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- [00:00]
Monks Investment Trust Announcer
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- [00:16]
Chase for Business Announcer
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- [00:51]
IBM Announcer
So there's a lot of noise about AI. But time's too tight for more promises. So let's talk about results. At IBM we work with our employees to integrate technology right into the systems they need. Now a global workforce of 300,000 can use AI to fill their HR questions, resolving 94% of common questions, not noise Proof of how we can help companies get smarter by putting AI where it actually pays off, deep in the work that moves the business. Let's create smarter business IBM
- [01:24]
Merrin Zumzat Webb
Bloomberg Audio
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Chase for Business Announcer
Studios Podcasts Radio News.
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Merrin Zumzat Webb
Welcome to Marin Talks Money, the podcast in which people who know the market explain the market. I am Merrin Zumzat Webb and this week I am speaking with well known short seller and Muddy Waters Capital founder and CEO Carson Block. Carson welcome to Maren Talks Money.
- [01:55]
Carson Block
Thank you, thanks for having me.
- [01:57]
Merrin Zumzat Webb
You have been talking a lot recently about AI and I wanted to just start on that straight away because I think the core of your view is that AI really is going to live up to everyone's expectations of it. It is going to be spectacularly successful. All the worries that a lot of people have about the way that LLMs have hit a ceiling and development is over and we need a new path. All this kind of thing doesn't come into your view. You think that it's going to be very successful and and there will be an employment apocalypse as a result. Am I over egging your view there?
- [02:30]
Carson Block
Let me just state that as background. I was a skeptic. So until February of this year I refused to refer to any of the models that are out there that we're using as AI. They are large language models and so I said okay, these things are not going to ever find the cure for Cancer. They're not, they are not that intelligent. It's not artificial intelligence. They're LLMs. Now, the current generation of LLMs that was released in January, early February of this year changed my mind to some extent. They're not going to independently develop the cure for cancer. Right? That's, they, I mean, I used to term them the greatest search engines ever developed and that effectively they are, but the ability, their ability to synthesize that information and order that information. I mean, there's real labor savings to be had right now in certain areas of knowledge industries, I mean, such as investment. I mean, I immediately began using Claude to run Monte Carlo simulations that I previously would have needed somebody who was pretty young, recently graduated from a top university, strong in math, to run the thing that's important to really understanding, or that change to change that changed. My view as to what LLMs are going to do to the labor market is that this generation was coded and tested in large part by its predecessor generation. It is coding and testing its successor generation. So you have a situation where the leading users of this generation of AI model, I mean, they're in the technology industry, they are able to supplant by using AI or displace multiple members of a team. Now, vast majority of us are not that skilled yet with the current generation of model, but we extrapolate that we're going to be hitting a point in the not too distant future in which we're going to see exponential improvement the capabilities of these models because they're coding and testing their successors and so on and so forth. Then you're going to see a lot more capability, you're going to see more comfort in understanding of how to use them. I think it's entirely conceivable that within a few years, 3, 5, 2, you could see within the U.S. roughly 15% of knowledge workers displaced from their jobs. And unlike the gfc, it's not that you just need to grow your way out of this and reallocate human and financial capital. It's, you know, those jobs are gone and the chairs, the number of chairs for humans is going to continue shrinking. So that's, that's where I come out on, on AI LLMs, you know, whatever you want to call them.
- [05:46]
Merrin Zumzat Webb
Yeah, okay, so you lose a lot of jobs, but also the remaining jobs, the quality of them degrades or feels like that's the end game, that these knowledge jobs disappear. And if people can get other jobs, they might not be of the same quality and certainly not at the same income level.
- [06:07]
Carson Block
I mean, a number of these, Yes, a number of these jobs will disappear. I'm a former attorney, I'm a professional litigant, effectively now in my current, you know, current, you know, iteration of my career. And I gotta tell you, like, at present, Claude can handle a lot of tasks that I pay attorneys for. Now, we're all familiar with the hallucination and it makes up, you know, A versus B. I'm not saying you remove humans entirely, but I mean, if I'm, you know, when you go through discovery, you're paying some associate, I mean, depending on the law firm, you're paying some associate somewhere between, you know, for good law firm, junior associate, $500 an hour to 1500 dollars an hour to review email after email and text after text. And they make mistakes. Claude does it 100% better. So now you have to ask, you have to query it in the right way. But you know, when you're talking about, I mean, financial service related litigation, most of our outside attorneys, especially junior associates, don't understand what we do anyway. So I think you're much more effective having the client running these, you know, running the discovery in Claude and querying, in querying Claude, at least to make your arguments. Yeah, and that just saves, that will save innumerable billable hours. So that's a profession where that I think is going to shrink significantly in the coming several years. And that's a very highly paid profession.
- [07:49]
Merrin Zumzat Webb
Yeah, the problem, I suppose with that is that you, you need to train the young people to have the more experienced people available to put in the correct queries. So once your, once your pipeline of educated young people disappears or shrinks significantly, you end up with a problem higher up the tree.
- [08:09]
Carson Block
Yeah, but that's, I haven't seen businesses really think too long term about, you know, for a long time. Right. I mean, everybody's focused on, you know, how much am I going to make this year? Maybe they're thinking next year.
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Merrin Zumzat Webb
So.
- [08:23]
Carson Block
And the problem, you know, look, one of the pushbacks to this idea that you're going to see the level of labor displacements that, you know, I think you're going to see is that, oh, well, the tech, the adoption curve, you know, technologies are never adopted at the rate at which they could theoretically be adopted. And yeah, that's true, but the thing here is that the cost savings for, you know, for the, the providers of these services, the cost savings are going to be so significant they're going to be able to massively underprice their competitors. So yeah, you know, it's going to be an existential problem for businesses that don't take advantage of this technology and reduce their cost and pricing structures accordingly. So that's why I think that the adoption curve argument here is not going to or counter argument is not going to win the day that there will actually be pretty steep uptake of these technologies.
- [09:21]
Merrin Zumzat Webb
Yeah, yeah. I mean it hasn't happened yet. We haven't really seen this happening yet. You know, I mean it's all still to come right in that white collar workers, a number of white collar workers in the US and in Europe is up since the first chat GPT was, was released. And you know, there are more AI engineers than ever, et cetera.
- [09:38]
Carson Block
So it's, so it's not yet a couple of things. Yeah, well, all right, so the, the current generation of, of these models which was released in January or February was the first, this is the first generation where you, you know, I said these are not idiotic. You know, they, they have flaws, they have limitations. But I mean previously, yeah, it was, it was a running joke. But you know, what we extrapolated as humans is that the progress would be linear. And it's not linear, it's going to be exponential because of how they're able to develop their, their successors now. Just a little pushback. I'm not normally a macro person, but one thing that you know, as far as the, you know, the great job success in the US A lot of that's been in health care. And you know, health care is a really interesting sector in the US because look, on one hand, okay, it's going to grow when, when you go back to 2000, information technology and look, the way that the, you know, bls Clar, you know, classifies sectors is antiquated, really should be updated. But information technology and telecommunications and healthcare are the only two sectors that have grown materially as a share of gdp. And healthcare has grown significantly more as a share of GDP than information technology. So you know, is it driven by innovation? Some. Is it driven by demographics? Some. But a lot of it's driven really by the parasitic nature of this healthcare system. At least in the U.S. that, I mean, there's. There's so much fraud, there's so much inefficiency. So look, if you say the US has a healthy economy, we have a healthy job market because, you know, we've added all these healthcare jobs, you know, I think that's a misinterpretation. So look, does that really go to whether AI or LLMs are going to make A, you know, a meaningful dent in employment going forward? No, because as I said, we're really at that point now where you're starting to see how these can replace employees in certain situations or at least prevent the hiring of employees, and the next generation will be even more powerful.
- [11:56]
Merrin Zumzat Webb
Okay, but we'll, we'll wait and see what happens in 5, 10 years if new jobs, new, different types of jobs are created. You know, this whole business of jobs we never thought would exist now 10 years ago, jobs we never thought would exist, exist now. So who knows what will happen in 10 years? But let's take the base case, your base case here, that 15% of knowledge jobs disappear. Now, the interesting bit, for the purposes of our listeners and readers, because we are an investing podcast, is what that does to the market. And I think that's where, that's where this gets interesting, isn't it?
- [12:24]
Carson Block
Yeah. And so again, this has been a U turn for me because there was actually a podcast I did in January where I was talking about how we had developed this systematic momentum strategy in house at Muddy Waters. And, you know, it's been compounding for us at north of 70, I mean, even, I think most recently about 90% per year. And I was completely sanguine about the outlook for the market and why and, you know, and the idea that momentum, as much as it shouldn't, you know, as much as the fact that a stock has gone up shouldn't determine that it'll continue to go up.
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Merrin Zumzat Webb
But it does. I mean, it's a, you know, momentum is one of the greatest strategies there, isn't it?
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Carson Block
Especially these days. And a lot of it relates to market structure.
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Merrin Zumzat Webb
Yeah.
- [13:08]
Carson Block
And so this is where what I'm saying about job displacement due to AI becomes a problem. So in January, I'm completely sanguine, you know, question, Carson. Well, when does, you know, when does it become a bad idea to invest in momentum within The S&P 500 index when unemployment rises materially? Well, when do you see that happening? Not anytime soon. Well, okay, here's the issue. I now do see unemployment, particularly for high wage earners, rising significantly in the next several years. The problem that that creates for markets is that, especially with The S&P 500, so much of that is driven by flows, so especially 401k retirement plan contributions from these knowledge workers and that, you know, and look, when you look at The S&P 500 index, I mean, it's, it's kind of ridiculous that we use that as a proxy for the stock market because you know, generally, you know, two thirds of the stocks are underperforming the mean of the index. And the mean of the index is really driven by small number of companies that are outperforming. And but what, what has happened? And so here I reference work that a friend of mine named Michael Green or Mike Green of Simplify Asset Management has done on passive investing. And he's been banging this drum since probably 2019 or 2020 about how passive has warped markets. So it's created this virtuous cycle whereby money goes in from paychecks every month. And what happens is these index funds, they buy stock at any price, they're completely priced inelastic, they remove supply of stock. And so for the largest names in the index or the indices, if you look at NASDAQ 100, same thing, those get the greatest share of every dollar that's allocated to, to the index. And so by removing supply, they create this situation in which the stocks that receive the largest allocations their, the impact on their prices becomes parabolic versus linear and that gets turbocharged with stock buybacks. So this has been great for the most part. I mean, 2022, there was, you know, there was like a little bump in the road, but we're well past that. So this has been fantastic for investors. But the thing is, if you, if you have say 15% of knowledge workers lose their jobs and they're not going to be able to replace that income, they have credit card debt, they have mortgages, they have car loans, student debt, this is going to massively impact the flows into the markets. And so probably the way it plays out on a micro level at first is person who's lost his or her job will sell the taxable investments. A lot of the taxable investments are in the largest names in the S&P 500 index. So you get selling there, but you've already had a situation where that laid off person is no longer making the contributions to the 401k plan. So you get to a point where those contributions go net zero. Especially because from a demographic perspective you do have people now who are also redeeming just because they've retired. And then you get to a point where on a net basis the flows go negative as people have to sell, you know, redeem their retirement accounts because they've been unable to replace their income. And the issue, so while passive has been this very virtuous cycle on the way up, it's built this significant fragility into the market. And so when those flows go in reverse, there's really, no, not nearly enough active management out there to catch the falling knives. Especially because if you were looking at the valuations of some of the largest companies in the indices and trying to look at them on a purely fundamental basis, it's hard to justify the valuations in some cases. So that's where you get, in my view, the GFC type events. It has to do with the fragility that's been created in the equity markets through passive investing. So if you really want to understand my view, it's my own view on AI displacing labor layered on top of Mike Green's work on passive investing and the vulnerabilities that creates in the equity
- [17:54]
Merrin Zumzat Webb
markets and that reduction in demand for equity. So that reduction in flow, it coincides with the period, an unusual period over the last decade of an increase in the supply of equities as well, because we have these big IPOs coming through at the same time. So SpaceX and then we'll get OpenAI and we'll get anthropic. And of course on paper we're thrilled by this. Right, because it shows the stock market doing what the stock market is supposed to do, which is be a place where people put new money into growth companies as opposed to an investor extraction machine, which has effectively been for the last decade. But most of the money has been coming out in buybacks, dividends, et cetera. So you get at the same time as if you're right, of course, that the flows fall, the supply is coming
- [18:36]
Carson Block
up at the same time right now. The other question there, and I don't have a view on this, at least to the extent that it remains independent of labor displacement. But to what extent are the hyperscalers going to be going to continue to be able to issue credit to fund their AI buildouts because they need to issue that credit in order to maintain the stock buybacks.
- [19:04]
Merrin Zumzat Webb
Yeah.
- [19:04]
Carson Block
So if they can't, if they can't issue paper at yields they consider to be attractive, then they're going to have to divert resources that would be used for share buybacks to scaling out data centers, etc. So you could start to see, you know, to me, either scenario is equally probable going into, when we have this, you know, when these streams start really showing up in the labor markets and the flows start to go toward net zero, can have this situation, you know, can, like I said, equally probable to me at this point where companies are still engaging in share buybacks. So maybe it hits, you know, this impact hits more suddenly or companies have to taper the share buybacks because they're not able to fund in the credit markets. And so you start to see, you start to see less upward pressure on stock prices as a result of that. Anyway, so either scenario, you know, at this point I'm coin flip on those two.
- [20:07]
Merrin Zumzat Webb
Yeah. And on the demographics. I mean, this was a scenario that everyone expected to happen anyway, just a little further out as the baby boomers work their way through the system and start to sell out to fund their retirements, we would have expected to see those flows reverse. Anyway, this just brings that forward by, well, probably a decade.
- [20:26]
Carson Block
Yeah, yeah. I mean, look, I think, you know, my impression of that question has been that there are people who argue, well, it's not going to be that bad because you're going to have a great wealth transfer and you know, yada, yada yada, and you know, money will be reallocated from credit to equities and younger generate, you know, no view in a world that doesn't go through an AI disruption. No view on the timing of that. But, but yeah, as I said, I think that we're, you know, I think that question is not really going to be that relevant compared to what this is.
- [21:00]
Merrin Zumzat Webb
Okay, so, so let's say we have a GFC style disaster in the markets. It's quick, it's huge, very unpleasant. How did it play out after that? And we're very used to thinking, well, we don't really worry about this stuff over the long term. We just hang on because there'll be a government response, there'll be a fiscal response or a monetary response. So we'll make everything absolutely fine, I think. Robert.
- [21:22]
Carson Block
Yeah, no, look, there will be all of that. I mean, the one thing is the playbooks are now very well developed for, you know, unlike the GFC where a lot of the response was theoretical, it took a long time to implement. Governments had to get authorities to do it. The authorities exist, they've been expanded during COVID So from a monetary perspective that, you know, I mean, rates, you know, real rates will go zero or negative, you know, over. Well, the interesting thing though is AI is going to be very, is going to be deflationary. So maybe, maybe it's a little bit, I'm stepping on a landmine if I talk about real rates, but nominal rates, you know, will be, I mean, you know, well below on the short, you know, short end, well below 100 basis points. I mean, probably 0 to 10 bips, you know, very quickly and there's going to be a lot of the governments are going to have to buy, the central banks are going to have to buy, know the entire curve basically to keep it really, you know, to keep rates, you know, long end rates low. Now there will be fiscal issues. I think fiscal is going to be a lot more interesting because the monetary playbook is well established. You know, the United States has the, the blessing of being able to borrow in the currency that it prints. And so I think, you know, QE forever is the future here effectively. But it'll be, you know, one of the, the third order effects. And where I think it's also interesting to look at some trade setting up will be what happens in the US to state and local governments. You know, there, I mean especially if you look at, you know, the states that are going to have their tax bases, the hardest hit are the ones that are the most prolific issuers of debt. So California, California is, I mean it's because so much of its tax base comes from income taxes, any individual income taxes. Anyway, this is going to be, you know, like Armageddon for California from a fiscal perspective. So how quickly does the federal government step in and bail out California, Illinois, New York, New Jersey, Connecticut? Kind of depends on who, I mean big part depends on who's in the White House and which party controls Congress. But you know, the, the, from a fiscal perspective, you know, I think the US will be okay because of the potential for qe, you know, Eurozone countries, that's going to be very tough, you know, but, but that's where, but you know, I, so, so look, I think we go through, we know what's going to happen in terms of, on the monetary side and they will have to try to reinflate assets and that will eventually happen. Assets will be reinflated, but this will reorder society significantly because I mean the politics, the amount of turbulence that we're going to have to go through to really figure out how we structure societies, it's going to be significant. And you know, look, I do think on the, on the back end of this, on the back end of a lot of turbulence and I don't, you know, this is a number of years to get there. The good news is, you know, I think, I think most people will be, will live reasonably comfortable lives. Okay. I think, you know, the, you know, a lot of the private sector will be there to serve the government. Governments will be massive employers, massive consumers of highly inefficient products and services from the private sector. So I think a lot of your private sector ends up looking Like Chinese state owned enterprises. Then there's another part of the private sector that focuses on the private sector. It's going to be the leanest, most efficient companies ever. But you know, I think a lot of people, you know, will be working, your middle class people be working two or three days a week. They'll have disposable income. This will be great for small businesses, you know, leisure businesses, travel, etc. You know, I think there will be, you know, the, our underclass will receive, you know, universal basic income, you know, but that's, and they won't have to work at all. And I hope there will still be room for people to achieve if they really want to. I don't, I don't know, but I've got a couple of kids and I'm raising them with that expectation that, you know, if they, if they're willing to, you know, if they're willing to put in the work and they have the ambition that they, they can achieve more than, you know, just owning a cafe. But you know, I think it'll be great for cafe owners and, and in a way it's interesting because, you know, certainly when it comes to AI, I mean scale, you know, I would think will, will remain everything but in so many industries this is going to be anti oligopolistic, this technology. So that would be a nice, you know, if I'm correct about that, that'll be a nice outcome. On the back end where small businesses don't have so much of a cost disadvantage to large business,
- [26:53]
Monks Investment Trust Announcer
We don't just invest in cutting edge companies. We look at companies with a history of steady growth and companies whose growth cycle has come round again. Because in the real world you have to look at growth in three dimensions. Monks, investment trust.
- [27:08]
IBM Announcer
So there's a lot of noise about AI, but time's too tight for more promises. So let's talk about results. At IBM, we work with our employees to integrate technology right into the systems they need. Now a Global workforce of 300,000 can use AI to fill their HR questions. Resolving 94% of common questions. Not noise. Proof of how we can help companies get smarter by putting AI where it actually pays off. Deep in the work that moves the business. Let's create smarter business. IBM, bro.
- [27:38]
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- [27:40]
Monks Investment Trust Announcer
Why is it never chill?
- [27:41]
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- [28:05]
Monks Investment Trust Announcer
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- [28:06]
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- [28:29]
Merrin Zumzat Webb
It sounds like you were expecting a massive expansion of the state. That's the net result of this. Every crisis in the west brings us closer and closer to a state that takes up over 50% of GDP.
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Carson Block
Yeah, I don't see an alternative to that. I mean, otherwise we'll just have tremendous societal instability.
- [28:53]
Merrin Zumzat Webb
Okay, I was about to say to you, what is the alternative? What are the alternative view? What are the risks to your view? And it sounds like the answer is very unpleasant instability.
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Carson Block
Well, I guess which view? I mean, are you challenging the AI? That AI will displace as many people as quickly. I mean, you alluded to one of the counterarguments that Jevons paradox, right? Like new technologies always create new jobs. I don't think this holds this time because the rate of change is going to be so for a long time. I'm talking 15 years. Maybe this is just because I'm really cynical, but I've been fond of saying that humans are able to innovate and invent technologies faster than we're able to adapt to them. Whether these are financial technologies such as financial derivatives or deep sea drilling technologies, you name it. So we invent and innovate, think we understand the risks and how to manage them. Find out we don't. We have some kind of calamity. But on the back end we say, okay, now we've learned. But the problem is when you have these, you know, when you have these machines building the next generation of machines, the rate of change is going to be going to continue. The rate of change will increase. In terms of the improvement of capability, we are, in my view, just not going to be able to adapt ourselves quickly enough to, to, to catch up. So there will be new jobs created and there will be people, you know, I think a small number of people who are at the forefront of understanding how to use these technologies. And you know, they'll be okay, but you know, for the rest of us, I, you know, I, I just don't think that's going to be the case. So I don't think Jevons paradox. I mean, look, I've, I've kind of made a career out of laughing at it's different this time and here we are. Never has been. But I think it's different.
- [30:58]
Merrin Zumzat Webb
This time feels different. Okay, so how does the ordinary investor prepare for this? So our listeners are, well, a lot of ordinary people, ordinary investment portfolios listening to you talking and going, well, what on earth do I do about this? I don't know what the time frame is. I don't know whether this is a two year thing or a three year thing or a five year thing. Maybe it's a ten year thing. I mean, who knows? Who knows? But it sounds like it's something I really need to be ready for. What do I do?
- [31:28]
Carson Block
Well, I mean, right now I think you keep doing what you've been doing, right? I mean, so, I mean one of the best trades has just been to be long the index, you know, the S P500. But you have to be very vigilant and look at what's happening to unemployment, look at what's happening to flows. And at some point the only place to, you know, to hang out is, is cash. I mean, maybe gold. You know, I don't have a view in dollar terms whether that goes up or down. You know, I think it's, you know, it's going to hold its value relative to, you know, other assets. Much, you know, much better. But, but you know, I, I think the, you know, to me that's, you know, that's really what you, you just need to be vigilant. You need to expect that this is coming. And you know, right now you could argue that we're seeing signal. You've had a number of companies announce layoffs and you know, some of it's due to AI investment, but others are saying efficiencies from AI, you know, but I don't know how much signal versus noise there is right now in these layoff announcements. But you know, at some point, I mean, if this keeps up, like, you know, 50 million Elvis fans can't be wrong, right? So that's, you know, that's something to pay attention to. I mean, if you keep seeing layoffs and you keep hearing it's because we're, we're automating and becoming more efficient, you know, at some point it's going to be meaningful. And look, maybe it all, maybe there already is signal here. Again, I, I don't, you know, I don't know. But, but yeah, I think you just, you have to watch, you have to watch employment, unemployment and flows very, very closely. And the, you know, the irony of this whole thing, I mean, of of my thesis, you know, should it play out again. The AI thesis, this is mine. The market fragility. This is Mike Green convincing me. But the companies whose stocks have benefited the most on the way up here are the ones that have the furthest to fall. Just because of that dynamic, that reversal inflows now in terms of businesses, they'll obviously be left standing and somewhat thriving in the wake of all this. And look, one thing we didn't touch on, but I think it's implied obviously when you see if you see that kind of mass high end labor displacement that I'm talking about, it's not just an issue of flows. I mean you have an issue with aggregate demand. And so that's going to, so we're talking recession anyway. That'll, that'll certainly impact financial results. But look, in the aftermath, these businesses will, you know, will still be standing. But you know, I think the way, look, you want to, you want to be able to protect yourself on the way down, probably cash. You know, we've set up a book in, you know, in, in our, you know, we've set up a strategy that's looking to protect principal on the way down. So think a lot of how if you were going to try to actually make money on this. I do think a lot of the action is in credit in one of the things is that, you know, that's interesting about the post GFC environment is that implied volatility and credit is so low because you have these structural bids for credit that are also part of the retirement flow story. But if you get this type of scenario playing out, I mean volume is going to blow out on credit and obviously you're going to have a lot of credit events, you know, not, I mean corporate as well as I'm saying government credit events. So there is money to be made on the way down here.
- [35:16]
Merrin Zumzat Webb
I just don't think it's, that's quite hard for a retail investor. Quite hard for every time. So for the average investor it sounds like what you're saying is you just keep buying until you see unemployment. You really begin to see these announcements ratchet up. Then you get out, you go into cash and then you wait and then.
- [35:35]
Carson Block
Right. And then if you really, really want to make the multi generational money, we go along in the aftermath.
- [35:41]
Merrin Zumzat Webb
You go along in the aftermath. But how do you know when to buy in the aftermath? Do you wait until you start seeing the policy announcements from the state? You wait until you see QE forever announced again? You wait until.
- [35:53]
Carson Block
Yeah, I mean, look it, so for UK market, it's hard for me to speak to that. Okay. Because I think, you know, the, the US is going to be, you know, I think we're singularly blessed in this dystopian world that we're, you know, we're heading toward. So from, from the US investor perspective, you know, that assets will be reinflated. We have no choice. I mean, all, all of our economies, Right. All the Western, all the developed economies have so much debt in them that you absolutely, the playbook is to absolutely reinflate assets. You know, in the U.S. i think that's, you know, I, I think, you know, we've seen that accomplished a number of times. They will do that again. So, yeah, I mean, if you wait for the first announcements, like, you're not going to miss the opportunity, you know, if you, if you buy after, you know, the Fed announces that they've cut rates to, you know, 10 basis points on the over, you know, on the Fed funds rate, I mean, you're not, you know, you can wait until after that to buy, you'll be fine. But look, it could take a while, but eventually the reinflation of assets will happen, at least in relative terms.
- [37:08]
Merrin Zumzat Webb
And do you think this is going to kill the passive industry? So when we're buying back in, we're sitting in cash, we're waiting, we see whatever signal says we think gives us a buy signal. Do we then are we going to go back into ETFs, or is this the return of the active manager?
- [37:24]
Carson Block
Yeah, that's an interesting question. Look, passive will be to blame for a lot of the market calamity, but how much? If we were talking about a financial crisis in isolation, then yeah, obviously all legislative guns would be focused on the passive investing industry. But we're going to have bigger fish to fry because we're going to be wrestling with this, these existential questions about humanity. What is our role in a world that's where our work is increasingly being performed by machines? How do we solve that? I think so, given that we're going to have some much bigger questions to answer and they're not totally unrelated, but I think most of the attention will be on that. But yeah, look, Passive Mike has been warning, he's been lecturing policymakers shouting from the mountaintops for years about what passive is doing. And I think the response that he's gotten at the policy level is, wow, that's really interesting. But there's zero political will to do anything about that right now. So we just have to wait and if your crisis ever materializes, then that's when we'll do something. So I think there's awareness of the problem, but it's just a political will problem. Right now. You'd be taking away the punch bowl in the middle of the party. And that's just not how we run things post GFC anymore. Not at all.
- [39:04]
Merrin Zumzat Webb
Yeah. Let me ask you this. You're obviously thinking about lots of existential things at the moment, as am I. What are your kids going to study at college?
- [39:14]
Carson Block
Yeah, it's a good one. Look, I. I do believe that math and some of my kids are not near college age. I mean, you know, 12 and 8, I'm. I mean, math and science. I'm very big on that regard. Like, even though I know these things will be able to do all of your math, I think you still need to understand how to do math. So you. If you.
- [39:37]
Merrin Zumzat Webb
You want to know how it works,
- [39:39]
Carson Block
the end goal here, as I put it to them, is, look, you want to be in a position to use these technologies as a tool, not to have to compete with them. So I do think that understanding the underlying functions that they are performing will give somewhat of an edge. So math and science and look, reading. So what do you actually study? The world is going to need salespeople.
- [40:08]
Merrin Zumzat Webb
Yeah. It's going to be communicated.
- [40:10]
Carson Block
Yeah. So I've got one kid who'd be a great salesperson and the other who probably won't. Wouldn't be, but, you know, can be lots of jobs in government as well. So I don't know, maybe for. Maybe foreign relations. And you can be a diplomat, you know, trying to control the last, you know, vestiges of what humans actually can control.
- [40:32]
Merrin Zumzat Webb
All right, let me take you back to gold briefly. You said you thought that might hold. Hold its value relative to. Relative to other assets. Anyway, what about bitcoin? Are you a cryptocurrency person?
- [40:43]
Carson Block
Oh, my God.
- [40:44]
Merrin Zumzat Webb
Come on. We always ask about gold and bitcoin. That's what we do in this podcast.
- [40:48]
Carson Block
They're not the same. One exists and one doesn't.
- [40:51]
Merrin Zumzat Webb
They're not the same. They're completely different. But I mean, look, you know, we. We go right back to the early days when people used to tell us that, you know, bitcoin was digital gold, and that made us laugh. And we would call gold physical bitcoin just for the giggles. Right? And we'd ask everybody at the end of each podcast if I gave you a choice of holding bitcoin or gold for a decade, which One would you take?
- [41:13]
Carson Block
Yeah, gold. I mean, look, okay, so bitcoin, when my. When my older kid was 5 and he asked me, oh, what's bitcoin? I said, listen, crypto bitcoin, these are currencies without countries, okay? They don't matter. I mean, there is an intrinsic value to them, which is just the gas fees, as they call it. But these things trade obviously well above intrinsic. I've looked at bitcoin at times in the past as a barometer of speculative excess in the markets as well as. You know, I think there's. I think there's a recursive effect as well on speculative activity. The more valuable bitcoin becomes, so on. And you know, the more froth there is in some other markets. So barometer as well as. Cause. But, yeah, look, I, I understand the. You know, I think it was Warren Buffett who said that if aliens observe our behavior toward gold, pulling it out of the ground, you know, treating it like it has some tremendous value, they'd be completely puzzled. Yeah, I mean, I understand that, but the. The thing is, I think it's so deeply embedded, you know, over millennia of human cultures, you know, every culture, gold wasn't the store of value. Gold was value itself. Could cryptocurrency supplant that or join that in status? Like, I'm not an anthropologist. I'm not a. Certainly not a futurist anthropologist, so take my view with a grain of salt, but I don't. I don't think so. I mean, gold is pretty. You can touch it. It has weight. It's not an intangible asset. Yeah, exactly.
- [42:57]
Merrin Zumzat Webb
So I can escape with bitcoin, too. And I'm like, well, yeah, but you're still going to need electricity if you want to escape with your bitcoin.
- [43:03]
Carson Block
Still, still going to need. Look, I mean, in a really, really, really bad situation, the ultimate store value is cans of tuna. So, you know, I'd rather have cans of tuna stockpiled than a USB drive with Bitcoin.
- [43:15]
Merrin Zumzat Webb
Okay, well, in. When the great crisis comes, can I swap some of my gold for some of your tuna?
- [43:21]
Carson Block
Can't eat gold.
- [43:22]
Monks Investment Trust Announcer
I don't know.
- [43:24]
Merrin Zumzat Webb
You'll be able to swap it for something else, though. All right, thank you so much. I'm going to ask you one last thing. It's a, you know, quickfire round this. What are you reading at the moment?
- [43:37]
Carson Block
Right now I'm reading. I'm switching between two books. I'm reading a book on the dysfunction in the art market, and I'm also reading a book about Leonardo da Vinci. That's the Walter Isaacson book.
- [43:53]
Merrin Zumzat Webb
Okay, that's interesting. We should all read that. I think that's on my list too.
- [43:57]
Carson Block
You know, I gotta tell it's not that compelling so far. I'm finding it a bit of a slog. And I don't. I don't think that's Isaacson's fault. It's just. There's not, you know, there's a paucity of information. So he's kind of. It's. It's kind of like a book report on, you know, during this year of Leonardo's life, he worked in this shop and he worked on this sketch. And here's a picture of it. It's. It's kind of a book report on his life so far, so I hope it picks up.
- [44:18]
Merrin Zumzat Webb
Could have made some stuff up.
- [44:21]
Carson Block
Would have been. Yeah, it would have been better. I have perused. I have perused my bookshelf looking for fiction to kind of. Because I'm not. It's just not grabbing me here, so.
- [44:31]
Merrin Zumzat Webb
All right, well, you know, maybe we went recommend that one to everybody. Stick with the first one. With the first one. Dysfunction in the art market. That's a lot more fun.
- [44:40]
Carson Block
Yeah. Yeah, that could be. So that's written by Matt Campbell, Bloomberg journalist. So.
- [44:46]
Merrin Zumzat Webb
Okay. Yeah, excellent. So we can read that while we wait for the great market collapse. And we'll be keeping a very close eye on unemployment numbers on this blog. Thanks to you. Thank you so much for joining us today.
- [44:58]
Carson Block
Oh, thank you.
- [45:09]
Merrin Zumzat Webb
Thanks for listening to this week's Marind Talks Money. If you like our show, rate, review and subscribe wherever you listen to podcasts and keep sending your questions or comments to marinmoneyloomburg.net. you can also follow me and John on Twitter or x you on X. Carson. I'm not following you. I should be. If you are, you've got to be on Ex, right? You are definitely on. Exactly.
- [45:27]
Carson Block
Yeah. I mean, mostly most of the time is at Muddy Waters. Re.
- [45:33]
Merrin Zumzat Webb
Okay, everyone's going to follow that now. I'm Marinette W. And John is John. Underscore Stepak. And now you know where Carson is. This episode was hosted by me, Mary's unset web. It was produced by Sama Sardi and Moses Andam Sound designed by Blake Maple and Aaron Casper. And of course, special thanks to car.
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Carson Block
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Carson Block
Welcome to the history books.
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