The Dubai File: Is Venezuela Headed for a Default?
Earlier this week we wrote in a research note:
"The market flutter caused by the unilateral debt moratorium by Dubai suggests to us is that the illusion of stability created by the Federal Reserve Board over the past year is starting to dissipate. Specifically, there are many Dubai type situations in the global markets, both sovereigns and corporates, that are over-extended and are unable to service their debts at par. The corporates will end up in restructuring but the sovereigns are an open question."
"We would not be surprised to see more sovereign debtors make unilateral announcement of debt moratoriums and/or restructurings, perhaps including even oil rich Venezuela. We notice in that regard that Venezuela’s lider maximo, Hugo Chavez, is preparing to nationalize the few remaining private banks of that nation, usually a good indicator of an approaching sovereign default."
I have been following VE, both as a journalist and professionally, for many years. While Chavez does have a reasonably tight grip on the security situation, c/o his Cuban trained praetorian guard, the economy is a mess, even with plentiful oil. Indeed, not only has Chavez managed to wreck the state oil company so that VE barely meets half of its OPEC production quota, but inflation is running wild.
The Chavistas thought that oil prices would stay near the highs of the past two years, a dream that they share with the rulers of Dubai it seems. But with oil below $100 and the political opposition in VE starting to get organized, it may be time for Chavez to go for the whole ball game, nationalize the banks and take control over the rest of the economy that the government does not already control. Keep an eye on VE as the next soveriegn flash point.
As the WSJ reported today: "Upping the ante significantly, Chavez said he would not hesitate to intervene in the country's whole banking system. "You can be sure that if I need to intervene in all the banking system, I will do it," the self-declared socialist revolutionary said in a televised address Wednesday."
Chris
(7 votes)
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on Thu, 12/03/2009 - 00:09
#150304
Doesnt anyone remember that certain interest in Dubai own 28% of the london stock exchange??? Default that in your Funk and Wagnals--London is going toast soon....this is growing like the killer tomato.
on Thu, 12/03/2009 - 03:23
#150414
Don't be a nob.
Besides Wall Street, a majority of multinational companies are listed in London. Whilst sovereign nations may have unsteady balance sheets, multinationals are a different matter.
on Thu, 12/03/2009 - 00:12
#150307
Someone else blogged about this a while back, the potential of a VE default. Can't remember when. Wish I could remember who holds the majority of their debt.
on Thu, 12/03/2009 - 00:32
#150323
"is preparing to nationalize the few remaining private banks of that nation, usually a good indicator of an approaching sovereign default".
Kinda sorta like the USA?
on Thu, 12/03/2009 - 00:34
#150328
i say the dow will respond by going down abut 100 points for half a day, and then closing higher by the end of the day. there is no reality harsh enough to kill this rally.
on Thu, 12/03/2009 - 01:34
#150360
you write
Indeed, not only has Chavez managed to wreck the state oil company so that VE barely meets half of its OPEC production quota
that's exaggerated
don't confuse political propaganda
with news
on Thu, 12/03/2009 - 11:15
#150765
When reality is disparaged as "political propaganda" you've entered an Orwellian realm and aren't to be taken seriously.
on Thu, 12/03/2009 - 01:55
#150375
would it be a strategic default on westrn banks/investors?
Michael hudson has advised that to iceland and a baltic country (cant remember which one). the chinese are defaulting on certain obligations. heck, even homeowners here are being advised to strategically default.
on Thu, 12/03/2009 - 05:03
#150434
I think I can remember an incredible event only a short time ago when a National Govt seized the retirement accounts of its citizens. It too was Sth American. A few Billion$$. wash, rinse, repeat maybe????
regards
on Thu, 12/03/2009 - 06:00
#150448
Chile, under the right-wing dictator?
on Thu, 12/03/2009 - 11:47
#150828
Uh, try Argentina dude. Under the far-left joke of a socialist they call a President.
on Thu, 12/03/2009 - 06:57
#150463
the argentine
on Thu, 12/03/2009 - 06:05
#150451
They're all going to default, even the U.S. It's just a question of time. The real question is who is first. It won't be Dubai. They are acting Austrian. "We do not back Dubai World. They are a private company." Finally some rulers with sense. Unlike the U.S. Japan, Western Europe etc. Who is going to be first? My guess? Where the Edge lives.
on Thu, 12/03/2009 - 06:43
#150456
The bolivar (venezuelan currency) is weakening recently against the USD (the incredible shrinking US currency). On the black market, yesterday a dollar was worth 5.53 bolivars. The strongest point was scored by the bolivar on October 16 with a change of 4.80 Bolivars per dollar.
Venezuelan currency parallel market (black market) exchange rates >>
venezuelafx.blogspot.com
(I do not know the reliability of this source)
on Thu, 12/03/2009 - 06:43
#150457
Seems like the (de)fault line is oil producers.
Russia next? Not like they don't default at the drop of a hat.
on Thu, 12/03/2009 - 07:34
#150475
perhaps the author could elaborate on the impact on Dubai of declining revenues from the oil it produces and then contrast that to Venezuela's situation.
on Thu, 12/03/2009 - 07:37
#150476
California is in serious trouble. With each cut they lay off more and more people and that decreases state tax revenue necessitating further cuts in the Budget. Those who understand the power of money know that it works in reverse as well as forward. California looks like a slowly falling house of cards. Their cuts fuel their further collapse.
on Thu, 12/03/2009 - 11:55
#150845
Your analysis is correct only if you are referring to private sector employment. Your analysis is backwards it you are referring to public employees being laid off. Only the private sector pays taxes in reality -- the notion that public employees pay taxes is pure fallacy. Consider this --A=private sector worker; B=public employee; C=Government. Here is how it works -- C takes from A to give to B. B kicks a little back to C and calls it 'tax', but in reality, the only one who has paid anything is A. So for every private sector job loss, the State’s bottom line worsens, but for every public sector job loss, the State’s bottom line improves.
on Thu, 12/03/2009 - 08:16
#150497
at least Argentina's government had actual assets representing social security to seize!
Now the Argentine system is a pay as you go system like in the good old USA!
on Thu, 12/03/2009 - 08:31
#150513
http://www.google.com/hostednews/ukpress/article/ALeqM5jCeOagSyMOyK8aJykX8bdxyV-Www
It's almost impossible to get real accurate news regarding Venezuela. If you look at the structure of what he is doing it's Fascism in the disguise of Socialism. What we are doing in the US is Fascism in the disguise of Democracy. While one is using Government to take over corporate entities (VE), the other is using Corporate entities to take over the Government
The same small groups of finance and industry are controlled by the same group of political cronies. Or vice versa.
The difficulty lies in that they are not our cronies, so he must be evil. He is part of the same system, it's his bad luck that he has oil that our Fascists want, otherwise we would leave him alone.
on Thu, 12/03/2009 - 08:45
#150533
Increasingly I think the difference between socialism and fascism is only theoretical, not practical.
on Thu, 12/03/2009 - 12:05
#150873
Agreed. Corruption is corruption, no matter what flavor you tell your customers it is.
on Thu, 12/03/2009 - 12:08
#150881
Good point. But I think no matter what system, there is going to be consolidation of government, industry, finance, religion, etc. Everyone wants to be on the winning side until it explodes from corruption and we start over. SI
on Thu, 12/03/2009 - 12:57
#150953
The difference between fascism and socialism is that socialism is an ideology, while fascism is an emotion.
on Thu, 12/03/2009 - 13:13
#150995
It just a natural progression from utopian to realistic thought. Socialism (equality for many ruled by few; central planning) and fascism (dicatorial rule of state and corporation) are not sustainable. Those desparate to exert their control over their fellow man must adapt. They look around, realize that both Socialism and Fascism contain elements they like and don't contain dealbreakers. So the drift together and will make another go of it.
And the world continues to take steps away from freedom of individuals...
on Thu, 12/03/2009 - 08:41
#150526
Someone's got some 'splainin to do.
btw, they don't call them PIIGS for nothing. Greece and Ireland CDS has narrowed, but at 170 and 155 bp, are wider than a lot of EM.
reminds me of a joke that was going around in the spring: What's the difference between iceland and ireland? -> 6 months.
on Thu, 12/03/2009 - 08:45
#150532
This will give the US the perfect justification for invading. Now all we need is a pretext. I say we accuse Chavez of child abuse and "step up" to our status as the world's policeman. (What? You think this is a flimsier pretext than WMDs?)
on Thu, 12/03/2009 - 09:35
#150579
After all the arm twisting, hemming and hawing about troop escalations in Afghanistan, do you really think The Obama will threaten the "international goodwill" he has work so hard to buy by kicking some petty S. American dictator?
on Thu, 12/03/2009 - 09:46
#150594
I'm not convinced that Obama is actually in charge, in a meaningful sense.
on Thu, 12/03/2009 - 10:36
#150678
Not even in his own household, let alone in charge of the country. The ship is adrift.
on Thu, 12/03/2009 - 12:00
#150864
Ya - if you think Obama is going to preemptively invade a fellow companero de la revolucion over anything other than his wholesale privatization of state-owned enterprises, re-establishment of press freedoms, and implementation of a flat-tax system, I've got a block of hotel-backed CMBS to sell you (I give you par - you take, is good price).
on Thu, 12/03/2009 - 08:53
#150541
GLOBAL DAY OF JUBILEE. Coming soon to a country near you!
on Thu, 12/03/2009 - 12:07
#150879
Hopefully the People conduct 'roundups' for trial - otherwise it'll be more of the same after the dust settles. Human beings rarely learn - the third generation always ends up defining the new insanity.
on Thu, 12/03/2009 - 09:24
#150572
Venezuela was counting on oil staying at $100? If they don't like it at $75-$80, wait until it's at $40 again after the global risk trade reverses.
on Thu, 12/03/2009 - 10:37
#150681
That border with Colombia can go hot at any moment.
on Thu, 12/03/2009 - 12:04
#150870
Good point. Were he to nationalize the banks, it stands to reason that he'd want to immediately create another crisis onto which he could focus the nation's attentions and resources...
War between Venezuela & Colombia = all bets are off in S.A.
on Thu, 12/03/2009 - 11:50
#150837
Alright. So we have a situation in Venezuela.
How to capitalize on it?
on Thu, 12/03/2009 - 13:09
#150985
Mexico is my pick for biggest faker.
They too are an oil export economy and PEMEX and their economy in general is in shambles.
The Mexican Bolsa's all time high was about 32,722 on 10/19/2007 and it is currently at about 32,480, which is the double shoulder levels reached in the previous high.
By 1/22/08 it had retrenched to 26,893 or 17.8%.