Monday, February 2, 2009

Chavez bonds not doing so well before yet another upcoming vote on extending term limits

Venezuela has a huge debt about $46 billion according to Standard & Poor's. Venezuela also has about $29 billion in foreign reserves that it can use for paying the debt. So what's the problem and why has Bloomberg compiled this huge article quoting people from both sides?

It is clear Chavez wants to stay in power, and he's pushing yet another vote to see if the population will approve. Well, because the reality of the matter lies somewhere in between the pessimists who think Chavez is the Anti-Christ and will never pay back the country's debt and is slowly turning the nation into a communist, rouge state and the Chavistas who praise him and listen to every word he says like it's fact.

Foreign investors need to realize there is always an inherent risk when you buy up bonds that where yielding more than US treasuries from a Latin American country. Like... honestly, if there's anything the Madoff scandal should teach us is to not be blinded by greed.

"The average yield on the government’s dollar bonds rose to 17.40 percentage points more than Treasuries, from 14.74 points when he took office a decade ago, according to JPMorgan Chase & Co."

Furthermore, as you saw with Ecuador which recently said it will have to re-examine some of its own foreign denominated bonds, it is conveniently not doing so with bonds held by the Venezuelan government. All those foreign bond holders out there should check to see if there are any buddy's of Chavez who own the ones you do. If they do, I think you'll be safe, hehe.

Click here to read a more factual and comprehensive story about this from Bloomberg