Masters in Business: BONUS with Carson Block of Muddy Waters Capital

Host: Barry Ritholtz | Guest: Carson Block
Date: April 1, 2026 | Live from Future Proof, Miami

Overview

This bonus episode of Masters in Business features a live conversation between Barry Ritholtz and Carson Block, the founder of Muddy Waters Capital. The discussion journeys through Block’s origin story as an activist short seller, his evolution into a long-short hedge fund manager, the changes in market dynamics post-GFC, the impact of AI on investing, fraud, and workflow, and his candid, current outlooks on technical flows, mega cap stocks, private markets, and the future of knowledge work.

Key Discussion Points & Insights

1. Carson Block’s Entry into Short Selling and Activism

Transcript start: 02:22

• Background: Block grew up in investing, working alongside his equity analyst father, feeling "demoralized" by the early-2000s landscape riddled with management dishonesty and major accounting scandals (Enron, WorldCom, etc.).

  • Quote [03:36]: "My realization around 2002...I want to be an investor but this market is riddled with financial predators from top to bottom. How do I protect myself against that?"

• China Pivot: After law school and a stint with Jones Day, Block founded a self-storage business in mainland China—a tough market. In 2009, his father asked him to investigate US-listed Chinese companies, especially those via reverse merger.

  • On first China fraud exposed: "...it was a Potemkin factory. Like I never believed that such a thing could exist..." [04:28]

• Breakout Moment: His viral 30+ page report on Orient Paper exposed significant fraud, unexpectedly launching him as a major global financial influencer within a year.

2. Evolution of Market Dynamics & Short Seller’s Role

Transcript: 06:50

• Low Rates and Dishonesty: Block observes a strong inverse relationship between interest rates and societal honesty—easy money breeds more fraud.

  • Quote [07:33]: "There's an inverse relationship between interest rates and the amount of dishonesty in society."

• Expansion of Risk: What began as micro-cap bad behavior migrated into mid-cap land via overall market cap inflation. However, investors have grown anesthetized to risk, dulling the impact of revelations unless the fraud is blatant.

• The “Gray Zone”: The true danger isn’t outright fraud but legal, lawyer- and auditor-approved gray practices that misrepresent economic reality without crossing clear legal lines.

• Ritholtz joke [09:05]: “So the secret is to corrupt the attorneys and the auditors and then it’s home free.”

3. Shorting Mega Caps, Flows, and Technical Value

Transcript: 09:12

• Mega Cap “Bubbles”: Block cautions against shorting the likes of Nvidia based on fundamentals alone.

  • Quote [09:44]: "Number one, there are easier better shorts out there than Nvidia. Number two...flows have driven so much of this...it’s not a linear impact on stock prices, it’s a parabolic impact..."

• Technical vs. Fundamental Value: He emphasizes 'technical value' as distinct from 'fundamental value,' suggesting current price momentum is more about passive flows and float squeezes than company performance.

• 180° Shift on AI: Once a skeptic—insisting large language models (LLMs) weren’t truly AI—Block recounts a dramatic change of heart in the last month, now believing true AI disruption is imminent.

4. The Real Dangers: Private Credit, Opaque Practices, and Echoes of GFC

Transcript: 11:50

• Private Credit Risks: While in vogue among allocators, Block flags the opacity and questionable practices in private credit and ABS issuance, including non-public lien releases, and draws parallels to pre-GFC mortgage markets.

  • Quote [13:47]: "This is reminiscent of some of the behaviors in credit...if you lived through the GFC and were paying attention, starting to see some dots connect."

• Worrying Data Points: Notes rating agencies with tiny operations (e.g., Egan Jones in a Boston house rating thousands of deals), PE-owned insurers financing their own deals, and a lack of tracking on underlying loans—a “blindness” reminiscent of the financial crisis.

• AI-driven Job Displacement: Foresees major upcoming disruption—predicting 15–25% of US knowledge work jobs could disappear within 3–5 years due to AI, with profound macroeconomic consequences.

  • Quote [13:47]: "I think it’s not unrealistic to say 15% of knowledge work jobs in the US in three years are gone. And if it’s not three, it’s going to be five. But it might not be 15, it could be 20, 25%."

5. AI as a Business Tool and Threat

Transcript: 15:38

• Internal Efficiency: AI tools (e.g., Claude) have massively boosted research productivity and communication within his team, especially for those who previously struggled to articulate findings.

• Loss of Old Edges: Block admits his previously unique writing “edge” is eroded—"you can go to Claude and say, hey, you know, write this up as a short report in the voice of Carson Block. And you know, it’s not bad." [16:08]

6. AI and Fraud: The Evolving Arms Race

Transcript: 17:52

• Raising the Bar: While AI can supercharge both diligent analysis and fraud, Block stresses that genuine forgery has always been simple. The most significant new risk is fraudsters using AI preemptively—to “game” short sellers or create more convincing appearances.

• Forensic Tools: AI can spot patterns across company filings but is best as a complement to the legwork of real activists—retrieving obscure documents and connecting disparate data points. Authentic edge remains in daring to be sued and sifting AI outputs for reliability and hallucinations.

7. Sustainable Edge and Market Realities

Transcript: 22:17

• Who Profits: Short sellers only win if the market cares. Many shorts fail by insisting on how things “should” be vs. how things are—missing why real buyers are bullish.

• No Edge Without Judgment: AI levels the playing field for research, but edge persists in thinking contrarian, interpreting behavior, and knowing when both AI and the crowd are wrong.

8. AI Pretenders & Market Narratives

Transcript: 24:24

• Dot-com Playbook Returns: Many companies now hype AI with little real substance, often evident by doing a wholesale “find and replace” of old tech buzzwords.

  • Quote [24:56]: "If you see that with AI in a company's filings and in their statements, then yeah, I mean, they're probably a pretender."

• “AI-enabled” Skepticism: Real AI requires scale, infrastructure, or true innovation—not a few users or a thin veneer of tech.

9. Catalysts, Technicals, and Crash Triggers

Transcript: 26:05

• The Looming Crash?: Markets are propped up by technical flows, particularly 401k and target date fund inflows. Block echoes strategist Mike Green, warning of a “1929 magnitude crash” if outflows or mass withdrawals begin—especially as AI-triggered unemployment strains household finances.

  • Quote [26:33]: “If Mike Green is correct...that’s when it’s really time to panic. That’s what’s going to test his thesis.”

• Rapid Outlook Reversal: Block describes his own “180” in sentiment—moving in a few weeks from market optimism to concern about systemic risk and “air” in prices.

10. Where’s the Long Side?

Transcript: 28:50

• Hedging Against Disaster: While AI beneficiaries (hyperscalers, mega-tech) seem safe, they’re intertwined with broad index flows. Instead, Block’s fund has moved to highly convex trades—especially shorting credit with defined loss, given tight spreads and low volumes.

• Quote [29:19]: "So like, and look, I hope this doesn't play out...I don't have, like, a plan B or C after AI takes, you know, like my job. But, you know, at least as it does play out, we're, we're positioning for it."

Notable Quotes & Memorable Moments

• On systemic fraud:
  "This market is riddled with financial predators from top to bottom." — Carson Block [03:36]

• On rates and honesty:
  "There's an inverse relationship between interest rates and the amount of dishonesty in society." — Carson Block [07:33]

• On AI’s job impact:
  "I think it's not unrealistic to say 15% of knowledge work jobs in the US in three years are gone." — Carson Block [13:47]

• On AI shifting his own outlook:
  "My view has 180...I wouldn't even refer to these models as AI...but I call it AI now, right?" — Carson Block [10:31]

• On technical vs. fundamental:
  "What are the technicals of this? ...That's what everybody fails to say when they’re criticizing these things on a fundamental basis." — Carson Block [09:59]

• On the research edge diminishing:
  "You can go to Claude and say, hey, you know, write this up as a short report in the voice of Carson Block. And you know, it’s not bad." — Carson Block [16:08]

• On AI pretenders:
  "If you see that with AI in a company's filings and in their statements, then yeah, I mean, they're probably a pretender." — Carson Block [24:56]

• On being an activist short seller:
  "Part of the edge...is the willingness to be sued or the tolerance for being sued." — Carson Block [21:13]

Timestamps for Important Segments

• Carson Block’s origin story & China frauds: [03:36-06:50]
• Markets post-GFC, rates, and dishonesty: [06:50-09:12]
• Mega caps, technical value, & AI outlook: [09:12-11:19]
• Private credit and echoes of 2008: [11:50-15:38]
• AI as business tool and vector for fraud: [15:38-20:00]
• On maintaining edge in the AI era: [22:17-24:24]
• AI hype and pretenders: [24:24-26:05]
• Potential crash catalysts: [26:05-28:50]
• Current long-short positioning: [28:50-29:50]

Tone and Takeaways

The episode is candid, slightly irreverent, and marked by both deep skepticism and intellectual adaptability. Block’s perspective reflects wariness—about markets grown complacent, flows that could reverse violently, and a future in which white-collar work (including his) is at risk from exponential AI. But there’s also a pragmatic take on where edge persists and on the necessity of adapting, not nostalgically resisting, rapid technological change.

For those who haven’t listened:
This episode is a masterclass in market skepticism, the interplay of narrative and technicals, and the dual-edged “arms race” AI is bringing to financial research and fraud alike. Block’s lived experience—on the ground in China, in forensic research, and now navigating both the hype and hazards of AI—delivers unique insights for investors, skeptics, and anyone wondering where both the dangers and the (dwindling) opportunities hide.