Right now, we have perfect proof that trying to equate what the “economy” is doing with making money in the share market is a fool’s errand.

The latest GDP numbers show Australia’s growth is anaemic at best. It was so unimpressive that the odds of the next RBA cut went up.

Do I care? Not in the slightest. Yesterday there was a flood of green on the share market. Odds on the ASX is going to break into all time highs and keep going.

There were some juicy moves. One that springs to mind is Zip Co ($ZIP).

It rallied 13%…on the day.

I flagged Zip as one to watch back on April 17. It’s up nearly 40% since.

In hindsight – oh god, it’s all so easy in hindsight – the April takedown was a massive buying opportunity.

I said so right here in Fat Tail Daily. I put 5 ideas to buy down, right then and there, tariffs and Trump be damned.

One of those ideas is now up nearly 90%.

Look at the percentage moves I’m sharing here. This is the potential you have when you consider shares outside the Top 50 on the ASX.

I’m not saying it’s without risk. But there is simply so much opportunity that goes by, year after year, that most people simply don’t hear about.

They’re not watching.

I urge you to start following the small/mid cap sectors in particular. The RBA rate cutting cycle is odds on to juice these up big time.

Believe me…

The small cap sector is still trailing the big caps since the divergence began back in 2022.

See for yourself…

I expect this gap to close by the end of the bull market.

Check out this report from the Fin Review the other day on small cap fund managers…

“For many, May has been among the strongest months for returns since the ASX’s rapid rebound in 2020 from the pandemic-induced market crash.”

In other words, when the market went down, the money went chasing growth and opportunity, and it’s paid off, big time, in short order.

If there’s one thing I’ve learnt about investors, is that they chase performance.

I know every book on investing says this is the wrong thing to do, but people do it anyway. They chase rising markets in the same way. Human nature is eternal.

The more that small cap funds put out cracking numbers like this, the more they can pitch to get more money, and investors will hand it to them.

Now we have the power of a rising market at work, and the RBA juicing it all along with rate cuts and rising house prices.

Truth be told, the small cap sector has been something of a slog over the last 3 years.

Don’t get me wrong, there’s been niche and unique ideas to ride. But overall it always felt like the market environment was a handbrake.

Something about yesterday made me feel like something shifted.

Warning: I have no idea what the general market will do in the next 3 months.

But I expect the small cap sector is going to really start firing on all cylinders in the next 12 months. The ingredients are there for it to happen.

This is going to hand me – and you, if you decide to participate – a problem.

There’ll likely be too many opportunities.

One of the hard things when the market is “hot” is that so much starts moving you feel like you want to be on or across it all.

That’s not possible. At some point you have to decide which ideas you’re going to back, and with how much capital.

But most important is to start somewhere.

Yep…

Looks to me like the gun just went off for the next big small cap bull run.

God knows we’ve been waiting a while for it.

Here’s 5 ideas to ride the small cap bull run. Don’t wait!

Best wishes,

Callum Newman,
Editor, Small-Cap Systems and Australian Small-Cap Investigator

Murray’s Chart of the Day –
CBA vs Japanese Bonds

By Murray Dawes, Thursday, 5 June 2025

If analysts meet up at the pub for a few quiet frothies, odds are that they are talking about the vertical rise in the price of Commonwealth Bank of Australia [ASX:CBA].

Most of the big broking shops called CBA way overvalued when it went through $100 late last year. Today it sits at $181 and looks like it wants to go even higher.

We have mentioned the fact that passive investors are compelled to invest around 10-12% of every dollar they receive into CBA. That is a steady flow of huge amounts of money that must go into the stock regardless of the price.

But what if there is something else going on?

The chart above shows you the yield on the Japanese 10-year bond in green and the price of CBA in blue.

It has to be said that correlation is not causation.

I have no idea whether this relationship is showing us something of value or not.

But it is interesting that as government bond yields rise (bond prices fall), stocks that could be considered bond proxies are flying higher.

Is it not only the passive money flows, but also money coming out of government bonds looking for a safe home driving CBA higher?

If so, when does it reach a crescendo?

My method for such impossible questions is to listen to the price and at the moment the stock is going vertical.

There are no signs of weakness yet. So if you are long you hold on for dear life, and if you are waiting to get short, you have to wait for signs of fatigue.

The bond market is far larger than the stock market. So if there is serious money coming out of long-term bonds looking for a home it could create distortions in stock prices that go further and last longer than many think is possible.

Regards,

Murray Dawes,
Editor, Retirement Trader and Fat Tail Microcaps