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Appetite chooses whom to trust — the banks' +2.13 in October 2016

Episode

The extreme

Risk appetite came back — but not for everyone. In late 2016, domestic money decided to pay up for Brazilian risk, so long as it came with the right label: banks and commodity producers collected the premium; real estate funds, which yielded like near-fixed-income with the Selic at 14.0% a year, were discarded. And the strictly quantitative risk gauge refused to join the party. In numbers: the financial sector jumped from +0.64 to +2.13 of deviation, the largest move in the structure; domestic mood rose from 58.9 to 80.0, extreme optimism; but the Perene Risk Index barely left the floor, from 0.0 to 2.1, still in risk_off.

What happened next

Confidence bought the turn before the evidence signed off — and the evidence took its time. In November, mood pulled back first, undoing part of the enthusiasm. Only in January 2017 did the two clocks strike together: the Perene Risk Index jumped from 38.7 to 82.7, mood reopened to 71.5, and commodity leadership stretched to +2.13 of deviation, with the Selic already at 13.0% a year. October's conviction, in the end, won the endorsement of the axis that was missing.

What did not happen

The harmony did not last. January's alignment was an interval, not a state: by April 2017 the clocks split again, now inverted — mood collapsed to 23.0, deep pessimism, while capital pushed deeper into risk. Nor did the banks' leadership become eternal; months later, Finance/IBOV would hand back the lead it had taken. And the disdain for real estate funds did not turn into collapse — it was relative rotation, not rupture.

The honest verdict

The reading that conviction was running ahead of the evidence was right about the mismatch — there really was a gap between mood at 80.0 and risk at 2.1. But the gap closed from the side few would have bet on: it was the quantitative gauge that rose to confirm, not the optimism that retreated. Buying the turn before the proof was not a mistake; it just was not, at any point, a certainty. The two clocks would disagree again before the end of 2017.

Continue reading: The external shock of November 2016 · The confidence the capital distrusts · The single bet on banks →

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Characters: Statistical anomaly