The Devil's Excrement

The graph above shows a very interesting and you may say, historic, distortion in the Venezuelan economy created by this Government. The blue line shows the yield for 90 day Venezuelan Treasury Bills, which this week came out in the auction at 4.91%, while the magenta line shows the same, but for a 90 day US Treasury Bill where the yield stands at 4.98%. This graph makes no sense, Venezuela, a country in which inflation will top 15% for 2006, started paying this week, less than what you would get for yield in the US, a country where yearly inflation is running at a 3.8% clip.

What this means is that while savings get a positive rate of return in the US, they get a deeply negative rate of -10% in Venezuela, which is simply absurd. The reason for this is simple: exchange controls. Under normal circumstances, money would move easily abroad looking for a higher yield, which is possible in Venezuela, but not in massive amounts. Moreover, the Government has created so much money, monetary liquidity is up 70% during the last 12 months, while international reserves are barely up 7%, that there is lots of money looking for goods or where to be invested.

The Government is trying to use interest rates as a way to push inflation down, but while this worked a little when rates where much higher, it is reaching a point that it is not doing very much. In fact, interest rates have been pushed down by the Government all year, but inflation is moving in exactly the opposite direction.

What this means is that people have no inducement to save, as they will lose money by keeping their money in the bank and get paid a rate which is lower than inflation. Thus, they should spend all their money in buying goods or even getting credit to buy things as they are esentially gettng a free ride. The same applies to companies, they should just borrow money and make investments bigger than they planned, as they would be getting free money when they borrow.

That is exactly what is happening as companies are, for example, issuing their own local bonds or commercial paper to get even more attractive rates. The distortion is so huge that companies can issue local paper at rates of 7%, while their own bonds in dollars in the world markets trade at a yield to maturity of 9%. Clearly for an investor it would be better to have these, as your capital is protected from inflation and/or devaluation. As an individual, you could mortgage your home, buy dollars in the swap market and invest in in a dollar bond of any Venezuelan company paying 9-10%. You can meet payments with the interest you get and when the devaluation occurs, the principal you owe will be much smaller.

In the end, the results is that the rich get richer, since obviously only those that can leverage themselves or have access to CADIVI dollars can actually benefit from this.

The problem is that this can not go on forever. A distortion like this is unsound and will eventually explode in the Government’s face. First of all, as time goes on more and more people and companies will be doing this and this is, in the end, an artificial subsidy by the Government or the financial system. Second, this helped lower inflation but you are already sitting at 4.9% and rates can only go to zero, not lower. Thus, there is no much more you can do. Third, inflationary pressures are so strong that the more negative interest rates get, the more encouragement there will be to leverage more and more. Finally, were the Government to have less income, it could not continue supprting thsi artifical state much longer and things will explode.

And they will. At some unknown point in the future, there will be a devaluation, which will hurt the poor the most as usual and will make those that can play these sort of financial games (called arbitrage) much richer. When this happens, and you can be sure it’s coming, the financial system will suffer, which in turn will force the Government to interven more. It ain’t going to be pretty!

Bt you see, we have seen this movie before, as we like to say in Venezuela. Government after Government believes or thinks that the rules of economics are flexible and that they can innovate on economic matters. Ask CAP, Caldera or Luis Herrera who thought they could. Unfortunately distortions have never gotten as large as today, so the corrections will be much stronger. Who will be blamed?

Two more love political letters today. The first one below, appeared in a local free daily paper called “Primera Hora” which is distributed in the mornings from Monday to Thursday at least in Caracas. Here is the translation, followed by Petkoff’s thoughts and his own love letter from the Tal Cual Editorial.

Love Letter

With your verbosity you conquered me
With your promises you convinced
me
With your long tales you captivated me
With your proposals you
enamored me

Using all your lies I fell in love
But throughout these 8
years
I realized you deceived me

You did not give me security
You did
not give me a home
You did not give me the trust to generate
employment
You did not give me an opportunity to get out from the
bottom

Don’t ask me for another opportunity
You did not value my vote
or my trust

I will search for my own happiness.

Venezuela.

And then Teodoro Petkoff accompanied the above image of Hugo Cupid, with his Editorial:

Mision
Cupid by Teodoro Petkoff in Tal Cual

Daily
Ultimas Noticias reveals today the new twist in the official electoral campaign
that from now on will hide the use of red and will profile a candidate surrendered
to love. Yes, read it clearly: Hugo Chavez has done everything for love. An ad
inserted in a number of dailies (inspired in the deep sensitivities of poets
Isaias and Tarek), outlines the strokes of this painter-ballplayer-soldier-president
that, begging, wants more time. He needs votes.

(Text of
Chavez’ ad posted yesterday)

Those of you that have lived through this insufficient time for the official
candidate, and have memory, could assemble-with the prior authorization of the poets
of the regime- your own verses:

For love I
took the soldiers to the coup on February 1992 deceiving them

For love I
called the Venezuelans that oppose me squalids

For love I
blessed the Tascon list

For love I
have political prisoners

For love I
will govern until 2021

For love I
will play “rojo”
with the opposition

Some types
of love just kill you.

So far, Hugo
Chavez’ campaign has been somewhat weird and inconsistent. First, it was the “statesman”
look, jetting around the world solving everyone’s problems. Then came the
campaign jingles, which sounded more like martial music than anything else. This
was followed by a new “mellower” Chavez, which two days later remembered the
weapons he wants to give to the people to defend the revolution. Since then,
Chavez has been mostly reactive, snapping back at Rosales’ accusations and announcements,
rather than setting his own agenda, like we had grown accustomed to. Even Chavez’s slogan “Bravo Pueblo” sounds like the name of an oppsostion party. And one that promotes abstention, to make it even worse. Whoever thought of that one should be fired. Immediately. But those in the camapign don’t read my blog.

Tonight,
it is a different Chavez that shows up, saying he feels the pain and aches, because the
image for Rosales’ debit card is “racist” because it is called “Mi Negra”. In that
same statement Chavez calls on the most repulsive, racist and divisive TV program, which is shown on state TV, called “La Hojilla”
which spews hate daily, to show these ads. I listen to this and have to wonder
what my cousin AM must thing of this. See, AM was always called “El Negro” in
our family. It was so linked to him that when my youngest brother was baptized
and AM was named his godfather, my little brother acquired the same nickname at
his Baptism. “El Negro” became his name and to this day many use it. Yes, neither of them was completely white, but who cared?

And I can’t
help but wonder what Chavez’ Minister of Education El “Negro” Isturiz thinks of
all this. Or how about legendary historic figure and heroe of our independence “Negro Primero”
, Paez’ second in command would think about this. And isn’t one of Chavez’ “misiones” called “Negra Hipolita”?
So what is the fuzz all about? Why is his “Negra” namesake mision ok, but Rosales Mi Negra card racist? Why does Chavez have an exclusive? Doesn’t Chavez
drink during his Alo Presidente the same “negrito” (small black coffee) I do, which he reportedly also drinks all day. What does he call it? Small black coffee? Yeah sure!

This is
simply Hugo Chavez the divisive figure, the rewriter of Venezuela’s
history, the man that wants to separate us into the “good” guys and the “bad”
guys. But good or bad is just a matter of whetehr you are with him or agaisnt him. This is the same man that wants to arm all Venezuelans.

But just
as I can’t understand what is going on, from the man that has always run
political campaigns with exquisite timing and execution, we get this mushy
stuff, the “new”, “improved”, “looking for love” Hugo Chavez in this ad that
appeared in most of the country’s newspapers today (This one from page B18 in El Nacional):

A pensive looking Hugo Chavez, looks towards infinity and
in the ad says:

Message of love for the people of My Venezuela

Always, I did everything for love

For love towards the tree, the river, I became a painter

For the love of knowledge, of studying, I left my dear
hometown, to study

For the love of sports, I became a baseball player

For the love of the homeland I became a soldier

For the love of the people, I made myself President, you
made me President

I have governed for these years for love

For love, we made Barrio Adentro

For love, Mision Robinso

For love, we made Mercal have done all for love

There is a lot more to do. I need more time.

I need your vote

Your vote for love.

By now you must be like me, saying :”For the love of God, please stop it! I can’t
stand it! Where did all this mush come from?”

Well, it turns out that all of the above is true, just add the
word “Chavez” or “of Chavez” everywhere after the word love and the puky ad becomes the truth.

It is all done for the love of Hugo.Nobody else.

(Please if anyone has any info on Chavez the painter, please drop me a note, I had not heard that one before. Will we now see the collected works of Hugo suddenly resurface?)

Venezuela continued acting rather undiplomatically,
for a country that is trying to get elected to the UN Security Council. After the incident
with Venezuela’s Ambassador
to Chile last week, which
forced his exit, the Chavez administration continued creating conflict around South America in the last three days and apparently there
are no plans to stop.

At the
center of this new friction is Venezuela’s
cozy relationship with Bolivia’s
Evo Morales. Former Minister of Housing
Julio Montes said
yesterday in Bolivia, where
he is now Venezuela’s
Ambassador, that our country was ready to defend “with its own blood” the
revolution led by Morales. Montes was quite clear and explicit when he said :”
If for any reason this pretty Bolivarian revolution were threatened and they
asked for our blood and our lives, we would be here” said the incompetent
Montes who was a complete failure in his previous position and was thus rewarded
for his lack of accomplishment with the Bolivian position.

Now, while
Montes may have been referring to defend the revolution from outside
interfernce, he was not explicit and the statement sounded like direct meddling
in that country’s internal affairs. In fact, the Bolivian opposition asked the
Government today to declare Montes not welcome in that country in the belief
that Montes was implying that if the recent political crisis (among a dozen of them)
with the miners killed in that country in any way threatened Morales’ stay in
power, Venezuela was ready to intervene there by sending soldiers or even
civilian citizens to defend the current Government.

Moreover,
at this time Evo Morales may have enough crises to deal with, to have Chavez say
tonight that he is sure that Morales will not declare the Venezuelan Ambassador
not welcome in that country. Chavez certainly overextended himself with tonight’s
defense of Morales and his revolution as well as the attacks on the Bolivian opposition,
calling them oligarchs as if he was dealing with local politics. This is clearly
interfeering with someone else’s internal affairs, no matter how close he may
be to Morales. In fact, he makes Morales look bad, by implying that he somehow
sets Evo’s agenda. Even worse, both Chavez and Foreign Minister Maduro, defended
what Montes said, saying that indeed Venezuelans back Morales’ revolution and should
be ready to bleed for it

All of
this may seem like a simple misunderstanding form afar, but the problem is the
background leading to all this. Chavez has not only been openly supporting
Morales, but hundreds of Venezuelan advisors are in that country. In fact, before a recent visit by Morales to Chile, it was Venezuelan security personnel that
checked the Foreign Ministry in Santiago
for bugs.

But
nothing has upset that neighborhood more than the recent mutual defense treaty
signed between the two countries. The
treaty calls for cooperation, mutual aid, donations and “credit lines”, but
everyone knows who has the money in this relationship. The treaty itself could
be thought of as innocuous and just a mutual desire to help, but there is much
more to it.

First of
all, it has been a tradition in South America
that military treaties are always multi-country and never bi-lateral, so as not
to raise suspicions of the pact being against a third country. Second, the
Venezuelan Government has already pledged US$ 49 million to build the first two
of as many as twenty military bases, mostly along the borders of Bolivia. And it
will be the Venezuelan military that will build these bases. Just as a reminder,
Bolivia is not only land locked
but it shares borders with Peru,
Paraguay, Brazil, Argentina
and Chile.
While Argentina is not a
problem, of the other four countries Venezuela was
counting on getting at least three votes for the UN Security Council, a vote
which takes place in two weeks.

Paraguayan’s
are not too happy now and a Chilean newspaper says that the local Paraguayan
press claims that Morales is getting ready to attack Paraguay. You see, that common
border between the two countries also shares ethnicity common to them and Morales has in the past talked about unifying it all.

Peru, according to the same article, considers the
cooperation between Venezuela
and Bolivia “atypical”, thinking it is an interference with the affairs of another country and
expressing its surprise that Bolivia
accepts that interference from Venezuela.

But the
whole affair is now threatening Chile’s
vote for Venezuela
for the Security Council, which President Bachelet clearly wants to cast, but Venezuelan
seems to be trying to scare away.

The
Chilean opposition, still reeling over the statements by the now departed
Venezuelan Ambassador, has
asked both the Minister of Foreign Relations and the Minister of Defense to
testify tomorrow in Congress about the Bolivian-Venezuelan treaty. Chile considers that this treaty is simply a way
for Chavez to export his revolution and belives that this may threaten Chile’s new Government disposition to at least
discuss the possibility of opening a way to the sea for Bolivia.

Thus, Venezuela
continues to send mix signals and step on everyone’s toes. Today, the
Venezuelan Foreign Minister joined
the world’s condemnation of North Korea’s
nuclear test, after the Security Council unanimously had done it, clearly
siding with the majority on an issue that people thought Venezuela would back North Korea’s rights to join the
nuclear club. But at the same time, it failed
to back the unanimous decision to elect a South Korean to be the new
Secretary General of the UN, while calling for more democracy within that institution.

Most local
foreign relations analysts believe that between Chavez’ “devil” statements at
the UN in September and these new conflicts between countries that a month ago
were sure to vote for Venezuela,
have placed the country’s election to the Security Council in peril. Guatemala may not win, but a third alternative
may be found that would satisfy most countries more than electing a conflictive
Venezuela.
Fortunately for the opposition’s candidate, this is time away from the campaign
for the autocrat and he may in the end lose face by losing, while gaining
little locally by winning. In fact, were some of these countries publicly
withdraw their vote from Venezuela,
it would be a terrible loss for our current Government.

All in all
the typical random, incompetent and unprofessional behavior of those in charge of
our diplomacy. Led by the autocrat, they continue to make the country look bad,step
on everyone’s toes, while the world learns more and more about the intolerance,
undemocratic and disrespectful style of Chavez towards those that do not agree
with him.

Yesterday
during the rally, as Manuel Rosales was speaking, this guy got up on
top of this scaffolding right in front of the stage from which Rosales
was speaking as seeing above. Everyone thought the guy was drunk and the fear was he
woudl fall down. Some of the security people started climbing up the
scaffolding trying to talk to the guy into clmbing down without any
luck. After a while, Rosales noticed the guy was there and what was
going on and asked him:

“What do you want” shown the picture below

the guy replied: “I just want to talk to you”

Rosales said “Then come down and come over and talk to me”

The guy simply started climbing down as shown below

and
the security people took him to the stage, where he simply spoke into
the microphone, saying “This man is the next President of Venezuela” At
that point, he gave Rosales a big hug (see below), which made the security people
quite nervous and they just took him away.

Could you imagine the autocrat even paying attention, or briging someone like that near him? (Thanks Alek for the pictures from his side!)

“All of it’s Ph.D.’s have not harmed Venezuela as much as a single member of the military.”

Manuel Caballero in Elites and Elitism in today’s El Universal

Could not agree more!

That is not a machista question, but a valid question to ask about whether today’s Avalancha was or not biggers than Chavez’ Sept. 9th. rally.We have in fact done the preilimnary work on this, when we actually used Google Earth to measure how big Chavez’ rally was. In fact, the density in the back of Ave. Bolivar of the pictures shown in this post, was quite poor, but we will obviate that.


We could then argue whether Ave. Bolivar is or not wider than Ave. Libertador. This depends on what you are considering. Way at the front near where the stages of Chavze and Rosales were, both avenues are wider than the rest of the way. Above left and right I show this part of both Avenida Bolivar (Top left) and Avenida Libertador ( Top Right). It seems as if Ave. Libertador has the edge, but the differenec is not huge so we will call it even. (Or slight edge Libertador)

We can then move further away and they both narrow. Once again, it would seem as Avenida Bolivar (Above left) is a little narrower than Ave. Libertador, but it would be silly to even call it a big difference.

Where differences can be clearly observed is in the length of both rallies. Below, the first picture shows the length of Avenida Bolivar filled by Chavez’ Sept. 9th. rally. We are being generous as the pictures clearly show how thin the crowds were in what would be the right hand side of the picture below.

However, in the post below, I showed pictures of the density being thick all the way to the elevado in the Avenida Principal de Mariperez which corresponds, in the same scale of the pictures from Google Earth to the picture above to the one below:

Clearly, Rosales’ rally had more people than Chavez’, since we assume the Avenues have the same width but Rosales’ rally was longer.. However, in the pictures section, I have pictures (middle pictures four rows up from the bottom) which show density as far as las Acacias Ave.of La Florida, this would correspond to the picture below, which is substantially longer than the picture of Chavez’ rally (Similar pictures can be found here, that show density all the way up to Las Acacias). Once again, all these pictures are in the same scale in Google Earth for equivalent comparison.

Now, you have to understand that I would have been perfectly happy to have them be the same size for a number of reasons: First, Rosales does not yet have the following in Caracas he enjoys elsewhere. Two, the Government can throw much, much more money at these rallies than the oppsoition can (or has). Three, it is precisely in building the enthusiasm of the opposition that its chances for success lie. Given what today’s rally shows, something very interesting is certainly happening in that respect. Finally, there is still the problem of peer pressure in the barrios which makes it look bad if you go to an opposition rally. Well, it seems like lots of people lost that fear today.

In any case, in polling and political popularity it is the trend and the slope that matter and Rosales’ is certainly on the up an up, and you know who is sliding down fast, so if I were Chavez I would be worried.

In fact, I understand the Government is quite concerned. So concerned, that you can expect Chavz to announce a debit card much like “Mi Negra” in the next few days. The question is what will he call it? Mi Catira? My red card? Better red than dead?

What this would show is that it is is Rosales that is setting the agenda. It is Rosales who is in touch with the people. It is Rosales who is beginning to occupy the hearts and minds of the Venezuelan people.

More people are daring (Atrevete!) each day!