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The optimism that led from shelter — Jan 2019

Episode

The extreme

The mood thermometer was reading party. The money was wearing a flak jacket. That was the contradiction that opened the year: domestic optimism more than doubled in a single month, crossing the whole of neutral all the way to the top of the scale, while leadership in relative prices went to the very sector capital seeks out when it wants protection — the power and sanitation utilities. The party had a doorman. In numbers: the Ânima Index leapt from 39.9 to 87.6, from neutral to extreme optimism; the Utilities/IBOV ratio advanced from z 0.67 to 2.57, the largest move in the structure; and the Perene Risk Index left the ceiling for the first time in months, retreating from 100.0 to 91.5.

What happened next

The caution the utilities were signaling turned out to be right — just not on the calendar. January's enthusiasm did not survive the quarter: by April, risk capital was coming back from a floor, having dropped to 25.6 and barely recovering to 37.6, with the cross-asset reading already in moderate risk_off (44.9). June handed back the appetite for a month, but July cooled it again — the Perene Risk Index retreated from 87.7 to 54.3, and the utilities went back to being the only bloc gaining altitude (from 1.31 to 1.71), while the banks lost almost all of their relative edge (Financials/IBOV from 1.05 to 0.16). Full alignment came only in December — and didn't make it past the first week: January 2020 knocked the mood down from 78.7 to 33.2.

What did not happen

January's euphoria did not inaugurate a sustained risk_on. Ânima nailed extreme optimism, but it did not drag positioning along behind it — the Perene Risk Index retreated from the ceiling that same month, and the Brazilian regime closed at only a modest risk_on (56.0). Nor was the defensive leadership a thirty-day whim: the utilities took command again in July. Anyone who read the jump in mood as a risk signal mistook the thermometer for the body.

The honest verdict

The Radar pointed to the right contradiction — hot mood, cautious composition — but it didn't know how to time it. The information was in the composition, not the thermometer: the money chose shelter at the height of optimism, and it took a full year, plus the turn of January 2020, to prove that choice right. When the two disagree, it pays to listen to the composition — without expecting it to resolve quickly.

Continue reading: The mood came back, but the money left · The rally on the eve of the storm · The shelter premium: Utilities/IBOV →

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Characters: Mood