Radar Perene / Articles / episode

Mid-2019 — when falling rates turned their back on brick

Episode

The extreme

The sharpest move of June 2019 was not stocks climbing. It was brick being left behind. For the first time in the recent series, the two domestic gauges of the house agreed and pointed toward risk — conviction finally caught up with flow instead of resisting it. But beneath the agreement, the capital that lit up for Brazilian equities did not go into real estate funds: it ran straight for the stock market. With the Selic still at 6.5% a year and real rates standing tall, brick lost the relative duel against the promise of capital gains. In numbers: the Perene Risk Index jumped from 56.3 to 87.7, crossing into risk_on; Ânima, from 45.0 to 62.3; and the IFIX/IBOV ratio collapsed to a z of −1.61 — more than one standard deviation in thirty days, the sharpest isolated displacement of the month.

What happened next

June's agreement did not last a quarter. In September 2019, the gauges went back to disagreeing: Ânima recovered to 42.0, but the capital took the opposite road and tumbled from 47.6 to 20.6, crossing into risk_off. The mood returned; the money left the room. It took the whole year — and more Selic cuts, which reached 4.5% in December — for the axes to reconcile. And when they reconciled, in December 2019, it was at the extreme: Ânima at 78.7, Perene risk at 78.8, intermarket at 95.57. The brick abandoned in June became the protagonist. The IFIX/IBOV ratio leaped from 0.83 to 2.80: with cash yielding almost nothing, the rent embedded in real estate funds began to shine by comparison. A year later, in June 2020, the archive settled the bill on that euphoria: a verdict of ambiguity, a return of −16.6% over six months, outside the projected band.

What did not happen

June's −1.61 was not a verdict on brick. Six months later, the same real estate that had been taking the beating was leading the line. The sharpest reading of a month records where the money goes that month, not what an asset "is." Nor was the two gauges' agreement in June a stable regime — it dissolved in September. And the reconciliation at the top, in December, did not deliver the rally that the high number seemed to promise.

The honest verdict

Falling rates did not hold a single opinion about brick. They changed their mind as they fell: at 6.5%, they pushed capital out of real estate; at 4.5%, they pushed it back in. The house's hit in June was anatomical, not directional — describing the anatomy of the rise, not nailing where it was headed. Conviction and flow aligned at the extreme are, by definition, low-margin setups.

Continue reading: The first rate cut · How long mood takes to catch up with flow · The Selic and rates as a regime →

The Radar reads these regimes every day. See today's reading →

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