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description= 10 posts published by moctavio during February 2011;
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the, devil, in, venezuela, for, blog, all, blogs, by, gdp, excrement, archive, february, 2011, unknown, feed, subscribe, to, via, email, categories, miguel, octavio, blogroll, venezuelans, recent, posts, archives, pages, meta, stats, griping, about, students, hunger, strike, despite, oil, windfall, per, capita, is, only, up, over, last, twelve, years, mystery, of, giordani, 18, debt, ratio, thank, you, from, does, not, live, here, anymore, hugo, tell, me, who, your, friends, are, brisas, de, oriente, when, anarchy, and, chaos, become, routine, chavez, becomes, blameless, on, wasteful, gasoline, use, his, solution, rationing, bolivarian, bond, arbitrage, dummies, gets, stunned, at, supermarket,
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the (405), and (148), that (96), you (74), #venezuela (57), this (53), was (53), for (52), are (51), not (49), but (43), will (40), have (39), bond (38), has (37), from (34), with (33), pdvsa (31), 2011 (30), february (29), government (29), they (29), there (27), years (24), all (23), debt (23), bonds (22), about (21), can (20), one (20), would (20), which (20), may (19), then (19), billion (19), 2010 (18), get (18), when (17), what (17), some (17), more (17), now (16), chavez (16), november (16), january (16), march (16), two (16), price (16), many (16), 2022 (16), country (16), very (16), august (15), october (15), april (15), 2009 (15), 2014 (15), time (15), had (15), dollars (15), risk (15), pay (15), coupon (15), last (15), comments (14), devil (14), his (14), september (14), december (14), june (14), july (14), per (14), only (14), these (14), could (14), because (14), 2003 (13), 2006 (13), 2015 (13), how (13), even (13), year (13), much (13), around (13), people (13), were (13), gdp (13), 2004 (12), 2005 (12), 2007 (12), 2008 (12), 2012 (12), 2013 (12), back (12), them (12), well (12), who (12), its (12), value (12), simply (12), why (11), high (11), down (11), fact (11), over (11), same (11), gasoline (11), venezuelan (10), bank (10), your (10), posted (10), just (10), also (10), don (10), been (10), things (10), out (10), than (10), where (10), other (9), 2016 (9), work (9), right (9), oil (9), arbitrage (9), while (9), goes (9), face (9), money (9), issued (9), 100 (9), thus (9), since (9), take (9), brisas (9), oriente (9), blog (8), tell (8), day (8), bolivarian (8), inflation (8), markets (8), buy (8), did (8), students (8), give (7), uncategorized (7), new (7), good (7), lots (7), still (7), almost (7), first (7), know (7), way (7), after (7), few (7), trade (7), like (7), each (7), companies (7), post (7), week (7), little (7), barrio (7), giordani (7), excrement (6), another (6), 2002 (6), find (6), such (6), going (6), sell (6), world (6), either 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clear (4), company (4), having (4), order (4), began (4), trading (4), yield (4), three (4), actually (4), use (4), stop (4), someone (4), reasons (4), hugo (4), next (4), food (4), rather (4), simple (4), crime (4), live (4), minister (4), total (4), quite (4), thank (4), hunger (4), website (3), name (3), log (3), wordpress (3), account (3), control (3), something (3), blogs (3), venezuelans (3), excremento (3), del (3), diablo (3), miguel (3), orchids (3), opposition (3), revolution (3), shortages (3), paying (3), shelf (3), getting (3), made (3), subject (3), everything (3), market (3), look (3), brand (3), today (3), looked (3), worse (3), ready (3), weeks (3), topic (3), office (3), went (3), gets (3), crazy (3), come (3), set (3), end (3), investors (3), done (3), telling (3), part (3), months (3), abroad (3), without (3), different (3), lot (3), their (3), expect (3), announced (3), petrobono (3), less (3), complicated (3), built (3), large (3), international (3), given (3), too (3), 300 (3), vii (3), local (3), wants (3), keep (3), important (3), assigned (3), dollar (3), place (3), become (3), above (3), maturing (3), parts (3), yes (3), countries (3), coupons (3), annual (3), own (3), start (3), republic (3), started (3), saying (3), residents (3), politics (3), anarchy (3), protests (3), media (3), despite (3), taken (3), crooks (3), home (3), highway (3), teques (3), outside (3), eight (3), life (3), during (3), lost (3), job (3), hope (3), decided (3), worked (3), felt (3), departure (3), victory (3), write (2), subscribed (2), join (2), subscribers (2), entries (2), create (2), hits (2), 2018 (2), doesn (2), hyper (2), inflated (2), arepa (2), quico (2), juan (2), address (2), probably (2), older (2), difficult (2), story (2), happy (2), person (2), looking (2), stuff (2), says (2), luck (2), diapers (2), lately (2), problems (2), daily (2), stunned (2), supermarket (2), maybe (2), weekend (2), thought (2), normal (2), sales (2), real (2), decides 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Text of the page (random words):
ndros hoodlums take control of the barrio and either rob you outright or charge a fee just to be allowed to go by the spot where they are hanging out so you better have an alternate place to sleep if you don t want to get mugged when you get home late or have to leave early lately however crime has taken a turn for the worse from no murders five years ago the number of homicides has picked up at a fast pace the crooks have gotten younger they are now mostly underage and armed with loaded guns while their style has changed this week two residents of brisas de oriente were murdered in two separate incidents a total of sixteen have been killed so far this year this is what led to the protests when the protests began the police did little some of them even live there and are victims themselves all part of an anarchy that just grows by the day and so do the protests and to the media it becomes almost normal and simply boring ask the minister of the interior and he will likely spew out some made up statistics about how he has reduced crime in the last six months despite the fact that each year the number of murders beats the record from the prior and government media does not show the protest and the non government media minimizes it too for fear of retribution from the government and there is no policy response from the government they would not know where to start and chaos and anarchy just grow much like crime around the country probably at the same rate you may wonder how i know about brisas de oriente for almost 20 years i lived not two kilometers away from it had breakfast at los golfeados daily and got to know and even work with a number of its residents the barrio was heavily pro chavez until 2006 and by now according to my friends it has become mostly opposition except they could care little about politics now they only worry about survival posted in uncategorized 37 comments chavez becomes blameless on wasteful gasoline use in venezuela his solution rationing february 15 2011 yesterday i sincerely could not believe the dictator when he started talking and pontificating about the problem with cheap gasoline in venezuela you are filling your tank with the cheapest gasoline in the world said the president speaking with his scolding tone as if saying you bad guys have been doing this behind my back then as if his inauguration was just last week rather than twelve years ago chavez told us in his pedagogical tone that the government subsidizes 90 of the price of gasoline a topic we have covered many times wow when did he find this out because for twelve years hugo chavez has done very little to change the price of gasoline in fact he forced former president rafael caldera in 1997 not to increase the price of gasoline to take advantage of that populist stance in 2000 his cronies at pdvsa cancelled the natural gas car program for vehicles which was rapidly expanding and they have now tried to revive without much success surprise and it was chavez himself in alo presidente the fact that he had not built major roads because that would only attract more people to cities and it was also chavez who sent oil and gasoline to iran london petrocaribe cuba argentina central america and uruguay the latter a country with a much higher standard of living than venezuela but rather than eliminate these subsidies and or increase the prce of gasoline chavez solution is very simple gasoline rationing the government will force us to consume in 2011 100 000 barrels less a day than in 2010 what s next rationing sand because after all we have had water and electricity rationing food shortages and now gasoline rationing all once abundant in venezuela but it is the paradox of venezuela chavez the revolution and gasoline after twelve years of inaction he puts his angelic and pedagogic face and blames us for his incompetence even managing to scold us we should feel guilty but not him like the cartoon above chavez is well meaning generous and smart it is the venezuelan people who are simply very dumb to continue to put up with chavez charade the yo no fui parade of his own incompetence posted in uncategorized venezuela 79 comments bolivarian bond arbitrage for dummies february 13 2011 i the question i have been getting some emails asking about why it is that the pdvsa bond issued last week the so called pdvsa 2022 has a price that is so much below the identical global 2022 venezuela bond issued by the republic last summer ii bonds in general but to understand why this is relevant let me start at the beginning typically when a country or a company issues a bond it has a price and a yield to maturity which depends on the perceived risk associated with the issuer such a bond is simply a promise that i will pay the annual payments the coupon and at maturity the day the bond ends you will get 100 of the nominal or face value of the bond iii venezuela s bonds and risk venezuela currently is perceived as being high risk in fact very high risk there are two reasons for that one is simply political the feeling that one day hugo may wake up and decide not to pay the country s debt the second one is that venezuela has been issuing more and more debt and at some point this can t go on the country has to pay at maturity as well as the increasing annual or coupon payments to the bond holders which are already near us 5 billion per year as this risk has increased over the last few years this coupon has gotten higher meaning that the country or pdvsa has to pay more to convince someone to buy your bond as an example in 2009 pdvsa issued bonds maturing in 2014 2015 and 2016 with coupons around 5 that means that if you hold 100 000 of the bond pdvsa has to pay you 5 000 per year and then at maturity give you back your money iv how venezuela issues bonds this is where things get complicated because of exchange controls these bonds are not issued internationally where they would trade very close to each other but instead are sold to venezuelan individuals or companies for bs that is you pay so many bolivars for each dollar face value of the bond at bs 4 3 per us but you know based of the coupon that the bond will not trade at 100 but at a lower value why because venezuela would have to pay coupons of 14 16 for the bond to trade near 100 if issued in us directly instead what the government or pdvsa do is to set a lower coupon knowing that the bond will trade below 100 thus if you are a venezuelan and you pay say bs 4 300 per 1 000 of a bond that should trade around 70 you buy it sell the bond for 70 of its face value you get 700 and then you are simply buying dollars at bs 4 300 700 or bs 6 14 per us since exchange controls are so strict now people love these bond issues because other than what the foreign exchange control office sells you at bs 4 3 there is no way for an individual to buy dollars as it is completely illegal to do so since last may the same applies to companies if the government does not give them dollars for imports they have to either use their own money or simply stop importing it is illegal to buy foreign currency other than from the government v the venezuela global 2022 bond last summer venezuela issued a bond maturing in 2022 it actually matures in three parts one third in each of 2020 2021 and 2022 with a coupon of 12 75 this is a very high coupon very few companies or countries in the world issue at such high coupons even worse these bonds trade at a discount in order to equilibrate with what investors expect from venezuela last week for example this global 2022 bond as it is called was trading at 88 of its face value just before pdvsa announced its bond at that price it was yielding around 15 3 the difference between coupon and yield is that coupon is what you get paid every year over the face value yield to maturity is what your annual return will be if you keep the bond until it matures vi the pdvsa 2022 bond and here is where the bolivarian arbitrage and the topic of this post begins you see this week pdvsa announced an issue of a bond also maturing in 2022 also having a coupon of 12 75 and also having maturity in three parts in 2020 2021 2022 that means the two bonds are identical given that pdvsa and venezuela are so inter twinned you would think they should have very similar prices and very similar yields right well yes and no because of all of the artificialities in the venezuelan economy due to the controls at the beginning of the trading of a bonds this does not happen in time they will be very close but it will take time in fact last thursday when the pdvsa 2022 began trading it was being sold at 74 of its face value while the global 2022 essentially the same risk same yield same coupon was trading at 86 4 a full 12 4 points above the new pdvsa 2022 issue illogical right vii the bolivarian arbitrage you would think these two prices would become the same immediately but they don t this is the bolivarian arbitrage the subject of this post and the question i have been getting from readers why are they different why doesn t the gap close immediately how can it make sense for venezuela to be yielding 15 7 same coupon higher price of 86 4 while an identical bond from pdvsa yields almost 19 same coupon lower price of 74 aren t markets efficient the answer is that this exists because of the dynamics of the bond sales by the government and the banks eventually the difference will close but it will take time here is why companies don t want to buy the bonds they want to get the dollars when they get the bonds and sell them so they go to a local bank and say i will place an order with you of say us 50 million if you can guarantee a price for each dollar such that no matter what amount i get the price will not change for the bank this is not easy the client could be assigned zero of the bonds or it could be assigned the 50 million the rules are never clear and vary from bond to bond so suppose that the bank expects the new bond to have a fair value of 82 that means that each dollar costs bs 4 3 0 82 bs 5 24 but the company wants a guaranteed price so you say i will pay you 70 for the bond no matter how much you are assigned this means for the company that the dollars will cost bs 6 14 this is a great deal in a country where there are no dollars to be had so if your objective is to get dollars cheap you are not very sensitive to the price between not having access to any dollars or paying bs 6 14 per us it is still a bargain in fact i bet most companies would pay even higher values if they could get all they wanted vii why the government wants to sell cheap dollars and here is another distortion the government knows that people would pay more but it does not want to sell the dollars at a more expensive price offering a lower coupon because it wants to keep inflation down thus it prefers to give away the dollars cheap than to have the political risk of higher inflation although in the end it is not as important for inflation as the government thinks it is mostly financing capital flight vii how local banks affect the international markets but now the bank has a problem if six customers show up each asking for a us 50 million guarantee of purchase then the bank has undertaken us 300 million of risk which could be dangerous so the bank measures how much risk it can take and starts selling these bonds in the international markets at say 74 like the first day of the pdvsa 2022 it guarantees it will make a four point profit and lowers the size of its risk what is the risk well the bank could have the opposite problem that all customers are given nothing and then it has to go buy the bonds that it promised to deliver or that prices will go down because oil goes down or too many bonds hitting the market the problem is that these are huge issues for the markets us 3 billion to give you an idea two weeks ago petrobras issued the largest corporate bond in brazilian history a us 6 billion issue pdvsa has issued us 9 15 billion since last november thus there is an over supply of pdvsa bonds and when the bank tries to sell us 100 million there are only buyers at a low price if there is no bargain there are no big buyers in time prices will go up as the bonds leaving venezuela are absorbed by the international markets this is the bolivarian arbitrage another artifact of the distortions and complicated schemes the government has built in around the exchange controls and the large and frequent issuance of bonds these type of arbitrage has allowed many people in the past few years to make a lot of money it was just not as obvious to the average person because the bonds were never identical like this time viii making money with the bolivarian arbitrage let me give you an example suppose you had a venezuela 2010 bond in 2009 which you bought at 70 75 in the middle of the world financial crisis in august of 2009 that bond was back up at 94 when pdvsa announced a petrobono 2011 with no coupon this 2011 bond came out at around 64 you could have sold the 2010 and bought the petrobono 2011 then pdvsa issued the pdvsa 2014 which was sold at around 56 when the petrobono was already at 82 then you could have sold the pdvsa 2014 at around 63 to buy the global 2022 at 76 in that sequence ignoring interest you would have made over 100 profit in less than two years and now you are ready to make some more money again switching to the pdvsa 2022 ix the risk of playing this game the risk obviously is that one day you will not get paid if venezuela decides not to pay and the bond will drop to around 30 35 of its face value the so called recovery value that is why some people buy the long dated bond which trade around 45 you will lose a lot of money in fact you will lose all your gains of course everyone assumes they are so smart that if that ever happens or comes close to happening they will have no venezuelan bonds in their portfolio by then they did not expect russia to default in the 90 s or argentina in the new century they both did of course that is what markets are about some think oil is going to soar others that the government will change many that venezuela can do this for a few years without defaulting everyone has a different opinion on it in the meantime they will continue riding the bolivarian arbitrage x why this is so crazy but this whole thing is absolutely crazy and it should not be this way venezuela s risk premium is high because of the constant supply of bonds to the market and the non transparent way in which things are done if the government set up a road map every year telling markets exactly how much it will issue and in roughly which part of the year the risk premium would go down the debt would not be as costly instead after telling investors for weeks there would be no issuance in the first few months of the year pdvsa surprised them with this bond a road show abroad by the government once in a while to explain its finances would also not hurt eit...
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