Podcast Summary: The Compound and Friends

Episode: New Year’s Resolutions, the $15 Trillion Liquidity Flood With Garrett Baldwin, Reacting vs Predicting

Date: December 30, 2025
Host: Josh Brown
Guest: Garrett Baldwin

Overview

In the final episode of 2025, host Josh Brown is joined by financial writer and investor Garrett Baldwin for a deep-dive into the year’s economic surprises, market record highs, the global liquidity surge, the Fed’s true mandate, gold and silver's remarkable rally, and reflections on reacting versus predicting in investing. Michael Batnick is on vacation, but the conversation maintains its signature mix of accessible expertise, irreverence, and practical takeaways for investors heading into 2026.

Key Discussion Points

1. 2025 Market Recap & Economic Backdrop

• Stock Market & Economy in 2025
  • Stock markets closed at record highs.
  • Consumer spending and CapEx cycles hit records.
  • IPO and corporate investment cycles flourished.
  • GDP growth surprised to the upside.
  • The year ended with another interest rate cut.

"We finished 2025. Record highs in the stock market, give or take. Consumer spending breaking records. A full blown capex IPO and corporate investing cycle all over the place. And faster than expected GDP growth was like the last big economic headline of the year...and we finished the year with another interest rate cut."
—Josh Brown (06:16)

2. The $15 Trillion Global Liquidity Flood

• Origins & Mechanics
  • Since January 2024, global liquidity (everything past M2) expanded by ~$15 trillion, $13 trillion of it in the past year alone.
  • Massive injection comes from central banks, treasuries, and the shadow banking system.
  • Asset prices have surged—almost everything is up except for a few notable exceptions (e.g., home prices, Bitcoin, oil).

"Global liquidity, the way [Michael Howell] defines it, basically everything past the M2 has expanded by roughly $15 trillion since January 2024. And 13 trillion of that comes this year alone. So this is not a tailwind. It is a flood of capital...Markets are going to do exactly what they're supposed to do."
—Garrett Baldwin (07:09)

• Meaning of 'Liquidity'
  • Liquidity here refers broadly to the capital available through global financial systems (including traditional and shadow banking), showing a direct relationship with upward asset price movements.

"The bulk of that liquidity expansion is everything past the M2...Shadow banking system...$100 trillion. And it's that global liquidity index that HAL has been showing since 2011...It just showcases the MSCI is just going straight up."
—Garrett Baldwin (09:54)

• Mechanics Amidst Rate Hikes
  • Liquidity comes from the front end (Treasury issuance, functioning repo markets), not just central bank rate cuts.

"They have effectively said the thing that matters most right now is not the fed funds rate, it's the SOFR. And it's, it's the stability and the health of the repo system. And that's exactly what we're looking at right now."
—Garrett Baldwin (12:59)

3. Liquidity, Central Banks, and Market Structure

• Fed’s Evolving Mandate
  • Powell's legacy is seen as managing markets through financial conditions (liquidity & stability), more than just inflation/labor market mandates.
  • Stability of the repo market (SOFR) is a new primary focus.

“Powell is going to be remembered…as the person who governed through financial conditions instead of the policy rates.”
—Garrett Baldwin (13:55)

• Passives, Foreign Capital, and Forced Buying
  • Shift in flows: 50% now passive investing vs. much less in the '90s.
  • The passive, forced buying of Americans’ 401ks helps dampen volatility.
  • Foreign capital has increased U.S. market share from 8% in 2008 to 19% now—potential risk if outflows occur.

"Value style Investing was like 80% of flows. In the 90s, leverage funds were 15% and passive was 5. Today it's 50% passive, probably 30% leverage and maybe 15 to 20 in value arbitrage."
—Garrett Baldwin (19:09)

4. Gold & Silver’s Record-Year Rallies

• Performance and Drivers
  • Gold is up 66% in 2025 (highest since 1979), silver up 169%.
  • Central bank buying, especially post-2022 sanctioning of Russia’s reserves.
  • Liquidity finding its way to assets with no counterparty risk.
  • Silver benefitting from AI applications, industrial demand, and speculative catch-up.

"Gold's easy because what happened in February 2022? The United States freezes Russia's assets and that becomes a catalyst for massive amounts of central banking purchases."
—Garrett Baldwin (34:42)

• Caution on “Too Obvious” Trades
  • Recognition that momentum might feel “too easy” (as with past crypto rallies), and possible near-term volatility from margin hikes.

“This feels like everyone is way too confident that gold is just going right to $5,000. It sort of reminds me of Bitcoin ripping to $17,000... and then like next thing you know it’s $10,000.”
—Josh Brown (37:45)

• Exchange Margin Hikes
  • CME raised margin requirements, causing a swift pullback in gold and silver prices.

5. Reacting vs Predicting in Markets

• On Prediction:
  • Too many variables; financial markets have changed post-2008.
  • Reacting—momentum signals, insider buying, liquidity trends—provides more actionable, less error-prone strategies than attempting macro predictions.

“My argument is to avoid predicting too much. Just react. That is what you can control in the year ahead.”
—Garrett Baldwin (43:47)

• Investment Process and Tools
  • Use a combination of macro liquidity views, momentum systems, policy tracking, and signals like insider buying and leveraged ETF moves (e.g., FNGD).
  • Best to focus on observable capital flows rather than forecast fundamentals.

“I built a system, a momentum strategy ... And what we've been able to do is avoid those massive downturns because we are doing a simple math. It's physics, it's an equation, it's not a model, it's not an algorithm. It's just watching money move and watching how it behaves.”
—Garrett Baldwin (45:09)

6. Valuation Expansion & Global Market Resilience

• Multiple Expansion as a Driver
  • Across global equity markets, 2024-25 gains driven predominantly by rising valuations, supported by global liquidity.

“It's not earnings. It's. It's somebody willing to pay $23 for the same earnings that somebody paid for $21 a year ago. And that is ... being driven by that liquidity cycle.”
—Garrett Baldwin (53:04)

• Risk of Foreign Capital Outflow
  • Vulnerability if foreign flows reverse, yet continuous domestic passive inflows act as a buffer.

7. New Year’s Resolutions & Personal Reflections (54:45)

• Garrett: Wants to “get back in the pool, try to get back up to swimming a mile a day.”
• Josh: Focused on “getting people to leave me alone,” being skeptical not cynical, and avoiding getting dragged into others' political nonsense.
• Personal wellness as a foundation (health, wealth, self) before engaging in others’ business.

8. Zeitgeist: Grift, ETFs, and Extraction as Investment Theme (57:17)

• “Grift” as the word-of-the-year; everyone is seen as a grifter.
• Surge of ETFs as both symptom and symbol—ETF for everything, even “grift.”
• Garrett’s Investment Theme for 2026:
  • “Buy what families in history bought during times of great uncertainty—invest in the extractors, the choke points in the economy, the slow, boring, cash-heavy, and necessary businesses.”

"They were just sovereign wealth funds… They were legitimately just investing in choke points in the economy... I want to own the extractors."
—Garrett Baldwin (61:57)

Memorable Quotes & Timestamps

• On Liquidity:
  "Liquidity moves asset prices. House says money moves markets. Asset price rises. Capex comes back because financing's abundant..." —Garrett Baldwin (07:09)

• On Financial System Evolution:
  "Powell is going to be...remembered...as the person who governed through financial conditions instead of the policy rates." —Garrett Baldwin (13:55)

• On Central Bank Gold Buying:
  “...this is central bank buying...those central banks realized, look, the US dollar, if they can freeze Russia’s reserves, they can freeze ours.” —Garrett Baldwin (34:42)

• On Reacting vs Predicting:
  "My argument is to avoid predicting too much. Just react." —Garrett Baldwin (43:47)

• On Passive Flows:
  “The constant is 401k balances have gotten...big enough to swamp whatever the VIX is doing that morning.” —Josh Brown (21:58)

• On Valuations:
  "There are money managers who, who bought, who are regularly buying Apple at a P/E ratio of 16 and at 32 and then at 40 and then at 24...They don’t give a f*** about the valuation." —Josh Brown (49:11)

• On Political Instability from Financial Stability:
  “The irony of financial stability is it creates political instability...That’s the built in irony of look how much financial stability we have...now you’ve got this permanent underclass that grows increasingly divorced from the ability to live.” —Josh Brown (28:08)

Notable Segments with Timestamps

• Liquidity Flood & Asset Prices: 07:09–11:48
• How Global Liquidity Trumps Rate Policy: 11:48–14:33
• Passive Flows & Volatility: 19:04–22:22
• Gold and Silver Rally Explanation: 32:48–39:37
• Margin Hikes & Short-term Volatility: 39:37–41:29
• Reacting vs Predicting Investment Strategies: 43:30–48:54
• Valuation Expansion, International Flows: 52:59–54:45
• New Year’s Resolutions: 54:45–57:17
• Theme for 2026—Investing in Extractors: 60:57–62:23

Tone and Style

Conversational, slightly irreverent, with practical investment insight. Both Josh and Garrett blend high-level macro analysis with actionable takeaways, and maintain a candid, sometimes self-deprecating attitude about the uncertainty and chaos of markets.

Final Takeaway

2025’s record-breaking markets are not a mystery—they’re mechanical, a product of unprecedented global liquidity. Don’t get lost in prediction. In an era of monetary abundance and changing investing structures, focus on evidence, follow capital flows, and don’t underestimate the value of reacting wisely to what the market presents. For the year ahead, stay skeptical, maintain self-care, and consider investing in the boring but essential “extractors” of the economy.