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Flow at the ceiling, mood at the floor — June 2020

Episode

The extreme

For three months, the house's two axes fell and rose hand in hand. In March they collapsed together; in April, they stopped falling together; in May, they lifted themselves off the floor together. June broke the pact. Institutional capital returned to risk with a conviction that bordered on euphoria — and aggregate sentiment barely raised its head off the ground. It was the same economy, read by two instruments that suddenly disagreed at the extreme. In numbers: the Perene Risk Index jumped from 44.3 to 99.9, brushing the ceiling of the scale; domestic mood advanced a meager 1.4 points, from 32.4 to 33.8, still camped in deep pessimism. The dollar eased from R$ 5.64 to R$ 5.20, the Selic at 2.25% a year, and debt at 82.87% of GDP — nearly five deviations, a rare anomaly.

What happened next

The ceiling did not last. Three months later, in September, the very flow that had exhausted the scale plunged: the Perene Risk Index sank from 46.2 to 6.4, almost to the floor — and this time it dragged mood down with it, with Ânima retreating from 35.2 to 26.2. The two axes agreed again, but at the bottom, not the top. The true reconciliation only arrived in December: the Perene Risk Index back at 95.7 and mood finally crossing into extreme optimism, from 64.3 to 65.8. June's flow was right about the direction. It got the path badly wrong.

What did not happen

June's 99.9 was not the signal that the worst was behind. Anyone who read the flow at the ceiling as "it's over" watched the same indicator give it all back in September, near zero. Nor did mood rise in a straight line behind capital: it took six months and a fall in the middle to catch up. And the dollar did not confirm the truce — June's R$ 5.20 became R$ 5.40 in September before the currency gave way for good.

The honest verdict

Flow led and got the destination right — in December, mood and capital finally hit the same point, up at the top. But one axis at the ceiling while the other is at the floor is not resolution; it is disagreement, and the disagreement resolved itself downward first. The honest reading of June was the one the house recorded at the time: when the two thermometers diverge this much, you still don't know which one is right about what comes next.

Continue reading: How long mood takes to catch up to flow · The April 2020 turn · March 2020 was the bottom →

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Characters: Flow (risk appetite) · Mood