Marty's Bent

Sup, freaks? Creative destruction is the economic process where innovation continuously dismantles long-standing, outdated industries and business models, replacing them with new superior ones. We've seen many waves of it throughout human history. Agricultural tools, the steam engine, electricity, the internet. AI will probably be the most discombobulating form of creative destruction humanity has ever come into contact with. And today, Thursday February 26, will probably be looked back on as a pivotal day on that road.

Jack Dorsey, CEO of Block, announced that he is cutting over 40% of his employees, reducing the organization from over 10,000 people to just under 6,000.

The most important paragraph from Jack's announcement: "We're not making this decision because we're in trouble. Our business is strong, gross profit continues to grow. But something has changed. We're already seeing that the intelligence tools we're creating and using paired with smaller and flatter teams are enabling a new way of working, which fundamentally changes what it means to build and run a company. And that's accelerating rapidly."

He had two options. Cut gradually over months or years as this shift plays out, or be honest about where things are and act now. He chose the latter. Repeated rounds of cuts are destructive to morale, to focus, and to the trust that customers and shareholders place in leadership. I want to commend Jack for ripping the bandaid off. If you know this is inevitable and you want to give individuals the chance to go out and start their own company or find a new job while we're in the beginning stages of this creative destruction, that was the right move.

And the market agrees. Block shares are trading up almost 25% after hours, from $54.53 to $67.72. The after hours trading is telling us Jack made the right decision. If you're able to use AI tools to be more productive and efficient in a much cheaper fashion, cut headcount to increase margins. The market is rewarding it.

Matthew Pines echoed what everybody is thinking. If this generalizes, a CEO making the decision to rip the AGI bandaid and cut 40% of the workforce overnight rather than endure extended RIFs, we could see a highly nonlinear cliff in employment this year. Once a second CEO does it, it could cascade.

Now the other side. Is AI simply being used as an excuse to cut bloated headcount? There's certainly a case for that. Will Slaughter pointed out that in three years from December 2019 to December 2022, Block more than tripled its headcount from 3,900 to 12,500. Unwinding less than half an insane COVID overhiring binge has much more to do with Jack Dorsey's managerial incompetence than whether AI is going to take your job.

Fair point. Twitter was famously bought by Elon, he cut staff by 80%, and the app has been working fine since. There was a ton of bloat at Block. But I think the take is more nuanced. I know many people at Block, and over the last nine months they've been using AI aggressively. The pace at which they've been shipping has certainly accelerated. AI is playing a real role. And as Jordi Hays pointed out, this is the largest workforce reduction as a share of total employees in S&P 500 history. You have to admit that's more than just trimming COVID bloat.

So is everybody going to lose their jobs this year? I don't know. I think it's impossible to know exactly how this plays out. But there are physical constraints that could prevent the acceleration of AI displacing jobs at the pace many fear. The world is fundamentally short both watts and wafers. Displacing white-collar work would require orders of magnitude more compute intensity than current utilization. If the marginal cost of compute rises above the marginal cost of human labor for certain tasks, substitution will not occur.

Recursive capability does not imply recursive adoption. Physical capital, energy availability, regulatory approvals, and organizational change are all real boundaries.

One more thing worth considering. These AI tools are being heavily subsidized right now. The amount of compute I use at TFTC is almost certainly being subsidized by Claude and OpenAI. They're burning cash to acquire users and lock them into platforms. At some point that subsidization has to come down and the cost goes up. So if you're a small team, use these tools to your advantage while they're cheap. But be prepared for true pricing to hit the market eventually.

If you're at a bloated tech company, you should be worried. Start using these tools. Buddy up with people, think of ideas, businesses, side hustles. But also keep in mind there are physical constraints to the proliferation of this technology that will slow the mass wave of layoffs driven by true AI productivity gains and not bloated headcount cuts using AI as cover. Stay frosty. Don't fear. Ride the wave.

Global Liquidity Has Reached Its Peak

The financial markets may be approaching a critical turning point as global liquidity reaches unprecedented levels. Guest Michael Howell presented compelling evidence that global liquidity has peaked at $188.8 trillion, marking a significant inflection point in the current cycle. While absolute levels continue to edge higher, Howell emphasized that the growth rate has already topped out, suggesting momentum is beginning to fade after more than three years of expansion.

"We're looking at a 5-6 year liquidity cycle, and we've been in an upswing for over three years now" - Michael Howell

This analysis suggests we're entering a potentially challenging period where liquidity conditions may tighten over the next several years. Howell's framework provides crucial insight into understanding broader market dynamics and how central bank policies have pushed global liquidity to these historic highs. The implications of this peak could ripple through asset markets, affecting everything from equities to alternative investments as the cycle potentially reverses course.

Check out the full podcast here for more on central bank policy, market cycles, and investment strategies.

Headlines of the Day

Block Stock Surges 20% as Dorsey Cuts 40% of Workforce

Citi Bank to Launch Bitcoin Infrastructure Later This Year

Indiana Approves Bitcoin for Public Retirement Plans

US Regulator Proposes Rule to Restrict Stablecoin Rewards

Indiana Greenlights Bitcoin for Public Retirement Funds

Vance Wants Data Centers to Lower Electricity Costs

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Final thought...

The roots are set down.

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