Carson Block predicts AI will eliminate 15% of US knowledge worker jobs within three years, triggering a market crash as laid-off workers make early withdrawals from their 401(k)s.
He endorses Mike Green's thesis that passive investing has broken market structure, creating a fragile environment where a reversal in fund flows could lead to a 1929-magnitude crash.
Block identifies significant systemic risks in credit markets, citing lax due diligence in asset-backed securities (ABS) and questionable ratings agencies, drawing parallels to the pre-GFC era.
Muddy Waters is actively using AI tools like Claude to dramatically improve analyst productivity, while also positioning its portfolio for a downturn by shorting credit to create convex trades.
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Concerns Raised
AI-driven mass unemployment among knowledge workers (15% in 3 years).
A severe market crash triggered by 401(k) outflows from laid-off workers.
Systemic risk and lax standards in private credit and asset-backed securities (ABS) markets.
Market structure has been broken by passive investing, creating extreme vulnerability to flow reversals.
Opportunities Identified
Shorting credit through convex trades to capitalize on mispriced risk and low volatility.
Utilizing AI tools to dramatically accelerate and improve the efficiency of financial research and analysis.
Identifying short targets in the "gray zone" of corporate misrepresentation, which has expanded into mid-cap companies.