Repricing – Financial Markets – Week 6

Venezuela:

This is an amazing economic story receiving very little press coverage. Venezuela has some of the largest oil deposits, some of the most fertile agricultural land in the world, and a hard-working, well-educated population. Yet is is an economic basket case after 20 years of socialism.

The average Venezuelan has lost 20% of their body weight over the last year and anyone that can flee the country is doing so. The Cubans are running the Venezuela internal security systems in return for access to some of the oil. But the oil system has been so poorly managed that it is near collapse. Russia and China also have loans secured by Venezuela’s oil.

The global price of oil should continue to be in the range of $40 to $60 per barrel for as long as the eye can see. There is just simply too much oil available. Those figures are a fraction of what Venezuela needs as a sales price for their oil in order to balance their budgets.

Until complete collapse occurs, there is no relief for Venezuela. Russia, China, and Cuba will sooner or later effectively own Venezuela. None of those countries’ economic systems are viable.

When Venezuela collapses, the ripple effects will hurt the global economy. Assets will be repriced.