The Guy Who Refinanced His House to Buy PDVSA 2037 Bonds

1200x-1The horror…the horror…the HAT!

Ross was so taken with the returns he enjoyed in 2011 that he had three green baseball caps custom-made with P-D-V-$-A on the front in gold-colored lettering.

Green was for the color of money, while the letters were encircled by a black ring to symbolize the company’s oil wealth.

He gave one of the hats to his now-deceased former boss, who owned the Madison Avenue store where Ross worked until 2013 and who persuaded him to pour his savings into PDVSA.

The poor guy’s old boss pulled a Chávez on him…set up this whole mess then went and died on him. Coward.

107 thoughts on “The Guy Who Refinanced His House to Buy PDVSA 2037 Bonds

      • I understand that the Venezuelan opposition would want to exploit whatever negative comments Giordani may have said about the government, but seriously, who would give any credit to this sorry character that has demonstrated time and again his utmost ignorance about any topics related to the economy? Economic guru? Marxist economist? Really? I’d call him a phoney, a nutcase, a complete fraud. Un pedazo de mamarracho es lo que es el pobre Giordani. I hope he reads this because he is hugely responsible for the calamity that millions of people are enduring and will continue to endure in our shattered country.


  1. “Now I’m less enchanted”.

    You’ve got to love people from New York, even when they are bad investors.


  2. Maybe he thought he was investing in the PDVSA Formula 1 race car? Invest with Pastor Maldonado and his…. No, wait, that can’t be right…..


  3. “didn’t know a whole lot about Venezuela when he plowed his entire nest egg into the state oil company’s bonds.”

    I will never get why average people invest all their saving in so risky things like opening businesses or buying bonds/stocks of companies they know nothing about. I’m tired of seeing that.

    The best advice is: just buy real state, rent the the property and forget about it.

    Assuming it’s a stable country, your family will have a steady monthly income for generations to come. If Ross had spent those nearly one million dollars buying property, he would be a happy man right now, peacefully enjoying retirement. But no, he wanted “adrenaline” and an incredible return on investment. Well, now you have it.


    • Except, you know, in like 2007.

      Also, $1 million in New York doesn’t buy you nearly as much as you might think.

      The best advice is: diversify to manage your risk. Also known as not putting all your eggs in one basket.


      • “Except, you know, in like 2007.”

        The aftermatch of the crisis was the best moment ever to invest in real state, actually.

        Many people bought apartments for very cheap prices in affluent neighbourhoods in Europe and the US that they thought they would never be able to buy it in their lives, and now the prices have bounced back to what used to be previously (there are some exceptions, naturally).

        “Also, $1 million in New York doesn’t buy you nearly as much as you might think.”

        It doesn’t have to be New York. Real state in Miami, for example, is a very good investment right now. And you can buy good stuff with 1 million dollars.

        “The best advice is: diversify to manage your risk. Also known as not putting all your eggs in one basket.”

        That’s true, but if you are not familiar with running businesses or dealing with stock markets, focus on real state and low-risk financial investments. That will always be the safest option.


        • “Many people bought apartments for very cheap prices in affluent neighbourhoods in Europe and the US that they thought they would never be able to buy it in their lives,”

          That’s not exactly true. People who had money had access to credit. People who did not, did not. Did property prices rebound? Yes. Are they back where they were? It is hit or miss. There are still people that are upside down on their mortgages if they bought in 2006-2007 in many areas; and that’s for those people who did not lose their homes.

          Was it a great time to invest in land? Yes. If you already had money/credit; however for something like 60-80% of potential buyers, the credit freeze essentially forced them out of the market which actually had the interesting effect of pushing down prices further. The underwriters were that picky; 720 at all three bureaus or higher, or don’t bother.

          We waited until I thought we were near the bottom and built a new house…but then, we fit the credit profile and had no problem leveraging the mortgage. For the people who lost everything, it wasn’t quite so chevere.

          5-10 years from now, there’s the possibility that taking dollars and buying property in Venezuela right now might become regarded as the deal of a lifetime. Or….it might not. Its easy to judge a position in the trough when you are on a peak; but there’s no guarantee you’ll get to that peak when you are in the trough.

          “It doesn’t have to be New York. Real state in Miami, for example, is a very good investment right now. And you can buy good stuff with 1 million dollars.”

          As someone with rental properties, unless you are having them professionally managed and maintained (which can be fairly expensive versus rents if you have only a few properties), you want property near where you live because of the liabilities involved with being a landlord, as well as the plethora of legal issues that can arise due to different muni/state laws regarding landlord-tenant rights/responsibilities. Moreover, unless you structure the ownership properly, you have to report the rent as income and therefore subject to income tax.

          It isn’t as easy as it appears on its face. That’s why even a basic lease agreement can be 3-5 pages long. Rental properties are great, however, for someone looking to retire and generate income and with no other investments/revenues, he’d be better off with a mix of treasuries and income oriented funds with a smattering of blue chip stocks or etfs.

          I know in LatAm, people view real estate as a great investment for any of a number of reasons, during a boom or a bust cycle. For a gringo in gringolandia, it is a bit more complex.

          I feel bad for the guy, but he invested poorly by not doing real due diligence and relying on word of mouth….and he was greedy.


          • I agree with pretty much everything you said.

            Regarding this extract:

            “As someone with rental properties, unless you are having them professionally managed and maintained (which can be fairly expensive versus rents if you have only a few properties), you want property near where you live because of the liabilities involved with being a landlord, as well as the plethora of legal issues that can arise due to different muni/state laws regarding landlord-tenant rights/responsibilities. Moreover, unless you structure the ownership properly, you have to report the rent as income and therefore subject to income tax.”

            It is important to notice that people who choose to invest in real estate across a country, or even in different countries, tend to not invest in low income real estate, they avoid dealing with people who will will have to work miracles to pay the rent on time, or who might trigger judicial battles about tenant eviction, or who will call them at 2 am saying that the electric shower broke, or complaining that there is a leaking from the apartment above and things alike. No… They invest in high income real estate, their residential apartments they prefer to rent to executives with high-paying jobs, or for multinationals looking for a place for their expat workers. Their business spaces they like to rent to banks, supermarkets, boutique shops, restaurants…

            When dealing with this kind of customer, the amount of ‘worries’ one has to deal with is close to none; basically, the only ‘worry’ is to check if the payments are entering into the account. And when they are not, to ask ‘why not?’. And then receive the payment on the next day.

            A good real estate company taking of everything on site is obviously fundamental. And every now and then the trustworthy person might send pictures of some repairs to be done, and the ‘virtual landlord’ will approve it and pay for it by internet. And that will be all the ‘work’, hehe.


    • Errr, that doesn’t work. My grandmother after widowing sold of my grandfathers business in Venezuela. Bought 6 houses and lived off the rent (we are talking 1950-1960’s) then the Original Chavistas (Adecos) imposed rent controls. Over the next 40 years inflation soared ahead of rents to the extent that all the tenants became wealthier than my grandmother, with no money to pile into repairs, the houses started to crumble, eventually all that was left was the land. So no, buying-to-let is not a ‘safe investment’ you never know when rent control is going to hit you or worse, rent control + inflation.


      • “Eventually all that was left was the land”

        And even the land was expropriated later, haha.

        Well, with the exception of Chile, and maybe Colombia; South America is a very shitty anti-investment continent overall. It’s very risky to make any sort of investment here because we don’t know the rules of the game, which change all the time. Our politicians are “revolutionary”, and make everything to destroy the private sector. That’s why I said above: “assuming it’s a stable country”.

        The best investment in our continent has always been to buy a one-way flight ticket and never look back.

        Until we embrace a right-wing pro-business/pro-investment revolution, because the left did a very poor job and its turn is clearly over, we won’t be able to improve the life of our poorest citizens.


        • Correct Marc. But, it is not that rules of the game are very clear in other countries either. Look for instance at Spain. Even within the European Union, they applied laws retroactively and screwed wind farm investors!
          Same can be told about the US govt. during GM’s bankruptcy where they screwed bondholders who had claims which were larger than those of the unions but then got assigned a much smaller equity portion in the new company.

          With regard to fully Venezuela, fully agree. What is needed is someone with the values of Renny Ottolina and Marcos Perez Jimenez. Even today, one does not see a politician that can even come close to one of the two. They don’t even have the intelligence to at least use their plans and ideas (which in my opinion were brilliant and what the country needs) and update them to match the current necessities.


          • “What is needed is someone with the values of Renny Ottolina and Marcos Perez Jimenez”

            No! In a country that accumulates by means of the export of oil so much central power, it does not matter how good an Indian Chief of turn can be, the following one can destroy it all in days.

            And I tell you, a Renny Ottolina would neither have been able to manage an income of $100 per barrel of oil… going straight into government coffers… without any relation to how it was going for the citizens… without that going to his head.


            • Per, your view is interesting. However, in my opinion, you do need someone to take the lead and start the process. The key is to create institutions – MPJ was on his way to do so but they ousted him. The evidence is all around Venezuela in terms of infrastructure and all the things he accomplished in a relatively short period of time. I

              I disagree on your point about Renny – but perhaps you know better, I am a young person so wasn’t alive when Renny was around. I have heard many things about him as told by my relatives and peole who even knew him closely. As far as I can understand, he was very very ahead of his time. Even today, some of his ideas are still very relevant and could do the country well if implemented. You can clearly see that Renny spent a lot of time abroad and kept abreast with international events and how countries were faring outside Venezuela ,best practices, etc. For a person with the right mindset and experience, fixing the country is not rocket science in my opinion. However, in the current state of affairs, fixing it might not be a peaceful process. And by the way, Renny was around during the first oil boom in the country (CAP first mandate) so I don’t see how managing the country after seeing how things were going then wouldn’t have been that difficult. He was also a well-off person so I don’t see oil@100 might go to his head. Of course this is all very subjective.


          • “What is needed is someone with the values of Renny Ottolina and Marcos Perez Jimenez.”

            He he, that’s what everybody was saying before 4F 1992.

            Look what we ended up with………………….Ni Renny, Ni MPJ……………….Sino er trimardito de Chavez


    • No, the country has not defaulted. Ross has kept receiving his coupon payments, but he has taken a huge paper loss on the value of his PDVSA bonds. And if PDVSA defaults he may stop receiving his coupon payments, etc…


        • Both bought at the wrong time and sold at the wrong time if he had $750K “in principal” in December and holds $300k at par now and still only came out with $40k in coupon payments for the entire year. Even with a 30% decline, did he almost pay par for a 5.5% coupon from PDVSA? Yeesh.

          Loved the quote, by the way.


            • Miguel, how come?

              I actually have the opposite view, I think buy and hold has been a very good approach if one can withstand the volatility. There hasn’t been any default so?

              Obviously, trading them could have made someone much more money but for that one would have had to have almost perfect market timing, something very difficult to achieve if not impossible (at least in very liquid assets like publicly traded securities).


              • Buy and hold is only for those (the few) that have the stomach for it. Most people (most of my clients at least), get extremely nervous when prices go down more than 10-15%. I have had them in Venny in and out over the years and they have done well. There are always opportunities somewhere without the volatility. You always get another chance to buy cheaply again. PDVSA 22 got cut in half from July to Dec, yo lost 6% by being out, but you did not lose 50% of your value. To me they are for trading, not for holding, least of all with these guys.


    • No. Just the paper value of his holdings has dropped substantially and he’s sold some of his position at a loss. The market has priced in an expected default, and he’s paid for it (figuratively, literally) by not protecting himself through diversification or swaps.

      Funny thing, had he held the positions, continued soaking up coupon payments, he might have come out ahead.


  4. My folks bought the bonds back in 2007 and I told then not to sell them immediately. Well they never did now is almost worthless…


  5. Of course Mr. Toro couldn’t wait to post such sensasionalistic article…

    But, Mr. Toro, have you read between the lines? I.E. Total return of 692 percent? Now who is losing what? What has been the correct strategy since day 1? Even after the collapse in prices…Clearly not your strategy.

    Mr. Ross was merely a victim of pseudo-specialists like yourself who repeat non-sense without analysing facts objectively and sold, thus, materialising a mark-to-market loss.

    Of course that would have required ignoring people like the 60 “economists” recommending bla bla to the Govt. and people like you, Alberto Ravell, etc. who know absolutely nothing about speculation. Oh yes, I said speculation. In my book, speculation and risk taking is a good thing by the way.

    Let’s be clear once again, on an IRR basis, no one has lost any money if they bought and held their positions. Even if a default takes place, one would have to account for interests collected, reinvestments or divestments, recovery value, etc. to fully assess who has lost what or won what. See? Not quite the simplistic view of the world you have (i.e. in your mind, my profiteering has not done well given the collapse in prices.)


    • Venny Trader, te estas hechando un manto!

      You sound like you have el toro por los cachos, but lets make something clear, you are making a half (at best) educated bet, because vennys and pdvs are a black box, and everybody is guessing because they have not reported in years. So, again, please do not jinx it!

      Besides, Quico is a fan is FRod, the biggest cheerleader of pdv and vennys (competing with you). I know, Toro wrote about your profiteering and was a little too happy for your mark to market pain, but you have had a good run the last couples of days, so you should be celebrating…

      Quico, I have to agree with VT that the article is very shitty indeed


      • Jau, it is not a half educated bet. And, what isn’t black box in the markets nowadays anyways? Greeks faking statistics, Spanish faking statistics. Does anyone really take U.S. statistics seriously after so much intervention from Central Banks (talk about the “independent Central Banks” speech from our “60 trasnochados economists”)? More information and more transparency do not necessarily imply better outcomes. In fact, there is substantial research from behavioural economists that proves that more information leads to average and even poorer decisions. Just check papers and article from people like James Montier, Dan Ariely, Robert Shiller, etc. where tests have been conducted on this matter.

        Venezuela/PDVSA has been better and is better than most peers and other alternatives on a relative value basis. In addition, it also has an asymmetric risk/return profile. These are the types of opportunities that one should pursue in financial markets, downside limited to 100% of capital deployed with an upside of 2-3x. I don’t celebrate in terms of days and short-term fluctuactions, as watching prices on a daily basis can cloud judgment (i.e. Mr. Ross). The only reason I watch prices are to assess whether it is more attractive now than it was say 10 months ago. And under that basis, to me, investing in Venezuela made sense at a 12% yield, thus, it makes even more sense at a 20-30% yield, and so forth and so forth.

        And as a friend mentioned to me the other day, Venezuela is not different than it has been many times in the past. In January 2004, oil prices were at 30 dollars, in January 2005 it was at 40 dollars. Oil started going up seriously in 2007, picked up briefly at 140 in early 2008 as a consequence of the financial crisis brewing on the background and then also a result of such crisis, collapsed to 30 also during 2008 and climbed back up thereafter. In the days of oil at 40 dollars, Venezuela imported ~$15bn. per annum (days in which nobody talked about scarcity), in the days of oil at $100, Venezuela imported $45bn. per annum, and now that Venezuela imports $30bn., people they talk about scarcity. What is happening now, is that the poorer classes and people have discovered the “re-selling” business, so they rush to the stores to buy everything and then re-sale. Something which is obviously a consequence of price controls, etc. which I don’t necessarily agree with. But frankly speaking, the only difference between Venezuela today and many times in the past is that in 2015/16 and 17, there are payments of $10bn to pay per annum of principal and interest. Payments which actually might even be lower as we don’t know to what extent Venezuela and PDVSA have been managing their liabilities, which we know they have done in the past to some extent and done so very well by the way. I wouldn’t rule out that most of the bonds that mature in the next two years have already been repurchased. All this non-sense about Venezuela owing $60,$75, $100bn. now is just stupidity. What matters is what they owe this year, next year and how they are working to make the payments and adjusting the liabilities according to market conditions and their reveneus. Period.


        • VT, that all markets are manipulated and that plenty of companies/countries put lipstick on their piggy numbers does not change that venny/pdvsa is a half educated bet. I think that the wildcard in Venny/Pdvsa capacity to pay is corruption. My question is, are they capable of killing the golden goose?

          Also, I believe that oil will stay around 40-60 for 2015-16. Which puts a much lower ceiling for corruption in Venezuela, which again triggers my question of: are they capable of killing the golden goose?

          In everything else we agree.


          • Jau, so what happens when you need to decide to invest and most, if not all, the comparable alternatives have plenty of manipulated numbers? Not invest at all? You do have to take risk in the end.. And then the question becomes, when you decide to take the risk, what is that asset that will potentially give you a better compensation for such risk? Obviously, you also have other assets with less manipulation and where the effect on monetary easing on a global scale have affected valuations to a lesser extent (i.e. alternative investments) but this is a whole different story. Sensible portfolio construction does require a degree of diversification but also more agressive views in assets where one has a stronger conviction (call it an edge if you would like, in order to generate higher returns. If you overdiversify too much, then you don’t get any returns and you might as well invest in ETS’f replicating market indices, etc.

            And no, I don’t think they are capable of killing the golden goose. I might be wrong of course.


      • Net, really? Let’s not go into the detail about bubble economics, bubble theories, etc. because I have no time for people who don’t really craft a detailed answer and just blurb stupid comments, I don’t get any insights from you so why should I share my view. I will only highlight that you are comparing investments in fixed income (debt, bonds, etc.) to invesments in stock markets. I presume most people would notice the flaw in such stupid comparison. Do you know what the compounding effect is? Just checking as it seems you don’t and you are just looking to cherry-pick a significant market event to ridicule my reply and somehow give purpose to your argument. Square peg, round hole, square peg, round hole… Sigh


        • My great grandpa, A(dolphus) Gekko, not to be confused with that cinematic Gordon character, who much maligned our family name (“Greed’ is good”, when Adolphus only said, “Speculation is good”, and everybody knows speculation isn’t greed), invested in high-coupon streetcar bonds, and, like VT, reinvested coupon interest in new bond purchases, thereby hyping his return, and all this on heavy margin (don’t know if he had time to reach VT’s hefty “692%” return, but he wasn’t a quant, and, anyway, he didn’t have VT’s fancy arithmetical studies). Anyway, like VT, he never sold, nor marked to market (he was the one who coined the phrase, “Marking to market is for pussies”), nor did he listen to a then-Saudi prince who said,”Streetcar transportation is doomed”, (What does a sand dweller know, anyway?), something like today’s Saudi Prince Al Waleed saying we’ll never see $100 oil again (although, admittedly we could, in a crisis temporary spike), or Jeremy Grantham explaining, for those not intellectually challenged, why we are at, “The Beginning Of The End Of The Fossil Fuel Revolution”). Nor did he have to contend with the possibility that the U. S. might become what Cuba is today, as Venezuela could become. Anyway, my great grandpa lost everything, but he certainly was one sharp cookie!


          • Name dropping and mentioning report names doesn’t make your comparison less flawed. Nowhere did I talk about fancy arithmetical studies, but frankly, it does seem that people do not realise the effect that compounding has over time given that they all start talking about greedy investors finally losing their shirt when prices decline. One has to consistenly invest in multiple types of assets and over a number of years in order to make money in the long run, but you obviously seem to not believe in this given your 1929 crash comment. Under the same rationale, then it would have been a mistake to invest after Lehman’s crash when some securities gained 200-300% in periods of months following the bankruptcy. Nowhere did I stated that I am betting the ranch on Venezuela/PDVSA, by the way.

            And yes, I’ve also read Grantham’s article as well as many others and well, these are opinions and market research. Not really sure why bringing them up changes anything.

            Sorry to hear about your grandpa, though, I don’t wish that to anyone.


            • The 1929 crash comment illustrates the fallacy possible in the buy/never sell philosopy, as those who had bought Lehman, as per your comment, found to their chagrin. Reinvesting/compounding dividends in the same financial instrument works, until it doesn’t, as many investors in many high-yield junk bonds have found over time, when most/if not all gains made on paper are subsequently lost, not to mention the cases of all being lost in many cases of bankruptcy. As MO states, timing is everything, and, as you state, diversification is a necessity.


  6. I don’t understand why Mr. F. Toro wishes to treat Giordani like his apocryphal nutty grandma.

    The guy comes out with everything we know to be true: reverse Midas touch, gates of fascism, laughingstock of Latin America…and we treat it as evidence of Alzheimer’s? That’s a tactical mistake.


    • Giordani welcomes evidence of incipient Alzheimer’s. It’ll get him off the hook when that big hook comes his way.


    • I agree with Jeffry House. Except that Giordani still believes in all his socialist economic theories. He truly thinks that if they hadn’t been mucked up by all those incompetents that everything would worked out just fine. Delusional? Yes. Demented? No.


      • giordani was just trolling people with his latest hissy fit, as soon as he said “chávez no regalaba, él COMPARTÍA…” I knew the guy was being as cynical as the other imbecile who said he went in a line to buy tickets for baseball (But had the reporter threatened of death for publishing his insults against the people)

        The guy got kicked out of the big plundering party, yet he takes his frustration on the people, mocking them just as the most insufferable chavista can.


  7. The only loser in this story is the Venezuelan State who pays an amazingly absurd 14% yearly (average) interest for its PDVSA and sovereing bonds.

    The people who invest in such a bonds knows the higher interest compensates the default possibilities, and having in mind Venezuela never have entered default, it was a very good trade. If you take in mind that if you have invested X in such a bonds, and the interests earn you the same X in just 5-6 years, there was no lose, specially if you have the expectation, and continually receive, the 12-16% yearly revenue for long 20 years.

    Of course Mr. Rose lost nominally when comparing the real value vs the nominal value of his bonds, but it was his fault to sell them. Those bonds were designed to be held by the venezuelan banks, and just if you bought them at the start, or in their very firsts years with discounts, you could expect earn revenues (besides interests) from selling them before maturity. The idea of those bonds was to be held while they pay for their interest, just that.


  8. Great to see Dr. Octavio’s quote. (I love saying that….all Spiderman-villainy) Its always nice to see the Devil get some press.

    “That’s why people fall in love with them,” Miguel Octavio, the head of research at BBO Financial Services Inc., said in an e-mail. “I always tell my clients these bonds are something you date, not something you marry.”

    Liked by 1 person

  9. Polluxccs take is the correct one , how the bond holders fare is not really part of our problem , what’s part of our problem is what effect the issuance of those bonds had on the economic health of our country and ultimately on our now economically battered lives . to begin with if the country’s economy had been handled even with a smidgen of rationality and soundness those bonds would never have been issued because the money they brough in at profligate cost would never have been needed , our oil income was more than enough for all our real needs . the problem is that the regime was so disorganized and corrupt and wasteful and imprudent trying to gratify the megalomaniacal hubristic whims of the dear defunct leader that it lost track of what the countrys interests were.


    • Well Bill Bass,

      I have to disagree with you about the money those bonds catched would never have been needed. If the money had been used in enhancing the performance and capacity of the industry, as it should, Venezuela’s capacity to render the lower prices of petrol wouldn’t be as bas as now, and PDVSA’s bond value hadn’t fallen so badly in the market.

      But well, the government emitted those bonds just to fund populism and to upkeep the control exchange policy via SITME.


  10. Sure Polluxccs , Understand what your saying but my point was that if the hundreds of billions of oil revenue which were recieved would not have been misspent , missused and wasted in ludricous subsidies , give away price discounts , the funding of corruption , populist improductive projects etc etc we probably would have had enough money to spend in enhancing the performance and capacity of the industry .

    Indeed part of the problem with spending money in Pdvsa nowadays is that so much of it gets wasted or misspent that even if you had the money it wouldnt do as much good as it would in a better organized better run organization . With a hundred billion flowing every year the old Pdvsa could have funded all its projects and had enough left to fund any worthwhile social and development projects outside the industry.

    Even if more money had been needed the financing needed would have been much smaller and the terms much more reasonable thant those applying today.!!


  11. Chavistas’ brothers in arms are still drowning in neighbouring countries too. Cheer up, guys.


    “La reacción de la presidente argentina, Cristina Fernández, a la muerte del fiscal Nisman, provocó un mayoritario rechazo entre la población, según la primera encuesta publicada en la prensa. Un sondeo de la empresa Management & Fit, indica que el 71,1% de los encuestados que escucharon su cadena nacional, reaccionó con “bronca y frustración”.

    Otra encuesta reciente sobre las causas de la muerte del fiscal, ya había sido un aviso. La mayoría de los consultados no creía en la tesis del suicidio y la mayoría culpaba al gobierno.”

    Dilma lost control of the Congress:

    Brazil’s President Dilma Rousseff suffered the first political defeat of her second term as the lower house of Congress elected Rio de Janeiro congressman Eduardo Cunha as its president for the next two years.

    Mark my words: Argentina, Brazil and Venezuela will be the hottest place to invest money in the world in five years.


    • Argentinas bonds, including YPF have not budged with the oil crisis. Argentina HAS been a great place to invest since January 2013, much better and less volatility than Venezuela.


    • My family’s betting on Ramirez too, since he’s already nice and cozy in Manhattan, and he’s been “demoted” twice..Can you imagine if he pulls a Leamsy?


      • He also became extremely wealthy from the corruption. But, he does know where the bones are buried. And if he starts talking now, he might salvage his reputation. Not to where he could get another job, of course, but at least to where he wouldn’t be shunned in public.


  12. Is this particular story any different from the about 250.000 Italian, Spanish and Portuguese retirees that where tricked into Argentinian bonds?

    How many of this type of incidents are not in process as a consequence of “safe sovereigns” paying less than 1 percent on debt, and so de facto forcing many citizens to take unjustified risks with their savings, so as to be able to eat?


      • Good point Per Kurowski. However, Argentina is not the best example. As in the case of Venezuelan bonds, it is very well known that Argentina is not exactly a “safe sovereign”. The blame is on the financial analysts or advisors (assuming there were some) or the people themselves. Also, what about bonds of countries like Greece or sub-prime mortgages, which were rated AAA by our friends at Poor & Standard (whom our Venezuelan pseudo-specialists follow religiously because their view is similar to theirs) and were actually assets of poor quality. It is important to highlight that when an asset gets a high rating, it is even worst, as people misallocate capital as they actually think it is a good place to preserve value, thus attracting larger percentages of people’s portfolios. So the effect is even worse. Not many people stop to think this. Obviously, allocating large percentage of one’s portfolio to something like Venezuela or Argentina requires some conditions which not everyone posses.

        However, I do take your point on board when it comes to bonds and financial assets in most developed economies, where valuations are skyrocketing and cost of living in main city centers are increasing rapidly . What might happen in a few years time in continents like Europe is quite scary. Insurance companies and pension funds being pushed by regulation to invest in “safe assets” (i.e. govt. bonds) which are low yielding and obviously not high enough to match their liabilities, thus forcing co’s and pension funds to go into riskier assets.


        • However, Argentina is not the best example. As in the case of Venezuelan bonds, it is very well known that Argentina is not exactly a “safe sovereign”.

          Hazy rear-view mirror comments, which might seem to cover your glow over Vennie bonds from such a “safe sovereign”.


          • Not covering anything. I like in investing in Venezuela/PDVSA bonds but they are far from being considered a “safe sovereign”. However, I do think that the risk of default is exaggerated and has always been, thus offering attractive risk/return profile. Much better than other peers.


            • Venny Trader, I only wish your Venezuelan bonds would become worthless to the point of not even being good enough for toilet paper. Thanks to people like you, the regime has been able to stay afloat. That’s what Toro’s profiteering remark implied, you asshole.


              • Not going to spend lots of time replying to you as you are a real dick (pun intended).

                Now, if you think that the govt. has been able to stay afloat because of bondholders, then you are mistaken. Apologetic views like yours are actually among the factors that hinder Venezuelan society from moving forward. Why? Well, never really holding politicians accountable for the demise of the country. And this is not new, it has been going on for at least 35 years now. But of course, you will never blame opposition politicians for their incompetence and lack of planning to actually deliver a credible alternative that convinces the population and attracts significant voters. I blame all politicans, not just Chavistas. Everytime I see idiots like yourself, I get very worried as it puts the country further away from the end of the tunnel.

                As for Toro’s interpretation, I think we are all grown up and everyone can speak for themselves. So spare translations and focus on improving your analytical skills.

                And Per Kurowski, with regard to ethical considerations, why is that bondholders have to fall in the same bag and face hardship because the country is facing shortages? Why is it that there is little discussion about the years when most of the country was having a party with cheap CADIVI dollars, arbitraging back and forth, re-selling $3,000 credit card CADIVI allowances + $5,000 travelling allowance in a year? And for this, I have to bring up a very good post by Juan Cristobal Nagel on the matter:


                Bondholders are taking risk and as such, they are compensante by interest rates accordingly. Period.

                I was having a debate with Rodrigo Linares in an earlier post and suggested that perhaps he should create a post on the matter so we could debate the topic. Your below article is deeply surrealistic and actually does not recognise how the world and markets operate. Limit interest rates and risk premia? Have you actually considered working for Maduro’s administration? Perhaps you can apply for a position there.


  13. Venezuela is probably trying to negotiate a change to the terms of payment with China this very moment , the discussions are bound to be tough but probably less difficult than would be the case with ordinary international bond holders and lenders, the chineses have a tight string over the money that flows from the sale of oil supplies direct into their pockets not only to pay what they are owed but to maintain a security buffer of frozen funds should oil supplies fall and threaten their future payments . The payment time is short and the regime must be trying to lenghten them to ease the pressure on its suffocating finanncial situation . A country doesnt start printing money if it has enough income coming in , its always a sign of being in desperate strain .

    A big part of the problem is that Venezuela is having problems , huge problems keeping the oil flowing , production is stagnating and becoming more difficult to maintain , much of it now is in the form of extra heavy crude oil which has to be mixed with lighter crudes or diluents or very costly to built upgraders which take years to build and which now dont exist. Pdvsa is in pretty desperate straits , its not even paying its foreign partners the money owed them from the production obtained from their partnerships , this has been going on for years. Its contractors complain about not getting paid their goods and services or of being paid only partially and late. This is not a sign of financial health but of financial problems at a huge scale , the amount of money which has to be paid to financiers this year and the next three years will probably exceed the money available to the Regime to pay for its huge debt burden .

    Thats why theyve cut short so drastically the foreign currency needed to sattisfy the countrys many import needs , thats the reason for the shortages , for the long queues , for the rampant inflation . The money owed to the international lenders is only part of the debt burden , lots of the debt burden inst called that and is has been made invisible by tagging it with other names using accounting gimmicks. Geordanis statements are true , the country is to all practical purposes broke and all that reamains is a fragile fachade of simulation and lies to make believe that its still solvent , every payment made to foreing lenders implies desperate eftorts to come up with just enouth money to do so. it means scrapping the botton of the pot and denying the general population with the forex needed to meet many of its most basic needs and demands. !!

    I am guesing that the govt want to shore up its relations with the US govt to be able to access fund from the IMF and World bank , that why its on record as having hired whashington lobbyist to help in the effort and why Maduro asked the OAS head yesterday to act as a middle man to start a dialogue with the US Govt. !!

    At the same time they have to maintain the show that they are ferociously confronting to save face before their own followers .

    They are banking on convincing their creditors to exchange their current bonds for others which carry a bigger coupon and extend the time of their payment . But thats going to be tought given the current image of a beleaguered regime leaking troubles from all sides.!!


    • I am guesing that the govt want to shore up its relations with the US govt to be able to access fund from the IMF and World bank , that why its on record as having hired whashington lobbyist to help in the effort and why Maduro asked the OAS head yesterday to act as a middle man to start a dialogue with the US Govt. !!

      Outside of the US being the largest financial contributor or “shareholder” to the WB and the IMF, and the headquarters of these two institutions being in Washington, DC, they are known as multi-laterals, which is kind of like a big ONG. As such, my understanding is that relations with the US government are not relevant nor necessary prior to connecting with any multi-laterals on its soil. Please correct me if I’m wrong.


      • It usually helps if you are OK with the main shareholder , lots of people inside want to keep their shareholders happy even if thats not supposed to matter . Still two things I think are right is that they are desperate to improve relations with the US and have shown it now two very tangible ways and second that they are going for broke first in attempting to get the chinese to relax their lending terms so they can get a bit of breathing air. The fact that these efforts are so secret means that they know that their chances arent that great and they dont want to appear with egg splattered on their faces for the whole world to notice.


    • I am guesing that the govt want to shore up its relations with the US govt to be able to access fund from the IMF and World bank
      The POTUS probably doesn’t recall rants like “Yanqui de mierda” or “smell of sulfur,” but I do.


    • “I am guessing that the govt want to shore up its relations with the US govt to be able to access fund from the IMF and World bank…”

      If that is the case, they have a very unusual strategy for accomplishing it. Internally, they have to have the U.S. as their mortal enemy. All of the economic problems must be seen to stem from the “guerra economica” that is being waged against them. What other excuse do they have? But, they cannot expect to spit and snarl at the U.S., and at the same time, expect the U.S. to help them. The U.S. will tell them, “Quit now, step aside peacefully, and we will assist the country. But, we will not assist you to stay in power.”

      In fact, I do not see how they can solve this problem. All of the real economic measures they can and should take will cause what is left of their base to turn against them. Not that I feel sorry for them, of course… They made their bed and now they have to lie in it. It is only unfortunate that so does all the rest Venezuela.


  14. For everybody that wants to know what FRod is like in person, here is a conference he gave last night in NYC. In the Q&A section at the end of the panel, FRod clarified his position regarding Human Rights in Venezuela. His remarks might interest people that think that he was a little generous with the government in his last interview in Globovision with Oscar Schemel. It’s worth watching. The other two speakers (a guy from Moodys and a Latin American History professor from NYU) were also great:


    • McPapas thnk you for posting this treat !! , I found all the interventions very interesting , F rods not the least , A brilliant analytical tour de force , Very clear and complete analysis of our current situation and future prospects .

      Only one thing which I cant understand . Where does FRod gets his 70Bln $ figure for govt assets abroad , to me its pure fantasy , he gives no details so no way to figure our where it comes from !!

      I also wish he were more specific on what are his premises for calculating Venezuelas yearly oil revenue , does he take the govt stats for real or does he crosscheck with other sources for realibility .

      Otherwise the guy comes across as brilliant and sharp in his explanations of where things stand and why.


      • Frod says his $70 billion figure comes from adding $20 billion in internatioal reserves to $50 villion in “other external assets,” including CITGO, the other 11 refineries, 23 oil tankers, Petrocaribe receivables, money in parafiscal funds (Fonden, Fondo Gran Volumen, Fondo Chino), and others. I agree that this $50 billion figure is not transparent.

        I also don’t know where he get’s his numbers for PDVSA’s yearly oil revenue (my numbers are lower). I suspect he gets the revenues more or less straight from PDVSA’s financials and the BCV’s numbers, which are probably inflated.


        • I did a review of the refining assets (other than Citgo) which Pdvsa purports to have abroad and they dont amount to much in terms of what money they can bring to the govts coffers , All but one of them are only half owned by Pdvsa , one of them (Curacao) is only leased for a fixed term , one is permanently shut down (Hobensa) , almost all Caribbean refineries are small coffee pots with limited refining capacity and very restricted access to really worth while markets . The European ones owned 50/50 with a Finnish company are small and dedicated to refining boutique specialty products for a very specialized niche market . Of Citgos 3 refineries one is a lemon ( Lemont in Illinois ) and the other two are fine refineries but designed to maximize the yield of certain Venezuelan crudes so that if the seller doesnt have access to the same kind of crudes they arent so valuable . The Chalmette refinery is a large jewell of a refinery , half owned by Exxon it might represent a good buy for Exxon , but its value will depend on the ability and willingness of the regime to continue supplying it with Venezuelan oils which no one can guarantee given the conflicted relations between Pdvsa and Exxon .

          Of the tankers most of the old ones are close to the end of their useful lives ( 20 years) and will only be able to be sold as scrap, those ordered to Iran are full of flaws of all kinds which make them well nigh impossible to register with the appropiate classification society rendering them unusable . those ordered to Portuguese Argentine and Brasilian shipyards have become nightmare orders incapable of being delivered and facing the bankrupcy of their builders . The only useful tankers are those 4 to 8 Vlccs and Suezmax tankers built or bought from Chinese and South Korean Shipyards by 50/50 Chinese Pdvsa Joint venture to transport oil from Venezuela to China , Of course their freight and operation is likely in the hock to offshore financiers for a great many year so they are not easy to sell to any ordinary buyers.

          My own impression is that these assets arent really very easy to sell because of the many legal and corporate and fnancial restraints affecting them and that even if they were to be sold they would be sold for a very small amount .


          • Whatever many peoples dislike or distrust of Frod’s past views he is capable of being very articulate and deftly analytical in articulating them in a congruous and reasonable fashion . The social historian also had an interesting tale to tell (even if some trolls here have attempted to missrepresent and distort his ultimate message). Curiously the three panel members all believed that the chances were good that despite all the regime shenagigans the oppo would win the parliamentary elections . There is of course a need to set out an easy to digest message to ensure the now dissapointed former Chavez followers that the winning opposition will care for them and protect them even better than Chavez did in the past . This is a basic part of the oppo message in preparation and one which I see as something that even if the election was won without their help the oppo honestly should see as an essential goal of its agenda .

            Paraphrasing Lincolns phrase this country cannot survive half prosperous half in misery, the undeveloped talents and energies of such large portion of our population are a drag on our progress and have to be movilized and developed for the country to become the kind of country we want Its such a waste to think of so many people who might be able to contribute to the countrys growth and which are now held back by the many limitations and handicapps which poverty places on its victims .

            The thing is that this cant be done on the cheap as Chavez tried to do but in ways that involve well crafted long term planning and well designed social programs executed with expert precision but without the clientelar vices which have been endemic to Venezuelan political life.

            I would hope for some future blog to be dedicated to this all important topic , how can the very poor be rescued from their sorry condition and allowed to become fully productive and happy people.


      • In addition to his $70Bln figure for govt assets abroad, I have to question his assumptions in his calculation of GDP as $200Bln. He used a figure of five times petroleum exports to arrive at this number, but didn’t substantiate it other than saying that it was a historical and stable ratio. I don’t buy it.

        Furthermore, he seems to dismiss the prospect of a social upheaval or change in regime as unimportant to his calculations, as though the oil industry and production are an entity completely apart from and not affected by status of the country.


        • According to Opec official figures in 2013 Venezuelas GDP was 373.978 BL$ and its oil exports 89.175 Bl $ which makes Venezuelas GDP 4.4 times the size of its oil exports . If Frods figures are right and our GDP this year is 200 Bl $ (5 times the size of our oil exports) then our oil expors this year should be 2.739 kbd (at $40 each Bl) which if we add the 750 kbd of internal consumption results in a total yearly production of 3.5 kbd, a production volume we haven been able to reach for more than 10 years . This is not credible . There is something wrong with the calculation . The production figures which have recently appeared at a Opec report of Venezuelan production vetted for accuracy with non official sources fixes it at 2.340 kbd if we use this last figure to establish this years oil exports after deducting the 750 kbd internal consumption figure reported by Ministry officials then our exports should be about 1.590 kbd , some 850 kbd lower than assummed by Frod . I seem to recollect that the 2.340 kbd production figure also tallies with the EIA figures for last year .

          If there is a change in regime, however brought about , the above stats will not change , the financial situation will be as dire as it is now , the only difference is that if such regime change raises peoples confidence in the country being more rationally managed than in the past then experience has shown that raised trust does produce eonomic miracles bringing improvements that no one thought possible.


    • McPapas, thanks for the video! Very good contribution. I very much enjoyed it and the historian brought and interesting perspective to the discussion, one which I have always strongly believed in and which I think is a key pillar of the system. In sum, 1) Lack of a real opposition with a real plan and 2) Venezuelan standards of living throughout history, which of course, haven’t been that great altogether. On this particular point, people compare to citizens not being able to get an aspirin or queue for long hours but they don’t always realise that some of these people actually think (and to some extent one might argue that it is somewhat true) that they are better off than say 20 years ago. In the end, it is actually a very complex social issue.


      • On point 2, a learned Ven economist recently said that he would prefer a unified 50-100 exchange rate, with the resulting huge inflationary hit, which would allow few scarcities, and he could buy what he wanted/needed when he needed. The trouble is, from a Ven. min wage point of view, I think that a large part of the Ven population would prefer to pay the current below-cost Govt.-controlled prices for basic foodstuffs, with waiting in lines and all, to this more rational alternative, which alternative would mean they couldn’t afford to buy many food items with their poor devalued minimum wage. This is the conundrum facing the Oppo to try to explain to the Pueblo the sacrifices needed to semi-pull Venezuela out of this morass. It also explains the Govt.’s reluctance to make the needed rational correctives. And, so far as winning any next election, the Oppo is facing very difficult hurdles, in spite of the logic of public discontent expressed in opinion polls, due to the structural Petro-State Peon dependency, coupled with a completely corrupted Electoral Registry, more than 50% of voting centers not audited by the Oppo, and the judicial system favoring no real audit of the results–all of which should be the subject of a future Blog, in order to try to prepare safeguards against these many abuses.


        • There are two different problems with the elections , one is getting the actual votes , which may not be that much of a problem as things stand now , the discontent is deep and growing , and whatever the hurdles the oppo may have to face to win a mayority of the votes the govt has them worse . The second problem is how to avoid getting cheated so that whatever the actual electoral count the numbers reported are falsified to produce a false electoral victory by the govt . the two problems are intertwined but pose different challenges . The second problem has to do with how the Electoral Body helps the govt cheat on the elections , there are ways in which the breath and scope of the cheating can be controlled in part ( even if total avoidance is impossible) . the last presidential elections showed that the capacity of the electoral body to cheat is not infinite but limited , otherwise Maduro would have won with a much clearer mayority , that means that if the turn out of oppo voters is large enough (or the pro govt absentiism large enough which this time very likely ) it will be difficult for the electoral body to shift the electoral result as much as they might desire. The problem which Frod ponts out is that if the parliamentary elections are won by the Oppo then what next , a recall referendum with a supreme tribunal playing the sabotaging agent to make it all very difficult . The parliament can appoint additional Supreme tribunal members to stack the tribunal with its own supporters but then the existing tribunal will try and condem that as illegal giving rise to all sorts of struggles .

          Thats why hes hoping that some how a miracle can be made to happen that has the govt allow for a rectification which gives the oppo some participation in the making of basic decisions . He may be part of the miracle because to the extent he stands in the middle if push comes to shove the govt may seek some conciliatory solution to the conundrum . Maduro had some surprisingly good things to say of more moderate Falcon . Its not very likely but not impossible .!! This bears some tactical thinking which Im sure there are people in the oppo are already advancing .

          If I understand your friends idea it is to allow all dollars to be transacted freely giving the govt a huge amount of bs which it can then use to cushion the blow to those most vulnerable to the consequences of such measure . Thus balance is restored to the countrys finances and the horrid consequences of whats done to accomplish such restoration is at least cushioned by using the extra bs produced by such restoration . Dont know whether thats workable of how but its an interesting idea to play with in our imagination .!!


          • The Bs. 50-100 solution is the rational IMF one, which, IF rationality ever comes to Venezuela, will have to be done. I believe that Maduro’s narrow Presidential “win” vs. Capriles was due to the Govt. being caught flat-footed/confident, which wont happen next time around. Accomodation with the Oppo by this “Revolution” is, to my mind, highly improbable. Of course, Chavistas abstaining in the next elections, and ni-ni’s turning Oppo, are key to an Oppo win,but the possibilities of the Oppo being cheated are still very high (not to mention the possibilty of the elections being cancelled due to “national emergency”). In order not to be cheated: the Electoral Registry has to be shaved by a third to real numbers consonant with those of most other countries where voting is non-obligatory; Oppo wtinesses placed in virtually every voting center; Govt. trucking/coercion of Petro-State Peons to voting centers prohibited; and impartial auditing conducted of the voting “cuadernos” when necessary, none of which is likely, or even achievable, under current circumstances (And, I didn’t even mention Govt./Govt. media spending curbs).


            • The problem with the Electoral Registry is crucial–Each election cucle, the Mud appoints some doofises to “limpiar” the Registry, and they come up with a few hundreds or thousands of multiple-cedulados, or deceased centenarians+, and trumpet their results as a job well-done. Trouble is, there are approximately 1/3 of the Registry, or 6 million or so, judging from other countries 65% or so registrants, who never registered, don’t know they are registered, and don’t vote. The Cuban puppet masters know this, know who they are by cedula/name/voting center, and, in those centers where there are no Oppo witnesses, can plug theses “voters” in at will, with false signatures in the “cuadernos” by Chavista witnesses/others if necessary (ergo, the courts denying Capriles access to the cuadernos in the last Presidential election). This same procedure can actually be followed for actual registered voters who haven’t voted for years. And, more than 50% of voting centers are not witnessed by the Oppo, for a variety of reasons. As for the “fingerprint ID” machines, they are mostly for show/intimidation of Petro-State Peons, trying to force them to vote Party line, and don’t even work most of the time, as evidenced in the last Presidential election by an 8-year old girl’s (with her aged grandmother) fingerprint being authorized, as well as those fingerprints also authorized of 2 curious International observers, who witnessed this anomaly (as reported in a local newspaper).


      • What is even more pathetic is that 24h later the tweet is still there!!! And, apparently, it will remain that for ever, as some sort of souvenir from these absurd years of kirchnerism. Mind-blowing


    • Venny Trader, please take heed on the results of investing compounding interest in a foreign price-declining) risky asset–“It’s gone”, said F-Rod, the bank representatve….


      • Net, as I stated before, I still believe risk of default is exaggerated. Time will tell who is right in the end. I’ve invested in the past 15 years and I have made good returns despite almost everyone I know telling me that I was crazy. Even if I sell all my holdings today at current prices, I would still make money. Thus, all those people were wrong. That is fact. Now, that I could have made more money in other assets, or perhaps if I traded the bonds actively, etc. is another discussion. If you need to take investment decisions, you can’t spend 15 years forecasting default. One has to take a view. And the view of those people, in terms of generating returns in PDVSA/Venezuelan bonds, was wrong.

        The asset might be price declining now, that doesn’t mean it will always be in the future. But it’s behavioral, when conditions are dire, people over estimate the risk and find all the excuses why things can go wrong. I look at both sides of the coin. Else, I wouldn’t be reading or commenting in this blog. The reason why I do it is to avoid behavioral biases given that I am holding such assets. One tends to overlook risk and the mind can trick you by only paying attention to the news that favour your position. So, all in all, I very much enjoy and find the comments of the people here intellectually rewarding. Despite the fact that some people are disrespectful. Note that I don’t dismiss the possibility of a default, that is always on the table, else the bonds wouldn’t yield what they yield. However, I don’t take extreme sides like a lot of people on this blog do. They see that everything is black or white but reality is not that simple.


        • All very reasonable, and, yes, I believe this Blog has some exceptional commentary, including yours. I think the outlook for oil is not good, even mid- to long-term, although Venezuela could weather the storm for awhile with rational management. Without rational management, I believe Venezuela’s outlook really is for default, but perhaps not this year, and, given the passivity of its Pueblo, and that of its armed forces, Venezuela could actually end up eventually as the unthinkable– a slightly better version of Cuba (perhaps less than 50% probability, but real, nevertheless).


          • Net, for me, passivity of pueblo has always been the major issue. This is what holds back everything from unravelling. This is why I found the comments of the NYU historian in McPapas video so interesting – as it is something I’ve always believed in but it is a rather subjective topic and which falls more in the study of a society than anything else. Now, in Caracas, people will always tell you that pueblo is fed up, that they will rebel, etc. I am not interested in knowing traditional views and opinions, for that I can open noticiero digital, aporrea, etc It is refreshing to read or listen to well informed people on Venezuelan matters.

            Now, if we look back at a an even longer time frame, say 40 years, wouldn’t you think that it the middle classes that stayed after say 1989 were indeed crazy? Even after the country around them collapsed, slums grew, etc.? Obviously, we now have the benefit of hindsight and one can always argue that it is now worse than ever. But, hasn’t that always been the case? Given that it has been a one-way dowhill path (in my opinion) since 1950’s, one will always look back and find points in time which will look better than the present.


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