The Real Reason Companies Are Firing Everyone

[00:00:00]Jack Dorsey's company Block says they're going to lay off maybe 40% of the workforce and they're saying we're going to use AI to replace all those workers.

[00:00:09]But is that actually the story? Now we've heard from a lot of people this recently that they're they're afraid AI is going to do to across the industry what we're seeing with Dorsey. In fact, that's the reason why people are paying attention to this news from Block because it seems to validate these fears that AI is going to lead to 20% employment by the time we get to the end of this year. And this is a something that's being expressed in widespread fashion. But when you dig a little bit further into specifically Dorsey's story than the macroeconomics as well as what's going on in the marketplace, the stock marketplace, what you see is it's more basic economics just with a little bit of an AI sprinkled into it to give it first of all some sensationalism, but also to give these people an excuse because let's face it, the Dorsey's company Block has been struggling for several years and as he himself admitted the real story here is how he and a lot of people like him, a lot of businesses like him, had botched the pandemic and its aftermath. They thought it was red-hot economy recovery, permanent plateau of prosperity. They hired for it and now after several years of hoping that they were right eventually, they're finally admitting the error in right-sizing their actual corporate needs to a much smaller workforce. They can say AI is going to replace these workers, but the real reason is the economy never recovered and now they're admitting it.

[00:01:33]So Steve, you've heard all these stories because they're everywhere recently.

[00:01:36]Everybody's saying AI is going to replace huge swaths of the workforce.

[00:01:40]We're going to have 20% unemployment um this year. And in comes Jack Dorsey, the a former CEO of Twitter. His new company Block is firing 40% of its workforce and they say it's because we're going to get involved in AI and this is a new growth platform. So you've You've all of this stuff. It seems to validate it. What's your thoughts on it?

[00:01:58]Jeff, I don't think there's a snowball's chance that the unemployment rate's going to get anywhere near 20% and if it does, it's not going to be because of AI. And I know people want to believe that, hey, you know what? No one's really figured out what to do with this AI thing. Wait, what? Jack Dorsey's going to lay off 40% of his staff because of AI? Did he finally figure out the magic secret to making this thing replace employees? No, like you said, he hasn't figured it out any more than any other company has figured out. This is all about, like you said, we over hired and that's a big issue as we look around the economy because we're hearing companies continue to lay off but not really in big numbers and I think that's kind of one of the things that stands out for me, Jeff, is that the labor market's held up as long as it has because you look at University of Michigan, you look at the Conference Board surveys and everybody, every week or every, you know, 2 weeks when they come out, people are worried about their job and then they don't lose it but they're still worried because they could see it coming. It's not because AI, because you're not hearing from people saying, "Ah, you know, I'm going to work and man, next they brought this AI thing and it's doing five people's jobs." That's not the case.

[00:03:04]It's always the same story. Demand continues to weaken. Backlogs at the factory level are getting worked through. There's not enough new orders.

[00:03:11]So, you don't want to come out and tell people that. You don't want to tell the market, "Hey, you know what? We're laying a bunch of people off because business is bad. We're doing it because of AI." Because the reaction to your stock, if you depend on the message you say, is completely different.

[00:03:25]It's the anxiety, right, Steve? The AI gives everybody uh something to to latch their anxiety onto, right? Because as you said, people have been worried about their jobs and unemployment for quite some time, not just recently. And along comes this AI story and any little bit of validation to it, people can then pour their anxiety, their fears into AI and say, "Well, I I the the people tell me the economy's holding up here but I'm still afraid of my job. Oh, it's AI that's going to replace my job." In fact, we saw that earlier this this past week, right Steve, when that um report came out from who was it? Citrini Research? It was a Substack post that led to the market sell-off that even the Citrini author said, "We did not expect that." Because it wasn't really about the report. It wasn't about this view of AI taking everybody's jobs 3 years from now. It was simply the anxiety that is floating around the marketplace, very palpably across the marketplace, and just people are any anything that allows them to the the expression to express that anxiety, to hit the sell button, any excuse to hit the sell button, that seems to be what they're taking. Now, you can understand what Dorsey what Dorsey's doing, what he's saying, and how that plays into these fears because he's putting the two things together.

[00:04:34]But, understand what he's really saying.

[00:04:37]We hired too many people expecting the economy to be robust. What we're now saying is that it's not robust. We're now right-sizing our our business and our our labor force and our payrolls to where they actually should have been to begin with. We never should have hired all those people back in 2021, and that we hope by getting a making a leaner company, that will lead us into a more productive and beneficial future cuz we won't be carrying all of this dead weight that we've been carrying all this time for business prospects that have not materialized. That's really the story here. It's another macroeconomic story, but when you give it the AI cover and the AI spin, it sounds so much better, so much more newsworthy. All right, quick shout-out to today's video sponsor, Monarch.

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[00:06:45]Yeah, Jeff, and that's really key point.

[00:06:47]I think you nailed it here. You know, post-pandemic, what did we hear? The economy was going to boom, and well, then it didn't. But a lot of people bought into it. You know, the Fed sold it, you know, politicians sold it, everybody sold it. So, companies had no choice. Hey, if everybody's saying this is going to boom, I got to go grab employees before they're gone. So, they did. And then next thing you know, hey, the economy's going to boom, and it didn't. So, we get into 2025. Well, it didn't happen. All right, well, the second half. Didn't happen. Holiday season. It didn't happen. And now companies are saying, "Look, I don't really want to lay people off, but I don't have a choice." And this is a case where you have to bring the labor market into equilibrium with the real economy.

[00:07:25]And that's something a lot of people just don't want to accept right now, because they're saying, "Look, stock market's still relatively close to all-time highs, so what's the problem?

[00:07:33]Oh, it's AI. It's going to replace workers." But the reality is, you know, anymore that you're can you stick an AI agent and say, "Look, my whole market team is now going to be completely replaced? No. But can it make your marketing team more efficient? Yes. Can it make your your workers more efficient? Yes, it's a productivity tool more than anything else. But it's one that a lot of people still haven't even figured out how to use. I mean, their basic use of it from the articles I've seen Jeff are just minimal. The workers are saying, "Hey, can you do look this up for me?" Yes, it's a faster search engine. But is it replacing jobs? No.

[00:08:06]But the underlying reality is here, we're long overdue for the labor market to come in line with the economy. The problem is the labor the labor market wasn't very strong to begin with. Jeff Jeff as you've been saying for years. So, if the labor market weakens, now the risk is that we go into a recession then there's more layoffs because demand continues to fall.

[00:08:27]Demand continues to fall. That's You see it's people have this sense that something is wrong. But the something wrong doesn't fit neatly into the box that we've all been given of what a recession looks like. So, the something wrong must be it must be AI. Must be you know, Jack Dorsey saying I'm going to replace 40% of my workforce with AI bots because that's what everybody says. But even Jack Dorsey's not saying that. You have to understand what he's saying.

[00:08:52]He's saying, "Look, we're actually bringing we're shrinking our workforce to more better to more appropriately match where we are as a business. And then we hope that we can replace those workers with AI moving forward to be more productive." He's not saying we're going to replace 40% of our workforce.

[00:09:06]What he's saying is we have too many workers and as we go forward we'll go forward hopefully leaner more productive. But as you said Steve, people you can feel that something is wrong here. It doesn't look like it should. Something it doesn't match our preconceptions about what it should look like. So, the AI the AI kind of gives voice and it gives a form to all those anxieties. And you mentioned also, I mean, it's not just Block. Block is simply the latest one. Amazon is a perfect example because what Amazon did is exactly what Block did. What what Jack Dor Dorsey just said. What he said was, "Look, we What Amazon did is they hired way too many workers back in 20 and 2020, 2021, and into 2022, and then realized they had too many workers. But, rather than fire them all right away, they kept hanging on to hoping and just hoping that J. Powell was right, the economy would rebound, it would come back, it would actually be robust at some point in the future." So, you see with Amazon's workforce, it zoomed way ahead in in those couple of, you know, pandemic lockdown recovery years, and then it plateaued. They haven't hired anybody. In fact, they've actually been firing people, so that the employment in the US, anyway, continues to shrink a little bit as they go, year after year after year, a little few a little a little bit fewer employees, a little bit fewer employees. Which is the Amazon admitting the economy they thought they were going to get in 2022 didn't show up. And more than more than that, they're saying it's likely not going to show up. So, that's the really issue with labor market. That's what Jack Dorsey's saying. That's what Block is doing. It's not AI. It's pure macroeconomics.

[00:10:36]Well, yeah. And then, on top of, you know, the Amazon story is they've actually had AI writing some of their code, Jeff. And notably, the recent outages that have been more frequent than normal for Amazon, who's generally known for just, you know, rock-solid stability. And it turns out it's like, "Why are they down? And why are they so long? Oh, well, AI went in there and thought it needed to improve and change the code, and it did. And now it has to get undone." Problem is that we fired some of these people that built this originally, so we have to go back and fix it. And I think that's the real truth about AI is people are worried about losing their job. But, the reality is this is not a production ready project that you can just go out on the shelf and say, "Hey, I'm going to buy some a marketing agent, a sales agent, a production agent, and I'm going to stick them in plug them into my business model, and poof, magically I've got, you know, 400 employees and I'm only paying electricity costs." We're not there.

[00:11:27]We're a long ways from there. The problem is, you know, Jeff, I'm going to use a term that you've coined is we forgot to grow an economy. And this is not something we forgot yesterday. It's something we've forgotten for years. And what's happening is it's finally catching up. And now we're seeing it hit the labor market. This is the last thing anybody wants right now because consumers are already falling behind because of inflation. They're watching their paychecks shrink. Their spending is already declining. And if anything at this point nudges them a little bit further, puts a couple more people on the unemployment line, then the risk is you've got an economy that's just overburdened with inventory because everybody had to front-run every opportunity, and now you've got an issue. And that's what's showing up in private credit now almost regularly is, "Hey, there's another problem here." But the big issue is going to be for private credit, "Well, what happens when the inventory can't sell because there's no one to buy because nobody has a job, or at least not enough people do?" Next thing you know, this whole thing you could just see it slowly grinding to a halt. And that's the big problem. AI's going to be the scapegoat because no one really wants to admit the truth here.

[00:12:33]Yeah, the truth is there is no demand.

[00:12:34]There is no upside to the economy. And so it's much easier to say, "We got a bunch of AI bots on the line that are going to just take place of take the place of our workers if and when" This is the part that nobody pays attention.

[00:12:45]"If and when the economy picks up."

[00:12:47]That's what Dorsey said. Look, look, "If we ever get an uptick in business, we're going to do so as a leaner business. But first we're going to get lean we're going to get lean and and fire all our employees. We're going to right-size the employment." And what you said, Steve, is exactly right. AI is not ready. It's not ready to to eliminate, you know, 20% of the jobs out there or 15% of the jobs out there any major major major proportion of jobs that are out there.

[00:13:10]Maybe that takes place slowly over time, but as it is currently stands, um and I know you know this, Steve, uh corporations and businesses, they're not using AI in anywhere close to the way that we would expect if something like that would taking place. So again, people have these anxieties about the macroeconomy, not really sure where they're coming from. AI seems to give those uh those anxieties and those fears a so a reason for them to exist. And then, you know, something like Block shows up, and it seems to validate, but it's really again, it's a macroeconomic story that we see time and time again.

[00:13:43]AI is a future thing, and I really believe AI is not going to eliminate jobs, it's going to make people more productive. It'll be more of a a human-robot partnership, but that's even that is quite a long ways away. Um AI is not the 2026 story, and let's talk about the markets a little bit, Steve. I think the the markets are starting to see that, too, in both directions, right? Um Nvidia Nvidia released earnings this week. Nvidia's earnings were terrific.

[00:14:08]The forecast, the guidance were terrific, and the stock market was like, "Is that all?" It's not really about that It's not the It's not really about Nvidia, it's the market now saying, "We've got bigger problems in the near term that we need to be concerned about rather than whether or not AI is going to work over the next several years down the road, and any of these businesses can turn this massive cash flow burn into profitability." They got to get there first. You know, the private credit bubble, that has burst, and I think it's pretty clear that it has, which means the funding's going to be harder to get, which puts all of these projects in jeopardy, which means all those future profits are in jeopardy.

[00:14:41]So, the shift the the entire focus has shifted kind of away from AI, just not in the public consciousness, but certainly for the marketplace, it's now about, "Hey, what's really happening in the economy and the credit markets today, not what these robots are going to do in 2030."

[00:14:56]Yeah, Jeff, I was saying I think Nvidia is more a credit market story than it is an AI or demand story because, yeah, I mean, as long as there's credit flowing the economy's booming, who doesn't want Nvidia's chips? Everybody wants them.

[00:15:07]They want the next one and the one after that. That's not the issue. The market's starting to say like, "Look, are people going to be able to buy your stuff because credit markets are tightening up?" And that's kind of, you know, you take this back to Jack Dorsey. He's laying off not because, you know, he wants to, because he has to. And that's the story with a lot of businesses right now. They don't want to get rid of some of their employees, but credit's tightening up, demand is slowing down, and there's nothing when they look out in the future other than hope that it gets better, they're not seeing it. So, you start to look at the big picture here. As you said, the credit bubble's starting to burst on private credit. You know, how many companies like Nvidia, they just can't sustain the demand. And that's the problem because the big question that's going to come next down to, well, Oracle, we'll pick on them some more. Two years now they're going to have negative free cash flow.

[00:15:55]At what point can they not tap the debt markets to do things? And at some point, if these companies can't do it, well, then Nvidia's going to have a whole lot chips on their hand and nobody to buy them. Yeah, that's the thing. The Nvidia's forecast sound terrific only if they can realize those forecasts. And now the market is saying, well, a lot of things have to go right that we took for granted last year in order for those forecasts to be anywhere close to realistic. That's what's really changed.

[00:16:20]You know, you said this all the time.

[00:16:22]You saw it said it since last year. You know, the AI build-out said to Wall Street, we're going to need a trillion dollars.

[00:16:28]We're going to need two trillion dollars. And Wall Street said, no problem. Let me get it for you. I'll find it, you know, everywhere. I'll I'll scour the landscape and it'll be easy.

[00:16:35]We'll get you two trillion dollars, no big deal. Don't ask any questions. Now it's like, hey, we're going to need two and a half, maybe three trillion. And Wall Street's like, I'm not sure you're going to get one trillion at this point.

[00:16:46]And so now the big question becomes, Nvidia, okay, yeah, terrific forecast, but those forecasts are more questionable than they have been at any point in the future at any point in the past, the sentiment sentiment has swung in the other direction. Credit market behavior has shifted. So, it's like I said, the the focus has shifted from down the road to what AI might do to the labor market, but also beneficially in the economy to how do we even get there?

[00:17:11]So, the issue is not 20% unemployment because robots are going to take everyone's jobs in 2026. The issue is how does 2026 real economy get before we even get to AI and put AI into the equation and more and more we get a lot of negative signals across all of these place whether it's being in the macroeconomy as Steve is pointing out but also that it's a the the constant escalation in private credit and spilling over into leverage loans and even high yield debt at this point suggest that again focus has narrowed focus has moved into the short run rather than the long run and that's giving got to the point where again Jack Dorsey to use him as an example we don't know if his bank said hey we're not going to lend you any more funds to get through the next couple of years you've got no choice either start firing workers or you're going to be out of business that's that's that to me is more likely than blocks getting rid of 4,000 workers and replacing them with AI AI bots.

[00:18:05]You know Jeff I I would completely agree with that and I think that's a conversation a lot of companies are having with with their lenders and I don't think the lenders are saying you need to lay off this lenders are saying look you need to increase your profit margin and businesses are saying well uh I got only one option well [laughter] >> what what what how am I going to do that where where's that magic money tree coming from? Yeah and so when we look at AI I think the question now is this changing is it I don't think it's a money issue now granted that money has tightened up on Wall Street but I think now the question becoming Jeff are we going to get there because if Jack Dorsey said okay I'm laying I'm going to lay off 40% of people but hey I want all the media come here because I'm going to show you how AI is replacing them jaws are going to drop like he figured it out and all of a sudden Wall Street's going to say here's all the money you guys need to finish this deal up but I think the problem right now is Wall Street saying okay you've got something that can write some code but it doesn't do a very good job of it and when we run weird simulations like war games it wants to nuke everybody so what is it we're really spending trillions of dollars on because so far you promised me that this thing was going to increase productivity was going to replace jobs and make you more profitable than ever.

[00:19:13]And right now, I don't see it doing any of that. And not only do I not seeing it, I'm not sure whether if I'm going to see it and for how long. Yeah, there are so many negative questions that are swirling that just weren't there, you know, 6 months ago. And what changed everything? What changed everything was the turn in the credit cycle. You know, beforehand, it was okay, we got tariffs, but we survived the tariffs and everything looked to be on its way to, you know, the panacea that everybody hoped it would become. And Wall Street bought, bought, bought. Stock market soared, stock market soared, cryptocurrency soared, except you know, the bond market of course. The bond market said, "Hey, we're not really buying into all these narratives." But eventually, the credit market shifted and it started to trigger this backlash.

[00:19:52]And the backlash was none of this seems to make any sense. The macroeconomy, the macroeconomic background is not there.

[00:19:59]The credit market is doing a bunch of stuff that is consistent with a bubble turning to bust, which means that we now have to ask uncomfortable questions. And we don't like the answers that are coming back. Starting with To bring this back to Dorsey and Block, the way businesses had managed their their businesses, their payrolls, and every their strategies from the very beginning of the 2020s. That's the original sin in all of this. Back to the 2020s, everybody thought the economy was going to boom. And then when it didn't boom, everybody thought, "Well, we'll just get through the short run and then it will boom." And then it became next year, then next year became next year, next year became next year. And then eventually, credit market turned and that has turned up the screws on all of these fantasies, which has led to this this the more visible aspects of it. But as as we've been saying here, people feel something was wrong, but it doesn't look like what they thought it was going to look like. So, why not AI? Let's blame the AI or AI or robot overlords for all of our problems when all of our problems are basically simple macroeconomic recession.

[00:21:02]You know, Jeff, back during the dot-com bubble, people needed a scapegoat.

[00:21:05]Companies overspent on this dot-com thing and thought they were going to have brick and mortar anymore. It's all their fault. And then the financial crash. Ah, blame the greedy bankers and all those fancy mortgage things that they did. What do people need right now?

[00:21:17]They need a scapegoat cuz the reality is they don't want to accept that the economy isn't working in their favor.

[00:21:22]They already know it, but the problem is that it wasn't last week that it changed. It was years ago as you said back in 2020. So this is ridiculous. So yes, we need a scapegoat and we need AI to be that scapegoat. The problem is as you said, it's not. But when all the laugh announcements hit and as demand continues to fall, should it fall, and more laugh announcements hit, you're going to hear more and more companies say, "AI AI AI AI." The bottom line is everybody needs an excuse and that's the easiest one right now.