Our Real Comparative Advantage is in Arbitrage

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id1964
…because you can’t make a tin-foil hat without tin-foil.

Now that the government has ever-so-sovereignly declared that Bs.31,200 is the sovereign price of a ton of aluminum in the domestic market, why not try this fun experiment at home?

  1. Knock on Mr. Alcasa’s door and say, “Mr. Alcasa, I’d like a ton of aluminum, please.”
  2. Hand Mr. Alcasa his 31,200 bolivars.
  3. Put your shiny new hunk of metal on a ship, and take it abroad.
  4. Step gingerly past the hapless CVG marketing official whose job it is to try to sell an identical hunk of metal on the international market for $2,500, and hawk yours for the going rate (US$1,780).
  5. Bring your US$1,780 back to Venezuela, buy Bs.80,000 with them at the street rate.
  6. Go back to Mr. Alcasa say, “Mr. Alcasa, I’d like 2.56 tons of aluminum this time” as you hand him his 80 palos.
  7. Put your 2.56 tons of aluminum on a boat. (You may find you need a bigger boat this time.) Hawk ’em abroad for $4,550.
  8. Bring your $4,550 back to Venezuela, sell them on the street for Bs.203,820
  9. Knock on Mr. Alcasa’s door once more. “Jeepers, Mr. Alcasa, could I bother you for 6.53 tons of aluminum this time?”
  10. Ship them off, sell them for $11,630.
  11. Bring the $11,630 back, sell them on the street for 520,940…
  12. Keep doing this as long as there’s a scrap of aluminum anywhere in the country to be bought. 
  13. Buy a Gulfstream, and a polo team.

It really is remarkable: chavistas insist, as a matter of ideological pride, on selling $20-bills for ten bucks, and then they swear the reason they keep running out is a massive CIA conspiracy.

(BTW, the aluminum purchasing-power-parity exchange rate implied by the new precio soberano is Bs.17.50:$1 or so…make of that what you will.)

1 COMMENT

      • No, no, no, Quico, you get the physics wrong.

        It’s only the whole system entropy delta which is bounded to be positive by the second law. But locally, the entropy delta can be negative as long you can dump the excess entropy somewhere else in the whole system (an action which, itself, tends to produce more entropy).

        Here, the boundary of the low entropy local system is defined whether or not you get Mr. Alcasa to answer when you knock at the door. If you have the right connections, you’ll get an answer and a ton of aluminum for 31,200 bolivars. If you don’t get an answer, it means YOU are the entropy dump.

        • To put it another way, since some are still hoodwinked by the beatitudes of this government ….

          With very, very few exceptions, meaning, one or two pals with greased palms, el pueblo soberano, the people, are nothing more than a useless, decaying dump for this government of *socialists*, who maliciously create smoke screens of conspiracies, in order to hide their scams.

          Are you getting it Arturo?

        • Wait a minute! OMG!
          Wouldn’t that help explain the supposed disappearance of the ‘all aluminum’ Presidential Airbus?

    • That’s the socialist explanation, yes! They’ve surpassed the law of supply and demand (and therefore inadvertently broken the second law of thermodynamics). Giordani deserves not only the noble prize in economics, but physics as well!

    • The Laws of Thermodynamics are only another Imperialist plot subjugate and enslave the masses. Revolutionary Bolivarian thought tells us that we need not pay any attention to such Capitalistic “Laws”.

  1. Vergueishion, cada vez que veo estas cosas (como la que acaban de mencionar, o las de derwick, o las de la aban pearl, o las de pare usted de contar…) me siento como la vieja de los mangos… y tengo la impresion que mas de uno se siente asi.

    Vieja de los mangos:

    haganse los cambios siguientes en la grabacion en cuestion
    * cerca = fuente venezolana de recursos (vease PDVSA, CVG, etc)
    **mangos = riqueza venezolana (as in los dolares que le pertenecen a la nacion)
    *** diarrea = justicia divina (de esa del estilo del viejo testamento, con ulceras, fuego, granizo y demas efectos especiales en 3D)

  2. I wish I could tweet this:

    “It really is remarkable: chavistas insist, as a matter of ideological pride, on selling $20-bills for ten bucks, and then they swear the reason they keep running out is a massive CIA conspiracy.”

    Actually, I wish I could make people understand it!

    • It would be funny, if it weren’t so tragic!

      Perhaps I would see the humor in it better if my wife were not Venezuelan, so her pain at the political failures of Venezuela become personal for me. In a slapstick way, it is highly amusing, something like the three stooges repeatedly stepping on a rake and getting hit in the head.

  3. Bring your US$1,780 back to Venezuela, buy Bs.80,000 with them at the street rate.
    Go back to Mr. Alcasa say, “Mr. Alcasa, I’d like 2.56 tons of aluminum this time” as you hand him his 80 palos.

    So in Venezuela, palo refers to a thousand of a currency. In Argentina, a palo refers to a million of currency.Palo verde is a million dollars in Argentina. Back in the days of hyperinflation in Argentina, a palo of pesos became a rather small amount. Not worth shaking a stick [palo] at.

    Good piece on arbitrage, Venezuelan style.

    • actually a palo used to be a million in Venezuela too before they took three zeroes out of the bolivar and made it “fuerte”

  4. By coincidence, Armando.info publishes this today. http://www.armando.info/sitio/index.php?id=17&tx_ttnews%5Btt_news%5D=78&cHash=168717ddad5a8b256f1c07960b36958b It explains that because of the miracle of advance sales contracts, if Mr. Glencore shows up to buy aluminum and Mr. Alcasa has none, Mr. Alcasa at times must buy that aluminum. From Mr. Glencore.

    “Como deudores de Glencore, la industria estatal del aluminio ha llegado, en las ocasiones más extravagantes, a pagar a Glencore con insumos que le ha comprado, nada más y nada menos, que a la misma Glencore.”

  5. Todays El Universal publishes an article explaining how both Bauxilum and Venalum are in hock to Glencore for practically the whole of their production for the next 4 years . Glencore ( the succesor to that old friend of Venezuela : Marc Rich) both sells and buys bauxite from Venezuela . The money quote from the article is “Un informe de auditoria interna de Bauxilum senala que durante 2011 y 2012 la empresa adquirio 900.000 Toneladas de bauxita a 76.5 millones de dolares y las revendio a los mismos empresarios por 28.8 millones.”
    Does anyone remember Mr Mark Rich , that benefactor of humanity who got pardoned by President Clinton from a long prison sentence handed to him by US Courts for all kinds of presumably nefarious activities Hey seem to remenber that the name of his company appeared among those which did business with the Petroespias , in that old old Pdvsa scandal.

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