When the White House announced on Friday that Trump had signed an executive order deepening the sanctions on Venezuela, and confirming the previously rumored trading ban in Venezuelan debt that earlier in the week had sent VENZ/PDVSA bonds tumbling, we made what we thought at the time was a sarcastic comment that in light of the recent scandal involving Goldman's purchase of Venezuela Hunger Bonds, that Lloyd Blankfein's hedge fund, which now controls the presidency and next year will also take over the Fed courtesy of Gary Cohn, would be exempt from the trading ban:
So all bonds owned by Goldman are exempt from the Venezuela sanctions until Goldman can sell them?— zerohedge (@zerohedge) August 25, 2017
And, as it so often happens in a world controlled by Goldman (as a reminder, in 2018 the world's three most important central banks, the Fed, the ECB and the BOE will be run by former Goldman employees: Gary Cohn, Mario Draghi and Mark Carney), sarcasm has a way of chronically turning into truth, and as Bloomberg confirmed overnight, one of Venezuela's largest bondholders is "breathing a sigh of relief."
That would be Goldman Sachs Asset Management, which infamously bought $2.8 billion of notes issued by state oil company PDVSA in May, and has since faced sharp criticism for a deal that appeared to supply fresh funds to President Nicolas Maduro. Confirming our initial "sarcastic" reaction, while observers thought the Goldman bonds would be a prime target for new penalties, they were exempt from the order. In fact, the only bonds covered by the trading ban are notes due in 2036 that appear to never have been sold outside Caracas.
“That was somewhat surprising,” said Francisco Rodriguez, the chief economist at Torino Capital in New York. “I guess the logic is that those bonds are already in the hands of bondholders, so you wouldn’t be really blocking new financing.”
Actually no, Francisco, the logic is that if Goldman was forced to liquidate the bonds, or worse was stuck holding them as Venezuela went bankrupt, it would take a huge hit on the nearly $3 billion notional position. As such, Goldman's advisors to Trump made it quite clear that any sanctions against Venezuela would have to be Goldman Sachs revenue netural first and foremost.
That's precisely what happened.
Even more ironic is that the market immediately saw right through Trump's shallow attempt to "punish" Venezuela which however would exempt his top Wall Street advisory, and the market reaction across the board was fairly muted Friday, with both sovereign bonds and notes from Petroleos de Venezuela SA posting gains.
The gains on Friday -- with most notes up less than half a cent -- show investors’ relief after the Wall Street Journal reported earlier in the week that U.S. officials were considering a blanket ban on all trading in Venezuelan debt. Such a move would have left investors stuck holding debt that is considered among the world’s riskiest.
As described yesterday, the new executive order bans Venezuela from raising cash with new debt offerings, and prohibits transactions in older bonds held by government officials and entities... just not Goldman Sachs. The sanctions will likely force the oil-rich nation to reduce imports to conserve cash, thus deepening the already severe economic contraction in the country, according to Rodriguez.
In retrospect, it appears that Goldman will benefit not just once but twice from the latest Trump "sanctions" - the second time will be on the bank's long oil prop position (remember when the Volcker rule prevented banks from putting on proprietary positions for a few months back in 2010... good times) as oil is about to spike should Venezuela finally default:
“There is also the concern that the order may push Venezuela over the brink and lead them to default,” Rodriguez said. “Certainly the more restrictions on financing that you place, the harder you make it for them to pay.”
Of course, Venezuela's default is just a matter of time, but it won't take place before Goldman dumps its bond holdings to some unwitting retail investor or some German widows and orphans: Goldman’s investing arm is the largest holder of bonds from Petroleos de Venezuela and the seventh-largest holder of Venezuelan sovereign debt as of June 30, according to data compiled by Bloomberg. Andrew Williams, a spokesman at Goldman Sachs Group Inc., declined to comment.