To The Moon

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January’s macro narrative was dominated by a renewed fiscal cliff: funding for agencies operating under a continuing resolution was set to expire January 30, 2026, reopening shutdown risk and adding another layer of potential noise to federal data releases and market sentiment.

Hard data and high-frequency reads pointed to “steady, but less dynamic” growth: ISM services stayed expansionary at 53.8 in January, but businesses flagged rising input pressures and supply constraints tied to the buildout of AI data centers, alongside ongoing uncertainty around tariff policy.

Labor indicators softened at the margin: ADP reported 22k private jobs added in January, and noted significant benchmarking-related downward revisions to prior-year job growth; meanwhile, the official government jobs report timetable was described as delayed amid shutdown-related disruptions, complicating near-term signal extraction.

The Peril of Narrowing Fiscal Space

Global public debt levels have effectively ended the era of the ability of central banks to shield domestic economies from global events, with the sheer scale of government obligations now dictating the boundaries of central bank independence. The BIS warns that as net interest outlays in the US approach one trillion dollars monetary policy is running into a hard, self-inflicted ceiling. This “fiscal limit” forces a retreat from standard inflation targeting, not because of direct political pressure, but due to the market reality that aggressive rate hikes could now trigger a sovereign debt crisis.

Ironically, the very mechanisms designed to stabilize the economy are now generating a persistent inflationary bias. While the central bank remains active, markets have priced in its hesitation because of the ceiling, creating inflation simply because individuals understand the central bank cannot tighten enough without breaking the budget. The BIS has coined this the “Reverse Zero Lower Bound.” Ten years ago, we worried that rates couldn’t go low enough to stimulate growth, the original “Zero Lower Bound”. Now, the worry is that rates can’t go high enough to stop inflation.

For investors, the implication is stark. We are entering a period where the central bank may be forced to tolerate higher prices simply because the alternative of government insolvency is worse. If a recession hits, the Fed may find itself with no good options: either print money to buy the debt (fueling more inflation) or let the government’s finances spiral.

Metals Rattled by End of Month Margin Calls

On Friday, January 30, the precious metals market suffered one of the most violent dislocations in modern history. Gold plunged 9%, its steepest single-day decline since the early 1980s, while silver collapsed a staggering 26%, erasing roughly $7 trillion in combined market value in a single session.

While the immediate catalyst was the nomination of a hawkish Federal Reserve chair, reducing perceived political risk, the severity of the crash was mechanical, not fundamental. Crowded speculative positioning, fueled by immense leverage, unraveled all at once causing a liquidity event. As prices dipped, margin calls cascaded, forcing traders to sell indiscriminately to raise cash.

According to J. Safra Sarasin’s Economist Claudio Wewel, Gold still has a strong fundamental case with continued central bank buying, geopolitical uncertainty, and a weakening USD. However, he states that caution around silver is warranted, with its price disconnected from industrial fundamentals, driven largely by speculation.

Software’s Existential Crisis

After months of underperformance, a dramatic selloff in the software sector has deepened driven by a new and pervasive fear: that AI isn’t just a tool for software companies, but a replacement for them.

AI startup Anthropic released a tool designed to automate legal work, but the fallout was general. Investors are suddenly looking and asking who gets disrupted next. This anxiety sent heavyweights like $Microsoft(MSFT)$ $Salesforce.com(CRM)$ $Adobe(ADBE)$ tumbling, while legal and analytics firms like Reuters and RELX took even sharper hits.

Short sellers have generated $24 billion in paper gains betting against the sector. In a telling sign of the mood, analysts note that Microsoft is currently trading like a “distressed” name, with bets against it increasing as the price falls, a stark departure from its typical trading patterns.

However, many analysts believe this is a classic case of the market overshooting. While the uncertainty is real, the idea that all legacy software is obsolete overnight is likely an exaggeration. Companies with “sticky” products essential to daily business operations are being sold off indiscriminately along with the truly vulnerable.