Oligarco Burguesito meets Nero the street vendor

May 23, 2010

(In Spanish here)


(Markets have been infiltrated by destabilizers, people are very unhappy when they leave the stores)

Nero Buo is a street vendor in Sabana Grande. Nero sells anything and everything, has been around for ages, sleeping in his make-shift tent, which can easily be moved should the police decide to go after him, like they do periodically whenever there are elections or the Mayor feels like it.Nero used to be pro-Chavez, but that lasted barely two years.

Last week, Nero was standing here when lo and behold, who should show up but none other than Oligarco Burguesito, his old friend turned Boli-arbitrageour, ever since Oli, like he likes to call him, discovered CADIVI and Government bonds, and began his long road to riches thanks to the revolution. Nero hasn’t seen Oli much lately, but every time Oli shows up, he would buy something in order to help out Nero in his business.

Except today Oli is sad, you can see it in his face, something is wrong, Nero can feel it, so he asks “Oli, what is wrong, you look terrible? Are you ill?.

To which Oli responds “No, Nero, my whole world has come crashing down, the owner of the broker/travel agency I used to work with, fired me yesterday, told me no more business, because Chavez forbid the swaps we had been doing for seven years and the worst part Nero, is that I don’t even know what a swap is, all I did is find clients for my boss and he would take it from there and pay me good money, and now, I am out of the job, nothing, back to the good old days, when Caldera was in power”

Nero says: “I know what has been happening, it’s actually rather simple, a swap is just a fancy name for what we street vendors do all the time when we don’t have cash, which is most of the time. Suppose you have Harina Pan and I have sugar, instead of selling you one or the other, we agree on a price to exchange the Harina for the sugar and done deal. Except that in the currency swaps, it was a legal way of exchanging Bolivars for Dollars and vice versa, because the Government did not allow Bs to be exchanged for dollars, you would buy, say, Harina Pan, and I would buy sugar and we would swap it, which was legal, because the law only forbid trading money”

Nero, you know so much, how do you do it? I work in the business and I didn’t have a clear picture of what I was doing and here you are understanding every bit of it. So, what happened recently, why is Chavez so pissed that I got fired?

Well, Oli, said Nero, you know how when there is no sugar, it goes up in price? Well, in that case, if we used to swap two packs of Harina Pan for one of sugar, I may have to ask you for three of Harina Pan for each one of sugar. The same thing happened in your business, Chavez spent the dollars on planes, Cuba and all those silly things when he had lots of dollars, but now oil went down, there are fewer dollars and lots of Bolivars, so those that have Bs. want more dollars, and the rate rose a lot, to almost double what Chavez said it would go down to and Chavez got mad and needed someone to blame for the whole deal. Rather than blame the old guy with the three Ferraris, he decided to blame the brokers like your boss.

But Nero, Chavez says this was illegal, but we have been doing it for seven years, day after day and nobody said anything! What changed? It was all very public, everyone was doing it and the Government and the authorities never said anything

Nothing changed Oli, replied Nero, for Chavez it was very convenient to have this market, even some of his buddies made money off it, PDVSA got more Bolivars for each dollar and this market, in the end, was better run than CADIVI, the money went to those that needed it and not those that paid a bribe or were favored by some Chavista Colonel. But Chavez was sure the rate it would go down and instead it went up, and you know Hugo, he thinks he can turn the laws of gravity off if necessary.

Well Nero, I am really confused-said Oli, Chavez said that selling bonds in Bolivars for three times its value in dollars was illegal and these brokers should be sent to jail because this was a rip-off, but that is exactly what Chavez would to to us, they would sell us a bond in dollars for Bs. for three times it’s value when you turned around to sell it in US$, what’s the difference?

Oh, Oli, you are so naive! Chavez is the Government, you are not. Chavez can rip you off with a smile and a TV program all the time, but you can only do the same if he authorizes you to do it and even if he does, he may change his mind someday. That is what happened, he got tired of you guys. So, now he is looking for scapegoats, jailing people and going after the brokers.

But I don’t understand said Oli, why blame us? We were not buying and selling the dollars, as my boss says we were intermediating them, why doesn’t Chavez go after the buyers of the dollars, they were the ones then that were violating the law. Or why not go after the people in Government selling the dollars? They were also violating the law.

Oli, Oli, Oli, don’t you understand, that’s too many people, thousands of them. By going after you, the brokers, he singles out one group, mostly rich ones, rather than an ill-defined mass of multiple buyers and sellers. In any case, you don’t want to make the buyers mad, they are the ones that import stuff, they could create shortages if you scared them away.

I guess, said Oli. Well, I am out of a job now, maybe I will go to Mercal pick up some packages of Harina pan cheap and start swapping them with you. I have got to make a living.

You do that Oli, said Nero, just don’t get greedy, don’t grab more than a dozen packages or so, there is a shortage, the price may go up too much and then Chavez may blame us for it and go after us.

As Oli went away, Nero wondered why it was Oli that got so rich in the last few years and not him, clearly he understood this stuff better than Oli. Well, in any case he did not think the new market being set up by the Government would work, so he would sit and wait for it to collapse and maybe then he would go talk to Oli’s boss, not to Oli, and take advantage of the next parallel market. At least he could advise the guy not to abuse the syste too much m, that’s how street vendors survive…

126 Responses to “Oligarco Burguesito meets Nero the street vendor”

  1. island canuck Says:

    Very well done Miguel.

    Hopefully you are not personally involved in the crackdown by the Gestapo.

    This whole fiasco is going to explode in his face. Another unworkable government agency trying to fill a pit with one small bucket of sand.

    The price of oil has fallen $11 in the last week to below US$70 per barrel. It’s doubtful that he can meet even a small percentage of the country’s foreign exchange needs. The black market will go to heights unimaginable a few months ago & inflation for 2010 will approach triple digits.

    The end is near.

  2. firepigette Says:

    Island Canuck,

    I think Chavez will choose political survival over economic efficiency any day of the week.So what are we seeing the end of?


  3. ¿Quisieras colocar el manifiesto en contra del despojo de las colecciones de los Museos en Venezuela?

  4. island canuck Says:

    How will he survive if there are major food shortages caused by lack of packaging & prime materials?

    No matter how good his political survival skills are he will not get past major shortages. He can only steal so much to give to Mercal.

    If he continues to attack Polar he will cut off one of the few reliable suppliers of basic foods.

    This whole dollar stupidity may be a political move but it is so ill conceived that it will not work.

    Also it may be continued frustration & baseless hope on my part that the end will come :-)

  5. firepigette Says:

    Island,

    In this case I really hope you are right

  6. Juan Carlos Says:

    I would add to the story that both, Nero and Oli, have been robbed several times…. and are very worried about the fierce delinquency. Nero and Oli, also believes that expropriations, invasions, bolchevik ideas, Chavez´s cult and militia are kinda deteriorating the country, adding to the fact that red shirted guys are absolutely inefficient and parasite government ministers and contractors so, no public funding goes its ways to help people, and it will take ages to recover from this mess.

    Nero and Oli are very willing to exchange everything for US currency, because both of them wanna leave the country. Nero and Oli want some dollars and their boarding pass..

  7. Speed Gibson Says:

    Chavez drives himself? Then what are you people waiting on? uhhh Ka Pow !! This is why God made sniper rifles.

    http://www.foxnews.com/world/2010/05/23/venezuelan-speeders-beware-president-chavez-pulls-scolds-lead-footed-motorist/?test=latestnews

  8. island canuck Says:

    Speed I don’t where that story originated but it hasn’t appeared on any of the Venezuelan news sites.

    It is HIGHLY doubtful that this paranoid narcissist would drive on a public street in Venezuela let alone chase down & pull over a speeder.

  9. Miguel Octavio Says:

    Bloomberg is reporting it…

  10. island canuck Says:

    Here is the Venezuelan version:

    http://www.noticias24.com/actualidad/noticia/156273/

    From what I understand his version of the story is that he was a passenger (not driving).

    However you have no idea if this is a factual story or just one of his many lies.

  11. anonymous Says:

    Chavez tells loads of stories on Alo Presidente of which most are probably exaggerations if not out right lies. So the media picks up on this tale…. Fox I can understand but Bloomberg of all should be focused on Venezuela financials. Heck, we should be able to look up the black market rate on Bloomberg. That’s better spend of their time.

  12. captainccs Says:

    Miguel, that is a good story but the military stole the Harina Pan from Polar and sugar has been replaced by Imperial Splenda so I’m not to sure what to swap for what and much less in what quantities seeing that they no longer exist.

  13. anonymous Says:

    Miguel- your take on the crackdown on the exchange market is to promote fear and place blame? Is it that simple or is there more to it?

  14. moctavio Says:

    That’s all it is, witch hunting, blame someone else, the Government is perfect.

  15. GeorgeS Says:

    Anonymous: look at this link from El Universal:

    http://www.eluniversal.com/2010/05/23/eco_art_comision-nacional-de_1911134.shtml

    according to this braniac, the crimes are “excessive profits”, which is not illegal and brokers which invest for their own account and have no clients, also not illegal.

    Nothing about the foreign exchange illegalities.

  16. loroferoz Says:

    Brilliant!

    If only our newspapers circulated these tales in Spanish. If only you could get something like that into Ultimas Noticias.

    A reality based explanation, full of common sense and empty of partisan campaigning, in sober, colloquial language and readily understood.

    This is what we need to get Venezuelans to opt out of this madness soon. To stop believing airy-fairy socialist fables and gut-thinking populist one liners.

  17. Gringo Says:

    A fable for our times. Thank you, Miguel.

  18. moctavio Says:

    If I have time, I will translate it and put in the El Diablo

  19. Roberto N Says:

    Island Canuck:

    If you know of any company that is short of packaging materials, send them to me.

  20. Roy Says:

    On the story about Chavez exhorting a crackdown on reckless driving, Chavez is only JUST NOW discovering that there is a problem!!??

    As near as I can tell, the police stopped enforcing traffic regulations about a year and half ago, even to collect bribes! I am absolutely mystified as to why this is, since collecting bribes in lieu of actual fines that go into the municipal treasury is the traditional way of augmenting a policeman’s salary. Could it be that the income from robberies committed by police and facilitating the drug trade is so lucrative, that police just can’t be bothered to stop speeders to collect a couple hundred Bs.?

    Does anyone have some contacts in one of the police forces that can shed some light on this?

  21. anonymous Says:

    From el universal:

    “Mugabe declared inflation illegal, put merchants behind bars, closed 800 businesses, but hyperinflation soared 200 million percent. Does it sound similar to Venezuela?”

    And Mugabe is still in power. So goes chavez

  22. anonymous Says:

    I see in the news that chavez is calling for the dollar bonds issued by the gov to be sold back to the gov even though most of these bonds are not callable. And he threatens to change the law to make the holders sell these back to the gov?

    What’s he up to?

  23. moctavio Says:

    He wants t force Venezuelans to sell, first he will go after the banks, he can do that.

  24. liz Says:

    Diablillo,
    please do translate this into our mother tongue! very good stuff to pass around to our contacts in spanish.

  25. Juan Carlos Says:

    PSUV is asking for a “one day salary” to be wired or deposited to some bank accounts…. mummm!!!… fairly strange… as they believe in a barter economy , how couldnt they ask for tomatoes, milk, butter,plantains, avocados, oranges, beans, etc…?? why asking for money…. ? ahhh understood: products scarcity, that explains..!


  26. Unfortunately I was trained as a scientist/researcher, so
    riddle me this, riddle me that (more questions no one wants to touch):

    1. Dolarpermuta.com charged comissions for every dollar amount exchanged while
    casa de bolsas made their profits from buying low and selling high.

    2. Why would anyone pay Dolarpermuta when you can get the same service for
    a fee that is way lower than the one established by that business.

    3. How come there were not more business of that type competing?

    4. I tried to recreate the same business model and it was impossible because:

    a. I needed casa de bolsa(s) to work with me.

    b. A business account in an USA bank.

    c. Made people pay for the service when there were cheaper alternatives.

    5. Here is what I think, there are a number of individuals in Venezuela who have
    opened accounts in Panama, Cayman Islands, etc. Anywhere except in the USA because
    banks in the USA do not want any trouble. Some individuals who owned some of these
    accounts were selling and buying the dollar straight without going through the swap process because (a) couldn’t get dollars from CADIVI and (b) with so many dollars chasing
    so few bolivars and with dollars escaping Venezuela at the speed of light, it is just logical to conclude that there can’t be a sustainable ratio
    of dollar denominated to bolivar denominated bonds. So, a black market is necessary under
    such a conditions. It is just economics 101 that this would happen. So, yes, some “brokers” were engaged in illegal activity because the government created the circumstances (As Ayn Rand’s books clearly portray).

    6. Chavez should have followed the example of dear China in terms of how they handle exchange rates and fuga de capitales, but he is so focused on the dominance of the USA through the mighty dollar that he can’t see that the dollar is backed by way more valuables than the Bolivar due to the productivity/business saviness of the USA population.

    7. Self-interest will always rule (as it should)!!!

  27. captainccs Says:

    >>>why asking for money…. ?

    Because money doesn’t spoil like milk and produce during electric blackouts. Besides, money they can print. Not so tomatoes, milk, butter, plantains, avocados, oranges, beans, etc… That they have to steal from Polar and others.

  28. moctavio Says:

    Fc, I am not sure what is your question. 99.9% of the swap business went through Casas de Bolsa, while some may have taken positions, as you say to buy low, sell high, most of the business was a simple bid and ask business and very competitive. There may not have been more competing because you have to do a swap and have a reputation, why work with a small outfit when I can get good prices and legal execution (thru a swap) via a Casa de Bolsa with a good credit rating. Most well established Casa de Bolsa have account with major banks in the US.

  29. GeorgeS Says:

    Police just showed up in my building in Los palos Grandes to raid a broker, there are two of them, they went to the big one.

  30. Mercedes Morillo Says:

    Why do they want to buy those bonds? Dollars or bolivars?

  31. moctavio Says:

    Chavez wants banks to sell these bonds back to supply the parallel market, it is an unclear mechansm, people want dollars not bonds

  32. island canuck Says:

    Just to touch on the comments at the beginning of this thread.

    WTI has just dropped to US$65.96 per barrel. a drop of 3% today.

    http://www.bloomberg.com/energy/

  33. HalfEmpty Says:

    (As Ayn Rand’s books clearly portray).

    Man, don’t do that. Hell I watch Fox News but go into conipshuns when I see that name.

  34. anonymous Says:

    Always fun to speculate…………..

    Why would Chavez now want to mop up the dollar bonds? What is the advantage? Would a devaluation cost him more b’s for the dollar bond or are they fixed rate and therefore an opportunity for someone to make a killing on devaluation?

  35. moctavio Says:

    I would wait until the mechanism is explained. Chavez does not want to mop up the bonds, he wants the banks to supply dollars to the parallel market. Thus, he thinks, if banks sells bonds to the market, there will be dollars. However, the dollars have to come from somewhere, either the Government buys them for currency, which it does not have, or it turns around and sells them in the international markets which would decimate prices as too many bonds would reach it. Neither option makes much sense.


  36. 1. My point is DolarPermuta.Com was charging a percentage of the amount a customer
    wanted to exchange. For instance, if I exchanged up to $1,000 I would have to pay
    say .03%. My Venezuelan broker friend told me there is no reason anyone would pay this comission if they could do the trade through a casa de bolsa (not through an internet via DolarPermuta) which charged them a very small fee an NO comission?

    2. Why would anyone in Venezuela would like to pay for that
    comission when Casa de Bolsas just make money only on the spread as it was pointed
    out before? You do the swap twice and gain comissions on the spread of both swaps,
    but you do not charge a percentage of the amount exchanged, correct?

    3. Why were not other DolarPermutas online type operations charging comissions? Can’t be because no one else wanted to profit from such an easy way of exchanging currency. As I said, I tried to recreate the same online exchange business and was not able to do so because it is not competitive in the sense that customers would choose the cheaper casa de bolsa versions. Who was using a more expensive (unnecesary) online exchange operator if they can go for a cheaper service? Why would DolarPermuta be better if they were charging a comission? How did they manage to do their operations?

    4. Again, I am not for Chavez at all. I despise socialism, communism, and collectivism, but I do like the truth or whatever comes close to the truth.

  37. anonymous Says:

    Thank you. It’s very clear now.

    Banks have dollars from their many exports and can sell dollars to the government and solve the dollar shortage! So so simple a chavez can do it!

    OK enough with the sarcasm. He wants the banks to supply dollars to the illegal parallel market. Well, you can lead a horse to water but you can’t make him sing Gershwin show tunes.


  38. 1. By the Way, if most well established casa de bolsas have an account with a bank in the US (I assume a brokerage account) why were there up to half of the money exchangers working with Vyasulu’s Rosemont’s Bank of America Money Transmitter Structure. It said that the operation was so big that it paralized the parallel market in Venezuela.

    2. The US is closing accounts even for the most “well established” of the casa de bolsas.
    As I said, PNC (a US recognized bank) closed a number of them because the Treasure Department instructed them to do so. Take a look at the International Narcotics Control Strategy Report to realize Venezuelan financial sector business is more risk than the banks are willing to take. Lastly, as I said, it is impossible to maintain compliance programs without the other side (Venezuela) being able to do so. It is amazing that Commerce Bank opens individual accounts (for a hefty fee) to Venezuelans without even stepping foot in the USA.

    3. Try to open a brokerage account in the US and watch the banks laugh at you.

    4. I assume you can count the number of “well established” casa de bolsas with two hands?

    5.


  39. 1. What I mean by market capitalization is the total value of dollar denominated bonds printed to bolivar denominated bonds printed.

    2. How does the actual paper money
    (dollars) move from PDVSA to BCV to Banks or casa de bolsas (if this is correct)
    to the person’s account in the USA or elsewhere?

    3. I know that the US has some strict compliance requirements; I was looking into
    associating with a casa de bolsa in Venezuela two years ago, and know a lot about
    the laws from both countries. I can tell you for a fact, that Vyasulu got in trouble
    fundamentally for not following compliance mechanisms. First of all, you can’t be the
    owner of a corporation and also do compliance (look at 31cfr.103125(1) and the FINCEN website). By the way, PNC bank used to provide accounts for various casas de bolsa in Venezuela but the USA Department of the Treasury told them to close those accounts. I know that because they told me so on the phone. They said it is impossible to do proper compliance programs in Venezuela. I can offer advice to anyone needing it as I had to learn a lot to open a money transmitting account. I was recreating Vyasulu’s structure (LEGALLY AND FOLLOWING THE ACTUAL RULES IN THE USA AND VENEZUELA) after studying it once I came across it when Rosemont began showing up. Vyasulu’s genius was to realize that Venezuelans have trouble opening business (not to mention broker) accounts in the USA because of the money laundering status of the country (they can open personal bank accounts at Commerce Bank/Banco Mercantil anytime they want even without being in the USA: http://www.commercebankfl.com/). So, what he did at Bank of America can be done again at any time LEGALLY.

    4. It seems to me the swap market was sort of a hot potato market where whomever
    ends up with the bonds at the end loses since they are only a symbolic representation of
    the dollar without much fundamentals backing them up. I know this because my friend at Lehman Brothers (now collapsed) told me no one in the USA knew or engaged in any trading with Venezuelan financial products and there is definitely not Bolivars in any Forex trading companies.

    5. Who is “the international market”?

  40. Miguel Octavio Says:

    1. The swap marlet was not really paralized by that, that as newspaper exaggeration. Most established ones did not need to work with Vyasulu. In fact, of the Casas de Bolsas (64) only one or two worked with him.
    2. No evidence of that that I know of. The established ones even have two or three banking relations. You just need a good compliance department.
    3. This is correct, to open a brokerage account in som US firms from Venezuela is difficult, but not all.
    4. Not necessarily. You have to disntinguish between Casas de Bolsa, that own a seat in the exchnage and Sociedades de Corretaje which just have authorization from the CNV. Most Casas de Bolsa have been around for at least 15-20 years if not longer. Most banks have one for example.

    As to dolarpermuta.com, remember a lot of people did not even know who was a broker, have no idea why you would work with them. Never heard about them until Chavez mentioned them. They could not have been big at all.


  41. International Narcotics Control Strategy Report (Venezuela)

    Venezuela
    Venezuela is not a regional financial center, nor does it have an offshore financial sector. The
    relatively small but modern banking sector, which consists of 60 banks, primarily serves the domestic
    market. However, Venezuela is a country of primary money laundering concern and one of the
    principal drug-transit countries in the Western Hemisphere. Venezuela’s proximity to drug producing
    countries, weaknesses in its anti-money laundering regime, refusal to cooperate with the United States
    in mutual legal assistance matters, including on counternarcotics activities, and rampant corruption
    throughout the law enforcement, judicial, banking, and banking regulatory sectors continue to make
    Venezuela vulnerable to money laundering. The main sources of money laundering are from proceeds
    generated by cocaine and heroin trafficking organizations, the embezzlement of funds from the
    petroleum industry and illegal currency exchange on the black market. Trade-based money laundering,
    such as the Black Market Peso Exchange, through which money launderers furnish narcoticsgenerated
    dollars in the United States to commercial smugglers, travel agents, investors, and others in
    exchange for Colombian pesos, remains a prominent method for laundering narcotics proceeds. There
    has been an increase in money laundering due to a lack of access to foreign currency exchange and
    diminished investment opportunities. Transparency International’s Corruption Perception Index for
    2008 ranks Venezuela at 158 of 180 countries on the index.

  42. Miguel Octavio Says:

    1. The total amount is irrelevant to the process. In a permuta both ends have money in the end. The Bolivar side has to be a venezuelan bond, but the dollar side can be a US Treasury bond. That is the buyer of the US$ gives you Bolivars, you buy a a Venezuelan Bolivar bond with those, on the other side you have someone with $ who buys a Dollar bond, can be anything you want. You swap one for the other and then sell the bonds, the Bs. bond locally and the $ bond internationally and give people money not bonds, the bonds are no longer around.

    3. Vyasulu was irrelevant, except that PDVSA was selling bonds to some of his clients and they were big sellers in the market.

    4. You dont end up with a bond, you can “rent” bonds for three days even, so I dont know what you mean at all.

    International Markets is Wall Street, you buy and sell bonds from venezuela daily.


  43. Go ahead and call PNC and ask them what happened to the broker accounts they had opened
    for Venezuelan casa de bolsas.

    Not currently enrolled in Online Banking? Call us at 888-PNC-BANK between 7:00 a.m. to 10:00 p.m., ET, Monday through Friday and 8:00 a.m. to 5:00 p.m., ET, Saturday and Sunday to enroll.


  44. NOBODY in “Wall Street” buys or sells bonds from Venezuela. No one. No one except someone who needs to import into Venezuela or take their money out would touch the bonds.
    Who the hell in the world, except for Venezuelans, would buy a Venezuelan bonds denominated in any currency if the country does not believe in private property?

  45. Miguel Octavio Says:

    All major brokers in wall st from goldman to ms to merril to Barclays trade Venezuela and Pdvsa bonds in the millions everyt songle day


  46. 1. Wait, I am getting confused. What do you guys mean by the Government/BCV issuing dollar denominated bonds (95%)?

    2. Is there a difference between Venezuelan dollar denominated bonds and US bonds?

  47. Miguel Octavio Says:

    On the dollar side of a swap you dont need to have a Venezuelan bond in $ it can be just any dollar bond, most people use eitger that or plain vanilla US Treasury bonds


  48. Thanks Miguel, cool conversation. This is fascinating. Some more questions if you would:

    1. Do you buy the treasury bond, for instance, from Venezuela directly through a computerized system or do you call a US broker and tell him/her to place the order.

    2. Who tranfers the dollars into the client’s accounts once the operation is completed and how?

    3. Can you just walk me step by step.

  49. Miguel Octavio Says:

    You can do both, most brokers have long standing relations and most have electronic access

    the broker does the transfer, also electronically

    step by step through which part?


  50. 1. Well, let’s say I go to a broker and say “I want to exchange 100 bolivares into dollars”.

    2. Is the swap done manually, electronically? How?

    3. Do you have to pay the US or your broker friend a fee to transact with their securities?

    4. And seriously, is there any other person, besides Venezuelans, who buys (rents) AND earns income from PDVSA or VEN bonds since the country does not believe in private property?

  51. Miguel Octavio Says:

    1. Well, this is now illegal, so you would have gone to a broker up to ten or so days ago and say I want to buy 10,000, you would get a rate and you would sign a piece of paper confirming you were buying a Bolivar denominated bond for say 78,000 Bolivars, you would also sign a swap contract and then the borker wiuld buy the Bs. bond in the market. You have someone else going in the other direction who would sell and the broker would swap the $ bond worth 10,000 for the Bs. bond worth 78,000. On t+2 I wiuld sell the $ bond for you and you would get your money.

    2. It’s “manua” because one part is a contract, paper, signed between the parts.

    3. Yes, I have to pay at each end for buying and selling bonds, this is included in the bid/ask price

    4. Hedge funds love Venezuela’s debt. mutual Funds love Venezuela’s debt. It yields 15% in a world with no yield.Some of the world’s best known Global fund funds have like 7-10% of their portfolio in Venezuela’s debt. The question is whether Venezuela can afford to default, so far that has not been the case and you collect your 15% every year. Not bad, high risk investors love it. Venezuelans actually shun it.

  52. Kevin Says:

    Miguel,

    I’m still confused about one aspect of these Venezuelan bonds. They are described as “dollar denominated” but payable in bolivars. How exactly does that work? Does the foreign investor actually accept payment in Bs? What would they do with the Bs? Sell them in the swap market?

  53. Miguel Octavio Says:

    Thiese bonds are the so called TICC’s indexed bonds to the fficial exchange rate. They are issued in $ at the official rate of exchange. If the Govt. devalues, both interest and principal will be paid at the new exchange rate. They are mostly bought by local banks as a hedge.

  54. Kevin Says:

    But when the government creates multiple exchange rates, bondholders put themselves at the mercy of the government. The government can maintain the legal fiction of maintaining the index exchange rate while moving other transactions to some form of more depreciated official or parallel rate.

    Ten years from now, the government can still say that the indexed rate is still 4.3 Bs/$ while the rate for most imports is 430Bs/$. How does that protect the banks? Or anyone else?

  55. Miguel Octavio Says:

    Absolutely. When the Government devalued in January, the Bs. 2.15 rate became two rates, one at 2.6 and another and 4.3, guess where the Ticc’s fell? You guessed it! 2.6

  56. m_astera Says:

    Amazing. What I (Yo) have done of value in my life is to be an ebanista, architeco. designero, carpintero, Y escrito. There are people who do nothing, produce nothing and never have, and make more money than me?

    By playing with fake pieces of paper? Trampas? Who admires this and promotes it?

    Perhaps one should be ashamed. Those living like that are parasites whatever their ideology is. This sounds like a stupid thing thing to me, the goal of how much can one steal without working or contributing to your community and country. How much oil money can one steal ahead of the Chavistas, Shame.

    Perhaps it is it is better to contribute something of value or help to the country, not to figure out how to steal more from an incompetent government.
    ****

    Saw a cool sign on the back of a 1970′s Chevy tonight, written in white tire paint on the back window. “Somos Porlar”.

  57. Roy Says:

    M_Astera,

    In order for the looters to steal, someone honest must actually create value. However, the looters are so morally bankrupt, they are making outlaws out of those who produce and heroes of those that steal.

    In such a world, it is better not to feed the immoral habits of the looters. The sooner you stop producing, the sooner the beast will run out of goods to steal and consume itself in a final self-destructive cannibalistic orgy.


  58. In my opinion Venezuelans should work towards a normal mixed economy with fractional reserve banking.

    At the moment Venezuela´s monetary system is closest to a currency board. By expeting to “back” Bs by $s you made your own currency board.

    In 95% + of the world economy countries use fractional reserve banking to create money out of thin air in their economy. This money out of nothing or fiat money is backed by all the underlying value systems in the economy as exemplified but not limited to sound governance, sound economic policies, sound monetary policies, sound economic policies, sound education, sound legal system, sound education, etc, etc.

    Venezuelans should strive to get back to that.

    In a perfect mixed economy with fractional reserve banking, the correct level of money supply (created out of thin air, but, back by a perfect government, etc, etc, etc, ) would be indicated by very low inflation – below 2% per annum.

    A certain level of foreign exchange reserves would only be required as one element of a sound economy: not specifically to “back” each VEF.

    The net profits of a company like PdVSA would then be almost 100% available for enhanced economic development – not to “back” each and every VEF.

    Venezuelans should strive to get back to that. Surely there must be bankers, business people, academics, etc in Venezuela who know this and who would strive to lead the country back to that?

  59. island canuck Says:

    More trouble ahead.

    The price of WTI has dropped another 4% this morning to US$63.14 per barrel.

    This must be making the emperor nervous.

  60. firepigette Says:

    Island Canuck,

    Chavez knows those closer to him are dissenting.Those who support the revolution still support the revolution, but not him.Chavez knows he has to do something crazy between now and the elections to consolidate his power, and intimidate.

    And remember he is not one to suffer, but rather he makes others suffer in the process.

  61. island canuck Says:

    Firepigette.

    You are absolutely correct. It will hurt us more than him however the decreasing income will also have a direct effect on any plans he has to dump large amounts of money into the election.

    It will also affect how much money CADIVI will have to give to importers for the basic needs of the country. Also the money needed for electrical & water system upgrades along with all the ambitious projects contemplated by PDVSA.

  62. LD Says:

    Yes, Chávez would have problems as the money get scarce. But he would do anything to blame the “oligarcas”, the “Imperio” and so on. He would love Santos as president of Colombia too, and would do the Cuban or N. Corea way, don’t you think? That’s the problem. I’m not a venezuelan, I was only as a kid there and I follow the situation since 2007. What I can’t comprehend, is the lack of politicians taking the iniciative, Chavez dictates the agenda and there is nobody challenging him, despite all the chaos, all the corruption, all the evidently wrong doing…
    And the best internet sites about Venezuela are in english, well, this is weird ;)

  63. CARLOS Says:

    MO.
    what do you know about this new bonds:

    Análisis Reuters: Emisión de bonos de Citgo reduce margen de maniobra en Pdvsa

    Are we (venezuelans) have access to them??

  64. Kepler Says:

    LD,
    Amen.
    Now why aren’t there those politicians? Remember: Hugo is Venezuelans’ golem.
    He did not come out of the blue.
    Venezuelans have several problems:
    1- big caudillo mentality left and right
    2- the most militaristic mentality in South America (yes, more than anywhere else, the civil presidents were the exception and we were just learning to have decentralization when oil prices went to the cellar)
    3-Venezuela’s average citizen has a very low education level.
    4-The elite is particularly disconnected from the rest

    Chavez is also the mean Venezuelan (in the probabilistic and non probabilistic sense of the word), may he not be the average.

    As for English being the main language: for a similar reason as French was the language used by a lot of the Russian emigrés between 1917 and 1930.

  65. Miguel Octavio Says:

    Carlos: These bonds will be issued this week, anyone can buy them. There are two of them guaranteed by the company’s refineries.

  66. Kepler Says:

    El ministro de poder popular para la alimentación, Félix Osorio…sabe alguien algo de ese tipo? Según lo que veo fue un alférez egresado en 1990. Ahora está diciendo que quien vea la alimentación como “mercancía” está en guerra con el gobierno.
    Qué animal! Me pregunto porqué no declaran de una vez que vamos a pasar al trueque.

  67. Miguel Octavio Says:

    Trueque=Permuta

    Ay Mama!

  68. Kepler Says:

    You are right. Me pregunto si el camarada Félix, ministro del poder popular para la alimentación, nos indicará en el futuro cuántos cambures son un kilo de lomito.
    Seguro que dirá una cosa como que “más de 12 cambures es especulación”

    Por bruto lo habrían linchado en el Paleolítico mismo.

  69. LD Says:

    @Kepler:
    I apologize if I was too negative and thanks for the explanation. I know/suspected them.
    I was in “Venezuela saudita” (1975) and maybe I got only the sunny side (I was only 6 years old). I hope the best for the venezuelans and I think it is not lost.
    I think the internet is a very powerful aid (your site is also a good one!) and it could help to open the eyes and minds of the people. I think it is a good idea to link the best sites and I also admired the work of “Argimiro” in Aporrea. As my free time permit it, I try to do my best too.
    (so, I used english as the site is on english, I don’t want to disrupt that, I only find it “curioso”. I think it would be very useful at spanish, but I’m only a guest here ;) )

  70. Kepler Says:

    LD, thanks.
    That’s my impression now. I was born in the Venezuela Saudita as well and when I was growing up I thought “milico nations are Chile, Paraguay, Uruguay, Brazil and Argentina”. Back then Venezuela was the only democracy apart from civil-war torn Colombia. All the rest in South America had military or “transition” regimes. Now I see how very exceptional that period was.

    Chile had mostly civilians as president in the XIX and XX centuries. We had almost only military caudillos. The same in many other nations.
    The first AD term saw big improvements in education, but things became less and less efficient with time. Universities became priority 1, 2, 3 and 4, which was -as usual- not a sustainable attitude at all as students must first be pupils (hence the private school overrepresentation).
    I have seen top Venezuelan technicians, scientists and entrepreneurs in Germany, Belgium, Britain, the US and still in Venezuela, but the general environment has been totally against them.

  71. Andres F Says:

    Chavez opens his blog:
    hugochavez.org.ve


  72. Miguel,

    1. Titulo de Interes y Capital Cubierto (TICC) bonds: a bond that trades only in local currency (Bolivars) but its price and coupon is indexed to the foreign (official) currency. True?

    2. What do they mean by its price and coupon is indexed to the foreign currency? For instance, if I am in Venezuela, do they quote me the bond in dollars or in bolivares?

    3. They can be bought with only bolivares?
    Only dollars?
    Either bolivares or dollars?

    4. They pay in bolivares and dollars?
    Only bolivares?
    Only dollars?

    5. I am going to have to start paying you a fee :) Nothing free in life so let
    me know.

    4. Why is it called Titulo de Interes y Capital Cubierto? Isn’t this what a bono is?


  73. One more,

    What is el dolar implicito?

  74. Miguel Octavio Says:

    1 Yes.

    2. If the Government devalues you get more Bs. Bond is quoted locally in Bs.

    3. They can be bought in either currency, but there is obviously a difference in price which used to be the old swap rate, whihc no longer exists.

    4. They pay in Bs. at the official rate of exchange both interest and capital

    It’s called that because you are “cubierto” from devaluation, except you are not, when he Government devalued in January all Gov. and PDVSA bonds are accounted for at Bs. 4.3, except….you guessed it….

    TICC’s which are accounted for at Bs. 2.6

  75. Miguel Octavio Says:

    Whenever you do a transaction with bonds there is an implicit rate. You pay Bs. you get dollars by buying and selling bonds and there is an implicit exchange rate. If you buy a TICC at 100% and sell it in $ at 30% the implicit rate is (100/30)x2.6


  76. 1. So, for instance, I buy a bond for 10 bolivares (100&) and sell it for 3 bolivares (30%) to make up for the fact that the bolivar is cheaper than the dollar?

    2. These bonds can only be bought and sold at the official Venezuelan exchange rate (
    $2.6 or $4.3? That is, for instance, were the financial institutions (banks for instance) able to buy them at the official rate ($2.6 or $4.3) and then sell them at the old parallel market rate (say x.y)?


  77. sorry I meant to say 3 bolivares in dollars equivalent.

  78. Miguel Octavio Says:

    Exactly 1 dolar in my example = 2.6*(100/30)=8.6….

    These bonds are not sold any more, they trade only in tge secondary at whatever price the market says

  79. Juan Carlos Says:

    VTV NEWS, According to Dra Ortega Diaz:

    “As a result of a very hard work of intelligence, the government has got four jewel stores in Caracas that are suspected to be selling US currency… BUT when the officials arrived , no one was there… and the stores were closed, only managed to jailed the vigilante”

    Ahhhhh!!!! Ok, that is a hard work of intelligence… a vigilante behind bars! cool!!

  80. m_astera Says:

    Hi Roy-

    Thanks for the kind comment, and apologies for my spelling. It was late and after a couple glasses of Chilean vino blanco.

    The problem for those of us who produce, make and sell things of actual value is that we have to eat. So, if we quit, we have to wait for the parasite/cannibals to run out of food and starve to death before we can start doing things like growing a tomato again?

    Here is a sad thing, to me. These days I work in agriculture, with an emphasis on health. I have clients and sell books all over the world, from Malaysia to South Africa to Spain. Even other countries in South America consult me. Not a one in Venezuela, not a one, despite numerous contacts here.

    What do Venezuelan growers want? A recipe for how to force one more tasteless crop out of their land; whipping a tired horse one more time so they can buy a humvee or some such shite while they despoil the land they were born on and nurtured from. Where is the respect for the land that nurtured them?

    Money is all that matters?

    Thanks, Miguel, for not deleting my comments. I do appreciate your site and your writing.
    ****

    That tire paint writing on the back of the old Chevy was Somos ‘Polar’, not Porlar. Likely how the driver of the old beater feeds his family, working for Polar. Making something that people need to live.

  81. Kepler Says:

    Astera, can you explain more in detail what is it Venezuelan growers want?
    Is it that they just want to plant X (what X, by the way?) all the time
    and not bother with the rest? Isn’t that done to some extent in the North now? (no different crops as fertilizers and all kinds of weird chemicals are in good supply). Excuse my ignorance. You wrote to me some time ago about how people could get phosphates from one region in Venezuela and use that in areas that are now not apt for agriculture, but I suppose that is another issue.

    Although I have to say I don’t know how anyone will want to do something these days with land in Venezuela unless he is a high-ranking Chavista honcho.


  82. Credit is a blood supply of the economy. Finance is the art and science of credit.
    It is something valuable and will allow for trade to exist so that other “tangible” things of value can be exchanged and those who produce those things can grow without waiting years to accumulate the actual money they need to expand their businesses.

    Stocks, bonds, options, forex, futures, and other investment vehicles seem empty in value in the sense that investment firms do not generate tangible material goods, but so is paper money, one of the first investment vehicles invented by humanity.

    These tangible and intangible elements live in a symbiotic relationship. They have a subjective value which makes them one and the same in an economic system be it tribal, developed, or underdeveloped.

    I follow Ayn Rand’s position that it is the value system of those in charge of producing tangible or intangible trade goods that ultimately decides whether they will thrive or stagnate.

    And by the way, I agree with the fact that the looters must destroy themselves, in theory. However, look at Cuba, there are looters born out of a looter society who work incessantly for the looter system not caring whether they florish or simply survive comfortably in a progressless society.

  83. firepigette Says:

    Roy,

    “In order for the looters to steal, someone honest must actually create value.”

    Value is not created, it is assigned .

    “the sooner you stop producing, the sooner the beast will run out of goods to steal ”

    Not true.There will always be something assigned a value which will be the object of greed and envy.

    People cannot live without assigning value.It is only shifted from one object to the next.

    A looter will always loot.

  84. m_astera Says:

    Hi Kepler: The growers seem to just need (necesitan) to force one more crop out of the ground to exchange for money.

    One might consider replacing the essential minerals that the crops have taken from the soil, like Calcium. Bones and teeth. There is little interest that I have found. Their answer, sorry to say, seems to be more urea. Inject more methamphetamine into the tired horse. Or find some other method to extract the last remaining nutrients from the soil. This provides what to the food for you and I?

    I am not casting blame on all of the growers. They are and have been stuck in a system invented by the bankers.

    Talking about el fuente here, la Tierra. Whatever we are going to create must come from there. Give us junk food and we become junk people.

  85. m_astera Says:

    “Credit is a blood supply of the economy.”

    May I add that it is not interest bearing fiat paper money that is needed? It is trustworthiness.

    The moment a piece of paper borrowed at interest enters the market, there is more owed than that piece of paper is worth. So, who loses?


  86. Astera,

    I follow Ayn Rand’s position that it is the value system of those in charge of producing tangible or intangible trade goods that ultimately decides whether they will thrive or stagnate.

    Trustworthiness = a component of a value system.

    By the way, credit comes from the latin word credere, meaning, “he/she who entrusts something”. Those who know about accounting use two fundamental terms: credits and debits, two sides of the same coin: you can’t have “someone who entrusts something” (credere or credit) without “someone who owes it once he/she receives it” (debere or debit).


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