Carson Block

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, 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 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 markets.

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 continue to be able to issue credit to fund their AI build-outs?

Because

they need to issue that credit in order to maintain the stock buybacks.

So 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, et cetera.

So you could start to see, to me, either scenario is equally probable going into when we have this