How The Glorious Socialist Revolution Generated A 681% Return For Goldman Sachs

Tyler Durden's picture


Back in 2011, BlackRock's Larry Fink revealed one of the great unspoken truths of capital markets, namely that "markets like totalitarian governments." They also like authoritarian socialism, sprinkled in with a healthy dose of nationalization, because as Bloomberg reports, one of the biggest beneficiaries of over ten years of the "glorious socialist revolution" in Venezuela, coupled with over 1000 nationalizations by the bed-ridden and roughly 15 times deceased Hugo Chavez (if one believes all the rumors), is none other than Goldman Sachs, which generated some 681% in returns due to "aligning its interests" with those of the unshakable Venezuelan ruler.

From Bloomberg:

Since taking office in 1999, Hugo Chavez has spread his socialist revolution in Venezuela by seizing more than 1,000 companies. For bondholders that stuck by him, he’s also delivered returns that are double the emerging- market average.


The 681 percent advance, equal to 14.7 percent annually, has enriched investors from OppenheimerFunds Inc. to Goldman Sachs Asset Management LP that counted on Chavez’s willingness to siphon the country’s oil wealth to pay its creditors in the face of start-stop growth and falling reserves. While his policies drove away enough investors to keep Venezuela’s borrowing costs over 12 percent on average during his tenure, or 4 percentage points higher than those of developing nations, he’s never missed a bond payment.


Venezuelan bonds accounted for about 6.7 percent of the holdings of Goldman Sachs’s $2.9 billion Growth & Emerging Markets Debt Fund, the third-biggest investment, according to data compiled by Bloomberg. The fund returned 12.8 percent over the past three years, outperforming 90 percent of its peers.


“This is a really great high-income and high-total-return investment for your portfolio,” said Sara Zervos, an emerging- market debt manager at New York-based OppenheimerFunds, which oversees $176 billion in assets and has invested in Venezuelan notes for more than a decade. “Chavez hasn’t done a lot of good for his country, but he has the objective to service the bonds. Our interests are aligned.”

Indeed they are. Just as they are aligned in the US, albeit inversely - because for every bond the US government issues, the Fed monetizes anywhere between 50% and 75% (and sometimes over 100% on a gross basis), with the result being excess reserves created flowing through into the coffers of firms like Goldman Sachs, which can then add domestic to already solid socialist returns abroad, by ramping stocks with the indirect proceeds of the Fed monetization.

But everything comes to an end, and while the Fed will not end its market intervention before it has no other choice (i.e., when the rate it pays on overnight reserves is greater than interest income on its "assets under management"), Goldman's Venezuelan faucet is about to run dry:

Now, as the 58-year-old leader battles cancer, the nation’s outsized returns may be nearing an end. While Venezuela’s benchmark bonds have climbed to a five-year high since Chavez said on Dec. 8 that he needed more surgery, they’re unlikely to replicate the gains they’ve posted in the past decade once the rally drives yields down closer in line with regional peers, according to Russell Dallen, the head trader at Caracas Capital Markets.

What happens after the inevitable passage is unclear, but will likely not be good news:

“While the story has been deteriorating, Venezuela will continue to pay their debt,” Sam Finkelstein, an emerging- market bond manager at Goldman Sachs Asset Management in New York, said in a telephone interview on Jan. 25. “The situation will have to be much tighter, more fragile for a default to be likely.”

A worst case scenario for Venezuela will have broad implications elsewhere, such as the oil market:

Chavez paid off the debt because non-payment would lead creditors to seize Venezuelan oil shipments, which supply half of the government’s revenue, according to Simon Nocera, a former economist at the International Monetary Fund. Bond investors can also freeze Venezuelan assets overseas, including refineries and gas stations of Citgo Petroleum Corp., a subsidiary of PDVSA, he said.


“Chavez makes noise, but he will never come out and say: ‘We are going to restructure our bonds,’” Nocera, now chief investment officer at Lumen Advisors LLC, said in a telephone interview from San Francisco on Jan. 23. “He knows if he does, he won’t sell the only product that allows him to survive. There’s no reason to be scared.”

True -there is never any reason to be scared, until the panic sets in. Just ask the Fed.

As for Goldman, don't feel bad about them: with the entire world turning socialist, the bank may simply focus on France next, or maybe even the US. Worst case, their aggressive ramping of operations in Africa will soon bear fruit, once the whole world grasps that the last race for commodity colonies, to be held between the US and China, together with the occasional drone, extended semiautomatic clip and mortar, will need lots and lots of debt - debt Goldman will be happy to fund for a price.

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Wed, 01/30/2013 - 12:35 | 3199124 Shizzmoney
Shizzmoney's picture

BlackRock's Larry Fink revealed one of the great unspoken truths of capital markets, namely that "markets like totalitarian governments."

And Larry Fink loves totalitarian Secretaries of the Treasury.

Wed, 01/30/2013 - 12:50 | 3199172 JR
JR's picture

This doesn’t have anything to do with markets, capitalism, nationalization or anything else. It has to do with larceny. It’s stealing.

For the robber who empties out the cash drawer at a 7-Eleven store he had more than a 1000 percent up-to-the-cash-register-limit increase in profit. With Goldman operations there isn’t any resemblance to investments or law; you don’t make that kind of money unless you take it. That value, that money, comes from somebody. And it wasn’t somebody who agreed to it. They and their government partners in crime took it.

It’s time people stop implying there’s something legitimate about Goldman Sachs.

Wed, 01/30/2013 - 13:02 | 3199213 disabledvet
disabledvet's picture

Phuck your oil Chavez. I do like his bus driver "replacement just in case though." methinks he has a similar mindset.

Wed, 01/30/2013 - 13:15 | 3199251 trav777
trav777's picture

know who else likes totalitarian socialist governments?  3rd worlders.  That's why they always have them there.

See, what they're not teaching you in "science" is that people are who CREATE environments and cultures and societies.  What you see is a reflection of them.

The US has a one-way demographic trend in place.

Wed, 01/30/2013 - 13:24 | 3199279 NotApplicable
NotApplicable's picture

Funny how yet another "revolutionary leader" remains absolutely obedient to the bankster class, providing them will a massive cut of the loot in order to fund his visions of paradise.

I get so tired of reruns.

Wed, 01/30/2013 - 13:45 | 3199358 economics9698
economics9698's picture

Venezuela is a nation of gangs and Chavez is the biggest gang on the block.  The NYC bankers (I am going to puke with this politically correct shit in a second here) discovered this little trick the last couple of centuries when they got the Central and South American countries to give up their silver for worthless paper or else.   If they do not give their wealth to the NYC bankers insurgents get funded and adios, bring in the new dictator.

Fucking bankers are evil, pure fucking evil.

Wed, 01/30/2013 - 13:25 | 3199281 Poetic injustice
Poetic injustice's picture

Hate to say but you are right there.

Wed, 01/30/2013 - 13:26 | 3199283 JR
JR's picture

The USA is importing socialism.

Wed, 01/30/2013 - 13:26 | 3199286 fourchan
fourchan's picture

the revolutions are created by the profiteers.

just like the fed reserve creates boom and bust cycles to enslave the population to debt and capture productive assets.


the system is working perfectly.

Wed, 01/30/2013 - 13:36 | 3199311 Unprepared
Unprepared's picture

That's a bunch of BS Trav. People are the product of their environments/cultures which are also made by the people. People CAN* change, break-free their cultures if they so want. They can also corrupt it if they let it be. The thing is that most people never learned they have that ability and capacity to change their conditions and predicaments. But that lesson can only be learned the hard way, there is no WAY to "transfer" cultural values (i.e. you cannot "FREE" a country from outside even with the best intentions).

This has nothing to do with race, color or geography.

Wed, 01/30/2013 - 13:42 | 3199346 sdmjake
sdmjake's picture

Didn't Randolph and Mortimer Duke already prove all this over a $1 ??

Wed, 01/30/2013 - 13:51 | 3199370 economics9698
economics9698's picture


Unprepared, there are differences, the we are the same argument died out a few decades ago.

The best defense against stupid people being stupid is to have a biological father in the home correcting the stupid.

Here check for yourself.


Wed, 01/30/2013 - 12:38 | 3199132 tahoebumsmith
tahoebumsmith's picture

And soon the new global currency will have a squid on the first tungsten coin minted...

Wed, 01/30/2013 - 12:40 | 3199133 Cognitive Dissonance
Cognitive Dissonance's picture

Don't fight the Fed is/was in reality always don't fight the (increasingly) authoritarian government and its puppets.

<Though the puppets are actually controlling the Fed. But you knew that.....right?>

Wed, 01/30/2013 - 13:12 | 3199241 Spastica Rex
Spastica Rex's picture

Who's using who? what should we do? well, you can't be a pimp and a prostitute too.

Icky Thump

Wed, 01/30/2013 - 12:41 | 3199134 jjsilver
jjsilver's picture

Jacob Schiff, the head of Kuhn, Loeb and Co., and long-time associate of the Rothschilds heavily bankrolled the [Communist] revolution.

The Jews Who Murdered Tsar Nicholas II


And don't forget the REAL holocaust where 80 million christians were murdered

Wed, 01/30/2013 - 13:21 | 3199272 trav777
trav777's picture

why would they do that?  Were they related to the main agitators for global communism?  Was Karl Mordechai related too?  Is marxism basically another clan religion?

Wed, 01/30/2013 - 12:38 | 3199137 PUD
PUD's picture

Well then! Just align yourself with our glorious leader! So easy even a cave man dan do it!

Wed, 01/30/2013 - 12:38 | 3199138 Uncle Zuzu
Uncle Zuzu's picture

No surprise there.  It's the wheel of globalization.  Wall Street wanted free trade with China, which boosted the Chinese economy, which propelled commodity prices, which consolidated the power of petro tyrants like Chavez, which benefited Wall Street.  Any questions?

Wed, 01/30/2013 - 13:00 | 3199202 JR
JR's picture

Yes, we can trust these well-meaning men who are secretly operating behind the scenes. The Soroses, the Blankfeins, the Rubins, the Rothschilds, the Summers -- the “hope” of the world.

Those who resist them -- the “tragedy.”

“Tragedy and Hope,” Dr.Quigley’s title, that exposes the world-wide conspiracy of a world-wide power grab by a mammoth power network.

Wed, 01/30/2013 - 12:40 | 3199142 A Lunatic
A Lunatic's picture

I like Totalitarian Governments too; makes it easier to see who my enemies are...........

Wed, 01/30/2013 - 13:21 | 3199264 NotApplicable
NotApplicable's picture

Go ahead and waste your time focusing on puppets. It will get you nowhere. Your true enemies are invisible.

Wed, 01/30/2013 - 14:10 | 3199419 forwardho
forwardho's picture

Your true enemies are invisible.



Wed, 01/30/2013 - 12:41 | 3199143 Kaiser Sousa
Kaiser Sousa's picture

look at the fucking Dow...



Wed, 01/30/2013 - 12:42 | 3199148 CrashisOptimistic
CrashisOptimistic's picture

Jesus Christ, MINUS 0.1% and nobody cares!?!?!?!?!?!?!

WTF is going on?

Wed, 01/30/2013 - 12:45 | 3199159 Dr. Engali
Dr. Engali's picture

A negative number locks in the fact Ben will continue to print.

Wed, 01/30/2013 - 12:59 | 3199199 CrashisOptimistic
CrashisOptimistic's picture

But that's absurd.

Who expected an end to QE any time in the next 12 months?  Nobody.

Wed, 01/30/2013 - 13:02 | 3199210 Dr. Engali
Dr. Engali's picture

Allow me to clarify it means he will print more

Wed, 01/30/2013 - 13:15 | 3199252 CrashisOptimistic
CrashisOptimistic's picture

Hard to make a case for that.  If there was a presumption that Ben would buy more Treasuries, it would have driven rates lower.

Wed, 01/30/2013 - 13:40 | 3199327 Dr. Engali
Dr. Engali's picture

Don't limit your imagination to just treasuries. Japan didn't and neither will the Fed.

Wed, 01/30/2013 - 13:11 | 3199237 Atomizer
Atomizer's picture

Look for a subsidiary GS shell company. Follow the money. 

Wed, 01/30/2013 - 13:32 | 3199304 ebworthen
ebworthen's picture

Who needs GDP when you have EBT and FED infinite QE?

Wed, 01/30/2013 - 12:43 | 3199149 Dr. Engali
Dr. Engali's picture

"As for Goldman, don't feel bad about them: with the entire world turning socialist, the bank may simply focus on France next"


with the entire world turning fascist


 There fixed that for you.

Wed, 01/30/2013 - 13:00 | 3199188 Ghordius
Ghordius's picture

you mean they don't like socialist France because of it's socialist austerity calls? ;-)

as someone that grew up in a couple of countries that were truly, honest-to-heart fascist I find it always a bit strange how this word is used in the US and the UK

a fascist government (the way we continental europeans understand the word) would approach the banking crisis in a muscular, watch-me-how-I-protect-your-interests way:

A) round up the usual suspects, in this case the CEOs of the MegaBanks B) yell at them in public (the same way Putin does it with some Russian oligarchs) C) waterboard Corzine - aka pour encourager les autres D) tell them the nation expects better, soon, and they have to deliver solutions in a month and of course E) bask in the glory of the fawning press that says: the gov saved the day, long live the gov

rince and repeat if necessary, with of course escalations

again, that's our understanding of "fascist", but hey, it's not as we have had any experience with that stuff, didn't we? ;-)

Wed, 01/30/2013 - 13:07 | 3199223 Dr. Engali
Dr. Engali's picture

As an economic system, fascism is socialism with a capitalist veneer. The word derives from fasces, the Roman symbol of collectivism and power: a tied bundle of rods with a protruding ax. In its day (the 1920s and 1930s), fascism was seen as the happy medium between boom-and-bust-prone liberal capitalism, with its alleged class conflict, wasteful competition, and profit-oriented egoism, and revolutionary Marxism, with its violent and socially divisive persecution of the bourgeoisie. Fascism substituted the particularity of nationalism and racialism—“blood and soil”—for the internationalism of both classical liberalism and Marxism.

Wed, 01/30/2013 - 13:38 | 3199242 Ghordius
Ghordius's picture

again: that's the typical US/UK way of looking at it - which of course is the one that counts

Wed, 01/30/2013 - 16:38 | 3200105 NidStyles
NidStyles's picture

Except it was and Italian and Austrian that defined it that way.

Wed, 01/30/2013 - 18:08 | 3200428 Ghordius
Ghordius's picture

Which took their nation's conservativism - among other components - for granted

Wed, 01/30/2013 - 13:53 | 3199360 Bastiat
Bastiat's picture

Always wondered what that thing was on the Mercury Dime !! Thanks, Doc.

Wed, 01/30/2013 - 15:22 | 3199731 Shell Game
Shell Game's picture

Thanks to you both, good stuff..

Wed, 01/30/2013 - 13:13 | 3199243 Pure Evil
Pure Evil's picture

That's old world fascism. Our fascists are truly benevolent. Instead of yelling at our banksters we continue to bail them out with 85 billion a month POMO operations. You can't ask for more benevolence than that. But, maybe the benevolence will be more forthcoming since we had lousy growth last quarter.

Wed, 01/30/2013 - 13:37 | 3199324 Ghordius
Ghordius's picture

+1 LOL - you mean "nurturing motherly" instead of "sternly fatherly", eh?

Wed, 01/30/2013 - 17:39 | 3200347 Harbanger
Harbanger's picture

"A) round up the usual suspects, in this case the CEOs of the MegaBanks B) yell at them in public (the same way Putin does it with some Russian oligarchs) C) waterboard Corzine - aka pour encourager les autres D) tell them the nation expects better, soon, and they have to deliver solutions in a month and of course E) bask in the glory of the fawning press that says: the gov saved the day, long live the gov

Interesting, I could definitely see Obama doing this in the US and getting credit for saving us.  Once you control the propaganda press, anything is possible.

Wed, 01/30/2013 - 18:15 | 3200453 Ghordius
Ghordius's picture

Do you? Really? Not me. That's my whole point, many of the components of fascism can't be applied to countries that have a different set of cultural lies & truths

Example: the politicians we elect would never be elected in the US or UK

Wed, 01/30/2013 - 18:44 | 3200545 Harbanger
Harbanger's picture

What they all have in common is they will never take reponsibility for creating the problem.  I can see him throwing some of his banker and CEO "friends" under the bus when the dollar collapses, nationalizing the banks and everything else he can, the press giving him support and credit for saving us from the greedy 1%.  Not only is it possible, I think that's the plan.

Wed, 01/30/2013 - 18:30 | 3200510 smacker
smacker's picture

Nope. Fascism is corporatism with added jackboots. Meaning that the fascist political elites that are breeding like cockroaches are in bed with big this case the banksters. In Hitler's case it was the big industrialists. In all incarnations of fascism, the ordinary citizen is subjugated to the state and eliminated if he dissents.

Wed, 01/30/2013 - 12:45 | 3199153 GNWT
GNWT's picture


The London Whale really knocked us out He left the Street behind And Jamie Dimon Is selling silver Cause Blythe Is - always - on - his - mind Take me to your gold vaults Way down south Corzine... he stole my daddy's farm
The London Whale really knocked us out He left the Street behind And Jamie Dimon Is selling silver Cause Blythe Is - always - on - his - mind Take me to your gold vaults Way down south Corzine... he stole my daddy's farm


Wed, 01/30/2013 - 12:45 | 3199154 CPL
CPL's picture

They may have made 681% profit but it's in a currency that's lost 99.99% of it's value. 

Like saying silk pocket lint is worth more than cotton pocket lint.  When I see the profit in oz, then it'll mean something.  Otherwise clownshoes and hockey sticks for all the GS alumni.

Wed, 01/30/2013 - 13:31 | 3199298 forwardho
forwardho's picture

CPL, why... it seems... you have become french. No?

Wed, 01/30/2013 - 14:47 | 3199560 CPL
CPL's picture

Bien sur!  The french are part of Canada so I created a symbol of truth, justice...well, no not really.  I was fooling around in GIMP testing an effects plugin, just haven't changed it back yet.


Moustache got messed up, looks more like a dirty sanchez.

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