Futuristic Eskimo
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Wishful thinkingThis will play out regardless and you charlatans will be exposed
China invests in Venezuela, Argentina
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Wishful thinking
I wish you the best in your debt-riddled, renter, low wage, mulatto child future
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Fast Money & Foreign Objects
Very Higher Learning...
Domingo Halliburton
Handmade in USA
Venezuela Goes From Bad to Worse as Oil Prices Plummets
Since becoming Venezuela’s president 18 months ago, Nicolas Maduro has contended with chronic shortages of everything from toothpaste to medicine, the world’s fastest inflation and sinking foreign reserves.
His predicament is about to get worse. Prices for Venezuela’s oil, which accounts for 95 percent of the nation’s exports, are tumbling to a four-year low and threatening to choke off the export dollars the country needs to pay its debts.
“It’s a direct hit on tax revenues,” Lars Christensen, chief emerging-markets economist at Danske Bank A/S, said by telephone from Copenhagen. “There is nothing good to say about the state of Venezuela’s economy, and this isn’t helping.”
The slump in oil prices comes as Harvard University economists Carmen Reinhart and Kenneth Rogoff warned this week that Venezuela is almost certain to default on its foreign-currency bonds. Deepening concern the South American country will renege on its debt payments triggered a selloff in its $4 billion benchmark bonds due 2027, causing yields to soar to a five-year high of 17.87 percent this week.
Venezuela’s Information Ministry didn’t respond to an e-mail seeking comment, and a media official for the state oil producer Petroleos de Venezuela SA declined to comment on the potential impact of falling oil prices.
Venezuela has enough resources in bolivars and foreign currency to meet all of its obligations, Maduro said on state television on Oct. 9.
A day later, he gave instructions to ask for an emergency meeting of the Organization of Petroleum Exporting Countries, Venezuela’s foreign ministry said on its Twitter account.
Oil Sinks
The price of Venezuela’s oil basket has declined 18 percent from a nine-month high in June to $82.72 per barrel, the lowest since December 2010. The decline is in line with the drop in benchmark Brent crude prices sparked by a combination of a slowing global economy and rising world output.
“This is a huge shock for Venezuela more than for any other country,” Alberto Ramos, chief Latin American economist at Goldman Sachs Group Inc., said by phone from New York. “They have to either adjust spending or print more money, and if they print more money that means their hyper-inflation gets even more hyper. Inflation is already running at a very high level and completely unanchored, so this is like a wildfire.”
Consumer prices rose 63 percent in the 12 months through August, the most among 85 countries tracked by Bloomberg. Venezuela had a budget deficit worth 16.9 percent of GDP last year.
‘Much Lower’
The drop in crude prices will reduce government revenue in Venezuela by about $10 billion a year, according to Francisco Rodriguez, an economist at Bank of America Corp.
Oil taxes accounted for about 30 percent of central government revenue last year, below the 41 percent five-year average. PDVSA’s operating surplus accounted for 17 percent of revenue from government-owned companies, compared with an average 26 percent over the last five years, according to a regulatory filing.
Still, he recommends investors buy Venezuelan bonds, since Maduro could offset the decline by cutting gasoline subsidies or devaluing the currency.
“Even at this oil price, the likelihood of a Venezuela default is much lower than implied by current bond prices,” he said by phone from New York.
Default Odds
The cost of protecting Venezuela’s debt against non-payment with five-year credit-default swaps, already the highest in the world, soared 2.13 percentage points this week to a five-year high of 19.89 percentage points yesterday, according to data provider CMA.
The level implies a 75 percent chance that Venezuela will default in the next five years.
PDVSA’s bonds due November 2017 fell 4.63 cents yesterday to 68.26 cents on the dollar, pushing yields to a record high of 23.76 percent. The company has $3 billion of debt payments due on Oct. 28.
Venezuela paid back $1.5 billion of debt that matured Oct. 8, reducing foreign reserves to an 11-year low of $19.8 billion.
Dwindling Cash
The country’s dwindling cash and billions of dollars in arrears prompted Reinhart and Rogoff to suggest in a column published by Project Syndicate on Oct. 13 that Venezuela is better off defaulting.
“Given that the government is defaulting in numerous ways on its domestic residents already, the historical cross-country probability of an external default is close to” 100 percent, they wrote in their article.
Venezuela, whose economy will shrink 3 percent this year, owes about $21 billion to domestic companies and airlines, according to Caracas-based consultancy Ecoanalitica.
“Under normal circumstances this would be a negative shock,” Goldman Sachs’s Ramos said. “It’s a major oil producer, and this is a major loss of income.”
Posting articles of rich foreigners buying houses in the US.... this can't be life.
Higher Learning
Meanwhile in a thread halfway down the front page 82 million Chinese are living on less than $1/day, and we braggin' about Chinese wealth
They know what they're doing the are investing heavily in putting a bigger port in Jamaica
And those mega airports the Chinese are building in the smaller islands
They really giving Uncle Sam the finger
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Domingo Halliburton
Handmade in USA
In the aftermath of OPEC's failure to cut oil production, Russia has been acting surprisingly sanguine, perhaps as a result of less leverage in its system as compared to America's own high yield-funded shale complex - now that it is a race to who will default first and be forced to take production offline - withPutin today saying "Russia will cope with the rout in crude oil", and adding that “we are satisfied overall with the situation and do not see anything so extraordinary in what is happening. Winter is coming and I am sure that the market will come into balance again in the first quarter or toward the middle of next year." Maybe it will, or maybe not, if indeed as those with a working frontal cortex suggest the plunge in crude prices is merely a function of a collapse in global demand now that the worldwide slowdown which has gripped Japan, Europe and China. In that case, the race to the bottom between Russia with its higher cash costs, and the US shale sector, loaded to the gills with billions in junk bonds, will be an epic one to watch.
But one country whose fate is now virtually assured - with a happy ending now sadly out of the picture - is the same one that stormed out furious at yesterday's failure by OPEC's cartel members to carve out a consensus leading to higher oil prices: Venezuela.
Here pretty much everything is about to go unhinged, with what now looks like an almost inevitable sovereign default as the endgame, coupled with the removal of a few million barrels of oil from the global supply chain, something which all the other OPEC members will be delighted by.
For confirmation one can merely look at the Venezuela bolivar, which earlier today feel to a record low of 150.76 VEF/USD on the black market according to dolartoday.com, which tracks rate at Colombian border, and as reported by Bloomberg moments ago. Indicatively, the official rate is 6.3 VEF/USD; the first unofficial rate that based on Sicad I, is 12 VEF/USD, while the second unofficial rate, per Sicad II is 50 VEF/USD.
But what best shows that for Venezuela it is essentially game over, is that as the chart below shows, Venezuela’s international reserves declined $1.3 billion in the week after President Nicolas Maduro transfered $4 billion of Chinese loans to the central bank. In other words, the scrambling oil exporter was forced to burn one third of its Chinese bail-out loan to keep itself solvent. The country’s reserves dropped to $22.2 billion today, according to central bank data.
As Bloomberg also notes, Maduro on Nov. 18 ordered the Chinese loan proceeds to be moved from an off-budget fund, so that they would show up in reserves and help boost investor confidence in an economy beset by the world’s highest inflation and widest budget deficit. The following day, Venezuelan bonds rose the most in six years in intraday trading.
“If the plan was to calm the bondholders, then burning through a third of that money in five working days doesn’t do it in any way,” Henkel Garcia, director of Caracas-based consultancy Econometrica, said in a telephone interview. But while Venezuela's bondholders will be livid, Venezuela's "friends" from the OPEC cartel will be delighted: after all its default means one less producer on line, and a natural increase in the price of oil.
Trading in Venezuela’s dollar bonds was closed today for a U.S. holiday. It will reopen on Monday at which point we expect the market to be as close to "offer-only" as possible, because burning through over $1 billion in reserves in 1 week with crude plunging to under $70 means that Venezuela now may have about 6 months of liquidity left at best, since one thing is certain: China will not throw more good money, as in Venezuela bailout loans, after bad.
The only thing that is uncertain is how long until some army general figures out what is going on and decides to go "Kiev" on that paragon of best efforts socialism, Venezuela's soon to be ex-president Nicolas Maduro.
China better get some more money ready