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The shelter that charged dearly — and the year it took to empty out

Episode

The extreme

The shelter has a rent, and the rent is a piece of information. At the end of 2011, domestic capital was paying dearly to sleep soundly: the queue for assets that yield without depending on the economy — regulated utilities, real estate funds — pushed their relative prices to heights the archive rarely records. Paying that dearly for safety is the way money has of saying it prefers the certainty of a little to the hope of a lot. The house's two thermometers, which had been screaming in opposite directions, stopped screaming — but the distrust did not leave the building; it merely changed floors. In numbers: the utilities made the largest move of the month in relative strength, with the real estate funds close behind; the Perene Risk Index eased from 86.0 to 60.5 and the intermarket rose from 23.23 to 30.22. Selic at 11.0% a year, the dollar at R$1.84 — and the defensives' premium closed the year more than two deviations above its own average.

What happened next

Anyone who read the retreat of the extremes as the end of defense paid to find out. In March 2012, the trench was dug in broad daylight: the utilities climbed to an extreme the archive almost never visits, and the intermarket sank to 14.08, the deepest risk_off of the period. In June, the shelter only changed address: the money ran to commodities measured in reais, with the dollar at R$2.049, a statistical anomaly. Only in December 2012 did the tenants move out: the financials leapt to the front, the utilities gave back the entire premium, and the Perene Risk Index returned to optimism, at 78.6. The emptying out took a full year.

What did not happen

December's narrowing was not reconciliation. The thermometers stopped diverging, but the rift widened again in March — the intermarket fell from 30.22 to 14.08 while the domestic regime stayed in risk_on. The expensive shelter also did not mean a ceiling: there were still steps left to climb. And the falling rate did not call capital back to the cycle: the Selic was cut from 11.0% to 7.25% over the course of 2012, and even so the money preferred commodities and defensives for three more quarters. It never got cheap; it only changed tenants.

The honest verdict

The reading of expensive defense got the regime right, not the calendar. The price paid for shelter signaled real discomfort — but discomfort that deepened before it gave way. The safety premium is legitimate information; it just isn't a clock. When the queue for the shelter is long, it tends to grow longer before it disappears.

Continue reading: When every defensive fills up · The defensives lose their tenants · When fear stopped paying rent →

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Characters: Cyclicals × defensives