The Devil's Excrement

In Corpoelec’s report from late December on the electricity crisis, the first aid to the crisis was supposed to come in February when Planta Centro was supposed to come back online and contribute at least 400 MW to the power grid.  However, today’s El Nacional says that it just will not be ready.

According to a Professor from Simon Bolivar University, the upgrade of the plant is way behind schedule. He says that if Planta Centro alone were up and running with its full 2,000 MW there would not be an electricity crisis.

The overhaul of Unit #1 began seven years ago and are not ready yet, while the original fist phase of Planta Centro from scratch took the same seven years when the plant was built originally in 1978 in the bad old days of the fourth Republic, which is looking better and better everyday.

Planta Centro has 5 unit and are all currently down according to a report from the interconnected system. So, don’t expect any help from this even if Minister Ali Rodriguez chose Planta Centro as his first site visit as Minister of Electricity.

So, the strange story of the CD’s continues. Below the history of the swap exchange rate since the Central Bank announced the so called “auctions” in which Central Bank CD’s are sold at a fixed price. As you can see the red line (right axis) shows the price of the swap rate for buying dollars since the announcement of the CD auctions. Remarkably, the only impact so far of the sale of the CD’s has been psychological, much like when the Government sells bonds for Bs. The swap rate went down from Bs. 6.4 to the $, down to Bs. 6.1 the day of the first auction (before anyone knew if they had given you anything (the results were announced the next day). At that auction, the Government sold US$ 50 million at Bs. 5 per dollar and the maximum amount allocated was US$ 60,000 shown on the left scale of the graph in blue.

At the second auction, the Government gave up to US$ 50,000 per order, also at Bs. 5 per $ and a total of US$ 50 million.

Once people realized the small amounts allocated and that the auctions will not be daily, the swap rate went to Bs. 6.1 per $. In the third auction, the Government lowered (??) the price of the dollars to Bs. 4.8, increasing the arbitrage between the swap rate and the CD’s, but it sold only US$ 40 million. By then the maximum allocation was $15,000.

And no sooner had Deputy Iroshima Bravo said that these auctions were transparent and organized in such a way that the public would benefit by limiting how much corporations obtained, the Central Bank held the fourth auction, also at the lower price of Bs. 4.8 per $) in which orders were given up to $24,000 maximum, but all individuals were excluded, only corporations had their orders filled according to the Central Bank. (I think this tweak is correct, but $24,000 does little to big buyers)

Thus, after four auctions and US$ 180 million, the swap rate is back up, the Government is selling fewer dollars and making them cheaper, increasing the arbitrage. Furthermore, the distance between Chavez’ “revaluated” target of Bs. 4.3 per $ and the swap rate remains 41.8% above the official rate.

Go Figure!

If anyone understands the BCV’s  strategy, please explain…

In an act of revenge, censorship and just sheer personal vendetta, the Venezuelan Government shut down the cable signal of RCTV tonight, because the broadcasting company refused to carry Chavez’ “cadenas”, which force all TV stations to carry Chavez’ speeches whenever he so desires. (Today, he forced a few minutes of “cadena” while holding a rally for his party PSUV in Caracas, in a clear illegal act of abuse of power and Government resources)

Recall that RCTV had been shut down as a local broadcaster and its equipment confiscated in 2007, when Chavez “decided” he had to shut down the TV station locally. Its equimpent and property has yet to be returned to its rightful owners, while another Government media outlet uses it in its programming (Even if very few people watch it!)

A couple of months ago the Government issued a decree taylor made for RCTV International which managed to keep afloat via cable TV and satellite TV. According to this decree, if 70% or more of the programming was made in Venezuela, the cable system and satellite system would have to carry Chavez’ speeches.

As I arrived back at home tonight at midnight, I was surprised to hear a loud pot banging in my nighborhood as I entered my home, RCTV’s signal had been shutdown at midnight and Twitter was very active talking about the news (#freemediave).

Another day of abuse of power, censorship and resentment by Chavez and his cronies. Another day in which the rights of Venezuelans have been trampled upon.

And some still dare call this a democracy.

I am still outisde the country on a family matter and will not be able to report on today’s events. I leave you with a poster from the Maracaibo march which tells us what the problem is:

(Note, this is not BS, this is a serious post, even if you can not believe it)

Just when you think you have heard it all, like it was the bolibouregois that promoted the cheap dollar or cheap imports, or that Venezuela is going to become an exporter thanks to the devaluation, here comes State TV station Vive and says that the earthquake in Haiti was caused by Obama’s Government, thanks to new technology by the US Navy that was tested for the first time. Of course, this is not an invention of VIVE but merely the propagation of rumors because the US Navy fired a missile in some war games in the Caribbean.

Of course, the nuts are not new, you can read here how the Kobe, Japan earthquake was also induced. This one is nice enough to suggest the Haiti earthquake was a mistake, it was just a test gone awry. But Cahvze and his fully controlled media are by now in love with the idea, today Radio Nacional de Venezuela had a complementary article, which you may read at your own risk.

The source of all this is supposedly a report by the North Russian Fleet, which is not clear whether it blames the earthquake on the test or just notes the coincidence between the two.

The ultimate goal of these tests? Of course, Hugo’ buddy in Iran, who always seems to take the limelight. So, my fellow Venezuelans, Obama may be ready to shake you, but we have an early warning system:  not until Iran is attacked first. So, for now, you can rest at ease. We are not the biggest enemy of the Empire.

Yet!

Note added: The Russian Navy is denying it ever said that!!

Barely a month ago, Chavez inaugurated, for lack of anything new in eleven years, a store front containing a “socialist arepera” where the Government would sell the Venezuelan staple at Bs. 5 per arepa. I thought in six months they would be failing, even if Mr. Super-Saman was going to work four hours as a volunteer there every week (Has he?).

Well, Tal Cual reports today that the Arepera Socialista is facing supply problems, from lack of flour (no arepas then!), to lack of ingredients, its customers are getting mad at the bad service. Add to this random hours and long lines and as predicted here and by Daniel (He argued a Government that could not run a dry good business in Mercal, would certainly fail at this).

As Tal Cual reminds us today, the Socialist Arepera may be going by another Chavez proposal, the “Empanada Route”, which never got off the ground as a Tourist attraction.

Par for the course for Chavez and his hare brained ideas.

Tonight the Superintendent of Banks announced the intervention and shut down of three more banks in Venezuela: Inverunion, Mi Casa and the development bank Banco Del Sol. The first two were associated with Chavista boliburgueses, while I suspect the third one was too, but can to swear that was the case. Inverunion was bought by Gonzalo Tirado, former President and chief strategist of Stanford Bank in Venezuela and Jose Zambrano, another infamous friend of the robolution.

While they are small, they add up to the crisis and FOGADE that is supposed to protect depositors will have to provide the funds for this. Since there are none, the Government will have to contribute, more money printing, more inflation, another failure of the revolution and more banks to come.

Even revolutionary movements like the Carapaicas are somewhat pissed at the “robolution” so Chavez better watch out, there are some baseball games coming up and “You’ve struck out” has hit a chord in Venezuela. How many such banners will show up at the baseball finals?

Since I am home and going on a very personal trip tomorrow, I can’t look up at my database to see what deposits were like at these three institutions. You can bet Mi Casa is not as small as you think it is. However, I do know the Government “plans” to solve part of this crisis by increasing the contribution from banks to FOGADE from 0.5% of deposits to 3% of deposits. Many banks in Venezuela don’t even make 3% of their deposits in profits, so you can bet this is another problem in the works. For those that are subscribed, I recommend Francisco Faracos’ interview in today’s El Nacional, one of the most lucid descriptions I have seen recently on the state of disarray of the Venezuelan economy. God helps us!

And by the way, recall I was accused of being scandalous when this financial crisis began. Well, three more added to the list and still counting, another triumph in management and supervision by the robolution. And Chavez helping the panic at each step of the way!

And these were the friendly guys to the silly Chavista process!

So Chavez gave his State of Disarray of the Union speech on Friday and it was as nutty and disastrous as the country:

–He named Jorge Giordani Minister of Planning AND Finance. The man responsible for the bad state of the Venezuelan economy  as well as the electric grid is now given more power than ever. I guess Chavez had to join the two ministries now that Jesse is not around. At least Jesse knows that he doesn’t know.

–Since crime has become the number one problem for Venezuelans, he had to say something about it, but it did not come out too credible. Said the Dictator:”Crime and violence is a political problem and one of the greatest enemies of the Bolivarian revolution. I have no doubt that the crime and many of those criminals bands are trained, financed and backed by the counterrevolutionary bourgeois, the Yankee empire and its lackeys.” Unfortunately for Hugo this will not fly in the barrios where they have not seen a cop, a bourgeois or a Yankee in the last eleven years as crime by their own has soared.

–He once again spewed out the BS about Coltan, which I wrote about earlier. The charlatan now thinks it is worth US$ 100 billion. Well, if it is a money losing proposition, then it is really worthless and if it is in Venezuela manged by Chavez and his incompetent robolutionaries, it is worth even less. Oil use to be the sure thng, but in eleven years Chavez and his brilliant cronies have been unable to come up with a single new project that has generated a single new barrel of oil.

–Chavez said that the Venezuelan economy is fine, not like the US, because the US’s economy generated unemployment. Well, you have to be ignorant to believe that an economy can shrink 2.9% like the Venezuelan one and not lose jobs. Oh! by the way Hugo, the Venezuelan economy shrank more than the US’s in 2009. (Which shrank by 1.9% a full point above Venezuela’s). And inflation is going to top 60%, but has anyone told Hugo?

–Chavez says he is a Marxist but never read Das Kapital. That’s like me saying I love West Indies cricket and don’t understand the game.

–Chavez called for the Vatican’s representative’s building to be exorcized because it held a rapist in its walls. Once again Chavez assumes someone is guilty until proven innocent and he personally becomes Judge and Jury. What else is new?

–And once again, Hugo said he would revalue, because the swap rate is going to Bs. 4.3 per dollar. He was probably assured this by the same bullshitters that told him in September they would drive it down to 65% above the Bs. 2.15 per dollars. Maybe they think that if they keep increasing the official rate, they will find convergence. the problem is they keep running the Government and don’t realize that it is not a problem of magnitudes but of policies. They drove the swap rate down below Bs. 5 briefly, because they spent US$ 11 billion in bond sales. But four months after the rate is near Bs. 6 per dollar and it would be hard for them to issue  11 billion dollars more. Meanwhile, Chavez is taking US$ 7 billion from international reserves. Given OPEC’s high current capacity, if oil prices drop, this could be catastrophic.

A few people have asked me about the zero coupon bonds that the Central bank is selling asking why it is I don’t think it will drive down the swap rate down. While Chavez claims he is revaluing the currency because the swap rate will go to Bs. 4.3 per dollar and some respected analysts think this mechanism will work, I disagree. I actually think that the way it is currently designed, this will get nowhere and I think we have already seen the first signs of this. Unless the Central Bank changes the design, it is wasting its time (and our money). Here is why:

First of all, the process is not an auction. It is a sale of dollars at Bs. 5 per dollar, far from the swap rate that closed on Friday at Bs. 5.85 per US$. Thus, there is no way to lose, you sell dollars at close to Bs. 6 and get some sort of democratic allocation at Bs. 5. Whatever you get, if you do, is a gift. Zero risk gift at that. If it was an auction there would be guessing and there would be risk, those needing more dollars would pay higher for it and would get them. There would be no sure thing.

Second, the big drivers of the swap market are corporations. They need millions of dollars not thousands, but if one is to believe what people are being allocated and that nobody has been given preferential treatment, on the first day, orders above $ 60,000 were allocated $60,000, orders below were allocated the full amount. On Thursday, the same thing happened but the number went down, orders above $53,000 were given $53,000, those below the full amount. (I have heard someone was sold millions in the CD’s, either they got preferential treatment or they placed many small orders)

And we come to the crux of the problem: As time goes by, more institutions, individuals and companies will put in more and more small orders, much like in the bonds sold by the Government to drive the swap rate down, but which failed to do so except psychologically. Each day smaller amounts would be allocated and the swap rate will not go down, unless the Government sells a huge amount and wipes out the bids. But I understand the first day there were US$ 500 million in orders. Thus, by the end of next week we may see allocations of $20,000 per orders and thousands of orders.

Whether the CD’s are registered abroad or not to me is almost irrelevant at this point. If they are, those that get them will sell the CD’s and then go back to the “auction” to ask for more. So, it may actually go against the Government to register them. Note that the first day, local banks were buying the CD’s back from the buyers. On the second day they did not, because the Government changed the wording and removed what the Prospectus said on the first day: That the zero coupon bonds would be sold in the international markets. The BCV says it will now register them abroad.

Thus, I expect the Central Bank to change the mechanism soon. In the meantime a few hundred million dollars would have been wasted by the Central Bank. What else is new in a wasteful and incompetent Government? I obviously have ideas as to how I would do it, but I will not tell the BCV how, in their self sufficiency and arrogance they haven’t even asked.

And to make sure I answer all the questions, these bonds will not trade in local currency, it is explicitly prohibited by law.