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The rift between the two thermometers — October 2020

Episode

The extreme

For months, the house's two great thermometers had marked the same hour. Then they parted, and the parting was the month's reading. Read from the outside, the market was opening up: the flows between asset classes said that the appetite for risk was returning, and invested money stopped seeking shelter. Read from the inside, the Brazilian investor declined the invitation — looked at the stretched exchange rate, wholesale inflation, and the public debt, and chose total defense. A rift between what the world signaled and what the domestic side felt. In numbers: the intermarket reading rose from 59.79 to 67.0, into moderate risk-on, while the Ânima barely lifted off the bottom, from 26.2 to 28.6; the Perene Risk Index went to zero; the Utilities/IBOV ratio plunged from −0.58 to −1.37 of deviation; the dollar closed at R$5.6258 and gross debt brushed up against 87.67% of GDP.

What happened next

The rift closed — but from the side the domestic investor least expected. Instead of the external side yielding to local fear, it was the internal mood that capitulated to optimism. In December, two months later, the three thermometers again marked the same hour, now at the top: the Perene Risk Index brushed 95.7 and the Ânima reached 65.8, extreme optimism. The unanimity did not last. In January 2021 it came apart without drama — the Perene Risk Index shed nearly sixty points, from 95.7 to 37.5 — and capital switched themes within the stock market, abandoning financials (Financials/IBOV from −0.97 to −1.65) in favor of commodities in reais. In April, when October reached six months, the enthusiasm had merely moved rooms: the reactive axis retreated from the ceiling while the underlying mood climbed to 63.6.

What did not happen

The rift did not resolve on the side of fear. Anyone who read the Perene Risk Index at zero as confirmation that the domestic side would drag the external one down would have missed December's top — October's total defense arrived too early. Nor did the dollar give the relief the house asked for: from R$5.6258 it went to R$5.36 in January and back to R$5.56 in April, never returning the underlying tension. And the six-months-ahead was no clean verdict: October 2020's observed return, +25.2%, came in above the central band, but over only six comparable episodes and with wide dispersion.

The honest verdict

The house did what it should: it recorded the rift and admitted it had no single verdict — historically, it resolved in different ways depending on which axis yielded first. It was honest, and it was right to keep the humility. The axis that yielded was the domestic one, and it yielded upward, not downward. Even so, the six-month outcome was classified as Ambiguity, not a hit: the environment fit within the ruler without the prior reading having any power to discriminate between trajectories. When the two thermometers disagree, memory observes more than it concludes.

Continue reading: When the thermometers disagree · Ânima versus the Perene Risk Index — mood against appetite · The money that fled inward →

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