You are a free subscriber to Me and the Money Printer. To upgrade to paid and receive the daily Capital Wave Report - which features our Red-Green market signals, subscribe here. Market Notes - April 8, 2026
Dear Fellow Traveler, At some point, some professor in college or former boss said the word “capital efficiency…” to you. Maybe you were paying attention… maybe you were thinking about bagels… or how to leave early without anyone noticing. But stick with me, because this is the stuff that they teach secretly to people sitting with one strained eyeball before 9 o’clock in the morning. Once you understand this concept, you’ll be able to understand the difference between a meme stock and a real business. And when the time comes… you’ll be able to put your money to work… In a world where the financial plumbing is creaking, and nobody is sure what will break next… capital efficiency is what separates the businesses that survive a storm from those that get washed away in it. Let’s start with the simple version. The Only Question That Needs Answering…In business, capital efficiency tells us the answer to one thing… How much money does this business have to spend to make another dollar? If the answer is “a lot,” it’s a capital-hungry business. If the answer is “almost nothing,” it’s a capital-efficient business. The best businesses on the planet take a dollar in, spit out fifteen cents of profit, and then do it again next year without needing another factory, warehouse, or truck. Warren Buffett beat this drum for 50 years. His ideal business takes no capital, grows anyway, and politely ignores the existence of competition. The whole reason he obsesses over compounders is that compounding is just capital efficiency wearing a tuxedo. A business that earns a high return on the money already inside it, and can keep doing that for 20 years, will turn a small pile of money into a large one without you having to do anything except not panic. The Metrics You Need to KnowSo, let’s say that you’re an intern for a financial research company and you need something to scream across the room while other people are working… What are the metrics that you need to know… Well, Return on Invested Capital, or ROIC, is the king. This metric shows how much after-tax operating profit the business generates per dollar of invested capital. An ROIC of 25% means that every dollar in the business generates 25 cents of profit per year. If it’s 5%, you’re looking at a savings account that must file taxes. Return on Equity, or ROE, is ROIC’s slightly shadier cousin. It measures profit against shareholder equity… The issue is that the company can juice its ROE just by piling on debt. ROE without checking the leverage is like ordering a cocktail without asking what’s in it… and then being surprised when it ruins your life. Always look at debt next to ROE, or you’ll think you found a great business when what you really found is a regular business with a credit card with no miles or benefits. Return on Capital Employed, or ROCE, is broader… and a little underrated... It includes the capital the business is using, typically equity plus debt minus current liabilities, and is especially useful for capital-intensive businesses where you want to see if the money tied up in the factories is earning its keep. Free Cash Flow conversion is the one that money managers don’t really pay attention to until they get burned. And then they start joining those class action lawsuits that go nowhere… It tells you how much of the company’s reported earnings become cash. A business that reports a billion in earnings yet generates only $200 million in free cash flow is hiding something in the basement. The best compounders often convert a high percentage of earnings into free cash flow, often 80% to 100% over time. Then there are the things they do freely discuss in finance classes… Gross margin and operating margin are the foundation of it all. A business with a 70% gross margin has built-in protection against bad quarters, inflation, and stupid decisions. A business with a 12% gross margin has no margin for error, and if something goes wrong, the whole thing goes red. The Companies That Actually Do ThisVisa (V) and Mastercard (MA) are the platonic ideal. These companies are essentially toll booths on global commerce. Every time anyone swipes a card, taps a phone, or types in a sixteen-digit number, a few cents flow into Visa or Mastercard. They don’t manufacture anything, and they don’t carry inventory… And despite the confusion about what they actually do, they don’t loan you the money. They sit at the bridge and collect tolls. Both companies have extremely high ROIC, often in the 20%–30%+ range depending on the period and calculation method. For now, it’s a tip jar that never empties and doesn’t need a new tip jar next year. Alphabet (GOOGL) is the same idea in a different costume. Even Berkshire Hathaway eventually took a position after missing it for years. Search is a business where the marginal cost of one more query is essentially zero. They built the system, and now the system prints money while they figure out what to spend it on. Capital expenditure has crept up because of AI, but the underlying machine remains one of the most capital-efficient ever assembled. Domino’s Pizza (DPZ) is the surprise on this list, and it’s the best teaching example. Domino’s actually doesn’t make pizza. Which is either surprising… or explains a lot. Domino’s is primarily a franchise business, with most stores operated by franchisees. The parent company is often thinking of ways to get its franchises to deliver pizza faster and hotter to you. I’m not kidding. They’re probably one of the most innovative technology companies of the last 30 years. They also sell ingredients to franchisees and collect royalties. The franchisees take all the capital risk, while Domino’s collects checks. For years, Domino’s was returning so much capital to shareholders through buybacks that it had negative book equity, which sounds terrifying until you realize it’s just a sign of an obscenely capital-efficient business that doesn’t know what to do with all the money. John Deere (DE) is the interesting one because, on the surface, it doesn’t look capital-efficient. There are factories and inventories. There are physical tractors that weigh several tons. But Deere has spent two decades building software, dealer networks, and precision agriculture systems that have increasingly generated recurring, higher-margin software and services revenue. That quietly turns a tractor company into a subscription business with dirt on its tires. (Hey, maybe they should roll up that future cash flow and sell it to private credit!) The pricing power and the aftermarket revenue make the ROIC much higher than you’d expect from looking at the assembly line. These are all different industries with the same idea. They earn more on each dollar than almost anyone else. And they keep doing it. Why This Matters Right NowHere’s the part that ties back to everything I’ve been writing. We are sitting in the middle of a creaking financial system. Private credit is wobbling. Retirement funding is stretched. Japan is sitting on a bond market that defies the laws of physics. The Fed has a balance sheet problem. There are ongoing concerns about demand for Treasuries, particularly from price-sensitive buyers. Something is going to break… It always does. The only question is whether you own the thing that breaks… or the thing that gets stronger when it does. This is exactly why the Hedge of Tomorrow matters. We’re preparing for the next pivot in monetary and fiscal policy, whatever shape it takes. When something does break… whether it’s private credit, the retirement system, Japan, or whatever we haven’t lit our hair on fire about yet… the businesses that survive and thrive on the other side will be the ones that didn’t need favorable conditions to make money in the first place. They will be the ones that earn high returns on their own capital, that don’t depend on cheap debt, that don’t need a friendly Fed, and that compound through the chaos because the underlying machine works. That’s what capital efficiency buys you. It buys you time… and in markets like this, time is the only asset nobody can refinance. It’s not about safety from the storm. It’s about survival through it. The war isn’t over. The plumbing is still a mess. But this is why we study these companies, and this is why we keep building the list. Stay positive, Garrett Baldwin About Me and the Money Printer Me and the Money Printer is a daily publication covering the financial markets through three critical equations. We track liquidity (money in the financial system), momentum (where money is moving in the system), and insider buying (where Smart Money at companies is moving their money). Combining these elements with a deep understanding of central banking and how the global system works has allowed us to navigate financial cycles and boost our probability of success as investors and traders. This insight is based on roughly 17 years of intensive academic work at four universities, extensive collaboration with market experts, and the joy of trial and error in research. You can take a free look at our worldview and thesis right here. Disclaimer Nothing in this email should be considered personalized financial advice. While we may answer your general customer questions, we are not licensed under securities laws to guide your investment situation. Do not consider any communication between you and Florida Republic employees as financial advice. The communication in this letter is for information and educational purposes unless otherwise strictly worded as a recommendation. Model portfolios are tracked to showcase a variety of academic, fundamental, and technical tools, and insight is provided to help readers gain knowledge and experience. Readers should not trade if they cannot handle a loss and should not trade more than they can afford to lose. There are large amounts of risk in the equity markets. Consider consulting with a professional before making decisions with your money.
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