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Appetite returns the favor to the forgotten of the balance sheet — Jun 2014

Episode

The extreme

Domestic money went back to buying exactly what it had been rejecting. Banks and utilities — the names left out of the balance sheet of preference for months — were readmitted in the same month, and that readmission was the largest move the internal structure recorded. It was not euphoria: it was a rotation. Appetite changed address, not size. In numbers: the Perene Risk Index rose from 48.3 to 62.9, back into neutral terrain; Financials against the broad index jumped from z −0.36 to +0.64 — a full unit in thirty days, the largest shift of the month; Utilities followed, from −0.23 to +0.48; commodities in reais eased to −0.47. Selic at 11.0% a year, the dollar at R$ 2.2355.

What happened next

The broad rehabilitation did not stay broad. In the months that followed, the favor that had spread across banks and utilities narrowed to a single address: by August, Financials against the index had climbed to z +3.29, a concentration the record rarely tolerates. Three months past the starting point, in September 2014, the bet evaporated — the ratio fell back to −0.13 and appetite collapsed from 68.1 to 14.1, the bottom of the series. In December the scene repeated in silence: concentration returned to +1.53 and dissolved to +0.02, with mood frozen at 90.4. A year ahead, June 2015 was already running through another landscape — public debt at 60.75% of GDP, the Selic at 13.75%, capital draining the refuge of utilities (Utilities/IBOV from 1.31 to 0.18) without buying the cycle.

What did not happen

June's restraint — 62.9, not the 100.0 that March had touched and handed back — looked like prudence. It was not protection. The measured recovery did not turn into a durable trend: three months later, appetite was on the floor. And the readmission of the forgotten did not stay plural. The favor returned to two sectors together became a single bet on just one — and a single bet is the opposite of diversification, however much it begins by looking like one.

The honest verdict

The reading of contained neutrality got the state right and the destination wrong. An appetite that returns is not an appetite that stays. The engine read June as cautious rehabilitation, and it was right about the month; what the number did not say is that the caution was the first chapter of a concentration — and that the concentration already carried, embedded within it, the shape of its own end.

Continue reading: The single bet on banks · Euphoria at the top — March 2014 · The dollar as a regime thermometer →

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Characters: Structure (intermarket) · Flow (risk appetite) · Mood · Dollar