Original art by Mario Dávila

It was the kind of day that shortens bond traders’ lifespans. Midmorning, the day before a big principal amortization payment on PDVSA’s 2020 bond, the rumors of payment problems started flying and the shortest-to-maturity PDVSA 2017 bond’s price collapsed, falling more than five cents on the dollar to 88.

The rumors were fueled by a total absence of official information: radio silence from PDVSA and the Venezuelan state just at the most critical moment. By the end of the afternoon, they’d dissipated, and the bond had bounced all the way back up to 96.

Here’s the thing, though. Somebody bought that dip. Somebody made a lot of money buying that dip.

And let’s be clear: these are not normal swings on the price of a bond maturing just a few days later. What the hell is going on?

The mad swings obviously suggest hanky-panky. Fueled by rampant uncertainty, they prey on jittery investors running on rumor-int. But then, if you happen to be well connected enough in the regime and to have access to real information, that’s the kind of jitter you can easily turn into a pile of cash.

How? Easy. Takes seven simple steps:

Step one: Take $8.8 million dollars out of your cocaine profits.

Step two: Start circulating rumors that PDVSA will not pay on time, even though you have material, nonpublic information that they will. 

Step three: Watch the bond price tumble all the way down to 88.

Step four: Take the $8.8 million and use them to buy bonds.

Step five: Start another rumor that PDVSA will pay after all.

Step six: Let the price recover, sell for $9.6 million that same afternoon.

Step seven: Spend the extra $800,000 on a half dozen new BMWs for your mistresses. While people starve.

Can I prove this is what happened yesterday?

No sir, I cannot.

But if you can see that price chart above and not be a little bit suspicious, you don’t know what kind of people run Venezuela.

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61 COMMENTS

      • Francisco Toro, on Oct 19th you stated grandiosely as a reply to my comment……………

        Francisco Toro October 19, 2017 at 11:24 pm
        “What matters to me is that we make claims backed by actual evidence.

        I have no idea when this became a radically new concept.”

        This clearly is not the case in your report above!
        I said at the time you reminded me of the tide ‘in and out but never constant’
        Well you have managed to do it once again.
        Congratulations on your reporting consistency, you must be learning from the Washington Post.
        I am constantly amazed that people on this forum afford you the credibility you so highly search for.

        • I thought of your recent exchange with Quico when I read this piece. He is, of course, just knocking around ideas and not making an actual claim as to who the buyers might have been.

          Having said that, with something as significant as the 15 October “election”, and the fact that posters here obviously wanted to talk about it (they still are) and have the results analyzed to the maximum, the staff chose to move on rather quickly to other topics.

          That’s certainly their right, and while posters here are not the only eyes reading their product, we’re about as engaged as anyone out there on the interwebs and one would think our interests might reflect those of a wider audience.

          Perhaps the subject of just exactly how a regime so unpopular as this one managed to capture 54% of the vote and 18 governorships will still be reviewed in the coming days as more info comes to light.

          And then again, maybe not.

          • MRubio
            I left you a message on another thread.
            The shipper doesn’t deliver to the address. Apparently only in Caracas.
            Do you have access to AOL, Skype. LinkedIn?
            My daughters have Facebook and twitter also.

          • John, I’ve had pretty decent computer service for the last 2 days hence my long-winded comments and annoying presence here. I’ll write you in the morning via yahoo.

            In the meantime, I’ll be working on a contact in Caracas who can receive the shipment.

            Also, depending on the size of the shipment, would there not be an option of having your shipper transfer the package to an in-country shipper such as Zoom, MRW, or Domesa? Ask if you can.

            The stepson actually has an administrative contract with, and leases office and shop space to Domesa in Tachira. I’ll quizz him in the AM as well.

          • I have 7 trays that are roughly the size of letter trays from the post office. I don’t seem to have the ability (knowledge) to copy and paste a photo here.
            I am sure I can compress them so that they take up less space. Overall the weight is (guessing) 70 pounds or a little less.
            The seed company told me that there are 2,090 packets. I believe them and I’m not counting. 🙂
            I sent an e-mail to the go between to inquire about the shippers.
            I can only have empathy for the conditions that you are tolerating to survive. My own frustration boils over sometimes and I am not subjected to any of the consequences of the criminal regime.
            I have considered splitting the shipment into 2 parts to reduce the chances of them all being stolen. With my luck the first one will make it and the second will disappear and I will still be pissed off.
            Setting up a safe and reliable shipper would be great for future aid.
            I will keep an eye on my e-mail.

          • John, step son says get the shipment to Caracas, give us the name, address, and contact info of a contact within the business and he’ll handle the shipment from there. He’ll use his contacts with Domesa to forward the package to Pta. La Cruz.

            I’ll send same message via yahoo if I can successfully open my email this morning.

          • I hope you can get Yahoo up and running. If there are other supplies that I can send for you, please let me know.
            I have a doctor’s appointment next week and I hope to obtain some antibiotic scripts. With luck, he will let me raid his sample closet.

          • John, Yahoo won’t open and I’ve tried several times in the last few hours. Antibiotics would be a HUGE help, there are none here but there are plenty of ailing folks, especially kids who could use them.

            As for as the recipient of the package you’ll be sending, if you can, use the same mailing instructions I gave to your contact who called me from Caracas.

            Again, all we’ll need to know on our end is when the package is in-hand in Caracas, where it is, and whom to contact to send a Domesa rep to retrieve it. Having the package change hands from your shipping company to ours should not be anything difficult, though again, we are talking about Venezuela.

          • I will have my contact give you the shipping company’s Caracas address and phone number.
            They have picked packages up at the shipper’s warehouse before with no problems.
            I will add your phone numbers with instructions for them to call on arrival / customs clearance.
            I see my doctor Tuesday and I will try to get new Z-pack prescriptions.
            My dentist has changed and the old one was much more helpful than the current one.
            I am still wondering if I should risk everything in one shipment or split it in 2. Either way it sucks. If I split it and the first one makes it with no problems, I’ll be pissed if the second one gets stolen.
            i will include antibiotic ointments also. They are very effective for cuts to keep them from getting infected. Let me know if there is anything else you can think of that is needed. Besides everything.

    • Illegal insider trading refers generally to buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, while in possession of material, nonpublic information about the security. Insider trading violations may also include “tipping” such information, securities trading by the person “tipped,” and securities trading by those who misappropriate such information.

      Examples of insider trading cases that have been brought by the SEC are cases against:

      Corporate officers, directors, and employees who traded the corporation’s securities after learning of significant, confidential corporate developments;
      Friends, business associates, family members, and other “tippees” of such officers, directors, and employees, who traded the securities after receiving such information;
      Employees of law, banking, brokerage and printing firms who were given such information to provide services to the corporation whose securities they traded;
      Government employees who learned of such information because of their employment by the government; and
      Other persons who misappropriated, and took advantage of, confidential information from their employers.
      Because insider trading undermines investor confidence in the fairness and integrity of the securities markets, the SEC has treated the detection and prosecution of insider trading violations as one of its enforcement priorities.

      • In around 1980, I was a Proofreader for what we called the “Financial Printing Business” in the states. This is a regular printing company, but dedicated to the finance industry.

        We produced IPO documents, with lawyers and. Accountants coming to our lavish conference rooms for 24 hours straight…while ordering lobster, steaks, you name it…to read and edit each draft until it was final.

        I was a stupid young kid of 24 (as opposed to a stupid old fart of 60 now), but I had to be bonded. After all, I could pass on critical information to people who DID know how the game works.

        Bonding in my sense didn’t mean the responsibility of carrying money. It was about me providing COMPLETE extended family info, and allowing the powers that be unfettered access to examine my activities 24/7. No cell phones then to easily record everything.

        This shit was closely monitored.

        • Interesting stuff Ira. I bet you were privy to a lot of insider info with that job.

          While my position did not require bonding, during that same timeframe and for years thereafter, I measured well-site data, specifically oil, gas, and water flow rates on newly-completed wildcat wells. Heck, even though there was always a company rep on site who received our data, I knew the well’s potential even before the company president did.

          The early 80’s was boomtime in the oil & gas industry and we tested wells for a lot of small, publicly-traded companies whose stock fluctuated wildly depending on the outcome of those well test reports. Again, I was not bonded, but my boss made it clear that both he, and the SEC, would have my head on a platter if I let my interest in penny stocks override my better judgment about protecting the confidentiality of our client’s data.

      • I’ve never been a fan of conspiracy theories. I advice people on the buy side almost on a daily basis, and many of my clients did sell part of their holdings this week to reduce risk, given that there was and still is a non-negligible chance that the payments don’t arrive on time and trigger a temporary technical default, even if bondholders get paid 100% a few days later. This price volatility is not rare in distressed debt. Of course, some will try to generate rumors to profit from volatility, but it is unclear whether they are actually successful in moving prices, lacking a counterfactual. Personally, I don’t buy Quico’s hypothesis at all.

  1. Yep you know it. We’re close boys, watch what happens when the dollar hits 60 and the wave of inflation comes crashing in behind it. That fair priced beef fiasco really pissed people off in my town. Trucks rolled in with meat promised at 18,000 Bsf/Kilo and were run off when they were offered at 45,000 per kilo. Nobody bought a thing, run out of town. Er pueblo doesn’t have 45,000 to spend on 1 kg of hamburger. I feels so sorry for resale, the inflation is impossible to keep up with. And no cash and the electronic payment method is totally unreliable.

      • Just a couple of weeks ago we were paying 14,000 bs for a kilo of beef here. Then the local butchers all got together and everyone raised their price to 35,000 which is where it is today. Part of the problem is the huge distortion in prices from rural areas to the cities. Cheese here is 22,000 per kilo, in the cities and hour’s drive from here it’s almost double. Lots of product leaves the small towns never available to the locals.

        Dolar Today has the exchange rate at about 40,000 right now though I had someone sell me a few dollars earlier today at 20. I don’t buy a lot of dollars because there aren’t many offered, but I’ve got to believe there’d be a deep discount from that price that’s published daily.

        As for Marc’s comments about resale, he’s right. Buy a product today at X and put it on the shelf. Sell out the product in a month and go to repurchase and it’s 1.5 or 2X, sometimes more. A lot of the mom and pop shop bodegas are closing, they just can’t keep up.

        For us, the fastest, easiest money is in transfers. We clean out all our cash at the end of each day with a gain of 15 to 20 percent depending on the transaction.

      • Pilkunnussija, you’re right abut the price in the US. This means that someone there making minimum wage can buy about 20 lbs, of beef for what they make in an hour. For a person in Venezuela making minimum wage, it would take her/him almost a two month pay to purchase the same 20 pounds.

        • Cattle eat more expensive grass in the U.S., so their cost is twenty times greater. You have my argument, that Venezuela has great potential as an exporter, not just beef and agricultural products, but as far as I can tell, the corruption culture is at least one of the things to (ahem) phase out. Dictators seem to be popular in Lat AM, too. I think part of the issue is Spanish heritage, that ironically, rejects any “invaders”, so foreigners with capital to invest in business infrastructure are targeted for “stealing from the nation”, as in the decision to nationalize oil which is now being bought up at bargain basement prices with the whole country in debt. I fail to see how paying royalty and or taxes on profits from providing needed goods and services is “stealing”. That’s OK, though – it won’t be the only one of my failures to see.

          • Considering the climate, water resources, and arable land, I’m convinced this country could feed the rest of S. America if it was well-organized and properly focused on agriculture.

            Having said that, I expect to see pigs flying first.

          • I know Venezuelan beef is/was supposed to be the “good stuff,” like Argentinian beef.

            But how come I always much preferred U.S. beef, so I hardly ever ordered steak in VZ?

            Are my tastebuds used to whatever unnatural crap they inject into the cattle and their feed up here in the states?

            Hey, this was a long time ago, but I went to good restaurants. And I had the same thoughts about beef in Brazil, although I loved their charescurias and I know I spelled that word wrong.

    • Just had a guy stop out front of the bodega who wanted to chat politics. He tells me, “the country is such a mess, but with the elections next year we’ll have a new president. I hope he’s one who freezes prices”.

      Sigh. Where does one even begin?

  2. A great piece of forensic reporting would be to dig in and find WHO bought bonds during the dip. Seems like the SEC would be all over that one. Is there any way to dig out this information? Francisco raises a great question, one that almost goes without saying. The trick is to try and answer it. I’d pay money to find out. Make that knowledge public and see what happens.

    • Who’s going to prosecute, since Lat Am leaders rule out any military intervention? As I read it, cases are being built for much more serious crimes than insider trading.

  3. Señor Rubio, amigo mío, ¿quién es usted? Vive en el medio de la nada en algún lugar de Venezuela, pero parece que creció en Columbus, OH. Recientemente, dijo que tenía 98 años, pero me pregunto si ese es un número de base 10 …

    Who are you, Dude? Please tell me. You are on every thread but you have a functioning farm in VZ?

    Despite everything?

    Tell me, tell me!

    • I know him from another website, and he’s the real deal.

      And in English, the fucking guy never misspells a word and his grammar is always perfect.

  4. J, 98 I’m not, I just tell people that…..and I usually add that I feel much younger than 98, like 95.

    I ranched and farmed for 10 years years here but sold the place at the end of 2015 because while the ranch was very close to town and I loved it dearly, I did not live on-site and it became too much to manage with my other businesses. For years it was a peaceful place, night and day, but within the last 5 years or so, farms and ranches have become major targets for theft, armed robbery, and especially kidnappings. There’s not a single local owner I’ve spoken to over the last few years who has not had serious problems on his place. Many have sold out and moved on and the country suffers because of the lack of security and loss of know-how.

    We still provide agricultural services to others, plowing, planting, fumigating, corn and grain sorghum, and also service those who are involved in horticulture along the local river, but all our equipment is here at the house under roof every night.

    My lady runs the largest and best-stocked bodega in the pueblo and it’s a full time job for her. I help out in the bodega when I forced to do so but don’t have the patience with the clients like she has. In the past we processed thousands of kilos of coffee which we bought raw up in the mountains but that business has really tanked in the last two years. We also process and sell animal feed when we can find the right mix of grains, those sales typically occurring in the summer months, Jan – May. Within a few weeks we’ll be participating in the local corn harvest which will be lowest I’ve ever seen here. We buy and store 30 or 40 thousand kilos of corn every year…..the lower quality material going to the animal feeds and the best material sold raw or trillado for further processing into corn meal by the locals for their families.

    Depsite my frustrations (and frequent outbursts here) with the political situation and the sometimes incomprehensible cultural aspects of Venezuela, I dearly love the country and see it as having enormous potential. Unfortunately, I doubt I’ll live long enough to see it pull out of this decline and that’s a shame..

  5. Things get interesting when you consider that for such level of manipulation to happen, such rumors must come out of trusted market-sources. The level of complicity between bankers and your typical bolichico in an operation such as this must be absurd.

  6. If you’re buying the bonds, you deserve to be manipulated.

    Only an idiot would think this country has a future.

    And I’m not joking.

  7. Mrubio, I pasted your reply into a Word doc and saved it.

    My friend, how do you keep your spirit up? I live in the US and sometimes my own spirit flags, in much better circumstances than yours.

    Is there any hope? Are there others like you and your lady?

    Hope to meet and talk some day,

    J

  8. J, there were once a lot of gringos here in Venezuela, especially with the oil industry, but our numbers are getting smaller by the day. Some retired here, some bought property, some married. Most have left. I see that there are a few who post here who obviously still live here, though I know none of them personally.

    The only other gringo I know who lives in this general area is a lady who first came here with the Peace Corps many years ago and stayed for the long haul. She owns a farm just east of Maturin and is named Mary Ramsey. I use her name freely because she’s well-known throughout the country for breeding Carora milk cattle that produce more milk per animal than anywhere else in the country. She also teaches, or taught, at one of the universities in Maturin and trains college students on her place in animal husbandry techniques.

    It’s been a good while since I last spoke with Mary, and unfortunately when I did, she was thinking about quitting the country. I don’t know how she has stuck it out this long: Her farm pratically borders the small pueblo of La Pica which is where Venezuela’s infamous La Pica prison is located. Farms very near municipal areas are much greater targets for theft and armed robbery than those located in very rural areas and I know she was having increasing problems.

    I need to contact Mary again. She’s a saint. Thanks for asking about our circumstances.

  9. Looking into the vast acreage of agriculture, I got several pages into two PDF’s, one about land use and ownership in venezuela (1993) and one about the same in the U.S. (2017). I was right that socialism had its roots well into the ground in Venezuela long, long before Chavez. There was a land reform program in 1960 that was supposed to give land to “the poor” – and that never worked out as it was planned. So of course, they (the agraristas, those with a socialist view),did more of it, and it worked out even worse. Whee.

    The market to buy and sell land in V. is restricted, I gathered, by the nature of the leases. You can leave land to your heirs, but you cannot sell it (under the land reform leases). Sounds like Mission Vivienda, eh? The government owns a lot of land.

    The general idea behind farming is that large farms do better commercially and are more prevalent in developed countries, but, surprisingly, something like half the land in the U.S. is rented. That indicates to me that argi in V. could get a big boost from people with knowledge and the capital to invest. I would guess it is better to be paid or salaried on a well-organized farm, than to work on one’s own plot. A larger operations would have better resources for security, more workers on site, even patrols.

    Thing is, there has to be a guarantee of clear title and ownership and use. I have no idea what crops are best in V.

    • “The market to buy and sell land in V. is restricted, I gathered, by the nature of the leases. You can leave land to your heirs, but you cannot sell it (under the land reform leases).”

      As it relates to agricultural land, there are basically two types of property here, private, and government-owned.

      In my experience in this immediate area, just a fraction of farmland is privately-owned. From what I understand, its history is that it was land granted by the Spanish government, or early Venezuelan governments, to individuals and the title has been passed to heirs over the years. Such property can be used as collateral for bank loans.

      I did not own the land which I ranched and farmed here, I owned the improvements……fencing, housing, and other structures. When buying or selling such a piece of property, while the total acreage and boundaries are clearly identified in the document, only the improvements and any planted crops are identified as changing hands. The improvements can be pledged against a loan, but the land itself cannot.

      • Thanks for the clarification, that’s interesting. They say Joseph Heller invented Catch-22. I guess they hadn’t heard about Venezuela. I wonder, if someone sells their improvements, does title to the land they are on remain in his family?

        • If you hold title to the land, you can sell the land, improvements, etc. If the government owns the land, you hold title to the improvements only and can sell only those improvements.

          The land cannot be pledged as collateral if it’s government-owned.

          • Ah. Ok. There may be something similar in the U.S. with oil leases. The idea is that on government owned land, it’s more of a tenancy arrangement, that buyers of the improvements gain the right of use, and the government records that change while still retaining ownership of the land.

  10. Perhaps the dip was engineered to provide some regime connected players with a bit of extra money but also market volatility does naturally follow the existence of uncertainty in information, we cannnot know which it was…..both explanations are credible ……….the important question however is not made , if payments are being made (there are other large payments yet to be made) …where did it come from ??

  11. In Venezuela the system was never created to inventory land ownership in a reliable way (like was done in places like Costa Rica) so even before Chavez establishing land ownership was always hedged with uncertainty …you could register the same land twice or even unexisting land in an official registry, giving rise to quite a few frauds , specially in rural areas………, subsistence farming (el conuco) is tied to a life style and culture which is very common in Venezuela…, counterposed to it is commercial farming which requires capital investments and a business organization ……….subsistance farming is much less productive than commercial farming , if you break up commercial farming to give the land to subsistence farmers the end result is either the abandonment of the land or a big fall in production. ………ideologues live in utopia so they dont take account of basic realities in imposing their dreams upon an institutionally frail society…!!

    • “ideologues live in utopia so they dont take account of basic realities in imposing their dreams upon an institutionally frail society…!!”

      Very very well said, it’s a shame it comes with mass brainwash strategies as well. That’s why chavismo still has about 4 million TRUE believers/voters. You gotta hand it to G2, they really have been doing a great job for the last 18 years!

      Cubazuela is here to stay for a long time to come!

  12. Jesus…I don’t even know where to begin. Unfortunately, Francisco Toro always seem to analyse things in the exact opposite way they are supposed to be analysed when it comes to finance. When it is black, he says white, if he says down, it usually means up (I am seriously starting to think it is an actual condition). Let’s start with the concept of the “price collapse”. In the context of a nation/company whose bonds are deeply distressed, the fact that the price of the 2017 bonds went from 96% to 88% is actually quite surprising, but not because of a “collapse” but more because of how they actually held their value as opposed to “collapsing”. The surprise is that they didn’t go all the way down to 30-40%, which would have been in line with what happened to rest of the curve (what is typically the norm rather than the exception in these cases – the flattening of the curve), not that they “collapsed”, because they didn’t (unfortunately economists love to just assign names to things and expect them to become something just because they named it as such). But also, does this come as a surprise given the govt. mentioned that they were going to buy back part of the upcoming maturities to perform liability management operations (via the Chinese), an operation which they have performed many times in the past? Well obviously not! So all the bla bla about insider trading etc. is nothing more than bla bla by frustrated and financially illiterate people. Please look at the regulation AND at the prospectus of the respective bonds before claiming idiotic things. Moreover, if someone would want to make the most profit, they would go to the longest maturities (as they would make the most money because the fluctuations tend to be larger), so you are also wrong on that count. Sigh…Obviously this comes as a disappointment for Francisco Toro, the Wall Street anal-s and all the people that have been calling for a default every 6 months. And now it will be about reserves being $10bn., etc. etc, when we already know that the money is not kept there…

  13. […] After the sale is over, tokens will likely be listed in exchanges that don’t give a damn about US laws or the morality of financing a communist regime in the 21st century. This is when traders will come into play, and with direct control of almost 10% of the tokens, I’m counting on the government to execute calibrated pump-and-dump schemes to raise even more money. Y’know, like they used to do with bonds. […]

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