The Liquidity Tax

Carter Thomas
8 min readSep 5, 2022

For many, trading markets is a spiritual experience. It’s like physics for the soul, a never ending maze that provides impossibly simple conclusions. The click of a well made box. The market gives many of us the last frontier of sanity where we can unleash our basic desire for competition. There is no nuance, just P&L statements.

After enough time has passed and you’ve experienced enough of the roller coaster, you begin to see markets for what they are — a playground of liquidity. You realize that there are no bull markets or bear markets. There are no value stocks, no growth stocks and no commodity supercycles. There are only flows of capital moving from one place to another. Where the liquidity (money) flows, so goes the price. Get in front of that freight train and BOOM, you’re rich.

I find something about this phenomenon deeply natural, as pure as a river flowing into streams or steam oozing out of the shower. Like all systems of this world it is found in many places in our lives, often without us even knowing it.

But instead of living in a perfectly biological world, we wake up each day and feel the perpetual nudge of technology, slowly morphing us away from natural beings and towards a normalized commodity of convenience. We need to be reminded that we are not just Facebook leads fitting nicely into a checklist of criteria but children of nature, the same nature that drives all things on this planet. Thinking about the core systems of nature can provide the answers we so desire.

In Think and Grow Rich, Napoleon Hill talks about the transmutation of energy, a phenomenon whereby people take energy and change its form. The example he uses most is sexual energy but it can be anything. He explains how, to be successful, one should take their sex drive and refocus it into making that next sales call or writing that blog post. Or turn the love they feel from a family member and turn it into a productive act of creation. For any of you degenerates out there, it means taking that adderall and instead of going to a party, you use the energy to learn to code.

We are all filled with energy, some more than others, and we all have the ability to transmute it. This is not easy but it can be learned. Go read that book if you haven’t already, you’ll understand when you do.

We all have a supply of liquidity (energy) and the ability to direct the flow of that liquidity. We are all central banks of our own lives. We all get to move our own spiritual markets. We are all traders now.

When you wake up, for example, you can put your energy into anything you want to. You can put it into meditation or you can put it into TikTok. You can put it into shopping for good food or you can put it into drinking beers with your friends. You can put it into working out or you can put it into thinking about weekend plans. Whether you like it or not, you are choosing where you put your energy each and every day. You are the only liquidity provider. You direct the flows.

All of these choices are not easy. It is always going to be harder to choose to do something that you’re not used to or that doesn’t provide an immediate reward. It may be harder to make certain choices early in the morning or in the afternoon. It may be hard to make these choices after three or four days of trying to build the habit. But it doesn’t change the facts of nature — you are directing the flows.

I bring this up because many of us spend so much time wondering where we should be allocating our money we forget that we need to first allocate our energy. We are spending our time reacting to the flows other, bigger participants make…but we fail to take control of our own spiritual central bank.

This is not easy and in most cases not our fault. Despite being an ardent believer in personal responsibility, I think it’s nearly impossible for anyone under the age of 35 to be immune to the addictiveness of technology and convenience. These tools have been designed to subtly redirect our liquidity, sucking our energy like an ETF with a 3% expense ratio. In the short term it seems harmless. Over a decade, it creates problems. Over a lifetime, it is devastating.

And yet we continue to do it. I know I do. I try so fucking hard not to yet I still check social media and binge watch TV and order delivery food more often than I like to admit.

I forget the most important lesson in making life progress — no one is coming to save you. There is no one who back stops the central bank, they are the final boss. If the central bank isn’t putting liquidity into the system, there is no other game in town.

The same is true for us, my dear friend. We can do our best to increase the amount of liquidity and energy in our lives through the healthy practices of diet, exercise, relationships and sleep…but if we are allocating that energy poorly, we will not get the progress we want.

If you are eating healthy, sleeping well, working out and connecting with great people but you are spending hours each day on your phone or computer or TradingView, if that is where you expend your dopamine and excitement, you will struggle to see a bull market in any parts of your life. You will see anemic, flatlined returns.

The same way inflation-fueled, disparate flows in the world economy lead to net zero capital gains, unfocused personal energy will lead to net zero progress. You will wake up next year with a long list of things you checked off your to-do list and no real accomplishments. The distractions are a Liquidity Tax.

Just as inflation makes it harder to save, distractions make it harder to have progress.

This is one of the Big 5 struggles of our generation (I will write about the other four in the future). Technology and convenience has made it much harder to control where your energy flows each day. Sure, we can resist it for a day or maybe a week…but a month? A year?

I browse through Discord servers every few days and read what people are talking about. I pay attention to the young people. They have so much energy, but without the reward of short term results, I see the life fading from their digital eyes. I can’t blame them. If I grew up with apps, smartphones, YouTube and social media I would be truly lost. For anyone reading this who feels that way, just know that there is a way out. You are not too old. You are not late. It is not hopeless. You just need to redefine your daily choices.

Tony Robbins often says that progress equals happiness. For me, that rings true, and I find that the more my life is focused around making meaningful progress in things I care about, the happier I get. But it all hinges on how I direct my liquidity each day. It all depends on the directional flows my inner central bank will deploy. It all comes down to how much of a Liquidity Tax I am putting on my life.

Everyone needs a vision and goals to be happy. Everyone needs to feel like they are living their life in a direction that they are excited about. The problem we face today, however, is that even if we are working hard towards our goals, if the rest of our energetic flows are going somewhere else, we will fail to make progress. This is the our personal version of inflation, the tax we place on our progress.

We think things like social media, Reddit, Netflix and junk food are small, insignificant ways to fill the down time. It’s only five minutes, what’s the harm? But in reality they are 10x more powerful than the productive energy you put into your future.

Distractions will derail any Herculean efforts as easily as a hot knife slides through warm butter. They are the reason you’re not where you want to be. The amount of dopamine five minutes of TikTok delivers is equal to an afternoon of backtesting trading algorithms. That’s why they’re so hard to quit completely and so easy to justify using sporadically.

We are entering a weird phase of societal progress. Without financial markets going up each month, cracks are starting to appear in all of our lives. Unhappiness starts to creep in. Man’s search for meaning goes into overdrive. We have spent so long playing this game of life on easy mode that it didn’t matter if we were texting, browsing Twitter or playing video games for hours a day.

We still felt great. We still felt like we were going in the right direction. The returns of the market outpaced the Liquidity Tax distractions placed on us. Our bank accounts swelled and life plans moved accordingly.

But that time is over. The reckoning is here. It will be a slow, unapologetic force that eats away at many of the people around you. You will see what I mean. Notice how many more people aren’t sure what they’re doing with their lives anymore, how many people asking themselves why even have goals in the first place. Why have kids? Why get married? Why do anything except enjoy what I have right now?

The answer they are looking for is right in front of them, to redirect all the flows of their energy, but few will do it. It is hard and uncomfortable. It’s easy to just “wait it out” until things go back to easy mode, as if the liquidity of their lives will magically start to work in their favor again. But this time is different. We are not mean reverting the way we did in the past.

The days of central banks injecting unlimited liquidity into equities have been changed by inflation. Similarly, the days of doing little and getting notable life progress will be killed by the distraction driven Liquidity Tax.

If you don’t take control of your flows, if you don’t take control of how you direct your energy each day, you will fall victim to a life of stagnation and angst the same way your passive investing strategy will fail to deliver any real returns in a high inflation environment.

You need to kill the distractions and put your energy into things that give you progress.

Your future depends on it.

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