Bitcoin rally signals potential big move forming elsewhere too

2023 just keeps throwing out the surprises.

The latest is the surge in bitcoin. What's it telling us?

Lots of things!

Look at this chart…

This shows the current slaughter of long term bonds in the United States.

This chart goes back 100 years. You can see the carnage is epic relative to history.

You know bonds are dropping, in part, from the fear around how sustainable the US government debt is.

US bonds are supposed to be “safe”.

Clearly, they’re not.

I wrote (for Fat Tail’s paying subscribers) back in August how this dynamic would be “good” for hard assets like gold and bitcoin.

Officially, I said:

“Bitcoin stopped being the plaything of retail punters a long time ago.

“The Tulip Mania period that washed through the crypto world in 2017 is long dead.

“And yet bitcoin remains…$45,000 per BTC in Aussie dollars.

“It does so because the market isn’t stupid.

“People can see perfectly well that the current currency system has one foot above an open manhole and another about to step on a banana peel.”

At that point I expected the Fed again to buy US bonds directly to support the current gargantuan US government spending.

That hasn’t happened yet, at least overtly.

In fact, China is moving first!

“There are no coincidences,” say the market strategists.

Bitcoin is jumping at the same time Chinese President Xi is making a very public visit to the Chinese central bank.

Xi is raising China’s fiscal deficit.

Liquidity expert Michael Howell says that the People’s Bank of China is also juicing the Chinese markets.

You can see that here…

Bitcoin appears to be sniffing this out.

My take? Watch iron ore!

Any move here would be confirmation that the Chinese economy is coming back from its lacklustre year so far.

Commodities could rally across the board from this. Here’s a reminder of how important China is to the natural resource market…

Of global demand, China accounts for…

• 16% of oil
• 17% for LNG
• 51% for copper
• 55% for steel
• 58% for coal, and
• 60% for aluminium

My favourite iron ore small cap play right now is Mount Gibson Iron [ASX: MGX].

We got its latest quarterly update last week, and it was a belter. Their cash and investments went up nearly $100 million over the last 3 months.

The stock rallied about 9% over the last week. It rose while the market got clobbered.

In my view, long term, this still gives you a great opportunity to buy more stock at a suppressed valuation.

By the time the company reports its half year results I’d be staggered if they don’t declare a big dividend or stock buyback.

There’s just so much cash building on their balance sheet.

And see above…China is stimulating. The next 3 months should see even more money pour into their accounts.

I’m not saying its without risk. I can’t promise you that.

But I still like it from here a lot. You can get the full story by subscribing to my small cap advisory.

Here’s another interesting, personal angle on what’s happening now.

Earlier this month, I was in Melbourne attending an event Geoff Wilson hosted for his new fund.

I didn’t discover all that much, except for an interesting insight from his portfolio management team.

They had met with Rio Tinto Chief Executive Jakob Stausholm.

In turn, Stausholm told them he had met recently with China’s government elite, including Xi Jinping hanging around the room (apparently).

The feedback told to us was that the Chinese government is not happy with the current state of their economy — and highly likely to act more aggressively to do something about.

It seems to be playing out right in front of us.

You know, I'm sure, that it ain't easy out there. 

The current market is one of the toughest I’ve seen in a long time.

But we could be about to see a big rally in the commodity sector. The would be much needed good news for the ASX indeed, small cap miners included.

Best wishes,

Callum Newman

Editor, Australian Small Cap Investigator