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.