"Cash-Strapped" Venezuela Stares Into The Abyss... And Its Default Risk Goes Parabolic

Tyler Durden's picture

Some two weeks ago (when Venezuela CDS was trading at only 2300  bps) we previewed what - with almost absolute certainty - would be the first "casualty of the crude carnage" - Nicholas Maduro's little socialist paradise that couldn't: Venezuela. As a reminder, back then we learned that the OPEC member was in such dire straits it had burned through a third of a Chinese' bailout loan in the matter of days.

Since then it only got worse, and as we reported early last week in How Goldman Sachs Became Broke Venezuela's Loan Shark, Venezuela is now scrambling to obtain any cash even if it means doing deals with the devil, or, alternatively, god's busy worker on this planet, Goldman Sachs.

Then, in a bout of desperation, late the same week, the country - desperate to give the impression that it is not terminally insolvent and still has some foreign reserves left - ordered its Central Bank to dramatically change the rules, in a step "that enables them to count a whole new set of 'assets' as potential international reserves including "stones" and "precious metals held in their vaults on behalf of foreign financial institutions."

Some free advice to Maduro: if there is anything that screams panic, it is when countries begin changing the rules in the last minute and, just as bad, the definition of terms, be it Europe which recently added the "contribution" from hookers and blow to GDP, or Venezuela, which overnight made its reserve calculation meaningless.

What happens next is bad, if you are Venezuela that is (it will be quite lucrative for many bankruptcy bankers and lawyers). BofA's Francisco Rodrgiuez did some math on the topic, finding that "OPEC’s decision to maintain output at current levels is bound to usher in price instability in energy markets. Until now, one of the reasons Venezuelan authorities chose to maintain high levels of relative price distortions was because they could. If oil prices remain at or below current levels for a sustained period, Venezuelan external accounts will be put under severe stress, requiring authorities to choose between further import cuts and more orthodox economic adjustments. If oil prices remain near current levels, Venezuela would need at least $25bn in new external financing to maintain current import levels. If Brent recovers to $77, as our commodities team expects, Venezuela would still have to come up with $16bn."

The punchline: "We are thus skeptical that the economic team's plan to tap international lenders, including China, over coming weeks will yield any tangible results."

What this means in simple terms is that Venezuela is now desperate for any cash. As CNBC's Silvana Ordonez reports, citing Diego Moya-Ocampos, a senior political risk analyst at IHS, "Clearly the government is trying to send signs to the market that they are working on necessary adjustments that the economy needs in order to honor international commitments and keep up with social policies, which are essential for political stability. However, these policy adjustments are not enough. This reflects simply that the government is desperately looking for funds to compensate for the lost revenues from declining oil prices."

Worse, if as we speculated in November, China decides it no longer needs to be locked into a contractual arrangement with OPEC's weakest link and instead lets the country implode, it may realize it can obtain better terms when dealing with Maduro as a Debtor in Possession: a supersenior status that would likely guarantee it half-priced oil or better.

In any event, we are sticking to our forecast that when the OPEC dominoes start falling, Venezuela will be the first one to go, as confirmed by Oswaldo Ramirez, director at ORC Consultores, a political consulting firm in Venezuela who said that the country's strategy is simply "not sustainable in the long term, unless you change the state, fiscal and economy policy." 

None of those will change. Which is probably why earlier today Venezuela CDS soared again by several hundred points wider touching 3100 bps (800 wider since our first post) and is now in record wide territory - suggesting the same probability default risk as when just after the Lehman collapse, crude traded briefly as low as $30 - as the bankruptcy vultures start circling over what will most certainly be the next sovereign bankruptcy carcass.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Dre4dwolf's picture

Why is this important?

knukles's picture

Because now Hugo's Ghost can sell his gold that he physically got back from the BoE when it really was the one and same stash that was "sold" by the winning insurgents out of the Libyan Central Bank to raise money for freedom fighters' pay, arms and ammo.
And if you believe that ....  About why it was "sold" from the Libyan CB  .....

DaddyO's picture
"Cash-Strapped" America Stares Into The Abyss... And Its Default Risk Goes Parabolic

Sorry Tyler, but I couldn't resist...it's just the timing that is off at this point.


Richard Chesler's picture

Banana dictator looks in the abyss, there's nothing staring back at him. At that moment, Banana dictator packs the gold into his jet. And that is what keeps him out of the abyss.

Latina Lover's picture

Wonder who will default first.. Venezuela or the Ukraine?

NoDebt's picture

Ukraine is "in play" between Russia and the US- no collapse of the western-leaning government they worked so hard to install will be tolerated.  

Venezuela doesn't matter.  We got them locked in 5-by-5, 24/7/365.  And, of course, Goldman will be around to pick the bones clean after they collapse.  Never underestimate the Goldman effect on outcomes.

Vampyroteuthis infernalis's picture

If they knock of their commie state in our part of the world, the CIA can then move in and install a pro-US gov't. Hey, it is a return to the 1980s!

wintermute's picture

Meanwhile, the Venezeulan congressman,  Guido Ochoa, president of the country’s Science Technology and Innovation Commission, buys a Bitcoin mining hardware maker.


NewThor's picture

Can siri skynet 3d print a bitcoin?

I spent my life savings on Iraqi World of Warcraft gold.

That investment was a turd. 

DaddyO's picture

Ukraine has no more gold, so strategically, Venezuela still has something to be looted, I think a destabilization will begin occuring to the south of us.

TPTB will then loot the repatriated gold and move it back into more friendly vaults with their greedy little mitts.

The only thing Ukraine will be good for is Putty's chess board and rattling the EU chains a bit.




lastboyscout's picture

The Ukraine has value to Russia because of it's location for Gazprom pipelines and it fertile ground to feed the Russian citizens. The US is doing the dirty work (poorly) for the Saudi King in Syria and the Ukraine.

COSMOS's picture

When is one of these oil producing countries going to stand up and demand payments in GOLD?

DaddyO's picture

Never, what do you think happened to Muamar?

Caught 230 grains of high speed lead flu...for trying the very thing you suggest.


Ignatius's picture

Actually, I think he was sodomized with a knife - an ending more befitting Tony Blair and friends, me thinks.

NewThor's picture

Don't you mean clone Tony Blair?

didn't the real one get thrown in the la brea tar pits in 2001?

something about saturn and a sacrafice to eris.

i d k. martians are weird. 


tarabel's picture



When oil is $500 an ounce.

Come on, people, figure it out. Oil is dropping ike a rock in search of a floor, any floor, to the price in worthless but desperately needed fiat. Who's going to pay gold for something that can be bought with security-threaded toilet paper. Not me. How about you guys?

NewThor's picture

The new Technology transition is going to be interesting. 

Cavemen love gold, paper & blood. 

I got my ION U. 

tarabel's picture



Well, the CDS oddsmakers have Venezuela #1, Ukraine #2, and the Grand Duchy of Evil (Muskovy) #3. Sounds about right to me. Ukrainians are in the middle of a war and thus have a rally round the flag moment going to stretch out their agony. Venezuela is spending its last remaining cookie jar money on swimming lessons for rodents.

NewThor's picture

It's probably cheaper to put the animals in an unbreakable bubble. 

Latina Lover's picture

Actually Argentina ranks ahead of your beloved Ukaine for default per Deutche Bank, but thanks for the insights.

tarabel's picture



I was under the impression that Argentina was already in default from a technical standpoint and was relying upon the handy chart published here at ZH a couple of days ago. You're not suggesting that Deutsche Bank is a superior source of information to ZH, are you?

Regardless, your beloved Grand Duchy of Evil is still in the race and closing on the leaders, whomever they might be, despite having manifold advantages over those two (or three) suffering nations.

NewThor's picture

Bank of America. Can I haz crazy odds?

Karlus's picture

Hugo lasted how many years? Since 1999? And Maduro (the toady) started in Apr 2013?


Nice knowing you Nick, hope you didn't get too comfy sleeping in Hugo's room. You will be lucky to end up better than Benito did. I would avoid ESSO stations if I was you.

falconflight's picture

Avoid Citgo stations like the plague.  

DaddyO's picture

Sorry Karlus, Hugo's kin are still sleeping in the palace.

Maduro had to make other lodging arrangements...no room at the inn, so to speak.



NoDebt's picture

Is that true?  If so, it's good for the Venezuelans to know where his family can be easily located.

DaddyO's picture

As of this past summer it was being reported that Chavez's kin refused to leave the palace.

That's why I included the link to the story.

I found it hard to believe that in a two bit fifedom like Venezuela, you couldn't remove the front door and roust the bums out.

Forget the 72 hour 'pay or quit' notice.


wee-weed up's picture



As of this past summer it was being reported that Chavez's kin refused to leave the palace.


OMG! Shut your mouth! Don't give the Obozo's any ideas...

WillyGroper's picture

True dat. 

Chavez' daughters won't move out.

Latina Lover's picture

Knuckles, does Venezuela have any gold, and if so, in what quantity?

knukles's picture

Don't remember the amount (you can look it up on line) but they repatriated all the gold they'd long-held at the Bank of England several years ago.  Physically moved it back to Caracas.
No can grabbie with sticky hands to rehypothoicate or fill other repatriation requests.
No goldie no tickie or something like that old laundry lady saying.
Say, talking about laundry ladies, during WWII the ladies who did the laundry for the AAF guys used to have a bonanza of unclaimed property....

Just thinkin'

The_Dude's picture

Isn't that how Soros got his start? 

wee-weed up's picture

Soros is STILL a laundry lady!

lastboyscout's picture

You can be certain that China is only interested in Venezuela for its gold and it's oil, in that order. When China calls the loan, and Venezuela van't pay, China will get the gold, then the oil.

Rainman's picture

i don't get it either ... everybody knows nothing but sheeps are permitted to go bankrupt anymoar ... this is just another can to be kicked. 

kaiserhoff's picture

They are not members of the right clubs.

I don't see much domino potential within OPEC, but in Latin America, all the economies seem to be on the brink.

This could be fun.

Escrava Isaura's picture



Venezuela has to trade their oil in their currency, the Bolívar. And they will be fine.


wintermute's picture

Do you even attempt to form a thought in your brain before you type a comment?

Escrava Isaura's picture



Are you talking about Bitcoins, instead?


Real Estate Geek's picture

I think our buddy Escrava is a bot.  Check out the "Bot accusation" subroutine in 3, 2, 1 . . .

assistedliving's picture

nah, more like a white slave that dreams to escape to America.  You made it.  We're happy for you.  show some gratitude

noben's picture
noben (not verified) Dre4dwolf Dec 8, 2014 6:14 PM

Dear Venezuela,

Step 1:  Lease a large naval port to Russia and China, if you want to keep your oil, gold and freedom.  Else the NY vultures and Squids will take over, strip all assets and take possession of all real assets that they desire.  Including your beauty queens.

Step 2:  Sell Oil for Gold or CNY.

Step 3:  Wave your private parts in the direction of DC/NY.

Note:  Be sure not to do this bass ackwards, or you won't like the results.

Escrava Isaura's picture




That would work, too.

post turtle saver's picture

it's important because it proves once again that socialism is a great idea until you run out of other people's money... a lesson I wish the US of fucking A would have learned 40 years ago, dammit...

Dre4dwolf's picture

O I get that, but we don't need a failed state like Venezuela to show us, I mean why is this important to people outside of Venezuela? how does it impact say people in the USA directly? Lets say hypothetically Venezuela just got pelted by thousands of space rocks, and wiped out the entire country leaving nothing standing.....and it just fell off the map and no longer existed.... what would be the net effect for the rest of the world? VNZ Exports only 2.5% of its product to the USA.... which is nothing.... and their currency is essentially toilet paper at this point, so why would you want to sell anything to them???

the total value of their trade is 40 Billion...... the entire nation of Venezuela in terms of perceived value to the USA (that we actually get out of them) is only like 1 billion Fiat dollars... its chump change... in-fact we should just buy Venezuela and make it a resort, we could build a nice Disney land there or something....

JPMorgan counterfeits more than that in an afternoon.


Apple collapsing would have more of a negative effect on markets than Venezuela getting attacked by martians.

Oldwood's picture

How come the other socialists countries of the world do not come to their rescue. I mean really, its just supposed to be the evil capitalists that will let someone starve.

kaiserhoff's picture

Such a shame.

  And Communism was working so well in North Korea;)

Oldwood's picture

Maybe the North Koreans can send them some tree bark, just to help out. I hear its right tasty with the right dinner wine.

orez65's picture

Just tried chocolate covered tree bark that I bought at Costco.

Great taste and a happy intestine! 

Maybe North Korean bark will become a hit with the left wing "elite".

Oldwood's picture

That stuff is dangerously goood! North Korea wishes they had that tree bark!