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The courage that only bought shelters — July 2015

Episode

The extreme

Domestic mood nailed its highest point in the recent series and announced an appetite for risk. The inconvenient detail: every real that moved ran for shelter. Power utilities, raw materials with the dollar baked in, paper that pays without the economy needing to turn — money was buying predictability while the thermometer read courage. It was an optimism built entirely on defensive foundations. In numbers: the Perene Risk Index jumped from 58.3 to 79.1, appetite territory; in the opposite direction, the intermarket reading retreated from 28.67 to 21.32, pronounced aversion. The Utilities/IBOV ratio rose to +1.41 of deviation, commodities in reais to +2.05 — two deviations from their own history — and cyclicals sank to −2.26. Public debt closed at 62.17% of GDP, the fourth extreme deviation in a row.

What happened next

The thermometer only got hotter. In October 2015 appetite climbed even higher, to 82.5, while the structure stayed stuck at the bottom, at 20.65. The shelter, far from emptying, filled up: in January 2016 the Utilities/IBOV ratio hit 3.28 of deviation, the highest point ever seen in the series, and the dollar crossed R$ 4 for the first time. The reconciliation came only a year later. In July 2016 the intermarket reading returned to neutral, at 45.8, with cyclicals and banks in the lead and the mood easing from its peak — from 89.7 — to merely elevated optimism. Prices finally caught up with the mood, by the longest road.

What did not happen

The record in mood did not mark the turn toward real risk. July's appetite was not confidence in the economy — it was the price capital was paying for predictability. The dollar did not retreat: it went from R$ 3.2231 to more than R$ 4 in six months. The Selic brought no relief at all, nailed at 14.25% a year the whole time. And the structure did not follow the mood right away; it took a year for the two clocks to strike the same hour.

The honest verdict

A mood index can nail a high while all the money hides — the level measures the price of shelters, not the courage of those who buy them. Anyone reading only the surface number would have seen appetite where there was defense. The structure told the more honest story, and it took a year for the mood to prove it right.

Continue reading: The three alarms of August 2015 · The end of 2015 at rock bottom · Two clocks, December 2024 →

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Characters: Mood · Cyclicals × defensives