Register for Free
Post comments, receive updates via email, gain access to exclusive content, and more.
Spam Safe!
New Financial Risk
Today Venezuela devalued their currency by 50% and told all businesses that if they raise prices the government will seize them. In other words, they are going to seize everything. While perhaps not a total shock, Venezuela is the 30th (or it was in 2008) biggest GDP in the world, above Greece, Switzerland, Austria....and many other first world countries. The fact this is not front page news is a big surprise (or, maybe it isnt anymore).
Also, I wanted to alert others here that volatility has exploded so far in 2010. While the broader equity markets have been quite stable, there have been massive movements in commodity stocks and prices. Further, interest have been spiking up.
Just after the markets closed today, the first major earnings report for Q4 2009 came out with AA (alcoa). It was not good.
In any event, on top of the huge Euro issues and Greece imploding, I think we are setting up for some extreme volatility soon. I dont want to make any predictions as always - just wanted to post this stuff to make sure all were aware.
Print
They actually set up a two tiered system and I admit to be somewhat confused about what that means for those trading with them.
Finance Minister Ali Rodriguez said the devaluation will add 3 percent to 5 percent to inflation, already the highest in the Americas at 25 percent last year.
"The popularity of the government is obviously going to be sharply and negatively affected," said economist Pedro Palma. "The inflationary impact of the measure diminishes the real income of people. People can consume less."
The new two-tiered exchange system offers the 2.6/dollar rate for goods deemed essential including food, medicine and industrial machinery. Other products, including cars and telephones, will be imported at the higher 4.3 rate. Last month, BMO Capital Markets cut ratings on Colgate-Palmolive Co (CL.N), Avon Products Inc (AVP.N) and Kimberly-Clark Corp (KMB.N) to "market perform" saying a possible devaluation in Venezuela could hurt the U.S. consumer goods makers' profits.
Can anyone explain this in laymen's terms? What does it mean for trade partners?
rickets, thanks for the great hat tip. That's the first I'd heard of Venezuela's currency devaluation. Thanks for sharing your other observations, as well.
After reading your h/t, I searched for some more on the Venezuelan devalutation in case others are interested too.
1. http://www.reuters.com/article/idUSN096521320100109, "UPDATE 1 - Devaluation ups staked in Venezuela election year", dated 1/9/10, at Clip:
2. http://www.reuters.com/article/idUSTRE60A5IN20100111, "Venezuela's Devaluation Will Cost Some US Companies"., dated 1/11/10. Clip
3. http://www.brisbanetimes.com.au/business/devaluation-sparks-shopping-frenzy-in-venezuela-20100111-m1kx.html, "Devaluation sparks shopping frenzy in Venezuela", dated 1/11/10.
1st Clip:
clip #2:
-pinecarr
"Do what you can, with what you have, in the time you have, in the place you are." - Nikosi Johnson