start here

start here

The Daily IKN email digest, get all daily posts sent to you next day (& no ads)

I say things on Twitter

9/17/08

Shock Exclusive: Bloomberg Venezuela Reporter Writes Trash, Covers Butt Later

Bloomberg Latin America's mediocrity knows no bounds. Today's episode involves Bloomie Venezuela and;
  • misinformation about the local currency market during the trading day
  • falsely alarmist report and title
  • factually incorrect pricings
  • cherrypicked and totally unrepresentative quote from a local trader
  • a rapid covering up of the bad story after the end of the US trading session, including a total re-write of the title line and article
But first a little background. A couple of weeks ago, your observant Otto pointed out how Bloomie Brazil made up shit about Vale (RIO) supposedly buying Freeport McMoRan (FCX), published its story with a totally misleading title and lead-in paragraph, the result of which pushed FCX stock to over U$90. The next day, one of the two reporters on the byline was presumably 'asked' to write a second story that countered the wild claims made in the original note (by the way, here we are dozens of trading days later, FCX stock is down at $65 and nada zip zero nothing in the way of takeover news from either company).

But it seems Bloomberg's bad financial journalism is Sans Frontieres. Today it was Venezuela's turn to get the Bloomie hack treatment, and here we go with the details.

Not content with financial chaos in the USA, Bloomberg today decided to make up shit about Venezuela's currency and try to cause panic in Caracas, it seems. The story in question hit the wires at midday and came with the title Venezuelan Bolivar Drops in Black Market as Devaluation Speculation Mounts. "Hmmm, innarestin'" thought your curious Otto, and went to read it through. Here it is in full for your viewing pleasure, with my purple prose continuing afterwards. By the way, there's a good reason I've made space for the whole story, as you'll find out later:

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

By Matthew Walter Sept. 17 (Bloomberg) -- Venezuela's bolivar sank for a sixth straight day in black market trading as a two-month tumble in oil, the country's biggest export, fueled speculation the government will devalue the official exchange rate.

The bolivar fell 2 percent to 5.05 per dollar, leaving it down 21 percent since Sept. 5, traders said. Oil, which accounts for about 90 percent of Venezuela's exports and half of tax revenue, has dropped 17 percent this month to $95.75 a barrel amid concern a deepening U.S. financial crisis will add to a slowdown in global growth.

``There's a lot of doubt now about how solid the government's position is,'' said Tulio Bracho, a trader at Activalores Sociedad de Corretaje in Caracas. ``When oil prices fall like this, it makes the government's budget tighter and there's more speculation about a devaluation.''

Venezuelans turn to the parallel market when they can't get permission from the government to buy foreign currency at the official exchange rate of 2.15 per dollar. President Hugo Chavez imposed restrictions on currency trading amid a nationwide oil industry strike in 2003.

Chavez, emboldened by a six-year oil rally that sent prices to a record $147.27 on July 11, has ramped up spending this year, using public funds to nationalize the country's biggest cement maker, third-biggest bank and top steelmaker.

The government will likely pay $11.6 billion for the nationalizations announced so far, including last year's takeover of four heavy crude joint ventures in the country's Orinoco belt, Caracas-based consulting firm Ecoanalitica said last month.

Oil rebounded today, rising 5 percent, after its biggest two-day decline in almost four years. Crude oil futures have dropped 35 percent from the July 11 record high.

To contact the reporter on this story: Matthew Walter in Caracas at mwalter4@bloomberg.net.

Last Updated: September 17, 2008 14:27 EDT

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

So to sum up, the story asserts

1) The Venezuelan Bolivar Fuerte (VEF) sank in trading today
2) The reason is the two month long decline in oil prices
3) This has fueled speculation about a currency devaluation
4) The VEF was trading at 5.05 to the dollar, "traders said."
5) The drop in oil prices puts the Venezuelan gov't budget under pressure
6) Yada yada

So let's put this little lot under the Ottoscope and see how it stands up to examination:

1) The Venezuelan Bolivar Fuerte (VEF) sank in trading today

Otto sez; False! Yesterday the parallel VEF traded bid 4.8 ask 4.95. Today is traded at bid 4.7 ask 4.8. this means the VEF actually strengthened today, it did NOT weaken.
xxxxxxxxxxxxxxxxxxxxxxxxxxx

2) The reason is the two month long decline in oil prices

Otto sez; Subjective assumption, and likely untrue. As noted here on several occasions, the big drop in the VEF started in mid August when main man Moris Beracha was quoted as saying there wouldn't be any further dollar debt emissions. As soon as he said that, the VEF dropped hard. Of course the price of oil has dropped, but $90/bbl is still extemely profitable for PdVSA (and therefore Venezuela) at current prices.
xxxxxxxxxxxxxxxxxxxxxxxxxxx

3) This has fueled speculation about a currency devaluation

Otto sez; False! I was a little taken aback by the way this was presented by Bloomie today, because I keep my ear fairly close to the ground on the subject of the VEF and up to yesterday I'd heard nothing out of the ordinary about devaluations. So as soon as I read the Bloomie note I shot off three mails to people I know in the Venezuelan bizworld. The mail asked very simply, "Any speculation about a deval going around?" The answers were a definitive "No".
xxxxxxxxxxxxxxxxxxxxxxxxxxxxx

4) The VEF was trading at 5.05 to the dollar, "traders said."

Otto sez: False! This is poorly researched, lazy journalism and may mean that if "traders said" the moon was made of cheese Matthew Walter would report it.

I also asked about this with a currency exchange acquaintance. He said "Rubbish (or a much stronger Spanish word to that effect), 4.80 available all day," which means anyone wanting 5.05 for their dollars would have been doing zero business all day. The only reason Bloomberg could have quoted 5.05 is that Matthew Walter must have phoned just one trader and asked him for a quote. The trader thought "Ha!! Gringo wants to buy dollars!! I'll give him my special gringo price" and then quotes him a forex a full 5% above the going rate. Either that or Walter was just making shit up.
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

5) The drop in oil prices puts the Venezuelan gov't budget under pressure

Otto sez; subjective, but almost certainly false. Most people (including me) agree that the Venezuelan budget is handily covered by oil prices at $90; $80 or below might be an issue, but not before. To add a touch of irony, crude oil shot up 6% today on very heavy futures trading.
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

So now we've got all that out the way, let's move on to the way that Bloomberg covered up its bullshit, panic inducing reporting after the bell. That's because suddenly the whole story has been changed. Now understand that normally when a new story with a new title comes out it's given a new URL and the old story stays with the original URL and is still available. If a story is changed under the same URL, then the title remains and "Update 1", Update 2" etc etc is added. Not this time. This time the original story that appears word-for-word above has been 'disappeared' and the title is now.....


........and much of the clearly false information and analytical nonsense has been covered up. Here's the whole story as stands after the revisionism, and we'll play 'spot the difference' underneath:

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

Sept. 17 (Bloomberg) -- Venezuela's bolivar held near a seven- month low in the parallel market as a two-month tumble in oil, the country's biggest export, fueled speculation the government will devalue the official exchange rate.

The bolivar weakened as much as 2 percent today to 5.05 percent before rebounding to 4.8 per dollar at 4:20 p.m. New York time, traders said. The bolivar has fallen 19 percent since Sept. 5. Oil, which accounts for about 90 percent of Venezuela's exports and half of tax revenue, has dropped 16 percent this month to $96.61 per barrel amid concern a deepening U.S. financial crisis will add to a slowdown in global growth.

``If oil prices get closer to $80 a barrel, the government is going to have to adjust the exchange rate,'' said Asdrubal Oliveros, a director at Caracas-based consulting firm Ecoanalitica.

Venezuelans turn to the parallel market when they can't get permission from the government to buy foreign currency at the official exchange rate of 2.15 per dollar. President Hugo Chavez imposed restrictions on currency trading amid a nationwide oil industry strike in 2003.

Chavez, emboldened by a six-year oil rally that sent prices to a record $147.27 on July 11, has ramped up spending this year, using public funds to nationalize the country's biggest cement maker, third-biggest bank and top steelmaker.

The government will likely pay $11.6 billion for the nationalizations announced this year plus payments leftover from last year's takeover of four heavy crude joint ventures in the country's Orinoco belt, Ecoanalitica said last month.

November Elections

Chavez has said repeatedly he has no plans to devalue the bolivar. Yesterday he said he isn't ``alarmed'' by the recent drop in oil prices.

Oil rebounded today, rising 6 percent, after its biggest two-day decline in almost four years. Crude oil futures have dropped 34 percent from the July 11 record high.

A devaluation is unlikely before year-end because Chavez's socialist party candidates are campaigning for state and city elections scheduled for November, said Miguel Octavio, head of research at BBO Financial Services Inc. in Caracas.

``The government has a lot of money right now, but it also has a lot of obligations,'' Octavio said. ``I don't think they'll devalue this year because of the elections.''

A devaluation bolsters the government's finances because it puts more bolivars in treasury coffers for each dollar from oil exports.

Venezuela-U.S. Relations

The bolivar has also weakened in the black market in the past week because the deteriorating relationship between Chavez and the U.S., Venezuela's top trading partner, has further eroded confidence in the South American country. Chavez last week expelled the U.S. ambassador in Caracas. Venezuela is the fourth- biggest supplier of foreign crude oil to the U.S.

The financial market rout in the U.S. has pushed down the price on Venezuelan bonds, making it difficult for the government to sell dollar-denominated bonds in the local market. The sale of dollar bonds has been one of the government's main tools to provide investors access to dollar-based assets and shore up the parallel market rate, Oliveros said.

``The government is going to have to do a debt buyback before it can sell any more dollar bonds,'' Oliveros said. ``This makes you think the exchange rate is going to continue to weaken.''

To contact the reporter on this story: Matthew Walter in Caracas at mwalter4@bloomberg.net.

Last Updated: September 17, 2008 16:46 EDT

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

So here we go with spot the difference.

In story one, the title places the VEF under the spotlight. In story two, the title has been utterly changed and now makes no mention of the VEF.

In story one, the VEF is "sinking". In story two, the VEF is trading "near lows". You'll also note from this chart......

...... how seven months is a beautifully cherrypicked timeframe by looking at how the VEF has traded in 2008. The low for 2008 is a full VEF lower at 5.8.

In story one, the VEF forex is 5.05. In story two, Matthew Walter makes a lame attempt at justifying his 5.05 quote of earlier (note again that it simply didn't exist in the real world...I asked around, Bloomberg obviously didn't).

In story one, there is 'speculation' and 'a lot of doubt' about the gov't's position. In story two, Oil at $80/bbl (i.e. 20% lower than today) would be a cause for concern.

In story one, "Devaluation Speculation Mounts", In story two, "A devaluation is unlikely before year-end."

But then finally, right at the end of story two, we get the real reason for the move over the last 48 or 72 hours. As Otto reported this morning, Venezuela is going to buy back dollar debt. This means there will be less dollars available on the streets to change into VEFs and therefore the exchange rate weakened somewhat. This is normal. Or if you like, think about it in this more intuitive way; when the gov't emitted a lot of dollar debt last year the VEF parallel rate dropped, so it therefore stands to reason that if the gov't takes the same paper off the streets the exchange rate rises some.

Really this is finance 101, but it obviously went straight over the head of a professional finance journalist. Matthew Walter, his controllers and his editors got the story wrong, wrong wrong and so buried it in a sneaky and underhand way by using the same URL to create a totally revised title and story.

The only thing left to ask was whether he was deliberately try to create unease and speculation about the VEF, or whether Walter (along with his editors) is just plain ignorant about his subject matter. It's certainly extremely suspicious to get the false stuff during the trading session and the cover-up job after the bell. But either way, Bloomberg Latin America has proved once again why it has a credibility rating of zero amongst people who know what they're talking about.