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Gun Play in Caracas - Where do the Bullets Land?
Some interesting developments in Venezuela over the weekend. The
government of Cesar Chavez devalued the Bolivar, twice. The official
rate was devalued from 2.15B/$ to 2.6B/$, a change of 21%. This is of
little consequence. The official rate is not used for any significant
transactions.
They established a new exchange rate regime as well. There is now a
two-tiered official rate. The second rate was set at 4.3. This rate is
intended for “Non Essential” imports. There is supposed to be a list
forthcoming of 430 items. The list will include all luxury products.
This is something that will not go over too well in Caracas.
But that step is probably irrelevant as well. As of last week the
“Parallel Market” (AKA Black Market) was trading the Bolivar at around
6 to the dollar. President Chavez announced new plans to crack down on
speculators. It was not clear if he was referring to the currency
traders or the shopkeepers who have been driving up prices at a torrid
(30+%pa) pace. Probably both.
I would put no faith in the numbers that are available from Venezuela.
By way of example the following chart is derived from info from the CIA
World Fact Book. This chart makes me think there should be no problems.
What can go wrong when you have a $39B Current Account surplus?
This chart is from Banco Central De Venezuela. The information only
covers through March of 2009. But looking at this it is very difficult
to believe that the $39b surplus forecast by CIA was realized.
I have lived through a few dozen Latin American financial crises’. This
one does not look so different from those in the past. A natural
resource dependant country gets financially clobbered when the resource
they are peddling falls dramatically in price. My guess is that actual
reserves at the Central bank have fallen to dangerously low levels.
(less than $10b. Down from $40b in 08) The black market and the
dramatic actions by the government prove that they must have been
getting close to an empty cupboard. The two-tiered currency regime will
not work. It never has in the past. It encourages speculation and
hoarding. It will lead to shortages of all manner of goods. It will
prove to be socially disruptive.
In the scale of importance to the rest of the world I would give this a
2 out of 10. Really no big deal by itself. We all knew that Venezuela
was a basket case so who cares?
But now look at this report prepared by the Bank for International Settlements:
We see from this that the problems in Venezuela are soon to be the
problems in Spain. Not only are their banks exposed to the trade
credits outstanding but the exporters must have been making a fair buck
in selling the stuff to Venezuela that are behind these credits. So the
sovereign risk story in Venezuela is soon to become a sovereign risk
story in Spain.
The great sucking noise of credit contraction is continuing. Today it
is Viet Nam and Venezuela; tomorrow it will be with those that trade
with the weak ones. Sooner or later there will be no strong ones left.
As this process progresses it will rise to the top.
Note: I went to Caracas for business a number of times
in the 80’s. I found nice people, good restaurants and interesting
things to capture my attention. I liked it, but would not have
suggested it as a destination. My last trip was in 1988. I was there
shortly after a spat of domestic violence that brought the military
out. At night I heard shooting throughout the city. I asked someone
what this was about. The explanation was, “The people who are angry
shoot guns in they sky.” I wonder if they are still shooting off guns
at night in Caracas. I am sure there are plenty of angry people.
»
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Interesting how the Venezuelan devaluation brings the peons out lining up 50 deep outside the electronics outlets to pick up 42 inch flat screen TVs with their shrinking Bolivars, according to MSM. Hoarding flat screen TVs?Maybe the new currency as far as I know. Myself, I've been stocking up on rice and beans, bulk grains and canned goods. I suppose if I was paying 10 cents a gallon for gas I might find more room.. I came out of the PM store the other day and saw a guy wheeling a huge flat screen Vizio across the parking lot of the local big box. I must be missing something. And all I got is some lousy krugers and saints in a bag. I did have the strange urge to blow off the shotgun into my sky on New Years eve though.
Yardfarmer,
you've got a scattergun and you're focusing on buying beans? Beans beget more beans, but those hi-brass 12ga. hulls are irreplaceable.
I just bought a couple more bags of wheat berries at $0.52 per pound, not to hoard but to sprout, because even in these dark Northern climes they produce wheatgrass juice in just a couple weeks. A little goes a long way in keeping beriberi and scurvy at bay. Not to mention pellagra!
just finished reading the futures outlook for 2010 from a major investment house. (not Goldman), they are short all manner of crude oil and petroleum based energy components. inventories are building. we shouldn't be surprised at any of this. and as commodity based emergin economies see their currency weaken, and the dollar rise, (US domestic production is filling in the gaps) whither goest the China dollar peg, as China has no real domestic oil production and needs to ramp up strategic reserves, (buy at demand plus one)?? a strong dollar and an even stronger Yaun, the floor could fall out of their export trade?
Thanks for a great post. (I think Chris Whalen mentioned Venezuela & Spanish exposure in a post not too long ago.)
Thx, Anon12:47.
Does anybody else focus a critical eye on these pieces, or are we all just skimming to get our daily dose of self-validation?
Missing such a critical and obvious oopsie, Cesar vs. Hugo, casts doubt not just on the author of the article, but on all the foregoing learned commentators.
It's the damn copy editor again. A no good drunk...
Funny how the 1st dominoe can seem very innocuous but then lead to something much worse.
The ponzi teeters....
Dude, it's Hugo Chavez. Caesar Chavez is arguably an American hero for figuring out 40 years ago what most of us are figuring out only now, that is, that they system is corrupt and run by thieves.
Hugo Chavez, who, while feasting upon one his ample dosages of paco, enjoys massaging a sulfur powder concoction upon the hairy buttocks of his good friend, Mahmud Ahmadi-Nejad. He assures Mahmud that it is in order to protect him from contracting chagas, but we suspect ulterior motives. But, I digress . . .
El Hugo has stated that he will seize the assets of any company which raises prices in response to the currency devaluation, but recent history shows us that he has not required any such rationale to do as much.
Concerning gunfire. If you saw (heard) the shoot out in Vegas at the court building did you even think " Where did all those bullets go?" If I were there you would have had to pry me out from under a car. The guy filming just kept up like it was nothing. I trust nothing without a scope hitting an intended target. Hell, i run 15 rounds and think it was 5.
I've lived in Brazil for 26 years and I can assure you that it is BECAUSE it has been in the thrall of corporativism and socialism for the past 70 years that it is poor.There has never been capitalism and free markets here.
The government, through legislation creates difficulties for firms and markets to operate and then companies then have to bribe officials to be exempted from regulations.
Civil servants are the parasitic elite here in Brazil with much higher than market salaries and guaranteed pensions.
Obama wants to take the States down the same road as Argentina; Peron a populist dictator destroyed the economyof the 2nd wealthiest country in the world after WW2
What was the middle post?
I've lived in Brazil for 26 years and I can assure you that it is BECAUSE it has been in the thrall of corporativism and socialism for the past 70 years that it is poor.There has never been capitalism and free markets here.
The government, through legislation creates difficulties for firms and markets to operate and then companies then have to bribe officials to be exempted from regulations.
Civil servants are the parasitic elite here in Brazil with much higher than market salaries and guaranteed pensions.
Obama wants to take the States down the same road as Argentina; Peron a populist dictator destroyed the economyof the 2nd wealthiest country in the world after WW2
I've lived in Brazil for 26 years and I can assure you that it is BECAUSE it has been in the thrall of corporativism and socialism for the past 70 years that it is poor.There has never been capitalism and free markets here.
The government, through legislation creates difficulties for firms and markets to operate and then companies then have to bribe officials to be exempted from regulations.
Civil servants are the parasitic elite here in Brazil with much higher than market salaries and guaranteed pensions.
Obama wants to take the States down the same road as Argentina; Peron a populist dictator destroyed the economyof the 2nd wealthiest country in the worls after WW2
Your story of gunfire is eerie. I worked in Bogota for '88-90 and remember my last Sunday before my final flight out on a Monday. Huge helicopters. Machine Gun fire. Sirens. Oh please just let me leave this one time again. I loved Bogota but that day I was ready to come back to Canada. Great work and wonderful details!
Shoot to kill, not to vent.
Nothing will improve by venting.
Chavez is the result of his environment. I was in Latin America for business last year, Brazil and other countries. The poverty is horrendous in most countries with no way out for the majority, the governments are held captive by the money men (sound familiar) and the few hold all of the assets and look down upon their countrymen. I am no fan of lefty agendas or communisim but you can see why it is popular in this part of the world.
Si
"I am no fan of lefty agendas or communisim but you can see why it is popular in this part of the world."
What's interesting about all the communist agitation in Latin America is that when these "socialist" administrations come into power, they generally become kleptocracies similar to the national basketcases that so many countries in Africa turned into during the post-colonial era. Their policies do nothing more than perpetuate the poverty cycles, and often make things even worse in the name of "justice," but because the leaders are very effective at the public relations/propoganda game, they are very rarely held to account until the day the military coup takes place.
One of the more influential philosophies to emerge in teh 20th century was this notion that the "Third World" would lead the way in showing the colonial nations (Europeans, in other words) how to properly conduct themselves on the world stage. Unfortunately, they typically ended up taking all of the vices of Western civilization and almost none of the virtues. There's no way a clown like Chavez would be taken seriously except in an environment where the constant demand to "punish" someone is in place.
Thanks. Venezuela's neighbors are nervous.
I love the idea of shooting guns off in the air all over the city.
With the right trajectory, if done in Washington and Wall Street, the lead would land on the Capitol dome, the White House, and 85 Broad Street.
I imagine a barrage every day for few weeks and things might improve for everyone.
And good luck with finding those who have the balls to do it.
great piece, Bruce.
oh hugo. some day crystallex. some day.
Bruce, what a timely article again (I just gave a thumbs up elsewhere to you just awhile ago, loved yr Greenwich piece in Dec.). Thanks.
I have only small experience with Venezuela, dating from the 1990s (trading auto parts with them). My general experience with Venezuelans (the upper class) is that they are vain and weak, many have fled here to S FL. I think they are stuck with him for a long time...
I only hope that this Lefty madness that is so virulent in Lat Am does not spread again to Peru (where my big bet is, rolling bearings business) or anywhere else there.
Time for all of us to shape up! Stop the spending! Stop the ridiculous promises! Save some money ferchrissakes!
Ohh, and buy some physical gold if you do not have any or have very little.
The Chilean economy is goin' on. I hear you though about bad stuff spreading. My hope is that Chile's "new" post Pinochet constitution will show some of the others (like Peru) that a liberal (small L) constitution and an economy based on sound free and liberal economic principles gives the people their best opportunity to prosper. I had high hopes for Argentina, but their political system is as corrupt as Louisiana and I think that will always hold them back from realizing their true potential.
Remember the Kudlow Creed, "I believe free market capitalism is the best way to achieve economic prosperity and political freedom in the world today."
Larry Kudlow???
The assclown who actually wants people to share his magical believing that the Federal government of the US had nothing to do with saving his mythical American "free market capitalism?"
No arguments with you J9Iron!
Prosperity will never be available to everyone or even close.
Most dictators realize this, that mose people particularly in the poorest of countries, Haiti for one, only want a place to pee, procreate, and poop.
Here in this country I have dozens of relatives and former friends who want to live in peace, be left alone, but do as little as they can to get by.
The citizens of Argentina are not so different from ours in that they are vain and weak. Self-destructively so.
It is likely true that you could give the wealth of the few to everyone in the world in equal amounts of and within a decade, the same few you took it from will get it all back.