Archive for August 17th, 2011

Moving Venezuela’s International Reserves for All the Wrong Reasons

August 17, 2011

It was quite comic, if not tragic, to watch the idiotic trio of Merentes, Giordani and Chavez try to explain why they were moving Venezuela’s international reserves. As I have said before, I believe the gold should be in Venezuela, not elsewhere, as a normal policy, the problem is why these clowns are making this move right now. I initially dismissed the news about the reserves being moved, there was not much to be moved besides the gold, which I did not believe would be moved (and was not the main focus of the proposal) But these guys truly plan to move the gold, never mind how much it will cost. Time to worry!

Let’s hear some of the bizarre explanations given today:

Chavez: How long are the countries of the South going to finance the rich ones?

Hugo, when you have something in custody, you have it there for safekeeping. There is no financing involved, least of all with gold. They keep it, protect it, charge you a fee. Period. If it is a bond, the same. These are small fees, I bet moving the gold will cost more than a decade worth of fees.

Chavez: It is a “good” decision for the Venezuelan people

Each Venezuelan will go to bed each night peacefully and sure that his/hers Bs. 3,460 in gold is safe in Avenida Urdaneta in downtown Caracas, under the custody of Merentes and Giordani. Unless they take up Chavez’ invitation and put it in the basement of Miraflores Palace.

Giordani: We did it to diversify the assets

Jorge, Jorge, how stupid do you really think we are. While it has worked really well to keep the gold, Venezuela’s reserves are far from being “diversified” with you running the show. Gold is 63% of reserves. You hold about US$ 2.7 billion of Venezuela and PDVSA bonds, less than US$ 5 billion in really liquid reserves. So, in terms of investments, there is no diversification.

If you are talking about geographical diversification, then I ask: Why do you have US$ 42 million in Panama? Panama is BBB, while the US, even after the downgrade is still AA+ and AAA (according to two of the rating agencies)

BTW Jorge, this silly move is going to cost you in future financing.

Nelson Merentes: Measures avoid losing money because of the financial crisis

Oh Nelson, you know quite well what custody means. Lehman went bankrupt, but those things under custody at Lehman were returned to their owners, that’s not how the world works and you know it.

Nelson Merentes: There are countries in better shape

Funny, not one of those you mention has a better rating than the US, or even close! In fact, Brazil has the same rating as Panama for that matter.

But the scariest sentence was Hugo’s:

We have difficulties…

Oh baby! If you have difficulties at US$ 90 per barrel, I hate to think what will happen if there is indeed a financial crisis.

In the end, it is clear (to me, at least) that this is political. Chavez wants to avoid sanctions if…that’s the hard part to guess, but I can only think of two things: US sanctions because of the Iran connection or UN sanctions if the Constitutional order is broken.

You can bet on the second. The gold will take a few months to get here. The timing is perfect! When the Constitutional order is broken, the gold will be here and the reserves will be depleted! These guys have a plan and it goes back to the Jose Vicente intreview two weeks ago, Chavez still has doubts about democracy.

(A final note: I used to say that when people where I used to work were interested in stocks, it was time to sell. Now that Chavez and cronies nationalize the gold industry in order to “build” reserves and they decide to bring back the gold to Venezuela, maybe it is time to sell gold, the dumb money is on it. This must be the top!)

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