I left you yesterday with the idea that the price surge in CBA shares is not because of passive money flow.

Instead, it’s a signal of the AI boom that’s going to filter out across the ASX.

This is already behind the resurgent Nasdaq this year (and from 2023 in general before that).

The current bounce from April 2025 is one of its best share market comebacks in history.

Why? Why is the market back up?

One reason is that the consensus view is Trump’s tariffs will be negotiated down or away in some way.

Treasury Secretary Scott Bessent says most trade deals needed will be done by September.

But there’s a larger dynamic at work, and it’s the one we touched on yesterday: the AI supercycle.

This week you and I are on a mission. We’re unpicking a recent presentation from massive hedge fund Coatue.

They acknowledge that US tariffs and deficits are a market risk. You can’t ignore them.

But Coatue is willing to bet that both issues will be trumped – excuse the pun – by the following potential “AI flywheel”.

You can see it here…

They call it the ‘productivity-deficit’ cycle.

This is important in the context of what happened earlier in the year.

Bond yields surged when Trump threatened the growth outlook.

In other words, the bond market revolted. Share markets dived. Trump had to walk his stance back.

Clearly, the federal debt is a US weak point.

Now you can see the importance of the flywheel.

AI can take this concern away. In fact, it could conceivably make it redundant for a long time.

Coatue point out that the 1990s could tell us a thing or two here.

You see….

Economists way back then assumed productivity growth would be much lower than it turned out to be. That was thanks to the internet.

Instead, US growth barnstormed up and, looking back from 2000, took the US debt to GDP ratio DOWN.

This outcome was the reverse of what everyone in 1990 thought would happen. Ha!

Could the same happen in the next ten years?

Yes – thanks to AI, if the tech can deliver on its promise.

Projecting too far into the future is almost always a fool’s game. The world is simply too variable. Random, unforeseeable events happen. Innovation ends up in unexpected places.

However, for the purposes of today’s missive, we don’t need to know where exactly AI takes us.

It’s what people believe that will determine the next year or two in markets.

If investors get comfortable that the US is going into an AI supercycle, the fears around deficits and debts will fall away.

They did this before, by the way.

Debts and deficits were a concern after the 2008 debacle.

Many, many people hung on to the residual fear of another GFC last decade. You can’t blame them. Markets are hard.

The big money, though, was in understanding how US tech was going into an epic revenue boom once the social media / cloud boom took off from about 2013.

That’s all that mattered. The AI thematic looks the same right now.

It’s what matters more than anything!

Start learning what you need to know here with one of the best in the business.

Best wishes,

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

Murray’s Chart of the Day –
Australian Dollar

By Murray Dawes, Tuesday, 1 July 2025

As the US dollar plummets, the Australian dollar springs back to life.

Last month saw a monthly buy pivot confirmed in the Australian dollar from a major buy zone.

The monthly MACD has also kicked into positive momentum, so a more bullish outlook is taking shape.

The long-term trend in the Aussie remains down, so we may still see some weakness going forward, but I reckon it is now a case of buying the dips rather than selling the rallies.

The point of control of the major wave I’m making calculations off sits at 68 cents. That is a solid target on the next leg up in the Aussie.

Regards,

Murray Dawes,
Editor, Retirement Trader and Fat Tail Microcaps