three and twenty four. The S&P did a lot better. So it really matters the time range that you look in. But I think this is important to see because conventional wisdom has been, okay, let me just throw money at the market, buy an S&P ETF and just call it a day. This will do better than most stock pickers, by far it will do a lot better than most stock pickers. But it's also not that hard to beat the S&P if you take the time to understand a bit about investing and what you're investing in. So, you know, a shiny rock like gold can beat the S&P by a lot. And so, you know, productive assets like, you know, a Tesla or something like that could beat it by a lot more than that. And even Bitcoin could beat it a lot more than that. So it really pays off to put some time into understanding what you're investing in. And this is why we have our community of halal conscious investors that are putting in the work to understand what they're investing in and helping each other out with their investing journeys. One of the big perks here is that you get a list of stocks and cryptos that I have conviction in, various levels of conviction in, as well as the upsides that I forecast for these different assets. And this helps a lot of people make investing decisions, or at least it can inspire them with regards to investing. And it helps to compare notes. And so move for move, people are able to follow exactly when I buy and when I sell. We're running a promotion, Ramadan, twenty twenty five, thirty five percent off when you use that code at checkout. So take advantage of that while the promotion lasts. With that, let me take some questions. Hamid Amiri says, if you have to guess, when do you think lithium prices may recover? I think probably at the end of this year, beginning of next year, we see a recovery in lithium prices. But the question you have to ask yourself, Hamid, is when will the market price in the recovery? That's kind of tough to gauge. Now, something that I will say is that if you look at something like Piedmont Lithium, a stock that we have interest in that has been beaten down lately because well, initially it was because of lithium prices, but now it's more in response to the general market activity. I think that you look at the price right now, and this is not just lithium prices. This is also, you know, the entire market has taken a beating. And so I think that a recovery there will probably be even sooner than the recovery in lithium prices. As-salamu alaykum, Dr. Bas, nice to see you. What was the lag between the M-to-money supply liquidity and BTC? That was fifty days, according to the chart I shared last week. Rashad, nice to see you. Thanks for moderating, as always. Yeah, spooky title, but actually something to be optimistic about. In the words of Habib, smash like. Yes, indeed, I mean. Assalamu alaikum, middle class investing. Nice to see you. Zuhair, assalamu alaikum. Ahsan, salam. You were right about M-Phase Energy a year ago. It has started to gain momentum now. It's a shame. Yeah, if you ever leave anything for the sake of Allah subhanahu wa ta'ala, Allah subhanahu wa ta'ala will replace it with something better. And inshallah, he will, Ahsan. Hafiz says... Tesla's long-term success is tied to Musk and Tesla lacks a clear successor. Tesla could face leadership instability. Will key man risk affect long-term valuation of Tesla? I think it's possible, but if you look at something like Apple, obviously Steve Jobs was very instrumental in Apple's success, but it ended up, I mean, the majority of the appreciation in Apple's market cap came after Steve Jobs' death. I don't think it's far-fetched to assume something similar with Tesla, especially considering the main lines of business already have enough momentum behind them. So obviously the manufacturing and delivery of vehicles, that's probably the least exciting business. that has reached escape velocity I think the the storage business that's growing like weeds right so there's a lot of momentum there if you look at their robo taxi business that's going to be the multi-trillion dollar business I believe that you know we're twelve sixteen twenty four months away from fully operationalizing that And then you have the robots coming at the end of this year. So they should be coming off the assembly line at the end of this year. So I think that, and these are really the main plays that got me into Tesla. So I think that there's enough momentum behind them that there should be many years of runway of appreciation for this stock, even if something happens to Elon Musk. But obviously I think the innovative side, Elon Musk has a lot to do with, but in terms of the operations and execution, I think that, you know, there's a lot of competent people in Tesla at this point that can take these different lines of business to what they were envisioned to be. could the stock cisco systems be interesting enough to have a look take a look at cisco and if my memory serves I think they have some pretty some pretty strong ties to israel in terms of like their operations so take a look at that and And but yeah, Cisco is a stock I haven't looked at for I think more than a year now, so I'm not really sure. But last time I checked, I thought there was, you know, there may be some connection there. It's worth taking a look at that, brother. All right. Smash like, as Amin said. And thank you for tuning in. Big week today. Big week this week, as Jerome Powell will explain. give his press conference on Wednesday. I think that will set the tone for the markets for the remainder of the week. And so long as Trump keeps his mouth shut about tariffs and doesn't introduce anything else, doesn't get the country into a war, hopefully the markets should be good, I think. So with that being said, Make sure to take care of yourself. Love you all. See you next time. Assalamualaikum and peace be upon you all.