(Bloomberg) — Famed short seller Carson Block is placing bearish bets on some of the biggest corporate credit ETFs as a way to hedge the risk of economic malaise caused by AI.
In a Bloomberg Television interview Tuesday, the Muddy Waters Capital founder doubled down on his view that credit spreads could widen as a result of artificial intelligence-led job losses.
Block said his firm is placing bearish options bets on funds including BlackRock’s high-yield and investment-grade corporate bond ETFs. His wager comes after the investor told a crowd of conference attendees earlier in March that he was setting up trades shorting credit spreads and betting on dislocations in ETFs with liquidity mismatches.
“AI is going to change everything,” Block said Tuesday. “Within a lot of the leading-edge companies and technology, their best users of AI have been able to replace seven of their colleagues.”
Some on Wall Street have been arguing tight credit spreads suggest investors are complacent and not fully pricing in a market shock, though some of the air has started to come out of the debt market as the conflict in the Middle East escalates.
Block added that markets will price in AI-related job losses before the displacement actually occurs. It’s a pivot from where the short seller stood just a few months ago, where he was sanguine on the economy and said he’s rather be long than short the US equity market.
“I do think this will be kind of global financial crisis-type fallout in the markets ultimately,” he said.
–With assistance from Bailey Lipschultz.
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