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Speaker 2: While the US ray that captured Venezuela and President Nicholas
Speaker 2: Maduro put America's allies and adversaries definitely unnoticed, President Trump
Speaker 2: has a new World Order tim of his own. At
Speaker 2: least that's how it's been reporting out.
Speaker 3: Yeah. In the aftermath of the stunning late night operation
Speaker 3: at Sammaduro and his wife wist from a guarded military
Speaker 3: base near Caracas to a New York jail, President Trump
Speaker 3: demonstrated just how far the US is willing to go
Speaker 3: to eliminate a leader seen as a threat to American
Speaker 3: interests and security. So we're looking at the challenges that
Speaker 3: come next. Those are the ones that are presented by
Speaker 3: the US raid on Venezuela. We welcome Rockford Whites, President,
Speaker 3: Professor of Practice and Director of the Maritime Studies program
Speaker 3: at Toft's Universities, Fletcher's School, Fletcher School of Law and Diplomacy.
Speaker 3: He joins US from Tucson, Arizona. Professor, Good to have
Speaker 3: you on the program. What do you believe is the
Speaker 3: true motivation of the US when it comes to Venezuela,
Speaker 3: great question.
Speaker 4: What we're looking at here is this is a geopolitical
Speaker 4: competition between the United States and China and Russia over
Speaker 4: who is the main ally of Venezuela in the Caribbean.
Speaker 5: Wow.
Speaker 3: Okay, So before what we saw at late Friday and
Speaker 3: early Saturday, what would you have said is the true ally?
Speaker 3: Who would you have said is a true ally? And
Speaker 3: then now after how does the US become the true ally?
Speaker 5: Okay? All right, so great quest. I love these questions.
Speaker 4: So before it was a combination of China was their
Speaker 4: geoeconomic ally helping them with infrastructure, Russia was a military
Speaker 4: ally with basing rights there and supporting their military. And
Speaker 4: even Iran, even though it's not a great power, was
Speaker 4: helping Venezuela. So they had that was their sort of
Speaker 4: cast of characters, as well as Cuba. Cuba's frankly a
Speaker 4: little bit more reliant on Venezuela than vice versa. Everything
Speaker 4: has changed since Saturday morning in the sense that there
Speaker 4: is obviously new leadership in Venezuela, a transition leadership. It's
Speaker 4: unclear who will be in charge in the long run,
Speaker 4: but it's very clear that the great power that's going
Speaker 4: to have the most influence over Venezuela is now the
Speaker 4: United States.
Speaker 2: What I'm wondering, Professor White, you know, what's the international
Speaker 2: precedent for doing something like this? I mean, how should
Speaker 2: we read what is essentially a kidnapping of a leader
Speaker 2: of a foreign country and his wife, removal of the
Speaker 2: leader from said country. What's it akin to in our
Speaker 2: past history, our recent past history. And to be fair,
Speaker 2: it's not the first time the US or others have
Speaker 2: removed a global leader or worked behind the scenes to
Speaker 2: support US friendly groups leaders in foreign countries. So we
Speaker 2: get that we're not all naive, but I'm just curious,
Speaker 2: are we setting up for kind of a leader grab
Speaker 2: around the world among countries and among global powers?
Speaker 5: Great?
Speaker 4: Another great question, thank you, So let me try to
Speaker 4: answer it using history. So it was actually ironically thirty
Speaker 4: six years ago to the day that the United States
Speaker 4: took Noriega from Panama, and that's the closest parallel. So
Speaker 4: he also was charged with narco trafficking. He was also
Speaker 4: then taken to the United States for prosecution. They also
Speaker 4: justified it in exactly the same way. There was an
Speaker 4: indictment against him in the United States, so that covered
Speaker 4: the domestic law piece. And then under the UN Charter,
Speaker 4: countries are allowed self defense and it also self defense
Speaker 4: of their population. So it was framed this was back
Speaker 4: in nineteen ninety under Bush Senior as no Diego as
Speaker 4: a narco trafficker and therefore must be taken care of
Speaker 4: to protect the American people from the drug trade. That
Speaker 4: is allowed under the UN Charter as self defense, so
Speaker 4: that covers you under international law. Again, every legal issue
Speaker 4: is gray, so people will say it's against international law,
Speaker 4: but you can make a case that it's consistent with
Speaker 4: international law and the UN Charter. You can make a
Speaker 4: case that it's consistent with domestic law. And I would
Speaker 4: say it does set a precedent that other narco trafficking
Speaker 4: leaders around the world could be taken not just by
Speaker 4: the United States but by others.
Speaker 5: But this doesn't really apply to Taiwan.
Speaker 4: I've spent a lot of time in Taiwan, and narco
Speaker 4: trafficking is not their game, and so I think that
Speaker 4: the precedent can be narrowed.
Speaker 5: But it doesn't. It also means that.
Speaker 4: Other large countries, other great powers like China and Russia,
Speaker 4: will look at this to see how they can use
Speaker 4: it to their advantage.
Speaker 3: Well, you mentioned Taiwan, but what about Russia, and what
Speaker 3: about Vladimir Putin in Russia? Could he use this as
Speaker 3: justification for doing something to Zelenski.
Speaker 4: So Putin will try to come up with any justification
Speaker 4: to go after Zelenski. But Zelenski clearly is not a
Speaker 4: narco trafficker. I don't think anyone's saying that, so we
Speaker 4: can argue not. The other thing is Zelensky has very
Speaker 4: powerful friends right next door, the NATO, the Northern Niactary Organization.
Speaker 4: Poland borders Ukraine the US. Although Trump has not supported
Speaker 4: as much as maybe previous presidents have, We're behind Zelensky.
Speaker 4: Zelensky's got powerful friends. Venezuela really didn't have powerful friends
Speaker 4: in this part of the world. China is a very
Speaker 4: strong navy around Taiwan, for example, they don't have a
Speaker 4: major naval presence in the Caribbean as well.
Speaker 5: It is a naval power.
Speaker 4: It's not nearly as strong as either China or the
Speaker 4: United States, but it doesn't have a major Caribbean presence.
Speaker 4: So what's fundamentally happened is in the Americas, the US
Speaker 4: is the major great power with the major military And
Speaker 4: I will just note this because it is important for
Speaker 4: the bigger conversation. The Trump administration did issue its national
Speaker 4: security strategy just last month. It said we're going to
Speaker 4: focus more attention on the Americas, and it was consistent
Speaker 4: with this operation in Venezuela, though I will admit I
Speaker 4: was surprised at how much force was used to take
Speaker 4: Maduro and his wife one hundred and fifty aircraft.
Speaker 5: I mean, this was a major operation on Saturday.
Speaker 2: Wow, so many different places to go. Well, having said that,
Speaker 2: you know, listening to a lot of the coverage here
Speaker 2: on Bloomberg, professor wise, it sounds also like that the
Speaker 2: US intelligence has been on the ground for some time.
Speaker 2: We're going to talk about this a little bit later
Speaker 2: on on on our broadcast, but that they had help
Speaker 2: in kind of pulling this together. Is that a bad
Speaker 2: assumption or read into the US getting an assist from
Speaker 2: other leaders in Venezuela.
Speaker 5: I think it's an accurate read.
Speaker 4: I've been following this basically United days since Saturday, a
Speaker 4: lot of coffee. But basically what has happened is it's
Speaker 4: not surprising the United States has been focused on Maduro
Speaker 4: and his regime. Really, it's been bipartisan. Biden also had
Speaker 4: a bounty out for Maduro to be removed. So Maduro
Speaker 4: is not popular internationally, he's not popular domestically. He's essentially
Speaker 4: clinging on to power. I thought one of the most
Speaker 4: interesting things was that his almost his entire security staff
Speaker 4: were Cubans. This has come out from multiple sources, so
Speaker 4: it's not surprising that the United States would spend a
Speaker 4: couple months gathering intelligence. I have to say that this
Speaker 4: was almost perfectly executed from a special operations perspective. They
Speaker 4: had one mission kidnap said what kidnapped, but sees Maduro
Speaker 4: and his wife take them to the United States. At
Speaker 4: the same time, essentially take out the Venezuelan military. So
Speaker 4: the Venezuelan Navy essentially no longer exists. Same for the
Speaker 4: Air Force, no more radar, any tanks they had are
Speaker 4: probably gone. So this was executed very well, and of
Speaker 4: course intelligence was involved, so and Trump even said that publicly,
Speaker 4: CIA is already there. So I would say public sources
Speaker 4: have verified it, multiple sources.
Speaker 5: I think it's probably accurate to say that's correct.
Speaker 3: Well, that's one part of the mission, and that was
Speaker 3: certainly this mission. But I think many critics out there
Speaker 3: and even observers saying, now comes the hard part, the
Speaker 3: potential power vacuum. And we've seen what quote unquote nation
Speaker 3: building for the United STS data has looked like in
Speaker 3: the past. How does that play out? What is the
Speaker 3: right way for the US to do that?
Speaker 4: This is literally what I think is the most important
Speaker 4: question for today. So I call this the Day After challenge.
Speaker 4: This is a big deal. It's going to be very
Speaker 4: difficult to smoothly create a transition to a new government
Speaker 4: in a peaceful way without triggering an insurgency. The Venezuelan
Speaker 4: military wasn't really strong before Saturday. They're really not strong
Speaker 4: now that being said, similar to Vietnam, similar to Colombia.
Speaker 4: I used to live in Colombia. I know the country well.
Speaker 4: I've been to Venezuela as well as a tourist in
Speaker 4: the nineties. There's parts of Venezuela that are the perfect
Speaker 4: guerrilla warfare area. The United States has, I think no
Speaker 4: interest in a long term occupation of Venezuela because it
Speaker 4: would not be it would not be pretty, and it
Speaker 4: would look similar to some of our misadventures in the
Speaker 4: Middle East. I think the model to look cat is Panama.
Speaker 4: You have in Venezuela a recognized opposition. You have Maria
Speaker 4: Karina Machado, who is the recent Nobel Peace Prize winner.
Speaker 4: You have at Mundo Gonzales, who is the declared winner
Speaker 4: internationally recognized of the last presidential election. They're friends, They're
Speaker 4: a good opposition. I think what can happen is that
Speaker 4: they can be brought into this process and that the
Speaker 4: US can help them establish some level of control. Probably
Speaker 4: involves a few hundred, maybe a few thousand elite American
Speaker 4: troops guarding say the presidential palace in Caracas, and essentially
Speaker 4: having a presence at all the major military bases, certainly
Speaker 4: around Caracas, and then eventually that gets transitioned over to
Speaker 4: the new government. It's going to be hard. The essentially
Speaker 4: Venezuela has had a dysfunctional government since nineteen ninety nine.
Speaker 5: Maduro was in power for over ten years as a dictator.
Speaker 4: All of his allies are in the National Assembly, they're
Speaker 4: in the government, they're in the military. There's narco traffickers
Speaker 4: who are well armed. So it's not going to be easy,
Speaker 4: but I do think it's possible.
Speaker 5: I also, I think it's.
Speaker 4: Very different from Iraq or Afghanistan because there's no religious
Speaker 4: element here.
Speaker 5: Venezuelan's not only.
Speaker 4: Are they all Christian, that are all Catholic, So there's
Speaker 4: no that's not a piece of It doesn't mean it's easy.
Speaker 4: I think it's going to take a lot of bandwidth
Speaker 4: to do it.
Speaker 5: Well.
Speaker 4: I'm not sure if the Trump administration is ready to
Speaker 4: do it, but we will see.
Speaker 5: We will see.
Speaker 3: Stay with us more from Bloomberg Business Week Daily coming
Speaker 3: up after this.
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Speaker 2: Money Managers, They've been loading up on Benel and debth
Speaker 2: This is one of the stories that we've been reporting
Speaker 2: out here at Bloomberg. This has been happening in the
Speaker 2: past few months as President Trump ramped up pressure on
Speaker 2: President Maduro, with some investors seeing the potential for restructuring
Speaker 2: as early as this year. And then, of course Tim,
Speaker 2: then we had the weekend happened.
Speaker 3: So with more on that, let's head to Sarasota, Florida,
Speaker 3: and to Mike Collins, managing director, an executive portfolio advisor
Speaker 3: on the multisector team over at PGIM. PGIM fixed Income
Speaker 3: approximately one and a half trillion dollars and total assets
Speaker 3: under management for PGM fixed Income it's more than one
Speaker 3: billion dollars, Mike, big picture, how big of a deal
Speaker 3: is it what happened in Venezuela, especially when it comes
Speaker 3: to the global market and investing landscape. How are you
Speaker 3: looking at it?
Speaker 6: Yeah?
Speaker 5: Tim and Catroll, Happy New Year. Great, great to be here.
Speaker 6: You know, I get these questions all the time whenever
Speaker 6: you have these geopolitical flaw ups around the world, whether
Speaker 6: they're in Asia, the Middle East, or Latin America. And
Speaker 6: my answer is always the same, you know, kind of
Speaker 6: fade the headlines is generally the knee jerk instinct that
Speaker 6: you should have as an investor. You should really focus
Speaker 6: on the fundamentals of the global economy, the fundamentals of
Speaker 6: the US economy, where growth is going.
Speaker 5: To be, where inflation is going to be.
Speaker 6: Obviously, commodity prices are in the headlines today with the
Speaker 6: Venezuela thing. But remember Venezuela is producing now less than
Speaker 6: one percent of global oil. Remember sixty years ago, back
Speaker 6: when I was born, they were producing fifteen percent of
Speaker 6: the world's oil, and now they're less than one percent, right,
Speaker 6: So they have taken a huge fall from grace. They
Speaker 6: do not have a big impact economically on the global stage.
Speaker 6: Sixty years ago, believe it or not, Venezuela was in
Speaker 6: the top quartile of all countries in terms of GDP
Speaker 6: per capita. Today they are at the bottom of the list, right,
Speaker 6: And you think of other countries where they've been geopolitical
Speaker 6: flare ups. Typically these countries don't have huge international economic implications.
Speaker 6: So that's why the markets are just kind of, you know,
Speaker 6: whistling past the graveyard here and just ignoring the geopolitical risk.
Speaker 6: That is the standard playbook.
Speaker 3: Michael, just forgive me. I want to go back more
Speaker 3: than a trillion dollars over at PGM fixed income under management.
Speaker 3: I misspoke earlier, Okay, so if that's why, if that's
Speaker 3: why we're seeing sort of the relative calm today, let's
Speaker 3: then focused on focus on kind of what comes next
Speaker 3: and the political and potential implications for that, because I
Speaker 3: think that is a big question that investors have right now.
Speaker 3: I mean, certainly people don't want to see some prolonged
Speaker 3: and you know, dare I say boots on the ground
Speaker 3: mission in the country. But but I think that I mean,
Speaker 3: to me, going into this week, that was a big
Speaker 3: concern that I thought investors would have. What if this
Speaker 3: actually gets turns into something a kind of like we've
Speaker 3: seen with past quote unquote nation building activities from the US.
Speaker 6: We've spent most of the weekend and a lot of
Speaker 6: this morning doing deep dives into the situation in ven Azuell.
Speaker 6: I mean, I'm fortunate to work on this gigantic team
Speaker 6: where we have you know, geopolitic political analysts, we have
Speaker 6: really deep economic analytical resources. We have people who've been
Speaker 6: in the military, so we have a lot of great
Speaker 6: color just from our own team and our and our contacts.
Speaker 6: And there's really two scenarios right One team is the
Speaker 6: one you pointed out that that things do get ugly
Speaker 6: that Venezuela kind of gets worse, conditions get worse, that
Speaker 6: the US tries to do a more aggressive takeover, and
Speaker 6: it gets really messy some of the situations in the
Speaker 6: Middle East that your last guest was talking about. But
Speaker 6: there's also this upside scenario, right, and I think it
Speaker 6: kind of confirms the fact that we're moving into this,
Speaker 6: you know, G three ish type of world and the
Speaker 6: US is certainly trying to take the lead there and
Speaker 6: showing that, hey, we have control of the Americas here,
Speaker 6: which could result in better outcomes for countries like Venezuela,
Speaker 6: could result in better outcomes for the US, could result
Speaker 6: in better outcomes for other Latin American countries, right, And
Speaker 6: I think that's what the markets are focusing on. And
Speaker 6: we were looking at all the merging market debt quotes
Speaker 6: and runs out there right now, and generally the bonds
Speaker 6: are trading better, right, And I think they're looking at
Speaker 6: this as potentially the upside scenario, not the downside.
Speaker 5: But you're absolutely right.
Speaker 6: I mean, we really have to keep our radar attentive
Speaker 6: to those potential downside risks.
Speaker 2: Yeah, Mike, on that point, A raftive investment firm Yeing
Speaker 2: opportunities in Venezuela after that US strike. Trebeca Investment Partners
Speaker 2: is sending a team to excuse me, Caracos this week
Speaker 2: to inspect potential assets, calling it a gold rush.
Speaker 5: Have you guys changed.
Speaker 2: Any of your investment thesis when it comes to Venezuela
Speaker 2: at this point are.
Speaker 6: Not yet well. Remember they've been pretty heavily sanctioned in
Speaker 6: terms of trading and also trading some of their security.
Speaker 6: So good news is for people have a huge emerging
Speaker 6: market debt team and big investments around the world in
Speaker 6: emerging market debt. You know, this could potentially free up
Speaker 6: trading opportunities and relative value opportunity. I mean again, these bonds,
Speaker 6: some of their bonds have you know, doubled or tripled
Speaker 6: over the last over the last few weeks, so they're
Speaker 6: still creating It really just stress levels. Right, we're talking
Speaker 6: you know, twenty thirty cents on the dollar. But you know,
Speaker 6: there are opportunities, for sure, there are going to be
Speaker 6: a lot of relative opportunities. We're looking at even places
Speaker 6: like Columbia today we're talking about where their local interest
Speaker 6: rates are really high and their credit spreads are pretty wide,
Speaker 6: and so you know, I think it sets up the
Speaker 6: world for better relative value trading opportunities, and that's something
Speaker 6: we're really looking to capitalize on.
Speaker 2: So, Mike, if you had to kind of make a bet,
Speaker 2: I mean, is it fifty percent that the fortunes and
Speaker 2: maybe economic and investment outlook for Venezuela are changing for
Speaker 2: the better at this point?
Speaker 6: Or is it? You know, I would say it's a
Speaker 6: little better than a coin toss carola probably, but higher odds.
Speaker 6: Maybe I'm just you know, talking our book or agreeing
Speaker 6: with the market's reaction so far. But yeah, but it
Speaker 6: certainly feels like, you know, when you're having more private
Speaker 6: sector resources coming to a country that's been totally mismanaged
Speaker 6: in terms of their natural resources in their politics, you know,
Speaker 6: there is I think a higher likelihood of a better
Speaker 6: outcome there. But you know, the road to that better
Speaker 6: outcome can be really long, right, and what with all.
Speaker 2: Kinds of problems, right, lots of bumps can always happen.
Speaker 2: Certainly in a situation like this, many would.
Speaker 5: Agree with that.
Speaker 2: Hey, Mike, before you go, I'm thinking about the US
Speaker 2: this week. We do get a jobs report on Friday,
Speaker 2: We have a bunch of economic news. We did see
Speaker 2: the US treasury curve move down today, a little bit
Speaker 2: of economics news today. What is more important though, in
Speaker 2: terms of the US Treasury trade at this point is
Speaker 2: it the US economy what the Fed does ultimately, just
Speaker 2: give us about thirty forty seconds on that, if you would.
Speaker 6: Yeah, again, it's going back to the fundamentals, Carol, Right,
Speaker 6: And if you're looking at US growth, I mean, if anything,
Speaker 6: expectations for growth this year have ticked up over the
Speaker 6: last few months. We're entering twenty twenty six with really
Speaker 6: strong kind of real GDP or consumption and capital expenditure expectations,
Speaker 6: you know, momentum going into this year. So most forecasts
Speaker 6: now for US GDP have two handles right where it's
Speaker 6: not that long ago, they're.
Speaker 5: In the ones.
Speaker 6: I think the recession risks have moderated in the US
Speaker 6: and we've taken hour probabilities down, and the upside risk
Speaker 6: to growth to more productivity from AI maybe too higher
Speaker 6: inflation and permanently higher rates has gone up. And that's
Speaker 6: actually not a great environment for risk assets necessarily.
Speaker 7: Right.
Speaker 6: So we've been threading this needle. We call it the
Speaker 6: muddle through scenario where you kind of run at two percent,
Speaker 6: you have inflation stuck. You know, between two and three
Speaker 6: the fetiaeses a couple of times. That's a great environment
Speaker 6: for growth and for inflation and for financial assets.
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Speaker 3: A big question that many people have been asking in
Speaker 3: the wake of the US strikes in Venezuela and the
Speaker 3: capture of President Nicholas Maduro is what comes next? The
Speaker 3: surgical extraction of Maduro is done, but what about the
Speaker 3: future of the country. Him and a Sunia is Bloomberg
Speaker 3: Economics geoeconomic analysts for Latin America. She joins U from
Speaker 3: the Bloomberg Buenos Aires Bureau Jimana, It's good to have
Speaker 3: you on the program. You and the team right. The
Speaker 3: range of possible outcomes is wide. What are some of
Speaker 3: these outcomes?
Speaker 8: Thank you thanks for having me. I think there are
Speaker 8: We can point out three possible scenarios for Venezuela going forward.
Speaker 8: The first one is that after this transition, there is
Speaker 8: the establishment of a stable, market friendly, pro West democratic
Speaker 8: government in Venezuela, and that would probably, of course be
Speaker 8: the best and most favorable outcome for Venezuela on the world,
Speaker 8: with consequences for debt markets, all prices, the Venezuela and
Speaker 8: diaspora and beyond.
Speaker 3: I just want to jump in. I just want to
Speaker 3: jump in here on this one. Who would be the
Speaker 3: leader of the country in a scenario such as this.
Speaker 8: I think in this scenario there are two dise things possibility.
Speaker 8: There could be one interpretation that is, the US has
Speaker 8: just cleared the path for the constitutional order to be restored,
Speaker 8: and in that case, the leader that should assume the
Speaker 8: government should be the winner of the twenty twenty four
Speaker 8: presidential elections. However, there's also the possibility that that leader,
Speaker 8: because of all the constit institutional disorder that has been
Speaker 8: in the past few years, there could be a call
Speaker 8: for a constitutional assembly, a constituent assembly, so that the
Speaker 8: government draft so that the country drafts the new constitution
Speaker 8: and then calls for presidential elections again, in which I
Speaker 8: think that Maria Corina Matchello, the winner of the Nobel
Speaker 8: Peace Prize and the leading figure in the opposition the
Speaker 8: winner of the twenty twenty three primaries who did not
Speaker 8: could not run into a four because she was barred
Speaker 8: by the government. I think she would be in the
Speaker 8: most favorable position position to win.
Speaker 2: A man how much of a guarantee, I guess is
Speaker 2: the question. I want that Venezuela does ultimately have a lasting,
Speaker 2: market friendly, pro democratic government.
Speaker 8: I think, of course, that's a messy path, right, It's
Speaker 8: not easy. Venezuela currently has still a military military that
Speaker 8: for years has been very intertwined with the regime. They
Speaker 8: have privileges, they have businesses. There's also paramilitary militias that
Speaker 8: have arms and have interests and control certain areas. There
Speaker 8: are elements of foreign governments like Hezbola and fark and
Speaker 8: Eland from Colombia, and so it's a very challenging situation
Speaker 8: for a government to take over. And that's part of
Speaker 8: the reason why the Trump administration has said, however controversial,
Speaker 8: this is that they are running the country, meaning that
Speaker 8: they are allowing the vice president of the regime, now
Speaker 8: sworn in President else Rodriguez, to take over because the
Speaker 8: regime does actually have the levers of power to keep
Speaker 8: things under control and avoid scenario of chaos and in fighting.
Speaker 8: The key question is whether this is the first step
Speaker 8: of a transition that over time, you know, for example,
Speaker 8: by disarming our militias, by cracking down on drug trafficking,
Speaker 8: et cetera, can lead to an opposition taking over down
Speaker 8: the line under conditions that allow it to establish civilian
Speaker 8: control of armed forces and project political and economic stability.
Speaker 2: He man For those who aren't familiar with the Venezuelan economy,
Speaker 2: what is it today and what are the Venezuelan people
Speaker 2: facing in terms of inflation and the economy?
Speaker 5: What could it be?
Speaker 8: I think thank you for that question, because that's what
Speaker 8: many people may not have so top of mind. Venezuela
Speaker 8: used to be among the richest and largest economies in
Speaker 8: the region, an economy of about four hundred billion dollars
Speaker 8: with the GDP per capital of about thirteen thirteen thousand
Speaker 8: per capita, which is puts it squarely in the middle
Speaker 8: income bracket along with countries like Argentina or Uruguay. And
Speaker 8: it was a country of regional and global relevance because
Speaker 8: it also sits on the largest share of oil reserves.
Speaker 8: And now Venezuela is a lower income country of about
Speaker 8: the GDP about one hundred one hundred billion of GDP
Speaker 8: per capita in the four thousands, and impoverished population. Eight
Speaker 8: million people have left the country. And so the upside
Speaker 8: if Venezuela could recover its political and economic normalcy, it's
Speaker 8: enormous towards that path of economic significance it had in
Speaker 8: the past.
Speaker 3: Okay, you've certainly laid out one scenario here. Two more
Speaker 3: scenarios that you mentioned. I want to make sure we
Speaker 3: get to those two. What is the worst possible outcome
Speaker 3: for Venezuela.
Speaker 8: I think the worst possible outcome, the risks of that
Speaker 8: one are reduced now, would be that there is not
Speaker 8: a power vacuum right with the Exito Maduro, that there
Speaker 8: is a power vacuum, and then different factions fight for power,
Speaker 8: and therefore there is the establishment of a credible, stable,
Speaker 8: democratic government. Is begins to seem unachievable. There could be
Speaker 8: a search in violence, There could be exacerbating migration and
Speaker 8: migration and securities spillovers to other countries in Latin America,
Speaker 8: and things could go worse Latin America. Venezuela now has
Speaker 8: a GDP about one hundred billion dollars, but it used
Speaker 8: to be about half that much in the twenty twenty bottom.
Speaker 8: Also similar with oil production, it's not about a million
Speaker 8: down from two point five million bars day before the collapse,
Speaker 8: but it was about half less than half this much
Speaker 8: in the trough. So things could go worse, and so
Speaker 8: that's definitely the worst case.
Speaker 2: You know him And the other thing I think about
Speaker 2: my daughter, you know, who has studied some of Latin America,
Speaker 2: South American in terms of the history, it has had
Speaker 2: kind of a tortured relationship, certainly with US involvement, and
Speaker 2: it's not always been a good one. How do we
Speaker 2: ensure that what happens isn't just protecting business interests but
Speaker 2: instead really once again putting Venezuela on a path to
Speaker 2: long term prosperity.
Speaker 8: No, absolutely, I think that that brings me to a
Speaker 8: third scenario, which is that the US sort of running
Speaker 8: the country via the pressure exerted over the Zi Rodriguez
Speaker 8: or elements of Javis who might succeed her. If this
Speaker 8: lingers into the future, that's an intermediate outcome that might
Speaker 8: you know, look more stable into so they're not being
Speaker 8: in fighting or a very chaotic situation, but would still
Speaker 8: be an authoritarian, non democratic government and non sovereign. In addition,
Speaker 8: I think the risk of that scenario is there in
Speaker 8: the sense that the US could be more focused on
Speaker 8: the resources. The Trump administrations transaction or in nature, might
Speaker 8: lead them to prioritize some economic policy measures and delay
Speaker 8: the democratic transition. Trump may shift gears and focus on
Speaker 8: domestic issues and leave the democratic transition and attended. But
Speaker 8: there are also things mitigating that risk, And one key
Speaker 8: issue I would highlight is that the Venezuela's incentives are
Speaker 8: fairly aligned with the US incentives in the sense that
Speaker 8: it is in Venezuela's interest also to recover its economic institutions,
Speaker 8: open up its energy sectors so that it.
Speaker 5: Can take off.
Speaker 8: And probably a democratic opposition which would be ideally positioned
Speaker 8: to win up elections, would probably also be pro West
Speaker 8: and pro US. So I think that that limits the
Speaker 8: risk that the US is says to stay.
Speaker 3: On stay with us. More from Bloomberg Business Week Daily
Speaker 3: coming up after this.
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Speaker 2: We've got markets stocks in particular off their best levels
Speaker 2: of the session, still up about seven tens of a
Speaker 2: percent on the S and P five hundred, Nasdaq one
Speaker 2: hundred and ten right now up about eight tens of
Speaker 2: a percent. We have seen more names higher in today's session,
Speaker 2: so it's been largely a risk on trade today. But
Speaker 2: just feel like investors are kind of coming off some
Speaker 2: of those highs or earlier highs.
Speaker 3: This might not have been on the predictions for the
Speaker 3: analysts out there who with their Wall Street target guessing
Speaker 3: not well, let's see what says still politics maybe, but
Speaker 3: in general right. Sam Stoveall's chief investment strategist at Safare Research.
Speaker 3: He joins us from Allentown, Pennsylvania. Sam, we wanted to
Speaker 3: talk general markets with you, but I mean we got
Speaker 3: to talk about the topic that really is gathering all
Speaker 3: the news today, and that's everything happening with Nicholas Maduro
Speaker 3: and in Venezuela, and it's seemingly not affecting at least
Speaker 3: the equity market in terms of investor concerns. Investors bullish today.
Speaker 3: How do you explain it?
Speaker 7: Well, Tim, I think it really is what we've seen
Speaker 7: in the past that military events, going all the way
Speaker 7: back to World War Two, most of them have really
Speaker 7: ended up being more headline events than bottom line events,
Speaker 7: and I think this one would be the same. Of course,
Speaker 7: you know, you do have some areas like energy prices
Speaker 7: that are rising for today, but expectations are that should
Speaker 7: we be able to improve the transportation, refining, and so
Speaker 7: forth coming out of Venezuela, then they're one percent and
Speaker 7: exposure or contribution to worldwide energy could be on the
Speaker 7: rise and that would bring down energy prices in the
Speaker 7: longer term. So you know, in general, I think it
Speaker 7: just adds to the overall risk on feeling that we
Speaker 7: started to get at the beginning of this new year.
Speaker 2: I will say, though, you know, Sam, it does feel
Speaker 2: like there's like national security issues that a lot of
Speaker 2: nations are thinking about what they need to be secure,
Speaker 2: and maybe COVID taught us all having supply chains concentrated
Speaker 2: in certain parts of the world not necessarily a good thing,
Speaker 2: and so people are thinking about AI and the technology
Speaker 2: and what's needed in terms of rare materials in order
Speaker 2: to kind of keep that engine going. So I'm trying
Speaker 2: to understand what that means then if there is a
Speaker 2: bit of a grab around the world as different nations
Speaker 2: shore up their national security interests and concerns, what that
Speaker 2: means for the investment environment? Is it more friendly?
Speaker 5: Is it more volatile?
Speaker 2: In general?
Speaker 7: I think it's probably a little less friendly. We started
Speaker 7: out twenty twenty five to worry about tariffs, indicating that
Speaker 7: we're probably going to get thrown back into a smooth
Speaker 7: holly kind of situation back in nineteen thirty, where you
Speaker 7: know that would end up causing all of the trading
Speaker 7: partners to become adversaries. So with countries now playing it,
Speaker 7: we're likely to play it very cautiously, wanting to hold
Speaker 7: on to whatever rare earth minerals that they have, energy
Speaker 7: that they have, etc. Then it would probably make these
Speaker 7: trading partners less likely to cooperate, and that could end
Speaker 7: up being a concern that could hold back prices and
Speaker 7: optimism in the intermediate and longer term.
Speaker 3: In your role at CFRA, how do you look at
Speaker 3: oil prices. I know that's not necessarily your BALI wick,
Speaker 3: but I'm wondering if that's if it does have a
Speaker 3: broader effect, and we know it has a broader effect
Speaker 3: on the economy, and therefore I'm wondering if, in your view,
Speaker 3: how it affects markets, Like, what does it possibly mean
Speaker 3: that all this oil could come online?
Speaker 7: Well, there's an old saying that for every ten dollars
Speaker 7: increase or decrease in the price of oil will raise
Speaker 7: or lower GDP by about twenty percent of one basis points.
Speaker 7: So you know, the thought being then that you know,
Speaker 7: with higher energy prices that actually could end up slowing
Speaker 7: overall growth, with lower energy prices could actually be contributing
Speaker 7: to that. And so as a result, yes, longer term
Speaker 7: energy because we still haven't switched over to sell powered
Speaker 7: et cetera, that energy, you know, the carbon materials still
Speaker 7: end up being the dominant energy force, and so we're
Speaker 7: going to have to be playing with that for quite
Speaker 7: some time.
Speaker 2: Hey, Sam, you know, in terms of markets, and I'm
Speaker 2: just thinking about here, we are coming off of three
Speaker 2: really strong years for the S and P five hundred
Speaker 2: one wonders whether or not it could be four in
Speaker 2: a row. Having said that, I think a lot about earnings.
Speaker 2: We know JP Morgan will kind of officially unofficially kick
Speaker 2: it all off on January thirteenth. What are your expectations
Speaker 2: for earnings and whether or not that is a fundamental
Speaker 2: catalyst for equities in particular to maybe move to the
Speaker 2: upside or continue to move higher.
Speaker 7: Sure well, I'll answer a couple of those questions. First off,
Speaker 7: we had a three peat. We've had three three peats
Speaker 7: over the last eighty five years. In the S and
Speaker 7: P five hundred, we've had two four peats and only
Speaker 7: one five peat. So you could say that the atmosphere
Speaker 7: is getting pretty rare up here and it's less likely
Speaker 7: that we will end up with a four peat. Doesn't
Speaker 7: mean we're not going to have a double digital or
Speaker 7: that we will not have a positive move we don't
Speaker 7: get the double digit gain. Actually, in that fourth year,
Speaker 7: after the third double digit advance, we have seen the
Speaker 7: market up by more about ten percent on average, rising
Speaker 7: sixty percent of the time, So you could say that
Speaker 7: that is favorable. What would be driving that well? Earnings growth?
Speaker 7: The Q four twenty twenty five estimate right now is
Speaker 7: for a seven percent gain. According to SMP capital IQ
Speaker 7: consensus estimates, we're looking for a fourteen percent gain for
Speaker 7: all of twenty twenty six and inching our way up
Speaker 7: to about a fifteen percent advance in twenty twenty seven.
Speaker 7: So with investors being concerned a bit about valuations, certainly
Speaker 7: that is being in a sense whittled away at by
Speaker 7: the improving earnings outlook that we've been seeing over this
Speaker 7: year and next year.
Speaker 2: What about midterms? Throw that into the mix. How does
Speaker 2: that complicate or change things?
Speaker 7: Yes, well, that ends up being a big headwind overall,
Speaker 7: because midterm election years have actually seen the SMP post
Speaker 7: only a three point eight percent annual increase, and that
Speaker 7: compares with the nine point three percent that we normally
Speaker 7: get in the S and P five hundred in those
Speaker 7: three other years. Also, the frequency was really a coin
Speaker 7: toss up fifty five percent of the time versus seventy
Speaker 7: six percent of the time for the other three years.
Speaker 5: And in terms of.
Speaker 7: Volatility, average drawdown of eighteen percent, which is the highest
Speaker 7: of the four years in the presidential cycle. So essentially,
Speaker 7: we could end up with a good year, but it's
Speaker 7: likely to be a very bumpy one.
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Speaker 7: Mm HM