This (Doomsday) Substack Destroyed $300B+ | Citrini Research

0:00 So, on Monday the 23rd, the Dow Jones dropped over 800 points, and both the S&P and Nasdaq were not spared, either. And if you caught any financial news the following day, you probably heard the usual explanation, Trump's tariffs. The Supreme Court struck down his emergency tariff powers over the weekend, and he responded by threatening even higher ones. And the stock market did what it naturally do with uncertainty, they sell off. But, here's the thing. Tariffs don't necessarily explain everything that moved on Monday. Some of the selling was much sharper, much more specific, and pointed at companies that sometimes have nothing to do with the trade policy at all. DoorDash was down over . American Express, AMX, fell more than 7%, whereas their closest competitor, Visa and MasterCard, their sell-off was a lot more subdued.

0:56 Besides, the funny thing is, when you look at these set of companies, they aren't necessarily caught in the trade war crossfire. So, why are they getting hit so hard? That's the question that leads us to somewhere much more interesting than tariffs. Now, what we think could explain, at least a part of it, was a research report that had been quietly making its rounds over the weekend. So, it's published on Substack by a firm called Citrine Research. And what makes it unusual is that it's written as a fictional memo from the year 2028, looking back at a crisis that hasn't happened. And what a nice timeline, 20 years right after the global financial crisis in 2008. So, as of the time of this recording, the post that actually promulgated the research itself had clocked in over 7 million views on X. And whether the market is directly reacting to the research itself, or it's just generally in a nervous mood, I think the timing is pretty hard to ignore. So, today, we want to do two things. So, we have first touch on the tariff situation because it's genuinely a part of the investment picture, but the more interesting conversation and the one that we really want to spend time on is the research report itself. Specifically, what it actually said, why it resonated so widely, and whether the reaction it triggered was justified or the market just got spooked by a well-written piece of speculation.

2:28 So, let's quickly set the scene. Going into this week, I think the market was already on the edge. Trump's tariff situation had been a slow burn for multiple weeks or even multiple months, but this weekend it escalated. The Supreme Court struck down the legal basis for its emergency tariffs, which you'd think would be a relief because thank god, let's go back to the previous world. But instead, Trump came back almost immediately threatening with a 10% global tariff and then raising it to 15% and warned that any countries trying to play games with the US would face even steeper consequences. So, rather than getting better clarity, I think the market got even more uncertain. On the side, there was also a specific hit to financial stocks. So, Saba Capital announced tender offers for stakes in some of the Blue Owl Credit Funds, which dragged names like KKR and Blackstone down sharply alongside then. So, the concern there is essentially about private credit valuations being questioned today. So, when an activist like Saba Capital comes into the picture and tries to buy fund stakes at a discount, it potentially signals that they think that those assets are worth lesser than what is on the book itself.

3:42 Now, if you enjoy this kind of content, we put out weekly investment insights through Investing Bytes, where we break down real-world examples and give you clear thinking frameworks straight into your inbox. So, it's completely free, and the sign up link is in the description below. Now, back to the video. So, if we were to strip those two events out, I think there's still a meaningful chunk of Monday's sell-off that needs a different explanation. And that's where the Citron Research report comes in. The 2028 Global Intelligence Crisis was the hook that they used, and they are a well-followed macro research publication. So, what makes the piece unusual is actually the format itself.

4:22 So, rather than the typical analyst note with charts and bullet points and a well-written paragraph, this is actually written as a fictional macro memo from June of 2028, looking backwards at how an AI-driven economic crisis unfolded over the preceding 2 years, which is today. You have fake Bloomberg headlines, you have fictional earnings call, and a narrative that reads less like research and much more like a well-informed novel. You can even call it as some sort of a fortune telling.

4:52 And the authors are completely transparent about this as well. They actually open up the entire message by saying explicitly that this is a potential scenario, not a prediction. And their framing is a genuinely interesting question. What if all these AI bullishness continues to be right? And what if that's actually bearish the economy and the stock market? And a big part of why it spread it so fast was because it was catalyzed by Michael Burry, the investor made famous by The Big Short, for correctly betting against the US housing market before the 2008 financial crisis. So, Michael Burry actually reposted the report over the weekend with a simple caption, "And you think I'm bearish." And that's all it took. When arguably the most famous contrarian investor alive signals that something out there makes even him looks optimistic by comparison, I think many investors will start to pay attention.

5:47 But the virality alone doesn't move markets. What actually unsettled investors was something simpler. I think the scenarios Sietrining described doesn't feel entirely impossible. And right now, we're going to lay out the five core ideas, each one feeding into the next in some sort of a domino sequence. The first domino, the SaaS reflexivity loop. It sounds pretty complicated, but let me explain. So, it starts out with enterprise software as a service or SaaS, which stands for software as a service, is essentially any tool a company pays a recurring subscription for. So, think about companies like your Salesforce, ServiceNow, and all the platforms your IT department insists that are mission-critical to the daily operations of the company. So, the research argument is that agentic AI, meaning AI that can actually take actions and write code autonomously rather than just answer questions, has kind of reached a point where a competent developer can now replicate a mid-market, full-size software as a service product in weeks.

6:52 Not years, by the way, in weeks. Although not perfectly, but well enough that a CFO sitting across from a 500,000 annual renewal starts asking a very uncomfortable question. What if we've just built this entire software ourselves and not continue on with our subscription? Now, here's the part that's genuinely clever, and this is where the reflexivity comes in. So, ServiceNow, as an example, sells seats, meaning to say they charge per user. So, when a large company actually cuts 15% of its workforce because AI suddenly becomes so much more productive, they're doing a lot more work, they automatically cancel 15% of their ServiceNow licenses. And that same AI driving efficiency is also shrinking their own revenue base. And the companies most threatened by this development doesn't just sit still because they're aggressively adopting the very same technology disrupting themselves. Because what else can they do? They can't just sit still and die slower, right? And this isn't just purely theoretical right now. So SaaS stocks or SaaS companies were already under pressure before this report actually landed. So the Citrine piece actually gave a coherent narrative to a trend that investors were already nervously watching for a good part of the last 1 to 2 years. The second domino, the intermediation collapse. And this is where the thesis start to get a lot broader. So the research argument here is that a huge portion of the American economy was built over the past few decades on monetizing human limitations. Let me explain. People by default are impatient and lazy. They default to familiar brands. They accept a slightly worse price to avoid the hassle of shopping around. And entire industries worth trillions of dollars in market capitalization were essentially extracting value from the fact that humans get lazy and distracted. And here comes in the newest creation, AI agents.

8:51 So they don't have those limitations. The report actually uses DoorDash as its clearest example. So say a developer can now spin up a functional delivery app in weeks, the barriers to competition essentially collapses. New platforms start passing 90 to even 95% of the delivery fees through to the drivers pulling them away from the likes of your DoorDash and even Uber Eats. And at the same time, if white-collar workers are being displaced and they're earning less, I think the consumption from this high-spend crowd starts to also erode alongside. So the moat of many of these software aggregator companies in the middle is being attacked simultaneously from both sides. Moving on to the third domino, the payment and the friction unwind.

9:39 So, this is the one that actually starts to hit companies like a Visa, MasterCard, and even American Express. And I want to be a bit more careful here because the logic isn't identical across all three platforms. So, the research argument is that once AI agents start handling the purchasing decision in the background, a few things will start to change structurally. So, impulse spending drops because there's no more friction-driven browsing. Subscriptions that passively renewed because nobody remembered to cancel them also starts to get terminated. And going one step further, insurance policies also gets re-rated and re-shopped annually rather than just being lazily rolled over. And the entire, they call it, inertia economy where companies profited from people not paying attention, those entire source of businesses, they start to unwind. So, for companies like Visa and MasterCard, I've actually pushed back on the most bearish reading here. So, the real business is the payment rails itself, the underlying infrastructure through which money actually moves regardless of who's making the purchase decisions, whether is it the human or the AI agent.

10:48 Because even AI agents still need to send payments through those payment pipelines. The more credible concern here might potentially sit with American Express specifically, whose premium model is actually built on high-spending, brand-loyal, and white-collar consumers. And that's precisely the demographic that Citrine sees as the most vulnerable to displacement. And that potentially could explain why Amex fell over 7% just on Monday alone after the market open. And that particular move feels more logically connected to this thesis rather than a broad-based sell-off.

11:24 Moving on to the fourth domino, the mortgage market. So, the US residential mortgage market is approximately $13 trillion. dollars. So, the entire architecture of how mortgages are underwritten, meaning to say how lenders such as banks decide who's creditworthy, rest on one simple fundamental assumption. The borrower, in this case the hundreds of millions of households, remains employed at roughly their current income level for the entire lifespan of the loan itself. More often than not, they usually spend between 20 to 30 years. So, if white-collar employment becomes structurally impaired, as they've argued, not temporarily disrupted by the way it might be in a recession, but permanently altered because AI has replaced entire categories of knowledge work, I think that income assumption underneath the 13 trillion dollars start to look questionable as well. And in that research report, I think they also started flagging rising delinquencies in zip codes with higher concentration of tech and finance workers who supposedly had bulletproof careers. So, we haven't seen this observation in real data yet, and to be fair, this remains firmly as a speculation. And this particular observation that they suggested is not solvable by the Federal Reserve cutting interest rates. The Fed can lower borrowing costs, but it cannot restore jobs that technology has structurally displaced. And that asymmetry is what makes this domino different from all the others.

12:55 And the last point, the final and fifth domino, goes GDP and the government revenue problem. So, the final nail in the coffin is the most macro. It introduces one of the more original ideas in the report itself, and it's a concept called ghost GDP. So, the idea is this. Imagine a GPU cluster, of course supported by Nvidia, somewhere started generating the economic output previously attributed to say 10,000 white-collar workers. That output actually shows up in the national accounts. GDP looks fine because the productivity at the end of the day is still achieved. In fact, some might even argue that productivity is booming. But the GPU cluster actually doesn't pay rent. It doesn't buy groceries, it doesn't take holidays, it doesn't visit the doctor, it doesn't pay school fees, or it doesn't go out for dinner. So, the productive output exists, but it never actually circulates through the real economy itself. And if you think about it, the cluster of GPU generates wealth for the owners of the compute, and it stops there. And if you take a closer look into the US economy today, the consumer economy is roughly 70% of its entire GDP. It runs on people earning wages and then subsequently spending them. Someone's expenses is another person's income. And the secondary consequence of this is a government revenue crisis. So, the US tax base is essentially a tax on human labor, and they're all dependent on people earning good wages. And now, in the new AI-led world, if productivity gains increasingly flow to the owners of the compute and capital, rather than to the workers themselves, then there's a structural fiscal problem. So, with all that said, now, I think we want to be honest with you about how we are actually thinking through this. Because the worst thing we can do is just to present a crazy scenario and just leave you with it. So, let's start off with what we think about what genuinely holds up. I think the S-curve reflexivity argument is the strongest part of the report, and importantly, it's the one with the most real-world evidence behind it already. So, this isn't necessarily a 2028 prediction. It's arguably even a 2026 reality that's just getting started. And hence forth why the stock market is also trying to price in that risk. On the other hand, I think the ghost GDP concept is also pretty interesting. It's intellectually compelling at least. So, if productivity gains actually stop flowing through wages and into household spending, I think the traditional indicator that we use to measure economic health starts to tell us a different story that doesn't match what most real-world people are feeling. And that disconnect itself is worth watching carefully. But where we would actually start to be more cautious is on the timeline and the severity. So, the report is essentially compressing an enormous amount of structural change of the entire economy into roughly 2 years.

15:51 And as history serves up as any guide, I think technological displacement, even when it's real and significant, almost always takes longer to play out than most bearish forecasts suggest. So, there are many friction points that Citrini themselves also acknowledge. You have regulatory responses, institutional inertia, the genuine complexity of replacing the embedded software systems, and just the sheer fact that humans consistently reinvent ourselves and find new work even after major technologic shifts. So, with all that's said, let's zoom out for a second and ask the more interesting question. Why did this fictional memo that come up from somebody's imagination actually move the markets by such a significant margin?

16:36 Personally, I don't think it's because investors suddenly believe a 2028 crisis is inevitable. I think that it's because the report actually gave clear language to something a lot of people have been quietly sitting with. So, the AI trade, as we know by now, has been enormously profitable, especially for those of you who have started investing during the pandemic times in 2020. But somewhere in the backs of people's minds, a question has been forming that nobody quite knew how to articulate. Yes, we are seeing great amount of productivity being unleashed, but what happens to the economy on the other side of all of this? And here's where we are in reality of the stock market. Markets have always been in the business of repricing uncertainty. And this time round, it's no different in that sense. What is different is the nature of the shift happening beneath us. So, the Industrial Revolution didn't reward the workers displaced by the machines. It rewarded the people who knew how to organize, arrange, and own the machines and the people. So, the good news is that the picture is not uniformly bleak. There is still hope. It means that the question you should probably be asking about every businesses you own is whether this company sit in the world where intelligence become cheaper every quarter. Stay focused on the underlying business model and its economics. Stay adaptable and more importantly, stay curious. Because in an environment this uncertain and this fast-moving, investors who keep asking the right questions will always stay ahead. And if you want to keep building on the kind of framework we talked about today, we have a weekly newsletter called Investing Bytes where we break down real-world case studies. And if you have stuck around until the end of this video, I have a feeling it's exactly your kind of thing. So, hit the link in the description below and we'll send the latest issue straight to your inbox. And this is CK from Piranha Profits signing off. Till next time, keep winning.