How AI Could Break the Stock Market | Carson Block Explains
Speakers
Carson Block
— CEO and Founder, Muddy Waters Research
Summary
Carson Block explains why AI could displace 15% of knowledge workers and unwind the S&P 500 and Nasdaq 100. He details his firm’s AI disruption basket using put spreads on equities and bond ETFs, his short case on SoFi’s questionable loan accounting, his long positions in momentum and junior miners, and why he considers China uninvestable.
- AI is expected to displace a significant proportion of knowledge workers within 3 years, threatening 401(k) flows and causing large-cap stock indices to reverse.
- The AI disruption basket includes put spreads on the S&P 500, Nasdaq 100, and bond ETFs LQD, HYG, and MUB to express downside on equities, credit, and municipal bonds.
- SoFi is a high-conviction short due to aggressive fair value option accounting on personal loans and questionable financing that could force a large EBITDA restatement.
- The firm runs a systematic momentum strategy within the S&P 500, which has returned over 70% gross since October 2024.
- Junior miners are long-term longs because years of talent under-allocation create venture-like returns with more data.
- China remains uninvestable due to poor information quality, policy capriciousness, and VIE structure risks.
Ideas
Momentum strategy within S&P 500 works
A systematic momentum strategy within the S&P 500 has compounded at over 70% gross since October 2024. The firm sees edge in momentum as a pragmatic way to invest, counterbalancing the natural skepticism of short sellers.
Junior miners benefit from talent under-allocation
There has been a huge under-allocation of talent to the mining space since at least 2000, creating an edge. Junior miners can offer venture-type returns with more data to base decisions on. The firm is invested mostly on the long side, agnostic on metals.
AI job losses unwind S&P and Nasdaq
AI will displace ~15% of knowledge workers within 3 years, killing 401(k) flows that have powered the largest stocks. People will sell taxable assets and redeem retirement accounts, causing the S&P 500 and Nasdaq 100 to unwind hard. He expresses this via put spreads for capped risk.
AI credit stress hits high yield bonds
Second-order AI disruption effect: high-yield credit spreads will blow out. He uses put spreads on HYG to express this view.
AI causes credit spread blowout hit LQD
Second-order AI disruption effect: credit spreads will blow out due to aggregate demand issues. He uses put spreads on investment-grade bond ETF LQD to benefit from a sell-off.
Muni bonds distressed by AI job losses
Third-order AI disruption effect: state and local government finances (especially large issuers like California, New York) will strain, causing municipal bond ETFs to freeze and face dislocation. He plans to short MUB via put spreads and cover during the dislocation.
SoFi's aggressive accounting masks fictitious gains
SoFi uses aggressive fair value option accounting, marking personal loans up to 108–109 on day one and financing purchasers to support those marks. A $312 million transaction with a subsidiary appears misleading and, if disallowed, could force a restatement of about $1 billion of previously reported EBITDA. Management has extracted over $50 million via forward agreements.
China equities uninvestable due to policy risk
China is uninvestable because the quality and quantity of information is awful (Ministry of State Security removes truth-tellers), policy is capricious, and the VIE structure means shareholders legally own nothing. The risk does not justify the reward.
