Joseph Schumpeter stepped out of theory and onto the tape this week. Creative destruction showed up as a market force with balance-sheet consequences.
Artificial intelligence now behaves like a solvent in the software sector, dissolving categories that private equity firms and public markets once treated as dependable, rent-producing machines.
The S&P North American software index has slid roughly 18% over the past month and now sits at its lowest level since the April 2025 correction. January delivered a 15% decline, the steepest monthly drop since October 2008.
Price action like that reflects reassessment. Investors are recalculating survival prospects in a landscape where AI compresses pricing power, erases switching costs, and flattens moats that once looked permanent.
 The SaaSpocalypse Turns Existential
Selling pressure intensified after Anthropic released an AI tool aimed directly at legal work, a reminder that AI bypasses legacy workflows and performs the task itself.
Hedge funds responded first, cutting software exposure to just 4% of total U.S. hedge fund net exposure, the lowest level on record.
Private equity followed. Blue Owl Capital fell 13% Tuesday and now trades about 37% below its August level. Ares and KKR are down roughly 30%. Apollo has slipped 11%. Blackstone sits near minus 21%. Barclays noted that software represents roughly 20% of business development company portfolios, leaving the structure exposed to falling equity and credit valuations.
Goldman Sachs added that fears building quietly for days erupted at once, spreading from AI and software into sectors previously assumed to sit outside the blast radius.
Their AI At Risk basket logged its worst day in nearly five years. Creative destruction rarely respects sector boundaries.
Market behavior is shifting alongside the technology. AI shortens business cycles and accelerates repricing. Leverage magnifies reactions. Empire of Debt warned that systems built on smooth assumptions fail loudly once those assumptions collide with reality. Software reached that collision point first.
 Metals Break Structurally
Last Friday’s action in gold and silver exceeded recent precedent. Veteran traders described intraday ranges larger than anything seen in modern metals markets. Silver traded north of $120 an ounce before falling roughly 30% intraday.
Gold dropped more than 20% from record highs in a matter of hours. The most revealing feature sat beneath the headline prices. Futures collapsed while physical spot prices, particularly in London’s over-the-counter market, remained materially higher.
Keith Weiner of Monetary Metals has long observed that sustained bull markets tend to perform best when spot prices trade above paper prices.
The condition held. Demand remained firm. Market structure absorbed the strain.
 Washington Reaches for Inventory
As metals convulsed, Washington leaned toward physical supply. Secretary of State Marco Rubio is gathering officials from dozens of nations today to discuss critical minerals and supply chains.
Trump’s Project Vault anchors the effort, a $12 billion strategic stockpile supported by a $10 billion Export-Import Bank loan—the largest in the bank’s history—alongside private capital. Dominic Raab of Appian told Semafor that stockpiles buy time to diversify supply chains.
(Source: Semafor)
Doug Casey, however, reiterated a classic warning that governments act politically and distort incentives when they intervene. “When the government shows up to help, padlock your wallet.”
Markets respond to action regardless. When the state labels a resource strategic, capital pays attention. Silver’s recent addition to the U.S. critical minerals list ignited the rally we’re enthralled by currently.
 Musk and Former Side of Creative Destruction
Creative destruction clears space and concentrates power. Elon Musk occupies the creative side of that divide.
Yesterday, he announced that SpaceX would absorb xAI, forming a combined enterprise valued around $1.25 trillion. SpaceX accounts for roughly a trillion. xAI adds another $250 billion.
The vision blends rockets, AI, space-based internet, direct-to-device communications, and real-time information into a vertically integrated system. Data centers in orbit now appear in investor decks. Tesla threads through the structure, having disclosed a $2 billion investment in xAI during its fourth-quarter earnings call.
Wedbush analyst Dan Ives suggested deeper integration between Tesla and SpaceX could unfold over the next year. Ives carries a $600 price target on Tesla, the highest on Wall Street.
Skeptics focus on valuation math. But that won’t matter until the SpaceX IPO happens.
Tesla trades near 200 times its estimated 2026 earnings. SpaceX pre-IPO trades closer to 400, according to Barron’s. Bridging that gap would require capital and dilution.
Today’s point is: Creative destruction rewards builders willing to reconstruct the architecture from the ground up. Software firms built on subscription rents occupy one side of the field. Musk, pursuing the largest IPO in history and a trillion-dollar valuation, stands on the other.
Program note: Our private market guru Matt Milner will be joining us on Grey Swan Live! next week to dig into the SpaceX — xAI merger. And give us a unique entry point for Grey Swan members. You won’t want to miss that one.
 The “Affordability Crisis” Goes Global
Affordability, or the lack thereof, spreads predictably through fiat regimes. It begins as policy language and settles into household arithmetic.
As the White House advances President Trump’s affordability agenda, Gallup polling shows similar pressure worldwide. Across 107 countries surveyed last year, a median of 23% of adults cited the economy—standard of living, rising prices, shrinking purchasing power—as their top domestic concern.
Work and unemployment followed at 10%.
The age split stands out. Younger adults carry the weight. In the U.S., 32% of adults ages 15–34 named the economy as the country’s most pressing issue, compared with 13% of those 55 and older.
Different generations inhabit different price systems. When wages trail prices long enough, frustration scales across borders.
 The Long Arc of Radical Theater
The baby boomer obsession with radical ideology observes an anniversary today.
February 4 carries a memory worth dusting off. On this date in 1974, Patty Hearst—the 19-year-old granddaughter of publishing titan William Randolph Hearst—was dragged from her Berkeley apartment by the Symbionese Liberation Army, blindfolded, stuffed into a car trunk, and rebranded a “prisoner of war.”
What followed wasn’t just a crime. It was political theater. The SLA issued communiqués, demanded ransom in the form of mass food giveaways, and staged a morality play aimed less at results than at attention.
The Hearst family complied. The demands escalated anyway. The lesson arrived the hard way: performative radicalism feeds on visibility, not resolution.
That pattern has been echoing quietly this winter as protests against ICE have flared across major U.S. cities—loud, symbolic, camera-ready, and largely disconnected from policy outcomes.
“The demonstrations are about presence, not persuasion,” one law-enforcement analyst told Reuters recently, noting that arrests, deportations, and court backlogs remain unchanged.
Bloomberg agreed: “signal virtue more than they signal leverage.”
Senator John Kennedy of Louisiana has a more folksy understanding. He was on the political talk show circuit last weekend, saying the Democratic Party has been overtaken by what he calls the “Karen wing”—high-decibel outrage, low tolerance for complexity, and an instinct for scolding rather than governing.
Radical movements that prize performance over power tend to confuse attention with control and or a clue. When the Karens are also facing issues with health insurance and retirement funds slowly bleeding away due to higher cost-of-living, it will become a collective problem in November.
~ Addison
P.S. Bitcoin just broke down to a new 1-year low, while crypto exchange volumes are thinning.
Mark Jeftovic’s joining us at a special time this week for Grey Swan Live! — Friday, February 6, at 2 p.m. ET. He’s going to help us unpack a set of signals that rarely appear at the same time — and almost never by accident.
This isn’t about predicting the next headline. It’s about understanding what tends to come next when capital, policy, and power start pulling in the same direction.
If you have requests for new guests you’d like to see join us for Grey Swan Live!, or have any questions for our guests, send them here.
