The Devil's Excrement

Hugo looking as bright as he is

Esteban on the base paths

Esteban Batting

Like a good oligarch, Hugo Chavez wasted electricity tonight showing again his complete disdain for the people he claims to love. While all Venezuelans have to undergo rationing daily and are forced to reduce their usage of electricity, Hugo decided to have fun tonight, turning all the lights on at the Fuerte Tiuna stadium and broadcasting on VTV how he played with his Ministers and some Major League players. Egomaniac, oligarch and total scorn and disrespect for the people of Venezuela. It never even occurred to him he could do it during the day.

How insensitive can he be?

(thanks @humbertolozada for pictures)

Scoreboard

Predicting what the Venezuelan economy will do in 2010 is becoming harder and harder. The Government relished the fact that the country’s CPI only grew by 1.7% in January (2.4% in Caracas), still at a pace to become the second or third largest inflation rate of the world in 2010, but the truth is we ain’t seen nothing yet. Simply put, the absence of known rules made January a wash out month, with many producers and manufacturers not selling anything, waiting to see at what rate CADIVI will given them raw materials before remarking up prices. (Hopefully the 5% increase in January in alcoholic beverages and tobacco says nothing about the mental state of Venezuelans)

But the picture emerging for 2010 is not pretty. By now, the financial crisis has taken out 8-9% of the financial system without taking into account stock brokers. New ones are intervened daily (two today) becoming simply non-news. If we round it to 10% of the financial system (it will be more) we are talking about the rip-off or disappearance of some 24 billion Bs., roughly US$ 10 billion at the lowest official rate (bs. 2.6 per $), US$ 5.58 billion at the second official rate (Bs. 4.3 per $) and US$ 3.7 billion at the swap rate (Bs. 6.5 per $, still going up, despite CD’s and supposedly US$ 130 million per day in CADIVI outflows in February.

And the financial crisis alone (which is not over, some banks still have holes) will have an important cost. First of all, the Government has refloated some of these banks, without replacing the losses with money. Most of this has taken place under the Banco Bicentenario umbrella (Fogade barely had money to cover the first two or three interventions), which only had one healthy (not really, just when you compare them) partner: Banfoandes. As people withdraw their money from Bicentenario, the funds are coming from Banfoandes’ money, the hole is still there, but the Government is willing to throw lots of money at it. This will be, of course, more inorganic printing, more inflation. To say nothing of the unemployment created by the whole crisis. People are being fired daily, as the centralized operations are all moved to Banfoandes and only the people at some branches survive (Other branches are being closed due to proximity to other ones of the integrated entity).

But the pain in the Guayana region, where heav industries are, is very high. Sidor, nationalized barely two years ago from Argentina’s Ternium (And a payment by Venezuela to that company mysteriously missed yesterday) has been asked to cut 60% of its liquid steel making capacity to save electricity. Given that the company lost US$ 400 million lat year at full output of 2.9 million Tons, you can imagine what this means financially for a company already bleeding money. And aluminum companies Venalum and Alcasa, already running deep in the red had to cut 36% and 24% of their production capacities for the same reason.

And in the hot iron briquette sector, nationalized only last year (not compensated yet!), Venezuela’s output is known to have dropped 45% in January from the already low levels of last year when one of the nationalized companies Matesi, was shutdown by the Government. The lower output can not be blamed on the electric crisis, these plants run on natural gas, so it is either that the Government is not providing the required iron ore from Ferrominera del Orinoco or the natural gas is being used elsewhere. We are inclined by the latter given the reports that Venezuela’s deficit of natural gas production has increased from 1.5 trillion cubic feet to 2 trillion cubic feet due to the reduction in production of oil in better quality oil fields with their associated natural gas.

And in the nationalized oil pipe company Tavsa, not a single pipe has been produced since nationalization a year ago. Way to go for the revolution!

All of these companies are under the umbrella of CVG, almost bankrupt last year when it planned to float a US$ 2 billion bond to continue operations, until the hard reality that the yield would have to be near 35% for it to be sold, forced the company to withdraw it from the market. Had it come to market it may be doing worse that Blockbuster’s September issue now trading at 92% yield. But its President says he plans to invest US$ 440 million to generate 880 MW of power at Sidor. You have to wonder where he will get the money and by the way, he should really talk to Diosdado Cabello about this, Cabello announced that he would spend 1.4 billion euros to produce 1,000 MW of power. One of them is lying or scamming. Only in the Chavez robolution do Government officials differ by a factor of four in the cost of a MW of generating electric power. Maybe that is why the electric system is in shambles.

Today, economist Jose Guerra was saying that in the industrial area of Valencia, manufacturing companies miss more the raw materials from these companies than the flow of dollars from CADIVI. They could always use their own funds to operate (at the swap rate, of curse), but without the raw materials, many metal, slab, billet, wire and beam plants are still shutdown five weeks into the new year. Cuban “experts” were brought in to see if they could replace some of the raw materials from Sidor and when they saw the plant at Sidor, they said they had nothing even close to that size in Cuba and could not help. Nice trip though…

And we have yet to see the real effects of the contraction of demand due to the devaluation. Demand had already contracted sharply last year in the fourth quarter, but will certainly contract even more now that inflation will shoot up, no matter how much additional money the Government throws out into the streets. In fact, on the inflationary front, it is this contraction in demand which becomes the most perversely positive effect on inflation.

And even the so-called expropriation of gold center La Francia will leave people without jobs, if you can call the Government expropriating from the Government an expropriation. While some suggest there was a racist component to the decision, one of its merchants told me today he is leaving the country and shutting down operations. To him, it is clearly a racist decision by Chavez, no other interpretation (think Star of David!). Meanwhile the rightful owner of the building, the Universidad de Oriente. also thinks this a political decision, to take away an independent source of funds from a university which Chavez considers to be in the “enemy” camp. As evidence, the University insiders note that the Minister of Higher Education used to directly managed the rent from that specific building and he is part of the Chavez Cabinet and was actually present in Plaza Bolivar on Sunday. Thus, Chavez kills or threatens two groups with a single stone.

And we come back to the original question, a damaged economy that shrank by 2.9% in 2009, is likely to do worse now in 2010. Even the more positive economists, who were forecasting a positive or flat GDP for 2010 are already changing their estimates to saying at least the 2009 number, if not worse.

Not a pretty picture, even if you dream with the best (negative possible scenario). This in a country whose President was saying a year ago that “we are shielded from the world’s crisis”. Has anyone noted to him the US economy grew by 5.7% in the 4th. quarter of 2009?

Yeah, but capitalism is dead, the robolution may be alive, but Venezuelans are feeling very pessimistic!

From The Economist

(In Spanish here)

To Laureano, because imitation is the best form of flattery

It is not easy being Esteban. A day in my life.

It’s not easy being Esteban day after day. To begin with, imagine living in the Palace, not only is the building cavernous and ugly, but it is really badly located if you want to have some fun. I used to be able to step out into the streets when I first became President and talked to my people, but by now this is simply impossible. First of all, there are always protesters camped right outside. This is not only a pain, but it really pisses me off, because they are all pro-Esteban supporters that have a problem and want me to solve them. I would love to, but my task is bigger than solving their mundane problems like water or electricity housing or crime, this is after all, a revolution. I am very busy all the time.

The second problem is that the area has been turned to the opposition because Barreto did such a lousy job. I wish I had never seen that fat man in my life, I can’t even jail him now; he lives in Paris, where he is studying to become an intellectual, or something like that. I am an intellectual! I don’t need to go to Paris, I am a Marxist and I have never read Marx.

And the third problem is something Bernal told me, which differs from what El Assami says, Bernal says that even if Miraflores was not surrounded by opposition oligarchs, I could not step out because crime has gotten really bad nearby since I became President eleven years ago.

My day is really boring. I have to spend the morning trying to listen to Giordani give me very complicated explanations of all of the problems. I typically fall sleep in the middle and when I wake up and realize that I no longer know what he is talking about I use one of my standard phrases, like “I will ask Fidel about that” or “Let’s create a fund to solve that problem” or “Couldn’t we create a Misión to address that?”.

Jorge is really smart and when I say any of those sentences, he knows it is time to leave. I used to call Fidel at this time, but lately every time I call, he is sleep. I no longer ask to talk to Raul then, he is not only boring, but wants to cut me off, instead of the nice two hours I usually talk to Fidel for about our “procesos”. I don’t like Ramiro either, he looks mean, he is scary. But he said he would fix the electricity problem using the same techniques as in Cuba: Wiping the problem off the media.

After talking to Cuba using Skype (which doesn’t work very well, but Jesse said it is safer than anything else, everyone seems to be tapping each other in Venezuela by now), it’s lunchtime. I grab something fast, like an empanada and another café negro and run for the helicopter to go to Teresa Carreño and give people degrees or property titles. That way I can go on cadena for a few hours and just piss off the oligarchs. I talk a lot because it is really boring when I am not the center of attention. The other day I had to give fake degrees to fake students with red shirts, but nobody noticed. Afterwards they told me the students did not return the diplomas and want to practice medicine. Since we have a shortage of doctors I said it was ok, after all I govern Venezuela like the military, anyone can do anything. Our success proves it!

I have an assistant that always gives me three outrageous sentences to say at the end of my speeches, I chose one of them ahead of time.  Today, I will piss off the opposition by saying that they are boycotting Twitter so that we Chavistas don’t have access to it. I love it! I bet the New York Times or Washington Post publishes it! After I said that, I tried to say something even more outrageous. With Saddam gone, Hitler dead and Gaddafi a good guy now, I could only think of Mugabe, so I said Mugabe was coming to teach the National Guard how to contain protests. That should go well, I bet El Nacional publishes it as its main headline tomorrow and they forget the dead students.

On the way back, I return by car, I do this to try to keep those bazookas guessing. The opposition says there have been no attempts on my life, but they happen daily, even if I don’t leave the Palace daily. I have stared into the face of those bazookas, over and over. They never let up, they say I am paranoid, but it’s not true, the oligarchs will not cease trying to kill me.

When I get to the Palace, I do like the Chiguire says “Prozac, Litio and siesta!”  except of course he says “muerte” and no “siesta”, just laughing at me. That guy is funny, even if I hate his father. Laureano is not funny by the way. Neither is Radio Rochela, the second best reason after Mr. G to shut down that station. Fidel has always said:’ Don’t let them make fun at you, if the “people” laugh at their President, you are no longer their President, ask Bush”. That is why Twitter is the work of the devil, too many people laughing at me. I have to stop @Soy_Esteban, @ElBoliburgues and @chiguirebipolar from doing it, even if I like the last one.

When I wake up I call Ramirez. I always scare him, but I just call him to ask what was oil production and the price that day. I keep it all in a notebook. This is something I learned from my grandmother: “When I give you one Bolivar write it down, then when one is missing you know one of your brothers took it. “ I do the same with Ramirez, I add all the money coming in and when they say there is no money, I tell them my numbers. The money always shows up.

After Rafael, I call someone at random, but lately I always call Merentes. That guy is getting too clever for his own good recently. He told me he was going to lower the swap rate, but instead of giving me a number, he became a Mathematician again and said to 65% of the official rate, as if I could figure out how much that would be. When we devalued in January I told him to stop playing games, I want the swap rate to go to Bs. 4.3. So far he is not doing well, it was way above Bs. 6 yesterday. They used to lie to me about the swap rate, but then Jesse (I miss him!) taught me how to use the Internet and I look at Dolar Paralelo or Venezuelafx (Why do they have the same price? Don’t they believe in markets?) and surprise them when I tell them the rate.

I then go to my office to “work” or so they think. I actually go on the Internet to play Scrabble. Jesse also taught me this. I can play until 3 AM. I use to play with this lady in Montreal, she turned out to be from Venezuela and against me. I blocked her. Fidel then assigned two Cubans to play with me daily, but they were very sneaky, always using words from their Diccionario Cubano that I did not have. I now play with members of PSUV, that is why we put in the registration form if they like Scrabble, I can then look for them in my Facebook page.

I then drink coffee and play Scrabble until the late hours of the night. It is not really that hard to run Venezuela: money comes in from oil, you either give it away or import stuff and give it to people. The rest is useless. Oil is the only thing that Venezuelans know how to produce at a profit (hate that word!). So, I don’t care about the rest. Aluminum, iron, agriculture, Bah! They are always asking for more money, Rafael always gives me good news because he found some more money somewhere. That is why I keep him in his post. Jorge always says let everything go broke except PDVSA. I agree.

And yes, I have to take care of the oligarchs and the opposition. But they scare easily and haven’t realized I do too. Show them a rifle, threaten them with the guards, throw some tear gas at them and they run away or step back. We kill one of them every once in a while, but they deserve it. Ramiro says I have to get tougher, I will, one day, I tell him, but I worry that so many kids of the generals and lieutenants are part of the protests. I don’t want one of them killed, their fathers could get mad at me. They clearly were badly educated by their parents. They were ten when I came to power, they should all idolize me, be Bolivarianos and Rojos-Rojitos, instead they paint their hands with white paint and protest. Where did their families go wrong?

Yes, it is not easy being Esteban, but I like it and I plan to be here forever.

Hugo Chavez was supposedly celebrating today, he held a march in his support, which was quite small given that even scientific institutions gave their workers a free day so that they could go:

But in reality, there was nothing to celebrate after 17 years of the bloody coup which killed so many innocent people and where Chavez led buses of soldiers under false pretenses to start his individual quest for dictatorial powers. Funny, when the dead are remembered the over 200 Venezuelans of the 1992 coups, the last true coups in Venezuela’s history, led by Hugo Chavez are easily swept under the rug:

(More than 100 dead in frustrated coup, Feb 1992)

and to celebrate, the students were not allowed to march. According to Jorge Rodriguez they did not file a formal request to do so. Funny, then how come the Urban Control Office of the Caracas Mayor’s office officially denied this “informal” reqest to march. The truth is that pro-Chavez’ marches are always approved even if nobody knows if they ever filed. This is not the first time this has happened. The Chavez repressive Dictatorship lives on. For decent Venezuelans today was a day of mourning, for Chavez it was a day of joy.

Which goes to show he only cares about Hugo Chavez and not the “people”, nor the almost 200 dead in the 1992 coups, the 24 dead in the 2002 march, nor the 120,000 homicides in his 11 years in office.

Only Chavez matters to Hugo Chavez.

(In Spanish here)

When the President of a country calls some of his citizens “stupid” because he brought as his adviser on electric matters, Ramiro Valdes, a man with no experience in the electric sector, but full of experience in repressing, killing and torturing as the Minister of the Interior of Cuba for many years.

Despised by his son and brother, Valdes is a true “esbirro” (the man who carries out executions) of the Cuban revolution, yesterday in charge of murder and torture, toady in charge of Internet censorship.

And Hugo wants to defend him and we are supposed to be the stupid ones.

Because it is Hugo Chavez who is stupid, accepting the advise of a a man who knows nothing about electric power problems, while he neglects those professionals in Venezuela who know the Venezuelan network and its problems inside out, while the previous advise of the Cubans on electric power matters has been an unmitigated disaster. It was Cubans who advised Chavez on a distributed system without interconnection which ha yielded power plants that are working at a fraction of their potential because they have nobody to deliver the power to.

And since Chavez brings up the fact that the Brazilians are also advising the country, maybe he could explain to us how Lula’s adviser and buddy Marco Aurelio Garcia, has said exactly the same thing the “stupid” opposition says, that the problem in Venezuela is not El Niño, but in Garcia’s words: “The Venezuelan system is a bit deteriorated”, which has nothing to do with weather, but with the well known incompetence and neglect of the Bolivarian revolution.

The revolution was supposed to be about progress and sovereignty, by bringing Valdes, Chavez is admitting his incompetence and his willingness to hand over to the bloody hands of a foreign country and dictatorship, the control of key areas in Venezuela’s life. From health, to electric power to identification to security, Cubans are more entrenched into our country’s power structure.

Some revolution!

With so many negative things happening in Venezuela, it is appropriate to stop, sit down and smile and enjoy the moment. German Garcia, who was kidnapped on February 25th. 2009, was liberated today by his captors, whomever they may be.

I know German, but I don’t know German, I probably know more about him through various family members that know him better than I do. And they all have always told me the same thing, the same impression I have always had, German is the veritable and certifiable nice guy, low key, hard working and responsible who lost almost twelve months of his life just because…

And those of us who wondered and worried where he was, are all as pleased and happy as could be that he is back, for him, for his family and for all decent Venezuelans that have to endure this irresponsible Government, who has allowed crime and kidnapping to thrive by its negligence.

To German, that he may return soon to the routine of his job and his family and his leadership at Fe y Alegria and all of those little details of life that I am sure he missed during his ordeal. Cheers!

I practically have to start this post where I ended last night. I said more brokers would be shut down and three were intervened today, but more importantly the Comision Nacional de Valores (CNV) decided to eliminate a popular instrument used by brokers to leverage their balance sheets by accepting deposits from the public. At the same time, the regulator gave brokers six months to lower their leverage (debt) to twice their equity. Both these measures will have an important impact on brokers and could possibly bring down some more. Let me explain.

What the Comision Nacional de Valores (Venezuela’s SEC) did was to ban the use of a financial instrument called the “mutuo”. This instrument has been around for about eight years (i.e. it did not exist before Chavez). In it, a broker sells a client bond and signs a contract the client lends the broker back the bond with some interest. In the end, what the broker is doing is accepting a deposit under the promise of some interest rate for the period agreed on. The broker can then turn around, use the client’s money and even resell the bond to another client. In contrast with a bank, there are fewer regulations, no reserves and little supervision.Thus, brokers could pay more interest than banks and leverage their balance sheet, i.e. borrow money from their clients to do other things.

The problem is that if there is no supervision, depositors don’t have their funds guaranteed by Fogade like at a bank and brokers can borrow more than they should. While many brokers used “mutuos” adequately, others, such as U21, Banco Canaria’s brokerage unit, built up mutuos to absurd levels, such that it went broke.

In recent weeks, as U21 went under and the banking crisis developed, the CNV starting looking into other brokers who had “mutuos” with U21 and found a lot of them that when U21 went under, lost all their capital. So, they kept digging and as they did, they had to intervene more and more brokers. There were rumors that the CNV would impose a limit of two times your equity for all brokers as a way of limiting the mutuos (some brokers had as high as a factor of thirty). But instead, the CNV decided:

1) To give 90 days to all brokers to eliminate all their “mutuos”

2) To give them six months to bring the leverage (debt) they may to twice their equity. They will have to do it such that in two months the leverage is down to a factor of six, in four months a factor of four and then a factor of two after the six months.

I think this decision by the Government is unfair, because due to its inability to supervise the brokers that abused the system, it is penalizing all of them.A more correct decision would have been to limit leverage to twce equity, but allow mutuos to continue, and supervise!

Minister of Planning and Finance Giordani said yesterday there was a de-institutionalization of the regulating entities, but did not explain that it was the Chavez administration that caused it. For example, the Chavez administration named two Heads of the CNV who were former military with no experience in capital markets, both of whom are currently either indicted or have an order to be captured for corruption, one when he was Head of the CNV, the other after wards when he was named President of one of the failed banks. Quite a record, no? They learned fast, but apparently not about “mutuos”.

Giordani, like Chavez, seems to talk like this was all about an out of body experience he had, the lack of supervision, the “financial avalanche”, the external treasuries of the banks at their brokers, and the lack of articulation of the institutions, were all in the end by-products of decisions made by Chavez and his Government or the lack thereof. And Giordani has been Minister of Planning and a member of the Board of the Central Bank for nine of the eleven years of the Chavez administration, so he can’t skirt responsibility. As I said earlier, the “mutuo” did not even exist when Chavez got to power and its abuse took place in the last four years. The website Venepiramides, now well known, wrote one of its first posts under the Title “The parallel financial system of mutuos” in which the author warned that the authorities did not understand the dangers. This was over a year ago, others such as Veneconomia wrote about it in their monthly (by subscription), apparently only the Government was surprised by this.

As of October 31st. of last year, there were “mutuos” to the tune of some Bs. 15 billion, or US$ 2.5 billion at the swap rate. This includes U21 which was intervened in November and is now broke (and depositors lost all their money). With the decision to eliminate mutuos, basically brokers will have to return their money to their investors, all of it, within 90 days. This could be cumbersome for some, it is not easy to deleverage just like that, some assets may be illiquid or just the act of selling them may bring the price down.

Of course, this assumes that all brokers that used mutuos, large and small, did them by the book, which may be too much to hope given what the CNV has found so far. If not, we may see more brokers going under and this post ends like last night’s.

Expect this story to continue…

Stay Tuned!