Muddy Waters founder turns bearish: If AI continues to replace white-collar workers, the US stock market 401K system may collapse.

Muddy Waters founder turns bearish: If AI continues to replace white-collar workers, the US stock market 401K system may collapse.

Carson Block, founder of the well-known short-selling firm Muddy Waters, warned that artificial intelligence is fundamentally changing his view of the market, abruptly shifting his overall outlook from bullish to bearish. He predicts that within three years, 15% of knowledge worker positions in the US will disappear, and the resulting wave of unemployment may cause systemic shocks to the stock market.

According to a Bloomberg report on Thursday, Block said at the Future Proof wealth management conference in Miami Beach that just a month ago, he was entirely optimistic about the S&P 500 and the overall economy, but now his view has "completely reversed." This turnaround was quite sudden—just at the end of last November, he publicly stated that he preferred to go long rather than short the US market and disclosed several unconventional long positions.

Block's core concern is that the AI-driven employment shock will be transmitted from the labor market to financial markets. Once a rise in unemployment reduces inflows to 401(k) and other retirement accounts, or even forces unemployed workers to tap into savings early, the stock market will face sustained outflow pressure—at that time "there will be no one to catch the falling knife."

Block predicts the employment replacement brought by AI will first occur in law, accounting, tax consulting, and financial support fields, particularly concentrated among junior staff and administrative positions. In the hedge fund industry, he believes a large number of operational and back-office functions—including IT work—may be replaced by cheaper and more efficient automated systems.

He pointed out that profit-rich large institutions may continue to hire junior analysts out of habit, but companies with thinner margins will quickly turn to automation. This divergence means that labor market pressures will show up first among small- and medium-sized enterprises and industries with lower profit margins.

Block's assessment resonates with the current mainstream anxiety in the market—investors are growing increasingly concerned about whether the hundreds of billions invested in AI infrastructure will generate sufficient returns, or whether it will merely accelerate corporate disruption and massively wipe out white-collar jobs.

Shorting Credit Spreads, Seeking Convexity Opportunities

Despite an overall shift to bearishness, Block said his team is searching for structural opportunities in the market. Currently, Muddy Waters has built positions betting on the widening of credit spreads and is attempting to profit from liquidity mismatches in some exchange-traded funds.

"I think credit spreads are now absurdly tight, and credit volatility is also absurdly low," he said. "In my view, you need convexity, and there are many ways to position for it while controlling maximum losses."

This strategy reflects Block's judgment that the current market pricing is overly optimistic—in his view, investors have become excessively tolerant of risk after being in a low-interest-rate environment for so long, which has encouraged aggressive behavior at the corporate level.

Gray Areas Are Ubiquitous But the Market No Longer Cares

Block also discussed the challenges facing his core short-selling business. He believes that years of loose monetary policy have not only driven up asset prices but also fueled aggressive tendencies in corporate accounting practices and information disclosure, leading to widespread "gray areas."

However, the market's tolerance for such behavior is rising. "My business is getting harder and harder to do, because unless something is very, very egregious, people simply don't care," he said. This means that even with a large number of companies with potential problems, short-selling firms find it difficult to gain enough resonance and returns in the market.

Risk Warning and DisclaimerThe market entails risks, and investments should be made with caution. This article does not constitute personal investment advice, nor does it take into account the special investment objectives, financial status, or needs of individual users. Users should consider whether any opinions, viewpoints, or conclusions in this article are suitable for their particular situation. Investment based on this content is at your own risk.