Carson Block posits an inverse relationship between interest rates and honesty. Prolonged periods of easy money anesthetize investors to risk, fostering a "gray zone" of behavior where companies can significantly misrepresent economic reality without committing outright fraud.
Block cautions against shorting mega-caps like NVIDIA based solely on fundamental valuation. He argues that massive passive fund inflows create a powerful "technical value" by squeezing the available float, leading to parabolic price increases that fundamentals alone cannot explain.
Carson Block believes the ultimate moat in activist short selling isn't just analytical skill, which AI might commoditize. The real, durable edge is a high tolerance for being sued. This personal and financial risk appetite acts as a significant barrier to entry, preventing the space from being flooded with competitors.
Block foresees AI causing significant knowledge worker unemployment. This will halt 401k contributions and then trigger net outflows as laid-off workers tap retirement funds. This reversal of passive flows could create a major market downturn by removing the technical bid supporting prices.
Beyond aiding investigators, AI also empowers potential bad actors. Carson Block notes that a savvy CEO can use large language models to identify their company's vulnerabilities from a short seller's perspective, allowing them to preemptively build defenses and make it harder for activists to expose them.
Carson Block sees systemic risk in private credit not just in valuations, but in basic administrative failures. He cites examples of lenders failing to publicly file lien releases, creating the potential for double-pledging assets—a symptom of a system not dotting its I's and crossing its T's, reminiscent of pre-GFC behavior.