There are a handful of arcade games that sucked quarters out of my pocket at a pace that would make the best con man blush.
Double Dragon… NFL Blitz… Marvel Vs. Capcom… The Simpsons… and… of course… Contra.
But one game rises above all others. This game was legitimately designed to take money from children. It was impossible to beat… you’d spend $10 (TEN DOLLARS IN THOSE DAYS) just trying to reach the next level. And no matter how much you spend… there was zero chance you would ever “Beat the Game.”
That game is Teenage Mutant Ninja Turtles.
Before there was Jelly Splash and other mobile games designed to take your money and toy with your emotions… this four-player arcade game would send wave after wave of enemies that zapped your health and drove you to insert another Washington-faced coin. Only the wealthiest kids had enough money to progress to the end bosses… and still lose.
The rest of us had to go home and explain to our parents how we had spent our entire allowance in about 27 minutes at Towson Towne Mall in Maryland… without returning with any products.
Now – back in those days… in the grand old days of the 1990s… we are talking about feeding quarters into a machine. But something happened today that will make your head spin.
It’s so eye-opening… and in line with the path forward for your money and your future… that you’ll need to keep reading. Teenage Mutant Ninja Turtles is back… And the inflation - still bursting at the seams in America – will highlight the cost-of-living explosion that will continue through this decade.
That’ll Be $1.25, Sir.
Today, I took my daughter roller-skating. We also played the Mario Kart arcade game – 12 times. Each play was $1 per person.
I looked at the arcade while she roller-skated (I didn’t because of my back). And a familiar – yet advanced friend – appeared.
This is the new Teenage Mutant Ninja Turtles video game. The graphics are better – but the gameplay is the same – and the sheer challenge is the same as ever.
So – where do I put my quarters?
Well – trick question. First, this roller-skating arcade was cashless – as you need to put money onto a player card in denominations of $10.
This is a brilliant business strategy because it forces a minimum… and try explaining how $10 works to a five-year-old.
Second – it doesn't cost $0.25 to play. It costs – five times that.
It's $1.25. So, while I might have spent $20 back in the day (80 plays), that same experience would cost $100 for a good hour.
There's a reason for that.
Liquidity… Liquidity… Liquidity…
I'm reading Capital Wars: The Rise of Global Liquidity.
It's by economist Michael Howell.
This is the most important financial book I've ever read.
It breaks your brain. It orders you to stop thinking in the traditional financial construct. Howell challenges the traditional notion that interest rates determine exchange rates.
Instead, he argues that it's a measure of quantity and quality of capital. You might think this isn't a big deal – but pay close attention to the financial media's obsession with the Fed's actions this week. Our fascination with the Fed is fundamentally flawed. We need to go "wider" than the Fed.
That takes us to the more important focus in this book…
The concept of refinancing.
Howell explains that our global economy is not efficient. Neither is our financial system.
The reason is that today's system isn't focused – at all – on creating new businesses, incentivizing entrepreneurs, or expanding the economy (this is painfully obvious.)
Instead, the financial system is based on a pattern of rolling over existing debt – and refinancing that debt no matter what the cost becomes. It shatters the basics of how we perceive the critical function of capital markets.
Writes Howell:
"The fact that the modern financial system has turned from a new financing system to a refinancing system that is more than ever dependent on the supply of potentially flaky safe assets to help rollover increasingly flaky debts creates a negative feedback that highlights the inherent dangers in credit markets."
Now – here's the important part.
Refinancing – which requires an expansion of capital and liquidity – is mandatory. The reality is that interest rates don't matter that much. Instead, Howell points out (and I absolutely agree) that "balance sheet capacity," or the capacity to borrow, is what matters most for companies.
This is how and why companies that trade at outrageous valuations – won't die. They're borrowing capacity can remain broader than many short sellers might remain solvent.
Liquidity… A Love Story
For years, I've had this hunch that liquidity is the only thing that I need to follow. A handful of people suggested that such arguments are little more than "macro bullshit."
But maybe we've been misunderstanding what liquidity is. We're taught to home in forever on the Federal Reserve – and the actions of central banks.
But that's not "liquidity." Howell measures this as a complete calculation of about $170 trillion (two third's bigger than Global GDP). It doesn't just start with the central banks. It includes "commercial bank and shadow bank lending, institutional investors, corporate and household savings, and repo and wholesale market activity," Howell wrote in July.
And what is the role of refinancing?
Turns out that the money to refinance is about seven times the amount of money that is NEW capital raising.
Putting It All Together
Howell was an outlier earlier this year. I watched an interview with him in December that suggested the low for the market was October 2022. At first, I didn't believe this argument, but then I dug into the actions of the central banks: England, U.S., China, and Japan, and how that coincided with two massive rallies in 2023.
The January rally came on the back of China and Japan's easing, and June's rally started with China offering a nice wave of capital. But Howell takes it further, explaining how global liquidity has been expanding since October.
Combine his research from the momentum reading that we designed off the back of multiple sources of research – including the Henning Family, Wes Grey, and Gary Antonacci… and suddenly, we have a mechanism for Macro Momentum that tells us one thing…
Global liquidity is all that matters… and our ability to measure capital in and out of the market – is a game changer. With momentum Green and global liquidity expanding, risk assets just continue to scream higher.
Howell recently suggested that the Fed will double its balance sheet in the years ahead. I have a hard time arguing against this prospect. The central banks only know how to print.
So, I'll join that chorus. It's going to be hard to get China to buy our debt. And the repo markets can't finance the Treasury Department forever. I expect global liquidity to expand into the back side of 2025… taking markets higher (although there will be hiccups along the way)… while the bulk of people sit around and complain that the market is "overvalued" because of numbers that existed back in 1950. Yes, the Fed will break something… and then the Fed will expand its balance sheet.
I'm on the record:
The Fed's balance sheet hits $10 trillion by 2026.
I've long said that the market is not the economy… and the economy is not the market. The Federal Reserve and other central banks are only concerned about "the economy." Their tools are designed to address various economic metrics.
They don't spend their days worried about stocks. Sure, a market detached from reality might create some levels of inflationary conditions. But we must understand that this system of debt is built on the concept of constantly refinancing it.
Debt creates debt… the monetary base expands… and the fiat currency becomes a mechanism to drive prices higher and higher.
It's a complete bastardization of finance and fundamentals.
For most people who studied finance – this concept seems foreign. We learned in CFA courses and MBA classes that fundamentals matter. They do… but only in very select cases (think the F score and Graham score working together).
But this is a new world – largely built on the back of Quantitative Easing exercises that picked up during the second wave in 2010… exploded in 2014… and when into quantitative overdrive in 2020. We're not getting off the monetization train.
It's not going back. This is the pathway. This is why we must humble ourselves and admit that what we learned 20 years ago isn't the world that exists today. In the world of momentum and expanding global liquidity – we just do two things.
We buy when momentum is Green and hold.
And we hedge or sell when momentum is red.
That's it. Nothing more.
Central banks broke the system.
Some people I trust have suggested we're in a new form of recession or even worse. They've used the term "Silent Depression" dating back to 2009. They may be half right.
We're spiraling toward a world of fake politicians, fake money… and fake economic outcomes. This little game will play until it breaks. But we must keep playing, or we'll get left behind.
So, my recommendation is that you do the following…
Learn the new rules… don't short when global liquidity is expanding. Short when momentum goes red (and only when momentum goes red) and stop talking about history P/E ratios and broad market fundamentals that fail to comprehend the new reality.
The new reality is why so many traders are failing… and why investors keep throwing in the towel. I'll talk more about global liquidity and momentum (as these are my north stars).
In the process, my hope is that by providing you this type of insight, you'll have more conviction with your portfolio… and you'll sleep better at night (or you'll at least spend LESS time staring at trading screens.
Stay alert,
Garrett Baldwin
Florida Republic Capital
About the Author
Garrett Baldwin is a globally recognized research economist, financial writer, consultant, and political risk analyst with decades of trading experience and degrees in economics, cybersecurity, and business from Johns Hopkins, Purdue, Indiana University, and Northwestern.