Chavez Seeks Creative Financing Solution

Here is an interesting story. Apparently, the mafia (like the real Italian mafia) tried to get billions of dollars of credit lines from large banks. How did they try to go about this handy scheme? They tried to post Venezuelan bonds as collateral. Here is the part of story that should stick out...
"False Venezuelan bonds were authenticated by corrupt officials within the South American nation’s central bank, prosecutors said. "
Ah yes, just your average run of the mill corrupt South American bureaucrat looking to pad their state pension. I call bullshit. This is isn't about the mafia or some corrupt bureaucrat. This is coming from the top, from Chavez himself. He has stiffed the oil industry for billions, stolen their assets, and promises to take more. Nobody in their right mind would lend to him. So he's turning to partnerships with the likes of the Cosa Nostra to get "financing". There should be little doubt that Chavez was in cahoots with the mafia to defraud the banks, using the central bank to authenticate phony bonds to secure billions in lines of credit. The mafia would've gotten its cut, but Chavez would keep the bulk of the dough so he could keep the balls in the air a little longer. When this is how you are going about getting some liquidity, you are just about overdonecaputfinito - completely busted. I give Chavez two years at most.

More here.

Price of Pasta and Bread in Venezuela to Go Up 30%+

Anything with wheat in it is going up big time in Venezuela. Maybe ole' Hugo can get Ben Bernanke to come down and tell his citizens not to be worried because "core inflation remains well-contained", although I doubt that they eat iPads in Venezuela either, so this may not fly. So, here the Venezuelan people get yet another kick in the teeth from Chavismo, while El Jefe Himself says he ain't going anywhere, even if voted out. Are the Venezuelan people going to take this in stride? It'll come down to how much of that $100+ per barrel of crude gets lavished on them between now and and election day. Could get ugly.

Hugo Chavez Inches Toward Modernity

Hugo Chavez is catapulting himself ever closer to the modern age! After a 1977-built drilling rig sank, he has secured the services of a 1983-built drillship to drill oil for "Socialist PDVSA", the Venezuelan state-owned oil company. Both pieces of equipment are laughably obsolete, and likely fully-depreciated, so there is little risk to their owners sending such crappy equipment to Venezuelan waters. Such is the situation Chavez faces having royally screwed the global oil services industry. The only equipment that anybody will let him use is the decrepit old stuff that likely couldn't get any work anywhere else. The fruits of socialism.

Venezuela Is Starting Not to Function

Venezuela: Automotive Manufacturers To Shut Down In May
April 23, 2010
All seven Venezuelan automotive manufacturing plants will cease production in May due to difficulty in currency allocation, inventory problems and a shortage of raw materials, El Nacional reported April 23. Venezuelan Automotive Chamber head Enrique Gonzalez said production could be disrupted for up to three months and that national automakers owe international suppliers more than $2 billion.

If automakers can't get supplied, it means that industry broadly isn't getting supplied. That is what happens when you stiff your vendors. The whole country is on "ship COD" terms. Chinese loans can keep them afloat, maybe, but things are breaking down fast in the Bolivarian Socialist paradise.

Is Venezuela Finally Going Over the Falls?

I've been charting the disintegration of Venezuela almost since the beginning of this blog eight years ago.  If you've read Hayek's Road to Serfdom or been even marginally familiar with the history of Soviet Russia, you could have predicted Venezuela's demise with stunning accuracy. 

Has any country ever followed the classic playbook of self-destruction as faithfully and fallen apart as predictably as Venezuela?

In the latest, the military has taken over an electronics chain in order ensure "fair" prices on things like wide screen TVs.  I don't have to go into how stupid this policy is, but suffice it to say that the bond market, which has been surprisingly unconcerned about Venezuelan socialism for some time, is taking notice.

Venezuelan bonds tumbled, sending yields to a 22-month high, after President Nicolas Maduro dispatched the military to take over a retail chain as part of his effort to quell inflation that’s soared above 50 percent.

The country’s benchmark bonds due 2027 fell 3.75 cents to 72.25 cents on the dollar as Maduro’s seizure of electronics retailer Daka and his warnings to other businesses to cut prices to “fair” levels deepened investor concern that growth is being choked off by government controls. Yields on the bonds soared 0.76 percentage point to 13.79 percent, the highest since January 2012, at 12:38 p.m. in New York.

Maduro, who took over as president this year after his socialist mentor Hugo Chavez died of cancer, is stiffening government-imposed price controls that have contributed to food and goods shortages across the South American country. Maduro blamed the “parasitic bourgeoisie” and said he’d impose limits on profit margins throughout the economy after inflation surged to 54 percent in October, the fastest pace in 16 years.

Chavez ruined the country but was at least able to paper over the destruction with his charisma.  Maduro won't be able to do the same.  This could the beginning of the end for Chavismo.

Venezuela Embarks On Well-Trod Path to Starvation

The WSJ has an excellent piece today on the front page that sheds some light on the agricultural collectivization that Hugo Chavez is inflicting on Venezuela. The article illustrates clearly the economic fundamentals of how collectivization results in failure - price controls induce supply shortages, inappropriate human capital is applied to the task, eroding property rights diminish the incentive to invest, etc.

History, not too distant history I might add, has stunning examples of the failure of farm collectivization and this article makes clear that Venezuela's experiment will be no different than Mao's or Stalin's. We can only hope for the sake of the Venezuelan people that the magnitude of the outcome will diverge from historical precedent. Having said that, let me repeat that I have little sympathy for the Venezuelan people, they have voted time and again for this fate, and are getting the government that they asked for. I'm afraid that the only way for them to get their country back will be through violent means. The only question is how much economic failure and loss of their liberty they will endure before they choose to adopt those means.

Look Up "Political Risk" in the Dictionary...

and this is what you'll see:










After months of demanding that foreign oil companies agree to cancel long-standing operating contracts and sign joint venture agreements (where Venezuela gets controlling equity stakes virtually for free), the Venezuelan government is now strong-arming its foreign oil company partners to comply by claiming they owe hundreds of millions of dollars in back taxes. Bloomberg is reporting that Venezuela, the fifth largest oil exporting nation, will oust foreign oil companies from the county if they don't pay the taxes that the tax authorities have just recently realized that these oil companies owe. Venezuelan dictator Hugo Chavez has been desperately spending his nation's oil wealth on keeping the lid on revolutionary, pro-democracy forces that are boiling over. The national oil company still hasn't recovered from the 2002-03 general strike against the Chavez regime, and the reduced production has meant less oil profits to buy support in the form of subsidized food and healthcare. So Chavez needs to expropriate the production and the revenues of foreign companies. Chavez is taking his cue from Vladimir Putin. Taking a cue but not learning a lesson. Prior to Putin's similar expropriation, via those back taxes, of Khodorkovsky's Yukos, foreign companies were tripping over themselves to invest in Russia and Russian oil exports were growing at 10%. Now, Russia is an investment pariah and exports are growing 1%.

Venezuela is fast becoming a pariah for investment capital and will soon feel the pinch even harder as the inevitable retreat of capital causes infrastructure to erode and supply to slow. The supply picture coming out of Venezuela can only add to the upward price pressure of gas in the US. Someone tell Bill O'Reilly.

UPDATE: More here. I'm afraid Chavez is going to gain in popularity, not necessarily in Venezuela, but worldwide. Soon Fidel will be gone and the world's naive utopians need an idol. Stupid college kids ten years hence may well be wearing Hugo t-shirts.

Ugh. Bloomberg: Those Unlucky Venezuelans

Here is another one of those examples of terrible journalism that soft-pedals the destruction wrought by socialist policies and authoritarian government.

It has been an exceptionally painful year for Venezuelans, suffering from violent crime, chronic shortages, plummeting oil prices on which they depend, declining health and fractured government. Yet this past week it seemed to reach a new low. A kind of resigned misery spread across a city that had once been the envy of Latin America.

A sudden combination of natural disasters joined man-made failures. The smog, called calima, is a meteorological phenomenon that involves ash and dust clouds fairly common for this time of year. Meanwhile a prolonged drought blamed on El Nino and related forest fires has arrived. Levels at the Guri dam in the south, which produces 40 percent of the country’s electricity, are reaching record lows.

Bad year?  Venezuela has been headed down the toilet for years and years as Chavez and now Maduro have destroyed the economy with their aggressive state-directed, oil-funded socialism. 

Natural disasters?  Aww, pobrecitos!  Bullshit, Venezuelans have cheered, voted for, and even during the worst of it, tolerated Chavista destruction.  They have nobody to blame but themselves. No one should have any sympathy for Venezuelan people, they are reaping what they have enthusiastically sown for decades.

Not Shortages of Food, Supplies (and Freedom); Venezuela's Unrest Is Caused By...Crossword Puzzles

Have the decrepit Latin Bolshevists who run Venezuela finally lost it?

Crossword puzzles in a local Venezuelan newspaper are calling readers to violent protests with conspiratorial messages, the country’s information minister said today.

Delcy Rodriguez called for an investigation of El Aragueno daily from the industrial town of Maracay, 120 kilometers (75 miles) west of Caracas for putting “encrypted messages” in its puzzles, she said in a post on her Twitter account. She didn’t give any details. 

Actually, given what we know about Mao, Stalin and assorted other authoritarian sociopaths, the better question is , "Did they ever actually have a grip on reality?"

Chavez Gets His Capital D

"The people never give up their liberties but under some delusion." - Edmund Burke

Today Hugo Chavez goes from being a dictator to being a Dictator. He will now embark on an aggressive transformation of Venezuela that will plunge Venezuelans deep into oppression.

Note this passage:
"The law also allows Chavez to dictate unspecified measures to transform state institutions; reform banking, tax, insurance and financial regulations; decide on security and defense matters such as gun regulations and military organization; and "adapt" legislation to ensure "the equal distribution of wealth" as part of a new "social and economic model."

Two of the time tested tactics of subjugating a populace are denying citizens the ability to benefit from installment credit and disarming them. The lack of installment credit quashes entrepreneurial activity and any other source of self-sufficiency making your only source of sustainment the government. The second tactic should be obvious, it is easier to take over someone's home, business or other property if you have guns and they don't.

Venezuela's economic collapse will be hastened and individual freedoms will disappear. Depending on the pace and extent of Chavez's transformation, Venezuela could erupt in chaos and bloody mayhem in a few short years.

I fear for the Venezuelan people, but I don't weep for them, they are getting exactly the government that they asked for. They have fallen for the delusion whereof Burke spoke.

On another note, Rafael Correa isn't wasting any time in Ecuador launching his post-election putsch, and they wonder why so many Ecuadoreans are hightailing it out of there.

Coming in 2014? The Venezuelan Missile Crisis?

So just the other day, in criticizing our Demilitarizer-in-Chief, I asked what will we do when Iran parks a nuclear warhead in the jungles of Venezuela?

Yup.

Chavez Invents New Basis for Legitimacy

Is increasingly stupid and desperate-sounding rhetoric a sign that Hugo Chavez is getting scared? Latest wisdom from El Commandante: The Russians want me to rule Venezuela.

Venezuela: Chavez Says Other Nations Want Him In Power
Stratfor Today »-->February 4, 2010
Venezuelan President Hugo Chavez announced Feb. 4 that Russia and other nations with major investments in Venezuela want him to continue in power, Globovision reported. Chavez said that if the opposition returned to power, oil in the Orinoco Belt would belong to the United States.

That's rich. The Russians! Um, er, what about the people of, say, Venezuela? Do they factor in?

Venezuela's Slide to Anarchy Continues

Chavez's days are numbered.  He has stiffed the global oil services industry a bridge too far.  Nobody will pump his oil now.  At least nobody worth their salt.  Venezuelan crude is nasty stuff, very difficult to extract.  Only the most technologically advanced companies can do it.  Without industry help, PDVSA just can't do it.  He's begging the Chinese and Japanese, but even they don't have the best technology.  It used to matter where prices were.  Now prices prices don't matter, Chavez's resources will dwindle at any price, and there is nothing else.  It's just a matter of time and pain.

While I Was Away

Enjoying the thaw out from the frozen tundra of North Cackalacky, some significant news of interest to me hit the wires:
- Chavez devalues the Venezuelan currency again, indicating that I was not wrong, just early, in my call that Venezuela would boil over for good this time. 2011 will not be kind to ole' Hugo.
- the Israelis find a triple special shitload of natural gas, which will have profound geo-political implications going forward. More later.
- and, of course, our local Big Apple union goons show the whole country why it's a bad idea to allow critical municipal functions to be carried out by unionized employees. No comment needed.

Wikileaked: Chavez a Total Dumbass?

This is interesting. If true, it's hysterical. Also, if true, maybe the Venezuelan people will realize that a plundering crazy man runs their country - impoverishing them and enriching the Chinese - and they'll Ceaucescu him.

UPDATE: Bonus Socialist Idiocy!!

Pink Foreign Newspaper: Latins Are Sheep

I am in shock over the sheer stupidity and condescension of an assessment, carried in a pink foreign newspaper (sub req'd), of how President Bush's trip to Latin America is likely to be received. Here's the lead in...

"Back in 2001, many Latin Americans harboured hopes that George W. Bush would give greater priority to a “backyard” that the US had often taken for granted. After all, the newly elected president was a former governor of Texas, a state bordering Mexico, he spoke a bit of Spanish and the “cowboy summit” at the ranch of Vicente Fox, then his Mexican counterpart, was the occasion for Mr Bush’s first official foreign visit. “Some look south and see problems. Not me; I look south and see opportunities and potential,” he had said on the eve of that meeting.
Then came the attacks of September 11 and more pressing concerns. The administration’s apparent indifference to Argentina’s financial collapse later that year, its bungled response a few months to a Venezuelan coup and, above all, its invasion of Iraq made Mr Bush a deeply unpopular figure in the region. "

Got that? Because the US was forced by events to address its own pressing issues and because its policy in Iraq (which, after checking my map, I see is NOT anywhere near South America) is unpopular, South Americans have no alternative but to ignore Bush's economic policy message and be swayed by political messages from the hyper-populist to the downright Socialist. Nope, no responsibility for their own fate. No onus on them to sort out what economic policies hold promise for them and what policies are a danger to their freedom and well-being. No. Rather, George W. Bush has abandoned them to the tender mercies of Chavismo.

Like I said, unless it can be proven that Chavez stole both the referendum and the recent election, I have no sympathy. Venezuelans are getting exactly the government they asked for. Ditto the Argentines, Bolivians and Ecuadoreans. When will Latin Americans take responsibility for themselves? Perhaps when condescending gringos and Europeans stop treating them like children and denying their will and ability to forge their own way in this world.

Water Water Everywhere, But Will Chavez Allow a Drink?

I like to highlight on this blog anytime an oil & gas exploration company finds a big-ass shitload of 'hydrocarbon resources'. I like to do this to stick it to the Peak Oilers, the greens and the luddites who moan all the time that "we can't drill our way out of our energy problems." Um, yes we can, and for a very long time to come. Frankly, though it's getting old. Big discoveries are coming at a fast and furious pace (the consequence of almost a decade of serious drilling - most countries love drilling, and the one country that matters that doesn't like drilling, had a Texas oil man in the White House for eight years) that it has become so routine.

But today brings news of a massive discovery with an interesting twist. The discovery is of natgas and it is a monster - something like 7-8 trillion cubic feet. And it is in Venezuela. I know what you're thinking - 'Great, more petro-wealth for sociopathic communist nutball Hugo Chavez!' Not so fast. This almost certainly doesn't mean instant wealth and power for the Bolivarian Bozo and it might actually be bad for Chavez. This is a classic example of Dan Yergin's claim the the principal risks in the energy business are above ground.

Let's start the analysis with the basics. OK, the gas is there, but how do you get it out? Offshore natural gas extraction is incredibly expensive and technologically demanding. Not every O&G company is good at it and very few companies have the massive capital resources required to secure the extraction equipment and build out the infrastruture needed to get the gas to market. Sure, state-owned energy companies like PDVSA have large resources, but Chavez has turned PDVSA into a basketcase by purging talent and skimping on reinvestment. There is no way that PDVSA could undertake gas extraction on such a large scale on its own. It would need outside help. Can Repsol do it? Unlikely. The majors - Exxon, Chevron, Shell, BP - are really the only players to have taken on massive offshore natgas projects. Many of these companies have gotten the shaft from ole' Hugo recently as have numerous, smaller oil service players. Needless to say, there will not be a stampede of capable players beating a path to Hugo's door to tap this big gas play. His only hope is Asia, but even if Japan (long shot) or China are willing to pony up the billions needed for investment, they will still have to hire some outside help. I doubt any oil service firm is going to do business with PDVSA, so some other entity, like a CNOOC, will have to be in charge of the project, depriving Chavez of the opportunity for patronage and graft.

The next sticking point is what do you do with the gas once it is out of the ground. The domestic economy in Venezuela is on its knees and could not possibly provide adequate demand for that much gas, nor could it support prices that would make the investment economical. Chavez is already tapped out on subsidizing his economy; so either he has to create demand by investing further billions into petrochemical plants, an option which suffers from that same "I've already screwed everybody" problem (who's going to build a multi-billion $ petrochemical complex on Venezuelan soil given the current political situation there?) or he has to send that gas abroad. Essentially that means it has to be compressed into LNG and put on boats. That's several more billions for the gasification infrastruture and those nifty boats. And then he'll have to get off that pesky shipping black list.

Having pissed off the global energy industry, all Chavez really brings to the table is the real estate. To get this project done, he'll need some very gullible and very deep pocketed partners, but they just don't exist. The gullible don't have deep pockets and the deep pockets aren't gullible anymore. If he gets a partner, it is likely to be the Chinese and they won't allow themselves to get ripped off, so they'll be in control. Chavez will become just another ward of the Chinese state's energy strategy. You don't go around rattling your sword and stirring up the pot when you're hosting tens of billions of $ in Chinese state property - you shut up and keep the factory running. This is not how Chavez operates, he would have to change his stripes or the partnership will crash.

Furthermore this is not a clear homerun for Chavez even if he can find a partner. If anybody does invest in tapping this big natgas find, it will almost certainly be with an eye toward the post-Chavez era. You don't want your investors yearning for the day you are gone.

Finally there are the people of Venezuela. They know what living standards are around the world in nations with huge energy deposits. If they see Chavez failing to make use of the country's resources because he has cut himself off from the civilized world, they will demand leadership that can.

For Chavez this could be an embarassment of riches.

Socialism Rocks On!

Chalk up another achievement for Socialism! Electrical emergency in oil-rich Venezuela!

Venezuela: Chavez Declares Electrical Emergency
Stratfor Today »-->February 9, 2010
Venezuelan President Hugo Chavez declared a countrywide electricity emergency on Feb. 8, Globovision reported. The decree announced the creation of a state commission for the electrical sector comprising the ministers for Energy and Petroleum, Electrical Energy, Finance and Planning, and Mining and Basic Industries. Vice President Elias Jaua will coordinate the commission.

C'mon Hugo, you're still just a piker. A real socialist could bring about FAMINE!!

Miscellany

People are talking about $4 gas. Remember who told you about 10% unemployment and $4 gas.

In other news, Hugo Chavez is praying for rain and accussing eight - count 'em, eight - Colombians for sabotaging the entire Venezuelan electrical grid. Chavez is hanging by a thread.

The Price of Dealing With Chavez Just Went Up, Again

Can't find a web article yet (update: here we go), but the Joint War Committee, an advisory to Lloyd's of London insurers, has put Venezuela on its "high risk" list along with the likes of Somalia and the Gulf of Aden. Hugo Chavez's socialist paradise makes the list by virtue of "increased concern of the expropriation of commercial assets." This may give ship insurers the right to raise premiums on ships calling at Venezuelan ports. Any direct consequences are yet to be seen, but this could limit the range of options open to Chavez for keeping goods flowing into his country. One more small, but tangible, example of economic reality weighing down on the entire Chavez edifice. Only a matter of time before the rof caves in.