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10/25/08

Food for economic thought from Galbraith

JK Galbraith is one of the great economic thinkers of the last 100 years. This quote from his book "The Great Crash" was sent to me by reader 'PS' a couple of weeks ago and it's been gnawing at me ever since. I think it's very apt for our current world situation and excellent food for thought. Thank you PS for the headsup.

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To the economist, embezzlement is the most interesting of crimes. Alone among the various forms of larceny, it has a time parameter. Weeks, months, or years may elapse between the commission of the crime and its discovery. This is a period incidentally when the embezzler has his gain, and the man who has been embezzled oddly feels no loss.


There is a net increase in psychic welfare.


At any given time, there exists an inventory of undiscovered embezzlement in, or more precisely not in, the country's businesses and banks. This inventory—perhaps it should be called the bezzle—varies in size with the business cycle. In good times, people are relaxed, trusting, and money is plentiful. And even though money is plentiful, there are always many people who need more. Under these circumstances, the rate of embezzlement grows. The rate of discovery falls off, and the bezzle increases sharply.


In Depression all this is reversed. Audits are penetrating and meticulous. Commercial morality is enormously improved. The bezzle shrinks."


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Otto's freebies, get 'em while they're hot

At a loose end this weekend? Nothing meaty, useful and interesting to read? Well don't blame me. Choose from this list and get wise before Monday. Enjoy.

Free report from Moody's on the erosion in mortgage creditworthiness and the likely implications. This new report from Moody's is required reading to get a handle on the future credit map of the USA's real economy.

Free e-book "Vulnerability Management for Dummies". Teaches you how to protect your network system in easy steps. Highly respected publisher.

Free e-book "Reminiscences of a Stock Operator." Lefevre's all-time classic is as relevant today as it's always been. Regularly voted the best book on investment in the stock market ever written.

Free bespoke report on Metanor (MTO.v). Your humble servant gives away his NOBS wares at no charge.

Free bespoke report on Andina Minerals (ADM.v). Ditto, and real easy to get hold of, too.

Good weekend reading from respected bruddasites*


John McCain was friendly in secret meetings with Pinochet in the 80s? Why am I not surprised here? World's best blog Borev dishes the dirt.

Abiding in Bolivia was there! Check out el duderino's post and photos taken at the mega-rally in La Paz that saw Evo get his draft constitution through parliament and into the hands of the people that really matter on January 25th. 300,000 souls in full party mood.

Memory in Latin America picks up on the Peru army brutality report mentioned at this humble corner of cyberspace yesterday. Lillie has quotes from Peru's new PM Yehude Simon on the situation. Good follow-up material. Also, check Lillie's report on the Colombia indigenous uprising and the Colombian army's predictable response to it all.

The Mex Files shows how Calderón's "firm hand" and war against organized drugs is going. The short answer is "not very well at all, really", but check out the post for the stats and facts.

If you read Down South regularly, you would have heard about the road blocks and protests on the road to Cusco, Peru an age before even the Peruvians. Here's a report from El Comercio that shows how the five day protest blew up in the faces of authorities who just tried to ignore it. 50 injured, including 15 police officers.

Rumours in Argentina this weekend are that Central Bank head Martin Redrado is about to resign. As regular readers will know, the Argentina politico rumours I pass on here sometimes turn out to be spot on (Lousteau) and sometimes miss the mark (Moreno). Though not a bruddasite as such, here's Critica with the details. Bascially Redrado is getting sidelined because he knows about economics and his normal vision on things doesn't cut much ice in Klishtinaland.

El Chiguire Bipolar explains why Venezuela won't be affected if oil drops to $1 a barrel. Unmissable for Spanish speakers.

*and sistasites, of course

10/24/08

Newsflash: Ecuador Declared World Champion in Everything. The End

Ecuador hits a country risk rating (officially called the JP Morgan EMBI+ index but that's boring) of THREE THOUSAND ONE HUNDRED AND SIXTY ONE BASIS POINTS.

Click to enlarge

Message to Ecuador: You go girl.

PS: Here's an important message from the Central Bank of Jamaica (courtesy of dealbreaker)

Democracy and respect Peruvian style (version 2.008)


This link goes to a story published in today's edition of Peru's daily, La Republica. It tells of how locals were treated by a platoon of Peruvian soldiers on the hunt for Sendero Luminoso terrorists last month. Not in 1987, but in September 2008.

The world needs to wake up and protest these blatant abuses of human rights by the supposed good guys before they turn into the bad guys. If you don't learn from history you are condemned to repeat it, and by the looks of things the Peruvian army hasn't learned a thing from the terrors of the 1980's and 1990's. Don't they understand that if they beat crap out of the people they're supposed to be protecting they'll simply drive them into the arms of the extremists?

THIS MUST STOP NOW. Here below are the direct quotations from the Republica story, as spoken by the rural dwellers abused by soldiers from their own national army.

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Dionisio Huayanay Carbajal: "There are many displaced people. They (the Peruvian army) forced us out of our homes with death threats and burned our houses. 80% of the houses have been destroyed. We need urgent help because we're left without food or clothes."

Rómulo Jerí Quinta: "They (the Peruvian army) detained five of us. They pistol-whipped us and asked us "Where are the terrorists?" Then they made us dig a grave, and they even made us lie down and measure our own bodies to dig the correct depth of grave so that all five of us would be buried."

Nilda Sánchez Romero: "They (the Peruvian army) kept us without giving us any food, and under the threat of death if we didn't reveal othem where the terrorists were. "We don't know", we told them, and when we finally convinced them we were simple rural dwellers they let us go. Now we are refugees in Canayre."

Trading Post (reports of my death edition)


So much for the end of civilization today, eh? Sure the indices are down, but no worse than the big crack day a couple of Fridays ago.

The Lima Stock Exchange wins this week's "chickensh** yellowbelly foetal position award". Instead of allowing the course of the free market to run, it decided to shut down operations "in a preventative move" just after the opening bell. Remember, this is the country that suddenly wants to be taken seriously. Frankly you're better off in Argentina.

I could have tripled down on JAG this morning under $2.50, but I'm a chickensh** too, remember. Since then the stock has bounced back very nicely. I'm planning to sell at a profit later this afternoon (avg at $3.04).

Why at a profit? Because I think the broad US markets will rally hard this afternoon and end green. I've positioned myself in a stock this morning (small trade) with that in mind. Not much point in telling you exactly which one, because all boats rise on a rallying tide and you can play your own favourite. It only remains to be seen how much crow I'll need to eat after writing this block :-)

Gold is making a nice move, as $680 to $740 is not to be sniffed at.

MTO.v up today. I'm glad to see this one moving up as it got hard hit yesterday and this morning. It's also the subject of my NOBS report that I'm giving away for free, so if you want to know more about Metanor drop me a line and I'll send you a copy. When I wrote up on the company I thought the MTO.v guys were a good proposition and that thought hasn't changed just because gold has semi-dumped since then.

UPDATE after the bell: I sold the JAG and the other mystery position (both green, happy to say) and I'm weekending in cash. However my Dow call sucked, as some smartypants I call a friend just pointed out to me via this picture he sent. Pass the salt, please..........

Peru and Ecuador: Ten happy years

nice plaza, nice city

Here's a story you almost certainly missed, mostly because hardly anyone would ever bother to report a good news story about LatAm in the English media.

Yesterday Peru and Ecuador reached the 10th anniversary of peace between the two nations that followed on from the Cenepa war and the ensuing diplomatic freeze. In those ten years governments have come and gone on both sides of the Ecuador/Peru border, but both countries deserve praise for the efforts they have made to nuture the peace, as today both countries really are close allies and strong trading partners once again.

Tomorrow Presidents Twobreakfasts and Studmuffin are going to get together in the pretty Ecuador border city of Machala (photo above) to celebrate the peace and goodwill, and to mark the occasion they will be accompanied by their respective cabinets of ministers. Otto sez "yay" to all this and applauds both countries and their Presidents for marking this 10th anniversary in fine style. Give peace a chance.

Vena Resources (VEM.to) hunkers down

Vena Resources (VEM.to) is a very likeable company, and I'm not just saying that because it's a site sponsor (there's the banner above these words); regulars here will know that I don't put carts before horses and I was positive on Vena as a company long before that banner went up. This is a good company with smart management, quality projects on board and an impeccable attitude towards Peru and Peruvians (the country in which it operates).

Today's PR from the company is a demonstration of the company's praiseworthy attitude. The company is saying "Yes, things are tight for juniors right now. They're tight for us, too. We're going to keep things pared down to the minimum but we're not going to stomp off into a corner and cry about it, either. There's asset value to be added here, and we have plenty of capital to play with as long as we don't start splashing it around in any old fashion."

You don't have to take my word for it, though. Here's the body of today's PR for your reading pleasure. VEM.to has been pummelled down to just 12c a share and is one of the stocks that doesn't deserve treatment like this. But that's the market in which we are, folks. The silver lining (and there always is one) is that VEM.to is one of the companies that will get through this bad phase. That's one to keep in mind. Here's the company website.

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Vena Resources Updates Exploration and Development Strategy

TORONTO, ONTARIO--(Marketwire - Oct. 24, 2008) - Vena Resources Inc. ("Vena" or the "Company") (TSX:VEM - News; LIMA:VEM - News; FRANKFURT:V1R - News) is pleased to provide shareholders with an overview of its exploration and development strategy during these times of world-wide economic concern.

Vena's current cash position, including committed investments from our partners Cameco and Glencore is close to $9 million dollars. As it is currently unknown when the global economy will rebound, Vena has taken steps to preserve and allocate capital strategically by focusing the bulk of its financial and intellectual resources to the expansion of four projects that will not require significant investment, are self-sustaining and will provide the Company with near term results - the Pucara gold/copper project, Uranium exploration with Cameco, building the coal business through its investment in Sudamericana de Carbon (SDC) and obtaining final permits for the Azulcocha poly-metallic mine and expand its NI 43-101 compliant resources.

The exploration and development plans for Pucara and SDC are expected to advance these divisions such that the expenditures made will be offset by organic growth resulting in advancement and expansion of operations with a neutral effect on Vena's cash resources. SDC has reviewed several anthracite projects and is expected to make key announcements shortly related to the potential acquisitions and the expansion of the briquetting facilities that are currently installed at a key customer's property. Vena may undertake drilling of some of these projects to confirm non-43-101 compliant historical resources but given the nature of coal seams, low exploration costs are expected.

Vena will respond tomorrow to final observations from the Peru government mining ministry on the Environmental Impact Assessment (EIA) permit for the Azulcocha mine. The Company will proceed with its application for a building permit. Once the EIA is approved, the Company will commence an underground drilling program to expand the known NI 43-101 compliant resources. On the Azulcocha West joint exploration project with Glencore, Vena and Glencore are continuing to drill previously identified targets and drill locations are adjusted based on findings. The current drill program is 50% completed and results will be announced on completion.

Vena and Cameco continue to advance the Uranium exploration program in the Puno region of southern Peru. The initial results of the drill program at Macusani exceeded expectations and these results are currently being analyzed to define the next drill program at Macusani with the goal of delineating a resource in the short term. While the Macusani results are being studied, Vena is focused on the Lagunillas region, where three large targets will be drilled over the coming months.

Vena will continue to deliver significant exploration and development milestones in the coming months. Our management and technical team is focused to drive shareholder value and preserve cash. As is the case with many other companies, there is a strong disconnect between current market valuations and corporate assets - Vena remains focused on continuing to build its business for the long term.

keywords on the front page of Yahoo Finance

Blistering Fall......Recession Fears........Tailspin.........Triggering a Freeze.......Panic Amongst Investors.......Decidedly Negative........Brink of Recession..........Ravage Corporate Profits.



Hmmmm.......do you think they're trying to tell us something?

10/23/08

Now accepting bets

Feeling lucky punk?

My U$100 bill says that Venezuela will not devalue its currency from the official VEF 2.15 to the US dollar in 2008. The bet is at even money (i.e. you match my U$100 with your U$100) and can be settled by bank transfer, PayPal or Western Union wire on the first working day of 2009.

Any takers?

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Oct. 23 (Bloomberg) -- Venezuela's bolivar fell to a 10- month low in the parallel, unregulated market as a collapse in oil, the country's biggest export, fueled speculation the government will devalue the currency yada yada continues here

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Meanwhile, here's a message for (at least) seven readers I know that live in Venezuela and are fortunate enough to get their salaries in US dollars; tomorrow's the day, people....get yourself some of those cheap VEFs.

Bolivia, cocaine, the USA, trade deals and dem pesky russkies

Last week President Dubya made a special point of emphasizing just how naughty Bolivia was because it wasn't cooperating with the USA's idea of cocaine eradication (y'know, the one that has thrown over U$6.7 Billion at Colombia in the last seven years with the net result of 50% more cocaine production in that country). Luckily, this has nothing to do with Colombia being special friends or Bolivia being horrid yankee-haters and we certainly know this because Condi Rice told us today. In her presser on the subject she said "The United States does not set ideological examinations", so we can all rest easy on that score, folks. I mean....since when did this admin ever lie to us?

But Condi's speech today was marked by a distinct softening of tone towards Bolivia. Instead of taking her boss's No Soup For You attitude, Condi said things like "it would be unfortunate to have to separate Bolivia from the preferential trade agreement" and that "we remain willing to work with the Bolivian government", which is a far, far cry from Dubya's " Sadly, I have proposed to suspend Bolivia's trade preferences until it fulfills its obligations" of just one week ago.

Why the apparent change in protocol-tongue, people? Well Otto thinks it has a lot...I mean a LOT to do with this report filed by ABI today. Here's the full Ottotranslation in English:

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La Paz 23 Oct (ABI).- The Russian ambassador in Bolivia, Leonid Golulev, this Thursday offered the support of his country to collaborate in the fight against nacrotrafficking being undertaken by the government of Evo Morales.

"We are going to cooperate with what Bolivia requires in the fight against narcotrafficking because equal with Bolivia, Russia is a victim of this evil" he told the press at the gates of the Presidential Palace after meeting with the head of state.

He also stated that a delegation led by the Vice-Minister of Social Defence, Felipe Cáceres, will travel to Russia to finalize the bilateral agreement in the fight against narcotrafficking.

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Interesting stuff, no? To round off, Bolivia also announced today that its own coca eradication program was going very well and that its goverment had rid Bolivia of 4,613 hectares of its 2008 target of 5,000 hectares; nicely on course, in other words. What? Didn't your gov't tell you about Bolivia's own initiatives? How forgetful of them.............

Ecuador's New Mining Law


Thanks to observant IKN regular DMMwatcher (you rule dude) who just alerted your asleep-at-the-wheel Otto, here's the link to Ecuador's long awaited and now published project Mining Law, which will now go to the relevant authorities for approval and transformation into vigent law.

I've had a quick look through and will read it in more detail later, but so far:
  • There are no big surprises to previous draft copies (which is good)
  • Open pit mining is allowed under this law (but has environmental obligations such as non-pollution, conservation and reforestation to comply with)
  • There are no concession limits placed on a company or person. What Ecuador is going for is the previously stated "give unwanted concessions back later" plan that will allow a company to explore an area, then decide to go ahead or not go ahead with further development on a concession block.
  • Royalties at between 3% and 8% (depending on mine size)
  • Some new tax breaks that will be applied to export and sales taxes. This seems like a mechanism to ensure a constant percentage of gross revenues are collected by the state. There is no mention of the windfall tax, which on the one hand is not surprising because it is a different law from a different ministry, but does seem to confirm the non-organic (stand-alone) nature of the new law

UPDATE:
Two mailers say they've found it difficult to download from that above link. If anyone else has a problem and feels frustrated, feel free to send me a mail at.....

otto.rock1 (AT) gmail (DOT) com

.....and I'll happily send a copy of the law by return.

Market craziness; example du jour

Let's choose Inca Pacific (IPR.v) to highlight this time. Let's not worry about the Magistral project, or its potential asset value, or that according to solid documentation (namely a 43-101 compliant final bankable feasibility study) the project is viable with copper at $1.50/lb (something that has been backed up by independent due diligence, too). Let's not even remind ourselves that thanks to Moly credits Magistral will produce copper at an estimated U$0.28/lb over its mine life. None of that. Just this:

Shares out: 56.6m
Current Share Price: C$0.18
Current Market Cap: C$10.2m
Cash at Bank (in C$): C$27.6m

Yes, that reads right. IPR.v has $17m more cash in its bank accounts than the company is worth, according to the market. Well that makes sense, doesn't it? Here's a link to the company website.

It all makes sense now.........

An interesting move in Gold this morning

click to enlarge

Gold went under $700/oz as a continuation of the last few days' market action, but then the reversal to $720/oz has been pretty quick and perky.

FWIW, I'm going to take the first real risk I've taken in weeks and add to my severely underwater JAG (bot yesterday at $3.30). My normal chickens*** attitude would have me bailing at a loss, but this time I say "Aaaah, what da hell...double down!".

So I've added at U$2.77. Average now a touch over $3.

Do the right thing

Cooper Swanson is a very good person

Today's WaPo is running this story on the Peace Corps volunteers who decided to turn their backs on the US gov't and do their own thing. In the words of Sarah Nourse (included in the WaPo feature);

"More than ever, Bolivia needs living examples of real Americans. They need someone to help, not for financial gains but because the task exists and because it's the right thing to do."

That's the kind of person the USA should be cheering. That's real moral gumption and courage on display.


Related Posts

US Peace Corps Mutiny

Breaking: Spooks After US Peace Corps Mutineers

Free Moody's report: The erosion in mortgage credit quality

Here's a great free offer, and I hope you take advantage of it. Click through on this link to get your copy of an exclusive Moody's report on the state of US mortgage credit quality . Please note this offer is only open to USA residents. Here's the content blurb:

"Moody's Economy.com - Into the Woods: Mortgage Credit Quality, Its Prospects and Implications"

How serious is the erosion in mortgage credit quality?

This Moody's Economy.com special study utilizes unique data from Equifax and Moody's Investor Services to assess future levels of credit degradation and where the greatest challenges will be realized. The study evaluates the threat mortgage credit problems pose to the housing market and broader economy, and the scenarios under which these problems could result in an economic recession.

This special report is written by Moody's Economy.com, Inc., Sponsored by Equifax.

Geographic Eligibility: USA

Publisher: Equifax

10/22/08

Why the dollar is strong (and gold, silver etc etc are weak)

I just received another one of those "It's mystifying how gold and silver have sold off" mails this afternoon. So let's put some broadstroke ideas out on the blog (even though this isn't really LatAm material). It's really pretty simple. It's not about gold, silver or any other commodity, it's about the US Dollar. In simple bullet-point form:

1) Under normal circumstances, any country faced with recession needs its currency to devalue relative to others to make its country, products, goods, services etc competitive in the world market, therefore grow out of recession. It's the typical cycle....no brain surgery needed.

2) When its currency drops, it also puts up a de-facto imports restriction (i.e. locally produced goods and services become more attractive than more expensive items imported from overseas). As an example of the flip-side, Venezuela is the classic overvalued currency at the moment and its internal industry suffers as a consequence.

3) However the country in question this time is the USA. Firstly it is a net importer on a vast scale. Secondly its exports tends to be cutting edge sectors in tech, biotech, pharma and finance that hold their competitive edge at whatever dollar ticket price.

4) Therefore it is perhaps...repeat perhaps...unnecessary for the dollar to go through its weak phase to bring the country out of recession.

5) Meanwhile, the USA is the implicit "world leader" and does not want to lose that position. If its currency weakened sufficiently it would mean that:
  • net exporting countries would look for new markets more vigorously
  • commodities prices would revalue in dollar terms and bring more wealth to the net exporters and imply less wealth for the net importers (eg W Europe, Japan, USA)
Or put simply: If the current "leaders of the world" (for want of a better phrase) make a concerted effort to keep the dollar strong, they will not lose their place as the most important nation(s) on earth.

As a by-product, the economies of the traditional net exporting nations (for example Peru) and the commodities in which they deal (for example silver) are suppressed.

Conclusion: It seems to me that the USA has two ways of going through its recession. It can either take the logical/natural (in economics terms at least) road and pass through its recessive phase with a weakened currency. Or it can pass through recession with a strong currency. With a weak currency the rest of the world is less affected but the after effect is a less influential USA on the world stage. With a strong currency the USA drags the rest of the world into its recession, but the after effect is that it remains the top dog as people will continue to want to sell plastic dolls and things to its market and will be actively hoping that the USA improves as quickly as possible (so that its most profitable market is quickly restored).

Therefore, the USA is doing everything in its power to maintain a strong dollar, because it doesn't care so much about the whole world suffering as long as it remains the world's most important once the recession is finished. It will probably be encouraged in this effort by the other main industrialized countries that will also benefit from status quo. I repeat; the USA is and will continue to base its whole plan around one thing; "keep the dollar as strong as possible". It is the number one basic element of all its crisis planning.


UPDATE: I'm writing an update on this post at 7:41am this next morning because I'm already fed up about having to multi-answer the same counter-argument via mail. Yes, there's all that carry-trade thing, isn't there? But if you think that explains things then you also say that once the carry trade phenomenon is done there will be an equal and opposite downside to the dollar. Ok, that may happen, but it ain't necessarily so, either. What I'm proposing here is the carry trade explanation puts the cart before the horse. It's not the cause, but the effect. It's how it's happening, but not why.

When the dollar returns to USD72, write me and tell me how wrong I was. Until then, don't you think that all experts saying exactly the same thing at exactly the same time is a little suspicious, especially given those same experts' recent track record in understanding world finances?

UPDATE 2: This is most definitely the final update on this issue. Instead of getting on with my job the e-mail exchanges have continued for the last two hours with several people. I can distill my position in those mail exchanges into the following:

I just don't buy all the "it's carry trade" chorus. It fits, yes. But it's also the new chorus coming from a bunch of people who have been scrambling behind the curve for weeks, months or even years; why should I or anyone else blindly accept they should suddenly be ahead of the curve with this explanation? The carry trade explanation is choosing yet another after-the-fact scenario that fits. What I'm proposing is an a priori scenario that also fits the evidence we see around us.

I repeat the basics here;

The USA will benefit from a strong dollar policy going fwd.

If the dollar drops to sub 78USD (or so) then I'm wrong, it was pure carry trade and there is nobody at the helm of this dollar move.

Whether by accident or design, the current dollar strength will keep the USA and the industrialized nations in the box seat and will suppress the net exporting nations' economies.

I'm now going to crawl back under my stone and stick to all things LatAm, as mentioning to N. American readers that they might be wrong about their own financial analyses (after all the recent evidence too!) seems to rile too much from an outsider. I never mind about being proved wrong on these kind of things, but I'm always surprised about how religious other people get in defending hastily put together theories and daren't even think about any other logical alternatives.

Reuters runs the Talisman Energy story

Hey, this is totally cool. Reuters is today giving more airtime to the reports about Talisman (TLM.to) (TLM) in problems with Peruvian locals that I wrote about yesterday. Good to see a big news agency picking up on a socially-oriented story down in deepest darkest South America, and some good quotes from the company about how TLM is definitely not leaving Peru anytime soon (and a nice zinger about TLM in Sudan at the end, too). Methinks there's a conflict brewing.

Here's the whole thing. Enjoy.

(PS: Talisman Energy head office has visited this humble corner of cyberspace 18 times so far today....so maybe they're a tiny teeny eensy weensy bit more worried about this issue than they're letting on).

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LIMA, Oct 22 (Reuters) - Talisman Energy , Canada's No. 3 independent oil explorer, said on Wednesday it had no plans to pull out of Peru, after local media reports said community leaders had given the company an ultimatum to leave.

The Calgary-based group, which is looking for oil in Peru, has two lots in the northern Amazon jungle. Several indigenous groups live in the area, including the Achuar people, whose leader has said protesters will throw the company out if it does not stop work by Nov. 15.

"We are not planning on leaving Peru any time soon," David Mann, a Talisman official, said.

"My understanding is we have all the agreements and consents we require from communities in the areas where we're operating. There may be other groups that are outside our area of operation who are asking for something different."

Talisman's chief executive met with a small delegation of Achuar leaders in April and said the company would not operate without their consent.

Protesters say oil work harms the environment and sows seeds of conflict.

"We, as indigenous people, reject the Canadian company Talisman. We do not want them working in our territory. We want the Peruvian state to respect us, and the armed forces to stop helping the company," Cesar Zuniga, president of the Achuar indigenous group FENAP, said on local radio.

Talisman, which operates in some 20 countries, was criticized by human rights groups for its activities in Sudan in the late 1990s and earlier this decade. Conflict over oil exacerbated Sudan's civil war, which lasted from 1983 to 2005.

(Reporting by Dana Ford; Editing by Walter Bagley)
((dana.ford@thoms
onreuters.com; Tel. +511 221 2130))



Related Post
Talisman Energy has no charm in Peru



Trading Post (total shock'n'awe edition)

I'm glad I sold the JAG yesterday (as witnessed here), because now I can buy them back. Currently printing $3.27 and I think that's good for a small, speculative daytrade. No farm betting.

The Merval is the headline-maker of the day for sure, but Cosan (CZZ) isn't that far behind in the jawdropping loss du jour department. Down a mere 34% today. Sugar just isn't sweet any more.

Southern Copper (PCU) is following its metal down. Copper is now under $1.90/lb and down 8.5%...wow! PCU back in the 10s, and FCX faring just as badly (if not worse).

There's my old fave irritant MELI down 10% at $14 and bits, too. I'll never but never get this stock right.

Those are just a few of many many sob stories today. Tell ya what...pick your own, write me six lines on it and I might even add your words to the post.

PS: Got JAG at $3.30...the 27 dried up.

This year's APEC meeting might get pretty explosive

Via Reuters and not one but three people writing in (thanks to you all), here's a very interesting story that hit the wires today. It seems as though the left-wing terrorist group Sendero Luminoso (Shining Path) are making a bit of a comeback unfortunately, as on Monday this week 50 of the band took over a outcamp of Peru mining and smelting company Doe Run in the Andean foothills East of Lima. After giving them a long lecture of the ills of the world and how they're right about everything, Sendero stole a bunch of stuff including antibiotics, a radio and, spookily, a whole shitload of dynamite.

Why is this spooky? Well, as Reuters rightly points out, dynamite was one of the weapon of choice amongst SL members back in the 1980s and 90s. And then there's the little matter of the Asia-Pacific Economic Cooperation (APEC) summit coming to Peru this year and starting on November 20th. This is a big, big protocol event, and at least 20 heads of state are due to visit Peru including those of Russia, Japan, Australia and all the Americas (including a dude called Bush who'll be making his final trip as prez).

Expect....how can I say this?...tight security. Like "tight" as in "a sparrow farts within 500 paces and it gets arrested".

Keep on rockin' da free world, people.

Business Abbreviations Explained (LatAm edition)

I've just been asked what FOB stands for (in that previous post), so rather than just tell one person one thing, let's clear up a few mysterious LatAm related abbreviations in one fell swoop:

PDVSA: Petroleum Demands Very Silly Attitudes
IMF: Interrupts Marriages Frequently
CIA: Clearly Interfering Americans
GDP: Generally Depressed Populace
AFJP: Another F***ing Jodido Pais
CODELCO: Copper Often Defines Elementary Life of Chilean Organizations
OECD: Only Enters Clueless Democracies
WTO: Wicked Tariff Oppression
NAFTA: Now American Friends Treated as Assholes
FOB: Friend Of Bananarepublic

Any questions?

Bad News from Peru: Twobreakfasts has cracked under the strain

García's new image has so far had a mixed reception

Not even the moral fibre that comes from an extra ration of sausages in the morning has stopped President Twobreakfasts from buckling, it seems. Evidence of mental imbalance was evident yesterday as he announced that Peru would grow by 7% in 2009.

How this fits in with the slump in copper, zinc, lead and all their friends as well as the lower FOB prices Peru will get for all its other exports wasn't really explained very well. And then there's the fact that Peru is finally clamping down on its drug barons after all these years....that'll slow down retail spending in the Amazon basin too, let there be no doubt. And in Lima come to think of it.

Spare a thought for John Lee, CFA

And that thought should be.........


Ever since I read these words written by Lee in February this year;

We can't regulate the patient who wants to overdose on painkillers. We shouldn’t over burden all banks with piles of rules designed to prevent a few outlaw borrowers either. Remove the government as the safety net and return the responsibility back to the people. Let the careless and the weak fall, isn’t that what capitalism, evolution, and free markets are all about? Until then, dollar will continue to lose value and gold and oil will continue to rise in dollar terms.

.....I've thought, "hey, that's just the kind of person the world doesn't need as a financial advisor". So I can now only assume Mr. Lee is supremely underwater thanks to his...


....call on September 18th that included such classics as, "I have been VERY careful in not calling a bottom, however I am confident now that the bottom is in, and things can unravel quickly if short stops are taken out, creating a squeeze."

I'm not normally a vindictive person, but this time I am. There are many people out there that have followed the erroneous advice of Lee and other tunnel-visioned goldbug heroes that have now lost a lot. I've been saddened to read bullboards recently where people say they've lost their homes, they've separated from their spouses, things of that ilk because of the losses they've incurred in gold stocks.

Ever since this blog started in March this year I've banged on the drum of capital preservation. I own gold. I own silver. I have a long-term portfolio. I have been in cash (not gold...cash) for weeks and weeks. That's what capital preservation means. Many of the goldbug folk hero writers preach their own variety of capital preservation of course, but none (or perhaps i should say very very few*) of them ever include "hold cash" as part of that capital preservation. That's because the dollar is fiat junk and evil and other such soapbox rubbish.

If you think their analysis is logical and maybe even true in the long-run, well that's fine. But look at where people like Lee have led you. Look carefully. Look again. And once you have, join me in a rousing chorus of "Shut the F*** Up One time, Will Ya?".


Related Post

The world according to the goldbug newsletter writer


*Offhand i can think on Ron Rosen, though there may be others. I'd include Gary from Biiwii but i'd be doing him a great disservice because he's not a guru and doesn't want to be one. Also he's not a goldbug writer anyway. He's made the case for holding T-bills many a time. He's someone who I truly respect.

Holy moly, look at the Merval get dumped

And when I say big dump, I mean big dump

And it's also infecting the Spanish exchange, as the IBEX is down 8%. This morning trading in Repsol (REP) (super-exposed to Argentina via YPF) was suspended when it dropped 10%.

The Argentina Merval dropped another 12% today as the rush for the door continues. Bonds have also dropped like a stone again (toldya it was only for the brave) though I have to say this now is definitely overdone; after all, you can agree or disagree with the AFJP nationalization move, but what it certainly does do is guarantee that Argentina has the money to service is debt over the next few years. Argentina vigent bonds are now trading very close to the pre-2002 defaulted bonds level....and that's plain weird (why? Cos the non defaulted bonds get 20+% interest rate tields paid on them).

To wrap up, FWIW here's part of a mail I sent to A.N. Other yesterday. One of the subjects in question in the mail exchange (with a smart dude, I'll add) was the Argentina AFJP move and how it might affect wider things, and here's wot your humble servant writ:

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The Argentine move will be given the shock'n'horror treatment by the North. Argentina doesn't care that much what the rest of the world thinks. This Kirchner move is straight out of the Peron playbook and will be accepted (with suspicions) by the locals. The bonds are selling off badly today (and therefore the merval) but the market is very much internally driven...there's not much foreign capital inside Argentina these days anyway. When the music stops the bonds will quietly revalue, as at least in the short term there's not much problem with debt servicing now. By taking over the AFJP they save 3.5Bn in interest payments and they retire plenty of paper debt at the same time. I think it's good for $8Bn in direct savings per year. The longer-term future is much less happy though, esp for Argentine pensioners who will be royally screwed by this move 15 years down the line.

What it does do is cast a very bad light on business/miners wishing to set up in Argentina: AQI, XRC, etc etc. FDI will be very, very leery about exposing itself to the Kirchner gov't from now on. Not so bad for the producing miners (MAI.to HOC etc).

I could help but notice how Roberto Lavagna has been semi-offered a post in Uruguay's Finmin this week. Very symbolic, and noteworthy how Uruguay has taken a different and altogether better economic path than Argentina this decade without turning its back on the social wellbeing of its citizens. Uruguay has been the quiet achiever down here and deserves a lot of credit.

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Early morning snippets

It was either Telpuk or a photo of the fat bastard.
Otto voted Telpuk (but not the plastic bits)

Gotta love The Mex Files, doing a far better job of keeping us up to date on the quiet yet game-changing things happening at PEMEX right now. Here's the report, and if you're into oil and stuff this is required reading. As the MexFiles correctly says,

"
There hasn’t been much attention paid to PEMEX (and its big changes) from the U.S. press, and I expect if there is any mention, it will be more in the “holy shit, when did that happen?” vein."

Copper
goes under $2/lb....wowsers. Expect cheap Chilean apples and wine at your local CostCo or Walmart soon.

As I suspected, the Argentine AFJPs that were dumping on the local market have been prohibited from trading for a week under a provisional court order (that may get extended indefinitely). Let's see how those bonds react. Remember, Argy bonds trading = only for the brave.

On the subject of the Argentine pensions, it's now lock sure guaranteed to get through Congress as veep Julio Cobos says he will support the bill.

In Peru, the Central Bank surprised nobody by lowering the bank reserve requirements last night, along with a couple of foreign money friendly moves. This might make the Nuevo Sol rally a little.

The Antonini Wilson suitcase trial thingy is still going on, by the way. I'm glad you don't care, because apart from the rabid hatemongers nobody does down here, either. It's like, "You mean there's corruption in South America? Oh wow....want a coffee? Did you see the futbol over the weekend? You think it's going to rain this afternoon?...kinda looks like it..". If you do care, check the Miami Herald for the latest in English. They care. I wonder why.......

10/21/08

Talisman Energy has no charm in Peru


Tal"is*man\, n.; pl. Talismans.
1. A magical figure cut or engraved under certain superstitious observances of the
configuration of the heavens, to which wonderful effects are ascribed; the seal, figure,
haracter, or image, of a heavenly sign, constellation, or planet, engraved on a sympathetic
stone, or on a metal corresponding to the star, in order to receive its influence.


2. Hence, something that produces extraordinary effects, esp. in
averting or repelling evil; an amulet; a charm; as, a talisman to avert diseases.



Today, communities in the Peruvian jungle region of Loreto issued a straightforward warning to Talisman Energy (TLM) (TLM.to) ; you either leave voluntarily before November 15th or we will force you to leave. As noted in this report, the people who live in and around TLM's block 64 and 101 concessions do not want any development that might interfere with the environment in which they live. To quote the local leader Cesar Zúñiga Butuna, president of the Federación de Nacionalidad Achuar del Perú (FENAP):

"We do not want our forests, rivers and earth polluted, because this is our natural market."

"We as the indigenous people reject the Canadian company Talisman. We do not want them working in our territory, we want the Peruvian state to respect us, and the armed forces must stop supporting the company."

"If they do not want to leave we will force them out; this is the agreement that has been coordinated with theAwajún brother (people) and the Huambisas of the Amazon. It is time that the government listens to us and we will make them respect us."

"We have proof that pollution already exists, damage to nature and to indigenous people in the communities where petroleum activities are developed. For 37 years in the Achuar brother communities of the Corrientes River, petroleum has not brought any development to them; on the contrary they are sick and poverty stricken."


The locals also noted that Talisman was being rather underhand in its public relations exercises, as it had received the approval of two sets of social groups and was doing the rounds with these people promoting the company. The on-the-spot locals (of Nuevo Alegría in the Morona disctrict, part of the Datem del Marañón province of Loreto) accuse Talisman of bribing these people, and also point out they are from areas not affected by the development. They also say that the locals supporting Talisman in the area are two social groups, while there are 34 groups that reject Talisman's presence that are not getting their voice heard.

Now TLM is a big oil company with most of its developments either in North America or the North Sea. If it does eventually walk away from Peru it will hardly be a company killer. So now that the locals, the real locals, have made their voice heard and have given Talisman three weeks to leave the area, will they do so? Watch this space.


Related Post
Reuters runs the Talisman Energy story



Peru diversifies its exports

Here comes a list of major Peruvian exports:

Copper
Gold
Fishmeal
Asparagus
Silver
False University Degrees.

Plenty of people arrested in Spain today, as a network of academics that sold false university diplomas at 18,000 Euros a pop to people who dreamed of becoming doctors, physiotherapists and lawyers but just couldn't be bothered to do all that studying. What Spanish police dubbed "operation student" arrested the protagonists on the Spanish side of the operation that ran a virtual university in San Sebastian in the Basque country. Some of their clients were also arrested in the swoop as they worked as plastic surgeons, lawyers and physios in pro sports teams using false degrees and diplomas from Peruvian universities. So far there have been 27 arrests and 12 other people put under official police caution in Spain

But up to now there have been no arrests and not much said about the incident in Peru. Will they care much about putting lives at risk through this malpractice? I doubt it; more like they'll consider themselves smart for conning the Spaniards so long. You can also expect university professors in Peru to close ranks on this one, as there are many who wouldn't want the way they ask for voluntary contributions from their students to be examined too closely, either

The universities in question are San Martín de Porres, the La Molina Agro university and San Marcos, all in the capital city of Lima. Quite apt that San Martín de Porres describes itself as "A pillar of Peruvian society", as its actions in selling false titles is a fair reflection of the "we're a serious country" show Peru puts on for the rest of the world.

UPDATE: A friend just mailed me the following and made me laugh out loud;

"Too bad they didn't just sell economics degrees. No one would ever have known...LOL!"

Trading Post (yinyang edition)

I'm happy to report that I'm now getting hate mail from both right wingers and left wingers. This can only mean that the blog is nicely balanced.

Oh why didn't I sell Jaguar Mining (JAG) yesterday? That pop at the end of play to $4.40 disappeared like morning dew today and here we are at $4.15. Holding a while longer, but profit taking looks like a good option right now.

Sold SLV with enough gross profit to cover commissions and buy a coffee and sandwich later...perhaps an ice-cream, too. Nothing against silver here; I just like being in cash.

The Kirchner Regime's move has gone down well with investors; the Merval now 12% down and as popular with the financial community as the phrase "Kirchner regime" is with some readers (who should get an education, find out what 'regime' really means and not try to assume their own ignorance is shared by the rest of the world). Anyway, I digress. Here are a few US traded Argentina ADR stocks with CEOs that must be totally in love with Los Kirchner: GGAL U$2.50 (down 15%), TEO U$7.54 (down 27%), BMA U$9.83 (down 16%), CRESY U$7.40 (down 9%), IRS U$5.54 (down 7.5%).

Southern Copper (PCU) down 5% this morning and sitting at $12. I still say that China slump fears are way overexaggerated, folks. Hang me later.

And you know it's a bad, bad day out there when KRY is one of the very few spots of green on your screen. Pachakuti continues unabated.

UPDATE:
The JAG went at $4.00. Live n learn.........

Bolivia: Evo gets his law through Congress

The scene in Plaza Murillo last night

Evo Morales stayed in La Paz's main square, Plaza Murillo, last night with a few of his followers. "I'm staying here with the people. Without the law (passed), nobody goes home" was his exact quote. In fact he stayed with his few followers for 18 hours overnight in the Plaza until, just recently, Congress passed the law which states the constitution goes to Referendum on January 25th 2009, and then Presidential elections are held in December 2009. Evo can run in those elections but if he wins his mandate definitively ends in 2014 (part of the deal cut with opposition members of congress).

You have to admire Evo's style; however much the racist fascist crap known as the medialuna rebels would like to paint him as an ignorant country bumpkin, he's proven time after time that he's a highly intelligent, consummate politician that cares deeply about Bolivia, its people and its future. The last two days are pretty emblematic in fact; he joined the big march at 6am, yesterday, walked at the head of the column for nine hours and then camped out amongst his people for another 18 hours until the law was finally passed. The mutual respect between Morales and his supporters is impressive to say the very least, and many, many modern politicians of any or all political leanings would do well to study Morales' way. Total kudos from Otto to Evo.

Oh....I mentioned "a few followers stayed the night"; that "few" has been reliably counted at no less than 300,000 people who marched on La Paz yesterday and stuck around with Evo. That works out as 3% of the entire population of Bolivia camped out in Plaza Murillo last night, and if you need some concept of that imagine nine million US citizens turning up to march on Washington DC in support of their President. If that doesn't impress you, nothing will.

You still think Evo is in a position of weakness and Bolivia is "on the brink" as so many English news media services would like you to believe? Think again, and stop swallowing their BS propaganda wholesale.

A trade for the brave: Buy Argentine bonds today

As Bloomberg reports, Argentine bonds are being dumped in wholesale style this morning, the move a continuation from yesterday's sell-off. Yields are now over 24% on the longer bonds. The Merval index is also 8% down this morning (so much for "TEO might be value here" call yesterday lunchtime, eh?").

However this might be a great buying opportunity for bonds, as most of the selling is being done by the very same AFJPs that are about to be left jobless. When Klishtina speaks at 4pm today to officially announce the move there may be further restrictions placed on the bonds market that's currently being heavily sold. So any type of Kirchner regime intervention in the bonds market is likely to send the paper higher on the rebound tomorrow. This proposed trade is only for the brave amongst you.

Reactions to the Argentina AFJP nationalization move


At this report linked here, Critica has brought together the reactions of voices worth listening to, and from all parts of the political and economic spectrum. It's a good note, and between them they capture the feeling on the street. The truth is mixed up somewhere between these views, so i've taken the time out to translate the quotes. FWIW I personally think Mondino has got the right view of this. Here we go:

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Hugo Moyano, General Secretary of the main CGT union: The change in the AFJP is one of the best measures (announced by the gov't). I believe that we're not wrong when we call (the AFJPS) one of the scams imposed on Argentinians. Once and for all, these deals have to disappear and then start to build a serious pensions system. Only the State can guarantee a pension for all workers.

Eduardo Mondino, Defender of the People (ombudsman): Transferring these funds to the ANSeS (the state pensions body) is putting the fox in charge of the henhouse. The transfer has to be by consensus and with the participation of all citizens that have contributed all these years. Congress should establish a control mechanism to oversee and limit the use of these funds. The AFJPs have shown themselves to be ineffective, but I don't want my funds looked after by (head of ANSeS Amado) Boudou who can now do whatever he wants with them.

Claudio Lozano, member of parliament: This implies the granting of solidity to the Argentine state and puts us in better conditions to face the (world financial) crisis. We are happy that the gov't has looked inthis direction. We are sorry that once again the opportunity has been lost of forging a parliamentary unity with content and we hope that this decision does not have the sole intention of getting money to pay the public debt, but also that it has the vision of improving the situationof our pensioners.

Elisa Carrió, opposition leader (left-leaning): Out of the present context it can be seen as a worthy initiative, but in the present national and international context in which we live this is a money grab. This has already happened at ANSeS. We saw that free-placement of pensions was a con and that they do not want a real pension increase for pensioners but want to use this money to pay debt or add to national funds for next year."

María América González, member of parliament: The private pensions system doesn't work, but we must control the use of funds. The AFJP system is not a guaranteed pension scheme but bourse capitalization without profits not guarantees. The AFJPs have made U$12Bn in commissions since 1994. It's difficult to be in favor or against (this move). As perhaps the AFJPs have 70% of funds invested in treasury bills and bonds that nobody capitalizes and is paid by the state. AFJPs never lose.

Miguel Kiguel, economist, former Finance Secretary: It has a positive effect becasue there will be more funds to pay debt. The most worrying is that they change the rules from oone day to the next without the necessary consulting process. Today it's the AFJP and tomorrow who? Why can't this be done via a wider discussion? It still has to pass through Congress and I don't know what decisions they'll make there.

Chart of the Day............

.........is the five year copper chart.

Biiwii's Gary (one of those arch mumbojumbo TA heads) will enjoy seeing me admit that charting pushed me into a wise decision on this. And hey, I admit it; if it weren't for the support breakdown at $3.10/lb a few weeks ago I would have held "the coppers" all the way down.

So here we are today with copper down 5% at $2.03/lb. The dollar's strength continues into the 83.5 range on the USD index and all is suddenly well with the world and Bernanke is our hero and all that jazz, right? WRONG. We need (repeat need) a weaker US dollar for the US real economy to recover (a subject for another post, perhaps). But that's me just getting all old-fashioned and fuddyduddy and worrying about those strange things kind "real economies" and stuff....hardly relevant is it?

Party on Garth.

UPDATE:
Talk of the devil....Gary's put together an interesting mumbojumbochart on the US dollar and you can find it here. FWIW my fundy bones agree with his technical call.


Argentina to nationalize its pensions: bye bye AFJPs

Wow, this one is big, big news, and it explains why Kirchnerite politicos have been taking potshots at Veep Cobos in the last few days, too. This one has to get past Congress.

Here's the link to the La Nacion story in Spanish, and here's the Bloomberg take in English. No wonder the bonds dropped like a stone today. Argentina has just officially re-joined the ranks of "international finance pariah" (though after watching the example set by the USA, it's debatable whether that's a good or bad thing).

10/20/08

Venezuela parallel exchange rate update

By popular demand here we go with an update of the Venezuelan parallel exchange rate. Click on any of the charts to enlarge them if needed.

When we last looked at the Venezuelan parallel rate back in late August, the "Beracha Factor" had opened a Pandora's box of sorts. That was when main man Moris had casually mentioned in an interview that the gov't wasn't going to float any more debt onto the market. The consequence was a parallel rate that zoomed from Bf3.2 to Bf4+ in days.

There was then something of the hiatus and the rate stuck around the Bf4 level for a while. But with the recent financial crisis (you might have seen a headline or two) the VEF has weakened to Bf5.4 closing tonight. Here are three charts of the same exchange rate.

This one is the long view and dates from May 2006:
Next, this chart shows the forex for 2008:
Finally, this one clearly shows the recent upmove, as the chart only dates from a couple of weeks before Beracha opened his mouth:
What we're looking at in that last chart is a 50% devaluation move in less than three months....that's seriously quick, people. But the question, as always, is whether the fundamentals merit such a downmove or not. There are of course many different parameters, but the one we've tracked on the blog over the months is the relationship between the Venezuela's international currency reserves (in this chart)...

NB: Read this chart from right to left: There are currently over U$39Bn in reserves

.....and the VEF monetary liquidity, or money supply, or M2 (which is basically "how many VEFs are out there") which is shown on this chart:

Put very simply, the basic theory behind this relationship is that if it were necessary the Venezuelan government could recall all the VEFs in existence and swap them for dollars they held in reserves. So at the moment there are around 170Bn VEFs in circulation and they're backed up by around U$39Bn in reserves. Do the calculation more accurately and that means there is a dollar tucked away for every 4.34 Bolivar Fuertes in circulation. This therefore represents a point of equilibrium and suggests the recent move to Bf5.40 has been overcooked.

However, the Chávez government has recently announced that it would take a few billion from international reserves and use it to fund social programs in 2009. That's fair enough, but if the currency reserve suddenly drops to around U$31Bn (as is roughly expected) this means that same "equilibrium point" will sit at Bf5.45, and to a great extent explains the move we're seeing right now.

The moral of the story is that the Chávez gov't can't have its funding cake and eat it. If the gov't wants to use reserves to fund other things that's fine, but unless they stop printing VEFs they will dilute the value of its currency compared to the relative monetary strength of the country. Or in other words, extracting from reserves while adding to money supply is a recipe for inflation like none other.

As for the immediate future of the VEF, it looks like it will stay above 5 to the greenback for the rest of the year (unless the dollar itself suddenly takes a serious nosedive). The method that was being used by the Central Bank to mop up VEF liquidity, both last year and this year, namely the issuance of dollar denominated bonds, doesn't look very likely due to the current world financial climate (and Beracha said they wouldn't until 2009, too). With Venezuela's "country risk" rating well over 1400 basis points it would be very costly to emit debt right now. The exchange rate is therefore very much dependent upon the Central Bank and the gov't taking VEFs off the street via other methods, perhaps by cutting down on the printing rate (a possible when the lower oil barrel price is considered) or by raising the bank reserve levels for the local currency, or by some other method. We shall see.