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Optimism at the top of the scale — and the ballast that was missing (Dec 2017)

Episode

The extreme

One hundred is the ceiling of the scale, and Brazilian capital closed 2017 nailed exactly there — willing to risk it all. The inconvenient detail was where that optimism rested: on very few legs. The money was betting heavily on basic materials and shunning income, an enthusiasm wide at the top and narrow at the base. In numbers: the Perene Risk Index jumped from 10.6 to 100.0, while the intermarket fell from 48.58 to 28.37, already in strong risk_off. The Commodities/IBOV ratio rose to +2.22, two deviations above the historical average; the one of real-estate funds against the stock market plunged to −1.37, the sharpest swing of the month. The Selic ended the year at 7.0% per annum and the dollar at R$ 3.2919.

What happened next

The concentration did not last the quarter. Even before March, in February, the appetite took a fright — the Perene risk collapsed to 5.4 — and when March 2018 closed, the single bet had already unraveled into a rotation: commodities lost their lead (from 1.63 to 0.85), the defensives vanished from the relative map (Utilities/IBOV from −0.24 to −1.44), and the real-estate funds, once abandoned, found a buyer again (IFIX/IBOV from −1.71 to −0.67). In June, six months later, capital piled up once more — Perene risk from 14.6 to 93.6 — but now without faith: domestic mood remained stuck in pessimism, at 13.2, and the dollar already marked R$ 3.7732. A year later, in December 2018, the script returned in different clothes: the Perene risk at the ceiling again, the intermarket collapsing to 3.41, and the bet on cyclicals stretched to a z of 3.02 — more extreme than ever.

What did not happen

The ceiling of December 2017 did not announce a collapse. Anyone who read 100.0 as the eve of a fall got the genre wrong: what came was a fright and a rotation, not a crash. Nor did the concentration collect right away — it took months to show fragility, and when it did, it did so by switching bets, not by breaking. And the dollar did not surge immediately: it started at R$ 3.29 and only reached R$ 3.77 half a year later. The optimism without ballast did not collapse; it was being reallocated.

The honest verdict

The Perene risk extreme told the truth about capital — it was indeed fully bought — but it lied about durability. One hundred at the ceiling measured commitment, not solidity. Concentration is what the intermarket reads as fragility in the distribution, and fragility has the nasty habit of collecting late.

Continue reading: The money arrives before the faith · Two clocks after the election · The structure that leads the mood →

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