Apocalyptic South American fuck-up nudges up fund manager's alpha

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SA_ICONThis Bloomberg lede tiptoes right up to the point of self-parody. (The article itself is good, though – sorry, don’t have a link to the whole thing…)

July 24 (Bloomberg) – The first signs that Hugo Chavez’s hand-picked successor is scaling back $8 billion in annual oil subsidies to the Caribbean is bolstering Gramercy Funds Management LLC’s bullish view on slumping Venezuelan bonds.

Guatemala this month became the first of 18 members of the Petrocaribe oil alliance to consider leaving the program, saying that Venezuela had doubled interest rates on loans used to pay for oil. Venezuela also slashed new commercial foreign credit by 72 percent in the first quarter from a year earlier, according to central bank figures. Under Chavez, Venezuela attempted to export its brand of “21st century socialism” through cheap oil shipments across the region, even as the nation’s budget deficit reached record highs and shortages of consumer goods worsened.

While the election of Nicolas Maduro as president on April 14 has caused Venezuela’s dollar-denominated debt to fall almost twice the emerging-market average, the move to cut oil subsidies would lift the value of the bonds, according to Gramercy.

“These positive policy changes coming from the new administration make it an attractive opportunity,” Jeff Grills, a money manager overseeing $3.6 billion at Gramercy, said in a telephone interview from Greenwich, Connecticut.

1 COMMENT

  1. Hugo Chavez was a douchebag with a category on its own. He simply wouldn’t stay alive to see all the consequences of its own poor economic decisions. Oh no, he had to die, so Maduro and combo would take all the credit for the mess that he created. See, he was not happy with being a douchebag to all the population that was able to understand basic economics and opposed him, he also had to be a huge dick to his own accomplices that would inherit the fiefdom, and have them wrestle the bills

  2. Perhaps ole Jeff Grills has purposely overlooked another factor with regards to his risk assessment for Venezuela, default. Not possible? How many tens of billions of dollars are there outstanding on the international bond markets? How many valuable US dollars, in any given month, is earmarked to Wall Street for interest payments from the current meager offerings from PDVSA to the BVC? Is a national default in the offing? Oh my. Argentina got away with it. Why not Venezuela? Were I Jeff Gills, I’d lay awake at night pondering that very real possibility.

  3. Yes. They doubled the interests rate… from 1% to 2%. That is as significant as Venezuela doubling the price of gasoline. Suggest that investors give Jeff Gills and Gramercy Funds a wide berth.

  4. Francisco, just let me know when Venezuelans wake up from their +20 year economic coma, only then I would actually start worrying about a default of Venezuela/PDVSA bonds. Only one thing to do now, keep clip clip those coupons. As long as the vast majority of people does not complain, (something they should have done massively after their currency lost ~90% of their value over the last 10 years for instance) they would ultimately keep indirectly paying higher coupons. Venezuelans as a society should ask more from their govt. But they they don’t mind not being able to afford housing, cars, have savings. Hence, govt. will only considering defaulting after exhausting all options. First they will keep devaluating the currency, printing local money and generating inflation, etc.The way I see it, investing in these bonds is both an oil market play but also a bet on Venezuelans having a very poor standar of living and putting up with it. It’s sad but it is what it is.

  5. Thoroughly off topic: if you ever choose to have a vote on reader’s favorite title to a post, this one would have to be one of my top choices. You can’t beat “apocalyptic”.

  6. Jeff Grills, IF he has any smarts, is talking/waiting for a bond price uptick to unload, and then only to lessen his loss….

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